Vacation Properties EP#6 Mortgage Mechanics

Welcome to another episode of Mortgage Mechanics.

We’re here in the beautiful ski Resort of Silver Star Mountain on opening day where the powder is fresh and the air is clear. Have you ever wanted to own your own vacation home but didn’t know where to start?

Owning a vacation home is a dream for many. Whether it is up at the local ski hill, golf course, or lake resort, there are financing policies that can change how you finance your dream vacation home.

If you are a Canadian buyer, you do have a few more options than our International buyers. For one, you have the ability to purchase with a minimum of 5% down under Genworth’s secondary home policy. This allows potential buyers the option of buying without having to put 20% plus down.

There are conditions with this rule – you cannot have another mortgage that is high ratio insured with the same insurer. If you do, then you will be restricted to 20%. And you must be able to qualify without the use of rental income. If you are looking for a vacation rental, then your down payment increases from 5 to 20-25%

If you are an international buyer, your finance options are more restrictive.

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Most lenders require a minimum of 35% but depending on your situation we could potentially secure 25%. You also have to be present to sign all legal documents in the presence of a CdN Lawyer and you MUST open a Canadian Bank account. There is no exception to this rule.

It is also important to note that not all vacation properties are financeable. Properties that are age restricted, fractional interests, hotel style condos, and mandatory rental pools are less marketable for a lender. If you are thinking of purchasing this type of property, we do encourage you to seek the advice of a knowledgeable vacation specialist who can provide guidance with the process.

Owning a prime investment such as a recreational property is not for everyone. Taxes are typically higher and you normally have strata or maintenance fees. It’s important to calculate your overall monthly expenses before making this leap. If all these factors have been considered, then your next step is to decide where and what type of property suits your lifestyle.

Whether it’s relaxing by a beach or sipping a hot chocolate by the fire, these aren’t dreams for the select few. Let us help you make your dreams of home ownership a vivid reality.

For more information on vacation properties and how to finance them, check out our blog at karigares.com

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What is a Mortgage Broker?

It’s one of those times in everyone’s career where they ask themselves, “Why am I doing what I’m doing? Does anyone appreciate or understand my role and why it’s important to them?”

I don’t think anyone is really immune to these feelings of self-worth and acceptance. We all try to offer something of substance to our clientele. Something that speaks volumes to our role in our respective fields and Mortgage Brokering is no different. Sure, there are some that may say your job is easy. You get paid well so don’t question how people think or what they think for that matter. Just go about your job as the rest is irrelevant.

Well, these statements may be true for some but for many in the Mortgage Brokering field, we do take acception to these statements. Our job is not glamorous.   Many make average incomes but spend many hours trying to do so. We struggle with the stress of handling one of the largest financial transactions for the majority of Canadians. We are the frontline to ensuring these transactions happen. If there are glitches, we need to fix them. If our clients are stressed and feeling overwhelmed, we are there to help them. We handle many situations that are from both spectrums: from the happy 1st time buyer who is just starting out in life to those families that are divided; from businesses being born to businesses being shattered; to clients celebrating a raise or the birth of child where expansion is needed, to clients downsizing as their children are starting life’s of their own. We don’t simple do just mortgages. As you can see, our role is expansive. We are the hand that is there to hold you thru anything. Granted, not all brokers fit this bill but many do. So, I ask the question: “What does a Mortgage Broker do”?

On general terms, a Mortgage Broker is there to provide guidance, experience, knowledge and is there to provide recommendations to their clients regarding their mortgage transaction. We help to facilitate the mortgage approval by gathering information that is pertinent to the transaction. The basic information is how much do you make? And how much do you want to put down on your property purchase? And, are you looking for the best rate? Easy questions, right? Anyone can do this?

Well, if mortgage brokers only asked these very few and very simple questions we would not be able to provide the client with a proper plan that takes into account much more. Our role is to gather as much information about them now and about where they plan to be in the future so we can determine the “best” plan that meets their individual needs. These needs are more than term and rate? We need to ask as many questions as possible so that we truly understand our client and their needs. I do not want to be a glorified paper pusher that has no care for their client or for their financial well-being. Now, this leads us to a better understanding as to why there is so much confusion around what we do.

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The Banks have done a great job of spelling myths about our role. That we are the opposite to those things. Use a Bank because brand matters. Trust in what you know – trust in a logo hanging on the door, in a window and on a sign. That is the Bank’s motto. The ironic part of this statement is that Brokers provide close to 35% of the overall market share to the Bank’s business.

We also get to negotiate the best rate based on the client upfront. Have you ever wondered why a Bank offers one rate, a Broker offers another, and the original Bank then matches the broker’s rate? Is it odd to you that the Bank puts the onus on the client to demand better; whereas a Broker demands better upfront! We believe that every client should not have to worry about the negotiating side of the mortgage process. That is what we get paid for. Our primary goal is to facilitate the mortgage, build a long lasting client relationship so that we can guarantee future income by supporting those that make us successful – ie., a working wage to support our family! We have a direct interest in that transaction because that transaction comes down to the client. I worked for a Bank for many years. They too serve a purpose and that purpose is to make money for their shareholders while simultaneously building brand recognition. It is this Brand Recognition that brings clients thru their door and it is the same brand recognition that makes people believe they are being offered the best because loyalty must count for something.   It does and they will but you have to work extra hard to get it. A broker works harder to secure it in a faster and more productive way. So yes, on average, Brokers have the ability to secure better rates based on a specific product that is specific to the client and their needs; and the clients get to spend more time doing what they need to do which is work, raise a family, pick out new paint colours, or whatever is important to them. Brokers help you save time so you can spend more time doing the things that matter to you.

There is also a huge misnomer circulating out there that Brokers will cost you more with their astronomical fees and hidden agendas. We do laugh often at this statement but the reality is this inaccuracy was placed out there as a means to discredit us. It’s like a court case – reasonable doubt will prove your innocence. Reasonable speculation about costs will surely help those set on discrediting us win. In reality, very few deals have Broker fees attached. Those that do typically do not fit the “standard” mortgage financing policies. They could be self employed individuals that do not claim an income. They could be someone who has gone through financial upheaval in the form of Bankruptcies or foreclosures. It could be a business transaction or a private deal where we do not get paid direct by the institution that funds the mortgage. The ONLY time we charge is when we do not earn an income from the source (Lender), and more time than not the client is disclosed this fact upfront. Lawyers get paid for their time and energy. Realtors get paid for their time and energy. Even appraisers and home inspectors get paid for their time and energy; but why is it believed that Mortgage Brokers should be different. We work long days and sometimes long nights. We don’t take holidays because our clients need us.

We truly work 365 days out the year. We care beyond measure about what happens in our client’s lives. We have laughed with many. We have cried with many. We given hugs and comfort because sometimes that’s all we can do. We are not the Banks! We are people, humans dedicated to the well-being of every one of our clients. We strive for success but success isn’t always measured by how much we have but rather by how many we have helped.

I am Kari Gares, and am proud to be called a Mortgage Broker

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OnNovember 30, 2015, posted in: Uncategorized by

Who are the 3 Default Insurers? And, what does this mean for the borrower?

It is hard to believe that we are about to launch our 4th Mortgage Mechanics Video since we
started this adventure back in June. It has been full throttle with Sproing Creative – which
has been a good thing because blogging about anything Mortgage related is not necessarily
the most entertaining of subjects. What we have discovered is that many have a relative
understanding of mortgage lending but when it comes to Mortgage Terminology or
understanding the process, this is where we see a disconnect.

So our video series is designed to fill in the missing pieces. To bring awareness to what
“Brokers” do and what they can offer to their Community and to their clients. In essence,
we are bringing an educated series designed to help those understand the “little” things
that typically end up being bigger problems if not disclosed properly. How do we, as Brokers,
ensure that our clients have a good understanding of what their mortgage can or cannot do
unless we ask the necessary questions?

Here’s the problem: how do we make anything about mortgages entertaining? Let alone
speaking about Default Insurers. It’s a fairly dry topic so I will do my best to touch on a few
aspects that are important. Third party default insurance is required when any borrower,
whether refinancing, buying, or building, has less than 20% down. Now, you may think that
this premium you pay on your mortgage provides you with the benefit – and why wouldn’t
you when this premium could be thousands of dollars added to your mortgage. It would only
make sense that this means your Mortgage is insured to protect you. Unfortunately, this
Insurance is designed strictly for Mortgage Lenders. In Canada, “mortgage insurance is
required federally on high-ratio mortgages – that is, mortgages with a down payment of 20
per cent or less. This insurance, which protects the lender in case of borrower default, gives
lenders the flexibility to offer borrowers with low down payments the same low interest
rates they would offer to homebuyers with more equity”.

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In the world of technology, many utilize Mortgage Calculators present on the internet to
calculate their mortgage payments. And why not – Google is now in the Oxford dictionary so
anything you find on Google must be correct! Have you ever had a client that was shocked
because the payment they acquired themselves online is much less than the payment we
actually end up with? The chances are, “yes”. These online calculators do not offer the
Default Insurance premiums nor do they explain when they are needed. They are a simple
tool designed to give you a payment based on a total mortgage amount, interest rate and
amortization schedule. So if you are not aware that CMHC, Genworth, or Canada Guaranty is
required, then you will be given a number that is not reflective of the whole. To see what the
premiums are – go to http://www.cmhc-schl.gc.ca/en/co/buho/buho_023.cfm This is a
great calculator that can be used to determine CMHC costs based on your purchase price less
your down payment. No more hidden surprises. If you are wanting to see what the
premiums are based on your level of down payment visit Genworth’s website:
http://genworth.ca/en/lenders/premium-rate-table.aspx

Now, there are some cases that default insurance, which is offered through CMHC, Genworth
Financial, and Canada Guaranty, will be applied regardless of the size of down payment. So
just because you have 20% down doesn’t mean that you can avoid these additional
completely! Some of these situations could be the purchase of a mobile home in a park.
Mobile homes require CMHC even if 50% is put down. This is because of the type of home
being financed and where the home is located.

I’ve had clients purchase larger size properties, usually 10 acres or more, that require
insurance. This doesn’t apply in every instance but the reason we look at it as a possible
financing policy is that most lenders will ONLY consider the home and surrounding 10 acres.
And for some lenders, it could be no more than 5 acres. So what does this mean? If the
Lender only considers 10 acres of land value but you have 50 acres then we are not valuing
the remaining 40. Consequently, we would be excluding 40 acres of value against the
appraised value which would mean that A. The borrower would have to come up with a much
larger size down payment, or B. We try using CMHC to obtain the value that we require.

In our area, we do see a significant aging population. We are known for our sunny skies,
warmer weather, mild Winters, Golf, Skiing beaches – you name it! With this, Developers
have constructed many developments that cater to a specific age group. Normally, these
developments are “age restricted”. If you are below age “55” then you need not apply! Due
to the nature of the development, Lenders will require default insurance because these
developments are typically seen as less marketable to the Lender, and therefore, the lender
would prefer to have security attached to the property. And this is by demanding default
insurance. Keep in mind, that this insurance is designed to protect the Lender. The more
insurance they have the more inclined they would be to finance a property that isn’t available
to every buyer’s market.

As you can see, Mortgage Lending is a cornucopia of twists and turns. Every client is unique.
Their personal situation will ultimately determine how we approach financing. And the same
goes for the property. This is why our role as a Mortgage Broker is to educate or clients – to
help them understand why their file requires a slightly different policy or product then their
neighbors. And yes, we do talk to our neighbors. We talk to our friends and family and co-
workers. We all want to make sure we are getting what they have received or what they tell
us we should receive. Everyone has an opinion BUT a Mortgage Broker’s opinion is not just
opinion. It is based on experiences, fact, and credibility. We are Professionals working for
you and only your personal circumstances can determine the course of action we will take.

Build dreams, Open doors.

Kari Gares
Okanagan Power Broker

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OnOctober 4, 2015, posted in: Uncategorized by

Why should you receive a Pre-approval? And what does it really mean?

Have you ever wondered why everyone keeps saying that if you are interested in purchasing a home, you should ensure you have obtained a Pre-Approval? It seems that everyone wants to weigh in on this topic whether they truly understand the benefits or not. I guess we have done a bang up job of preaching this statement for as long as I can remember that the majority of buyers ensure this is their first go to step. The problem with listening to everyone else, rather than your Mortgage Broker, is that the average purchaser may not necessarily understand the basic idea of a pre-approval.

Does a Pre-approval guarantee you a mortgage approval? Does it provide a rate hold in a potentially unstable rate market? Or, does it provide security in knowing what you can afford before you head out in the world looking for that perfect home?

Here’s the reality: a Mortgage Pre-Approval offers the buyer with a rate hold but of only one specific term. Many believe that you will have access to numerous terms and specified rates that will be guaranteed throughout the 120 days. This is why it is so important to discuss options, terms and products before deciding on what your pre-approved term will be. You want to ensure that you have the best term and rate secured when you find the home you wish to purchase.

The other misnomer with pre-approvals is that your financing is 100% secure. Unfortunately, this is not the case. Many Lenders do not review your personal information such as your income documents, credit history, down payment and more specifically, the property in question. Under a pre-approval, all the Lender sees is what your Bank or Mortgage Broker provide on the application. None of this information is validated until an offer has been secured. This is why it is so vital that your Bank or Broker follow through with the acquisition of important documentation. It is “our” job to ensure that we have obtained the necessary paperwork to show the Lender that our application contains validated information. Without this being done upfront, we go back to the first part – you truly just have a rate hold. This is why we always request for subject to financing to be placed on all offers (purchase contracts); if not for the documentation but for the property itself.

This leads us to a very important aspect of the mortgage process – what are you buying? What type of home? Does it have restrictions such as age? Is it a single family dwelling, strata/condo, mobile or manufactured home or how is it zoned? Many don’t consider these aspects of the financing process but for each property type, different mortgage approaches need to be addressed. Some will limit the length of amortization accessible based on the life expectancy of the home. Or, some will require CMHC (Canadian Mortgage Housing Corporation) insurance. Others will acquire a much higher rate than maybe what was originally placed on the rate hold. The aspect many realtors don’t understand or consider as well is what are the property taxes? Are there strata fees? Any time you add a liability to the debt servicing ratios, these values can adjust the qualifying amount a buyer can afford. Again, when a pre-approval is completed, it has made several assumptions! The bottom line is we, as Brokers or Lenders, do not know what type of home you will buy. We can only make assumptions, and therefore, adjust the pre-approval based on these assumptions. But like any assumption, these can change which can adjust the outcome of financing – either for the better or worse. In order to protect a buyer, we ALWAYS encourage them place a subject clause such as condition to obtaining satisfactory mortgage financing so that we have time to add or take away vital information on the application to complete a thorough review of the mortgage and property details. Thus, when a final approval is obtained, we have done our due diligence for the buyer.

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In the end, a pre-approval is still a very important step in the house hunting process. It may not provide a guarantee approval but it does help the buyer to understand their affordability range. It ensures that the Broker or Lender is doing their job by asking questions that are pertinent to the buyer. We need to understand what it is they want or need before addressing mortgage terms or products. A great Broker or Lender will ensure that their comfort ability range has been addressed. It is one thing for a Broker to tell a buyer how much they can afford based on Lender guidelines. It is another for a Broker to address the personal budget of a potential buyer – thus creating a workable baseline for the buyer and for the realtor.

We strive to better ourselves and our clients by taking the time to follow through. We ask these questions and many more to determine what makes the most sense for our clients. Don’t just trust that your Bank has done all of this for you. If you have not supplied any information upfront, then it is safe to say that you have nothing more than a bonafide rate hold. Don’t be afraid to ask questions but please ensure you are asking those questions to the right people. Relying on what others tell you rather than a professional Mortgage Advisor may lead you to a less than desirable outcome.

Build dreams, Open doors.

Kari Gares
Okanagan Power Broker

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OnSeptember 8, 2015, posted in: Uncategorized by

Mortgage Mechanics Episode #2: What is Property Transfer Tax?

One of the most challenging things about writing a blog about Mortgage Lending and general

Mortgage Terms is trying to not only keep it informative but entertaining as well. I’m fairly certain

that most would say that Mortgages are far from entertaining and probably fall somewhere

between mind-­numbing and down right scary.

 

This is one of the reasons why I decided to create a video series that is, hopefully, both

entertaining and informative. The entertainiment coming from a Broker trying to be a YouTube

sensation! Well maybe not a sensation….

Over the last few months, we have enjoyed many aspects of our new venture ­ our Mortgage

Mechanics Series. Sproing Creative has been amazing at piecing the process together: from

choosing locations, finding that perfect shot and chatting up the locals. Even Vernon Businesses

have been getting in on the action. I would say I had the easy role ­ writing the script and relaying

that information to the camera for all to see. Well ok, that part isn’t so easy but I’m sure we got a

few bloopers from it and maybe one day I would be brave enough to post it.

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For this week, we decided to ask locals a very specific question about a Provincial Tax ­ the

Property Land Transfer Tax. The name itself seems to give it away but you’d be surprised as to

how many really do not know what it is. Unless you do your own research, you’ll need to rely on

your Realtor and Mortgage Broker to provide detailed information. The reason why it’s important

to understand this tax and how it is applied is because it could add thousands of dollars to your

final closing costs when you buy your home.

 

No one like surprises! I know that I don’t and we have tried very hard to ensure that my clients

can rely on the information I provide so they too don’t have surprises. So you may ask, “What is

the Property Transfer Tax (PTT), and how is it calculated? And, am I exempt”? As stated on the

Provincial Government site, PTT is charged “when you purchase or gain an interest in

property that is registered at the Land Title Office, you’re responsible for paying property

transfer tax”. Here is a list of taxable transactions:

∙ transfer of fee simple

∙ right to purchase or agreement for sale

∙ lease or lease modification agreements

∙ life estate

∙ foreclosure

∙ Crown grant

escheat, forfeiture or quit claim

∙ transfer as a result of corporate reorganization

This tax is based on the fair market value of the property at the date of registration, unless you

qualify for an exemption. In order to be exempt, you must be a First Time Home Buyer. And no,

this doesn’t mean just in British Columbia. You must have never owned a home any where in the

world. The First Time Home Buyers’ Program reduces or eliminates the amount of property

transfer tax you pay when you purchase your first home. If you qualify for the program, you may

be eligible for either a full or partial exemption from the tax.

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To qualify for a full exemption, at the time the property is registered you must:

∙ be a Canadian citizen or permanent resident

∙ have lived in B.C. for 12 consecutive months immediately before the date you register the

property or filed at least 2 income tax returns as a B.C. resident in the last 6 years

∙ have never received a first time home buyers’ exemption or refund and the property must:

∙ be located in B.C.

∙ only be used as your principal residence

∙ have a fair market value of:

∙ $425,000 or less if registered on or before February 18, 2014, or

∙ $475,000 or less if registered on or after February 19, 2014

∙ be 0.5 hectares (1.24 acres) or smaller

Now, there are certain grey areas or loop holes that will allow us to take advantage of this program

(exemption) in hopes of saving you money. Now, let’s say you are a couple and one spouse has

already owned a home and the other hasn’t. Under a basic Mortgage set up of Joint Tenants (50/50

ownership of the property with right of survivorship), you would only have to pay 50% of the

PTT. Example, a couple is purchasing a $450,000 home. The basic calculation of this tax would

be 1% of the first $200,000 and 2% thereafter. So, a $450,000 home would cost $7,000 which

would be added to your overall legal costs. BUT, because one spouse is PTT exempt, they would

only have to pay 50% of the $7,000 so only adding $3,500 to their costs.

1st Loop Hole:

    Instead of registering the mortgage with Joint Tenants, we can actually register the

mortgage as Tenants­in­Common. The difference now lies in how the ownership is divided.

Instead of registering it as 50/50, we can actually provide 99% ownership to the spouse who would

be PTT exempt and only 1% to the spouse who is not. In this example, this couple would

responsible for paying $70 as opposed to $3,500. Now, it is best to seek the advice of your

Lawyer or Notary because this structure may have other implications but overall many choose this

direction to save those funds. My one major recommendation is to ensure that a will has been

created because if one spouse passes those shares DO NOT pass to the surviving spouse.

2nd Loop Hole:

Another creative way of putting the mortgage together when both spouses are

exempt is to potentially ONLY place one spouse on the Mortgage and Title. Now, this is always

dependent upon the Lender and Insurer as to whether they will allow this. If they do, and yes there

are many Lender that will, then we save one spouse for future purchases. This comes in handy

when the 1st home purchased is an entry level home such as a condo, apartment, townhouse etc.

Typically these style of homes have much lower purchase prices. So instead of using 100% of the

exemption on both spouses for a home valued at $200,000 or less, we use it on one and save the

other for their future property upgrade. This means you can actually purchase 2 homes instead of

one under this program. Now, that is some creative financing.

 

So, as you can see, our role is to not only establish the mortgage, but we should be addressing

these issues to ensure that we are doing everything possible to help save our clients money. Our

philosophy and mission statement is to Open Doors, Build Dreams and the only way to do this is

to do our homework, help educate our clients, and hopefully our Community.

Thank you Andrew McWilliam from Ratio Ratio Coffee
Thank you Britney Powell from Noir Salon
Thank you Chris Schmidt from Art Schmidt Optical
Thank you Chris Bader from Axis Intervention

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OnAugust 10, 2015, posted in: Uncategorized by

In the Blog: Meet Kari Gares

Welcome to my newest addition, “In The Blog”. A few months ago, I decided to jump out of my element and start a video tutorial to help my current clients and potential clients with their mortgage process. Over the past several years, there has been much change in the Mortgage Industry. We have literally seen changes every year since the BIG recession of 2008: CMHC premium fee increases, amortization decreases, policy changes, both big and small, and self employment policy changes to name just a few. With all of these changes, it has invariably become difficult to keep the public informed in such way as to alleviate confusion, stress, uncertainty and the desire to simply throw ones hands in the air! This is why our office is starting a series of mortgage videos – to help address these confusing changes and to help simplify the process We don’t want you to throw your hands in the air and give up or to tell yourself to “forget about it”.

The mortgage buying or refinancing process is one that is suppose to be the start to a wonderful journey of home ownership! To be able to dream of owning your own home that you can customize to fit your lifestyle and tastes; but how do you get there when there is so much conflicting news and information? At times, it’s easy to feel like you are swimming in information but how do you pull it out so that you can make heads and tails out of it. Well, we are going to do this for you. Our newest series are designed to give you this information but in smaller fractions. Information chunks that are easily absorbed.

I never thought that I would want to contribute to the Mortgage Industry on such a personal level that doesn’t contain pens and paper or calculators. Instead, I am using my own experiences to relay direct to you what you have wanted to know but couldn’t quite figure out from the internet. We took 3 days to shoot our first 2 videos, and WOW, these days were intense. Memorizing lines for a camera is not quite like speaking to a client one on one. But I think we got it! Fix Auto was kind enough to allow us to occupy their shop and office – and their people! I should also mention that during these shoots the temperature soared to almost 40 degrees but to get that perfect shot, we turned off the A/C! So we have hot weather, girl under the hood of a car, no A/C and sporting a fresh pair of coveralls. It truly is the perfect picture of the ideal mortgage broker! Ok, maybe not but it sure is entertaining.

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So every month we will be uploading a new video along with some fun pics to you so you can see our progression in our newest series: Mortgage Mechanics. Our desire is to help you to become informed, knowledgeable, and savvy so you can make the best personal mortgage decision for you and your family. No more complicated jargon, or bank lingo. Just simple facts relayed in a simple manner. That’s our goal: to educate and inform so that your dream of home ownership is easily realized!

Stay tuned and stay informed … with me, Kari Gares, your Independent Mortgage Broker and video diva!

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OnJuly 17, 2015, posted in: Uncategorized by