Thursday, January 27, 2011

How to avoid owning Two Homes

When your sale closes after your purchase
  • to get the best price for your home often you have to compromise and choose dates that may not match
  • this means you need to leverage the equity in your home, for the required time between the purchase and sale to fund your down payment into your new home

Example of Bridge Financing

Sold $ 270,000 Purchase $ 450,000
less deposit w/offer $ 15,000
Real estate commission New Mortgage $ 335,000
13% HST Real estate commission
Mortgage balance legal fees on sale and purchase

Equity $ 100,000 Funds to close $ 100,000

SALE closes May 31 PURCHASE closes April 28
BRIDGE FINANCE of $100,000 for 33 days for $750 estimated fee

How can a secured credit line save me money?

  • in our previous example some lenders will allow you to register up to 80% of the purchase price.. Let’s say $360,000
  • known as a “Collateral Mortgage”, this additional $25,000 could be used as a secured credit line towards your down payment
  • Reduces Bridge loan to $75,000 & cost down to approximately $540
  • Saving you $210
  • Credit line paid to ZERO from the proceeds of the sale in 33 days
  • The credit line is available when needed always at a preferred rate
  • This allows greater flexibility and reduces interest costs for you

What if you sell before you buy?

  • There are still some situations where this happens. Owner is motivated and grabs your offer!
  • This means you will have to pay out your mortgage and any penalty, as there will be a shortfall .. until your move in date.
  • Most lenders will reimburse the penalty, if you have a move in date within 90 days of your sale & come back with the same terms; conditions to the mortgage
What if you want to keep your property and rent it ... instead?
  • If you have considerable equity, you may want to rent out your property as an investment
  • Your home can be re-financed to where the rent will carry the mortgage payment, condominium fees and property taxes.
  • You could then buy, your new home with less down payment.
  • You can always sell your investment at a later date to maximize your sale price.
  • Having a plan for your mortgage is key
We give you a Firm Approval

We are able to approve the bridge financing as well as your mortgage at the same time.

This combined approval is unique in Toronto
Peace of Mind & no surprises for you

Things can change quickly between the time you buy, until you move in to your new home.

  • … Job change, need credit for new appliances
  • … Many lenders pull a second credit bureau, verify your employment or even leave the appraisal till a week before closing date

Ready to get Started?

Contact Lindsay Doke RBC Financial Trusted Mortgage Advisor 416 464 6423

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