In the case of a separation, it is possible to structure a new mortgage that allows you to purchase the property from your ex-spouse for up to 95% of the property’s value. Alternatively, if your ex-spouse wants to keep the property, they can buy you out using the same program.
Here are some common questions about the spousal buyout program:
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1. Amount
Loan Amount is often the critical component of your financing. This is particular true in the case of a property purchase. The loan amount will drive your other considerations. You may have secured a great low rate, but if you lender is only prepared to provide you a loan equal to 60% of purchase price or appraised value, are you prepared to inject additional equity? To get approved for a loan and to pay a lower interest rate it’s important that your credit report reflects that you’re a responsible borrower who pays their debts on time with a low risk of defaulting.
Credit Report vs. Credit Score To start with, it’s important to understand that your credit report and your credit score are two separate things. Last Wednesday the Bank of Canada announced an increase in their overnight lending rate by .25% taking it from .50% to .75%. This is the first increase in the past 7 years. The rationale here was that economic growth projections are higher than previous ones and this was a way to temper inflation.
The banks were quick to jump on the bandwagon and have increased their prime lending rates by the same amount – to 2.95% from 2.70%. It is interesting to note that while increases seem to flow through to the banks instantly, the two last previous changes to the Bank of Canada rate (reductions of .25% each time) were met with not only a delay in the banks reacting, but also a smaller reduction in prime (they reduced prime by .15% each time). This phenomenon is good for shareholders and executive bonuses but not so good for borrowers.
With the Bank of Canada hinting strongly at moving up the interest rate, most likely by .25%, we will see an increase in the prime rate most likely to 2.95%. If you have an adjustable rate mortgage then you will see your monthly payment increase to match this new rate.
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