Friday 29 November 2013

Beware of Mortgage or Title Fraud



In a time where identity theft and Ponzi schemes are plastered across the daily news, the last thing you want to worry about is yet another way to lose your hard-earned money.

But as a homeowner, you need to be aware of crimes on the rise known as mortgage fraud and real estate title fraud.


Mortgage Fraud
The most common type of mortgage fraud involves a criminal obtaining a property, then increasing its value through a series of sales and resales involving the fraudster and someone working in cooperation with them. A mortgage is then secured for the property based on the inflated price.

Following are some red flags for mortgage fraud:
  • Someone offers you money to use your name and credit information to obtain a mortgage
  • You are encouraged to include false information on a mortgage application
  • You are asked to leave signature lines or other important areas of your mortgage application blank
  • The seller or investment advisor discourages you from seeing or inspecting the property you will be purchasing
  • The seller or developer rebates you money on closing, and you don’t disclose this to your lending institution

“Straw Buyer” Scheme
Because of the recession, more people are desperate and eager to find a way to hang onto their homes. A couple was recently arrested in Canada after duping 100 families looking for help to
avoid foreclosure in the US.

Another term for mortgage fraud is the “straw” or “dummy” homebuyer scheme. For instance, a renter does not have a good credit rating or is self-employed and cannot get a mortgage, or doesn’t have a sufficient down payment, so he or she cannot purchase a home. He/she or an associate approaches someone else with solid credit. This person is offered a sum of money (can be as much as $10,000) to go through the motions of buying a property on the other person’s behalf – acting as a straw buyer. The person with good credit lends their name and credit rating to the person who cannot be approved for a mortgage for his or her purchase of a home.

Other types of criminal activity often dovetail with mortgage fraud or title fraud. For example, people who run “grow ops” or meth labs may use these forms of fraud to “purchase” their properties.

The Fallout for Lenders
Fortunately (for you, at least), mortgage fraud typically hurts the lender the most.

Canadian precedents have been set in which b
anks are held responsible for mortgage fraud. The BC Court of Appeals recently ruled that “the lender – not the rightful property owner – is the one out of luck in a fraudulent mortgage scheme” and that lenders “must ensure their mortgages are valid by taking steps to ensure that the registered owner obtained title to the property legally.” The same conclusion was made by the Ontario Courts a couple of years ago.

Banks, as you can imagine, aren’t too thrilled about this trend. Royal Bank of Canada recently
sued a former bank employee over an alleged mortgage fraud scheme.


Title Fraud
Sadly, the only red flag for title fraud occurs when your mortgage mysteriously goes into default and the lender begins foreclosure proceedings. Even worse, as the homeowner, you are the one hurt by title fraud, rather than the lender, as is the case with mortgage fraud.

Unlike with mortgage fraud, during title fraud, you haven’t been approached or offered anything – this is a form of identity theft.

Here’s what happens with title fraud: A criminal – using false identification to pose as you – registers forged documents transferring your property to his/her name, then registers a forced discharge of your existing mortgage and gets a new mortgage against your property. Then the fraudster makes off with the new home loan money without making mortgage payments. The bank thinks you are the one defaulting – and your economic downfall begins.

Following are ways you can protect yourself from title fraud:
  • Always view the property you are purchasing in person
  • Check listings in the community where the property is located – compare features, size and location to establish if the asking price seems reasonable
  •  Make sure your representative is a licensed real estate agent
  • Beware of a real estate agent or mortgage broker who has a financial interest in the transaction
  • Ask for a copy of the land title or go to a registry office and request a historical title search
  • In the offer to purchase, include the option to have the property appraised by a designated or accredited appraiser
  • Insist on a home inspection to guard against buying a home that has been cosmetically renovated or formerly used as a grow house or meth lab
  • Ask to see receipts for recent renovations
  • When you make a deposit, ensure your money is protected by being held “in trust”
  •  Consider the purchase of title insurance

It’s important to remember that if something doesn’t seem right, it usually isn’t – always follow your instincts when it comes to red flags during the home buying and mortgage processes and if you have any questions or concerns, please do not hesitate to contact me and I will be happy to assist you in any way I can.

Tuesday 26 November 2013

Frequently Asked Questions - Part 1


For our first installment of "Frequently Asked Questions", we are going to go over and examine the basic mortgage questions. We will discuss affordability, how to get a mortgage, down payments and pre-approvals. Please continue reading to find out the answers to your questions.




How much can I afford to pay for a home?
To determine 'affordability' you will first need to know your taxable income along with the amount of any debt outstanding and the monthly payments. Assuming it is your principal residence you are purchasing, calculate 32% of your income for use toward a mortgage payment, property taxes and heating costs. If applicable, half of the estimated monthly condominium maintenance fees will also be included in this calculation.

Second, calculate 40% of your taxable income and deduct all of your monthly debt payments, including car loans, credit cards, lines of credit payments. The lesser of the first or second calculation will be used to help determine how much of your income may be used towards housing related payments, including your mortgage payment. These calculations are based on lenders' usual guidelines.

In addition to considering what the ratios say you can afford, make sure you calculate how much you think you can afford. If the payment amount you are comfortable with is less than 32% of your income you may want to settle for the lower amount rather than stretch yourself financially. Make sure you don't leave yourself house poor. Structure your payments so that you can still afford simple luxuries.


Can I get a mortgage to purchase a home?
Subject to qualification, yes. In fact, even purchasers with 5% down may qualify to buy a home and make improvements to it. For high-ratio financing, both Canada Mortgage and Housing Corporation and GE Capital, insured mortgages are available to cover the purchase price of a home as well as an amount to pay for immediate major renovations or improvements that the purchaser may wish to make to the property. This option eliminates the need to finance the renovations or improvements separately. Some conditions apply.

Where the improvements are cosmetic, the mortgage loan insurance premium is unchanged from the standard schedule. Where the improvements are deemed to be structural, the mortgage loan insurance premium is increased by .50% over the standard schedule. For information on mortgage loan insurance premiums see high-ratio home mortgage financing.


What is a down payment?
Very few home buyers have the cash available to buy a home outright. Most of us will turn to a financial institution for a mortgage the first step in a potentially long-standing relationship. But even with a mortgage, you will need to raise the money for a down payment.

The down payment is that portion of the purchase price you furnish yourself. The amount of the down payment (which represents your financial stake, or the equity in your new home) should be determined well before you start house hunting.

The larger the down payment, the less your home costs in the long run. With a smaller mortgage, interest costs will be lower and over time this will add up to significant savings.


How can you acquire a home with as little as 5% down?
Most lenders now offer insured mortgages for both new and resale homes with lower down payment requirements than conventional mortgages - as low as 5%. Low down payment mortgages must be insured to cover potential default of payment, and their carrying costs are therefore higher than a conventional mortgage because they include the insurance premium.

With all low down payment insured mortgages, you are responsible for:

  • appraisal and legal fees
  • an application fee for the insurance
  • the payment of the mortgage default insurance premium (although the amount of the premium may be added to the mortgage amount).



What is a pre-approved mortgage?
A pre-approved mortgage provides an interest rate guarantee from a lender for a specified period of time (usually 60 to 90 days) and for a set amount of money. The pre-approval is calculated based on information provided by you and is generally subject to certain conditions being met before the mortgage is finalized. Conditions would usually be things like 'written employment and income confirmation' and 'down payment from your own
resources', for example.

Most successful real estate professionals will want to ensure you have a pre-approved mortgage in place before they take you out looking for a home. This is to ensure that they are showing you property within your affordable price range.

In summary, a pre-approved mortgage is one of the first steps a home buyer should take before beginning the buying process.




If you have any more questions, want more information or are interested in a Mortgage Broker, please do not hesitate to contact me!
 



Friday 15 November 2013

Closed vs. Open Mortgages



Can't decide between a closed or open mortgage? There are many factors to consider such as your financial goals and how soon you want to pay off your mortgage.

Closed Mortgage
Closed term mortgages are usually the better choice if you're not planning to pay off your mortgage in the short term. Interest rates for closed term mortgages are generally lower than for open term mortgages. Closed term mortgages offer you the ability to save on interest costs and payoff your mortgage faster. However, you will pay a penalty charge if you wish to renegotiate your interest rate, prepay more than your mortgage allows or pay off your mortgage balance prior to the end of its term.

Open Mortgage
Open term mortgages may be appealing if you are planning to pay off your mortgage in the near future. They can be repaid either in part or in full at any time without penalty charges. Open mortgages can be converted to any other term, at any time, without a penalty charge. Interest rates for open mortgages are generally higher than for closed mortgages because of the added pre-payment flexibility.

Open vs. Closed: Which is Better For You?
Closed Mortgages are usually a more popular product because of lower interest rates. Open Mortgages give you freedom to make extra payments at any time or pay off the mortgage in its entirety without penalty charges. Whether open or closed, what is best for you is dependent on your actual needs. If you plan on moving or selling the home within the next year, then an open term may best suit your needs. If you will not be relocated by work and intend on staying in your home for at least five years, then a closed mortgage may better suit your needs. 


If you are unsure which mortgage is best for you, give me a call at 705-743-3522. I will gladly help you make an educated and informed decision today!

Tuesday 12 November 2013

Homeowner Tips: Reduce Heating Costs



 Your furnace or boiler is a large energy user. If you are interested in reducing your heating costs, consider the following:

·        If health permits, keeping your thermostat at 20oC or below
·        Lowering your thermostat at night and when no one’s home
·        Checking the furnace filter once a month during the heating season (change or clean when dirty)
·        Having a professional tune-up of your heating system at least every other year
·        Replacing your older furnace with a higher efficiency model
·        Replacing worn or torn weatherstripping so that heat does not escape through doorways or windows

Reducing heating costs is important in nearly every budget. Following some or all of the above tips will help you to better balance your budget.