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“This house would be perfect, if only…”

February 3, 2015

The Only Thing You Can’t Change is Location…


You’ve been searching for what seems like an eternity. The homes you are seeing are great except...

The kitchen needs updating… Who would love green shag carpet…in a bathroom? … Harvest Gold Appliances just aren’t your style… You love the neighbours but… a fence would be great… The Basement needs finishing…

You have saved up your down payment and closing costs, and a small emergency fund… green shag  is unpleasant but not an emergency… right?

That’s right. In the Grand Scheme of things, green shag is not an emergency. And there are great, cost-effective ways to turn that “almost” perfect house into your perfect home (and likely add some equity at the same time!). Here are just a few ways you can do this:

 


Cashback Mortgages

A cashback mortgage is a mortgage product that offers a percentage of cashback to the borrower at funding. The percentage usually ranges from 1 to 5% of the total loan amount (for example, a $200,000 mortgage with a 5% Cashback would grant the borrower $10,000. These loans are a bit higher than best rates (not much at all!). The cashback cannot be used for your down payment, but it can be used to pay off or down debt, new appliances or home improvements or even closing costs. When considering penalties for these products, the cash-back amounts are usually pro-rated, and if you decide to break your mortgage term, you will be looking at the penalty for breaking the mortgage, as well as the pro-rated balance of the cash-back portion.

These products are available a bit higher rate. It might be worth keeping in mind that the rates are generally still much lower than those on lines of credit and/or credit cards. Cashback mortgages are available at 3 and 5 year terms.


Purchase Plus Improvements

A Purchase Plus Improvements mortgage allows for borrower to borrow up to 10% of the total loan amount, to a maximum of $40,000. The borrower collects quotes and estimates for the work to be done, and submits these when they are applying for their mortgage funding. When the lender approves the application and the property is purchased, the borrower has the work completed and notifies their mortgage broker that the projects are complete. The broker arranges for an appraiser to come out and confirm the work is completed. Once confirmed, the lender advances the funds to the borrower’s lawyer or notary, and they release the funds to the client to pay the contractors.

In this instance, the borrower must have at least 5% down payment on the total amount to be advanced. So, if you are looking at purchasing a $200,000 home, and want to borrow $20,000 for improvements, you would need to have $11,000 for down payment (5% of $220,000), plus closing costs.
These products are available at best available rates, generally for at least 3 or 5 year terms.
 

Construction or Draw Mortgages

Now let’s say you find a home that is in the perfect spot. But the house is very far from perfect, and it’s going to take more than 10% of the purchase price to bring it closer to perfect. This is when you might consider a construction or draw mortgage. This allows you to borrow more than 10% of the purchase price. However, it also changes the structure of the loan. There are options out there that will allow you to make draws on large renovation projects (similar to a new build). There are things to consider, like the costs to have the appraiser confirm that the work is completed before the draws are advanced, and some lenders might restrict the number of draws (for example, 3 draws of $25,000 for a $75,000 renovation). Payment structure can vary widely, so it is best to speak with your Mortgage Broker; we will walk you through the steps and help you to decide the best mortgage to fit your budget, plans and financial situation.

One more thing to consider is combining one of these great, low-rate mortgage options with improving the Energy Efficiency of the home you are purchasing. There are a number of financial incentives offered by insurers and governments to people who are upgrading the energy efficiency of their home. These options are available when your mortgage is up for renewal – why not take advantage of the record low rates available to not only save money on your payments, but add equity to your property.

This post contributed by team member Amanda Jacobson.

If you have any questions, or for more information, please do not hesitate to contact Your Island Mortgage Team today!

250-898-8821 or toll free 1-866-898-8821
 

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