Cash Back Mortgages

General Pam Pikkert 30 Sep

Cash Back Mortgages

So you have probably seen a local bank advertise a cash back mortgage.   It sounds awesome.  There are always expenses you need to cover and this could be the solution for you.  Cash back mortgages allow borrowers to receive money back after the closing of a mortgage.  But as always, we should take a closer look so that you are fully informed.

What is a cash back mortgage?
Well to put it simply, you get the money you need to pay the seller for the home and then you get a pre-determined amount of cash that becomes yours to do with as you please.  Legal fees, new furniture, debt payout, landscaping, or other home renovations are all great examples of just this.   The funds could also be used to invest in your RRSP or your child’s education fund.  Just think, you could have the cash on hand to replace that horrific rose colored carpet as soon as possible.

The one thing you can no longer use this money for is the down payment.  The government stepped in a couple of years ago and made regulatory changes so that you must have the down payment from one of the other acceptable sources.

How much money does a cash back mortgage provide?
Cash back mortgages will provide you with up to 5 percent of the mortgage loan amount. This means that the larger your mortgage is, the more money you can receive from a cash back mortgage.

For example, if your mortgage is for $100,000, you can receive up to $5,000 back. Meanwhile, if your mortgage is for $300,000, you can receive up to $15,000 back.

What are the benefits of a cash back mortgage?
Buying a home can become very expensive.  Having the extra cash on hand which you have borrowed at today’s low interest rates could be just the thing you are looking for.

What are the things to watch out for?

Cash back mortgages come with a higher interest rate.  The lenders charge a rate premium for this product which can be as much as 1% higher than the best rates available on the market.  That means your monthly payment will be higher.  You must also keep in mind that if you break the mortgage contract during the term, this money becomes payable in full in addition to any penalty the lender assesses.  That can really add up so your first step should always be a call to your lender to determine just how much this will be.

You should also know that these mortgages require you to have fairly strong credit as there is a higher risk to the lender given that they are now lending you even more money.

How does it work?

These mortgages are available whether you are purchasing or refinancing. You can have as little as 5% down or as much as you want.  You can choose a 5, 6, 7, or 10 year term and you still have the ability to determine your amortization.  You can also choose your payment frequency be it monthly, biweekly or any other.  The lenders still allow you prepayment privileges so, depending on your lender, you can pre-pay up to 20%.  The funds will be given to the lawyer on the day the mortgage closes who will then give the funds to you.

So that’s about all I have to say about that but as always ask questions of your qualified mortgage professional to help you decide the best course to achieve your goals.

 

The Ins and Outs of the Mortgage Legal Process

General Pam Pikkert 22 Sep

 

                So you have survived the trials of obtaining mortgage financing.  Your mortgage professional sends the all clear to your realtor and the conditions are removed.  Or maybe you did a refinance of your current home and are just waiting for funding day.  Congrats on making it past step number 1 but you should be aware that you are not done just yet.  This week we will take a look at what you can expect once your mortgage gets to the lawyer from your mortgage professional’s point of view. 

                So this is how it looks:

  1. Your lender tells your mortgage professional that all conditions have been met
  2. A new department of the mortgage provider is then told to prepare the legal documents for the lawyer. This can take a day or 2 depending on the lender.
  3. The documents are sent over to the lawyer.  At this point it is commonly the paralegal who prepares the paperwork which you will sign when you meet with the lawyer.
  4. They give you a call and set a time to meet.
  5. You meet with the lawyer, ask your questions, sign the papers and provide any additional documentation.
  6. The lawyer and paralegal complete the paperwork and send it back to the lender. Most lenders require at least 2 days after receiving the papers back before they fund. 
  7. On the pre-set day, the lawyer receives an all clear from the lender and they then go ahead and release the funds to the seller if it’s a purchase or to the current lender if it’s a refinance.

So this all sounds pretty straight forward right?  If only it was that easy.  Let’s take a quick look at some of the things that can go wrong.

  1. Communication – Even in this day and age, sometimes a fax or email doesn’t go through.  That can mean a delay as we have to go back through the channels to get the paperwork resent.  Other times, your current mortgage provider is slow in providing a payout statement.  More delays.
  2. Proper ID – If your driver’s license is expired and you don’t have a passport, the lawyer is not able to meet one of the conditions.  They are required to verify your identity as per the requirements but without proper ID they cannot do so and yet another delay could ensue.
  3. Personalized cheque – Lender’s require your void cheque or PAD form from your bank to be personalized. 
  4. Debt reductions – If debt payout is a condition of your mortgage financing you should be sure to have account numbers or statements of the accounts for your lawyer so they are able to obtain a current balance easily.
  5. Delays can still happen – You may be sitting in a moving truck waiting for the keys.  Your Realtor needs the all clear from the lawyer before they can give them to you.  However, if the person who purchased the house or the person who purchased yours has a delay in funding then you will all have a delay in funding.  Or if there is a delay in the wire transfer.  Or… you get the idea.  Your legal team is doing their very best to ensure you get into your new home on time but there can be things beyond their control.

If you have opted to go with a legal service to complete your refinance then you should be aware of all of the above.  The other part you need to be aware of is that the nice person sent to meet with you to sign the paperwork is not a legal professional.  They are there only to witness your signatures and to verify your identity.  They are not able to answer any questions at all so you will have to go back to your mortgage professional for those answers.

                So there you have it, a mortgage professional’s view of the legal process.  We have a vast array of very well qualified lawyers here in Central Alberta so you are certainly in good hands.  Have a great week.

 

Things Your Friendly Mortgage Professional Wants You to Know

General Pam Pikkert 15 Sep

 

I am sure that there are things that my accountant or lawyer would like me to know.  Tips that would make their job so much easier if I just understood.  This is likely true of most of us in our chosen career paths.  You are obligated to perform certain tasks which your clientele then grumble about.  So today let’s take a moment to look at the things your mortgage professional would like you to know.

  1. Credit Cards – If you would like to get a mortgage you will need a credit card.  Lenders need to be able to see how you handle your credit obligations. So even though too much debt is bad, you do need to have some available to you to develop your credit rating.  The flip side of this is that you need to make sure you do not exceed 75% of the available limit and ensure you payments are made on time.
  2. Cell Phones- Cell Phones report on your credit bureau.  If a lender sees that you are not able to pay this small monthly obligation on time then how on earth can they expect you to pay your mortgage.  Late cell phone payments are becoming a much more common reason for declines from lenders
  3. Taxes and Collections – You may have a very small amount outstanding on your personal taxes.  Or perhaps there is an old cell phone bill you are disputing which has gone to collection.  You will be required to pay these in full as a condition of your mortgage approval. 
  4. Pre-approvals – So you have been proactive and taken the time to get a pre-approval, that’s fantastic but it is not a guarantee of success.  Most lenders do not review your documents or even your application until you have an accepted offer to purchase.  And then you have to get through the mortgage insurers.  This is true even if you have more than 20% down.  Many lenders insure all of mortgages they approve.  Nothing is final until the lender gives us the coveted all clear.
  5. Documents- We will be asking you for a whole lot of stuff. It’s going to feel ridiculous and possibly intrusive.  We are honestly only doing our jobs. The lenders are governed by their investors and the mortgage insurers and the provincial and federal governments.  They have to ensure there is no fraud or money laundering and also do their best to make sure they are only lending to people who will pay them back.  This means that they will ask for documentation and clarification which means that we may have to come back to you for more until they are happy.
  6. Down Payment – There is sadly no such thing as a 0 down mortgage anymore.  You can borrow, be gifted, or save the down payment but you will have to show that you have at least 5% to put down on the new home.
  7. Closing Costs – The lenders require us to show that you have 1.5% of the purchase price available for the closing costs.  They are not trying to be mean.  There are genuinely costs which come up at the very end that you will be responsible for so you need to have some extra cash. Legal fees, title insurance, property tax adjustments are some examples of things that you are required to pay.
  8. Details – This is your mortgage.  You are signing a contract which is legally binding for at least the term of the mortgage.  We will do our best to explain it but you should ask questions and read the documents so that you don’t get hit by anything unexpected.

 

  1. Afterwards – Mistakes happen.  You may tell me that you would like a bi-weekly payment which includes your property taxes but by the time it goes from me all the way through the lender and your lawyer this doesn’t happen.  Take a few minutes to call your lender after the mortgage funds.  Double check that your payment is set up exactly how you like.  This 5 minute phone call can save you oodles of frustration later on.

 

So there you have it.  Things that your mortgage professional would like you to know.  Have a great week!

 

Is there a Mortgage after a Divorce?

General Pam Pikkert 10 Sep

                                                         

So the reality of the world is that a large number of marriages end up in divorce.  This is a hard enough time in anyone’s life so the lenders and the mortgage insurers have come up with a product that can help.  It is the ability to refinance your matrimonial home up to 95% of its value to payout your ex their portion of the equity and perhaps even some of the debts you incurred together.  This is a specialty product and there are certain things you must do.  Let’s take a look shall we??

Step 1.  You must complete a legal separation agreement through a lawyer.  Even if it is the most amicable split in the history of mankind, this has to be done.  The reason for this is you want your rights protected fully.  If you are the one staying in the house, you want to make sure that your ex has legally and irrevocably given up their rights to the home.  If you are the one leaving, you want to make sure that your name is removed from the title so there is no question of you have any further obligation where it is concerned.   There will be a cost associated with the legal separation agreement. How much?  I would not dare to say but I would budget a bare minimum of $2500.  It is also important to keep in mind that legal matters often take more time than anticipated so don’t imagine you will be able to get this completed in a hurry.  Make sure that you address any debts taken on during the marriage.  These can be paid out from the proceeds of the new mortgage but only if they are listed.

 

Step 2.  Order an appraisal.  This has 2 reasons.  The first is that you and your ex will be able to determine the true value of the home through an impartial third party.  The second is that most lenders require it in this situation.

Step 3. Write up an offer to purchase.  This one always catches people off guard.  Why should you have to write up an offer to purchase on a property you already own?  The answer is just this.  The lenders require it.  This legally binding document shows the agreed upon price and the final closing date to which both parties have agreed. This can be completed through your lawyer, with the help of a willing Real estate professional or on your own with a form available online.

Step 4.  Get a mortgage.  You have likely been in contact with your mortgage professional before now but if not, then now is the time.  You are going to have to provide:

  • Separation Agreement
  • Appraisal
  • Offer to Purchase
  • Letter of employment and Paystub
  • Last 2 years Notice of Assessments or T4’s
  • Any other required documentation

It is very important to note that you will incur new mortgage insurance premiums if you go right to 95% of the home’s value even if you had already done so on the same property.  This is a brand new application with you as the sole borrower so a full new premium applies.   This is how it could look:

 

 

Home Value              $300,000

5% Equity                    $15,000

New Mortgage for   $285,000

Insurance Premium $8977.50

Total Loan            $293,977.50

 

So that my mortgage minions is a product which can help you through a very challenging time.  As always we are more than happy to answer any of your questions.  Until next time!