Case Study: Navigating Mortgage Refinancing for Non-Resident Canadians
Case Study: Navigating Mortgage Refinancing for Non-Resident Canadians
Avoiding Common Pitfalls When Refinancing from Abroad
Refinancing a property in Canada while residing outside the country can present unique challenges, particularly for non-residents with complex financial and business structures. This case study explores the intricacies faced by a non-resident Canadian—a doctor living in California—seeking to refinance a property in Canada. This example highlights critical considerations for non-resident property owners and prospective buyers.
Background
Our client, a physician based in California, aimed to refinance a property he owned in Canada. The client's financial situation was complicated by several factors: he earned income solely in USD, did not file Canadian taxes, and held the property through a holding company. This arrangement was initially made for strategic tax reasons and liability protection.
Challenges Encountered
Income and Tax Status: The client's USD income and non-filing of Canadian taxes posed challenges. Most Canadian lenders are hesitant to work with non-resident clients who do not report Canadian income. This necessitated a lender who could accommodate foreign income and understand the nuances of cross-border tax implications.
Holding Company Structure: The property was owned by a holding company with the client’s brother listed as a director. Although the brother held no shares, this arrangement led to complications with certain lenders. Specifically, some lenders were unwilling to proceed due to the involvement of the brother in the company, despite his minimal ownership stake.
Guarantee and Liability Issues: The client sought to apply for the mortgage in his name alone but faced difficulties because of the holding company’s structure. Lenders required that the individual applying for the mortgage be fully responsible for the loan, which was problematic due to the presence of the brother on the company’s title.
Solutions and Recommendations
To address these challenges, the following steps were crucial:
Selecting the Right Lender: It was essential to identify lenders who accept foreign income and are familiar with holding company structures. This meant finding lenders willing to overlook certain complexities in the holding company’s ownership while accommodating non-resident income.
Document Preparation: The client needed to provide detailed documentation of his financial status, including cash flow statements and bank statements from his USD accounts. Ensuring all documents were accurate and comprehensive was vital for qualifying for the mortgage.
Holding Company Adjustments: For future transactions, it is advisable to structure holding companies with clear and direct ownership to avoid complications. This ensures that the primary individual involved in the property has sole responsibility for mortgage guarantees.
Conclusion
Navigating the mortgage refinancing process as a non-resident Canadian requires careful consideration of several factors, including income sources, tax status, and corporate structures. By addressing these challenges proactively and working with knowledgeable lenders, non-resident property owners can successfully manage their real estate investments in Canada.
For personalized advice and to explore how these principles apply to your specific situation, contact us to discuss your case. Understanding the intricacies of refinancing as a non-resident can help you make informed decisions and streamline the process.
THE BOTTOM LINE
By equipping yourself with a thorough understanding of the unique challenges faced by non-resident Canadians when refinancing or purchasing property, and leveraging the specialized expertise offered by mortgage professionals, you can effectively navigate the complexities of the Canadian mortgage process. Gaining insight into these challenges and exploring tailored solutions will facilitate a smoother refinancing experience and help you achieve your real estate goals in Canada.
Level Up Mortgages is a mortgage broker team focused on helping the self-employed, new immigrants, non-residents, and investors access the best rates and alternative lending in Canada. We have been nominated for the Best Up and Coming Broker in Canada in 2021 and have been featured on CTV News and various publications due to our education-first approach. Our mission is to help you always stay a step ahead in the process.
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Paul Davidescu (www.levelupmortgages.com)
Level Up Mortgages
604-809-3188
paul(at)levelupmortgages.com
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