Residential Mortgages

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.

1. 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.
      
      
   2. 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.
   
   
2. 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.

3. 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.

4. 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.