Spousal Buyouts

Negotiating spousal buyout

When The Relationship Ends, But You Still Have A Mortgage

According to the Vanier Institute of the Family, the average marriage lasts about 13.7 years before a divorce. Going through a separation or divorce can be challenging legally and emotionally. There’s no easy way to say goodbye, especially when you share a home with the person you are saying goodbye to. 

 

Many separating couples don’t know about spousal buyouts and how it can help make the process easier. Whether you’re divorcing or separating from your partner, or just thinking about it, these buyouts let one partner “buy out” the other person on the mortgage.  

 

Most buyouts are between spouses or common-law partners, but some can be between friends or family who have bought a house together. This is why spousal buyouts are also referred to as “co-borrower buyouts.” Whatever your situation looks like, both parties must have the right information to move forward. 

What Is A Spousal Or Co-Borrower Buyout?

The buyout works by primarily refinancing your home up to 95% to buy out the other owner’s equity share and pay off joint debt. The stress of carrying debt can impact your mental health. The buyout allows both parties to alleviate any stress that their joint debt may be causing and start fresh. A buyout can also come in handy in situations where selling the property isn’t optimal.

Meeting With A Mortgage Broker

For a spousal or co-borrower buyout to work, several qualifications need to be completed. When you’re ready to separate, it’s essential to speak with a mortgage broker right away about your options. A broker can help you to determine if you qualify for a buyout, and if not, what might work instead.  

spousal buyouts

Considerations

The first thing that needs to be done is for both parties to decide who will keep the property. This is a decision that can only be made by the two parties. If both partners can’t come to an agreement, a buyout won’t be possible. Other options, like selling the property, might work best in this situation. 

 

The person buying out the other must make sure that they can afford to own the home. Both parties contribute income to shared expenses in many situations, but after a buyout, the buyer will need to pay for expenses such as mortgage payments by themselves.  

 

If you have talked it over with your partner and amicably decided on who wants to keep the home and is financially able to do so, you’re ready for the next step: meeting buyout qualifications.  

Qualifications

One thing to know is that all parties must be current registered owners on the title to qualify for a buyout. Another vital requirement to be eligible for a buyout is to have a finalized separation agreement. The agreement includes crucial information, like spousal or child support payments. The lender needs to see this agreement and make sure all net assets are allocated. 

 

A buyout is like a private sale, and as such, it is necessary to have a full property appraisal. This appraisal is ordered at the time of the buyout approval, so don’t worry about getting it done ahead of time. If done ahead of time, it likely won’t be usable because your lender often has specific requirements and appraisers they want during this process.  

 

The End Result

In the end, the buyer will have the home, and the other owner can take the equity from the buyout to find a new place to call home. 

 

If you are a divorcing or separating from a partner and are interested in learning more about options, including buyouts, reach out to our team at the Mortgage Group Inc. Our Calgary mortgage brokers are always happy to help you find the best solution. 

 

Knowing Your Options For A Home Equity Line Of Credit (HELOC)

Home equity line of credit

When it comes to understanding how to consolidate your debt, knowing all of your options is a good start. Many Canadians struggle with debt, be it credit card, car payments, student loans, and especially mortgage payments. We understand how difficult it can be to manage all of this all while taking care of yourself and your family.

Restructuring

credit debt

The first step in understanding how to get back on track by organizing your life to make your debt payments manageable. For this a mortgage advisor is the best place to start. If the option is right for you, they can help you obtain your home equity in order to help pay off your debt. They can also help you restructure your spending habits to make sure you can stay out of debt and make your home equity line of credit (HELOC) count.

Your HELOC will still need to be repaid; however, when you are only paying one payment, with one interest rate, it can drastically reduce stress. Causing things to be less overwhelming, not having multiple bill payments with various interest rates coming in.

What is a Home Equity Line of Credit (HELOC)?

  • Maximum loan-to-value (LTV) = 65% of appraised value
  • It is a line of credit secured by way of a collateral mortgage on the title to your home/property. The interest rate is set by the Prime Rate and is much lower than a personal unsecured line of credit. Maximum Loan-to-Value (LTV) is 65% of appraised value.

Determining Your Equity

Your home Equity is based on the difference between your home’s value and the unpaid balance of your existing mortgage. Home equity has the potential to raise in worth by one of two ways, either you pay your mortgage down and the difference grows, or the value of your home increases.

A stand-alone HELOC has a maximum Loan-to-Value (LTV) of 65%, and a mortgage has a maximum LTV of 80%. You can have a mortgage and HELOC under one charge on a title, going to an LTV of 80%. Just remember, you will need to subtract the amount still owing on your mortgage!

How to Qualify For a Home Equity Line Of Credit

HELOC key

According to the Financial Consumer Agency of Canada, in order to qualify for a home equity line of credit you will require:

A minimum down payment or equity of 35% if you want to use a stand-alone home equity line of credit as a substitute for your mortgage.

Lender Requirements

Your lender will have requirements before you can be approved for a home equity line of credit which include:

  •  A Satisfactory Credit Score
  • Proof Of An Appropriate & Stable Income
  • A Suitable Level Of Debt Compared To Your Income

In order to qualify for a Home Equity Line Of Credit, you will need to pass a stress test. This is to ensure that you can afford payments at a higher rate than the rate of your contact to avoid problems if rates increase. The lender wants to be sure you can pay it off.

Rates

HELOC’s are not necessarily subject to the same rate fluctuations as mortgages. HELOC’s are always set with a prime, which means that they fluctuate, but your mortgage can either have a fixed or variable rate.

Potential Benefits Of A HELOC:

Mortgage relief

One of the main benefits of debt consolidation is that it will buy you time and emotional release from current debt pressures. Studies have shown that the stress of too much debt can impact more than your mental health, and it can also be affecting other parts of your life.

HELOC Requirements:

  • Minimum Payments Required = Interest Only. Can Be Paid In Full At Anytime With No Penalties.
  • Readvanceable – The HELOC Can Be Paid In Full & Used Again At
  • Anytime As Needed- Maximum Flexibility
  • Low Interest Rate

A HELOC only has a minimum payment requirement of the interest and will allow you to address your budget and free up your cash flow before making principal payments. By refinancing and being serious about making and keeping to your budget, you can achieve a debt-free lifestyle! While refinancing can extend your mortgage’s life, it can get you onto the path of being debt-free a lot sooner.

home equity, money in your pocket

For more information on a home equity line of credit (HELOC), talk to a mortgage professional. They can help way your options to determine the best course of action for getting your bills and various payments under control with a HELOC. Here at The Mortgage Group, we are here to help you with all of your mortgage questions and concerns. Including, those regarding home equity. Contact us today to better understand how we can help you obtain your home equity line of credit.

Is A Mortgage Deferral Right For You?

mortgage deferral

Mortgage Deferrals During COVID-19

With the recent federal business closure directives and layoffs, many people are looking for ways to adjust their budgets to decreased income the closures have caused.

The federal government CERB program and the EI coverage may help. You can check their website to see what funding will help your family in this trying time.

If, after crunching the numbers, you still come up short, what actions can help you get by until life returns to normal?

Financial consultants are suggesting, if it is possible, you should still make your payments. Use savings and available credit lines before deferring your mortgage.

Many banks are deferring credit card payments and interest on credit cards and credit lines or allowing clients just to pay interest payments. The deferred payments will still have to be paid. Be aware if you defer the interest, you might need to pay all the deferred interest with your first payment when the deferral ends.

Mortgage Deferral Considerations

Mortgage expenses

It is crucial to get all of the facts from your lender before you agree to a mortgage deferral.

If you can’t afford to pay your mortgage payment, lenders are offering people the ability to defer their mortgage payments due to the current financial conditions.

What Is A Mortgage Deferral?

The team at The Mortgage Group Calgary explains that mortgage deferrals allow you to take a break from your scheduled principal and interest payments for an agreed-upon time. The interest continues to accrue and will become part of your mortgage balance.

First Steps

If you have been affected by COVID-19 and can’t make your mortgage payments, the first step is to contact your mortgage provider to discuss options. Most institutions have an email address as well as an online deferral request, as the phone lines have been hectic.

You must take a copy of that first email contact explaining you need assistance because of the COVID-19 crisis. In the email, include the mortgage ID information and the reason you cannot pay. For example, if you were laid off from work, fell ill with the virus and are in isolation, you are looking after children, or your business was forced to close. Then if the bank does not get back immediately, you have a record to the date of your notice.

Banks and Financial Relief

financial support

Most institutions will not be reporting to the credit bureau(s) at this time and understand that this is a challenging time for their customers. They will probably waive or refund the non-sufficient funds [NSF] fee for missed or stopped payments at this time. Meanwhile they are also taking time to assist customers individually.

“Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia and three other large lenders announced plans on March 17 to provide financial relief to Canadians impacted by the economic consequences of COVID-19.  Mortgage deferrals are among the measures introduced.

Customers in good standing who have been impacted by the pandemic can apply, with deferrals available for an indefinite period and no deadline to apply,” said Mathieu Labreche, a spokesman for the Canadian Bankers Association, stated in a Bloomberg news interview.

Term Choices

So discussing the arrangements for the deferral, ask how the payments and insurance fees. Be sure to get the terms in writing.

Some choices of terms to consider are:

  • To make your monthly mortgage & interest payments on a different timeline
  • Pay just the interest & move the mortgage payment to the end of the policy. Add them to the amount of the overall mortgage and extend the mortgage term.
  • Defer both, where the payments and insurance attach to the back of the mortgage. This again increases the amount of the mortgage and interest you will pay & extends the time it takes to pay it off.
  • Some banks will average the deferred interest increases into the mortgage payments over the term of the mortgage when the deferral ends.

Case By Case

savings-expenses

Rules for each bank are changing as the crisis lingers. Most mortgage companies are offering deferrals based on a case by case basis.

Labreche said that banks have processed over 213,000 requests in the last week, so they are moving quickly through applications. Still, you may need patience and persistence with the process.

There is stress on both sides of the phone line, so ask what suggestions they have to help your situation, or schedule a phone appointment to discuss your options. Sometimes it is frustrating because the agents are unaware of new developments offered by the bank. Some banks will refuse a deferral due to delinquent payments in the past and others are asking for a full credit check.

Monitor Your Credit Rating

credit report

Your credit rating might be affected, so it is good to check to see if it has gone down. Credit rating notices are a computerized process. A deferral might automatically flag your credit rating. Equifax wrote about the impact on credit ratings and the COV19 crisis. If your score goes down, the credit bureaus suggest that it is due to COV19. It will help you in future banking/lending discussions.

Working Together

teamwork financial support

It is important to note that everyone is struggling with recent events. Still, Canadians are good at supporting one another in crisis. Seek out the community and charitable resources in this time of need if you need them. Keep in contact with friends and family.

Alberta Health Services has phone resources and online material on its website for non-financial issues.

Talking to a money manager might give you other financial survival information. The Credit Counselling Society offers some excellent emergency budget management tips and online workshops.

The Mortgage Group Calgary team is an essential service and are adhering to social distancing requirements for the protection of their clients and staff. We cannot work directly with the bank on your mortgage deferral process. However, our brokers can help you if you are considering remortgaging or refinancing your mortgage. Give us a call at 403 571-8142 or email us at [email protected] to arrange a phone consultation.

Why You Need A Good Credit Report To Buy A Home

credit history report

There are a lot of terms to understand when you are applying for a home mortgage. One of those terms is a credit report.

What Is A Credit Report?

A credit report is a summary of data involving your spending and credit history. It is more important than some people think. Potential landlords, employers, utility companies, and government agencies sometimes use this information, too.

What Information Does It Contain?

checking credit

Your credit report contains personal information such as your name and pseudonyms, birth date, social insurance number, recent and previous addresses, and phone numbers.

It also includes financial information like current and historical credit account types, balances, limits, payments, and the name of the lender. Public information like liens, bankruptcies, foreclosures, court proceedings, and child support payments may also appear on your credit report.

Who Compiles A Credit Report For Your Lenders?

Equifax and TransUnion are the two major companies that gather information on your spending habits. They use all of the collected information to compile reports used by banks and lenders so that they can give you a mortgage approval.

How Are Credit Ratings Scored?

A Person Holding Phone Image

Credit rating scores are rated 280 to 850, with a 300 rating the poorest and 850 considered an excellent credit score.
About 35% of the rating considers payments and whether you have made late payments. Another 30% looks at credit card use and the balance vs. your credit limit. The remaining 35% of the credit score is based on your credit history, public records, and any inquiries into your credit file.

Inquiries within a short period are usually allowed because they know you may shop various mortgage lenders to secure your homeowner mortgage. Inquiries can affect your rating when you shop around for multiple credit card lenders (called hard hits). It can also happen because you are financially stretched, or perhaps because you have too many maxed-out credit cards.

How Can I See My Credit Rating?

You can ask for your free credit score at Credit Karma, or  though your bank. Even some online companies have a notification service for changes to your score to help you keep track. One thing to keep in mind is that the owing debt that you see, and the score may be off a bit.

In some cases, an account could owe a few hundred more than what the report shows. However, tools like this are still great to give you a base to work with and begin understanding your credit score.

Is My Information Safe?

safe, vault

There is a discussion about whether credit bureaus should have access to this information, but llenders state it is necessary to protect their investments.There are security features in place for online registrations, and they are regulated regarding the release of information complying with provincial legislation.

Why I Need A Good Credit Rating?

A better credit rating makes securing a home mortgage easier. Lenders like to see applicants have a mix of car loans, personal loans, and credit cards to indicate they can handle different kinds of credit. A good credit rating can also act as a reliability meter for signing a lease, securing a utility contract, or sometimes even works as a job character reference.

How To Improve Your Credit Rating

improvement graph

Some people have never borrowed money or signed up for a credit card, leaving them with no credit rating. This can negatively impact you when you do go to apply for credit. Without credit, it can be hard to build credit. Often, secured credit cards are your best first step to establishing a credit history.

Loans or mortgages are not approved until they establish a good rating.
What seems odd is you are required to go into debt to get approval for further financing. By taking out a small loan or credit card and making regular payments to build trust, they will pay off subsequent loans. A poor credit score does not mean denial of a home loan. However, you may have to pay a higher rate of interest on the mortgage.

It is also a good idea to review your credit reports yearly. Sometimes companies make errors about late payments or unpaid bills that can affect your rating. Maybe you are in mediation with that company over mistakes. You have the chance to contact the credit rating bureaus  and get them to investigate the error on your report and change the reason on your credit report itself.

The Alberta MoneyMentors organization offers many financial education and improvement courses and financial counseling. Money Mentors offers for online classes and some great info.

Watch Out For Credit Rating Repair Scams

Some companies will help you improve your credit ratings for a fee. However, not all of these offers are legitimate, and it is up to you to do your homework to see they are reputable for use.

Here Are Some Signs The Service May Be A Scam:
  • They Don’t Provide A Consumer Credit File Outlining Rights & The Credit Repair Process
  • A Business Name & Address Aren’t Provided On The Contract
  • They Don’t Offer Your Copy Of The Contract For Reading Before Signing
  • Costs, Actions To Be Taken & Completion Date Are Not Clearly Outlined
  • They Ask For Payment Before Services Rendered
  • The ‘Agency’ States They Will Remove The Errors From Your Report
  • They State You Need A New Social Insurance Number To Change Your Rating

Sometimes understanding everything about credit ratings can be confusing, so contacting a professional mortgage broker like The Mortgage Group is a good idea. Our Calgary mortgage brokers can explain the mortgage process and credit reports. We will help you gather the information you need to secure a home mortgage.

At The Mortgage Group Calgary, we are committed to providing the best experience to our clients. Call now to book an appointment with one of our brokers, (403) 571-8142.

Mortgage Motivation: Are You Prepared

mortgage-new-home-owner

First Time Homebuyers Mortgage Motivation

Are you ready to buy a new home? Before deciding to obtain a mortgage in Calgary, first look at what is motivating you. If you feel like you should buy a home only because everyone around you is, that’s probably not a good reason to tie yourself into a home loan.

By definition, purchase motivation is described as the psychological reasons behind making certain purchases. One of those purchases is the decision to buy a new home. While owning your home can be exciting, this big-ticket item can also be scary.

Homeownership will impact your life and financial picture for a long time. That’s why talking with a mortgage broker in Calgary is always a good idea.

house-new-mortgage-money

Start By Doing Research

Many people looking to buy a home spend a lot of time researching every detail first. Like any other life decision, you want to gather information, specifically about mortgages. Speak with your peers, family members, professional banking services, and mortgage brokers.

Speaking with friends or others who have recently purchased a house will give you a good insight into your potential purchase. They will be able to provide you with a rough idea of property taxes for their home, utility costs, and more.

Watch Out For Buyer Mentality

While searching for a home, you will spend a reasonable amount of time online, gathering mortgage loan information and looking at potential homes. It can be easy to fall into a buyer mentality with targeted ads shown to you on mortgages, real estate agents, and possible home listings.

Other Factors To Consider When Buying A Home

goals

Many buyers watch interest rates and monitor the availability of homes before they make a purchase. Still, there are other considerations people use to justify taking out a mortgage too.

Emotional factors can influence what you want or need when looking at potential home purchases.

Sellers and realtors will target these emotional flags when they are selling homes. So it is crucial to take stock of your needs and wants in addition to assessing your financial matters before you sign mortgage documents.

You Are Here

The best place to start when looking at emotional factors is to describe your current stage of life.
These won’t be the same for all people, but a generalization sets the stage to think about what changes you want.

new-home-new-mortgage

It can also define your future needs and wants for your first home. For example,

  • Are you a single person who just landed that full-time job and are looking to own not rent?
  • Maybe you just got married, have two incomes, and now you can afford a joint mortgage loan.
  • It could be you just had a baby and need more room for a nursery.
  • Or do you have a growing family and are running out of living space in your current accommodations?
  • You might have a multi-generational household and need a larger lodging with more than one living area under the same roof.
  • For older singles and couples, you may be downsizing or looking for accommodation that will allow caregivers to help you when you need care later in life.

As you can see, there are many reasons why you might be looking at buying a new home.

sales-mortgage-signing-application

Demographics For First Time Homebuyers

  • 80% Are Employed Full Time
  • 49% Are Single
  • 45% Are Between The Ages Of 25-34
  • 40% Are Married
  • 61% Purchase A Single Detached Dwelling & Have An Income Between $60,000 & $90,000
  • 21% Are New To Canada

Some Canadian demographics indicate percentages for first-time buyers.
They are:

Motivations For Purchasing A Home

When looking at your mortgage motivations for homeownership, consider which of these emotional factors apply to you and how they shape your wants and needs.

enjoying-moving-in-a-new-house-mortgage
  • A Desire To Become Independent
  • Looking For Stability
  • Increasing Your Comfort Leve
  • Finding Something More Convenient
  • Providing A Safe Living Space
  • Expanding Your Socialization Potential
  • Meet Changes In Medical Conditions
  • Wanting Financial Growth
  • Desiring Prestige
  • Gaining Fulfillment Through Ownership

Proceed With Caution

When you are aware of these goals, you can analyze them and apply that data to the reality of the purchase you are considering.

There is a caution here that it is important. Don’t sign up for a mortgage based wholly on emotional factors that override the realities of your financial means.

yellow-caution-tape

For example, you may crave prestige and look for a home in a high-end area, only to realize you don’t currently have the money to meet the asking price of the house. An assessment like this can help you find ways to improve your financial means so that you can purchase a similar home at a later date.

There is a good article by Matthew Kassel in the Wall Street Journal that highlights some of the pitfalls first-time buyers should avoid when considering their wants and needs list.

Evaluating Your Current State

Another lifestyle evaluation used by realtors and sellers is matching demographics with psychological factors by creating a category of types for home buyers.

It is called the VALS Framework. It breaks down factors identifying buyers as innovators, thinkers, believers, achievers, strivers, experiencers, makers, and survivors. Just for fun, take a look at this website and see what describes you best.

If searching for your home overwhelms you, there are professionals out there that will help you match your wants and needs to your available resources. A good realtor, bank, or independent mortgage broker can take your collected data, which include emotional factors, and match mortgage plans to your desired goal.

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Our professional mortgage brokers at The Mortgage Group in Calgary would be happy to help you analyze the data you have collected and answer any questions you may have about mortgages. Give us a call, 403-571-8142, or fill out our secure contact request form today.