A home equity loan requires the lender to put their name on your title. This means lawyers are involved. The borrower is responsible for all legal costs and a $2,000 budget is probably average. The lender and the mortgage broker will charge a fee. Sometimes the mortgage broker fee is inside of the lender fee as the lender often give half of their fee to the broker for compensation. Some lender charges admin fees, inspection fees and various fees for arranging this loan. The key is to ask for the total fees. What they call it is not as important.

Currently, if you are in a large city in BC the total fee should be around 2-3% of the loan for a first mortgage and 3 – 5% for a second mortgage. It really should not be higher unless your situation is extreme. For example, you quit your job to work on your new business for the last two years. You ran out of money and stopped paying your bills a year ago so your credit is terrible and you have no money.

In terms of rate, it is harder to pin down because so many factors go into deciding it. Credit worthiness, location, type of property, the amount of equity left after the loans and the condition of the property all play into it. However currently a good rate for a home equity loan would be 6.5% for a first and 8% for a second.

So, the minimal setup cost for a $100,000 home equity loan would be as follows:

Lender fee: $1,000
Broker fee: $1,000
Legal fee: $2,000
Appraisal: $400

TOTAL: $4,400

So, the initial cost is substantial and you wouldn’t go this route if you are borrowing a small amount of money.

Depending on your situation consider mortgage payment deferral for 6 months, home equity line of credit, refinance of your mortgage or a personal line of credit.

Also consider the various programs offered by the Provincial and Federal Government:

https://www2.gov.bc.ca/gov/content/safety/emergency-preparedness-response-recovery/covid-19-provincial-support

https://www.canada.ca/en/department-finance/economic-response-plan.html

If you need help deciding whether a home equity loan makes sense for you, feel free to give me a call. John at 604-831-4437.

The post Home Equity Loans in the World of Covid-19 first appeared on John Chan Mortgages.

Credit card interest rates are often 20% or more while a second mortgage would be around the 8 to 10% range. Sounds like a no-brainer, but it is not that simple. Because there are lender fees, legal fees and appraisals, the upfront cost is $3000 and up. So the amount you save must also make up for the upfront costs. If your balance is small, then it often does not make sense.

You also need a plan to pay off the loan. If you keep the loan as interest only, you will be paying interest forever. A second mortgage to consolidate your loan might reduce your monthly payments by a lot but you are not saving any money if you pay only interest. So before committing to a home equity loan for debt consolidation make sure you understand whether you are saving any money. Sometimes a debt consolidation might not save you money but allow you to consolidate your debt into a manageable amount, which saves your credit. In this case, it makes sense, but make sure you understand what the home equity loan is doing for you and whether it is aligned with your goal.

I am expert in this area. Contact me for a free consultation to explore all your options. Call John at 604-831-4437 to get the process started.

The post Debt Consolidation and the Home Equity Loan first appeared on John Chan Mortgages.

You really have to need this money to justify the costs. All I know is that he needs this money to pay off some debts. Like most potential clients, he provided very little additional information. It is common, as we have never met, so there is a trust issue with releasing personal details. Unfortunately, the only way I can help is if I know the whole situation.

In this case, if he had told me that he was temporarily having trouble paying his mortgage AND his mortgage is due in 6 months, I would have encouraged him to go ahead. However, I knew very little about his situation so his complaint of the loan being too expensive made complete sense.

Unfortunately, now the current lender has notified him that they will not renew his mortgage. He will now have to settle for a higher rate on his first mortgage which is much larger; costing him tens of thousands of dollars as missing the mortgage payment has ruined his credit. And if he cannot afford the mortgage at the higher rate, then he may have to sell his house.

So here is an example of where in absolute terms, the loan was expensive, but in the big picture, getting the loan would have saved him tens of thousands of dollars.

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The post When a Private Mortgage is Cheap! first appeared on John Chan Mortgages.