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Posts Tagged ‘own business’

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.

Divorce and Alimony and the Effect on Your Mortgage

Thursday, October 14th, 2010

Transcript of Video Blog:

Hi, everyone. Rowan Smith with the Mortgage Centre. I want to talk to everyone today about divorce agreements, alimony, child support, and that kind of thing and how they affect your mortgage application. A lot of times people will fill out on their application that they’re divorced. Maybe they are even buying a property with their new partner and the bank will ask them for a divorce agreement. And the person will say to me, but that was 15 years ago. Well, it doesn’t really matter. The bank still is going to want to see that document.

You’re going to have to disclose it. Now, you wonder why that is. There’s a few things that could be in a divorce agreement. For example, there could be alimony, spousal support, child support, any of these different things. Now that monthly payment is just like a debt. It’s just like a car loan. So it’s an obligation which affects your income, your bellied service debt. So a lot of times people will come to me and tell me: how much am I qualified for, I make $100, 000 a year? I spit a number back at them and then when we’re going through the application they inform me they have an $800 a month child support payment.

Well that has a very large impact on what they can approve for. So if you have been divorced tell your mortgage broker upfront if there’s any sort of alimony, child support, spousal support payments or any other continuing payments and obligations for anything you and your spouse may have had together. It may seem insignificant but these institutions are lending you hundreds of thousands of dollars so you can bet darn right that they have the right and will ask for this information. For the Mortgage Centre, I’m Rowan Smith.

File Your Taxes if You Are Self Employed!!!

Tuesday, September 28th, 2010

Transcript of Video:

Hi, everyone. It’s Rowan Smith from the Mortgage Centre. Today’s blog post is going to be very brief.

If you’re self-employed, file your 2009 taxes. If you haven’t filed them at this point in the year – and I don’t care when your fiscal year end is; I’m talking about your personal income taxes – file your income taxes.

If you haven’t filed them at this point, chances are I can’t help you. There might be exceptions to that depending on your industry and depending on a number of different factors, but please, call me before writing an offer if you haven’t filed your taxes. It is of paramount importance.

For the Mortgage Centre, I’m Rowan Smith.