May 22

Renewing Your Mortgage

Renewing Your Mortgage

Your mortgages renewal is a great time to investigate the other options that are available in the market. Banks send out mortgage renewal agreements to their clients with a goal of having people who aren’t informed lock into rates that are higher than what is being offered to the market. There are few steps involved in making sure that your renewal is a seamless process that leaves you better off. MorCan Direct tracks all of their clients mortgages to identify times when it makes sense to either break their mortgage or simply what product to renew into when the their mortgage comes to maturity. The most important

Keep track of your mortgage so that you can start shopping 120 days (4 months) before your mortgage renews.
Know what kind of mortgage you have. (i.e. is it transferrable?)
Know your financial goals and what you would like your new mortgage to be.
Review your bank’s offer, but beware of locking into a mortgage that doesn’t give you refinancing options! We suggest to stay away from the big banks and to use a mortgage broker as they have access to non-balance sheet lenders.
Qualify for the rate with the following information:
1. Credit Score
2. Income
3. Mortgage Details
We’ll send you a document request form outlining what paperwork we will need in order to get you approved.
Once we have received the paperwork, we will send it to the lender for approval
After the mortgage is approved, we will send you the approval to sign.
Your bank will let you know that your mortgage has been transferred.

Important note: Do not just auto renew your mortgage! Yes, it might be simpler, less confusing and less work. However, this is your time to revamp your mortgage! You can get a lower interest rate, lower your payments or switch to a mortgage that has more flexibility in case you want to break it down the road! Never underestimate the power of being informed, and acting when the time is right!

May 22

Renewing

Renewing Your Mortgage Can Be Really Expensive

Renewing Your Mortgage Can Be Really Expensive

too high? Looking to consolidate some of your debt? There are a few keys to ensuring that you get the best rate when renegotiating a mortgage.

Be Prepared:

When you or someone you know is renegotiating a mortgage, you must be prepared. In order to keep your interest rate as low as possible, you should evaluate your credit risk before shopping. We recommend checking your own credit to ensure that there are no derogatory items on your report that could unexpectedly hurt your score, or old employment information that could impact the way your lender views your application. In addition to your credit score it is important to review your property value, income and existing mortgage. Knowing this information before negotiating your mortgage gives you the upper hand.

MorCan Direct offers a service that does this for free. One of our specialists would be more than happy to walk you through our comprehensive 4 step process. This process involves appraising the value of your home, and thoroughly reviewing your credit and income. Whether you have 1 month or 4 years left on your mortgage, we think that you will impressed with the information that MorCan can provide you!

Understand Your Rate:

It’s important to understand the range of products that are offered in the mortgage market. There are many available discounted mortgage offers, but sometimes they come with very strict limitations. A good broker will be able to walk you through all the options available to you. The Internet is a good resource when looking for a mortgage. However, just like when searching for any other type of advice, there can be some misinformation.

Be Wary of Bankers Offering Discounts:

Banks are competing for your business, which is a really good thing! However, you need to be more careful than ever before when getting a mortgage from your bank. Penalties that are levied on unsuspecting consumers for breaking mortgages are at all-time highs. It is common to see mortgage penalties in excess of 6% of a mortgage balance. Banks are manufacturing these incredible penalties by creatively charging “Interest Rate Differential Penalties”.

When a consumer sees a “Mortgage Rate Discount” on their mortgage offer sheet at a bank, they get excited about how much lower their rate is than the bank’s posted rate. They believe that the bank is helping them. This is not the case. The bank is simply stating that in the future, when that same client wants to break their mortgage, they will be using that discount to inflate the penalty that they charge.

Steps Banks Take to Create High Mortgage Penalties:

Step 1

When you get a 5 year fixed rate mortgage from a bank, they will tell you what their posted 5 year fixed rate is. For argument’s sake let’s say it’s 5%.

Step 2

Then they will tell you that, because you are such a valuable client to them, they will offer you a rate of 3%. Wow! That’s a 2% discount off of their “Posted Rate”.

Step 3

This may cause you to get so excited that you don’t pay close attention to the rest of the document you are signing. What you won’t realize is that, at the back of that contract in fine print, there is an explanation as to how they will be calculating your penalty. Should you ever decide to break your mortgage, they intend to recoup all the money they will lose in interest by instead charging you a penalty.

Step 4

So, you decide you want to break your mortgage. Let’s say you only have 2 years left in your term. The bank begins to calculate how much you owe them.

Remember your rate was posted at 5% and discounted to 3%. Because you have 2 years left, the bank will then discount their posted 2 year rate by the same amount that they discounted your 5 year fixed rate. Let’s say the 2 year posted rate is 3%, discounted by 2%, making it a rate of 1%. In this case, they will subtract 1% from the mortgage rate you originally offered. Then that difference (2%) will be applied to your entire mortgage amount over the remaining term, and voila! A really high penalty.

Step 5

You end up paying the penalty.

Does this mean you shouldn’t ever get a mortgage from a bank? No. However, there are a lot of things to be aware of when you are looking to renegotiate a mortgage. Getting help from a knowledgeable mortgage professional is really important. If you or someone you know has any questions about renegotiating or breaking a mortgage please do not hesitate to contact us. As many of our clients have already discovered we have very creative ways to discount those evil mortgage penalties.

May 22

Unlocking Home Equity

Home Equity Line of Credit

Home Equity Line of Credit

A Home Equity Line of Credit (HELOC, if you are someone that knows way too much about mortgages) is of great value to many mortgage shoppers who are looking for flexibility. It allows a borrower to obtain an extremely low interest rate on a line of credit by using the equity in their home as collateral. Typically, HELOC’s are priced at or near the Prime Rate.

Many borrowers find HELOC’s to be perfect debt vehicles to use when purchasing a second or third property, making investments, supplementing their cash flow (if their income relies on lump sum payments) or financing their small business. It is unlikely that a financial institution will offer a line of credit at a lower rate than their HELOC, unless you are a publicly traded company.

Benefits of a HELOC:

Tax Deductible: If you are using the funds available on your HELOC to make investments, it is very easy to calculate the amount of interest being paid and therefore the amount of the deduction you are eligible for on your income taxes.
Easy on your monthly Cash Flow: Since most HELOC’s are interest only, the payments are much lower than a traditional mortgage. While mortgages must have an amortization of no more than 30 years, a HELOC can be interest only without every paying down the principal owing.
Once and Done: After you pay down your HELOC the money should still be available to you (be careful, sometimes this is not the case, see #1 in list below). Part of the allure of a good HELOC is that the borrower is able to re-borrow on the line of credit without paying to obtain a new loan facility. Even if your HELOC is one that might require approval to re borrow on it, it is unlikely that you will have to pay legal fees for future advances once the mortgage charge has been registered.

Things to look out for:

Higher Interest Rates: In most cases a Variable Rate Mortgage is a better option than a HELOC. HELOCS are typically priced at least 1% higher than Variable Rate Mortgages, while the penalty to break a Variable Rate Mortgage is about 0.50%.
More Underwriting or Approval: Be careful, not all HELOC’s are created equal. Some lenders like to reduce the total amount of your available credit when you pay down the HELOC so be careful. The best way to avoid this is to be upfront with your lender. Let them know that you want your HELOC fully available at all times. Although this may not seem important the key to having the HELOC is being able to use it at a moment’s notice when you really need it. There is an old saying about Banks only handing out umbrellas when the sun is shining that should be given credence when negotiating your HELOC.
Collateral Mortgage Charge: Obtaining a HELOC typically means that your lender will be registering a mortgage charge on your property for the value of your home or more. This allows them to re-advance more credit if required. Collateral mortgages are more expensive to discharge and will certainly limit your ability to borrow anymore against your home. Like any good mortgage decision, make sure you have a good plan before your make your final decision.

If you are looking for a HELOC, enlist the advice of a great Mortgage Advisor who can offer you sound, unbiased mortgage advice and walk you through the pros and cons of taking a HELOC as they pertain to you personally.

May 22

Debt Consolidation

Debt Consolidation

One of the best uses for the equity in your home is to pay off higher interest rate debts. Expenses can seem to surprise us at any point in our lives. Many Canadians worry about their debt burdens. If you find yourself servicing unsecured debts month after month without really attacking the principal, it might be time to consider using the equity available in your home to reduce the amount of interest you are paying.

Unsecured debts can become a real burden. Banks like to offer their clients unsecured lines of credit and credit cards whenever possible because the amount of interest they collect on unsecured debt is much higher than what they can collect on a mortgage. When considering how to tackle a life event that will have a negative impact on your pocket book, the key is to speak to someone early on to create a plan. Like any major event in your life, planning is the key to reducing unnecessary stress and expense. It is probably not in your best interest to only speak to 1 bank about what the best solution to handling an increased debt load may be. Work with someone who will guide you through the process and offer Sound, Unbiased Mortgage Advice. Regardless as to why your credit cards and lines of credit have high balances, a good mortgage broker can help you find a solution. When you consider that the average line of credit has an interest rate of 10% and the average credit card has a rate of 20%, refinancing your mortgage at close to 2% to pay off your higher interest rate debt makes a lot of sense. Set a timeline, set payments that you can manage, and start paying off the principal of the debt you owe, not just the interest.

May 22

Debt Consolidation / Refinancing / Unlocking Home Equity

How to Refinance Your Property

How to Refinance Your Property

Why Refinance?

Consolidate Debt

Credit cards charge a higher interest rate than your mortgage lender does. It may make sense for you to pay off your loans using the equity from your home.

Unlock Home Equity

Lots of people use a Home Equity Line of Credit (HELOC) to finance renovations, go on vacation, or pay for tuition. What you do with it is up to you!

Get a Lower Interest Rate

Have you ever experienced rate envy? When you got your rate it was considered low, but now there are others getting even lower interest rates! It may make sense for you to break your mortgage and refinance into one that has a lower rate.

How Do I Refinance?

Break Your Mortgage

This method costs a bit of money up front, but don’t let that scare you away. This will save you more money in the long run! A mortgage agent will be able to let you know if this is the right method of refinancing for you. Learn more about breaking your mortgage here.

Add a Home Equity Line of Credit (HELOC)

A HELOC is secured by the equity in your home. Your lender sets the “ceiling amount” that you can borrow, but within those parameters you can withdraw any amount at any time during the draw period. There are a few risks associate with acquiring a HELOC, so make sure you check with your mortgage agent to see if it’s a good fit for your situation. To read more about HELOC’s click here.

Blended Mortgages

Did you know that with some lenders you can combine your existing mortgage rate with the rate from a new mortgage? This combined rate might not be the most competitive rate on the market, but it will help lower your interest rate without having to pay a penalty.

Steps to Refinancing:

Decide why you want to refinance your mortgage. If it’s to access equity, decide how much you’d like to access. (Maximum amount is 80% of your home’s appraised value.)
Order an appraisal (a mortgage agent can do this for you) to see how much equity is available. Your mortgage agent will also go through refinancing strategies with you, based on your financial information.
Submit necessary paperwork for approval:
Appraisal
Income
Credit Score
Mortgage Details
After it’s approved, we will send the approval to you for signing.
Once your lawyer receives the necessary documents, they will schedule a time for you to come in and sign. They will let you know if there is anything else you need to bring.

May 22

Refinancing

Breaking Your Mortgage Made Easy

Breaking Your Mortgage Made Easy

Hundreds of people are breaking their mortgages and switching into lower, variable rates. When you are deciding whether or not to break your mortgage there are a few things you should consider first.

Your rate.
If your rate 1-2% higher than what is on the market now, it is probably time to switch to a lower rate.
Your penalty to break.
This is the penalty that protects lenders against losses. There are different ways that this is calculated and it depends on if you are with the Bank or with a “Non-Balance Sheet” lender.

This process can get confusing without the help of a Mortgage Agent. Working with MorCan Direct will provide you with access to some tricks to reduce these penalties and keep your mortgage lender in check when they are calculating penalties.

The number one way to save the most money on your mortgage is to stay informed. Below is an overview of how the penalty to break your mortgage is calculated. However, we highly suggest that you speak with a mortgage agent to see if breaking your mortgage is the right choice for your financial situation.

When you go to break your mortgage, you could end up paying 1 of 2 calculated penalties: 3 Months Interest Penalty or IRD Penalty. This is decided based on which one is higher.

1) 3 Month Interest Penalty

The three month interest penalty is calculated by taking your current mortgage balance multiplying it by your current interest rate and multiplying that by 3.

2) Balance Sheet Lender (Bank) IRD Penalty

You start with the original undiscounted or “posted” mortgage rate. Let’s say 5 year fixed rate at 6%, but the bank offered you a 2% discount, so your rate was actually 4%.
Then figure out how many years you have left in your term. Let’s say 2 years, and the 2 year fixed rate is 3%. However, since your original rate was discounted this one is too by the same amount. That makes it 1%.
You will also need to figure out the difference between these two rates (4% – 1% = 3%).
Your penalty will be 3% multiplied by your mortgage amount – to make the math easy let’s say it’s $100,000. Then this will be multiplied by the remaining amount of time left in your term (2 years).
($100,000 x [4%-1%]) x 2 = $6000

$MorCan Math$

3) Non-Balance Sheet Lender IRD Penalty

This is calculated almost the same as the Balance Sheet Lender, except for one critical change. Non-Balance Sheet Lenders do not have “posted” and “discounted” rates. The rate you get is the rate they use to calculate the penalty.
So, if you got a 5 year fixed rate at 4%, using all the same other numbers to calculate the penalty it would equal:
1. ($100,000 x [4%-3%]) x 2 = $2000
For this reason alone, it is worth looking into using Non-Balance Sheet Lenders to finance your mortgage.

Banks do not have your best interest in mind when they calculate your mortgage rate or penalty to break your mortgage. Banks are profit centers that profit only by making a spread on the difference between the rate of interest that they pay you for your deposits and the rate of interest they charge you to borrow money. The more money you have on deposit with the Bank, the more valuable you are as a client, and therefore the better the interest rate you are offered on your debts. With a Mortgage Broker every client has access to those great rates.

As always, a competent Mortgage Broker is your best source of information. If you’re considering breaking your mortgage, it’s best to speak to a Mortgage Specialist before making any final decisions. We can tell you if and when it makes sense to break a mortgage, without breaking the bank.

May 22

Purchasing

Purchase Process

Purchase Process

1. Pre-approval

This part of the process is optional. However, it will help you find a house that meets your “list of requirements” and stays within your budget. We highly recommend you find out the maximum amount you can spend on a home before you go out looking. We know how easy it is to become attached to a property that financially just doesn’t make sense right now.

You can get an estimate on your own using our Affordability Calculator, or you can call one of our agents at 416.766.9000 and they will be happy to walk you through it.

After you have a figure in mind, find a realtor and go house hunting!

Note: You will still need to get approved even if you have been pre-approved. The pre-approval process is to give you a better idea of what you can afford. The approval process is mandatory for qualifying for a mortgage.

2. Approval

Involve us in your shopping. If you haven’t gotten pre-approved, no worries, you can start the process here. When you find a home that you like send us the listing. We can quickly evaluate what financing options are available to you and let you know any pitfalls that may be present. Our team buys and sells real estate too. Having another set of eyes can be helpful.

Once you have found your home, your realtor will put in an offer of purchase. This is where the approval process takes off!

You or your real estate agent will need to send us a copy of your agreement of purchase and sale after your offer to purchase has been accepted. The best offers are the ones with fewer conditions. Just think about it, if you were selling your home, you would probably prefer the buyers who had all their ducks in a row. By showing us the house you want to buy before you put your offer in we can get you an approval in advance and you can avoid making an offer conditional on financing!

To begin your application we will need the following information:

Credit score
Income
Mortgage Details (amount & rate)
Any other important details

Then one of our mortgage agents will send you a document request form. This form will outline all the necessary documentation in order to complete your application.

After you have sent all the necessary paperwork and chosen what mortgage product you would like, we will send you the mortgage approval to sign. We will also follow up with a phone call to make sure everything is to your satisfaction.

Next, your lawyer will get all the documents and will schedule a time for you to come in to sign them. On the day of closing, the lender will send the funds to your lawyer who will register a charge on the property. Then they will hand over the keys, and you’ll start moving into your new home!

Check out this “vintage” MorCan Direct video from our archives explaining Your Mortgage in 5 Steps.

May 22

Purchasing

Purchase Plus Improvements

Purchase Plus Improvements

Did you know, that there are mortgages that are tailored for buying “fixer-uppers”? Do you have your eye on a home that has great bones, but just needs a bit of TLC here and there? Well, I bet you didn’t know that you can put as little as a 5% down payment and still qualify for a mortgage that turns that “fixer-upper” into your dream home. Here’s a few guidelines and rules to qualify:

Loan-to-Value Limits
1. After the initial purchase advance, you can make 4 other advances.
2. Lending value is based on either the improved property value or the sum of the purchase price and the costs of improvements, whichever is less.
Property
1. It can have a maximum of 4 units
2. 1 unit must be owner occupied
3. New constructions or existing properties
4. Estimated remaining economic life of the property should be a minimum of 25 years
5. Must be readily marketable as a residential home.
Terms & Rate
1. Your rate can be fixed or variable.
2. For fixed rates where the term is 5 years or more, the contract rate is applied
3. For fixed or variable rates where the term is less than 5 years, the qualifying interest rate is either the contract rate or the 5 year benchmark rate, depending on which is greater
Insurance Premium
1. Due to the nature of this loan, and depending on the Loan-to-Value, you may be charged an insurance premium. Don’t worry, this is not additional fee you have to pay, it will be included in your mortgage.
  - Up to 65% LTV : 0.60% premium
  - 65.01% to 75% : 0.75% premium
  - 75.01% to 80%: 1.25% premium
  - 80.01% to 85%: 1.80% premium
  - 85.01% to 90%: 2.40% premium
  - 90.01% to 95%: 3.15% premium

Borrower
1. We will need information about your income, down payment and credit.
2. Gifted down payments from family members are allowed, but they have to be verified and non-repayable
Debt Ratios
1. For an LTV that is greater than 80% and a credit score of less than 680, GDS ratios should be less than 35% and TDS should less than 42%
2. For an LTV that is greater than 80% and a credit score over 680, GDS ratios should be less than 39% and TDS should be less than 44%.
Documents
1. If your improvements are more than 20% of the property’s purchase price or more than $40,000, you will need to supply additional documents such as cost estimates and contracts.