Mortgages

Doing a Reno? What Are the Best Ways to Finance It?

October 23, 2017 By Samantha 2 Comments

There are different ways to finance a reno, whether you want to upgrade your kitchen or dining room or have another home improvement project in mind. You can use cash or apply for a secured or unsecured loan, home equity line of credit, or another financial solution depending on your project requirements, amount of cash, scope, etc. Large products require more cash and fortunately, banks have plenty on offer. Solutions to look into include reverse mortgages, home equity loans, and more.

Use Cash

If you need a small amount of money and have an emergency fund, then you can use cash for your project. If you are short of money, then you may want to go through your assets and belongings and sell items that you no longer need.

Use Low or Zero Interest Card for a Small Reno Project

If you want to reinvent a room or remodel the kitchen, one idea is to use a low or zero interest card with a large limit. The same goes for things like repainting the interior, replacing the plumbing, routine maintenance, and other basic, less expensive updates. If this is the case, a low interest card can be a good choice to benefit from the low promotional rate. Keep in mind that the promotional period is usually over in 6 – 12 months, and a standard rate applies afterwards. The main benefit is the low cost. However, there are no tax benefits and the payback period is much shorter than conventional credit.

Apply for a Personal or Unsecured Loan for a Medium-Sized Project

Examples of medium-sized projects include roof repairs, adding energy-efficient insulation, deck or bathroom addition, etc. You may want to apply for a personal or unsecured loan to finance your home improvement project if you need between $15,000 and $50,000. Credit unions, banks, peer to peer lenders, and other providers offer unsecured financing. The main advantage for borrowers is that this is a low-risk solution compared to secured loans, which require collateral. Unsecured loans usually go with higher rates because of the added risk for financial institutions. At the same time, you benefit from quicker approval compared to secured options. The reason is that with secured financing banks require a validation of the security or collateral, which takes time.

When it comes to interest rates, customers with spotless credit and steady, high income are offered better terms and rates of about 7 – 9 percent. Those with tarnished credit may actually see their application rejected.

The main benefits include a longer repayment period, lower rates compared to credit cards, and no processing fees and closing costs. On the downside, there are no tax benefits that you normally get with a home loan.

Apply for a Secured Loan for a Large Home Renovation Project

A secured loan is a good choice if you need $50,000 or more. If you have a major home renovation project in mind, then you may want to apply for a secured loan. This is especially true for properties that are not habitable, homes in need of conversion, and derelict properties. In this case, you will need money for things like design and survey fees, purchase costs (materials), and the renovation work itself. A large home renovation project can cost a lot of money. Many banks offer large loans but require collateral to ensure repayment. Depending on the amount requested, your credit score, and other factors, the collateral can be in the form of real estate, vehicle, home, vacation home, etc. While you risk losing the asset in case of default, you benefit from more affordable payments and a lower interest rate of 3 – 4 percent.

Cash-Out Refinance

This is a type of mortgage refinancing and another way to pay for your renovation project. Borrowers refinance to obtain more money, and equity is extracted as a result of this. People usually resort to cash-out refinance to buy assets of value or pay down personal loans, cards, and other types of consumer debt. How does it work? Suppose you owe $60,000 on a property worth $320,000. If you need $40,000, then you are free to refinance for $100,000. You will get $40,000 in cash while $60,000 is the outstanding balance. To prove that you qualify, you will be asked to provide information about your debts, assets, income, and so on.

While this is one way to free up cash, there are downsides to consider such as higher than average interest rates.

Home Equity Line of Credit

This is a type of adjustable mortgage whereby the interest rate moves up and down with rate fluctuations. If the rate suddenly skyrockets, you will end up paying a lot of money. The main benefit is the fact that there are no closing costs, and you are free to draw on the line as many times as you need to. Still, there is risk involved if you opt for a HELOC.

Reverse Mortgage

A reverse mortgage is an alternative to consider if you are 62 years old or older. In this case, borrowers are free to draw cash to finance projects, make purchases, go on vacation, or anything else. There are no monthly payments to worry about, but owners are still required to pay homeowner’s insurance and property taxes.

Will Millennials Ever Be Able to Buy a House in Toronto?

July 6, 2017 By Samantha 2 Comments

Some millennials definitely want to buy a home but the reality is that housing affordability is a source of concern for both, homebuyers and policy makers.

Why Millennials Are Reluctant to Buy a House?

Today demand exceeds supply and this is the reason why housing prices keep going up. In light of this fact, more than 50 percent of millennials believe that they will never be able to buy a home, whether a detached or semi-detached house. Many of them simply can’t afford it, especially in Toronto and other big cities. What is more, according to a recent survey, about 63 percent of owners plan on selling their homes because they find it increasingly difficult to carry a mortgage. Some 57 percent of respondents believe that rising interest rates add to the cost of owning a home, and they find it difficult to keep up with payments. This makes renting a property a more attractive option for many residents. Figures prove this – today some 42 percent of millennials rent while 38 percent own a house. Some Canadians plan on selling their home to downgrade as well.

Тhe Angus Reid survey shed light on perceptions and beliefs about price movements. Only 40 percent of respondents were positive about home prices within a 5-year period. This explains why millennials are reluctant to buy a home. And those who plan on buying a house or a condo have important decisions to make. Home prices are high in neighborhoods that are attractive and safe to live. It is difficult to find an affordable home in a good neighborhood, however, which means that many millennials either choose to rent or find it hard to live within their budget.

Contributing Factors: College Loans and Low-Paid Jobs

There are factors that magnify the problem. Many college students borrow heavily to pay for tuition and cover school-related expenses such as rent or board, textbooks, supplies, and so on. This means that many students are forced to borrow heavily, whether in the form of a student loan, personal loan, credit card, etc. College graduates often have one or more loans or cards to repay and to make things worse, some young people land low-paid jobs. The problem is that a low-paid job makes it more difficult to qualify for a low-cost mortgage loan. Many banks are actually reluctant to offer mortgage financing to graduates who are knee-deep in debt and have a low income. To add to the problem, the wages in some industries and sectors have been stagnant over the last couple of years, and many young Canadians worry that they may end up in a dead-end, low-paid job. With interest rates on the rise, this means that they would find it increasingly difficult to make mortgage payments in a timely manner.

Is Home Ownership an Attractive Option for Millennials?

Some share the opinion that home ownership is not an attractive option for young people who are more flexible and mobile than the old generation. Home ownership security is not a priority for many millennials. Young people travel more than the old generation and often change jobs. This means that many of them relocate every couple of years and the purchase of a high-priced property is not an attractive option. On the other hand, there are housing markets in Canada that are millennial-friendly, and some young people choose to relocate and buy an affordable home. The average price for a house in Atlantic Canada is around $254,000, and the average down payment stands at around $34,000. This means that borrowers have a monthly payment of about $995. In Quebec, the average home price stands at around $235,000, and the monthly mortgage payment is $927. Home prices for condos, bungalows, and two-story homes are affordable in places like Montreal Southshore, Montreal Northshore, Laval, Gatineau, and elsewhere. Thinking small and buying a small condo or a tiny house is also a good way to find an affordable alternative for those who prefer to live in Toronto. Some people choose to rent a small house first to see whether they feel comfortable and then buy a small-size condo or house.

More and more young people in Canada have begun to share former hotels and mansions, making community homes increasingly popular. This is one alternative to high-priced homes in Toronto and the GTA. On one side, these millennials are mortgage debt-free, and it is easier for them to relocate to a region where wages are higher and unemployment rates lower. On the other side, people who choose to rent won’t build home equity, which is definitely an asset.

What Can Be Done?

It is true that local authorities and territorial governments have few tools to control the housing market. At the same time, there are some possible solutions so that more millennials and Canadians in general have the chance to buy affordable housing. To this end, it is important to build a good transport and transit infrastructure to encourage building and increase the housing supply. Target infrastructure is also an important component and requires local planning approvals. They allow builders to secure water supply, sewers, and other facilities. Improving and speeding up the approval process is one way to secure affordable housing. An important step to help millennials find low-cost homes is to change existing zoning laws. This is one way to deal with the current shortage of land and build more homes to increase supply so that property prices go down. A good way to encourage more homeowners to list their properties is to reduce the land transfer tax in Toronto. A high land transfer tax discourages people from listing and many of them prefer to make home improvements and renovations.

Can I Get a Mortgage with Bad Credit?

February 17, 2015 By Samantha 30 Comments

Different mortgage loans are offered to customers based on their income and credit profile, down payment, and other factors.

Is It Possible to Get a Mortgage with Bad Credit in Canada?

While many brick-and-mortar banks consider customers with poor credit to be high risk, there are lenders who are willing to extend loans to clients, regardless of their payment history. One option is to contact online bad credit mortgage lenders or finance services in your area. They generally look at factors such as income range, type of employment, and whether the applicant is a first time buyer. LOC11

How Do I Qualify for a Mortgage in Canada if I Don’t Have Good Credit?

There are secured loans that are specifically designed for borrowers with less-than-perfect credit. One of the most important factors that lenders look into is proof of sufficient income. Financial institutions want to make sure that borrowers earn enough to make timely payments. Obviously, many lenders also require a higher down payment because they deal with risky clients. Customers with stellar credit are often offered competitive terms, and the down payment can be as low as 5 – 10 percent. At the same time, borrowers with poor credit may have to put 15 – 20 percent down. The higher the down payment, the better the chances of getting approved for a mortgage loan. A reliable co-signer with a solid payment history may be required as well.

Be Realistic – Buy What You Can Afford

Since the down payment is a certain percentage of the property’s value, you may want to set a price range based on the maximum down payment you can afford. Your debt to income ratio is also an important consideration, and a high DTI shows that you may be unable to meet your monthly payments. Look at your housing expenses as well and factor in costs such as cooperative, condominium, or homeowners association fees, hazard insurance, property taxes, interest charges, and principal amount. Lenders also look at your total debt ratio. They factor in recurring payments such as alimony and child support, student and consumer installment loans, vehicle leases and loans, and credit cards.

Online Bad Credit Mortgage Lenders in Canada

Canadian Mortgage Finder – http://www.canadianmortgagefinder.com/
This is a good place to look for a bad credit mortgage if you can put at least 15 percent down. The terms offered depend on whether you are a repeat or new home buyer. There are different options available, including open, variable, fixed rate, and special mortgages. Rates vary based on the loan term and range from 2.89 percent on a 1-year mortgage to 4.49 percent on a 10-year loan. The rate on variable mortgages is set at 2.45 percent.

Family Lending – https://www.familylending.ca/lending/poor-credit.html
This is a lending service that specializes in bad credit mortgages and offers rates ranging from 2.3 percent for a variable rate mortgage to 4.39 percent for a 10-year closed loan. Fixed rate mortgages usually go with higher rates but give customers a sense of security. The interest rate is based on the loan type while amounts vary from less than $50,000 to $500,000 and higher. There is an option to get preapproved. Borrowers with poor credit are asked to provide proof of professional appraisal as well as proof of income.

Canada Lend – http://www.canadalend.com/Services/BadCredit.aspx
This is yet another loan provider that offers mortgages to borrowers with average and bad credit. Customers are offered fixed rate loans and terms range from 1 to 5 years. The rate on a 2-year mortgage can be as low as 2.49 percent while 3-year mortgages feature a slightly higher rate of 2.59 percent. Borrowers with different credit profiles qualify, even applicants who have consumer proposals, bankruptcies, and tarnished credit. Clients who are in a consumer proposal and those who are new to credit are also likely applicants. To apply for a loan, clients provide details such as their SIN, current mortgage balance, residential value and status, reason for loan and amount required, outstanding debts, type of employment, and income.

Mortgage Brokers in Canada

Mortgage brokers can be helpful in many ways as they help potential homebuyers to find competitive interest rates and terms. Brokers maintain contacts with different financial establishments and save customers valuable time and money. Some lenders work exclusively with brokers, and they have access to a large pool of borrowing solutions. There is a difference between financial establishments and mortgage brokers in that the later work as intermediaries between lenders and homebuyers. It is their job to determine which financial institution is the best choice based on the customer’s credit profile and loan purpose and requirements.

Is Canada in Danger of Subprime Lending?

Last year data shows that slightly over 2 percent of all mortgages in Canada are underwritten by subprime lenders, which isn’t a serious cause of concern. While the share market of unconventional lenders has increased substantially, defaults are unlikely to trigger a major financial crisis. Some experts warn that the Canadian housing market may be overvalued but there is no reason to worry about serious adverse shocks in the near future.

Conclusion

While many borrowers apply for mortgage loans with banks and credit unions, bad credit applicants are often turned down and look for alternative lenders and solutions. The good news is that there are bad credit mortgage lenders that offer fixed and variable rate solutions to clients with different credit profiles and payment histories. Subprime lenders offer loans with different repayment terms to high-risk borrowers. This is why many lenders require a substantial down payment and proof of income and regular employment. Subprime mortgages are also available to borrowers with a history of delinquencies, arrears, foreclosures, and defaults who have few other options left to finance the purchase of a home.