Thinking outside of the box – blanket mortgages
When someone calls me up out of the blue for a mortgage , I often ask them, “Why did you call me?”
Often the reply is that a family member suggested it. I then ask, “Do you know what I do?”
Once again , I will get a reply that they aren’t sure. I will then explain to them that while banks do mortgages, they don’t specialize in them. They also do deposits, GIC’s, RRSP’s , insurance ,car loans etc.
I only do mortgages, day after day. As I result I have more experience in unusual situations and we are getting more of them all the time. Sometimes you need to think outside of the box.
Here’s an example, Sally and Ted want to buy a home but they don’t have a down payment. A recent HSBC Bank study found that 37% of young Canadians count on the Bank of Mom and Dad for their down payment.
Unfortunately in many cases, Mom and Dad would like to help them out but they don’t have the cash.
They own their home or have a low mortgage balance but their savings are tied up . This is where thinking outside of the box comes in handy. A blanket mortgage is a mortgage that covers the subject property and another property that has sufficient equity in it to carry both properties.
If the parents are willing, a mortgage can put placed on the parents ‘ home and the new home. If the property value for the 2 homes is more than 80% of the mortgage amount the new home can be purchased without the young couple having to save a down payment and pay expensive CMHC fees.
What risks or down sides are there to this idea.? If Mom and Dad want to sell their home and move to Arizona the children will have to get a new mortgage to cover their home .There may be penalties for breaking the mortgage which will have to be paid. There’s also the risk that the children may fall behind on their mortgage due to layoffs or maternity leaves and that could jeopardize the parent’s home.