Types of Financing | Advantage Mortgages

TYPES OF FINANCING

TRADITIONAL MORTGAGE

Traditional Mortgages are typically referred to as 1st mortgages for new homes. Assuming all of the stars align, a traditional mortgage is generally funded from one of Canada’s large financial institutions (TD, CIBC, Royal, etc..). The benefit of having your mortgage funded by one of these institutions is they typically offer the best rates available.

A traditional mortgage includes proof of a down payment, (minimum of 5%), proof of decent credit, proof of income and the ability for the monthly payments to fit into predefined debt ratios (which include your other monthly expenses). If you think you fit into this category, click here to contact us for help.

REFINANCING

Refinancing your home can be an excellent strategy to meet your goal. As you pay off your mortgage and home market prices increase, your equity increases! (Equity = The market value of your home minus what you owe on it).

Refinancing can help in many ways.

Paying off and consolidating high interest rate debt (e.g. credit cards, loans, etc..) and generally lowering your monthly expenses.
Purchasing a vacation property.
Purchasing an Income property.
Access to cash for other investment opportunities (e.g. private mortgage lending).

There are limitations for refinancing. The first thing lenders look at is your Loan to Value (LTV). Your LTV is the maximum amount a lender will loan to on your home. For simplicity, let’s look at it this way:

Your home has been appraised for this much: $100,000

A lender is willing to refinance up to 80% of the appraised value: $80,000

You still owe this much on your original mortgage: -$50,000

You can potentially have access to this much from your home: $30,000 (available equity)

Sorry, there’s more. Different lenders will allow varying levels of LTV ratios. Some can be as high as 90%, where others may only allow up to 65%. Credit history, Debt Ratios and income all play a factor in determining who will lend and how much they will lend. If you want to explore this further click here to contact us.

SECONDARY LENDERS

When all the boxes can’t be ticked for traditional lending via a large financial institution:

Good Credit History
LTV Is Within Acceptable Ratios
Income Can Be Verified
Debt Ratios Are Within Acceptable Range

We look to secondary lenders for financing. Secondary lenders are similar to the large financial institutions, but have a bit more flexibility when it comes to things like tarnished credit history. Keep in mind, that these secondary lenders still must adhere to things like income verification, LTV ratios and Debt Ratios.

Secondary lenders are generally trust companies, who offer higher interest rates than traditional lenders, based on the risk associated with the individual. If you want to explore this option further, click here to contact us.

PRIVATE LENDERS (ALTERNATIVE LENDING)

Private Lenders are generally high net worth individuals or a collective of individuals who use their money (or equity) to invest in mortgages for various reasons.

Private lenders are not restricted by the government like traditional or secondary lenders . Of course, if someone is loaning you their money, they obviously want to make sure the risk is acceptable to them. LTV plays a big part of private lending. Generally, private lenders will not want a LTV in excess of 75 - 80% for any kind of financing deal.

Private lenders do charge more than traditional and secondary lenders. However, obtaining financing from private lenders, is often the path to achieve your short term goal. Generally, private lending is short term. After 6 - 12 months, the goal is to get you traditional financing in place! If you’d like to find out more, click here to contact us.