All banks, lenders and mortgage companies have guidelines and rules. Within these guidelines are their lending limits and they have both minimum lending limits and maximum lending limits. The confusing thing is that the method that they calculate the lending limits changes from lender to lender. For example, Lender A might have a maximum loan amount of $1.2M but when it comes to calculating the Loan-to-Value it might be on a sliding scale. Meaning, they might allow 95% of the first $600,000, 85% of the next $250,000 and 65% of the remaining amount.
These numbers don't mean that this is what is available or that this is all you can get. I'm simply showing one ficticious example of how the rules/guidelines might change how the lender will lend (and how much). There are so many different lenders and each one has their own guidelines that it is important to call the office if you are looking for a Canadian jumbo mortgage so that I can help you with your specific situation.
In the USA the term jumbo mortgages typically comes attached with higher interest rates. This is not necessarily the case in Canada. In fact there is usually a very good chance that you can get fully discounted rates with a jumbo mortgage.
Larger house, larger mortgage, larger risk
Many clients and prospective clients don't understand why a jumbo mortgage application goes through such scrutiny. The fact of the matter is that with a larger mortgage comes a lot more risk. Think of it this way… Every bank, lender and mortgage company has a default rate. This means that they know to the penny how much money is in arrears with their mortgage payments. They know how much money they have lost on power of sales and/or forclosures. Let's assume that any particular lender has a default rate of 10% (1 out of 10 people default on their mortgage). If they lend $1M over 10 people that would be 10 mortgages at say $100,000. If one out of 10 people default on their mortgage, their potential loss is only $100,000. If they lend 1 mortgage to 1 person at $1M and that person defaults, their potential loss is $1M.
Now, granted that scenario is over simplified and is ridiculous in nature but it does illustrate my point. When there is only one borrower, the potential loss can be much much higher.
Every situation is different
Borrowers and their situations are kind of like snow flakes, there are no two that are the same. If you find yourself in need of a jumbo mortgage, give me a call and let me help you negotiate the terms that are most favourable for you and your family.
Call Jim Thornton today toll free at 1-866-257-0158.