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Construction mortgages are increasingly popular in Ontario with many choosing to build custom homes to meet their specific needs—needs that are not being met with the homes currently available on the market. Designing and building a custom home can be exciting, but it also comes with a unique set of, financial challenges.

Qualifying for financing the construction of a new home is very different than qualifying for a mortgage to buy an existing home. For starters, the process of qualifying for a construction loan is much more rigorous with construction mortgage lenders in Ontario because they will need a lot more information about you. On top of that, they might even require a bigger down payment than the minimum 20% needed for an existing home.

This is because there are a lot more risks associated with seeing a new home through the construction phase as opposed to purchasing an existing home. Moreover, you will need more capital during the construction process. As a result, mortgage construction lenders will only lend money based on the value of the home at the different stages of construction and not at the home’s future value.

Purpose of Construction Mortgages

Construction mortgages are required for home builders who are purchasing land for the immediate construction of a principle residence, or of a cottage or leisure home for their personal use.

Custom home builders will also need a construction mortgage if they already own their own land and need money to cover the immediate, upfront construction costs before the first advance is dispersed by the lender.

Different Types of New Construction Mortgages

There are three different ways you can finance your newly constructed home in Ontario.

• Builder/Contractor: You have hired a registered contractor to build your custom home with your own money.
• Self-Built Home: You have your home built and act as your own contractor.
• Buying a Newly Constructed Home: The contractor builds the home with their own money and you need to pay the builder when you take possession of the property.

Construction Mortgage Financing Options

In each of the above three types of new construction there are different kinds of financing options. There are variations in each one related to timelines and conversion. If you’re looking for construction financing in Ontario, you can build you home with a Process-Draw mortgage, Completion mortgage, or combination of the two.

Process-Draw Mortgage

A Process-Draw construction mortgage is advanced at different stages during the construction process. There are usually three draws (sometimes four) at 35% (roofing is complete), 65% (after plumbing and electrical is completed but prior to drywall installation), and 100% (final occupancy).

During each stage, the construction has to pass inspection before you receive the next payment. With a Process-Draw construction mortgage, interest is charged on the total amount advanced. And the final advance is released when the home passes its final inspection.

Completion Mortgage

A Completion mortgage is needed if you have built or purchased your home through a residential home builder and only really need the funds when the house is finished and you’re ready to move in. Unlike a Process-Draw mortgage, with a Completion construction loan, you typically only need a small down payment to start and only need full payment when the home passes the final inspection.

Combination

In some cases, you can start with a Process-Draw loan, which is then converted to a Completion construction mortgage. The single advance loan that comes when the home is finished acts like a regular residential mortgage.

Canadalend.com: Ontario’s Construction Mortgage Lender

A lot of Canadians build custom homes to suit their lifestyle needs and personal tastes. If you’re in the initial stages of planning your custom home, it’s important to talk to a lender about financing your construction loan.

They will help you determine your budget and can also help you get pre-qualified or -approved for a home construction mortgage . If you already own the lot, it and other real estate can be used as equity. Equity is important as it shows potential construction mortgage lenders that you can pay back the loan.

With an in-depth understanding of construction mortgages, the independent, licensed agents at Canadalend.com can provide you with all the support you need from start to finish.

Keep in mind that the process to getting a construction mortgage loan is much more rigorous than it is for a regular residential mortgage. Lenders will want to see proof of income, credit history, as well as a record of assets.

That’s why it’s imperative that you work with a lender who understands the nuances of the Ontario construction mortgage industry. The construction mortgage experts at Canadalend.com will look over your financial situation and help you determine what kind of construction loan you qualify for.

Reviewing everything will also help determine how attractive you are to various construction mortgage lenders. After all, every lender’s construction mortgage program will be a little different.

Because Canadalend.com agents are independent, they don’t just look at Canada’s big banks, which can be restrictive when it comes to construction mortgages. They have access to hundreds of different lenders; some specialize in construction mortgages while others lend to those with bruised or damaged credit. At Canadalend.com, we’ll help you find the best construction mortgage with the best rates.

If you are interested in finding out more about construction loans or want to know what kind of construction mortgage you qualify for, contact Canadalend.com today or apply online and a Canadalend.com mortgage specialist will set up an appointment at your earliest convenience.

What Is a HELOC?

If you’re thinking of making improvements to your home, helping pay for your child’s post-secondary education, or hoping to pay down unexpected debt, a home equity line of credit (HELOC) is an easy and inexpensive way to borrow money.

What is a HELOC? A HELOC is like a revolving line of credit that is based on the difference between the value of your home and the unpaid balance on your current mortgage. You build up equity in your home every time you make a mortgage payment. You also build up equity when the value of your home increases.

Property values in the Greater Toronto Area (GTA) have been strong for years now. In July 2016, a record 9,989 homes were sold. The average selling price for all home types was up 16.6% year over year at $709,825.1

The price of a detached home in Toronto increased 20.7% to $1.2 million while the cost of a detached home in the “905” area was up 21.9% at $888,565. The value of a semi-detached home in Toronto climbed 19.5% in July to $855,881. If you have a semi-detached home in the 905 area, the value increased 17.9% to $588,947.

The point is that home prices continue to rise in the GTA, which means homeowners might have a lot more equity at their disposal than they think. They key to tapping the equity you’ve built up in your home depends on your qualifying for a HELOC first.

What is a HELOC? A HELOC is like a revolving line of credit that you tap into when needed. Rules set by the Federal Government limit the maximum amount of money available to 65% of a home’s appraised value. You can increase the amount borrowed on a HELOC to 80% if it’s combined with a regular mortgage.

With a HELOC you have to make minimum monthly payments against the amount borrowed. As you pay off the principle, the credit amount revolves and you can reuse it. On top of that, a HELOC limit can increase as the equity in the home grows.

What It Takes to Get a HELOC in Toronto

Because a HELOC is a variable-rate loan and interest rates are hovering near record lows, it’s a great time to consider a HELOC. How long does the HELOC pre-approval process take? Generally, it can take anywhere from a few hours to a few days.

But there are a number of factors that will dictate how long it takes to get a HELOC in Toronto . This includes the type of mortgage being applied for and the application and documentation you need to submit to the lender.

The approval process for a HELOC is a lot easier than applying for a first mortgage, that’s because you already own your home and have built up equity in the property. And the lender will be using the property as collateral for the HELOC.

Typically, all that you need for a HELOC is a home appraisal, verification of your income, and verification of the equity you’ve built up in your home.

Benefits of a HELOC

HELOCs are a popular financial vehicle for those in Toronto looking to update their homes, or pay off higher-interest debt or unexpected expenses. In fact, an estimated 2.15 million Canadian homeowners (22%) have a HELOC.2

Last year, Canadian homeowners tapped $14.0 billion worth of equity through HELOCs. The most common use for a HELOC was for debt consolidation and repayment ($20.8 billion), followed by home repairs or renovations ($13.5 billion), investing ($11.0 billion), purchases ($8.1 billion), and “other purposes” ($5.5 billion).

Canadalend.com, Helping Torontonians Tap Their Home Equity

Canadalend.com is the country’s leading provider of low-cost private financials solutions, helping those in Toronto access the equity they’ve built up with their homes with HELOC. Whether you need money to consolidate debt or pay for home improvements, one of the best ways to borrow money with a low interest rate is with a HELOC.

With the help of a licensed, independent Canadalend.com agent, homeowners can quickly determine how much equity they can access. Then they’ll find you the best HELOC with the best rates. That’s because the licensed, independent agents at Canadalend.com have access to hundreds of different lenders, many of whom specialize in providing HELOCs.

Once you’ve been approved for a HELOC, you can access the available credit whenever you need to. Best of all, you can repay your HELOC at your own pace. And, as your outstanding balance decreases, the available credit increases.

If you are interested in finding out more about a home equity line of credit or want to know what your mortgage options are, contact Canadalend.com today or apply online and a Canadalend.com mortgage specialist will set up an appointment at your earliest convenience.

Sources:

1. “GTA Realtors Release Monthly Resale Housing Market Figures,” Toronto Real Estate Board, August 4, 2016; http://www.trebhome.com/market_news/release_market_updates/news2016/nr_market_watch_0716.htm.
2. “Annual State of the Residential Mortgage Market in Canada,” Canadian Association of Accredited Mortgage Professionals, last accessed August 22, 2016; http://caamp.org/meloncms/media/Res_Mtge_Mkt_Fall%20Report%20Final.pdf.

A home equity loan and home equity line of credit (HELOC) are two great ways to borrow against the equity built up in your home—especially with housing prices rising steadily in the GTA and Barrie and interest rates near record lows. If home improvements are on your to-do list, it’s an excellent time to consider a home equity loan or HELOC . Just make sure you understand the difference, and make sure you find the best home equity rates.

What is a Home Equity Loan?

If you’ve been paying down a mortgage, you’ve been building up equity; that’s the difference between what your property is worth and what you owe on it. If the value of your home in the GTA or Barrie has increased, you probably have more equity than you thought you did.

If you need money for home improvements, to pay off unexpected debt, or to go on a vacation and you want to take advantage of your home’s value without selling it, you could consider getting either a home equity loan or HELOC. The two might sound the same but they operate very differently. That’s why it’s important to know the differences.

Types of Home Equity Loans

There are two types of home equity loans: lines of credit and term loans (closed-end). They are sometimes referred to as a second mortgage because they use your property as collateral.

The home equity loan and HELOC are based on the current value of your property minus any outstanding loans, including the new one you’re getting. Lenders will add the loans together—in this case, the first mortgage and second mortgage—to get the loan-to-value (LTV) ratio.

The maximum amount you can borrow will differ depending on whether you choose to take out a home equity loan or HELOC. The maximum you can borrow with a home equity loan is up to 85%.
Because of new tighter lending rules, the maximum you can borrow with a HELOC is 65%. Technically, you can still borrow up to 85% of the home’s appraised value, but any amount over 65% must be amortized (paid off on a fixed repayment schedule like a regular mortgage).1

Home Equity Loan

A home equity loan is often referred to as a second mortgage because it’s secured by your property and is second in line to get paid off in case there is a default. Once you’re approved for a home equity loan, the lender will send you a one-time lump-sum payment for the total loan amount. Once you receive the money, you cannot borrow any more from the home equity loan. It is also paid off over a set amount of time, with a fixed interest rate and set monthly payments.

HELOC

A HELOC works like a revolving line of credit. You can borrow up to a certain amount for the life of the loan, which is set up by the lender. During this period, you can withdraw money as needed. As you pay off the principal amount, the credit on the HELOC revolves and you can use it again. Where a home equity loan has a fixed interest rate, a HELOC has a variable interest rate.

Home Equity Loan vs. HELOC

The biggest appeal of a home equity loan and HELOC is the interest rate, which is almost always lower than rates attached to a credit card or unsecured bank loan. That’s because the property serves as collateral for the HELOC or home equity loan.

That said, each loan treats interest rates differently. A home equity loan charges interest on the total loan amount. But because it is a fixed interest rate, you know how much your monthly payments will be. Because the interest rate on a HELOC is variable , it will fluctuate. As a result, payment amounts will vary. At the same time, with a HELOC, you only pay interest on the amount you’ve taken out.

Interest rates aside, there are other differences you need to consider when deciding on which type of loan is right for you. A home equity loan is paid back like a regular mortgage is. There is an amortization period and the home equity loan needs to be paid off in this timeframe. On the other hand, a HELOC, because it is a revolving line of credit, is continually being paid down and drawn upon.

With a HELOC, the credit limit can increase as the equity in the home grows. With a home equity loan, you are given a lump sum and cannot access additional funds.

For these reasons, many see a HELOC as being much more flexible than a home equity loan. But there is no one-size-fits-all approach to loans. And the decision could come down to what you want to actually use the loan for.

Which One Is Right for You?

It really depends on what you want to use the money for.

Many Canadians opt for a home equity loan if they need money to pay for a one-time event and like the security of a fixed-rate loan. For example, if you need to pay for a wedding this month and re-shingle the roof the next month, you may want to take out a home equity loan. You know how much you need and don’t plan on borrowing again.

If you need access to money over a longer period of time, then a HELOC might be the best option . It provides the flexibility to borrow the amount you need when you need it. If you borrow small amounts at a time and can pay the principal back quickly, the variable interest rates may not negatively impact you. In this case, a HELOC can cost less than a home equity loan.

Canadalend.com, Helping First-Time Home Buyers in the GTA

Because housing prices in southern Ontario are strong and interest rates are at record lows, it’s not terribly difficult to find a lender willing to give out HELOCs or home equity loans in Barrie and the GTA . That said, the rates and conditions on the loans could vary significantly, and choosing the wrong loan could cost you thousands in unnecessary interest costs.

That’s why it’s important to talk to the independent, licensed agents at Canadalend.com. First, we’ll evaluate your financial situation and help you decide which kind of loan is best suited to your financial and lifestyle needs. Because we’re independent, we have access to hundreds of different lenders and can help you find the lender that’s right for you.

To find out what kind of loan is best for you, contact Canadalend.com today . Or apply online and a Canadalend.com lending specialist will help you set up an appointment for a free personal consultation at your earliest convenience.

Sources:

1.“Borrowing on Home Equity,” Financial Consumer Agency of Canada web site; http://www.fcac-acfc.gc.ca/eng/resources/publications/mortgages/Pages/Borrowin-Emprunte-1.aspx, last accessed July 14, 2016.

The GTA remains one of the hottest residential real estate markets in the country. Sales and prices reached record levels in 2015 and the momentum has carried into 2016. While this is good for current homeowners, it can be difficult for first-time home buyers to save up enough for a down payment. Fortunately, there are a number of ways you can save your way to a down payment in Toronto and the GTA .

Toronto Real Estate Remains Strong

The GTA is one of Canada’s hottest and strongest real estate markets. In 2015, the average price of all home types sold in the GTA increased 9.8% year-over-year to $622,217. The biggest increases came from detached homes, where sales climbed 12.6% in Toronto to $1.04 million and 12.1% in the 905 area to $728,015.1

That momentum has carried into 2016 with strong numbers posted in the first half of the year. Most recently, in May, a record 12,870 homes exchanged hands, a 10.6% increase from May 2015.2

The average price of all housing types in the GTA increased 15.7% to $751,908. Once again, detached homes saw the greatest increase. The average price of a property in Toronto increased 8.9% to $782,051. In the 905 area, the average price climbed 20.1% (more than $100,000) to $734,924.

It’s great that the housing market in the GTA is one of the strongest in the country, but this also poses challenges for those first-time buyers saving for a mortgage deposit. The question is, what are the best ways to save for a mortgage?

How Much You Need to Save for a Down Payment

First things first, how much do you need to save for a down payment in the GTA ? There is no set number since it’s pegged to the value of the property. On top of that, the mortgage rules have changed a great deal over the last decade. 10 years ago, you could purchase a home with zero down and get a mortgage with a 40-year amortization period.

You can still buy a home in the GTA with a down payment of just five percent. But if your mortgage deposit is less than 20% and a minimum of five percent, you need to pay mortgage insurance. The amount of mortgage insurance you pay is based on the size of the loan and length of the mortgage; premiums run from 1.8% to 3.6% of the total cost.3

In February 2016, the federal government tightened its lending rules, raising the minimum down payment for a home with a purchase price above $500,000 and under $1.0 million. Under the new rules, a first-time home buyer in Toronto needs to put down five percent on the first $500,000 and 10% on the next $500,000.4

If you wanted to save for a down payment on a home valued at $750,000, you would need to come up with $50,000—five percent on the first $500,000 and 10% on the remaining $250,000. Before the new rule came into effect, you could have purchased the same home with a down payment of just $37,500.

The new down payment rule also does not affect those looking to buy a home listed under $500,000. For those property buyers, the five percent down payment rule is still in place.

How to Save for a Down Payment

It can take a long time to save for a down payment in one of Canada’s most expensive cities. But there are a number of day-to-day and longer-term strategies you can use to help you save more money for your down payment faster.

• Pay Off Your Credit Card: Pay off your credit card debt before saving for your down payment. This will free up money to put toward your down payment. Not only that, you may not even qualify for a mortgage if you have too much debt.
• Save 20%: Save as large of a down payment as possible. The more you save, the smaller your mortgage. This translates into saving thousands of dollars in interest and home insurance charges over the life of the mortgage.
• Calculate How Much You’ll Need: You need to know how much you need to save for your down payment before you start saving. If you want to save 20%, divide the price of the house by 100 then multiply that by 20. For example, if your dream home is $350,000 ($350,000 / 100 x 20), you’ll need to come up with $70,000.
• Make a Timeline: Whether you’re starting from scratch or already have some money set aside for your down payment, make a timeline and figure out how much you need to save annually or each month. If your goal is to save 20% for your down payment in five years, you’ll need to save $1,250 each month ($75,000 divided by 60 months).
• Prioritize: If saving for a down payment is your top priority, you’ll need to prioritize or cut back on your sending. This could include moving into a smaller apartment or living with your parents, selling your car and taking the bus, making lunch, cutting back on vacations, putting a limit on gifts, not buying a pet until after you have a home, saying goodbye to cable TV and a landline telephone, and cutting your spending in restaurants and bars in half…or even more.
• Borrow from Your RRSP: It might be a good idea to borrow money from your RRSP if it will help you reach your goal of saving 20% for your down payment. The Home Buyers’ Plan allows first-time home buyers to borrow up to $25,000 from their RRSPs to buy a home.

Canadalend.com, Helping First-Time Home Buyers in the GTA

At Canadalend.com , we understand that there is no one-size-fits-all approach to mortgages and saving for your down payment. If you’re looking to buy a home in the GTA, the independent agents at Canadalend.com can help you find ways to save for your down payment.

By looking at your unique financial and long-term lifestyle needs, your licensed Canadalend.com agent will also show you what kind of mortgage you can expect to qualify for. As the country’s leading private mortgage company , Canadalend.com has access to hundreds of mortgage lenders who specialize in residential loans.

To find out what kind of mortgage products are best for you, contact Canadalend.com today. Or apply online and a Canadalend.com lending specialist will help you set up an appointment for a free personal consultation at your earliest convenience.

Sources:

1. “GTA Realtors Report Record Year for TREB MLS Home Sales,” trebhome.com, January 6, 2016; http://www.trebhome.com/market_news/release_market_updates/news2015/nr_market_watch_1215.htm.
2. “GTA Realtors Release Monthly Resale Housing Market Figures, trebhome.com, June 3, 2016; http://www.trebhome.com/market_news/release_market_updates/news2016/nr_market_watch_0516.htm.
3. “How Much Does CMHC Mortgage Loan Insurance Cost?” CMHC web site, last accessed July 5, 2016; http://www.cmhc-schl.gc.ca/en/co/moloin/moloin_005.cfm.
4. “Bill Morneau tightens mortgage rules on homes over $500K,” cbc.ca, December 11, 2015; http://www.cbc.ca/news/politics/morneau-home-ownership-finance-1.3360610.