There has been a lot of media attention to the increase in real estate value to start 2021, and in turn, more conversations about million dollar mortgages or more specifically, the increase in the average size of mortgage.
With limited real estate supply in certain markets combined with high demand for real estate, historically low interest rates, some movement from urban to suburban, a strong equity market (and Bitcoin) and less spending on leisure, its fairly obvious why the average mortgage size has increased and the term "million dollar mortgage" has been thrown around.
But before we dive into the life of financing luxury real estate its important to understand the parallel universe that coexists for a mortgage brokerage that is exposed to a lot of clients. When the pandemic gained media attention in March 2020 a lot of our mortgage brokerage focus shifted to supporting our clients and referral sources in need. We were early adaptors in communicating with the market on how we would operate in the real estate sector as a mortgage brokerage - keeping you safe, while adapting to a more virtual business model. Fortunately, we have been operating with remote services for years and our industry partners from realtors, lawyers, lenders and many more also adapted so that real estate could continue to operate as safely as possible. Business came from a perspective of compassion as many individual lost jobs and suffered both professionally and personally and that is where our attention went. Deferred mortgage payments, restructuring debt, opening up equity, niche lending solutions and general advise were the norm.
However, at the same time our business for high net worth clients was also growing, a segment thats fairly niche but we have always been very exposed to. As a mortgage brokerage and broker that focuses a lot of attention on creative lending solutions for high net worth clients, business for self and construction clientele we provided a lot of fun and unique lending. In the movement from urban to suburban we financed a significant amount of vacation properties in cottage country like Muskoka & Halliburton and even financed multiple island properties including the support of land acquisition and construction. In fact, all over the GTA we saw an uptick in purchasing for major renovation and builds. In a lot segments within Oakville, Burlington, Mississauga, Toronto, Muskoka and waterfront spending west toward Grimsby - all mortgage we do are over one million. With that being said, there is a large difference between requiring a large mortgage and wanting a large mortgage. For a lot of our clients, the mortgage could be dramatically smarter but leverage in a market with low interest rates and a hot equity market tends to make a lot of sense.
So what does getting a mortgage for one million dollars look like?
-With no household debt and pending your property taxes you require a minimum gross household income of $200,000 to qualify for one million dollars. If you have other debt and high property taxes your income naturally will have to increase.
-You are required to qualify over the "stress test" rate of 4.79%.
-You need to understand what a sliding scale is, with regards to down payment. Generalizing lenders - you require 20% down payment on the first $1.5M in purchase price, meaning the lender provides 80%. Above $1.5M in purchase price, you require roughly 40% and the lender will provide 60% of the remainder of the purchase price in the form of a mortgage. On a $4M purchase price that means $1.2M mortgage on the first $1.5M purchase price and $1.5M mortgage on the remainder purchase price. In total $2.7M in lending against $4M valuation or 67.50% loan to value - not 80% as many people assume (although we do have some programs that allow for this).
-Income is generally required on your personal tax return to qualify with the majority of lenders (some exceptions to this rule)
-If your business for self and not filing high enough personal income to debt service the mortgage BUT you can debt service it through your revenue, there are programs to support business for self clients in obtaining multi million dollar mortgages.
-Payment per $1M borrowed costs between $4,000/month to $4,200/month pending the rate and terms.
-Net worth lending is available with many qualifies but allows for clients with large net worth and filing lower income than necessary to qualify the ability to obtain a million dollar mortgage.
Scott Westlake
Founder The Westlake Team, Part of Dominion Lending Centres
Licensed Mortgage Agent