Commercial Property Loans in Canada

The commercial property market in any country plays a major part in its economy, being the point where retail and investment banking meet. There is a lot of encouragement given by any government in the issue of keeping commercial properties running and finding a way for them to keep up with debt repayments so as to avoid the worrying eventuality of a commercial property closing down – thus depriving the economy of the tax dollars from the property and business itself, and the banks of important money from mortgage repayments. It is a lose-lose-lose situation when one takes into account the owner of the business going bust. Yet there is a very real situation emerging at present which suggests that commercial property loans will need to be looked at very closely in the coming year.

Commercial loans are unlike residential mortgages in that the latter are self amortizing, and as long as the resident has a well-chosen mortgage their payments will shrink in real terms as the life of the mortgage runs down. At a given point with a commercial loan, the payments may well begin to increase, having been agreed on the basis that profits from business will rise year-on-year. Depending on the nature of the loan, the case may well be that the borrower needs to look at refinancing the loan or repaying it in full. There are billions of dollars’ worth of commercial property loan coming due for refinancing or repayment this year – and several companies who are in no position to meet either of these conditions.

At present, the government and the banks are working together to find the best way of ensuring that the mortgage deals hanging in the balance are restructured in a way that leaves no-one too seriously out of pocket. Although the properties which are bought with commercial real estate loans represent an asset which can be repossessed and re-sold, there is still a large level of reluctance to borrow among the general and business public, raising the spectre of commercial properties remaining vacant for the time being. This leaves the banks with assets of limited worth, the government with a reduced level of tax income from these sources, and civic authorities with the problem of empty properties on their high streets – not encouraging for trade, and considered to be injurious to civic pride and all the things which flow from that.

As we were in a recession with a global reach, there are no short cuts where business and commercial real estate financing is concerned. Foreign investment is no more likely than domestic, as Canada is in better shape than most economies worldwide. In order to keep businesses open and trading, some level of agreement needs to be made between government and private finance so that the best outcome for everyone is achievable. Anyone looking for a commercial real estate loan at the present time may well be in an advantageous position, as there will be breaks available while the government seeks to encourage lending. Everyone is holding their breath at the moment waiting to see how this recession has had its play coming out of recession. Some proactive conduct on the businessperson’s part at this moment might well be sensible.

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Defaulting on a Mortgage

There are few phrases or words more chilling for the holder of a mortgage than “default notice”. While the appearance of those words at the top of a letter are never what anyone wants to see, they hold a special dread and fear for the mortgage holder because of the genuine fear that the bank’s next step will be to take possession of their house. This fear comes about – with good reason – because the money lent in a mortgage is considered a “secured loan” – that is to say that it is given strictly on the basis that collateral is provided. “Collateral”, for the purposes of a loan, essentially means security. If you don’t pay the loan, then the bank have something of equal value that they can reclaim from you.

It is never desirable to default on a mortgage. The payments can be difficult to keep up, that much is undeniable. A mortgage is, in a lot of ways, the most challenging kind of borrowing that an account holder can take out. Although the longer term of the borrowing and the frequently lower interest rates (available because the loan is secured) lowers monthly payments, the fact that they are stretched out over a long term can mean that there is some doubt in the mind of the borrower over whether the conditions will always exist that make it possible to meet monthly payments. Therefore, especially in the early to middle period of the term of the loan, there will be some recurrent dread of one day defaulting on the mortgage. It is for this reason also that many people who are in a position to do so pay off their mortgage early.

If you default on your mortgage it does not mean that the house you have secured it on will be repossessed. In actual fact, banks tend to prefer not to go that far. It is up to you as a borrower to keep in contact with the bank and stay true to your intention of paying monthly payments at a sustainable rate. If you have already made a substantial dent in the principal of your mortgage, the bank may well be willing to restructure a loan for the remainder, over a longer term so as to allow smaller, affordable monthly payments. How long the term will be depends on factors such as your continuing earning potential and how much is left to pay off. Although you may not be able to stick to the original term, a difference of a few years may be all it takes to make that monthly payment manageable.

Aside from this method, you may have the opportunity to remortgage with a different lender – paying off your old mortgage with a loan that covers the remaining principal and interest, although the earlier you decide on this the better – missed payments and particularly expired default notices will put black marks on your credit file, making it harder to get a decent remortgaging deal, if you can get one at all.

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Divorce and Mortgage

Short of getting married, buying a house with your partner for life (or intended partner for life) is possibly the most concrete commitment you can make to them. In fact, as marriages frequently end in divorce within ten years, and the average amortization period for a mortgage is considerably longer, it could be said that it is in many ways a bigger commitment. Regardless, joining together to buy a house which you will share as a couple is a big move, and bigger still if you are joint account holders on the mortgage. An even bigger move is if you divorce while you are still paying off the mortgage – creating conditions for some of the most unpleasant times of your life, if you do not both swiftly resolve to conduct the entire process with maturity and dignity.

When a couple divorce, there is always a question over the marital home. Will it simply be sold with the couple splitting the money equally or according to a ratio of their choice? Will one partner buy out the other? It is for both of you to decide. It may be that one partner wants a clean breakaway and intends to leave the area, in which case the only thing that remains is whether the remaining partner wishes to stay in the house and can meet the full mortgage payment. It is important at an early stage to consult your mortgage agent in order to find out exactly how it affects your specific mortgage.

There may be some justification for applying for a new mortgage – whether this be for the purposes of buying out your spouse’s half of the equity in the house or in order to search for a new home. If this is the case then it is important to take account of the fact that there will be some changed data on the new application and that you are unlikely to have the same borrowing power as an individual that you did as a couple. Indeed, it is often worth involving the mortgage in discussions between lawyers if the divorce is to be conducted with the help of legal representation. This can help to divide it fairly and equally.

It is also worth taking into account that debt taken out in joint names will affect the credit scoring of both parties. Sorting out the issue of the mortgage is in this case all the more important, as acrimony over a divorce can be multiplied if one partner is considered to be behaving in any way that is injurious to the other. Although the marriage may have come to an end – potentially a very unpleasant end – the couple who are separating will usually have bought the house together at a time when they were very much in love, and its sale, or even departure from it by one of the parties can cause a great deal of heartache. It is sensible in this case to be businesslike although not insensitive, and making things easier will include smoothing out any financial issues – in which the divorce must be considered a priority.

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Home equity release schemes are becoming more and more popular Canada, Australia, the U.K., the U.S., and other countries as a way of boosting retirement incomes for those people who are finding it difficult to live comfortably on their govt. pension and have a significant amount of their wealth tied up in real estate property. They are referred to by a number of names colloquially, of which one is the “reverse mortgage”. This title has come about because just as a mortgage sees you paying money bit by bit towards the end goal of owning a house, an equity release scheme allows you to withdraw from a pot of money that you have paid into, with the end result being that you own none of your house, and will gain nothing from its sale.

One of the most popular ways to conduct a home equity release is to sell your home to financial institution who will then lease it back to you. You benefit from an immediate cash lump sum, which you can add to the govt. pension and any other pension you receive in order to pay the rent. If you have paid in a significant enough amount to your mortgage you will be able to use some of the cash lump sum to pay off the remainder of what you owe to the bank. If you are mortgage-free, you will have the entirety of what the financial institution paid you to do with as you see fit. It is important to find a reputable institution with whom to carry this out, however, as institutions have been known to default on their own mortgages, leaving their tenants in a situation of real difficulty.

There is some controversy over the morality of offering an equity release scheme, as many people consider that the deal is “mis-sold” by the institutions who offer it. Quite often, the amount that is paid for the house is less than two-thirds of its actual value, and that much less than the individual would be liable to receive if they were to sell it on the open market. What they gain from this is the opportunity to stay in their own home, but as mentioned above, the institutions offering equity release are not always wholly reputable.

If the sum total of all of this is to make equity release schemes look like some sort of scam, then that is not the intention. It is merely to say that when looking into home equity release systems it is generally beneficial to do a bit of background work, finding out from past customers how reliable, efficient and trustworthy the institutions you have spoken to are. If you get a deal from a reputable institution the equity released will allow you to use a more pro-active method of wealth creation which will potentially leave a lot more money for you to bequeath in your will should you wish to, or to enjoy retirement in style otherwise. It is worth speaking to an independent financial advisor to get more specific information to your case.

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How To Avoid Extra Costs On Your Mortgage

Extra Costs Can Drain Your Funds

The number one priority expenditure for most families in Canada and further afield is a place to live. There are other things that need to be addressed as a matter of importance, too, and it is not limited to the family home. But without the family home, nothing else really matters. If you don’t have a home to keep you warm, safe and comfortable, then you can have as many cars as you like – none of them will be as satisfactory and as central to your life as your home. Taking your mortgage seriously is therefore an essential matter. As much as you may want to cut loose a little bit when the monthly pay check comes in, it is important to remember that some figures need subtracting before the fun can begin.

The monthly mortgage payment is the first number most people will subtract from their paycheque they are making their month ahead calculations. It is one payment that cannot be missed and should not be compromised. If the situation you find yourself in precludes making a full payment to the mortgage, it is essential to call the lender and seeing if you can work out a payment holiday or, if necessary, a restructuring of the loan. Not bothering to keep the bank aware of how the situation is progressing will only see you receiving angry letters, late payment fees and, eventually, being at risk of losing your house. If you have any way of avoiding it, you should make sure that you do not miss payments – even if it means making reduced payments on other lines of credit. This loan is secured on your home.

Avoiding extra costs on your mortgage is partly a matter of common sense and partly a matter of being able to see where problems will occur before they really begin to cause concern. Seeing a debt advisor to talk through your options and make out a financial management plan is one way in which you may even be able to avoid making reduced payments to the highest of all high priority debts.

Strangely, though, there are some loans (mortgages included) that add on extra fees not only for the late payment or partial payment (or even non-payment) of the monthly debt repayment, but will charge you an early payment surcharge if you pay the loan off in full ahead of time. If this is something you can see yourself doing, then it is worth asking the bank if they have such a policy. Look through the terms and conditions on your loan agreement as well, to see if there are any strange circumstances in which they will add fees to the balance of your mortgage. The less you have to pay on a mortgage, the more money you will have to truly enjoy. For this reason it makes sense to avoid any unnecessary and stupid expense and to find ways of cutting off problems before they can cost you money.

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International/Overseas Mortgages for Canadians

Recently released figures suggest that Canadian households have in the past five years increasingly sought to buy properties abroad to add to their own property in Canada. Whether these properties are used for holiday purposes, as a retirement nest-egg or bolt-hole, or merely as an investment, there is a clear benefit to those who can afford it from buying a foreign property for their own reasons. In many countries, it is possible to pick up a bargain – some places will even offer up a number of properties that an assiduous saver could arguably pay for up front in cash. Between this and the comparatively inflated “First World” property markets, however, there are many places where a property can be picked up for a good price, but will still require some borrowing for a purchase to be made.

Getting a mortgage to buy a property abroad is not as straightforward, generally, as finding one to pay for a domestic property. Clearly, it is more so than it used to be – Canadians who wanted to buy foreign properties used to have to find a way around the mortgage question if they wanted to avoid paying large premiums on top of the principal. The evolution of the global mortgage market has reached a point where it is now more than possible to find the right mortgage. Due to financing guidelines it is tricky to get a mortgage in one country for the purposes of buying property in another, so this development has made a big difference for people looking to get into the international property market.

If possible you should always try to get a mortgage in the same country as the property you intend to buy. It may cause a little bit more difficulty up front, especially if there is any kind of language barrier, and if there is such a barrier it is worth getting all documents legally translated as an extra cover for you. However, being able to deal with the bank face-to-face when you are at the property and carrying out any deals connected to it will be to your advantage. As a foreign buyer you will need to provide stronger guarantees to demonstrate your commitment to the property. You may need to put up a larger deposit than a national of the country where you are buying the house or condo, but bear in mind that you are buying a piece of real estate that could cost several times more in your home country and it will not seem as big an issue.

As banking has become more and more internationalized, it may well be possible – and beneficial – to source a deal in your home country to take out a mortgage in the foreign location. Most banks will have a presence or a sister bank in other countries, and if not they will at least have some level of collaboration with banks in those countries. This can make the whole process move a lot more smoothly, and can see you secure a good-value mortgage for an excellently-priced property.

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Is It Our Last Chance To Avoid Getting Hit By High Interest Mortgage Rates?

High Interest Rates And How To Avoid Getting Hit By Them

The biggest concern for anyone currently looking for a mortgage to buy a residential property is the volatility of the market. In the last couple of years, interest rates have fallen not just in Canada but all over the world as the financial situation leads to predictions of dire hardship. However, the measures in place to prevent a total and catastrophic meltdown (and however bad things are at the moment, the word “catastrophic” must be saved for situations that require a completely fresh start rather than a shifting of the boundaries) mean that, after a period of negative financial performance of the kind which we have seen recently, there will inevitably be a period of stabilisation and then a recovery of sorts.

The outcome of this is that there is a narrow window, which is getting narrower as time passes, for anyone who has found themselves “recession-proof” to take advantage of the cuts in interest rates before the period of recovery kicks in and, inevitably, interest rates begin to rise again. The lessons of the past years have had the effect of encouraging us all to be a bit more careful, and any rise in rates will be gradual. But there seems to be very little doubt among market experts at the present time as to the feeling that rates will rise, and in five years’ time they will be higher than they currently are. Anyone hanging on to see how far the present rates drop may be disappointed.

High interest rates are used as an economic tool by governments and banks to control excessive market optimism. A few years ago the world in general was in a period of “boom” which was largely the mirror image of the “bust” in which it now finds itself. At that point, interest rates were rising and individuals hoping to get involved in real estate felt that they were being frozen out by “prohibitive” interest rates. Without the factual data, taken over a period of time, to prove a substantive change in the way the world sees economic issues, it is impossible to say how high interest rates may one day rise. If you are in a sound borrowing position, and if you are likely to be in a good situation to maintain your repayments going forward, now is the time to borrow for a house purchase. There may never be a better one.

Those who believe that there is scope for a further drop in interest rates would not currently be well served by waiting for it. It may come, it may not. More likely it will not, but if you like the odds it would at least be worth borrowing on a variable rate mortgage which will drop its rate as the banks drop theirs and rise when the banks do likewise. After five years, the terms of the mortgage can be renegotiated, and people with a good variable rate mortgage will be in the best position to do so.

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Insurance On Your Mortgage – What You Need To Know

If you have a mortgage, then the chances are that you have mortgage insurance. The principle of mortgage insurance is pretty simple. It is usually included in the mortgage when you take it out, with the value of the insurance added to the principal and other fees, and paid into monthly as part of your usual monthly payment. As with any other insurance premium, the idea is that if certain conditions are met and you are unable to make your monthly payments as normal, the insurance will cover those payments. Among the conditions that are relevant to mortgage insurance are: death, illness, unemployment. Depending on your mortgage account, you may be covered in case of all of these and more, just these, some of these or none. It is worth being aware of exactly where you stand regarding insurance on your mortgage.

The most common and all-encompassing reason for claiming on insurance is death. With other reasons for claiming, there can be arguing over the matter of what constitutes long-term illness, a pre-existing condition, the balance of fault for an employee’s sacking or renegotiated contract and so forth. With death, however, things are generally quite final – or so you would think. Having mortgage insurance that covers you for the death of yourself or a joint account holder may seem to mark the end of the argument, should one of you die. But some insurance companies are reluctant to pay out, and will go to great lengths to frustrate a claim. It is worth being very careful with regard to how the insurance was sold to you, and what the conditions are regarding payouts.

If you have filled in a form to purchase mortgage insurance – as part of an overall deal or separately – it is highly important that you read the questions carefully and answer them truthfully. Even if the answer to a certain question might increase your premium, or negate any cover, it is important to do this before you start paying the premiums. You could well find yourself some way down the line bereaved, ill or unemployed and with a claim for insurance being denied by the company for a reason you would consider to be wholly inaccurate and unfair. It is fair to assume, however, that the insurers have written the policy very carefully to favour themselves.

If you have been to the doctor for a routine check up, the chances are that they have run a routine blood pressure test. So if you are asked on the form whether you have been tested for high blood pressure, you will need to say you have. This may go against the spirit of the truth, but saying “no” may be legally considered a lie, and invalidate any claim made on the insurance. For absolute clarity, it is important to get all the terms of the insurance agreement nailed down before taking out any insurance – if it is heavily weighted against you, you will need to insure independently under the terms of an agreement that allows you to be covered fairly.

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Understanding Fixed Versus Variable Interest Rates

When you are buying a home, one of the biggest choices you need to make, financially-speaking, is whether you want a fixed or variable rate mortgage. This is very important because depending on which you choose, you can either save money, or waste money, and it depends greatly on what the housing market is like at the time.

For example, in 2009, the housing market was suffering through one of its worst times in Canada. To help promote buying of homes, the Bank of Canada lowered the prime interest rate to its lowest level ever, .25 percent. For individuals with variable interest rate mortgages, their monthly mortgage payment went down. For individuals with fixed interest rate mortgages, they continued paying the same, higher price. Of course, it works the other way as well. When the interest rate is high because housing sales are doing well, then the individual with a variable interest rate is often paying more than the person with a fixed interest rate, who may have signed his mortgage when rates were still low.

Fixed Interest Rate

The fixed interest rate mortgage is the traditional type of mortgage, and it helps to mitigate certain risks like inflation. Inflation has not been a problem in Canada since the early-1990s, but there is always a risk that inflation can increase during tough economic times. Individuals with a fixed interest rate mortgage will be immune from inflation because their interest rate does not change. If the average interest rate goes up from five percent to eight percent, those with fixed interest rates keep paying five percent. In many ways, a fixed interest rate is perfect for people who do not like to gamble. It provides a safety net against difficult economic times, but can be a hindrance during good times as well.

Variable Interest Rates

Variable interest rates have the advantage of saving you money when the interest rates are low. The flip side is that this type of interest rate will cost you more when interest rates are high. When the Canadian dollar is doing well, there is a pressure on home prices that pushes them down, which then reduces the need of the Bank of Canada to raise interest rates. During these times, a variable interest rate is the best option. It needs to be noted that to have a variable interest rate, a homeowner needs to have a high enough level of income to ensure they can afford the interest rate going up. A few percentage points can be a big difference. Here is an example of why:

Mortgage:     $500,000

Term:      20 Years

Mortgage payment (5% Interest):  $3,285 approx

Mortgage payment (10% interest): $4,750 approx

Mortgage payment (15% interest): $6,400 approx

As we can see here, the mortgage payment is $3,285 when the interest rate is at five percent, but if it goes up by 10 and 15 percent, it increases the mortgage payments by roughly $1465 and $1650 each month. This may not seem like much, but if a person is already pushing the boundaries with a $3,285  payment, an increase of over thousand dollars can easily cause a foreclosure down the road.

Which to Choose?

The type of interest rate you choose depends on the type of person you are. If you think you will benefit from a variable interest rate and you can handle a changing mortgage payment, then you may choose the variable interest rate. However, if you are more conservative and you just want a steady mortgage payment, then a fixed mortgage rate may be the one for you.

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The best mortgage deals available on the market are often ones that go unnoticed by a majority of potential customers. With a mortgage market as wide as it is – even in the financial difficulties that have become a global issue at this point – there is not only an increased level of competition for the few customers who feel brave enough to go out and borrow to buy a house, but also a real sense of being spoiled for choice. Invariably, even those potential borrowers who see fit to shop around for the best deal will find themselves getting a kind of “variety fatigue” which leaves them wondering whether they shouldn’t just take the best of the several potential deals they have already seen – even if it means missing out on an unseen gem.

Reaching for the best available deal on the market means really looking for one that satisfies all your needs, one for which you will not find it problematic to meet payments on a monthly basis, and ideally one that moves to take account of changing realities so that you do not become tied to a deal which looked good three or four weeks ago, but will leave you out of pocket in three of four years. There are various ways of going about this. Some people would say that you shouldn’t spend too long looking – just find a deal that you are happy with, which looks strong today and will maintain that strength, and not worry too much about whether you’ve missed a better deal. Others disagree.

The message from the latter group is that you owe it to yourself to get the best deal possible. Sure, a good mortgage deal will be beneficial for you, but a great one will continue to benefit you, will benefit your family and will continue to serve you well for the life of the account. You may well find at the end of it that you are able to pay it off in full earlier than you had expected. How do you find such a deal, though, if you do not know what it is or where to find it? How do you look for something which you don’t even know exists?

The first port of call is to check mortgage calculators and comparison sites. The Internet has seen a rapid rise in both of these over the course of recent years. The Internet is truly a consumer paradise in many ways because of the vast range that it covers. If you look closely enough in enough places, there is virtually no financial deal that is not covered on the World Wide Web. Trawling a number of comparison sites – ideally two or three, or even more – will give you an appreciation of what kind of deals are being offered. If all of the deals you see are from banks you are fully aware of, however, it may also be worth hitting the streets to see what is on offer from the smaller, more independent banks. With greater freedom to set their own rates, they may just throw up the great deal you were looking for.

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