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What is a mortgage pre-approval?

At face value, it seems self explanatory, yet we often get asked frequently: What is a mortgage pre-approval?

People are right to ask though and that’s because there is some ambiguity behind mortgage pre-approvals. What is a mortgage pre-approval really? What can I do with one? Do I need to worry about financing, even with a mortgage pre-approval in hand?

We answer by first saying: A mortgage pre-approval is a great ‘starting point’, for all intents and purposes, but is not intended to be depended on solely when making important mortgage related decisions.

Confused by this? Let’s explain further…

What IS a mortgage pre-approval?

  • A mortgage pre-approval is a financial assessment of your maximum affordability calculated using variables such as: income, credit score, debt ratios, current market rates (or pre-approval rates), etc.
  • It often comes in the form of a formal bank or brokerage letterhead stating the important pre- approval details allowing you to search the market for properties with a much higher level of confidence
  • They typically confirm a specific approval interest rate being offered, the duration of that rate hold (ex. 90 days, 120 days, etc.) and standard terms and conditions for financing fulfillment
  • Mortgage pre-approvals are offered for purchases (both insured or uninsured) and are often not provided for refinances or mortgage switches
  • Your two biggest takeaways from the mortgage pre-approval will likely be:
    • Your maximum affordability
    • The rate approval & rate hold duration

What is a mortgage pre-approval NOT?

  • A mortgage pre-approval is not a binding contract. Ultimately, this means the bank providing the pre-approval can withdraw their interest at any time using their discretion
  • A mortgage pre-approval is not the ‘end all be all’ for the mortgage process. During the pre-approval stages, the most important steps in the approval process have not yet taken place (ex. verbal employment verification, in depth review of income documents, appraisals, etc.)
  • Pre-approvals are not approved by the mortgage default insurer (assuming you are putting less than 20% down) who ultimately gives the final approval on financing
  • A mortgage pre-approval is NOT intended to be used as leverage to forego a condition for financing in your offer to sellers. The act of foregoing conditions for financing are done at the sole discretion of the buyers (we cannot stress this enough)

To sum up in 3 points – What is a mortgage pre-approval best used for?

  1. To understand your maximum affordability or purchasing power (to ensure you are purchasing within your limits)
  2. To enter the real estate market with confidence (knowing the rate, mortgage payment, amortization, affordability, debt ratios, etc.)
  3. To familiarize yourself with financing conditions that need to be met (examples, but not limited to: letter of employment, pay stub, business license, articles of incorporation, notice of assessment, T1 generals, etc.)

If you need a mortgage pre-approval to get started, we offer that service and guidance! We’ll make it easy for you and will ensure you enter the market with confidence.

Call us today at (905) 455-5005.

 

Second Mortgage Process

Second mortgages are a very common request, especially in markets with growing home appreciation and increasing household debt. Reasons for needing this type of mortgage are endless and if used correctly, they can help achieve many different goals which can be outlined in some of our previous blogs. Among questions surrounding the specifics of the mortgage itself (rates, terms, standard conditions, etc.), we’re frequently asked what the ‘second mortgage process’ is like, as applicants tend to worry as to whether they’ll qualify given their recent denial from their home branch. This blog is catered to the second mortgage process more so than the typical terms and conditions of the mortgage.

The second mortgage process is (or can be) a quick and painless one. Unlike your traditional forms of financing (i.e. banks or alternative-A lenders), second mortgage lenders often require only basic documents to get started and can be funded (money in hand) in as little as 48 hours for rushed deals, or 4-5 business days at a much more relaxed pace.

If we break the second mortgage process into 4 identifiable steps, it will resemble the standard mortgage process that you’re likely already familiar with but would happen much quicker and with far less requests. The second mortgage process could be outlined as such:

  1. Initial Consultation (15 – 20 minutes phone call):

Discuss with your mortgage broker your request (loan size), short and long terms goals for the use of the second mortgage and other important details pertaining to your existing first mortgage/finances

  1. Provide Basic Documentation (15 – 30 minutes):

Provide basic documents via email such as – mortgage application, mortgage statement, property tax bill and valid home insurance policy. Sometimes, but less frequent, additional documents might be needed.

  1. Meeting with us, your broker! (30 minutes in person meeting):

This usually can take place within 24 hours of providing the application. The convenient part is, we can come to you! This is where we discuss all details of your second mortgage financing and is the most important part of the second mortgage process.

  1. Sign with the Lawyer (30-minutes in person meeting)

Since this is a mortgage, it must be legally registered to the property as such. Prior to receiving the funds, you’ll need to meet with the lawyer to sign the second mortgage closing package.

We understand that at first glance, this might seem like an overly simplified second mortgage process, but the truth is, it’s very simple. With the right guidance, resources and strategy, the second mortgage process is far less complex than that of traditional financing. In step 1, 3, 4, you’ll be given the opportunity to learn about the specific details of the second mortgage itself, thus being able to make informed decisions (Mortgage rate, term, payments, terms, etc.)  and will be prepared for each following step.

 

How to Get a 2nd Mortgage with Bad Credit

If you’re wondering how to get 2nd mortgage with bad credit, then you’ll soon realize that there’s less hurdles with 2nd mortgages compared to 1st mortgages. This is because, unlike 1st mortgages, 2nd mortgages don’t put equal consideration on credit vs income vs equity. In fact, 2nd mortgages relay heavily on the available equity in the home with respect to the 2nd mortgage request.

In order to get a 2nd mortgage with bad credit, we first ask our borrowers to answer the following questions:

  1. What is the balance of your existing 1st mortgage?
  2. What is the loan amount that you are looking to get with the 2nd mortgage?
  3. What is the approximate value of your home, conservatively speaking?

These questions help us determine the “loan-to-value” which is simply a percentage value, calculated by dividing the sum of your total mortgages (including the requested loan), over the value of your home. In current market conditions, most private lenders will consider 2nd mortgages with bad credit to 80%-85% loan-to-value. In most cases, if the LTV does not exceed 80%-85%, then private 2nd mortgage lenders will typically approve the mortgage request, with less emphasis on the other aspects of the application (income, credit, etc.) …

Below is an example of a loan request from a client who is seeking a 2nd mortgage to consolidate some debts. His responses to the 3 questions above were:

  1. Existing mortgage = $232,000
  2. Request = $45,000
  3. Home Value = $375,000

Based on this information, the LTV would be 73.8% and as a result, the request would be approved…

With that being said, it is still important to us that our clients can demonstrate the ability to carry the monthly mortgage payments based on their income sources or by providing an exit strategy for the repayment of the loan at the end of the term. At CMS Canadian mortgage Services, we want to ensure that the solutions we provide are best leveraged for the needs of our clients. We also want to also ensure that these solutions assist (not add) to their respective challenges that they seek to solve…

If you would like to learn more about how to get a 2nd mortgage with bad credit or if you are interested in applying, please feel free to call us today – 905.455.5005

B Lender Mortgage: What Are the Pros and Cons?

First, let’s understand the difference:

As mortgage professionals, we refer to the 3 major tiers of lending as: A lender mortgage, B lender mortgage or private lender mortgage. If this terminology sounds familiar it’s because, over time, these terms have become quite mainstream, even beyond industry professionals.

A lender mortgage: Refers to any mortgage funded through traditional lending sources (i.e. major banks or tier-A broker channel bank)

B lender mortgage: Refers to any mortgage funded through non-traditional banks/lending sources, but still governed by B-20 guidelines (i.e. Trust companies, tier 2 banks, monoline institutions & credit union)

Private lender mortgage: Refers to mortgages funded through sources not governed by B-20 (i.e. Mortgage Investment Corporation (MIC), numbered company/registered corporation or individual lenders)

Pros and Cons of a ‘B lender mortgage’:

Pros and cons can vary from client to client, so to keep things simple, we’ll limit the pros and cons of a B lender mortgage to 3 major points for each.

Pros:

  • A ‘B lender mortgage’ offers a clear solution for clients who need financing but do not qualify through traditional banks for reasons such as: nature of income, high debt servicing ratios, previous mortgage arrears, poor/blemished credit, past bankruptcies or consumer proposals, non-traditional down payment sources, etc.
  • A “B lender mortgage” is typically funded on 1 to 3 year terms (rather than 5 year terms) offering the borrower future flexibility to improve their circumstances and easily transition back to traditional lending sources without hefty penalties.
  • B lender mortgages are less stringent on qualification guidelines and allow much more leniency on: debt servicing ratios (thus allowing higher affordability), less than perfect credit scores, non-conforming sources of income (ex. Business for self, commission, bonus, part time, contract) and varying down payment sources.

Cons:

  • It’s no secret that B lender mortgages come with a higher price tag in 2 ways: Interest rate and closing costs.
  • B lender mortgages often require a property appraisal for all mortgage (regardless of purchase or refinance) whereas A lender mortgages do not (or at least do not 90% of the time). We wouldn’t refer to this explicitly as a con… but it is an added cost of closing.
  • A ‘B lender mortgage requires a minimum down payment of 20%. For refinances, this often isn’t a hurdle for borrowers. However, for purchases it can easily affect buyers drastically if the buyers planned only for the minimum down payment requirements of 5%, 10% or even 15%.

Since a B lender mortgage isn’t advertised as generically as your traditional bank mortgage, it will be hard to seek out the necessary information you need pertaining to rates, term/conditions and underwriting requirements.

We’ll get that information for you though. Call us today (905) 455-5005.

 

Mortgage Deferral Aka Mortgage Payment Deferral & Relief

As many of our clients have heard, the major banks such as TD Bank, RBC, Scotiabank, CIBC, BMO, etc. have announced their efforts to help those clients in need of some mortgage payment relief. When this was first announced earlier in March 2020, the banks proposed that they would offer mortgage deferral to their clients. Although this is technically true, it is only approved on a case by case basis. In other words, the banks would need to assess each request for mortgage payment deferral, and this suggests not everyone would qualify for this mortgage payment relief.

After some time, we’ve learned that the banks are only offering this as a last resort and will opt to explore other available options. For example, most of the banks offer mortgages with features such as “skip a payment” or “mortgage vacation”. These features allow homeowners to defer their mortgage payment for a period of time as described in their mortgage agreement. If, however you have already exhausted these features, then the bank would move to see if you would qualify for further assistance.

As mentioned before, this remedy is not for every single request by homeowners, but rather for those who absolutely need such relief by deferring their mortgage payment. This means, that you would need to have suffered a direct temporary/permanent loss of job or income as a result of the Covid-19 pandemic. There is some grey area in the qualification of those who would be approved for mortgage deferral by the banks, but borrowers would need to prove their stated hardships. For example, if you are claiming that you are experiencing a loss of income due to a recent job loss or are self isolating due to contracting covid-19, then you may need to provide a letter from your employer or a health professional that substantiates your claim…

OUR RECCOMENDATIONS FIRST:

  1. Assess how the covid-19 pandemic has affected your monthly cashflow
  2. Reduce unnecessary expenses within your household
  3. Look into your available mortgage features (I.e. “skip a payment”)
  4. Look into your available Savings

IF YOU ARE STILL IN A BIND, THEN:

  1. Gather documentation that can substantiate your current hardships
  2. Call the bank that holds your mortgage to discuss your options

If you are in a situation that requires you to seek mortgage deferral from the banks, then you are likely to be more successful with your request by following the steps outlined above. If you can demonstrate to the banks that you have exhausted all other options, then they are more likely to work with you on your mortgage deferral request

If you have any questions regarding mortgage deferrals (mortgage payment deferral) or would like to explore other options such as refinancing your mortgage or leveraging your equity through these difficult times, please give us a call today – 905.455.5005.

Covid 19 Mortgage Assistance

Like many Canadians, Covid 19 might defiantly threaten your household income or personal/business finances. While there are various relief measures in place to ensure that Canadians can afford to keep roofs over their heads and food on the table, it’s uncertain as to how long the pandemic will last… and the relief measures implemented are limited (or on a case by case basis). 

To nobody’s surprise, one search term that has become inherently popular in Canada is: “Covid 19 Mortgage.” 

Though there is no such thing as a ‘Covid 19 Mortgage’ per say, our guess is that Canadians just need to know what the heck to do with their existing mortgage or upcoming purchase. Here is a list of what you need to know about Covid 19 Mortgage help: 

Covid 19 Mortgage – Projecting for the next 3-6 months 

  1. If you already have a mortgage, mortgage relief (deferral) is available at request and is approved on a case by case basis. This requires direct discussions with your bank or financial institution. 
  2. Mortgage renewals, refinances, purchase financing and equity take outs (home equity line of credit or second mortgage) are considered essential services. As such, we are continuing to operate as usual (through modified processes) to meet your mortgage financing needs while also ensuring your safety and well-being 
  3. Though not explicitly a Covid 19 Mortgage, second mortgages are increasingly popular to help get homeowners through this tough time. We have successfully altered the structure of these mortgages (with the participation of various lenders) to accommodate flexibility in monthly payments and shorter-term needs. 
  4. Covid 19 Mortgage rates: During this time, clients with already existing variable mortgage terms are benefiting greatly from the major reduction on the key interest rate (and subsequently the bank’s prime lending rates) – directly tied to the current pandemic. Current market rates have been varying day to day. We recommend not to make any irrational decisions during this time as a result of pressure from external factors. Rather, seek out guidance & insight from us. 

Covid 19 mortgage updates will continue to be shared by us through social media, Google Business, blog writing and email communication.  

For immediate guidance and information, we’re continuing to remain on call for you.  

Call us now at (905) 455-5005. 

Benefits of a Variable Mortgage

A variable rate mortgage is one of two main types of mortgages that exist today, the other being “fixed” rate mortgages. The main difference between the two is that, unlike a Fixed rate mortgage where the interest rate is “fixed” for the selected term, a variable rate mortgage can fluctuate (both in rate and subsequently payment). This fluctuation in the mortgage rate can be beneficial when the market experiences a reduction in the prime rate and the opposite is true if the prime rate increases. Naturally, the risk of increasing interest rates means increased payments can cause many home owners to experience higher levels of financial stress when making the corresponding mortgage payments.

So why do many home buyers/owners choose to go with a variable rate mortgage?

Mainly due to the possibility of paying less interest during the term and perhaps the lifetime of the mortgage. At any given time in the market, there is a difference between fixed and variable rates that are offered, with variable rates having a discount off the prime rate (in other words, prime minus “X”). This combination tends to yield a net rate that is lower than the in-market fixed rate that is being offered. Since variable rates tend to be significantly lower than fixed rates at the onset of the mortgage, many borrowers are attracted to this type of mortgage because their respective payments would (at least at this time) be lower than the present fixed rate. Of course, only time will tell if the variable rate will “hold” as being a better choice throughout the term of the mortgage.
In the event the prime rate does rise, most lenders who offer variable rate mortgage allow their borrowers to switch their mortgage into a fixed rate. Having said that, the borrowers would be subject to receiving the applicable in-market fixed rate at the time of converting their mortgage, not what was originally offered at onset of the mortgage (when the variable option was taken). In any case, this allows borrowers to at least mitigate their risk, by converting their mortgage into a fixed rate mortgage, even if it is not as low as what was originally offered.

On another note and as briefly mentioned above, another reason why people choose to go with a variable rate mortgage is at the possibility of having even lower interest, should the market prime rate drop in the future. This would yield an even greater potential of saving on the interest paid on the principal of the mortgage.

Finally, an interesting perspective to consider, especially in a market with increasing rate conditions is that a variable rate mortgage allows for borrowers to gradually adjust to increased payments if/as they occur. With a fixed rate mortgage, the payments remain constant throughout the term, but also only for that term. In the event that mortgage rates have increased over time, the borrower would face a “shock” of sorts at maturity/renewal time. In fact, they would need to abruptly cope with the new higher payments all at once….

There are pros and cons that exist with any mortgage but if you would like to discuss your mortgage needs, we’d certainly be here to help you. (905) 455-5005.

Co-signer. Good or bad idea?

Finding a co-signer for your mortgage approval can’t possibly be a bad idea if it helps you achieve your goal, and if the co-signer is aware of the benefits/risks associated. Though a rare privilege, co-signers and mortgage applications have never been more popular, mostly as a result of tightened regulations which lower affordability across the board.

There are more ‘risks’ perceived from the co-signer themselves than the actual buyers. Most importantly, a co-signer is entrusting their personal financial details with the borrower(s) and are dependant on the borrower(s) to maintain timely payments. If you are co-signing, or are borrowing with the need for a co-signer, here are some topics to consider discussing together; personal tax and estate position, disability insurance for the mortgage, future capital gains tax, land transfer tax rebates, short/long term ownership plans.

A co-signer can help solve two very common complications when applying for a mortgage:
1. A co-signer with strong credit can dramatically increase the likelihood an approval when the main borrower(s) has what is considered ‘thin credit’. Thin credit is not to be confused with poor credit. Thing credit is usually the result of shorter credit tenure or minimal trades.
2. A co-signer can also help increase the affordability of the application by using their income to help qualify. Since affordability is directly tie to debt servicing, the more income the application to qualify, the higher the approval.

(Though tied to #2, a possible third benefit could be a co-signer with tenured, ‘employed’ income. This could come is handy when main applicants are business-for-self or relatively new at their jobs. This brings financial stability to the application where neither credit nor amount of income are problematic)

Overall, a co-signer if a great option for boosting your chances of approval. Again, though a privilege, it’s an options worth exploring if credit is thin or debt servicing is tight and be the real difference between a decline and approval. Just bear in mind that all co-signers will have their own borrowing profile and as such, each application is very much a case by case basis. Run your scenario by us and we’ll advise of the best course of action.

For more information, don’t hesitate to reach out to us today! (905) 455-5005.