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Without a doubt, purchasing a home is one of the greatest financial investments that anyone can make in their lifetime. This is why choosing the most suitable mortgage is critical to every new Canadian homeowner’s buying journey.

Cash back mortgages, in particular, have become a progressively popular choice for borrowers who require extra funds to cover certain expenses, such as costs related to moving, closing costs, and other common fees associated with home buying.

However, it’s important to understand that this mortgage solution may not be the right move for every homebuyer, and you should first determine (ideally with the help of a professional) whether you are a suitable candidate for a cash back mortgage before making any major decisions.

With that being said, in this article, we will be helping new homebuyers understand what a cash back mortgage is and the types of homebuyers they are most appropriate for.

What is a cash back mortgage?

A cash back mortgage allows borrowers to obtain a certain amount of money back from their lender during the finalization of their mortgage loan. The borrower will typically receive the cash back funds instantly upon the mortgage closing date.

Cash back mortgages are most commonly used to cover closing costs and other charges, purchase furniture and appliances, helping to fund renovations and upgrades or cover the costs of general unanticipated expenses that follow the purchase of a home. 

Additionally, cash back mortgages are often used to pay off the debts created by high interest, such as with a credit card or other type of personal loan.

How much money am I eligible to receive with a cash back mortgage?

When it comes to the amount that borrowers are eligible to receive with a cash back mortgage, it will depend on the size of the loan, with a lump sum of generally 1%-7% offered (with 5% being the most common).

For example, let’s say you’ve been approved for a $500,000 mortgage, and you’ve arranged to receive 5% cash back. Upon your mortgage closing, you will receive a lump sum of $25,000, with a mortgage balance of $525,000, even though only $500,000 is technically registered as your mortgage. The $25,000 is registered as a loan.

Furthermore, there may be a maximum amount that you are eligible to receive as per the lender’s rules. The funds will always be tax-free, although the mortgage interest rate will generally be around 1.75% higher than a conventional mortgage. Additionally, if the mortgage is broken early, you will be required to return some of the cash back amount.

As soon as a borrower’s mortgage has been finalized and they receive their cash back funds, they’ll be required to start making mortgage payments. The cash back value will be included in the mortgage payment balance, with each payment automatically contributing to its amortization for 25 years.

Who is a suitable candidate for a cash back mortgage?

A cash back mortgage can be a suitable option for many types of borrowers, from first- to second-time homebuyers to borrowers who are interested in refinancing their current mortgage.

While it is true that a cash back mortgage may be an excellent option for some, unfortunately, like with all types of loans, not everyone can qualify for it. In fact, a potential borrower will only be considered as an eligible candidate for a cash back mortgage if they possess a minimum credit score of 650, have a low debt-to-income ratio, have a stable income, and are applying for the cash back home loan as an owner-occupier (never as a renter).

At the end of the day, a cash back mortgage can be a considerably attractive option for many homebuyers in Canada, especially if they could use some extra funds to help with the associated costs. However, as always, it is important to do your research and seek help from a professional before making any official decisions about any mortgage option.

The good news is that our mortgage experts at Canadalend.com would be pleased to consult with you to determine whether a cash back mortgage is the right choice or if another kind of mortgage would be more beneficial for your financial situation.

Ready to purchase your home with a cash back mortgage?

Our mortgage lenders in Ontario are ready to lend a hand. Canadalend.com can provide you with the financing that’s best suited to your needs, whether it be a cash back loan, refinancing, a home equity loan, a second mortgage, or a reverse mortgage.

If you’re interested in purchasing a home in Ontario and want to learn more about our mortgage solutions and financing options, call Canadalend.com at 1-866-I CAN LEND or contact us here.

Mortgage refinancing can be a wise financial decision for Canadian homeowners looking to reduce the cost of their monthly mortgage payments, shorten their loan term, or simply access the equity they have already built in their homes.

However, mortgage refinancing may not always be the best answer for every homeowner, and there are a number of factors to consider before deciding to go this route.

In this article, we will explore several do’s and don’ts of mortgage refinancing so that you can maximize your cost savings while avoiding common mistakes that borrowers often make.

Mortgage Refinancing Do’s and Don’ts

DO:

Put your best foot forward as a borrower candidate.

As lenders are more cautious today than ever when it comes to making deals with borrowers, you will need to have proof of steady income and employment ready to show your prospective lender. If you happen to be unemployed at the time of your mortgage refinancing application, put together any evidence you have that can demonstrate a history of consistent income prior to your unemployment.

Moreover, you should also make sure that you have a strong credit score before proceeding with your mortgage refinance. Fortunately, there are several ways you can help to strengthen your score before starting your mortgage refinancing process, if necessary.

Shop around to find the best deal possible.

When finding a lender for your mortgage refinance, don’t simply pick the first one you stumble upon that seems like the right fit. It’s important to explore all of your options until you know that you’re going with the lender and agreement that suits you best and is capable of saving you the most money possible.

Know what your closing costs will be.

It’s important to always be in the know about what your closing costs will be. This is because the refinancing process will include certain fees, many of which may actually end up costing you more money, thus going against your goals.

These additional costs include registration fees, legal fees, and prepayment penalties, which can be the heftiest of all (but will only be applied in the case of breaking a term too early or having too many months remaining on either a fixed-rate or closed mortgage).

Have all of your necessary documents ready.

It’s important to have all of your appropriate documentation gathered and ready to present when applying for mortgage refinancing, as there will be no time to waste, and you’ll want to lock in your rate as promptly as possible.

These documents include your credit score, a recent mortgage statement provided by your lender, proof of employment via pay stubs, bank statements and/or a letter of employment, proof of income via tax documents, an estimate of your property’s current value, as well as a recent copy of your property tax statement or Final Property Tax Bill.

DON’T:

Refinance at an inopportune time.

Homeowners should only refinance the mortgage of their property when it is financially beneficial to do so or when more savings are guaranteed in the long run. Additionally, it is not advised to refinance if you are working with less than 20% in home equity at the time of consideration.

Fail to perform a background check on your lender.

Unfortunately, some lenders will offer very low and attractive rates, only to have a hidden agenda to take advantage of you. This is why it is crucial to perform a background check on your prospective lender and lending institution before going through with a deal, in addition to performing a thorough evaluation of the terms of the mortgage you are being offered (never overlook the fine print).

Fail to lock in your interest rate immediately.

In the world of mortgages, interest rates are constantly fluctuating, with the potential to be low one day and high the next. That’s why we strongly advise borrowers to lock in their mortgage refinance rate as soon as possible, as it will then no longer be at risk for a changing (and potentially higher) rate while their loan application is being processed.

Neglect to thoroughly read and understand your refinancing agreement’s terms.

Never rush reading through each legal document pertaining to your mortgage refinancing application and agreement. Again, always pay careful attention to the fine print and the clauses outlining critical details, including the mortgage term and interest rate, amortization period, options for prepayment, penalties, and others. Moreover, if you’re unsure about anything in the terms, ask your lender or broker about it.

In conclusion, mortgage refinancing can be a very valuable option for Canadian homeowners looking to improve their financial situation. By doing the necessary research and following the aforementioned do’s and don’ts of mortgage financing, you can make informed decisions while dodging common mistakes that can be quite easy to make.

Interested in refinancing your mortgage?

Our mortgage lenders in Ontario are here to lend a hand. Canadalend.com can provide you with the financing best suited to your needs, whether it be mortgage refinancing in Ontario, a home equity loan, a second mortgage, or a reverse mortgage.

To learn more about our mortgage refinancing solutions and financing options, call Canadalend.com at 1-866-I CAN LEND or contact us here.

Home equity loans, also known as second mortgages, are a popular way for homeowners to borrow money by using their homes as collateral.

Typically offered in the form of a lump sum loan or a line of credit, a home equity loan can be a great option for Canadian homeowners who need to borrow a large amount of money for a variety of reasons; whether it be for home renovations, paying for a child’s education, debt consolidation, or other purposes.

With that being said, there are many questions that homeowners may have about home equity loans. Understanding the answers to these questions can help them to make informed decisions about whether a home equity loan is the right choice.

Let’s go over some of the most frequently asked questions about home equity loans:

What is a home equity loan?

A home equity loan is a loan that is taken out against the equity in a home, which is simply the value of the home minus the amount still owed on the mortgage. For example, if a home is worth $500,000 and the mortgage balance is $250,000, then the homeowner has $250,000 in equity. Homeowners can borrow against this equity by taking out a home equity loan.

How are home equity loans provided to borrowers?

Home equity loans are generally offered as either a lump sum loan or a line of credit known as a HELOC (home equity line of credit). A lump sum loan is a one-time loan that is to be paid back over a certain period of time via fixed monthly payments. On the other hand, HELOC is a more flexible loan that allows homeowners to borrow money as needed, making necessary payments on the loan as required.

How do I know if I qualify for a home equity loan?

To qualify for a home equity loan, you must have sufficient equity in your property in addition to a good credit score. Lenders will also consider the borrower’s income, debt-to-income ratio, and employment history when evaluating their eligibility through the loan application process.

What can home equity loans be used for?

Home equity loans can be used for many different purposes, including covering the costs of home renovations or improvements, consolidating debt, paying for a child’s education, and more. However, lenders may have restrictions on how the loan proceeds can be used, so it is important to clarify this with your lender before taking out a home equity loan.

How much money can I borrow with a home equity loan?

The amount that homeowners can borrow with a home equity loan depends on several factors, including the value of their home, the amount of equity they have built up, and the lender’s unique lending guidelines. With that said, many lenders will allow homeowners to borrow up to eighty to ninety percent of the equity in their homes.

Are there risks to taking out a home equity loan?

Yes, there are potential risks associated with taking out a home equity loan. One of the main risks is the possibility of losing your home if you default on the loan and are unable to make the required payments. If you can’t make your payments and the lender forecloses on your home, you could lose your home and your equity.

This is quite a serious risk, which is why it’s critical to carefully consider whether a home equity loan is the right financial decision before you take one out (our Canadalend experts can certainly help with that).

How do home equity loans compare to other types of loans?

Home equity loans have some advantages compared to other types of loans. One key advantage of home equity loans is that they are a secured type of loan. Since these loans offer a greater level of protection to the lender, this generally results in lower interest rates for the borrower when compared to unsecured loans.

How can I calculate my home equity?

In order to estimate the amount of equity you have built in your home, simply take the market value of your property and subtract the loan amount that you owe on your current mortgage, along with any other loans secured against your home. For example, if your home is valued at $600,000 and you still owe a balance of $400,000 on your mortgage, then your home equity will be valued at $200,000.

How do I determine if I should choose a lump sum loan or a HELOC?

If you need a lump sum of money for a specific purpose, such as home renovations or debt consolidation, then a home equity loan may be the better choice. On the other hand, if you require ongoing access to funds for a variety of purposes, then a HELOC may be more suitable.

It’s also important to consider other factors, such as varying respective fees and interest rates (home equity loans typically have fixed interest rates, while HELOCs have variable interest rates that can fluctuate over time), and repayment terms (home equity loans have a fixed repayment term ranging from five to fifteen years, whereas HELOCs have a flexible repayment schedule). Ultimately, the right choice will depend on your unique financial situation and goals.

Start Using the Equity in Your Home to Your Advantage

Our mortgage lenders in Ontario have access to hundreds of different lenders and offer a wide range of mortgage solutions, such as home equity loans, that can help you finally attain the funds you have been wanting to access.

To learn more about our home equity loan solutions and mortgage financing options, call Canadalend.com at 1-866-I CAN LEND or contact us here.

Are you a Canadian homeowner looking to tap into the equity of your home, or benefit from lower monthly payments or rates? If so, then you may be considering either a second mortgage or a refinancing of your current mortgage.

While both of these options enable homeowners to use their property as collateral to borrow money, there are considerable differences between the two that are important and useful to understand.

In this article, we’ll compare both second mortgages and refinancing to help you determine which option may be best for your current financial situation and mortgage needs.

What is a second mortgage?

A second mortgage is a loan taken out against the equity in a home already being used as collateral for a first mortgage. Generally, the first mortgage is the primary loan that was used to purchase the house, and the second mortgage is a separate loan that is taken out on top of the first mortgage.

With that being said, second mortgages are usually offered in the form of either a home equity loan or a home equity line of credit (HELOC). However, how do the two differ?

A home equity loan is a lump sum loan that the borrower receives all at once, and is to be paid back over a certain period of time through fixed monthly payments. On the other hand, a HELOC is a revolving line of credit in which borrowers receive loan proceeds on an on-needed basis and will make payments on as they continue to borrow money. The interest rate on a HELOC is typically adjustable, meaning that it can change over time depending on the conditions of the market.

Advantages and Drawbacks of Second Mortgages

Second mortgages can be a viable option for homeowners with equity in their homes, who need to borrow a large sum of money and appreciate the security of fixed monthly payments.

Second mortgages also present several unique advantages, such as allowing borrowers to keep their current loan term without making sacrifices (e.g. keeping the low interest rates of a primary mortgage). The flexibility of choosing between a lump sum loan or HELOC serves as another attractive benefit for homeowners.

However, second mortgages have some potential drawbacks. One of the main drawbacks is that they are a second lien on the property, which means that the first mortgage lender has priority in the event that the borrower defaults on their loans. This means that if the borrower falls behind on their payments, the first mortgage lender can foreclose on the home before the second mortgage lender can.

In addition, second mortgages may have higher interest rates than first mortgages because they are considered a higher risk for lenders. This means that homeowners who take out a second mortgage may end up paying more in interest over the life of the loan, depending on their unique circumstances.

What is a refinance?

A refinance is a process in which a homeowner replaces their current mortgage with a new mortgage containing different terms. However, they are essentially taking out a new loan to pay off their existing mortgage.

Homeowners may choose to refinance their mortgages for a variety of reasons, including to lower their monthly mortgage payments and pay off their mortgage faster, obtain a lower interest rate, alter the term of the loan, switch from an adjustable-rate mortgage to a fixed-rate mortgage, or to access the equity in their homes.

Advantages and Drawbacks of Refinancing

Under the right circumstances, a mortgage refinance can help to free a homeowner of financial burdens through significant cost savings. They require borrowers to pay only single mortgage payments each month, and offer the opportunity for beneficial adjustments of mortgage terms and rates.

However, just like with a second mortgage, refinancing can also have potential drawbacks. For example, a refinance may be costly in the short term, as homeowners may need to pay higher closing costs along with other fees associated with taking out a new mortgage.

Furthermore, refinancing a mortgage may require homeowners to pay for a new home appraisal, and may also be required to accept different (and higher) interest rates.

Finally, refinancing may extend the term of a homeowner’s mortgage. This means that if a homeowner refinances their mortgage to get a lower monthly payment, they may end up paying more in interest over the life of the loan since they are technically stretching the loan out over a longer period of time.

Second Mortgage vs. Refinance: Which one is right for you?

When it comes time to decide between a second mortgage and a refinance, homeowners should consider their financial goals in both the short and long term, in addition to the specific terms of the loans being offered.

As always, it is advised to work with a trusted mortgage solution provider, such as our experts at Canadalend, to help you choose a solution that will be most financially beneficial for you.

Considering a second mortgage or refinance?

Our mortgage lenders in Ontario are here to lend a hand. Canadalend.com can help you determine whether a second mortgage or a refinance is a better option for you, so you can take the right steps toward achieving your financial goals.

To learn more about our second mortgage solutions and refinancing options, call Canadalend.com at 1-866-I CAN LEND or contact us here.