More About Second Mortgage

1. MORE ABOUT SECOND MORTGAGE

2. SYNOPSIS 1. The Impact of Canada's New Rule on the Real Estate Market 2. Everything To Know About Canada’s New Mortgage Rules For 2018 3. Second Mortgage Requirements in Ontario 4. What you don’t know about second mortgages 5. How To Combine Two Mortgages Into One 6. 3-Step Guide to Getting a Mortgage 7. Mortgage Rates in Ontario 8. Getting a Second Mortgage in Ontario

3. THE IMPACT OF CANADA'S NEW RULE ON THE REAL ESTATE MARKET Canada’s new mortgage rule appears to be a grim prospect for most applicants. In fact, according to the Bank of Canada, almost 10% of all prospective homebuyers with down payments of 20% or more, can be disqualified. The new rules have made it tougher for prospective borrowers to qualify for the mortgage. • The current rate set by the Bank of Canada is 4.99%. Also, the applicants must pass a stress test where they need to prove that they are capable of paying the mortgage even after an increase in the rates. All this has made it difficult for Canadians to purchase the property. These new rules set by the Canadian government are a means to control the real estate market in the larger cities. • A lot of property was being bought by people in the larger cities of Canada, which was causing overpopulation in those regions. In addition, the increased demand was causing the housing prices to soar. Thus, in a bid to put a cap on the market, the government introduced the stress tests. • While the new mortgage rules did cut down the real estate demand, it certainly did not affect the prices, which are still sky-high. According to a study published by Royal LePage, a drop was witnessed in the sales activity in the first quarter of 2018, in Greater Vancouver. In comparison to the numbers in 2017, the sales of luxury homes in 2018 dropped by 38.2%, while the sales of luxury condominiums dropped by 26.5%. Despite which, the prices of real estate in Greater Vancouver went sky-rocketing; the prices for luxury homes rose by 5.2% (valuing each unit at $5,792,941), while a rise 7% was seen in the value of luxury condominiums (valuing each unit at $2,503,873) on an average. •

4. EVERYTHING TO KNOW ABOUT CANADA’S NEW MORTGAGE RULES FOR 2018 • Who will be affected by these changes? All mortgage lenders that are federally regulated, need to abide by these new rules. Others affected by these new rules are the people who are applying for a mortgage with a 20% down payment or higher. • • What is the qualifying requirement? The mortgage applicants must qualify for the Bank of Canada’s five-year benchmark rate, which currently is 4.99%, or +2% (200 basis points more than the current rate) on the contractual rate, depending on which one is higher. • • What willthe effects of these new mortgage rules be? These new rules set by the OSFI will not only affect the Canadian real estate market, but also the overall economy of the country. These new rules are bad news for consumers who have their hearts set on buying a home for themselves and were leaning towards mortgage options. •

5. SECOND MORTGAGE REQUIREMENTS IN ONTARIO Equity–The highest amount the lender will give you is 75% of your current home value. It means your first loan and second loan combine equals to 75%. Some private lenders do allow 80% to 90% of the loan depending on the situation. • Income – mostly every lender will look at your income. They want to make sure that you are able to pay off the loan without any hassle. Depending on your income, they might have better offer that you want to consider. However, the rules for income are not strict and some lenders might not pay attention to it. • Credit score – if you have a bad credit score, the second mortgage may not be easy to get. The better credit history, the better interest rate. Banks and private lenders get assurance by looking at your credit score. • Property Value – the value of your property decides your loan. The lender wants to ensure that in case of foreclosure how much amount they can get back. •

6. WHAT YOU DON’T KNOW ABOUT SECOND MORTGAGES You get your second mortgage against your home that means you can get up to 60% to 80% of amount depending on your home value. You can go to any lender and apply for the second loan. However, remember that your first and second loan would count in total which means whatever amount you borrowed as your first loan would be counted in your second loan. The second mortgage usually has a low interest rate as compared to other debts and that is the main reason many people opt for the second mortgage. • In some cases, people borrow the second loan and pay most of the first loan, which has a high interest rate. This way they will still have a loan but with lower interest rate. It is not a good idea to use the second loan for holidays or foreign trips, as you would be keeping your home in line. • The biggest benefit of the second mortgage is it is tax deductible. The interest amount that you would pay on your second loan can be claimed when filing for your tax return. The best thing to do is consult your tax preparer and get some ideas on how you can save your money. •

7. HOW TO COMBINE TWO MORTGAGES INTO ONE Before starting out the process, make sure you do some homework. Your first loan is the loan you borrowed to purchase your home, whereas, your second loan is to pull out the cash for your other financing. The merging of two loans may add your cost and reduce the amount of the new loan. Another thing is refinancing your loan – this would adjust your interest rate on your current loan. Lenders consider this as the safest option because they would not be lending any extra money. • The consolidation process may be hectic, as it would involve lots of paperwork. The first step is to get in touch with two to three lenders who can offer you some best deals. The process starts with examining your first and second loan. Lenders will give you different options like waiving off closing costs depending on how long you have been associated with the bank. Remember, the paperwork is more lengthy and technical as compared to the single mortgage. • Find the lender who gives you best loan rates. Refinancing your loans may cost you some money. The best thing to do is get quotes from different lenders. Many lenders would visit your property and assess the value of the house to determine the equity. They want to ensure that equity is higher as compared to the two loans. •

8. 3-STEP GUIDE TO GETTING A MORTGAGE • Do your homework The first step to getting a mortgage is to have all your affairs in order. This covers a number of points including the borrower’s eligibility, affordability and preferences, and the property they are interested in. • When looking at different properties, there are two things that you should keep in mind apart from your own personal requirements for the house –the down payment required and the possible installments. You should have enough savings in the bank for you to put a down payment on the property, and some more. Also, you need to estimate how much money you are left with monthly after taking out all your fixed expenses and living costs. The amount you will be left with is what your monthly payments will come out of. • Run a personal ‘stress test’ to see if you are eligible for the new OSFI guidelines ahead of the actual process. Furthermore, you need to go through your credit history to see if you will appear to be a good risk for financial institutions or not. One way to improve your credit score is to pay off all pending loans, to increase your likelihood of getting a mortgage. •

9. 3-STEP GUIDE TO GETTING A MORTGAGE • Get pre-approved Visit a few banks, mortgage companies, trust companies, loan firms, and credit unions to get a pre-approval for your mortgage. The pre-approval process is basically an initial discussion with potential lenders about the rates and services they are offering, along with your eligibility and affordability after an evaluation of your assets and credit history. When going for a pre-approval interview, there are a number of documents you should have with you including your proof of employment, current pay slip, financial statements, and documents relevant to current loan payments, child support or other financial obligations. • Apply for the loan • Once you have everything clear including a property you like, your own finances, and a pre-approval from a good financial institution(s), all you have left to do is run a comparison and apply for the mortgage. Compare the rates being offered to you and select whichever is the lowest. Once you have taken your pick of the financial institution you want to enter into a deal with, you just have to gather your documents and apply for the loan. You will hear from the lenders soon; as soon as you get the go signal, you need to put the down payment on the property before someone else snags it. •

10. MORTGAGE RATES IN ONTARIO After around 10 years of keeping the interest rates low, the Central Bank of Canada finally increased its rates from 0.5% to 1.25%, in last July. Their rates remained constant even in the last month. This, however, was not the only increase in mortgage rates that the market witnessed since then. • In the last week of April this year, all major banks of Canada decided to hike up their rates including the Canadian Imperial Bank of Commerce, the Toronto Dominion Bank, and the Royal Bank of Canada. • According to Ratehub.ca, the offers on the rates for the five-year fixed mortgage, which previously were below 2.5%, have gone up by 3%. This is one of the reasons why people prefer taking out a five-year variable mortgage, over a five-year fixed mortgage. In fact, CompareMyRates.ca has confirmed that Canadians generally prefer five-year variable mortgage over the five-year fixed mortgage. Another reason for this preference is the fall in the five-year variable rates, witnessed in the recent years. However, whether this preference will remain or not, it all depends on the current and future variable rates. • Currently HSBC, Home Trust, and Canada Trust are offering the best mortgage rates on variable loans. The lowest mortgage rate being offered was 2.52% by HSBC, on a five-year variable loan. While Tangerine, HSBC and Canada Trust are offering the best rates on fixed loans. The lowest rate being 2.79% by Tangerine on a two-year fixed closed loan. •

11. GETTING A SECOND MORTGAGE IN ONTARIO The paperwork associated with filing for a second mortgage is the same as the first mortgage. Before submitting the paperwork make sure it includes necessary documents needed to secure the mortgage. The documents needed are as follows: • Home appraisal documents • Any paperwork related to disclosures, • The number of fees paid with receipts • Any documents that can prove your means of employment or source of income • Credit score to determine your capability to pay off the debt •

12. GETTING A SECOND MORTGAGE IN ONTARIO Social insurance number • All paperwork related to the first mortgage • Bank statements • • A Suitable Exit Strategy on Second Mortgage As a property owner, you must have an intention to pay down the mortgage related payments as soon as possible on your second mortgage. Any delays in payments will have a negative effect on your mortgage payment structure. Before making, any commitments related to the mortgage financing for the second time plan an exit strategy to protect your assets. •

13. THE END For more details, please visit: https://mortgagesolutionsgroup.ca/second-mortgage/