Navigating through a sea of choices in choosing the right mortgage? A good, experienced mortgage broker can steer you in the right direction, with access to a vast number of products from multiple sources, both institutional and private.
Choosing a residential mortgage in today’s market can seem like a daunting task. The borrower can be faced with a myriad of choices. Each lending institution presents their respective claims to the enquiring borrower in an attempt to entice them to use their residential mortgage product. Each one assures the borrower that their product is the best residential mortgage that they can get.
This is not always the case. Terms for residential mortgages can vary widely between lending institutions, even for those with bad or less than perfect credit. There is also often latitude in interest rates for residential mortgages, depending again upon the lending institution and what terms the borrower is looking for.
Here are some of the considerations for borrowers looking for a residential mortgage: A loan for no more than 80% of the appraised value or purchase price of the property (whichever is less) is a conventional residential mortgage. The remaining 20% required for a purchase is referred to as the down payment and comes from your own resources. If you have to borrow more than 80% of the money you need, you’ll be applying for what is called a high-ratio residential mortgage. If you are self-employed or don’t have verifiable income, most traditional lending institutions won’t go over 75% on a conventional residential mortgage.
If high ratio, the residential mortgage must then be insured by the Canada Mortgage and Housing Corporation (CMHC), Genworth Financial Canada (Genworth), or AIG. The fee that the insurer will charge for this insurance will depend on the amount you are borrowing and the percentage of your own down payment. Whethor or not you are self-employed and have verifiable income or if you have a bad credit history will also determine the amount the insurer will charge. Typical fees range from 1.00% to 7% of the principal amount of your residential mortgage.
With a fixed-rate residential mortgage, your interest rate will not change throughout the entire term of your mortgage. The benefit of this is that you’ll always know exactly how much your payments will be and how much of your mortgage will be paid off at the end of your term. With a variable-rate residential mortgage, your rate will be set in relation to the prime rate at the beginning of each month. The interest rate may vary from month to month (although your payment remains the same). Historically, variable-rate residential mortgages have tended to cost less than fixed-rate residential mortgages when interest rates are fairly stable. You can potentially pay off your residential mortgage faster with a variable rate residential mortgage.
The term of a residential mortgage is the length of the current mortgage agreement. A residential mortgage typically has a term of six months to 10 years. Usually, the shorter the term, the lower the interest rate. Two years or less equals a short-term mortgage. Three years or more is usually a long term mortgage. Short-term mortgages are appropriate for buyers who believe interest rates will drop at renewal time. Long-term mortgages are suitable when current rates are reasonable and borrowers want the security of budgeting for the future. The key to choosing between short and long terms is to feel comfortable with your mortgage payments.
After a term expires, the balance of the principal owing on the mortgage can be repaid, or a new mortgage agreement can be established at the then-current interest rates. Open mortgages can be paid off at any time without penalty and are usually negotiated for a very short term. Homeowners who are planning to sell in the near future or those who want the flexibility to make large, lump-sum payments before maturity will find this type of residential mortgage helpful. Closed mortgages are commitments for specific terms. If you pay off the mortgage balance before the maturity date, you will pay a penalty for breaking the term. The good news is, refinancing a residential mortgage for a lower rate or more attractive terms can often offset any penalty incurred by breaking the term.
Residential mortgages are available through banks, mortgage companies and private lenders. Mortgage rates vary widely. Traditional banks offer some very low rates. However, due to their restrictive lending criteria, they are prevented from providing residential mortgages in many instances. Previous bankruptcy, bruised credit (bad or less than perfect credit), or even owning multiple properties can make it difficult or even impossible to obtain residential mortgages through traditional banks.
Hard money residential mortgages are available through private lenders. Unlike traditional banks, private lenders have more flexible lending criteria. Also known as hard money lenders, private residential mortgage companies focus more on a clear method of repayment and the current value of a property rather than looking exclusively on your personal financial package, which may indicate bad credit.
Private lenders are often able to fund a residential mortgage if there is a clear picture of how the loan will be paid back. When determining whether to fund a residential mortgage, private lenders will often look at the ratio of income to expenses. Unless a borrower has repeated defaults and bankruptcies, private lenders are not as concerned if the borrower has bad or less than perfect credit.
When applying for a residential mortgage, be prepared to provide your residential mortgage company, be it a bank or a hard money private residential mortgage lender, with the following:
- A completed standard residential mortgage loan application, which includes a personal balance sheet
- A description of the use of proceeds of the residential mortgage you are seeking (strictly refinance, debt consolidation, home improvements, etc.)
- A description of the property
- The current value/purchase price of the property
- An estimate of the property’s value after improvements, if any
- For a hard money loan, provide an exit strategy for the residential mortgage
- Will you refinance this mortgage with a traditional bank after making improvements or alterations to the existing property or some other scenario?
Owners considering a residential mortgage refinance will find many unique loan programs. Specialists of commercial and residential mortgage refinancing offer some of the best loan options available, most of which your local bank simply does not have. Refinancing your residential mortgage is not an act exclusively reserved for the time your residential mortgage matures. There are some great reasons for refinancing your residential mortgage prior to this. If you have selected a private hard money lender who is a good match for your loan scenario, you will be able to speak directly with the decision makers, avoiding the ‘run around’ that so many hard money borrowers fall prey to. You are told that your loan is going through, only to hear the next day that the lender has elected not to take on your hard money loan and now your loan is on another desk in yet another private lender’s office – or worse, on the desk of another broker who may know a broker who knows a lender who may want to fund your loan. Sometimes, the choice of direct lender is based more on the commission the broker will get than on your best interests.
By working with a private hard money lender, you can avoid the ‘run-around’ and may be able to close more rapidly. After all, no one knows your situation like you do, no one can explain any extenuating circumstances better than you can, and no one is as committed to your hard money loan as you are.
The advantage of working with a mortgage broker is also clear: a seasoned, well-informed, honest mortgage broker will have the knowledge of and direct access to the private hard money lenders in Ontario, Canada, and the United States. A mortgage broker will know where your loan has the best fit. A good mortgage broker will help you ‘package’ your loan to your best advantage, helping you determine how much to expect based on the equity in your property, how soon you need to close the deal, and more. A good mortgage broker will be able to assist you through the lengthy application process and submit your loan request to the best private lenders for your situation. More often than not, working with a mortgage broker will save time. By representing you and presenting your loan request to the best private lenders, it often makes the transaction run more smoothly and take less time than if you were to take on this task yourself. This often saves you time and trouble in the long run and be well worth the cost of using a mortgage broker.
Home buyers are sometimes faced with special needs when purchasing or refinancing their home. A second mortgage can sometimes help in these instances. A second mortgage is a registered lien on your property. This lien is in second place, behind the first mortgage. Because second mortgages are riskier, the interest rates are usually a minimum of 10-12%. A new second mortgage can be used to purchase a home or to refinance an existing home. If refinancing, the new second mortgage can be used for a variety of things:
- Home renovations
- Children’s education
- Pay off existing debt
- Emergency expenses
- Business expenses in challenging times
Investments Home equity is the difference between the current appraised value of your home and the amount you have paid on the first mortgage. For example, if you have paid $85,000 on a residential mortgage of $300,000, you can borrow against the $85,000 already paid. Home equity loans are either second mortgages or refinanced first mortgages with taking cash out. Again, this cash out can be used for a variety of reasons, from consolidating outstanding debt to renovating your home to paying for your children’s education. Depending on your particular financial situation, you may be able to lower monthly payments on your outstanding debts. Instead of paying high interest rates on a personal loan or credit card, you can get a home equity loan at low mortgage rates and pay off these debts for less. Depending on your unique loan scenario, we may be able to offer the following terms for your second mortgage:
- Insured Second mortgage up to 95%
- High-ratio first residential mortgages up to 100%
- Equity-based first and second mortgages up to 100%
Now, given the current the state of the capital markets its more important than ever to work with seasoned professionals. Lender guidelines and underwriting parameters are changing rapidly as banks try to protect themselves. Options for bad credit residential mortgage refinances, though still broad, are getting harder to determine and close. Just as important it is key to know not only which lenders are offering the lowest rate and fees but which are still actively funding bad credit residential mortgage loans. We know who these lenders are. Good experienced mortgage brokers have a track record for helping our customers manage their financial affairs responsibly, and assisting them in re-establishing their credit and stability.
Although many clients are capable and willing to take on the responsibility of a new residential mortgage, the criteria used by most, if not all, traditional financial lending institutions prevent them from obtaining their loan request, due to past bad credit. Over the past few years, it has become increasingly easier to obtain loans for clients with bad or less than perfect credit, via tried and trusted private lending companies. These are also called sub-prime residential mortgages and loans. These companies can often finance sub-prime or bad credit mortgages which conventional institutions cannot. Although lending criteria has tightened due to the sub prime mortgage melt down in the United States, the main thing these private lending companies wish to see, verifiably, is a clear method of repayment, and equity in the property, in a marketable location.
What’s really important is that, regardless of your past credit history, a good experienced mortgage broker is able, in the vast majority of cases, to place financing for bad, or less than perfect credit mortgages. They are also able to assist consumers with good credit to obtain the most competitive mortgage rates and terms, and offer a wide range of residential mortgage products to meet a variety of needs.
Whether you have a history of bad or less than perfect credit, you have filed for bankruptcy, consumer proposal, credit counseling, you are self-employed or without verifiable income, or you’ve accumulated an unmanageable amount of debt, a good experienced mortgage broker can almost always place your loan request for financing.
Because sub-prime or bad credit residential mortgage loans can often be a complicated process, it’s important you speak with the right people. The idea is to improve your credit score and get you back on track with manageable debt and payment schedules. Even if your initial goal is to consolidate debts, do home renovations, taking a much-needed holiday, or anything else, a sub-prime bad credit mortgage can actually help improve your credit score. Combined with timely payments, a sub-prime mortgage can put you in the right direction towards financial freedom.