If you’re like most borrowers, you won’t be shopping for a mortgage very often. This means you may not know all about the specialty mortgage products that are currently available in the mortgage market. I’ve provided a brief overview of a few of the less common mortgage financing options below that I have recently encountered.
- Purchase + Improvements
You find the perfect neighbourhood you want to live in and everything you need is close by, but you just can’t find the perfect home for you and your family. One has an awful looking bathroom, another has an outdated kitchen, and a third home has no garage. Enter the purchase-plus-improvement mortgage product. This type of mortgage allows you to not only get a mortgage to purchase the home, but to also upgrade in order to turn a “so-so” house into an ideal home by including the costs right into the new mortgage. There are some specific requirements related to this product, so if you’re interested in buying and renovating right away, make sure to have a detailed discussion with your mortgage professional before you write an offer on a home.
- Refinance to 95% of your home value
Normally you are restricted to 80% of your home value as a maximum when refinancing your mortgage. The exception to that rule is when a separation or divorce is involved and if one borrower is trying to keep the home, the mortgage insurance companies will work with them to essentially ‘purchase’ the home from the other party. This option is not only available to spouses; some other partnership types may be eligible as well depending on the lender and the situation, including siblings. Also be advised there are a few extra document requirements for this mortgage product, so do your research before you commit to this mortgage solution.
- Second Mortgages
A second mortgage can serve multiple purposes with the most useful being an easy way to access your home equity while leaving your first mortgage financing alone. This can be ideal if you have a large payout penalty on your first mortgage or really great mortgage terms that you don’t want to lose. There are a few different routes you can take to find the best second mortgage product for your specific needs. Look into a home equity line of credit, a secured equity line visa, second mortgages or private financing. Private lenders, although they tend to charge higher rates and upfront fees, have much more flexible qualifying guidelines which would be helpful if you’re in temporary financial distress that requires a short-term financing solution.
- Bridge Loans
Also known as interim financing or bridge financing, this product is specifically suited to borrowers buying a new home with the downpayment to come from the sale of their current home. If the closing date of your old home is after the possession date of your new home, bridge financing covers your downpayment funds for the time between purchase and sale. Bridge financing most often comes with an upfront fee and daily interest charges. Every lenders guidelines and requirements are different, so be sure you’ve secured a “full” financing approval before you remove the conditions for your new purchase.
- Free transfers
There are enough mortgage lenders in the market to encourage some healthy competition among them. If your mortgage is due for renewal and you are not making any changes to the amount or amortization period, many mortgage lenders are offering a free switch program to encourage you to move your business to them. ‘Free’ meaning you won’t have to pay your typical refinance costs such as appraisal, and/or legal fees. Side note, you will still have to provide some paperwork, and you would have to qualify under the new mortgage rules (credit, debt ratios, etc). The appeal lies in minimal costs to you, and if your financial profile is strong you may be able to negotiate terms more favourable than your current lender is offering you. Be advised your current lender may charge an administrative fee of $250-$300 to discharge your mortgage, this could be negotiable if you have products with them other than your current mortgage.
- Affordability Exceptions
With the new mortgage rules, the maximum mortgage amount a borrower can be approved for is now based on a higher interest rate. This means the potential mortgage payment a borrower must be able to afford is higher than what will actually be due for payment. Most lenders allow the payment to be a maximum of 32-35% of the borrower’s monthly gross income, though if a borrower needs an exception to that maximum, they may be eligible to go to an alternative lender. Exploring all mortgage options by working with a mortgage professional who has access to multiple lenders increases the possibility of a mortgage approval.
The six specialty products I’ve detailed above are only the tip of the iceberg. There are many other combinations and different types of mortgage products available these days. Regardless of the mortgage you decide to go with, ensure you read and understand all of the terms and details of the approval and ask questions until you’re comfortable with the commitment you’re about to make.