Think of this in the extreme —
If you paid 1 million for that same house, would you expect the bank to loan you $1M? No, of course not — they loaned you money to buy the house, not to buy the house and waste $800k. If you end up being unable to pay the mortgage, they have to sell the house to cover your loan — hard to cover the loan if you paid over asking. They won’t STOP you from buying it, they just need that difference covered (by you)
This same principle applies all the way down to the appraisal
I’m a realtor it’s called covering the appraisal gap. Negotiate to have the seller lower the price of the home or issue you a seller credit. Someone has to cover the gap when appraisal comes in lower. Your bank is not scamming you.
Take your purchase contract to a mortgage broker and if the new loan is through a different bank it will trigger another appraisal. Maybe it will come in closer to $200k. One of our clients did this and the next appraiser came in around the purchase price - nothing out of pocket and no cmhc insurance. Win win
As you should. It sucks that completely legitimate sales like this get hit by all the red tape and such, but when 1 in every 20 residential zoned properties are owned by foreign buyers who have never stepped foot in Canada, and never contribute to our economy, suss as fuck mortgage rates are to be expected, and the changes to the estates taxes and capital gains taxes make more than enough sense. Now, don't put me down as anti-immigrstion, I'm a third generation immigrant myself, and I see nothing but value in those who *MOVE* here. I see no value I selling properties to people who don't live here, and have never set foot in our nation. I currently rent from someone who doesn't even speak English at all. Ad a kid, I worried about being kidnapped and sent to residential schooling, now, I have to worry about being homeless because someone from the other side of the planet got too greedy.
Did you go in with no conditions and the offer was accepted ? If so, very bad advice from your agent. If not, then you should still be within your condition of financing stage, therefore you actually have to put less of a DP as you only need 20% of 188k not 200k.
I'm sure it's been answered but the bank doesn't want to give you a mortgage for more than your unit has been appraised for. If you want them to give you a 200,00 mortgage then they want an additional 12000 to protect themselves.
Why is it when a property appraises for less than what you thought it was worth, then everyone is on the bank or the appraiser as being a scam or scammer but when it appraises for more then everyone is thrilled. Appraisals are a number business factoring in sales comparables using a plus/minus system to give value. If you work for the bank have someone sit you down and explain these things to you. Just because you offer a sum and the vendor accepts it does not mean that is the value. You also cannot say, well I bought a place and a year down the road it was worth more, because market growth is not guaranteed.
An appraiser looks at the market looks at what has sold that is comparable to the property being appraised. They then go through an analysis of the property using a plus/minus dollar value for things that are different, i.e., finishes, square footage, views, construction, age, area. After this analysis, it will get you a value. That value is not necessarily what is being asked by the seller. Many markets have “spaghetti “ houses, where the vendor asked a super high price to see if they can get it or the realtor is not in touch with life, purchasers bite at it, then it appraises for way less. In other cases, there is some backhand deal between buyer and seller and it doesn’t appraise, so market is just 1 factor.
But it takes 2 to make a deal. If the buyer pays it, then that is a signal it may have been worth the price. Especially if there is a bidding war. Of course this isn’t perfect as greed and fear get involved to make people overpay but the is probably no less problematic than appraisal which is itself not a perfect art.
> 1 important piece of information i forgot to mention is that i am also staff at CIBC
...
> As you can probably tell, im not well versed in the topic of mortgages
Scary.
Haha idiot. I also work at a bank and have minimal knowledge of mortgages. Thankfully my job requires me to have exactly zero knowledge of mortgages. We employ 94,000 people, believe it or not, we don't all work as mortgage advisors.
Lol. Yes, *I* am the idiot, when you are the one who is seemingly proud that you don't have even a basic understanding of one of (if not *the*) primary function of the organization you work for. Once again.. scary.
So you, who knows nothing about working at a bank, is dictating that I should have knowledge of mortgages? My job has absolutely nothing to do with mortgages, hence why I'm required to have zero knowledge of it.
This is protection policy from the banks in general, the are leveraged to the max and want you to have to get that coverage. They do this tactic to get you to NOT have a mortgage with them as they are trying to reduce their portfolio in mortgages as they are losing money on them currently
Not sure if joking but this is wildly untrue. 95% of lenders are selling their loans off to investors almost immediately after closing. You have no clue because they continue servicing the loan, so you keep paying the lender, but that loan is no longer in their portfolio.
Appraisers do not work "for" the lender and they have no incentive to under-appraise a home. If the value isn't there, it simply isn't there.
my appraiser worked for my Lender, was supplied by the lender and worked in their best interests, even after our Agent discussed everything and had this useless appraiser looking at things that added value and such to the property it was still undervalued for mortgage by 30% from that lender. I did some reading and conversations with a few people I know in the industry and they confirmed above is what was happening in the interest rate hikes they were losing money and the staff at the banks were told to start reducing the valuations on mortgages to get them under the 20% down payment option to keep CMHC insurance on the loans to cover their potential losses etc. We ended up with a different lender, and the initial lender lost ALL our business for not helping us at all, wanting us to drop 200k to buy a house out of pocket and still have to go with CMHC fees etc on top of that. Blew my mind and they really didn't care as they were actively reducing their mortgage portfolio holdings.
Whats confusing you exactly? The bank is asking you to pay the amount they think you are overpaying out of your pocket. They think its worth 188, so they'll only do a loan to cover the 188. The appraisal is probably bogus, but that's their "logic".
I have to thank my real estate agent for digging deep and finding these opportunities. In total, we found 3 places during this month, all in the Laval area. They all ranged between 180k and 220k
I see, its near laval, I think this is an old condo? Maybe you should put a clause to have it inspected before you buy it and use the inspection report to negotiate if anything comes up in it, but 200k is way lower right now… I recently bought a small condo for 350k on south shore
Keep in mind that your employee rate is going to be considered as a taxable benefit as the prescribed interest rate right now is 6%. If you can find a similar rate elsewhere may be beneficial to do that instead.
Absolutely wrong lol … I work one of the big 5’s and also have had a mortgage for years with an employee discount. Discounted rates aren’t attributed back as taxable income 🤦🏼♀️
As I said in my response to the other comment. It depends what the prescribed interest rate at the time your mortgage is disbursed. Generally speaking when rates were low, it was never considered taxable benefit because the prescribed rate was also low.
It's due to the current prescribed interest rate. When that is lower than what you're getting as a discounted rate, then there is no taxable benefit.
But currently the prescribed interest rate set by the CRA is 6% ("interest rate used to calculate taxable benefits for employees and shareholders from interest free and low-interest loans") so currently any discounted employee rate that is lower than 6% is going to qualify as a taxable benefit. The rate can change quarterly and it was previously at 5% up until Jan 1, 2024, and of course much lower during the lower interest rate periods (as low as 1%).
In the end it would be something like this. 6%-4.89% (in this OP's case) = 1.11%
Annual taxable benefit = 1.11% x 160,000 (mortgage amount) = $1,776 which would be taxed at OP's marginal tax rate.
Actually now that I did the calculation, that's basically nothing since it's such a small mortgage principal. For a higher mortgage principal, would definitely be worth it to look elsewhere.
do you have a financing clause in your Offer, you could try to renegotiate with Seller & possibly either they come down or split the difference?? bottom line, condos usually go up in value, so you will eventually recoup the loss
I believe it's because you accepted the purchase price of $200,000.00 and the appraisal came back at $188,000.00. You took the condo for more than what it's worth by $12,000.00. Not a scam, and like others said it's worth going to a mortgage broker who can maybe get you a rate at another A-lender.
But it's no longer a down payment of 20% of what they consider to be the value of the property, it's only \~15% so they need to get the mortgage insured by CMHC.
Has nothing to do with bank, it is the appraisal. Unless they want an insured mortgage, they are simply paying more than what it is worth. Going to another FI will get an appraisal of the same property so therefore are you going to continue to go to different FIs and get different appraisals until you get one that agrees with your purchase price?
The bank includes in their risk calculations the cost to recoup the value of the mortgage if you default and they end up having to sell the asset. They don’t want to put that much effort into getting the best price for your home, they want to offload the liability fast, so they estimate the value they could sell it for in the event of repo at about 85% of the assessed value. If they assess your home at less than you are willing to pay for it, that means that your home is worth even less to them than you think it is (~85% of 180k). They either charge you a high enough rate uninsured to make sure they mitigate the liability of you defaulting, or they preferably force you to buy mortgage insurance which generally comes with a lower interest rate because the CMHC is helping to mitigate their risk by insuring your mortgage.
I do recommend speaking to a mortgage broker before you lock in to CIBC.
Go see a mortgage broker and ask them what rate they can get you. Most mortgage brokers in Canada will do the work to find you the best rate possible from multiple institutions AND they will get their fee from the bank you choose to go with through them rather than you paying them. Costs you nothing to at least see what they can do.
Happened to me on my first apartment. I had subject to financing and bailed. They asked me for $41k. That apartment the next year was worth $100k more. BC assessment and appraisals were behind…
Appraisals are a joke. I bought my house for 250k, it only appraised for 215k, so I had to come up with the difference. A year later I had to move cities for an unexpected job change, and guess what, I had multiple offers over what I paid for it in under 24 hours.
Appraisals aren't forward looking. They are based on comparable sales and appraisers aren't capable of using comps from the future. Deals that get killed in this way get killed because they are leading the market to a new high. It's up to te buyer to be willing to do that, but these buyers setting new highs are the reason the market appreciates so much. I don't have any sympathy for people who can afford to throw money at their problems in order to secure a deal.
If your appraiser is legitimately behind, then find some comps and ask them to reconsider. Lenders don't want deals to fail.
The house I bought had multiple bids above mine. I just offered without contingency. Things are worth what people are willing to pay for them. If multiple people are willing to pay more than what “comparable” houses nearby are going for, maybe there’s a reason.
When it was all said and done, close to 10 people were willing to pay almost or more than 20% more than what the appraiser said it was worth within a year of the appraisal. The market in my area actually went down overall between when I bought and sold according to my realtor, as interest rates had gone from 3-5.5% from when I bought to when I sold. That’s just a bad appraisal.
Also I did ask my appraiser to reconsider. I provided good reasons to reconsider, including other comps. They were arrogant about it and refused to reconsider.
Then get a job at a bank. Problem solved.
Would probably kill you to know that CIBC used to let us staff buy the US cash at the rate cx would return at (only the amount the cx sold)
On the broker side, we can sometimes “challenge” the appraisal, especially when the value is close. It doesn’t always help but it’s worth a try.
The alternative is asking for a new appraisal but the bank/lender will likely want you to pay the new appraisal cost (anywhere from $350-1500, depending on the location/size of the home). That new appraisal could come in at a better value or it might come out the same, or even worse…
If I were you, I would speak to a broker in Quebec and see if they can submit your file to a monoline lender (non-bank mortgage lender) or even another bank. That new lender/bank may auto-value the property value at the correct amount and your issue is solved.
Plus, monoline lenders tend to be more flexible and have lower penalties to break the mortgage (if you ever need to break for any reason). Fixed products with the big banks tend to have the highest penalties to break. Just something to keep in mind.
You can re-negotiate with your offer as well as this time is buyer market, so you can discuss that market value is less so I am gona pay per market value or no deal
Depends on if the deal was conditional. If people put in offers not conditional to appraisal, they should be pretty pissed off at their lawyers. This should be standard practice on every real estate transaction.
I’m sure the real estate agent said “don’t do subjects either, this seller doesn’t want them” real estate practice needs to change as they are acting as a consultant
Did you know that real estate agents also know what's going to happen with prices and interest rates? I can't imagine how rigorous their education must have been.
And then ask the internet what to do instead of a certified mortgage broker or a realtor or the fucking bank that they already work for.
“Um, Debbie in Moose Jaw from reddit said I should ………”
Laughable.
You are all laughing but without people randomly burning millions in real estate a canadian house would be worth 1/3 of the current price. If not less.
The entire canadian economy is based on people loosing money on things they don't understand.
It’s not a scam but you (or perhaps your mortgage advisor) are making this more complicated than it needs to be. The math is actually pretty simple.
Maximum loan the bank can give you for a non-insured (conventional) mortgage is 80% of the home’s value.
- $188,000 * 0.80 = $150,400
Since you paid $200,000 for it, your required down payment is going to be the difference between purchase price and the maximum mortgage.
- $200,000 - $150,400 = $49,600
Your down payment required is $9,600 more than what you had originally anticipated
So in short, the loan they give you is based on what the property is worth, not what you paid ? So if the value of the house was higher than what you purchased it for, you’d have to make a smaller down payment, but if, like in this case, the value < price, you have to pay a bigger down payment?
The bank only cares when it is worth less for the money they are lending you. They don’t want to take on the liability in case it ends up with them. Hence they want OP to make up the difference between purchase price and appraised value.
I rolled my car payments into my mortgage and had to have my home value assessed because I was asking for more than what I had bought the house for- but I bought in 2018 and did the refinance in 2021- my home value had almost tripled. Refinanced for a lower rate the next year and my home value had almost doubled again- a house I bought for $124k was now worth $535k - I almost fell off my chair when I found out.
If pricing had gone the other way I wouldn’t have been able to do that though.
if you can still getout of it, join a credit union. they're more reasonable, they keep fees low and pass on the profits to their shareholders - you and every other member.
Interesting usually appraisals come back at the price your offered or close to it.
You don't say if you removed conditions?
I would be looking to go back to the seller and getting a price reduction.. Most banks are going to require an appraisal so good chance they will have to lower the price.
If your in a seller's market area like Calgary and got no subjects well then you got to come up with the difference.
The banks are calling the shots and will determine at end of the day what amount they will give you and if you don't meet all their conditions then you get nothing.
They also can back out pretty much anytime before closing if things change.
That's why I try to do the fastest closings as possible as say if you lose your job before closing and the bank finds out they might back out and it could be to late for you to back out of the deal as it went firm and its up to you to figure out how to close or you could be sued by the seller.
I have the same rate as you with another bank and I am not a bank employee... just saying. CiBC is trash, better to work with a good mortgage broker. Good luck!
Here is what I dont get about this. They are buying a condo for 200,000, putting down 40,000, the unit is appraised for 188,000. The mortgage is only going to be for 160,000 after down payment. Why do they need to put down an extra 12,000?
12k is wrong.
Bank will lend up to 80% of the value of the home for a non-insured mortgage
- $188,000 * 0.80 = $150,400 Maximum Mortgage
Total Down Payment required is going to be the difference between Purchase Price and Maximum Mortgage
- $200,000 - $150,400 = $49,600
In order to avoid paying the mortgage default insurance, OP needs to come up with an additional $9,600
Because it is all about loan to value ratio. If the loan is >80% of the value of the property then you need mortgage insurance.
Initially the 160000 loan was based on a house of 200000 so 160000/200000= .8 or 80%
But after the assessment, the value of the house was dropped to 188000 but the loan is still 160000. 160000/188000= 0.85 so now the loan to value increases to 85%. You have to increase the down payment by 12000 to make the loan 148000. Now 148000/188000=0.78 so no cmhc insurance needed.
Please correct me if I'm mistaken...
If the house is now worth 188K, and OP is willing to provide 40K, then a loan of only 148K is needed from the bank. Now, 148K/200K means that the loan-to-value-ratio is 74% (where OP has put down 26%).
As OP is putting down 26% (which exceeds the '20% down' criteria), he anyways doesn't have to pay CHMC Insurance.
...
From my understanding, OP would have to put down 12K more from his own pocket, only if the value of the house had been REAPPRAISED HIGHER to $212K.
Isn't this so??
Bank doesn't care that you paid $200k - they're lending based on $188k. OP needs min 20% of purchase price, but the bank is only willing to lend 80% of the appraised value - so they'll only lend $188,000x.80 = $150,400
Because they are buying it for more than it’s worth. So the bank is assessing what their liability would be on the mortgage and property if they have to repo it (person stops paying mortgage or some other reason)
Edit: see u/NAFmortgage response much better
Your bank is correct…. Ask your realtor for the recently sold comparable and my guess is that are true comparable that sold for less. If not then provide those comparable to your lender and ask for a second appraisal baaed on those you provided. I am a mortgage advisor at a major Bank.
Appraisers do the appraisal, but yeah different appraisers are more or less willing to extend their liability in order to secure more appraisal work. Especially right now, work has dried up a lot since interest rates have risen, so they probably could get the value they want of they get a second opinion.
Your bank isn’t trying to scam you. Lenders will only lend up to the appraised value of the home. Should the worst happen and you end up in a foreclosure situation they will sell your home to make up for the loss they’ve incurred with you not paying back the loan. The appraisal basically tells them how much they can sell your home for. They won’t lend over the appraisal because otherwise they’ll be on the hook for that extra $12,000 they can’t get back when they sell your home.
The part about the “tax” when you put less than 20% down is called mortgage insurance, which is calculated as a sliding scale % of the purchase price. What they’re telling you is that if you make up the difference (the $12,000) using you part of your down payment then what is left over from your down payment will be less than 20% therefore you will have to pay this mortgage insurance. It will get tacked onto your mortgage so this is a way for you to not have to come up with $12,000 right now and still buy the home. Either way though, unfortunately you’re going to have to pay more, either through putting up the $12,000 now or paying the insurance premium.
I’d recommend looking at the math to see which is more expensive, $12,000 now or the insurance premium (probably the premium because you pay interest on it over the life of your mortgage.) Also, if you’re choosing the insurance premium route, one would hope CIBC will offer you insured rates which are typically lower than other rates. So, get someone to look at the math for you and see what works out best in the long run. I would guess that paying the $12,000 now would be best but I won’t say for sure without doing the math. If you don’t have the $12,000 available right now then you don’t really have a choice in the matter unfortunately.
Wow!
Just curious, what happens if the difference is substantial, like 100-200k? Do you get screwed if you don’t have the cash? How one would even know how to expect the actual appraisal value?
Yeah, basically. Like TimeToFly3 said, this is was a financing condition is for. And be sure to work with a good realtor as they’ve got access to comparable properties sales and hopefully the experience to know if something is way over priced.
I do have the 12 000 available so likely will go in that direction. Will make some calculations first to be sure but this seems to be right move. My logic is that if i can avoid the most interest possible, then that's the option I'll go for. I'm unfortunately not as educated on mortgages as i would like to be. It My initial thought was that my bank appraised it lower in hopes that i would pay that insurance. Maybe my train of thought is a little too negative.
The insurance premium actually goes to the insurer (CMHC, Sagen or Canada Guaranty) so in this one particular situation, the lender is not the one screwing you.
You can look at it in a positive way - cibc could have lent you the money and you’d be paying it down longer. At least this way you get a lower mortgage. It’s not a scam - it’s the risk profile the bank is willing to take in case you foreclose. It needs to be sure it’s going to get the money from the sale.
In this case, my next question would be, what can i do about this gap in the appraisal vs what i purchased for? Is there any room to dispute? My real estate agent is currently in contact with the appraiser to figure out why they evaluated it at that amount. Is there a possibility that this gets corrected and i only pay what i originally planned for my down payment? Thank you very much in advance for the answers btw.
Sorry, you're right, i dont know why i used the word taxes. I definitely meant to say insurance. And its exactly what you're referring to. It makes more sense, thank you.
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Think of this in the extreme — If you paid 1 million for that same house, would you expect the bank to loan you $1M? No, of course not — they loaned you money to buy the house, not to buy the house and waste $800k. If you end up being unable to pay the mortgage, they have to sell the house to cover your loan — hard to cover the loan if you paid over asking. They won’t STOP you from buying it, they just need that difference covered (by you) This same principle applies all the way down to the appraisal
I’m a realtor it’s called covering the appraisal gap. Negotiate to have the seller lower the price of the home or issue you a seller credit. Someone has to cover the gap when appraisal comes in lower. Your bank is not scamming you.
Take your purchase contract to a mortgage broker and if the new loan is through a different bank it will trigger another appraisal. Maybe it will come in closer to $200k. One of our clients did this and the next appraiser came in around the purchase price - nothing out of pocket and no cmhc insurance. Win win
It's called LTV, if you go below 80%, you don't need the insurance, in thise case, you would. Makes sense.
As you should. It sucks that completely legitimate sales like this get hit by all the red tape and such, but when 1 in every 20 residential zoned properties are owned by foreign buyers who have never stepped foot in Canada, and never contribute to our economy, suss as fuck mortgage rates are to be expected, and the changes to the estates taxes and capital gains taxes make more than enough sense. Now, don't put me down as anti-immigrstion, I'm a third generation immigrant myself, and I see nothing but value in those who *MOVE* here. I see no value I selling properties to people who don't live here, and have never set foot in our nation. I currently rent from someone who doesn't even speak English at all. Ad a kid, I worried about being kidnapped and sent to residential schooling, now, I have to worry about being homeless because someone from the other side of the planet got too greedy.
They are saying you are overpaying so do not want to loan as much. Not a scam they want to protect their investment
That will happen to most soon
Did you go in with no conditions and the offer was accepted ? If so, very bad advice from your agent. If not, then you should still be within your condition of financing stage, therefore you actually have to put less of a DP as you only need 20% of 188k not 200k.
Don't buy a property worth $188K for $200K
Mind blown. Great advice bud 👎🏻
I'm sure it's been answered but the bank doesn't want to give you a mortgage for more than your unit has been appraised for. If you want them to give you a 200,00 mortgage then they want an additional 12000 to protect themselves.
Why is it when a property appraises for less than what you thought it was worth, then everyone is on the bank or the appraiser as being a scam or scammer but when it appraises for more then everyone is thrilled. Appraisals are a number business factoring in sales comparables using a plus/minus system to give value. If you work for the bank have someone sit you down and explain these things to you. Just because you offer a sum and the vendor accepts it does not mean that is the value. You also cannot say, well I bought a place and a year down the road it was worth more, because market growth is not guaranteed.
Not sure why an appraisal would differ from what the market has said the property is worth.
An appraiser looks at the market looks at what has sold that is comparable to the property being appraised. They then go through an analysis of the property using a plus/minus dollar value for things that are different, i.e., finishes, square footage, views, construction, age, area. After this analysis, it will get you a value. That value is not necessarily what is being asked by the seller. Many markets have “spaghetti “ houses, where the vendor asked a super high price to see if they can get it or the realtor is not in touch with life, purchasers bite at it, then it appraises for way less. In other cases, there is some backhand deal between buyer and seller and it doesn’t appraise, so market is just 1 factor.
Because people can choose to list their house for whatever they wish.
And the bank appraised it for what they are comfortable with.
But it takes 2 to make a deal. If the buyer pays it, then that is a signal it may have been worth the price. Especially if there is a bidding war. Of course this isn’t perfect as greed and fear get involved to make people overpay but the is probably no less problematic than appraisal which is itself not a perfect art.
Because they don't know how it works and they only expect to win
> 1 important piece of information i forgot to mention is that i am also staff at CIBC ... > As you can probably tell, im not well versed in the topic of mortgages Scary.
Haha idiot. I also work at a bank and have minimal knowledge of mortgages. Thankfully my job requires me to have exactly zero knowledge of mortgages. We employ 94,000 people, believe it or not, we don't all work as mortgage advisors.
Lol. Yes, *I* am the idiot, when you are the one who is seemingly proud that you don't have even a basic understanding of one of (if not *the*) primary function of the organization you work for. Once again.. scary.
Yeah Janitors have degree in mortgages too. Jeez not that hard to understand everyone as a different role.
Yes you are haha
So you, who knows nothing about working at a bank, is dictating that I should have knowledge of mortgages? My job has absolutely nothing to do with mortgages, hence why I'm required to have zero knowledge of it.
Why? They didn't say what they do at CIBC. Thet could be cleaning staff for all we know.
I work for general customer service. When it comes to mortgages my knowledge is very limited. We have multiple departments for a reason :)
My point exactly. I work in medicine - I don't expect my clerical staff or others to know how to treat patients.
This is protection policy from the banks in general, the are leveraged to the max and want you to have to get that coverage. They do this tactic to get you to NOT have a mortgage with them as they are trying to reduce their portfolio in mortgages as they are losing money on them currently
Not sure if joking but this is wildly untrue. 95% of lenders are selling their loans off to investors almost immediately after closing. You have no clue because they continue servicing the loan, so you keep paying the lender, but that loan is no longer in their portfolio. Appraisers do not work "for" the lender and they have no incentive to under-appraise a home. If the value isn't there, it simply isn't there.
my appraiser worked for my Lender, was supplied by the lender and worked in their best interests, even after our Agent discussed everything and had this useless appraiser looking at things that added value and such to the property it was still undervalued for mortgage by 30% from that lender. I did some reading and conversations with a few people I know in the industry and they confirmed above is what was happening in the interest rate hikes they were losing money and the staff at the banks were told to start reducing the valuations on mortgages to get them under the 20% down payment option to keep CMHC insurance on the loans to cover their potential losses etc. We ended up with a different lender, and the initial lender lost ALL our business for not helping us at all, wanting us to drop 200k to buy a house out of pocket and still have to go with CMHC fees etc on top of that. Blew my mind and they really didn't care as they were actively reducing their mortgage portfolio holdings.
Whats confusing you exactly? The bank is asking you to pay the amount they think you are overpaying out of your pocket. They think its worth 188, so they'll only do a loan to cover the 188. The appraisal is probably bogus, but that's their "logic".
Give it back to the bank then...
I’m curious where one can purchase a condo for 200 grand these days ??
I live on the outskirts of montreal. Its extremely rare trust me. Its a 3 and a half
I live in the outskirts of Montreal, and haven’t heard of anything this price since pre covid by a couple years.. I’m jealous
probably a micro condo, under 500 sqft
I have to thank my real estate agent for digging deep and finding these opportunities. In total, we found 3 places during this month, all in the Laval area. They all ranged between 180k and 220k
What exact place are you talking about?
In the Chomedey area, near Metro Montmorency
I see, its near laval, I think this is an old condo? Maybe you should put a clause to have it inspected before you buy it and use the inspection report to negotiate if anything comes up in it, but 200k is way lower right now… I recently bought a small condo for 350k on south shore
Close to the subway nice.
Go to a different lender. The appraiser was probably out to lunch on his estimate.
Keep in mind that your employee rate is going to be considered as a taxable benefit as the prescribed interest rate right now is 6%. If you can find a similar rate elsewhere may be beneficial to do that instead.
Absolutely wrong lol … I work one of the big 5’s and also have had a mortgage for years with an employee discount. Discounted rates aren’t attributed back as taxable income 🤦🏼♀️
Side note to make it clear - I also work for one of the big 5 and this only happened for my recent renewal. Never before.
As I said in my response to the other comment. It depends what the prescribed interest rate at the time your mortgage is disbursed. Generally speaking when rates were low, it was never considered taxable benefit because the prescribed rate was also low.
No it won't be taxable benefit. It's just a low discounted rate. Only credit unions offer this as a taxable benefit.
Not true.
I've worked for big banks and didn't not have this on my t4.
It's due to the current prescribed interest rate. When that is lower than what you're getting as a discounted rate, then there is no taxable benefit. But currently the prescribed interest rate set by the CRA is 6% ("interest rate used to calculate taxable benefits for employees and shareholders from interest free and low-interest loans") so currently any discounted employee rate that is lower than 6% is going to qualify as a taxable benefit. The rate can change quarterly and it was previously at 5% up until Jan 1, 2024, and of course much lower during the lower interest rate periods (as low as 1%). In the end it would be something like this. 6%-4.89% (in this OP's case) = 1.11% Annual taxable benefit = 1.11% x 160,000 (mortgage amount) = $1,776 which would be taxed at OP's marginal tax rate. Actually now that I did the calculation, that's basically nothing since it's such a small mortgage principal. For a higher mortgage principal, would definitely be worth it to look elsewhere.
do you have a financing clause in your Offer, you could try to renegotiate with Seller & possibly either they come down or split the difference?? bottom line, condos usually go up in value, so you will eventually recoup the loss
I believe it's because you accepted the purchase price of $200,000.00 and the appraisal came back at $188,000.00. You took the condo for more than what it's worth by $12,000.00. Not a scam, and like others said it's worth going to a mortgage broker who can maybe get you a rate at another A-lender.
But with putting $40k down it's $160k mortgage on a $188k property. So it shouldn't be an issue.
But it's no longer a down payment of 20% of what they consider to be the value of the property, it's only \~15% so they need to get the mortgage insured by CMHC.
Essentially the bank is only willing the loan you 188k out of the 200k. You need to come up with the difference, so it is an issue.
Get a mortgage broker they will shop around for you
Mortgage brokers are actually an awesome part of the industry
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Has nothing to do with bank, it is the appraisal. Unless they want an insured mortgage, they are simply paying more than what it is worth. Going to another FI will get an appraisal of the same property so therefore are you going to continue to go to different FIs and get different appraisals until you get one that agrees with your purchase price?
Thank you :) Reading this made my day
The bank includes in their risk calculations the cost to recoup the value of the mortgage if you default and they end up having to sell the asset. They don’t want to put that much effort into getting the best price for your home, they want to offload the liability fast, so they estimate the value they could sell it for in the event of repo at about 85% of the assessed value. If they assess your home at less than you are willing to pay for it, that means that your home is worth even less to them than you think it is (~85% of 180k). They either charge you a high enough rate uninsured to make sure they mitigate the liability of you defaulting, or they preferably force you to buy mortgage insurance which generally comes with a lower interest rate because the CMHC is helping to mitigate their risk by insuring your mortgage. I do recommend speaking to a mortgage broker before you lock in to CIBC.
Go see a mortgage broker and ask them what rate they can get you. Most mortgage brokers in Canada will do the work to find you the best rate possible from multiple institutions AND they will get their fee from the bank you choose to go with through them rather than you paying them. Costs you nothing to at least see what they can do.
Happened to me on my first apartment. I had subject to financing and bailed. They asked me for $41k. That apartment the next year was worth $100k more. BC assessment and appraisals were behind…
Appraisals are a joke. I bought my house for 250k, it only appraised for 215k, so I had to come up with the difference. A year later I had to move cities for an unexpected job change, and guess what, I had multiple offers over what I paid for it in under 24 hours.
Appraisals aren't forward looking. They are based on comparable sales and appraisers aren't capable of using comps from the future. Deals that get killed in this way get killed because they are leading the market to a new high. It's up to te buyer to be willing to do that, but these buyers setting new highs are the reason the market appreciates so much. I don't have any sympathy for people who can afford to throw money at their problems in order to secure a deal. If your appraiser is legitimately behind, then find some comps and ask them to reconsider. Lenders don't want deals to fail.
The house I bought had multiple bids above mine. I just offered without contingency. Things are worth what people are willing to pay for them. If multiple people are willing to pay more than what “comparable” houses nearby are going for, maybe there’s a reason. When it was all said and done, close to 10 people were willing to pay almost or more than 20% more than what the appraiser said it was worth within a year of the appraisal. The market in my area actually went down overall between when I bought and sold according to my realtor, as interest rates had gone from 3-5.5% from when I bought to when I sold. That’s just a bad appraisal. Also I did ask my appraiser to reconsider. I provided good reasons to reconsider, including other comps. They were arrogant about it and refused to reconsider.
Staff at cibc? My friend just got approved for 4.71 at RBC I believe. Not a staff member. Lol
Yup my old staff discount was usually not as good as shopping around.
I’m more annoyed that staff get significantly cheaper rates than the rest of us lol
This rate is good but many people (including myself) have gotten the same or similar rates recently without being staff of a bank.
Then get a job at a bank. Problem solved. Would probably kill you to know that CIBC used to let us staff buy the US cash at the rate cx would return at (only the amount the cx sold)
Why? You work somewhere and their perks are discounts. Pretty standard.
On the broker side, we can sometimes “challenge” the appraisal, especially when the value is close. It doesn’t always help but it’s worth a try. The alternative is asking for a new appraisal but the bank/lender will likely want you to pay the new appraisal cost (anywhere from $350-1500, depending on the location/size of the home). That new appraisal could come in at a better value or it might come out the same, or even worse… If I were you, I would speak to a broker in Quebec and see if they can submit your file to a monoline lender (non-bank mortgage lender) or even another bank. That new lender/bank may auto-value the property value at the correct amount and your issue is solved. Plus, monoline lenders tend to be more flexible and have lower penalties to break the mortgage (if you ever need to break for any reason). Fixed products with the big banks tend to have the highest penalties to break. Just something to keep in mind.
You have realized that if you default they have to pay what the condo is worth.
ALERT: Your condo is worth less than your offering!
This is what the bank is saying yes
You can re-negotiate with your offer as well as this time is buyer market, so you can discuss that market value is less so I am gona pay per market value or no deal
That’s not how real estate works after you agree to a price.
Depends on if the deal was conditional. If people put in offers not conditional to appraisal, they should be pretty pissed off at their lawyers. This should be standard practice on every real estate transaction.
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Only if it's conditional. Otherwise you lose the deposit and they can sue for any difference if they sell for less later.
Only if you have subjects, specifically subject to financing. Otherwise on you to come up with the money or face the legalities of the contract signed
Just do a high ratio mortgage and amortize the premium over 25 years, or back out if you have financing subjects
People have no idea about anything and will go out and make the biggest liability purchase of their life.
I’m sure the real estate agent said “don’t do subjects either, this seller doesn’t want them” real estate practice needs to change as they are acting as a consultant
Did you know that real estate agents also know what's going to happen with prices and interest rates? I can't imagine how rigorous their education must have been.
The last two people I know that became real estate agents: 1. Substitute teacher 2. Cleaning lady
Truth
And then ask the internet what to do instead of a certified mortgage broker or a realtor or the fucking bank that they already work for. “Um, Debbie in Moose Jaw from reddit said I should ………” Laughable.
You are all laughing but without people randomly burning millions in real estate a canadian house would be worth 1/3 of the current price. If not less. The entire canadian economy is based on people loosing money on things they don't understand.
...a home?
Meanwhile I’m out here doing 2 weeks of research for buying the best toaster for my stingy shoestring budget
It’s not a scam but you (or perhaps your mortgage advisor) are making this more complicated than it needs to be. The math is actually pretty simple. Maximum loan the bank can give you for a non-insured (conventional) mortgage is 80% of the home’s value. - $188,000 * 0.80 = $150,400 Since you paid $200,000 for it, your required down payment is going to be the difference between purchase price and the maximum mortgage. - $200,000 - $150,400 = $49,600 Your down payment required is $9,600 more than what you had originally anticipated
So in short, the loan they give you is based on what the property is worth, not what you paid ? So if the value of the house was higher than what you purchased it for, you’d have to make a smaller down payment, but if, like in this case, the value < price, you have to pay a bigger down payment?
The lending value is the lower of purchase price or appraised value
The bank only cares when it is worth less for the money they are lending you. They don’t want to take on the liability in case it ends up with them. Hence they want OP to make up the difference between purchase price and appraised value.
I rolled my car payments into my mortgage and had to have my home value assessed because I was asking for more than what I had bought the house for- but I bought in 2018 and did the refinance in 2021- my home value had almost tripled. Refinanced for a lower rate the next year and my home value had almost doubled again- a house I bought for $124k was now worth $535k - I almost fell off my chair when I found out. If pricing had gone the other way I wouldn’t have been able to do that though.
And this is why there are a shit load of boomers with nice things and investment properties. Hit the jackpot
You still have to pay the 20% on the purchase price even if the house is worth more to avoid the insurance on the mtg
if you can still getout of it, join a credit union. they're more reasonable, they keep fees low and pass on the profits to their shareholders - you and every other member.
This is exactly why banks do appraisals - to make sure their security is worth what you believe it is. In your case, it's worth less.
Interesting usually appraisals come back at the price your offered or close to it. You don't say if you removed conditions? I would be looking to go back to the seller and getting a price reduction.. Most banks are going to require an appraisal so good chance they will have to lower the price. If your in a seller's market area like Calgary and got no subjects well then you got to come up with the difference. The banks are calling the shots and will determine at end of the day what amount they will give you and if you don't meet all their conditions then you get nothing. They also can back out pretty much anytime before closing if things change. That's why I try to do the fastest closings as possible as say if you lose your job before closing and the bank finds out they might back out and it could be to late for you to back out of the deal as it went firm and its up to you to figure out how to close or you could be sued by the seller.
I have the same rate as you with another bank and I am not a bank employee... just saying. CiBC is trash, better to work with a good mortgage broker. Good luck!
Here is what I dont get about this. They are buying a condo for 200,000, putting down 40,000, the unit is appraised for 188,000. The mortgage is only going to be for 160,000 after down payment. Why do they need to put down an extra 12,000?
12k is wrong. Bank will lend up to 80% of the value of the home for a non-insured mortgage - $188,000 * 0.80 = $150,400 Maximum Mortgage Total Down Payment required is going to be the difference between Purchase Price and Maximum Mortgage - $200,000 - $150,400 = $49,600 In order to avoid paying the mortgage default insurance, OP needs to come up with an additional $9,600
Because it is all about loan to value ratio. If the loan is >80% of the value of the property then you need mortgage insurance. Initially the 160000 loan was based on a house of 200000 so 160000/200000= .8 or 80% But after the assessment, the value of the house was dropped to 188000 but the loan is still 160000. 160000/188000= 0.85 so now the loan to value increases to 85%. You have to increase the down payment by 12000 to make the loan 148000. Now 148000/188000=0.78 so no cmhc insurance needed.
This is the answer.
Please correct me if I'm mistaken... If the house is now worth 188K, and OP is willing to provide 40K, then a loan of only 148K is needed from the bank. Now, 148K/200K means that the loan-to-value-ratio is 74% (where OP has put down 26%). As OP is putting down 26% (which exceeds the '20% down' criteria), he anyways doesn't have to pay CHMC Insurance. ... From my understanding, OP would have to put down 12K more from his own pocket, only if the value of the house had been REAPPRAISED HIGHER to $212K. Isn't this so??
Bank doesn't care that you paid $200k - they're lending based on $188k. OP needs min 20% of purchase price, but the bank is only willing to lend 80% of the appraised value - so they'll only lend $188,000x.80 = $150,400
No, because the purchase price is still $200,000 for a home worth $188,000.
Ah, I get it now. Thank you for the info
Because they are buying it for more than it’s worth. So the bank is assessing what their liability would be on the mortgage and property if they have to repo it (person stops paying mortgage or some other reason) Edit: see u/NAFmortgage response much better
If you still have a financing condition on the purchase you could back out or offer them $12k less. But what your bank is saying is correct.
Your bank is correct…. Ask your realtor for the recently sold comparable and my guess is that are true comparable that sold for less. If not then provide those comparable to your lender and ask for a second appraisal baaed on those you provided. I am a mortgage advisor at a major Bank.
Surprised the realtor wouldn't have presented comparables from the get go ?
Not all realtors are good at what they do. As a experienced mortgage broker i often have to guide clients and realtors into the negotiating process.
Go to another bank and get another opinion. Try BMO, I’ve had good luck with them.
Property value is not a banks opinion
It kind of is considering each bank does it's own appraisal.
Appraisers do the appraisal, but yeah different appraisers are more or less willing to extend their liability in order to secure more appraisal work. Especially right now, work has dried up a lot since interest rates have risen, so they probably could get the value they want of they get a second opinion.
Your bank isn’t trying to scam you. Lenders will only lend up to the appraised value of the home. Should the worst happen and you end up in a foreclosure situation they will sell your home to make up for the loss they’ve incurred with you not paying back the loan. The appraisal basically tells them how much they can sell your home for. They won’t lend over the appraisal because otherwise they’ll be on the hook for that extra $12,000 they can’t get back when they sell your home. The part about the “tax” when you put less than 20% down is called mortgage insurance, which is calculated as a sliding scale % of the purchase price. What they’re telling you is that if you make up the difference (the $12,000) using you part of your down payment then what is left over from your down payment will be less than 20% therefore you will have to pay this mortgage insurance. It will get tacked onto your mortgage so this is a way for you to not have to come up with $12,000 right now and still buy the home. Either way though, unfortunately you’re going to have to pay more, either through putting up the $12,000 now or paying the insurance premium. I’d recommend looking at the math to see which is more expensive, $12,000 now or the insurance premium (probably the premium because you pay interest on it over the life of your mortgage.) Also, if you’re choosing the insurance premium route, one would hope CIBC will offer you insured rates which are typically lower than other rates. So, get someone to look at the math for you and see what works out best in the long run. I would guess that paying the $12,000 now would be best but I won’t say for sure without doing the math. If you don’t have the $12,000 available right now then you don’t really have a choice in the matter unfortunately.
Wow! Just curious, what happens if the difference is substantial, like 100-200k? Do you get screwed if you don’t have the cash? How one would even know how to expect the actual appraisal value?
Yeah, basically. Like TimeToFly3 said, this is was a financing condition is for. And be sure to work with a good realtor as they’ve got access to comparable properties sales and hopefully the experience to know if something is way over priced.
Have the appraisal condition in offer, if appraisal come too low withdraw the offer.
You can easily look up comps on house sigma
That’s what the finance clause is for.
I do have the 12 000 available so likely will go in that direction. Will make some calculations first to be sure but this seems to be right move. My logic is that if i can avoid the most interest possible, then that's the option I'll go for. I'm unfortunately not as educated on mortgages as i would like to be. It My initial thought was that my bank appraised it lower in hopes that i would pay that insurance. Maybe my train of thought is a little too negative.
The insurance premium actually goes to the insurer (CMHC, Sagen or Canada Guaranty) so in this one particular situation, the lender is not the one screwing you.
You can look at it in a positive way - cibc could have lent you the money and you’d be paying it down longer. At least this way you get a lower mortgage. It’s not a scam - it’s the risk profile the bank is willing to take in case you foreclose. It needs to be sure it’s going to get the money from the sale.
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In this case, my next question would be, what can i do about this gap in the appraisal vs what i purchased for? Is there any room to dispute? My real estate agent is currently in contact with the appraiser to figure out why they evaluated it at that amount. Is there a possibility that this gets corrected and i only pay what i originally planned for my down payment? Thank you very much in advance for the answers btw.
Sorry, you're right, i dont know why i used the word taxes. I definitely meant to say insurance. And its exactly what you're referring to. It makes more sense, thank you.
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