When Does A Second Mortgage Make Sense?

“If You’re Looking To Secure Additional Mortgage Financing, Here’s Some Things To Consider Before Signing a Second Mortgage Commitment”

When additional mortgage financing is required for debt consolidation or other refinancing purposes, the mortgage holder has a few basic choices. They can refinance the existing first mortgage into a new mortgage or they can obtain an additional mortgage registered behind the first mortgage in place.

The two main criteria to consider when looking to refinance an existing mortgage or secure a second mortgage are 1) total net interest cost and financing costs, and 2) repayment requirements.

If for example, the prepayment penalty is going to be significant for refinancing a mortgage with a fixed interest term, the net interest cost may very well be lower by applying for a second mortgage with either a fixed or variable rate.

Second mortgages typically are offered with fixed interest terms. For a variable rate, the second mortgage tends to come in the form of a home equity line of credit secured by a second position mortgage registration.

If a borrower can qualify for either a low fixed rate second mortgage term or an equity line of credit, the decision of one of the other is going to depend on the borrower’s view of future interest rates and their plan to repay principal over time. With a line of credit, the full mortgage balance can be paid back at any time. Fixed terms can have prepayment privileges, but there will be restrictions in place.

For individuals with weaker credit, private second mortgages are typically secured to again produce the lowest net interest cost for both mortgages combined. While the interest cost of the private second mortgage could be 12% or higher, if the amount of the mortgage is small in comparison to the existing first mortgage, the weighted average cost is still likely going to be lower than trying to refinance the first mortgage with weaker credit.

The key with private second mortgages is that they tend to come with one or two year interest terms, so there needs to be a plan in place or being worked towards to payout or refinance this debt at the end of the interest term.

Because there are several variations and strategies to utilize a second mortgage financing option, its best to work with a mortgage broker to make sure that 1) a second mortgage is the right choice for securing incremental mortgage financing, and 2) the type of second mortgage program selected is the best fit for your requirements.

Click Here To Speak With Mortgage Broker Joe Walsh

Mortgage Broker Services Grow In Value

“With All The Changes Going On In The Capital Markets, Mortgage Broker Services Have Become More Important”

The last several months have seen a couple of mortgage interest rate increases, more increases expected, changes in mortgage insurance policies, HST on the way, and housing pricing uncertainty going forward.

As a mortgage broker, all of the above have kept me on my toes and reinforces the role mortgage brokers play for our clients. It seems that every application these days is a bit more challenging to get approved and the amount of discussion to go through all the issues related to a particular property and financial profile has also increased.

Lenders have also become more a bit more cautious as they too work through all the changes. Basically, this amount of change always slows down the works for everyone as a certain amount of efficiency is lost due to everyone in the system adapting to new policies, procedures, and so on.

For the average person trying to make sense of everything in order to make the best potential decision for their family or business, the process can be overwhelming, excessively time consuming, and potentially very frustrating.

When most mortgage broker services are paid by the lender, it makes a great deal of sense to get professional help when working through all this stuff. A bad assumption or missed information can cost you tens of thousands of dollars over time, so its really not worth taking the chance if you don’t have to.

I admit that I’m totally biased when it comes to the topic of using a mortgage broker, but when I see people clearly struggling with the mortgage financing process these days when they’re getting good quality assistance, I can only imagine what its like for those that try to figure things out on their own.

Banks have become more aggressive lately with their sales efforts to try and retain or attract your business. And while these door to door mortgage agents provide excellent service, they still can only provide you with one set of options which may or may not be the best for your particular situation and personal or business requirements.

As a mortgage broker, I have broad access to the Canadian mortgage market at large and I don’t have any biases or preferences with respect to lenders. My objective is to find the best solution to your mortgage requirements, regardless of who the final lender may be.

Click Here To Speak With Mortgage Broker Joe Walsh

Commercial Mortgages Need More Time

“When You Apply For a Commercial Mortgage For Acquisition, Refinancing, or Expansion, Make Sure You Allow For Plenty of Time To Complete The Process”

When it comes to mortgage financing, a person’s typical frame of reference is the last time they bought or refinanced a residential home. In most cases, a residential mortgage commitment can be obtained in a matter of days with mortgage closing to take place approximately 10 business days after wards.

With commercial mortgage financing its a whole different ball game when it comes to financing with respect to the amount of information lenders need to review and the time it can take to complete the process.

The first thing that can significantly impact time is the availability of business financial statements. Because the financing is for a commercial property, the mortgage repayment will be coming from the business  and therefore, the commercial mortgage lender’s repayment assessment will be based on the historical financial statements of the company or business entity.

Many times, companies will wait the full 6 months after a year end to complete their financial statements in order to comply with government reporting requirements. If the business applies for commercial property financing before the financial statements are completed, the process will likely be delayed until they are available.

The second potential problem with repayment assessment is if the business applies 6 months or more after a year end when financial statements are available, the lender may still want an accountant prepared interim statement due to the amount of time that has passed since the last year end.

The process can be further delayed while the business owner is waiting for the completion of lender requested property appraisals and environmental audits. Sometimes a business owner will proactively commission an appraisal and environmental assessment prior to applying for the commercial real estate mortgage to speed up the process.

However, this can actually back fire if the appraiser and/or the environmental auditor are not on the lender’s approved service providers list. If this is the case, then the reports may have to be redone incurring additional costs and further delaying the process.

If there are any outstanding deficiencies or balances due from passed approved building permits, property taxes, site survey, appraisal, or environmental audit, these issues will likely have to be resolved before a commitment can be issued or signed off.

Because of all the requirements and due diligence involved, its also important that you’re applying to the most relevant lender so you don’t end up going through the whole application process and still not get a commercial mortgage approved and funded.

If you have a commercial property you’re looking to acquire, refinance, or expand, please give me a call so I can quickly assess your requirements and provide the most relevant financing options for your consideration.

Click Here To Speak With Commercial Mortgage Broker Joe Walsh

Debt Consolidation Options For Small Business

“If You’re Small Business Needs Additional Capital, But You Don’t Currently Have The Credit or Financial Statement Profitability To Secure Business Financing, Home Mortgage Financing Options May Be Your Best Bet”

In the past, I’ve talked about private mortgages, institutional second mortgages, and mortgage refinancing as strategies you can take to secure additional capital for a variety of purposes including personal debt consolidation and business capital injection.

One of the draw backs to all these options is that you’re getting a lump sum of funds that you may not need all at once and the prepayment options can be fairly rigid or non existent for many of these types of mortgage programs.

Especially in the case of small business owners where the flow of money is not necessarily consistent, the need for more flexible sources of capital are required or preferred.

In the current market, many small businesses are experiencing strained credit with suppliers and cut backs in credit from banks and trade accounts. Longer outstanding payables and delays on making loan and credit card payments create a vicious circle that feeds on itself making the situation worse.

Business financing solutions of any type when you get into a strained credit scenario are almost always going to be more expensive than any type of home equity, many cases by more than double the interest rate. So if you’re committed to the business long term, it makes sense to seriously consider debt consolidation and incremental capital procurement options that can come from the equity in your home.

The one form of home mortgage equity financing we haven’t discussed very much is equity lines of credit that are available for those with fair to poor credit and are self employed. These programs can range in interest rate from 9% to 13%, which can be considerably lower than the asset based lender’s offer to finance your equipment from 2% to 3% a month.

These lines of credit tend to be secured by a second mortgage against the property and allow you to increase or decrease your outstanding balance as funds are required or funds become available.

Now there aren’t many of these programs on the market, and they tend to look at self employed applications on a case by case basis when assessing debt servicing ability, so the eligibility rules will vary from scenario to scenario.

But if you’re self employed, and have a bunch of short term debt squeezing the life out of your business, then this could be a great option to stem the ebb and flow of your cash flow.

If you’re self employed and would like to learn more about the different types of mortgage products that would allow you to consolidate business or personal debt, please give me a call and we can go through your situation together.

Click Here To Speak With Mortgage Broker Joe Walsh

Construction Mortgage Draw Process

“Here is An Outline of How A Typical Construction Draw Process Works”

Ok, so you’ve got a commitment in place for your construction mortgage, you’ve started work and are getting close to the completion point for the first draw.

Now What?

First, lets take a step back and provide a basic overview of the construction draw process.

For a residential home construction project, there are typically 4 draws issued by the construction mortgage lender. In most cases, the first draw is issued after the foundation is in place, the second draw is issued when the structure is enclosed and secured, the third draw is issued when the drywall is finished, and the fourth draw gets issued at the completion of the project.

In direct accordance with the lien act, hold backs for each draw (typically 10%) will be retained in trust by your lawyer. All draw related costs including lender required expenses are to be covered by the borrower.

Hold backs are paid out 45 days after completion provided that there are no liens registered against the property.

Before the first draw can be issued, there are a few things most lenders will require.

First, a completed survey showing the boundaries of the new home, or title insurance, is required prior to the first draw.

In cases where the property is not connected to a municipal water supply, the borrower must have water potability and septic certificates prior to the first draw. It this condition is not met when the first draw is requested, the lender may cut back the draw and retain an additional $5,000 to $10,000 until such time that the certificates are available.

The lender will also either do an inspection of the work completed or hire a third party appraiser to assess the work completed and the work remaining.  This procedure is required by the lender to validate that the borrower’s investment and required equity in the project are appropriate before the lender will issue any advances against the construction mortgage.

Once everything is in order, the draw advance will be issued and costs incurred to that point in the project can paid up.

If you have any additional questions related to construction draws for either residential or commercial construction projects, I suggest you give me a call and I will make sure you get the information you’re looking for.

Click Here To Speak With Construction Mortgage Broker Joe Walsh