Posted on: 09-03-09 19:17:41
I need advice on how can i back out of a new home deal. I don't qualify for a loan. I already have given around $25K as deposit. I bought the house last year (May 2008). The builder said it will be a firm deal if you take advantage of the incentives. They didn't allow us for any lawyer or finance approval basically no cooling period allowed.
Now i do not qualify for the loan. How can i back out? Agents, Financial Advisors and Attorneys on this forum, please help.
Quote:
Originally posted by Rohita
I need advice on how can i back out of a new home deal. I don't qualify for a loan. I already have given around $25K as deposit. I bought the house last year (May 2008). The builder said it will be a firm deal if you take advantage of the incentives. They didn't allow us for any lawyer or finance approval basically no cooling period allowed.
Now i do not qualify for the loan. How can i back out? Agents, Financial Advisors and Attorneys on this forum, please help.
Backing out of a contract for buying a new home could prove to be a costly affair. The builder can sue you for damages for specific performance and can forfeit your deposit as well. May be a Realtor or a real estate lawyer can shed more light on this aspect.
The basic questions is that you do not qualify for a mortgage NOW or you did not qualify even at the time of signing the contract in 2008 because generally the builder would ask for an approval at the time of signing a contract Or, you do not WANT to buy the house as the house prices may have fallen now and you are on the hook for the agreed price.
What is the purchase price of the house and what is the expected closing date? Does the purchase contract has an assignment clause or not? Would the builder cooperate in transferring the contract in some one else's name and you may lose some part of deposit but may get out of the contract?
There are other details required which could be of personal nature and should not be posted on the forum and hence, I would suggest you to PM or email me all the pertinent details or call me to discuss and we may find some solution.
Good Luck.
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Pramod Chopra
Senior Mortgage Consultant
Mortgage Alliance Company of Canada
Good Luck
this is a very interesting topic & I would really like to know more about the process & how you will deal with it eventually.....as Mr Pramod said since some of the information is of personal nature, you may not want to put all the details on the thread but would really appreciate if you can keep posting general info & the outcome.
I am not trying to be nosey or anything...I am also a new home buyer, although have no intentions of backing out but there is no harm in being educated & having this info.
Thanks....& good luck ...i sincerely hope you don't lose money OP
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Pooja
I have no intention to highjack this thread, though this is not related to new house but it shows how costly can be backing out of your mortgage some time. This article appeared in today's Star and is kind on eye opener.
Mortgage penalty can be a shocker
Mar 11, 2009 04:30 AM
Ellen Roseman
As interest rates fall to record lows, you may want to break your mortgage and negotiate a lower rate.
But the penalty charges can be prohibitive if you're in the early years of a long-term mortgage at a fixed rate.
Take Marilyn, who recently sold her house because she couldn't afford to keep it. She had a $308,000 mortgage, with three years left on a five-year term at 5.74 per cent.
She was shocked when told by the bank that the penalty cost would be about $20,000.
"That means I only pay off the bank, the real estate agent and the lawyer," she says.
"I was hoping to have enough cash in my pocket to cover my basic survival needs while searching for my next position."
Another customer, Michael, sold his condo just a year after taking out a $208,000 mortgage at 5.85 per cent.
He was charged $11,000 to break the mortgage, despite having applied for financing on another property he bought.
Both customers assumed they would pay a penalty of three months' interest. That used to be the case many years ago.
Today, most lenders charge a penalty based on the gap between current and past interest rates, the outstanding balance and the number of months left in the mortgage term.
Called the interest rate differential (or IRD), the penalty is higher now than in the past because of how far interest rates have fallen in the past six months.
There's no standard way for lenders to calculate the IRD, says Isabelle Rodrigue, acting team leader of consumer education at the Financial Consumer Agency of Canada.
"It's not an easy thing to understand and most people can't do it on their own. We advise them to shop around and talk to lenders about the benefits of renewing early."
If you're faced with a stiff penalty, you may have some leverage by negotiating with other lenders first.
"Then, go back to your current lender and say: `I'm planning to leave. Can you do something about the penalty if I stay?'" says Robert McLister, a mortgage planner with Mortgage Architects, who edits a popular blog, CanadianMortgageTrends.com.
Another tip is to make a lump-sum payment before renegotiating.
Many mortgages allow you to pay up to 20 per cent of the balance in any given year.
This lets you lower the penalty, which is calculated on the balance after you have made your prepayment.
Some mortgage brokers find that people are changing their minds about floating rate mortgages.
"There's a significant trend toward variable-rate clients moving into longer term fixed-rate loans," says Calum Ross, senior vice-president at The Mortgage Centre.
"Yes, they're paying a higher rate. But with the current economic uncertainty, they don't feel comfortable taking on additional risk."
With variable-rate mortgages at 3.3 per cent to 4 per cent and five-year closed mortgages at 4.99 per cent to 5.25 per cent, the price gap has narrowed.
In an influential study in 2001, finance professor Moshe Milevsky said that most of the time, people pay less interest over the long run by choosing a variable-rate mortgage.
But in an interview last month at the Canadian Mortgage Trends blog, he said it pays to be in a fixed-rate mortgage 10 to 12 per cent of the time – and this might be one of those times.
Not only has the premium of fixed rates over variable rates largely disappeared, but there are added risks from falling home prices, reduced availability of credit and employment instability.
An environment like we're seeing today brings into question any type of historical study, Milevsky added.
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