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Tuesday, October 22, 2013

Private Mortgages - Are They Good Investments To Make Me Money?

  With interest on bank saving accounts yielding little return many folks hear others talking about how they are getting high returns from investing their money in private mortgages. You look at your saving accounts and returns and begin to wonder - is this something I should look at?
  You wonder why would a person not go to a bank for their mortgage? Sometimes good people who have worked to keep their credit in good standing run into problems:
  - a person loses their job and needs the mortgage while they are between jobs
  - a person has a recent bankruptcy, consumer propsal or collections and regular lenders will not look at 
    them for at least 2 years

  - a mortgage is up for renewal and they do not qualify for another one because the debt level is too high
    compare to the total income
 - perhaps a divorce or separation has occured

 - a person was forced to find another job but at a lower salary

 - a lender has called the mortgage in and is foreclosing on a property and the person wants to save it

     As you can see many reasons exist why a person might turn to a private lender. This is where a private
  lender steps in to fill this niche for a determined period of time.

  There are 2 types of private lenders - an individual and a MIC group (mortgage investment corporation). As an individual you would be given all necessary information and in consultation with your mortgage agent who has brought an application to you and perhaps your lawyer or accountant  you make the final decision on whether to fund the deal or not. 

   With a MIC you give money to them to manage. Your investment will be pooled with other money and a board will decide whether to fund an application or not. Your investment will be secured by real estate. You will have to ask about any management fees.
   As a private investor you are not looking at traditional lender criteria such as numbers, good credit but looking at thew individual and their ability to repay, their total debts and with an appraisal in hand the equity that is in the property. You would invest in properties that you feel will be a safe investment. This could be residential only, or perhaps a rental unit, vacant land, cottage or a commercial property.

  Rates will vary depending on the risk involved. A first mortgage might be 7 - 10% while a second or third mortgage will be 10% plus.
  Terms are usually for 1 year and generally interest only. However terms could range up to 3 years.
   Approval could be in a day or two or longer depending how long it takes for all the documentation to be completed. 

 As a private lender you may choose to charge an acceptance fee if you are prepared to go ahead with approving an application. The applicant will pay all your legal fees and also pay a fee to the mortgage agent who brings you the application.

  There is one important thing to remember. If you accept the applicant and down the road the person stops payments you may be forced to put the property up sale under a power of sale. Generally a real estate firm is hired to sell the property. After a sale you may or may not get your investment back. If there are any property taxes owing, these are paid first and then all realtor and legal fees. The holder of the first mortgage is now paid followed by the second and then, if any, the third mortgage holders. Before agreeing to fund a mortgage you have to look at the equity that will be available after a mortgage is granted.


Thursday, October 10, 2013

Understanding and Keeping Your Credit Score Healthy

One of the least understood financial tools that a consumer has that affects their ability to borrow and at what rate is the credit score commonly known as the beacon score. This is a number that is assigned to you based on various criteria that a lender looks at to see if you are an applicant that they consider being financially able and credit worthy to repay a loan or mortgage.

In Canada there are 2 credit rating bureaus – Equifax or Transunion. Each has their own scoring system and they may or may not contain the same financial information. Equifax has a number system from 300 to 900. A number above 700 is considered good while a number in the 300-400 range is very poor. Prime mortgage lenders look for a number from 620 to 650 to consider a candidate. There are alternate or “B” lenders that will go as low as 500 and private lenders do not look at the credit score.

The  credit score is made of 5 different components:

a)     Payment history          35%

b)    Debt amount               30%

c)     Credit history               15%

d)    New credit accounts   10%

e)     Types of credit              10%

As a consumer you must give your written consent first before an inquiry can be made. ie: mortgage application, credit card application.

You can receive a free report from either agency so that you can check it for accuracy and any misinformation. You will not receive the actual number unless you pay to receive it.

Your credit score can be negatively affected by too many inquiries in a relatively short period of time ie: you apply for 3 different credit cards in a short period of time. Each application will count as a “hard hit” and each hit can lower your score by 7 points.

An exception is the agencies realize that if you are shopping for a new mortgage or car several inquires may be made. As long as they are made in a short time period – 2 or 3 weeks- they will only count as 1 hit.

If you ask for your report or an insurance company does this will be considered a “soft hit” and will not affect your score.

If a person runs into financial problems and an account goes to a collection agency this will stay on your report for 7 years. As long as you start to show that you are re-establishing credit and making your payments on time, there are lenders that will grant you a mortgage but at a higher rate. Generally they look for 2 years of good re-established credit.

If your credit score has taken a hit you can bring it back up over a period of time. Some of the suggested ways include:

a)     Pay your bills on time so that your payment is received before the due date.

b)    Reduce your total debt. It is suggested that you try to keep your debt level at 30-40% of your total credit ceiling. This is called your debt utilization level. Try to pay down those loans that have the highest interest rate first.

c)     Try to build a credit history. Most lenders look for 2 trade lines ie: major credit cards and/or lines of credit.

d)    If you have an old credit card with no balance and you are not using it your first impulse might be to cancel it. However the length of time you have a card affects your score and cancelling it could have a negative effect along with affecting your utilization level. An example. You have one credit card with a $2000 limit and owe $1000. You have another card with no balance and a limit of $3000. You owe $1000 with a total limit of $5000 and you are using 20% of your limit. If you cancel the one with a $3000 limit you now owe $1000 with a limit of $2000 so you are now using 50% of your available credit. This would signal a red flag to a flag.


In summary, use any credit cards or lines of credit wisely and keep your credit rating healthy.



Monday, October 7, 2013

Why Is the Lender Asking For An Appraisal As A Condition For My Mortgage Approval?

Sometimes a mortgage agent runs across a situation where the client is questioning why the lender has imposed a certain condition ie property appraisal. The client may say that their neighbor or relative or friend just got a mortgage and they did not have to pay for an appraisal on the property.

 If a client qualifies, some lenders will use what is called an APV or Automated Property Valuation. This saves the cost of an appraisal along with moving the mortgage application approval process along much faster.

However, some types of applications and properties will continue to require a full appraisal, such as but not limited to:

- properties with values greater than $750,000

- mortgage amounts greater than $600,000
- construction draw financing (progress advance)
- rental properties

- all New Immigrant and BFS  (Business For Self) applications

- restricted properties

- recreational properties

- unique properties including Leasehold Tenure

- the property has more than 1 unit (multiple units)

- leasehold mortgages

- conventional Mobile, Modular or Floating Homes on owned or leased land

- purchases with no MLS
- private sales
- power of sale

- rural / non-urban properties where the 2nd digit of the postal code is ‘0’ (e.g. P0P)

For many reasons an appraisal may be required as a condition to approving your mortgage application.

Saturday, October 6, 2012

What a mortgage agent does

Many times we hear the question: what is the difference between a mortgage agent and a bank employee taking an application? I would like to suggest what I see is the major difference between a bank and a mortgage agent. Anyone can help an excellent credit worthy client get a great mortgage and it is done quickly. We obtain mortgages from the big banks also. On the other hand some people have seen their credit rating slip usually through no fault of their own. Perhaps a husband or wife lost their job or a construction guy was injured on the job and money is stretched thin and maybe credit card payments are late or missed. EI helps but it is capped and temporary.There are many reasons. Banks don't want to deal with these clients. First Line had a "B" lender side as to Bank of Nova Scotia. They withdrew from this type of lending. This is where we play a critical role. We look for the companies that deal with these types. Many times it is a difficult process but if we get them a mortgage they save their home and can start to rebuild their credit. Certainly they will not get a 2.69% or 2.99% rate offered to them. Perhaps they have to pay a broker's fee also depending on how the lender compensates the agent. But the client keeps their home and most are quite happy. Most people say that it could never happen to them to be turned down by a bank. But it has happened to many over these past couple of years due to the economic turmoil. Self employed people trying to get a mortgage are sometimes put through hoops by banks. We know the lenders that will welcome self-employed applications, we usually know the documentation that will be required and we can get the job done quickly.

Monday, June 4, 2012

Key Findings from the Canadian Mortgage and Housing Corporation 2012 Mortgage Consumer survey Consumers are looking more to the Internet for mortgage information and use of social media is also growing Recent buyers continue to rely heavily on mortgage professionals and others for advice and information on a range of mortgage related topics terms of share and loyalty mortgage sooner improvement consumers and have some unique needs Recent buyers are exploring their mortgage options and are actively engaged in the mortgage process Mortgage brokers and lenders both continue to do well in Post transaction follow-up continues to be an important factor driving client satisfaction and potential future business Recent buyers report taking actions to pay down their While there are positive indicators regarding the financial literacy of recent buyers, there is room for First-time buyers differ from other mortgage To read the entire survey, please visit

Friday, April 13, 2012


Gary Marr of the National Post has written a great article regarding those deal mortgages banks want to offer you. It’s almost a chicken-and-egg argument, deciding whether the government comes first in the crackdown on consumer borrowing or if the banks should be responsible for reining in Canadian debt. This month, Finance Minister Jim Flaherty sounded like he’d had enough of banks posturing for the federal government to get tougher on borrowers and called on financial institutions to clamp down on their own customers. “I’ve tightened up the mortgage insurance market three times … I really don’t want to do it again,” he told reporters while commenting on the condominium sector. While some bank chief executives have put it on themselves to tighten their own lending rules, others continue to look to Ottawa to take the lead. In the interim, all you have to do is walk into a branch, grab some pamphlets and you will see an array of offers that could get you into even more debt trouble. Related Canadians expect banks to set debt limits, survey shows Why you need to pay off your debt NOW One of my favourites is the cash-back mortgage. It is offered to a varying degree by most of the major banks, so there is no point in picking on any one institution. Here’s the offer: Take out a mortgage for more than five years and get 5% of the value of the mortgage up front to a maximum of $25,000. In other words, get a $500,000 loan and immediately get $25,000 back. “It’s great for first-time buyers,” we’re told. Really? If the loan is at the posted rate of 5.44%, which it usually is for these types of mortgages, you could easily land into more debt trouble long term. Another deal tries to lure me over to a new bank with an offer of 2% cash up front, or up to $4,000 on $200,000 if I switch to the financial institution. But what about the costs to break my existing mortgage, and is there really any point in switching products to get that cash right away if I’m going to end up with a higher rate and a less-flexible mortgage? “Somebody is going to pay for it,” says Kelvin Mangaroo, president of, about the cost of the promises. “Sometimes there is more fine print than the actual offer.” “Somebody is going to pay for it. Sometimes there is more fine print than the actual offer” There are other deals out there. One mortgage will offer you travel points, another will let you take “payment holidays,” but the details are scarce on both as to whether they’ll cost you more and ultimately make it even harder to pay down your debt. And let’s not forget the home-equity line of credit. You finally pay off your mortgage and there’s the bank ready to offer you more debt. “You tap into your home equity,” reads a headline from one bank about solving some issues like a home renovation or your child’s education. It sounds so simple. Advertisement Jeffrey Schwartz, executive director of Consolidated Credit Counseling Services of Canada Inc., says the banks and government will continue to battle over the issue of how to control debt levels, but the consumer has to take some responsibility. “These are all fantastic marketing tools,” says Mr. Schwartz, about some of the offers available to consumers. “Any product can be dangerous if people are living beyond their means.” Mr. Schwartz wonders whether enough has been done to change the behaviour of consumers and get them to pay down debt. Based on a survey from PwC, consumers seem to want to be babied. The firm found 82% of Canadians want banks to help them manage their debt problems. Scott Hannah, president and chief executive of the Vancouver-based Credit Counselling Society, says consumers have to have their eyes a little more open. He sees the worst of the worst debt offenders, like people who have racked up bills on their credit cards so they could claim travel rewards and are completely oblivious to their massive debt. So who is responsible for reining these people in? Is it the banks? Is it the government? “It’s the consumer,” says Mr. Hannah, about where the ultimate responsibility for handling debt lies. He adds that competition among financial institutions has created more financial products but also produced less customer loyalty, putting more onus on the consumer to understand what they are buying. “Consumers look at the bells and whistles. They also just go with the company that will help them and they don’t listen as to why they are getting the money,” Mr. Hannah says. “Think about it. Why would anybody use a payday loan when they know the annualized rate of interest is in excess of 600%?” Good question. The bigger one seems to be whether these people need to be protected from themselves. Posted in: Refinancing Tags: Consolidated Credit Counseling Services of Canada Inc., Credit Counselling Society, household debt, mortgage, Garry Marr

Tuesday, April 3, 2012


As the deadline for banks to disclose their penalty calculations draws closer, this topic of penalties will be more prevalent. As clients become more aware, will it be a new area of competition forcing lenders to change standard charge terms and all play on the same level field? Breaking your mortgage: Understanding the rules You can pay a high price to refinance a mortgage before maturity. Lenders will soon have to give more information on what to expect. By Ellen Roseman Mortgage rates are falling. You want to break your closed mortgage and get a new five-year loan at 2.99 per cent. Hold on. Take a deep breath. Talk to your lender first. Find out how much you will have to pay to get out of your mortgage early. The penalty could wipe out all your profit on the deal. Mortgage penalties come as a big surprise to borrowers who aren’t prepared for them. Banks are often unprepared as well, since the information is buried in the fine print of a mortgage contract. As a result, bank employees don’t give accurate quotes to customers who want to leave a closed mortgage before the term expires. Vanessa had four years left on a $300,000 mortgage when she sold her home last year. She went with another bank to get a better rate, rather than porting the existing mortgage to her new property. “When I called to find what the penalty would be to end my contract,” she says, “I was told it would be three months’ interest (equivalent to $2,600). Nothing was said about the IRD.” Most closed fixed-rate mortgages have a prepayment penalty that is the higher of three months’ interest or the IRD or interest rate differential. Most variable-rate mortgages do not have IRD penalties. Only after the sale did Vanessa learn she’d paid an IRD penalty of $15,000. It was based on the bank’s posted rate when she took out the mortgage — and not the discounted rate she had actually received. I’m not against the IRD. I believe lenders should be compensated when borrowers make an early exit at a time of falling rates. However, I’m against the inconsistent way that lenders calculate the IRD. They can plug in their own numbers to decide how much money is at stake when a closed mortgage is opened up. Luckily, banks will have to give more disclosure under a new federal code of conduct that comes into effect by November of this year. They’ll have to tell you how prepayment charges are calculated and how you can pay off a mortgage more quickly without incurring penalties. The IRD is based on (1) the amount you are prepaying and (2) An interest rate that equals the difference between your original mortgage rate and the rate that the lender can charge today when relending the funds for the remaining term of the mortgage. Robert McLister, a mortgage planner, has a mortgage penalty calculator at his website that gives you a rough estimate of what you may be charged. “Some lenders don’t use the discount you received in your calculation, which decreases the IRD and can lower your penalty considerably,” he says. “Some lenders round up your remaining months to the next longest term. Some round down.” Suppose you have 18 months left on your mortgage term. Lenders can use the posted rate of their two-year term as the comparison rate. But they can also use the one-year posted rate. Lenders may not advise you to use your existing prepayment privileges. Most mortgages let you prepay 10 to 20 per cent of the balance each year without incurring a penalty. By making a prepayment, you can reduce the outstanding balance subject to the IRD when you’re refinancing. Vanessa wasn’t offered a chance to make a lump-sum payment before discharging her mortgage. She was reimbursed for $2,500 of the penalty when she appealed to the bank’s ombudsman. Here’s another case of a borrower not being given the right information. Sarah Rigley MacDonald decided to break her existing mortgage, which had a 10-year term, when buying a new property. Her mortgage broker said her prepayment penalty would be $10,000 — but didn’t say the penalty would go down to $1,600 after the five-year point of her 10-year term. The federal Interest Act prohibits IRD penalties on terms over five years, after five years have elapsed. In such cases, a maximum three months’ interest penalty may apply. “Now we’ll sit tight until our five-year anniversary, just 16 months away, and look at our options,” she said. (The Interest Act information, which she found at my blog, saved her thousands of dollars.) In a previous federal budget, Finance Minister Jim Flaherty promised to give more clarity about mortgage penalties. He also suggested the calculations would be standardized. Standardization was not part of the reform package that Ted Menzies, minister of state for finance, unveiled last month. Instead, the focus was on providing more information to borrowers. “Disclosure must be made in language, and presented in a manner, that is clear, simple and not misleading,” the code of conduct specifies. Federally regulated financial institutions must start to address the guidelines by May 7. They must be in full compliance by Nov. 5 of this year. Lenders will provide prepayment advice on annual mortgage statements. They’ll supply website calculators to help you estimate the mortgage penalty you may be charged. They’ll set up toll-free lines to reach staff members who can give you a written statement of prepayment charges if you ask for it. Finally, lenders won’t take steps to pay out your mortgage until you assent to the penalty that will be charged. I still wish there were guidelines on how penalties are calculated. But I know the Harper government believes in letting market forces prevail and giving consumers an informed choice. Now it’s up to borrowers to manage their prepayments in a way that reduces the penalty shocks that can arise when refinancing. (factbox) Tips on reducing the mortgage penalty sting: Use your line of credit to pay down your mortgage before discharge, thus lowering the balance on which the penalty is calculated. Ask the lender to apply your unused prepayment privileges to reducing the penalty. Transfer (or port) the mortgage to a new property if you’re moving. Ask your lender about “blend and extend,” a strategy in which you add more money without breaking the mortgage and paying a penalty.