Mortgage question

[dmose]

Greetings,

I recently purchased a new condo which is still being constructed. It will be complete in fall 2010.

I got pre-approved at a certain rate (I think it was %3.6 variable) but only good for 90 days.

My question is, when do I actually "get" the mortgage? If my closing isn't for another year, do I wait until about 90 days before the closing to secure it? What if rates go up by then, can I not lock into something now?

 

[Dan]

Talk to your builder to see which bank they are working with. You will only get a mortgage commitment if a bank with a relationship with the builder is offering a program.

The banks financing most new build projects are usually offering a program to purchasers of the project, and will lock in the rates up to three years from completion.
Other institutions will normally not commit to to mortgage rates beyond the 90 day period you have.

I encourage you to lock in, it is good insurance, and does not commit you to anything.

 

[Torontotony]

^^^^^^^^^
What he said. Capp your mortgage through the "onsite" lender, to secure today's rates, and worry about shopping for lowest rates as early as 120 days prior to the actual closing date.

 

[nfitz]

I got pre-approved at a certain rate (I think it was %3.6 variable) but only good for 90 days.

If it is 3.6% variable, you've been had. The banks are all advertising 2.25% variable on their websites, and you can probably push down to 2.05 to 2.15%. Perhaps it wasn't variable?

My question is, when do I actually "get" the mortgage? If my closing isn't for another year, do I wait until about 90 days before the closing to secure it? What if rates go up by then, can I not lock into something now?

In a typical house sale, the whole thing takes effect at closing. When I last purchased, the closing was over 3 months before the transaction. I'm not sure about condos though ... that's a long-time.

 

[Torontotony]

If it is 3.6% variable, you've been had. The banks are all advertising 2.25% variable on their websites, and you can probably push down to 2.05 to 2.15%. Perhaps it wasn't variable?

Pay no attention to those comments. If it's a variable, the mortgage will automatically float down to reflect current market rates. No need for panic, and certainly no reason to believe "you've been had".

 

[taal]

Pay no attention to those comments. If it's a variable, the mortgage will automatically float down to reflect current market rates. No need for panic, and certainly no reason to believe "you've been had".

Actually ... he's right, he's been had.

Variable rates are ALWAYS set as follows:

The bank in questions prime rate +/- some constant.

So it seems like that constant for him is quite high - around 1%.

If it makes you feel better, my mortage - which I took out a while ago wasn't so great either - it was prime + 0.5 or so.

Don't forget, prime minus anything is pretty recent - for the last 6 months or so it's been prime +.

 

[Torontotony]

Actually ... he's right, he's been had.

Variable rates are ALWAYS set as follows:

The bank in questions prime rate +/- some constant.

So it seems like that constant for him is quite high - around 1%.

If it makes you feel better, my mortage - which I took out a while ago wasn't so great either - it was prime + 0.5 or so.

Don't forget, prime minus anything is pretty recent - for the last 6 months or so it's been prime +.

Taal, thanks for the briefing on the inner workings of a variable rate mortgage, but you are out of your element here.

20+ years of mortgage lending experience qualifies me to dispense advice on whose been had and who hasn't. By their very nature, variable rate mortgages, until they have physically been advanced (meaning the borrower takes possession of the property and the mortgage is actually registered on title), will continually adjust and readjust the variance (the +/- constant) to meet prevailing market conditions. This means, if he was approved at Prime +1% (which is plausible), when he goes in to sign off on final mortgage documentation, the bank/lender will accord him today's variable rate...automatically. There is no hidden agenda by the bank/lender. That's just the way it is.

 

[nfitz]

Pay no attention to those comments. If it's a variable, the mortgage will automatically float down to reflect current market rates. No need for panic, and certainly no reason to believe "you've been had".

If someone is being offered a variable at about 1.5% above the going rate, then it will always be 1.5% above the going rate, whether it goes up or down. This will add about $3,000 a year in interest payments on a $200,000 mortgage.

I can't believe that your not seeing any red flags when someone is reporting they've been offered a 3.6% variable mortgage in today's market ... that's prime+1.35% when even the big banks are advertising prime+0.

My suspicion though, is that the reported 3.6% rate was some fixed rate mortgage, not variable. Even an open variable should be less than 3%.

 

[taal]

Taal, thanks for the briefing on the inner workings of a variable rate mortgage, but you are out of your element here.

20+ years of mortgage lending experience qualifies me to dispense advice on whose been had and who hasn't. By their very nature, variable rate mortgages, until they have physically been advanced (meaning the borrower takes possession of the property and the mortgage is actually registered on title), will continually adjust and readjust the variance (the +/- constant) to meet prevailing market conditions. This means, if he was approved at Prime +1% (which is plausible), when he goes in to sign off on final mortgage documentation, the bank/lender will accord him today's variable rate...automatically. There is no hidden agenda by the bank/lender. That's just the way it is.

I'm fairly confident your wrong here - you'll see in the mortgage deal - variable +/- some amount written in stone - on the contract. For the life of the contract (5 years typically) it will remain at that level.

To be honest I'm not quite sure you're getting at, what are we debating here:
It's varible because the formula is based on:
bank's prime +/- X.
Where X is constant and written into the contract.

The bank's prime rate is not constant and varies.

What about this statement is wrong?

 

[rbt]

I'm fairly confident your wrong here - you'll see in the mortgage deal - variable +/- some amount written in stone - on the contract. For the life of the contract (5 years typically) it will remain at that level.

He doesn't have a mortgage, he has pre-approval. The company issuing the mortgage would automatically give him the best advertised deal at the time of closing.


Secondly, closing isn't for 1 year and pre-approval is only good for 90 days. He will NOT be exercising what is in this pre-approval agreement regardless of what happens to rates.

 

[svmagnum]

Greetings,

I recently purchased a new condo which is still being constructed. It will be complete in fall 2010.

I got pre-approved at a certain rate (I think it was %3.6 variable) but only good for 90 days.

My question is, when do I actually "get" the mortgage? If my closing isn't for another year, do I wait until about 90 days before the closing to secure it? What if rates go up by then, can I not lock into something now?

You dont have to go to the lender on site in order to get rat locked for 1 year. Almost every bank and every broker can lock you in for a rate hold for up to 2 years. The rates are higher but if the rates will go up between now and then you will be happy you did that.
120 Days before the closing go to http://www.ratebot.ca and find yourself a best rate. They saved me a lot of money when i was getting my mortgage.