All posts by Joe Walsh
Commercial Property Mortgage Lenders Staying Cautious
“Commercial Mortgage Financing Is Available, But May Be Harder To Secure Than What You Might think”
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.
Cottage Mortgage Interest Rates
“Do You Pay A Higher Interest Rate With a Cottage Mortgage?”
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.
Private Mortage Lending Continues To Evolve
“A Private Mortgage Loan Can Actually Be Your Preferred Mortgage Option In Many Situations”
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.
Click Here To Speak With Mortgage Broker Joe Walsh For Any Questions About
Private Mortgage Loans.
Arranging Construction Take Out Loans
“Current Market Conditions Indicate That A Construction Take Out Mortgage Should Be Arranged And Secured Sooner Than Later”
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.
Pros And Cons of Mortgage Amortization Periods
“After The Interest Rate, The Next Major Decision With a New Mortgage is The Amortization Term”
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.
Mortgage Brokers Are Earning Their Keep
“Now Is Truly The Time To Take Advantage of The Skills and Expertise of Mortgage Specialists and Mortgage Brokers”
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.
Canadian Home Mortgage Market Heating Up
“Canadian Mortgage Applications Are Up As Home Shoppers Try to Beat The Rising Interest Rates,Tax Increases, and New Insured Mortgage Rules”
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.
Recession Keeps The Squeeze On Ontario Construction Financing
“Lenders Continue To Take A Lower Risk Approach When Considering Ontario Construction Financing Opportunities”
Most of what we hear these days about the recession is that things are getting better. That may be the case for monthly production and consumer confidence, but it doesn’t necessarily apply to the still very fragile capital markets, especially when tools like mortgage insurance are not available to reduce risk.
For Ontario construction financing, which is mostly provided by private lenders, the general approach is one of greater conservatism and caution when it comes to considering all types of projects, especially if they’re located outside of the Greater Toronto Area.
As an example, in the not too distant past in some of the bigger centers outside of the GTA, private lenders as a group were not overly concerned with borrowers having a take out mortgage arranged prior to advancement of construction loan funds. But at the present time, even if you’re building in the middle of cottage country which tends to still have a pretty active resale market, a take out mortgage has become a requirement more often than not for private construction mortgage approvals.
The second challenge for home owners, builders, and developers is that even when construction financing can be secured, the loan to value in many areas is in the 60% to 65% range versus 75% to 80% as you get closer to Toronto.
And rates can be higher as well, making projects harder to cash flow as you get further away from the city center.
Things are not likely going to change any time soon either. So even though development projects are showing more signs of life than in the last two years across the province, the process for finding and securing construction financing has become more complex for anything that isn’t in a prime real estate market.
The adjustment that needs to be made by builders and developers is to start working on arranging their construction financing further in advance to make sure they are going to have funding in place for their projected start times. And if turns out what’s available in a given area is higher cost and lower leverage than what was expected, the project may have to either be adjusted in terms of size, or delayed all together until more suitable financing becomes available, which in some areas could be quite awhile.
If you have a construction project that requires capital, give me a call so I can quickly assess your requirements and provide you with relevant options for your consideration.
Click Here To Speak With Construction Mortgage Broker Joe Walsh
More Information on New CMHC Mortgage Insurance Program Changes
“Here Are A Few Additional Wrinkles To Now Consider When Budgeting For A New Home Purchase or Mortgage Refinance”
In March of 2010, Canada Mortgage and Housing Insurance announced some changes to their mortgage insurance program that were designed to reduce the potential of a housing market bubble developing in Canada through our own version of the sub prime market which falls under the category of insured mortgages.
The changes to take effect on April 19, 2010, in a nut shell, are 1) changes in debt servicing assessments for mortgage requests above 80% of the value of the property and mortgage terms less than 5 years; 2) a reduction in mortgage refinancing amounts from 95% of property value to 90%, and 3) a requirement that all CMHC insured rental properties have a 20% down payment at time of purchase.
The big question that existed after the initial announcement was how would the repayment assessment work going forward.
Today, we got some further clarification.
Basically, for a new mortgage application where the mortgage amount is over 80% of the property value, the repayment assessment must now be based on the Chartered Bank Conventional 5 year mortgage rate published every monday by the Bank of Canada.
And because this published 5 year rate is typically higher than what the actual 5 year rates being issued are at any given time, the bar for qualifying for variable rate mortgages, or mortgage terms under 5 years has now been raised.
Bottom line, its now going to be much harder to qualify for a high ratio home mortgage and even harder to take advantage of variable interest rates, which are still more than 2% below the best 5 year term options.
For those of you who already have a variable rate mortgage for a predefined term, there’s nothing indicating that these recent changes will impact you’re ability to continue on with a variable rate once the present term expires even if you wouldn’t otherwise qualify for a new mortgage under the changes to the CMHC mortgage insurance program listed above.
Keep checking back for more mortgage insurance information as I will be posting any further changes or explanations that get disclosed.
And if you have any questions related to getting a new mortgage or refinancing your existing mortgage, please give me a call so I can quickly assess your options and provide the most relevant options for your consideration.
Institutional Construction Financing Quirks
“Understanding How Bank Construction Loans Work Will Allow You To Get The Most Benefit From Them”
Many times people are for lack of a better term obsessed with getting bank or institutional financing for all their requirements. And for the most part, cheaper money is always going to be preferred over the alternative.
But cheaper money is lower risk money, and banks structure their deals to minimize their risk, which can also restrict you in the process.
So to be clear, I am not stating in any way shape or form that there is anything wrong with seeking to finance your construction project through an institutional lender. What I am saying is that you should make sure you understand all the conditions that go with the funding in order to get the full benefit out of the lower cost financing you are seeking.
For instance, here are a few of the more common requirements that come with an institutional construction loan.
- Construction mortgages are only issued by institutional lenders in order for them to have the opportunity to add the longer term take out mortgage to their portfolio. To make sure that happens, the lender will require that you qualify for both the construction loan and the take out mortgage at the same time. If you can’t qualify for the take out mortgage, you won’t get the construction loan.
- Second, the construction mortgage, while only short term in duration, is typically written up under a 5 year interest term. If you utilize the bank’s take out mortgage, the pre-payment penalty associated with paying out the construction loan early will be waved. And with a construction interest rate significantly higher than the long term mortgage rate, you’re going to want to pay it out as soon as possible.
- Third, even though you can get approved for up to 75% of the appraised value of the completed project, the bank will only advance 60% to 65%, keeping the rest to fund the construction hold back. But at the end of the hold back period, the held back funds will never be advanced …unless you utilize their approved take out mortgage to pay out the construction loan.
There are some other quirks to institutional construction mortgages that can come into play depending on your situation and the institution you’re dealing with.
To find out how to make sure you’re getting the most out of a institutional construction loan for a home build, give me a call and we’ll work through all the requirements together.
Click Here To Speak With Construction Mortgage Broker Joe Walsh
Locking In Mortgage Rates Is a No Risk Option
“Let Me Show You A Simple But Potentially Highly Effective Strategy For Playing The Current Mortgage Interest Rate Market”
If you’ve got an existing mortgage, but want to either refinance it for a lower rate, or lock in the current rates for a longer period of time, here is a very simple strategy that will allow you to play the market for the next 4 months while keeping all your options open.
The biggest reason that people don’t refinance when interest rates are lower is due to the interest penalty they will have to pay to get out of their current higher interest rate mortgage term.
The prepayment penalty can be worth paying if the mortgage rates go up and stay up for the foreseeable future.
But how does anyone know what the mortgage rates are actually going to do? Even for the experts, their opinions are only educated guesses as there are too many global economic forces that can influence our capital markets at any one time.
So one way of being able to potentially have your cake and eat it too is to apply for a mortgage pre-approval right now and get a long term interest rate of your choosing locked in for 120 days.
The pre-approval doesn’t commit you to act in any way, and if rates go down, you can also take advantage of positive rate moves.
But if rates do go up during the 120 day period, two interesting things will happen. First, you have the old rate locked in for your use if you so choose and second, the prepayment penalty, which is likely going to be based on an interest differential calculation, will become lower as the rates go higher.
So by “playing the field” so to speak with a pre-approved mortgage that provides interest rate protection for 120 days, you can take more of a wait and see approach for the next 4 months to determine if any rate movements that may occur can work in your favor.
If you’re considering refinancing your existing mortgage to gain a lower interest rate, extend your interest term, consolidate debt, or all of the above, then I suggest that you give me a call so we can get you pre-approved for a new mortgage and get a current interest rate locked in for the next 120 days.
Click Here To Speak Directly With Mortgage Broker Joe Walsh.
CIBC Long Term Mortgage Rate Deal
“CIBC 7 Year Mortgage Rate Is Currently A Great Deal To Consider”
Most long term mortgage terms are for a max of 5 years. CIBC not only has a 7 year term, but right now, at the time of writing, it was still set close to 4.5%.
I’m not sure this is going to last very long and by the time you’re reading this, it may have already changed, but right now this is a great deal in the current market where long term mortgage rates are on the rise.
CIBC’s seven year product has perhaps been flying under the radar as there was a significant rate spread between it and the 3 year term rates on the market. Mortgage holders have been able to be short term focused for a long period of time and haven’t been paying a whole lot of attention to longer term rates.
But with the rate changes announced last week to longer term mortgage rates in Canada, its now time to start considering where rates are headed (which is up) and how to protect yourself for an extended period of time to longer term rate moves.
As I mentioned above, I’m not sure how long CIBC will keep the seven year rate where its at, but even a small move would still be worth considering if you believe in some of the economists predictions for more rate moves before the end of the year.
One thing to keep in mind as well is that you can always apply for a pre-approval and get the current rates held for you for the next 120 days, giving you ample time to see how things are going to unfold. As an independent mortgage broker, this is something I can arrange for you at zero cost.
I know I’m biased toward mortgage broker services and the value we provide our customers, but this is another excellent example of a rate offering that many people (even mortgage brokers) may not be aware of.
We went through a period over the last couple of years where there wasn’t much new with rates for extended periods of time, but that isn’t likely going to be the case for the foreseeable future which is all the more reason to give me a call and get on my mailing list so that you can take advantage of the different rate opportunities and strategies I will be telling my readers about in the coming weeks.
Don’t Leave The Process Of Arranging Construction Take Out Mortgages Too Long
“Just Because You Can Start a Construction Project Without a Take Out Mortgage in Place, Don’t Leave It Too Long”
While institutional lenders will require you to also qualify for a long term mortgage or take out loan with them before they will grant you a construction loan, the same is not typically the case with a private lender.
And because the vast majority of Ontario construction loans are granted annually by private mortgage lenders, the requirement to have a take out mortgage in place prior to draw advances on building loans for both residential and commercial projects are not always necessary.
At the same time, there are many private lenders that are closely aligned with long term institutional mortgage lenders in order to try and secure both the construction and take out mortgages. While the take out mortgage may not be a requirement at time of construction, you may still be obligated to accept one of their term out options to payout the construction financing loan.
For more independent private mortgage construction financing sources, they will only typically require a take out mortgage be in place prior to loan advance if they view the subject real estate to have a weak resale market and/or feel the location where the project is situated will not attract a lot of interest from term out lenders.
When a take out mortgage is not arranged from the outset of the project, there is also the risk that the process for trying to locate a construction take out loan during the project will end up being a distraction to the owner’s project management efforts, creating potential incremental cost and cash flow management problems in the process.
The other issue with applying later on for construction take out financing is that an approval may not be forth coming when expected, causing the payout process for the construction loan to be delayed, which will require the borrower to pay the higher cost of private lender construction financing for a longer period of time and potentially run the risk of the private lender taking foreclosure action to get the loan repaid.
When put under pressure to get a take out mortgage in place at the end of the project, the borrower may end up being forced to take a less than optimal long term mortgage alternative than could have been secured if more time was available.
If you’re in the process of planning out a construction project, or deep in the middle of one where a construction take out mortgage is required, I suggest that you give me a call so I can quickly assess your requirements and provide relevant long term take out mortgage options for your consideration.
Clock Here To Speak With Construction Mortgage Broker Joe Walsh
Institutional Self Employed Mortgage Programs
“Even If You’re Self Employed and Not Reporting Much Personal Income, There Are Still Excellent Institutional Self Employed Mortgage Programs To Consider”
Banks and other institutional lenders recognize that self employed individuals can take many different types of tax planning approaches to lower their overall level of taxation, but which can also reduce their personally declared income in the process.
And because one of the primary criteria for qualifying for an institutional mortgage is assessment of repayment ability via personally reported income to the Canada Revenue Agency, reliance strictly on reported income effectively ends up penalizing self employed individuals that otherwise are very credit worthy and have sufficient means to service the mortgage amount they’re trying to secure.
This is where the self employed mortgage programs come in. They are designed to address this segment of the market that may not be able to show what I’ll call traditional employment earnings for mortgage qualification. Instead, the bank or mortgage lender offering the program allows them to declare their income, often times with no additional verification.
The keys to being considered for this type of mortgage program is the ability to demonstration that you have been self employed for at least 3 years and can provide business registration and activity based documentation that supports your claim of being self employed.
Some programs may still want to see your annual notices of assessment from CRA for the last 3 years and may also require that you declare your income in front of a notary and provide a sworn affidavit to the bank to further support your application.
Another key criteria for mortgage approval that is consistent with all institutional mortgages is that the self employed applicant must have strong credit, typically at a credit score level of 650 or higher, depending on the bank.
The self employed mortgage programs will vary in terms of the amount of mortgage they are prepared to underwrite related to the value of the property. For refinancing scenarios, the borrower can potentially secure a mortgage of up to 60% of the value of the property and up to 65% for a purchase. These programs also tend to cap out at real estate property values of a million dollars.
There is a fair amount of variability among the programs in the market, so its best to employ the services of a mortgage broker to find one that best fits your needs and financing profile.
If you’re in need of a self employed mortgage or would like to better understand you potential options, please give me a call and we can review your situation and the different program requirements together.
How To Get an Institutional Mortgage On A Seasonal Cottage
“Yes, There Is A Way To Still Get a Great Mortgage Rate on A Seasonal Cottage”
Find and securing cottage mortgage financing can be difficult for many situations, but can be particularly hard at times if you’re trying to get bank mortgage rates on a seasonal cottage property.
In many cases, the seasonal cottage properties will not even be considered by what we would refer to as “A” mortgage lenders and dropping down to a “B” institutional option or even a private mortgage option is going to be more expensive with respect to the interest rate and the long term debt service.
There is a way around this, but you need to be working backwards so to speak from the requirements of the mortgage programs that will consider seasonal cottages in the first place. Too often borrowers believe that if they find that perfect vacation spot that there will be a way for the larger mortgage lenders to fit your potentially unique request into their programs.
Unfortunately, lenders are historically inflexible on changing any of their requirements for a specific type of asset and loan program, so if you don’t fit the box you don’t get funded and may have to settle for a higher interest rate option.
The good news is that there are traditional “A” lenders that will consider seasonal properties under the following two key conditions.
First, the property needs to have running water and septic set up and operational. Second, the borrower needs to be able to qualify for Canada Mortgage and Housing Insurance.
There will be other lesser requirements, but bottom line, you can still get excellent mortgage rates on your vacation property if you figure out your financing approach “before” you start looking at cottages.
The key is to work with a mortgage broker to get pre qualified for an institutional mortgage on a seasonal cottage property in a particular area. That way, you’ll be well versed in what the exact requirements of the financing program are and can use this information as a pre screening tool when looking at properties to buy.
If you’re currently looking for a cottage property, have a one that requires mortgage financing, or are just planning ahead, please give me a call so we can get a plan in place that will get you financed and into your vacation home so you can start enjoying the summer months.