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Welcome to My Mortgage Broker
Greetings!
In this issue - update on the Bank of Canada increase to the overnight lending rate, family trusts, co-signing on a mortgage and mortgage strategies that are working for my clients.
Feel free to email or call me with any questions and PLEASE PASS ON THIS INFORMATION to anyone you know that could benefit - sharing is a good thing. |
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Co-signor or guarantor
The benefits and pitfalls of signing your name on another person's mortgage.
If a buyer can't obtain a mortgage due to poor credit,
insufficient employment history, inadequate down payment or questionable income
-- most lenders will approve the mortgage if there is someone who will back the
borrower. There are two options to consider,
co-signor or guarantor.
Co-signer
versus guarantor
People often use the terms guarantor and co-signer interchangeably, but they
have very different responsibilities and rights. A co-signer is basically a
co-owner - he/she is registered on the title and is equally accountable for
payments (although it's often a given that the co-signor will not make the
payments).
A guarantor, on the other hand, personally guarantees payments
will be made if the original applicant defaults, but he has no claim to the property
because he/she is not on title.
Lenders require co-signers and guarantors for different reasons.
A co-signer is used when you need to support income. If the original
applicant's qualifying ratio doesn't meet the lender's standards, a co-signer
is required to bridge the income gap. A co-signer, because their name is also
on the title, must sign all of the mortgage documents and can expect to remain
on title until the applicant qualifies for the mortgage on his or her own. Or,
in the case of two spouses, the co-signer might remain on title indefinitely.
Keep in mind that removing someone from the title involves legal fees.
A guarantor is usually called upon if the applicant qualifies by
income, but has a slight credit blemish or has yet to establish credit. It's
also an option for couples where one spouse is an entrepreneur and they don't
want to risk losing the house should the business go bankrupt -- they simply
keep that persons name off the mortgage.
Guidance for
guarantors
A guarantor has to be stronger financially than a co-signer because they
promises to carry the entire debt should the homeowner default. As a result,
guarantors are carefully scrutinized and undergo a credit check and must also
disclose assets, liabilities and income.
As a result, it's important for guarantors to know all of the
circumstances of the person they're acting for and be confident the applicant
will make the payments. Before signing, all guarantors should seek advice from
a lawyer who is independent of the real estate transaction.
It's also smart to secure creditor insurance in case things go wrong.
The applicant and guarantor should discuss collateral or come up with a
repayment plan, should the guarantor be called on to cover the debt, from the
outset.
When a
guarantor wants out
Some lenders offer early release policies that free the guarantor from
obligation (usually after 12 months) if the borrower is up-to-date with
payments and has established good credit. Sometimes a guarantor can remain
under obligation for several years.
Before agreeing to act on behalf of an applicant, guarantors need
to evaluate the time commitment they're willing to make. If, for example, they
want to buy their own home in a few years or take on any major debt, such as a
car or boat, they may not qualify because of their guarantor status.
One option is for the homeowner to refinance -- usually at a
slightly higher rate -- with a second-tier mortgage lender that is more
flexible when it comes to debt-to-income ratios or credit transgressions.
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New To Canada
Less than 35% down payment - we have an option for you.
For those new residents to Canada lenders offer different guidelines depending on your down payment, income and credit (or lack of credit) history. Typically borrowers who have less than 35% down (or assets) require CMHC insurance to buy a home and must meet the guidelines.
Lenders are opening up options now for borrowers. With my knowledge of the various options I was able to help a client buy their new home with 20% down and no CMHC insurance. The client had income from a new job for less than 3 months and good credit. The lender program allowed the purchase by verifying his income with a job letter as we did not have 2 years history. Along with proof of the down payment we had a deal and the clients bought their new home in Vancouver.
For those new residents with difficulty proving income or non-residents buying in Canada - we also have options - so call me anytime for details or I am happy to help any friends and family moving to Canada.
Call Pauline at 604 813 8402 or email at pauline@mybcmortgage.ca
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Family Trusts
If you are a business owner or investor why you need one
This is not a
do-it-yourself activity: you need a team of professionals who are familiar with
the legal aspects and tax issues of setting up a family trust. The Canada
Revenue Agency (CRA) has a number of tax rules that limit the income splitting
benefits of family trusts; you need professional advice to structure your trust
most effectively and efficiently for your specific situation. The tax benefits can be substantial; the
payback makes it worth your while to investigate and to do it right.
To find out more about
family trusts, and whether setting one up for your small business is the right
decision for you, email David Perkins, CFP at david@perkinsfinancialplanning.com
or call 604-889-6497.
TO VIEW THE COMPLETE ARTICLE VISIT MY BLOG AT WWW.MYBCMORTGAGE.CA
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Pauline's Picks
www.livingsocial.com
A great site for special deals on a variety of activities around Vancouver or other cities. Save money on restaurants, spa treatment, events and more.Sign up friends and save even more..
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Bank of Canada
Raises overnight lending rate to 1%. Expect banks to follow with increase to prime by .25%. Prime - now 2.75%. Watch my blog for updates.
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Bond Yields - Fixed rates stabilize.
5-year fixed rates are effected in part by the bond yield. This happens because of the gap between the bond yield and fixed rates.
5 year bond yields -.09 bps to 2.20. Comfort in the zone of 1.79.
Best fixed rates still available. Call Pauline for details.
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My Money Coach
Check out this excellent resource for money saving and budget tips.
www.
mybcmortgage.ca/
learning-centre/resources |
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