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Mortgage-Matters

Mortgages in seller's market

Buying home during a seller’s market can be a bit of a battle, particularly if you own your home and need to sell to purchase a new home.

The question I get asked most often is: Should I buy first or should I sell first?

There is going to be a different answer based on your own situation, so here are some possible financing solutions for you to consider for both of these scenarios.

Buy First — You have found and bought your dream home before you've sold your current home and you are faced with carrying two mortgages for a while – what will you do?

  • Access Equity for Down Payment: You may qualify and be able to afford to carry and own both homes. If the down payment for your new home is tied up in the equity in your existing home, then there are options to get access to that right away. A home equity line of credit, which has no penalties for paying it off, can be arranged to access your equity in your current home for the down payment. The payments are interest only so while you own two homes at once, the payments are low. Once you have sold your existing home you can then pay off the line of credit you used for the down payment in full. 
  • Rent: You could consider renting out your existing home, if it has not sold, on a month-to-month lease so while it is still on the market for sale, you could be receiving an income to assist with the mortgage payments.
  • Refinance: Perhaps the payments are going to be too high to carry two mortgages. It might be possible to re-write your current mortgage to lower the payments or ensure that the mortgage payments for your new home start off very low.
  • Bridge Financing: If your existing home has sold but there is a two or three week period when you own both homes, you can take possession of your new home while you still own your existing home with bridge financing. The lender for the mortgage on your new home will also advance the balance of the down payment ahead of your sale completing. The cost is usually around $250-$300 for set-up and administration and then you pay a daily interest rate based on prime plus 4-6.25 per cent.

Sell First — You have a buyer and offer for your existing home before you've found your next home, and you may find yourself living with family, friends, or in a hotel. This might occur if you haven’t found your new home or if convenient closing dates cannot be negotiated – is it worth it?

This scenario can be a little more challenging and some possible solutions include the following:

  • You could ensure the offer includes a clause that the sale is conditional on you purchasing a new home.
  • You might request a longer closing date to give you time to find a new home.
  • There are some instances when the purchaser of your home might not need to move in the exact day that you are planning to close the purchase. In this particular case you might be able to buy some time by simple “renting” from the new owners. This is useful if you have found your dream home but you are not moving in for a few days or weeks.
  • Bridge Financing: Just as above.

Always speak to a mortgage broker before you start the process to ensure you are pre-approved and are clear on your possible options. The new mortgage rules have made qualifying for a mortgage much more challenging than before so working with someone who has access to all possible solutions is the smartest choice.

There are a number of different options and your own personal situation will determine which option works best for you. I’d be happy to discuss these with you.



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Retirement problems

Since 2005, HSBC has done a survey about retirement and this report can give us a clearer view of what might lie ahead as you move toward retirement.

Both those still on the job and also those who have left the workforce were asked about their concerns and how they might have prepared differently for retirement.

Here are some of the key findings for Canada:

Current retirees 

  • 23 per cent saw their standard of living deteriorate after retiring
  • 31 per cent feel they did not adequately prepare for retirement

Pre-retirees 

  • 61 per cent worry about having enough money to live day-to-day
  • 68 per cent worry they will run out of money

Working age 

  • 81 per cent had a major life event hamper their ability to save
  • 37 per cent are not saving for retirement

Do you have any of the above concerns for yourself or a family member? If you are a homeowner, a reverse mortgage could allow you to covert, with qualification, a percentage of the value of your home into cash without having to move or sell your home.

There are many benefits to a reverse mortgage as it can help to relieve financial stress. There are no payments required as long as you live in the home.

You maintain ownership of your home and the money accessed with a reverse mortgage is tax-free and does not affect any pension income you are currently receiving.

If you are a homeowner over 55 and are in need of funds to pay debt or expenses this could be your solution.

Funds can also be used to purchase a home or to help seniors who want to remain in their homes by making the home more accessible.

The funds could pay for in-home care or medical expenses and are available in either a lump sum or installment payments. Other uses could include paying off debt, renovations or home improvements, travel or to assist children or grandchildren.

There are many myths about reverse mortgages. The bank does not own your home nor can they force you to sell. The rates, although slightly higher than a standard mortgage as no payments are required, are very reasonable.

The homeowner keeps all the equity remaining in the home.

In our many years of experience, over 99 per cent of homeowners have money left over when their loan is repaid.

The equity remaining depends on the amount borrowed, the value of the home, and the amount of time that’s passed since the reverse mortgage was taken out.

Once considered a solution of last resort, reverse mortgages are becoming a solution for retirees who have significant equity in their homes but limited cash resources.

You can also qualify even if you already have a mortgage on your property as the reverse mortgage could be used to pay off that mortgage assuming there is sufficient equity in the property.

If you are interested in more information about a reverse mortgage or have a senior in your life that may feel that they will be forced out of their home due to financial stress, please give me a call to review possible options at 1-888-561-2679 or email [email protected].

We can do a quick assessment to determine whether a reverse mortgage is a possible solution.



Mortgage renewals tougher

According to a new CIBC report, nearly half of all mortgages in Canada are up for renewal this year, which is more than any year in history.

What you should realize is your options may be limited if you thought you might shop around for a better deal with another lender.

Rising interest rates and the new mortgage stress test have made "shopping around" more difficult than ever.

Although, if you are like most Canadians, you probably aren’t that proactive regarding your mortgage renewal; only 36 per cent of Canadians change their mortgage lenders at renewal.

It’s an interesting statistic since an average of 55 per cent of mortgage holders in other countries change lenders at renewal.

According to HSBC data from this January, 82 per cent change in France while in the U.S. it's 53 per cent and Australia it's 48 per cent.

Why don’t Canadians shop around at renewal time?

Perhaps it’s because 78 per cent of Canadian mortgage holders have never experienced a rate increase in the lifetime of their mortgages.

Yet, 20 per cent of homeowners would struggle to make their payments if confronted with an interest rate increase of two per cent.

Five years ago, which is the average term most Canadians take on a mortgage, discounted mortgage rates were somewhere between 2.44 and 2.79 per cent.

Today, five-year fixed term mortgages rates range between 3.24 per cent to 3.89 per cent. This year, most who are renewing will be facing higher interest rates.

Mortgage renewals will also start feeling the effects of another change at the end of this year, a new International Financial Accounting Standard called IFSR 9.

IFSR 9 covers more than mortgage lending; lenders will have to set aside additional reserves for each mortgage file to cover any substantial change in a client’s profile.

The only way for a lender to know if there has been a change in a client’s profile will be for them to update the information, and mortgage renewal time seems to be the most obvious time.

We don’t know how lenders will handle the new requirement, but checking credit and re-confirming employment seem like the most likely ways to do that. Potentially lenders could ask for appraisals or income confirmation, for example, before making a renewal offer.

We are already hearing of some lenders "verifying" files prior to renewal by implementing the new requirements in advance of the deadline.

We have been contacted by clients who are not being offered renewals because of significant changes in their information and from others who are still being offered renewals, but at much higher rates.

The days of automatically being offered a renewal of your mortgage as long as you were making your payments on time and without re-qualifying may be gone in the future.

My best advice hasn’t changed: Don’t be average. Shop around in advance of your renewal, and the easiest way to do that is by working with a mortgage broker.

We can compare what’s being offered in the market, make recommendations of how you can reduce your interest costs and help you with a plan to pay off your mortgage.

If you would like more information or a review of your current mortgage renewal offer, please give me a call at 1-888-561-2679 or email [email protected]



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Reverse mortgage: tax-free $

A reverse mortgage is a way for homeowners 55 or older to turn up to 55 per cent of the value of their home into tax-free cash.

It’s a loan secured against the value of the home, but unlike a traditional home equity line of credit or a conventional mortgage, it does not require monthly mortgage payments for as long as you live in your home.

What can you do with a reverse mortgage?

  • Pay off debts
  • Renovate or make your home more accessible
  • Handle unexpected expenses
  • Help your children or grandchildren
  • Improve your day-to-day standard of living
  • Make a special trip or purchase

Reverse mortgages have come a long way. They have evolved from a needs-based product to a solution that many financial planners recommend as an important component of a comprehensive retirement plan.

Unfortunately, there are still many misconceptions regarding reverse mortgages. Below, the myths are separated from the facts.

Myth: The bank owns the home.

Fact: You always maintain title ownership and control of your home, and you have the freedom to decide when and if you’d like to move or sell.

Myth: You will owe more than your home is worth.

Fact: Clients can qualify for up to 55 per cent of the appraised value of the home, 33 per cent on average. As the lender has conservative lending practices, you can be confident that there will be equity left in the home when the loan is repaid. In fact, over 99 per cent of reverse mortgage clients have equity remaining in the home when the loan is repaid.

Myth: A reverse mortgage is a solution of last resort.

Fact: Many financial professionals recommend a reverse mortgage because it’s a great way to provide financial flexibility. Since it is tax-free money, it allows retirement savings to last longer.

Myth: You cannot get a reverse mortgage if you have an existing mortgage.

Fact: Many clients use a reverse mortgage to pay off their existing mortgage and other debts, freeing up cash flow for you to use as you wish. How great would it feel to be free of regular mortgage payments?

It is also important to know these two key points.

You will remain the owner of your home and will never be asked to move or sell your home provided you pay your property taxes and home insurance and keep your property well maintained.

A reverse mortgage will not affect any government benefits you may receive such as OAS, CPP or GIS.

A no obligation assessment is available to determine if a reverse mortgage is a suitable option for you. As a mortgage broker my advice is impartial and I will assist you to review all of the mortgage options available to you.

It only takes about 90 seconds for the assessment, so please give me a call at 250-826-3543 or email [email protected].



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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