Specialty Mortgage Products

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!

*New blog posts are released every third Tuesday! Stay tuned for the next one!*

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Bank or Broker?

 

Confused guy

So you’re buying a house…

You’ve worked your butt off, saved enough money and have started looking for a house you want to call home. However, there is one major decision to make before finally moving out of mom’s. Or you’re in a position to renew your mortgage after spending the last few years pinching every dollar to put it towards your home. In either scenario, finding a mortgage plan that will work best for you and your goals is huge priority. 

But wait, do I go to the local bank or consult with a mortgage associate!? You might be wondering which is better for you, or which option gets you a better deal. Frankly, there are several differences between both, and no right or wrong answer. So, to best show the difference, I’ve made a table that highlights the main comparisons for you to refer to.

Broker Bank
Description Licensed mortgage associate who mediates between the client and lender. Can access many different lenders with different rates and plans. Financial Institution that provides personal banking solutions including credit and deposit products.
Examples Axiom, Dominion Lending, Verico CIBC, TD, ATB, ING
Pros Shops the market for the mortgage best suited for you. Looks at all lenders, not just banks. One application applies to many lenders. Commission is paid by the lender, so it is free to use by the borrower. Can provide more solutions than just the mortgage, and can allow you to consolidate debts.
Cons Less known about in Canada. Some brokerages cannot access as many lenders as others, clients should always inquire. (ex. checking to see if brokerage can access insurance companies etc. and not just big 5 banks) Only provides products at the given bank. Can be stressful as bank is trying to sell these products to you. If you were to shop at another bank, you would have to go through the application process again.

Fun Facts

The usage of Mortgage Brokers has been steadily increasing over the last decade. As you can see below, in all areas of mortgage needs, Canadians are choosing brokers over banks more each year.

2016

2017

First time homebuyers

51%

55%

Repeat buyers

42%

44%

Refinancers

38%

40%

Renewers

26%

35%

Sourced from: “2017 Mortgage Consumer Survey.” CMHC, https://www.cmhc-schl.gc.ca/en/hoficlincl/moloin/sure/mocosu/upload/mortgage-consumer-survey.pdf
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The opportunity to get the most personalized rate and product, as well as high end service, are key reasons why mortgage shoppers are choosing to use brokers more than the bank. 

Conclusion

In summary, brokers act as a one-stop shop for clients, are mobile, and able to work varying hours, as well as act as an intermediary between lenders and buyers with no cost to the buyer. Banks provide wider financial planning, offering consolidation and possibly incentivized products (ex. lower charges if you are fully banked with one institution).


At the end of the day, this will be the biggest financial transaction of most people’s lives. Whether you are dealing with a bank or a broker, make sure you are specific, giving the professional your whole story. Be honest about your needs so that you can be presented with all of the options that suit you, your lifestyle, and future goals.

Leave your questions or comments below – thanks for reading!

*New blog posts are released every third Tuesday! Stay tuned for the next one!*

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