Much better rates out there Rex. In addition, the lower rates won't be a collateral charge.
Mortgage Agent and Real Estate Sales Representative
May 18th, 2017 4:36 pm
Much better rates out there Rex. In addition, the lower rates won't be a collateral charge.
May 18th, 2017 8:11 pm
Since the house is worth over 1 million you can get better rates and options. Variable as low as 2.1% and cash back depending on your closing date and size of your mortgage.stryder1587 wrote: ↑May 18th, 2017 4:08 pmI've been pre-approved for the mortgage I need at HSBC.
We're paying 20% down and home is over 1m.
They have 2.39 5 year fixed and 2.19 5 year variable. I'm leaning towards variable since it's been coming out ahead of fixed, we can switch over to fixed anytime without breaking any penalty and I think rates aren't going up due to Canada's weak economy. If NAFTA gets broken and we lose our exports, it'll get worse.
Anyway, I feel the 0.2 spread isn't much and I should be able to get a better variable.
May 19th, 2017 8:17 am
Why would the house being over 1m give access to better rates and options?
May 19th, 2017 9:53 am
One must be careful when the word "conventional" comes up, as this may mean something different. See the text below for more details.
May 19th, 2017 11:12 am
Thanks Andre - Great information. Mortgage lingo can be convoluted at times, and it's important for people to understand the verbiage.valuemortgage wrote: ↑May 19th, 2017 9:53 amOne must be careful when the word "conventional" comes up, as this may mean something different. See the text below for more details.
Just want to add a bit of information on the subject of "collateral" and "charge", as those words often come up here and there is endless confusion regarding those terms.
First we need to understand what "mortgage" and "charge" are, and that they are 2 completely different things. A mortgage is just a loan, similar to a car loan or any personal loan. You ask a lender for X amount of money, and sign a document attesting you will pay it back. In order to offer low rates on mortgage loans, lenders need to have that loan secured by a collateral, so that in the event the loan is not paid back, the lender has rights registered against the property. To register their interest on the property, the lenders use what is called a "charge", which is just like any other lien. The key difference here is that when the lender asks the lawyer to register that lien, they can use one of these 2 types of charge : a "standard mortgage charge" or a "collateral charge".
Why are they different? Because with a regular standard charge, the lender registers the lien in the exact same amount as the mortgage loan. So, if you buy a $500k property and have 200k downpayment, the mortgage amount will be 300k, and the lender will register a 300k lien (the charge) against it, to "secure" that loan. If you need to borrow more money later on, as years go by and the property value increases, the lender cannot simply release more money to you. They must remove that "charge", or as we often say - it must be "discharged", and register a new lien. Using the numbers above, if the property is now worth 600k and the client wants to get 100k back and refinance that mortgage, the lender would have to discharge that mortgage and register a new one, with a higher amount (matching the new amount required). As the market evolved, more products were created to suit different needs of clients in different situations, so some lenders started offering mortgages that would now be secured by a "collateral charge" (instead of a standard mortgage charge), simply because a collateral charge allows the lender to register X amount against the property and the amount could be higher than the mortgage amount being disbursed. In the example I used above, the lender could ask the lawyer to register a collateral charge against the property in the amount of $500k, even though they were only releasing to the client 300k. The potential advantage to the client is that if he needs 100k later on, the current charge registered ALREADY covers up to 500k, so they can adjust the loan without the need to remove the charge and register a new one.
Now the potential downside of a collateral charge - it cannot be moved from lender A to lender B without the assistance of a lawyer or a title company. What this means is that at the end of your term, should you decide to change lenders because you see a better offer with a different lender, even if you have no intention of cashing out any equity, this transfer from lender A to B would be treated as a refinance, and you would be required to pay a lawyer or a title company some fees, around $1000.00 or so. If you only had a simple standard mortgage charge, you could move from A to B without any legal fees, as standard mortgage charges can be transferred without legal services required.
The thing to remember is that a collateral charge will give you some flexibility ONLY if you need to borrow more against the property value, down the road. A standard mortgage charge would not give you that flexibility without extra costs, however if you dont need to borrow more against the equity, it saves you money as you have more freedom to change lenders without legal fees.
About the word "conventional" - It only means a mortgage scenario where the client has 20% downpayment (if purchasing) or 20% equity (in transfers or refinances). Because the lenders do not need to buy mortgage insurance, this loan is called "conventional". In situations where the down payment/equity is less than 20%, you are required to have the loan insured by CMHC/Genworth, and this loan is NOT called "conventional" - this is what we call a "high ratio" or "insured" mortgage. It still has NOTHING to do with the type of charge, as the charge is simply the lien that will be registered against the property, not the type of loan.
Lenders such as TD bank and NBC use only collateral charges. So, the scenarios below are possible :
A - Client is buying a 500k property with 5% down payment - this is not a "conventional" mortgage because it needs to be insured. This will be a "high ratio" or "insured" mortgage, but TD will tell the lawyer to register a collateral charge to secure the loan. As a result, you will have an insured (or high ratio) mortgage attached to a collateral charge.
B - Client is buying a 500k property with 30% down payment - this does not require insurance, so it will be a "conventional" mortgage, and TD will tell the lawyer to register a collateral charge to secure the loan, just like the scenario above. As a result, you will have a conventional mortgage attached to a collateral charge.
If the lender is First National, Industrial Alliance, Mcap, ICICI Bank, Paradigm, and pretty much all other lenders on the broker channel :
A - Client is buying a 500k property with 5% down payment - this is not a "conventional" mortgage because it needs to be insured. This will be a "high ratio" or "insured" mortgage, but these lenders will tell the lawyer to register a standard mortgage charge to secure the loan. As a result, you will have an insured mortgage attached to a standard mortgage charge.
B - A - Client is buying a 500k property with 30% down payment - this is a conventional loan, as it does not require insurance. This will be a "conventional" mortgage and these lenders will tell the lawyer to register a standard mortgage charge to secure the loan. As a result, you will have an conventional mortgage attached to a standard mortgage charge.
May 19th, 2017 12:01 pm
May 19th, 2017 12:19 pm
If you don't mind me asking, do you ever tell your clients that your mortgages are collateral charge mortgages? Most bank reps do not ever mention this when when selling collateral charge products and I am shocked by it.
May 19th, 2017 12:47 pm
I'm not a broker. If the house is valued at over 1 million or has a mortgage of over 1 million I tend to give the lowest rates.
May 19th, 2017 1:04 pm
It can be really hard to get a straight answer on this from banks, and paperwork is usually not very clear as to whether or not it is a collateral charge. While they should be legally obligated to disclose this is in big, bold letters at the top of your mortgage documents, it's not. I'd be surprised if it made reference to the collateral charge anywhere in the paperwork at all. I would suggest combing through it to see. If it is NOT a collateral charge, it's not going to make any reference to that, nor will it say it's being registered as any sort of charge at all.ProductGuy wrote: ↑May 19th, 2017 12:01 pmI have a question for the mortgage gurus. I got a mortgage with HSBC back in 2014, I read all the documents I signed and nowhere it says whether it is a conventional or collateral mortgage. I went to another lender to get an equity line of credit and when they did a title search they got that the HSBC mortgage was registered as an equity mortgage. Is there anything I can do to get hsbc to change the title charge for my mortgage to conventional?
I called them and their mortgage department on the phone is useless so I have an appointment to go to the branch next week.
May 19th, 2017 1:21 pm
I always mention it and go over everything. I'm a pretty honest person and most of by business comes from repeat business so I don't plan on burning any bridges. There are good both good and bad bank employees and mortgage brokers who hide stuff from their clients and that's not right. I inform them right from the start that all our mortgages are portable so if they upgrade in the future they can port over their existing mortgage. We're also the only institution that that lets you break your existing mortgage without penalty if your new mortgage is double the amount.
May 19th, 2017 1:46 pm
I'm glad you make sure everyone is aware that your products are collateral charges.Geese_Howard wrote: ↑May 19th, 2017 1:21 pmI always mention it and go over everything. I'm a pretty honest person and most of by business comes from repeat business so I don't plan on burning any bridges. There are good both good and bad bank employees and mortgage brokers who hide stuff from their clients and that's not right. I inform them right from the start that all our mortgages are portable so if they upgrade in the future they can port over their existing mortgage. We're also the only institution that that lets you break your existing mortgage without penalty if your new mortgage is double the amount.
I do a lot of business off rfd. Everyone who messages me knows about collateral mortgages I go over everything and I find people would rather have guaranteed savings than "what if" scenarios.
May 19th, 2017 1:51 pm
After 90 days the money is the clients and the client will get this in writing.GreenMortgages wrote: ↑May 19th, 2017 1:46 pmI'm glad you make sure everyone is aware that your products are collateral charges. I have a follow up question - is the cash back you're offering recallable if the client breaks mid term? Also, just wanted to let you know that several lenders refund the penalty if the client buys a new property and returns to the same institution within 90 days.
May 19th, 2017 1:57 pm
Good to know. I know a few lenders recall the cash back if they break mid term.
May 19th, 2017 2:10 pm
thanks for the advise, we are getting a 2M mortgage so dont have any cash to pre-payment,.....
May 19th, 2017 2:21 pm
The prepayment options he was referring to are options to pre-pay portions of your mortgage (often up to 20% of the original balance per year) in lump sums, penalty free during the term. So, if you ever get a large inflow of cash, and don't want to invest it, you can put it towards your mortgage. The benefit of doing this is that your mortgage balance is instantly reduced, meaning you'll pay less interest long term. Typically you can increase your mortgage payment by 20% as an alternative to lump sum payments.