1. The 4 Debt Contracts

2. The 4 Debt Contracts Has anyone ever taken the time to inform you
about the 4 Types of Debt Contracts?
*NB Declaration: Please remember, I am not a mortgage broker, nor do I hold myself out to be a mortgage broker. These are Simply 4 Types of Debt Contracts typically available to consumers through licensed professionals.

3. The 4 Debt Contracts Mortgage (Traditional)
Secured Line of Credit / HELOC (Regular)
HELOC (Special)
Self-Directed Mortgage (Rare)

4. Contract #1 Traditional P I Blend Monthly Bi-weekly Weekly Rate V/F
5% Purchase or
20% Refinance
Banks,
Brokerages,
Private Lenders
P I
Blend
Monthly
Bi-weekly
Weekly
Rate V/F
Term 6mo-10yr
Freq 1Wk-1Mo
Amort 25-40yr
Pen 3Mo +/or IRD
Set Up Fees:
Legal, Appraisal
Admin.
P I
6mo
First column: We find these types of products sold through the following: banks, brokers and private lenders, trusts and credit unions.
Second column: We just don’t send them a little bit of principle and a lot of interest; we send them the full amount. They send us a statement at the end of the year telling us which is which.
Third column: What bugs me about the amortization period is the lender uses this number as a fictitious number to when you will be debt-free. In reality, they hold it as a constant when the three factors above are generally variables. How can you have a constant with three variables?
Fourth column: For our purposes, compound interest is defined as “payment of interest on principle amounts which has already been returned.”
Semi Annual (Compound):

5. Contract #2 Regular HELOC On the “highest” balance 14th 15th 16th
20-35% Purchase or
Refinance
SLOC / HELOC
Banks,
Brokerages,
Private Lenders
On the “highest” balance
14th 15th 16th
Rate V/F
Term Open
Freq Monthly
Amort Open
Penalty: None, with possible Admin Fee
Set up Fees
P I
Only
10K
10K
Regular HELOC: We say regular or common because we find these products sold by common vendors – the same banks, brokerages, credit unions, trusts and private lenders as above. You are required to have 20% equity.
Second column: This contract separates principle and interest. You can make interest only payments if necessary. We need to know what is required of our payments.
Third column: Most often variable rates, with an Open term – Open being that the lender may require a full repayment of all debt based on a demand note or you can pay it off at any time without penalty. Interest must be accounted for once a month. Amortization is the result of rate, term and frequency. The Canadian success story is retiring your debt before you retire. Set up fees are generally Promissory Notes with collateral assignment to a property. Fees may be charged at the registry office in the local jurisdiction of Land Titles.
Fourth column: Again, compound interest for our purpose is the calculation of interest for which principle has already been returned. Interest is calculated on the highest balance over the statement period. In the example above, they tricked us. What are the chances they’d try to trick us again? If you borrow $25,000 on the 14th of the month and return it on the 16th, you could pay interest for up to 60 days. Some institutions may use mean, median or average balance, depending on their contract.
Or the average balance over the statement period
Up to 60 days
(Compound)

6. Contract #3 Special HELOC 20-35% Purchase or Refinance SLOC / HELOC
P I
Only
Rate V/F
Term Open
Freq Monthly
Amort Open
Penalty: None
Or admin fee
Set up fees: maybe
24 I 24
10K
10K
Some Credit Unions
TD (46% market share) ↓
Manu (Cash Management)
Combo Cheq Account
No Minimum Payment
up to 15 Sub Accounts
NO set-up or legal fees
First column: Special – Why? Because there are very few vendors with this product available.
Second column: This contract separates principle and interest. We need to know what is required of our payments.
Third column: Most often variable rates, with an Open term – Open being that the lender may require a full repayment of all debt based on a demand note. Set up fees are generally Promissory Notes with collateral assignment to a property. Fees may be charged at the registry office in the local jurisdiction of Land Titles.
Fourth column: For our purpose, simple interest is interest paid on the actual balance in a 24-hour cycle.
We prefer ManuLife One as it is better utilized when structured as a cash management tool.
Daily Balance
Simple Interest
2 Days

7. Contract #4 SD RRSP $300 K $400K Rare BANK $200K @ $1400/mo $1400/mo
35% Purchase
or Refinance
SD MTG
Trusts with
Intermediaries
$400K
BANK $200K @
$1400/mo
$100K
$200K
$200K
In this case, rare indicates than less than 2% of the population we have surveyed are aware of this structure. Less than 1% utilize it.
I suggest at least 35% available in equity before attempting this strategy.
$1400/mo
Bank gets to lend out your monthly deposit approx 10 TIMES!!

8. Contract #4 A Trustee is required
Trustee may limit how much of RRSP can be used for this type of investment
Trustee, Legal and Admin Fees apply
The borrower must financially qualify independently as if a third party
Default still results in Foreclosure by CMHC