New condo buyers are often blindsided by interim occupancy fees—between moving into their unit and the building being registered, the purchaser can’t secure a mortgage until title ownership is transferred into their name, so they pay the builder interest on the remaining balance, as well as maintenance fees and property taxes—but FCT has eliminated that cumbersome process.
The title insurer has invested in OneClose Inc., a technology firm that provides financial conveyancing solutions, to help new condominium buyers forgo paying the “phantom mortgage,” which is the first step in closing on their unit. The partnership enables condo purchasers to obtain mortgage financing between the occupancy and condo registration dates.
“Under the Interest Act, which is based on the Bank of Canada’s posted one-year mortgage rate, which sits at 3.09% today, even though consumers can probably get a mortgage at 1.79-1.89%, they just pay more interest to rent from the developer,” said Michael LeBlanc, CEO of FCT. “The value to FCT is the opportunity to streamline the process to allow the purchaser to get a mortgage at time of occupancy and pay the balance of the purchase price to the developer and begin making mortgage payments.”
LeBlanc noted that buying a new condominium unit is unnecessarily chaotic and presents unmitigated risks for buyers, lenders and developers. For real estate investors, in particular, the risk can be especially pronounced.
“The value to the investor is that there’s no interim closing, so the investor can negotiate whatever terms they want on whatever credit they’re using, including a mortgage, to purchase a condo,” he said. “That rate is always substantially less than the Bank of Canada’s one-year mortgage rate if they were to pay the interim closing process.”
OneClose launched about two years ago, but FCT only made its investment in the company last month.
Michael DiPasquale, a CPA and COO of Dunpar Homes, welcomes the FCT-OneClose initiative and says builders would prefer registering their buildings as soon as possible and collecting closing money rather than occupancy fees.
“Builders would be on board with this because they can get their money out faster and the purchaser gets their mortgage, and they don’t have to call it rent. It makes sense because the purchaser has legal rights and ownership over the property,” he said.
“It would close quicker, too. If the builder is occupying the first floor and they can get their money out of those units faster, they’ll have the money to finish the rest of the units quickly. A builder can struggle with their lender to build more floors when they have to put out all this money, so the initiative helps close things. And buyers would be happy if they closed and the title transferred a lot quicker as well.”
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