Be ready when life happens

“I wish I’d known about these options a year ago. I went to my bank and they said there was nothing I could do, that I should just sell my car or lose my house.”

These conversations break my heart. And they happen more often than I like.

This young lady called me two weeks ago. After a quick conversation I emailed her a list of documents to gather and I met with her the following day.

Here’s the scenario:

  • She owns a home in downtown Kelowna worth about $600,000
  • Her mortgage balance is $195,000
  • She owes about $20,000 on a vehicle loan and $35,000 on a credit line
  • She has been off on Long Term Disability for almost two years, but will be returning to work in the next six months or so; this income is about $20,000 a year less than her employment income

Initially, she managed OK on the reduced income. Over time, life happened. She needed to replace her hot-water tank. The cost of utilities increased. She supplemented her income by drawing on her credit line. The balance crept up.

She went to her bank a year ago to see if they were able to refinance her mortgage. The person who took her application said that she did not qualify and that she had better sell her car or lose her house.

A year went by. She fell behind on her cell bill, loan payment, and eventually her mortgage payment.

She went back to the bank and again was told she had no options. This was a horrible day as she realized she had hit the end of what she could manage. She thought she was indeed going to lose her home.

Later that night, she confided in a friend, who asked if she had spoken with a mortgage broker. They found my page through Google and she reached out the following day.

With as much equity as she has in her home, she does indeed have options outside of the traditional bank mortgage.

After putting her application together I approached several B lenders with her application. Because she had missed mortgage payments over the last year, I had a tough time finding the right fit.

I did find a B lender that indicated that they would happily approved the file once she had six months without missing a mortgage payment.

The next route was to look for a private mortgage to clean up her mortgage arrears, outstanding cell phone collection, and the vehicle loan that was also in arrears.

Within two days, we had an approval subject to the appraisal coming in at $400,000 or more. The lender built in a small cushion to cover any emergencies that may come up in the next year.

She signed off the documents the following day and is just waiting for the appraisal to be completed. Once that is signed off, she should have everything cleaned up next week.

This is step one of a three-step plan to get her back in to a mortgage with an A lender. After six or seven months go by, we will be approaching the B lender to refinance her current mortgage to payout the private mortgage.

After a year has passed, assuming she stays on track and is back to work, we will be approaching an A lender again.

This is by no means my preferred route to help clients clean up their finances. Had I met this client a year ago, this likely would have been a two-step process – move to a B lender for one year to re-establish clean credit, then back to an A lender.

I used to avoid private mortgages at all costs. I felt I was doing clients a disservice as they involve fees and higher rates. However, sometimes they serve a purpose.

With the new mortgage qualification rules (Stress Test), I am running into more situations where clients do not qualify to refinance and pull equity from their homes. I’ve worked with three similar clients in the last month alone.

It’s all well and good to say that the new rules are designed to protect Canadians from over-extending themselves. What’s interesting to me is that in all three of these recent files, we’ve needed to consolidate (for the most part) credit cards that were approved with no Stress Test and minimal checks for approval.

Under the old mortgage rules, all three of these clients would have qualified for a refinance of their mortgage.

Life happens. If you are in financial crisis and do have significant equity in your home, reach out sooner rather than later for help. If your credit is still clean you have many more options to get you back on track.


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About the Author

Tracy Head and Laurie Baird help busy families find mortgage solutions. Together they have more than 45 years of experience in the mortgage industry.

With today’s increasingly complicated mortgage rules, Tracy and Laurie spend time getting to know the people they work with and help them to better understand the mortgage process. They support their clients before, during, and after their mortgage is in place.

Tracy and Laurie work closely with their clients, offering advice and options. With access to more than 40 different lenders, Tracy and Laurie are able to assist with residential, commercial, and reverse mortgages in order to match the needs of their clients with the right mortgage package.

They work closely with their clients to find the right fit, and are around to provide support for years down the road!

Contact them at 250-862-1806 or visit http://www.okanaganmortgages.com

Visit their blog at https://www.okanaganmortgages.com/blog


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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