Mortgage Renewal and Options
Renewing your mortgage can be very straight forward especially if you just stick with your existing lender. If you are not adding on any extra money or a Secured/Home line of credit to your mortgage (this is a refinances) a straightforward renewal involves signing your renewal papers and that is it.
The downside however or challenge with renewing with your existing lender is that they do not always offer you their best terms. You are there client already so why bother? Switching your mortgage to a New Lender on a renewal requires a bit more paperwork, typically an update of income, credit and signing new loan papers however there are no appraisal or legal costs involved so very straight forward. For an extra 45 minutes work you could save yourself thousands of dollars by looking at other options.
Speak with your Mortgage Broker and have them do to the research. It is always good to start the research 4 to 5 months out from the renewal date because most lenders can lock in your rate 120 days before closing.
Mortgage Renewal and Options
Here are two examples that show the power of accelerated payments and adding an extra few bucks to your mortgage payment. Most people think they need to pay thousands against there mortgage each year to pay it down aggressively and therefore never do anything.
Here is a typical situation. Let’s take a $500,000 mortgage over 25-year amortization period with an average rate of 3.25%. (we know through the terms rates will change.). A regular monthly payment of $2430.83 over 25 years your total interest paid will be $229,248.96.
So, let’s say you took out a biweekly or weekly accelerated payment which means you pay every two weeks or every other weekly. It is still the same monthly payment broken down into 2 payments or 4. Your total interest paid is $200,056.46 and you pay down your mortgage in 23 years. So, 2 years sooner.
Let’s take a biweekly accelerated payment and add $100.00 to each payment or if you took weekly that would be $50.00 to each payment. Your total interest paid $176,742.08 and you pay down your mortgage in 18 years or 7 years sooner. WOW. So, by taken an accelerated payment and adding an extra $100.00 every 2 weeks you pay down your mortgage in 18 years and pay $52,506.00 less in interest then if you stuck with a regular monthly payment.
Self Employed Mortgages
There are two different types of mortgages for self-employed borrowers. One is based on qualified income (proof of income using tax returns) and the other is non-qualifier income (using bank deposits ). There are big differences with the lender’s guidelines/polices based on each type of program
Borrowers who qualify based on provable income:
This is where the borrowers will get access to the A lenders or the lenders offering the best terms and rates with a minimum of 5% down so the same as salary or hourly income borrowers. Documents required to qualify are last two years personal T1 Generals and Notice of Assessment Income Tax Return. If Incorporated two years financial statements too. The two-year net income average on the personal tax returns is then used to determine your borrowing power. If the income is enough to support the mortgage required, then you are fine. If not, then you need another option?
Documents required for this program are:
- Proof of self-employment for at least two years such as business license, Articles of Incorporation.
- 2 years personal T1 Generals and Notice of Assessment personal tax returns to confirm income and no taxes owning and if incorporated two-year financial statements too. If taxes are owing, they need to be paid before the mortgage closes.
Borrowers who qualify based on not using Tax Return income:
One challenge that can pops up with self-employed borrowers is their personal net tax return income is not high enough to qualify for the mortgage they require. Self Employed borrowers get to write off their expenses against Gross income which is great however for the A lenders offering the best terms and rates they only use the net income on your tax return to qualify.
In recent years this has presented a large swing in how mortgages are qualified for self-employed borrowers. As a result of the tightening of lender guidelines for self-employed borrowers the Self-Employed Stated Income Program is becoming the main borrowing option now. Under this program the lender will look at your business bank deposits to determine the income. They typically requite 6 to 12 months of bank statements and will look at personal accounts too if one does not have a business bank account. This program comes with an average of 1% higher interest rate (not that bad at all) and 1.5% fees based on mortgage loan amount. The term is typically just 12 months. Reason been is that we can then look at the situation in 12 months to see if we can move the borrower back to the A side for better terms and rates.
A question I put to my self-employed borrowers who need this program but are a little annoyed about paying a higher rate with fees is this “Would you rather pay an extra 25% in taxes to get a lower rate or 1% higher on the mortgage rate” Believe me the 1% higher on mortgage rate is a lot cheaper even with the fees.
In today’s market we are finding that more and more self-employed clients who are not showing enough income on their NOA’s to support their mortgage need to go through the Self-Employed Stated Income Program. Main requirements are 20% down payment and 6 to 12 months of bank deposits. Documents required would be
- 6 to 12 months bank statements shown deposits. The lender may ask to see some invoices to match some of the deposits depending on the borrower’s industry.
- Proof of 2-year self employed by Articles of incorporation or Business License.
Contact Robert Clancy today to find out how to take full advantage of this program:
Robert Clancy, AMP,
SAFEBRIDGE Financial Group
Tel: 416 899-1467
Fax: 1866 385-4049