Archive Monthly Archives: January 2011

Impact Of New Insured Mortgage Rules

“How Will The New Proposed CMHC Insured Mortgage Rules Impact You?”

In the next couple of months the latest changes to the insured mortgage rules are going to come into affect with the drop of the max amortization from 35 years to 30 years and the max loan to value on a refinancing action through an insured mortgage reduced from 90% to 85%.

This has been pretty front and center news over the last couple of weeks, but in the end how will it directly impact you and the market as a whole.

Industry experts are calling for heightened activity in the mortgage market prior to the rules going into affect as new and old mortgage holder race to get qualified based on the existing rules.

Whether that’s really going to happen or not is yet to seen, but I expect there is going to be a certain amount of increased activity for this time of the year.

In the end these are likely going to be permanent changes and will impact the way people are going to be managing their debt load and cash flow for many years to come. Even slight changes to the insured mortgage rules can have a significant impact on those individuals or families on a fixed income where cash flow is tight and difficult to free up for larger debt servicing requirements.

For right now, there is a window of opportunity to explore how the new rules will impact things you may be considering in the near term.

If you’re considering a mortgage refinancing and/or debt consolidation action, now is the time to crunch the numbers and see what options make the most sense. In many cases the 5% being lost on mortgage refinancing amounts will not allow enough additional funds to be made available and totally change the debt holders plan of attack to manage debts on a go forward basis.

Any shortfalls in financing caused by the rule changes will likely fall into short term, unsecured debt which will carry higher interest rates and are much harder to repay over time.

For those looking at purchasing a property, the change in amortization rules will have an impact on your cash flow if you were planning on getting a 35 year amortization under an insured mortgage. Once again, for some individuals, this particular rule change may stop them from purchasing a new home or their target home if they don’t get busy and get the transaction done before the rule changes.

Key point here is to take a bit of time right now and see how, if at all, these changes may impact you. If you need some help understanding the rule changes and/or want to work through some different scenarios to see how the numbers work out, give me a call and we’ll go through your situation together.

Click Here To Speak With Joe Walsh, Your Toronto Mortgage Broker

Residential Property Bridge Financing

“Bridge Financing Can Be The Ideal Solution For Dealing With Time Differences Between Buying And Selling a Home”

Residential property bridge financing loans are most common when the purchase date for a new home is going to occur before the closing date for the sale of the existing home. This is not an unusual series of events when trying to sell property and purchase property at the same time. In fact, most mortgage companies have a bridge financing program for you to utilize, provided that you’ve already committed to accepting a mortgage financing offer from the same company for your new purchase.

Lets take a close look at a bridge loan, why its required, and how it works.

First of all, the situation outlined above is that an individual or individuals is trying to sell their existing house while at the same purchase a new home. In an ideal world, the sale of the existing home would be completed first, allowing any equity freed up from the closing to be applied to the new home purchase. Unfortunately, the timing of the two separate transactions is not always perfect, creating a need to have money available to close the new home purchase before the existing home is sold.

Because the new residential mortgage is going to be based on the financial profile of the applicant or applicants post sale of their home, the new mortgage lender sees providing the bridge loan as a way to complete the purchasing transaction without taking any unnecessary risk in the process.

As long as the bridge financing period is less than 90 days, most mortgage lenders that provide bridge loans won’t even require that a collateral mortgage be registered against the existing property.

From a mechanical point of view, the borrowers will likely have to sign a letter of direction to have the proceeds from the soon to be completed sale of their existing home be directed to the new lender so that the bridge loan can be immediately retired from the available proceeds, as soon as they become available.

The actual proceeds from the bridge loan are advanced directly to the borrower’s solicitor so that they can be used to complete the purchase of the new home.

In the event that the mortgage lender is not in a position to provide a bridge loan, the borrowers could still turn to a private mortgage solution, which would likely require that a collateral mortgage be registered on the existing property.

For more information on residential property bridge financing, give us a call and I’ll make sure you get all your questions answered right away.

Click Here To Speak With Joe Walsh, Your Toronto Mortgage Broker

More Info On New CMHC Refinance Rules

“CMHC Provides Additional Clarity Regarding New
Mortgage Refinancing Rules”

The newly proposed mortgage refinancing rules for insured mortgages that will reduce the amount that can be refinanced under an insured program 90% to 85% starting March 18 of 2011 did not allow an exemption for existing collateral mortgage holders looking to change lenders.

Most collateral mortgages require a mortgage refinancing to move from one lender to another. But if an existing mortgage has a balance outstanding in excess of the 85% threshold outlined under the new refinancing rules as initially described, the borrower would not be able to change lenders. This initially appeared to be reducing mortgage choice and opportunity from certain individuals who held down insured mortgages greater than 85%.

This week the CMHC came out with a further clarification to the rule change and stated that an exemption to the rule would allow for mortgage transfers for insured mortgages over 85% loan to value to take place provided that there was no increase to the mortgage or any increase to the amortization period.

In the past, the CMHC did not have any restriction towards mortgage transfers from one lender to another for mortgage amounts over 80% loan to value.

With the clarification, the new rule as fully described would now appear to more fully cover the different scenarios existing mortgage holders may in counter if they find themselves in a refinancing situation.

Keep in mind that while CMHC will allow the refinancing to take place under the borrower’s insured mortgage status, mortgage lenders will still have to approve any and all mortgage refinancing requests under their own criteria.

Some mortgage programs will not take over an insured mortgage if its above a certain loan to value level that is set by the individual lender. So while the CMHC is not technically going to be a barrier to limit choice in the market place for those individuals with high ration mortgages that want to change lenders, the individual applicants are still going to have to fit into mortgage programs that are interested in these types of deals.

To get more information on the new rule changes or any other insured mortgage requirements, please give me a call and we’ll get all your questions answered as soon as possible.

Click Here To Speak With Joe Walsh, Your Toronto Mortgage Broker

2011 Mortgage Rate Outlook

“Where Are Mortgage Rates Headed in 2011?”

Now that we’re squarely into 2011 and all the major banks have served up their forecasts for the coming year, where exactly are Canadian mortgage rates going?

If you believe in the experts, rates are going to continue to rise during 2011 with the majority of opinions right now looking at an across the board interest rate increase of approximately 2% (Example: a current variable rate of 2% rises to 4%).

The current spread between fixed and variable is expected to continue, but with a 2% increase in both the fixed and variable rates, the people with variable rates today would see their interest costs increase to what the current fixed rate holders are paying right now. Thus continues the discussion as to fixed and variable and what if anything should be done with your mortgage term in 2011.

For those individuals on a fixed income budget, a 2% increase in the variable interest rate could double their interest cost by the end of the year. Then again, if you lock in now and the interest rates don’t increase then many people would consider that to be money wasted.

And in the end, the forecasts are only as good as the assumptions they are based on. If the assumptions don’t hold true then its unlikely the forecast they are based on will either. The really difficult aspect of looking into the crystal ball to determine what the future holds with respect to mortgage rates is knowing what major events are going to happen in the world, when they’re going to happen, and the economic impact they will directly and indirectly create.

That all being said, we are once again sitting at the beginning of a year where rates are more likely to go up than down and it only makes sense that one’s existing mortgage term should be reviewed to see if everything is still in keeping with your short and long term financial goals and personal views of what’s likely to transpire in 2011.

If you’re on a fixed income, have a mortgage term coming due, or are in the process of acquiring a new mortgage, the potential for mortgage rates to significant increase over the next twelve months is something to consider before making any decisions.

One of the best ways to make an informed decision with respect to your mortgage is to consult and experienced mortgage broker who is prepared to sit down with you and discuss your situation and the best options that are available at a given point in time.

Click Here To Speak with Joe Walsh, Your Toronto Mortgage Broker

More Changes To Insured Mortgage Rules

“Insured Mortgage Rules Will Change This Spring For The Second Straight Year”

In order to continue to reduce the risk for a real estate bubble in Canada and a sub prime mortgage market collapse, Finance Minister Jim Flahtery and Natural Resources Minister Christian Paradis announced today that the federal government will be taking further measures to adjust the government backed insured mortgage program.

More specially, there were three changes announced to the insured mortgage program that will take affect during the months of March and April of 2011.

The first change focused on mortgage amortization whereby the current maximum mortgage amortization period for any new government backed insured mortgage will be reduced from the current maximum time period of 35 years down to 30 years.  This will increase monthly mortgage payments for some in the short term, but significantly reducing the amount of interest they will be paying over the entire life of the mortgage, assuming the mortgage is paid to the end of the amortization period as schedule.

The second change announced was a lowering of the maximum amount that be refinanced under an insured mortgage from 90% to 85%.  This will impact the amount of money individuals can draw out of the equity in their homes for such things as debt consolidation, estate planning, and so on.

The third and final change forth coming is an elimination of government insurance protection on lines of credit secured by homes.   The reasoning provided was to reduce the risks associated with rising consumer debt that are more likely to increase under an insured line of credit  where the use of borrowed funds are typically unrelated to the purchase of a home and should not be borne by the taxpayer through a government insurance coverage.

The first two changes related to amortization period reduction and the maximum refinancing amount reduction will go into affect on March 18, 2011.

Government insurance on secured lines of credit will be eliminated as of April 18, 2011.

These changes come on the heels of  the changes that took affect on April 19, 2010 where  1) debt servicing assessments were adjusted for mortgage requests above 80% of the value of the property and mortgage terms less than 5 years; 2) mortgage refinancing amounts were dropped from 95% of property value to 90%, and 3)  rental properties have a minimum 20% down payment at time of purchase to qualify for mortgage insurance.

If you’d like to get more information on the changes and discuss how they may impact you, please give me a call at you’re earliest convenience and we can go over your situation and mortgage financing needs in more detail.

Click Here To Speak With Joe Walsh, Your Toronto Mortgage Broker

Mechanics Of A Construction Mortgage

“How Is A Construction Mortgage Arranged Compared To Other Types of Mortgages?”

From a mortgage registration point of view, a construction mortgage is exactly the same as any other type of mortgage instrument. It can also be in first, second, or third position, depending on the situation. The key aspects of a construction mortgage over a conventional mortgage is the manner in which the lender assesses the borrower request for financing.

With a conventional mortgage, the property value is determined at the outset of the process and used to establish the amount of mortgage financing that can be provided. With construction financing, the initial property value is going to be important as well as the ending property value.

The starting point for a construction mortgage request assessment by a lender is to look at the existing property value where construction is going to take place. The existing property value and equity is essentially the initial down payment for the mortgage. The lender also completes, or gets completed, a post construction appraisal to determine what the value of the property will be after all the work is completed. With the beginning and ending numbers in hand, the initial equity in the property is assessed to see if it is sufficient to cover the lender’s risk. If the initial equity is insufficient, then the borrower will be required to self fund the initial construction work up until such a point where the owner equity in the property is sufficient for the lender’s program.

In most cases where the borrower or applicant for a construction loan has insufficient equity in the property at the outset of construction, the lender will require the borrower to fund all costs up to the completion of the first draw as its been defined. If the initial work is completed according to the requirements of the project and meets the approval of the lender’s third party appraisers with respect to increasing the value of the property as required from the outset, then the lender will be prepared to consider advancing funds to cover the remainder of the work.

I use the work “consider” in that at each stage of completion, the project will be assessed by the lender or their third party representatives to determine if the work is completed meets the requirements of the project and that there is sufficient funds remaining from the construction mortgage approval to complete the remaining work. If in the lenders determination the work is incomplete at the time of a draw request, or that there is more work remaining to complete the project than funds available in the mortgage approval, the draw request can be denied, delayed until the work is adequately completed to that stage of construction, or cut back requiring the borrower to invest further capital.

The key aspect of the process is that a construction mortgage gets advanced according to the completion of work that follows a predefined plan that adds value to the property at each step of completion.

Click Here To Get More Information On Construction Mortgage Financing

Speed of Commercial Mortgage Financing

“Starting Early Is The Key To Commercial Mortgage Financing”

It’s a good idea not to use the word “speed” and the phrase “commercial mortgage financing” in the same sentence as they’re contradictory at best.

Commercial mortgage lenders are still taking their time these days assessing, approving, and funding commercial property financing deals.

As the economy continues to move forward on the road to a full recovery, the financial markets maintain a slow and cautious pace with respect to most things business financing related.

For business owners, entrepreneurs, or property owners looking forward into 2011, the key message here is to start the process for seeking a commercial property mortgage as early as possible and allow yourself as much time as possible to complete a financing transaction.

Faster money is going to be more expensive money for the most part, so if you believe you qualify for the lower cost commercial mortgage programs out there, then its going to be important to allow lots of time to secure them. This cautious market approach has been in effect now for almost two years and there isn’t much sign of it changing any time soon. Buyers and sellers have been slow to incorporate these changes into their thinking and planning. As a result deals falling apart when financing can’t be arranged in the time lines being allowed by buyers, sellers, and property owners looking to refinance.

Other than starting sooner, the next best action you can take to speed things up is to make sure all your pertinent financial information is up to date. If repayment of the mortgage will depend on an existing business, make sure that the last year end financials have been completed and that the current interim financial statements are up to date. These items are going to be required and can hold the commercial mortgage financing process up if they are not up to date or complete.

Another way to gain speed is to work with an experienced commercial mortgage broker who can help you hunt for money with a rifle instead of a shot gun and help cut back on the time wasted talking to commercial mortgage lenders that either can’t help you, or will have a very low probability of financing your deal in the time you have to work with.

If you need to secure a commercial mortgage for property acquisition, construction, or refinancing, I suggest that you give me a call so we can go through your requirements together and go through commercial mortgage financing strategies that can meet your requirements.

Click Here To Speak With Commercial Mortgage Broker Joe Walsh

Construction Mortgage Planning

“Get A Jump On Your 2011 Construction Mortgage Planning Process”

For those of you looking at completing one or more construction projects in 2011, now’s the time to start the construction mortgage planning process.

Even if you’re looking at a late summer or fall start, getting a jump on arranging construction financing is typically a good idea for a number of reasons.

First, and almost without exception, property owners, builders, and developers will spend almost all their up front time planning out the work, leaving the construction financing aspect until the very end of the pre construction period. Inevitably, they leave it too long and it can be a challenge to get everything lined up and in place by the planned start date, especially for first time builders.

Second, in the early part of the year, there is going to be less application volume being put in front of lenders (at least in most years), which means lenders may be more flush with funds and will be wanting to get their money out in the market place. While early shopping doesn’t guarantee a better deal, it certainly is possible, especially with private lenders.

Third, in reverse to #2 above, if you plan to start a project in the prime building season in Ontario, there is going to be a lot more competition for available funds. Better deals will get better rates, and more applications in general will slow down the overall process for each individual applicant. As I mentioned, most people leave the construction financing process to next to the last minute, or at least towards the back end of the planning period, so the herd mentality is going to kick in later spring and early summer with everyone looking for construction loans all at the same time, putting greater stress on the financial system to process and approve requests on a timely basis.

Fourth, going through the construction mortgage planning process early on may uncover flaws in your construction financing assumptions, causing you to go back to the project scope and perhaps make some changes to the budget to more align with the construction funding your going to be able to secure.

The best first step is to find an experienced Toronto mortgage broker that you trust and start working with them early on in your planning process so that you can avoid some the problems associated with starting the process too late and gain the benefits of getting at it early.

Click Here To Speak With Construction Mortgage Broker Joe Walsh