MortgageBrokers.com inc Blog

Using RRSP as downpayment WOW! But! We have better idea.

2007-03-27T02:05:00.000-04:00

As you may or may not know GE and CMHC recently introduced their 100% financing programs. Wondering if it makes sense to make a down payment on a home? Here is an example for you all to follow:

At 95 % financing- the CMHC premium is 2.75%

At 100% financing- the premium is only 3.10%

Taking that into consideration let’s see what difference it makes on a $300,000 purchase:

At 95% financing $300,000 purchase price 5% down payment would be $15,000
Premium would be: 2.75% or $7837.50

At 100% financing No downpayment
Premium would be 3.10% or $9300

So for a premium difference of only $1463 you don’t have to make a down payment. Seems to me like an incredibly low cost to save injecting $15,000

Consider this option:

Take that $15,000 and deposit it into an RRSP . At an average 40% refund rateyou would get $6000 back in tax refund. Apply that refund back onto the mortgage.
YOU ARE WAY AHEAD………not only have you reduced your mortgage by $6000 but you also now have a $15,000 RRSP.
Hope this makes sense. Wish to know more ? You know who to call.

Buying your first home?

2007-03-19T02:21:00.000-04:00

Buying your first home can be an experience filled with both excitement and anxiety. Sometimes time can be an overwhelming and intimidating process. But it doesn't have to be. If you do your research, you can alleviate some of those first-time home buyer fears and make the process go more quickly and smoothly. Most people prefer to have a mortgage specialist to guide them every step of the way, to answer all their questions and to offer them practical advice. You have to determine how much you can afford, how you can get into the market with a low down payment and how to possibly use your RRSP as a part your down payment.

Just a few tips before you apply:

Don't build yourself a mortgage mountain.
It's fine to want the best home you can afford, but be certain that it is comfortable affordability. Although we may find certain mortgage lenders who will stretch your qualification ratios (the ratio of your total mortgage payment to your total income), the traditional ratios--the mortgage payment as 28% of your income and the total of your mortgage payment plus your monthly debt payments as 36% of your income - are good basic guidelines.

Get your budget under control.
Spending some time reviewing your budget (or developing one if you don't already have it) and sharpening your money saving skills can bring big rewards later. A coordinated budget allows you to get the most home for your money without strapping yourself while eliminating wasteful spending.

Prepare to pay off small debts.
Having 3 credit card balances, for example, one with a $125 balance, a second with a $165 balance and a third with $275 balance will only cloud the picture. Even though the total is only $565, all 3 will have minimum payments, credit lines, etc. If possible, prepare to pay them down to $0 balances.

Begin to gather documentation.
It is not necessary that you have all items on hand before you apply, but there are a number of documents you will need eventually and the approval process will go much smoother if you begin to gather them now. Examples: income tax returns from the last few years (especially if you are self-employed), copies of pay stubs, a copy of your credit report (you can get a free copy of your credit report), records of any child support or alimony (either going out or coming in) and bank statements for all accounts (checking and saving) for the last several months.

Don't forget about closing costs.
In addition to your down payment, you will need to reserve funds for closing costs. Depending on the type of loan and your location, these costs can range from 2-5% of the mortgage amount, will be paid in cash at the closing and cannot be borrowed funds.

Compare.
There are lots of sources and options for mortgage funds. At the First Swiss we shop for the best solution among more than 37 banks and lending institutions and make comparisons of equal terms.

Where we get the money?

2007-03-14T21:46:00.000-04:00

I decided to write about it because many of my clients ask where we get the money from and how it happens that we can offer lower interest rates than the chartered banks?
Before I do that let’s take a look at the Canadian banking system in brief.

The main component of the money supply is created by and comes into circulation through the chartered banks.
Money and banking are federal responsibilities. Under the Bank Act each bank is incorporated under a separate act of parliament and granted a charter. This is the reason why Canadian commercial banks are called chartered banks.
The largest of the current Canadian chartered banks control lion’s share of banking activity. About 90 percent of total banking assets and deposits and more than 75 percent of payments volume accounted for by the big six chartered banks.
The Canadian banking system is more concentrated than the one in U.S. where there are some 8600 commercial banks and 12,500 thrift institutions.
There was a tendency to merge as it was proposed in early 1998 TD and Canada Trust and even further RBC-BMO, CIBC-TD plan to merge. The federal government vetoed these two mergers on the grounds that they would hinder competition. If the proposed mergers had materialized only four chartered banks would have been left, leading to an even more concentrated banking system. Under new rule set out in early 2000 is not likely that Canadian banks will try to merge again.
In global perspective the RBC the largest Canadian bank ranks as the 48th largest bank in the world.
First five largest are:

Mizuho Holdings (Japan) with $1,876,772 (billions)
Citigroup (U.S.) $1,674,750 (billions)
Sumitomo Mitsui (Japan) $1,338,400 (billions)
Deutsche Bank (Germany) $1,288,926 (billions)
Mitsubishi Tokyo (Japan) $1,196.957 (billions)

If the bank mergers materialize in the future, Canadian banks will move up the ranks but how it will benefit us their customers?
As set out the balance sheet of the Canadian chartered banks cash reserves are only a small percentage of the deposits. That is why that type of banking system is called fractional reserve system it means that chartered banks loan out most of their deposits keeping only small percentage to meet everyday cash withdrawals. If depositors in the chartered banks were to come all at once to withdraw their money, there would be not enough cash reserves to meet their request. In such an unlike event, chartered banks borrow from the Bank of Canada, the “bankers bank.”
Chartered banks are private companies owned by shareholders who seeks a competitive return on their investments. Therefore the primary goal of chartered banks is to try to maximize profits. They loan out as much as of their deposits as is possible in order to increase profits. Those funds that cannot be safely loaned out are used to buy Government of Canada securities. The rate charged by banks on loans to their best corporate customers is referred as the prime rate – the interest rate banks charge their most creditworthy borrowers. Banks earn profit on the spread between deposits interest rates and loan interest rates.
The Canadian banking system is supplemented by other financial intermediaries. This includes trust companies, loan companies, credit unions that accept the funds from private investors, insures companies, successful corporations who have access of money for their ongoing operations as well as small individual savers. They are willing to take a much higher risks than chartered banks and make them available to customers with not perfect credit history. in the form of mortgages and other financial products. That is why we can say YES when banks say NO and offer better rates and more flexible financial product that any of the chartered banks. To put the money in the circulation our lenders present daily promotions up to prime – 2.5%. If by the chance you come around with considerable sum that lies in the bank account earning little bit more than 0% interest that bank pays out you more than welcome to contact me to discuss possibility of becoming one of our lenders. I hope that clears few questions. Please visit my website http://www.theswissmortgage.com/ for today’s promotions and discounts that our lenders may offer.

Mortgage, what is it?

2007-03-14T18:23:00.000-04:00

Did you know that the term mortgage (from Law French, lit. death vow) refers to the legal device used in securing the property, but it is also to refer to the debt secured by the mortgage, the mortgage loan?
The word "mortgage," Law French for "dead pledge;" that is, it was absolute in form, and unlike a "live gage", was not conditionally dependent on its repayment solely from raising and selling crops or livestock, or of simply giving the fruits of crops and livestock coming from the land that was mortgaged. The mortgage debt remained in effect whether or not the land could successfully produce enough income to repay the debt. In theory, a mortgage required no further steps to be taken by the creditor, such as acceptance of crops and livestock, for repayment.
The difficulty with this arrangement was that the lender was absolute owner of the property and could sell it, or refuse to give it to the borrower, who was in a weak position. Increasingly the courts of equity began to protect the borrower's interests, so that a borrower came to have an absolute right to insist on possession on redemption. This right of the borrower is known as the "equity of redemption".

This arrangement, whereby the mortgagee (the lender) was on theory the absolute owner, but in practice had few of the practical rights of ownership, was seen in many jurisdictions as being awkwardly artificial. By statute the common law position was altered so that the mortgagor would retain ownership, but the mortgagee's rights, such as foreclosure, the power of sale and the right to take possession would be protected.

In most jurisdictions mortgages are strongly associated with loans secured on real estate rather than other property (such as cars) and in some cases only land may be mortgaged. Arranging a mortgage is seen as the standard method by which individuals or businesses can purchase residential or commercial real estate without the need to pay the full value immediately.
It is the most cost effective form of borrowing because the value of the property reduces risk for the lender.
Mortgage are generally long-term loans (3-5-7 to 40 years) , the periodic payments for which are similar to an annuity and calculated according to the time value of money formulae. The most basic require a fixed monthly payment over a period of 10 to 40 years, depending on lenders conditions. Over this period the principal component of the loan (the original loan) would be slowly paid down through amortization.

Lenders provide funds against property to earn interest income, and generally borrow these funds themselves (for example, by taking deposits or issuing bonds). The price at which the lenders borrow money therefore affects the cost of borrowing. Lenders may also, in many cases, sell the mortgage loan to other parties who are interested in receiving the stream of cash payments from the borrower, often in the form of a security (by means of a securitization).
Mortgage lending will also take into account the (perceived) friskiness of the mortgage loan, that is, the likelihood that the funds will be repaid (usually considered a function of the creditworthiness of the borrower); that if they are not repaid, the lender will be able to foreclose and recover some or all of its original capital; and the financial, interest rate risk and time delays that may be involved in certain circumstances.
Upon making a mortgage loan for purchase of a property, lenders usually require that the borrower make a down payment, that is, contribute a portion of the cost of the property. This down payment may be expressed as a portion of the value of the property. The loan to value ratio (or LTV) is the size of the loan against the value of the property. Therefore, a mortgage loan where the purchaser has made a down payment of 20% has a loan to value ratio of 80%. For loans made against properties that the borrower already owns, the loan to value ratio will be imputed against the estimated value of the property.

The loan to value ratio is considered an important indicator of the friskiness of a mortgage loan: the higher the LTV, the higher the risk that the value of the property (in case of foreclosure) will be insufficient to cover the remaining principal of the loan.
The concept of equity in a property refers to the value of the property minus the outstanding debt, subject to the definition of the value of the property. Therefore, a borrower who owns a property whose estimated value is $400,000 but with outstanding mortgage loans of $300,000 is said to have homeowner's equity of $100,000.
An option ARM provides the option to pay as little as a 1% interest rate. As a result, the difference between the monthly payment and the interest on the loan is added to the loan principal; the loan at this point has negative amortization. In this respect, an option ARM provides a form of equity withdrawal (as in a cash-out refinancing) but over a period of time.

The option ARM gives a number of payment choices each month (for example, 1%, interest only, 30 year fixed rate, 15 year fixed rate). The interest rate will adjust every month in accordance with the index to which the loan is tied. These loans may be useful for people who have a lot of equity in their home and want to lower monthly costs; for investors, allowing them the flexibility to choose which payment to make every month; or for those with irregular incomes (such as those working on commission or for whom bonuses comprise a large portion of income).
One of the important features of this type of loan is that the minimum payments are often fixed for each year for an initial term of up to 5 years. The minimum payment may rise each year a little (payment size increases of 7.5% are common) but remain the same for another year. For example, a minimum payment for year 1 may be $1,000 per month each month all year long. In year 2 the minimum payment for each month is $1,075 each month. This is a gradual increase in the minimum payment. The interest rate may fluctuate each month, which means that the extent of any negative amortization cannot be predicted.
Option ARM mortgages have been criticized on the basis that some borrowers are not aware of the implications of negative amortization; that eventually option ARMs reset to higher payment levels (to amortize the loan), and borrowers may not be capable of making the higher monthly payments; and that option ARMs have been used to qualify mortgages for individuals whose incomes cannot support payments higher than the minimum level.
Lenders may charge various fees when giving a mortgage to a mortgagor. These include entry fees, exit fees, administration fees and lenders mortgage insurance. There are also settlement fees (closing costs) the settlement company will charge.
Mortgage insurance is an insurance policy designed to protect the mortgagee (lender) from any default by the mortgagor (borrower). It is used commonly in loans with a loan-to-value ratio over 75%, and employed in the event of foreclosure and repossession.

This policy is typically paid for by the borrower as a component to final nominal (note) rate, or in one lump sum up front, or as a separate and itemized component of monthly mortgage payment. In the last case, mortgage insurance can be dropped when the lender informs the borrower, or its subsequent assigns, that the property has appreciated, the loan has been paid down, or any combination of both to relegate the loan-to-value under 75%.

In the event of repossession, banks, investors, etc. must resort to selling the property to recoup their original investment (the money lent), and are able to dispose of hard assets (such as real estate) more quickly by reductions in price. Therefore, the mortgage insurance acts as a hedge should the repossessing authority recover less than full and fair market value for any hard asset.

I am happy if you find it worth reading. Please visit http://www.theswissmortgage.com if you wish to receive more information about the types of mortgages, conditions or current mortgage rates. In the dictionary you can also find explanation of many mortgage and real estate related terms.