25 May

Mortgage Refinancing: Know Your Costs

Mortgage Refinancing

Posted by: Krishna Menon

One of the biggest reasons that most homeowner consider refinancing is simply to get a lower interest rate. The second is to gain access to their home equity. Although refinancing your home can be a great financial decision it’s not for everyone. You need to know the costs associated with it to ensure it’s right for you.

If you do decide to refinance you’ll be able to access up to 80 percent of the value of your home, minus whatever outstanding balance you may have on your existing mortgage.
Refinancing Options
When it comes to refinancing options you have two options to choose from:

1. Refinancing within your term – to access a lower mortgage rate or gain access to your home’s equity
2. Refinancing at the end of your term – access equity only, since you’re already get a lower interest rate

Regardless of the option you choose, there are many fees that will come up throughout the refinancing process.

Let’s discuss potential fees that you might have to pay in certain circumstances.
Potential Fees
If you’re refinancing within your term and switching lenders at the same time, here are a few costs that you can be facing:

● Mortgage prepayment penalty
● Discharge fees
● Registration fees for your mortgage
● Legal fees (standard mortgages or collateral mortgages)

If you’re refinancing within your term, but staying with the same lender then only a mortgage prepayment penalty, registration fees and standard mortgage legal fees would apply.

When refinancing at the end of your term and leaving your current lender, here are the costs you could be expecting to pay:

● Mortgage discharge fee
● Registration fee
● Legal fees (standard mortgages or collateral mortgages)

When remaining with the same lender, you’d only have to pay the registration fee and legal fees for a standard mortgage.

So, as you can see refinancing at the end of your term is the best option if you want to avoid any prepayment penalties.

Now, let’s break it down by fee to give you a better understanding of each on individually.
Mortgage Prepayment Penalties
Going with a refinancing option that requires you to break your mortgage within your term? You will pay a prepayment penalty, along with the other fees described above. However, be prepared to pay either three months’ interest or the interest rate differential (IRD), whichever is greater, if you have a fixed-rate mortgage. With variable-rate mortgages you’d just pay three months’ interest.
Discharge Fees
To switch lenders and discharge from your current lender, you’ll be required to pay a fee. These rate can vary depending on your province and the lender themself. You could be looking at paying a minimum of $200, up to a maximum of $350.
Registration Fees
You’ll have to pay registration fees no matter what, whether you choose to stay with or leave your current lender. This registration fee is to cover the cost that is associated with removing your mortgage amount from your property title in order to register it with your new mortgage. These fees are set out by the government within your province and are usually around $70.
Legal Fees
Refinancing requires you to speak to a lawyer who specializes in real estate. They will facilitate the whole financial transaction for you and work with your lender. This includes reviewing your mortgage, terms and conditions, handle your new mortgage registration and do a title search of your home or property to ensure there are no outstanding liens. This could cost you anywhere between $700 and $1000.

However, if you’re going to a new lender with a balance on your mortgage of more than $200,000, it’s likely that the new lender may cover these costs. In this case you wouldn’t have to worry about paying them yourself.

11 May

Has Your Credit Rating Been Tarnished? How-to Buy a House In Today’s Mortgage Market

General

Posted by: Krishna Menon

If you are one of the thousands of Canadians who has had to declare bankruptcy or enter into negotiations with creditors to settle your debt with a consumer proposal, it’s likely that your credit rating has gone through the dirt.

In the future, getting a mortgage can be challenging since your tarnished credit has the ability to limit your options. If you’re a credit-challenged buyer you need to research and plan carefully. In this case, there are a few things you need to know.

Wait It Out
If your bankruptcy or consumer proposal is underway when you decide to purchase a new home, know that mainstream lenders will not approve or even consider you until two years after you’ve been discharged. Even after the two-year mark you’ll need to be able to prove that your job is stable and that you have income.

We know that two years might seem like a long time, but waiting it out could be the best option and in your best interest. If you simply cannot wait for two years to pass, it doesn’t mean that you can’t get a mortgage, but there will be less even options for you including up to a 25 percent down payment.

Mortgage Rates
Getting a mortgage following a bankruptcy or consumer proposal will require you to pay a sub-prime rate premium, on top of your broker fees. The reason being it that all mortgages are priced by lenders depending on the level of risk a home buyer presents.

However, non-prime rates can be 4 or 5 percent, but this really depends on your employment and income stability and the reason why your credit was trashed in the first place. If your explanation for bad credit is considered reasonable then you could potential get a better rate. Let’s say your reason is due to medical illness, lenders may have more sympathy for you.

To increase your chances of getting an even lower rate, be ready to prove six to twelve months of on-time repayment for your utility or home-related bills.

Re-Establish Your Credit
Although your past may show signs of your inability or avoidance to pay your debts and bills on time, you can make this right through the bankruptcy or consumer proposal processes by re-establishing your credit. This is what will help you to earn back trust with lenders. For lenders to take you seriously, you should have:

● A minimum of two credit accounts (credit card, instalment loan, car loan, etc)
● At least two years of payment history on the two credit accounts
● A minimum credit limit of $1,000

Take Your Time
With a new mortgage and homeownership, comes more responsibilities and expenses. Buying a home isn’t an urgent thing when your credit is not in the greatest shape, but once your credit is repaired (at least between 650 to 680) and you have savings for your down payment this is the perfect time to jump right into it.

At this time, your mortgage payments will be more affordable and save you thousands of dollars in interest.

If you’re ready to get started or want to learn more before taking the next step contact us.