Should you refinance?

Mortgage Tips Kimberly Coutts 19 Oct

I wanted to share the ins and outs of refinance with you and if it’s something that you might want to take advantage of in the coming months.  It’s an important message to share as recently clients came to me for a Pre-Approval for a new purchase.  They were contemplating selling and buying a new home in the $1 million mark, however after doing a full Pre-Qualification and budget I was able to show them that it would be more beneficial to their family to hold onto their existing property to refinance their mortgage, pay off all their debts and then use the remaining equity as a down payment for Property #2.  With this strategy their real estate assets will be worth $1.6 million instead of $1 million!  And if you think you need to have double six figure incomes to be able to execute this purchase you don’t, this young couple make just over $100K!

The key in the above scenario is that:

  • they have 40% equity in Property #1
  • they’re able to rent out Property #1
  • they’re open to alternative mortgage solutions for Property #2 to maximize their purchasing power

So what is a refinance?  A refinance is when we pay off your current existing mortgage and then replace it with a new one, sometimes with the same lender, sometimes with a different lender.  Some of the reasons that individuals/families look to refinance is:

  • to pay off consumer debt which is typically at a higher interest rate – think car loans, credit cards and lines of credit
  • to obtain a down payment for a new property
  • to use for renovations in your current home
  • to purchase a vehicle in cash rather than obtaining a car loan which could be at a higher interest rate

There are costs to a refinance, which are:

  • Penalties for the existing mortgage
  • Appraisal Fees which are typically $350-$400 so the lender can see what the home is valued at
  • Lawyer or Notary Fees to complete the transaction which can be anywhere from $900 – $1200

If you have more than 20% equity in your current property and you’re wondering if it’s something worth looking into let’s connect for a Discovery Call.  You could start the New Year with a 2nd property in your Real Estate portfolio!

Of course if you’re still looking to get into your 1st home and it’s been awhile since we’ve touched base let’s catch up and see if the time is right for you to make the move and purchase your 1st home.

Have a great rest of the week and talk soon.

Kindest regards,

Kimberly

Get Better Credit with The 5 Cs

Mortgage Tips Kimberly Coutts 13 Oct

Our DLC Marketing team recently share the below article with us.  Figured it was great information to post on the Blog.

Buying your first home is an incredible step in life, but it is not without its hurdles! One of which is demonstrating that you are creditworthy, which all comes down to your ability to manage credit. This is how lenders and credit agencies determine the interest rate you pay. A higher credit rating could mean a lower interest rate and save you thousands of dollars over the life of your mortgage.
There are several attributes that lenders consider before granting credit, and these are commonly referred to as the “Five C’s” and consist of: Character, Capacity, Capital, Collateral and Conditions. Let’s take a closer look at each:

Character: The first C focused on YOU and your personal habits, which comes down to whether or not it is in your nature to pay debts on time. The determining factors for your credit character include the following:

  • Whether you habitually pay your bills on time
  • Whether you have any delinquent accounts
  • Your total outstanding debt
  • How you use your available credit:
    • Quick Tip: Using all or most of your available credit is not advised. It is better to increase your credit limit versus utilizing more than 70% of what is available each month. For instance, if you have a limit of $1000 on your credit card, you should never go over $700.
    • If you need to increase your score faster, a good place to start is using less than 30% of your credit limit.
    • If you need to use more, pay off your credit cards early so you do not go above 30% of your credit limit.

Capacity: The second component relating to your credit rating is your capacity. This refers to your ability to pay back the loan and factors in your cash flow versus your debt outstanding, as well as your employment history.

  • How long have you been with your current employer?
  • If you are self-employed, for how long?

Don’t be confused as capacity is not what YOU think you can afford; it is what the LENDER has determined that you can afford depending on your debt service ratio. This ratio is used by lenders to take your total monthly debt payments divided by your gross monthly income to determine whether or not you are able to pay back the loan.

Capital: Capital is the amount of money that a borrower puts towards a potential loan. In the case of mortgages, the starting capital is your down payment. A larger contribution often results in better rates and, in some cases, better mortgage terms. For instance, a mortgage with a down payment of 20% does not require default insurance, which is an added cost. When considering this component, it is a good idea to look at how much you have saved and where your down payment funds will be coming from. Is it a savings account? RRSPs? Or maybe it is a gift from an immediate family member.

Collateral: Collateral is what is pledged against a loan for security of repayment. In the case of auto loans, the loan is typically secured by the vehicle itself as the vehicle would be repossessed and re-sold in the event that the loan is defaulted on. In the case of mortgages, lenders typically consider the value of the property you are purchasing and other assets. They want to see a positive net worth; a negative net worth may result in being denied for a mortgage. Overall, loans with collateral backing are typically more secure and generally result in lower interest rates and better terms.

Conditions: The conditions of the loan can also influence the lender’s desire to provide financing. Conditions can include: interest rate, terms, length of loan and amount of principle needed. Typically lenders are more likely to approve specific-loans, such as a car loan or home improvement loan or mortgage as these have a specific purpose, as opposed to a signature loan.

There is no better time than now to recognize the importance of your credit score and check if you are on track with the Five C’s and your debt habits. A misstep in any one of these areas could be detrimental to your efforts to get a mortgage. If you are not sure or want more information, please don’t hesitate to reach out to me today to determine your current credit score and if there are areas for improvement to help you get a better interest rate and mortgage.

Let’s Talk Mortgage Payments

General Kimberly Coutts 6 Oct

So you’re all set and you’ve found your new home.  You’ve now received a commitment from your mortgage broker and lender however there’s an area on the commitment form that provides all these payment options and you’re unsure of what it all means and how it affects your mortgage then look no further for a quick and easy explanation.

In Canada when you take on a mortgage you typically have the option of five mortgage payment options:

  • Monthly
  • Bi-Weekly
  • Accelerated Bi-Weekly
  • Weekly
  • Accelerated Weekly

A monthly mortgage payment, which is typically the most common is when your mortgage payment is withdrawn from you bank account on the same day of every month (i.e. on the 1st).  You would make 12 payments per year in this scenario.

A bi-weekly mortgage payment is when your monthly mortgage payment is multiplied by 12 months and divided by the 26 pay periods in a year, thus making 26 payments per year.  You’re dividing up the payments in two per month however still paying the same amount as the monthly option.

An accelerated bi-weekly mortgage payment is when your monthly mortgage payment is divided by two and the amount is withdrawn from your bank account every two weeks.  With an accelerated bi-weekly mortgage payment, you still make 26 payments per year, but the payment amount is slightly more than the regular bi-weekly mortgage payment.

A weekly mortgage payment is when your monthly mortgage payment is multiplied by 12 months and divided by the 52 weeks in a year.  You would be making a payment every week however the total amount paid per year is still equivalent to the monthly payment option.

An accelerated weekly mortgage payment is when your monthly mortgage payment is divided by 4 and the amount is withdrawn from your bank account ever week.  It’s still 52 payments in a year, but the payment is slightly higher than that of a regular weekly mortgage payment.

Although the regular and accelerated payments sound very similar, with the accelerated you will end up making approximately one extra payment a year which helps save you thousands of interest and helps pay off your mortgage that much quicker a few years quicker than anticipated.

Should you have any questions about your current mortgage or obtaining a mortgage don’t hesitate to reach out for a complimentary discovery call.