Home Renovation Financing Options

There are many different reasons to renovate a home: to save energy (and save on utility bills), to make room for a growing family, to improve safety or increase the resale value of your home, or simply to bring a fresh new look to your home. There are also a number of different ways to finance your renovation. Explore your options Your own resources: For smaller renovation projects, you may consider self-funding material costs, especially if you plan to do the work yourself. Credit card: Likewise, you can use your credit card to pay for materials for smaller renovations. But be careful not to carry the balance for too long. Credit card interest rates can exceed 18%. Personal loan: With a personal loan, you pay regular payments of principal and interest for a set period, typically one to five years. You also have the option of a fixed or variable interest rate for the term of the loan. The interest rate on a personal loan is typically less than that of a credit card. Unlike a line of credit, however, once you pay off your loan, you’ll have to reapply to borrow any new funds needed. Personal line of credit: This is another popular choice for financing renovations. It’s ideal for ongoing or long-term renovations since it lets you access your funds at any time and provides a monthly statement to help track expenses. A line of credit offers lower interest rates than credit cards, and charges interest only on funds used each month. And, as you pay off your balance, you can access remaining funds, up to the line of credit’s limit, without reapplying. Secured lines of credit and home equity loans: These options offer all the advantages of regular lines of credit or loans, but are secured by your home’s equity. They can be very economical, since they offer preferred interest rates, but keep in mind that initial set-up costs including legal

and appraisal fees usually apply. Lines of credit are typically limited to 65%, while home equity loans are capped at 80% of your home’s value. Mortgage refinancing: When funding major renovations, refinancing your mortgage lets you spread repayment over a longer period at mortgage interest rates, which are usually much lower than credit card or personal loan rates. This type of financing can allow you to borrow up to 80% of your home’s appraised value (less any outstanding mortgage balance). Initial set-up costs including legal and appraisal fees may apply. Financing improvements upon purchase: If you’re planning major improvements for a home you’re about to purchase, it may be advantageous to finance the renovations at the time of purchase by adding their estimated costs to your mortgage. Canada Mortgage and Housing Corporation (CMHC) Mortgage Loan Insurance can help you obtain financing for both the purchase of your home and the renovations – up to 95% of the value after renovations – with a minimum down payment of 5%. Grants/rebates for energy-saving renovations Across Canada, renovation grants and rebates are available from the federal and provincial governments and local utilities, especially for energy-saving renovations. If you qualify, they may help pay for some of your project’s costs. CMHC Mortgage Loan Insurance for Energy-Efficient Homes: 10% CMHC mortgage loan insurance premium refund, and a premium refund for a longer amortization period (if applicable). ecoENERGY Retrofit — Homes: grants of up to $5,000 to offset the cost of making energy-efficiency improvements. Provincial and Municipal Entities Offering Grants and Incentives Rebates and Incentives for Selected ENERGY STAR® Qualified Products in Canada

for more information contact me at http://davidcooke.ca

How Dominion Lending Agents can help

See how Dominion Lending Centres's David Cooke, your Calgary Mortgage Broker can help you

Becoming Mortgage-Free Faster

Regardless of how long you’ve had your mortgage or how large or small the current balance is, there are a variety of ways to make prepayments work for you to pay down your mortgage faster and, therefore, pay less interest throughout the life of your mortgage. After all, each extra payment amount will reduce your principal balance, which, in turn, reduces the amount of interest you’ll have to pay on your borrowed mortgage amount. Most lenders allow you to make a lump-sum payment of anywhere between 10% and 25% of the value of your mortgage per year. The lump-sum payment is based on either the original amount you borrowed or the amount currently outstanding. Since mortgages decrease with each payment, it’s best to negotiate a lump-sum payment option based on the original amount you borrow. That way, if you come into an inheritance, a bonus or save some extra money, you can pay down the largest amount possible. Another factor to consider is when you can make a lump-sum payment. Some mortgages allow prepayments throughout the year, while others permit them only on the anniversary date. Still others allow you to make prepayments on the day you make your regular payment. If you can’t pay the maximum prepayment amount, it’s still worth your while to at least make some form of extra payments, even if it’s a few

thousand dollars each year. That will still save you thousands of dollars in interest payments throughout the life of your mortgage. Another prepayment option involves taking advantage of flexible payments. Most lenders allow you to increase your regular payment up to a set maximum, such as 15%, while others allow you to double up your payments. If, for instance, you have a $1,000 per month mortgage payment and increase it by 15% to $1,150, you could shave off as much as five-and-a-half years on a $200,000 mortgage. Even rounding up your mortgage payments a few dollars each payment can help make your balance decline sooner. If you round up your mortgage payment from, say, $766 to an even figure such as $800, you can feel confident in knowing that every extra bit goes toward your principal. You can also pay off your mortgage faster by moving to a different payment schedule. Instead of making monthly payments, make them biweekly or even weekly. Using an accelerated mortgage payment plan – where you make payments every two weeks as opposed to twice a month – you actually make one extra payment each calendar year. By paying more and paying faster, you reduce your principal earlier, which lowers the amount of interest you pay. As always, if you have questions about paying your mortgage off quicker, or other mortgage-related questions, I’m here to help!

feel free to contact me with any questions at http://davidcooke.ca 

Breaking a closed mortgage can be Costly

A recent article in the Toronto Star highlighted a little known secret that the banks don’t want you to notice when you sign the paperwork on a mortgage. If you take a 5 year term and need to end the mortgage early whether it’s because of illness , divorce , a job transfer or any other possible reason, if you are less than half way through the term, a condition called Interest Rate Differential kicks in rather than the 3 months interest option.

    In the Star article, a RBC mortgage holder found he could not afford his home and he wanted to sell the home and get out of the mortgage. He was hit with a $13,000 penalty when money was already stretched to the limit. On one of the last pages of a mortgage commitment it often states how the IRD is calculated. When you get your mortgage at a discounted rate, there’s a posted rate shown at the bank. This rate is often 1 1/2%  higher than the rate you received. While you feel great receiving this rate, it can come back to bite you in the butt.

       IRD;s are calculated based on the difference between the posted rate and your rate multiplied by the number of months remaining in the mortgage term. The highest IRD I have heard of a client paying was $90,000.

           A good mortgage broker will ask you if there’s any chance you will have to end the mortgage before the end of the term.  If there’s a possibility we take you to a mortgage company or a trust company rather than a bank. These lenders do not calculate the IRD based on a posted rate as they do not have one. They often will just charge the 3 month interest penalty and leave it at that.

      This is one more reason why you should see a mortgage broker for your home financing needs rather than going to a big bank

Contact me if you need more information on this topic.  David Cooke, your Calgary mortgage broker. The Toronto Star article

How would you like 10% of your CMHC fees back?

Taxes keep going up, the cost of gasoline is going up. How are you going to get ahead these days? You need to find rebates, deals and money back offers. Here's one from CMHC. If you can make your home more energy efficient or if you buy a home that is already Ener Guide rated at 82 or above you qualify for a rebate of up to 10% of your CMHC fees. Take a look at your mortgage documents and you may have paid $11-12,000 in fees when you bought your home. You could get $1100 to $1200 back just for proving your home meets the energy efficiency ratings. 
   Now here's the item your realtor or bank do not tell you. If you make your home for energy efficient 4 years after your purchase, you can still apply for the rebate. How sweet is that?
 This rebate is also available through the private mortgage insurers, Genworth and Canada Guaranty  .  You do have to prove that you have improved the energy efficiency and you need to do this with an energy audit. A full explanation is available from CMHC and I have added the link to the bottom of this article. If you need more information contact me, David Cooke, your Calgary mortgage broker.



CMHC fee rebate explained  

Purchase Plus Improvements explained

   

So you found the perfect house in your price range, close to schools, and shopping but the kitchen is from 1956. Your down payment will clean out your bank account and you won't be able to afford to renovate for at least a few years. How about a program where you could have the renovations done soon after possession date? Would that interest you? Here's a great video that explains the process. Contact me if you have any questions.

Beware the pitfalls of collateral mortgages

Back in 2011, TD came out with collateral charge mortgages. The other banks soon followed suit. They found out that 80% of clients would stay with them regardless of the rate when they found out that it would be expensive to move their mortgage. Here's an article written at the time about the pitfalls of collateral mortgages. It still rings true today.

Many banks are now asking borrowers to sign collateral mortgages, but you could end up tied to this bank for life.

By: Mark Weisleder Published on Sat Jul 30 2011

When you apply for a mortgage, you usually just ask about the term, amount, interest rate and monthly payment. Not many people understand the difference between a conventional mortgage and a collateral mortgage. Yet many banks are now asking borrowers to sign collateral mortgages — and it could result in them being tied to this bank, for life.

With a normal conventional mortgage you bargain for a set amount, rate and amortization. Say the property is worth $250,000 — you bargain for a $200,000 loan, at 3.5 per cent, a five-year term/25-year amortization, payments of $998.54 per month.

A conventional mortgage is registered against the property for $200,000. If all the payments are made on time, the mortgage is renewed on the same terms every five years and no prepayments are made, the balance is zero after 25 years.

Should another lender decide to lend you money as a second mortgage, there is nothing stopping them from doing so, subject to their own guidelines. Under normal circumstances the principal balance on a conventional mortgage goes only one way, down. In addition, banks will accept “transfers” of conventional mortgages from other banks, at little or no cost to the consumer.

A collateral mortgage has as its primary security a promissory note or loan agreement and as “backup,” a collateral security, being a mortgage against your property. The difference is that, in most cases, the mortgage will be for 125 per cent of the value of the property. In our example, the mortgage registered will be for $312,500. But you will only receive $200,000. The loan agreement will indicate the actual amount of the loan, interest rate and monthly payments.

The collateral mortgage may indicate an interest rate of prime plus 5-10 per cent. This will permit you to go back to this same bank and borrow more money from time to time, without having to register new security. The lender will offer you a closing service, to register the mortgage against your property, at fees that will be cheaper than what a lawyer would charge you. Sounds good so far, doesn’t it?

However, this collateral loan agreement has different consequences, which are usually not explained to the borrower.

 • Most banks will not accept “transfers” of collateral mortgages from other banks, so the consumer is forced to pay discharge fees to get out of one mortgage and additional fees to register a new mortgage if they move to a new lender. Thus the bank is able to tie you to them for all your lending needs indefinitely because it will cost you too much to move.

 • Lenders may be able to use the collateral mortgage to offset any other unpaid debts you have. Offset is a right under Canadian law that says a lender may be able to seize equity you have in your home, over and above the mortgage balance, to pay, for example, a credit-card balance, a car loan, or any loan you may have co-signed that is in default with the same lender. In essence any loans you may have with that lender may be secured by the collateral mortgage. Nobody goes into a mortgage thinking about default, but “stuff” happens in people’s lives and 25 years is a long time.

 • Let’s say your house value is $200,000. A collateral first mortgage registered on the property is $250,000. The amount owing on the mortgage is $150,000. If you were to need an additional $20,000, but the lender declines to lend it for any reason, then practically speaking you won’t be able to approach any other lender. They will not go behind a $250,000 mortgage. Your only way out would be to pay any prepayment penalty to get out of the first mortgage and pay any additional costs to get a new mortgage.

 • Let’s say your mortgage is in good standing but you default under a credit line with the same bank. The bank could in most cases still start default proceedings under your mortgage, meaning you could lose the house.

 • Some lenders are offering collateral mortgages in a “negative option billing” manner. Unless you are informed enough to say you want a conventional mortgage, you will be asked to sign documents for a collateral mortgage.

One bank is only offering collateral mortgages.

I spoke with David O’Gorman, the president and principal mortgage broker with MortgageLand Inc. He tells me it is his duty under the law to ensure the “suitability” of any mortgage he arranges for a consumer.

He would be hard pressed to justify the recommendation of this type of collateral first mortgage to any consumer, without disclosing both verbally and in writing the points listed above, and he believes the consumer should have their own lawyer review everything before they sign.

Mark Weisleder is a lawyer, author and speaker to the real estate industry. Email mark at mark@markweisleder.com