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Difference between pre-qualified and pre-approved? – part 1

Determining how much house you can afford involves plenty of number crunching. Jorge and Alisa Aragon explain two stages on the road to mortgage approval – As seen in REW.ca 

Q: What is the difference between pre-qualification and pre-approval for a mortgage?

A: Pre-qualification is a relatively simple process where the mortgage broker or bank estimates both your borrowing power and the maximum amount of mortgage you can carry. This is done by providing information about your financial situation, such as your income, assets and debts. This easy and quick step doesn’t take into account your creditworthiness or involve a thorough analysis of your financial situation. It’s simply a place to start to estimate the price range of homes that you could qualify for. As mortgage experts, we do this during our initial meeting to give you a rough idea how much you will be able to qualify for. Pre-approval is a more in-depth analysis of your financial situation, as you will complete an application and provide consent for the lender to obtain your credit report. At this point, the lender has more detailed information on your income, assets and liabilities, and your information has been checked and verified. Your credit report has been pulled to learn about your credit score, history and credit worthiness. Based on this information, the lender will issue a pre-approval letter letting you know what you are likely to be approved for a mortgage and the amount you may be approved for. The pre-approvals can also guarantee current mortgage rates for up to 120 days. It is important to acknowledge that you are not guaranteed to get a mortgage if you are pre-qualified or pre-approved. Many things can happen during the process, and some lenders may give a pre-approval letter without actually verifying your information. Talk to a mortgage expert to get the pre-qualification/pre-approval process started and get you on the road to homeownership.

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Thirteen things you need to know BEFORE renewing your mortgage.

With mortgage rates still dropping and new products on the market, don’t sign that renewal letter, say experts Jorge and Alisa Aragon. As seen in REW.ca 

Is your mortgage coming up for renewal? Don’t be too quick to sign that mortgage renewal letter. More than 70 per cent of Canadian mortgage holders do just that, and what is the usual result? A higher rate and a mortgage product that might not be best suited to their interests.

Experience has shown that the “Big Banks” send their mortgage renewals out at a posted rate. Lenders are counting on the fact that most homeowners are too busy to ask questions or to inquire about getting a better rate. Don’t let this happen to you!

You should recognize that you are now negotiating from a position of strength as your renewalmortgage principal has dropped and in most cases your home value has increased. Lenders see you as a lower risk borrower and consequently you should be getting the best rates available. That may not happen if you simply sign the renewal document provided by your existing lender.

Rather, let the lenders compete for your business to be sure you do in fact get the best mortgage possible.

The following are some things you need to consider before you renew your mortgage.

  • Mark your calendar or digital organizer for four months before your renewal. On that date, start re-evaluating your needs to see what type of mortgage is likely to fit best this time. Start researching the market for products, features, interest rates, lenders and interest rate trends. If this sounds like too much work and you are leaning toward simply signing your bank’s offer when it arrives, ! Instead, take the  easy route and let a mortgage expert do all the work for you, for free. Start taking action on your renewal 120 days (four months) in advance.
  • If you do nothing else, simply pick up the phone when you receive your bank’s renewal notice, thank them for the interest rate they have offered and ask them if they can bring it down a little. In most cases, they will say yes. Of course, you should wonder, “If I can get a lower rate by simply asking for it, imagine how much better rate and features I could get if I had a mortgage expert playing hardball with several competing banks!” Ask for a lower rate.
  • See renewal as a time to start over. So much may have changed in your life since you first took out your mortgage. It would be foolhardy to lock yourself into exactly the same mortgage at an unnecessarily high rate just because your bank doesn’t want to take the time to provide a financial review and make a more current recommendation. And don’t think this has to take up a lot of your time. Mortgage experts can perform a full review in a few minutes, whenever and wherever is most convenient for you.
  • Attractive new mortgage products and features may be available that you’re not aware of. New mortgage products are being introduced all the time. Not only do some offer better rates, they may also offer better pre-payment options, cash backs, amortizations, accelerated payment schedules, investment opportunities and more. But you will never know if you simply sign up for more of the same.
  • The rate market may have changed dramatically. When you first took out your mortgage, you may have gone variable because rates seemed to be continually dropping. But what if the economy and interest rates have shifted in the meantime, as they have recently? Maybe it’s time to consider locking in so your payments don’t start creeping up month after month. But you will never know if you simply sign up for more of the same.
  • You are not obliged to renew into the same kind of mortgage, nor are you obliged to stay with the same bank. When your mortgage term is up, all bets are off. Nobody owns you. Sometimes people feel loyal to a lender since the lender was good enough to lend you the money, you owe them your business. In reality, it’s a business transaction like any other. If the lender isn’t giving you the best rate, product, features and service, you have every right to take your business elsewhere. Of course, shopping around for the best alternative can be confusing and time consuming, so go to a mortgage expert to do all the legwork, comparisons and negotiation for free.
  • You can negotiate and play one bank off another. Again, don’t feel you are being disloyal by asking for a better deal or shopping around. Of course, you won’t be able to negotiate very effectively if you try to fit it within the 30-day window your bank gives you. This is another reason to start early. And it’s also a another good reason to use a mortgage expert – seasoned negotiators who know exactly how far to push each bank to get you the best deal.
  • If you can, pay down the principal. Renewal is a great time to put a lump sum down on your mortgage. There are no limits to how much you can pay. And since it goes straight toward your principal, even a modest amount can dramatically reduce your amortization and total interest costs.
  • Renewal is the best time to refinance. If you are thinking about taking out equity from your home for renovations, investments, children’s education, debt consolidation, etc., do it at renewal time. Since your mortgage term has ended, there are no early payment penalties, which can save you thousands of dollars.
  • Rate isn’t everything, but it’s tremendously important. Accepting your bank’s first renewal offer is like leaving money on the table. You can do better by shopping around yourself, and you can do MUCH better by letting a mortgage expert shop for you. Shaving a point off your rate can save tens of thousands of dollars over the life of your mortgage.
  • Don’t be scared off by fees to switch lenders. Your existing lender may tell you there’s a discharge fee if you move your mortgage. But don’t worry. Most lenders let you include the discharge fee into the new mortgage and it’s a minimal cost considering how much you can save in interest.
  • Make sure switching lenders is worth it. In almost every case, it’s very much worth your while to switch lenders if that’s what it takes to get a mortgage and rate that fits your needs best. However, keep in mind that moving to a new lender involves some extra steps. Since it’s a new mortgage, you have to go through the application process again, proving your income and getting your credit checked. In some rare cases, the tiny amount you would save by switching lenders may not be worth all this extra work. But even in these cases, it’s definitely worthwhile to have a mortgage expert review your situation and shop the market for you. A reputable broker who is looking after your best interests will tell you if it is optimal to stay with your existing lender.
  • Even if you get a lower rate, keep your payments the same. Sure, with a lower rate, you could enjoy lower payments and increased cash flow. But if you keep your monthly payments the same as they were when your rate was higher, you will pay off your mortgage sooner and be well on your way to financial security.

So if your mortgage is up for renewal, talk to a mortgage expert, who will be happy to provide you with a free consultation by reviewing your current situation and ensure you get the best rate and terms available.


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Exploring the Benefits of Reverse Mortgages

Most Canadian seniors have 80 per cent of assets tied up in their house – and they can access that money in retirement. As seen in REW.ca 

Perhaps you have a friend or family member who has been dreaming about this moment throughout their working life. That dream is to retire and have the time and money to travel, fix up the family home, indulge in hobbies, visit grandchildren, spend weekends at the cottage, help their children buy a home, pay off debts, help their grandchildren with tuition fees, and most importantly, not have to worry about money.

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But now that they are 55 or older, they may have been caught off guard by the expenses associated with retirement, such asproperty taxes, rising energy and utility expenses, and the overall cost of living, which seems to get higher every year. Sure, they have their pension income, but it may not be enough to make ends meet. Most Canadian seniors have 80 per cent of their assets tied up in their house. But accessing that equity can be difficult. Most banks won’t give them a mortgage because they don’t have enough income to make monthly payments.

So what are the options?

Well, they could downsize and sell their house. But isn’t that where they always dreamed they would spend your retirement? Leaving the home where they raised their family, put down roots and made lifelong friends would be heartbreaking. Besides, selling and moving can be very expensive once they have paid real estate fees, moving expenses, legal fees and so on. There’s got to be a better solution than leaving their family home.

There is a better solution for many seniors, and that’s a reverse mortgage. A reverse mortgage is a specialized financial product for people aged 55 and over, who own their own home. It lets them stay in their home while benefiting from the value they have built up in that property over the years. Compared with a regular mortgage, a reverse mortgage can offer substantial monthly cash savings, so they have all the income they need to live the retirement of their dreams.

Let’s explore the benefits of a reverse mortgage.

Regular mortgages require you to pay a lender – a reverse mortgage pays you:

If you and your spouse are 55 or older and you own your home as your principal residence, you may be eligible to receive up to 40 per cent of your home’s current appraised value in cash. The specific amount you will receive is based on your age, your spouse’s age, the location and type of home you have, and your home’s current appraised value. No matter how much you receive, you never have to make monthly principal or interest payments (until you move), so you get the money you need without reducing your cash flow.

seniors fitnessThere are no income, asset, employment or credit requirements:

Since the amount you receive is secured against your home, qualifying is easy and hassle-free – even if you are living on a very limited retirement income. You can receive the money whichever way works best for your lifestyle With a reverse mortgage, you can choose a single lump-sum payment or ongoing monthly, quarterly, semi-annual or annual income.You can even choose a lump sum to begin with, followed by ongoing advances over time.

A reverse mortgage can be used to clear up all your remaining debts:

Maybe you still have a mortgage remaining on your house and the payments are cutting into your lifestyle. Maybe you have monthly credit card bills piling up. A reverse mortgage can be the ideal solution. In most cases, you can use the funds to eliminate mortgage payments and credit card debts, and still have enough left over so you can enjoy life more and not have to worry about money. Your income taxes and pension are unaffected As a retired person, one of your major concerns is how much you will be paying in taxes each year, since that can really affect your cash flow. Fortunately, the money you receive from a reverse mortgage isn’t considered income – even if it’s invested in an account or annuity with monthly withdrawals. This is because the home equity you are accessing has already been taxed, since you purchased your home with after-tax dollars. Not only don’t you have to pay taxes on your reverse mortgage proceeds, they won’t bump you up into the next tax bracket. And since they’re not considered income, they won’t affect your Old Age Security (OAS) or Guaranteed Income Supplement (GIS) payments.

Your home remains your home:

You will never be asked to move or sell your home to repay your reverse mortgage, as long as you maintain the property and stay up-to-date with property taxes, fire insurance and strata fees. Your equity and estate is fully protected since the reverse mortgage amount can never exceed your home value. Sure, the equity in your home will decrease over the years as you receive payments, but your home’s value could increase even more quickly over the same period. Generally, 99 per cent of homeowners have money left over when their reverse mortgage is finally repaid (when you move or die). On average, the amount left over is 50 per cent of the value of the home when it’s sold. The interest on your reverse mortgage can sometimes be tax deductible If you use the money you receive to make non-registered investments such as GICs and mutual funds, the interest costs on your reverse mortgage can be written off at tax time. This can help offset the taxes you owe on your income, RRIF or RRSP withdrawals.

AssistedLivingNewMortgage experts like ourselves can introduce clients to all the benefits of a reverse mortgage. However, since we are not tied to any one lender or type of product, before recommending a reverse mortgage, we will do a thorough analysis of our clients’ situation, needs and goals. Only then will we make an unbiased recommendation about which product is right for them.

In most cases, that will be a reverse mortgage. But as mortgage experts, we have access to innovative lines of credit and other home lending products that may fit their specific needs even better.