High-interest debt from credit cards or loans can make it hard to efficiently manage your finances and can lead to falling behind on payments; even minimum payments can be tough to make when debt gets out of control. If you have the equity available in your home, a debt consolidation mortgage may be able to help.

A debt consolidation mortgage is a type of refinance that combines 2 or more liabilities into one mortgage or a home equity line of credit, or HELOC. The reason that this could be a great option to help pay down debt is that once all the liabilities are paid off, you are left with one payment rather than multiple payments. It can be easier to manage the one payment than cover a bunch of payments that seem to keep growing over time.

Another benefit of using a debt consolidation mortgage is that the interest rate will likely be much less than the rate being charged on credit cards and loans. It is common to see credit card interest rates above 20% versus a mortgage or HELOC rate that will likely be considerably less. The lower interest rate will assist in being able to get ahead of your debt since less of your monthly payments will be going to pay interest, and seeing balances grow month by month may be eliminated.

It is important to mention that before entering into a debt consolidation mortgage, a budget should be prepared to ensure that the debt consolidation mortgage will put you into a better position. Even though this is usually the case, a calculated and detailed budget can provide evidence of the better position. While going through the budget and liabilities, it is also important to review interest rates on existing liabilities to ensure that they are not less than the planned mortgage or HELOC rate. Unless the lender required it, there wouldn't be much sense in paying of a low interest car loan with a mortgage that may feature a higher rate.

While reviewing the budget and mortgage options, it is also important to consider if the debt consolidation mortgage should be used for any existing mortgages on your property, or if it is better to leave the existing mortgage in place and use a HELOC or second mortgage to consolidate the debt. Much like using a debt consolidation mortgage to pay out a low interest car loan, it likely wouldn't make sense to pay out a mortgage with a low rate, or incur a large penalty to break the current mortgage. The potential higher rate on the mortgage or penalties may erase any potential savings from the debt consolidation.

Since debt consolidation scenarios can be wide-ranging and there are many moving parts to them, especially when loans and mortgages are involved, I will focus my example on consolidating credit card debts and a personal line of credit into a home equity line of credit. This basic example will show the cash flow and interest savings that can be found by moving multiple high interest debts into one liability and monthly payment.

Let's say that clients have total credit card debt of $40,000 at 20.99% with a combined minimum monthly payment of $1,200, and a personal line of credit of $20,000 at 12% with a minimum monthly payment of $300. The monthly interest cost on these debts would be roughly $900 and the combined minimum monthly payments would be $1,500. 

By consolidated these debts into a $60,000 home equity line of credit we can not only reduce the monthly payment and increase cash flow; but, we can also save a substantial amount of interest expense. For the purposes of this example, I will use a home equity line of credit rate of prime + 4%; however, it should be noted that depending who your mortgage is with, a HELOC may feature a rate in the neighborhood of prime + 1%.

As of the time of writing this podcast, prime is currently 6.45%, which means our example is going to use a rate of 10.45%, which is not far off of the personal loan interest rate; but, is much lower than the rate on the higher balance credit cards.

Using the interest rate of 10.45% for the home equity line of credit, the monthly interest cost would be $523 and the minimum monthly payment would be lender specific and would need to cover at least the interest and some principal; let's say for example, the minimum monthly payment is $623. Using this example, we have an interest savings of $377 per month, or $4,524 per year and extra cash flow of $877 per month.

As mentioned previously, it is important to ensure that a debt consolidation mortgage is the right solution and will actually put you in a better financial position. A Mortgage Broker will be able to calculate your savings and assist with building a budget to make sure that the planned debt consolidation solution is in your best interests when presenting all the benefits and drawbacks. A full review will also indicate which debts should be included and which debts may be able to be left in place in order to maximize your savings.

In conclusion, a debt consolidation mortgage is basically a mortgage refinance or the addition of a home equity line of credit or additional mortgage. The funds advanced from the lender are used to pay out higher interest debts and consolidate them all into one lower payment with less interest expense. It is important to review your options with a Mortgage Broker to see if it is the right solution for you and find out how much you can potentially save by consolidating your debt!

In order to make sure that every client's file is set-up for success right up to and past closing day, Mortgage Foundations follows a Client Journey. Today, we will discuss the steps involved throughout the Client Journey and explain what happens at each step in the process.

The first step in the Client Journey is the Discovery Call and Mortgage Application step. This is where we learn as much as possible about your mortgage application and ask questions to ensure we are clear about your goals and requirements for your home financing needs. During this step we also answer any questions that you may have in order to find out the benefits of working with a Mortgage Broker, specifically Mortgage Foundations. We will also take this opportunity to give you an accurate idea of what to expect through the home financing process and ensure that you are aware of closing costs and document requirements so there is little room for surprises later.

The next step may not always be required since you may have already secured a property or are looking for home financing options other than purchasing a property; such as a switch or re-finance. If you are actively searching for a property, or planning to shortly, the Mortgage Pre-Approval step is highly recommended as it will allow us to submit your file to a lender that will review everything and ensure that nothing has been missed and it will give them the opportunity to ask any questions ahead of time for further clarity on the file. A pre-approval is also an opportunity to obtain an interest rate hold so that you can shop for a property with the confidence of having a rate in place. The rate hold will protect you from interest rate increases up to the expiration of the pre-approval. If rates end up coming down below your rate hold by the time you secure a property, you will receive the lower rate. Pre-approvals are conditional, and since they have been generated based on some unknowns, such as the property, a condition of financing is always recommended, even with a pre-approval.

While you are shopping for your next home, we will be sure to keep in contact and always recommend that you run any potential properties by us so that we can check the qualifying using the actual figures for the property. During this time, it is also important to keep everything as-is in regards to employment, liabilities, bill payments, and your credit profile overall. Unexpected changes to these things could end up affecting your qualification when you do find a property and we submit for a commitment.

Speaking of a commitment, that is the next step in the Client Journey. Once you have obtained an accepted offer on a property, we can then re-work the file and update any information that needs to be and then submit for what is commonly referred to as a live submission. At this point, the lender will review the file completely, including the property information, and also ensure that it meets the insurers' guidelines if it will be an insured or insurable mortgage. Once the lender confirms everything is good and that they are in a position to approve the mortgage they will issue a commitment. The commitment will include any conditions that need to be met by a certain amount of time ahead of closing day. We always strive to get as much documentation up front; however, it is usually at this step where we request additional documents in order to satisfy the lender's conditions. Once you have received the commitment, reviewed it, and are comfortable that you will be able to meet the conditions, we arrange to have the commitment and other documents signed and returned to the lender. This is also where we discuss the importance of having coverage such as Mortgage Protection Plan, or MPP in place, since anything can happen and you will want to ensure that you and your family are protected. Coverage can even start ahead of closing while we are working on clearing the conditions of your mortgage.  

Working together to get the conditions satisfied well ahead of time is imperative to make sure that the lawyer, or solicitor, can get to work on their side nice and early, since the lawyer getting instructed by the lender is the next step once we are broker complete or close to. Your lawyer will receive all their documents with instructions on what needs to be done for the lender to supply the funds to close the mortgage on closing day. We will be there to assist your lawyer with anything they may need from us to make for a seamless process for them.

Once your lawyer has everything prepared for your closing, they will reach out to set a date and time with you to perform the final signing and will also let you know how much funds you will need to supply them in order for the mortgage to close. This amount will be comprised of your down payment, legal fees, registration costs, land transfer taxes, title insurance and any other adjustments, taxes or fees that apply. It is also important that you make sure to take up to date valid identification to your meeting with the lawyer since they are required to confirm your identity.

After the signing is complete and everything is ready to go, we proceed to the biggest and most exciting step, which is the closing day. This is the day where everything happens, and all the money moves around between the lender and the lawyers, and the final registrations are taken care of. Once the seller's lawyer confirms that they have received the funds to complete the sale, you will receive the keys to your new property. If the transaction was a switch or re-finance, it is very much the same; money just moves in different directions.

Now that your mortgage is closed and you have received your refinance funds or are settling into your new home, our job is far from over. We will follow-up with you shortly after closing to make sure that everything went smoothly, remind you of when to expect your first payment to come out, and answer any questions that you may have. After this, we will continue to remain in contact, including on your annual mortgage anniversary, where we will update you with property information and can work with you to review your mortgage to ensure that it still fits your goals and is suitable for any potential future changes. As your dedicated mortgage professional, we are always there for any advice or to answer any questions you may have since the client journey is ongoing.

Today, I am going to discuss private mortgages, the difference between the types of private mortgage lenders, as well as explain some common uses and risks of a private mortgage.

First, it is important to note that a private mortgage is not for everyone, and your Mortgage Broker should exhaust all other options before recommending a private mortgage. Further, a private mortgage should only be used as a short-term solution with a clear exit plan.

When it comes to private mortgage lenders, there are mainly two different types, and one is more similar to an alternative lender than a private. This type of lender is called a Mortgage Investment Corporation, or MIC for short and then we have the regular individual private mortgage lender. There are some important differences between the two, and these differences need to be considered when deciding to proceed with either of the lenders. 

A Mortgage Investment Corporation is a collection of private investors that pool their funds together by buying shares in the corporation, much like a regular investment. The funds are then handled by the funds manager and used to fund many different mortgages through Mortgage Brokers looking for a solution for their clients when other options are lacking. A Mortgage Investment Corporation is provincially registered and requires a license to operate.

An individual private mortgage lender is a single investor that funds a mortgage using their own investment capital. This type of private lender does not need to be registered or licensed; however, they do need to operate with a licensed Mortgage Brokerage in order to lend their funds.

A private mortgage solution can be required for many different reasons, such as an unconventional property type that a conventional lender won't entertain, a new construction property, a poor credit score and history that doesn't fit conventional lender guidelines, the need for a quick closing, or even a debt consolidation solution.

As mentioned previously, no matter the reason for requiring a private mortgage, nor the type of private mortgage lender, in most cases, a private mortgage should only be a short-term solution and there should be a clear and reasonable exit strategy from the private mortgage. Even though a private mortgage may be renewable at the end of a term, renewing a private is not normally a viable strategy and may prove to be costly.

In most cases, a private mortgage will have a monthly payment, just like a conventional mortgage; however, will likely be comprised of interest only. This means that at the end of the term of the private mortgage, the amount owing will be the same or greater than the amount that was advanced on closing day. Some private mortgages do offer blended payment options; but, the payment will usually be comprised of mostly interest, with little being paid towards the principal.

Private mortgages are commonly offered in shorter terms when compared with a conventional mortgage. This fits perfectly with the fact that private mortgages are a short-term option. A common term for a private mortgage is one year and may be open, meaning it can be paid out at any time, or closed, meaning there will be a prepayment penalty if it is paid out early.

When it comes to the interest rates of a private mortgage, they are higher than a traditional lender and are set by the lender based on their source of funding and risk appetite, as well as their rate of return to their investors. It is not un-common to see private mortgage rates above ten percent; however, there are many private mortgage lenders that have competitive interest rates not very far off of a conventional alternative lender.

There are also fees involved with a private mortgage, and it is very important to pay attention not only to the fees to enter the private mortgage but also the fees and costs to get out later on. Your Mortgage Broker should review the lending documents fully and be able to communicate all fees clearly, as well as costs that should be expected, and also outline any fees that may come up later on. A great interest rate on a private mortgage may not be all that great when the fees and costs are added on and the Annual Percentage Rate is calculated.

Common fees associated with a private mortgage are lender fees, broker fees, appraisal fees, set-up fees, administration fees and increased legal fees. Potential future fees, such as renewal fees or prepayment penalties, should be clearly understood ahead of time so there are no surprises later on.

Before proceeding with a private mortgage, you should ask your Mortgage Broker if they have dealt with this lender previously, or if they are aware of their business practices and how they handle their mortgages, not only at the start; but, throughout the term to the end as well. This includes how they handle renewals in case one is required in the future. Online reviews are important as well; however, keep in mind that many of the negative reviews maybe from past clients who simply were not made aware of the pros and cons of the mortgage they were being put into. This is where full disclosure and transparency comes in and should be of the utmost of importance for all types of mortgages, especially private mortgages.

In as many weeks, Canadians got another big announcement when it came to mortgages last week, and it may lead some to think, what's next? After the federal government announced surprise changes to amortization and maximum purchase prices for insured mortgages a couple weeks ago, the Office of the Superintendent of Financial Institutions seemed to have a hold my beer moment and made a huge surprise announcement themselves, this one was around uninsured, or conventional, mortgages.

First, who is the Office of the Supervisor of Financial Institutions, or OSFI for short? OSFI is an independent agency of the government of Canada that regulates and supervises financial institutions, in order to contribute public confidence in the financial system. Being independent, even though they are a part of the federal government, they are able to set their mandates and make decisions independently of government intervention.

Last week, OSFI announced that effective November 21st, they would scrap the requirement for financial institutions to stress test clients when the clients are looking to switch their uninsured mortgage from one lender to another. This is a huge win for mortgage holders as it now makes it easier to obtain the most competitive mortgage rates and products when your mortgage comes up for renewal, even if they are not with your current lender.

Currently, if someone wanted to switch their mortgage to a new lender, they would have to prove that they could afford the mortgage at a higher rate, also known as the stress test, which qualifies the mortgage at 5.25% or the contract rate + 2%, whichever is higher. The issue here is that by having the stress test in place, it could effectively block you from switching a mortgage that you are already affording to a new lender because the stress test may say you actually can't afford it.

This potential roadblock could possibly lead to your lender offering higher rates because they may think, or know, that you have nowhere else to go and will have no choice but to renew with them at whichever rate they offer. It is important to note that OSFI has said that it has found no evidence of this happening; however, the potential does present an unfair advantage to your current lender.

This potential unfairness was the subject of a Competition Bureau recommendation to OSFI this past March that was actually turned down by OSFI where they announced that they had no plans to remove the stress test on uninsured mortgages when a client was looking to switch lenders. As part of its recommendation, the Competition Bureau criticized the rule and said that switching lenders and promoting fairness should be focused on more than discouraging the practice.

Six short months later, OSFI makes a complete 180 and will now allow the increased competition. As mentioned this is a huge win for mortgage holders, especially ahead of the next few years, which are set to have the most mortgages coming up for renewal.

To summarize the change, when your uninsured mortgage comes up for renewal and your lenders offers you renewal options, you can now shop your mortgage with a Mortgage Broker to see which lenders would offer competitive interest rates and products that would allow you to switch your mortgage to them by qualifying at the actual contract rate, not the higher rate. You do still need to qualify to prove that you can afford the mortgage; however, you don't need to qualify at an inflated rate presented by having to use the stress test. This may even lead to your current lender offering more attractive renewal rates since they know there will no longer be the obstacle that could stop you from reviewing other options.

Overall, this is an announcement that has been advocated for by the mortgage industry for a long time and ensures fairness to Canadian mortgage borrowers. It has been a big couple of weeks with a few surprise announcements to rules and regulations that Mortgage Brokers have been pushing for and up to now thought that there would be no movement by the regulators in charge of them.

A bridge loan is a short-term financing option designed to provide funding to 'bridge the gap' between the purchase of a new property and the sale of your existing one.  The need for a bridge loan arises when you are selling your current property and the funds that are meant to be the down payment for the new property are coming from the equity in your current property, and the closing dates do not align between the two transactions; specifically when the closing date for the new property is before the closing date for the current property.  A bridge loan is not the most common transaction, however, they do arise and it is important to know what they are and how they can benefit you when needed. It is also important to note that not all lenders offer bridge loans and ensuring that the lender who will be financing the new property does offer them is crucial to making sure you can close on the purchase; otherwise, alternative arrangements will need to be made. Discussing the need for a possible bridge loan well ahead of time with your Mortgage Broker will help to make sure proper funding is arranged.  There are some extra fees and increased interest rates with bridge loans; however, they are quite manageable in most situations and can be easily calculated by your mortgage broker. Depending on the length of time that the bridge loan is required and the amount needed, a lien may need to be registered on title for the lender to provide the financing and this may lead to increased legal fees.  In most cases, a lender will require that you have a firm purchase and sale agreement in place on your current property before providing a bridge loan; however, there are some lenders that provide bridge loans in the absence of a firm sale. These bridge loans come with extra fees; but they are a great solution when needed.  To give you an example of how a traditional bridge loan works; let's say you sell your property for $700,000 and you have $150,000 equity in it, which will be used as the down payment on the new property. The closing date for the current property is July 15th and the closing date for the new property is July 1st. In this instance since you would essentially own both properties for 15 days and your down payment wouldn't be available till the current property sells, the bridge loan lender provides the down payment until it gets repaid upon the sale of the current property.  Bridge loans can be a convenient option that may alleviate some stress in the home buying and selling process; however, it is important to discuss the details of a potential bridge loan with a Mortgage Broker ahead of time to make sure everything can be set up properly.  In conclusion, a bridge loan is a temporary financing strategy that can be put in place when closing dates between the sale of an existing property and purchase of a new property don't match up.

Let's say you have a mortgage commitment from a lender, and prior to the closing date, rates change and come down a bit. Today, we will discuss how this change in rates can potentially benefit you and save you some money in interest expense; or how a rate change can affect how much more you could potentially qualify for if you have a pre-approval with a rate hold.

Rates are rarely static with any lender and can change weekly or even daily. When you have a mortgage commitment, you are protected from rate increases as long as there are no material changes in the application prior to the closing date; however, if rates come down before closing, you may be able to take advantage of this new lower rate.

It is important to discuss any potential rate adjustments with your Mortgage Broker since every lender is different, and some allow for multiple rate adjustments on a file, and some allow only one or even none. It is also important to consider how close to closing the rate adjustment opportunity is, as if it is too close to the closing date, the lender may not have time to make the adjustment and issue new documentation for the lawyer. When dealing with a lender that only allows one rate adjustment, the decision of when to request it is to be made strategically to limit the possibility of adjusting the rate down and then watching them fall further without the ability to make another change.

Even though rates are always changing, it should not be expected to see a drastic change in rates between when you receive the mortgage commitment and the closing date; however, even a small change can make a difference in not only your interest expense over the term of your mortgage; but, also the amount of the monthly payment, which will increase your cash flow with each payment.

For our example, we will use a $500,000 mortgage amount with a 5 year fixed rate that is amortized over 25 years. The original interest rate on the mortgage commitment is 4.99% and a few weeks before closing the lender reduces their rate to 4.89% on the same term and mortgage product. Your Mortgage Broker would check with the lender if a rate adjustment, or float down, as it is known in the industry, is available and would present the following to you to see if you would like to have the rate adjustment applied.

The rate reduction would result in a payment that would be $28 lower per month and would not only save you $2,400 over the 5 year term; but, would also result in $700 more principal being paid, for a net savings of $3,100. Not to bad for a simple request from the lender.

When it comes to how a rate decrease affects a pre-approval, it isn't that it changes the pre-approval itself since the rate on the pre-approval certificate is held and in effect for 4 months; it can however change the amount that you would qualify for if you find and secure a property with an accepted offer to purchase while the lower rate is active. This can be helpful if your qualifying amount on your pre-approval is a bit lower than what is required to purchase a property in the location you are looking at; sometimes a couple extra thousand dollars is enough to get an accepted offer.

For example, let's say you have a pre-approval for a maximum purchase price of $700,000 and a rate of 4.99% held and rates come down to 4.79% while you are shopping for a property. The purchase amount that you would potentially be able to qualify for with this new rate would be $711,000, or an increase of $11,000. It is important to note that you must ensure to discuss this with your Mortgage Broker so that they can adjust qualifying based on actual amounts for the property; and of course, even with a pre-approval, a condition of financing is a must in order to protect yourself.

When shopping for a new mortgage, a common source of confusion is the difference between the mortgage term, which is normally 1 to 5 years, and the amortization period, which is normally 25 or 30 years.

The basic explanation for the difference between the two timelines is that the mortgage term is the length of the current mortgage contract, and the amortization period is the total life of the mortgage. A typical insured mortgage in Canada features a 5-year term and a 25-year amortization period. There are mortgage terms as long as 10-years in Canada; however, the majority of mortgages feature a 5-year term or less.

Throughout the life of a mortgage, it is expected that there will be multiple terms as the mortgage is renewed with the same lender or even when switched over to a new lender. A great example of the difference between the term and amortization period is to think of a pizza. Basically, the whole pizza would represent the amortization period, and each slice would represent each term. Using the typical insured mortgage of a 5-yerm term and 25-year amortization, 5 slices, or terms, would make up the whole pizza, or amortization period. Considering that not all terms would be equal, and clients can elect to have a shorter or longer term at renewal time, the slices may not all be the same size.

The mortgage term is the time that the mortgage contract is in effect and represents the period that both you and the lenders are committed to for the mortgage, its rate, and the terms and conditions of the mortgage. Mortgage terms typically range from 1 to 5 years; however, can be as short as 6 months and as long as 10 years. Typically, a shorter term will feature a higher rate of interest versus a longer term up to 5 years, which commonly features the lowest interest rates. Longer terms, such as 7 and 10 years, may also feature a higher interest rate as well.

At the end of the mortgage term, you will have the opportunity to renew your mortgage with the current lender or have your mortgage broker look for other options to potentially switch your mortgage to a new lender or look at potential refinancing options if required. The renewal date is when it is recommended to make any changes in order to limit your exposure to potential fees and penalties.

The mortgage amortization period is the time that it would take to payoff the mortgage in full. The amortization period is an estimate and is based on the current interest rate; which may change upon future renewals. Amortization periods on new mortgages are typically 25 or 30 years, with 25 years being the maximum amortization period for an insured mortgage with less than 20% down payment. Although 25 to 30 years is the most common amortization period for mortgages; some alternative lenders do offer amortization periods of 35 years or more.

When it comes to how amortization affects your interest cost, keep in mind that the shorter the amortization, the higher the payment and the lower the interest. The benefit to a longer amortization is that your payment will be lower than compared to a shorter amortization; however, the offset is that your interest expense may be higher if you don't take advantage of prepayment privileges throughout the life of the mortgage. When considering a longer amortization period, you should discuss this with your mortgage broker and ensure that the increased cash flow resulting from the lower payments is worth the possible extra expense in interest. A longer amortization period can add tens of thousands of dollars to the cost of your mortgage and options should be understood ahead of time.

So, let's talk about two types of mortgages: the standard charge mortgage and the collateral charge mortgage. Now, you might be wondering what the difference is between these two, and that's what I'm here to explain. First, let's start with the standard charge mortgage. This type of mortgage is what most people are familiar with. In a standard charge mortgage, the amount you borrow is registered with the land registry office for the exact amount of your mortgage. The mortgage, along with any associated fees, is all bundled together and registered as a single charge against the property. Now, let's move on to the collateral charge mortgage. Unlike the standard charge mortgage, a collateral charge mortgage does not register the specific amount of your mortgage. Instead, it may be registered against your property for a higher amount. This higher amount is usually greater than the actual mortgage amount you borrowed. The idea behind a collateral charge mortgage is to give you the flexibility to borrow additional funds without having to go through the refinancing process. If you currently have a mortgage with a Home Equity Line of Credit portion (or HELOC); you likely have a collateral charge mortgage registered on your property. With a collateral charge mortgage, you may be able to borrow up to the registered amount without having to pay costly legal fees or go through the process of refinancing. This can be beneficial if you plan on accessing your home equity for things like renovations or investments in the future. However, it's important to remember that this flexibility comes at a cost. Since the collateral charge is registered for a higher amount, it may limit your ability to switch lenders easily. Future lending flexibility is the key difference between the two types of mortgages. In a standard charge mortgage, if you need to borrow additional funds after you've already obtained your mortgage, you'll have to go through the process of refinancing. This can involve additional legal fees, appraisals, and other costs. The collateral charge mortgage can save you time, money, and hassle, but once again, it's important to consider the limitations of borrowing against the full registered amount. Now, let's explore the implications of these two types of mortgages when it comes to switching lenders. With a standard charge mortgage, if you decide to switch lenders when your mortgage term is up for renewal, the process is fairly straightforward. You can shop around for better rates, negotiate with different lenders, and choose the one that best suits your needs. However, with a collateral charge mortgage, switching lenders can be more complicated. Not all lenders may be willing to take on the full registered amount, so you might be limited to staying with your original lender or refinancing the mortgage with a new lender, with all the associated costs. Many lenders also offer the ability to transfer a collateral charge mortgage; however, there may be additional fees to do so. To summarize, a standard charge mortgage registers the exact amount of your mortgage with the land registry office, while a collateral charge mortgage registers a higher amount against your property to allow for future borrowing flexibility. With a standard charge mortgage, you'll need to refinance if you want to access additional funds, whereas with a collateral charge mortgage, you may be able to access those funds without refinancing. However, the flexibility of a collateral charge mortgage comes with limitations, as switching lenders can be more challenging. Ultimately, it's important to work with a Mortgage Broker and consider your future borrowing needs and weigh the benefits and limitations of each type of mortgage before making a decision.