The Mortgage Financing Process

The number one question a homebuyer often has is “What does the mortgage process entail?” In very simple terms, following is an outline of the process upon which you are about to embark:

a)      Get pre-approved: Avoid any hiccups or obstacles before you begin the home shopping process. Being pre-approved helps in the following ways:

• Determines price range – it will help you understand what your monthly costs will be and determine your price range.
• Guarantees the rate – from 90-120 days. And we will automatically adjust your rate down with any market reductions.
• Allows you to put in a competitive offer – become a successful bidder with a short subject to financing requirement.

b)      Put in an offer: Once you have found the property that meets your needs, you will put in an offer that will be accepted or countered. This may go back and forth until you reach an acceptable price with the vendor.

c)       Offer is accepted:

• Fax us a copy
• An appraisal is ordered (if necessary)
• Send in any remaining documents required for financing (income confirmation, down payment confirmation, etc)
• Send an inspector in (if applicable) – I can help you arrange this
• Receive the lender’s approval on property and final approval letter

d)      Remove Subjects: At this point, your financing is in place and you are ready to proceed with the purchase of the property.

e)      Lawyers’ Office: You will be asked to provide any money that is to be used as your down payment, which is not already on deposit with your realtor. Typically, you will go in 1-2 days prior to the completion date.

Types of Mortgages

Mortgages can be a confusing subject. Buying or selling a home is an emotional decision and can be very stressful. As a mortgage advisor, I will take the confusion out of mortgages and make the process as smooth as possible.

In Canada, there are two major categories that mortgages fall into, either closed or open. Most mortgages are closed, meaning that you can’t pay out the mortgage in full without paying a penalty to the lender. You can, however, often make lump sum or extra payments each year.

An open mortgage allows you to pay out the mortgage anytime without penalty. But you typically pay a higher rate than when opting for the same closed version. Open mortgages may have an administration fee that is higher than a closed mortgage if you do, in fact, decide to fully pay off the mortgage. This is partly why it is so important to read the fine print and ask about these charges. In most cases, it’s better to take the closed product if you do not intend to fully pay out the mortgage in a short period of time.

Closed mortgages are offered in terms starting at six months. The interest rate is fixed during that term. (The term should not be confused with the amortization. Amortization is the time period it would take to fully pay off the mortgage by making regular payments.) Variable-rate mortgages, on the other hand, have a rate that floats with the prime rate and are often closed mortgages.

Let me help you make one of the biggest decisions in your life by providing options and advising you on the best scenario for your specific needs.

-Cory Kline

cory@ndlc.ca or 705-720-1001 ext 226

The bond rate has moved up the last few days with news of stronger that expected U.S. job figures. There continues to be lots of turmoil with the Middle East situations and news of possible rate increases in Europe due to inflationary concerns.

There have been no major changes in short or long term interest rates the past week.

There is no change expected in the Bank of Canada at this time. 

Bank prime is at 3.00%

We have had a week now to reflect on the recent  government changes to mortgage policies. While it may not effect a lot of you, there are probably some of you, or you know someone who this may effect. The policies do not come into force until March 18^th, (however, last time this happened, several lenders put it in place before the cut off date) so there is adequate time to research out all your options and make sure you do not miss this window of opportunity.

The biggest change is the scaling back in the loan to value from 90% to 85% on refinances. On a $300,000 property, this means a loss of potential refinance dollars in the amount of $15,000. In addition, when analyzing the insurance costs, if you are going from a conventional position (80% and no insurance fees) it will make it very expensive to even consider extra insurance fees (2%$…5000- on a 30 year amortization-on a $250,000 mortgage) bottom line it means extra costs of $5000 to borrow $15000!!

The second part of the change has to do with the decrease in the amortization period from 35 to 30 years. While not as major as the decrease in the loan amount, it will result in higher payments and resulting in a more challenging qualification for some applicants (only if ratios-GDS/TDS are tight).

So the main purpose of this communication is as follows:  If you or anyone you know is thinking at all about consolidating any loans, borrowing additional funds for any purpose, you owe it to yourself to at least look into it right now to see if it is a benefit for you.  Our advice and guidance is always free to assist you in making the best decision for you or your family.

We would like to give a big THANK YOU for all the support we recieved with Neighbourhood Baby 2010!! This past weekend we just droped off our third load of donations!!  The first two loads went to the ‘David Busby Street Centre’ in Barrie and the third load went to ‘The Blue Door’  in Bradford that supports families going through a very difficult time.  Two fantastic charities, and because of everyones help we have been able to make a big difference. 

We will be continuing to give to these charities every month all year so that our family is helping other families in our community.

Flaherty tables new rules to curb household debt
By David Akin, Parliamentary Bureau Chief

Last Updated: January 17, 2011 8:15am

OTTAWA – The federal government Monday tabled a series of new rules aimed to curbing what it sees as the growing problem of household debt.

Finance Minister Jim Flaherty is changing the maximum length of most mortgages to 30 years from 35 years; cutting the maximum that can be borrowed against a person’s home and eliminating government-backed default insurance of home equity lines of credit.

Prime Minister Stephen Harper said Friday his government was “concerned about growth in the level of household debt.”

Bank of Canada Governor Mark Carney has also been warning of the dangers of rising debt levels.

The key tool the federal government uses to control the mortgage market is the Canada Mortgage and Housing Corp. (CMHC). Banks typically will not provide a mortgage to anyone with a down payment of less than 20% of the purchase price unless the CMHC is willing to backstop the loan.

The CMHC will now no longer insure any mortgage with a term longer than 30 years. Until the change, it was insuring 35-year mortgages.

Flaherty also instructed the CMHC it can no longer insure home equity lines of credits (HELOCs). That means individual banks will be on the hook for any HELOC defaults.

Because banks will assume all of the risks of default, banks are expected to tighten up eligibility requirements for HELOCs.

Finally, a person who wants to take out a loan against their home will be able to borrow a maximum of 85% of the value of their home, down from 90%.
Most of the changes are effective March 18, 2011.

If you have any questions on how these changes may affect you please don’t hesitate to contact me!
-Cory Kline

At some point in their lives, most Canadians have probably asked themselves whether it is better to buy or rent a home. And purchasing a home is one of the biggest decisions most people ever make.

Ultimately, the decision is a personal choice, but it helps to look at the pros and cons of buying to determine whether home ownership is right for you.

Some advantages of buying a home…

Owning a home is generally considered to be a sound, long-term investment that can provide satisfaction and security for you and your family. 

One big advantage we have right now is buying a home when mortgage rates are at the lowest in history.

Each month when you make your mortgage payment, you are building equity in your home.Equity is the portion of the property that you actually build through your monthly payment versus the portion that you still owe the lender.

At the beginning of your mortgage, more of your payments go toward paying off the interest and less toward paying off the principal. But the longer you stay in your home and the more mortgage payments you make, the more principal you pay off and the more equity you accumulate.

Most mortgages also offer you the option of making additional monthly or annual payments to reduce your principal faster. Some prepayment privileges, for instance, enable you to pay up to 25% of the principal per calendar year. This will also help reduce your amortization period (the length of your mortgage), which, in turn, saves you money.  Bi-weekly or weekly payments will further reduce your amortization.

There is also a tax advantage. If your home is your principal residence, any profit you make when you sell it is tax-free. A home can appreciate – or increase in value – as time passes, building more equity. As you build up equity, it’s usually easier to upgrade to a more expensive home in the future thanks to the profit you’ll make when selling your current home.

As an owner, you can also decorate and improve your home any way you like. Ownership tends to give you a sense of pride and can offer you and your family stronger ties to the community.

If you do decide that home ownership is right for you, it’s important to choose a home you can afford. If you can’t afford to buy your dream home, purchasing a more modest home can be a great place to start building equity that one day may allow you to buy the home of your dreams.

 Some disadvantages of buying a home…

Since it’s easy to get caught up in the excitement of buying a home, it’s important to remember that home ownership has some additional responsibilities as well.

For one thing, a home can be expensive. It’s important to sit down with your mortgage advisor to review your budget including your mortgage, property taxes, repairs and general maintenance.  They can review your credit with you and make sure you are on the road to homeownership.

While your home might increase in value as time goes by, don’t expect to get a big return quickly. There are no guarantees that your home will increase in value, particularly during the first few years.

Real estate is, however, usually considered a good investment over the long term.

When making the decision about whether to buy or rent, it’s important to carefully choose a home you can afford, and then weigh the pros and cons. Millions of people enjoy the rewards of home ownership but, ultimately, it’s a personal decision based on your own priorities.

If you’re thinking of buying your first home, Cory Kline ‘Awarded Barrie’s Best’ Mortgage professional can answer all of your mortgage-related questions with unbiased advice.