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Mortgage-Matters

Private mortgage options

Do you think of private mortgages as a last resort; the very last option to consider should you be unable to obtain mortgage financing through a traditional lender?

That is the popular opinion, but private lenders have been filling the void left by our tighter lending rules and with the new mortgage stress test now in play, the role of private lenders will become more important.

There are several opportunities where you might consider private financing and funds are available for first, second or even third mortgages.

Private lenders are different from banks or other mortgage lenders with the primary difference being the source of funding.

Private lenders get their funds through individual investors or groups of investors and they are considered a short-term investment for the investors. That is why private financing is usually only available for one- to two-year terms with the expectation that the borrower will be able to pay off the mortgage at the end of the term.

Unlike traditional financing, a private mortgage lender is more concerned with the property as this is the security they have should there be a default in payments by the borrower.

The primary concerns are the condition of the property, location, the borrower’s equity in the property and how easy would it be to sell if the borrower gets in trouble. That is why it is difficult to find private mortgage options for rural or unusual properties.

Another reason that private lending is becoming more popular is the tightening of mortgage rules for self-employed and commission income borrowers.

Self-employed borrowers with more than three years in business and those who have commission based earnings are now required to provide traditional proof of income to qualify for a mortgage. If you aren’t showing a reasonable income for your profession, then there could be a challenge in obtaining financing from institutional lenders.

One sector of the market where we are seeing an increase in this type of mortgage is with real estate investors. Some property investors are getting tired of dealing with the bank’s restrictive lending policies and are opting to go to private lenders regardless of the higher costs.

Real estate investors now know that there is a requirement for a minimum 20 per cent down payment on non-owner occupied investment property purchases.

Underwriting policies for qualifying have tightened and a reduced the amount of rental income is now allowed for qualifying. The demand for private financing has increased for smaller investment properties used to generate rental income as they may no longer fit within the banks standard guidelines.

You may need to consolidate debt to improve your credit score so you can qualify for a mortgage at a prime lender in the future.

A private second mortgage can also be a good way to consolidate debt and although the rates are higher than a first mortgage, the rates are still often lower than high interest credit cards, car loan payments or even unsecured lines of credit.

The higher your credit score most likely the rate will be lower. Also the more equity you have in your property then the higher chance of getting approved for a second private mortgage.

Have you been turned down by your bank? Then you might also consider a private mortgage option as a temporary solution until you repair your credit or fix the reason you were declined at a prime lender.

Just know that there are options available beyond traditional lenders and this is a growing segment of the mortgage market providing alternate solutions for mortgage financing.

If you would like more information on private or alternative mortgage lender options, please call me at 888-561-2679 or email [email protected].



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Home buyers' Plan

Are you considering buying your first home in 2018?

If you need a source for your down payment, The Home Buyers’ Plan (HBP) will allow you to withdraw up to $25,000 from your RRSP to help buy your first home, tax-free.

If you are buying with someone who is also a first time home buyer that amount can be increased to $50,000. You can use up to $25,000 to add to any down payment amount you may have saved or use toward other expenses for purchasing a home.

You do not need to use the withdrawn funds for only your down payment as they may be used for any purpose that assists with the purchase of your first home — closing costs, paying off outstanding debt, renovations, etc.

You must have a written contract in place agreeing to buy a home and the home must be owner-occupied within one year.

The amount that you have withdrawn from your RRSP must be paid back into your RRSP account in annual payments and you have 15 years to repay, but if you don’t make your annual payment, it will be added to your annual income and you will be taxed accordingly.

If you make a withdrawal from your RRSP, but do not meet the first-time homebuyer eligibility requirements, this withdrawal will be taxed and you must include it in your income tax return as taxable income.

What if you don’t have any RRSP savings? You can get your savings working for you in a tax free and efficient way. This strategy might be right for you.

If you have room under your RRSP contribution limit you could secure a RRSP loan and contribute those funds and then later use them towards your down payment.

If you aren’t sure whether you have room to contribute, check your Notice of Assessment (NOA) for last year.

Each year you are allowed a percentage of your income to contribute to a RRSP and the amount is carried forward and added to the next year’s total either partially or in full if you haven’t contributed.

It’s important to note that the funds you plan to withdraw and put toward the purchase of your home, must be in your account for 90 days prior to your withdrawal.

If you have used the Home Buyers’ Plan in the past, but have not owned a home for four years, you may qualify to withdraw from your RRSP again as long as you or your common-law partner or spouse did not occupy a home that either of you owned in that four year period.

If you think that this makes sense for you and your financial situation, you may want to take the necessary steps no or before the RRSP deadline date for 2017 contributions.

If you would like more information on the RRSP Home Buyers’ Plan, please give me a call at 888-561-2679 or email [email protected] and I can give you some guidance and help you decide what is right for your situation.



Credit rating and mortgages

A lack of basic financial knowledge can be the difference between getting a mortgage at a great rate and having a mortgage with an alternative lender where you end up having to make a much a higher payment.

Your Beacon Score, which is shown on your credit report, indicates to a mortgage lender the probability of whether you will successfully make your mortgage payments on time.

Beacon scores can range from a low of 300 up to a high of 900, which is the highest possible score. A good credit score would be in the mid to upper 600s and a credit score below 620 could prevent you from obtaining a mortgage a bank.

So what makes up your credit score?

  • 35 per cent is for late payments, bankruptcies, collections and judgments
  • 30 per cent is for current debts
  • 15 per cent is for how long accounts have been open and established
  • 10 per cent is for the type of credit, such as credit cards or personal loans
  • 10 per cent is for new credit enquiries

Here are some examples of the common mistakes that homeowners or potential homeowners make that can result in a poor credit rating.

  • Chronic late payments. Do not ignore the small stuff. No matter what the size all bills must be paid on time, including your cell phone.
  • Maxing out your credit cards. You should not exceed over 50 per cent of the limit on your card. Even if you pay off the balance every month, it will still negatively affect your Beacon Score. Spread your spending out over a few cards.
  • Do not over apply to creditors and lenders. Don’t fill out applications at car dealerships if you are shopping for a car. Don’t fill out the credit card application at the booth in the mall or the airport. Every time you fill in an application they will check your credit.

A great tip for managing your credit is to pull your own credit report at least a couple of times a year. It is the responsibility of a consumer to correct any errors and it takes a long time for reporting to be amended should there by an error.

If you need to repair your credit the best tactic for improving your credit score is to consolidate debt. Taking out a short term second mortgage to pay off all debt will basically wipe the credit clean so it is positive.

By allowing two or three months for the reporting to go through to the credit bureau a few times, the report will start to show a higher credit score and you will now be considered for more competitive interest rates at an ‘A’ lender.

There are some easy steps that can be taken to improve your overall financial picture and ensure that you are getting the best terms and rates whether you are renewing your current mortgage or looking to purchase your first home.

Moving from bruised credit to “A” credit simply takes time and sound advice. A great rate is within reach.

Give me a call if you would like some advice and assistance to improve your credit score.



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Invest in Kelowna real estate

You may have heard recently that analysts indicate now is a great time to invest in Kelowna real estate.

They make that suggestion because Kelowna offers higher returns on real estate investment than Vancouver and boasts a host of new developments at lower costs.

There is high demand for real estate being driven by a high job growth rate.

Purchasing and investing in real estate has always been attractive for those looking to generate additional income and benefit from the wealth created with increases in property values over time. Is investing in real estate right for you?

The Attraction

Diversification is key to anyone’s investment portfolio whether you are talking about mutual funds, TFSAs, stocks, bonds, RESPs, RRSPs, etc.

Diversification helps balance risk and provides a level of confidence that your investments are still going to be there when you are ready to liquidate them, such as at retirement etc. Some would consider adding real estate, other than their principal home, to their portfolio to ensure full diversification.

A real estate investor can still use a relatively small amount of down payment or capital to purchase a property, and this can provide an attractive return on investment (or ROI). This return is generated from a combination of monthly income and property value increases.

The monthly income is generated by taking the rent collected from tenant and then deducting all the expenses. To ensure that there is a positive cash flow, smart real estate investors work with a mortgage broker and realtor who can assist with the analysis.

Equity is built in the property by way of appreciation of value over time as well as with each mortgage payment.

With mortgage interest rates at record lows and an abundance of potential tenants in our local area, there is a high demand for real estate investors to take the plunge.

Here’s another way to look at it as well. Real estate investment is also beneficial for those who have a hard time saving money, as it can act as a sort of forced savings account.

Essentially, as you pay down the principal of a mortgage, you're reducing debt and building equity. Then, when you go to sell the property, the money you receive back from the sale is considered your forced savings.

So What is the Risk?

Like any investment, there is risk and it is possible to lose money in real estate, albeit relatively low.

Real estate has shown to appreciate steadily over the long term, and has for the past 25 years, so the chances of someone losing money on a purchase are pretty slim.

However, keep in mind that doing your due diligence before an actual purchase is key. You must take into consideration certain factors when choosing a property, such as desirability of location and stability of the market in that area.

The first step, before you start looking at properties, is to know your financing options particularly with the new mortgage qualification stress test coming into play on Jan. 1, 2018. You also need to have a plan and understand your acquisition and exit strategies.



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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



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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