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.
Issue link: http://digital.canadawide.com/i/407986
MORTGAGEBROKER mbabc.ca | 25 consolidationoptions e rst option for mortgage professionals would typically be to re nance the clients existing rst mortgage in to a larger mortgage, paying o all or as much debt as the equity will permit. is is generally a consumer's preferred option and it is o en the best option for a client with good credit and income, looking to restructure their debt and improve cash ow. We must, however, consider other aspects before we make this determination. All fees associated with breaking the existing mortgage and obtaining the new mortgage should be considered. A quick review of the standard or modi ed terms will nd clauses providing information regarding any pre-payment penalties and/or fees associated with an early payout of the existing mortgage. e penalty may be substantial, consuming a signi cant portion of the equity, especially if faced with a large interest rate di erential ( IRD). However, paying even a large penalty can o en result in overall long-term savings, making the consolidation re nancing worthwhile. A review of the terms of the new proposed mortgage is equally important. It is important when looking at portability and early payout clauses in the new mortgage, to question whether the clients have a plan to sell or move during the term of the new mortgage. Consolidating debt for a savings today that will only be consumed by future penalties defeats the purpose. If the new mortgage is high ratio don't forget to include insurance fees in your comparison of options. If the equity is not su cient to consolidate all loans, or debt servicing ratios are too high, then start with the highest-interest debt and highest- payment debt to give the best overall cash ow improvement and reduced debt servicing ratios. Knowing your client and understanding the banks mortgage o erings is key to providing the best consolidation product for your good credit and income clients. However, not all consumers come to us with good credit or income that will meet the bank's credit or GDS/TDS guidelines. In some cases, they may no longer qualify for a mortgage as favourable as the one they already have. With plenty of alternative lenders in the marketplace, these clients have many available options. First, if a consumer is in nancial distress and not able to make their payments, you must try to ensure they can make the new payment or they may risk losing their home. Understanding what the client has used the credit for – overspending, an emergency, or for living expenses – is important information for the broker to put a proper mortgage plan in place and be able to explain to a potential lender how this consolidation loan will correct the problem. Once you establish that the client has the