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Finance

Renovation dreaming

Dreaming of a new fire pit? A deep soaker tub?

With summer on its way, lots of families have renovations on their minds. Did you know that home buyers can apply for a Purchase Plus Improvement Mortgage and get access to funds for renovations?

If you or a family member are looking to buy a home but are allocating all your savings for the down payment, here is a way to access more funds to do the renovations that will make that purchase into the perfect home.

Ask me about getting a Purchase Plus Improvement Mortgage.

This mortgage product allows you to borrow up to an extra $40,000 or more. At today’s low interest rates, this is a great way to finance your renovations.

This mortgage product could be perfect if you are interested in buying a fixer upper in your perfect, but pricier neighbourhood.

To find out if you or a friend or family member qualifies for a Purchase Plus Improvement mortgage product, contact me directly (250 862 1806 or [email protected]) and I’d be happy to assist you.



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Mortgage costs

 
I always like to spend time with my clients going through the costs associated with the purchasing or a property in addition to the downpayment.
 
For this example I am going to use a purchase price of $400,000 with the minimum downpayment:

 
Downpayment:                              minimum 5%           $ 20,000
Balance of the purchase price:     maximum 95%        $380,000
Legal Fees and disbursements:                                   $1,200-$1,500
Title Insurance:                                                             $   249
 
Adjustments for property tax, fuel etc:                          $TBA
  • If the purchase is made before July 2 this will be a credit for the vendor's portion of the current year taxes which the purchaser will pay.
  • If the purchase is made after July 2 this will be a debit for the taxes paid up to the 31st of December.
Property purchase tax:  1% of the first $200,000 and 2%  ($6000) of the balance.

 
Home Insurance:                   $600-$800 per year
Appraisal Fee:                       $300-$500
Home Inspection Fee:           $450-$650
 
Interest Adjustment               $TBA
 
Depends on when the 1st payment is made, interest from closing date to the nearest interest period before the 1st payment.  (i.e. If payments are to be made on the 1st of the month, it would be the number of days from closing to the nearest 1st of the month and then the first payment would be the following 1st of the month.
 
Mortgage Broker Fee:           $TBA
 
In most cases this is not charged unless the broker is NOT being paid by the lender.
 
These are just estimates to assist the purchaser in calculating how much they require to purchase a home. It is suggested that the purchaser confirm these costs with his/her solicitor.
 
For any further questions please contact us at 250-862-1806 or email [email protected].


Cash stressed seniors

For many Canadian homeowners, their house represents the biggest portion of their net worth. Now, increasing numbers of seniors are starting to recognize the hidden value of their homes.

The amount saved by baby boomers, as well as their ever lengthening retirement prospects make finding additional sources of income more necessary than ever. Did you know that as many as 50 per cent of all seniors surveyed (by the Investor Education Fund) said they believe their retirement savings will be exhausted within 10 years of leaving the workplace?

Their concern is well justified as, according to a 2012 Leger Marketing study, 58 per cent of Canadians in their 50s say they have less than $200,000 saved for retirement. Other surveys show that as many as 59 per cent of retirees owe money to a lender, up from only 40 per cent just two years ago.

So, modest savings combined with the increasing costs of servicing debt make it imperative for seniors to look for ways to enhance their cash flow.

“The solution for remaining financially independent doesn’t have to be as drastic as downsizing, selling the house, delaying your retirement, or going back to work,” says Arthur Krzycki, a director with the HomEquity Bank. “If you own a home it should remain your security for the long haul and there are a couple of sound ways to let your house pay back while you live in it.”

"Empty-nesters, says Krzycki, "might want to become landlords - a viable solution especially if you live in a prime location and have a separate entrance to available rooms or a basement that can be turned into a self-contained apartment."

“Or, if you’re not comfortable with having strangers live in your home,” he continues, “why not access some of the equity in your home with a reverse mortgage? Based on the value of your house, this option gives you a reliable cash flow to supplement your income.”

Here’s how a reverse mortgage like a CHIP Home Income Plan could work for you:

  • If you have reached age 55, you may be eligible for the CHIP Home Income Plan. It lets you convert up to 50 per cent of the equity in your home into tax-free cash.
  • Unlike other loans on the market, there are no credit or income qualifications and you are not required to service the interest, or repay the principal until you choose to move or sell.
  • It is also guaranteed that you will never have to repay more than the fair market value of the house at the time of the sale.

“While it almost seems too good to be true, CHIP’s increasing popularity is easy to understand as soon as you talk to our clients,” Krzycki explains. “As many as 78 per cent tell us they would recommend this kind of reverse mortgage to others as a good source of extra cash in retirement.”

Financial advisors and mortgage brokers have details and additional information is also available online.  If you require more information on this product please contact us at (250) 862-1806 or email [email protected].





Mortgage penalties

Most mortgages in Canada have penalties based on the greater of 3 months of interest or the interest rate differential.  Variable rate mortgages where the interest rate fluctuates with the prime lending rate usually have a 3 month interest penalty.  Open mortgages most variable and fixed are usually at a higher interest rate but allow the borrower to pay out the mortgage at any time without paying a penalty.

Variable rate mortgages have very competitive rates right now depending on the prepayment options and other terms.  Usually the penalty is limited to 3 months of interest but sometimes if the borrower has received an extra discount there may be a larger penalty - for example, 2% of the outstanding balance.  This can make a huge difference if the borrower sells or has to pay out the mortgage earlier than expected.   Another misconception borrowers have is that the 3 month penalty is calculated at the rate on the mortgage.  Some of the major banks charge the penalty based on the posted rate for the current term.  So, for example, if the mortgage rate was 2.15% (Prime-.70%) the penalty may be calculated at 3.85% which is the open variable rate.

Fixed rate mortgages are also offered at competitive rates and in some cases have restrictions in the extra payments a borrower can apply to the principal without penalty.  There are also some lenders that are offering lower interest rates but an increased penalty if the borrower repays the loan before the term is up.  Again this is in the 2-3% range and can increase the cost if the borrower had to sell.  Similarly with variable rate mortgages, if the borrower has a 3 month interest penalty on their fixed rate term of 2.69% sometimes the banks may charge the mortgagor the penalty based on the posted rate of 4.29%.  When it comes to the interest rate differential there is a real spread in the procedure for calculating the penalty.  The interest rate differential is the difference in the borrower’s rate compared to the current rate offered for the remaining term.  For example, if the borrower had a mortgage rate of 2.69% with 3 years remaining and a 3 year rate was 2% then they would pay .60% of the mortgage balance for 3 years with most monoline (non bank lenders). However, again some lenders use their posted rate and the discount the borrower received, so if the posted rate was 4.69% when the mortgage was taken out the penalty becomes 2.69% of the mortgage for the remaining term.  That is a HUGE difference in the penalty.  It is very important that the borrower understand how their penalty is calculated prior to funding their mortgage.  Make sure your lender takes the time to explain this to you before you sign the approval, this is a service some mortgage brokers offer.

 

For more information on mortgage penalties please call 250-862-1806 or email [email protected].



Read more Home Finance articles




About the author...

Laurie Baird is a Mortgage Broker with Verico Complete Mortgage Services. She has been in the mortgage business for 17 years starting as a lender with Royal Trust. She later worked at the Royal Bank as a Mortgage Consultant and 11 years ago became a Mortgage Broker. As a Mortgage Broker she is able to match her clients' needs with a lender who will provide them with competitive rates and products. Laurie has a Bachelor of Education degree from UBC.

Contact her at 250-862-1806 or by fax 712-0209 or visit:
http://www.okanaganmortgages.com/

Visit Laurie's blog at: http://www.okanaganmortgages.com/blog.html







The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet presents its columns "as is" and does not warrant the contents.


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