With mortgage rates on the rise, many mortgage holders are still reluctant to make the move away from a variable interest rate in order to lock in a longer term fixed rate where rates have already gone up.
In this situation, a borrower may be moving from a rate under 2% to something closer to 4.5% just to protect themselves against long term interest rates that are unknown at this time. Going from 2% to 4.5% is a big jump in terms of your mortgage payment with the interest cost more than doubling.
So one strategy that mortgage holders are now looking more closely at is the mixed rate mortgage which has both a variable interest rate portion and a fixed rate interest portion. Effectively, with this type of residential mortgage program, you have two mortgages in one.
The main benefits of this type of residential mortgage program are related to interest rate and principal prepayment.
With respect to interest rate, you would end up with a blended interest rate based on the variable rate and the amount of principal assigned to the variable component and the fixed term rate and the amount of principal assigned to the fixed component.
Most of these mixed rate programs offer generous prepayment options which provide you a great deal of flexibility to manage your interest risk and costs going forward.
As an example, if rates spike up, you can pay down the variable rate portion of the mortgage and then you will be left with the fixed rate to effectively put a ceiling on your near term interest rate risk.
If interest rates flatten out or even start to go down again, you also have the ability to prepay the fixed interest portion as well to take advantage of lower rate levels that you feel more secure about.
These dual rate mortgages, or split mortgages as some like to call them are a great tool for those that like to have the most flexibility with their mortgage program without taking excessive interest rate risk.
If you would like to learn more about mixed rate mortgages, please give me a call and so we can go through your mortgage requirements and see how this type of mortgage product would apply to you particular situation.
There is no question in my mind that one of the best ways to escape the clutches of run away consumer debt and save your credit score in the process is by taking advantage of the equity in your home and refinancing your mortgage in order to payout or pay down your consumer debt.
This has long been a solid strategy to consider and undertake and will remain as such into the future. The challenge is that the road to accomplishing this is getting a bit more tangled and some of the benefit it slowly eroding.
On the benefit side, if you have been delaying a debt consolidation action through mortgage refinancing, the longer you delay, for whatever reason, the less interest rate savings you’re going to achieve due to the current trend of long term mortgage interest rates rising.
A one or two percent increase in mortgage rates may not seem like much when you’re consolidating a 19% credit card balance, but keep in mind that the higher rate is going to apply to the existing mortgage balance being paid out by the new mortgage as well as the consolidated funds. When you consider that many mortgage holders will also increase the amortization period on the new mortgage to make their cash flow work, small changes in interest rates can translate into tens of thousands, even hundreds of thousands of additional interest over time, depending on the amount of the new mortgage.
In terms of getting a debt consolidation loan approved and in place, the recent changes in the mortgage insurance rules have not only reduced the amount of the home value that can be refinanced from 95% to 90%, but the overall impact of the changes have made mortgage lenders more cautious overall and the process of getting mortgages approved has become more complex with lenders asking for more information to assess the application which takes more time to complete and doesn’t always result in the rates and terms you may be looking for.
For those with excessive levels of consumer debt that are not getting paid down, it still makes a great deal of sense to consider mortgage refinancing as a solution, but it makes even more sense get the debt consolidation process completed before more rate changes and mortgage rule changes come into play.
This is also one of the many instances where working with a mortgage broker can provide tremendous value working through all the twists and turns in the market right now.
The commercial financing world has been turned upside down. Long held as the gold of traditional lenders in their portfolios, the commercial mortgage market is slowly getting taken over by private lenders.
Well, perhaps taking over is a bit strong, but definitely gaining share in this property mortgage market is not an understatement.
Traditionally, private mortgage interest rates started at 10% for the better deals with an interest term of no more than one year and a hefty private lender fee. But that has been changing as more and more investors flee the stock market and take refuge in mortgage financing for the security it offers and the predictability of return.
In strong market regions like the Greater Toronto Area, privates have gone so far as to offer interest rates as low as 7% with interest terms of two to three years in a lot of cases.
This is largely driven by the higher quality of available deals as institutional lenders continue to take a cautious approach to issuing commercial property mortgages. And with the best available institutional rates in the 5.5% to 6.5% range, private mortgages are right there with respect to being competitive.
While most privates do not offer an amortized payment, the interest only payment is kind to the cash flow and allows business owners somewhere to park their financing during the current economic storm in the capital markets.
Private lenders tend to be very regional and there are many areas that don’t have a lot of private mortgages available, especially not at 7%. But for those who happen to be in the highly sought after market areas, the private loan rates are definitely something to consider.
This includes commercial property financing for both commercial and industrial properties. Lending requirements can still be similar to the banks in terms of what a private lender wants to see from the borrowers, but the decisions tend to be made much quicker which can make all the difference when you’re trying to close a transaction that’s on the clock.
While private mortgages are rarely a long term solution, right now they may be the best solution available to you for a commercial property purchase or refinancing situation. Definitely something to consider if you are looking for commercial property mortgage financing.
Yesterday the Royal bank increased its fixed rate mortgage program by 15 basis points with the TD following close behind and all others expected to be making similar moves in the next day or two.
The trend to higher rates continues as has been predicted and talked about over the last couple of months. The Bank of Canada still hasn’t moved its overnight prime lending rate, but that could change by as early as June.
So with out sounding like a broke record, everyone needs to start rethinking their mortgage rate and repayment strategies. As an economy in general, we have developed a mindset of longer amortization periods and floating interest rates where the masses have ridden out an unprecedented period of cheap mortgage money that have allowed many to purchase a home for the first time and many others to buy larger homes.
But as rates increase and continue to increase, the realities of interest rates settling in at a higher range over the coming months and perhaps years means that its going to cost more to pay for housing, that there will be less money to spend on other things, and that faster repayment strategies are going to be essential to avoid excessive future cash flow being paid towards interest payments.
While the CMHC’s latest consumer mortgage survey indicates that consumers are comfortable with the first round of mortgage rate hikes, or felt they could easily adapt to them, the same is not expected to be true with further increases.
For first time mortgage holders, it has been easy to be spoiled by the current mortgage rates and potentially live to the fullest extent of their means without a great deal of equity in the home and a long term mortgage amortization in tow.
Now is the time to rethink and re-valuate your long term financial goals and where you plan to spend your disposable income in the future. It doesn’t make any sense to ignore the obvious and those that do will find themselves in a cash flow crunch and potential crisis that could have been avoided through a bit of forward thinking.
At the same time, we are not talking about a panic as interest rates are still very low in relation to historical levels. But its better to be safe than sorry and a slow rate creep upward over time can catch up to you, directly impacting your lifestyle and retirement goals.
There are times when you need a mortgage quick.
It may be interim financing or maybe a bridge loan. It can happen when you are short on time and cash. A family member may be in a bind and asks for an unexpected favor, or maybe other options have been exhausted.
Maybe you have bought an investment property, such as a condominium, and your financial situation has changed.
This occurs often; the closing of a new condominium can take three to four years time from the offer to construction, registration and closing. During that time your financial situation could be completely changed. Employment situation, more debt or maybe a divorce or separation could have occurred.
Regardless, you are legally obligated to close the transaction. On the positive side, the condominium has increased in value. You may want to quickly resell the condominium once you close it.
Unlike the usual mortgage application which require a lot documents that need to be authenticated and which take time to be processed, private mortgages can be can be approved and closed in a few days.
So what are some other advantages of a bridge or private mortgage?
You can be provided with an open mortgage. This way you have more options available to you once you close. A quick sale can happen and the mortgage can be paid off without a penalty. (keep in mind the rate will be higher than bank rates, but since the mortgage is usually for a short period, the costs still make sense).
Another advantage is the possibility of 90% or 100% financing. Private mortgages are usually approved with a ‘make sense’ approach. A lender may lend you a full purchase price of $200,000 on a condominium that has increased in value to $300,000.
There is the advantage of a quick answer is quite valuable at times. Sometimes you can call us in the morning and have a commitment in your hands by the afternoon.
We’ve done deals where a conventional lender has pulled the commitment on the day of closing.
An instance of this was a purchaser that elected to close in a corporation. The bank would not fund because of that and quick bridge financing needed to be arranged. We approved the deal on the same day and closed it a few days later.
Private mortgage lending has moved out of the closet and more into the forefront these days as we enter the current era of asset based lending brought on by the recession.
Gone are the days when most private lenders would just look at the available equity in a property and make a lending decision based on their comfort level in taking over the property in the future in the event of default. While these types of private lenders still exist, the larger majority are evolving into quasi institutional lenders that still offer higher rates that traditional lenders, but not before a higher level of due diligence is completed.
The private mortgage money lending world is growing as stock market investors seek more secure investing opportunities and banks remain largely on the sidelines for less than stellar property financing opportunities.
The private mortgage loan is typically a form of short term bridge financing, and in the current economy there is an excess of these short term deals to go around even though there’s more private money available than ever before.
Here are some of the key drivers for the increasing number of private mortgage applications:
And while private mortgage lenders are clearly open to all these types of deals, they are also getting more selective and doing more checking on each deal to make sure they’re not putting their money into a potential headache.
The new breed of private lender would rather not have to take the property back in default, and are very focused on the borrower’s exit strategy for repaying the private mortgage at the end of its term.
While there are still some institutional lenders that will look at gas station financing, the majority of banks, credit unions, and term lenders are only interested in gas stations that are relatively new, are under the flag of a major gas supplier, and have at least one strong tenant that contributes to the cash flow of the business.
To qualify with an institutional lender, you are going to also have to have a recently completed phase II environmental report, a commercial property appraisal, contamination insurance policy, and a tank monitoring system.
The institutional requirements will be very high and the time it take to complete the financing will likely take several months due to all the supporting information that will need to be collected or created by third party consultants.
Even the institutional lenders tend to be very geographic specific and will only entertain a gas station financing application if it fits into their portfolio at the time when financing is required.
Needless to say, it can be very difficult, costly, and time consuming to secure an institutional commercial loan for a gas station purchase or refinance.
As a result, the majority of Ontario gas stations are financed by private lenders who tend to be focused on the provincial gas station market and are very well educated into gas station operational risks as well as how to identify a gas station they will consider for financing and how to quickly determine if one is not going to be of interest to them.
Even with private lenders, the environmental assessments, tank condition, tank monitoring, and liability insurance are going to be important as any existing or perceived environmental liability could render their security worthless.
With private lenders that provide commercial loans for gas station properties in Ontario, they have a high degree of focus in their due diligence on the performance of the operating business. The most important statistic that many of them look at is the annual volume pumped by the station. Even if a station has marginal profitability (which could be caused by a number of management issues) as long as the volume numbers are at a certain level for the size and location of the station, the application can get serious consideration from a lender.
Like most private mortgage lenders, the security being offered must be looked at in terms of its resale value. The private lender will not provide gas station financing unless they are prepared to take ownership of the station in the event of mortgage default and are confident in their ability to re-market the security if necessary to have the mortgage repaid.
Similar to other types of private lending, the incremental interest rate can be 4% to 10% above comparable institutional rates, depending on a specific location, borrower profile, and risk assessment.
Private lenders will also tend to make their decisions much faster than traditional lenders and can offer a variety of mortgage commitments including short term interest only, long term interest only, and amortized principal and interest payments.
If you have a gas station mortgage financing need in the province of Ontario, give me a call and we can discuss what types of options are available for your situation.
Call out the dogs; circle the sheep – let’s move em’!
Its official… They’ve gotten together to slow down a real estate market that seemed unstoppable.
The banks, the bureaucrats, and the politicians for the most part.
We seem to be making our payments – mortgage arrears are at a normal level.
That’s today, but what about next year? It’s all about next year and the years after that.
With Government deficits continuing to increase at all time levels, sooner or later the money supply has to tighten. Mortgage rates may even go up to double digits. Think I’m crazy, well for those of you old enough to remember, we had double digit rates through most of the crazy 70’s and the 80’s.
So what have ‘they’ done, to cool down the market?
CMHC has made some subtle changes that will have a ‘not so subtle’ impact. These changes include a reduction in the loan to value on refinancing, tightening the rules for the self-Employed; and borrowers working for commission only will no longer be eligible for the program.
The biggest tweak is a cut back on rental properties. Borrowers will need at least 20% down payment to obtain CMHC insurance, on investment properties. Real Estate Gurus cross the
Country are still preaching that the road to riches runs through a multitude of properties purchased using high leverage and low down payment. Starting next month, they might find the conventional halls
Banks and other Mortgage Lenders are doing their part. Mortgage Interest rates are rising. Every Tick up, knocks a percentage of buyers out of the market.
Don’t forget the HST. HST is just around the corner. How will this affect the market? We don’t know for sure, but the smart money may not be betting on real estate.
Keep in mind that the years of a lop sided trade balance with China has left them with lots of Canadian and American Dollars to spend.
There will come a time when China will stop buying up the debts of North America. China is a huge buyer of U.S. Treasury Bills. This may not go on forever. When it stops, the need for funds will still be
there and they will have to raise the interest rates even further.
So what does this mean to us?
It means a lower quality of life for those that don’t get on top of their debt and credit management. Money that should be spent on health
care and infrastructure will be going to pay interest on debts.
What can we do?
We can secure a low interest rate for a medium to long term mortgage. We can make efforts to pay down debt, consolidate so we’re not paying high rates on loans and credit cards.
Talk to a Mortgage Broker that can go over your situation and come up with a few options that can help.
Another option is to just ignore what is going and get pushed around like the rest of the he ‘herd’.
Its hard to generalize about the commercial lending market as its so diverse with each slice of the market having its own lending requirements and micro market perceptions to deal with.
But overall, one thing that can be said about the current market is that commercial mortgage lenders are staying on the conservative side of the ledger with respect to issuing new commercial mortgages.
This could also be considered an improvement from 2009 when there wasn’t a great deal of institutional property lending of any type as banks and other traditional lenders either sat on the sidelines or took an ultra conservative approach to lending money on commercial property until they could get a better sense of where the recession was headed.
In the current market here in 2010, there are more borrowers trying to get something done with respect to financing commercial property whether it be for acquisition or refinancing and there are also more lenders taking a harder look at financing opportunities.
That being said, the ability to secure lower cost commercial mortgage rates, especially before interest rates in general are expected to rise, is still a bit challenging and will continue to be that way for the foreseeable future.
And to be clear, its not that institutional lenders have changed their lending policies. Its more about applying them to the letter of the law and taking more information into account when assessing the risk of any one particular deal.
From a borrower’s point of view, this means that larger down payments are expected on commercial acquisitions pushing the average loan to value back to the more 60% to 65% range. Repayment assessments are also scrutinized a lot closer, so if you are trying to finance any type of commercial rental property for instance, it will most likely be a requirement that all units are rented or are virtually at capacity.
For self use buildings requiring commercial mortgage financing, the lending decisions related to lower mortgage rates are going to stick tight to the lenders debt equity requirements and income statement repayment assessment based on historical results.
Prior to the recession hitting, there tended to be some wiggle room on the application of commercial mortgage requirements by underwriters, but that has tightened up considerably since as lenders closely watch their commercial mortgage portfolios to see if they need to tighten up assessment requirements even further.
If you have a commercial mortgage financing requirement, I suggest that you give me a call so I can quickly review your requirements and provide financing options for you to consider.
A cottage property is still a residential home, but typically with a much better view or approximate location to recreational activities.
As such, the mortgage interest rates you can secure for a cottage are not any different that what you can secure for a house in town with a few exceptions.
From an income and credit point of view, cottage properties are assessed as single family residential units when it comes to mortgage applications. And when “A” mortgage rates cannot be secured due to stated income or credit, secondary mortgage options need to be considered just like you would need to do with any residential purchase.
Where things are somewhat different with cottage or vacation homes has to do with how banks and other mortgage lenders view the actual property in terms of amenities and location.
Many of the cottage areas today are year round access locations where the overall market size and activity is comparable or better to what you would find in most urban areas. And under this scenario, there is typically no difference in the mortgage rates you can secure.
But when cottage properties are located in more remote locations or do not have running water or sewer, then the cottage mortgage requirements are going to be more stringent and the cost of financing higher.
Banks and other mortgage lenders also recognize that many families that own a cottage also have a separate primary residence that may have a mortgage already in place. To accommodate these situations, mortgage programs allow for a single family to qualify for more than one mortgage without having to pay a higher interest rate, provided that they can qualify for both mortgages with the same reported income, net worth, and credit profiles.
There are definitely some different strategies that can be employed to get better cottage mortgage rates in certain situations. The key thing to remember is that each vacation property will be somewhat unique and a certain application approach for one cottage may not work for the next one.
If you’re looking to acquire a cottage or refinance an existing cottage mortgage, I suggest you give me a call so I can quickly go over your situation and provide relevant mortgage financing options we can go through together.
You may not even realize this, but private mortgage lending is actually a growth market for lenders looking for a more secure investment than the stock market and its unpredictable ups and downs.
And while there are certain applications for private money where the interest rates can be quite high, there are also many scenarios where the interest costs of a private mortgage are only slightly higher than a conventional bank mortgage.
The term hard money is basically applied to private funding and typically refers to very high interest rate private mortgages. But high interest rates always relate to high risk and if someone chose to accept a high interest rate private mortgage it was likely because their wasn’t anything else available for the property in question.
With more and more private money coming into the market, many privates are also organized around mortgage corps and act and appear more like banks.
Over time, privates have also split off into two groups. There are the more traditional private lenders that will lend on real estate that they are prepared to own in the event of default and will take on borrowers with more risky financial and credit profiles. They are prepared to deal with a default and are very focused on the future market value of the land.
The second group, while also prepared to liquidate land in order to reclaim their funds in the event of default, are more interested in the borrower’s potential exit strategies and look more to mortgage requests where there is a higher probability that the borrower will be able to sell or refinance by the end of the mortgage term.
For this second group of private mortgage lenders, because the quality of the overall deal in terms of lender financial and credit profile are stronger, their rates also tend to be lower.
As an example, its definitely not unheard of to see a commercial bank lending rate for a property be only 2% lower than a private loan rate.
Many privates are now offering longer mortgage terms as well. While, for the most part, private mortgages are for one year terms, there are cases where lenders are prepared to invest in a property longer term and are content with getting an annual interest rate. Some of the longer term private mortgages even offer mortgage amortization and principal repayment.
As traditional lenders continue to tighten up their lending policies during the current recession, private mortgages become more of an option that can also be cash flow affordable as they tend to only require interest only payments.
If you’re a home owner financing a self build construction project through an institutional lender, then you will already have your construction take out loan arranged at the beginning of the project at the same time as the construction loan gets approved.
But if the construction loan is coming from a private lender, which is the case with most self build projects, the take out mortgage may not need to be in place for the construction loan to get approved, allowing for more time to shop around for the best rates and terms.
While this has tend to work well in the past for many borrowers, the realities of the present mortgage market should cause you to rethink this approach.
With long term mortgage rates already going up once in 2010, there are indications that additional increases will follow. So the longer you leave the process for securing a construction take out mortgage and locking in a rate, the more likely it will be that you’re going to be paying a higher rate of interest for the near future.
The easy solution is to put in the extra time at the start of the project to get a long term mortgage secured so that you can get back to project management and not have to worry about what interest rates are doing.
At the very least, if you project is expected to be completed in the next 4 months, apply for a pre-approved mortgage and get a term rate locked in for the next 120 days. This will at least provide you with some rate protection if long term mortgage rates continue to rise in the short term.
If you don’t feel you have time to get everything in place right now, then take advantage of the services of a mortgage broker to do all the leg work for you with respect to shopping around for a long term construction take out loan. This will allow you to stay focused on your project while still working towards getting all the mortgage arranging taken care of.
If you are considering a self build project or are in the middle of one that’s going to need a construction take out loan, then give me a call and I’ll work with you to get the best take out option in place as soon as possible.
For most home buyers that are looking at securing a mortgage, the primary goals are the least money down, the lowest interest rate, and the smallest monthly payment.
There is absolutely nothing wrong with any of these, provided you understand what goes along with them.
Lets take a closer look at amortization and how it impacts both your cash flow and long term interest costs.
Right now, you can get mortgage amortization period of 10 years, 15 years, all the way up to 35 years in many cases. The longer the amortization period, the smaller your monthly payment is going to be as the principal is paid back over a longer period of time.
As an example, moving from a 25 year amortization to a 35 year amortization will reduce your payment by 16% on a mortgage interest rate of 4% which can be quite significant to many people.
But when the amortization period is extended that extra 10 years, the total amount of interest you will be paying over the life of the mortgage, assuming the same interest rate stayed at 4%, would increase by 32%.
So one way to look at a longer amortization period is as a short term cash flow tool that allows you to manage the money you’re working with today, but still allows you make incremental principal pay downs over time to shorten the repayment period and reduce total interest costs.
Basically, it just doesn’t make a whole lot of sense to pay that much of additional interest over time, so the only reason for taking a 35 year amortization is because you believe you will have additional cash available to apply to the mortgage some point in the future.
The best way to determine what amortization period works the best for you and to see first hand the differences in the interest paid over time is to sit down with a mortgage broker and work through all the different scenarios together so you are more confident that the numbers you’re looking at are accurate.
If you have any questions regarding amortization periods and mortgage rates, please give me a call and I’ll make sure you get all your questions answered.
With all the changes going on in the housing and residential mortgage market these days, I can tell you that my phone has been ringing off the hook as everyone is scrambling around trying to find the best rates and to get help navigating through the housing and mortgage decisions.
Housing prices in most parts of the country are on the rise as are interest rates. Insured mortgages are going to be harder to qualify for some, and home buyers are also going to have to deal with HST in the coming months.
The process of buying and selling a home as well as the related mortgage financing requirements will be the biggest financial decisions most people will have to make in their life time, so its important to fully understand how things work and how to get the best deal for your particular circumstances.
And from the mortgage side of things, that is where mortgage brokers can add a lot of value, especially in times like these.
When things are less robust, things like rate shopping may not provide much value or uncover any seemingly hidden opportunities to take advantage of. But these days, rate shopping is almost a necessity as lender programs are constantly changing and without the ability to quickly scan the market, its not going to be too hard to end up with a higher interest rate.
Then we can talk about the mortgage insurance programs and how the new guidelines will impact your ability to qualify for a mortgage both for home purchase and refinancing purposes.
All this activity and complexity is exactly what a mortgage broker is supposed to help you understand and manage through. This a period of time when your mortgage broker can provide great value without it costing you anything in most cases, especially for standard residential mortgages where the mortgage lender pays the broker.
Of course I’m biased, but I truly believe that its going to be way harder to figure things out on your own that with the assistance of a mortgage broker you are comfortable with and feel confident in.
If you have any questions regarding rates, mortgage insurance, HST, or anything else related to mortgage financing for residential or commercial properties, give me a call so I can quickly assess your requirement and provide relevant options for your consideration.
For Home shoppers that have been considering a home purchase in the last 6 to 12 months, the rush is now officially on to try and see if a new home can be found and mortgage financed before all the related acquisition costs go up.
Right now we are experiencing the confluence of three different factors converging on the mortgage market, and creating a perfect storm effect for home buyers in the process.
First, we have the recently announced increase in the five year mortgage rates that have already come into effect. For those that have secured a pre-approved mortgage rate for 120 days, the race is on to try and get a home purchased and financed in time before the rate freeze is removed.
Second, in just 5 days, the CMHC’s new qualification rules will come into play for new home purchases requiring more than 80% mortgage financing. For these higher ratio mortgage applications, mortgage insurance is required and will now make it more difficult for some home owners to get qualified based on the revised repayment qualification calculations that require the use of the chartered bank posted 5 year fixed mortgage rate.
Third, and somewhat forgotten in all the recent news about interest rate increases and changes in the CMHC mortgage insurance program, is the launch of HST in Ontario and B.C. on July 1, 2010. The new tax will create an added cost to home purchases that will also have to be factored into a buying decision.
The key takeaway from all of this is that home shoppers should make sure they are working with a competent mortgage broker that can help them work through all the twists and turns impacting residential mortgage financing in the coming months.
The landscape is got increasingly hard to navigate in 2010, so getting some professional assistance can help you make a better decision and end up saving you money in the process.
If you’re in the process of buying a home or even have an accepted offer that requires mortgage financing, I suggest that you give me a call so I can quickly assess your requirements and provide relevant mortgage options for your consideration.