Pre-Approvals: What You Need to Know

When searching for a home, it makes sense to get a mortgage pre-approval and line up the necessary documents prior to house hunting.What is a pre-approval? Its the process of determining how much money a prospective homebuyer will be eligible to borrow prior to a formal application for a mortgage loan, based on information they have provided.

With a pre-approval, you’ll get a good sense of how much you can afford, and you’ll be assured of a particular mortgage rate for a set period of time. With a locked-in rate, there is no risk of interest rate increases while you are house hunting. A mortgage broker may be able to obtain a longer pre-approval rate hold. Another benefit of a pre-approval is that you’ll be in a much better position to negotiate with sellers.

On the other hand, a pre-approval is not a rock-solid guarantee of financing, does not eliminate the need to make a conditional offer, and you still must consider all closing costs.

I always recommend that you get a pre-approval in person. While it is possible to get pre-approval over the phone or internet, you will get the most value by meeting your mortgage broker one-on-one. This will allow you to ask questions, run scenarios and learn all your options different options. Remember, the amount you are qualified to purchase is not just ONE number. It is a range of amounts based on several factors such as your income, the lender, the interest rate, the down payment, your credit, the type of property, etc. When you are meeting your mortgage broker, he/she should be able to run through the various amounts you will be qualified to purchase.

Learn more about the pre-approval process at BCMortgage.ca by visiting our website.

The Cost of a Cashback Mortgage?

I often get asked whether a cashback mortgage is a good option for borrowers. While a cashback may seem attractive, be aware that unlike other cashback products, mortgage cashbacks are not free. Lenders will increase the interest rate to cover the cost of the cashback.

One cashback product to consider is TD Canada Trust’s 7 yr, 7% cashback product. This product is offered by Invis (www.BCmortgage.ca). The current interest rate on this mortgage is 7.7%. You may think that this is a high rate of interest but this is because you get 7% of the mortgage amount interest-free. Yes, it is still more expensive than a traditional mortgage. For example, on a $300,000 mortgage (where you get a cashback of $21,000 or 7% of $300,000), you would pay interest over a 7 year period of $156,608. If you took a standard (i.e., no cashback) mortgage, and paid the current 6.2% interest on a 7 year mortgage, you’d pay total interest of $125,555. That’s a difference of $31,053. We still have to deduct the cashback of $21,000 to arrive at the net cost of $10,053 (or $31,053 less $21,000).

In essence, you’ve spent approx. $10K to get a $21K cashback. Is this worth it? For most people, the answer is no. However, if you are cash strapped or would like to purchase furniture or need money for legal costs, this could be a solution for you.

Besides the added cost of a cashback, borrowers have to be aware that cashbacks are only available for fixed mortgage terms. There are no variable rate mortgages that offer a cashback. This is a major disadvantage since this precludes you from enjoying the lower interest rate of a variable rate mortgage. Secondly, if you were to break your mortgage, you would have to return a pro-rata share of the cashback. For example, if you were to break your mortgage on the 5th year of a 7 year cash back mortgage, you will have to return 2/7th of the cashback you received when you took out the loan.

There are many lenders offering cashbacks. Since most consumers will not have the software to analyze each offering, we suggest you consult a mortgage broker at Invis (BCMortgage.ca) to help you decide which cashback offering is the best one to take.

Purchase Your Investment Property with No Money Down

Firstline Mortgages, a subsidiary of CIBC, is the first lender to offer zero down mortgages for rental properties. Mortgages will be insured by the Canadian Mortgage and Housing Corporation (CMHC). Previously, the minimum requirement was 10% down under Genworth’s Small Rental Programme.

To qualify, borrowers need good credit (min. of 680 beacon score) and proof of ability to support the debt. The property must meet Firstline and CMHC’s standard guidelines. Borrowers are will get Firstline’s best discounted interest rates. If you are interested in this programme, be sure to phone or email me for more details.

BCMortgage.ca Selected Finalist for the CMP Canadian Mortgage Awards

We are pleased and honored to be selected as a finalist for the CMP Canadian Mortgage Awards under the category MGIC Award for Best Internet Presence. This category recognizes mortgage websites that have harnessed the internet to provide customers with practical, effective and easily accessible facilities to help streamline the mortgage process. The winner will be announced on February 29 at the Canadian Mortgage Award ceremony in Toronto.

The selection is a recognition of our efforts to provide consumers with online, in-depth information on mortgage and home buying.