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1. Getting Started?
2. Pre-approvals 3. Mortgage Insurance –Canada Mortgage and Housing Insurance Premium Charts
Home Buyers Plan
Purchase plus Improvements
Refinance to 90% of Your House Value
100% Financing –Good Idea? 4. Mortgage Life Insurance 5. Credit Reporting – What you need to know
1. Getting Started Even before you begin your house search, you should take the time to gain information and education in the area of Mortgage financing. We don't expect our clients to understand the financing business overnight, but we would rather work with a knowledgeable client who understands the process – that is our goal. Our objective is to provide you with as much information as you require in order to make an informed decision. The first step is to apply either on-line using the "Apply Now" button, by fax (download the application), or our preference, come in and meet us in person. It helps having the application before we meet so we can do some preliminary credit and underwriting work prior to meeting with you to discuss your mortgage needs. We strongly believe in face-to-face meetings as it gives us an opportunity to see how much information you know about mortgages. If you are already an expert, or know the product you want, great. But if you are a beginner, you will have many questions and an hour of "Mortgage 101" with one of our reps is strongly suggested. We also have a library of Free Mortgage reports at your disposal.
2. Pre-Approval This can be the most important part of the entire mortgage process. Opposed to what most Bank do, which we refer to as a "Rate Guarantee", we complete a FIRM PRE-APPROVAL. What's the difference? Although the rate hold or guarantee is very important, especially in an upward rate environment, it is more important to collect, review and approve your information up front, before you purchase a home. We like to have a complete file, which includes:
· Signed application
· Credit report
· Income confirmation
· Downpayment confirmation Once we have all of this information, the only item left is the Offer to Purchase. Therefore, on the stressful/ busy/ exciting day when you buy a home, you will not have any financing concerns because we completed a FIRM PRE-APPROVAL months before. This is especially important for CMHC transactions (when you have less then 25% for a down payment), as there are different lending criteria.To us, it just makes sense to do this pre-work well ahead of the buying process. Lastly, this allows you to review, in detail, a mortgage commitment letter and ask lots of questions. An informed client always makes better decisions. All pre-approvals have a minimum of a four- month rate hold or guarantee.
We have listed below the mortgage insurance table which outlines the insurance fees which are charged to borrowers who do not have the entire 25% down payment saved when they purchase their home. These fees can be paid up front or added to the mortgage amount 3. CMHC/GE Mortgage Insurance Premiums and Tables Effective April 2005 | Purchase | Loan-to-Value Ratio
Up to and Including 65%
Up to and including 75%
Up to and including 80%
Up to and including 85%
Up to and including 90%
Up to and including 95%Up to and including 95% With Flex-down | Premium on Total Loan
0.50%
0.65%
1.00%
1.75%
2.00%
2.75% 2.90% | | | Portability
and Refinance | Loan-to-Value Ratio
Up to and Including 65%
Up to and including 75%
Up to and including 80%
Up to and including 85%
Up to and including 90% | Premium on Increase to Total Loan Amount
0.50%
2.25%
2.75%
3.50%
4.25% |
Homeowner mortgage loan insurance premiums vary according to the loan-to-value ratio. Since CMHC began to insure Canadians, they have developed a number of new and progressive programs which when used properly, are very advantages to the consumer.Before we list and explain the top four CMHC programs, we should quickly mention that mortgage insurance and mortgage "life" insurance are completely different products. Mortgage insurance is in place to protect the bank in case a consumer defaults on their mortgage payment. Mortgage life insurance is purchased by a consumer who wants to insure his/her life. Often referred to as creditors insurance, if you purchase mortgage life insurance and then die while the policy is in force, your entire mortgage would be paid in full. More information on this topic is provided below.Four CMHC programs that could be helpful to you and your circumstances. · Home Buyers Plan
· Refinance to 90% of Homes Value
· Purchase Plus Improvements
· 100% Financing Home Buyers Plan: The Home Buyers Plan has enabled many Canadians to buy a home much faster, but there are still many questions about this plan. We receive many questions on the weekly Show "Hot Property" about this program. Call our office for more information.
Home Buyers can withdraw up to $20,000.00 from their RRSP'S account under this plan. There are many rules for this plan - here are a few:
The funds must be in the RRSP for a minimum of 90 days
The funds can be used for things such as furniture, moving expenses and legal cost. In other words, not just for the down payment.
You can replenish your RRSP over a 15-year time period or sooner, if you wish.
You can add the amount ($20,000 / 15 = $1,333) to your income each year and be taxed on it and not replenish your RRSP.
You can use the program again after you have repaid the RRSP money and five years have elapsed
Both Spouses are eligible to withdraw up to $20,000 at the same time.
Be Careful, if you marry someone who has used the plan and you move into their home, you are no longer eligible to use the program. One family, one principle residence. Refinance to 90% of your Home's Value
With the significant appreciation in the house prices over the past five years, many consumers have taken advantage of the refinance program offered through CMHC. No one likes to refinance their home to pay out credit card debt, car loans or line of credit, but sometimes it makes sense to review this option in more detail. Here is a quick checklist: 1. Are you tired of making four or five different payments each month? 2. Do you find yourself making minimum payments each month? 3. Are the other creditors charging interest rates which are higher then today's mortgage rates? Once again, it helps to have a professional consultant explain this program and review your individual needs in detail. If your original mortgage was insured, you only pay the insurance premium on the new money borrowed. For more information on this and any other CMHC program, please contact me. Purchase plus Improvements
This is likely CMHC's best-hidden secret, however, having just completed two mortgages under this plan, it appears that this program is also a secret with many of the Banks. Let me explain…. According to CMHC, there is no limit on how much money you borrow under this program. The concept is simple. You decide to buy a house but the home needs work (new kitchen or furnace, for example). You are required to provide the lender with a quotation for the improvements. The amount of the quotation will be added to the amount of the mortgage.
· The improvement funds will be sent to your lawyer "In Trust" on closing and will not be released until the work is completed and inspected
· Do not expect your Bank to understand this product.
· Your Bank may limit the Purchase Plus improvement amount to 10% of the Purchase Price.This is a great program but a little tricky to understand. The CMHC information is difficult to comprehend. Although we have a few lenders who participate in this program, it has not been widely accepted by the Banking system.
100% Financing on Purchases
Earlier this year, C.M.H.C. announced a new program which allows consumers to borrow their entire 5% downpayment, effectively allowing a consumer to borrow the entire value of the home. There are a few restrictions on where the money can be borrowed from, but basically very few banks and Mortgage companies have embraced this program. Even fewer consumers have acknowledged its existence. A client pays a slightly higher Insurance Premium and could also be subject to higher rates, depending on which Institution approves the mortgage.
Our conclusion at this point is that most consumers will use the RRSP route and remove the required 5% downpayment. For further clarification on this and any other C.M.H.C. program, contact me.
4. Mortgage Life Insurance
It is important to ensure that you have House Insurance and Life Insurance when you buy a home. For most people, this is the single biggest asset they own so it makes sense to protect your wealth. We are not in the business of selling life insurance; we are experts in the field of Mortgage Finance. However, we ask insurance questions to make sure our clients understand the risk involved in waiving our Group Creditor Insurance Policy, which we offer with every mortgage. There are benefits and negatives to the Creditor Insurance Program. It is important to note that you are not required to take Creditor Insurance for a Mortgage. Some Banks suggest this so be careful. Benefits:
· Relatively inexpensive – group rates
· Very easy to set -up – one page applicationDrawbacks:
· The financial Institution is the beneficiary and receives the death benefit – you must pay off the mortgage with the proceeds.
· As you pay back the principle and your mortgage balance decreases, your insurance premium stays the same. This doesn't make sense.We think it is important to speak with an Insurance Professional before you make your final decision. For more information, there is an informative article by Ryan Lang in our Spring 2004 Newsletter. We often suggest that clients should take the creditor insurance and then cancel it once you have looked into term insurance through an Insurance Professional. Also, check with your employer and spouse to see if you already have satisfactory insurance coverage.
5. Credit Reporting There have been many discussions around credit bureaus recently due to the high number of identities stolen in the past few years. The biggest misconception relates to the number of inquiries that an individual is permitted each year. Consumers are allowed to have a number of inquiries each year without it affecting their credit score. A reasonable amount is 7 inquiries. A strong credit score is extremely important. A credit report is the main indicator of your ability to repay debt.For $25, Equifax Canada online will give you access to your personal credit report. It is imperative that people review this information every 12-18 months to insure that the information is accurate. Our consultants are trained to review this information with you in detail when you apply for a mortgage.
Most Banks have now embraced a credit scoring system. Referred to as a FICO score or a BEACON score. Most "A" lenders require a score in the 600 or above range. We routinely find mortgages for clients who have lower scores and we can also legally assist clients in increasing their score over a short period of time.
Credit scoring is based upon many different variables. These variable include:
· The number of credit lines that you operate
· Your payment behavior and pattern
· Credit card and line of credit balance – are you at your upper limits?
· Amount of outstanding current debt
· Any collections? Small Judgments? We cannot overemphasize the importance of knowing and understanding your credit history. See my article on "know your credit score" on my NEWS page.
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