When Amy came to us she was at her wits end. An expensive divorce had left her deep in debt and a financial planner suggested she call us. She had a good job as a teacher and thankfully her credit although maxed was still satisfactory.
It was only a year ago, Amy had bought her house in a good location in Guelph. She paid $270,000 for it and she used $70,000 of her equity from her former matrimonial home to put down as a down payment leaving her with a $200,000 mortgage. So when she came to us, Amy told us she could no longer afford all the payments in addition to her $1,000 mortgage payment. Because Amy had been the breadwinner in the family, she got stuck with the debt of the divorce and her bank extended her a credit card and a line of credit to help her pay her legal bills.
We had an appraisal done and the value came in at $285,000. We found a solution for Amy to refinance her home under the new rules to 80% of the value, getting her all the money she needed to pay off her mortgage and $25,000 in debts.
That was until the lawyer conducted a title search. The lawyer found a second mortgage for $36,000. We thought it had to be a mistake because Amy didn’t tell us about a 2nd mortgage. That tweaked us to investigate further, to ask the lawyer how much was registered on the 1st mortgage. The answer was $270,000. When Amy learned that her bank had put a $270,000 mortgage on a property worth $270,000 or 100% of the purchase price when her mortgage was only $200,000 because she had put a down payment of $70,000 she freaked. “The bank has stolen my equity” she said. When we asked whether she was even aware that the bank had put a $270,000 collateral mortgage against her home, she said “No, I had no idea. How can banks get away with this?” Good question, but a better one might be how can two different institutions put $306,000 in mortgages against a property valued at $285,000.
Thousands of Canadians are signing for these collateral mortgages without being advised properly about the ramifications. Amy like many others did not know that the bank can go power of sale on your property if your visa card is in default because the visa and line of credit become secured under these mortgages.
Well we figured out how to get Amy untangled from these mortgages and she cashed in some RRSP’s to bring down her debt. She got a new first mortgage at a lower interest rate and a longer amortization and a private mortgage from a good soul who felt she was worth the risk. With her payments reduced, Amy can breathe again and she is going to teach summer school in order to bring in some extra money to pay down her mortgages.
Don’t let the banks pull the wool over your eyes. Come instead to us, for your next mortgage need.