Moving On Up to a Luxury Home? Some Mortgage Tips
This is great news! Things have been going well for you. You want more room for your family. You can already hear the laughter and joy that will come with entertaining friends and visitors in style. You dream of a beautiful kitchen, bright, airy rooms, high ceilings, and spacious, private green space.
Be aware that this needs to be a prudent financial decision, just as much as any other in your business and life. All over the Greater Toronto Area, there are quiet tragedies taking place in which luxury home buyers made a mistake. They bought the wrong house, at the wrong time, for the wrong amount, and for the wrong reasons. And now they are calling around for a mortgage broker to rescue them from the wreckage.
The time to call your mortgage broker is now as you begin to make steps toward your dream home. Call the mortgage broker first, before you send a realtor house-hunting and before you go over to your bank branch for a standard home loan product. Yes, I know you know people and have good relationships with everyone - you are a high-net-worth client who pays your bills. All the more reason for you to get the best deal.
The first thing to consider with your luxury home mortgage is the perspective of the mortgage lender. Do you have good-quality documents showing strong income and assets? Do you have a sizable downpayment? Can you show where those funds came from? Does your income dramatically change from year to year? How will your business and industry weather a cataclysm like Covid-19? Are a newbie, in the middle of a brilliant career, or beginning to tail off into comfortable, semi-retirement?
And what about the type of house and location that interests you? Lenders want to alleviate the higher risk on purchases of luxury homes. Is it a sale-able home in a great location? Some luxury home buyers like to do really creative things with their houses!
You need to be in a position to assure potential lenders that you and your new home are a good idea.
Large home purchases that require a mortgage present unique challenges in the Canadian Mortgage market. Your experienced mortgage broker can guide you to the right lender and help you present your mortgage application in the most advantageous ways. Each lender is slightly different in their approach and requirements, especially at the luxury home level.
Sliding scales, director approval, multiple reviews, and other factors are applied to luxury home mortgages. You need a larger down payment, at least 20% for homes priced at more than 1 million dollars. The downpayment may scale up to 50% of the appraised value of the home.
To minimize the size of your down payment exposure, you need an experienced mortgage broker who works with several lenders, giving you the most flexibility with sliding scales and mortgage underwriters who understand luxury home mortgages.
Other points to keep in mind with a large mortgage:
Substantial time can be eaten up when you need to transfer funds around for down payments and other cash requirements. You don’t want to lose your dream home because the funds are slow to leave an RRSP account or an overseas account.
Pay attention to the terms and conditions of your mortgage, especially your prepayment penalties. Larger loan amounts amplify the differences in the penalties charged by different lenders.
Most large mortgage loans must be escalated up the ranks for management approval. This means it can take lenders an extra day (or two or three) to get your approval back so your subject removal date may need to be longer. Typically, we recommend 10+ business days for subject removal on large mortgages.
When real estate prices flatten or drop, the market is soft and you might find bargains in the best neighbourhoods! But… lenders become more conservative when underwriting high-end real estate in slower markets. You didn’t rise to your place in the world by following the crowd.
If you know someone looking for a luxury home or who needs to refinance their mortgage, I can help them arrange the financing. We will work together, in confidence, to figure out a budget and down payment (based on sliding scale). Then, we will work with lenders who will be likely to give you the best rates, terms and conditions.