REFINANCES, RENEWALS & TRANSFERS

General 24 Jul

After you have purchased your new home, closed on your new mortgage, and are all moved in, what comes next?

Well, when it comes to your mortgage, the next step is to either refinance, renew, or transfer your mortgage. This decision can be made one month into your new mortgage or one month before your new mortgage is set to mature. Below is a break-down on what a refinance, renewal, and transfer mean.

Refinance
Refinances are when you decide to access the equity in your home. When your home rises in value, say $400,000 in 2016 to $500,000 in 2021, you can request your current lender, or a new lender, to pay you a portion of that increase in cash and they will in turn add that same portion to your mortgage for you to pay back- with interest.

There are many reasons to refinance; for home repairs, purchasing second properties, financial assistance with other outstanding loans or to have access to cash for larger purchases. It is only a refinance when you change the amount of your mortgage and borrow against the equity you have in your home.

Renewal
Renewals are quite straight forward. At the end of your mortgage term, your lender will offer you a renewal letter stating the remaining balance on your mortgage, what the remaining amortization is, and what interest rate options they can offer you.

The term can be 5-years for example, but most mortgages are on what’s called a 25-year amortization- the length of time it takes to pay off the entire mortgage. The 5-year term is just a length of time you are guaranteed a certain rate before you need to renew it. Renewals generally do not require any re-approval, documents, or applications as no new money is being added, the property is the same, and so is the lender. It is straight forward and allows you to continue paying your mortgage, just on a different interest rate.

Transfers
Transfers are a lot like renewals, the one difference is you are switching lenders. You are not adding more money, selling or buying a new home, everything is remaining the same except who you are paying interest to. One reason someone may want to transfer their mortgage from one lender to another is bad customer experience. Another could be to take advantage of a lower interest rate. Another reason could also be to take advantage of a lender’s product like a Home Equity Line of Credit or high pre-payment privileges.

Transfers are becoming more and more common as lenders are constantly looking to add clients and customers to their brand, being able to take advantage of interest payments as well as offer other products.

If your mortgage is up for renewal or you have been thinking about what kind of options may be available to you with your current mortgage, please reach out to a Dominion Lending Centres mortgage professional to discuss the different choices you have.

Ryan Oake

RYAN OAKE

Dominion Lending Centres – Accredited Mortgage Professional
Ryan is part of DLC Producers West Financial based in Langley, BC.

THE MORTGAGE INSURANCE MARKET & WHOLESALE LENDERS

General 10 Jul

The Canadian mortgage market used to be very simple. We had the big banks, credit unions, and trust companies.

However, almost 20 years ago, the Canadian government made three major changes to the Canadian mortgage industry. First, the government and CMHC put their weight behind Canadian mortgages by guaranteeing an insurance payout to lenders in the event that a borrower does not pay. Yes, the Canadian taxpayers are on the hook if CMHC goes under.

Second, Canada also began to allow lenders to pay for mortgage insurance for their borrowers, even though the insurance was not required. Borrowers would not know that their mortgage is insured, rather the lender would pay for, and insure the mortgage on the “back end” in order to make the mortgage less risky. I.E: if the borrower did not pay, the insurer would pay the lender (just as they would pay if the borrower had less than 20% down payment and was charged for insurance themselves).

And third, Canada allowed its lenders to bundle up their mortgages and sell them to investors. The securitization of mortgages (the process of taking the mortgages and transforming them into a sellable asset) allowed investors to purchase many mortgages at once, knowing there would be a specific return. The return here would be just less than the interest rate on the various mortgages (less because the lender has to make a little bit of money for creating the mortgage bundle or security).

Now, mortgage investors are looking at two things: investment return and mortgage risk. The lower the risk of an investment, the lower the return an investor may be willing to see. Because Canadian lenders can insure their mortgages against default (non-payment), investors are very keen on purchasing these mortgages. Thus, investors provide lenders with a lot of inexpensive money to lend out, which in turn, provided for better interest rates for borrowers.

As an aside, an example of investors may be one of Canada’s large banks, an American bank, pension funds, and/or other financial institutions.

The result was the emergence and major growth of mortgage finance companies, called wholesale lenders or monoline lenders.

Monoline lenders, encouraged by access to cheap capital, set up efficient mortgage underwriting (approval) operations and were able to provide flexible mortgage products and better-than-the-banks interest rates for their clients.

The overwhelming majority of wholesale lender mortgages are back-end insured by the lender, packaged up, and sold to investors.

What is interesting here is that wholesale lenders will insure mortgages transferred from one institution to another – something that banks do not do. This allows for better interest rates when renewing with a wholesale lender than if renewing with your current bank lender.

If you have any questions related to mortgages, contact your Dominion Lending Centres mortgage professional today.

Eitan Pinsky

EITAN PINSKY

Dominion Lending Centres – Accredited Mortgage Professional
Eitan is part of DLC Origin Mortgages based in Vancouver, BC.