Three real-life borrowing scenarios. And how you can save thousands by planning ahead.
In most cases there is an option available to refinance the entirety of your mortgage debt into one mortgage. Although this may seem like a prudent financial move, in many cases, it can cause serious financial damage.
Let’s take past Cannect clients Pat and Lindsay from South Etobicoke for example.
Finding the right time to refinance
Pat and Lindsay went to their bank asking to borrow additional money for a home renovation. Pat had already begun paying for architects and engineers, and realized he would need an additional $300,000 to finish the project. Their home was valued at $1,400,000, and they had a first mortgage with $400,000 remaining. After three weeks of waiting for a response, their banker advised them that they’d be able to obtain a new first mortgage to a maximum of $600,000, and an unsecured line of credit for the remaining $100,000 required.
This sounded fine to Pat and Lindsay.
They had never dealt with anyone other than their bank when it came to their mortgage and assumed that their bank manager worked out the best option for them. But as lending has evolved across Canadian banks, consumers have been locked into limited lending options that often impact credit and financial flexibility.
How borrowing from a bank can cost you thousands in extra fees
Luckily, Pat and Lindsay were referred to Cannect. We took a closer look at their numbers. Here’s what we discovered:
- The bank asked them to break their existing first mortgage, which was maturing in less than two years at a cost of approximately $15,000. In this case, the bank would profit $15,000.
- The new mortgage Pat and Lindsay were being offered would increase their current interest rate of 2.5% to 4.0% and lock them into a new five-year term. In this case, the bank would profit $9,000 annually in additional interest on the $600,000 mortgage.
- The remaining $100,000 would be lent to Pat and Lindsay at 11%. In this case, the bank would profit $7,500 annually.
All in all, this solution did not take into account the needs of the borrowers! It provided $31,500 in profit to the bank in the first year alone, excluding the cost of breaking their new mortgage when the renovations were complete and the home appraised to a higher value.
The Cannect Solution
We offered Pat and Lindsay a $300,000 construction mortgage facility at 7.5% for 12 months. Upon completion of the renovation and the maturity of their existing mortgage, we were able to refinance their first mortgage and the construction mortgage into a new first mortgage for $700,000 at 3%, without any fees or penalties.
With this solution, the total cost to Pat and Lindsay was less than $8,000, saving them thousands of dollars.
Setting yourself up for long term success, even when you have an immediate need
Many borrowers find Cannect while searching for immediate solutions to improve their financial status. Whether they’ve lost a loved one, fallen ill, divorced or separated, or even lost a job, they’ve hit a bump on the road and are looking for financial support. In these cases, band-aid solutions offered by the majority of lenders only cause more hardship for the borrower. Let’s see how this played out for our past client Max.
When Max came to us, he was in the process of signing for a second mortgage. He had recently divorced, and was fighting for the custody of his daughter, all while trying to keep his small business running. His legal bills were piling up and all of his credit cards were maxed. He missed several payments and just when things couldn’t get worse, the car he used for work broke down.
The band-aid solution
Max owned a home valued at $800,000 and had a first mortgage of $500,000 with a few late payments. He had credit card debts and legal fees totalling $80,000. He also needed to factor in finding a new car to run his small business. That would cost nearly $25,000. When Max spoke to a second mortgage lender, he was offered a limited, band aid solution: a maximum of $25,000 as a short term loan to pay for his truck. Since his credit was damaged and he garnered late mortgage payments, this mortgage lender told him that this was his best offer. Nothing more could be done.
The Cannect solution
Seeing the potential in Max’s current circumstance, we applied Cannect Credit Clean Up, paying off all of Max’s debts and offering him enough money to get a new truck. Cannect provided Max with a one-year CannectFlex loan with deferred interest payments. This gave Max everything he needed to repair his credit and get his business running again. At the end of the year, Max was able to refinance his first mortgage and pay off the CannectFlex loan.
Our banker said we were approved, but they changed their mind
As the real estate and lending markets continue to be in flux, borrowers find themselves in desperate situations days before closing in on a new purchase.
This happened to Majid and Samantha, who contacted Cannect after their bank manager advised them the mortgage approval she had confirmed when they started house hunting was no longer valid.
Majid and Sam owned a home in Vaughan valued at $1,800,000. They had a $500,000 first mortgage from the same bank that supported them 15 years ago when they bought their home. Since their son was leaving for university, it was time to downsize. They found a great condo in downtown Toronto, and their offer of $1,200,000 was accepted.
Their plan was to sell their home in Vaughan and use the money from the sale to purchase their new condo. Their banker said they could lend them $100,000 for a deposit on the condo if this loan was secured against their current home (home equity loan).
Unfortunately, the application was declined because Majid had recently retired, a change in work status the banker neglected to ask about. To further complicate matters, Majid and Samantha’s Vaughan home wasn’t selling and the closing date for their condo was rapidly approaching.
The Cannect Solution
We provided Majid and Sam with a flexible-term first mortgage on their new condo for $1,200,000 and also secured it against their Vaughan home. Within 60 days of closing on their new condo, the home in Vaughan was sold and the entire mortgage was paid off, without penalty.
Whether you’re facing similar banking or life challenges to Pat, Lindsey, Max, Majid,or Sam, we’re here to help. As a Canadian homeowner, our combination of flexible term loans and sound, unbiased mortgage advice means that we can provide the best mix of borrowing options to suit your needs, and save you thousands of dollars.
Still not sure? Shop around and see the difference.
