Wednesday, July 7, 2010

Mortgage Mayhem

We are in mortgage mayhem!

It just worked out by pure coincidence that the mortgage on my condo came up for renewal at the exact same time that we decided to purchase the new house.  Matt’s condo, which we have now sold, had about 8 months remaining on the term, and so we are discharging that one early and are stuck paying the associated penalty.

So we have been shopping around for rates for the house and the condo, in what seems like the endless task.  We’re trying two different routes for this challenge: the big bank (BMO), and a mortgage broker (Bill Dietrich from Invis).  Both have been extremely helpful, and are constantly in touch with rate updates, news, requests for additional information, etc.  Expect a further update on both soon!

There are a few things I have learned in this process:

  • I wasn't aware that on the rental property, we can claim the interest portion of the mortgage payments on our income taxes.  Since the rent itself also has to be claimed on our taxes (as income), it is to our benefit to have a higher interest portion on the mortgage, to lessen the profit at tax time.

  • One option we have faced is the possibility of boosting the mortgage on the condo (through a refinance), and taking the difference (between the new loan value and the balance remaining), and putting that towards our downpayment at the new house.  Since the condo mortgage interest can be claimed for taxes it is beneficial to have the mortgage higher there and lower at the house we live in.  Here is where the catches are:

  • a new rule was passed this year that says that CMHC will not insure a loan on an investment property unless a minimum of 20% has been put down.  No problem - I already owe less than 80% of the purchase price of the condo.  And if a new assessment was to be done on the condo, I think we would find that I'm already down to about 50% - the value of my condo has skyrocketed over the past few years, as it is in a hugely "in-demand" area with lots of new development, gentrification, and just overall coolness taking place.

  • Despite the now very low ratio mortgage on the condo, it seems that the size (400 square feet) and the fact that it will not be owner-occupied are a deterrent for the lenders, and is enough for the bank to decline me a refinance?!  I know that similar units are selling for more than 35% more than what I paid 5 years ago... but the bank doesn't feel good about giving me a few more thousand dollars on the mortgage?

  • The bank and the mortgage broker seem to come up with entirely different options and ideas from each other!

  • We have been advised that if we are going to put 10% down on the house, we pay less CMHC fees than if we put down 5%.  If we put down 20% we pay no fees.  But if we put down 15% we are fools?  Basically, the thinking is that 15% is so close to the 20% threshold and no fees, but yet so far.  Apparently many homebuyers, if they end up with 15% downpayment, will only put 10% down and keep the other 5% as cash on hand... very handy if you are furnishing/decorating the new home.  I don't know though... i'd rather have less cash on hand if it also means less for CMHC.... what do you all think?

I have learned quite a bit more in the process, and like I said - both the bank and the mortgage broker have been very helpful and have been really great at explaining everything to me.

I will share more from them soon!

In the meantime, I feel like I have spent a great majority of the past few weeks sending emails and speaking on the phone with both, and I have found it excruciatingly difficult to keep track of all the details.  Realistically, we could sign the papers on the renewal any day now, but I find myself constantly juggling out the options, the rates, the downpayments, etc.   I cannot wait until all this is finalized!  Come on banks, show me the money!

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