Back in the late 80’s, the Japanese housing market came to a grinding
halt. Homes were no longer affordable for your average Japanese
consumer. The government came to the rescue with a novel idea: 99 year
mortgages. You could buy a house, pay lower more affordable payments,
your son or daughter would take over and pay the mortgage down and
finally your grandchild at some time close to retirement age would
finally pay off your mortgage.
Who would want to do this? This was a short term solution. In 2007,
we had 40-year amortized mortgages which allowed a great number of
people to buy homes who normally would have continued to rent. This
created a housing boom, but it made the banks nervous and terms were cut
back to 35 years, then 30 and finally back to where they were in 2005
at 25 years. While longer amortizations mean lower monthly payments, the
flip side is that you end up paying a lot more interest over time.
Calgary mortgage professionals use amortization as a tool to help their
clients at various stages in their lives. Often we use the maximum 25
years to help people get into their first homes. The idea is to get them
into home ownership regardless of the cost. Later when they renew we
often suggest a shorter amortization if it’s possible.
For example, after paying down a mortgage for 5 years, a couple with a
$300,000 mortgage renewing today would be offered a 20-year amortized
mortgage with monthly payments of $1659. In 5 years the couple will have
paid $40,356 in interest $59,214 in principal and have a balance of
$240,785 left on the mortgage.
If the amortization was shortened to 17 years the payment would go up to
$1,874.95, an increase of $215.95. but at the end of 5 years they would
have paid $39,365 in interest, $73,131 in principal and have a balance
of $226,868.11. In addition, they would now only have 12 years instead
of 13 years on their mortgage.
Now, if they are at a stage in life where their twins are going to be
going to university or if they need to build a granny suite for aging
parents, they may need to lower monthly payments in order to pay for
renovations. If they have 20% equity in their home, they could extend
their amortization to 30 or even 35 years with some lenders.
Now their monthly payment drops to $1,260 with a 30 year amortization.
And it drops to $1,149 with a 35 year amortization.
Amortization is only one tool that yourCalgary mortgaeg broker can use to save you interest, help you to pay off
your mortgage quicker or to lower your mortgage payments. Be sure to
call and ask them for help.
Monday, June 17, 2019
Friday, June 14, 2019
Brokers make a Difference
While many
people will go to their bank to obtain a mortgage or line of credit they often
feel betrayed by their favourite bank if their application is rejected. One big
advantage that we have over banks is that we can send underwriter notes along
with the application. Our questions and speaking at length with the borrower
give us insight that the underwriter will never get from the facts and figures
on the application.
A while ago, I had an application at a lender
for a young man who wanted to buy his first home.
He worked in the construction trades
and his income history was up and down over the past 3 years. He needed
overtime to support his application and the two year average wasn’t there.
I went back
with 3 years of Notices of Assessments, his recent pay stubs and pleaded the
case for my client. The underwriter finally asked for an exception based on my
confidence in the client. She trusted my judgement and the mortgage was
approved.
This leads me to the idea that underwriter
notes are very important and can mean the difference between an approval and a
decline. If you have a chance, ask your underwriter how they like their notes;
in point form or in paragraphs . Do they prefer emails or phone calls?
When a successful mortgage broker writes
notes they start by stating what product they are asking for and giving their
contact information. I put my contact info at the top of the notes and at the
bottom so they don’t have to go searching for it if they have a question or
need clarification. I then state what my
client is trying to do; purchase their first home, refinance, a renewal or if
it’s’ a switch, that they want to benefit from lower interest rates.
I then list
the areas I want to highlight: Income, Credit, Property , Down payment and start
with it their weakest link first and explain their situation. I had a client
who had her down payment in a joint account with her father in Japan. I started
with that knowing that a paper trail would be important. If the credit score is
low, is it due to a past illness, divorce or job loss? I tell the underwriter
right away. As a result, underwriters
trust me and have given my clients a second look or asked for an exception. Finally, I finish up by summarizing the
strong points in the file and thanking them for their consideration of my
file.
I never yell or give my underwriters a
blast if they decline a file. I will , however, ask why the file was declined
so that I can better prepare my client for the disappointment and plan on how
we can remedy the situation. Just as a
FYI, a manager at a major bank told me
that at one bank he worked for after hitting the send key he received a simple
message back – either APPROVED or DECLINED with no explanation. Now who do you think mortgage clients should
deal with? A bank or a broker? Contact David Cooke at http://davidcooke.ca
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