Residential Mortgages
FIRST TIME BUYERS / REPEAT BUYERS
Special Mortgage Products / Programs
FIXED RATE MORTGAGE
The fixed rate mortgage is the traditional form of home financing where your monthly payments for interest and principal never change. The main reason the majority of homeowners continue to choose this form of financing is payment consistency and security. The first payment is the same as the last. Even though the rate is "fixed", the fixed rate loan is far from rigid.
Fixed rate mortgages are available for up to 25 year amortization. Payments can be made bi-weekly, as well, which will shorten the loan by paying half the monthly payment every two weeks. You might think that a shorter term payback schedule would substantially increase the payment. The fact is that the monthly obligation for principal and interest (P&I) rises only moderately but interest costs over the life of the loan are reduced drastically.
Shorter term mortgages are not for everybody. Not all borrowers can afford to, or will want to, make the higher payments. You should consider your personal and financial situation before you choose a term. First-time buyers and young, middle-income families benefit from the lower payments a longer term provides. This helps them qualify for a larger loan amount, keeping monthly mortgage costs down. Repeat and middle-aged borrowers who may have higher incomes often prefer shorter terms. Fast equity buildup means homes that are paid for by retirement age.
ADJUSTABLE VARIABLE RATE MORTGAGE
Often lenders advertise with what is referred to as a "teaser rate." This is the interest rate charged for the initial 3 - 12 months. This rate can vary from 1.49 - 5.0%. Often, an extremely low teaser rate is the sign of a not so desirable variable rate product. The second component is the "under prime" feature, which kicks in after the initial teaser rate. Banks vary their prime minus factors from .25% - .75%. The .75% under prime for the full 5 year term with no teaser rate is usually the best deal (only about 5 lenders offer .75% prime minus factors.
The lock-in feature of each mortgage company is not always the same. If you decide rates are showing signs of increasing substantially, you may want to lock into a fixed rate for a 3 to 10 year term. This is the attractive feature of the variable rate mortgage; however, many lenders won't discount the rate fully, as you are already their client and are locked in for the remaining term. Only very few mortgage companies state the discount available when you trigger this lock-in feature.
The other feature to be aware of is that some lenders only offer an interest rate that is compounded daily, rather than the others that are compounded semi-annually and are, therefore, cheaper.
When is an Adjustable Variable Rate Mortgage the best choice?
- When you plan to be in your home for just a few years...
Given the lower initial rate on an Adjustable Rate Mortgage (ARM), your payments for the first few years often add up to be less than what you would have paid on a fixed rate loan for the same period of time.
- If your income is likely to increase and you feel you will be able to afford potentially larger mortgage payments in the future...
You can maximize your purchasing power right away with an ARM and grow into higher mortgage payments when you can better afford them.
- When you want to qualify for a larger mortgage amount...
Because of the lower initial interest rate, you can qualify for a larger mortgage amount than would be possible under a fixed rate plan.
- If you feel rates will come down in the future...
If rates do in fact drop, the rate on your ARM may decrease on the adjustment date without your having to pay any of the costs associated with refinancing. Additionally, borrowers who have chosen the convertibility option may be able to switch to a fixed rate loan that has a better rate than was possible at the time of their closing.
- If you have a special need for ready cash over the next few years...
Perhaps you have educational or medical expenses, investments or other financial planning costs that need to be addressed right away. You can choose an ARM loan to minimize your monthly mortgage obligation, which will help provide you with the extra money you require.
CASH BACK MORTGAGES
You may want to consider a Cash Back mortgage if you need a little help getting through that first few months in your new home. You would be giving up the discounted rate in order to receive a rebate on your mortgage which you receive after the mortgage closes. This rebate varies depending on the Lender and term chosen, but ranges anywhere from 1% to 6% of the mortgage amount. The most common is the 4% Cash Back mortgage featured by many of the Banks. This money can come in handy especially for the fist time buyer who needs extra funds to purchase home improvement items
It is important to remember that a Cash Back mortgage usually costs you more in the end. The reason for this is the 'discount' in the rate represents the amount the Lender can afford to spend to prompt you to take a mortgage with them, while at the same time maintaining their profit spread over the 5 years of your term. In order to stop clients from asking for further discounts, they started offering rebates up front.
Also, the Cash Back will be clawed back (on a prorated basis) if you decide to pay off your mortgage, transfer it, or even make a significant change to it within the first term of the mortgage (i.e., first 5 years). The remaining prorated Cash Back amount could be charged back to the sellers of a home if they offer their mortgage up for assumption.
NO INCOME VERIFICATION/SELF EMPLOYED
The No Income Verification mortgage is typically for those who are self employed, paid primarily through commissions / contract income, or just don't want the hassles of verifying income. It is primarily for those who cannot verify income with traditional documentation such as pay stubs, T4s, or Personal Notices of Assessment tax statements. The No Income Verification mortgage can be used to purchase a home or refinance an existing mortgage.
Usually an equity position of 90% loan to value (L.T.V.) - same as 10% down payment, is the minimum with 75% L.T.V. or 25% equity as the preferred situation by most Lenders. The better / higher the equity situation, the better the chances are that we can get you approved with the Lender. The Lender will consider credit or employment situations that they wouldn't normally take into consideration. Qualifying is typically based upon the income that is declared by the applicant and their credit standing.
For the applicant with strong credit:
- High loan-to-value
- Up to 90% of the purchase price or 85% of the appraised value on a refinance
- Very best discounted rates
- Evidence of business for self (for self employed) for a minimum of 2 years by way of Articles of Incorporation, Business License, etc.
The loans are available to applicants with good credit (minimum beacon scores of 680), strong assets and are made on the assumption that someone with good credit and assets won't risk their credit and assets by applying for a loan they don't think they can manage.
Guidelines are as follows:
- Property must be owner occupied
- Property cannot be an apartment condo, farm, or mobile home
- Term must be a 3 or 5 year
- Maximum loan amount is $500,000
- Minimum loan amount is $50,000
- Maximum loan-to-value is 90% on a purchase and 85% on a refinance
- Secondary financing is allowed (Min 10% from own resources)
- Down payment can be a gift
- Proof that no income tax is owing
The bottom line is that we will look at your whole situation and place your deal with an appropriate lender and get you that financing that your bank wouldn't normally approve. If, after assessing your situation, we still cannot find a lender who will approve you for a mortgage, there are definitely ways to improve your credit so that you will be closer to buying a home.
COTTAGE/LEISURE HOME PROGRAM
With the ever increasing demand for this type of property, CMHC/GE Capital now provides insurance on high ratio advances.
Basic guidelines:
- Purchase and refinance for renovation purposes only up to 90% loan-to-value
- Satisfactory well and septic certificates may be required
- Value of dock, boathouse, bunker, can be included in the property value
- All other standard underwriting guidelines also apply (i.e. debt servicing, credit, income, etc.)
This type of property can be divided into 2 types:
Type A - Must be winterized and accessible year round - zoned residential
Type B - Insulation and heating not required, accessible by road on a seasonal basis - zoned seasonal
NEW IMMIGRANT PROGRAM
This program has been designed for new immigrants who have established residence in Canada and who have obtained landed status within the past 12 months.
Borrower Qualifications:
Documentation Requirements:
- Offer to Purchase
- Proof of full-time employment with no probation
- Income verification
- Work Visa
- International credit reports or letters of reference from recognized financial institutions confirming acceptable mortgage and other financial dealings
- Proof of sale for principal residence in the country of residence
* This program is difficult to qualify for. The financial institution has the right to request higher down payments (up to 35%).
NO - FEE TRANSFERS
Home owners often think if they transfer their mortgage to a new lender that they would end up paying penalties on fees such as appraisals, legal, and other costs. This is not the case. You can transfer your existing mortgage at the maturity/renewal date without paying any fees. No legal, no appraisal, no CMHC/GE Capital, and no broker fees. The new lender pays all the fees including ours!
The important thing to remember is if you have a mortgage coming due for renewal; don't wait for the renewal notice! This is exactly what the bank expects you to do and you may end up paying a higher interest rate than necessary. Keep in mind that all mortgage renewal rates are set at the posted higher bank rates.
Some banks will give you a slight discount on the rate; however, this does not mean you are getting the best rate that you qualify for. Banks know that the majority of homeowners will keep their mortgage with their existing bank because of the misconception that it would be too costly to switch.
To ensure you are getting the best rate that you qualify for, call us at KMS four months prior to the renewal date. We will get you the lowest rate available for up to four months. If rates go lower during this waiting period, you will get the lowest rate available. This is like insurance - only there is no cost to you.
It should be noted that the minimum term for all transfers is three years with a mortgage amount of at least $50,000. If you require more funds at the time you transfer, this transaction is considered a refinance and, therefore, all costs such as legal, appraisal fees would apply. However, some of our lenders make an exception and will allow an advance up to the original mortgage amount as long as it stays within the 75% loan-to-value.
REFINANCES
A refinance is basically a new higher mortgage amount; the proceeds of which may be used to combine existing mortgages (1st / 2nd) and other high interest rate credit cards, renovations, taking a holiday or any worth while purpose. The purpose of a refinance is basically to obtain a new loan to pay off an existing loan or to pay off one loan with the proceeds from another. Properties are frequently refinanced when interest rates drop and/or the property has appreciated in value.
Refinancing can help homeowners decrease credit card debt and interest by up to 50%, simplify monthly finances, avoid filing for bankruptcy, lower and consolidate monthly payments, eliminate late charges and over the limit fees, help manage and improve credit rating and put an end to creditor harassment.
You can refinance your mortgage up to 90% of the value and have only one mortgage. If your existing mortgage was initially CMHC/GE Capital insured, you would only be required to pay insurance fees on the new amount. 100% financing is available at higher interest rates.
- HIGH RATIO CMHC (90%) EQUITY TAKE OUT MORTGAGE
Equity Take Out Mortgage are becoming increasingly popular because Canadians are realizing that after 15 - 20 years of home ownership, their mortgage balances are very low or even paid off. Yes! You can take equity out of your home without taking out a second mortgage. You can refinance your mortgage up to 90% of the value and have only one mortgage. These funds can be used to consolidate debts, purchase a cottage or revenue property. If your existing mortgage was originally insured by CMHC, you would only be required to pay insurance fees on the new amount. While it would be great to be free of mortgage payments all together, if is also very beneficial to have the flexibility for this type of financing for various purposes such as:
- Home renovations
- Investments
- Second properties such as cottages
- Boats
- To make an RRSP top up contribution (allowed by Canada Customs and Revenue Agency)
The Equity Take Out Mortgage comes in two forms:
- 1) Traditional Fixed Rate Mortgage:
The traditional fixed rate mortgage provides stability in interest rates for a predetermined amount of time (such as a 5 year mortgage). It has limited prepayment options, with a 10 - 15% prepayment per year being standard.
- Variable Line of Credit option:
On the other hand, the variable line of credit option has a fluctuating interest rate which is usually based on your lending institution's prime rate and can change at any time. Flexible prepayment options make this form of financing attractive.
- SECOND MORTGAGES
We can arrange a 2nd mortgage up 85%-90%, while a bank is only permitted to lend to a maximum of 75% of the value of your property. With a bank, you are also required to meet the stringent guidelines regarding T.D.S., credit, etc.
Second mortgages are useful for renovations to assist with purchasing an income property or if CMHC has declined your High Ratio mortgage. Unless your 1st mortgage is maturing, pre-payment penalties may be too costly. You are normally better off paying the higher interest rate on the 2nd mortgage until such time that your 1st mortgage matures. They can then be combined into a 1st mortgage.
To apply for a 2nd mortgage, we will initially require the following to assist in assessing your residential or commercial application:
- A completed personal statement, including income and expense statement on income property
- A copy of your most recent mortgage statement and Property Tax Assessment Notice
- A photograph and description or an old appraisal of your property including sq. ft. lot size, living space, type of property, garage (1 or 2), taxes, brick or siding, and approximate age (if available
- If the 2nd is to assist with the purchase of a property we also require a copy of the listing and purchase and sale agreement.
We are often asked why 2nd mortgage rates are considerably higher than the 1st mortgages. The answer is that the 2nd mortgage is registered behind the 1st and in the case of default; the 1st has 1st priority and must be satisfied prior to the 2nd mortgage lender receiving any funds.
- SECURED LINE OF CREDIT
A secured line of credit allows you to access the equity in your home. Unlike a mortgage, you can draw the amount of money that you need and you pay as little as interest only on this amount. The line is open and can be pre-paid fully or in part anytime without penalty. Your credit limit would usually be for a maximum of 75% of the appraisal value of your property. It could, however, go as high as 90% with CMHC insurance. The premium at 90% loan-to-value would be 2.25 - 2.50% of the insured amount depending on the repayment options. Options available are as follows:
1) 5 year (5 - 20) = 2.25% premium
2) 10 year (10-15) = 2.50% premium
This means that option #1 allows you to pay interest only for the initial 5 years and then the remaining balance is amortized over 20 years. Option #2 allows you to pay interest only for initial 10 years and then the remaining balance is amortized over 15 years.
- VENDOR TAKE BACK (VTB) MORTGAGE
This means the Vendor agrees to delay payment of a certain portion of the sale price. This amount is then secured by a 2nd mortgage on the property that has been sold. An example follows:
| Sale Price | $160,000 |
| Down Payment | $16,000 |
| 1st mortgage | $120,000 |
| V.T. Back (2nd) | $24,000 |
To secure the V.T.B., a 2nd mortgage is registered on the property to secure the vendor's money. The vendor may be able to offer this loan at less than bank rates. Some vendors will sell this mortgage to a mortgage broker instead of holding it themselves.
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613 727-3323 