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Mortgage Insurance Rules

mark186

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My real estate agent recently passed on an email from a mortgage broker soliciting business claiming a way around the 20% down rule. It all looks bogus to me and I`m not contemplating using this firm (which will remain unnamed) but I thought I would post a transcript of the email for comments on this board. I suppose this could technically be legal if it was private money...

On April 19[sup]th[/sup] 2010 the Canadian Federal Government introduced a new rule: Rental / Investment Property cannot be insured by mortgage insurers unless there is 20% minimum down payment. Almost every mortgage lender adopted this standard.
However, one of our lender partners do not get their mortgages insured from CMHC, GENWORTH & Canada Guaranty. Instead, they insure their mortgages themselves. So this new rule doesn`t apply to them.



That means your investor clients can purchase Rental / Investment property with this lender for only 10% down payment (90% LTV)! Yes, you heard it right, with 10% down payment only. In addition, existing Rental / Investment properties can be re-financed up to 85% LTV as well.

Let us start helping you increase your sales this summer!
Our mortgage brokers and agents will show you how to maximize each potential real estate transaction when you get the power of the largest Canadian Mortgage Broker Network working for you.
 

CarrieKoch

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QUOTE (mark186 @ Jul 20 2010, 09:24 PM) My real estate agent recently passed on an email from a mortgage broker soliciting business claiming a way around the 20% down rule. It all looks bogus to me and I`m not contemplating using this firm (which will remain unnamed) but I thought I would post a transcript of the email for comments on this board. I suppose this could technically be legal if it was private money...

On April 19[sup]th[/sup] 2010 the Canadian Federal Government introduced a new rule: Rental / Investment Property cannot be insured by mortgage insurers unless there is 20% minimum down payment. Almost every mortgage lender adopted this standard.
However, one of our lender partners do not get their mortgages insured from CMHC, GENWORTH & Canada Guaranty. Instead, they insure their mortgages themselves. So this new rule doesn`t apply to them.



That means your investor clients can purchase Rental / Investment property with this lender for only 10% down payment (90% LTV)! Yes, you heard it right, with 10% down payment only. In addition, existing Rental / Investment properties can be re-financed up to 85% LTV as well.

Let us start helping you increase your sales this summer!
Our mortgage brokers and agents will show you how to maximize each potential real estate transaction when you get the power of the largest Canadian Mortgage Broker Network working for you.


I get around the rule by only buying from sellers who will provide 10% VTB
 

DaveL

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Hi Carrie,

I am a novice and was wondering how hard you find it to get people to agree to a 10% VTB? Also how long do you normally have them carry it for?

Thanks!
 

RobMacdonald

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It`s possible, as it is correct that some lenders do not insure mortgages through CMHC. Some of the Alt A lenders, like some Trust Companies, or private lenders may design a program that allows for properties up to 85% or 90% without CMHC insurance.

What wasn`t posted in the ad was the price you were going to pay. I`m expecting the interest rate would be anywhere from 8 to 14% with applicable lender application fees. Taking on the additional risk does not come for free.
 

kboughen

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QUOTE (mark186 @ Jul 20 2010, 09:24 PM) My real estate agent recently passed on an email from a mortgage broker soliciting business claiming a way around the 20% down rule.
Hi Mark,


No magic here, just clever marketing. They are placing a first mortgage with no more than 80% LTV (to avoid CMHC) and adding a second mortgage to top up the LTV to 90%. There will be higher rates and or fees which should be expected as CMHC charged 5.15 points to do this when they did 90% LTV on rentals.
 

bizaro86

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QUOTE (kboughen @ Jul 21 2010, 12:53 PM) Hi Mark,


No magic here, just clever marketing. They are placing a first mortgage with no more than 80% LTV (to avoid CMHC) and adding a second mortgage to top up the LTV to 90%. There will be higher rates and or fees which should be expected as CMHC charged 5.15 points to do this when they did 90% LTV on rentals.

Would doing things this way still produce a much higher average interest rate than a "normal" 20% down deal. An 80% first at 4.5% combined with a 10% second at 11% works out to a weighted average rate of 5.22%, which doesn`t seem too terrible.(I just picked numbers that seemed reasonable, I don`t know if they`d be available or not).

Michael
 

mark186

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QUOTE (housingrental @ Jul 21 2010, 12:02 PM) Mark186: why not post the firm?

Well the email wasn’t intended for me so I didn’t feel it was proper to post the firms name. As well, we live in a very litigious society. Simpler, stupider things than this have gotten people in a lot of trouble.
 

CarrieKoch

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QUOTE (DaveL @ Jul 21 2010, 12:41 AM) Hi Carrie,

I am a novice and was wondering how hard you find it to get people to agree to a 10% VTB? Also how long do you normally have them carry it for?

Thanks!


Lol. I just received acceptance on an offer where we requested $200,000 (half the purchase price) VTB in 1st place, interest-only payments, for 3 years!! I guess you never know unless you ask
 

PeterKinchMortgageTeam

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Sep 11, 2007
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Hey Mark,
I agree exactly with what Kevin replied on here - but the real question to ask yourself is `How will 90% financing effect my cash flow?` If you plan on continuing to buy more properties, then you will need to qualify at the banks based on a)strong positive cash flow and b) showing some equity in the property.
Moving forward in today`s banking environment this is going to be more important than ever. My advice is to be cautious of brokers who offer a one-off transactional approach and focus on those who understand the `portfolio` approach.

best of luck

Peter

QUOTE (mark186 @ Jul 20 2010, 06:24 PM) My real estate agent recently passed on an email from a mortgage broker soliciting business claiming a way around the 20% down rule. It all looks bogus to me and I`m not contemplating using this firm (which will remain unnamed) but I thought I would post a transcript of the email for comments on this board. I suppose this could technically be legal if it was private money...


On April 19[sup]th[/sup] 2010 the Canadian Federal Government introduced a new rule: Rental / Investment Property cannot be insured by mortgage insurers unless there is 20% minimum down payment. Almost every mortgage lender adopted this standard.
However, one of our lender partners do not get their mortgages insured from CMHC, GENWORTH & Canada Guaranty. Instead, they insure their mortgages themselves. So this new rule doesn`t apply to them.



That means your investor clients can purchase Rental / Investment property with this lender for only 10% down payment (90% LTV)! Yes, you heard it right, with 10% down payment only. In addition, existing Rental / Investment properties can be re-financed up to 85% LTV as well.

Let us start helping you increase your sales this summer!
Our mortgage brokers and agents will show you how to maximize each potential real estate transaction when you get the power of the largest Canadian Mortgage Broker Network working for you.
 

xray

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Mar 4, 2008
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QUOTE (CarrieKoch @ Jul 21 2010, 09:15 PM) Lol. I just received acceptance on an offer where we requested $200,000 (half the purchase price) VTB in 1st place, interest-only payments, for 3 years!! I guess you never know unless you ask



Hi Carrie,
Great deal. So you will pay interest only for the first 3 years, what do you do when this term is up?
How do you finance the property then? How will you payout the vendor?

Trudy
 
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