Mortgage Broker

Summer 2019

Mortgage Broker is the magazine of the Canadian Mortgage Brokers Association and showcases the multi-billion dollar mortgage-broking industry to all levels of government, associated organizations and other interested individuals.

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the payments and is the property saleable? Each case is unique but regardless, in our area we never lend more than 75 per cent of value. We haven't had losses using this formula, and we'd like to keep it that way." EQUITY AND CREDIT In many cases, buyers will opt to refinance their primary residence through a mortgage or home equity line of credit, thereby generating cash to pay for the vacation property. is allows them to simplify the transaction and tap into the equity in their primary residence, on which lenders are oen more willing to lend. Mortgage broker John Woods of e Mortgage Centre, Fitzwilliam Mortgage Corp. in Nanaimo, B.C., says this is usually the easiest way to finance a recreational property. "You will probably get better rates and terms by refinancing your principal residence and you will have a broader range of lenders to choose from," he tells Canadian Mortgage Broker. "e majority of the monoline lenders, because of their source of funds, really have no appetite for recreational properties. So, you'll be talking about a balance-sheet lender that will look at recreational properties. Oen the loan- to-value is quite low, and you might be looking for as much as 35 per cent down. You're probably going to take that equity out of your property in Vancouver or Victoria, depending on how much equity you have." He says it also depends on how much equity a buyer is looking to access – most lenders will restrict that amount to $200,000 on top of their current mortgage balance – and whether they need to break their current mortgage to get it. Woods, who lives on Gabriola Island, one of British Columbia's picturesque Gulf Islands, says there are few recreational properties changing hands in his area. Property values are high, and when you add restrictive island zoning and ferry access, values are oen out of reach for a vacation property. An alternative is serviced recreational vehicle lots, which can be purchased for much less. "e cost becomes much more accessible," he says. "You can get into that for $100,000 or so, but it's really hard to get them financed. But because the amount isn't that great, you can probably take it out [from the principal residence equity]." He says he is also seeing people buy vacant lots and then erect "tiny homes" – a 10-foot by 10-foot structure that is the maximum size that can be built without a building permit and servicing. e structure becomes a cabin used for sleeping and not much else. Woods cautions that mortgages on unserviced lots will have a lower loan-to-value ratio and attract a posted or posted-plus rate – if lenders take them on at all. For her part, McConnell agrees that tapping into equity in the primary home is the easiest way to finance a vacation getaway. "Your house may be in town and then it's easier to get credit," she says. "First, we look at the prime residence. You oen get better terms and a better rate on an in-town property. But you have to be careful these days [when calculating available equity] because banks usually register the property at the appraised value [versus the mortgage value]. People don't understand that a home equity line of credit, for example, is secured by a mortgage." She says this is where mortgage brokers can help clients to be a bit more realistic. "We can do a search right away and they know fairly quickly whether they will be approved or not. Sometimes we find they can't use their house as collateral. So a broker can say right away whether they can or can't do it on credit. I don't even think all the banks see the credit bureau. I think a broker just has a better idea of what's going on." Mortgage brokers simply offer clients more choice than banks, says Woods. "We oen speak to people who have gone to a bank branch and leave with the feeling it's not possible. But using a broker is about options. It's having someone who can provide the potential buyer with the knowledge to make informed decisions when they know all the alternatives. To most people, that is valuable." McConnell says that if people know they eventually want to buy a vacation property, cleaning up their credit is the best way to prepare for the purchase. "So many people don't know what is on their credit," she says. "In some cases, household purchases such as a furnace and air conditioner could result in a lien applied to the property. Also, don't run credit cards over the limit, and late payments are bad. Cell phone companies are the first to report you in arrears." Woods agrees. "Credit is becoming a lot more important to all lenders," he says. "e credit score becomes pivotal." McConnell says the key is to know what is being registered against your property. "Check your credit before you even start looking for a cottage." Aer four decades in the industry, McConnell enjoys the challenge of private lending because she can oen help buyers achieve their dreams. And while owning a vacation property isn't for everyone, she says every client has a different story. It's gratifying to help many of them turn their dream of a rural retreat into reality. "I've done it for years and love it." 42 | summer 2019 CMB MAGAZINE coverstory In many cases, buyers opt to refinance their primary residence through a mortgage or home equity line of credit, thereby generating cash to pay for the vacation property. " John Woods Fitzwilliam Mortgage Group Nanaimo, B.C.

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