Mortgage Finance

Should Paying Off The Mortgage Wait?

There is never a downside to paying off your mortgage because it means interest saved which means thousands more dollars in your pocket, however if you recently received a gov’t. tax refund there may be other factors to consider. 

 

If you take a $1400.00 tax refund and apply it to a typical mortgage at 6% amortized over 25 years you have just saved $38,000. In interest. Nothing wrong with that.

 

|However, with interest rates at 4.25% to 5.5% whether your variable rate or fixed term you might want to consider some other options.  Do you have any other forms of debt out there at higher rates of interest, credit card debt, car loans etc?  With credit card rates at 18-30% it makes sense to pay off all credit card debt first. \

 

Have you made any purchases on the don’t pay until plan… such as a plasma TV. with no payments until 2010.  Did you know that if you don’t pay off the loan before the due date that you will be hit with a 30% interest rate?

 

Depending on your tax rate it may be smarter to put the money into your RRSP.  If your earn over $75,000 per year up to and including $123,000. Per year your tax rate would be 43%. If you put the extra cash into your RRSP you will get back almost .50cents on the dollar.

 

Funding a child’s RESP might be a good idea. The gov’t. matches 20% up to your first $2500.00 contribution per year … a nice big  rate of return.

 

Another little trick you can use if you have a line of credit mortgage.  As you pay down the mortgage a line of credit becomes available.  If you apply your tax refund to your mortgage and re-borrow from your credit line and invest in mutual funds or stocks outside of an RRSP then your can deduct the interest cost of that loan because you are using it to create investment income.

 

This helps you to build wealth for the future plus you have converted that debt from non-tax deductible to tax deductible.

 

 

 

 

 

What Kind of Borrower Are You.

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Your credit score and report is one of the most important things you have going for you.

If your hoping to buy the new iphone, a new home theatre system using credit your in store credit will be checked as you stand in line. You won’t walk out with the goods unless you check out .

Banks, employers, car dealers, insurance companies, retail credit lenders want to know what type of borrower you are before they will give you credit.

There are easy and free ways to keep up to date on your credit file.

There are two things two be aware of. One is your credit report the other is your credit score. Your credit report is a record of all your credit transactions including the past 60 days. It shows your outstanding loans, lines of credit, credit cards, credit limits and your payment history.

Your credit score is a number and it is determined by feeding all of the data from your credit report through a complex algorithm,

Your credit score immediately tells a lender what type of borrower you are and determines if you will get a loan or not and what type of loan. If you have poor credit you may still get a loan with a large deposit or down payment but you will have to pay a substantially higher rate than someone with good credit.

Credit Bureaus do occasionally make mistakes so It’s important to check on your credit score once a year. Both Trans Union and Equifax prepare credit reports in Canada. You may want to get one from each and make sure that they both have basically the same information.,

Your credit score is called your FICO or Beacon Score. If you have an R1 rating it means you pay your bills every 30 days as agreed. An R2 means you are a 60 day payer. You pay but you are often late. An R9 means a bad debt which the credit grantor wrote off because you defaulted on your commitment. R9 can also indicate a bankruptcy.

You are entitled to a Free copy of your credit report by mail each year.

To improve and build your score just create a history of paying your bills on time. Also have your credit limits raised on your cards if you can. Never borrow to your cards credit limit. Only ever borrow up to 80% of whats available on your card. When you go to or over your credit card limit this reduces your credit score. When you used just a small amount of your available credit this boosts your score.

Closing inactive cards will damage your credit and so will applying for too many cards at once. Never apply for more than 3 cards in one year.

If you want to buy a car or a home within a years time start working on your credit now. With one year of regular payments you can vastly improve a weak credit score and get in onto more solid ground. This will allow you to get a loan and pay less interest on it.

The Death of Zero Down Mortgages In Canada

As of July 11^th the Gov’t of Canada has tightened the rules on government backed mortgages. 

There are five  major changes to the mortgage rules.

1/ No more Zero down. You will need a minimum of 5% downpayment to purchase a home. If you need to buy Zero Down you can still do so and must close the property by Oct. 15^th.

2/ 40 years amortizations have been pared back to a maximum of 35 years amortization.  Ammortization is the period of time over which you retire your complete mortgage debt and own your home outright.

3/ You will require a credit score minimum of 620 to obtain a gov’t backed mortgage. Your credit score must be consistent and documentation will be required to prove that the valuation of the property is a reasonable one.

4/  No more government backed interest only mortgages.

 Meaning no mortgages where there is no principal paid in the first few years.

5/ A maximum of 45% of a borrower’s income can be used to retire debt.  This means a combination of mortgage payments, car, credit card, student loan and other essential or fixed payments

These were the five major changes that affect First time home buyers primarily.

The Gov’t is prudently trying to avoid a mortgage meltdown similar to that of the U.S. markets.

At the moment in Canada mortgages in arrears are stable at 0.27% the lowest levels experienced since 1990 and well below the highs of 0.65% in 1992 and 1997.

If your mortgage is coming due or you would like to have a mortgage review or mortgage debt consolidation please let me know. I will set up a time to meet with you and review your situation.  You can reach me at mytorontohome@gmail.com.

I am now affiliated with Dominion Lending as a Mortgage Broker.  We can now offer both Real Estate and Mortgage Brokerage services to all of our clients.

DO YOU INTEND TO BUILD A HOME, A COTTAGE, RENOVATE?

Understanding the Construction Financing Process 1

Building your own home is an exciting and rewarding project. We’re here to help you understand the process of financing the construction of your new home so that

you can get started with confidence and proceed with peace of mind.

You may have some experience in obtaining mortgage financing but as you’ll see, construction financing is a more detailed process, with several important milestones that don’t take place when you buy an already existing home.

We’ve created this guide to help you plan your project and understand how construction financing works.

What to expect. When you build your own home, there are many more steps and expenses than if you buy an existing home. In the simplest terms, a typical mortgage is advanced in one lump sum. Construction financing is different. At TD Canada Trust, the total amount borrowed to complete a project is usually advanced in three stages within one year.

Typical Mortgage

You receive all of the money you borrowed at the time you obtain the title to the property.

Construction Financing

At TD Canada Trust, you pay the up-front costs, then receive up to three advances.

First advance at the Rough-in stage

Second advance at the Drywall stage

Third advance at the Completed stage

Determining what you need to get started

During the application process, you will need to understand the initial costs that you will be responsible for.

Land

To secure construction financing you are required to own the land, as TD Canada Trust will need to register a first mortgage on it.

Servicing

The land you intend to build on needs to be fully serviced. This includes site preparations and municipal services such as septic service, water connection, sewer connection,

hydro and gas service.

Soft costs

These are out-of-pocket expenses for services and charges you are likely to incur at the outset of, and throughout, the construction phases. Depending on your plans and the location of your home, these will likely include –

• Property taxes • Fees for architects and engineers

• Municipal permits • Fees for realtors and solicitors

• Fees for appraisals and inspections

Initial building costs

You are expected to finance the initial stage of construction (approximately 35% of construction) with your own money.

Cost overruns

We recommend that you set aside an additional 15% of the estimated construction costs to cover unexpected overruns.

Interest costs

You are required to make interest-only payments on all amounts advanced until your regular principal and interest payments begin.

In addition to the costs already outlined, you will also need to budget for lien holdbacks.

1/Your home is at the Rough-in stage when the foundation, sub-floor, framing, sheathing, roof, roughed-in electrical and plumbing are completed. This is typically 35% complete.

2/Your home is at the Drywall stage when the exterior completion, pouring of the basement floor, and installation of the heating source are completed. This is typically 65% complete.

3/Your home is at the Completed stage when the finished interior doors, floors, carpentry, painting, heating,plumbing, electrical, walks and driveways (subject to season) are completed. This is when the house qualifies for an occupancy permit.

Understanding the Construction Financing Process 2

Lien holdbacks

Your solicitor is required to hold back some of the money advanced at each of the Rough-in, Drywall, and Completed stages of your construction project. This money is held in

reserve in the event that a contractor or supplier claims a lien on your property. A lien is a claim by a contractor against the property to secure repayment of unpaid construction costs.

The amount of your lien holdback and the number of days that your funds will be held in trust varies by province.

TD Canada Trust will instruct your solicitor to hold back a percentage based on the chart below. Ask your solicitor for details.

The application

Here’s what you should plan to bring to your first meeting

with your TD Canada Trust mortgage representative – David Avrahami (416-833.6693)

All information associated with the construction

• Construction contract, including costs

• Construction plans or blueprints

• Quotes for labour and material if you are acting as the general contractor

• Site preparations, including municipal services for the lot (e.g. excavation, septic service, water, sewer, hydro, gas, etc.)

• Evidence of ownership of the land and/or a copy of the purchase agreement with evidence of available funds

Other requirements to help fulfill the application for construction financing

• Confirmation of required funds to complete 35% of construction (the Rough-in stage)

• Confirmation of income/employment

• Name, address and telephone number of your solicitor As we familiarize ourselves with the details of your project, we can tell you what, if any, other documents specific to your application may be required.

The appraisal

Determining the estimated value of your completed home

TD Canada Trust will obtain an appraisal to estimate the value of your completed home, including the land.

4/To arrive at an estimate, your appraiser will review your construction plans and blueprints to understand the type of home you are building.

For the purpose of the mortgage application, the value of the completed project is the lesser of a) the cost to

construct including land value or b) the appraised value.

Province Percentage of Holdback

Alberta 10

British Columbia 10

Manitoba 7.5

New Brunswick 20

Newfoundland 10

Nova Scotia 10

Ontario 10

Prince Edward Island 20

Quebec 15

Saskatchewan 10

Understanding the Construction Financing Process 3

Your first advance – the Rough-in stage

When you have completed the Rough-in stage, we will send an appraiser to your home to inspect the property and confirm that the Rough-in stage is complete.

Up to this point, you will have paid all expenses from your own resources.

TD Canada Trust will release your first advance of funds to your solicitor, who will keep a percentage of it as a lien holdback. The percentage varies by province. At this point
monthly interest-only payments will commence. The amount of your first advance is determined by a formula based on the total requested mortgage amount and the remaining cost to construct your home.

The estimated amount of this advance can be calculated by your TD Canada Trust Representative.

Prior to releasing the first advance, your solicitor will need –

• Builder’s all-risk insurance assigned to TD Canada Trust

• A survey showing the location of all buildings to be constructed

• Confirmation that all necessary building permits are in place

Your second advance – the Drywall stage

When you have completed the Drywall stage, we will send an appraiser to your home to inspect the property.

TD Canada Trust will release your second advance to your solicitor. Once again, a lien holdback will be applied.

The amount of your second advance is dependent on the requested mortgage amount, the amount of the first advance and the remaining cost to construct your home.

Your third advance – the Completed stage

When you have completed your home, we will send an appraiser to your home to inspect the property.

When the appraiser has determined that your building is complete, TD Canada Trust will release the final advance of funds to your solicitor. A lien holdback will again be applied.

Prior to releasing the final advance, your solicitor may request further documentation, which may include –

• Well Water Potability Certificate (if applicable)

• Flow Certificates and Septic Certificates (if applicable)

• Occupancy Permit

• New Home Warranty Certificates (if applicable)

Release of lien holdbacks

All lien holdbacks will be released to you approximately 30-60 days (depending on your province) after your project has been completed, assuming there have been no lien

claims made against your property.

Anticipating mortgage interest and principal payments

By the time you reach the Completed stage, most of your mortgage amount will have been advanced to you through your solicitor. You will be required to start making regular

mortgage interest and principal payments shortly after receiving your third advance.

Financing the construction of your custom home or renovations of your exiting or newly purchased one can be complicated….but made easy with my help.

Please call me to discuss it all at your convenience: Contributed By DAVID AVRAHAMI at TD Canada Trust– 416-833.6693

The Truth About Interest-Only Home Loans & Mortgages

An interest-only home loan is one that gives you the option of paying just the interest or the interest and as much principal as you want in any given month during an initial period of time after your closing.

You are only committed to the very low interest portion of the loan or mortgage – and in months when you have extra cash, you can choose to pay down the principal.

We offer a variety of interest-only home loan options, including fixed-rate, variable-rate, fully open, or up to 10 year closed. Our interest-only home loan programs are offered as interest-only loans for periods of either three, five, seven or ten years.

For many, the most appealing feature of an interest-only loan is that you are in control of your payment amount and your cash flow in any given month during the interest-only period, and your monthly mortgage payment will be lower than it would be with an interest plus principal payment home loan.

Your interest rate may or may not be lower than a traditional mortgage, depending on your specific situation, but you will have the option of flexible payments.

Who Is an Interest-Only Home Loan For?

There are a number of good reasons to consider an interest only home loan. For instance, it might make good financial sense.
On a traditional 25-year mortgage, roughly 70% of the payment goes toward interest during the first six or seven years of the loan. If your interest rate is low, then you've borrowed money at a good rate.

Instead of paying down that low rate loan, you could take the extra money you’d have each month from making interest-only payments, and invest it in something that would bring you a higher rate of return.

Depending on your loan amount, you could have access to thousands of dollars over the course of several years to invest or reduce high interest debt, including credit card debt.

An interest-only home loan may also be a good option for people who expect to be in their homes for less than ten years. The average homeowner stays in their home between five and seven years.

An interest-only mortgage is ideal for first time homebuyers: it provides very low initial payments, and when they can handle the costs of owning a house they can convert it to a regular mortgage.

As mentioned before, home mortgage payments are mostly interest for the first years of the loan. Many homeowners like the option of making interest-only payments and using the extra money as they please – save for college tuition, make home-improvements, or buy a much-needed new car.

Common Misconceptions About Interest-Only Loans

While an interest-only home loan may be an appealing option to many, there are a number of common misconceptions that you should be aware of prior to making any final decisions.
One common myth is that if you’re not paying down your loan’s principal, you’re not building equity in your home. This is not necessarily true.

Homes in the Canada have been appreciating between 5 and 6% a year. Chances are that even if you’re not paying down your principal, you’re building equity in your home through appreciation.

You should also know that with any interest-only home loan, you can refinance anytime you’re ready for the higher payment and start building equity.

Is an interest-only home loan right for you? Call me today and I’ll help you come to a decision that’s right for you.

This article is contributed by Suman Singh Mortgage Alliance, Toronto www.welendmoney.ca suman@welendmoney.ca