Refinancing a property is usually an expensive proposition that entails costly appraisals as well as fees that can add up to thousands of dollars, which often hold home owners back from reworking their loans to take advantage of dropping interest rates.
With that in mind, Scotiabank recently launched the “Switch your Mortgage” program, offering property owners the chance to change the terms of their Federal Housing Administration-backed loan sans the burden of having to pay closing costs, which Scotiabank will cover up to $10,000.
Carlos Mántaras, vice president of sales at Scotia Mortgage, explained that the program is designed for people looking to improve their economic situation by refinancing a property that is lacking equity to cover the associated expenses. These days, scores of homeowners are paying for homes that are worth less than what they owe as a result of tanking property values.
Through the program, customers with existing FHA loans can apply for a new FHA loan with a lower interest rate, 4.5 percent, through what is known as a streamlining process. This procedure does not require appraising the property and allows refinancing the outstanding balance of the current loan without the burden of closing costs, he said.
“This product targets people with loans whose interest rates are above 5 percent and who would like to lower that but cannot afford the closing costs,” he said. “Right now, at least 50 percent of Scotiabank’s mortgage loans carry an interest rate of 5 percent or higher.”
The second option allows customers with conventional loans to completely rework their financing terms and switch to an FHA loan. This alternative requires appraising the property, but in turn, the applicant is allowed to include the FHA’s required mortgage insurance premium — equivalent to 1 percent of the value of the loan — in the payment plan.
“Normally, regular loans do not allow for refinancing closing costs. In this case, we’re paying them,” Mántaras said. “If the refinanced property has equity, then there’s no problem because the customer can include closing costs in the transaction. But what happens more often than not is that there is no equity, so the customer is stuck.”
Scotiabank launched the “Switch your Mortgage” program last Wednesday in Puerto Rico, after successfully introducing the offer in Canada, the Dominican Republic, the British Virgin Islands and Jamaica. The offer will be valid through March 18, with a loan-closing deadline of April 15, Mántaras said.