Mortgage-Matters

Home equity line of credit

HELOC is a type of home equity loan and is a revolving amount of credit that is secured against your property.

With the Home Equity Line Of Credit, you can access up to 65% of your home’s value, however, the outstanding balance on your mortgage and line of credit combined cannot exceed more than 80% of the value of your home.

It always has a variable rate of interest based on the current Prime lending rate which today is 2.45%. Rates generally start at Prime plus one per cent and up depending on your qualifications and the lender.

It is fully open, which allows for flexible prepayment without any penalties. You can use the amount available for any purpose you want and only pay interest on the amount of the outstanding balance.

The minimum required payments are interest only.

It’s a great option for accessing equity in your home to put into other investments.

It can be a first position charge or be a second position charge behind your current conventional first mortgage to a maximum of 80% of the value of your property.

PROS

  • The interest only payments can be lower than a standard mortgage payment
  • The terms are fully open, which allows flexibility
  • The interest calculations are simple
  • The cost of borrowing is less than an unsecured line of credit
  • It’s great to have available for emergencies

CONS

  • The interest rates are higher than conventional mortgages. For example 3.45% compared to a five-year, fixed-term mortgage at today’s rates of 2.04%
  • A charge is registered against your property, so if you sell your property the line of credit will have to be paid in full
  • If you are carrying a long-term balance, the cost can be expensive
  • There is no principal reduction in the amount you owe if you are only making interest payments
  • The rate will fluctuate based on changes in the prime lending rate
  • A line of credit is not portable, so it can’t be moved to a new property and must be paid in full if you sell your current home
  • If you owe other debt to your mortgage lender those amounts may also have to be paid in full

There are a few other facts that should be known about HELOCs.

  • The rate can be increased at any time
  • Your lender can demand the balance outstanding on your HELOC at any time
  • Your lender can raise or lower the credit limit at any time

A home equity line of credit can be a great product if it used as intended as a revolving line of credit, but it can also be risky as it uses up the equity in your home which for many is the only way to build wealth and savings for the future.

In a 2017 report, FCAC (Financial Consumer Agency of Canada) found home equity lines of credit may be putting some Canadians at risk of over borrowing.

That report found most consumers do not repay their HELOC in full until they sell their home.

About 19% of respondents to the survey said they'd borrowed more than they intended and many didn’t know how much they owed.

If you have been carrying the balance on a HELOC for a long time without any principal reduction then it might be time to consider other mortgage options.

Please give me a call if you would like to review at 1-888-561-2679 or email [email protected]





Reverse mortgage myths

A reverse mortgage is a way for homeowners 55 or older to turn up to 55% 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% of the appraised value of the home, 33% 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% 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.

I am a certified reverse mortgage expert, so I can confidentially review the pros and cons for your individual situation.

It only takes about 90 seconds for the assessment so please give me a call at 1-888-561-2679 or email [email protected]



Low-rate mortgages

As the frenzy of activity continues with our real estate market despite COVID-19, so does the competition of low rate offerings in the mortgage market.

These low-rate offerings and some even with cash-back offers, have been widely reported in the news with it sounding like a rate war has begun.

There is no rate war. Due to our current struggling economic conditions, we find ourselves in a low-interest rate environment and no lender is going to intentionally offer mortgage products at a loss. So what’s the catch?

These no-frills or low-frills mortgages are packed with many restrictive conditions and potential land mines.

If you commit to one of these products without reading all the fine print, which most often happens, you could find yourself in a situation that you may find difficult in the near future. That near future in the next three years given that six out of 10 Canadian mortgage holders break their mortgage about the 38-month mark.

The old adage that if it sounds too good to be true then it might be is really one you should pay attention to if you are considering one of the low-rate mortgages being advertised recently – 1.99% and even rates as low as 1.76% are making the headlines for a five-year fixed term.

What could be in the fine print? The mortgage is closed for the five-year term. 100% closed. You can’t sell your house without paying a huge penalty.

If you are lucky, they may allow you to refinance your mortgage at posted rates, but only with them. Today’s posted rate is 4.79%. You may not have any or limited prepayment options to allow you to pay extra to reduce your mortgage balance.

You cannot refinance your mortgage and move it to another lender, which gives you no options for negotiating a better rate.

This gives you no flexibility should you want or need to refinance or sell your home.

Mortgage brokers have had these types of no-frills mortgage products available for years and I can honestly say that I have never recommended this product to my clients – ever.

Why? Once we review the terms and conditions, they are far too restrictive for the average Canadian homeowner.

Why would you want to lock yourself into a no-frills mortgage when there are mortgage products available that are fully featured with limited restrictions at rates as low as one of these no-frills mortgages?

Before you lock in your current mortgage or consider a no-frills mortgage if you are purchasing a home, have a conversation with a knowledgeable mortgage broker to review the pros and cons of this type of mortgage to ensure it is a good fit for your short-term and long-term needs.

If you don’t, it could end up costing you dearly.

For more information on these no-frill mortgages, please give me a call. Let’s make sure you are comparing apples to apples and the mortgage product you are considering is a good fit.



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Mortgage deferral changes

OSFI, Canada’s banking regulator, is ending the special regulatory treatment they gave banks so they could offer mortgage deferrals for up to six months.

The changes are effective immediately and, until the end of September, any mortgage deferrals granted will only be for three months rather than six months that was being granted previously for the special COVID-19 mortgage deferrals

Many mortgage deferrals offered by the banks will end between September and October and obtaining a mortgage deferral in the future could become much more difficult.

Those who have deferred their mortgage payments really need to review their financial circumstances.

Can you now start to make your mortgage payments or are you still in a difficult situation where you may not be able to pay your mortgage?

You may be able to negotiate a longer deferral period with your bank, but the reality is that some may have to consider selling their homes.

This is the time to have those difficult conversations.

The thought of losing your home can be one of the most stressful situations you can go through, but the reality is that some may have to sell.

Missing mortgage payments can seriously reflect on your credit as past due payments will show on your credit report for seven years. Missing one mortgage payment could prevent you from obtaining another mortgage for years.

It’s important to communicate with your lender sooner than later if you know you won’t be able to make your payments.

You may have some options to solve this problem, but speaking early to a mortgage broker is really your best course of action if you know you won’t be able to re-start your mortgage payments if your bank will not offer a further deferral of your payments.

Here are some ways that a mortgage broker can advise you:

  • Perhaps you can refinance to lower your monthly payments to keep you within your budget.
  • We can see if we can obtain a new mortgage with another lender and pay off your current lender.

If you fall behind on your mortgage, the interest and costs can accumulate quickly; it is critical to seek assistance early before things get out of your control.

Please call me at 1-888-561-2679 for a confidential conversation or email me at [email protected]



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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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