22 Sep

Mortgages for Expensive Homes – Not as Easy as it Sounds

General

Posted by: Eileen Craig

Living in beautiful BC is many peoples dreams but this dream can come with a price tag. GVA is not a cheap place to live. Below is a great article from my colleague Kelly that I think you will be interested in. Check it out.

Mortgages for Expensive Homes – Not as Easy as it Sounds

Large home purchases that require a mortgage present unique challenges in the Canadian Mortgage market. Sliding scales, director approval, multiple reviews, it all adds up to difficultly getting larger mortgages approved, unless you’re working with an experienced mortgage broker.

In 2012 the government of Canada removed the mortgage insurers ability to approve mortgages of $1 million (or more) with less than 20% down payment. As a result of this change, the minimum down payment for homes over $1 million starts at 20% of your purchase price and increases.

Since any home purchase over $1 million cannot be insured against default, the lender applies a sliding scale to reduce their potential for loss if the borrower defaults. Consequently, large mortgages present a unique challenge, especially in the Vancouver/Toronto market.

Depending where you live, most lenders consider home purchases over $500-750,000 to be large enough for them to want to mitigate their risk. In larger urban centres like Vancouver & Toronto, lenders will consider purchases up to $1 million before increasing the down payment with sliding scale.

Sample sliding scales for Vancouver/Toronto:

  • 20% down payment on the first $1,000,000, plus 40% down payment on the balance over $1,000,000
  • 20% down payment on $1,250,000, plus 50% down payment on the balance over $1,250,000
  • 20% down payment on $1,500,000 plus 40% down payment on the balance over $1,500,000
    Every lender has their own risk level for expensive home purchases.

As you can see, the typical lender sliding scale for jumbo mortgages is very punitive and can result in a much higher down payment when purchasing a home over $1 million.

Lenders want to alleviate the higher risk on purchases of expensive homes, because there is a smaller pool of potential buyers compared to lower home prices. This makes expensive homes more vulnerable to market corrections. If there is a price correction, it can be more difficult for lenders to get their money back, should they need to foreclose.

  • Housing prices in Vancouver have been on the decline since 2016/2017: BC housing market shows signs of moderation as some property values drop by 10 per cent

Lenders are risk adverse! When they perceive a risk, they are either going to charge higher interest rates OR lessen their risk with a sliding scale, requiring home buyers to put a larger down payment on properties over their threshold.

Example:

  • Base line with no sliding scale home purchase $1,500,000
    Minimum 20% down payment = $300,000
  • Down payment required for a home purchase with Sliding Scale 20% down payment on the first $1,000,000, plus 40% down payment on the balance over $1,000,000
    20% down payment on $1,000,000 = $200,000
    40% down payment on $500,000 (amount over $1M) = $200,000
    Down payment required $400,000
    20% down payment = $300K versus sliding scale $400K down payment required – Yes sliding scale can make a big difference in your required down payment!

Sliding scale is designed so that as a property’s price increases, you need a larger down payment.

  • Therefore, the maximum loan/mortgage amount available decreases on a proportionate basis.
    To minimize the size of your down payment, you need an experienced mortgage broker who works with a multitude of lenders, giving you the most flexibility with sliding-scale.

Other points to keep in mind with a large mortgage:

  • Pay attention to the terms and conditions of your mortgage, especially your prepayment penalties.
    Larger loan amounts amplify the differences in the penalties charged by different lenders.
  • Most large mortgage loans must be escalated up the ranks for management approval. This means it can take lenders an extra day (or two) to get your approval back so your subject removal date may need to be longer.
    Typically, I recommend 10 business days for subject removal on large mortgages.
    Another important point to keep in mind, when real estate prices flatten or drop, lenders can become much more conservative when underwriting higher-end real estate. As such, there can be wide disparity in the value different lenders will assign to a property.

Partnering with a Dominion Lending Centres mortgage broker will help ensure that you and your property are matched with the lender who is offering the best fit for your situation.

If you know anyone looking for a high-end home, who needs a mortgage, we can help them arrange the financing. We’ll work together to figure out a budget and down payment (based on sliding scale). Then, we will work with a lender for a pre-approval, so we have a clear picture for affordability.

Kelly Hudson
Dominion Lending Centres – Accredited Mortgage Professional
15 Sep

Mortgage Payment Frequency

General

Posted by: Eileen Craig

Payment Frequency

One of the decisions you will need to make before your new mortgage is set up, is what kind of payment frequency you would like to have. For many, sticking to a monthly payment is the default, however, different frequencies may end up saving you less interest over time.

Monthly Payments

Monthly payments are exactly as they sound, one payment every month until the maturity date of you mortgage at the end of your term. Took a 3-year term? You will make 36 payments (12 payments a year) and then you will need to renegotiate your interest rate. 5-year term? You will make 60 payments.

$500,000 mortgage

3% interest rate

5-year term

$2,366.23 monthly payment

 

$427,372.90 remaining over 20 years

$69,346.70 paid to interest

$72,627.01 paid to principal

 

Semi Monthly

Semi-monthly is not bi-weekly. Semi monthly is your monthly payment divided by two. That means, you are making 24 payments every year, but each payment is slightly less than half of what the monthly payment would of been.

$500,000 mortgage

3% interest rate

5-year term

$1,182.38 semi monthly payment

 

$427,372.99 remaining over 20 years

$69,258.59 paid to interest

$72,627.01 paid to principal

 

Bi-Weekly

Bi-weekly, you are not making 2 payments every month. With 52 weeks in a year, you are actually making 26 payments, 2 more than semi-monthly (2 months a year you make 3 bi-weekly payments). The interest paid and balance owing are slightly less than the others, but mere cents. You will still need to make payments for another 20 years.

$500,000 mortgage

3% interest rate

5-year term

$1,091.38 bi-weekly payment

 

$427,372.36 remaining over 20 years

$69,251.76 paid to interest

$72,627.64 paid to principal

 

Accelerated Bi-Weekly

Just like regular bi-weekly, you are not making 2 payments every month. With 52 weeks in a year, you are actually making 26 payments, 2 more than semi-monthly. However because this is accelerated, the payment amount is higher.

$500,000 mortgage

3% interest rate

5-year term

$1,183.11 accelerated bi-weekly payment

 

$414,521.40 remaining over 17 years 4 months

$68,325.70 paid to interest

$85,478.60 paid to principal

 

You have increased your yearly payment amount by $2,384.98, $11,924.90 over 5-years. That extra $11,924.90 has decreased your outstanding balance at the end of your mortgage term by $12,850.96 because more of your payments went to principal and less went to interest. Also, you will now have your mortgage paid off more than 2.5 years earlier.

The same option is available for accelerated weekly payments which will shave another month off of time required to pay back the whole loan as well. If you can afford to go accelerated, your best option is to do so! Especially in the early years where a larger portion of your payments are going towards interest, not paying down your principal.

If you have any more questions, please do not hesitate to reach out to a Dominion Lending Centres mortgage professional near you.

Ryan Oake
Dominion Lending Centres – Accredited Mortgage Professional
24 May

Important Mortgage Information for US Investors

General

Posted by: Eileen Craig

Did you know that US investors can get mortgages in Canada with as little as 20% down?

With so many US investors taking an interest in Whistler these days, I figured a US mortgage application cheat sheet might come in handy. Here’s the scoop:


 

Important mortgage information for US investors

 

 

 

 

 

 

 

Download the US Investor Cheat Sheet PDF here:  EC_-_US_Mortgage_Cheat_Sheet_060216.pdf

Any questions or need a pre-approval?  Call me!

Eileen


_______________________________________________________________________________________

Eileen Craig, Independent Mortgage Professional

DLC and Sea to Sky Mortgages
7003 Nesters Road, Whistler, BC, V0N 1B7
Direct: 604-698-8583  

Eileen@seatoskymortgages.com

 
facebook.com/EileenCraigMortgageBroker
linkedin.com/in/EileenKCraig

 

​Review me at:  Google+/Eileen Craig​

​Apply online: eileencraig.ca/how-to-apply-mortgage​

 

24 May

Minimum Down Payment Cheat Sheet

General

Posted by: Eileen Craig

In February 2016 new mortgage rules came into effect the changed the minimum down payments required for mortages based on home values.  

The new rules require a minimum of 5% down for the first $500,000 and 10% down on the portion above $500,000 to a maximum of $1,000,000.  

Here’s a handy-dandy cheat sheet for calculating down payments under the new CMHC rule:

 

Minimum Down Payment Calculator

 

Click here to download the cheatsheet PDF:  EC_-_MinPaymentCalculator.pdf

Any questions?  Please give me a call!

Eileen Craig

 

_________________________________________________________________________________________________________

Eileen Craig, Independent Mortgage Professional
DLC and Sea to Sky Mortgages
7003 Nesters Road, Whistler, BC, V0N 1B7
Direct: 604-698-8583  

eileen@seatoskymortgages.com

 
facebook.com/EileenCraigMortgageBroker 
linkedin.com/in/EileenKCraig

 

​Review me at:  Google+/Eileen Craig​

​Apply online: eileencraig.ca/how-to-apply-mortgage​