When it comes to your mortgage, don't put off taking action

Last-minute mortgages

Over the last few weeks, I’ve been dealing with two similar situations that have prompted today’s column.

What do I mean by last-minute mortgages? Last-minute mortgages is not an official term, but what I mean is where we are scrambling to find financing to close a purchase or refinance a property.

This first situation is one that provokes a wide range of emotions for me.

I’m working with a couple in the Kootenays who came very close to losing their house due to foreclosure. The irony is, at all times they had almost $200,000 in their investment account at their bank.The husband had a meltdown in the branch one day. He was (by all accounts including his own) out of line. He exploded on a customer service representative over something relatively minor.

The bank sent him a letter explaining that it was severing its relationship with him as a customer due to the abuse that was hurled at the employee. He figured it wouldn’t actually follow through. He didn’t figure it could actually cancel his mortgage. They were still making their payments and had lots of money at the bank.

The couple was dealing with some fairly serious issues at the same time. Her mother died unexpectedly and one of their children was diagnosed with a terminal illness. They were overwhelmed just trying to get through each day.

They did nothing about the mortgage. The bank cancelled their credit card and credit line. Then a letter came from a lawyer representing the bank ,which gave them seven days to pay the mortgage in full or the bank would be proceeding with foreclosure action.

Now, understand this did not happen overnight. We are talking about months of correspondence about the mortgage. Now facing a one-week deadline, the clients reached out for help.

Because they had significant equity in their home, we were able to find a private lender that would pay out the bank. This was not a cheap fix for them. Between the lender fee, broker fee and legal expenses, they spent almost $15,000 to save their home. And they are now sitting in a mortgage at seven per cent while I arrange longer term financing for them.

An alternative lender is the route we have to go as their credit is now damaged because of how this all played out. They are looking at another $5,000 fee, plus another $2,000 in legal bills.

Had they dealt with this right away, they could have walked into another bank and switched their mortgage and would have been out of pocket for a penalty of about $3,000. Instead they are at almost $22,000, not including the higher interest they are paying in the meantime. Ouch.

The second situation was even more last-minute. The clients reached out late one night in a panic. They had a purchase closing two days later and thought their bank had financing in place for them.

They found out that evening their bank was not going to have everything organized in time and told them they needed to get an extension for closing. They reached out to the sellers and there was no possibility of an extension because the sellers were purchasing another property.

One business day, then closing day. During one of the busiest mortgage times of the year.

For these clients, we were able to arrange private financing and close the next day. One day to work on a file that was off the charts hectic but everything came together and it closed on time.

The client called the following day to talk about the fees and interest rate and terms of the mortgage. The fees were high. The legal costs were double what they would normally be. I was actually happy with the interest rate we found for them.

In this case, the clients paid more than $50,000 in fees and legal bills (it was a big mortgage). Had their bank put the financing together in time, they would have spent about $2,000 in legal fees and that would have been it. That was unfortunate for them.

They have a substantial net worth and super clean credit. They were under the impression everything was nailed down. This was an expensive route to go, but possibly losing out on this property, or being sued for not completing the purchase, would have been far more stressful and even more expensive.

If you find yourself in a sticky situation, burying your head in the sand is very tempting but can be very expensive. Dealing with challenges like these head on can feel overwhelming if you are already angry and emotionally drained, but taking action quickly to look into your options may save you thousands of dollars and many sleepless nights.

I am glad we were able to find solutions for both of these clients, and I hope that by sharing their experiences, I am able to save someone else the expense and aggravation that comes by ignoring tough situations.

Also, a quick reminder, if you haven’t already claimed your property tax provincial Home Owner Grant online, make sure you do it today.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.


Dealing with rising mortgage rates

Rising mortgage rates

The mortgage world is not too much much fun lately.

This week, I tried to unsubscribe from all of the rate increase notification bulletins. Turns out that doesn’t stop rates from moving.

As you can imagine, I have a fair number of conversations every day around the impact of the changing interest rates, what is potentially coming with rates and how we can best manage each client’s situation.

As I write this column, many lenders are offering clients five-year fixed rates of 5% or more.

A year ago we were able to place five-year fixed rates at about 1.65%. That’s quite a difference.

Clients who are out house-hunting, and clients whose mortgages are coming up for renewal, are very concerned about affordability.

If you bought a home since mortgage legislation changed in 2016, you would have had to qualify under the stress test. That means (depending on when you actually bought) you were qualified to carry a mortgage based on a rate of anywhere from 4.64 per cent to 5.25 per cent. In theory then, you should be able to carry a higher payment if you have to renew at 5%.

People’s situations change over a five-year term. Ideally your wage has increased and your debts have not. The reality, in many cases, is couples move into a home, then start a family, or buy a new vehicle, or, as Covid showed us, employment changes.

I don’t have a crystal ball that is particularly accurate. There are many economists and experts sharing their thoughts on what is to come with respect to interest rates and the state of our economy.

The economist I follow most closely said earlier this week he feels rates will be bumpy for the next few months then start to trend downwards.

If you have chosen a variable rate mortgage and are now panicking, it’s important to do the math. It is definitely a bit unsettling to hear all of the doom and gloom, but it is key to focus on the reasons as to why you chose your variable rate in the beginning.

Many clients don’t realize they do not have to chose a five-year fixed term. It is the standard offer from most banks and what many clients are most comfortable with. However, you can choose a shorter term if you want the stability of a fixed rate but don’t want to be locked in for too long.

The bottom line is there are ways to navigate through this interest rate environment that may help to put your mind at ease.

Freeing up monthly cash flow by refinancing your home is one option. Even with mortgage rates being a little higher, improving your cash flow by paying off credit cards that are charging higher interest rates may help you sleep better.

Either way, often a call to your mortgage person is the best way to start. See what his or her thoughts are for your particular situation.

A quick call may be all you need to put your mind at ease.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

Understanding mortgage purchase contracts

Mortgage purchase contracts

Last week, I came across a clause in a purchase contract that caused me some angst.

My client is in the midst of buying a pre-build. The clause is itemized on the contract as “cost escalation adjustment.” Exactly as this sounds, it is a clause that allows the builder to increase the cost beyond the amount agreed to in the original purchase contract.

Shortening it up, part of the clause reads as follows:

“The builder and the purchaser agree that if, at or prior to the excavation date, the aggregate construction prices have increased by an amount greater than four per cent (4%), than the construction prices, as of the date of this agreement, as determined in the builder’s sole discretion, then the builder may either:

• Commence construction, whereby the purchaser’s price of land and residential unit (as described in clause No. 5 herein) and accordingly the apportionment of price to construction (as specified in clause No. 20 herein) shall increase by an amount not to exceed the price increase cap;

• Renegotiate the terms of this agreement with the purchaser in good faith; or

• Cancel this agreement”

This paragraph is about one-quarter of the whole cost escalation adjustment clause. It goes on to explain the various points during the build where the developer has the ability to increase the price of the home or cancel the agreement altogether.

So a few big things here:

• This clause is a perfect example of why it is so important that you read and understand the entire contract you are signing.

• This clause highlights why it is essential that you have your legal representative review your purchase contract before removing all of your subjects and making your purchase a firm agreement.

• This clause means you would not to write an offer anywhere near the top of your maximum mortgage amount to allow for any potential increases in price

Why does this even matter? From the mortgage perspective, often my clients write offers at the absolute top of their price point. I’d rather they didn’t but in our market finding a more affordable home isn’t always an option.

Sometimes clients are stretching just to get their minimum down payment together. Facing a significant price increase will likely mean they will need to come up with more of a down payment.

As an example, I’m working with a young couple in northern B.C. who have written an offer on a new home that is set to be completed in August. This clause is not in their agreement but if it had been, they might find themselves looking for a different home if they couldn’t find additional down-payment money.

They are at the absolute top end of what they qualify for in terms of a mortgage. Their purchase price is $740,000. If the cost of their build increased by even three per cent, they would need to come up with an additional $22,200 because they do not qualify for a higher mortgage amount.

As well, changing the price point might have other, more expensive implications.

In B.C., for new builds up to $750,000, buyers are exempt from paying the Property Transfer Tax. In this same example, if the price of the home increased to $762,200 they would also be liable for paying the Property Transfer Tax. In their case it would be $13,244.

Now they would be scrambling to come up with an additional $35,444. For many clients this is not something they can pull out of a hat.

It’s a complex issue because builders are facing crazy increases in costs and lengthy delays.

I’m working on two files right now where clients have sold their pre-build contracts (called an assignment) because the sellers’ circumstances have changed and they want to walk away from their agreements.

If you are considering purchasing a pre-build, I encourage you to read and understand the entire contract before signing. Make sure your legal representative reviews it for you and with you so you are clear on what you are signing. Doing your due diligence may save some serious heartache down the road.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.


The changing mortgage landscape

Mortgage changes, helpers

The last few weeks have been interesting in the mortgage world.

With prime increasing we have seen upward movement for fixed rates which means reduced borrowing power for many clients. I touched on this in my last column.

When I sat down to write this, I thought I was going to focus on how the rising rates are impacting our real estate market, and talk about a few of the perspectives that I heard while I was in Vancouver for meetings last week.

After a call this morning, I decided to change gears a little, but it does tie back in to one of the impacts of rising interest rates.

Since the introduction of the (mortgage) stress test, I have seen a shift in how clients qualify to buy their homes. More and more often I am seeing either mom or dad co-signing on mortgage applications, or mom and dad gifting family members significant money to use for their down payments.

I am also encountering situations where domestic partners are moving forward with home purchases together very early (in my opinion) in their relationships because neither can qualify on their own.

Often in the early stages of a relationship we tend to see only the great and rosy aspects of our partners. Money does funny things to some people though.

Last fall I worked with a lovely couple in northern Alberta. She came into their relationship with her home owned free and clear and a significant investment portfolio. He came into the relationship with minimal savings because he had just been through a horrific divorce.

They earned almost the exact same salaries. They were also comfortable having the tough discussions around finances and different scenarios that might happen down the road.

They decided that a pre-nup would protect them both. They visited a lawyer and had the agreement drawn up and signed before they bought a house together.

More recently I worked with a man whose wife of 30 years passed away. Two years later he met a wonderful woman and they married. He added her name to the title of his home right away as he knew deep down she would never do anything shady.

He came to me (married about three years at this point) needing to refinance his home as she decided she wanted out and was coming after him for money.

They had no agreement in place. I’ve referred him to a lawyer to look at what his rights are.

Why am I sharing these examples? Money brings out both the best and the worst of people. If you are considering entering into a purchase with a relatively new partner or asking parents to co-sign, please seek legal advice as to your rights and obligations with respect to other parties on your contract

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

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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 www.okanaganmortgages.com

Visit their blog at 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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