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Category: Second Mortgage Financing

  • Don’t Wait Too Long to Refinance Your Mortgage – Get Ahead of Rising Interest Rates

    If you’re interested in refinancing your mortgage, it’s better to act sooner rather than later.

    Why? Let’s break down the reasons.

    1. New Canadian mortgage regulations are making it harder to access financing.

    On January 1, 2018, the Canadian government implemented new mortgage rules onto federally-regulated lenders (such as banks). These lenders now have to implement a mortgage “stress test” on potential homebuyers, and those seeking mortgage refinancing.

    What this means is that if you were to get a new mortgage, or refinance an existing one, a federally-regulated lender would need to test your ability to afford the mortgage against a higher mortgage interest rate.

    If you had a mortgage rate of 3%, they might have to test your ability to pay against a 5% rate, for instance. They are also required to take your total housing-related debt (Gross Debt Service ratio – or GDS) and your total overall debt (Total Debt Service ratio – or TDS) into account.

    However, non-federally regulated lenders, like credit unions and private mortgage lenders, are not subject to the mortgage stress test regulations. Unlike big banks, they aren’t required to stress test your mortgage refinancing or take your GDS and TDS into account – but that could be changing.

    Earlier this year, a Reuters article cited three unnamed federal sources who said that the Canadian government is considering extending the stress test regulations to private lenders. This means that non-bank mortgage lenders would be required to use the same measurements for extending mortgage financing as the big banks.

    Canadian Finance Minister Bill Morneau denied the rumours, but the possibility is still there – and if it does happen, you’ll want to be prepared. Which is reason #1 why it may be better to seek mortgage refinancing now, rather than later.

    1. Property values are declining.

    Reason #2 has to do with value of your property. If you’re refinancing, you likely want to access the most equity possible.

    Unfortunately, home prices are rising slowly, perhaps due to the impact of the mortgage stress test and Canadian interest rate increases. And less homebuyers are able to access the market.

    More than 100,000 Canadians have been kept out of the housing market due to the stress test regulations, according to Mortgage Professionals Canada.

    If you’re thinking of refinancing your mortgage and this trend continues, it might mean that your property value could drop, too. And if private lenders are subjected to the same regulations, it could mean even less people entering the housing market – and even further property value declines.

    1. Mortgage rates are rising.

    Five-year fixed rate mortgages reached their lowest point in late 2016, according to Rate Hub. Since then, mortgage rates have gone up about 0.5% per year. At the beginning of 2019, the lowest fixed rates were around 3.29%.

    Variable mortgage rates are also on the rise (and subjected to Canadian interest rate increases).

    “Even with discounting, the best five-year variable mortgage rates are still up about 0.75% since this time last year,” says Rate Hub.

    The moral of all this is that if you’re considering mortgage refinancing – don’t wait.

    At DebtCare Canada we offer first mortgages, second mortgages, home equity lines of credit, and more.

    Contact us today for a free consultation. Call 1-888-890-0888 or visit www.debtcare.ca.

  • TREB Has to Make Sold House Prices Public – What This Means for You

    An important court case involving the Toronto Real Estate Board (TREB) could have big benefits for consumers when it comes to sold house prices.

    For nearly seven years, TREB has been trying to keep sold house prices private — meaning only real estate agents or other mortgage professionals could access those figures.

    But on August 23, 2018, the Supreme Court of Canada turned down TREB’s appeal to keep home price data private.

    This means that consumers may be able to see historical sales listing data and prices online, whereas before that data was only available to real estate professionals.

    How does this affect the average consumer? It could be a big help. Consider the following:

    • With access to historical sales data, you’ll be able to see how much your house has sold for in the past.
    • You’ll be able to see how many times a house has sold in the past.
    • You’ll be able to see how much houses in your neighbourhood sell for to get an approximate idea of your home value.
    • If you’re considering putting an offer on a home, you’ll be able to see how much it has sold for in the past.
    • There will likely be greater competition and innovation in the Greater Toronto Area (GTA) real estate market, which could have a positive affect for consumers.

    This decision only affects GTA home data currently, but it may spread to other Canadian cities. Many real estate boards were watching the TREB court case to determine their own action. Now that a legal precedent has been set, it’s likely that other boards will follow suit.

    Similar real estate data has been available publicly in the U.S. for the past 10 years.

    As Canadian interest rates increase and new mortgage stress test rules are in place, it’s more important than ever for homeowners or potential homebuyers to understand the real estate market. This could help you decide whether you should keep or sell your home.

    Time will tell how exactly the court order plays out, but we are calling this a victory for consumers.

    Interested in buying a home or selling your house? DebtCare Canada can help. We offer first mortgages, second mortgages, home equity loans, and more.

    Contact us today for a free consultation. Call 1-888-890-0888 or visit https://debtcare.ca/.

  • Mortgage Refinancing Tips for Reducing Debt

    If you own a home and struggle with debt, you may have considered mortgage refinancing.

    As we’ve written before, if mortgage refinancing is on your mind, you may want to start the process now, before Canadian interest rates increase any further.

    But before you begin you need to make sure that you understand the process and are picking the mortgage refinancing option that is best for you.

    Below are some common refinancing options you may be considering.

    1. Refinancing First Mortgage

    First mortgage refinancing can be a way to assess your monthly mortgage payments and ask if they are still working for your lifestyle. Do you find you’re struggling to make mortgage payments? Or perhaps you have other forms of high-interest debt (credit cards, lines of credit, etc.) and are having trouble repaying those. If you have equity available in your home, then first mortgage refinancing may be for you.

    Consider the following scenario:

    You have a mortgage for $350,000 with Lender A at an 8% interest rate, and you have $25,000 in high-interest debt. You find that you can get a mortgage of $375,000 from Lender B with a 6% interest rate. You use the $350,000 to pay off Lender A, and the $25,000 to pay off your other debt, and then you repay Lender B over the long-term with a lower interest rate.

    But there are downsides to refinancing your first mortgage, too. If you’re breaking your current mortgage in the middle of the term, you might be subject to penalties. Your lender may charge you a prepayment penalty. For fixed mortgage rates this penalty is the greater of three months’ interest or the interest rate differential payment (IRD). For variable mortgage rates this is the equivalent of three months’ interest.

    You will also incur legal fees as a lawyer must change the financing on the title.

    1. Second Mortgage

    A second mortgage is an additional loan taken out on a property that’s already mortgaged. It doesn’t affect your first mortgage, so you won’t be charged for breaking your mortgage early. If you have good credit and more than 20% equity in your home, you may be eligible.

    A second mortgage often carries a higher interest rate than a first mortgage, but the interest rate is still lower than other forms of debt you might be paying off, like credit cards, car payments, or unsecured lines of credit.

    If you use a second mortgage to consolidate debt and make your payments on time, it could help increase your credit score.

    The big downside to a second mortgage is that most lenders will want to know you have good credit and a reliable source of income. A second mortgage is inherently riskier as you’ll now have two mortgages, so a lender will want to make sure you won’t default. And while you won’t be subject to fines for breaking your mortgage early, there may be other fees incurred during the set up.

    If you have equity available in your home and a plan to pay for your second mortgage debt, it could be a good option.

    How to Decide What is Right for You

    If you have good credit, at least 20% equity available, and a plan to pay off the debt long-term, a second mortgage can be a great option for debt consolidation. But you need to know how you will repay it. If your credit has been harmed because of excessive debt, a second mortgage can help you rebuild it so long as you make your payments on time.

    If your mortgage payments are too much, or you have equity available on your current mortgage that you want to access, then refinancing your first mortgage may be the best option. This can be a long-term solution that helps you get out of debt and save more money over time, but it depends on the interest rates you are eligible for.

    Both options include fees. A second mortgage includes appraisal fees, legal fees, a lender’s self-insured fees, and mortgage fees, plus interest on the loan. Refinancing your first mortgage includes legal fees and a potential pre-payment fee if you are breaking your mortgage early. Plus, if you change lenders, you may be subject to another fee.

    If Your Bank Says No

    If you have equity available, but your credit is bruised, you might not be able to get mortgage refinancing or a second mortgage with a prime lender. However, there are many non-mainstream financial institutions that may still lend to you, but you will need a good mortgage broker to get to them.

    Deciding what option is best for you comes down to your debt consolidation needs, your credit score, and your available equity. You don’t have to decide alone. DebtCare’s financial experts can help you take stock of your situation to determine what debt management method is best for you, or if there’s another option that may be even better.

    DebtCare offers one of the most competitive financial programs to help people no matter their credit or income. Bad credit? No problem. Self-employed? No problem. We can assist with first mortgages, second mortgages, home equity lines of credit, and more.

    Call us today for a free consultation: 1-888-890-0888.

  • Breaking Down Second Mortgage Options and Costs

    A second mortgage is an excellent tool for dealing with debt. In recent years, many Canadians have come to recognize the value of using their home to consolidate debt. Today we discuss second mortgage options and costs and the benefits of using your home to deal with debt.

    Firstly, a second mortgage is great because it has nothing to do with your first mortgage, so you can structure it like a traditional debt consolidation while taking advantage of lower interest rates.

    For example, you don’t HAVE to amortize a second mortgage over 25 years as you would with a first mortgage. You can choose to amortize it over 5 or 10 years to see the debt paid off faster.

    Secondly, using a second mortgage to consolidate debt will often result in a much lower interest rate compared to the credit products you are currently concerned about.

    There are lots of different second mortgage options depending on your equity positioning and credit standing.

    If you have good credit, a line of credit or conventional second mortgage through a bank at a great low rate are two attractive options. With a line of credit, amortization is not required and your monthly payment will be based on the balance. That being said, selecting a line of credit will mean you need to be more disciplined because minimum payments are often 1-2% of the balance and thus very little will get paid to principal if you only make minimum payments. When choosing between a conventional second mortgage and line of credit, be sure to look at how long you want to be paying the debt and reverse calculate what your payments will look like – a good mortgage broker can help you do this.

    If you have bad credit, this will likely reduce your options and can mean higher rates, albeit usually still far less than a high interest loan from a finance company. If your credit is only slightly bruised, a finance company or trust company may extend second mortgage financing to you. However, if it is really bad you will need lots of equity and your broker will likely get your mortgage financed through a private lender. Most private lenders charge on an interest- only basis, however some may allow you, as with a line of credit, to pay more than the interest if your budget will permit. In this case, you’ll also want to check if the lender offering the mortgage will allow you to make extra payments without penalty.

    Keep in mind that second mortgage financing is a mortgage so you will have some fees. Potential fees could include (and this largely depends on how good or bad your credit is – good credit means fewer fees) a broker fee (lender may pay all or part if credit is good), legal fees (often less with lines of credit), application or administration fees from lender, and an appraisal (if your mortgage is not CMHC insured).

    Going directly to a lender is never a good idea. It is better to deal with a broker because they work with ALL lenders and can explore all options to get you the best deal. This is also important if your credit is bad as only brokers can obtain private mortgage financing.

    If you’re interested in finding out more about using second mortgage financing to consolidate debt, DebtCare can help.

    Call us today at 1-888-890-0888.

     

  • Get Out of Debt: Structure Your Second Mortgage as a Loan

    debt2When you’re struggling to meet your monthly payments and constantly stressing over those credit card bills, it may be difficult to move outside of that bubble and remember that, if you’re a homeowner with equity, you have a very valuable resource just sitting there. Many homeowners don’t realize that their homes are one of the least expensive ways out of debt. That is, depending on how you structure your loan.

    First mortgage refinancing to get out of debt: many people make the mistake of refinancing a first mortgage just to pay a small amount of debt. Since refinancing can mean fees and penalties, or an amortization period that takes you 20-25 years into the future, this isn’t exactly the most financially sound option.

    Using a home with significant equity can be a really smart way to get out of debt – and it doesn’t need to take you out of your financial comfort zone or take 20 years to pay off.

    You can actually structure a second mortgage as a loan and it can stand alone from your first mortgage – second mortgages have slightly higher rates but in the end you can end up paying less depending on how you structure your loan.

    For example, if you borrow $20,000 at 12% interest, your monthly payment based on a 5 year-amortization is less than $450 per month and the debt is completely paid off within 5 years! This means that you roll all of those smaller debts (with sky high interest rates) into one monthly payment, getting rid of all of the additional interest – and stress!

    However, where you can end up paying through the nose is when you structure that second mortgage and amortize your payments over 20-25 years. Here you are paying that same rate of interest for a much longer period of time – so although monthly payments are smaller, the end result is a much larger balance due to accumulated interest.

    When it comes to solutions to help you get out of debt, your home is a valuable asset – why not take advantage of it? Get rid of the credit card debt with a second mortgage – one monthly payment and far less interest. It just makes sense.

    If you don’t own your home, or don’t have much equity, obviously this isn’t really an option. That doesn’t mean solutions don’t exist. If you want to know what they are, we can help with that too.

    For more about how to use your home to get out of debt, or for other debt solutions, call DebtCare today. We can help: 1-888-890-0888.

     

  • Consumer Proposal Vs. Second Mortgage – Which Makes More Sense

    debtcare2Clients often come to us seeking viable debt solutions, but are unsure what those debt solutions are. Most people are aware of some of the options available, but not all, and are sometimes surprised to learnthat accessing the equity in their homes through a second mortgage is a great way to get out of debt. Once they’ve learned this, their next question is which option makes the most sense – a consumer proposal or second mortgage financing?

    Let’s compare the two.

    Consumer proposal

    • Pros: Consolidates debt into one monthly payment
    • Sometimes reduces debt
    • Stops interest
    • Stops collection action
    • Cons: Credit is bruised for a short period

    Second Mortgage

    • Pros: Consolidates debt into one monthly payment
    • Stops collection action
    • Preserves credit
    • Cons: Interest bearing, debt will not be reduced unless settlements are made

    If there is significant equity in your home, an experienced financial professional will tell you that a consumer proposal is probably not the best way to go. In theory, if you have enough equity to obtain a second mortgage, that should be explored before filing a consumer proposal.

    Consumer proposals are negotiated and accepted based on your income, assets and ability to pay. If you have equity in assets that will be considered in your proposal.

    Wait, there is a third option which combines the two. If you have some home equity, you can leverage it to make an cash consumer proposal – this is where a proposal is negotiated for the amount to be paid in one lump sum. Here is an example: Sally owes $45,000 in debt and has the ability to get a $30,000 second mortgage. Sally could make cash proposal for $30,000 to settle the debt once and for all if all of her financial information makes sense within consumer proposal guidelines. This would clear the debt and allow her to rebuild her credit faster.

    Why? A mortgage preserves credit because the creditors are paid in full, whereas a consumer proposal reports to the credit report for 3 years from the date that it is paid in full. In the case of a cash consumer proposal, it would be paid in full when filed and so the proposal would cease to exist on the credit report 3 years from when filed – whereas bad credit can linger for 7 years or longer.

    If we’ve managed to make things a bit more complex than you’d originally envisioned, that is ok – it just means that you are now more aware of the options that exist and better prepared to make the best decision for your own situation.

    Our only advice is this: never go directly to a trustee, whatever your end decision. A trustee represents the creditor, not you and they actually earn more when you file a larger proposal. An independent financial consultant hired by you can structure your CP, save you big and protect you from the trustee and your creditors.

    DebtCare is an experienced financial consultant – one with your best interests in mind.

    Call us today to learn more about your options: 1 (888) 890-0888.

     

     

  • Second Mortgage Financing for Dummies

    debt1Home renovations, a child’s education, debt consolidations – these are all common reasons why Canadians are taking advantage of second mortgage financing. If you own your own home, have significant equity and good credit – obtaining that financing is probably far easier than you may think. This week we cover some of the basics to help you.

    Second mortgage financing is a great option for people who need to finance larger sums of money. For example, a second mortgage would be great to finally finish your basement, a task which you’ve estimated at $30,000, but not necessarily to finance that family vacation to Disney World which will run you $5,000.

    Second mortgage financing is also incredibly attractive right now because of record low interest rates. Other than 1st mortgage financing, it is one of the lowest rate credit products you will find. Just remember, even though those rates are currently at record lows – that isn’t going to last forever.

    When looking at second mortgage financing there are a few important points to keep in mind. Firstly, it should be noted that,a few years ago, CMHC mortgage rules changed so the most you will likely be able to borrow against your home is 85% loan to value if you are seeking bank financing.

    Secondly, the key to a realistic second mortgage is how you structure it – amortizing a second mortgage is very important because you don’t want to stretch the debt out over 20 or 25 years. For example, you would be wise to amortize a $20,000 second mortgage to consolidate debt over 5 years. At an 8% rate payments would be less than $400 per month.

    What if your credit is a little on the shaky side? That’s ok. Even with some credit problems you can still get a second mortgage but more equity will be required and you may pay a higher interest rate.

    What to watch out for: loan shark style private lenders. Sky high fees and aggressive default clauses are two red flags that should never be ignored. A good mortgage broker is the way to go because they will deal with all lenders to get you the best deal.

    DebtCare has the knowledge and resources to get you the second mortgage financing for those big projects – at a rate that won’t break the bank. Call us today at 1 (888) 890-0888.