Effects Of Shorter Amortization For Buyers

Recently I had a repeat client email me about making a move upwards the property ladder, as they are in a small 1 bedroom condo with kids, and things are getting tight. Sure enough school zones are a priority for these buyers as they do not feel they can afford private schooling, therefore after reviewing the EQAO results page and doing some more digging, they identified some areas they’d like to move. Houses in these areas go for upwards of $550,000 to 600,000. They have less than 20% down which means the maximum amortization they can go for is 25 years.

We did the numbers and here is how they look:

Combined income $100,000.
Debt per month: $500
Taxes on new property $3500
Heat per month $75

Total mortgage under today’s rules that they qualify for is $382,000 at the stress-test rate of 5.34%, today’s 5-year posted rate. If they wanted to qualify at a lower rate (3.5% fixed average) then their maximum amount today would be $460,000 mortgage. Still far short of their goal to live in this area and enjoy great schooling.

Question from the buyer: If I originally had 35 years amortization why can’t I “carry” that mortgage amount at my remaining term, and take the new money at 25 years?

The reason is once you discharge your existing mortgage term and amortization, you are subject to the new rules since you are increasing your loan. CMHC insured loans are underwritten at 25-year amortization. So let’s look at how amortization has changed this buyer’s qualification scenario:

Using 5.34% to qualify:

40 years: $459,000
35 years: $439,000
30 years: $415,000
25 years: $382,000

Using 3.5% the numbers are even higher (since we’re using a lower qualifying rate):


How To Finance An Assignment

Recently I’ve been asked about Assignment purchases with greater frequency, and with the estimated 44,000 units coming “online” or being registered in 2014 I think I’ll see a few more of these questions in the near future. In hopes of educating you the buyer and Realtor, here’s “How To Finance An Assignment”:

Step one:

First of course, get pre-approved. This is critical before you buy anything, to make sure we’re all good with credit, income, and down payment. That is the financing triangle as I like to call it - you can get financed without one of the three but it’s always good to have all three taken care of and disclosed.

Step two:

The issue with assignments it that the great majority of lenders only finance the assignment based on the original purchase price. Here’s an example:

Seller, John, paid $290,000 for a 1-bedroom condo in 2009 before the shovels hit the ground. Today the true market value is approximately $335,000 and John does not want to close on the deal (and pay land tax, registration fees etc) but instead wants to cash out, and sell the right to that condo. The majority of lenders will say to Buyer, Tracy, that she can only finance $290,000 less her down payment. Then, Tracy must cover the difference on the side to John (in this case $45,000). How feasible is this? Not very.

Knowing this, there are a few lenders that will finance based on the higher price, if:

(and we go to..)

Step three:

1. You get the property appraised by an appraiser to establish the sale price is in line with market values.
2. You get the written consent from the original builder for this new price and transaction.
3. The seller is allowed to assign the…


Press Time!

Lately I have been in the press talking about everything mortgages.

First we were talking about the state of new construction for condos in Toronto:

Then, the CBC ran with this story and took it to the next level (which was picked up by the Huffington Post and Yahoo!)

And finally today, we were discussing how gifts are a big driving factor when helping first-time buyers buy in this market:

Which lead to an on-air interview with CFRB 1010 NewsTalk radio:

Hope you can check it out!

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