4 Key Things to Know about a Second Mortgage

General Trish Pigott 22 Mar

A second mortgage is a mortgage that is taken out against a property that already has a home loan (mortgage) on it. Generally people take out second mortgages to satisfy short-term cash or liquidity requirements, have an investment opportunity or to pay off higher-interest debts (such as credit cards and student loans) that a second mortgage might offer.

If you are considering a second mortgage for any reason, here are a few key points to keep in mind:

Second Mortgages and Home Equity: Your second mortgage and what you can qualify for hinges on the equity that you have built up in your home. Second mortgages allow you to access between 65 and 80 percent of your home equity, depending on your qualifications.

For example, if you seeking 80% Loan-to-Value loan (“LTV”):

House Value =                                                  $850,000

80% LTV (maximum mortgage amount)           $680,000

less: First Mortgage                                           ($550,000)

Amount Available Through Second Mortgage     $130,000

Second Mortgages and Interest Rates: When it comes to a second mortgage, these are typically higher risk loans for lenders. As a result, most second mortgages will have a higher interest rate than a traditional first mortgage. There is also the option of working with alternative and private lenders depending on your situation and financial standing.

Second Mortgage Payments: One advantage when it comes to a second mortgage is that they have attractive payment factors. For instance, you can opt for interest-only payments, or you can select to pay the interest plus the principal loan amount. Work with your mortgage broker to discuss options and what would work best for your situation.

Second Mortgage Additional Fees: A second mortgage often comes with additional fees that you should be aware of before going into the transaction. These fees can vary widely but often range from 1-2% of the mortgage amount.  These fees are in place as they are higher risk loans that do not make you qualify with the stress test guidelines with traditional mortgages. Other fees to consider include appraisal fees, legal fees to set up the second mortgage and any lender or broker administration fees (particularly with alternative or private lenders).

Second mortgages are a great option for many homeowners and, in some cases, may be a better solution than a refinance or a Home Equity Loan (HELOC). This allows you to keep more favorable terms in place with your current mortgage and avoid penalties to access your equity.

If you are interested in finding out if a second mortgage is right for you, contact us at Primex Mortgages today! We are more than happy to crunch numbers to figure out what would work best for you.

Trish & The Primex Team

 

Second Mortgage or Refinance?

Mortgage Tips Trish Pigott 29 Sep

A second mortgage may be something to consider if you’ve built equity in your property and need access to a loan. Consider using this equity for refinancing, renovations, or debt consolidation.

What is a Second Mortgage?

A secondary loan taken out on a property for which you already have a mortgage. This is not the same as purchasing another property with a new mortgage. It’s very different from a traditional mortgage because you are using your existing home equity to qualify. It’s important to note that it still comes with its own interest rate, monthly payments, terms, closing costs, etc.

Second Mortgage or Refinance?

Both refinancing and second mortgages take advantage of existing home equity – So what is the difference? Refinancing is typically done when you’re at the end of your current mortgage term to avoid any penalties. The purpose is to take advantage of a lower interest rate, change your mortgage terms, or borrow against your home equity. Second mortgages are taken when you borrow a lump sum of money against the equity in your home and use it for whatever you see fit.

What Are the Advantages?

There are several advantages when it comes to taking out a second mortgage, including:

  • Have access to a large loan sum (in some cases up to 90% of your home equity, which is more than you can typically borrow on other traditional loans)
  • Better interest rate than a credit card
  • Use the money however you see fit, without any caveats

What Are the Disadvantages?

As always, when it comes to taking out an additional loan, there are a couple things to consider:

  • Interest rates tend to be higher
  • Additional financial pressure from carrying a second loan and another set of monthly bills

Before looking into any additional loans, be sure to reach out and speak with us. It’s always a good idea to review your current financial situation and determine if this is the best solution before proceeding.

Retirement Options As a Canadian

General Trish Pigott 20 Sep

Have you been thinking of retirement? People over the age of 55 currently represent 33.09% of the total Canadian population. This part of the population knows what they want in order to live a fulfilling life as they enter retirement. However, they do not always have the financial means available to them to support their ideal lifestyles. So what options are available? We’ve listed them below.

Credit Cards

Credit cards may be the perfect financial option for you if you are retired and have an income source, with short-term financial needs. They give you easy access to credit but do carry a high-interest debt. It is always best to pay off the borrowed amount before the deadline.

Private Loans

Private loans are another option if you have an income source and short-term financial needs. Like credit cards, they give you easy access to credit but have required monthly payments. Furthermore, having a reasonable repayment plan is important as they charge very high interest and repayment terms are very rigid.

Home Equity Line of Credit (HELOC)

If you are a retired homeowner that has an income source and needs a large sum of money, it may be worth exploring a Home Equity Line of Credit (HELOC). However, it is important to consider the monthly payments. The qualification for the loan can change based on changes to your income or home value, and you may be asked to repay the loan at any time.

Downsizing for Retirement

Another option may be to downsize. It is a popular financial option and may be great for you if you are a homeowner willing to transition into a smaller home. Downsizing allows you to access the value of your home’s equity to meet your financing needs in retirement. It is important to note that there will be fees associated with this such as property transfer taxes, commissions, closing costs, etc.

Now, before revealing the final option for Canadians in retirement, you may find this interesting. A study from the National Institute of Ageing showed that 91% of all Canadians want to remain in their own homes for as long as possible after retirement. Furthermore, 95% of Canadians 45+ say that being able to retire in their own homes would give them the independence, comfort, and dignity they need as they age. However, due to costs associated with in-home care, many individuals cannot afford to remain in their homes. If you are among these Canadians, then this next option may be the most suitable for you.

CHIP Reverse Mortgage

The last option applies to homeowners who wish to remain in their homes while maintaining their current lifestyle. To do this, they should consider the CHIP Reverse Mortgage. This finance option allows you to access up to 55% of your home’s equity value. Then you can choose to receive your money in a tax-free lump sum or tax-free monthly payments. Furthermore, you are not required to make any monthly mortgage payments but instead, pay back the loan through the value of your home when you sell it or move out.

These are just some of the financial options that Canadians can utilize to enjoy retired life. If you’re finding yourself or a parent at this stage of life, contact us to find out how we can help make the best of your retirement!

Time For a Mortgage Transfer?

General Trish Pigott 16 Sep

You may be thinking of a mortgage transfer or change because you want to take advantage of a better interest rate. Or perhaps you’d like to switch to a mortgage product with terms that better suit your needs. Either way, there are a few different scenarios you could find yourself in.

Up for renewal?

If you’re approaching renewal and are considering a mortgage transfer or switch – great news! You won’t be charged a penalty. However, depending on whether you make any changes, you may be required to re-qualify at the current rate.

Collateral charge mortgage?

Collateral charge mortgages secure your loan against collateral, such as the property. These loans cannot be switched, they can only be registered or discharged. This means that you would need to discharge the mortgage from your current lender before registering it with a new lender.

Locked in?

If it’s the middle of your term and you’re considering a mortgage transfer or switch, you will likely incur a penalty for breaking it. Typically, a mortgage transfer or switch is done to take advantage of a lower interest rate and lower monthly payments. But, you want to be confident that the penalty doesn’t outweigh the potential savings.

Things to consider before a mortgage transfer or switch:

  1. Associated fees
  2. Requalifying at current rates
  3. The following documents:
    • Application and credit bureau
    • Verification of income and employment
    • Renewal or annual statement indicating mortgage number
    • Pre-authorized payment form with VOID cheque
    • Signed commitment
    • Confirmation of fire insurance
    • Confirmation of valid CMHC, Sagen or Canada Guaranty insurance (if required)
    • Appraisal
    • Payout authorization form
    • Property tax bill

If your mortgage is currently up for renewal or you’d like to make a change, please reach out to us. We can advise you of any penalties or fees that may be associated and shop the market for you to find the best options. Our extensive network of lenders will ensure that you are getting the best rate, with the most suitable terms. When you’re ready, simply fill out the form here to get the process started!

Debt Consolidation: To Do It or Not?

Mortgage Tips Trish Pigott 30 Aug

Have you considered debt consolidation? If you are a Canadian living in debt, you are not alone. According to Statistics Canada, household debt grew faster than income last year, with Canadians owing $1.83 for every dollar of household disposable income to debt(1). Canadian households use almost 13.48% of income for debt re-payment(2).

So how can one ever get out of debt? Debt consolidation.

What is debt consolidation?

Debt consolidation means paying off smaller loans with a larger loan, at a lower interest rate. For example, credit card debt with interest of 19.99% can be paid off by a 5-year Reverse Mortgage with an interest rate of 7.70%* from HomeEquity Bank. (*5 year fixed rate as of June 28 , 2022. For current rates, please contact us).

A lot of confusion surrounds debt consolidation; many of us just don’t know enough about it. Consider the two sides:

The Pros

• The lower the interest rate, the sooner you get out of debt. A lower monthly interest allows you to pay more towards your actual loan, getting you debt-free faster.

• You only have to make one monthly debt payment. This is more manageable than keeping track of multiple debt payments with different interest rates.

• Your credit score remains untarnished because your higher interest loans, such as a credit card, are paid off.

The Cons

• Consolidating your debt doesn’t give you the green light to continue spending. Consolidating helps you get out of debt; continuing to spend as you did before puts you even further into debt.

• A larger loan with a financial institution will require prompt payments. If you were struggling to pay your debts before, you may still be challenged with payments. The CHIP Reverse Mortgage may be a better option; it doesn’t require any payments until you decide to move or sell your home.

• You may require a co-signer who will have to pay the loan if you’re unable. Note that the CHIP Reverse Mortgage does not require a co-signer, as long as you qualify for it and are on the property title.

So how do you know if debt consolidation is the option for you? Start by contacting us at 604-552-6190 and ask if a CHIP Reverse Mortgage could be the right solution for you!

 

SOURCES:

1 Debt-to-disposable-income ratio eases down from record 185% | CBC News

2 Key household debt-to-income ratio down in Q1 as income rises faster than debt | The Star

How to Qualify for a Mortgage

General Trish Pigott 18 Aug

When it comes to shopping for a mortgage, it’s important to know what you need to qualify – However, it’s just as important to understand some of the reasons you don’t qualify. This will allow you to make some changes and budget accordingly for when the time is right.

If you are in the market for a home, here are five major reasons why you may not get approved for a mortgage:

1. Too Much Debt

To begin with, one of the biggest reasons that people fail to qualify for a mortgage is because they are carrying too much debt. This debt can be in the form of credit cards, lines of credit or other loans. Regardless of where it comes from, it all contributes to your Total Debt Servicing ratio (TDS). Ideally, your monthly debt payments should NOT exceed 40% of your gross monthly income.

PRO TIP: Find ways to lessen your expenses and consolidate debt where possible.

2. Credit History

Secondly, people may not qualify for a mortgage because of their credit history. It is important to pull your credit score before you start house hunting so that you can determine the amount you qualify for. Credit scores are a direct reflection of potential risk and if you have a poor credit history, it makes it harder to secure a loan.

PRO TIP: To improve your credit score be sure to avoid late or missed payments and don’t exceed your credit card limit or apply for multiple new credit cards.

3. Insufficient Assets or Income

With rising housing prices and stagnant income levels, one roadblock to mortgage approval can be a lack of sufficient income.

4. Not Enough Down Payment

Another reason you may not qualify for a mortgage  is not having enough of a down payment. In Canada, a 20% down payment is required to avoid mortgage default insurance. However, you can still purchase a home, you just need to account for the insurance premiums. These are calculated as a percentage of the loan and based on the size of the down payment.

5. Inadequate Employment History

Lastly, employment history can have a big impact on your mortgage approval. Most lenders prefer a two-year consistent employment history so if you do not have this, you might find it harder to get a mortgage loan.

Whether you’re looking to get your first mortgage or just simply shopping around, understanding what can impact your application will help ensure you have greater success.

If you are currently struggling with your mortgage approval or have recently been denied – that’s okay! With a little effort and patience, as well as the support of us, you will be able to put yourself in a better position to reapply in the future!  If you’re ready, contact us today to discuss your options.

7 Steps to Becoming a Homeowner

General Trish Pigott 9 Aug

Becoming a homeowner is one of the most exciting and rewarding moments in life! While people don’t always dream of the perfect mortgage, we do grow up dreaming of a white picket fence and our dream home. Even if you imagined your dream home as a 6-bedroom mansion, we all have to start somewhere!

This post will take you through the important steps and considerations for your first home.

1. Are You Ready to Become a Homeowner?

Before you jump on in, there are some things you should ask yourself. As amazing as it is to be a first-time home buyer, it is important to remember that this is likely the largest financial decision you will ever make. There are a few questions you can ask yourself to make sure you’re ready to take this leap!

  1. Are you financially stable?
  2. Do you have the financial management skills and discipline to handle this large of a purchase?
  3. Are you ready to devote the time to regular home maintenance?
  4. Are you aware of all the costs and responsibilities that come with being a homeowner? Let’s find out!

2. Do You Know the Costs?

There are two major costs associated with being a new homeowner:

Upfront Costs: The initial amount of money you need to buy a home, including down payment, closing costs and any applicable taxes.

Ongoing Costs: The continued cost of living in a home you own, including mortgage payments, property taxes, insurance, utility bills, condominium fees (if applicable) and routine repairs and maintenance. It is also important to keep in mind potential major repairs, such as roof replacement or foundation repair, that may be needed now or in the future. In addition, if you choose a property that is not hooked up to municipal services (such as water or sewer) there may be additional maintenance costs to consider.

3. The Down Payment

The minimum down payment on any mortgage in Canada is 5% but putting down more is beneficial whenever possible, as it will lower the amount being borrowed. However, if you can only afford the minimum that is perfectly okay! Just remember, if you are putting down less than 20%, default insurance will be mandatory to protect the investment (also known as CMHC).

RRSPs can be a great resource for first-time home buyers and can be cashed in up to $35,000 individually towards a down payment. In fact, most mortgage professionals will tell you nearly half of all first-time buyers use their RRSPs to help with the payment. Those first-time buyers who choose this option will have 15 years to pay it back and can defer these payments for up to two years if necessary. Always remember though, deferring a payment can increase the time to pay off the loan and you will still owe the full amount!

Another option for securing your down payment is a gift from an immediate family member, typically a parent. All that is required for this is a signed Gift Letter from the parent (or family member) providing the funds, which states that the money does not have to be repaid and a snapshot showing that the gifted funds have been transferred.

4. Mortgage Pre-Qualification

This process provides you with an estimate of how much you can afford based on your own report of your financial situation. The benefit of this is that it sets the baseline for a realistic price range and allows you to start looking for that perfect home within your means! Now, it’s important to note that this process is not a mortgage approval, or even a pre-approval, it just helps to establish your budget.

5. Mortgage Pre-Approval

While this may seem similar to pre-qualification, the pre-approval process requires submission and verification of your financial history to ensure the most accurate budget to fit your needs.

As a result, getting pre-approved can help determine:

  • The maximum amount you can afford to spend
  • The monthly mortgage payment associated with your purchase price range
  • The mortgage rate for your first term

Getting pre-approved doesn’t commit you to a single lender, but it does guarantee that the rate offered to you will be locked in from 90 to 120 days which helps if interest rates rise while you are still shopping.

After  You Have Been Pre-Approved:

  • Refrain from having additional credit reports pulled
  • Refrain from applying for new credit, closing off credit accounts or making large purchases
  • Be prepared to show a paper trail – any unusual deposits in your bank account may require an explanation

6. Financial Approval

You’re almost there! Financial approval is the last step to getting your mortgage and buying your first home! You will need to keep in mind that just because you are pre-approved, it doesn’t guarantee that the final mortgage application is approved. Being entirely candid with your home-buying team throughout the process will be vital as hidden debt or large purchases during your 90-120-day pre-approval can change the amount you are able to borrow. It is best to refrain from any major purchases (such as a new car) or life changes (such as changing jobs) until after closing and you have the keys to your new home.

7. Closing Day For the New Homeowner

Phew, you made it. Closing day is one of the most exciting moments where all the house hunting and paperwork really pays off! It is on this day that you will want to make use of your lawyer or a notary.

To complete the process of closing the sale, your lender gives your lawyer the mortgage money. You would then pay out the down payment (minus the deposit) and the closing costs (typically 1 to 4% of the purchase price). Typically, this payment is done through a bank draft, which will require a bank run ideally 10 days before closing. This is then brought to the lawyer on your closing date. From there, the lawyer or notary then pays the seller, registers the home in your name, and gives you the keys!

Congratulations, you are now a homeowner!

Rising Interest Rates? Do Not Panic!

Mortgage Tips Trish Pigott 27 Jun

With the recent changes in interest rates by the Bank of Canada, variable-rate mortgage holders have started to panic. We wanted to address these concerns, to assure you that the sky is not falling. Despite what you see in the news, you do not need to panic! There is still lots of opportunity in this market.

Inflation across North America is affecting everyone.  On June 15th, the U.S. Federal took an aggressive step of boosting its interest rate by 0.75%.  Federal Reserve Chair, Jerome Powell, also indicated there could be more, bigger-than-normal, increases in the future.

The U.S. increase follows a 0.5% rate increase by the Bank of Canada at the beginning of June.  Both central banks are engaged in a serious fight to bring inflation back to a 2% target.  Right now, inflation is nearly 7% in Canada and almost 9% in the U.S.  This month’s hike by the U.S. Fed is leading many to believe that Canadians may see another 0.75% increase sometime this year.

This information does not help relieve anxiety from homeowners here in Canada, as a recent survey from Manulife suggests more than 20% of Canadians expect rising rates to have a negative effect on their mortgage, debt, and financial situation. Few Canadians “feel prepared for rising rates.”

However, these fears may be the result of a lack of knowledge rather than any real risk.  This survey conducted by Manulife also reveals that nearly a third of respondents admit that they do not understand how inflation or interest rates work.  Many do not have a household budget or a written financial plan.  This is critical in planning for the future of rising rates in your household.

Want to understand more about our economy and inflation?  CLICK HERE to check out this report from Dr. Sherry Cooper, our Chief Economist.

Here are 5 tips to help plan for the future:

1. First, contact us if you would like your mortgage reviewed.  We can quickly spot different ways to help improve your monthly cash flow including changing your payment frequency or extending your amortization.

2. Consider a debt consolidation – this can save you thousands  in unsecured debts with high-interest by rolling them all into one monthly payment.

3. Prepare a monthly household budget – This is lacking in the majority of Canadian households!  CLICK HERE to get started on tracking your expenses and ensuring your hard-earned income is going to the right places.

4. Hold off on unnecessary purchases for now.  No matter how big or small, now is the time to reign it in.

5. Increase your payments to absorb rising rates if you are in a variable rate mortgage and worried about future payment increases.

Please share this with your friends, family or coworkers who are feeling worried about the rate changes and their current financial situation. We can help put them at ease! And don’t hesitate to contact us with any questions.  When in doubt, call us at 604-552-6190 and we will help ease your stress!

How Bridge Financing Works

Mortgage Tips Trish Pigott 9 Jun

In life, things rarely go as planned. This is especially true when it comes to real estate, so we have bridge financing to help us. When it comes to buying a new home, most of us would like to take possession of it before having to move out of the old one. This makes moving a lot easier and allows time for painting or renovating prior to moving in. Unfortunately, the transition is not always that smooth.

What is Bridge Financing?

Most people need money from the sale of their existing property to come up with a down payment for the new purchase. This is where bridge financing comes in. It allows you to ‘bridge’ the financial gap between the firm sale of your current home and the firm commitment to purchasing your new home.

What are Bridge Loans?

Bridge loans are short-term solutions that range from 90 days to 12 months, with an average of six months in length. This allows you to access some of the equity in your existing property and put it towards the down payment of your new home. However, to be eligible for a bridge loan, a firm sale agreement MUST be in place on your existing home. This means that all subjects have been removed. A purchase agreement for the new home will also be required to verify the amount needed.

If you have not yet sold your home, you will not be eligible for bridge financing, as the lender needs to accurately calculate how much equity you have available and if you can afford your new home.

If you have a firm sale and are considering bridge financing, it is important to understand that unless you can qualify and pay for two mortgages, you should always sell your existing home first. There are a couple of reasons for this:

1. Property values are constantly changing. You won’t know how much money you have until you sell your home. Past sales and future guesses don’t count!

2. You need the proceeds from your existing home to help pay for the down payment on your new home, as well as renovations, moving costs and to determine the size of mortgage you qualify for.

If you have sold your existing home but the closing date is after the one on the new property, bridge financing will likely be your best option. However, not all lenders allow bridge financing. It is important to consider whether or not you think you need it so you can ensure you sign with the appropriate lender. We will help you find a lender that provides the options you need.

Costs of Bridge Financing

It is important to mention that bridge financing typically costs MORE than your traditional mortgage. It is best to expect the prime rate plus 2-4%, as well as an administration fee. In some cases, if you require a loan over $200,000 or a loan for more than 120 days, your lender may register a lien on the property until the loan is repaid. In order to remove this lien, you will need to consider the added costs of paying for a real estate lawyer.

Private Financing

If you have purchased your new home and are closing the deal, but your existing home has not yet sold, you would not qualify for bridge financing but could consider a private loan. Private financing is expensive, but is generally a more affordable option. Often, if you need to sell your property first, you may be pressured into reducing the sale price and losing thousands.

Private loans do have a much higher interest rate than traditional mortgages, which averages anywhere from 7-15%. The costs associated with a higher interest rate is in addition to an up-front lender fee and potential broker fee. These amounts will vary based on your specific situation with consideration to the loan term, amount, loan-to-value ratio, credit bureau, property location, etc.

When it comes to bridge financing and private lending, don’t waste time trying to figure it out on your own. Give us a call and we will help you determine your best option!

June 1st Interest Rate Update

Latest News Trish Pigott 3 Jun

Bank of Canada Announcement

On Wednesday, the Bank of Canada (BoC) increased it’s prime interest rate by 0.50%.  As mentioned in our previous blog post, this has been widely expected since April.  This change affects variable rate mortgage holders, home equity lines of credit and any loans that are attached to the bank’s prime lending rate.  If you have a fixed rate mortgage, this will not impact your current rate or mortgage payment.

As our economy recovers from the pandemic and inflation across the country becomes higher than expected, the BoC’s rates will continue to increase until inflation falls back to a reasonable level.  There is speculation that we will see further rate hikes throughout the rest of the year until consumer spending is under control.

Here is an example of how the new prime rate of 3.70% affects mortgage payments:

Current Prime Rate at 3.20%
$100,000 Mortgage amount
3.20% Prime rate
25 year Amortization
$483.57 per month

New Prime Rate at 3.70%
$100,000 Mortgage amount
3.70% Prime rate (increased by .50%)
25 year Amortization
$509.88 per month

Payment will rise by $26.31 per month for every $100,000 in mortgage.

If you have a discount off of the prime rate for your mortgage, you will still get that discount off of the new rate.  For example, if your mortgage rate is currently prime minus 0.50%, your new rate would be 3.20% (prime of 3.70% – 0.50% = 3.20%).

It’s easy to panic when you hear this all over the news and social media, but rest assured, you are still in a great position with a variable rate mortgage. If you do feel like you want to look at locking in a fixed rate mortgage, please reach out to us.  Right now, lock in rates for a five year term are around the mid 4% range; This depends on your down payment and equity.

Another option is to set your payment as if you are in a fixed rate. This allows you to not be as heavily impacted by future rate increases, while paying down your mortgage quicker and saving on interest.

It’s important to note that 73% of Canadians break their mortgage term at the three year mark, triggering a penalty that can be very large.  By remaining in a variable rate, you would only be subjected to a 3-month interest penalty which is about a quarter of the penalty when in a fixed rate.

Unfortunately, no one has a crystal ball to predict what will happen in the next 12 – 24 months, but we do know that the government will make every attempt possible to curb spending and bring our inflation back to a more reasonable effort.

While we are in a transition state, here are a couple of tips to follow:

  • Round your payment to the nearest $100 if possible
  • If you want to be more aggressive, set your payment like you have a fixed rate
  • Think twice before making large purchases
  • Budget ahead of time rather than make spontaneous spending decisions
  • Reduce debt in as many cases as you can
  • If you have to make a large purchase (such as real estate), be sure to run all scenarios to ensure affordability and qualification, and make sure you have a professional representing you

If you want to read the full report from our very own economist Dr. Sherry Cooper, please CLICK HERE.

The next interest rate announcement from the Bank of Canada is July 13, 2022.  Feel free to share this information with your friends, family or coworkers, and don’t hesitate to contact us with any questions at all!

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