By Kristin Woolard
With the introduction of the newest set of mortgage rule changes in Canada that took effect in July 2012 many brokers have been anticipating the introduction of innovative products from lenders looking to adjust to and work with the new rules.
One of the first has been introduced by Merix Financial and it addresses the federal legislation limiting refinancing of homes to a maximum of 80% of the value of the home.
Merix recently introduced their new “Refinance Plus Improvements” product allowing homeowners to seek an approval to refinance their home strictly for improvements to 80% of the completed value, after the improvements are in place. If a homeowner is looking to tap into their equity to renovate their home, this is the perfect solution.
The idea is not entirely new with CMHC’s product “Purchase Plus Improvements” for homeowners wanting to purchase a home requiring renovations. Private lenders have been offering financing based on completed value after a renovation for years but this is the first time a prime lender has made an allowance under the new guidelines to refinance past the 80% of current value level, given the improvements planned will add value to the home.
How it works is that quotes for the proposed improvements need to be secured and an appraisal conducted to determine the new value after the improvements are made. The new loan is based on the LESSER of the improved property value after the renovation is complete OR the sum of the current value plus direct costs associated with the improvements.
Let’s say Joanne wants to renovate her kitchen. She has talked to a few contractors, narrowed it down to the one she wants to work with and has a quote for the renovation for $40,000.00.
Joanne’s home is currently valued at $400,000.00 and her mortgage is currently $305,000.00. Under the new rules the maximum mortgage she can secure is 80% of the current value – $320,000.00 – giving the borrower only $15,000.00 of equity to complete the renovation and cover any costs of refinancing the mortgage such as penalty or legal fees. This is certainly not enough for her dream kitchen.
Usually putting $40,000.00 into a renovation will increase the value by the same amount, if not more. If the value of Joanne’s home after the renovation will be approximately $440,000.00, with the Refinance Plus Improvements product a new mortgage can be requested to $352,000.00 (80% of the completed value) giving the borrower $47,000.00 of equity she can use for the renovation and refinance costs.
The appraiser sets up an appointment to inspect the property and review the plans and quote for the work and produce an appraisal outlining the cost to complete the project as well as the estimated completed value of the home once the renovations are complete. This report is submitted to Merix along with the borrowers’ application and supporting documentation for approval.
When an approval is secured the contractor will have the assurance in writing that the money is now available and guaranteed to him (her) upon completion of the project and can get to work.
Merix will have the clients’ lawyer disburse funds directly to the contractor after the work is completed and an appraisal inspection report is provided to confirm improvements were completed properly and the increased value is then in place. There is a certain level of security for Merix with a lawyer controlling the funds and having quotes from certified contractors in place ahead of time.
A unique product such as this gives homeowners more flexibility in a time of higher restrictions. Mortgage brokers are certainly looking forward to more “out-of-the-box-thinking” products like this so they can provide better solutions for borrowers.
Kristin has been in the mortgage finance industry for 11 years and independently licensed since 2002. She currently works for Dominion Lending Centres. For information, you can contact Kristin at www.kristinwoolard.ca or call her at 604-319-6573.
Renovations are a stressful and chaotic time and with everything that is going on, pets are often overlooked. There are many dangerous things on a job site that could hurt your pet, so before you start that renovation project, here are some tips on how you can help your furry friends get through the chaos safely.
Pet Safety While Renovating
1/ Have a safe place for your pet while work is going on.
This safe haven could be a bedroom or any room not being worked on. The most important thing is that it can be closed off. Make sure you put food and water in the room and you if have a cat like I do don’t forget the litter box! I also put some of her favorite toys in the room and some of my clothes. My cat Alora loves to sleep on my clothes so I leave a little pile of dirty clothes for her. Basically whatever your pet loves, put them in there with them.
This room needs to be off limits to the workers. Put a sign on the door so they know to keep out. Also be sure to tell the job supervisor or general contractor so they can tell their workers to stay out of the room, or to get them if someone needs access into the area.
2/ Clean up after the work is done everyday.
Regardless of whether you are doing the work yourself, or hiring professionals, the work areas need to be tidied up everyday. The floors need to be swept or vacuumed to remove all nails and sharp objects. Put hazardous items such as paint or adhesives out of reach and be sure to unplug all of the power tools and put them on a table out of reach.
Let your pet explore after the work is done and things are cleaned up, if it safe. My cat is always very curious to see what was happening. She usually just walks around and smells everything and is then content.
3/ Be sure to spend time with them.
If you are doing the work yourself, I know you will be tired, but try to spend a few minutes with your pet letting them know everything is ok. Taking your dog to the park or just spending time with them in their safe place will mean the world to them.
4/ Try to be calm.
I know it is easier said then done during a renovation but animals know when we are stressed and they will get stressed as well. Remember, they don’t know what is going on and they will take their cues from you. If you are happy and relaxed they will be as well.
Author Bio: Kathryn is a Kitchen and Bathroom designer in Vancouver BC. To contact Kathryn please visit Kathryn Haley Design