Unlike a standard mortgage, a collateral charge is re-advanceable. That means the lender can lend you more money after closing without you needing to refinance and pay a lawyer. You can keep re-using this charge, and a new charge will only be required if you want to borrow more than the amount that was originally registered. Most chartered banks offer both types of mortgages. A couple (TD Bank and Tangerine) only register their mortgages as collateral charges.
If you have a Home Equity Line of Credit, you have a collateral charge mortgage. A collateral charge can be used to secure multiple loans with your lender. This means credit cards, car loans, overdraft protection and personal lines of credit could also be included.
Pros and Cons of a Collateral Mortgage:
The PROS:
1) If you wish to borrow more money during the term of your mortgage, you can tap into your home equity without the expense of a mortgage refinance. You can save legal fees. (This is assuming of course, your personal credit and income are sufficient to qualify for more money.)
2) If you have a mortgage and a Home Equity Line of Credit (HELOC), it may be structured such that every time you make a mortgage payment, the amount you pay towards your principal balance is added to your HELOC limit. Large available credit, used wisely, is usually a good thing.
3) Collateral charges are often best suited to strong borrowers with lots of equity. They might readily access contingency funds at no cost down the road. This could be by increasing their mortgage loan amount or adding a home equity line of credit to the mix.
The CONS:
1) Some would argue you could be offered less competitive interest rates from your current lender at renewal than you will be from a new lender, as it can b more difficult to transfer the mortgage out as there are legal fees involved. This is slowly changing as the lenders are trying to fight for this business.
2) A collateral charge mortgage is not only a charge on your home, but can include other credit you have with that same lender. These lenders have a “right of offset,” meaning they can collect from the equity in your home on any financial products you have (or co-signed for) that are now in default.
1) Where is your income being derived, compared to the location of the property you are purchasing?
2) Has your job / position been transferred?
a. If yes – Provide proof of transfer
b. If No, continue.
3) Are you allowed to work remotely?
c. If yes – Provide Letter confirming this
d. If No, continue
4) How far is the commute from your place of employment?
e. If commutable / makes sense distance (e.g. 1 hour)
f. If No, continue
5) Do you have a place to stay while on shift?
g. If yes, we may need to use a “Shelter expense” on the deal, even if there isn’t one being charged
h. If No, consider OTHER Financing Options Below
*Keep in mind these questions are similar when talking to someone who is Self Employed. Lenders need to be able to feel comfort in the fact that PAST income levels will not be interrupted. So online businesses are not usually an issue while “Bricks and Mortar” style businesses would be.
Other Financing Options to Consider:
1) SECOND HOME: This program is excellent for high income earners or those who have limited debts/mortgages to pay – perhaps they need a second PRINCIPLE RESIDENCE for themselves due to travel, for their elderly parents, kids in school, etc. Down payment required is as little as 5% down however NO rental income can be used to debt service and the location needs to ‘make sense” (e.g. 2 homes in same city doesn’t make sense unless one is close to University for older kids)
2) RENTAL: Rates are higher, and 20% down is required, however we can then use the rental income to offset the mortgage payment until such a time that the transfer comes thru / income can be supported.
1. Access to more Lenders WITH Unbiased Advise – When you apply for a mortgage at a bank or credit union, you only have access to the products they offer in house. With a mortgage broker, you’ll have access to dozens of lenders.
Brokers don’t work for the Bank – we work for the CLIENT. Secondly, we don’t get paid until the deal funds, so we are MOTIVATED to get that approval!
2. Save Time and Money – a Broker’s JOB is to have their finger on the pulse of every Lender; their products and their rates. This not only saves time – it saves lots and lots of money!
3. Peace of Mind – Even if you end up staying put at your current bank, at least you’ll have done your due diligence and you know you’re getting a good deal on your mortgage.
4. Multiple Borrowers on Title / Maximum number of Rentals (doors) – Many lenders have rules that can negatively affect your client’s deal right out of the gate – this can come up last minute and waste time!
5. Niche Products – Self Employed Stated income, Pensioner Options, Rental Programs, Bridge Financing / Back Up Plans, CHIP Reverse Mortgage, Manulife ONE, Equity Deals, Step or Multi-Component, Lines of Credits, Alternative Lending, Private 2nds – there are so many cool products Brokers have access to and we want to tell you all about them!
6. No cost: A Mortgage Broker is compensated directly by the lender, so most of the time there’s absolutely no cost to the consumer. The only time there may be a fee is when working with a private lender or a lender who will not pay, but we know well in advance of those potential extra costs.
7. Protect your credit score: If you apply to a dozen of lenders on your own, not only is it time-consuming, it can lead to a lower credit score. Here’s why – each time you apply at a lender, it results in a hard credit check. If you do too many credit checks within a short time span, it can lower your credit score. A Broker will typically pull your credit score once, and share this report with the lenders, helping protect the credit score.
8. Property Tax Deferral / Privately Run Strata Corps – Did you know that many lenders do not allow this? We know which lenders will…
9. Expert advice: Brokers live and breathe mortgages, and can help you navigate thru the maze of information and products; we are accustomed to working with borrowers who may have unique needs, such as freelancers or those with poor credit ratings.
Bridge Financing is available with most institutions and long as:
a) Seller has FIRM (unconditional) offer on their current residence and
b) There is a mortgage in it for them at the end if the day
*Rates vary but are approx. Prime +5 during bridge period, some carry an approx. $300-400 fee.
Our Back up Plan, when Bridge Financing is not available, is called an Interalia (or aka “Umbrella”) Mortgage – and this requires a strong equity position. Feel free to have your clients call me for a free consultation; but here are some circumstances where we might use this product:
a. Firm sale on the property being sold, and financing is required for less than 30 days (e.g. no mortgage required at end of day, so there is no lender to provide the above bridging option).
b. Property being sold is listed (not sold) and financing is required for more than 30 days.
c. The home is NOT listed nor has a firm sale.
*Rates run from 6.99% – 7.49%. Broker and Lender fees will apply, this is quoted up front and is based on percentage of mortgage amount.
Deposit Financing is also available!
If your client has a firm sale on their home, this service allows them to access the equity before the completion. Typically this is used for a deposit on a new home, but it can be spent on any taxes, moving expenses, closing costs, or personal expenses. No appraisal • No monthly payments • No credit check • Quick funding • No income verification • No mortgage registration • Electronic signatures accepted • Direct funding to the applicant’s account
Amounts $10,000 – $100,000 Interest rate 1% monthly Processing fee 5% (minimum $1,000)
“Un-Bank-like” That’s how we do things. In the world of mortgages, common sense has become surprisingly uncommon. With 20 years of experience in lending, we understand what works best for our clients – and where to go to get the BEST deal. We are all human and we have all experienced significant life events. Rooted in expert service and human connections, we pride ourselves on creating tailored solutions. Our office can see beyond the paperwork, understand the situation and package the stories in a way that Lenders are scrambling to lend money!
Call us today to find out what we can do for your clients.
Credit issues:
• Consumer Proposal / Bankruptcy discharged 1 day
• Can Pay out Proposals, CRA, Judgements, Collections, Property Taxes with Proceeds of loan
• Limited Credit History: Alternate credit is acceptable via 12 months of bank statements showing rent or mortgage paid, along with alternate trades (no re -established credit on bureau required
• Bankruptcy / proposal documents required upfront: List of creditors, Statement of Affairs, Discharge Certificate
• Remaining in Consumer Proposal, Double bankruptcies & property involved – Private investors available
Income Verification Issues:
• Universal child care benefit
• Child tax credit
• Alimony/child support
• Foster Care
• Bank Stmt deposits
• Rental Offsets / Add Backs for suites of 100%
• Extended debt service ratios from 44%-60%
Back in the day someone would ask me – what’s your best rate, Janette? And like MAGIC (!) I would be able to quote them in a matter of seconds. These days things are SO different. It is imperative that we as Brokers not promise any rates until we have at least a partial application – and here’s why:
There are 3 different “boxes” (that has nothing to do with credit or income) which a client needs to fit into that will to dictate their rate offering by the lenders:
1) Insured – a mortgage that is insured with mortgage default insurance through one of Canada’s mortgage insurers, CMHC, Sagen or Canada Guaranty. An insurance premium is added to, amortized, and paid along with the mortgage. The premiums range anywhere from .60% to 4% of the mortgage amount and gets smaller as you get closer to 20% down. Keep in mind, some deals may require these premiums be paid even if the client has 20% down, for added security to the deal. Insured mortgages are the safest type of mortgage loan for the banks and the most cost-effective way of lending mortgage money, so clients seeking or in need of an insured mortgage will likely get the best rate offering on the market.
2) Insurable – a mortgage that may not need mortgage insurance (20% or more down payment) but would qualify under the mortgage insurers rules. The client doesn’t have to pay an insurance premium but the lender has the option to if they choose. While Insured mortgages get the best rates, Insurable mortgages are typically a close second.
*Insured / Insurable mortgages can be bundled and sold as Mortgage Backed Securities (MBS), meaning banks can get that money back quickly so they can lend more out.
3) Uninsurable – a mortgage that does not meet mortgage insurer rules such as refinances or mortgages with an amortization longer than 25-years, OR purchases over 1M. There is no insurance premium required. If a mortgage is Uninsurable that means the banks have to lend their own money and have to commit to that loan for the full term at the very least. This makes it a more expensive loan for the bank, so they pass the cost on to the consumer as a premium on the rate – typically 10-20 basis-points higher. Consumers buying over 1M or looking to tap into the equity they’ve built (consolidation, investment, home renovations) or wanting to keep their payments as low as they can (30-year amortization) are paying the price.
What does it mean to co-sign a mortgage?
Somebody other than the prospective homeowner (typically a family member or friend) will usually co-sign on a mortgage if the prospective homeowner’s credit and income are not enough for them to qualify themselves. And it works both ways. It is possible that a family member or friend will one day ask that you co-sign on a mortgage if you have good credit and are financially stable.
To co-sign on a mortgage means that you agree to cover the prospective homeowner’s loan should they, for whatever reason, be incapable of affording their own payments or if they default. If you do agree to co-sign, you will become a co-borrower until your name is taken off the contract when the homeowner is financially stable or until the homeowner pays off their loan. You would not, however, receive any of the standard benefits of the mortgage.
Whether the primary borrower is the person making the payments, the co-signer agreement means the lender will be guaranteed that the loan payments will be made, one way or another. Because of that guarantee, the homeowner will have a better time qualifying for a good loan, payment plan, and interest rate.
When does a mortgage applicant need a co-signer?
A mortgage applicant would need a co-signer if he or she has bad credit. Most commonly, a fresh graduate with a short employment history would have bad credit, in which case a co-signer would usually be needed for a first-time home purchase. Another common example, historically, was a borrower who had damaged their credit history after running into trouble on loans or making payments.
Today, the real estate market offers some of the best-ever mortgage rates, though there are plenty of reasons to ask someone to co-sign on your mortgage. low wages coupled with higher home prices and strict lending criteria all play a role.
Co-signer vs. guarantor: what’s the difference?
The difference between a co-signer versus a guarantor basically comes down to claim over the property or share of the home’s title, among other factors. A co-signer is a person who will agree to make the homebuyer’s mortgage payments if he or she can not afford them, or if they default on their loan. Typically, a mortgage co-signer is a parent, guardian, or sibling. Because the mortgage co-signer and the homebuyer are both connected to the loan, their credit history, debts, and income will be inspected. This means that the co-signer could have some claim over the property.
While a mortgage guarantor also provides a guarantee that the homebuyer will make the mortgage payments, regardless of the circumstance, a guarantor does not sign the mortgage, share the home’s title, or own a portion of the property. Usually, a guarantor will help a strong applicant qualify for an even better interest rate or mortgage but will still have their credit and finances scrutinized.
Risks of co-signing a mortgage
There is a major risk when co-signing a mortgage. You should only consider acting as a co-signer if you are 100% confident with sharing the debt that may come your way. Since parents and other family members are more likely to have strong credit and bigger incomes in later life, the majority of Canadians turn to family to act as co-signers. Rather than simply tapping a person who is stable financially, however, it is important to ensure they are reliable if they have to take over the mortgage payments. Your co-signer might not be your co-signer indefinitely, but it will likely be uncomplicated and more safe for all involved if you can one day resume your mortgage payments, letting them off the hook.
How to do co-signing a mortgage in Canada?
If you default as primary borrower, it could cause you serious damage financially. This is where a co-signer would step in—making it a major responsibility for them. It is critical, therefore, that everyone exercise due diligence throughout the process. If you want to co-sign a mortgage in Canada, here are some steps you will need to take.
Copy the paperwork. Prior to signing—read everything, first and foremost. Then retain copies of any and all paperwork for your own records.
Get mortgage account info. Make sure that the mortgage payments are being made promptly each month. This step is especially important because late payments impact your credit score.
Get insurance. To cover debts in the event of disability or death, encourage the primary borrower to get suitable term life insurance or mortgage life insurance.
Understand the legality. Since your estate and taxes could be affected if you co-sign on a mortgage, ensure you talk with a real estate lawyer. That will help you fully grasp the implications of co-signing on a mortgage.
Is it a good idea to co-sign a mortgage?
Prior to signing any type of contract, it is critical to assess the situation and conduct your research, whether you are asking another party to co-sign your mortgage or you are asked to act as co-signer. Co-signing a mortgage is a heavy responsibility financially minus any of the benefits of being a true property owner. It is important to remember, however, that when you co-sign on a mortgage you are also a partial borrower. If the homebuyer defaults or is for whatever reason unable to make the mortgage payments, you will be on the hook. For that reason, co-signers are usually financially established people like parents or family members.
