Sep 12 | 2017

5 Terms Every Property Owner Should Know When Refinancing

Posted by:

Whether 5 Terms Every Property Owner Should Know When Refinancingyou’re looking for more cash flow, want to lock in a good interest rate or just change the terms of your loan, you may be considering refinancing your home. One thing to keep in mind is that unless you’re already at the end of your loan term, there will likely be additional costs involved in the process. Before you move forward, make sure you’ve done all the calculations to check if the penalties and fees make the refinance worthwhile.

Once you’ve decided that refinancing is the best choice for you, it’s time to sit down with your mortgage broker or financial institution and go over your options. To prepare for your meeting, it’s important for you to understand the following terms and how they will affect you*:

1. Amortization period: This is the number of years it will take to pay off your new mortgage. While amortization periods can go up to 35 years, you should remember that even though your monthly payments are lower with a longer period, you’re paying more interest in the long run. It’s important to pay attention to this because if the Bank of Canada increases their rate, your lender may increase your amortization period in order to accommodate it.  Amortization period is often confused with the term of your loan, which is the period in which you commit to the interest rate and other conditions related to your mortgage with a specific lender – usually for about 5 years.

2. Debt-to-income ratio: To determine what products and services you may qualify for, a lender will check your debt-to-income ratio. This figure calculates your monthly expenses versus your monthly income and the resulting percentage is your ratio. It tells the lender how much more debt you can afford to take on. If you have a low debt-to-income ratio, you’re less of a risk to the lender.

3. Loan-to-value (LTV) ratio: This percentage refers to the amount of the mortgage divided by the value of the home. The maximum LTV ratio that lenders require to qualify for a mortgage/refinance is usually 80%. It determines whether you or your lender will need extra protection like mortgage insurance.

4. Portability: If you’re planning to move before your mortgage is fully paid off or you’re just not sure how much longer you’ll be staying, look out for the portability feature of your mortgage. It allows you to move your mortgage with the same interest rate and conditions to a new property with no penalty.

5. Prepayment penalties: With any mortgage, you will likely face a penalty if you pay it off before the term is up. It varies between lenders and depends on whether you have a fixed or variable rate. For instance, the penalty may be 3 months interest on a variable rate term but might be higher for a fixed term.  It’s important to find out the prepayment penalties before choosing a lender as some may have stricter rules and higher costs that make it harder to pay off.

Refinancing your home is not as simple as finding the best interest rate. The lowest rate doesn’t necessarily mean that you’re getting the best product. It’s important to evaluate all the other conditions that come with your new mortgage carefully before making a decision.

If you have questions about refinancing, you can always talk to your mortgage broker or lender.

*This is meant to provide a general overview only. Speak to your lending professional for more information.

 

Mar 4 | 2016

Lin vs. CIBC and the value of title insurance in British Columbia

Posted by:

Blog_HomeOwner_Thumb_LockThe case of Lin vs. CIBC has been stirring up a fair bit of interest in the B.C. legal community recently, not only because of the precedent it set, but also due to the fact that according to the Lawyer Herald website, it has now grown into an $8 million fraud case.

This case is very important because it helps answer the question which innocent party bears the loss when mortgage funds are stolen.

According to the Herald, the trouble began in 2013 when Agatha Chung was hired by Hsui-Wen Lin and Min Sheng Tang to refinance a mortgage in the amount of $520,000. These funds were to be used to pay off their existing mortgage at a different institution as well as certain small unsecured debts, with the balance going to the borrowers. Lin and Tang applied for a loan from CIBC and the transactions were managed by CIBC’s lawyer along with Chung acting for the borrowers. However, once CIBC paid the funds to Chung, she vanished along with Lin and Tang’s money. What came next was to decide who actually held that loss: Lin and Tang or CIBC?

In the trial decision, Supreme Court Judge John Steeves ruled that CIBC’s mortgage was invalid, despite the fact that it was properly signed and registered.  The trial court decision was upheld by the B.C. Court of Appeal on December 18, 2015.  The Court of Appeal specifically upheld the ruling that CIBC’s mortgage was invalid on the basis that the borrowers received no consideration for the mortgage and that the money still belonged to CIBC at the time it was stolen.  For more on this case, you can read The Vancouver Sun article Notary fraud case causing legal waves in B.C. courts.  

The growing problem of real estate fraud

Through the course of my day as legal counsel at FCT, I see —first-hand — that fraud continues to be a growing problem in Canada. I can tell you that fraudsters come in all shapes and sizes and from all walks of life. And although it is not overly common for legal counsel to be involved in fraudulent transactions, it does happen, as in the case of Lin and Tang. While title insurance can’t protect you against becoming a victim of fraud, it can and does protect you after the fact by minimizing the financial impact and stress associated with this type of crime.  FCT’s lender policy covers, amongst other things, losses arising from “the invalidity or unenforceability of the insured mortgage upon the title” which is exactly what happened to CIBC in this case.

And it appears that the Law Society of British Columbia agrees.

A recent Practice Resource distributed by the Law Society of British Columbia in February of this year supports FCT’s view on the importance of title insurance during real estate transactions in British Columbia. In response to the Lin v. CIBC ruling, the Law Society recommends five points to safeguard lawyers and their lending clients, including point number four (4), which reads:

  1. Consider whether to recommend closing of certain transactions with title insurance or through some other mechanism, such as escrow, that will protect your client.

I can’t tell you how happy it makes me to see this in print! After years of promoting the benefits of title insurance across the country, it’s very rewarding to know that others in the Canadian legal community also see its value and are recommending it as an aid in the fight against fraud.

Speaking of fraud, as we enter Fraud Prevention Month, I invite you to take part in FCT’s fraud chat on Twitter taking place on March 31st, 2016 featuring our very own certified fraud examiner, Marie Taylor. Plus if you have any fraud tips or stories you’d like to share, please do so by commenting below.