Wednesday, May 8, 2013

Closing Costs on a Home Purchase

“How much are closing costs?”
This is one of the most common questions asked by anyone purchasing a home.  Your lawyer can give you an exact amount a couple days before closing.  You still may wish to have an estimate so I have broken things down a little bit for you so you won’t get the closing costs shock when it is too late.

For this example we will use a home that has a $400,000 purchase price with estimated property taxes at $4,000 with you using 5% as their down payment. 

1.       $800 Lawyer Fee

2.       $300 Title Search (aprox)

3.       $350 Title Insurance

4.       $150 Title Registration

5.       $836 PST on CMHC Premium

6.       $2,475 Land Transfer Tax (add $2,000 if not a 1st time home buyer)

7.       $1,000 3 Month Property Tax Pre-payment

8.       $450 Disbursements (tax certificates, couriers, faxing and long distance calls)

9.       $333 Reimburse Seller pre-paid property tax

10.     $6,694 Total Closing Costs.

1.  The Lawyer fee can vary between different law firms and lawyers.  The cheapest is not always the best option.  There is a lot of work a lawyer must do to protect your purchase.  Don’t be shopping at Wallmart for a lawyer.
2.  Title search can vary in price, basically the lawyer has to check to make sure there are no liens or judgements against the home and you are taking it over free and clear. 

3.  Title insurance is to protect you and the lender from unforeseen issues such as a fence built in the wrong place your new neighbour is disputing, a previous owner not being properly discharged from title and it also protects you from fraud.  It is best to discuss this insurance with your lawyer.

4.  Title Registration is basically adding you as the new owner and registering any mortgages or rental items on the property.
5.  One fee that fluctuates from deal to deal is the PST (yes PST) on the CMHC (mortgage insurance premium).  On a 400k home with 20k down that premium would be $10,450.  This added to the mortgage balance so $400k - 20k + 10.45k = $390,450 mortgage.  Now the PST calculated at 8% of the $10,450 is $836 which will be added to closing costs.  MortgageInsurance

6. There is also land transfer tax to be calculated.  On a 400k purchase land transfer tax is $4,475, but let’s assume we have a 1st time home buyer who receives the 2k discount.  Land transfer tax is now $2,475 to be added to the closing costs.  
7.  Most of the time when a home is purchased with 5% down the lender will pay property taxes on the clients’ behalf, added to the mortgage payment.  They will pre-pay these on or just after closing for up to 3 months.  Which in this case will be $333.33 X 3 = $1,000 added to closing costs.

8.   There can also keep disbursements which are basically additional costs the lawyer may have come across and the basics such as tax certificates, couriers, faxing and long distance calls.  Let’s put these at $450 for this deal.

9.  One last thing is the adjustments.  This mainly comes into play when the seller has pre-paid their taxes.  If the seller has pre-paid a month in advance that means the new buyer will have to reimburse the seller $333 which will be added to closing costs as well.  This amount may be adjusted from the three month pre-payment to your lender.
10.  Bringing in the total at $6,694. Keep in mind it is virtually impossible to give an exact quote of what closing costs will be.  Even a lawyer cannot give an exact number until all the paper work is in and ready to complete a day or two before closing.

Regardless of what closing costs actually are the lender will require documents showing that you have 1.5% of the purchase price in your bank account.  On a $400,000 home, that would be $6,000.  Along with the 5% down of $20,000 you would need to show ownership of $26,000.
Feel free to contact me if you have any questions or concerns.  Or need someone to help you with your mortgage needs.

Friday, January 18, 2013

Mortgage Penalties

One of the biggest questions people need to ask when getting a mortgage is what will be my penalty if I break the mortgage.

This is so huge, seriously even more important then the interest rate you receive.  Within reason.

The mortgage penalty you receive if you break your mortgage can be calculated in many different ways.  Unfortunately our Minister of Finance, Jim Flaherty is not looking at protecting consumers, just protecting the big 5 banks. 

Below is a basic explanation between IRD (interest rate differential) and a three month interest penalty.

Let's take a quick look at 3 most popular ways on how mortgage penalties are calculated, imagining you are 2 years into a 5 year term with a 3.29% rate with a balance of 300k on your mortgage.  The lenders best current rate is 3.49%, bond yields are at 1.49% and posted rate at 5.29%.
  • Lender A:  Your current rate compared to the posted rate.  Posted rate at 5.29% - 3.29% = 2.00%, so basically your penalty will be 2% amortized over the remaining three years, or to put it in reality $17,102.37 IRD plus discharge and/or re-investment fees $300 to $1,000.  Ouch!
  • Lender B:  Your current rate compared to bond rate.  Your rate 3.29% - 1.49% bond rate = 1.80%, so your penalty will be 1.8% amortized over the remaining period which will work out to $15,379.94 IRD plus discharge and/or reinvestment fee.  Shitty!
  • Lender C:  Your current rate compared to the lenders best discounted rate.  Your rate being 3.29% and the banks discounted rate at 3.49%.  You can see that if you broke your mortgage the bank will actually be able to lend that money out at a higher rate so the penalty will simply be 3 months interest or $2,445.46 plus discharge and/or reinvestment fee.  Much better!
Now let's just say you can get a lower rate and a Lender C.  That's a good deal plus if rates do drop you have a lower rate that a IRD will calculated on.  If rates go up your penalty will simply be 3 months interest. 

Rate is important but if you look at Lender A, is having a good rate going to benefit you if you break your mortgage and rates go up?  NO!!  It will make matters worse as the gap between posted and your discounted rate is bigger.  It should be illegal.  The bank is double dipping by charging you a massive penalty then lending that money out at higher rate.

With lender B markets would have to increase significantly before the spread between your rate and the bonds will be eliminated.  In the world we have now I would not be expecting that to happen.

Let's look at one more thing.  Let's say your favourite bank offers you a rate that another lender can't match.  (FYI, I'll always beat it.)  There is a difference 0.10% which works out to $15.61 a month, over the two years you have had your mortgage that is a total of $374.64 you would have saved.  But you decided to go with Lender A for the cheaper rate but life threw a curve ball at you and you have to break your mortgage.   Sorry, you are screwed, literally.  Me personally I would look at the higher amount as an insurance premium protecting myself.

You never know what life will throw at you.  There are many reasons mortgages must be broken, unexpected job loss, unexpected child or expected, could be work relocation, money needed for medical, a bigger home needed.  Whatever.  Most people say they will not move or break their mortgage but 75% of 5 years terms are broken within the 1st three years.

The best scenario is the best rate and terms, that is why you call me.

PROTECT YOURSELF AND FAMILY, talk to someone who is truly looking out for your best interest and wants referrals from you and your family and is looking for clients for life.

Let me know if this was helpful, thanks.

Till next time, have a great day.

Ron Miller

YouTube Hamilton Broker

Tuesday, December 18, 2012

Mortgage on Million Dollar Homes

I have had quite a few inquiries lately on people having trouble financing large purchases so I figured a post was needed.

First and foremost I will explain how default mortgage insurance comes into play.  If you are purchasing a home that cost $999,999 you can get away with putting down as little as 5%.  If the purchase price of the home is $1,000,000 you have no choice but to put down 20%.  This may not seem fair; which I do agree, but the governments angle is to protect the Canadian housing market.  If something does go wrong, high end homes are the first to crash and crash harder.

Houses in this bracket only make up about 0.1% of homes sold in Canada so it is a very small bracket of consumers.  For the people that do fall in this bracket keep reading and I will explain the financing options.

ALL LENDERS ARE DIFFERENT.  I made this statement bold and capitalized because one of the biggest misunderstandings in the mortgage world is all banks are the same.  In reality, if your current lender says no you do not qualify, it does not mean another lender will not do the deal.  Obviously your lender is not going to tell you to go the bank next door.

Generally at some point each lender has a maximum loan to value they will lend on.  For example, X lender says we will finance up to 80% of the first million then 60% of the rest.  So if you are purchasing a home at 1.5 million they will finance 80% of $1,000,000 which is $800,000 and 60% of $500,000 which is $300,000 for a total of a $1,100,000 mortgage.  You would need to come up with a $400,000 down payment.

Some lenders will use 80% of the entire amount up to 2 million or even higher.  So in the 1.5 million purchase the down payment required would only be $300,000.  Down payment requirements also vary on the type of property; if it is a farm or a rental, is it in the city or rural area?

Rates can vary quite a bit at this level, often times consumers may be a little perplexed when they are not receiving the best rates advertised.  Some lenders will offer best rates on these mortgages and others consider them high risk even if you have 800 credit score and provable income.

At this level of purchase you really want to make sure you read the fine print, beware of collateral mortgages unless you understand them and this is what you want, and make sure you understand the pre-payment privileges and penalties.  Not knowing and signing something unfavourable could literally cost you tens of thousands of dollars.   

One thing that also helps a lot if you are working with a broker, do not be shy about admitting net worth, this is a huge part making your application favourable.  Would you lend a million dollars to someone who barely has enough money to cover closing costs?  Disclose any assets you have it will only help.

If you are using self declared income don't sweat it, there are still ways to get this done.

One last thing to keep in mind, financing at this level requires a broker who really knows what they are doing.  There can be massive savings in payments from lender to lender, you want to make sure you are using a very large volume brokerage that does business with many lenders.

If you have any questions don't hesitate to contact me which ever way works best for you,

Till next time, have a great day.

Ron Miller

YouTube Hamilton Broker

Wednesday, November 14, 2012

Divorce and Mortgages

The purpose of this post is to inform consumers that you can refinance up to 95% in a divorce situation if one spouse wishes to buy out the other from the matrimonial home.  The relationship could also be common law, you do not have to be legally married. 

It is a process that not many lenders are willing to do with the new mortgage rules maxing refi's at 80%.  In fact most people in the industry do not even know it can be done.  There has been a provision put in place by the family law act allowing one spouse to take over the home from the other.  Because of the 80% refinance rule families were forced to sell their home in order to split up the equity, which is really unfair especially if children were involved.  With this new rule it can make the transition for children much easier.

There must be a legal separation agreement in place in order to do this.

Any equity that is left over can be used to pay off the other spouse if that is in the agreement. 

Of course you have to fully qualify on your own with acceptable credit and income.  Alimony and child support do qualify as acceptable income.

The existing equity is used as the down payment and closing costs.

It is expensive enough getting seperated or divorced especially if you have to pay huge real estate fees.  Average commission in selling a home is 5% + HST, it is much cheaper if one of you can keep the home.

If you are in this situation and would like to know more feel free to contact me which ever way works best for you.  You can also fill out the mortgage application if you wish to get started right away, I will contact you immediately, provided I am not golfing.  If you prefer doing things in person I have an office in Mississauga as well as Hamilton or I can meet you at your home.

There is no charge from me on this type of mortgage provided we can use an "A" lender and a minimum 5 year term is used.  There may be an appraisal required, not always.  Also a lawyer must handle the transaction.  We walk you through the whole process, it is actually quite simple. 

I can only service clients in Ontario Canada.  If you are in another province feel free to ask for a mortgage agent in your area and I will do my best to find one.

Till next time, have a great day. 

Ron Miller

YouTube Hamilton Broker

Tuesday, October 30, 2012

Best Mortgage Rates

The purpose of this post is to bring awareness about how dangerous some of the low interest rate mortgages being advertised are.

It is a very wise idea to shop around for the best mortgage rates, after all it can save you thousands over the term of your mortgage. 

Recently a personal friend called about the renewal notice he received from his current lender.  They actually offered him 5.29% for a 5 year term; insane.  We renewed him at 2.99% with friendly terms.  His mortgage was for 200k which worked out to a savings of $15,058 over 5 years.  Even a 0.1% difference could save $616.80 over 5 years, better in your pocket than the banks.

Having said that it is equally important to pay close attention to the terms and to make sure you fully understand what you are signing.  There are many terms to look at, below are a couple of the majors.   

The two major pitfalls you should be looking for are:

     1.  How is the penalty calculated if you decide to break your mortgage?

The majority of 5 year term mortgages are broke before the renewal date arrives.  Knowing this you always want to have an out, even if you do not plan on selling.  Occasionally unforeseen circumstances may arise and you do not want to be at the mercy of a bank.  They show no mercy.

You want to ask your mortgage officer or broker for an example if you broke your mortgage in 2 years what your penalty will be and how it is calculated.  A lot of these discounted rates base the calculation on the current posted rate.  Imagine you signed up for the 2.99% and in 2 years decide you need to sell the home or refinance for whatever reason.  Your penalty could be calculated on 5.29 (current posted rate) - 2.99 (current discounted rate) = 2.30%.  So you will pay a penalty of 2.3% on your remaining mortgage balance for 36 months.  If for example you have a 200k mortgage, your penalty could potentially be $13,800.  Pretty damn scary.

There is no set way that any lender must base their penalty calculations.  To protect yourself always ask what the comparison rate will be in case you do have to break your mortgage.  Generally what you are looking for is a comparison rate that is fair and based on current discounted rates.  For example if you decide to break your 5 year 2.99% in two years your want to see your lender comparison rate be the current 5 year discounted rate or the 3 year discounted rate.  With interest rates as low as they are now, most likely you will end up with just a 3 month interest penalty.  If the comparison rate is the posted rate, run and run very fast, this is not a good deal.

     2.  Is your mortgage going to be registered as a collateral mortgage?

Please click on the link for a little more detail on what a collateral mortgage is.  In a nut shell, they are bad bad bad.  The only people who should be obtaining a collateral mortgage are people in a strong financial position.  

Quick scenario ~ Let's say you have a 200k mortgage and a bank signs you up with a collateral mortgage.  Then they offer you a line of credit to go with it, you also get a car loan and a Visa down the road.  Now your renewal date has arrived so you decide to shop around because you were offered a lousy rate, say 5.29%.  A broker offers you 2.99%, great lets get started.  At some point it is discovered you have a collateral mortgage and didn't even know it.  Well a collateral mortgage is not transferable, it must be handled as a refinance (lawyer fees).  Also we now find out your line of credit, car loan and Visa are all charged against your home.  The only way to handle your file is if you pay off all your other debts against the home first or throw all the debts into the new mortgage.  Problem!!!  There is not enough equity to refinance everything and you don't have enough available cash to pay out all the other debts.  Guess what???  Yep you guessed it, you are going back to your original lender and accepting the lousy rate.  You have been euchred, not a good feeling.

Remember, terms are just as important as rate. 

I really hope this posts will help out a lot of people, I am a little dramatic in this one but it is so crucial that you are getting your mortgage from someone that is trustworthy, as well knowledgeable in the industry.   And wants to see repeat business and referrals from your friends and family in the future.  Use a good and reputable mortgage broker.

Please reply or discuss, ask some questions.   

Till next time, have a great day!

Ron Miller

YouTube Hamilton Broker

Thursday, March 22, 2012

Why Use a Mortgage Broker?

In all honesty I probably should have also rolled up into the title "Why Realtors refer Mortgage Brokers" and "What Does a Mortgage Broker Do".  Maybe even add in "Which Mortgage Broker Do I Use".  Basically all of the above is what this post is about.

Anyone that has followed the mortgage market for a few months has seen rates go up and down, this bank has the best rates, now its this bank, and then there is the bombardment of mortgage brokers and agents all contesting that they have access to the best rates.  Well it is true that banks and wholesale finance lenders take turns winning the rate war and most of them are accessible through the mortgage broker market.  What is a bit of a myth is that one broker has the best rates over another.  Having said that, it is true that some brokers do get discounts from certain lenders for high volume and a high success rate for funding ratios (deals submitted vs deals closing).  But you have to be able to fit the model that particular lender is looking for.

So, you want to pick a brokerage that is large enough to receive special treatment from several different lenders, because their volume is so large.  For the perfect model mortgage seeker (good income, down payment and credit) our lender of choice varies from month to month depending on who has the best rates and terms at the time.

Not everyone fits into the perfect model that banks seem to love.  This is really where the importance of a good mortgage broker comes in.  Seriously, I cannot stress enough how crucial this is.  And this is why your Realtor may have referred you to a mortgage broker.  If you do not receive a pre-approval certificate, or are told no if you ask for one, you may want to look elsewhere for your financing.  When I give a pre-approval that Realtor knows they are not wasting their money and spending time away from their family showing homes.  Yes Realtors have lives, they are people and it costs them a lot of money and time to help someone find a home, so they want to be certain you are solid. 

Your Realtor is helping you purchase the largest item and your biggest investment you will ever make in your life.  Give them the love they need to go to bat for you.  Do not hide stuff and think you are at war with them, they are on your side and you will benefit by becoming a team with them.  If you are in the Southern Ontario area, I have a lot of excellent Realtors I have a relationship with, that I would happily refer for you.

Now, why use a mortgage broker?  I can be reached by text, by office phone, by cell phone, by email, by bbm, on weekends and evenings and I enjoy it.  Why seasoned Realtors usually refer a mortgage broker instead of a bank is because they are aware of the many variables required to qualify and that all banks have different variables.  Here is a short list:
  • Some lenders do not like self-employed.
  • Some lenders will actually gross up self-employed income to qualify for more.
  • Some lenders include baby bonus, others don't.
  • Some will let you use your car allowance to qualify.
  • Some will actually tell you your bonus doesn't count as income.
  • Some don't like commission income.
  • Some don't like contract workers.
  • Some want perfect credit.
  • Others will accept the bare minimum.
  • Some have cash back, most don't.
  • Some let you purchase two homes with 5% down.
I could go on and on.  So a seasoned Realtor understands that it is impossible for one bank to successfully look after all their clients.  So they refer them to a mortgage broker who knows and has access to all the lenders.  As well knows the home buyer will be well looked after, educated and most importantly happy with the results.

Feel free to post a comment or question.  If you would like to talk to me about mortgages or get the name of a good Realtor, feel free to contact me whichever way works best for you.

Ron Miller
YouTube Hamilton Broker

Saturday, November 5, 2011

Fixed or Variable? How About a 4 Year Fixed?!

                                                 You can view all my videos on You Tube at HamiltonBroker. Feel free to subscribe.

Currently there are big changes going on in the Canadian mortgage world.  We have discounts on the variable rates disappearing and the 5 year fixed is at an all-time low.  When we look at what is available right now, 2.75% on the variable and 3.39% available on the 5 year fixed, the decision on what to choose in my mind is obvious, the 5 year fixed.  Some people may still be stuck on the variable right now but is it really worth it?

Approximately 83% of the time through Canadian mortgage history the variable rate has proven itself to be the best deal over the fixed.  What I believe may happen in the next couple years is the 17% of the time that fixed is the best deal, is going to happen.

Now let's say you are still stuck on the variable.  There is another choice, it is the 4 year fixed rate.  Currently hanging around 3.09% makes it a really good deal.  You are protecting yourself from variable increases as well you are taking advantage of the low fixed position.  With the lower payment you can also decrease your amortization in order to pay down the mortgage faster, still with a reasonable monthly mortgage payment.

When you take into consideration that the average life of a 5 year term is around 3.6 years it is not necessary to take the long road with the higher rate.  With the Bank of Canada claiming they are not raising Prime until 2013, and remember the World economy is still uncertain, it may be longer.  Taking the 4 year term allows time to see what is going to happen as the Canadian mortgage world changes.  And if you do decide to break a 4 year term, the worst case usually will be a 3 month interest penalty.  If you have to take a small penalty to save thousands it is certainly worth it.

Well why not just take the variable then?  Remember, you usually do not get the banks best discounted rate when you switch from variable to fixed, a common calculation for this switch is Prime plus 1.00% or higher.  Right now that would put you at 4.00%, when the current five year rate is 0.70% below that it is not a good deal.  It is common to refinance when considering switching from variable to fixed, the small penalty saves you a lot of money.

To conclude, while in the middle of change it is best to take the road that will do the least damage if you make the wrong decision and having said that, the 4 year fixed is the best decision because you really can't lose.  It allows you time to wait and observe to see what the next trend will be.

Any questions or you want to talk to me about mortgages, feel free to contact me whichever way works best for you.

Ron Miller
YouTube Hamilton Broker

Wednesday, September 14, 2011

Ask a Mortgage Question

I wanted to add this post to my blog because I want to answer some direct questions regarding Canadian mortgages that you may have.  When I review the topics that have been typed into search engines to find my blog I notice that your questions may not be completely answered with what you find.

So you can feel free to ask any mortgage question I will be sure to add a reply as soon as I can.  I will also be posting questions that people have asked their search engines and replying to them.

Sunday, September 11, 2011

Purchase Plus Improvements

You can view all my videos on You Tube at HamiltonBroker.

This program is excellent if you are looking to do some renovations on your new home purchase.  Purchase plus improvements allows you to renovate the kitchen, install a new furnace or central air system, possibly your dream home is perfect except the roof is in dire need of repair.

It is really important for Realtors to be aware of as well.  Their clients found the perfect home but the kitchen is 25 years old, you can still make the deal work.  In this case it is really important to have a mortgage broker on their side that really knows how to put deals together.

So let's just say that you found the perfect home but you need a new kitchen.  Let your mortgage broker know that you want to do purchase plus improvements.  This does not change your pre-approval as long as you qualify for the extra amount.  Here is a brief step by step of the process.

  1. Put in your offer and get it accepted.
  2. During your 5 days you have to get financing approved.  Inform your broker that you want purchase plus improvements when you hand him/her your offer.
  3. Get a quote ASAP to give to your broker for the work you want done from a licensed contractor. (Some lenders may want 2 or 3 quotes).
  4. An appraiser will go to check the work you have requested and send their report to the broker or lender.
  5. You get your approval for the purchase plus improvements.
  6. On closing your lawyer will hold back the extra funds required for the improvements you want done.
  7. Have your contractor complete the work and once it is done the appraiser will return and verify the improvements are completed, then at this point the lawyer will release the extra funds to you.
There is a few things to keep in mind.  Money will NOT be released until verification that the improvements are completed.  If you do not have a contractor who is willing to wait to get paid then this program will not work unless you can pay for everything up front first.  If you tell your broker that you want a new roof, than make sure that is what you fix.  You cannot turn around and say, well we changed our mind we wanted a new bay window instead.  Purchase plus improvements does not include appliances, a new pool or car.  It must be improvements to the home.  You can check out Genworth or CMHC is your want to read up a little more.

This program is really handy if you find your perfect home but just need a couple things updated.  If this is for you feel free to get a hold of me and I will see what we can do.

Ron Miller

Renewing your Mortgage Early, Cap It!!!

You can view all my videos on You Tube at HamiltonBroker.

Renewing a mortgage early usually happens when you want to take advantage of lower interest rates or you want to switch to a variable rate from a fixed.  Also a lot of financial savvy people will also purposely switch in the middle of their term simply to extent the low rates that they have.  If you have a variable rate and want to switch to a fixed and your current bank is not offering you a competitive rate, this is definitely a time to do a switch.  A family that plans on having a baby will also use this plan to secure low payments for a longer term, especially if they are going to lose an income if someone decides to stay home and look after the baby.  If you plan on getting pregnant and have a mortgage, plan wisely.

There are costs involved with switching early.  You will most definitely have at least a three month interest penalty.  Banks are even approaching their clients 6 to 8 months before their renewal is up and asking them to renew early and not even offering to waive the penalty.  The penalty may also be more than three months if you have a high interest rate than what is being offered at the time you are looking to switch.  In which case it will be an IRD penalty, interest rate differential.  This is the amount of money that the bank loses if you break your mortgage early.  If you have 18 months left on your mortgage and you have a 5% interest rate and the current rate is 4% you will be charged 1% on the remaining 18 months which will work out to around $3,000.  Depending on the size of the penalty and your long term savings or piece of mind will determine if you should renew early.  There is also a discharge fee or around $250 to release your current lenders charge from title.  If you do decide you wish to renew early call your bank and ask if they will waive all penalties and fees.  If they won't?  Because they can.  That is when you call me.  Why stay with them if they aren't looking after you?

These fees bring to the purpose of this post.  Some lenders will allow you to cap your mortgage to avoid having to pay these fees out of pocket.  Simply add the penalty on top of your current mortgage without having to refinance when you switch, "cap your mortgage".  The few lenders that allow this, do it for one simple reason, to get more business.  Because lenders allow the cap, it saves the additional costs of having to get a lawyer and it saves you from having to pay up front for your penalty and discharge fees.   There is limitations to how much you can cap, so contact me to see how it will work for you.

If you have any questions please do not hesitate to contact me or leave a comment.

Ron Miller

Saturday, August 27, 2011

Mortgage Renewal

You can view all my videos on You Tube at HamiltonBroker.

I have already made a post on the mortgage renewal letter but have decided to add to it, because I feel some important points were missed, also I added the video.  Some people don’t take this very seriously and it is a real shame because the amount of money they are losing out on.  When you think about it, what is a $50 or a $100 difference in a monthly mortgage payment if you just accept what the lender offers you?  Well it’s $600-$1200 a year or $6,000 over five years.  What does paying that extra money do for you?  Absolutely nothing except drain your pocket, your retirement, kids’ education or whatever.  Money down the toilet!

What is interest?  It is the cost of borrowing, that simple.  The cheaper it is to borrow money, the more money for other things.  It amazes me to see someone clip coupons to save 50 cents on a pound of butter, but yet when the renewal letter arrives from their lender they just sign it and send it back.  How many coupons do you have to clip to save $6,000? Even if it is just a small difference of $500, it is still worth it to consult with a broker.

What does it cost to switch lenders at renewal time?

About $250, especially if your mortgage was default insured by CMHC, Genworth or Canada Guaranty (formally AIG).  The $250 is a discharge fee that your current lender charges to remove the mortgage from the title of your home.  If it is not insured there may be an appraisal fee around $350.  Some of or all of these expenses may be covered by a new lender or your broker, depending on the amount of your mortgage.  If you are going to have to cover all these expenses and your savings are not going to be high enough, you may just want to stay where you are.  That does not mean you cannot negotiate with your lender.  It is ok to call a mortgage broker and explain that you want to know what the going discount rate is right now.  Then call your lender back and ask for that rate.

How do you get the best mortgage rate at renewal?

The best thing to do is actually contact a mortgage broker 4 to 5 months prior to your mortgage renewal date and ask them to keep an eye on rates for you.  Even fill in an application and authorize the broker to do a credit check when they are actually going to submit your mortgage application.  We will hold on to the application and wait for the right moment to submit it.  Occasionally lenders have sales on rates just as department stores have sales, which can turn into huge savings for you.  Basically you are hiring a broker to nail down the best possible deal for you over the course of four months.  Watch out for brokers who do not use multiple lenders, make sure you call a high volume broker that uses at least 8 to 10 major lenders.

A new ploy that some lenders are using to trap people into the any rate that they want is by waiting 2 to 3 weeks before your renewal date to send you your mortgage renewal lender.  This is in hopes that you are not paying attention and will not have enough time to find a better rate.  All we really need is one week, so don’t be concerned if you contact us a little late.  Be pro-active, it can save you a lot of money.

As always you are free to contact me anyway that works best for you.  On weekends and evenings there is better chance of contacting me by email.
Ron Miller


Tuesday, August 23, 2011

Mortgage Document Collection

You can view all my videos on You Tube at HamiltonBroker.

This is the process where you have to bring in documents to your mortgage broker or bank to back up what you told them at the time of your pre-approval. 
Down Payment

This is probably the hardest form of document collection for people to do properly.  But it must be done properly as it is the law set out by FINTRAC under Canada’s Anti-Money Laundering and Anti-Terrorist Act.  If we put on the application that your down payment is coming from your own resources, than that means cash in the bank and we have to show that it has been there for 90 days (not 89) or has accumulated over the last 90 days from means that can be explained, ex. pay deposits or gifts from family.  It can also be a quarterly statement from RRSP’s or another form of an investment.  So, if your money is sitting under your mattress it is not an acceptable down payment on a home, put it in the bank.

I once asked a client if the deposit is coming from their own resources.  They replied yes.  When document collection came and I asked them for 90 days of bank statements, they replied well we got the money from a line of credit.  Not good, we did save the deal under borrowed down payment.  Now my question to all clients is, “Where is the Money Now? Show Me the Money!”  If we put on your application that the money came from your own resources and then there is an additional deposit in your bank account for $5,000 dollars and you tell us it is from your parents, we then have to re-qualify you with gifted money and have your parents sign a gift letter.  If you tell us that the money was transferred from another account then we need a 90 day history from the day it was transferred.

If you are buying your children a home with existing equity in your current home under the secondary home program with as little as 5% down, that is fine as long as we know where the funds are coming from up front. 
It is ok to change your story after your pre-approval and decide your source of down payment is changing but once you have an accepted offer on a home then do your best to have your story straight. 


I do ask for some documents up front, at least a recent pay stub or in the case of self-employed I would ask for two years NOA’s and T1’s. 

This process is why it is so important to be completely honest with your broker because there will come a time when what you told them will have to be backed up with paper.  This is also the time where the difference between a good broker and an ok broker is differentiated.  It is our job to ask you the right questions and base your approval on that.  You may not know the right things to say.  If I ask you how much money do you make a year, and you reply 50k, I have to make sure that is correct.  Is this including over time, or is it regular hours?  If it is including over time then the documents required will change.  In addition to asking for a job letter and pay stub, we will also need two years’ worth of T4’s from your employer to include the extra income.

Let’s say you are self-employed for less than two years and we approved you for a mortgage.  We may require your T4’s from your past employer to confirm you have been in the same industry that your new business is in.

Different types of income require different documents.  Also some lenders do not accept all types of income, so we have to make sure you are going to the right lender.  For example, your year-end bonus may not be an acceptable form of income to certain lenders, but if you need that to qualify then obviously we will have to find a lender who will accept it.

Additional Stuff
We will also require void cheques for where you want your mortgage payments to come out of.  We of course will need lawyer information, and government issued photo ID.  If you are renewing we will need current mortgage statements and property tax statements.  The list of documents changes for everyone's situation.

A good mortgage broker will ask you if the documents that may be required are available for when the time comes or even collect a lot of it up front.  There still may be surprises, but always ask your broker or bank what you will need to prove your income.  It takes three to six weeks to get a NOA from the governemnt, don't find out you need it 2 weeks before closing if it lost.  (There is a way to get it in one day.)  My point is paperwork must be in order all conditions met or funds will not be forwarded.

If you have any questions or concerns I am available to answer them.

Ron Miller