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mortgage

Where Have the Variable Rate Mortgages Gone?

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PART 1 of the Rev N You with Real Estate Series on the Mortgage Market in Canada

October 20th, 2008:6 minutes 32 seconds

The October 15, 2008 removal of insured 40 year amortization mortgages and no money down deals was announced months ago. So it came as no surprise that those deals were pulled off of the table as the market uncertainty mounted.  But,a variable rate mortgage at prime PLUS 1.5%? That was a market change that nobody expected. And, as Cindy Faulkner of Meridian Coastal Mortgages explains, it happened overnight!

Listen as Dave Peniuk (of Rev N You) discusses the current mortgage market in Canada with Cindy, and find out what mortgage Cindy recommends you get in right now if you’re an investor or someone buying your family home.

Thanks for stopping by and getting the facts on what is happening in the market today! This is the first in a series of five podcasts on the mortgage market in Canada. The next four are posted here. And if you haven’t already… please sign up for our Rev N You with Real Estate newsletter to be certain you don’t miss any of the important market updates!

CoastalMortgageslogo 

ABOUT CINDY FAULKNER

Cindy Faulkner owns and runs Meridian Coastal Mortgages. An active real estate investor, with 17 years of experience in the residential real estate market, Cindy and her team are our first call when it comes to financing for our properties. They are always happy to chat about scenarios or discuss the market, so give them a call at            604-588-4466      .

 

Is Now a Good Time to Buy Real Estate?

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PART 5 of the Rev N You with Real Estate Series on the Mortgage Market in Canada

Recorded October 18th, 2008: 4 minutes 29 seconds

Listings are climbing, sales have dropped and it’s difficult to get a mortgage. It really feels like now is NOT a good time to buy real estate. But as Cindy Faulkner of Meridian Coastal Mortgages explains to Dave Peniuk (of Rev N You), now IS a good time to buy. There are deals out there, and there will continue to be some good deals for at least the next six months.

Thanks for stopping by and getting the facts on what is happening in the market today! This is the fifth in a series of five podcasts on the mortgage market in Canada. We’ve got some big plans for more experts to join us on Rev N You, so make sure you’re signed up for our Rev N You with Real Estate newsletter to be certain you don’t miss any of the important market updates!

CoastalMortgageslogo 

ABOUT CINDY FAULKNER

Cindy Faulkner owns and runs Meridian Coastal Mortgages. An active real estate investor, with 17 years of experience in the residential real estate market, Cindy and her team are our first call when it comes to financing for our properties. They are always happy to chat about scenarios or discuss the market, so give them a call at            604-588-4466      .

25 Year vs. 40 Year Amortization

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Financing your Real Estate Investment

I bet several of you didn’t even know there are 40 year amortization options available to you now. In the U.S. they have had extended amortizations for quite some time, but in Canada the 40 year was introduced recently.

There isn’t a simple answer when clients ask me whether extending their mortgage is right for them. It really depends…Here’s an example to illustrate:

* $250,000 mortgage at 5.80%
* Amortization is 25 years
* Payments are $1,569.92/month
* Total interest paid over 25 years = $220,974
* Amortization is 40 years
* Payments are $1,328.97/month
* Total interest paid over 40 years = $387,908.40 Year Amortization Mortgages

That is a difference of $166,934 over the life of your mortgage to potentially stretch yourself thinly over a property that is out of your affordability range. And it’s going to take you 15 more years to become mortgage free. You also have to realize that because you are paying the principal of the mortgage down slower, you will be building equity in the property at a decreased rate. In fact, for the first 10 years of the mortgage you will have only paid down about one-third as much as in the first 10 years of a 25 year mortgage.

But, before you turn away and decide that option is not for you, there are some advantages of signing up for a longer amortization that are worth considering:

 

  1. If your dream home is just out of your affordability range at 25 years, stretching it out to 40 years may make it affordable
  2. You can qualify for a larger mortgage because it lowers your payments
  3. If it’s a rental property, lower payments will help it produce positive cash flow until rents can be raised
  4. If flipping a property, this will reduce your carrying costs until you sell it (this is also a benefit when using interest only mortgages).

It’s great to have the flexibility if you need this. But, my caution to clients is that as soon as you can:

  • Change your monthly payments to bi-weekly – this will reduce your mortgage length by 3 – 4 years
  • Add $50, $100, or $200 to each payment and this will further reduce the length of your mortgage
  • Make lump sum payments every year with your tax refund (or other income). Putting that money towards your principal will reduce your amortization by up to 10 years (just check for the maximum allowed without penalty before you do this).

A 40 year amortization may not be for everyone, but as house prices continue to rise it may be an option more and more people will consider. If you arm yourself with the knowledge of how a longer amortization can effect you and you are diligent about paying down the mortgage as I have noted above, owning a home becomes possible for many would-be homeowners and remains a viable option for those wishing to keep their monthly payments smaller.

 

Vendor Take Back Mortgage

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Will you hold the mortgage?

 

A VTB or Vendor Take Back, is simply where the seller (Vendor) of a property is willing to provide some or all of the mortgage financing on that property. A VTB is generally a lot more common on commercial properties than it is on residential, however, residential VTB’s do exist. In fact, we have had VTB’s on 3 of the 11 properties we have purchased. In one case noted above (Nanaimo B), the seller gave my business partner and I an 80% loan to value mortgage at a 5.5% interest rate with a 3-year term! Not bad considering we didn’t even have to go to the bank! VTB’s usually are held because of one or any of the following reasons:

  • it’s a distressed property, and to make it more desirable the vendor offers a VTB to the potential purchaser;
  • the purchaser is unable to obtain standard financing from the bank;
  • the seller knows (and trusts) the purchaser and is willing to help them out on this purchase;
  • the purchaser can obtain some financing from the bank, but doesn’t have the capital to close – so the seller will hold a smaller 2nd mortgage on the property; and
  • the vendor may make considerably more money on the property by charging a higher than market value interest rate and collecting it back over time (sometimes there may be tax benefits for the vendor as well).

As there are many benefits to both parties, it never hurts to ask if a vendor is willing to hold a mortgage on the property. Even if it’s only a smaller 2nd mortgage that just allows you to not put in an extra $5000 or $10000. As long as you aren’t over-extending yourself too far, then using other people’s money is a great way to use leverage and enable you to buy other properties. Or, to have money left over to renovate, refurbish, or spend on marketing to rent your new purchase.

For you, as the purchaser, there are other potential benefits from obtaining a VTB:

  • generally no pre-payment penalty if you payoff the mortgage early as with bank financing;
  • vendor’s rarely ask for all the documentation (T4’s, Pay stub, Employee letter, etc.) that bank’s require; and
  • the mortgage, and it’s value, will not show up on your credit score as is now becoming more common with the big banks and credit unions.

Keep in mind, however, that a VTB is not always a great plan. Ensure your real estate lawyer thoroughly reviews all of your VTB documentation including the Purchase and Sale Agreement and the mortgage and it’s conditions. Also, make sure you speak with the vendor to determine if the term can be extended when it comes due.

 

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