Collateral vs.Standard Charge Mortgages

More lenders are moving to collateral charge mortgages so it’s becoming increasingly important to understand the differences between a collateral and standard charge mortgage. TD Bank announced in October, 2010 that all new mortgages will be a collateral charge mortgage. ING made the same announcement at the end of 2011 and it is expected that other lenders may follow.  Collateral charge mortgages are now the only option with TD and ING.  Standard charge mortgages are offered by the majority of all other lenders, although some offer both – standard charge mortgages and HELOCs, which are a collateral charge. You choose the option that best meets your needs.  So what’s the difference, and which is better for you?. It’s important to understand those differences so you can make sure you get the mortgage that best fits your long-term goals.

They both have advantages and disadvantages; the one that is right for you depends on your preferences, future needs, and long-term goals. The primary difference is that a collateral charge mortgage registers the mortgage for up to 125% (TD) or 100% (ING) of the value of the home at closing, instead of the amount you need to close your transaction.  The advantage behind this is that it makes it easier to tap into your equity for debt consolidation, renovations or to invest in property or investments easily and cost effectively, since you don’t need to visit a lawyer and pay legal fees. This flexibility is one of the primary advantages of collateral charge mortgages.

The downside comes at renewal. For consumers who want to keep their options open at maturity and have negotiating power with their lender, this isn’t the best product feature because collateral charge mortgages are difficult to transfer to another lender. That means if someone wants to change lenders for a better rate or product feature, they need to start from the beginning and pay new legal fees, which range from $500 to $1,000. Technically they can be assigned but lenders don’t accept the transfer. With regular standard charge mortgages, you can switch for free, although certain minor charges may apply. In addition, with a collateral charge, it could be difficult to get a second mortgage unless your home significantly appreciates in value.

The ability to take out equity is one of the primary features of Home Equity Lines of Credit, which are collateral charges for this reason. In these cases, clients want the ability to extract equity when they need it or as it becomes available. If you feel that there is a very good chance you will refinance to consolidate debt or to extract equity for a renovation or to invest, then a collateral charge mortgage may be a wise decision.

If you don’t believe that you’ll need to refinance or extract equity, then a regular standard charge mortgage will suit you fine, and it will give you the ability to move to another lender at renewal should you want to without incurring legal fees. In other words, it’s easier for you to keep your options open. If need to borrow more with a standard charge mortgage, you have the option of a second mortgage or line of credit.

Determining whether to get a standard or collateral charge mortgage adds another layer of complication for many homebuyers and owners. Obtaining the proper advice from a mortgage professional is your best choice to navigate this complex subject.

Source: Mortgage Superhero

Mortgage & Retirement

Having a mortgage during retirement adds a hefty bill to a post-employment lifestyle. As a result, many people seek to pay off their mortgages entirely prior to retiring. Here are three questions to ask yourself when determining whether paying off your mortgage early is a good strategy for you.

What are the Rates of Return?

One way to evaluate the decision to pay off your mortgage versus keeping more of your money in savings is by comparing the rates of return you expect to earn by following each path. Should you choose to pay off your mortgage, your rate or return is certain; you "earn" the interest rate charged on your mortgage.

If you instead choose to save the money, your rate of return may vary considerably. Your expectation will be determined by how you choose to invest. If you choose to invest very safely, like in a savings account, your rate of return will be quite low, likely below that of your mortgage. If you choose to invest more aggressively, you may very well earn a higher return, but will do so at a cost of significantly more risk and greater uncertainty.

What About the Home Mortgage Interest Deduction?

With every home payment you make, you might benefit from a mortgage interest deduction. However, the benefit of the home mortgage interest deduction may be less than you think, since:

• Your tax rate may be lower than ever - Since you’re in retirement, you’re not working, lowering your income, and lowering your income tax rate.
• Your payment consists of more principal and less interest.
• Each successive mortgage payment is comprised more of principal and less of interest, reducing the size of your deduction on your tax return.
• Your other itemized deductions are probably lower too.
• Because you’re in retirement, you’re probably paying less state income tax. Since you only receive a tax benefit to the extent your itemized deduction exceeds your standard deduction, this means you get less of a tax break from your home mortgage payments.

Would You Prefer No Bill or No Cushion?

While it may be of comfort to avoid a mortgage bill every month, you don’t want to pay off your entire mortgage if doing so would leave your without any savings cushion. You’ll never want to pay down your mortgage only to find that you can’t afford to pay for an unexpected car or home repair without going into credit card debt. Ideally, you could pay off your mortgage and have significant savings remaining. Regardless, make sure you retain an emergency fund in retirement.

4 reasons to pay off your mortgage before you retire

Does your mortgage term extend past the date you want to stop working? You might want to reorganize your finances and pay it off sooner. Here's why.

With housing prices skyrocketing and 30-year mortgages available to homeowners, more and more Canadians will be paying off their home well into retirement. If you’re still making a decent living in your 60s and 70s, then that may not be a problem. But for people who actually want to retire, having a hefty monthly payment to take care of can be trouble.

Ideally, you want your mortgage paid off by the time you leave the workforce. Here’s why.

1. Mortgage payments are large - As housing prices go up, so do monthly mortgage payments. Just imagine how much money you’d have if you didn’t have to pay a mortgage. Now imagine paying that monthly amount and not making any income. Scary, right? You don’t want to have to worry about finding a few thousand bucks a month to pay for your house when you’re not bringing in a paycheque.

2. RRSP withdrawals aren’t the answer - You’re probably thinking you can withdraw money from your RRSP to make those payments. Well, besides the fact that the point of saving all that money during your career was so you could enjoy retirement, in order to pay the mortgage you’ll actually need to take out more money than you might think.

When RRSP savings are withdrawn, you have to pay tax. It’s the after-tax dollars that will be used to pay down your debt. Theoretically, you could have to remove $3,000 to make a $2,000 payment.

3. You know what you’re getting into - There’s always a debate around paying off a mortgage versus investing in an RRSP. A lot of experts recommend concentrating on the mortgage first because it’s easy to see what’s happening. You have a set rate and you can see the balance dropping. With investing, the rate of return is unpredictable. Aggressively pay down the mortgage first and then use all that extra cash for retirement savings.

4. You’re building equity -  Not only does a mortgage-free retirement give you a lot of extra money to spend in your golden years, but if you need cash to fund something -- maybe a major medical issue, or you want to buy a small condo -- you can sell the house. If the mortgage is paid off you’ll get all the proceeds from the sale.

Retiring mortgage free doesn’t always make sense -- having a large pension, if you're so lucky, could make those payments manageable -- but generally, it’s better not to have such a huge debt when you stop working.

 

 

Source:  Rob Carrick

What Happens When You Can’t Qualify For A Mortgage!?

If your mortgage application has been declined, it’s probably due to low income, too much debt or bad credit. Here are some ideas of what you can do if you’re getting declined:

Low income: if the bank tells you that you can’t afford a particular mortgage amount because of your income, it’s for good reason; you won’t be able to afford the payments. Try the following:

■Lower your mortgage expectations by shopping for a cheaper home
■Start making more money
■Put more money down. A bigger down payment means a smaller mortgage
■Get someone to co-sign the loan with you. If you know someone who’s willing to back your loan, you can
have him or her sign with you on the mortgage as assurance to the bank that at least someone has the ability to make the payments.

Too much debt: a large chunk of what the bank believes you can afford is based on the credit that is available to you. So, for instance, if one person has a MasterCard (with a balance) with a credit limit of $5,000 versus someone with three credit cards (no balance) with credit limits totalling $15,000, the person with the MasterCard (with a balance) is considered to be less of a default risk. This is because the person with the $15,000 limit has the potential to utilize all that credit. Here’s what you should consider doing if you’ve got too much available debt:

■Slowly begin to consolidate consumer debt to reduce your overall available credit. Cancel unused credit cards (keep the one with the best and longest credit history), transfer balances and ask the lender to reduce the credit limit or both.
■Focus on paying down consumer loan balances quickly. The faster you get rid of your consumer debt, the more available income you’ll have to allocate toward a home.

Bad credit: before you enter into the application process, review your credit report. To ensure your credit file has accurate information, check on it every year. You can order your credit report online or by mail through Equifax Canada Inc. or TransUnion Canada Inc.
If there’s an error on your report, send a written request (with official receipts and paperwork supporting your side of the issue) to the credit bureau, which will investigate. If the error turns out to be incorrect, the credit bureau must correct it and send out revised reports to the lender you are trying to get a mortgage from.

If you’ve been late on payments, missed payments, not repaid a loan or have declared bankruptcy, you’re going to have a tough credit rating to face. Here’s what you can do: be responsible and wait it out. Make your payments on time, don’t miss payments and don’t ignore your debts. If you’re struggling with keeping up, see a credit counsellor who can help you negotiate new terms with your lenders.

Debt Consolidation Mortgage

High interest debt on credit cards, auto loans, or other consumer loans can be difficult to pay off and may create a barrier to your financial goals. However, if you’re a homeowner with equity, you have additional options to help you manage your debt, including a debt consolidation mortgage and home equity loan or line of credit.

Refinance with a debt consolidation mortgage

As a homeowner, one way to start managing some of your higher-interest debt is to refinance your existing mortgage with a debt consolidation mortgage. For example, a Home Power Mortgage allows you to borrow additional money on your mortgage so you can consolidate your debts into one simple payment. That way you can easily budget with a structured payment plan and an assured pay-off date.
Find a mortgage that’s right for you using our mortgage product selector.

Debt consolidation home equity loan or line of credit

Homeowners who are looking to consolidate their debts have the option of using their home equity to secure a loan or line of credit. A home equity loan or line of credit allows you to obtain a lower interest rate and a higher credit limit by using the equity you’ve built in your home as security. By consolidating your debts into a home equity loan or line of credit, you’ll have the convenience of one consolidated payment rather than having several bills from different creditors. This makes bill payments more manageable and the rate is usually lower, helping you pay off your debts sooner. With a home equity line of credit such as a Home Power Plan, you’ll enjoy additional benefits such as making interest payments only on the funds you use, not your total credit limit, and having ongoing access to funds up to your authorized credit limit.

Benefits of debt consolidation mortgages and debt consolidation home equity loans or lines of credit

• Interest rates on mortgages and home equity loans or lines of credit are often much lower than those on credit cards and consumer loans
• Making a single payment to your debt consolidation mortgage or home equity loan or line of credit is much easier than making multiple payments to credit cards and other lenders

Mortgage Refinancing and Home Equity

Mortgage refinancing offers many benefits, from getting a better interest rate to lowering your regular payment. One of the most popular reasons why people refinance is to access their home’s equity to serve as collateral for a home equity loan or line of credit.

Find out if mortgage refinancing is right for you by contacting your mortgage professional.

Home equity vs. mortgage?

When you start the process of refinancing, you might become confused by all the different terminology. Mortgages and home equity are directly related to each other, but aren’t the same.

Home mortgage: Loans secured by your house and paid in installment's based on the period of time as determined by yourself and the lender. The mortgage secures your promise to repay the home mortgage.

Home Equity is the difference between your home's fair market value and the outstanding balance of the mortgage. In other words, it’s the amount you have already paid against the value of your house. Therefore, your property's equity increases as you make more mortgage payments.

What are home equity loans and lines of credit?

Mortgage refinancing allows you to use the home equity you’ve established in the form of home equity loans and lines of credit, available for home improvements, college tuition, major purchases, etc.

Determine how much equity is available in your home with our home equity calculator.

A home equity loan is a secured loan paid in one lump sum based on the amount of equity you have in your home. Your home is used as collateral for such loans.

A home equity line of credit can be combined with a mortgage under a Home Power Plan. Rather than giving you the loan up front in a lump-sum, you’ll have ongoing access to funds through a line of credit. As you pay down your mortgage each month, you build equity in your home which automatically increases your line of credit amount up to your Home Power Plan limit.

It’s important to take into account factors such as interest rate and how long you plan to remain in your home before deciding if a home equity loan or Home Power Plan is right for you.

Making the Offer

Making the Offer

You thought this day would never come. You've found the perfect home. Now you're ready to make your offer.

Once accepted, an Offer to Purchase is a legally binding agreement between you and the vendor. Along with your mortgage agreement, this is one of the most important documents you'll sign.

It locks you into the conditions of the purchase, so make sure your interests are protected by discussing your Offer to Purchase with your lawyer or notary prior to signing.

Checklist: What to include in your home offer

Your proposed purchase price.
A list of items in the house (called chattels) to be included in the purchase price. For example, appliances, window coverings, and certain furniture items might be negotiated into the purchase price.
Amount of your deposit.
Financial details. For example, how the balance of the purchase price will be paid.
Closing date. This is the date you will take possession of the house (usually 30 or 60 days from the date of the agreement).
Time period for which the offer is valid.
Conditions of the offer. You might want to make your offer conditional on arranging for financing, a building inspection, or the results of a survey. Make sure the offer can be cancelled if any of your conditions are not met and always put a time limit on the conditions. Keep in mind that a firm offer – one with no conditions – is usually more attractive to the vendor. But remember that you need to feel comfortable with the offer yourself. Your Realtor will be able to advise and guide you through this important process.

Your home offer is accepted

Congratulations, once your Offer to Purchase is accepted, it's time to contact a mortgage advisor.

Reminder: You will need a cheque, bank draft, or money order to accompany your Offer to Purchase as a deposit.

Start Saving For Your Down Payment

For many first-time homebuyers, saving what's required for a down payment can seem overwhelming. However, sometimes saving for a down payment is as simple as managing your budget differently.

You can start saving for your down payment:

By setting aside money each month just as you would a regular mortgage payment

By opening an RRSP Regular Investment Plan to help you save tax free

With a cash gift from a parent or relative

I can help you with a strategy to reach your goal of buying your first home sooner.

Using your RRSPs to buy a home

If you qualify as a first-time homebuyer, you may be eligible for the government's Home Buyers' Plan (HBP). This allows you and your spouse or partner to withdraw up to $25,000 each from your Registered Retirement Saving Plans (RRSPs) to add to your down payment or to cover purchase-related costs.

Best of all, you don't have to pay income tax on the funds, as long as you repay the total amount to your RRSP over the next 15 years. The repayment period starts the second year following the year you made your withdrawals. If the full $25,000 is withdrawn, the minimum annual repayment would be $1,666.

For more information on the Home Buyers' Plan, please visit the Canada Revenue Agency website.

http://www.cra-arc.gc.ca/E/pub/tg/rc4135/rc4135-e.htm