Top 10 Most Common Spring Renovation Projects & The How


I love this time of year!  The days are longer, the weather is warmer and the sun is shining – well, when we are not having those April showers.

This time of year always gets me up and moving, starting my spring cleaning indoors and I always catch myself brainstorming on what my next spring project around my home will be.

Currently, I have lived in my home almost 2 years and with this booming real estate market this year, I have seen the houses on my street and in my neighbourhood sky rocket in price. For me, my intention is not to move for a few more years but while this market is hot, there is money to be accessed from my property that will help me to make those spring renovation projects a possibility!

While living in your current home, do you find yourself thinking about how you can improve your home? and have you ever wondered how you can obtain the money to complete the renovation projects you have been thinking of doing?

If your home isn’t exactly how you want it and you have been wanting to add your own personal touch, here is a list of the top 10 most common spring renovations projects:

  1. Adding a new or updated kitchenRefinance Mortgage Guelph, home improvements
  2. Developing the basement for more living space
  3. Updating or replacing the carpeting or maybe adding hardwood
  4. Adding a media room or “man cave”
  5. A new bathroom with maybe a jetted tub – your personal sanctuary
  6. A new roof
  7. A more efficient central air or furnace system
  8. Adding new siding, eaves or fascia
  9. Replacing or updating doors and windows
  10. Adding a swimming pool or major landscaping

So how can we find money to do these upgrades to your home?…..

  • First, you will need at least 20% equity in your home based on its current value.
  • Before the mortgage financing is arranged, written quotes are obtained from licensed contractors or suppliers for the repairs and/or the improvements to be done to the home.
  • The application for mortgage financing is requested and is made for 80% of the current value plus 80% of the cost to complete the improvements.
  • The lender will “hold-back” on closing the “improvement” portion of the mortgage until the work has been completed and inspected, normally within 30 to 60 days of closing.
  • Once the work has been completed, the lender will advance the balance of the funds to either you or your contractors.
    What does this mean?
  • Let me give you an example with 20% equity on a property with a value of $400,000:

Current Property Value: $400,000 x 80% = $  320,000
Cost of improvements: $  40,000 x 80% = $    32,000
Total New Mortgage*: $440,000 x 80% = $  352,000

The Steps:

  • An application is made for a total mortgage in the amount of $352,000, which represents 80% of the improved value of your property.
  • Now of course you may already have an existing mortgage or secured line of credit on the property and this will either be included in the new mortgage (blended) or paid out completely.   It will depend on what type of existing financing you have on the property on what your options would be.  Let’s assume you have an existing mortgage of say $320,000 which is 80% of the value of the property.
  • On closing of your new mortgage amount of $352,000 it will replace your existing $320,000 mortgage leaving a total of $32,000 in this case for renovations.   This $32,000 will be held in trust at your lawyers and you will receive it as soon as the work is completed.  This is known as a “hold back”.  The lender of course doesn’t want you to have access to the funds, and then actually not end up using them for the renovations!
  • The mortgage is arranged and then the contractor or yourself, complete the improvements as soon as possible and then the lender advances the hold-back of $32,000, and you pay the additional 20% of the cost of the improvements ($8,000) and the $32,000 owed to the contractor or you directly, can be paid as per the original quote for the work.
  • Everyone is a winner!  You are happy because you got $32,000 of improvements done to the home with a cash outlay of only $8,000!  With current interest rates still historically low, this is much cheaper than adding the cost to a credit card or line of credit – let the equity in your home pay for the renovations and of course, the lender is happy because they now have a mortgage on an improved home!!!

Being an expert in this unique type of refinance, I can answer all your questions. You can contact me at 519-760-4391 or melissa@melissabendo.com


What Is A Mortgage Term?


Your mortgage term is the number of years or months over which you agree to pay a specified interest rate and the lender commits to not changing it or asking for their money back (except in default of course). This also refers to whether it is an open or closed term.  The terms can be any of the follow:

  • 6 months, 1 to 10 years
  • Up to 25 years for secured lines of credit although fully open
  • A term that renews on a specific date the lender sets in the future e.g. could result in a 2 year 6 month term

The Term Can Be Open Or Closed:

  • Open: Even though a length of term is stipulated, you can pay it back in full with no penalty
  • Closed so a penalty is payable by you if you repay early

So How Do You Select The Right One For You?

First we have to determine which term you actually qualify for.  You may be limited to a 5 year fixed term based on recent legislation changes – if you want a 1 to 4 year term or a variable; you typically have to qualify at a much higher interest rate known as the benchmark rate…. This might reduce the amount you qualify for.  I can let you know your options.

Consider selecting your term based on the current trend for interest rates going up or down:

  • You may select a 5 year fixed term because rates are starting to go up and you want to “lock in” that lower rate
  • You may  select a shorter term if rates are expected to remain low and aren’t expected to rise

Consider selecting your term based on any expected changes in your income.  Maybe having a 5 year fixed term at the same rate and payment for the next five years makes more sense and better suits your needs now

Consider how long you intend to stay in this home, a question we asked earlier.  You might want to align the term with your future moving plans or even possible job relocation opportunities

You may be expecting to receive a large sum of money soon and want to pay your mortgage off in full or a large part.

Paying it in full before the term expires may result in a penalty if the term is closed, e.g. selecting say a 2 year term which is when you plan to pay it off in full will save you money and penalty costs!

If you are not sure what mortgage term you have on your current mortgage, I can always show you. I can be reached at 519-760-4391 or melissa@melissabendo.com. 


Mortgage Types


There are many products available now if you’re interested in keeping your monthly payment as low as you can. With the extended amortization’s available now, it is quickly taking place of interest only, but they are still offered by a few lenders.

Here are some examples:

Variable Rate Mortgage – where the interest rate charged on the mortgage will change based on the Prime Rate and the discount you have received.  A variable mortgage can have a;

  • Variable Payment: where the payment amount changes each time there is a change to the prime rate.  The discount amount does NOT change.  e.g. your rate is prime minus 0.55% and so if prime is 3.00% results in 2.45% but if prime rate increases to 3.25% then the interest rate charged and payment amount goes up to 2.80%
  • Fixed Payment: where the payment amount is set on closing at a fixed amount and will NOT increase unless notified by the lender; e.g. rate is prime minus 0.55% and so if prime is 3.00% results in 2.45% but the payment is set based on say a 6.0% rate.  When the actual rate you are being charged is less than 6.0%, more of your payment is going to principal and saving you unnecessary interest
  • Capped Payment: where the payment amount does change each time there is a change in the prime rate, but it is guaranteed not to exceed a certain amount
  • Capped Interest Rate: where the interest rate is based on prime rate BUT is guaranteed not to exceed a certain percentage

Fixed Term Mortgage – a mortgage where the rate and length of the mortgage is fixed and will not change

Cash Back Mortgage – where there is a % of the mortgage amount given to you on closing that may be used for down payment, closing costs etc.  Ranges from 1% to 7% or more of the mortgage amount

Purchase Plus Improvements – where you can roll the cost of any improvements you plan to do on the home into your mortgage (see our Mortgage Smart Tip)

Convertible Mortgage – where the term is short, maybe 6 months, and you have the option at any time during this period to convert to a longer term mortgage or different product with no penalty, as long as you remain with the same lender

Combo or Multi Part Mortgages – where you can select different types of mortgages and terms, where instead of one single mortgage, you have as many as 99 different parts.  This is great if you can’t decide whether to go fixed, variable, open, or closed, or even a line of credit…. Why not do them all!  This mortgage is also re-advanceable.

Secured Lines of Credit – even though it isn’t called a mortgage, it acts like one as in it is registered on your property title as a loan.  The interest rate will be variable based on the prime rate, with minimum payments of interest only so the lowest possible monthly payment you can have.  It is also completely open and can be paid off in full with no penalty.  The rate may be higher than a regular mortgage and is based on the prime rate like a variable mortgage.

So how do you select the right one for you?

  • Determine which products you qualify for, and then;
  • Select the product that best meets your need to have a fixed payment or a changing payment each month
  • Ask yourself if any of these products appeal to you and meet your needs
  • Consider all the features of each product to see if again, they meet your needs of not only budget, but how long you will stay in the home
  • I’ll walk you thru how each product does, or maybe does not meet your needs to help you select the right one for you!

If you are unsure of what is best for you, please give contact me at 519-760-4391 or melisse@melissabendo.com to determine what product best suits your long term goals for your family and the future.


Mortgage Rates and Interest Costs


This is the interest rate you will be charged by the lender and how much in total you will pay during the term of the mortgage.

  • Getting the best that you qualify for AND with terms that meet all your needs
  • One of the many benefits of working with a mortgage broker like myself is that I know what every lender is able to offer you right across Canada
  • I will find the right lender that will work hard for the privilege of having your mortgage and offer you the best options to save you as much unnecessary interest as possible

So how do you select the right one for you?

Obviously you want to save as much money as possible, but at the same time selecting a lender that will drop the rate, if rates decrease, prior to your closing date are beneficial. With a mortgage broker like myself,  this is automatic!

Sometimes the rate on your pre-approval might not be the actual rate you will pay – it could be lower if rates drop as well as those “quick close specials” I have access too as a VIP Broker with many lenders across Canada

Lastly, it is not always about rate!  Sometimes the features and benefits of the mortgage could out way the difference in rate!

If you would like to take a closer look at the current mortgage rates and where you qualify, please contact me at 519-760-4391 or melissa@melissabendo.com


Mortgage Payment Frequency Options


Your mortgage payments consists of both the principal and an interest component, paid on a regular basis during the term of the mortgage.  Refers to how often and when you can make these payments.

The Mortgage Payment Options

  • Monthly (any day of the month usually between the 1st and 28th
  • Weekly (any day of the work week, 52 payments per year)
  • Bi-Weekly (every other week, 26 payments per year)
  • Semi-Monthly (twice per month, 24 payments per year, e.g. on the 1st and 15th of each month
  • Plus accelerated weekly and bi-weekly

What is an accelerated bi-weekly payment?

  • Accelerated Bi-Weekly payments are exactly half of a regular monthly payment amount BUT it is collected every two weeks
  • This means you make 26 payments per year
  • For example, if the monthly payment is $1,000 then the accelerated bi-weekly payment will be $500
    • If you paid monthly you would pay $1,000 x 12 months = $12,000 per year
    • Paying accelerated bi-weekly you would pay $500 x 26 = $13,000 per year
  • This results in you paying an extra $1,000 off your mortgage each year – hence accelerating how fast you pay it back!
  • Remember, twice a year you will have three payments in one month
  • Accelerated weekly refers to monthly payment divided by 4!

What is a non-accelerated bi-weekly payment?

  • Non-accelerated is taking the regular monthly payment and times by 12 months, then
  • Divide this into 26 payments
  • For example, if the monthly payment is $1,000 then the non-accelerated bi-weekly payment will be $461.54
    • If you paid monthly you would pay $1,000 x 12 months = $12,000
    • Paying non-accelerated bi-weekly you would still pay $12,000 = $461.54 x 26 = $12,000
  • This results in you not paying any extra off your mortgage each year – hence non-accelerating
  • Remember, twice a year you will still have three payments in the one month

Now, let’s compare the payments and savings between these two options; regular monthly and accelerated bi-weekly payments:

$250,000 mortgage with a 25 year amortization at 3.39% 5 Year Fixed Term

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So how do you select the right one for you?

  • Determine which payment option you actually qualify for
  • Review what payment options the lender offers
  • Consider aligning your payment frequency with how often you get paid each month e.g. if you are paid every two weeks, then consider accelerated bi-weekly payments to align with each pay cheque
  • The more often you pay, the less interest you will pay
  • You can always adjust this at any time and change

My recommendation: Pay accelerated bi-weekly if you can afford it, as it forces you to pay more.  By paying your mortgage off sooner you will reduce your debt and save unnecessary interest – plus a forced savings plan for the future! I can be reached at 519-760-4391 or melissa@melissabendo.com


Mortgage Pre-Payment Privileges


Your mortgage pre-payment privileges is the ability to prepay all or a portion of the principal balance with NO penalty or charge, subject to conditions (no default, subject to lenders terms)

Options:

  • Increase Regular Payment: There are often a number of options available all ranging from 0% to 25%+:
    • Increase your regular mortgage payment by a certain % of the payment
    • Double your regular mortgage payment
    • Skip a payment
  • Lump Sum: Pay a lump sum that doesn’t exceed a certain % of your original mortgage amount
  • Complete Repayment: With an open mortgage you could pay the entire amount off in full with no penalty

So how do you decide when to make extra payments?

  • Make sure you can afford to pay extra – think of any future changes in income or expenses you may have (maternity leave, new car, etc.)
  • Remember, when you pay extra on your mortgage you cannot get it back unless you refinance or its linked to a re-advanceable line of credit or mortgage
  • Consider aligning your extra payments and the amount with say a yearly bonus or tax refund
  • The more you pay off your mortgage, the less interest you will pay
  • Increase your payment up, or down if allowed by the lender, so that the monthly payment is within your personal budget, although some lenders don’t allow you to drop it down later!
  • If your interest rate is low on your mortgage, consider taking any extra money you have to build some savings; TFSA, RESP’s, RRSP’s – especially if contributing to these creates an income tax refund and then use that to pay off the mortgage!

My recommendation:  Pay what you can afford and if it makes sense – paying your mortgage off sooner you will reduce your debt and save unnecessary interest – a forced savings plan for the future! I can be contacted at 519-760-4391 or melissa@melissabendo.com


Mortgage Pre-Payment Penalties


Your mortgage pre-payment penalties is the compensation paid to the lender when you prepay all or part of a closed mortgage more quickly than is allowed or prior to the end of the term.  Remember, there is no penalty with an open mortgage.

Prepayment penalties usually fall into two categories:

  • 3 Months Interest
  • The Interest Rate Differential (IRD) – the difference between the rate you have on your mortgage and the current rate in the market… this is the potential loss of interest the lender will incur by replacing your mortgage with a new one with someone else.  The lender will charge whichever is GREATER, and this can result in thousands of dollars!  

There may also be an administration, pay-out fee, or re-investment fee that could range from $200 to thousands!

So how do you select the right one for you?

  • We have to understand that the lender committed to not changing the rate for the term of your mortgage and lending you the funds, and therefore you have committed to pay that interest  – you are breaking your contract hence the potential large penalties
  • Really, there is never a “right one” as ideally you don’t want to pay a penalty at all
  • If you do think there is a chance you want to pay this mortgage off in full in the near future, then taking either a shorter term mortgage such as 1 or 2 years or an open mortgage may save you money in the long run
  • Each lender has a pre-payment calculator on their website so you can calculate a potential penalty at any time.

Not sure what mortgage pre-penalty payments are? Let me help you! I can be reached at 519-760-4391 or melissa@melissabendo.com


Porting Your Mortgage


Being able to port your mortgage gives you the ability to move to another property and take your mortgage with you without having to lose your existing interest rate and terms.

Here is what to consider when you want to port your mortgage:

  • The benefits are you can keep your existing mortgage balance, term and interest rate plus save money by avoiding early repayment penalties
  • Not every mortgage offers this feature and can depend on the type of mortgage (variable, fixed etc.)
  • You must re-qualify with your lender to be able to port your mortgage
  • The lender also has to approve the new property to ensure it meets their guidelines
  • As the mortgage will be for a new property, you still have to pay legal fees for the transfer of property and the registration of the new mortgage
  • If you need a bigger mortgage, your lender may let you port and “top up”, and then blend on the extra amount needed.  This gives you the mortgage amount you need at a rate that combines both your existing great rate and the new rate
  • If you don’t port, upon the sale of your home, your mortgage will have to be paid back to the lender, and you may incur a penalty for breaking your mortgage
  • If interest rates are lower when you move than your existing mortgage, paying the penalty and not porting may be a better option
  • If in the future you decide to move, talk to me and I can analyze for you your options to either:
  1. Port and top up
  2. Pay the penalty and do a brand new mortgage
  • Paying the penalty may be a viable option as long as we can get you back this penalty in interest savings as soon as possible on your new mortgage and home

Lets find out if your existing mortgage can be ported. Contact me at 519-760-4391 or melissa@melissabendo.com


Assume Your Mortgage


 This is when the buyer of your property takes over your existing mortgage including the amount owing, the balance of the remaining term, the existing rate and payment amount; they have assumed your mortgage. 

Here are two reasons to consider letting someone assume your mortgage:

    1. If you have a good interest rate on your mortgage, and want to sell your home for as much as possible, it may attract potential purchasers
    2. If someone assumes your entire mortgage, your lender should not charge you any penalty
  • Not every lender offers this option
  • The buyer must first qualify with your lender to assume your mortgage
  • You might want to keep your mortgage and so porting it to your new home as discussed earlier may be a better option for you. 

Lets find out if one of your options can be to assume an existing mortgage. I can be contacted at 519-760-4391 or melissa@melissabendo.com


What Is A Mortgage Amortization?


The mortgage amortization is the time over which all regular payments would pay off the mortgage in full.  The number of payments used to calculate the actual mortgage payment.  This determines the principal and interest portion of each payment.  The interest portion is higher to start with and slowly decreases over time, although the payment (on a fixed term) remains the same.

Amortizations can range from less than 5 years to as much as 35 to 40 years.

However, your options will depend on the following:

  • Less than 20% down payment the maximum amortization is 25 years (as per default insurer guidelines)
  • More than 20% down payment then up to 35 years but depends on the lender and you qualifying

Remember;

  • Some lenders do not offer longer amortizations beyond 25 years
  • Some lenders have a minimum amortization they offer

So how do you select the right one for you?

  • Determine which amortization you actually qualify for
  • Adjust your amortization up or down so that the monthly payment is within your personal budget
  • The shorter the amortization, the less interest you will pay

Not sure how many years your have on you mortgage? Let me show you! I can be reached at 519-760-4391 or melissa@melissabendo.com