The future of Vendor Take-Back Mortgages

By definition, a Vendor Take-Back Mortgage is a type of mortgage where the seller offers to lend funds to the buyer to help facilitate the purchase of the property. The take-back mortgage often represents a secondary lien on the property, as most buyers will have a primary source of funding from a lender.

Popular in the 1980’s when double-digit interest rates were the norm and it was harder to get lender financing approvals, vendor take-backs provided buyers and sellers a means to complete a purchase transaction. The Financial Post suggests we could see the return of vendor take-back mortgages from their article ‘Mortgages: You Can Take Them Or Leave Them’.

Vendor take-back mortgages are most common when the buyer doesn’t have a down payment or enough of a down payment. With the current housing prices and the potential for interest rates to increase, borrowers may have to rely on alternative mortgage financing to consider purchasing particular properties. Sellers may attract buyers by offering to finance a portion of the purchase at a competitive interest rate. However, this is only possible if there is enough equity invested in the property.

So why would anyone seriously consider a vendor take-back mortgage for a home purchase? Here are several reasons:

1. Buying Power – can help buyers buy a property that otherwise may not be affordable, such as larger homes with rental suites.
2. More leverage with funds – buyers wanting to invest in numerous properties without tying up cash can effectively increase their return on investment.
3. Easier to sell – the vendor can sell faster than waiting for someone to be fully qualified from a lender and they still can get a decent return on their money.
4. Tax deferral – lower upfront capital gains for the seller since 100% is not collected in the first fiscal year.
5. Lower Rates – vendor take-backs are usually lower rates for the buyer than going to other private lenders.
6. Lower fees – a vendor take-back mortgage may be able to increase the down payment and effectively lower or eliminate mortgage default insurance fees.
7. Family purchase – family home being sold to a family member with low or 0% interest loan.

However, there are also reasons why vendor take-back mortgages could not be a perfect solution:

1. Government restrictions - It’s not usually an option with 5% down. The mortgage plus default insurance costs (2.75%-4.25%) topped with the 5% vendor take-back mortgage, a borrower is more than likely over 100% financing, which is not a legal option in Canada.
2. Lender restrictions – Many lenders will not allow secondary financing behind their first mortgage, especially one that makes the property 100% financed.
3. Qualification – The lender will calculate a payment for the mortgage and one for the vendor-take back mortgage even if the vendor take-back loan is from family at 0% financing or a zero payment. This may add challenges to mortgage qualifying.
4. Closing costs - The buyer still needs to have funds available for all other closing costs such as legal fees, property transfer tax, and adjustments.
5. Limited equity – There has to be enough equity in the property to make the vendor take-back an option for the seller.
6. Vendor asset limitations – The vendor gains value by selling faster and earning interest on the money they have lent, however, they lose some liquidity from the sale of the home, which may be necessary in their future purchases.
7. Risk – It can be a risky investment for the seller, especially if they don’t know the buyer.

Will we see the return of the vendor take-back mortgage? It’s definitely possible if housing prices remaining high and interest rates start to climb. We may also see assumable mortgages become a hotter item, especially if homeowners invested in a 10-year mortgage at this year’s rock bottom rates ranging from 3.89%-3.99%.

If you have any questions regarding a vendor take-back mortgage, don’t hesitate to contact me for more information.

Naomi Morrison

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photo by Juna Photography

BUSINESS BASICS

Started as a Realtor in: 2005

Specialization: East Vancouver North of 33rd. Inclusive of Main, Mt. Pleasant, Cedar Cottage, Granville, Commercial Drive, and Knight Street.

One piece of advice: Work with an area specialist and be sure to ask what services your Realtor provides.

Why MacDonald Realty? They are known for their Professionalism. Full-service local brokerage and BC’s largest company owned by a female, Lynn Hsu.

“A pleasure to work with! She is professional and works hard for her clients.” Carol Palfrey, Associate Broker, Macdonald Realty

Q & A

1. What has been your most interesting client? My parents. It was the most challenging and emotional experience. For one, I was selling our family home, the home I grew up in. Two, I had to help find a place for my parents to downsize to. It gave me an appreciation and insight on how to handle the empty nesters and the emotions that can be part of the process. We managed to find them a wonderful 1 bedroom and den (space for the grandkids) in the West End. They absolutely love their place and it was their confidence in their decision that made it easy to deal with.

2. What was your favorite success story? I had a couple that had purchased a pre-sale. Within 3 months of taking possession they split up, which required them to sell their property. They were barely speaking to each other, but each loved the building so much that they both wanted to still own within the building. They were concerned that they were selling at a time that they would be competing against established real estate investors. They worried they wouldn’t get the value or return they would need for their separate purchases. We ended up being able to sell their unit for over asking. We were then able to find a place in the same building on separate floors for each. It worked out perfectly!

I should share this story too. In 2010, I was fortunate to reconnect with an old best friend who moved away after grade 8. We lost touch after she moved, but she had heard I was a Realtor after she found out her family was being transferred to Vancouver from out East. It took us nearly a year to find her a house. We competed on 5-6 houses to come up empty handed. However, the happy ending is that we managed to find her and her family a beautiful home three doors down from my place. Now we get to hang out and have our kids play together…the story gives me shivers…how well it turned out and having an old friend so close now.

3. Since education is important to you, what else do you do to keep yourself educated and informed? The Real Estate board hosts an annual legal update. It’s only required every two years, but I believe every agent should attend every year. They are very informative and keep current on all the changes. As agents we are required to complete a basic level of PDP (Professional Development Program) credits each year. I feel these credits need to be exceeded, not just met. The courses offered are great! I also believe that attending seminars, workshops and information sessions including coaching and goal setting, helps to motivate and inspire. I also read the Real Estate Board’s publications and attend Macdonald Realty weekly and bi-weekly meetings, which include market review, rule changes and guest speaker sessions.

4. What differentiates you from the 11,000 licensed real estate agents in the Greater Vancouver area? I’m good at my job. Not only do I have experience, but I believe that my professional skills paired with my people skills enable me to provide a really high level of service. Knowing your product, your clients needs, being apart of the community and building relationships with colleagues are all things I excel at, and firmly believe they are what make an excellent Realtor. I’m a fantastic negotiator, and that comes from me knowing the product really well.

I am a relationship person, so I require my clients to meet with me before we take any steps towards working together. I have a unique buyers package that I step through with my clients so they understand the process and we can layout out our expectations. For sellers, I offer a package that includes professional pictures, virtual tours, floor plans, extra marketing placements, and an hour and a half consultation with a designer from the Canadian Redesign Association. It helps clients redesign their home to make it more appealing with the current furniture they have in place.

“Naomi is one of the most personable people you could hope to meet. She positively radiates warmth and good energy. She takes a genuine interest in each and every client, to the point that I’m never quite sure if she’s on the phone with a client or a friend. I think one of the most valued aspects of the work Naomi does as a realtor is in minimizing the stress the inevitably comes with a large real estate transaction. Naomi is totally selfless in giving her time, and unfailingly patient. She is incredibly thorough in performing her due diligence and always vigilant about protecting her clients from future headaches. To see how happy Naomi is for her buyers when they finally take possession of their new homes is really great. It’s a true measure of the realtor and the person that Naomi is that she considers this the highlight of the work that she does.” Justin Morrison, Partner

PERSONAL SNAP SHOT

About: Husband, 2 kids: Juna (3.5) & Cian (2), snowboards, enjoys reading, sports (volleyball & soccer), travelling and most of all city biking.

She’s Unique because… 1. Car-FREE family. They bike with a chariot or walk. Realty tours she uses Modo and Car-to-Go for meetings. 2. Family is so important that Fridays are Family days. No work on Fridays, except for urgent deals. She has set up a resource system to manage business while she is with her family. 3. If Naomi wasn’t a Realtor she would be a midwife.

Likes (If you had more time, what would you do more of): Meeting with clients, Personal coffee time with friends, community involvement and volunteering.

 Loves (can’t live without): She loves everything! However, her biggest everything is her family, immediate and extended.

THE EXTRAS

Naomi is all about family, building close relationships, and knowing her product. She believes her best features as a real estate agent are her product knowledge and personality. She believes that clients want to have an agent with personality and professionalism. Someone that listens to their needs, works well with other realtors, and they can be confident they are being given the correct information.

Naomi works with a wide-variety of clients, but says the common theme is that they are all really great, solid, confident, personable, honest and positive people. She tends to find her clients are like-minded and genuine, which has fostered great friendships, making the buying/selling experience even easier.

Contact Naomi.

Wish to share your thoughts, feel free to comment below.

On the Evergreen Line

Day view from Grand Central 3

Night view from Grand Central 3 

Grand Central 3 High Street & Atlantic Ave. Coquitlam

List Price: $229,500 – $699,900 Floor Area: 545 – 1421 Unit: 1 bed, 1 bath – 2 bed, 2 bath Layouts

Grand Central 3 is a new condo project by Intergulf Development Group currently in preconstruction at High St & Atlantic Ave in Coquitlam scheduled for completion in 2016. The project has a total of 246 units and is the third and final phase in Coquitlam’s Grand Central project (Phase 1 and 2). 34 stories of grand living in the heart of Coquitlam, centrally located just steps from over 200 shops and services at Coquitlam Centre and moments from the future Evergreen Line. VIP viewings starting this fall, register today  to choose from 100 homes under $299,900.

LIVE AT THE CENTRE • 3 minutes to Lincoln Station • 12 minutes to Town Centre • 35 minutes to downtown Vancouver • Easy access to YVR airport

GRAND IN SCALE AND VISION • 12,000 sqft swimming pool and sheltered hot tub • Putting Green • Lush Landscaping, generous greenspace, and community garden plots • Outdoor exercise space and children’s playground • 25,000 sqft fitness centre with stretching room and yoga studio • Multi-media party room with lounge, bar, and full kitchen

ARCHITECTURE • Striking 34-storey architecture designed by award-winning IBI Group • Soaring double-height designer entrance and lobby • Contemporary interior design by Lot 30 Design Inc. • Expansive windows designed to optimize natural light and scenic views • Concrete construction with double glazed windows for energy efficiency

INTERIORS • Choice of two contemporary colour schemes: Ebony and Rosewood • 8’6″ ceiling heights in most living areas • Laminate wood flooring throughout living and dining rooms • Cozy wall-to-wall nylon carpeting throughout bedrooms • Quality wood door trim casings and baseboards • Smart horizontal blinds for shade and privacy

KITCHEN • Contemporary wood veneer cabinetry in Ebony or Rosewood • Quartz countertops • Elegant marble or limestone tile backsplash • Top quality stainless steel appliances by KitchenAid: • 24” dishwasher (Energy Star) • 30” gas range cooktop and self-cleaning electric oven • Over-the-range integrated microwave/hood fan • 24” bottom-freezer integrated Blomberg refrigerator (Energy Star) in one-bedroom homes or 30” french-door stainless steel refrigerator with water dispenser in all other homes • Sleek stainless steel undermount sink • Modern faucets and fixtures by Moen • Handy in-sink waste disposal system

Full listing of features & finishings

From my home to yours- Irene

Home sales drop, prices steady

The Canadian housing market cool down is wide spread across the nation. Sales fell in 21 of the 28 metropolitan areas. In Vancouver, August posted the second worst month for home sales since 1998; a 21.4% decline from the month prior, 30.7% drop from August 2011 and 39.2% below the 10-year average, yet the slower activity did not have a major impact on price.

Although detached homes are mainly to blame for the slowdown, 1649 detached homes sold this month compared to 2378 in August of last year. Vancouver is still experiencing some exceptional sales stories; a tear-down home in West Vancouver sold for 2.8-Million, fetching nearly 1-Million over asking.

The City of Vancouver also topped 1-Billion dollars for building permit values for the first time in 5 years; 40% higher over the same 6 month period from 2011. With the market getting progressively more affordable, there is an environment for projects to be more viable, supporting growth and development.

Even though the Canadian economy is stuck in low gear, exports are expected to increase, but should still remain below the pre-recession peak until 2014.  In light of the global storm, the Bank of Canada held the interest rate steady at 1% and we still remain one of the top 7 best housing markets in the world, among Switzerland, Germany and Hong Kong.

“With core inflation tracking well below the Bank of Canada’s Q3 forecast, the housing market softening and the Fed stepping harder on the monetary accelerator, rate hikes in Canada remain at least a year away,” said economist Robert Kavcic, at BMO Capital Market.

RBC predicts that there will be better economic growth, targeting around 2.1% and rate hikes should be expected in 2013.

Scotia bank believes Canada’s strong and diverse economy will see the housing market heading for a soft landing. A once buoyant market has shifted to slow growth, however, Scotia has invested 3.1-Billion dollars to purchase ING Direct, a lender with a substantial investment in Canadian funds. This will help Scotia to diversify from their heavily reliance on foreign currencies.

TD noted that higher rates are still needed to cool the housing market. The combination of tighter rules and anticipated modest rate increases should see a a 10% correction on home prices, down from their original 15% prediction.

“Although a correction in housing prices and a slowdown in residential construction spending would have some negative effects on economic growth in the near term, the introduction of more stringent mortgage regulations should help limit the impact of excess leverage on mortgage performance and bank balance sheets,” Fitch said.

The Canadian Real Estate Association (CREA) cut their sales forecast for 2012 from 475,000 homes to 466,900 homes. In 2013, another 1.9% decrease is expected with home sales of 457,800. The average home price is expected to increase more modestly this year to $365,000, a 0.6% increase from the previous 2.2% prediction. 2013 is expected to see a decrease of 0.1% to $364,000.

It’s not all bad for the month of August, but if this seems too overwhelming and you have not heeded the warnings from the government on overspending and taking on too much debt, Ottawa has issued a “toolkit” to help Canadians get out of debt, it’s available online now.

Executive Family Home

Windsor Gate 86, 1125 Kensal Walk, Coquitlam

List Price: $575,000 Floor Area: 1363 Unit: 3 bed, 2.5 bath Maintenance Fee: $170 Taxes: $2967 MLS: V973804

Looking for an executive family home, like new, 2-5-10 New Home Warranty but with no HST?  This home is full of “wow” and then some.  The only unit available in this quaint, quiet and friendly complex includes a private fenced yard, open concept living, 9 ft ceilings, custom cabinetry, main floor powder room, and his & her master ensuite, but it doesn’t stop there.  You have access to another 18,000 sqft of “wow”; you’re steps away from a clubhouse comprised of three tennis courts, a basketball court, craft room, media centre, two foosball tables, state of the art fitness centre, swimming pool, BBQ area with outdoor space, and a party room.  You can wine, dine and entertain family and friends at home or on-site.

The garage is a tandem, but there is space for additional cars on the front pad.  With one car in the garage, there is ample space for additional storage or a workshop.

The main floor is up a flight of stairs, but welcomes you to an open space flowing from the kitchen/breakfast area through the dining room to the living room.  Access to the backyard is off the kitchen, which is cared for through the strata’s maintenance fees.  A bonus 1/2 bath is next to the kitchen.

The second floor has the master bedroom with ensuite at one end with laundry and second full bath separating the master from the two additional bedrooms.

Location is great with walking distance to shopping, transit, schools, parks, and trails.  There is guest parking readily available and additional street parking not too far away.

PROS

1. Open concept that allows for flexible use on main floor
2. 9′ ceilings
3. Custom cabinetry
4. Brand new and under warranty
5. Additional 1/2 bath on main floor
6. Laundry on bedroom level
7. 18,000 sqft clubhouse with extensive amenities
8. Low maintenance fees for services provided
9. His & her sinks in master bathroom
10. Two extra parking spots outside garage
11. Guest parking near unit
12. Location within walking distance to many amenities, shopping and transit

CONS

1. Small additional bedrooms
2. Limited storage in unit (mainly in garage)
3. Number of stairs
4. Tandem garage instead of side-by-side

MORTGAGE NOTES

Example at 3.09%; List Price: $575,000

High Ratio Loan (less than 20% down payment); 25-year amortization Down payment (5%): $28,750  Mortgage Amount: $546,250 Default Insurance (2.75%): 15,021.88 Loan Amount: $561,271.88 Monthly Payments: $2,682.18 Approximate Income Required: $118,000

Conventional Loan (20% or more down payment); 30-year amortization Down payment (20%): $115,000 Mortgage Amount: $460,000 Loan Amount: $460,000 Monthly Payments: $1960.77 Approximate Income Required: $91,000

From my home to yours - Irene