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Mortgage-Matters

It’s a sellers’ market

The most recent stats from the Association of Interior Realtors confirm that there is low inventory available to choose from for those who are hoping to buy a home.

This will create more competition for the available properties and potentially multiple offer situations with homes selling for higher than the asking price.

If you are in the market for a home right now or are considering a purchase this spring, here is my tip to increase the odds of you being the successful bidder in a possible multiple offer situation. Take these steps and you might avoid some of the craziness that could happen this spring market.

This is my best tip and easiest tip.

  • Get pre-approved for your mortgage financing. Not pre-qualified but a full pre-approval.

Before looking for a home or placing an offer, work with your mortgage broker to complete a full mortgage pre-approval. This will include the collecting of all supporting documentation that a lender will require to provide a final approval for your financing.

I will advise you of your purchasing budget, review any potential challenges and ensure you are set to go other than finding a suitable property.

We can also review the types of properties you are interested in and advise whether there might be any potential financing challenges because of property issues.

If you do all the work upfront it could prevent your offer from falling apart because you were not able to secure financing for your purchase or possibly losing the property by needing to request an extension to finalize your financing which the seller may not be prepared to offer because there are backup offers on the property.

Being a pre-approved buyer could place you in a more favourable position in a multiple offer situation.

I am seeing more unconditional offers meaning the offer does not include a condition for financing.

I have to say this first:

  • Do not be tempted to place a subject-free offer.

Subject to satisfactory financing is a key clause that needs to be included in every offer. You could be the most well qualified purchaser in history. Stellar credit, great income and job stability with a significant down payment, but in the end a lender could still decline your request for financing.

It is impossible for any mortgage broker to say absolutely that no condition for financing is required, as there are factors regarding the property which may arise after the offer is made that can impact financing.

These can be location, appraisal value, the overall condition of the property etc. Some banks will not even allow unconditional offers at branch level.

My best advice to you would be to never place a subject-free offer regardless of what others are recommending and to think long and hard about it unless you have the cash in the bank to cover your purchase in the event that you can’t secure satisfactory financing.

But the reality right now is that to secure a property in this market you may need to make a subject free offer. Please understand that’s a decision between you and your realtor.

If you feel confident with their direction that the value of the property will be supported, you always have the option to remove conditions. As a mortgage broker, my licensing prevents me from advising you to do so.

In these situations, I have had clients send me the property listing prior to going in with any offers and I can let you know if I see any concerns up front.

You can make any decision you want regarding an unconditional offer. My job is to ensure that you understand the potential risks and I will always provide my recommendations and I would encourage you to have a detailed conversation with your mortgage broker well in advance of placing a subject-free offer.

There are some strategies to minimize your risk, but an individual conversation would be required. To minimize risk it’s prudent to have a mortgage professional guide you with your financing right now.

In a seller’s market you need to be prepared to be successful so please give me a call to review your options at 1-888-561-2679 or email [email protected]





Cash Back mortgages

Cash back! $10,000, $20,000 or more.

Your bank or mortgage lender is going to give you one per cent to five per cent of the principal amount of your mortgage after closing. Sounds like a great idea. (Side note – the funds cannot be used for your down payment as that option is no longer available in Canada.)

But there could be an unexpected catch if you haven’t done your homework. Several of my clients have had an unpleasant surprise – if you break your mortgage early, you will have to pay back all or a pro-rated portion of the cash back incentive you received.

You will also have to pay the standard prepayment penalties to your bank, which makes it almost impossible to leave your current mortgage lender if you currently have a Cash Back mortgage.

Like all mortgage products you need to decide whether a cash-back mortgage is good fit for you and fully understand the details, which I will recap below.

It’s important to understand the full costs of a Cash Back mortgage as they will cost you more.

  • Cash back mortgages are only available on fixed-term mortgages of five years and are not available for variable-rate mortgages. The mortgage must be insured or insurable so that means the property value can’t be any higher than $999,999.
  • The rates are higher than a standard mortgage. The difference you pay in interest between a lower rate standard mortgage and a cash back mortgage could be higher than the cash back amount you received as you are paying a premium for this type of mortgage.
  • The cost of breaking the mortgage early will not only be the standard prepayment penalties, but you may have to repay the full cash back amount or a pro-rated amount depending on the lender’s terms. It’s not free cash.
  • Some lenders lock you in for the first three years of your mortgage, so there is no option to break the mortgage early regardless of the reason.
  • There is a minimum credit score requirements to qualify.
  • Available for purchases and mortgage transfers of owner occupied homes only and not second homes or rental properties.

Purchasing a home comes with many expenses besides saving for the down payment. The cash-back funds can be used for covering closing costs, moving expenses, renovations, paying off debt so really any reason you may want the additional cash.

As a mortgage broker, I have several lenders that offer various types of cash back mortgages but they are not offered by all lenders. We will review your personal situation to ensure that you are fully aware of all the pros and possible cons of committing to this type of mortgage.

It’s important to read all of the fine print and under the potential consequences. A mortgage broker is the best source to explain this type of mortgage.

If you are interested in learning more about a Cash Back mortgage or if you currently have a Cash Back mortgage and have questions please give me a call as I’m happy to do a review with you.



Consolidate your debt

Interest rates are at an all-time low, so if you are a homeowner and there is sufficient equity in your property, consolidating all your debt and including it in your mortgage payment might be the right solution.

A debt-consolidation mortgage is not a quick fix and a full financial review should be completed with your mortgage broker. There could be costs to break your current mortgage to include those higher interest debts with your mortgage payment.

You may be lowering your current monthly payments, but now the debt is going to be repaid over a longer period of time. Is that really going to be financially beneficial?

It all comes down to the math as the overall cost of borrowing could be higher or lower than what you are paying. Crunching all the numbers is the only way to know for sure.

There is also another real danger to consider. Are you disciplined enough to stick to a budget and live within your current income or will you be tempted to use those credit cards again and end up in exactly the same situation in the near future?

It can become a vicious circle unless you learn to live within your budget. You don’t want to end up in the same place a year from now.

On the other hand, if you are disciplined and can live within a budget, the benefits of the increased monthly cash flow could significantly improve your financial situation.

These extra funds might be used for investing in your retirement with RRSP contributions and having an emergency financial fund in place for life’s surprises.

There are several possible options to consider for a debt consolidation mortgage including breaking your current mortgage to include the debt owed, a second mortgage for the consolidation or a home equity line of credit.

A small unsecured personal loan may be sufficient. In an extreme situation it may be necessary to sell your home to clear off all debts.

You may have heard about interest-free debt consolidation programs where a company will negotiate on your behalf to reduce the debt and arrange a single monthly payment.

With careful consideration this may be a last resort option but be aware that this type of solution will ruin your credit rating for a long time.

Get all of the facts before entering into this type of arrangement.

There are many benefits to debt consolidation including the following:

  • A much lower monthly interest rate for all of your debts
  • Lower monthly payments
  • The comfort and convenience of making only one monthly payment instead of making multiple payments on your credit cards and other loans
  • Improving your credit score by reducing the amount you owe and now being able to make all of your payments on time

Now all that’s left is to figure out precisely which solution is best for you to wipe out all those high-interest payments.

If you would like a complete confidential assessment and discussion of all the possible options, please call me at 1-888-561-2679 or email [email protected].



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Refinance your mortgage

One question I get frequently is:

“Can I refinance or restructure my mortgage mid-term?”

The answer is yes. I can help you decide whether that makes financial sense and provide strategies for you to consider.

Here are some common reasons why you might want to refinance your mortgage.

You could decrease your overall monthly debt payments by using the equity in your home to pay off those high-interest credit cards or unsecured loans.

If you are carrying high-interest, credit-card debt, car loans or other personal loans you know that it can be challenging to pay off everything that you owe. You may have those post-holiday debts hanging over your head.

If you are a homeowner and there is sufficient equity in your property, consolidating all of your debt and including it in your mortgage payment might be the right solution for you.

There are many benefits to a refinance for debt consolidation including the following:

  • A much lower monthly interest rate for all your debts
  • Lower monthly payments by either securing a lower mortgage rate or by extending the mortgage term
  • The comfort and convenience of making only one monthly payment instead of making multiple payments on your credit cards and other loans
  • Improving your credit score by reducing the amount you owe and now being able to make all of your payments on time

Finance a renovation or home improvements

If there is sufficient equity in your home, refinancing your existing mortgage could give you the funds to complete those improvements.

There are some benefits to refinancing rather than taking secondary financing such as a Home Equity Line of Credit since the interest rate is fixed and you will be able to make small, consistent payments for the duration of the term, which can be up to 30 years, to pay off the debt rather carrying it on a line of credit at typically a higher interest rate.

Invest in a revenue property or purchase a second home

Real estate can be a great investment to add to your portfolio for long term investment and to create income. Utilizing the existing equity in your primary residence could be the way to get started building your portfolio.

Not sure if refinancing is right for you? The numbers don’t lie. Let’s run them together and then you’ll have an honest, unbiased recommendation and a plan of action.

You can try my refinance calculator to get started here or give me a call at 1-888-561-2679 for a pressure-free consultation to run the numbers.



More Mortgage Matters articles

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About the Author

April Dunn is the owner and a Mortgage Broker with The Red Door Mortgage Group – Mortgage Architects. She has been assisting clients to purchase, refinance or renew their mortgages for over 20 years.

April has experience as a Credit Union manager, a Residential Mortgage Manager with a large financial institution and as a licensed Mortgage Broker. By specializing in Strategic Mortgage Planning she has the tools available to build a customized mortgage plan, with the features and options that meet your needs.

April provides a full range of residential and commercial mortgage financing options for clients all over the province of British Columbia and across Canada through the Mortgage Architects network.

Contact e-mail address: [email protected] or by phone at: 888-561-2679.

Website:  www.reddoormortgage.com



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The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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