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Posts Tagged ‘Line of Credit’

Should We Worry About a US-Style Housing Meltdown?

Wednesday, December 5th, 2012

This is an article by Benjamin Tal, one of CIBC’s top economists who answers this question. I found it to be a great write up that expresses the differences between the US and Canadian housing economies.

“House prices in Canada will probably fall in the coming year or two, but any comparison  of the American market of 2006 reflects a deep misunderstanding of the credit landscapes of the pre-crash environment in the US and today’s Canadian market.

The Canadian housing market has more distinguishing attributes that separate it from the pre-crash US market. Yes, the debt-to-income ratio in Canada just broke the American record set in 2006, but comparing the three years heading into the US crash to the past three years in Canada reveals that the debt-to-income ratio in Canada has been rising at half the speed seen in the pre-crash US market. Even more important than the amount of debt is its quality. The distribution of the credit score in Canada has not changed dramatically in the past four years. That is very different than the experience seen in the US in the four years heading into the recession.

In the US an astonishing one-third of mortgages taken out in 2005 and 2006 were in negative equity position, and more than half had less than 5% equity. In Canada, the negative equity position is nil, and only 15-20% of new originations have an equity position of less than 15%.

In a final analysis, not all is well in the Canadian housing market. Home prices are overshooting their fundamentals, mainly in large cities such as Toronto and Vancouver. The recent slowing in sales activity will probably be followed by price adjustments in many cities across the country. But the Canada of today is very different than a pre-recession US. Therefore, when it comes to jitters regarding a US-type meltdown here at home, the only thing we have to fear is fear itself.”

Bank of Montreal BMO 2.99% Rate Special – Explained by Vancouver Mortgage Broker Rowan Smith

Monday, March 19th, 2012

Transcript of Video Blog:

Hi everybody. It’s Rowan Smith with the Mortgage Centre. I want to address Bank Montreal’s 2.99 percent offer that’s on the market and to explain some of the restrictions that people need to be aware of, some of the fine print. First off, yes, it’s one of the lowest rates historically ever offered, but it comes with some restrictions such as you can only have a 25 year amortization. Now, many people don’t think that this is a problem because they think I only want a 25 year amortization anyway and across a lot of Canada that is still absolutely the practice. Read the rest of this entry »

Line of Credit At Renewal – As Explained by Vancouver Mortgage Broker Rowan Smith

Thursday, October 13th, 2011

Transcript of Video Blog:

Hi, everybody. It’s Rowan Smith from the Mortgage Center. I want to talk today specifically about lines of credit. More importantly I want to talk about lines of credit that you want to keep but you maybe want to renegotiate maybe the mortgage in front of it. This is something that comes up from time to time. Read the rest of this entry »

Collateral Charges – Another Lender Gets On Board

Thursday, November 4th, 2010

Transcript of Video:

Hi, everybody. Rowan Smith with the Mortgage Centre.

I want to talk today about a change that was announced that’s been swept under the radar, and that’s that TD Bank has announced their mortgages will now be a collateral charge. Now what a collateral charge is, it differs than a traditional mortgage in that you can re-advance that mortgage back up to the amount or even beyond that you originally registered it for.

Now to a client, what does this mean? Let’s look at it from numbers. Let’s say you bought something for $500,000, you put 20 percent down under grant, and you had a mortgage for $400,000. Traditionally, as you paid down that mortgage, you could only advance it ever back up to the amount of the original mortgage, not beyond, and many institutions didn’t allow you to re-advance it at all.

However, a collateral charge allows you to register the mortgage for some fictional figure, perhaps the value of the home plus 25 percent — not the mortgage, but the value of the home plus 25 percent or more. Some institutions, such as Scotia, don’t even specify a limit.

Now, why they’re doing this is twofold. First off, for you the client, yes, it means convenience. What you’re going to be able to do is go back into the bank after a couple of years. You’ve paid your $400,000 mortgage down to $350,000, but let’s say you need $50,000 because you want to renovate. Well, rather than having to break the term and pay legal fees and all this type of stuff, you’ll be able to now just borrow back up to the $400,000, or beyond. If your home is worth more now, based on how much they registered the mortgage for.

It sounds very convenient, but the reality is it’s also a form of golden handcuffs, because once you’re into that type of charge, you can only get out of it by paying off the mortgage and moving it to another institution and paying the legal fees to do so. It’s a way of locking you up with that institution.

Now to anybody that’s had a mortgage for longer than one term, they’ll know that first offer that the bank gives you at renewal is never that great. So if you’re thinking you’re going to move your mortgage or you’re going to shop your mortgage at the end of your five-year term, if you’ve taken the new collateral charges from TD or from other institutions like that, chances are you’re not going to be able to shop it without eating some legal fees in there.

So primarily, it’s a customer retention tool as well as it does, in fact, add value through ease of use and ease of future access to your funds. Myself, I’m not a fan of them, however.

For the Mortgage Centre, I’m Rowan Smith.

Lines of Credit – An Update On A Specialized Product

Friday, October 15th, 2010

Transcript of Video Blog:

Hey everybody. Rowan Smith from The Mortgage Centre. I want to talk today about lines of credit. It’s been a while since I’ve done a post on it. I get a lot of questions on it, people not understanding when a line of credit is possible and what kind of rate they can expect. So first off, when is a line of credit possible? Well, you have to have 20% equity in the property. CMHC does not allow to have people have an interest only portion of their mortgage, so lines of credit are interest only. Typically, prime plus one is the going rate, although your institution may offer you something better if you have a very large investment portfolio or a longstanding connection with them. Prime plus one is the baseline rate by which you should be judging any particularly offers you are receiving for a line of credit. If you’ve got a $500, 000 home and you have a $350, 000 mortgage, you can only have 80% financing, that’s conventional financing, if you’re going to want a line of credit. Now, in that case, that’s $400, 000. If you’ve got 350 and the max is 400, the maximum line of credit you’re going to be able to get is 500. Now, that’s a secured line of credit and secured line of credit rates. Your institution or any other institution can offer you unsecured lines of credit all they want. How big they’ll go is generally an indication of how aggressive their policy is or how much debt they think you can service with your taxable income.

To give you an example of how this plays into it, I had somebody who was looking to qualify for a $50, 000 line of credit but they needed $80, 000 so they went to two different banks and applied for a $30, 000 line of credit and were declined at both of them because unsecured $30, 000 is very large. For secured you can have three million dollar lines of credit if you have the equity in the property, but when it comes to an unsecured line of credit the banks generally have a cap. Anything over $10, 000 and they start wanting to see a lot more net worth, a lot more fall back position, meaning vehicles, meaning cash assets, stocks, RSPs, savings, and what not.

You say, “well, if I had the savings I wouldn’t need the line of credit”, but in most cases people need a line of credit as a contingency, not as the primary source of their funding. There are secured lines of credit with your mortgage, can’t exceed 80% of the value of your home based on the appraisal, not based on list prices of other properties in your area. There are unsecured lines of credit which banks can do whatever they heck they want as long as they believe you and believe your credit rating is strong enough and that your income can service it. If you want any clarification on this, please contact me.

I’m Rowan Smith from The Mortgage Centre.

Mortgage Line of Credit – When Can You Get One?

Wednesday, May 12th, 2010

Have you ever wondered if you can get a line of credit secured with your home? Maybe you wondered if you can get a line of credit along with your mortgage?

There are several specific criteria that need to be met in order for you to get a line of credit. The most important criteria is EQUITY.

Watch this video blog for more info and and a more in depth explanation.

Transcription of Video Blog:

Hey everybody, Rowan Smith with The Mortgage Centre. I want to talk today about lines of credit. More specifically, mortgage lines of credit. A lot of times people will come to me and they’ll want to get a line of credit, along with their financing for their purchase, for renovations and whatnot.

Now, generally, if it’s going to be a mortgage, you’re going to have to have 20% down payment or 20% equity in the property before you can start getting a line of credit. Because CMHC, who governs less than 20 percent down purchases, doesn’t not allow an interest only product at this time; they do, but no lenders really support it.

So you’ve got to have 20 percent down if you want to start getting the ability to have a line of credit. Now what I mean by that is if you have 20% down and you pay it down so that you now have 30% equity in the property, you could borrow that 30% to 20%, that 10%, you could get that in the form of a line of credit assuming that your income and credit qualify for it.

So, if you’ve just bought something with five percent down and want renovation funds, a line credit with the mortgage is not part of the option. What you can do is get an unsecured line of credit through your financial institution you bank with. They can supply that to you, you can use that. Now you will not get mortgage rates on that line of credit, but it’s really the only option.

Alternatively, there’s a Purchase Plus Improvements Program if you want money for renovations. I’ve covered it in detail in the prior blogs, please do a search and you can watch it. It’s a good three or four minutes and it explains how the Purchase Plus Improvements Program works, or Refinance Plus Improvements.

If you’re applying for a line of credit increase – maybe you already own your property, you’ve got a substantial equity position at home and you simply want to increase that line of credit, come and talk to me. There’s many institutions which we can stick a line of credit behind any other mortgage.

So if you’ve a RB Royal Bank first mortgage, we can stick a line of credit behind that and get you mortgage rates on that line of credit. You don’t have to go to your bank if that’s the case. It’s only the unsecured lines of credit which you need to speak with your bank about.

If you’d like any clarification on this or need a line of credit, please give me a call. It’s Rowan Smith from The Mortgage Centre.