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Refinancing Library
Consolidate Other Debt
Renovations and Home Improvement
Combining Mortgages
Breaking a Mortgage and Transferring
Refinance & Home Equity Financing Considerations
Consolidate Other Debt
Most unsecured debt is priced by your bank at a higher rate than your mortgage in order to compensate them for the higher risk of loss if you default. For many people it only makes sense to use available home equity to pay out this debt, as it typically reduces interest costs significantly. If the total of the existing mortgage and the debt to be refinanced is less than 80% of the value of your home, and you qualify in terms of income and credit standing, refinancing your first mortgage should be a breeze.
In fact, using Your Mortgage Professionals is the perfect way to achieve this consolidation. Get Your Mortgage Professional working for you now. Or call toll free
1-877-843-8989.
Renovations & Home Improvements
If you want to spend a significant amount of money on improving your home, you may be able to take out a lot more equity than you realize! Your Mortgage Professionals can advise you through this process. Both insurers – Genworth Financial and CMHC – will insure new mortgages which are "topped up" for this purpose, if the total of your current mortgage and the new funds exceeds 80% of the current home value. Not all improvements are eligible, however. Pools and spas are typical "over-improvements" which may not qualify for a high-ratio equity take-out. Of course, if the total requirement is less than 80% of your home's current value, you should have little trouble getting the "top up" you need – regardless of the degree of luxury you plan to add.
Combining Mortgages
Where the combined mortgages result in one "high ratio" mortgage:
If neither (or none) of the mortgages you're combining was ever insured, but combining them results in a high-ratio situation, you'll be required to pay an insurance premium. You need to look closely at the total savings the combination will give you, in order to determine whether this is worthwhile financially.
Where the combined mortgages result in a new "conventional" mortgage:
High ratio insurance is not required. As long as you qualify with your income and credit standing, Your Mortgage Professional will help you achieve this quickly and conveniently.
In both cases there is one critical consideration which causes the failure of many such finances. The new mortgage often requires a fraction of the cash flow previously needed to service the now consolidated debt. Many who go through this process not only absorb the cash flow savings into an improved lifestyle — they either re-incur debt that they paid out, or incur debt for which they now qualify — or both. It is important to approach such a consolidation/re-combination of obligations with the clear and focused goal of applying all savings toward paying down the mortgage. Otherwise, the new mortgage will be a burden, rather than a solution. For more information contact us today at mortgages@invis.ca or call toll free 1-877-843-8989.
Breaking a Mortgage and Transferring
Many closed mortgages have the feature that allows the balance to be paid out with a penalty after a certain time has elapsed on the mortgage. Check the "prepayment" clause in your mortgage to determine your own situation, or better still, call your institution and ask them the cost of paying out in full.
Refinance & Home Equity Financing Considerations
Aside from considering the different options when renewing you mortgage, you as a homeowner need to understand how lenders look at your “financial situation” when deciding whether to grant mortgage financing. By understanding what lenders look for, you will be better prepared to work with your mortgage consultant and make the whole renewal process as smooth and efficient as possible.
There are two main areas to examine:
- Understanding credit. What factors about applicants do financial institutions consider? Lenders look at the 5 C’s of Credit: Capacity, Capital, Collateral, Character and Credit.
- What type of borrower are you? Common borrower profiles are risk averse, risk tolerant, and those with flexible borrowing requirements. In this section, we offer some guidance to help you determine what type of borrower you are. We look at some key questions for prospective borrowers to ask themselves.
Understanding Credit
Remember, lenders run a business to make money, not lose it. Those with good/better credit receive lower rates, and those with spotty credit receive slightly higher rates – the higher the risk, the higher the return for the financial institution. As part of the application process, lenders examine prospective borrowers according to varying requirements, however central to all decisions are the 5 C’s of credit: Capacity, Capital, Collateral, Character and Credit.
Capacity
Capacity to repay the loan is the most critical of the 5 C’s. Is your income sufficient to support the repayment of the requested loan amount? This is where lenders look at your Gross and Total Debt Service Ratios. Do the monthly carrying costs of the loan represent less than or equal to 32% of your total monthly income? Including other loans outstanding, do your loan obligations and carrying costs represent less than or equal to 40% of your total monthly income? Prospective lenders will also want to know about any other sources of income you may have to repay the loan, in case your steady income stream is interrupted.
Capital
Capital is the money you have personally invested in the property, typically equity in the home or, in the case of home buyers, a down payment. The amount of your own money put into the home portrays a message of confidence and trust. The more money you contribute, the less risk for the lender of losing money if default occurs, and the more likely it is that you will do all you can to maintain your payment obligations. Capital also reflects your ability and willingness to save money and accumulate assets, confirming that you can manage your financial affairs adequately within your income. The higher your net worth, the more you have as a cushion for repayment in the event you run into a financial setback.
Collateral
Collateral is additional security you can provide the lender should you for some reason not be able to provide repayment. In real estate transactions, collateral is generally the property, and the lender will want to ensure that the property for which they are providing mortgage financing is marketable real estate. An appraisal will determine whether the subject property has sufficient value to support the requested mortgage amount, taking into consideration any deficiencies that may affect the ability to resell. Collateral may also include such things as investments, other real estate, stocks, etc.
Character
Character is your reputation and reliability – the general impression you make on the potential lender. Are you trustworthy enough to repay the loan? Factors associated with your character can include your educational background, business experience, length of time at your current employment and current residence.
Credit
Credit is the evaluation of your habits in meeting credit obligations. Information about your credit history is stored at the credit agency, or “credit bureau," and indicates how well you have paid your bills over the last six years. All major credit cards, auto loans, leases, etc. are reported to the credit bureau. A lender will evaluate your ability to maintain your obligations and try and determine how well you live within your means. Some individuals make the mistake of not paying the minimum monthly obligations on loans and credit cards with the expectation of making a larger payment the following month. These missed payments appear on their credit report, branding them as chronic "late-payers" for the next six years. If there are any problems with your credit bureau, you will need to provide a full and satisfactory explanation to the lender.
What Type of Borrower Are You?
Your mortgage consultant will guide you through the myriad of options that are available and get you the mortgage product that best suits your individual needs. In order to get the ball rolling, it is helpful to begin thinking about what mortgage product options you would feel comfortable with. By having an understanding of who you are, the mortgage process becomes more efficient and your satisfaction over the term of your mortgage increases.
Here are some questions that you should mull over and speak about with any of your fellow purchasers. Although this is not an exhaustive list, it provides a good start.
Consideration #1:
Is some fluctuation and change in payments acceptable?
Consideration #2:
Do I want the comfort of knowing what my payment is every month and of knowing it will not change for the whole term?
Consideration #3:
Do I want the lowest payment possible?
Consideration #4:
Do I want to pay down my mortgage as soon as possible?
Consideration #5:
How much down payment am I comfortable with, while not putting myself and my family into financial difficulty?
Consideration #6:
Are there any credit issues about which I will need to provide documentation?
There are numerous other considerations that your mortgage consultant will cover with you; however this will be on a case by case basis and will depend on your own personal situation.
Other issues that may also have to be addressed and require special consideration are:
3. Nature of income – self-employed, commission based, or salary, for example.
4. Status of applicant – new immigrant, foreign investor, etc.
For more information on special situation considerations, please click here
