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 fall 2014 | 27 consolidationoptions ability to make the payments, you must also determine their equity position and if there is sufficient equity to consolidate all the debts or improve their overall situation. Generally alternative lenders, including mortgage investment companies ( MICs) and syndications, will charge a slight premium on their interest rates compared to a conventional financial institution and may charge a fee, however, the credit and income requirements are generally more liberal. Conversely, the maximum loan-to-value is oen more conservative and varies based on location and type of property, or on a case-by-case basis resulting in fewer new funds available for the consolidation loan. Contrary to popular belief, refinancing the existing mortgage may not be the best option, or an option at all, for some clients. A second mortgage is also a very viable option for debt consolidation for those who can't meet the bank guidelines, where the penalties are prohibitive, or when the clients no longer qualify for a low-rate first mortgage. A second mortgage product is an option for these clients and can also be a fantastic credit repair tool for clients with blemished credit. With the alternative market flush with funds, the rates in the secondary mortgage market are significantly lower than in the past and can be found in the mid-single digit range. Many MIC's and syndications have introduced second mortgages to their product lines and private individual lenders continue to be a source of second mortgages. Although second- mortgage products may be more restrictive in terms of early payout or portability options, and almost always require broker and/or lender fees to be charged, when managed correctly they still offer benefits that can outweigh the drawbacks. Second-mortgage lenders are generally more flexible with their lending guidelines, relying more on the value of the security property and the client's ability to repay the loan than the client's credit score. is facilitates the payout and consolidation of bad debts, collections, and other debts that would otherwise disqualify the borrower from obtaining the loan with a bank or credit union. Most second-mortgage lenders offer one-year terms and will renew for subsequent terms with a clean payment history. With a proper mortgage plan in place, a second mortgage allows time for the client's credit score to improve before trying to qualify again for a new first mortgage. One of the biggest dangers when a client obtains a consolidation loan is reverting to the use of credit that created the problem in the first place. Most financial institutions will pay off the debts directly to the creditors and may close credit accounts to ensure the clients don't increase their debts while paying off the consolidation loan, but this is not always the case. As mortgage professionals we owe it to our clients to emphasize the importance of not abusing credit cards and encouraging them to reduce the amount of credit they have available. Two or three credit facilities are enough for the average client. Once you have carefully reviewed the terms and conditions of the existing and new mortgage proposal, and determined how much the loan will end up costing, and saving, your client, you are in a position to make an informed recommendation. You have determined the best product and course of action for your client and the net result is a substantial monthly savings. Make it a best practice to help clients develop better financial management skills by explaining how using this new-found cash flow to pay down their mortgage faster, and/or to start or contribute to a TFSA or other savings account, can help prevent the need to access credit for future emergency costs. Pairing your client with the right new mortgage product, term and amortization will also help make the consolidation loan process seamless for your client, and for you. Finally, helping your consolidation client understand how they can protect their credit score with responsible financial management of credit will lead to a satisfied client whose appreciation and praise will be your best advertisement. • Crystal Foti, AMP is a Private Lending Specialist and President of Canadian Northwest Mortgage Corp. She is a member of MBABC. Contrary to popular belief, refinancing the existing mortgage may not be the best option, or an option at all, for some clients.