This is important to know, or at least for the person you are trusting to get you a mortgage should know. Another reason to use an independent broker as we will move clear of little rules like this benefiting the lender making sure the product benefits you.
Lending is evolving a lot these days. Deals are tougher to get done. Lenders tightening up. Insurers tightening.
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One broker said he is getting nowhere in trying to find out why TD has altered the fine print in its VRM contracts for conventional mortgages – specifically around when a spike in LTV triggers demand for a lump-sum payment or a new appraisal.
“I went to the BDM and I ran it past them and asked if I was reading it wrong or not understanding it properly and they said the intention is as it states.”
Under the terms of the new clause, if, at any time and for any reason, the loan-to-value on a conventional mortgage exceeds 80 per cent, the bank has the right to direct the borrower to bring it under that 80 per cent threshold or to obtain an appraisal proving the fair market value is indeed higher. The new wording replaces a similar clause that sets that trigger at 75 per cent but limits the scenario to instances where interest rate fluctuations have driven LTV over that 75 per cent mark.
“In the new clause, it states that if at any time the principal balance exceeds the max LTV.” he said. “This protects the lender in case of property devaluation. “
But does the move from 75 per cent to 80 per cent cancel out any potential negative exposure for the client? Mulhern isn’t so sure.
“Something that is outside the borrower’s control, property values, can cause them to have to come up with a significant amount of money or the mortgage will be called,” he explained.
“Unless I’m reading it incorrectly this type of clause has nothing to do with rate fluctuations and everything to do with loan-to-value,” Mulhern said. “Property value decreases would have a huge impact on all TD variable rate mortgages.”
~~Be careful when signing making sure you understand everything. This little clause could potentially cost you thousands of dollars.
The full article was written in Mortgage Broker News