Decoding Mortgages – Be Aware & Beware of Collateral Mortgages

When shopping for a mortgage, it’s easy to get lost in the fine print. And not all mortgages are created equal. There’s a major distinction that you should be aware of: collateral mortgages vs. conventional mortgages. 

With a conventional mortgage, the amount registered is the amount you need to borrow, so, for example, the value of your house minus the amount of your down payment. However, with collateral mortgages, the amount that’s registered is the full value of the house, and can, in some cases be up to 125% of the value of your property.

Collateral mortgages are becoming more popular. In 2010, TD made a major shift: the bank was no longer offering conventional mortgages; all its mortgages would be collateral. ING made a similar move in 2011.

According to TD, collateral mortgages allow homeowners to more easily access credit, allowing them to borrow more without additional charges. In an e-mail, TD wrote:

“A collateral charge registration will allow a customer to borrow in the future without requiring a new registration. In contrast, a conventional mortgage would require a new registration if there are changes or increases in the amount of the mortgage.”

However, many experts are concerned that collateral mortgages mean less choice and flexibility for consumers.

One concern is that while it can be relatively easy to transfer your conventional mortgage at the end of your term to another lender, a collateral mortgage can be more complicated, and expensive, to move, says mortgage broker Steve Garganis.

Another concern is it encourages more debt. People should be moving to pay off their mortgage not increase their mortgage.

Shopping your mortgage around at the end of your term, experts advise, can save you a lot of money. While most homeowners renew their mortgages with their current lender, shopping around can save you 0.5% to 1% on your interest rate – which can mean a huge difference in how much you have to pay.

A good mortgage broker will make sure your options remain OPEN. Our job is to ensure that your clients get the right product for the long term …

Not to have them saddled with a lender with a costly and difficult exit strategy at renewal!! 

Please give me a call if you have questions … I would love to hear from YOU! 

Lisa Manwaring
Meridian Southwest Mortgage
lisa@southwestmortgage.ca
www.lisamanwaring.com
tel: (604) 943-8943
cel: (604) 805-1833
fax: (604) 943-8942

 

 

Advice For Home Buyers

Finding the perfect home doesn’t happen in one day. It takes careful planning and lots of work. Fortunately, there are a number of things you can do to simplify the process.

1. Things to Consider Before Starting Your Search

What Features Do You Need?

Do you need an extra bathroom, a garage, a fenced backyard, or lower utility bills? Do you want a fireplace, a short drive to work, or maybe minimal yard work? Once your list is complete, decide what’s most important to you.

What’s the Ideal Location?

Where you live obviously affects your lifestyle; it’s also one of the most significant influences on the value of your home. Your choice of location may be somewhat limited by the price you can afford. Even so, make sure to consider such things as distance to work, schools, shopping and entertainment.

What Kind of Home?

What type of property do you want? A single-family detached home is attractive to many people because it typically provides more living space and land. On the other hand, a condominium may be a more appropriate choice for you, with an emphasis on maintenance-free living. Determine what type of home best suits your desired lifestyle and budget.

What’s Your Budget?

How much do you want to spend? Just as importantly, how much do you have to spend? Note there are numerous additional expenses (detailed below) that you’ll pay to complete the purchase of a home.

2. Choosing a REALTOR®

A REALTOR® can help you answer all of these questions and help you navigate through what can be a complicated business transaction. Start by finding a REALTOR®. It’s important that you’re comfortable and confident with the agent you choose. Here is what some of my past clients have had to say about the value I deliver: http://vanhomesales.com/testimonials/ 

3. Searching For a Home

A REALTOR® will use various tools to try and find properties that meet your specifications. The most important is a local Board’s MLS® (Multiple Listing Service®) System. Your REALTOR® can quickly search through numerous properties available for sale in specific areas to find suitable listings; that is, houses that best match your needs, choice of neighbourhoods and price range. You can also view listings in Board MLS® Systems that are advertised on the national REALTOR.ca web site.

4. Seeing Houses

When you select a property and decide to visit a house, there are many things to consider. Does it have all the features you want? Is the neighbourhood what you expected? Try to picture your favorite furnishings in a room. Remember all of the technical considerations, including:

  • What type of wiring does the house have?
  • What about power outlets? Different appliances use different types.
  • What type of heating system does it use? Heating costs can vary drastically by type.
  • Have the roof and foundation been well maintained?
  • What condition are the windows in?
  • What about the plumbing?

There are numerous other things to consider as well. If you don’t have time or don’t feel comfortable doing it, home inspection services are available for a reasonable fee. Having a qualified home inspector look at the house is always a good idea. The older the home, the greater the need for professional inspection.

5. Making an Offer

Once you find a house you want to make your home, your REALTOR® can help you develop an offer. In the offer, you should specify how much you’re willing to pay. State when the offer expires and suggest a closing date for the transaction. You can also propose some conditions on the offer. Some common types of conditions are:

  • Getting a suitable mortgage (include the amount, interest rates and any other figures you feel important);
  • Selling your current home (the seller may continue to look for a buyer, but will give you the right of first refusal);
  • The seller providing a current survey, or a “real property report,” showing that there are no encroachments on the property;
  • The seller having title to the property (your lawyer will check this out when she conducts a title search to see if there are any liens on the property, easements, rights of way or height restrictions);
  • If there’s a septic system, the seller having a health inspection certificate, stating that the system meets local standards;
  • An inspection by a qualified engineer, should you have any doubts about the home’s safety and construction; and
  • Any inclusions of appliances and other items – basically, what stays and what goes.

You will need to present a deposit along with your offer. An appropriate deposit will show your good faith to the seller. Note that the seller’s agent, if they are represented by one, is bound by law to bring all offers to the seller’s attention.

6. If Your Offer is Accepted

After your offer is accepted and all conditions met, the offer becomes binding on both sides. If you later refuse to honour the agreement, you may lose your deposit or might be sued for damages. Before signing, make sure you understand and agree with all terms of the offer.

Before the property can formally change hands, there are still a few things to do. Be prepared to furnish proof to your lender that you’ve insured your new house. On or before closing day, both side’s lawyers will arrange to transfer title of the property from the seller to you. The mortgage money will be transferred to your lawyer’s trust account, and then to the seller, and your lawyer will bill you all additional expenses such as land transfer taxes or outstanding legal fees.

At this time, be sure to check with your lawyer that everything is as stated in the offer-to-purchase.

Once you’re satisfied and the keys to the front door are in your hands, there’s nothing else to say, except welcome home!

Extra Expenses

No matter what type of home or property you’re buying, plan on some extra expenses.

  • A land transfer tax (a sales tax on property) in certain provinces
  • A mortgage broker’s fee
  • An appraisal fee
  • Surveying costs (if the seller couldn’t come up with a current survey)
  • A high-ratio mortgage insurance premium
  • An interest adjustment. (Mortgages are normally calculated from the first of each month. If your closing date is the same as the beginning of your mortgage, there will be no adjustment. However, if your closing date is July and you move in on June 15, those last 15 days are the interest adjustment period. Your lender will expect you to cover the cost of the interest during that time.)
  • Reimbursement to seller for the unused portion of any prepaid property taxes or utility bills
  • Legal fees, and, if applicable, REALTOR® fees

For more information and to learn all about my Home Finder Service, please contact: Gino Pezzani

DOWNLOAD THE HOME BUYER’S ROAD MAP HERE

Can You Sell Your home By Email?

The New Brunswick Court of Appeal recently considered whether an exchange of emails between a prospective buyer and seller of residential property constituted a binding contract.1The property was listed for sale on Kijiji. After an initial phone call, the buyer and seller negotiated a sale by email. The seller emailed the buyer offering to sell the property for $160,000, providing the buyer assumed the mortgage and paid her legal fees. The buyer emailed agreeing to assume the mortgage, pay the seller’s legal fees and offer $155,000. The buyer also emailed asking if his wife could view the property. The seller emailed back advising the buyer that she would accept his offer. The buyer’s next email suggested he have a purchase and sales agreement drafted and proposed a closing date. Three hours later the seller emailed the buyer advising that after speaking with her partner, she was not prepared to sell the property. The seller was the sole owner of the property.The buyer sought a judicial determination that the email exchange resulted in a binding agreement. The buyer argued that the email exchange constituted a written agreement, contained all the essential contract terms, satisfied the definition of electronic signature under New Brunswick’s Electronic Transactions Act2 (NB ETA), and therefore satisfied that provisions under that province’s Statute of Frauds3 which, like BC’s Law & Equity Act4, provide that no contract for the sale of land is enforceable unless the agreement is in writing and signed by the party charged.

While the case concerned New Brunswick legislation, BC’s legislation is substantially the same.5 The BC Electronic Transactions Act6, like the NB ETA, provides that contracts for the sale of land may be entered into electronically providing the parties agree, and providing the other common law requirements for contract formation are satisfied. Both Acts provide that the legal requirement for a signature is satisfied with an electronic signature and define electronic signature similarly, as information in electronic form that a person has created or adopted in order to sign a document and that is in, attached to or associated with the document.

While the lower court found a binding agreement, the Court of Appeal held otherwise. The higher Court acknowledged that the emails satisfied the written requirement of the Statute of Frauds and commented, without making any conclusion in this case, that it was possible that the method of the seller identifying herself in the emails could satisfy the definition of electronic signature under the NB ETA, and thus the requirements of the Statute of Frauds.

The Court also acknowledged that the email exchange contained the essential elements for a contract: parties, price, property. However, applying the objective standard of the “reasonable bystander”, the Court concluded that the parties lacked the requisite intention to contract, a criterion for contract formation. In reaching its conclusion, the Court considered the fact that neither the buyer nor his wife had viewed the property, the buyer’s reference to a future draft agreement, and the fact that the buyer was unaware of the terms of assuming the mortgage.

The following passage illustrates the Court’s concern with finding enforceable contracts by informal electronic communications, particularly in transactions involving the sale of residential property:

“The notion that a person can sift through a series of emails, identify the 3 P’s, find a signature that satisfies the Electronic Transactions Act and, correlatively, the Statute of Frauds, and then have the court fill in any necessary contractual terms is simply out of step with reasonable expectations of today’s typical consumer. There are still instances where formalities count. The purchase of a home is one of them.”7

The decision is encouraging as the Court recognized that the sale of real property is a sophisticated process, where formality is required and consequently, the expertise of licensees.

Jennifer A. Clee
B.A., LL.B.

1.Druit v. Girouard 2012 NBCA 40.
2.R.S.N.B. 2011, c. 145.
3.R.S.N.B. 1973, c. S-14.
4.R.S.B.C. 1996, c. 253, s. 59.
5.See also Legally Speaking 450: Electronic Signatures (http://www.bcrea.bc.ca/news-and-publications/publications/legally-speaking/legally-speaking—november-2011-(450))
6.S.B.C. 2001, c. 10.
7.Supra, footnote 1, page 3.

Protecting Pre-sale Strata Buyers and Developers

As the market soared during most of the 2000s, condo pre-sales were a popular and profitable way to buy a new home. Today, while there may not be long lines of buyers outside sales centres, pre-sales continue to be a popular choice for both investors and home buyers.

Regardless of the purpose of a pre-sale purchase, there is an inherently speculative aspect to it. This is because a pre-sales contract locks in the price. After the buyer signs the contract, the market may go up or down, mortgage rules and interest rates may change, and in extreme cases, a buyer may no longer qualify for a mortgage.

Before the market decline began in 2008, buyers paid little attention to the Real Estate Development Marketing Act (REDMA). Then, when the decline occurred, many buyers found themselves stuck with contracts to buy properties above market value. The result was litigation.

There have been a number of cases testing the consumer protections enshrined in REDMA. For the most part, the results have been very good for purchasers. Breaches of REDMA – some seemingly unimportant – have resulted in purchasers being able to rescind their contracts and get their deposits back.

In 299 Burrard Residential Limited Partnership v. Essalat, the Court of Appeal found that a roughly four month delay in construction required the developer to file and deliver an amended disclosure statement. The developer did not do so and the purchaser was entitled to rescind the purchase agreement. Notably, the purchaser knew of the delay, but it was not formally set out in an amendment to the disclosure statement.

In Woo v. ONNI Ioco Road Limited Partnership, purchasers were not provided with one of the amendments to the disclosure
statement. They completed their purchases and lived in the properties for seven months before learning of the missing amendment. They waited a further 10 months before issuing notices of rescission. The court recently held that the purchasers were entitled to rescission. By the time of the court’s ruling, the purchasers had owned the properties for over three years. They were entitled to return the properties for the full purchase price.

While REDMA provides robust protection for consumers, it also cuts both ways. While breaches by a developer will lead to a
seemingly harsh result, if the developer complies with REDMA, it has a free hand to do almost whatever it wants without the risk of purchasers lawfully rescinding.

A developer may change anything that affects the price, value or use of the property. The only caveat is that the developer must immediately file and deliver an amendment to the disclosure statement clearly identifying those changes. Critically, so long as this is done, the purchasers have no right of rescission. They must still complete the purchase, regardless of what they think about the changes set out in the amendment.

REDMA is clear that receiving a disclosure statement does not provide a right of rescission.

Pre-sales purchasers should understand that the developer can change the price, value or use of the property and purchasers
may not have a right to back out of the contract as a result. This is the quid pro quo of REDMA. While it provides purchasers
robust consumer protection, it also provides developers the right to change important aspects of the development while keeping purchasers tied to their contracts.

McMillan is a lawyer at Harper Grey LLP and focuses on real estate litigation, including pre-sales disputes. He teaches real estate courses and regularly contributes to real estate publications.

BCREA Mortgage Rate Outlook

The biggest change to the mortgage market this year had nothing to do with mortgage rates, but rather with further changes to mortgage regulations. In June, the federal government announced a number of new regulations for the Canadian mortgage market, the most important of which was reducing the maximum insurable mortgage amortization period from 30 years to 25 years.

imageIn lowering amortization from 30 years back to 25 years (the prevailing amortization period in 2004) the government has now completely undone its prior, and probably misguided, forays into the mortgage market. The change from 30 year to 25 year amortizations will have a fairly significant impact on monthly mortgage costs, similar to the impact of roughly one per cent increase in mortgage rates.

In order to offset the impact on consumer demand from stricter mortgage regulations, banks and other lenders will likely keep mortgage rates low with perhaps more competitive discounting for homebuyers with strong credit histories. Moreover, ongoing uncertainty in the global economy will translate into a persistence of very low Canadian bond yields.

We forecast that the posted five-year mortgage rate will remain at 5.24 per cent for the balance of 2012 before gradually rising in 2013 to 5.85. Little change is expected to the one-year rate over the next six months at 3.1 per cent, but it is expected to rise when the Bank of Canada raises interest rates in early to mid-2013.

The Bank of Canada is caught in a delicate balancing act. The trajectory of the output gap and the stickiness of consumer prices would under normal conditions, and under conventional monetary economics, have pushed the bank towards tightening interest rates. However, potential interest rate increases have been deferred by a near crisis environment in Europe, a stop-and-go US economy and, perhaps most importantly, the highly indebted position of Canadian households.

In terms of the domestic economy, the bank has been consistently exhorting Canadian businesses to spend and households to save. In a best-case scenario, consumers would be deleveraging while businesses invested in productivity enhancing capital. This would facilitate a necessary shifting of the burden of growth from consumers to Canadian firms.A slowing global economy and a high dollar continue to exert pressure on Canadian exporters. Furthermore, while the bank has carefully communicated that US monetary policy will not determine Bank of Canada rate actions, the explicit stance of the US Federal Reserve to keep interest rates low past 2014 does somewhat constrain the bank’s ability to raise interest rates without putting further upward pressure on the loonie and harming export growth.

A scenario of consumer deleveraging paired with ramped-up business investment and export growth will require interest rates to remain low. That said, the bank is also serious about maintaining its mandate of price stability and is increasingly indicating a desire to move rates off of historically low levels.

Balancing these objectives will require a delicate fine-tuning of monetary policy which we expect to proceed cautiously, perhaps with a rate-tightening of 25 to 50 basis points beginning in early to mid-2013. This slight increase in interest rates would allow the bank to signal to households that higher interest rates are on the horizon while still maintaining a substantial degree of monetary stimulus to encourage business investment.

For more information, please contact: Gino Pezzani