Bah Humbug: Refinancing, Debt & Bankruptcy

I cannot remember a worse week in my mortgage business. For all the bad news I will reference below, I hope you can find a valuable lesson. These clients have forced themselves into difficult financial situations—overwhelming and multiple debts, including tax arrears, collections, and more.   When we are employed, paid well, and live accordingly, there should be no serious financial problems.  However, what if a job ends unexpectedly, or some other unforeseen issue occurs?  In all cases, the key is to continue to “live accordingly,” which may include adjusting your lifestyle.

Generally, when in trouble, people look to the equity in their current home for a financial solution.  It sounds easy: consolidate debt, lower payments, and suddenly, you can afford to pay off your debts, and maybe even live a little. 

The gap in the above scenario is our weak economy; by association, the drop in real estate values.   A refinance is only possible when there is enough value in the property to pay off a large sum of your debts plus other incurring fees.  This week, I have had four clients declined a mortgage because their debts have so severely outweighed the property value; therefore, the only advice I can give is to either try and sell, ask for help from family members, or go bankrupt.  The latter is an especially dark and dismal option that I hate to offer up, but unfortunately, may be the only way to escape from a world consumed by debt.

Home Buyers Beware

Many people do not know, but there are changes happening in the mortgage business and the confusion is just beginning.  Taking effect March 18^th, 2011:

1. The longest amortization you will be allowed to use if you purchase after this date will be 30 years.

Why is this important?  Well if you were pre-approved some time ago, your application may have used 35 year amortization.   With the new change to 30 years, now you may not qualify for the same amount, and your payment will also increase.  See your broker agent or bank to be sure. 

2. If refinancing to pay off debts, do renovations, or invest some money, the maximum amount allowed, less your current mortgage is 85%.  This is a drop from 90%.  If approved before March 18, 2011, you can still use 90%.  If you have not applied for a refinance yet but are planning to soon,  call me ASAP.

I don’t represent the lender or the bank, I represent you!

Please don't hesistate to call if you have questions.

Bryan – 519-426-9842

Changes to Mortgage Rules

Announced January 17, 2011:

The federal Finance Minister announced several changes to mortgages, effective March 18th, 2011.  There are three key changes the average Canadian should be aware of:

1.  When determining the amount of mortgage you qualify for, you can only amortize over 30 years.  Until recently, this number was 35.  

For example, a house purchase for $200,000.00 less 5% ($10,000.00) and amortized over 35 years would establish a monthly payment of $862.75.  Now, using 30 years, the monthly payment would be $929.03.

Also, the shorter the amortization, the less you will be able to afford.  Using a $200,000.00 purchase at 35 years may only allow you to buy a place for $195, 000.00 when the new rule comes into effect.  Be sure to check if buying after March 18, 2011.

2. When refinancing, especially debt, you can only use 85% of value. 

3. If you want to renew a line of credit against your home, you can only finance 80%.  Formerly, you could receive up to 90%.