Large mortgages and your options
For the information below, we are assuming that your down payment is at least 20% for your purchase. In 2012 the government of Canada removed the mortgage insurers ability to approve mortgages with less than 20% down payment for purchases of 1 million or more. As a result of this change your minimum down payment for homes over 1 million is 20% of your purchase price.
Why clients sometimes experience challenges obtaining large mortgages:
A large mortgage is generally a mortgage over $960 000 for a home with a value over $1.2 million. The issue that clients run into for home purchases over 1.2 million is that lenders institute what is called a sliding scale. The sliding scale is in place for almost all major Canadian banks and how it works is that most banks will approve up to 80% of the first $1 million of your purchase price and then 50% of the remainder.
Lets look at an example to see how this affects our clients with large mortgages:
*Assuming we have a client purchasing a home for $1.7 million dollars. Based upon an standard budget, 20% down payment for our client is $340 000 – with a mortgage amount of $1 360 000, and 25% down is $425 000 – with a mortgage amount of $1 275 000.
*However based upon a normal lender sliding scale of 80% loan to value of the first $1 million of purchase price and 50% of the remainder, the down payment requirement jumps to $550 000 as the loan amount decreases to $1 150 000
*As a result of the sliding scale you have an effective loan to value of under 68% and an increased minimum down payment requirement of between $125 000 and $210 000.
*As you can see above, the typical lender sliding scale for large mortgages is very punitive and can result in you paying hundreds of thousands of extra downpayment to purchase your home.
We do have some great solutions for our clients with large mortgages:
We have many years of experience in working with clients who are obtaining larger than average mortgages. This experience allows us to understand how Canadian lenders think and operate along with which lenders are more likely to grant the exceptions that we require.
We understand how to package your mortgage in the most attractive way possible to obtain a higher mortgage amount and fund millions of dollars of mortgages per year with our lending partners and use that relationship as leverage to your advantage.
Our approach is two fold:
*The first option that we pursue is a fairly narrow one however we do have several lenders that do not use a sliding scale. As silly as it sounds, the adjudication for these approvals tends to be computer based and when the computer algorithm approves our client then we can proceed with up to 80% loan to value with best rates and terms financing.
*The second option is to use our strong relationship with the lenders to negotiate a higher than published sliding scale for you. Our typical success rate for clients who are purchasing homes in the $1.3 million to $2 million range is achieving a loan to value of just over or just under 75%, with best rates and terms. This is a significant increase above the 68% loan to value average offered by most Canadian banks. In the above example, this is a difference in down payment amount to you of an additional $119 000 that you do not have to pay for down payment.
We would be happy to discuss your needs with you either on the phone or via email, please feel free to call us, apply online, or complete the contact form so we can connect and take the next steps together for your approval.