4 Key Things to Know about a Second Mortgage

financial Leslie Morris 8 Feb

A second mortgage is a mortgage that is taken out against a property that already has a home loan (mortgage) on it. Generally people take out second mortgages to satisfy short-term cash or liquidity requirements, have an investment opportunity or to pay off higher-interest debts (such as credit cards and student loans) that a second mortgage might offer.

If you are considering a second mortgage for any reason, here are a few key points to keep in mind:

Second Mortgages and Home Equity: Your second mortgage and what you can qualify for hinges on the equity that you have built up in your home. Second mortgages allow you to access between 80 and 95 percent of your home equity, depending on your qualifications.

For example, if you seeking 95% Loan-to-Value loan (“LTV”):

House Value = $850,000
95% LTV (maximum mortgage amount) $807,500
less: First Mortgage ($550,000)
Amount Available Through Second Mortgage $257,500

Second Mortgages and Interest Rates: When it comes to a second mortgage, these are typically higher risk loans for lenders. As a result, most second mortgages will have a higher interest rate than a typical home loan. There is also the option of working with alternative and private lenders depending on your situation and financial standing.

Second Mortgage Payments: One advantage when it comes to a second mortgage is that they have attractive payment factors. For instance, you can opt for interest-only payments, or you can select to pay the interest plus the principal loan amount. Work with your mortgage broker to discuss options and what would work best for your situation.

Second Mortgage Additional Fees: A second mortgage often comes with additional fees that you should be aware of before going into the transaction. These fees can vary widely but often are a percentage of the mortgage. Other fees to consider include appraisal fees, legal fees to set up the second mortgage and any lender or broker administration fees (particularly with alternative or private lenders).

Second mortgages are a great option for many homeowners and, in some cases, may be a better solution than a refinance or a Home Equity Loan (HELOC). If you are interested in learning more or want to find out if a second mortgage is right for you, don’t hesitate to reach out to me today.

5 House Hunting Mistakes to Avoid.

financial Leslie Morris 21 Dec

Buying a home is one of the largest investments you will ever make! In order to make your home hunting experience the best it can be, there are a few key mistakes to avoid and be aware of before you start your journey:

  1. Not Getting Pre-Approved: One of the most important aspects of buying a home is the mortgage application and approval process. No matter what type of home you are looking for, you will need a mortgage. One of the biggest mistakes when it comes to the home-buying process is NOT getting pre-approved prior to starting your search. Getting pre-approved determines the actual home price you can afford as it requires submission and verification of your financial history to ensure the most accurate budget to fit your needs.
  2. Not Setting or Following a Pre-Determined Budget: Another mistake that people make when home-hunting is not setting, or following, a pre-determined budget. It can be tempting to start looking at the top of your budget, or even slightly over, but when you consider closing costs and the long-term financial responsibility of home ownership, it is best to avoid maxing yourself out. Getting pre-approved will help determine what you can afford, as well as making an appointment with your mortgage broker to determine your financial situation and the best options for you now, and in the future.
  3. Not Hiring a Real Estate Agent: Your mortgage broker and your real estate agent are two of the most important members of your homebuying A-Team! In today’s competitive real estate market, it can be very difficult to acquire property without the help of a realtor. One reason is that realtors can provide access to properties that never even make it to the MLS website! They can also gain access to information about homes that may come onto the market, before a listing is even signed. Most importantly though, a realtor understands the ins-and-outs of the home buying process and can tell you how to be successful in your endeavors to purchase a home by guiding you through the process from the first viewing to having your bid accepted.
  4. Focusing Too Much on Aesthetics: While we understand that bad interior design can really affect the perception of the home, you don’t want to be blindsided by it. At the end of the day, aesthetics can always be updated! Giving up the perfect price or location or size for a few aesthetic details (such as paint color, flooring, or even outdated appliances or light fixtures) is one of the biggest mistakes people make! Most homes have incredible bones that only need some minor tweaks to become your perfect space.
  5. Not Thinking Ahead: What you want and need in a house today, could be very different from what you want and need in a house in the future. It is important to be able to look ahead – are you planning on having children? Are your parents getting older and in need of a retirement space? These are things that are good to take into consideration when buying a new home. Buying a home isn’t a permanent decision as you can always sell your home later on if it doesn’t work for you in the future, but it is almost always easier to plan ahead so you can grow with—and not out of—your home whenever possible.

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Retirement Worries Weighing you Down?

mortgage Leslie Morris 14 Nov

It’s natural to have uneasiness over the state of your retirement preparedness due to the inherent uncertainties involved:

  • How long will I live?
  • Will my health or my spouse’s health fail? and when?
  • How much will my current assets and investments grow in value?
  • How will inflation impact the next 5, 10 or 20 years?

There is no shortage of variables to consider when trying to figure out how you are going to fund your retirement dreams. There is also no magic number — often quoted numbers like $1,000,000 or formulas like six times your annual salary at age 50 have no basis in fact, especially not your facts. They have no way to know if your retirement plans include restoring a pricey vintage car or spending most nights glued to a hockey game on the TV.

A financial advisor can help crunch the numbers and offer investment alternatives, but you need to make the big decisions on the type of retirement lifestyle you envision and how much you can realistically afford to sock away along the way to fund that dream.

If you really need some kind of number for reference, 2019 Federal Government data showed the average annual spend for a household over 65 (including taxes) was $64,461. As you get closer to retirement and some of the bigger bills fade away (mortgage, kid’s education) you will have a clearer picture of your needs.

Retirement age and life expectancy are two more uncertainties to deal with. The average Canadian calls it a day just shy of 83 years, but it is on the rise. If you are 20 now, it is expected that you will have about a 50/50 chance to hit 90! The average age for retirement is 63, so simple math (83 minus 63) tells us you will most likely need at least 20 years of retirement income.

Hopefully you have been saving and investing with your RRSP and/or TFSA and have also developed some other passive income streams to supplement your government pension income. If your employer has a pension plan and you maxed out that and your CPP for 35 years, you may be able to live entirely off of your pension income and not worry about saving anything for retirement!

The key point is to confirm how much you are going to receive. The average CPP cheque is $625/month or just over half of the $1204 maximum. Makes sure you investigate any private or employer pension benefits you have as well as your CPP and OAS benefits to determine how much you will receive. A reverse mortgage may also be an option to generate cashflow.

It’s never too late to get started with retirement savings and investing, but you have to realize that catching up will be harder than it sounds, even as your income rises. If you have unused TFSA or RRSP contribution limits (you can easily check by looking at your latest income tax assessment), by all means, start playing catch-up as soon as you are able.

Another problem with starting late is that you miss out on the magic of compound returns. Maxing out your TFSA every year from age 25 to 65 with an index fund at 5% would yield $725,000. Starting at age 40 would leave you with only $287,000. You could try and compensate for a late start by taking on riskier investments with higher returns, but that doesn’t always end up well!

If you are planning to rely on a side hustle, spouse and/or inheritance to get you through retirement, just be aware that those options can be easily derailed. If your spouse dies, your survivor’s pension could be considerably lower. Side hustles are great, but your health may fail or maybe you can’t find a job – only 10 to 20% of retirees report doing some sort of work. As for inheritance, your parents may live to be a 100, they may make some bad investments, or they may even get remarried.

Anxiety is a natural by-product of retirement planning, and the cure is having the knowledge and facts you need to make your own judgement on how much is enough.

5 Tips to Reduce Heating Costs

financial Leslie Morris 14 Nov

When it comes to the winter season, it can be easy to go overboard when it comes to heating – but there is a better way! With a little awareness – and the right preparation – heating your home this winter won’t have to cost you a fortune. To help you save, we have put together a few helpful tips to reduce heating costs:

  1. Inspect Your Heat Sources – Regardless of whether you rely on a fireplace, gas or baseboard heating, it is always a good idea to have all heat sources inspected for efficiency.
  1. Check Your Fireplace – It is recommended to keep your fireplace damper closed, unless there is a fire burning. Otherwise, it is the same as having your window wide-open during the winter! For those of you with a fireplace you never use, now might be a good time to plug and seal the chimney to keep warm air from escaping.
  1. Manage Your Thermostat – As tempting as it is to turn your heat all the way up in the winter, proper thermostat management will help you save costs in the long run. A thermostat with a timer is a great option to help you save this winter. Turn it on earlier so the room heats up in time for use, instead of cranking the heat when you need to get warm quickly and have it turn off 30 minutes before bed or before leaving the home. If you find you are chilly at night, a safely positioned space heater and closed door is a far more inexpensive choice.
  1. Close The Door – To keep your heating system from working too hard, close doors when rooms are not in use. This prevents heat transfer in and out of vacant rooms, and will ensure the space you’re currently using remains warm and cozy.
  1. Be Mindful of Drafts – Checking for drafts is another important way to reduce heating costs. If you notice any issues, using a weatherstrip or caulking to seal doors and windows is a relatively inexpensive fix that can have a huge savings impact on your heating bill.