Mortgages are not that simple.They can be lot more complicated depending upon the lenders,the borrowers and the terms.Even though mortgage industry is heavily regulated and guarded to protect the Real Estate Investors and property owners.There are several key components to each mortgage. Most of Real Estate investors have very little knowledge about it. Majority of Real estate investors assume and presume, that is where they fall into cracks and suffer huge losses.
As a full-time Canadian real estate investor, we are required to have a good working knowledge of mortgages, joint ventures, and methods of purchasing properties with creative financing.
The Mortgage Investment Corporation, aka MIC, is a corporation who has been given a special designation by Canada Revenue Agency, as highlighted in the section of 130.1 of the Income Tax Act.
It is a Canadian Corporation which allows investors to invest their RRSP, RESP, RRIF, and money in a pool of mortgages (mostly residential mortgages) where the properties are located within Canada.
The infrastructure of Mortgage Investment Corporation (MIC) is almost similar to a mutual fund.
“Securing a mortgage deal can take a bit of work and planning. There are three main factors when you are self employed Canadian. The process can be more complex but once you understand it, it is quite simple. Credit history, proof of more than 35% of down payment and notice of assessment from past 3years is must. There are other options but they will be lot more expensive” says Navtaj Chandhoke, founder, Professional Real Estate investors group (PREIG) Canada.
Good credit report
credit score are important factors in determining whether or not you will be approved. This is one of the factors mortgage professionals consider in qualifying you for a mortgage. The lender requires excellent beacon score possibly above 680 or more.
Canadian lenders will require mortgage loan insurance unless you can put down a down payment of more than 35 % . Insurers also recommend that lenders demand higher credit scores from borrowers stating their own incomes.
The simplest way for the self-employed to qualify for a mortgage is for the lender to look at your income on the Canada Revenue Agency notice of assessment for the past two years and see if you qualify for a mortgage.
Mortgage for Self Employed Canadians
(CMHC) will allow self-employed individuals to increase the income on their notice of assessment by 15 per cent in order to qualify for a mortgage. This is a generally accepted increase to compensate for non cash items such as business use of the home.
For full details, visit their website at CMHC -schl.gc.ca/en/hoficlincl/moloin/hopr/upload/CMHC-Self-Employed.pdf.
CMHC will average your income from the past two years. If your income has been rising each year for the past four years or more, they will use the latest year for calculations. To take advantage of certain tax strategies, many self-employed may keep money in their business than generating income.
If you’re unable to qualify based on your verifiable income, you can still obtain insured mortgage finance, but CMHC will charge you a higher premium. Since April, CMHC permits you to state your own income if you have been in business for less than three years.
Most of the Canadian lenders will require mortgage loan insurance unless you can put down a down payment of more than 35 per cent. Insurers also recommend that lenders demand higher credit scores from borrowers stating their own incomes.
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A high ratio mortgage is a mortgage in which a borrower places a down payment of less than 20% of the purchase price on a home. Another way of phrasing a high ratio mortgage is one with a loan to value ratio of more than 80%. A mortgage with more than a 20% down payment is called a conventional mortgage.
A high ratio mortgage will require mortgage insurance. Mortgage insurance is usually purchased by the lender through one of Canada’s three default insurers, the Canada Mortgage and Housing Corporation (CMHC), Genworth and Canada Guarantee and the cost of the premium is charged to the buyer as a closing cost, or is financed through the mortgage.
What is Down payment?
What is Mortgage payment?
A regularly scheduled payment that is often blended to include both principal and interest. This payment can be made weekly, bi weekly or monthly depending upon the bank and what have you negotiated.
Mortgage Default Insurance Canada, any time that someone wants to buy a property with less than 20% down payment, the lender/banks require the homeowner to obtain high ratio mortgage insurance. A High ratio mortgage is defined as a mortgage in excess of 80% of the value of the property. The mortgage insurance is therefore for the protection of lender/bank, and not for the protection of the homeowner..
A syndicate mortgage is where several investors combine funds together to create one instrument (a mortgage). The investment ‘moves’ as one funding but each investor is individually registered and secured proportionally. Syndicate mortgages allow you to have direct collateral for your investment and ongoing returns from the interest earned by the mortgage.
Effective March 18, 2011:
- Reduce the maximum amortization period from 35 to 30 years for new insured mortgages with loan-to-value ratios of more than 80 per cent.
- Lower the maximum amount Canadians can borrow when refinancing a 1 – 4 unit owner-occupied property from 90 to 85 percent of the value of their homes.
Why do the Canadian mortgage rates move the way they do? Why don’t the Canadian Mortgage rates march in lock step with other interest rates?Interest rates in the bond market influence Canadian mortgage rates, but that isn’t where the money for mortgages comes from.
Further to our previous article, we like to explain more details as follows:
Can a shareholder borrow money from Mortgage Investment Corporation (MIC)?
Now, this is a tricky question. We would like to explain it to you as follows:
1)Yes you can borrow money from the Mortgage Investment Corporation (MIC), provided that you have purchased your shares in the form of hard cash, subject to all the qualifications, rules, and regulations set up by the corporation.
2)No, you cannot borrow money if you have purchased your shares of the Mortgage Investment Corporation (MIC) inside of your Registered Retirement Savings Plan (RRSP), Registered Retirement Income Funds (RRIF), or Registered Education Savings Plan (RESP), because of the Income Tax Act.