Recent Financing Q1 2017
WH recently completed a mortgage investment during Q1 2017 and I am pleased to share its investment details with you. Please find enclosed a summary of the reporting results and retain this document for your record keeping.
Mortgage amount: $35,000
Location: Oakville, ON
Loan-to-value: 64.00%
Duration: 12-months
Mortgage amount: $35,000
House value: $960,000
Property type: Single-family, owner-occupied and detached
Borrower occupation: Registered nurse (13-year employment tenure)
Purpose: Debt consolidation
The Story
Aside from its many positive attributes, this is a particularly fruitful transaction predominantly because of the story behind it.
In this particular case, the borrower’s original mortgage is held with RBC in a standard 5-year closed tem. In addition, she also holds approximately $35,000 in outstanding credit card debt paying an astonishing interest rate of 21.99%. Some may question how an individual can accumulate such a large amount of debt and the answer is unpretentious – by using their credit cards on a continuous basis and repaying only the minimum monthly amounts. Over time, this debt balance will quickly rise.
Paying 21.99% annual interest on a $35,000 balance is quite expensive. The solution, however, is to lower this obligation by paying it off with a cheaper cost of debt – in other words a mortgage.
Unfortunately for the borrower, and like many Canadian mortgage consumers, the original mortgage with RBC is locked-in for a 5-year period. As a result the bank is unable to adjust or increase the mortgage amount by an additional $35,000 – in order to pay off the higher interest debt – until the 5-year term has matured leaving the borrower trapped.
Due to the conservative loan-to-value ratio of 64%, some may believe the issue with this transaction is that the invested amount is only $35,000. However, this is the very essence of our foundation – to allocate investment capital in small portions to a vast array of wonderful borrowers. The volume of disconnect between banks and mortgage consumers is unprecedented and although this transaction is small, WH has serviced approximately 35 borrowers during Q1 2017 ending March 31st at an average mortgage size of $53,000 CAD and a weighted average loan-to-value ratio of 73.48%.