3 Things You May Not Know About Cash-Back Mortgages

General Greg Weaver 26 Aug

It can get pretty exciting to see campaigns around “cash-back mortgages” but, before you get too far along, here are three things you might not know about these types of mortgages:

  1. Occasionally you will see campaigns on cash-back mortgages, so don’t jump at the first one you see! These types of mortgages are available through a few major lenders so it can be helpful to shop around to see what different terms and conditions are available, as this will affect the overall loan.
  2. When it comes to cash-back mortgages, you’re really getting a loan on top of your mortgage. The interest rates are calculated to ensure that, by the end of your term, you will have paid the lender back the money they gave you (and perhaps a bit extra!). Be mindful that these loans can come with higher interest rates and, in some cases, the extra is more than you got in cash-back.
  3. The average cash-back mortgage operates on a 5-year term. While you may not be planning to move before your term is up, sometimes things happen and it is important to be aware that if you break a cash-back mortgage, you have to pay the standard penalty but you will also have to pay back a portion of the loan you were given. For example, if you are 3 years into a 5-year term, you would have to pay back 2 years or 40% worth of the cash-back. Combined with the standard mortgage penalties for breaking your term, this can add up if you’re not careful!

Before signing for a cash-back mortgage it’s better to discuss your needs with a mortgage expert. They can advise regarding all cash-back mortgage availability, lines of credit, purchase plus improvement loans or also flex down mortgages that may be better for your situation.

 

Published by DLC Marketing Team

Could an Investment Property Be Your Pension?

General Greg Weaver 17 Aug

An investment (or rental) property, can be a great option for generating additional monthly income and growing your wealth over time, if done properly.

This strategy has multiple options and outcomes that can benefit Canadians such as:

  • Supplementing income now and boosting pension in the future creating more financial freedom
  • Allowing you to buy your dream retirement home now and rent it out until you’re ready to use it
  • Increase monthly cash flow for potential expenses beyond retirement savings
  • Utilize a multi-unit home (such as a duplex) by renting out one of the units

However, before you buy an investment property, there are a few things to know. Firstly, buying a property for the purpose of renting it out to someone else comes with different qualifying criteria and mortgage product options than traditional home purchases.

Before you look at purchasing a rental property, be aware that:

  1. The minimum down payment required is 20% of the purchase price, and the funds must come from your own savings; you cannot use a gift from someone else. Another option is to utilize existing equity in your primary residence and refinance for the cash to purchase your rental or investment property. Be sure to factor in funds for closing costs, potential repairs and maintenance in your amount.
  2. Only a portion of the rental income can be used to qualify and determine how much you can afford to borrow. Some lenders will only allow you to use 50% of the income added to yours, while other lenders may allow up to 80% of the rental income and subtract your expenses.
  3. Interest rates usually have a premium when the mortgage is for a rental property versus a mortgage for a home someone intends on living in. The premium can be anywhere from 0.10% to 0.20% on a regular 5-year fixed rate.

With the right purchase price and rental costs per month, this can be a great way to supplement income and make the most out of your retirement. Not only does it offer monthly cash flow, but you also will have the ability to sell the property down the line if you so choose. However, bear in mind, the sale will be subject to capital gains tax. Your accountant will be able to help you with that aspect if you do decide to sell in the future.

Before getting started, it is important to calculate the cost of your investment (purchase price and closing costs), as well as consider maintenance amounts (approximately 1% of the property value for the year) and compare to current rental prices to be sure it is a profitable investment before purchasing.

If you’re looking to purchase an investment property, be sure to reach out to a Dominion Lending Centres mortgage expert to discuss your options and understand what is required.

 

Published by DLC Marketing Team

How Bridge Financing Works

General Greg Weaver 5 Aug

In life, things rarely go as planned. This is especially true when it comes to real estate! When it comes to buying a new home, in a perfect world, most of us would like to take possession of our new residence before having to move out of the old one. This makes moving a lot easier and allows you time for painting or renovations prior to moving into your new digs. Unfortunately, this is where things get complicated.

Most people need the money from the sale of their existing property to come up with the down payment for the new house. This is where bridge financing comes in. Essentially, bridge financing allows you to ‘bridge’ the financial gap between the firm sale of your current home and the firm commitment to purchasing your new home.

WHAT ARE BRIDGE LOANS?

Bridge loans are short-term solutions that range from 90 days to 12 months, with an average of six months in length. This type of financing allows you to access some of the equity in your existing property, to put towards the down payment of your new home. However, to be eligible for a bridge loan, a firm sale agreement MUST be in place on your existing home, meaning all subjects have been removed. You will also require a purchase agreement for the new home to verify the amount required.

If you have not yet sold your home, you will not be eligible for bridge financing as the lender needs that to accurately calculate how much equity you have available and if you can afford your new home.

If you are currently looking to sell, or are in the midst of selling your home and considering bridge financing, it is important to understand that unless you can qualify and pay for two mortgages, you should always sell your existing home before purchasing a new one. There are a couple reasons for this:

  • Property values are constantly changing. You won’t know how much money you have until you sell your home as a home is only worth what someone is willing to pay for it NOW. Past sales and future guesses don’t count!
  • You need the proceeds from your existing home to help pay for the down payment on your new home, as well as renovations, moving costs and (if required) the size of mortgage you qualify for.

However, if you have firm sale and purchase agreements in place and are adamant about bridge financing, there are some things you should know.

getting bridge financing

If you have sold your existing home but the closing date comes after the closing date of the new property you just purchased, then bridge financing will likely be your best option.

Remember – in order to qualify you must have a firm sale agreement for your current home and a purchase agreement for the new home. If you don’t have a firm selling date you may need to consider a private lender for the bridge loan.

If you do have a firm sale and purchase agreements and want to move forward with bridge financing, you also need to consider the lender. Your new lender may not allow for bridge financing as not all lenders do. It is important to consider whether or not you think you need bridge financing so you can ensure you sign with the appropriate lender. Utilizing a Dominion Lending Centres mortgage broker can help you find a lender that provides the options you need.

COSTS OF BRIDGE FINANCING

It is important to mention that bridge financing typically costs MORE than your traditional mortgage. It is best to expect the Prime Rate plus 2, 3 or 4 percent, as well as an administration fee.

Also, in some cases, if you require a loan over $200,000 or a loan for more than 120 days, your lender may register a lien on the property until the loan is repaid. In order to remove this lien, you will need to consider the added costs of paying for a real estate lawyer.

PRIVATE FINANCING

If you have purchased your new home and are closing the deal, but your existing home has not yet sold, you would not qualify for bridge financing and would therefore need to consider a private loan.

Private financing is expensive, but it is generally a more affordable option versus lowering the asking price of your existing home and losing out on tens of thousands just to sell quickly. Seeking out a specialized mortgage broker who has access to individuals that lend money out privately to get the best rate and terms available to you.

COSTS OF PRIVATE FINANCING

Private loans are dependent on having enough equity in your current property to qualify and are more expensive than traditional mortgages. Private loans have a much higher interest rate than traditional mortgages, which averages anywhere from 7-15 percent. The costs associated with a higher interest rate is in addition to an up-front lender fee and potential broker fee. These amounts will vary based on your specific situation with consideration to: time required for the loan, the loan amount, loan-to-value ratio, credit bureau, property location, etc.

When it comes to bridge financing and selling and buying of your home, don’t waste your time trying to figure it out on your own. Give a me a call and we can help you determine your best option!

 

Published by DLC Marketing Team