Re-Mortgage Or Re-Group

by Darrin DeRoches May 10 - 16, 2012

I was speaking to a mortgage agent this week and we had an interesting discussion about re–mortgaging. Apparently the average time for a re–mortgage is three years. That seemed a little odd to me since most people take out 5 year mortgages, but in reality more and more people are getting a 2 or 3 year mortgage term, nowadays. A lot of clients are looking for money in all the wrong places.     He also works with a trustee and debt counselor who help people correct problems with their debts. The first place they go for money is the home. It seems most people are unable to live inside their means and when they get in trouble they look for the golden egg which is the house. Last year it was reported that homes in our area went up 7 per cent and about 5 per cent the year before. Therefore people in trouble look to take out the 12 per cent of equity their home went up. Most of the time it is to pay off the credit cards and clean the slate. Once the slate is clean and all that available credit is just sitting there – well you can guess the rest. Two years later they are knocking on the mortgage agent’s door looking to re–mortgage once again.     There are occasions due to illness, divorce, death etc., where people need to legitimately re–mortgage their property. If you have not ruined your credit, some banks will go all the way up to 90 per cent of the value of the home. So if you owe $100,000 on a $300,000 home, the bank will lend up to the $270,000 dollar mark and you would have $170,000 available to you. In most cases though, you are in a tough spot and credit is already ruined so you can only get a 50 or 60 per cent loan to value which would be about $80,000 available to you.      The interesting part of the discussion was not the great business he is getting from the debt counselor but rather how he tries to tell people they would be better off selling their home and taking the proceed, buy a more affordable property and start over. He explains to them that they are just putting off the inevitable and will be struggling for the forseeable future. But nine out of ten clients still rather re–mortgage, pay through the nose and keep trying to hold on to the big house. Sometimes stepping back is the best move anyone can make. Re–group and make a plan to not end up in the same position. Divorce is the biggest problem when it comes to the “big house” syndrome. The first answer is “I do not want to make my kids change schools”. Well in todays world, your kids can still stay in the same school even if you do not live in the district. In every district there are more affordable homes that you can buy or rent after selling the “big house” and still keep the family in the same school, hockey, soccer and whatever else is the excuse. Be honest with yourself and take care of your financial future. V     Darrin DeRoches is a local real estate and mortgage broker. He can be reached to answer questions, comments or stories about real estate experiences through this weekly column at mail@uniquerealty.ca.