Category Archives: mortgage default

Millions of Americans still trapped in debt-logged homes ten years after crisis

EAST STROUDSBURG, Pa., 2018 (Reuters) – School bus driver Michael Payne was renting an apartment on the 30th floor of a New York City high-rise, where the landlord’s idea of fixing broken windows was to cover them with boards.

Click here to hear Payne’s story. 

So when Payne and his wife Gail saw ads in the tabloids for brand-new houses in the Pennsylvania mountains for under $200,000, they saw an escape. The middle-aged couple took out a mortgage on a $168,000, four-bedroom home in a gated community with swimming pools, tennis courts and a clubhouse.

“It was going for the American Dream,” Payne, now 61, said recently as he sat in his living room. “We felt rich.”

Today the powder-blue split-level is worth less than half of what they paid for it 12 years ago at the peak of the nation’s housing bubble.

Located about 80 miles northwest of New York City in Monroe County, Pennsylvania, their home resides in one of the sickest real estate markets in the United States, according to a Reuters analysis of data provided by a leading realty tracking firm. More than one-quarter of homeowners in Monroe County are deeply “underwater,” meaning they still owe more to their lenders than their houses are worth.

The world has moved on from the global financial crisis. Hard-hit areas such as Las Vegas and the Rust Belt cities of Pittsburgh and Cleveland have seen their fortunes improve.

But the Paynes and about 5.1 million other U.S. homeowners are still living with the fallout from the real estate bust that triggered the epic downturn.

As of June 30, nearly one in 10 American homes with mortgages were “seriously” underwater, according to Irvine, California-based ATTOM Data Solutions, meaning that their market values were at least 25 percent lower than the balance remaining on their mortgages.

It is an improvement from 2012, when average prices hit bottom and properties with severe negative equity topped out at 29 percent, or 12.8 million homes. Still, it is double the rate considered healthy by real estate analysts.

“These are the housing markets that the recovery forgot,” said Daren Blomquist, a senior vice president at ATTOM.

Lingering pain from the crash is deep. But it has fallen disproportionately on commuter towns and distant exurbs in the eastern half of the United States, a Reuters analysis of county real estate data shows. Among the hardest hit are bedroom communities in the Midwest, mid-Atlantic and Southeast regions, where income and job growth have been weaker than the national norm.

Reuters Graphic

Developments in outlying communities typically suffer in downturns. But a comeback has been harder this time around, analysts say, because the home-price run-ups were so extreme, and the economies of many of these Midwestern and Eastern metro areas have lagged those of more vibrant areas of the country.

A home is seen in the Penn Estates development where most of the homeowners are underwater on their mortgages in East Straudsburg, Pennsylvania, U.S., June 20, 2018. REUTERS/Mike Segar

“The markets that came roaring back are the coastal markets,” said Mark Zandi, chief economist at Moody’s Analytics. He said land restrictions and sales to international buyers have helped buoy demand in those areas. “In the middle of the country, you have more flat-lined economies. There’s no supply constraints. All of these things have weighed on prices.”

In addition to exurbs, military communities showed high concentrations of underwater homes, the Reuters analysis showed. Five of the Top 10 underwater counties are near military bases and boast large populations of active-duty soldiers and veterans.

Many of these families obtained financing through the U.S. Department of Veterans Affairs. The VA makes it easy for service members to qualify for mortgages, but goes to great lengths to prevent defaults. It is a big reason many military borrowers have held on to their negative-equity homes even as millions of civilians walked away.

A poor credit history can threaten a soldier’s security clearance. And those who default risk never getting another VA loan, said Jackie Haliburton, a Veterans Service Officer in Hoke County, North Carolina, home to part of the giant Fort Bragg military installation and one of the most underwater counties in the country.

“You will keep paying, no matter what, because you want to make sure you can hang on to that benefit,” Haliburton said.

These and other casualties of the real estate meltdown are easy to overlook as homes in much of the country are again fetching record prices.

 

But in Underwater America, homeowners face painful choices. To sell at current prices would mean accepting huge losses and laying out cash to pay off mortgage debt. Leasing these properties often won’t cover the owners’ monthly costs. Those who default will trash their credit scores for years to come.

DREAMS DEFERRED

Special education teacher Gail Payne noses her Toyota Rav 4 out of the driveway most workdays by 5 a.m. for the two-hour ride to her job in New York City’s Bronx borough.

“I hate the commute, I really, really do,” Payne said. “I’m tired.”

Now 66, she and husband Michael were counting on equity from the sale of their house to fund their retirement in Florida. For now, that remains a dream.

The Paynes’ gated community of Penn Estates, in East Stroudsburg, Pennsylvania, is among scores that sprang up in Monroe County during the housing boom.

Prices looked appealing to city dwellers suffering from urban sticker shock. But newcomers didn’t grasp how irrational things had become: At the peak, prices on some homes ballooned by more than 25 percent within months.

Slideshow (19 Images)

Today, homes that once fetched north of $300,000 now sell for as little as $72,000. But even at those prices, empty houses languish on the market. When the easy credit vanished, so did a huge pool of potential buyers.

Eight hundred miles to the west, in an unincorporated area of Boone County, Illinois, the Candlewick Lake Homeowners Association begins its monthly board meeting with the Pledge of Allegiance and a prayer.

Nearly 40 percent of the 9,800 homes with mortgages in this county about 80 miles northwest of Chicago are underwater, according to the ATTOM data. Some houses that went for $225,000 during the boom are now worth about $85,000, property records show.

By early 2010, unemployment topped 18 percent after a local auto assembly plant laid off hundreds of workers. At Candlewick Lake, so many people walked away from their homes that as many as a third of its houses were vacant, said Karl Johnson, chairman of the Boone County board of supervisors.

“It just got ugly, real ugly, and we are still battling to come back from it,” Johnson said.

While the local job market has recovered, signs of financial strain are still evident at Candlewick Lake.

The community’s roads are beat up. The entryway, meeting center and fence could all use a facelift, residents say. The lake has become a weed-choked “mess,” “a cesspool,” according to residents who spoke out at an association meeting earlier this year. Association manager Theresa Balk says a recent chemical treatment is helping.

 

“A gated community like this, with our rules and fees, it may be just less attractive now to the general public,” he said.

Source: Reuters.com – Reporting by Michelle Conlin and Robin Respaut; Editing by Marla Dickerson SEPTEMBER 14, 2018

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How divorces affect mortgages


How divorces affect mortgagesThey say about half of all marriages end in divorce—whatever the figure, complications arise when it comes to dividing assets like homes, and determining who keeps making mortgage payments.

“It’s a commercial transaction irrelevant to marital status,” said Nathalie Boutet of Boutet Family Law & Mediation. “If one person moves out and the other stays in the house, they still have an obligation to pay the mortgage to the bank, so the sooner the separating spouses make an arrangement the better because it could impact credit rating.”

According to Statistics Canada, there were roughly 2.64 million divorced people living in Canada last year—a figure brokers may not find surprising. While divorcing couples often fight over their marital home as an asset, the gamut of considerations is in fact more onerous.

“With the stress test, it’s a lot harder,” said Nick Kyprianou, president and CEO of RiverRock Mortgage Investment Corporation. “The challenge is qualifying again with a single salary. The stress test adds a whole other level of complexity to the servicing.”

Additional complexities include a new appraisal, application, and discharge fees.

“If you have a five-year mortgage and you’re only two years into it, there will be some penalties,” said Kyprianou. “Then there’s a situation of whether or not the person will qualify as a single person for a new mortgage.”

As an equity lender, RiverRock has welcomed into the fold its fair share of borrowers whose previous institutional lender wouldn’t allow one of the spouses to come off title because they were qualified together.

If one spouse is the mortgage holder and the other is not, Boutet explains how the law would mediate.

“Let’s say she owns the house and he moves in and pays her something she would put towards the mortgage but it’s still below market rent, she’s effectively giving him a break,” she said. “Would part of his rent go towards a little equity in the house because he helps pay the mortgage? Or is he ahead of the game because he pays less than he would to rent an apartment? What they have decided in this case is that a percentage of his payment will be given back to him as compensation for helping her out with her mortgage and he will never go on title.”

Boutet recommends that cohabitating couples, one of whom being a mortgage holder, should have frank discussions at the outset about where the rent payments go.

“Sometimes the person who pays rent has a false understanding of paying the mortgage. They have a misunderstanding of what that money is going towards.”

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Walking Away From A Mortgage in Canada

If you are over-mortgaged and facing negative equity in your home, can you walk away from your mortgage in Canada?  We explain what you can do when you can’t pay off the entirety of your mortgage loan after a sale or bank foreclosure.

How does a mortgage shortfall happen?

If you’re a homeowner and your mortgage is higher than the equity or the market value of your home, you are by definition, underwater. Meaning, if you sold your home today, you are not likely to get the full mortgage paid out by selling. Put another way, you have negative equity in your home.

Causes of a mortgage shortfall:

  • Price decline: you bought at the peak with a high-ratio mortgage, and the market dropped. For example, you bought a condo or a house for let’s say a million dollars with 10% down. The market subsequently flattens, and the list price is now $800,000, so you’re underwater by $100,000 plus selling costs, real estate commissions and potential mortgage penalties.
  • Debt consolidation: our typical homeowner client has more than $50,000 in unsecured debt. If you consolidate this through a second, or even third mortgage and the market softens, you can easily find yourself with less equity in your home that the total of all your mortgage debt.
  • Negative investment cash flow: you may have purchased an investment property and are funding the rental shortfall via a secured line of credit. If the market does not increase sufficiently to cover your accumulated cash loss, you may find yourself facing growing negative equity.

Canada has full recourse mortgage laws

A theoretical shortfall is not a real shortfall. You don’t have to sell. If you can keep your mortgage payments current, and expect that the market will return before you intend to sell you can hold tight.

If you are in default your lender will begin proceedings to collect. If you do not respond and cannot catch up on missed mortgage payments, your bank or lender will likely begin proceedings to sell your home through a power of sale.

If you sell with a shortfall, or your bank forecloses, you still owe your mortgage lender any deficiency between the money realized from the sale and the balance owing on your mortgage.

Should you sell your home for less than you borrowed and find yourself unable to repay the shortfall, in Ontario, your lender can pursue you to collect the difference, as they have full recourse:

Full recourse means that a lender can pursue you if your house is underwater and you sold your home, and there’s a shortfall … your mortgage lender can come after you legally for that debt in Canada.

How do I deal with an unsecured mortgage shortfall?

Like any debt, you are expected to make payments on it. If you are unable to pay back this shortfall, your creditors will pursue legal actions like a wage garnishment. In the case of CMHC, while it may take some time, they can also seize your tax refunds.

In Ontario, any mortgage shortfall after the sale of your home becomes an unsecured debt. Initially, your mortgage lender was a secured creditor. However, because the security, your home, has been sold, there is no longer any asset attached to the debt, and they are now an unsecured creditor.

If your mortgage was subject to insurance because you had a low down payment, your first step might be to draw on your CMHC Insurance. In this case, CMHC pays your original lender. However you still owe the debt, it’s just that now CMHC is now your creditor.

The good news is you have options to deal with mortgage shortfall debt:

  1. Make a settlement offer through a consumer proposal,
  2. File for bankruptcy to eliminate what you owe faster and get a fresh start.

The best place to start is to speak with a licensed debt professional about your relief options.

I think the big myth buster here is that if you have a shortfall on a house that someone’s pursuing you for, a consumer proposal or a personal bankruptcy actually takes care of that. And that’s where I think a lot of people are pretty surprised about Canada’s legislation around this stuff.

For a more detailed look at how to deal with mortgage shortfalls and how lenders can pursue you to recover a mortgage shortfall in Canada, tune in to today’s podcast or read the complete transcription below.

Source:  Hoyes.com (Hoyes – Michalos) By 

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Don’t-pay-til-you-die reverse mortgages are booming in Canada as seniors binge on debt

Don’t-pay-til-you-die reverse mortgages are booming in Canada as seniors binge on debt

Already carrying debt, many seniors can’t downsize because they can’t afford high rents, so turn to reverse mortgages for a new source of income

If you’re 55 or older, you can borrow as much as 55 per cent of the value of your home. Principal and compound interest don’t have to be paid back until you sell the home or die.Getty Images/iStockphoto

Reverse mortgages are surging in Canada as more older people join the country’s debt bandwagon.

If you’re 55 or older, you can borrow as much as 55 per cent of the value of your home. Principal and compound interest don’t have to be paid back until you sell the home or die. To keep the loan in good standing, homeowners only need to pay property tax and insurance, and maintain the home in good repair.

“We’ve only been in this market for 18 months, but applications are jumping,” and have tripled over the past year, Andrew Moor, chief executive officer at Equitable Group Inc., said in an interview. The company, which operates Equitable Bank, sees the reverse mortgage sector expanding by about 25 per cent a year. “Canadians are getting older and there is an opportunity there.”

Outstanding balances on reverse mortgages have more than doubled in less than four years to $3.12 billion (US$2.37 billion), excluding foreign currency amounts, according to June data from the country’s banking regulator. Although they represent less than one percentage point of the $1.2 trillion of residential mortgages issued by chartered banks, they’re growing at a much faster pace. Reverse mortgages rose 22 per cent in June from the same month a year earlier, versus 4.8 per cent for the total market.

The fact that these niche products are growing so quickly offers a glimpse into how some seniors are becoming part of Canada’s new debt reality. After a decades-long housing boom, the nation has the highest household debt load in the Group of Seven, one reason Bank of Canada Governor Stephen Poloz may be reluctant to join the global monetary-policy easing trend.

More seniors are entering retirement with debt and the cost of rent has shot up in many cities, making downsizing difficult amid hot real estate markets. Reverse mortgages offer a new source of income.

Canada’s big five banks have so far shied away from the product. Only two lenders offer them in Canada. HomeEquity Bank, whose reverse mortgage has been on the market for 30 years, dominates the space with $3.11 billion on its books. Equitable Bank, a relatively new player, has $10.1 million. Shares in parent Equitable Group have surged 75 per cent to a record this year.

Critics say reverse mortgages are a high-cost solution that should only be used as a last resort.

“When they think of their cash flow, they’re not going to get kicked out of their house, but in reality, it really has the ability to erode the asset of the borrower,” Shawn Stillman, a broker at Mortgage Outlet, said by phone from Toronto.

HIGHER RATES

Interest rates are typically much higher than those for conventional mortgages. For example, HomeEquity Bank and Equitable Bank charge 5.74 per cent for a five-year fixed mortgage. Conventional five-year fixed mortgages are currently being offered online for as low as 2.4 per cent.

Atul Chandra, chief financial officer at HomeEquity Bank, said the higher rates are justified because the lender doesn’t receive any payments over the course of the loan.

“Our time horizon for getting the cash is much longer, and generally the longer you wait for your cash to come back to you, the more you need to charge,” Chandra said in a telephone interview.

MOST DELINQUENT

Executives at HomeEquity Bank and Equitable say they are focusing on educating people about reverse mortgages to avoid mistakes that were made in the U.S. during the housing crisis — including aggressive sales tactics.

While delinquency rates on regular mortgages are still low for seniors, they were the highest among all age groups in the first quarter, at 0.36 per cent, according to data from the federal housing agency. The 65-plus demographic took over as the most delinquent group at the end of 2015. For non-mortgage debt, delinquency rates in the 65-plus category have seen the biggest increases over the past several quarters, Equifax data show.

Reverse mortgages aren’t included in typical delinquency rate measures — borrowers can’t be late on payments because there are no payments — but they can be in default if they fail to pay taxes or insurance, or let the home fall into disrepair. However default rates for reverse mortgages have remained stable, even with the strong growth in volumes, said HomeEquity’s Chandra.

According to a scenario provided by HomeEquity Bank, a borrower who took out a reverse mortgage of $150,000 at an interest rate of 5.74 per cent would owe $199,058 five years later. A home worth $750,000 when the reverse mortgage was taken out would be worth $869,456 five years later, assuming 3 per cent annual home price appreciation, meaning total equity would have grown by about $70,000.

Source: Financial Post – Bloomberg News 

Chris Fournier and Paula Sambo 

September 16, 2019

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Proposed mortgage rules aim to reduce financial risk in Canada’s hot housing markets

Vancouver has one of the hottest housing markets in Canada. New mortgage rules proposed by OSFI aim to mitigate the financial risks.

New rules proposed by the federal government to curb financial risks associated with the country’s hot housing markets could make it more difficult to secure a mortgage.

The Office of the Superintendent of Financial Institutions’ new guidelines proposed Thursday include stress tests for uninsured mortgages — loans secured with a deposit of at least 20 per cent on the value of the home.

Those homebuyers will now have to show that they can withstand a two per cent increase on their contractual mortgage rate. This would apply to variable and fixed-rate mortgages, regardless of term.

Using a million-dollar home as an example, buyers looking to secure a mortgage with a 20 per cent down payment at a three per cent interest rate would have to prove they could pay up to $4,652 per month instead of the $3,786 on their contract — a difference of $866 per month.

The changes come as the Bank of Canada looks set to increase interest rates as soon as next week for the first time in seven years.

CANADA-HOUSING/

The B.C. and Ontario governments have been using different tactics to try to cool housing prices in major cities. (Mike Cassese/Reuters)

“Persistently low interest rates, record levels of household indebtedness, and rapid increases in house prices in certain areas of Canada (such as Greater Vancouver and Toronto), could generate significant loan losses if economic conditions deteriorate,” OSFI wrote in a public letter.

But those working in and studying the real estate market say those changes aren’t likely to make a difference, especially given that those uninsured mortgages tend to be less risky because owners have already proved they have access to capital for a down payment.

What experts say will have a greater effect on housing markets is the office’s proposal to ban co-lending arrangements, or bundled mortgages, that sidestep rules designed to clamp down on risky lending.

The regulator said it is considering “expressly prohibiting co-lending arrangements that are designed, or appear to be designed, to circumvent regulatory requirements.”

Fear of a housing bust

Reuters reported in January that regulated mortgage providers were teaming up with unregulated rivals to circumvent rules limiting how much mortgage providers can lend against a property.

The arrangements have proliferated as Canadian regulators tightened lending standards to shield borrowers in case a decade-long housing boom goes bust.

“Bundled” or co-lending agreements with an unregulated entity can enable lenders to offer combined mortgages worth up to 90 per cent of a property’s value. Under federal rules, regulated lenders in Canada are not allowed to lend more than 65 per cent of the value of a home to borrowers with bad or nonexistent credit records.

They also cannot lend more than 80 per cent of a property’s value — even to borrowers with solid credit — without obtaining government-backed insurance.

city of vancouver empty homes

B.C. recently implemented a tax on foreign homebuyers as part of an attempt to reduce real estate demand and prices. (Rafferty Baker/CBC)

Under rules rolled out last October, that insurance requires the banks to run income stress tests on borrowers.

“When you’re looking at excited housing markets, you’re really concerned about where the capital is coming from,” said Tsur Somerville, a senior fellow with UBC’s Centre for Urban Economics and Real Estate.

“In terms of trying to cut down on the flow of capital in the housing, in particular in Toronto and Vancouver, cutting down on the bundling is probably the most important piece.”

Somerville guessed the intention behind the new regulations is likely a mix of wanting to cool those hot housing markets and mitigate risk in the financial sector.

Mortgage brokers concerned

Grant Thomas, founder and partner with The Mortgage Group, said he was concerned about the proposed changes — especially in big-city markets where homes often sell for millions of dollars.

Thomas said bundled mortgages are probably less than a third of all mortgages, but are often used when homeowners are financing the construction of a new home or are in between selling and buying a home.

Mortgage delinquency rates in Canada remain low even in cities like Toronto and Vancouver, he points out.

“The government has been intrusive in our industry in the last three years, and they continue to be so at a rate that is probably unnecessary,” he said.

“I’m not overjoyed whenever the government involves itself in business.”

Affordable housing in Nova Scotia.

Canadian regulators have tightened lending standards to shield borrowers in case a decade-long housing boom goes bust. (Robson Fletcher/CBC)

Thomas said his company and Mortgage Professionals Canada are planning to spend the next few days examining the proposed changes.

The Office of the Superintendent of Financial Institutions is accepting comments until Aug. 17. It said it will finalize the guidelines and set an effective date for implementation later in 2017.

The office said the proposed changes would be guidelines that federally regulated financial institutions would be expected to follow.

 

Source: Maryse Zeidler, CBC News

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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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