29 Apr

First Time Home Buyers: Planning and Negotiations Will Save You Time and Money

General

Posted by: Gurcharan Singh

First Time Home Buyers – Planning and Negotiations Will Save You Time and MoneyEvery mortgage is unique. Would the advertised/online RATE work for everybody? It’s hard to say, until your documents fulfill all the conditions for that rate. Sometimes there are challenges to getting the approval of the mortgage. Dominion Lending Centres mortgage professionals try their best to find solutions to those challenges because they have a business relationship with more than ONE lender, they WORK FOR YOU, and they try their best to earn your business.

I want to share my experience when I bought my first existing home two decades ago and how a Real Estate agent helped me at that time. We decided to have a newly built home and at one “show home”, a Real Estate agent gave me his business card. After a couple of days, I phoned that Real Estate agent to get more guidance to sign a contract with a builder.

We met with him and discussed our priorities. He provided us the price and compared features of “show homes” in different neighbourhoods in the city. Also, he mentioned about the future growth of the particular vicinity in our area. After our first meeting with him, we were so impressed that he would negotiate on behalf of us, and he assured us that he would bring the price down as much as he could.

We started going with him to see more “show homes” and we liked one that was within our price range. He started “negotiating” with the representative of a builder. He went back and forth, and finally, our offer got accepted, and that Real Estate agent saved us $3,500.

If that Realtor  did not meet us at the “show home” we wouldn’t have had the chance to negotiate or signed the contract with a builder at the asking price and saved $3,500 at that time.

I had to pay a 10% down payment at that time since I did not PLAN my mortgage and did not realize that my income would be an issue. Always check with a mortgage professional to receive unbiased advice for your mortgage financing needs. If you are a “First Time Home Buyer” and thinking of buying a home in the very near future, START PLANNING your mortgage with a Dominion Lending Centres mortgage professional. By doing this, you will have knowledge of allowable income and down payment for the mortgage financing. You will also realize what credit is and why it is so important in this process.

At Dominion Lending Centres, we will plan your mortgage by focussing your short and long term goals and also show you how to pay off your mortgage faster than you think. You will have access to the very best products and rates available across Canada. I look forward to hearing from you soon!

6 Apr

That Discounted Rate May Not Be So Discounted, After All

General

Posted by: Gurcharan Singh

That “Discounted Rate” May Not be so Discounted, After All

Not long ago, someone contacted us wishing to refinance their mortgage. They presently held a mortgage from one of the big banks. When this homeowner originally obtained her mortgage, the bank offered her a discounted rate of 2.99%. It matured in July of 2016, however, when they contacted us at Dominion Lending Centres, they wanted to refinance to improve their cash flow because of recent major renovations. The mortgage was over $600,000.

At first thought, an Interest Rate Differential (IRD) penalty might seem to be so small because of the effective rate of 2.99%, that only a 3 month penalty would apply to break their existing mortgage. Wrong. Because the rate for the original mortgage was discounted from 4.64%, 4.64% was used when calculating the IRD penalty. So, instead of paying $5,157 dollars, the client was told they had to pay over $23,000 in order to break their mortgage with the bank.

A mortgage broker-channel lender, and there are many, uses the contract, or effective rate, when they calculate the IRD penalty on fixed rate mortgages, unlike the banks. Because they use the actual contract rate, the penalty would have been the lower one in the example above. An amortization scenario would determine if breaking the existing mortgage would be worth it by seeing the crossover point in time for making up the difference in savings. In the case above, it was not worth breaking, and the client had to wait until their mortgage matured.

The banks have, in recent years, implemented a new way of registering mortgages to assist in these situations. They often now register the loan as a collateral charge loan rather than a mortgage. This allows the bank to refinance the home loan on a house without a penalty if the client needs extra cash in the future. The disadvantage to this is that in order to break the loan agreement, even at maturity, the client either has to pay a lawyer or title insurance company to help break the loan agreement, costing approximately $600-$1000. Aware of this, at renewal, the bank can price the renewal rate accordingly, as they are aware that the client must pay this fee in order to leave the bank.

When purchasing a home or renewing or refinancing, it pays to ask details about pre-payment privileges and the costs associated with discharging your mortgage before the maturity date, as well as how the loan is going to be registered, ie. as a regular mortgage or a collateral charge loan. By: Daniel Lewczuk