Category Archives: cosigning a mortgage

How to read your mortgage documents

(Freeimages.com / Evan Earwicker)

A snapshot of typical mortgage documents and a few tips on what to watch out for

Thomas Bruner was a well-informed and financially savvy shopper. Thank goodness. Because his bank made errors in his mortgage documents. Big errors.

It was late 2015 and Bruner and his wife, Leslie, were in the process of selling their North York town-home to move into a larger upper beaches family home in the east end of Toronto. (We’ve changed names to protect privacy.) As a number-cruncher, Bruner knew how important it was to shop around for the best mortgage rate and was delighted to secure a five-year fixed rate of 2.49% with his current bank. To get that rate, he’d shopped around and negotiated hard with the bank representative at his local branch. But when the purchase of the home was closer to being finalized, Bruner was transferred to a bank mortgage specialist. That’s when the problems started.

A meticulous man, Bruner read every word of the 30-page mortgage document—some of it in small, fine print, and other sections bogged down with legal jargon. An hour later, Bruner emerged stunned. His bank had made a mistake. A big mistake. A mistake that added $100s to his monthly payments and tens of thousands in interest over the life of the mortgage.

Instead of 2.49%, they’d calculated his mortgage payments based on a rate of 2.99%. The bank had also changed the rate of payments from biweekly to monthly. If he’d signed the mortgage documents without reading the package, he would’ve paid more than $4,075 in extra interest payment,over the five year term*. That’s no small change. (*Assumes a $450,000 mortgage amortized over 25 years, interest calculated based on a five-year term.)

So, Bruner called the bank’s mortgage specialist. Rather than apologize and amend the error, the mortgage rep tried to argue that this was now the going mortgage rate—the best the bank could offer. Bruner was stunned, yet again. “I argued back,” he recalls, “explaining that we had locked in our rate during the pre-approval process. We were only 40-or-so days into the 90-day rate-hold guarantee.”

Screwed by the bank?

Bruner isn’t the only one to notice problems. According to the Ombudsman for Banking Services and Investments (OBSI), errors made by the banks rank No. 4 in the top 10 reasons for customer complaints. However, when asked for specific statistics on the precise number of complaints lodged, and how many of these complaints directly relate to errors in mortgage documents, an OBSI spokesperson replied that they don’t release this information. Instead, the OBSI offers very pretty spiderweb and sunburst visual representations of customer complaints.

This lack of transparency prompts the question: How many other people have been screwed by a professional working in the real estate market? (Cue the wrath of every bank, mortgage broker, home inspector, insurance agent, realtor and renovator involved in this industry.)

Still, how many of us signed a document only to realize, after the fact, that there was an extra charge? Or found an error that’s in the lender’s favour? While reading every page of every legal document we sign is the smart, prudent thing to do, truth be told very few of us understand all of what’s written in an insurance contract, mortgage document or even a purchase and sale agreement.

To help, here’s a snapshot of typical mortgage documents and a few tips on what to watch out for—keep in mind every lender have their own versions of this document, so this is meant to be illustrative only.

 

To help you process the information, consider the following.

Look for key rates and terms

mortgage documents

The pink arrow points to the mortgage interest rate that you will be charged during the duration of the loan term. Check this. Even a 10 basis point change in the rate can add up over the long haul.

The green arrow points to the length of your amortization, expressed by the number of months. Check this. Some of the biggest mortgage document errors are in how long a loan is amortized for; while a cheaper monthly rate can seem appealing, this sort of error can tack on tens of thousands of extra interest costs over time. Above this amortization rate, is your term length—how long you’re committed to pay this lender, based on the rates and terms you’ve both agreed upon. The line should also state whether you’ve agreed to a fixed, variable or open mortgage. . The type of mortgage you agree to can have serious implications on the penalties you’re charged should you opt to make an extra payment, or break your mortgage agreement. For simplicity sake, a one year mortgage is expressed as 12 months, while a five-year mortgage term is expressed as 60 months and a 25 years amortization is expressed as 300 months.

 

The three numbers in the red box reflect the monthly mortgage rate you will pay (a mixture of principal plus interest), the monthly property tax you will pay to your bank (who will then make a payment on your behalf) and the total amount you will pay based on the addition of these two amounts. If you want to double-check your lender’s math, try Dr. Karl’s Mortgage calculator.

The orange arrow is how frequently you will make payments to your lender. Check this. Not only does payment frequency help reduce the overall interest you end up paying, but to make changes after you’ve signed your document can cost you an out-of-pocket fee.

The yellow arrow is the day you first get your money and the day the interest clock starts ticking. Pay attention to this. Some lenders will charge you a larger amount for the first payment of your mortgage to cover the interest that has accrued from the Advance Date to the day you make a payment against the outstanding loan. Some lenders don’t increase the first payment, but allocate a larger portion of this payment to pay off the outstanding interest. Either way, you want to be clear about what’s being charged, and when.

Don’t forget property taxes

Mortgage documents

Under the property taxes clause you will notice that the monthly sum added to your mortgage payment is an “estimate” based on the lender’s assessment of your annual property taxes. If you don’t want to pay your property tax monthly or you want to amend how much you pay you’ll need to negotiate this with your lender.

Loan prepayment privileges can make or break a penalty

mortgage documents

In recent years, we’ve heard a lot about mortgage penalty fees. You pay these penalties to your lender whenever you break the negotiated terms of your loan contract. If you have an open mortgage, there should be no penalties for pre-payments or to pay-off the entire loan before the end of the negotiated term. If you have a variable-rate mortgage, you will be charged a penalty that’s equivalent to three months of mortgage payments, plus administrative fees. If you have a fixed-rate mortgage, you will be charged a fee that’s calculated using the Interest Rate Differential calculation. This calculation is different for every lender, but it can add up, quickly.

 

Planning a reno? Read the fine print

mortgage documents

Many homebuyers are shocked to learn that they can void their home insurance policy if they undertake home modifications or renovations without first notifying the insurance company and, typically, paying an additional premium. But did you know you can also void your mortgage loan contract—and prompt a lender to recall and cancel the loan—if you obtain a mortgage and don’t disclose intended construction, alterations or renovations to the home? Read your mortgage contract carefully to see exactly what must be disclosed.

Be prepared with documentation

mortgage documents

When reading your mortgage contract the lender will typically list the type of documents you are required to submit in order to verify the information you have provided. This will include pay-stubs, Notice of Assessments for your income tax, as well as additional loan or income verification. But don’t be surprised if your lender follows up with requests for additional documentation. Typically, they cover this off with a broad statement that notifies you that any information they request must be provided. A sample of this type of statement is above, in the red square highlight.

 

Check the accuracy of the payment frequency

mortgage documents

Do you have a plan to pay off your mortgage quickly? Part of that plan may include how often you pay your mortgage—the more frequent the payments, the more you pay and that means paying off the principal faster, which reduces the overall interest you pay for the loan. Every mortgage document will have an area where you can choose the frequency of payments. Be sure to check off your selection, as making change after the document is signed will cost you, as you can see below (in the red circle).

mortgage documents

Administrative fees to open and close a mortgage loan can add up. Ask for an amortization schedule—to verify how much of each payment is going towards the principal and how much is interest—and you’ll need to pay your lender. Want a mortgage statement? Fork out more money. Need to renew, you may be slapped with an additional fee. But the one that can be annoying, even if it is relatively minor, is the “Payment Change Fee” (highlighted in red). If there’s an error in your payment frequency in mortgage document you signed and you phone to make a correction, this lender will slap you with a $50 fee. Not your error, but it is your penalty. To avoid paying unnecessary fees, make sure to check your mortgage documents for inaccuracies.

 

Make sure you have insurance

mortgage documents

Did you buy a home but forget to shop for a home insurance policy? If your mortgage advance date arrives and you still haven’t been able to submit valid home insurance to your lender, expect a fee. For example, this lender charges $200 per month until you can provide evidence of a valid insurance policy for the home.

Other fees are deducted from the loan amount

mortgage documents

Did your lender ask for an appraisal on the home you want to buy? Don’t be surprised if you have to pay for that report (see highlights above). Plus, some lenders who require title insurance will deduct it from the total amount loaned to you; it’s only a few hundred dollars, but it can leave you scratching your head as to why you didn’t get your full mortgage-loan amount.

 

Where to go to complain

mortgage documents

Have questions or concerns about your mortgage documents? In your contract you should see a clause that clearly states how to get in touch with your lender or how to lodge a complaint. If this doesn’t work, and you’ve worked with a mortgage broker, contact the broker directly. They should work on your behalf to sort out any discrepancies with the lender. Finally, if your independent broker isn’t helpful or if you went through a bank to get a loan and you’re not getting anywhere, consider contacting the bank’s ombudsman. This is an independent role within a financial institution that’s tasked with addressing consumer complaints. If this fails, consider lodging a complaint with OBSI. But be warned: It can take up to nine months just to get an answer on a complaint, sometimes longer.

Scan the mortgage snapshot

mortgage documents

Finally, almost all lenders now provide a synopsis of all fees and terms in that back of your loan document. This doesn’t mean you should skip over the body of the document, but this summary is a great spot to start verifying if key terms, such as the mortgage rate and the length of amortization, is accurate. If not, mark it, and go back to your lender. Don’t be afraid to fight for what you agreed to. Bruner wasn’t.

Despite the reluctance by his bank’s mortgage specialist, Bruner eventually got the rate he was initially promised. One key component to his negotiations were the emails he’d kept. The correspondence was evidence of what Bruner was promised and made it hard for the bank to rescind the initial offer.

Source: Money Sense – by   October 31st, 2016

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Things You Should Know About Mortgages

Things You Should Know About Mortgages

House hunting can be both exciting and stressful and it’s one of the biggest purchases most people make in their lives. When it comes to financing your home or business, Northwood Mortgage can answer all your mortgage questions, taking the edge off an exasperating experience.

What does a mortgage broker do?

A mortgage broker secures financing for you. He or she can steer you in the right direction and provide guidance on what would be most beneficial to your personal situation. A broker knows the marketplace and is constantly in touch with banks and other lenders to get you the best mortgage possible. Mortgage agents work for mortgage brokers who hold licences.

Who pays them?

The bank or lender is responsible for paying the broker’s commission. That amount depends upon how much you’ve borrowed.

Fixed mortgage

You’ll be paying the same amount in principal and interest for the term of your mortgage no matter what interest rates do. Many homebuyers prefer this type of mortgage because they know what to expect even though there’s a chance interest rates may drop. It’s a tradeoff for stability.

Variable mortgage

Keep an eye on the prime rate because with a variable mortgage you’ll be paying according to what interest rates do. There is a chance you may have to pay more if the rate increases, but on the other hand, you’ll shell out less if rates drop.

Open versus closed rates

An open rate can be variable or fixed. It’s generally more flexible and has a higher rate of interest than a closed mortgage. You can pay it off or make more payments with any penalty. A closed rate can also be variable or fixed. Most folks opt for closed rate mortgages since the rates are lower, but you can only pay on the principal as stated. Paying it out early will net you penalties.

What about the Canadian Mortgage and Housing Corporation (CMHC)?

This government corporation gives residential homebuyers default loan insurance, providing assistance to those who find it financially cumbersome when it comes to buying a house. This insurance will cost you anywhere from 1.75 to 2.95 per cent of the entire amount of your mortgage. It gives banks and lenders protection in case you can’t pay your mortgage. You must be a Canadian citizen to take advantage of what CMHC offers.

Northwood Mortgage is one of the largest mortgage brokerage firms in the Greater Toronto Area and we know the ins and outs of the lending world and will be able to answer any queries you have. Not only do we arrange mortgages for homebuyers, but we also work with investors and those in the industrial and commercial sectors to arrange loans in the millions of dollars.

With all there is to know about mortgages and all the terms that come with that information, your best course of action is to call Northwood Mortgage. One of more than 200 experts available will tell you about their exemplary services.

Source: http://www.NorthwoodMortgage.com

 

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Mortgage brokers the best guides in current fiscal climate

In a purchasing environment characterized by a recovering economy, intense consumer competition, and ever-increasing prices in the best-performing markets, mortgage specialists remain to be the best guides in the current fiscal climate, according to an industry analyst.

The temptation to buy right away and snap up the remaining almost-affordable properties in Toronto and Vancouver might be strong—especially for young professionals and other members of the millennial market who are increasingly feeling the pinch of lower purchasing power stemming from static wages and inexorably growing costs.

“On top of that, lenders are offering very low interest rates right now, so it’s hard to resist the lure of getting in while the market is up and rates are low,” analyst Melissa Dunne wrote in her Yahoo! Canada Finance breakdown piece.

Dunne pointed at offerings such as the Meridian Credit Union’s 1.69 per cent fixed mortgage rate (for one year) as understandably attractive for the younger set. However, a closer analysis of the fine print reveals that a home buyer going for this package would be locked into a fixed rate of 2.59 per cent over a period of five years after the first 12 months are up.

“So, homebuyers need to ask themselves: If my mortgage went up a few hundred dollars per month, can I pay that increased amount and for how long?” the analyst warned.

This is where the unique knowledge of a mortgage specialist would come in, Dunne said. Such a professional can give young buyers a more accurate and complete picture of their purchasing and payment prospects.
Meridian Credit Union agreed with the assessment.

“The ideal mortgage really depends on your risk appetite,” vice president of sales and service Wade Stayer said, adding that an informed choice on the prospective buyer’s part would benefit both the consumer and the loan originator in the long run.

 

Source: Canadian Real Estate Wealth by Ephraim Vecina 30 Mar 2016

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Mortgage rates, charges decisive factors for consumers

A combination of reasonable mortgage rates, no unexpected charges, and special features were the most important factors in consumers’ choice of mortgage originator, according to a recent survey conducted by financial services firm D+H.

The study’s results accompanied the increased popularity of the internet as a valuable resource for would-be borrowers, giving them more confidence in their transactions as well as making them more wary of hidden fees.

“People are asking the right questions. Even a caveman could find the lowest mortgage rates online within seconds. What you can’t learn as easily are the hidden costs, including mind-blowing penalties, inflated blend and increase rates (the rates lenders charge on any new money you add to your mortgage), ridiculous rates to convert from a variable mortgage to a fixed, aggravating fees to switch lenders, restrictions when porting your mortgage, and so on,” mortgage columnist and RateSpy.com founder Robert McLister wrote in a February 28 piece for The Globe and Mail.

McLister stated that the results pointed at the growing importance of a second informed opinion, apart from online information, in determining the best mortgage rates available.
 
“It’s no surprise, then, that two out of three borrowers value the person arranging their mortgage more than the lender itself. And they should. Lender reputation is immaterial compared to proper guidance and mortgage flexibility,” McLister said.

The survey also revealed that the largest contributor to consumer satisfaction is the absence of time pressure, which can be achieved by the broker going the “extra mile” to assist with the details.

“Besides time pressure, the survey found the biggest headaches for borrowers were paperwork, uncertainty about getting the best rate and finding the time to meet with a banker or broker,” McLister noted.

Source: MortgageBrokerNews.ca – by Ephraim Vecina | 02 Mar 2016 

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…mortgages made simple…

Slide3

THE RAY C. MCMILLAN ADVANTAGE

The Ray McMillan Mortgage Team  is licensed through Northwood Mortgage Ltd. We deal with major banks, trust, life insurance, finance companies and private lenders. We are licensed to provide the most competitive mortgage rates and terms available for your real estate financing needs throughout Ontario.

OUR SERVICE INCLUDES:

 

  • First and second mortgages
  • Transfers
  • Condominium/Townhouse purchases
  • Home Improvement Loans
  • Construction Loans
  • Debt Consolidation
  • Refinancing
  • Power of Sale
  • Multi-residential
  • Vacant land
  • Cottages and recreational properties
  • Rural and farm properties

 

 

ARE THERE ANY COSTS INVOLVED?

When we arrange a prime residential first mortgage the lender pays us a finder’s fee.This does not affect the rate our terms of the mortgage in any way.

When we arrange any other type of mortgage that does not qualify as a prime residential mortgage then the lender does not pay us. We must then charge a brokerage fee*. The fee is based on the complexity involved to arrange the mortgage.

any-questions

You have mortgage questions, the Ray McMillan Mortgage Team has answers.

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Big bank makes unique offer to try to entice clients to switch

Scotiabank is currently offering potential clients the chance to switch their mortgage over – and earn 24 free movie passes for their trouble.

Not the most enticing offer – it will save avid movie goers $355, based on ticket prices at downtown Toronto’s most central Cineplex.

However, the bank claims the switching process is easy and that it would even cover transfer and discharge fees.

A fee-free chance to for a client to switch their mortgage and earn free movie passes?

Not quite.

“Discharge and transfer fees – which are usually a couple hundred dollars — are separate form penalties,” Anson Martin, a broker with VericoFair Mortgage Solutions, told MortgageBrokerNews.ca. “Prepayment penalties can be in the thousands.”

Scotiabank does mention prepayment penalties on its website for the promotion. In the fine print, at least.

“Prepayment charges with your existing lender may be applicable if the mortgage has not reached the maturity date,” the bank writes.

This promotion is the latest in a long tradition of big bank ploys to entice other lenders’ clients.

Last September, CIBC ran an advertising campaign that promised clients could switch their mortgages over for free. And earn some cash.

The campaign – which was being pushed online and in print advertisement, including A-frame boards outside branches – told potential clients that, for a limited time, they could switch their mortgage to CIBC for free, and get up to 5% cash back.

A disclaimer did state that the “free” switch doesn’t include existing lender fees.

Source: MortgageBrokerNews.ca  by Justin da Rosa | 07 Jan 2016

Thinking of switching your mortgage? Sit down with and independent mortgage professional and explore all your options. Contact the Ray C. McMillan Mortgage Team or visit www.RayMcMillan.com to schedule your no obligation consultation.

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Joint tenancy can help avoid probate fees but not necessarily capital gains tax.

Joint tenancy can help avoid probate fees but not necessarily capital gains tax. 

Q: I have joint tenancy with my mother on two properties—a condo in Toronto and a cottage in Kawartha Lakes. She passed away in June 2014. I am keeping both properties. My accountant says that he can count the condo as my mom’s primary residence, but I have to pay capital gains tax on the cottage even though we have joint tenancy. I thought that with the right of survivorship, I didn’t need to pay capital gains tax? He says I am wrong. Can you please tell me what you think?

Kim

A: The Canadian Inheritance Study by Decima Research estimates that about $1 trillion in inheritances will be received by Canadian Boomers in the next 20 years. So your estate planning conundrum is becoming increasingly common, Kim.

When property is owned by more than one party, it is frequently held in joint tenancy with the right of survivorship. Spouses typically hold property as joint tenants, whereby upon the death of the first, the asset passes directly to the survivor and does not make up part of the estate of the deceased. More and more, I am seeing elderly parents holding property in joint tenancy with their children, which has pros and cons.

One of the pros is that the time and cost to administer an estate may be reduced. In particular, assets held in joint tenancy that pass to a survivor typically avoid probate fees. Probate fees in Canada can be as high as 1.5% of an estate (Ontario) and must be paid on certain assets in order to validate the will and permit the estate trustee to distribute assets to the beneficiaries. Other provinces have lower, flat fees and probate is less of a financial concern.

One of the many cons is that capital gains tax issues may arise.

In some cases, Kim, when someone gifts an asset to another person, there is capital gains tax that arises at the time of transfer. This is because when you transfer an asset to a third party—or any part thereof—even if money hasn’t changed hands, you are generally deemed to have sold it at fair market value.

In your case, it could likely be argued that the gift of half of your mother’s condo and cottage was not an outright gift, but rather, a case of a resulting trust. Assuming your mother was the sole owner at the time of transfer, used the properties herself and paid the ongoing maintenance costs, case law may suggest that the presumption of advancement did not apply and you were technically holding half the properties in trust for your mother. Accordingly, capital gains tax would not apply at the time of transfer. Though the properties may have been legally held jointly by the two of you, the properties were still beneficially your mother’s until her death.

Ask a Planner: Leave your question for Jason Heath »

Every Canadian is entitled to have one principal residence that grows in value tax-free. Your mother had two properties, meaning that one of them was growing in value on a tax-deferred basis. On your mother’s death, she would be deemed to have sold the two properties and one sale would be taxable, regardless of her holding the properties jointly with you. Capital gains tax would be payable at that time.

So I’m sorry to report that your accountant is correct, Kim. There is capital gains tax payable on one of your mother’s properties. You have discretion as to which property you deem to be her principal residence and you may be able to designate one property as her principal residence for some period of time and one property for another period of time. In other words, if she owned her condo for 20 years and her cottage for 10 years, you might deem her condo to be her principal residence for the first 10 and her cottage for the second 10, in particular if the cottage was worth more and/or rose more in value.

In this example, half the condo capital gain would be taxable and the cottage capital gain would be tax-free. In this way, you can at least retroactively minimize the capital gains tax payable.

Another important point is that if your mother didn’t pay capital gains tax when she gifted the properties to you, which I assume she didn’t, the properties may technically be subject to probate and the resulting cost of probate fees. This is because these assets still technically belonged to your mother on her death and likely should have made up part of her estate for probate purposes.

Capital gains tax is a fact of life, Kim. And in this case, a fact of death. Although it’s unfortunate to pay it, it’s better than the alternative—having an investment that has not gone up in value or worse yet, has lost money.

Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto, Ont. He does not sell any financial products whatsoever.