Mortgage for Rental Property – New Product Features

Purpose of Funds  

• Purchase, Refinance (1-4 units non-owner occupied).
• Equity Take-out: Maximum $200,000.
• Not available on Purchase / Refinance Plus Improvements, New to Canada or Stated Income Programs.

 

Maximum LTV  

• Maximum 80% Mortgage.

 

Property Value

• Minimum mortgage amount $60,000.
• Maximum property value $750,000 (Up to $1,000,000 in Greater Toronto / Vancouver Area).
• Minimum property value $75,000.

 

Terms    

• 5 Year Fixed Term.

Amortization  

• Minimum 10 years.
• Maximum 30 years.

 

Property Types    

• Resale or new construction (single advance).
• Restricted to residential units.
• Readily marketable residential dwellings, located in markets with demonstrated ongoing re-sale demand.
• Ineligible property types: time-share interests, vacation homes, commercial zoning, rooming/ housing quarter share, shared ownership rental pools.

 

Lending Criteria    

• Must meet lending guidelines.
• Borrower and subject property must be located in the same province.
• Maximum 4 properties in the borrower’s portfolio.

 

Debt Servicing    

• Maximum TDS 40%.

 

Credit Bureau  

• Recommended credit score – Minimum 680.
• Borrowers must reflect strong credit worthiness, no prior bankruptcy.
• Primary borrower is required to have a min. of 2 years established credit with a min. of 2+ trades.

 

Borrower Qualifications    

• Down payment from borrower’s own resources. Gifted down payment not permitted.
• Borrower must currently own existing principle residence.
• Documented verification of net worth $100,000.

 

Rental Income Confirmation  

• Rental Income must be confirmed with at least one of the following documents :
• T1 Generals, Lease agreements, Bank Statements showing a 12-month history confirming rental income has been received. (If not available, Fair Market Rents may be considered on exception upon disclosure.)
• 50% of the gross annual rental income may be added to borrower’s gross annual income.

 

Appraisals    

• Full appraisal required WITH fair market rents when LTV <75%.
• Property must meet lender standards.

 

Insurance Premiums  

• No insurance premium at LTV <75%.
• Insurance premium paid by borrower only at 75.01-80% LTV, no appraisal required.

Amortization    LTV Ratio    Single Premium    Top-Up Premium
25 years          75.01%-80%       2.50%                     3.75%

*Eligible for a 30 year amortization (subject to a 0.20% premium surcharge).

 

 

Variable Rate Mortgages Gain Popularity

Mortgage brokers in Canada have been arranging Variable Rate Mortgages for borrowers during 2013 at an increased pace. Due to economic conditions, the Bank of Canada has kept the prime rate at 3.00% for an extended period of time and will most likely leave the interest rate as is until 2015. There have been several economic indicators that have sent some dark clouds over the Canadian Economy. Major layoffs by large corporations in Canada and an increasing unemployment rate are causing the government to keep rates low as they have no choice but to try and increase economic activity.

Variable rate mortgages are now being borrowed at an average of 2.5% – 2.7% , between mortgage brokers and banks. The best offers are coming from mortgage brokers in the Prime minus 50 basis points range. A Variable rate mortgage is also attractive because the penalty discharge the mortgage in full later on is always less expensive and less risky , compared to a fixed rate mortgage. With a VRM, there is no interest rate differential. The calculation is based on a 3 month interest penalty.

This is a key factor when deciding on a mortgage, as limiting the mortgage penalties and fees is always advantageous.

The interest savings on a variable rate can be substantial compared to today’s fixed rate average of 3.9%.. A full 1% difference can save thousands in interest payments over a 5 year term. Even if the Bank of Canada were to raise interest rates .50% every year, which is highly unlikely,  the variable rate mortgage would still come out ahead.

5 Year Fixed 3.94% Rate Monthly Payment Interest Paid Balance
Year one 3.94 1306.93 9663.04 243,979.88
Year two 3.94 1306.93 9423.51 237,720.23
Year three 3.94 1306.93 9174.44 231,211.51
Year four 3.94 1306.93 8915.48 224,443.83
Year five 3.94 1306.96 8646.21 217,406.88
Total Paid 78,415.80 45,822.68
5 YearPrime -75 Rate ( .50% increase/yr) Monthly Payment Interest Paid Balance
Year one 2.25 1089.03 5,521.67 242,453.31
Year two 2.75 1149.01 6539.18 235,204.37
Year three 3.25 1208.45 7489.74 228,192.71
Year four 3.75 1267.17 8,375.40 221,362.07
Year five 4.25 1325.00 9,197.21 214,659.28
Total Paid 72,463.92 37,123.20

 

$ 5951.88 LESS in Monthly Payments over 5 years

$ 8,699.48 LESS in Interest Paid Over 5 Years

Balance will be $ 2747.60 LESS with the variable mortgage

WANT TO SAVE EVEN MORE?

Use your 20/20 Prepayment privileges to increase your monthly payments and/or apply partial lump sums with each payment and watch the savings grow and your balance decrease!

Although we can’t predict when Prime rate will rise or how fast – taking advantage of a lower interest rate upfront could save you thousands of dollars in the long run.

 

2.79% Mortgage Rate 5 Year Fixed

Mortgage rates continue to reach historically low levels as bond markets lower prices in Canada. A 5 year fixed rate is now available at 2.79% with a 120 day rate hold for your home purchase, refinance or mortgage renewal. Here are some guidelines and terms for this product.

Minimum Credit Score: 620

Property Type:  Owner-occupied

Loan Purpose: Purchase – 95% – 1 to 2 units;  90% – 3 to 4 units     Refinance – 80% LTV

Term: 5 year fixed

Loan Amount: $50K – $1.5M

Amortization Period: 5 to 30 years

Max Debt-Service Ratios:  35 GDS/42 TDS or NO GDS/44 TDS

Down Payment: From own resources and/or gifted funds

Geographic Areas: Ontario Only

Income: Provable/Qualified income

Qualifying Rate: Contract Mortgage Rate

Rate Guarantee: 120 days

Payment Options:  Monthly, Semi-Monthly, Bi-Weekly, Weekly

Prepayment Options: Lump sum up to 20% of the original principal amount (minimum $100),  20% increase  in payment, incremental  fixed amount can be added to principal and interest payment

Other: Portable, assumable, bridge financing, blends

 

Mortgage Rate Promotions For Spring Market

Mortgage rates are now at very attractive levels for the spring housing market and for mortgage refinancing , renewals and debt consolidation. Here are some new product specials as of February 14/2013.

- 5 year variable rate mortgage at prime minus 0.40% or 2.60% currently

- 5 year fixed rate at 2.89% for insured or conventional mortgages

- 4 year fixed rate mortgage at 2.79% for insured purchases only

- 3 year fixed rate mortgage at 2.69% for insured or conventional mortgages

All of the above terms come with 20% prepayment privileges, 20% payment increase option and are portable and assumable.

Some lenders are also offering free legal services for mortgage refinancing which can save you up to $1000 in legal fees. If you have any outstanding debt balances then you should consider to refinance your mortgage and save money on high interest credit cards, credit lines and other loans. You can increase monthly cash flow substantially and save money.

 

 

 

2.89% Mortgage Rate – 5 Year Fixed

A 5 year fixed rate at 2.89% is now available for your home purchase, refinance or renewal with Darin Bauer at Mortgage Intelligence. This special rate promotion comes with a 120 day rate hold, pre-payment privileges of 20% , payment increase option of 20% and is portable and assumable. Bond yields continue to stay at historically low levels but an increase could happen at anytime. Apply today to lock in the best mortgage rate available.

The average rate for a 5 year fixed mortgage at most Banks and Lenders in Canada is currently around 3.19%.This special promotional rate of 2.89% for 5 years fixed is substantially lower and could save you thousands in interest over the length of your term. Most clients are applying for a fixed rate at this time due to the fact that variable rates do not offer the same discount as in recent years. Most variable rate mortgages are at 2.80% currently and only one quarter point increase by the Bank of Canada would put that mortgage rate over 3%. Therefore the popularity of fixed rates are much more evident in todays’ mortgage market.

Consider refinancing your existing mortgage or applying today if you have a mortgage renewal coming up soon. A mortgage refinance at this lowest mortgage rate of 2.89% can be very beneficial in many ways even if your existing mortgage is not up for renewal yet. Paying a small penalty now to refinance can have major advantages instead of waiting another year or two for your existing mortgage to reach it’s maturity date. You can save money now by lowering your existing mortgage rate and also secure this 2.89% rate before it’s gone. Payoff higher interest debts and loans as well by refinancing your mortgage now. Otherwise , if you wait until your maturity date you could easily be renewing at much higher rates such as 4% or higher.

Apply online today for this special 2.89%,  5 year fixed rate offer at www.TorontoMortgageSite.com .

 

 

Mortgage Preapproval in Canada – The Benefits of a Rate Hold and More

One of the most important things to do as a potential homebuyer is to get a mortgage pre-approval before doing any house shopping. The main benefits of doing this are to know how much of a mortgage you can afford and to secure a mortgage rate hold of up to 120 days. A mortgage pre-approval application only takes a few minutes and can also get you plenty of advice from a mortgage broker along with useful tips and info about buying a home.

The mortgage application will consist of basic personal information such as your name, address, date of birth and marital status. Next will be your employment information along with your current assets and liabilities such as savings accounts, investments and RRSP’s along with balances and payments for credit cards and loans. The final section will include information about the estimated mortgage you require and type of fixed rate or variable rate mortgage term you prefer. Most pre-approvals are set as a 5 year fixed rate with a 120 day rate hold. This will hold a mortgage rate for you while you are looking for a home to purchase. In the event that mortgage rates rise during this time , you will be protected. If rates decline during this time, your pre-approved mortgage rate can be lowered as well.

A mortgage broker will review your credit history and supply your mortgage application to a mortgage lender to qualify you for the best mortgage rate possible. An advantage of using a mortgage broker is that your credit report only needs to be accessed once during the application process and can be used by multiple lenders, without them having to check your credit every time. This enables the mortgage broker to get several pre-approvals for you if necessary, for different types of mortgage products and rates.

Also consider asking a mortgage broker for referrals of useful professionals before you start shopping for a home. You will need to get an experienced real estate agent or broker along with a reputable real estate lawyer so you can get proper advice while you are searching for properties. Also consider talking to a financial planner to budget your purchase along with your overall financial strategy. A home purchase is the most important investment you will probably make in your life so take it seriously and get the best advice you can from the professionals that are available to you. The first step is a mortgage pre-approval from a mortgage broker, so apply today and get started.

Mortgage Life Insurance Options

Now that you’ve bought a house and arranged mortgage financing, the next step is to get approved for mortgage life insurance. There are many insurance companies available to add this type of insurance to your mortgage but the products are not all created equally. Choosing the wrong coverage can cost a lot of money in the long run and get you less insurance than you could have had.

Why do you need insurance? If you have a family and children, then you have a major reason to get mortgage life insurance. Death can happen at anytime due to accidents, natural causes, etc. Your mortgage is the biggest debt and financial burden to your family. If a husband or wife is to pass away, the income lost can cause substantial stress to the remaining borrower and sometimes a sale of the house will be necessary as payments and housing costs become too expensive. To avoid this, mortgage life insurance can pay off the remaining mortgage balance or even pay more than the remaining balance, such as an insurance payment equalling the original starting mortgage balance.

The Positives About Mortgage Life Insurance

- It’s easier to qualify for than most other life insurance products as no medical exam is usually necessary

- Coverage can start as soon as the application is made

- It can be cancelled anytime if you change your mind and there is typically no penalty or costs

- With Insurance that mortgage brokers use, the products are usually better than bank offered products as coverage is larger and fees are less. For example, the insurance product can payout the original mortgage balance instead of the actual balance at the time of death. Products like this are available through insurers such as Canada Life.

- Your mortgage broker can setup the insurance policy while doing your mortgage application, so no additional appointments are necessary

The Negatives About Mortgage Life Insurance

- It’s usually more expensive than term life insurance , which is another popular product these days

- Some products will only payout the remaining balance on the mortgage instead of a set amount like term insurance

- If you have a medical issue like high blood pressure, etc. , you could be declined

Talk to your mortgage broker about your insurance options and see what products are available through them. Compare the costs and features with other life insurance products like Term, Universal and Whole Life Insurance products. No matter what you do, keep your family in mind and protect them from financial burdens later on in life. Try to apply for some sort of protection so you can have peace of mind while carrying your mortgage over the years.

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Fixed Rate Mortgages Still Low, Home Prices to Fall Soon?

As we approach the end of 2012 , mortgage rates continue to stay at historically low levels . 5 year fixed rates can be approved at 2.94% for insured home purchases while a 3 year fixed is 2.69%. Variable mortgage rates are around 2.65%. With no significant improvements in the economies of Canada and the U.S. , most experts say that rates will stay low through 2013 as well. The Bank of Canada has hinted at possible rate hikes but most experts do not think this will happen. This is good news for home owners looking to refinance and renew existing mortgages.

For home buyers, low rates are still available but lending rules have now changed as per CMHC guidelines and overall stricter guidelines are being implemented by almost all banks and lenders. This could start a wave of lower home prices as buyers can technically afford less of a mortgage , especially if CMHC insured, which is the majority of first time buyers.

Some analysts and real estate industry experts now expect the Canadian market to enter a downturn phase as new mortgage rules affect current prices. Estimates have been as high as a 25% correction in prices , especially in the over saturated Condominium market in Toronto. Buyers and existing home owners have to start preparing for a correction in the real estate market.

Stricter lending rules mean that CMHC and appraisers will be scrutinizing home values , credit ratings and borrower incomes for purchases will be closely reviewed. Mortgage preapprovals and financing conditions are more important now than ever if you are buying a home. Make sure to leave a financing condition in your offer for at least 3 to 5 banking days. Contact a mortgage broker to make sure you have a good estimate as to how much you can afford before beginning your property search.

On the mortgage refinancing front, valuations conducted by appraisers and insurers like CMHC will be closely examined. As well, lower loan to values have taken effect as the majority of lenders will only allow for a refinance up to 80% of a propertys’ appraised value. Lines of credit or HELOC loans have also been cut back to 65% maximum. There are alternative and private lenders who will allow for higher mortgage loan amounts up to 90% , but expect to pay higher interest rates and fees.

 

 

Mortgage Rule Changes in Canada

During July 2012 , major rule changes were put in place by the Canadian government and CMHC. This will affect the mortgage qualification criteria and guidelines for borrowers. Here are some highlights of the rule changes.

CMHC Insured mortgages at greater than 80% loan to value for purchases are now set at a maximum amortization of 25 years, down from 30 years. This rule increases the monthly payments and shortens the time it takes to pay back a mortgage in full. For example, a home purchase with 5% downpayment or 95% LTV , will be approved at a maximum of 25 years amortization. If a borrower places at least 20% downpayment on a home or 80% loan to value, lenders can still approve a mortgage with 30 or 35 year amortization as it does not need CMHC insurance.

Refinancing is now changed to a maximum of 80% loan to value for CMHC Insured mortgages. This used to be at an 85% limit. As well, lines of credit or HELOC’s are soon to be limited to 65% LTV as per new guidelines that OSFI wants banks and lenders to implement. If borrowers want more than 65% LTV , the portion up to 80% would have to be a fixed rate mortgage or 15% of the 80% total. For example, a borrower has a home worth $500,000 and wants to obtain a HELOC for 65% and mortgage portion for 15%. The HELOC credit limit would be $325,000 and the fixed mortgage portion would be $75,000.

There are still some lenders who do not use CMHC insurance and will allow for a refinance or purchase up to 85%. Mortgage rates tend to be slightly higher than the typical lending rates for 80% LTV financing or CMHC insured mortgages. There are also private second mortgage lenders who will allow for up to 90% financing in larger populated areas such as Toronto or the GTA.

Second Mortgages in Toronto & Canada

As an alternative to regular financing from banks and mortgage lenders , second mortgages from private lenders can be another option to obtain financing on your property. In many cases, a borrower has exhausted all options to arrange a new 1st mortgage on their property or they want to leave that mortgage in place for various reasons such as a lower interest rate. Most private lenders consider the equity remaining in the property after the 2nd mortgage is placed as the key to their mortgage approvals. They typically do not concern themselves as much about credit rating and income proof like banks and lenders do. They also do not care as much about what you are using the money from the financing for.

What is a Second Mortgage?

A second mortgage is a loan secured to your home that is usually arranged after you already have a 1st mortgage on your property. This is done to keep your 1st mortgage in place as it is usually at a lower interest rate or if you are having trouble arranging a new first mortgage and the only option is a 2nd mortgage. Most borrowers use second mortgage funds to payoff existing debts, for renovation purposes or to have emergency funds for any purpose. There are many private lenders in Toronto and Canada who can provide funds for a second mortgage loan up to 95% loan to value in some cases. The average is around 80% to 85%. Private lenders prefer to mortgage properties that are in major city centers and prefer detached homes.

What are the Costs and Fees of a 2nd Mortgage?

Second mortgage rates in Canada are typically in the 10% to 15% range for the interest rate being charged by the lender or investor. Payments are usually interest only and on a monthly basis, via post dated cheques. For example, a $30,000 2nd mortgage loan at 12% will cost $300 monthly. Most lenders will want you to agree to a 1 year term and allow for earlier repayment with a 3 month interest penalty. After the 1 year term is over, the lender will usually give you the opportunity to renew the mortgage loan for another year or they will ask you to pay the mortgage in full. At this point you can pay off the loan with your own funds or arrange for another 2nd mortgage with a new lender. Fees to arrange a second mortgage in Canada are usually appraisal, lender, broker and legal fees. For example, a loan for $30,000 would typically cost around $3000 in total fees. Appraisal fees are an up front cost while lender, broker and legal fees can usually be deducted from the loan advance on the closing date.

To arrange a 2nd mortgage , you will need to contact a mortgage broker as they will have private lenders who they arrange this type of financing with. Talk to one today and discuss your mortgage financing needs.