The high ratio mortgage is a mortgage product that applies to mortgage applicants looking to finance more than 75% of the value of their home. These high ratio products can range from 75% to 95% of the actual purchase price or the fair market appraisal value determined for your home, whichever of the two is
In order to secure a high ratio or high leverage mortgage, the borrower must qualify and pay for home mortgage insurance.
In Canada, there are three providers of home mortgage insurance. The first and most commonly known insurer is the Canada
Mortgage and Housing Corporation or CMHC. This is a crown corporation of the Canadian Federal Government. The second source for mortgage insurance in Canada comes from private insurer, Genworth.
The reason for the need for insurance is due to the higher risk of potential loss to the lender. At higher loan to property value ratios, the probability of lender losses are higher and must be covered off by insurance before a lender will provide a mortgage.
Once in place, the insurance covers off any potential loss than may be incurred by a lender in the event of a foreclosure action brought on by a borrower in default.
The insurance is paid for by the borrower as well and effectively becomes a cost of borrowing in addition to the stated interest rate on the mortgage.
Once again, for mortgage amounts less than or equal to 80% of the property value, no insurance is required. At the time of writing, the preimums associated with different mortgage ratios were as follows.
For mortgages between 80% and 85%, the required insurance premium is one percent of the mortgage value.
For mortgages between 85% and 90%, the required insurance premium is is one and three quarters of a percent of the mortgage value.
For mortgages between 90% and 95%, the required insurance premium is two percent of the mortgage value.
The Canada mortgage insurance program is an excellent solution for helping a larger percentage of Canadians own a home.
At the same time, the insurance companies will use qualified appraisers who may provide a more conservative estimates of value. So even if the insurance covers up to 95% of the real estate value, if the appraised value comes back substantially less than you expected, you still may not be able to secure a large enough mortgage to meet your requirements.
If you are in need of a high ratio mortgage, I recommend that you give me a call so that I can quickly outline your options and help you chose a mortgage product that’s right for you.
Ok, so you’ve got a mortgage approval in place or you’re just going through the process of applying and you’re starting to think about interest rates, interest terms, repayment options, and so on.
Interest rates will move up and down over time as they have for decades. So from a home mortgage holder point of view, you have to basically consider two things: 1) Do I think interest rates are at or near a low point, and 2) what are my plans for retiring the mortgage in the future?
Starting with the first question, as interest rates reach record low levels, its reasonable to assume that this will not continue over time. Taking into account the current recessionary forces at work here at the end of 2009, one can make the argument that interest rates have been held artificially low to stimulate the economy and when the economy starts to turn around, interest rates are likely to rise. So, as a mortgage holder or potential mortgage holder, you have to decide if its now the right time to select a long term interest rate that will benefit you over many years or if you should select a variable rate to stay open to the potential that interest rates will drop further.
At the end of 2009, long term interest rates are at or near record lows and as a result, many people are locking in their rate well into the future.
To answer the second question, are you looking at paying off your mortgage over the longest potential time possible or do you think you will be retiring it in the next couple of years? For long term payback plans, long term interest rates allow you to fix your payment for years to come. If you think you may be selling your home in the near term, or you are confident you’ll generate additional cash flow in the next 6 months to 2 years, then a variable rate mortgage that’s always open to repayment should be considered.
At the same time, one of the best things about the mortgage market has been the development of mortgage products that allow you to have your cake and eat it too. With many mortgage programs available today, you can select a closed mortgage with a long term fixed rate of interest and still repay up to 20% of the mortgage each year without penalty.
Back to the variable interest rate discussion, remember that with a variable rate, your effective interest rate will be adjusted every time there is a movement in market rates up or down. To protect yourself against large movements while still taking advantage of a variable rate, you can select a capped rate variable mortgage whereby the lender will establish an amount your variable rate is allowed to move. You can also get a variable mortgage rate that includes a conversion feature to a fixed rate mortgage of at least three years (typically) without any penalty.
As you can see, there are numerous features to consider when finalizing the interest options on your mortgage. The ability to customize your mortgage to truly fit your current circumstances and future plans is totally attainable with the right advice and guidance from a mortgage professional.
If you have any questions, I always recommend that you give me a call so that we can go over them together and help you make a decision you’re going to be comfortable with.
A construction financing budget needs to provide a considerable amount of detail if its going to help you secure a construction loan for your project. Failure to provide a proper budget and cash flow can get your application for financing declined.
First, make sure that your efforts to prepare a detailed spending budget is for your benefit more so than a lender’s. By taking this approach, you will also be creating something of value for a source of financing. Too often, borrowers will create a budget and disbursement schedule for the lender without making sure that it actually makes sense, destroying some of their credibility in the process.
Second, detail out all costs by construction phase. For each expenditure, identify when the cost will be incurred and when the related payment will have to be made. Construction lenders will make disbursements after completion of each phase of construction. You may need to consult your construction mortgage specialist to make sure you have your project broken down in the phases acceptable to the lender you’re applying to.
Third, build in a contingency plan of at least 10% of the total project costs. Unexpected costs occur more often than not and recognition of this will make your budget and cash flow more credible in the eyes of the lender. Remember that this whole process is for your benefit as well, so try to be as realistic as possible. Convincing yourself that everything will cost less or that you’re going to be able to negotiate down your costs from trades people and suppliers will put your project in a less favorable light due to the higher risks of potential budget overruns.
Fourth, review your budget and cash flow with your mortgage broker prior to presenting it to a lender. This is a good opportunity to identify any weak or missing areas that can be improved prior to lender review.
Fifth, be realistic in terms of both your estimates of cost and timing. Lenders like to see a certain amount of realism in the project as they are presented far too often with ultra aggressive construction plans that tend end up having problems which could otherwise have been avoided through better planning.
Remember that your construction financing budget is not only a report that the lender reviews to see if all the costs are included and that the projected financing funds are sufficient. Its also a reflection on how well the project has been thought out and organized to the point of the financing application. A lack of detail or omission of key costs elements or a lack of any contingency can cause a lender to decline the application as they don’t want to get involved in projects that are not well set up for success from the start.
If you need any help developing your construction finance budget, give me a call and we’ll work through the details together.
Even after construction financing has been secured for your residential construction project, cash flow problems can develop due to assumptions the borrower makes around what expenditures the approved construction loan is going to cover.
Construction financed funds can’t be advanced for any type of expenditure that is not installed into the house at the time of a scheduled draw.
Remember that each completed stage of the project also needs to increase the market value of the house to maintain the necessary level of real estate security required for the future draws not yet disbursed.
So the amount of available cash you have to work with outside of the your construction loan needs to be managed closely so that you don’t end up in a cash flow pinch in the middle of your project.
One way to approach this issue is to detail out your cash flow for the entire project, and then identify the items that need to be paid for with your own cash versus what can be covered off by your construction loan. By going through this exercise, you will have a much better sense of the related timing of different expenses and the source of funds that will have to be used to cover them off.
One of the common mistakes many construction borrowers make is spending too much of their available cash on things like deposits to trades people and suppliers. While the deposits are going to be required, make sure you negotiate them down as much as possible so as not to unnecessarily use up cash that could have utilized on those items not covered by construction financing.
If you’re not sure whether or not a particular expense will be covered, call your construction mortgage broker and review your cash flow breakdown and timing to make sure there everything is staged properly. If there are issues, better to know them ahead of time so that adjustments can be made to your trade and supplier negotiations.
The key is to conserve your available cash as much as possible and even create a cash flow buffer or contingency to allow for costs that may arise that are unplanned and outside of the scope of your original budget.
The best first step with construction financing is to give me a call so that I can provide you with a free assessment of your construction mortgage options.
And if you’re in the middle of a project and have some unexpected cash flow issues, I would still recommend that you call me so that we figure out a solution together.
Here’s the scenario.
You’ve got a construction project that’s been a bit slow to come together and you’re on the verge of incurring costs for delays if you don’t get started right now. Your construction loan has just been secured, removing your last obstacle for getting started.
Before answering that, lets explore what can happen at the end of your project if the a long term mortgage that pays out the construction loan has not been arranged. If the delay is relatively short, you’re going to have to continue to pay the higher cost of interest from the construction loan. Depending on the terms and conditions of the construction mortgage agreement, there may even be penalties the lender can charge you if the delay exceeds certain time lines or pre established dates.
And if there is significant delays, you can even run the risk of the lender taking legal action against the property to get their money back which could result in you not only losing the property, but some or all of your equity as well.
So starting the project without the “Take Out Financing” in place is a definite risk that you need to consider. And thinking that there won’t be a problem securing long term financing in time is the very basis of the “Construction Loan Take Out Trap”.
Before making the decision to proceed with construction, consider the following suggestions:
First, can you delay the project to either locate and secure long term financing or at least get an assessment of the potential for securing a take out mortgage in the time period you have to work with for the terms you’re seeking? If there are delay related costs, what are they, and can they be managed in your budget?
Second, if you can’t delay any further, make the process of getting long term property financing arranged an immediate priority. Once the project gets started, this activity can be put on hold or significantly delayed due to the time demands that can come from project management. Don’t wait until later in the project to get back to looking for financing as you may run out of time and incur some or all the financial penalties we’ve discussed.
Third, if you’re not already working with a construction financing specialist, get a hold of one right away and have them start working on your take out strategy so there will be less risk of any issues at the completion of construction.
To make sure you avoid the construction loan trap altogether, I would suggest that you give me a call to get a free assessment of your options. I’ll help you make the best decision and get everything arranged.
In Ontario, we are fortunate to have a wealth of lending sources for Ontario Construction Loans.
Especially in Southern Ontario, there is a good mix of institutional lenders and private lenders providing construction financing for a broad range of projects.
To Get Immediate Help With Construction Financing, Click Here
While there are a good number of options in other areas of Ontario, once you get out of the southwest region the number of available programs to consider does go down.
This is largely due to the fact that a significant amount of construction mortgages are provided by private lenders who tend to operate on a regional basis for the most part. As you move away from southern Ontario, the pure number of lenders, and the geographic areas they cover, goes down.
In general terms, Ontario construction loans provided by banks and other institutional lenders tend to support lower leverage applications and lower over all risk projects. As project risk and leverage requirements rise, private lender options tend to be more relevant.
Construction lenders can also specialize in certain types of construction projects such as single unit residential versus multi unit commercial. Again, because of the population size of Ontario and diversity of construction projects undertaken at any time, there are a significant number of lenders available to service the market.
Regardless of where you’re located in Ontario, its always best to start evaluating financing options early on in the process so that you get the best deal possible and also end up with a lender that has a good reputation for working with you on any issues, should any arise during the construction process.
The best way to zero in on the most relevant sources and to make sure the financing aspect of your project goes smoothly from beginning to end is to work with a construction financing specialist.
Personally, I’ve worked on construction financing projects in Ontario for over 30 years now with my client and I have some great lender resources I can draw from.
After working on hundreds of Ontario Construction Loans, I have developed a wealth of knowledge and experience that my clients directly benefit from whether it be locating a lender and securing funds, assisting with the management of construction draws, or creating a seamless take out mortgage strategy.
If you’re looking for a construction loan at the present time, or just have related questions, give me a call and I’ll give you a free assessment of your situation and help you decide the best course of action to take.
I would say that all construction mortgage lenders get concerned when there are delays in construction once the funds for building have been approved; some more so than others.
One of the keys to keeping your project financing in order is to keep the project on track and progressing according to the time lines provided when the application for a construction loan was made.
While many projects end up scrambling for construction financing once everything else is in place, the opposite is also true where financing has been approved, but delays occur because the drawings are not complete, or permits have not yet been issued, or a construction contract has yet to be finalized, etc.
When there are delays in starting or completing a certain stage of work, the construction mortgage lender can become more than a bit nervous and in some cases may decide to withhold, suspend, or even cancel their commitment to fund.
Depending on the terms and conditions of the mortgage agreement you sign, the lender will likely have clearly spelled out rights related to timing of project commencement and completion. If the project is in violation of performance related conditions, the lender will have certain rights they can exercise, which could include not advancing any funds or any further funds against the project.
This is just another reason why project management is so important to a construction project.
When problems do arise, the lender should always be kept in the loop in terms of what the issue is, how its going to be resolved, and when. Dead air between the borrower and lender is not going to healthy when you get into a delay situation. At the same time, over communicating can also raise unnecessary red flags about the project.
The key is to make sure that you are working with a lender that will work with you and be reasonable if any issues arise that do cause delays.
This is also another reason to make sure you’re working with a well qualified construction financing specialist who will not only match you up with a relevant lender, but also help you administer the mortgage advances and help advocate for you when there are issues that impact the progress of the project.
There can be a certain amount of skill and even diplomacy required at times to keep the lender happy and the money on hand to complete the project when the delays have been addressed. This is where your mortgage broker can make a big difference to the success of your project, well after the financing was approved.
The best first step is to give me a call and I’ll quickly perform a free assessment of your construction financing options that we can go over together.
Or if you have a project with financing issues, I would still suggest you give me a call and lets see if we can get it sorted out for you and get your project back on track. I work with several construction mortgage lenders and I maintain a solid working relationship with each of them in order to provide more value to the overall process.
A Canadian Mortgage Refinancing typically occurs in one of the following circumstances: debt consolidation opportunities and periods of interest rate decline.
The primary goal in both cases is to lower the cost of borrowing and to also potentially improve monthly cash flow.
To get immediate assistance with your mortgage refinancing needs, click here to speak to mortgage refinancing specialist, Joe Walsh.
There can be instances when, based on timing, both debt consolidation and total debt reduction can both be achieved together, although this has more to do with chance than any planning or strategy you try to follow.
While there are more situations where mortgage refinancing can occur, the two mentioned above are the most common and will be the focus of this discussion.
In the case of debt consolidation, the mortgage or mortgages registered on a property are combined with a specified amount of outstanding debt (typically unsecured debt from credit cards and term loans) to form a new mortgage that will be registered against the property.
The new mortgage will be completely rewritten and will have its own terms and conditions relevant to the lender and the time it was put into place.
The amount of refinancing that is possible will depend on the amount of equity that exists in the target property, the strength of borrower credit, and the strength of borrower repayment, similar to what you would expect in an application for mortgage for a new home purchase.
When all or part of the refinancing motivation is to take advantage of lower interest rates in the market place, the opportunity and benefit of refinancing your mortgage is based on the projected cost savings of the action minus the related costs of breaking or paying out the existing mortgage.
The costs associated with breaking an existing mortgage can include lawyer fees for removing the old mortgage registration and adding the new one, appraisal fees for a third party to provide an up to date market assessment of the property, and prepayment penalties written into the terms and conditions of the mortgage.
The most significant of the potential costs is the prepayment penalty. If you are are trying to refinance a mortgage that has a fixed interest term, then there will be a penalty associated with not keeping the mortgage until the end of the term. If you have an open or floating interest rate, you can refinance the mortgage without any form of repayment penalty.
There are numerous mortgage programs available for the purposes of refinancing either for debt consolidation or just interest rate reduction. Each mortgage program will have different pros and cons to consider and some will be more relevant to your situation than others.
The best way to assure your mortgage refinancing efforts land the best potential deal is to give me a call so that I can quickly assess your situation and review the best available options relevant to your situation with you.
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Any construction project that requires financing will have two separate elements; a construction loan and a long term mortgage. Construction loans are used to finance the actual project, but once the project is complete, the total outstanding balance of the construction loan needs to be rolled into a longer term mortgage instrument for the finished project.
In some scenarios, the lender or a lending group provides both forms of mortgage financing and approves the builder, buyer or owner for both mortgage products prior to the commencement of construction.
In other cases, the construction mortgage is arranged through one lender and the take out mortgage is arranged through a totally separate lender who may not have any relationship with the first lender. Its also not uncommon for construction mortgage lenders to require that the borrower be pre-approved for a term out or take out mortgage prior to any funds being disbursed for construction financing.
But there also is the scenario where you get a construction loan approved without the upfront requirement by the lender to have the take out already secured. This is a situation you need to be wary of. Making the assumption that your project will have to problem securing longer term financing at the completion of the project may prove to be inaccurate. Or at the least, you can experience approval delays that will extend the period of time the construction funds are outstanding.
Small delays are likely not a problem, but if you end up taking 6 months or longer to secure a proper long term mortgage to pay out the construction loan, you could be in some trouble.
First of all, depending on the construction related financing you arrange, the cost can be significantly more on a month to month basis as compared to a long term loan.
Second, the construction lender may have penalties in place for delays that will further increase your costs and erode your cash flow.
Third, if the term out process takes too long, the lender may take action against you and try to liquidate the property to get their money back.
For standard residential construction on new builds or additions, the probability of getting a take out mortgage for the rates, terms, and timing you require are going to be pretty high, most of the time.
But when you get into the construction of commercial, industrial, and multi unit residential projects that are larger in scope, the longer term mortgage market may be harder to pin down in the time period required.
The key here is not to expose yourself to this risk in the first place and to get everything in place, both construction loan and take out mortgage, prior to commencing the project. That way, you can more accurately plan and manage the project to completion as well as your overall budget and cash flow without having to worry about incurring financing problems at the end of the construction project.
When looking at mortgage options, virtually all consumers will consider using a mortgage broker or at least want to better understand what a mortgage broker can do for them.
As the mortgage industry has expanded, brokers have become a key method for lenders to get their product into the market.
Lets face it, not all mortgage companies have the marketing budgets and branding power of the Canadian chartered banks. But when it comes to the comparability of their mortgage products to the big banks, many of the small players can have as good if not better rates and terms.
So that’s really the first major benefit of a mortgage broker … broad market access.
The mortgage broker has access to lenders you may not have even heard of, but that are still offering a mortgage product you may be interested. So instead of searching high and
low for all these different competitive offers, you have the convenience of tapping into most relevant offers through one application via a broker.
And remember that when you go into a bank to get information about a mortgage, you are only going to be looking at their programs. In order to get any type of accurate or meaningful comparison, you’re going to have to repeat the process several more times with other banks and mortgage lenders.
Another problem with the do it yourself approach is that its difficult to tell from the outside looking in, what lenders will be interested in your application. If you make an application and get declined, how do you know which lender to go to next?
When you start applying at several places, you also will receive a credit inquiry for each application made. Not only can this be potentially damaging to your credit, it also can send out a message to next lender that you may have been declined a number of times already and are not a good risk.
If excessive credit inquiries end up lowering your credit score, you may suddenly become ineligible for certain mortgage programs that you would have otherwise qualified for.
Experienced brokers manage this situation for you by only generating one credit inquiry and reusing it for each application they make on your behalf. The best brokers will also only focus on those lenders that are most relevant to your situation, greatly increasing the potential of generating the best options quickly.
With the use of the internet, email, and phone, your communication with your broker can be done from wherever you choose and when ever its convenient to you without valuable time being lost going back and forth to a lenders place of business.
Once you have a mortgage, you will need to renew the interest rate at some point in the future. And unless you know how to shop around for comparable rates and terms, its unlikely that the existing lender is going to offer you the lowest cost option in the market, resulting in you paying higher rates.
Mortgage brokers that also do a large volume of business can have access to lower rates from lenders based on volume allowing them to offer you terms that smaller volume brokers don’t have access to.
Mortgage brokers also have the benefit of dealing with 100’s of different applications involving a multitude of different lenders. Their advice can be invaluable in getting the best deal possible and voiding less obvious things that you may not have considered on your own.
The benefits can be considerable and the draw backs, few if any.