Avoid These 11 Deadly Mistakes When Applying for a Mortgage

Everyday people have their mortgage loan turned down because of one or more of these mistakes.  By taking these few minutes to acquaint yourself with the "11 Deadly Mistakes When Applying For A Mortgage" you can save thousands of dollars on your mortgage.

 

1. Not Knowing How Much Money You Can Put Down 

It's important to know how much you can afford to pay in down payment and closing costs when you apply for your mortgage.  The more you put down the better the terms you're likely to get. At the same time you also need to stay within your means and comfort level.

2. Working With A Mortgage Broker Who Has A Poor Performance Record

Industry insiders know that the most common reason that a sale fails to go through is that the mortgage fails to go through.  Ask your mortgage broker about her/his performance record.

3. Not Understanding The Process

Most of us don't shop for a mortgage very often.  As a result it isn't something we become familiar with.  Work with a mortgage broker who will take the time to answer your questions and uses terms you understand.

 

4. Working With A Lender Who has Only One Mortgage Loan Product

Not all lenders have a range of options when it comes to mortgage loan products.  What if that lender doesn't offer the type of mortgage you need? Or worse yet, what if you need to change mortgage loan products after you've started the process?  Working with a mortgage broker who has many lenders enables you to address these issues without starting the process over again.

5. Making Large Purchases Prior to Your Mortgage Application

Many people think that it is in their best interest to get large purchases completed prior to applying for their mortgage.  As total debt is a key component in determining the amount of home you qualify for it is best to wait until after your home purchase has closed to make such purchases.

6. Over Shopping Your Loan

Each time you call a lender seeking the best possible rate and terms you have your credit report pulled.  Every time your credit report is pulled you risk decreasing your credit score and thus possibly decreasing the likelihood of getting the best rate and terms.  Experts recommend that you select a mortgage broker with a number of lenders and do your shopping with her/him.

7. Hiding Things From Your Mortgage Broker

Most of us have experienced times of financial difficulty at some point.  While it can be embarrassing to discuss issues like this, your mortgage broker is there to help you get loan approved despite such issues.  Your mortgage broker can only help you with those things with which s/he is aware.

8. Making Late Payments

Late payments, especially those within the last year, can be very detrimental to getting the best rate, terms and even the difference of being approved at all.  While this might seem like unnecessary advice, ALWAYS pay on time.

9. Over Using Credit Cards

Credit cards are a convenient way to make purchases, but if not paid off or balances kept low you might find it more difficult to get the best rates and terms on your mortgage.  Keeping your total debt as low as possible helps you get the mortgage that best meets your specific needs.

10. Cosigning On Someone Else's Loan

While it can be a great service to a friend or loved one, signing to guarantee someone else's loan is often a big head ache for the cosigner.  Before cosigning you decide if you're willing and/or able to assume the liability.

11. Not Getting All The Facts

It is important to learn the total cost of your mortgage loan, both at closing and for the life of the loan.  While mortgages can look a lot alike there can be subtle differences which can save or cost you thousands of dollars.  Get all the facts and know what to expect.

Mortgage regulations have changed significantly over the last few years, making your options wider than ever.  Subtle changes in the way you approach mortgage shopping, and even small differences in the way you structure your mortgage, can cost or save you literally thousands of dollars and years of expense.

Get the Right Information - Whether you are about to buy your first home, or are planning to make a move to your next home, it is critical that you be informed about the factors involved.

Posted by Steven Porter. Steven is a licensed Mortgage Agent with Mortgage Architects and retired, licensed, real estate broker with 30 years experience in residential real estate. Certified Reverse Mortgage Specialist (CRMS); Seniors Real Estate Specialist (SRES) and Accredited Buyer Representative (ABR). Steven can be reached at 1-905-875-2582; steven.porter@mtgarc.ca or online at 1800Mortgages.ca

What you need to know about the Principal Residence Tax Exemption

When it comes time to sell the family home, few homeowners give any thought to the possibility of having to pay taxes on the realized profit resulting from the sale. After all, everyone knows that you are not required to pay capital gains tax on your home, right?

While it is true that you do not pay capital gains tax on your personal dwelling, you need to keep in mind that there are very specific rules around this exemption. Should you fail to follow these rules, you may be required to pay capital gains tax on all, or some portion of, the profit from the sale of your home. In this Home Trust Mortgages Blog article, we’ll take a closer look at these rules to help clear up any confusion.

Principal Residence Defined

It is the existence of the Principal Residence Exemption that allows you to forego paying any form of capital gains tax on the profit you make when selling your home. Having said that, you must ensure that your home meets the strict definition of “principal residence” for the entire time that you own the property. More than one homeowner has learned the hard way that after selling what they consider to be their home and main residence, the tax man does not share the same view and capital gains are now owing.

To avoid this costly situation, let’s first look at what qualifies as your principal residence.

For starters, the Canada Revenue Agency allows for considerable leniency regarding the type of home that can serve as your principal residence. Everything from trailers to condos are permitted, but whatever form your principal residence takes, there are four requirements all homes must meet in order to be recognised as your principal residence. 

These are:

• The home must be owned by you or jointly with another person.
• You, your current or former spouse or common-law partner, or any of your children, must have lived in the home at some point for each year that you are claiming the home as your principal residence.
• The home must be a housing unit, a leasehold interest in a housing unit, or a share of the capital stock of a co-operative housing corporation acquired only to get the right to inhabit a housing unit owned by that corporation.
• You declare the home as your principal residence by listing it as your address on official documents such as your tax return.

In addition to the requirements listed above, you may only designate one principal residence per family at a time.

The key point to remember is that maintaining ownership alone is not sufficient to preserve the principal residence designation. For any period that you, your spouse, or your children are not living in the property, and even if you retain ownership, the property cannot be considered your principal residence for that time period.

Consider, for example, situations where owners might not live in the property for several years; this may be the result of a temporary relocation to another area for work or schooling. During this time, unless your spouse or your child continues to live in the house, the property is not considered to be your principal residence.

This means that when you sell the property, for any year that your home is not your principal residence, you will be required to pay capital gains tax for that period. The Canada Revenue Agency has a worksheet available to help determine the taxable amount for such situations.

If you have questions on this or anything else having to do with your principal residence designation, see the Canada Revenue website to avoid an unexpected tax bill when you sell your home.

Note: On October 3, 2016, the Government announced an administrative change to Canada Revenue Agency’s reporting requirements for the sale of a principal residence. For more information, go to Reporting the sale of your principal residence for individuals (other than trusts).

By Pino Decina, EVP Residential Mortgage Lending, Home Trust Company


Posted by Steven Porter. Steven is a licensed Mortgage Agent with Mortgage Architects and retired, licensed, real estate broker with 30 years experience in residential real estate. Certified Reverse Mortgage Specialist (CRMS); Seniors Real Estate Specialist (SRES) and Accredited Buyer Representative (ABR). Steven can be reached at 1-905-875-2582; steven.porter@mtgarc.ca or online at 1800Mortgages.ca

3 Easy ways to finance your home renovation

Renovating your home is within financial reach; increase the value of your home with an updated bathroom or kitchen, new hardwood floors, or energy efficient solutions. Talk to Steven Porter with Mortgage Architects today to see how you can finance your next renovation project!  Posted by Steven Porter. Steven is a licensed Mortgage Agent with Mortgage Architects and retired, licensed, real estate broker with 30 years experience in residential real estate. Certified Reverse Mortgage Specialist (CRMS); Seniors Real Estate Specialist (SRES) and Accredited Buyer Representative (ABR). Steven can be reached at 1-905-875-2582; steven.porter@mtgarc.ca or online at 1800Mortgages.ca

How To Avoid Huge Mortgage Penalties

You bought an investment property with the plan to hold it for 5 years.  The cheapest rate you found was on a closed mortgage, so you selected a 5-year term.  Three years later, you need to sell.  You call your bank and ask them “How much?”
That’s when your jaw hits the floor.

Early payment or pre-payment penalties charged by banks can be huge — thousands of dollars, or even TENS of thousands.  Basically, with a closed mortgage, you have agreed to be bound by the terms and conditions of your mortgage until the mortgage term is complete.  And that includes paying the bank a lot of interest.

Banks are not happy about losing all those interest payments just because you found a cheaper rate somewhere else.  So most mortgages include specific language that restricts what you can and can’t do, as well as any penalties they charge to let you out of the contract (if they allow you to at all!).

Do You Know What You’re Signing?

Some of you may have heard me talk or write before about how everyone should learn to read legal agreements.  Although most people want to defer that task completely to their lawyer, I highly recommend everyone make the effort.  Why?  Not so that you can replace your lawyer, but because they may not realize that a small detail is important to you.
You should always know EXACTLY what you’re signing and agreeing to,
especially it comes to banks and other lenders.

How Penalties Are Calculated?

Now a few of you may be thinking… aren’t mortgage pre-payment penalties standardized for all mortgages?  No they are not.  In fact, over the past few years, some lenders have become more ‘liberal’ with the interpretation of their vague penalty clauses in their contracts.

Traditionally, there is a very common method used to calculate any penalties you will owe if you decide to break your mortgage.  You will pay the GREATER of the following:

• 3 Months Interest – Basically you take your next 3 mortgage payments, break out the interest portion, add them up, and that is your mortgage penalty,    OR 
• The Interest Rate Differential (IRD) – This one sounds complicated, but it’s actually quite easy (or should be).  If you have 2 years left on a 5 year mortgage, find out what the lender’s current posted 2-year rate is, subtract that from your original rate, and multiply that by your mortgage balance.
  

Banks Get Greedy and Play Games

The problem is that over the last few years, mortgage lenders have begun playing a few tricks with the IRD calculation to increase their profits:

• Some use posted rates for IRD calculations, while others use discounted rates (which increases the penalty) 
• Some round up to the next longest mortgage term when determining how much time is left, others round down (which increases the rate difference and thereby the penalty). 
• Some have very vague penalty calculation language, which leaves it open to abuse 
• I’ve even seen one lender base the penalty a complicated formula involving bond rates!
  

Here is one example I posted to my social media accounts awhile back: 

• Customer fee to payout mortgage doubles 
• And there's a lawyer that is launching a class action lawsuit against CIBC because of unfair penalty calculation practices.
  

The average person has little to no chance of calculating the penalty themselves because often the formulas are not clear or they are very cryptic.  Often times, even when you phone their call centre, their telephone agents won’t be able to explain it to you.  That’s because someone at the head office is calculating it, often times in their favour.
In other words, their calculation methods are not transparent.

Now I’m not saying that all lenders do this.  Large banks are very customer-service oriented, and even if a penalty ends up being very large, they may reduce it to avoid ‘bad publicity’. But B and C level lenders are less likely to do this, as they do not advertise to the public (they are only available through brokers) and obviously it’s more profitable for them.

The Game Playing Gets Personal

Recently, my sister wanted some help with reducing her mortgage costs.  She was 4 years into a 5 year mortgage, and after a bit of research, I discovered rates had dropped almost 3% from what her original mortgage was locked in for.

She called the mortgage lender and asked them what the penalty would be to break the mortgage. But for some reason the amount didn’t add up to my calculation — it was over $1,000 more than what either 3 months interest, or the IRD would be.

We’re currently following up with the lender and will press them for exactly how they calculated it.  The mortgage contract language is in plain English and fairly clear, but it doesn’t specify certain things (like posted vs. discounted rates).  Even the call center rep couldn’t explain the formula.

Fortunately, her mortgage has a 20% pre-payment clause in it, so there is some leeway to reduce the penalty through some creative timing of payments.  I’ll explain how below…

How do you protect yourself?

If you’ve already got a mortgage, it’s not too late to reduce the penalties you have to pay. Here are a few tips to follow whether you are finding a new mortgage, or are trying to get out of your current one…

Read your mortgage contract – Find out how much you can pre-pay every year, and how much you can increase your mortgage payments. Find out EXACTLY how the penalty is calculated if you have to break your mortgage. Don’t accept vague language or you’ll end up paying for it.

Determine when you can break your mortgage – Some mortgage lenders do not allow you to break the mortgage at all, unless you are selling the property.  In other words, you are stuck making payments until the end of the mortgage term and you can’t refinance… even if you offer to pay a penalty!  This happened to me a few years ago, but fortunately I didn’t have much time left on the original mortgage term.

Calculate what your penalty should be – You can use the simple formula I gave above to calculate what your penalty should be.  But if you want to calculate it while playing the banks’ games.

Take advantage of any pre-payment clauses – Many mortgages include a clause that allows you to pre-pay your mortgage balance up to 20% per calendar year, without a penalty.  If you are facing a huge penalty, you may want to consider pulling funds temporarily from another source (e.g. family members or friends), paying down your mortgage by 20%, and THEN refinancing your property and paying the now reduced penalty.

It’s even better if you are close to a calendar year end because you can do it TWICE within a very short period of time. This is exactly what I will be helping my sister to do — pre-pay 20% before December 31, 2011, and then pre-pay another 20% in the New Year.  Then she’ll proceed with the refinance and save hundreds if not thousands. Yes, there may be interest costs on the temporarily borrowed funds, but those will likely be much less than the savings on the penalty.

I learned this trick years ago when I went to my TD Bank branch and wanted to refinance.  The teller was kind enough to show me how to do this. Unfortunately, many lenders will not because they receive a higher penalty. In fact, my sister’s current mortgage lender has said nothing about how to do this…

Check if your mortgage is CMHC insured – There’s a little known rule I discovered that states if you have a CMHC insured mortgage that has a term of longer than 5 years, you can pay off your mortgage, at any time after 5 years has passed, with only a 3-months interest penalty — no IRD!

Ask to speak to the bank manager – It’s amazing what can be accomplished when you go above somebody’s head.  Even if the bank manager can’t help you, go above them, and so on.  Many banks have complaint departments and you can contact them.  If none of these work, consider the next step…

Contact the Ombudsman for Banking Services and Investments – I didn’t even know this organization existed until I was researching this article.  What a great resource!  This organization works for FREE for consumers, and they help mediate complaints.  I found more than one blog post where the person went to the OBSI and was able to successfully negotiate reimbursement of a portion of their mortgage penalties, even after dealing with the bank directly had failed.

Go public – Most big lenders spend a fortune on advertising, but nothing spreads faster by worth of mouth than a bad experience.  If you go public (or threaten to), they may re-consider and adjust your final penalty. Many local newspapers across the country have ‘consumer advocate’ type columns that fight battles for consumers on a variety of topics.  While writing this blog post, I also did some research and discovered this problem has existed for over a decade, and the federal government has been very slow with enacting any sort of change. 

Conclusion

As with anything in the financial world, if you want to protect yourself , your best defense is to educate yourself and know what you’re signing. And don’t forget to read your mortgage documents!
Author Unknown

 Posted by Steven Porter. Steven is a licensed Mortgage Agent with Mortgage Architects and retired, licensed, real estate broker with 30 years experience in residential real estate. Certified Reverse Mortgage Speicalist (CRMS); Seniors Real Estate Specialist (SRES) and Accredited Buyer Representative (ABR). Steven can be reached at 1-905-875-2582; steven.porter@mtgarc.ca or online at 1800Mortgages.ca

How to Secure the Best Financing Rates when Buying a Home

A new report has just been released which identifies a foolproof, 3-point plan which any home buyer can use to secure the best financing rates when they buy a home.

When you're looking to buy a home, the first thing most home buyers do is start the process of house hunting. However, experience proves that this is one of the last steps you should be taking if you want to get the most home for the least amount of money. In fact, shopping for the best financing should start long before you start shopping for a home.

The experience of thousands of area home buyers has been summarized in a new report entitled "Best Financing: A 3-Point Plan". This report outlines 3 critical steps you must take to obtain the absolute best financing rates when you buy a home. It tells you where you should go, what questions you should ask, and how to manage the process to your personal advantage.

To receive a FREE copy of this special report, follow the link below:
 
Your BEST Financing Rates start here.

Steven Porter. Steven is a licensed Mortgage Agent with Mortgage Architects and a retired licensed, real estate broker with 30 years experience in residential real estate. He can be reached at 1-905-875-2582; steven.porter@mtgarc.ca or online at 1800Mortgages.ca

Ontario helping first-time homebuyers

Ontario is doubling the rebate on the land-transfer tax for first-time homebuyers to $4,000, but is increasing the same tax on homes that sell for over $2 million.
The government says half of first-time buyers won't pay any land-transfer tax to the province, while the half-percentage point increase on homes over $2 million will affect less than one per cent of the population.
The province takes in over $2.1 billion a year in the land-transfer tax, and the government says any increase in revenues from the increase on luxury homes will help pay for the doubled rebates for first-time buyers.
Premier Kathleen Wynne had said the government was worried about the difficulty faced by first-time buyers trying to get into the housing market, especially in the Greater Toronto Area where the average price is $762,975.
The government also announced it is freezing the property tax on apartment buildings while it reviews how it affects rental market affordability.
The changes to the land-transfer tax are outlined in the Ontario government's fall economic statement, which says that home ownership has become a key factor in many people's long term financial security.
The Ontario Real Estate Association had asked the government to expand the land-transfer tax rebate program for first-time buyers as one way to help more of them get into the housing market.
The city of Toronto has its own land transfer tax, which offers rebates of up to $3,725 for first time buyers.
Ontario's land-transfer tax rises from half-a-per cent on the first $55,000 of a purchase price to two per cent for everything above $400,000. Toronto's land-transfer tax is one per cent on the first $55,000 and two per cent on the rest.
The Canadian Press

What are the Benefits of Debt Consolidation using home equity?

Consolidating debt with a home equity line of credit (HELOC) or by using 2nd mortgages is a simple strategy to implement and has multiple benefits. Consolidating debt from various sources into a single loan means that you can amortize a single monthly payment over a fixed period of time at much lower mortgage rates of interest. Some of the advantages to this strategy include:

1. Consolidate debt to pay more principal and less interest and reduce debts faster. 
2. Decreased monthly payments improve your cash flow so you can stop playing catch up and start getting ahead. 
3. Instead of juggling multiple bills, you make one payment each month – freeing up time and reducing stress. 
4. Get multiple creditors and collection agencies off your back.

Benefits of Second Mortgage
 

Second mortgages come with a wide range of benefits for borrowers. Being able to get rid of high-interest debt, repairing credit, completing home renovation projects, funding college, and starting up a business are just a few of the things that can be done with a second mortgage.

What is a Second Mortgage?

Second mortgages are loans that can be applied to either residential or commercial buildings.

These loans sit in the second position, behind the first mortgage loan on the property.

Second mortgages can be easily obtained once the property owner has built up enough equity in their home or business.

By tapping into the equity already accumulated, home and business owners can borrow from money that is already theirs.

Has your property value recently gone up? Or do you nearly have that first mortgage entirely paid off?

Contact me to see how much of your equity you can tap into.

Posted by Steven Porter. Steven is a licensed Mortgage Agent with Mortgage Architects and a retired licensed, real estate broker with 30 years experience in residential real estate. He can be reached at 1-905-875-2582; steven.porter@mtgarc.ca or online at 1800Mortgages.ca

A Debt Consolidation Mortgage

What Is a Debt Consolidation Mortgage? A debt consolidation mortgage is when you refinance your mortgage to incorporate all your high interest debts into one payment – your mortgage. Find an affordable home in need of TLC and transform it into that perfect home you always dreamed of; with new bathrooms, kitchen, and hardwood floors. Add the estimated costs of the renovation to your mortgage at the time of purchase to finance the entire renovation transformation without having to wait! Debt Consolidation Benefits • A much lower monthly interest rate that all your debts will now fall under • Lower monthly payments • The comfort and convenience of making only one monthly payment. • Improved credit score from making all your payments on time. Here’s an example showing the effect on your monthly payments:

Now all that’s left is to figure out precisely which solution is best for you, and wipe out all those high interest payments. You already have the mortgage, so if you also have some high interest debt you’d love to unload... Call me today!

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