CMHC Insured Mortgages vs. Non CMHC Insured Mortgages

Any time you are looking to purchase or refinance a home it is a good idea to understand the difference between CMHC insured mortgages vs. non CMHC insured mortgages. CMHC, otherwise known as the Canadian Mortgage and Housing Corporation, is an organization that was created by the Canadian government to create affordable housing in Canada. 

CMHC offers high ratio mortgage insurance to the banks which protects them in the event that you default on your mortgage. Prior to the existence of CMHC high ratio insurance if you wanted to purchase a home you would need a 25% down payment. 

When comparing CMHC insured mortgages vs. non CMHC insured mortgages it is important to consider the benefits associated to a CMHC insured mortgage.

The biggest benefit is that CMHC insured mortgages enable homeowners to purchase a home with as little as no money down. No money down mortgages are usually only offered to those who have excellent credit, so if your credit is average you will likely need 5% down payment even if you are taking out a CMHC insured mortgage. Refinance mortgages are slightly different. Last year the laws changed and now CMHC will only high ratio insure a refinance mortgage up to 85% the value of the home.

CMHC insured mortgages do not require appraisals. This is a major benefit when refinancing a home because an appraisal can cost approx. $300 and is a cost you can save by having a CMHC insured mortgage.

Obtaining a CMHC insured mortgage will mean that in addition to your bank, CMHC will also have to approve your credit application. They will consider your credit, income and debt and you will have to meet their guidelines to be approved for CMHC high ratio insurance. Also, if approved, a CMHC high ratio insurance premium will be added to your mortgage. The CMHC high ratio insurance fee will depend on the loan to value of your mortgage. The loan to value is the percentage of your mortgage against the value of your home. Your CMHC mortgage insurance premium could be up to 3.5% of the amount of your mortgage.

When looking at CMHC insured mortgages vs. non CMHC mortgages the main difference is that to obtain a non CMHC insured mortgage you will require at least 20%-25% down payment if you are purchasing a home or 20%-25% equity if you are refinancing. You will also require a property appraisal. Banks will not finance a mortgage without CMHC high ratio insurance that is more than 75% the value of the home not because they don’t want to but because they cannot under the Chartered Banks Act.

Only finance companies, trust companies, mortgage investment corporation and private lenders can offer uninsured mortgage financing at loan to values greater than 75% and can usually only be obtained through Mortgage Brokers. Some trust companies and mortgage investment corporations will offer non CMHC insured mortgage financing up to 90% of a properties’ value.

The type of mortgage you will be able to obtain will depend on your credit, income and financial circumstances. If you have less than 25% down payment a CMHC insured mortgage is likely the best way to go.

For more information about CMHC insured mortgages vs. non CMHC insured mortgages please contact Paul Mangion at The Mortgage Centre by calling 416-204-0156 or visit www.gtamortgagematters.com

Equity Only Mortgages in Ontario

There are so many different types of mortgage products available these days that it's hard to know what’s what. Equity only mortgages in Ontario are a great mortgage product for a consumer who has unconventional financial circumstances. So what are equity mortgages in Ontario anyways? 

Equity only mortgages in Ontario are mortgage loans that are approved primarily on the equity that a person has in their property. When an individual is purchasing or refinancing a unique property type, has problem credit or difficulty proving their income they will generally have to look at taking out an equity only mortgage. 

In Canada, banks who loan more than 75% of a property's value must obtain high ratio default insurance from CMHC (Canadian Mortgage and Housing Corporation). This protects the bank in case the homeowner defaults on their mortgage. CMHC insurance is one reason that folks can purchase homes with low down payments. When a mortgage is CMHC insured the applicant will have to have their credit and finances reviewed by both CMHC and the bank. If the bank approves the mortgage and CMHC does not then the bank cannot offer financing in excess of 75% of the property's value.

Does that mean that a mortgage that is less than 75% of a property is an equity only mortgage? Not necessarily. Where banks are concerned if you have bad credit or have little income, a bank may still reject your financing even if you have more than 25% down payment or 25% equity in your home.

Generally, equity only mortgages are offered by finance companies, trust companies, mortgage investment corporations and private lenders. Equity only mortgages in Ontario are usually arranged through a Mortgage Broker. Interest rates will generally vary on equity only mortgages in Ontario depending on who the mortgage lender is.

Because equity only mortgages are approved based on the amount of equity in a home, an appraisal is always required so that the lender can verify the amount of equity in the property. Also, the amount of equity you will need to have in the property to qualify will depend on your personal and financial circumstances. For example, if you have excellent credit but are self-employed and have difficulty proving your income you may be able to obtain an equity only mortgage of up to 75%-80% of the value of your home. Alternately, if you had really, really terrible credit you may only be able to borrow 65%-70% of the value of your home.

Whether you are purchasing a home or refinancing, working with an experienced Mortgage Broker is your best bet. They can review your credit and mortgage application with you to help you understand which type of mortgage you will need, which lenders would be likely to offer you the financing and who can give you the best deal. The good news is as a Canadian consumer there are many mortgage financing options out there for both purchasers and refinancers. Good planning and a clear understanding of your credit and finances are sure to enable you to find the financing you need at terms you can live with.

For more information about equity only mortgages in Ontario please contact Paul Mangion at The Mortgage Centre by calling 416-204-0156 or visit www.gtamortgagematters.com

Second Mortgage Financing in Ontario – Second Mortgage Application Process

Second mortgage financing in Ontario is something that many homeowners use to raise capital to finance debt consolidations, home improvements and more. Refinancing your home and taking out a second mortgage is slightly more complex than taking out a loan or line of credit because they involve securing the loan against your home. Second mortgages offer many benefits. The three top benefits are they are often less interest, offer more flexible repayment terms and enable you to affordably borrow large sums of money. A second mortgage is a fabulous tool for taking out a large loan and well worth the slightly more involved process.  

This first step in the second mortgage application process is you will have to make an application. It is important to check your paper work like your paystubs and house sales in the area etc. to ensure that the information you provide to your bank or mortgage broker is accurate. Over-estimating your income or property value could result in an approval but ultimately could cause your deal not to fund once your application goes into the verification process. 

There is key information that must be disclosed when you apply for a mortgage. In addition to your income and property value having to be accurate and verifiable, your property must be owner occupied and must not be under construction. If it happens that your property is a rental property, is under construction or you cannot verify your income, it will change the nature of your financing. Usually institutional lenders like banks and finance companies will not want to finance these types of applications but with equity and a good Mortgage Broker you can sometimes secure financing under these circumstances from a private lender. 

Once the application has been approved, if your second mortgage is not CMHC insured you will have to have an appraisal on the property. A property appraiser will come to your home to do an inspection and then issue a report to the lender that validates the value of the property. You will have to pay for the appraisal and the appraisal fee is paid when the appraiser attends your home. 

After the appraisal is completed you will have to go to the lender or your Mortgage Broker to sign the preliminary paper work and will have to then provide any supporting documents that they require like your current first mortgage statement and income verification. We always recommend asking the lender or Mortgage Broker what supporting documents they will require before having your appraisal done. While they don’t need them until you sign your paper work, providing them in advance and getting them approved will ensure that you don’t face any surprises after you have an appraisal. 

After you have signed all the paperwork, the paperwork is then sent to a lawyer so that they can prepare the final documents. You will have to attend an appointment at the lawyer’s office where you will sign the final documents. Then the lawyer will register the mortgage and you will be able to pick up your funds within 1-2 business days.  

It takes about 2-3 weeks to arrange a second mortgage but is well worth the wait. For more information about second mortgage financing in Ontario or second mortgage application process please contact Paul Mangion at The Mortgage Centre by calling 416-204-0156 or visit www.gtamortgagematters.com 

How to Effectively Use Your Home to Get Out of Debt

There is so much “get out of debt” advertising out there that it is hard to know which the right choice is when it comes to dealing with your debt. Here is a brief overview of the types of companies who offer solutions to get out of debt, what their solution is and the impact they can have on your credit. 

Banks generally offer lines of credit as a solution to individuals who want to get out of debt. The challenge with lines of credit is that they are essentially like taking out one big large credit card to pay off your debts. Because there is no fixed repayment to term we do not recommend lines of credit as a tool to get out of debt. A line of credit is an effective tool that can be used to consolidate debt but not a really good choice to get out of debt because, like credit cards, if you only make minimum payments you will never payoff your balance. Line of credit minimum payments are so low that it can be very tempting to get caught into a cycle of only making minimum payments. 

Bankruptcy trustees, credit counsellors and debt consultants offer programs to consumers who want to get out of debt but they carry huge implications. Any program that involves freezing interest to creditors, re-paying less than what you owe, settling debts for less than what you owe, a consumer proposal or bankruptcy will have long term consequences to your credit that last 3 years, 6 years or even longer. Many people are misinformed thinking that a consumer proposal, debt settlement or bankruptcy will give them a fresh start and that they will quickly recover from the bad credit because they did pay something to their creditors. This could not be further from the truth. When the time comes to rebuild credit after one of these programs, new creditors will see that you didn’t honour your full obligation to your past creditors and it will take significant re-established credit before creditors will trust you again. These companies often advertise debt consolidations but these aren’t really debt consolidations and so unless you have already totalled your credit, this is not really the best choice for getting out of debt. 

A loan that has a fixed repayment is the best way to get out of debt and preserve your credit at the same time. 

If you are a homeowner, leveraging your home equity is an excellent way to get out of debt. You do not have to refinance your first mortgage to obtain a loan against your home to get out of debt. You can obtain a second mortgage with its own term, amortization and payment that can be used to consolidate your debt. The reason that this is a good choice is because your creditors will be paid in full so your credit will not be damaged, second mortgage interest rates are less interest than unsecured loans and you will know when you will be out of debt. While your first mortgage may be amortized over 25 or 30 years, you can amortize your second mortgage over 5 years. This way you will know that after 5 years your debt will be paid off. For example; a $20,000 second mortgage at 12% interest amortized over 5 years bears a monthly payment of approx. $450 per/mo. 

With so many options out there for people who struggle with debt it is important to do research to ensure that the option that you choose is right for you! The right choice will consider your personal circumstances, income, credit, assets and future financial goals.