Did you know if you’re a luxury homeowner lenders will pay you tens of thousands of dollars to accept a short sale on your home so they can find a profitable buyer? It’s true. Owners of high end properties have options available to them the rest of us simply don’t. Here we’re going to talk about how mortgage lenders treat different tiers of borrowers differently and see how the other half lives. Let’s check it out!
Foreclosure Not Always the End Result
If you own a luxury property in default, a foreclosure isn’t always a foregone conclusion. Amazingly enough, lenders will work to make mortgage payments more manageable for the borrower and more profitable for the lender. Where a lender would come to your home with the Sheriff to quickly move you out, the process is a little different for owners of luxury homes.
Instead of filing the usual paperwork and following the usual procedures, lenders will actually avoid doing this as long as possible. A shocking statistic from a few years ago showed that homes worth $1m or less had a repossession rate of about 79%, while homes worth more than $1m only had a repossession rate of 27%. That’s an amazing difference, no matter how you look at it.
It’s Just Not Worth it for Lenders
Lender can make more money by keeping delinquent borrowers in luxury homes than in “normal” homes for one fact: luxury homes are much harder to sell. Even with competitive Canadian mortgage rates, potential buyers in the luxury market can be quite fickle. It’s easier to hedge your bets with the guy already invested in the home than to go out and try and find someone else that’s interested in the property to sign off at lower interest rates.
But these borrowers will also employ lawyers to tie up the lenders in red tape – leaving the lender with more bills than with the usual foreclosure. When it comes down to it, they just end up making more money by giving them a better deal. Some lenders go so far to offer homeowners a large cash payment to agree to a short sale – up to $100,000 in some cases.
Most Luxury Homeowners Take the Hit
Most luxury homeowners will run with a short sale or work to avoid foreclosures – a foreclosure stays on your credit history for up to 7 years (longer if the lender gets tricky about it), and your credit score can take a hit of up to 100 points. Even if you have excellent credit when you start out, lenders aren’t going to want to deal with someone with a foreclosure on their record.
This is why lenders tend to treat people with “jumbo loans” a little differently than they will borrowers carrying a $300,000 note. While it might be “one rule for them, another rule for us” when it comes to the mortgage game, there are ways you can make sure you end up with a mortgage structured well for your situation.
We’ll Help You
If you want to get the right mortgage for you, regardless of the size of your mortgage, talk to us! We’re Toronto mortgage brokers that know what it takes to make the most of any situation. From bad credit to no credit to help with a down payment, we’ll help you understand what you need to know to come out on top. Don’t get stuck with a bad mortgage because you didn’t know any better, talk to one of our Canada mortgage brokers today and see what we can do for you.