Answers to your questions - Questions for your answers
2020-10-19 | 08:01:03
Happy Monday everyone!!
I hope you all had a great and safe weekend.
For this week’s topic of discussion, I’d like to focus on some of the frequently asked questions clients ask mortgage professionals such as yours truly.
Regardless if you are a first time homebuyer or, you are interested in refinancing to purchase an investment property or some other type of investment, it is imperative to me as a mortgage professional that we supply you with answers to your questions and, provide further questions that ultimately best serve your objectives.
My success in determining what mortgage product will best serve your particular objectives will be linked to how your personal financial situation is interpreted.
The first question; therefore, comes from me: how can I help you? This is crucially important because, as your mortgage agent, I am not here only for your transaction; I am here with your mortgage until it is completely paid out.
MOST FREQUENTLY ASKED QUESTIONS
- What is your lowest rate?
A: The lowest rate that everyone sees advertised through every medium is heavily attached to terms and conditions that may or may not be suitable for everyone’s particular financial situation. I do have access to the lowest rates but, unlike consumer products that come with a price tag for everyone, a mortgage product does not. Ones credit score, income to debt ratios, down payment amount and today, even the stability of your employment are highly scrutinized by all lenders when determining what your best rate will be. There are other factors as well, but until a full application and credit pull is completed, no particular rate should even be discussed as being attainable. NOTE: often times, the lowest rate, as stated above, is not the best rate for everyone’s situation.
- Should I take a 25 year amortization or shorter/longer to pay down my mortgage?
A: In most cases, if your financial situation allows, you should always take a 25 year amortization to pay down your mortgage on your own home. Thousands of dollars of interest will be saved. However, choosing a shorter amortization is not the only or necessarily best way to pay down your mortgage. Choosing a lender that gives you favourable prepayment options may prove to be more effective in paying down your mortgage sooner. As I mentioned in last weeks blog, the benefit of working with a mortgage agent is that we have access to dozens of lenders who offer fantastic pre payment privileges that may suit your needs better. Even if having those privileges result in paying a nominally higher interest rate, if your type of employment and financial situation allows, this may be your best solution. Having a longer amortization is beneficial even when prudently considering a negative financial downturn during your 5 year terms. This is where we need to discuss whether a fixed or variable term is best. NOTE: when purchasing an investment property, interest rates are higher and, if your tenant is paying all of your fixed expenses, it makes most sense to not pay down the mortgage sooner. We can discuss this in more detail privately.
- How much money do I put as a down payment?
A: When purchasing an investment property, a 20% down payment is required. Depending on where you are purchasing; for example downtown Toronto, your down payment amount may exceed 20% if said amount does not cover your principal, interest, maintenance fees and property taxes. We can discuss this in more detail by doing the math over a call.
The minimum down payment when purchasing a home you will live in is 5%. You will also be required to pay mortgage insurance. Please note that the mortgage default insurance protects only the lender should you default on your mortgage payments. Up to a 20% down payment, your rate of mortgage insurance varies. The supplemental charge of the mortgage insurance when paying less than a 20% down payment varies from 2.8% and 4.0% of your mortgage amount that can be amortized over the life of the mortgage. Also note that the maximum amortization period when putting a down payment less than 20% is 25 years and, the value of the property cannot exceed $1 million.
Most people would put the largest down payment possible in order to reduce their mortgage payments. However, it is important to realize that reducing your down payment amount in order to pay out of pocket closing costs that cannot be added to your mortgage payment, as well as having a financial cushion as you settle into your newly purchased home is the prudent path to follow. For example, one should not empty their life savings on putting a 13% down payment when, assuming all other debt service ratios, credit, income, etc. are in line, a 10% down payment will suffice. Let’s take a look at a scenario for a $500K purchase, a 2.10% interest rate, a 25 year amortization and a 10% vs a 13% down payment:
Monthly payment with a 10% down payment: $1987.06
Monthly payment with a 13% down payment: $1920.83
With a monthly payment difference of $66.23, a 10% down payment saves you $15,000 towards closing costs and day-to-day expenses in your life, rather than a 13% down payment. Let’s discuss privately what is best for your circumstances.
- What are the closing costs?
A: Closing costs include: lawyer’s fees, land transfer taxes (double within Metro Toronto), disbursements, and adjustments of previously paid bills such as water, hydro and property taxes. Moving costs can also be expensive as would any unpaid days off work that will be required for said move. Not to be forgotten are the various accumulating miscellaneous expenses of minor purchases and travel when moving. Though there are differing thoughts, I agree with those who state that a separate cash (not credit) savings of 2-4% of the purchase price – over and above your down payment must be readily available. In fact, some lenders may require proof of your extra funds upon approval.
In closing, many questions will lead to the best answers. Conversely, the best answers lead to further questions. Working together with a mortgage agent such as myself, gives you the best options to allow you to achieve more favourable answers to your needs. An individual bank can only present mortgage products that they alone offer – including terms and conditions. As a mortgage agent with a reputable brokerage, I am able to present your financial scenario (especially when you are a self employed person), to the major banks, mortgage finance companies, credit unions, alternative lenders, B-lenders, Mortgage Investment Corporations (MIC’s), and private lenders. I am able to get you a “yes” answer even when banks say “no”.
Let’s begin a conversation and set out a plan to achieve your mortgage financing goals. How can I help you? It is always my pleasure to walk you through your personal situation and present your best available options.
Looking forward to your calls, comments and questions, I wish you all a great week ahead.
Marco
