Posts by Kyle Green:
|Q: I own a house worth about $830,000.00
I am in the last 2 years of my mortgage and owe about $40,000.00
I owe about $65,000.00 on a secured line of credit and about $20,000.00 on a credit card
I plan on doing about $200,000.00 in renovations this year
I am not sure if I should increase my line of credit to include the credit card and the cost of renovations or
remortgage. Right now I am paying just about all principal on the mortgageGeoffrey
A: Hi Geoffrey,
Usually when borrowing large sums of money and for an extended period of time, it makes more sense to borrow these on a mortgage instead of a Line of Credit. Here are the pro’s for each:
Line of Credit:
– Interest only payments
– Open, so can be paid off at any time
– Only pay for the amount you are borrowing at any time
– Lower interest rate
– Part of the payments are principal (currently around 50% of your payment will go towards principal!)
A Line of Credit is usually priced at around Prime +.5% (3.35%) and most major banks are Prime -.6% on a mortgage (2.25%) so you would be saving around $2,000 per year in interest costs by putting this on a mortgage. However, you may wish to set it up so that you have a larger line of credit to utilize until you have finished all the work, so you don’t pay interest for the entire $200,000 right away (like you would on a mortgage) and just make sure you have the right product that would allow for you to “lock in” that portion once the renovations have completed.
It definitely makes sense to roll in the credit card debts at this time as well.
Assuming you qualify, you can borrow up to 80% of the property value on mortgage and LoC portions and some lenders allow you to have multiple mortgage+LOC portions inside of the product, so this would probably be our advise.
Please contact me personally to learn more about what options you may have and what kind of products you would qualify for. 778-373-5441 or Kyle@GreenMortgageTeam.ca.
Q: I want to buy property and have a manufactured home put on it. What type of mortgage should I be looking for? Genevieve
A: Hi Genevieve,
The best way to get a mortgage for this is to arrange it so that you take title to the land and the manufactured home at the same time and get a mortgage at the time that the manufactured home has been placed on the property. You may be able to get a mortgage up to 95% financing for a manufacture home mortgage if this is the case, minimizing the amount of down payment required.
You can usually arrange with manufactured home companies to pay them once the mortgage funds come in a few days after the home has been set up. The home would be set up and completed a few days before the completion date of the land purchase which will give time for the lender to arrange an appraiser to inspect the building and confirm it is ready to be lived in and confirm the value.
It is even easier if the manufactured home seller owns the land themselves as you only have to deal with one seller instead of organizing both sellers to ensure both of their requested timeframes can be met.
A manufactured home is not to be confused with a trailer as these mortgages can be different. In fact, some lenders still don’t lend on manufactured homes at all.
Feel free to contact me if you have any further questions!
Q: Hi Kyle, I read in the Sun today that the OSFI is going to be watching over CMHC now and that there may be new changes to mortgage rules. What do you think will happen with mortgage rates? Will financing get tighter again? Thanks, Heather
A: Hi Heather and Harry,
It will be interesting to see what will come down the pipeline with the OSFI overseeing CMHC.
The inevitable change that occured is the way that mortgages are securitized. It will likely become more expensive for banks to securitize their loans the way way they had done in the past, and this cost may end up getting passed to the consumer. Economists predict this cost could be anywhere from 10 – 20 basis points (.1% – .2%).
With regards to financing product changes, the OSFI had made it clear that they do not want Canadians using HELOC’s (Home Equity Line of Credit) as an ATM machine, and are strongly suggesting that banks cut total financing down from 80% to 65% for these products. This would have a large impact on investors, as HELOC’s are an integral part of most investment strategies, but also on your average homeowner who wants to borrow money for improvements to their house or for debt consolidation. How much pull CMHC will have over the banks with the OSFI overseeing them is yet to be seen.
CMHC has already tightened up financing and although they haven’t changed your guidelines, it is becoming apparent that as they come closer to their $600 Billion cap, they are beginning to become much choosier with who they will insure. Clients with tight debt servicing (but still fall within guidelines) are beginning to get declined much more frequently than before. Self employed borrowers and clients relying heavily on rental income will continue to feel the squeeze.
Most of the tightening already began with CMHC’s realization in early February of this year that they were nearing their cap. That being said, don’t be surprised to see a few tweaks here and there to keep the OSFI happy.
I am a civil engineer who graduated less than a year ago, I have a 2 years internship with the government as a bridge engineer intern. me and my fiance are planning on buying a house, we have got the pre-approval for more than the amount that we are buying but im afraid that we won’t qualify for CMHC since my position is a 2 years internship. there is a good chance that I do get a premanent position ( i was told during my interview that 98% of the interns do get a permanent position even before their internship is over).
Does anyone know anything about this or have had a similar experience?!!
Internships are tricky because you are not 100% guaranteed a position afterwards. Banks will always think of the worst-case scenario, which would be that you could be out of work with no severance package in 2 years.
Usually what we do for clients in your position is see if parents may be able to co-sign for the mortgage (ideally without them needing to be on title). Then, when you are offered a permanent position you can contact the bank and have them removed from the mortgage as you would now have the income to carry the payments yourself.
Hope this helps. Feel free to contact me at 778-373-5441 if you have any further questions.
Is the mortgage industry running out of money?
The Canadian mortgage industry has long been lauded for its stable lending criteria and ability to hold the fort during the worldwide recession. Through the wonderful blue sky of 2.99% 5 year fixed money however, is a storm of international and national constraints that may cause a slowdown in mortgage and housing markets.
We have all heard of Europe’s troubles. In a way, Canadians have been able to benefit from this as mounds of cash left European bond markets to park in North American bonds, which are considered lower risk. This has caused Canadian and American bond yields to plunge to levels hovering below inflation (5 year bond yields are around 1.3% right now). Many banks “securitize” mortgage loans, and sell them to investors as what is called a mortgage-backed security. Because they are similar to bonds, fixed mortgage rates tend to rise and fall with bond yields. Today, take a bond yield, add about a 2% spread (cost of funding the mortgages, and of course, profit) and that’s where most major banks are pricing their fixed rates.
So why the fuss? Low rates are good for Canadians, right? The issue with international volatility is that as perceived risk with purchasing these mortgage-backed securities rises, it becomes harder to find buyers. Making matters worse, new global standards released in 2011 (Basel III) increased the percentage of money banks need to keep in their bank accounts for each dollar lent on mortgages. One of the primary reasons Macquarie Financial left the mortgage market last summer was due to these new rules – it made more sense to use those reserve funds to earn a higher return in one of their other 100 divisions.
But even Greece going bankrupt could have a much lower impact than what is happening at home. News spread on Jan 31st that CMHC is starting to worry that they are closing in on their $600 Billion cap, currently sitting at about $541 Billion. CMHC is required by law to stay below this cap. Many consumers are oblivious to the fact that many major lenders insure bulk books of their mortgages, even at less than 80% financing where CMHC is not necessary. This stems back to the securitization process – it is significantly easier to sell a mortgage to investors if it is backed by CMHC.
This could change the Canadian housing and mortgage markets significantly. Raising the $600 Billion roof will not be easy politically, as Canadian citizens are on the hook if CMHC cannot afford to cover default losses. If the money supply begins to shrink, most lenders still want to keep their “AAA” business: income qualified, 20% down payment, owner occupied residences, etc. When the money supply begins to shrink, it happens on the back end. We saw this come under fire when the financial crisis started taking it on the chin in late 2008. Subprime lending nearly disappeared in Canada, commercial lending books were frozen, and lending for rental properties began tightening.
Some lenders have already begun making changes to their lending criteria, but if CMHC is not granted a ceiling increase we may see:
– Less competition as non-bank lenders are forced to reduce lending
– Higher rates as banks find it more difficult to find buyers for uninsured mortgage bundles
– Tighter restrictions on who banks lend to (like self employed and rental programs)
Could this be the government’s way of slowing down a heated housing market without raising rates? Either way, it may be a good time to review your mortgage(s) and act soon if you worry about what may come.
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