The Mortgage Doctor

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The Mortgage Doctor has developed a Canadian Mortgage Calculator series to help explain various mortgage scenarios.

The Canadian Mortgage Calculator series is located at www.kgmcalculators.com

Buying a home with 5% Down?

A lot of first time homebuyers will purchase their property with a 5% down payment.

Unfortunately a lot of these prospective purchasers don't understand the costs associated with the mortgage financing. Costs such as the CMHC/GE Mortgage Insurance Premium, Land Transfer Tax (if applicable), Provincial Sales Tax (P.S.T.) and closing costs.

What is Mortgage Loan Insurance and why do you have to pay a Mortgage Insurance Premium?

When you need a mortgage loan that is more than 75% of the purchase price of your home you must buy Mortgage Loan Insurance. Having CMHC Mortgage Loan Insurance means that if you, the borrower, default on your mortgage, the lender is paid back by CMHC. With the risk of losing their money removed, lenders have the confidence to make mortgage loans of up to 95% of the purchase price of the home.
That means your down payment can be as little as 5% of the house price. With Mortgage Loan Insurance many Canadians who might be unable to obtain a 25% down payment can still buy a home. Review the Mortgage Insurance Premium rates below. The Mortgage Insurance Premium can either be paid on closing or added to the your mortgage amount resulting in a Total Loan Amount which will be the amount registered on closing.

Loan To Value Ratio Rate

Up to and including 65% 0.50
Up to and including 75% 0.65
Up to and including 80% 1.00
Up to and including 85% 1.75
Up to and including 90% 2.00
Up to and including 95% 3.25
Up to and including 100% 3.40


Sorry, there is P.S.T. payable, 7% in Ontario, on the Mortgage Insurance Premium. This is payable on closing.

Land Transfer Tax

Land Transfer Tax is applicable in some provinces and territories and not in others. The example referenced here is for the Province of Ontario. For information regarding Land Transfer Tax in your area contact me at ken@jemmortgage.com

In Ontario Land Transfer Tax is calculated as follows:

Up to $55,000 X .5 % of total property value
From $55,000 to $250,000 X 1 % of total property value
From $250,000 to $400,000 X 1.5 % of total property value
From $400,000 up X 2 % of total property value

To calculate the Land Transfer Tax payable on closing re: a 5% down purchase in Ontario go to
www.crescentrealtylimited.com/cmhcpremiumcalculator.htm


Other closing Costs?

These include legal fees, disbursement costs and adjustment costs. As a rule of thumb most lenders suggest that you have an additional 1.5% of the purchase price for these costs.

If you have a question for the Mortgage Doctor contact me at ken@jemmortgage.com

Is it possible to get 100% Financing?

The following information comes directly from CMHC.

" Finding the downpayment just got a whole lot easier. Borrowers can now utilize a number of additional sources of equity to purchase their home. Note:The Flex Down product only applies where the borrower is using non-traditional sources of equity for the minimum 5% downpayment.


Permitted sources of equity:

Lender cash back incentives;

Equity borrowed from any source that is arm's length or not tied to the property purchase or sale transaction. This includes personal loans, lines of credit or credit cards;

Gifts or grants from any party that is arm's length to the property purchase transaction; and

100% sweat equity from either the borrower or contributed by another party that is arm's length to the property purchase transaction.

Notes:
1. Payments on borrowed funds are included in the TDS calculation.
2. Downpayments may not be paid out of or included in the insured
mortgage.This includes recovery of any lender cash back incentives.

Sources that are not permitted include:

Sources that are not arm's length or tied to the purchase or sale of the property, either directly or indirectly, are not permitted. These prohibited sources include:

Builder incentives or loans;

Realtor or mortgage broker incentives or loans to the borrower that impact the property or selling price;

Loans or gifts from the property vendor;

Rent to own payments that are not in excess of the current market rent; and

Third parties that receive payment from the vendor or builder.


Premiums

3.40% plus the Progress Advance surcharge as applicable.


Eligible Borrowers

Minimum 680 Beacon Score (or equivalent) is required. Scores will be averaged where there is both a borrower and co-borrower.


Properties

Properties secured by a chattel mortgage or personal property security registration, as well as properties On-Reserve without a Ministerial Loan Guarantee, are not permitted.


Security

First priority position. Recovery of any lender cash back incentive must be done through the interest rate and not through a cash back repayment provision. Penalties cannot be capitalized.


Option of borrowing closing costs

Consistent with other CMHC Mortgage Loan Insurance products, the Flex Down product (100% Financing)
allows the option of borrowing up to 1.5% of the purchase priceto cover closing costs. If the closing costs are borrowed, any associated payment needs to be included in the TDS calculation based on a 12 month repayment period.


Choice regarding type of interest and loan terms

Approved lenders can charge fixed or capped variable interest for loans insured under the Flex Down product. The product can be used for mortgages with a term as little as six months. These options allow you to provide borrowers with great choice and flexibility. "

PRIVATE MORTGAGE MONEY

An alternative to seeking financing from the usual commercial mortgage markets is a private lending source. An innovative private lending source that you might want to consider, either as a Private Lender Member or Borrower, is Private Lenders Club.

Private Lenders Club represents individuals and corporations that understand the mortgage process and provide their own mortgage monies quickly and with a minimum of conditions.

Private Lenders Club members lend monies based more on the applicant's equity in their property and the total loan to value ratio that the financing will represent.

Who uses Private Lenders Club ? Individuals that have been turned down. Individuals that are self employed. Individuals whose credit has been impaired due to illness or divorce. Individuals that have impaired credit but good income. Individuals with good credit and income but the property that they are looking to arrange financing on is difficult to finance. Finally, individuals that have good credit, good income and a strong positive net worth but for privacy reasons they choose private financing. These individuals simply do not want their financial institution to know about all of their financial dealings.

If you are looking for an equity loan, funds for debt consolidation, interim financing, funds to purchase another property i.e. recreational and you have substantial equity in your real estate then contact www.privatelendersclub.com .

This resource is simple... innovative ... private.

WHAT ARE ACCELERATED WEEKLY AND BI-WEEKLY PAYMENTS?

In a nutshell it amounts to you making thirteen monthly payments in a twelve month calender year.

For example the monthly payment for a $ 100,000.00 mortgage amortized over 25 years at an interest rate of 4.55% is $ 556.26.

Thus to accelerate your payment schedule you will pay 13 monthly payments of $ 556.26 or $ 7,231.33 per annum.

If you choose the accelerated weekly option then every seven (7) days you will have a mortgage payment of $ 7231.33 divided by 52 weeks or $139.065

If you choose the accelerated bi-weekly option then every fourteen (14) days you will have a mortgage payment of $ 7,231.33 divided by 26 ( 52 weeks divided by 2 ) bi-weekly periods or
$278.13

By paying more than the monthly amount you will pay down your mortgage quicker (lower the amortization) and reduce the amount of overall interest.

Refer to www.jemmortgage.com and become familiar with how either one of these accelerated payment options will both lower your amortization and the amount of interest paid.

Now that you understand the accelerated payment options that most people are familiar with take a look at the real accelerator payment option that we call the preferred payment option .

In the example above the monthly mortgage payment was $ 556.26. But what if you feel comfortable making a preferred monthly payment of $ 700.00?

Go to the calculator and try it out.

Isn't it nice to realize that you can make the decision about what is best for you and not the lender who obviously wants you to take the longest time possible to repay your mortgage.

Good luck and if you have a question email me at ken@jemmortgage.com

" Things are seldom what they appear to be ".

Have we not all heard this before? How would it apply to mortgages? Have you heard of Cash Back mortgages?

Although there is nothing illegal about this marketing promotion I would question whose interests are better served.

Lenders, whether commercial or private, do not give money away. Their mandate is to make money.

If you are considering a cash back mortgage you owe it to yourself to understand what the real cost of " giving " you money is.

A financial calculator provided by www.jemmortgage.com will provide you with an insight into how much of a "gift" a cash back mortgage really is or isn't.

To calculate the cost of the cash back you will need to find out the lenders Best Rate and Cash Back Rate for the term that you are considering.

Download the above calculator and calculate your two scenarios.

Determine the dollar differences between the two monthly payments (multiply this difference by the # of months in your term example), the term interest paid and balances at end of term.

Compare the dollar value offered as a cash back to what you have calculated above.

Now, you be the judge.

Is the offer what you thought it was or are you really just borrowing more money from the lender at a much higher rate of interest?

At least you now understand what is truly being offered.

If you have a question that you would like an opinion on please email me at ken@jemmortgage.com

Your mortgage solution provider.