Specialty Mortgage Products

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Introduction

There are some mortgage products that you hear about often, you might see them advertised on TV or on a bank’s website. Then there are the ones your buddy tells you he signed up for that you’ve never even heard of, but would make sense for you too! You start asking him the details and he says something like “or maybe it was…”.

Don’t worry, I got your back. Below are the not-so-common, otherwise known as Specialty Mortgage Products.

Purchase Plus

This type of mortgage is perfect for someone purchasing a fixer-upper. It includes both the purchase price of the property, as well as the costs of renovations. Homeowners are responsible to provide quotes from contractors showing how much funds are required to support the project. The only con here is that the funds are advanced once the renovations are complete, so make sure you have a means to pay for it upfront (credit card, line of credit, etc.) Afterwards a lender representative will come to verify that the work was completed as per the quotes given, and then funds will be advanced to the client.

Construction Mortgage

This can be applied when buying your own lot and custom building, or purchasing from a builder. There are two types of construction mortgages listed below:

Draw mortgage– The preferred method of financing by the builder, mortgage money is advanced based on the stage of construction, and is typically done in 3 increments (ex. 35% complete, 65%, and 100%). This protects the builder’s cashflow as they regularly will be getting income to build the home.
Completion mortgage– The more beneficial option for the buyer, the builder does not require any funds prior to possession. This means the buyer can add upgrades along the way, and change pricing details as they have not yet finalized the mortgage transaction.

Cashback

This mortgage is quite self-explanatory and you’ve probably seen it online. However, the details sometimes are not so clear. Depending on the lender, you can usually expect between 1% – 5% of the loan amount (cash) upon closing. The downside of this is that you will be charged an inflated interest rate. This means a homeowner will pay significantly more at the end of the term. Although the bonus sounds great upfront, and can be helpful in many cases, it is risky. If you were to break your term early (like 60% of Canadians do) your cash back can be clawed back, meaning it could be charged back as part of a penalty fee. If you go this route, make sure it is right for you!

Conclusion

One thing to keep in mind, is that getting approved at the time of signing doesn’t mean you’ll be approved when it is possession time. In other words, do not change your financial picture until then. For example, I would recommend holding off on any big purchases such as a new car until the home is 100% yours.

Any of these products might work for you better than a regular conventional or high-ratio mortgage. It’s all about weighing the options, and consulting with your mortgage expert to see whats right for you! If you have any questions on these mortgage products or any others, I’m happy to help!

Leave your questions and comment below – thanks for reading!

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