So in this installment of the #OwnGrowProtect Social FAQs series, we are going to email... that is right, email is still a thing and it is social. Actually the request came through the form on our contact page. If you have a question for us and don't want to make it public, please consider completing that form, we promise to get back to you!
To remain confidential, rather than post the original email here in all its glory, I am taking this opportunity to talk around a couple of misconceptions people have with debt and how it can [can't] be covered by mortgage financing. There are really 2 scenarios, purchase & refinance.
Can I refinance my debt with a mortgage without owning a home? Nope.
Can I add my truck payment to my mortgage as I am buying a property? No again.
Mortgage Refinance For Purpose of Debt Consolidation
That is a mouthful! Here is where the terminology can get a little tricky if you are new to the mortgage game. If you want to 'refinance' or 'restructure' your debt and you do not own a property, this is typically called a consolidation loan. However if you do own a property, and want to restructure your debt, you might qualify for a 'mortgage refinance'.
Now where people get confused is, some people call a mortgage refinance a consolidation loan, where they should really call it a mortgage refinance for the purpose of consolidating loans...
What is a Loan to Value Ratio?
The loan to value (LTV) ratio is the ratio of the value of the mortgage compared to the value of the property. Let's say you were buying a house for $200k, if you put down 5% or $10k, you would be financing 95% of the value of the property - so your loan to value ratio would be 95%.
Currently in Canada, the maximum LTV when purchasing a property is 95%. The maximum LTV on a refinance is 80%.
I say currently, because these are the types of rules the government changes periodically to make housing more or less accessible to homebuyers. For example, in 2008, the maximum LTV on a purchase was 100% and the maximum LTV on a refinance was 95%. Here is an archieved blog post from July of 2008 where we announced the start of the changes.
Since that first blast in 2008, the federal government has become increasingly concerned with the amount of household debt Canadians are carrying and have significantly reduced the maximum LTV on refinancing property and the total length you can pay off your mortgage. Here is an archieved blog post from March of 2013 that summarizes the changes over the last 5 years and even tries to guess what