Skip to content

CategoryMortgage Tips

Posted 14 Comments on Bridge Loans…your bank hates them but they can be a great financial tool when buying…. Money saving tips

Bridge Loans…your bank hates them but they can be a great financial tool when buying….

Bridge loans are short-term loans that bridge the gap between two different closing dates.  More commonly used when an existing homeowner sells their home, and buys another home, with two different closing dates.   But bridge loans have become a very popular way to take possession of that new home while it’s empty for 2 or 3 weeks to allow for renos.   Best of all, it’s really inexpensive!

In the past, most homebuyers would have their selling and buying dates match.   It’s always been a bit of a juggling act as you have to pack your moving truck and unpack it, all in less than a day.   Somehow, everyone manages to get it done… but you talk about one of the most stressful days in your life….moving ranks right up there!   Throw in some kids, maybe a dog, and a house full of stuff and you have a real chore on your hands….

More buyers are taking a more relaxed approach.   Bridge Loans are gaining in popularity.. It allows for a more relaxed move over a 2 or 3 day period… or in the case of renos, maybe 2 or 3 weeks.    It’s certainly less stressful and could even save you money if you are doing a bigger reno…(contractors could end up charging you a little more if they have to deal with a family living in the house during renos).

Let’s take a look at one example on how much Bridge Financing works and what it costs…

In this example we’ll use a couple that sold for $400k.   Closing is November 1.   There is an existing mortgage of $250k.    They bought another house for $600k.   Closing is November 22.  They will spend $50k in renos for a new kitchen and bathroom.   They want a $450k mortgage to cover renos, closing costs and take out some money for personal use.   Here’s how the Bridge loan works:

  • Bridge loan amount would be $150k… we calculate this by taking the Purchase price ($600k) less the new mortgage amount ($450k).
  • Rate of interest will vary but it’s around Prime plus 2.00% (today’s prime rate is 3.00%).
  • Lender admin fees range from $250 to $500.
  • Legal fees vary depending on Lender and Lawyer… $200 to $400.
  • Interest costs are $20.55 per day.  Total interest would be $287.70.
  • Overall total cost of the Bridge Loan would be between $737 and $1200 depending on your lawyer’s legal fees and Lender admin fees.

Some qualification, limitations and risks when getting a Bridge Loan.

  • Bridge Loans are only offered by the mortgage provider for your new home.  It’s a product most Banks don’t like to offer as there is really no profit for them.  They get nervous about the possibility of your existing home not closing.   There is some exposure and risk to the Bank… it’s limited but it’s there.
  • Your lawyer will be required to provide an undertaking to register a mortgage if the sale of your existing home collapses (that’s not a common occurrence but it can happen).
  • Speaking of sales… you must have entered into a firm sale on your current home to qualify for a Bridge Loan.
  • Lenders will only offer a Bridge Loan equal to the down payment required for your new home.  This amount cannot be greater than the equity remaining in your current home.
  • There is also the option of obtaining Private Lender bridge financing but this is more expensive and should only be considered as a last alternative.

Standing back and looking at the big picture, I think most of us would be happy to pay $700 to $2,000 for sake of being able to have an empty house for 2 to 4 weeks to do a clean up or reno, etc.

If you need more info on how Bridge loans work or need help with a situation, call me anytime.  Always happy to help.

Steve Garganis

steve@mortgagenow.ca

416 224 0114

Posted 4 Comments on Mortgage Life insurance… what’s this all about? Mortgage Products

Mortgage Life insurance… what’s this all about?

You’ve bought a house… you’re arranging the mortgage financing… and now your broker or banker starts talking about life insurance or mortgage life insurance…..   sound familiar?   Choosing the wrong coverage could cost you dearly.

Today, we’ll clear up some things very important but often overlooked subject.

Does anyone really enjoy talking about life insurance?  I don’t, but we must understand what this product is all about…and why you shouldn’t just waive the coverage.

Life insurance and mortgages go hand in hand.   After all, for most of us a mortgage is the biggest debt we’ll ever have.   And if you should exit this world before that mortgage is paid off, the only thing you want to leave behind are good memories, not a big mortgage payment.

Mortgage Life Insurance or Creditor Insurance as it’s more commonly known with the finance world, is insurance that covers your mortgage balance as of the time of death.    This is not my favorite insurance product but it does have it’s place and it can be used temporarily by most of us.   Here are some good and bad points about the product:

THE GOOD

  • it’s group insurance, meaning it’s easier to qualify for as there are less questions asked.
  • coverage can be instant, as of the mortgage approval.
  • it’s good short term coverage until you get a more comprehensive analysis done.  (I can’t tell you how many clients took this insurance temporarily but continue with the policy for years…. we all love to procrastinate when it comes to insurance).
  • for smokers or those in less than great health or poor lifestyles, this could be a good option.
  • this insurance can be cancelled at any time.

THE BAD

  • your coverage decreases as you pay the mortgage down… but your premiums remain the same.
  • it’s more expensive than most other forms of life insurance such as term policies.
  • speaking of term insurance, your coverage remains the same throughout the 10, 15 or 20 year term that you choose, making this a more enviable product.
  • mortgage life products are not underwritten at the time of application but only at time of death… and your claim can be denied even if you had been paying the insurance premiums for years…
  • your BANK loves mortgage life insurance.   At renewal, when you’re 5+ years older, they will use this against you to get you to sign their renewal… meaning you may not be able to shop for the best mortgage rates!   (Don’t think the BANKs don’t know this.. as a former banker, we were encouraged to use this sales tactic).

HOW TO BENEFIT

Take the mortgage life insurance, speak with your insurance advisor, get your needs reevaluated, get better coverage elsewhere if possible, then cancel the mortgage life insurance..  Yes, in other words, use mortgage life insurance as a temporary coverage…. And please get your insurance needs looked once in a while.. at least every 5 years.

If you have any comments or if you need help finding a reputable insurance advisor, call me.   I’m always happy to help.

Steve Garganis

416 224 0114

steve@mortgagenow.ca

 

 

Posted Mortgage Tips

‘Stock investing is dead’, says World’s largest Bond fund manager.

For those of you that have made little or negative returns on your mutual funds and stocks, this statement might sound familiar.  Bill Gross is a founder and managing director of PIMCO,  They manage over $1.7trillion of securities.  His latest Investment Outlook paper had some very strong statements.

He says the historic 6.6% return on the stock market is more of a ponzi scheme.   And we shouldn’t expect the stock market to keep up with the real cost of living.   WOW!… strong words, but coming from someone who manages more money than several countries GDP,  we should pay some attention.

So if stocks and mutual funds aren’t cutting it and aren’t going to cut in the future, where do we turn?   There was no clear answer given in Mr. Gross’ article.   But maybe it’s time to look elsewhere…  There is one investment that has proven to stand the test of time.  Real Estate.  Real estate doesn’t have to appreciate in value to generate a positive return…but of course, it usually does.  How’s that you say?  Well, let’s take a close, but simplified look.

If you bought a property for $300k and put a $60k or $70k down payment, rented the house out, and paid your mortgage off in 20 or 25 years (by the way, the average time to pay a mortgage in Canada is between 12 and 17 years), you would own a tangible asset worth $300k.   And let’s not forget the rental income that just keeps being generated each and every month, year after year…. We can use any number for this but a realistic rent on a $300k property would be in the $1300 to $1600/mth range.  But remember, rents go up with inflation… so we should also expect rents to increase with cost of living.  And if they don’t increase, then inflation isn’t an issue…

Yes, the first 5 years or so, may not see a positive cashflow.. maybe even a negative one… but any loss could be written off against your income… and eventually, you would be in a positive position as your mortgage balance decreases.

Real estate investments scare most of us.  We don’t understand what’s involved.  We imagine the worst… the possible tenant from hell, that doesn’t pay for 6 months or destroys your property….or buying the money pit and having major repair bills, or mortgage rates going up making our payments unaffordable.     But in reality, if you are careful with your property selection, put the time in to manage and watch your property, and are careful with tenant selection, you will be with the majority of investors that see their investment perform well… you will build equity in your property as the mortgage gets paid over time.    And hopefully, the value of your property will only go up…

Maybe it’s time to invest in something we can see, touch and take care of….  instead of a piece of paper like stocks shares or mutual funds.  There’s a growing number of Canadians that are fed up with the stock market and mutual funds… fed up with paying 2% management expense ratios or 6% deferred sales charges only to come out with a negative return….  How may of us have been forced into mutual funds or stocks because we’ve been told to invest into RRSPs to reduce our taxes and invest for retirement?   Has that formula really worked for anyone?  If you want to look at something different but certainly not new, then take a look at real estate… you may be pleasantly surprised.

If you need help with understanding mortgages and how financing an investment property works,  please feel free to contact me.  I’m always happy to help.

Steve Garganis

Posted Interest rates

2.89% 5yr fixed rates are available… but are those offers legit…?

You’ve heard the saying, “there are no free lunches”…. or “if it sounds too good to be true, it usually is”.…  I’m not sure how these sayings got started but they probably came from a bad experience…  My favorite is, “the problem with things that are free, is that they cost too much”.…   These sayings can be applied to most things in life…   including your mortgage.

Recently, I’ve seen a growing number of websites and radio ads offering these so-called “great mortgage products” at 2.99% and now 2.89% for 5 yrs… A number of readers have asked me if these offers are legit?  Here’s what I tell them…. Hope you find this useful…

In short, the rates are real but the product offerings come with too many strings attached for my liking….. things like the rates are for CMHC insured mortgages only… or the rates are only held for 30 or 60 days….you can’t pay the mortgage off for the first 3 years…. limited prepayment privileges…..prepayment penalties are far higher than other mortgages….you lose your ability to negotiate a rate if you have to refinance the mortgage.

These product have, and can, end up costing you more in the end.   This is why you won’t see me promoting or advertising these rates.

A CLOSER LOOK AT WHAT THESE PRODUCTS ARE ABOUT

In trying to capture market share, some Lenders have created products with slightly lower rates… Ok, I like that part of it…. BUT, they come with inferior terms and restrictions…… and this is where you could end up paying big time, on the back-end of these mortgages.    You’ve seen my previous articles about $20k, $25k, and $30k in mortgage penalties….. This is what makes these products and other NO FRILLS mortgages a bad option…and why I refuse to endorse them.

Let’s face it, the first thing most of us look at is the price… If I said you can buy and iPad for $200, or a 65″ Plasma TV for $500, you would keep listening… In the case of mortgages, we look at rate… 2.89%….  But hopefully, you keep asking questions.  9 times out of 10, you would probably find out there is a catch….. Maybe you have to buy something else, or the make and model is older or of a very poor quality, or the sale was only for a limited time, or it’s a refurbished model, etc….  You get the picture…

In most cases, those offers are just bogus.   The headlines are there to catch our attention… They want to entice you…to get you in the front door or to make that phone call, or to click that link on your computer….The seller is hoping that either 1 out of 10 will not ask too many questions and take the product… or they will shift you into another product… The old bait and switch….  That’s how most of this type of advertising works.  It’s a numbers game…

And it isn’t any different with mortgages.  But the problem with mortgages is that we are talking about a very complex financial product.  A mortgage is a loan agreement, a legal contract that will bind you for 5 years, in most cases.   The loan is secured by your house.  Think about that… You are putting up your home as security… you better understand all the terms, obligations, limitations, restrictions, privileges….. most importantly, look at how much it will cost you to exit this product.

Here’s where I have a BIG problem with these flashy ads….  in most cases, the borrower doesn’t even know what questions to ask…  They can’t get all the required info in order to make an informed decision.     We saw a great example of this earlier this year when BMO offered their 2.99% NO FRILLS mortgage… only, they didn’t market it that way… they called it a Low-rate mortgage…   Quite a play on words.  They made it sound like they were doing us a favour by pushing people into these mortgages… but as my readers know, the limitations to this product can and will prove costly for a large number of borrowers….  which is why I gave that product a huge thumbs down.

For those seeking my opinion and advice, I suggest you take a good hard look at these offers…. ask questions…. you’ll probably end up being part of the “9 out of 10 group” that asked too many questions and saved themselves from a mortgage disaster.

Should you need my help or advice, feel free to contact me anytime.   steve@mortgagenow.ca or 416 224 0114.

Steve

Posted Money saving tips

Does this sound like your Bank?

THE PHONE CALL RIGHT AFTER THE OCTOBER 2008 U.S. SUB-PRIME MORTGAGE CRISIS

It’s November 2008.  News of the U.S. Subprime mortgage crisis has just broken out.   Panic sets in around the world.  Stock Markets collapse.  Govt’s are scrambling to avoid an economic recession…. or possible depression.

Your Banker calls with some advice about how this will affect your mortgage. You’re concerned and don’t understand how these world events will affect you…. The Banker recommends you get out of your Variable Rate mortgage and into a Fixed Rate mortgage…. or they recommend an early renewal of your Fixed Rate and lock into a new 5 year term…

Back then, the best discounted Fixed rates were hovering at 5.95%.  You listen to the Banker’s advice… after all, they are supposed to look out for your best interests, right?

WRONG!  Time for a reality check…Your Banker’s advice was dead wrong…. when economic times are tough, interest rates don’t usually go up, they go down….  Anyone that is in the Financial Services industry should know this….  and yet, that’s exactly how this scenario played out for thousands of Canadian homeowners.

Some say it’s easy to look back and be critical… I agree… except I go on the record with my personal opinions…. Had you been one of my client’s, you would have received my warning to watch out for ‘special bank offers’ and not to lock into any lock term product….. here’s a link to my October 13, 2008 Market Trends report.

BUT IT GETS WORSE…..

You want to take advantage of these record low rates that have been around for the past 12 months….. after all, if you had stayed in a Variable rate, (like 80% of my clients did), you would have enjoyed rates as low at 1.35% during that time..  Instead, your Banker hits you the infamous BIG SIX BANK penalty calculation and wants a penalty of $10,000.  OUCH!  How’s that for a double slap in the face?

Does this even sound possible?   Guess what… it’s not only possible but it happened….and it happened to thousands of Canadian borrowers….  In this example, the borrower has paid over $14,000 in extra interest charges, so far… We trusted the BIG BANKS because they are on every street corner.  They are on TV, in the media, and are so highly regarded in global banking communities…  But how does this help you, the individual person?  or the average family with a mortgage that’s trying to get ahead and benefit from these record low rates…

This isn’t about bank bashing… this is about Banker’s given too much respect and offering little or nothing in return…. Far too many borrowers have gone through  the scenarios described above… and it’s really unfortunate.   By the way, the mortgage balance for this client is only $118,000.… imagine what the loss would be if their mortgage balance was $200k or $300k or more!!

THE GOOD NEWS…..

Yes, there is some good news… You don’t have to make the same mistake…  you can benefit from other people’s experiences…  Get yourself a Mortgage Broker working for you…  An independent expert with an unbiased opinion.   If you were a client of mine, you would have received numerous warnings about these so-called ‘special offers’…and to avoid them…doing so would have saved you around $7,500 per year on a $300k mortgage…

It’s never too late…  Getting a great rate is important, but being in the right mortgage product is where you will truly save thousands… We’ve been helping Canadians do it successfully for years…….. Feel free to call me if you need help….

Steve Garganis

416 224 0114