Will Bi-Weekly Mortgage Payments Save You Money?

The short answer, yes. Making bi-weekly payments on your mortgage will absolutely cut your interest costs and shorten the length of time it takes to pay off your mortgage. But accelerated bi-weekly payments can significantly reduce costs even more.

How does it all work? There are 12 months per year and 26 two week periods per year. This means with bi-weekly payments, you are essentially making 13 monthly payments per year. Bi-weekly is not to be confused with semi-monthly, which at two payments per months, works out to 24 payments per year.

The difference between bi-weekly and accelerated bi-weekly are as follows. Bi-weekly is a monthly payment times 12 months then divided by 26. Accelerated bi-weekly is a monthly payment divided in half times 26 payments.

Here is an example based on $220,000 mortgage with an interest rate of 3.6%

Monthly            Bi-Weekly        Accelerated Bi-Weekly

 

Payment                                   $1,110.04          $511.92                         $555.02

Yearly Payment                        $13,320.48        $13,309.92                 $14,430.52

Actual Ammortization              25 Years          24.8 Years                   22.1 Years

Period

Total Interest Paid                    $113,001.00      $112,743.00                  $97,887.00

Interest Savings Over                N/A                 $268.16                         $15,124.23

Life of Mortgage

 

As you can see, with only a small adjustment to you bi-weekly payment, your overall savings are drastic in the long run. You save money by paying less interest on your mortgage, reduce the amortization period and decrease the principle balance that much faster.

If you have any questions on how one of these items may affect you, please call us. It is important to get it right!

Why Use a Mortgage Broker instead of the Bank?

  • Mortgage Brokers work for YOU, not the lender.
  • Mortgage financing that best suits your individual needs. By not being affiliated with any one lender, we give the client options by having access to numerous lenders.
  • We are available to meet with clients based on their schedule.
  • We educate you through the mortgage process. We are a resource of     information, ensuring our clients know exactly what is happening, every step of the way.
  • Mortgage Brokers provide CHOICE.
  • We save the client the legwork of shopping around for the best mortgage.
  • We only need to pull ONE credit report for all of our lenders.
  • Banks can only access and offer you their own rates and products that they have available within their branch.
  • You are responsible for negotiating your own terms, conditions and rates.
  • If you have to shop around to multiple banks, multiple credit reports will be pulled.

Not considering all the options available for your mortgage financing is like looking at only one house and buying without considering what else is available on the market.

Unlike staff at the bank, Mortgage Brokers do one thing only and do it well – Mortgages!

Two Rules of Thumb When Considering Purchasing Income Property

In the world of purchasing income producing properties, looking at financial statements can be a daunting task.

Here are 2 rules to consider whether a property could be profitable for you…simple guidelines to consider when deciding to purchase or not.

1. The 1% Rule

When purchasing a property for investment purposes, it requires a thorough analysis of future rents compared to cost of owning the property. Property owners want to maintain a cash greater than it’s costs

The 1% rule is a quick calculation that can help determine if the property you are considering investing in could be profitable.

eg. Investor looking to purchase $200,000 property with 20% down payment leaving a mortgage of $160,000. The 1% rule says that the home would have to be rented for no less than $1600/month.

If the property can not generate somewhere in the neighbourhood of this amount, chances are the property will not be profitable.

This rule is used for a quick estimate, it is a starting point to determining the profitability of the property.

2. Debt Coverage Ratio (DCR)

This is used to determine the ability of the property to cover payments on its debts. It also provides lenders information on the extent the income properties net operating income (NOI) covers the debt service. It helps the lender determine whether the property generates enough cash to cover debts.

For every dollar ($) paid out in expenses, the lender likes to see a minimum of a $1.20 generated in income or DCR minimum of 1.2. Showing the current rental property is showing a profit. The higher the DCR, the more profitable the investment will be.

eg. Determine Net Operating Income (gross income minus all operating expenses = NOI)

Rental income of $150,000 minus $72,500 (expenses) = $77,500                           $77,500 divided by 12 months = $6458/month NOI                                                  Monthly income of $6458 divided by 1.2 (DCR) = $5382

This example indicates that based on these numbers, the monthly mortgage payment can not exceed $5382 per month in order to have the DCR at 1.2.

Every property is different and has its pros and cons to determine profitability. These are quick references to help you in your search for a profitable investment property.

If you have any questions on how one of these items may affect you, please call us. It is important to get it right!

 

 

 

 

Commercial Mortgage Basics

A commercial mortgage is a loan made using real estate collateral to secure payment. It is a mortgage that a company or individual can use to purchase a property either for their own use or lease to a third party.

The following are some basics you should know before entering into the commercial loan process.

1)      Down Payment requirements – Commercial mortgages generally require 25% or higher for down payment, either for purchase or refinance, with up to 20 years amortization. The higher down payment serves as a buffer from potential losses in the event of loan default.

2)      Application fee – Typically there is a minimum 1% lender fee charged to the borrower. The lender charges this to process the documents in which the borrower details the financial situation for the loan.

3)      Given the complexity of commercial mortgages, higher legal and appraisal costs will be incurred. Depending on the project, appraisal cost can be in the neighbourhood of $1500 and up.

4)      The terms of a commercial mortgage depend largely on the overall strength of the deal. This includes positive personal credit rating, credit worthiness of the business, business’ current stability and profitability.

5)      Interest Rates for commercial mortgages are usually higher than residential mortgages. Interest rates will also be determined by the overall strength of the deal. The stronger the deal, the better the interest rate.

If you have any questions on how one of these items may affect you, please call us. It is important to get it right!

 

Thinking of Building? – Construction Loan Tips

Building a home is a complex process that involves multiple professionals including builders, lawyers, appraisers and lenders. To make sure this all goes smoothly, you want to find a mortgage broker who understands the construction process as well as the complexity of the mortgage procedure.

Required Documentation for Construction Mortgage:

–          Copies of all quotes

–          Plans and House Specs

–          Confirmation of the builder’s New Home Warranty

–          Offer to Purchase for land and Copy of Title to prove ownership as land must be owned before construction begins

–          Full blueprint appraisal will be requested by the lender with 4 additional inspections at different stages of construction. All are done at the clients cost

 There are 3 main categories of new construction financing:

–          Completion Mortgage – Buying a newly constructed home

–          Self Build – Building a house yourself

–          Progress Draw Mortgage – Hiring a Contractor to build for you

For a completion mortgage, you purchase your home brand new and pay through way of mortgage when the build is 100% complete.

For both self builds and using a contractor, you will require a Progress Draw mortgage. Funds are advanced in intervals as the house is being built. There are usually 4 draws, each requiring an inspection which will detail the percentage of completion prior to advancement of funds.

These 4 draws must follow certain completion stages:

–          First Advance: excavation, foundation , slab, beams, columns, joists and sub-floor

–          Second Advance: backfill, framing, sheeting, roof roughed in, electrical, plumbing, insulation & vapor barrier, roughed in heating, heating equipment and exterior doors & windows

–          Third Advance: exterior finish, basement floor, interior doors, interior wall and ceiling finish

–          Final Advance: finish floor, complete electrical (including fixtures), complete plumbing (including fixtures), finish carpentry, painting, site work & improvements

Draws will be issues based solely on the appraisers determining percentage complete on inspection report. For example, if the property is valued at $300,000 and the appraiser indicates that at the first advance 9% of the build is complete, then the first draw payment would be as follows:                    $300,000 x 9% = $27,000

Features of a Construction Mortgage:

–          Buyer owns the land that the house is being built on

–          4 draws/advances of funds

–          Verification by an appraiser in the form of a report completed at the end of each stage

–          Down payment required upfront – the land value cans sometimes be used for down payment

–          Interest is charges during construction, varying from lender to lender. Typically at Prime + 2-4% with a time frame of completion of 6-9 months

It is important to keep in mind:

–          You must qualify with the lender for 15% over the blueprint appraised value to cover any possible overages.  Ex.  Value  = $300,000 x 15% = $345,000

–          Ensure you have additional funds available as you may be required to pay any short falls in payments to the contractors during the draw/advance process. These monies will come back to you upon completion of the project.

Finding a mortgage broker who is experienced and knowledgeable with construction mortgages will benefit you through the building process. An experienced broker will walk you through all the steps and assist with any hurdles that may come up along the way.

If you have any questions on how one of these items may affect you, please call us. It is important to get it right!

5 Steps to Home Ownership

Buying a home is the most important purchase you will make and should not be entered into lightly. Whether you are a first time buyer or have purchased homes in the past, these steps are beneficial in the home buying process.

Step 1: Contact a Mortgage Broker

A mortgage broker will guide you through the steps below and help get you ready for home ownership. A good mortgage broker, as well as a good Realtor, will guide through the process. Get yourself Pre-Qualified.

Step 2: Analyze & Correct your Credit

Your credit score is the determining factor for obtaining financing. Your credit score says a lot about you as it is your financial history. It contains all loan and credit card accounts, with account information such as date opened, credit limit or loan amount, balance and monthly payments. It will also include late payment, bankruptcies, liens and collections. Do you have established and positive credit? Your mortgage broker can help you determine where you are with you credit.

Step 3: Income

You must have a stable income with guaranteed hours per week. Your income has to be consistent. If you have just started a new job with a new company, chances are you are on probation with the employer. If that is the case, income for this job cannot be used to qualify you for a mortgage until the probation period has ended. Have you been pre-qualified a mortgage? Your mortgage broker can meet with you to determine purchasing needs.

Step 4: Down Payment/Closing Costs

Have you saved enough for your down payment as well as closing costs? Minimum down payment is 5% of the purchase price and closing costs (costs incurred by the lawyer to register the property in your name) are based on a percentage of the purchase price and are calculated 1.5% or higher. For example, on a purchase price of $200,000.00, your 5% down payment and 1.5% closing costs would require a minimum of $13,000.00 in order to move forward with that purchase.

Step 5: Create a budget for yourself

Just because you qualify for a mortgage of a certain amount, does not mean you need to max yourself out. Meet with your mortgage broker to run the numbers. Decide on a down payment amount and a monthly payment you are comfortable with and stay within that comfort zone. Remember there may be additional costs such as appraisals and home inspections.

Meet with you Mortgage Broker to determine if you are ready to move forward with the purchase of your new home. When ready, you will need a good Realtor to find you your dream home.

You, your Mortgage Broker and your Realtor are the 3 key elements in the process the will determine the outcome of your home ownership journey. Let us help you with this journey.

If you have any questions on how one of these items may affect you, please call me. It is important to get it right!

 

10 Commandments of Mortgage Lending

10 Steps to Help Avoid Disaster During the Mortgage Process

Thou Shall Not     Change Jobs or Become Self Employed

Thou Shall Not     Buy a Car, Truck or Van unless you plan to live in it

Thou Shall Not     Use your Credit Cards or let you Payments fall behind

Thou Shall Not     Spend Money you have saved for your Down Payment, get a gift for                                closing costs or take a retirement loan without first consulting your                                   Mortgage Broker

Thou Shall Not     Buy Furniture before you buy your House

Thou Shall Not     Originate any new inquiries on your credit report

Thou Shall Not     Make any large Deposits into your bank account unless you plan on                                 documenting that deposit and origin of the money (basically                                              anything that is not payroll related)

Thou Shall Not     Change Bank Accounts

Thou Shall Not     Co-Sign for Anyone

Thou Shall Not     Purchase ANYTHING until after closing

If you have any questions on how one of these items may affect you, please call me. It is important to get it right!