One of the trickiest things about buying a home is dealing with banks and mortgage brokers. When we set out to buy our first house, my father told me “banks will give you enough rope to hang yourself”. He clarified that they’ll loan you a huge amount of money, more than you can afford. Eventually, when interest rates rise, you won’t be able to make your payments anymore, and they’ll get your house plus all the money you EVER paid for the house. The House always wins… unless you don’t take their money.
Right now, with regards to the Thirty Year House, we haven’t closed on a deal per se. Negotiations are still in progress, and not just with the owners. I talked to ING Direct today about their mortgages and got some laughable news. ING was a great bank, but they’ve been bought recently by Scotiabank. Whereas ING Direct used to offer the best interest rate hands down and was a great bank to be a consumer with, they now a decent interest rate but doing business with them now comes with some nasty little surprises.
As of right now, the prime interest in Canada is set at 3%. Some banks are offering variable interest rates on mortgages, all of which are explained as prime minus x%. There are multiple banks offering prime minus .05% Today, when talking to ING Direct/Scotiabank, they told me they’d give me prime minus .025% and if I wanted to streeeeetch the bank out to prime minus .03%, I’d have to park $15,000 in a bank account with them. In addition, if I want a bridge loan (footnote 1) with them, they’ll charge me 2% interest on that and because the bridge loan is of a certain size, they’ll charge me a fee just to get the loan (the fee is approximately $250).
Le honh honh honh.
Ze eff u, crackmonsieur. Do less of ze crack.
We’re done here, guys. Scotiabank, you ruined ING Direct (soon to be called TANGERINE!). But they’re not the only ones who’ve got rope to loan you.
Now, all this talk is kinda painting a picture of us like we know what we’re doing but actually we are total derp monkeys like everyone else, except our derp is the size of about $6,000. We went to talk to our amazing mortgage broker and realized all at once that we forgot about closing costs. The cost of closing your home is lawyers fees, disbursements (dunno what those are, srsly I dunno), the dreaded LAND TRANSFER TAX and other assorted blows to the head that happen when the world takes its chunk of your profits. Of course, realizing that I’d failed to remember these things caused me to do this:
Those closing costs just ate up the nest egg we would have used for an emergency or to begin our fund to replace the kitchen. sigh This is where our mortgage broker comes in. We’ve discussed (as a couple) the idea of borrowing money to make some upgrades to the house, and I’ve been adamantly against it. Just. Pay. Cash. Save up, do more with less, pay cash. Stay the hell away from debt, because it’s a losing game. We resolved, as a couple, to save up money despite the fuck up of the closing costs.
And our agent, who is very kind, is basically holding us together
And everything is going to be fine… except for the part where we mentioned to our mortgage broker (fine woman, won’t hear a word against her) that we can’t afford the kitchen renovation anymore. We’re survivors, we’ll make it work, and that’s the kind of thing that makes life interesting. No one ever went on fucking Oprah to say “everything’s fine, thanks. Things have been great pretty much all around, all things considered. My secret? I dunno, avoid problems?” and lemme tell you, I plan to go on Oprah someday, and she will CRY, she will LAUGH, she will BUY MY ALBUM. I don’t mind doing things the hard way.
Where was I going with this? RIGHT, the mortgage broker wants us to have it all by doing the renovations and then having the mortgage company fold the costs into the mortgage. She insisted that we HAVE to borrow an extra $20,000 on our mortgage to pay for the kitchen renovation. She even went ahead and requested the mortgage company to approve us for the loan. Finally, today, I had to brace myself to demonstrate that I have a spine by actually calling her up and saying “we want to pay cash for the kitchen, okay?” The mortgage payments on a house with an extra $20k built into the mortgage would be crippling even with the low interest rates…. if interest rates went up, we’d be boned.
I’m so glad I’m surrounded by people who knew about these things and shared their knowledge with me.
Footnote 1: A bridge loan is a loan that spots you money when you’re transitioning between houses. In many cases, people get a bridge loan, buy a new house, move all their stuff into their new house and use the bridge loan to pay their mortgage on their old house while it’s on the market for sale. In our case, we want a 30 day bridge loan because we actually sold our house first, and we want to possess our next house 30 days before we’re due to leave our house so that we can clean the new house up.