It has been a truly amazing week for economic related news in
Canada. We have the head of Bank of Canada heading off to more
challenging pastures of old the world, England. One of his parting
gifts was a hold of the bank rate which means that variable rate loans
will hold tight for the time being and overall mortgage rates remain as
low as ever.
The Bank has indicated that our economic activity
is weak with expansion driven by consumption and business investment.
It seems we, households, continue to increase our debt burden. They are
predicting a return to 2% inflation, their target, over the next 12
months. If that happens then they will start to increase rates, but
there is always the caveat of what might be going on int he rest of the
world and our personal debt levels, now sitting at 163% of disposable
income. When rates do go up I think there will be a lot of people in
trouble. If people can just afford their debts at current rates, tack
on 2% and see how affordable the choices become. I am strongly advising
people to get their debts to manageable levels over the next 5 years on
the assumption that their mortgage rates will be 2% or more higher. If
I am wrong about an increase, then good they are ahead. If I am right
then they may not loose sleep when the day comes to reset their
mortgage. If people do not get debt under control it will affect
spending down the road and could drag out the downturn.
The
tighter mortgage rules and the higher cost of housing in general is
having the expected effect of slowing the markets and the recent reports
indicate a slide in sales and a softening in prices. I like that TREB
blames the mortgage rules, but really if people are not getting big pay
increases and unemployment, while improved, is still quite high in
Ontario, even without the mortgage rules there is going to be a point at
which people have bought what they can afford and can afford to go no
higher. The shift from 416 to 905 is not just about land transfer tax
it is about things like a difference in detached housing prices of
$184,735 and I bet that amount buys more yard and space. I would love
to see comparable figures that included those elements. So for almost
$200K people move a little further out. Surprise? No.
So in
some cases the bidding wars are past. The condo market however seems to
have taken the biggest hit on the resale side with the number of
transactions down by 25.5% with the biggest declines in prices being in
Toronto. Otherwise the overall seems to be fairly stable.
I
think relative stability is probably good for a while then prices can
better match overall economic conditions and maybe the debt burden to
get into the market can be more proportional to what is affordable over
the long term.
The good news is that Stats Can has come out with
some nice news for the holidays with improved job numbers with 59,300
new jobs in November. YEAHHHH!!! Economists varied widely in their
predictions, i.e., there were a lot of bad guesses, but it does help in
the short term. The "BUT" in this one is that there have already been a
lot of announcements of pending layoffs and big wigs are not willing to
call the good news a trend. They are popping the balloon early this
time so we do not get to happy about it. Frankly, whatever happens the
new jobs has bought families time and peace of mind and that has got to
be good for consumer confidence.
Friday, December 7, 2012
Why Use A Mortgage Broker/ Agent?
What is a Canadian Mortgage Broker?
Canadian Mortgage brokers are independent, trained professionals licensed to represent and provide you with the best advice for your mortgage needs.
Mortgage brokers primary expertise is locating funding for mortgage financing. They know where the best rates can be found. What's more, they have the knowledge required to present a proposal for financing to lenders in the best way possible to successfully obtain mortgage financing.
Why deal with a mortgage broker in Toronto?
Mortgage brokers represent you, the customer, not the lender. Because they are not employees of a lending institution, brokers are not limited in the product they can offer you. brokers seek out the best lender package to suit your specific situation, whether it’s with a Chartered Bank, Trust or Insurance Company, or Private Funds.
There is a wide assortment of options and features available to homebuyers today. Shopping around takes a lot of time and effort. The mortgage process within today's very competitive marketplace intimidates many Canadian homebuyers. It pays to work with a mortgage professional who will represent you and ensure the mortgage you get is the one best suited to your needs.
Choosing the wrong mortgage can cost you thousands of extra dollars. Mortgage brokers are trained professionals who can help you save on your mortgage dollar.
Other than rates, why should I use a mortgage broker?
In addition to rates, because mortgage-based financing is the broker's primary business, he or she has developed expertise in what type of mortgage financing each lender prefers to pursue. This kind of knowledge not only results in the most favourable rates for each project, but often whether a project is funded at all.
How do mortgage brokers find the best rates?
Interest rates are a concern to borrowers. Because of their daily contact with lenders, brokers know which project or home attracts a favorable interest rate from one institution, but a higher rate at another. Some institutions, in fact, will only accept mortgage submissions from mortgage brokers.
These rates, and preferences for types of mortgages, can change daily, depending on economic circumstances or based on the size of an institution's portfolio in a particular type of mortgage. Your mortgage broker keeps current and knows which lender to approach first. As a result, mortgage rates obtained by brokers are among the best available at the time of placement.
Why should I go to a Canada mortgage broker first?
A professional presentation to a lender on the first application will get the best response and save you valuable time and money. Secondary applications with previous credit bureau inquiries may be more costly.
Often the success of obtaining mortgage approval depends on the way a proposal is presented and to whom it is sent. Your mortgage broker is trained to present your mortgage proposal where and how it will get the most immediate, positive result.
You don't call an insurance company for insurance - you use an insurance broker, because of their expertise, product knowledge and rates. So remember, call your mortgage broker first!
Do Canada mortgage brokers only do residential mortgages?
Brokers can place all types of loans provided they are backed by mortgage collateral. This includes small loans backed by a residential property to million dollar commercial loans backed by commercial property. Mortgage-backed loans in the millions are not uncommon with private pension funds and private lenders.
In addition to handling straight mortgages, mortgage brokers are often called on to assemble financing ( based on mortgage collateral) for businesses. Mortgage brokers excel in this type of financing package because of their expertise in looking at loans from a mortgaging perspective, as well as their knowledge of financial institutions' interests and desires for a particular product at specific times.
How do Canada mortgage brokers get better deals than many banks?
The lenders who work with mortgage brokers include traditional sources, such as chartered banks, trust companies, as well as corporate and private pension funds.
In addition to these sources, brokers often develop professional relationships with private sources of funds, termed private lenders. These lenders can provide many various mortgage products not available at conventional sources. For best results call your Broker first.
Can I still go through my bank with my mortgage broker?
Yes, letting a mortgage broker represent you to your own financial institution can often result in a better mortgage rate than you could get on your own.
Canadian Mortgage brokers are independent, trained professionals licensed to represent and provide you with the best advice for your mortgage needs.
Mortgage brokers primary expertise is locating funding for mortgage financing. They know where the best rates can be found. What's more, they have the knowledge required to present a proposal for financing to lenders in the best way possible to successfully obtain mortgage financing.
Why deal with a mortgage broker in Toronto?
Mortgage brokers represent you, the customer, not the lender. Because they are not employees of a lending institution, brokers are not limited in the product they can offer you. brokers seek out the best lender package to suit your specific situation, whether it’s with a Chartered Bank, Trust or Insurance Company, or Private Funds.
There is a wide assortment of options and features available to homebuyers today. Shopping around takes a lot of time and effort. The mortgage process within today's very competitive marketplace intimidates many Canadian homebuyers. It pays to work with a mortgage professional who will represent you and ensure the mortgage you get is the one best suited to your needs.
Choosing the wrong mortgage can cost you thousands of extra dollars. Mortgage brokers are trained professionals who can help you save on your mortgage dollar.
Other than rates, why should I use a mortgage broker?
In addition to rates, because mortgage-based financing is the broker's primary business, he or she has developed expertise in what type of mortgage financing each lender prefers to pursue. This kind of knowledge not only results in the most favourable rates for each project, but often whether a project is funded at all.
How do mortgage brokers find the best rates?
Interest rates are a concern to borrowers. Because of their daily contact with lenders, brokers know which project or home attracts a favorable interest rate from one institution, but a higher rate at another. Some institutions, in fact, will only accept mortgage submissions from mortgage brokers.
These rates, and preferences for types of mortgages, can change daily, depending on economic circumstances or based on the size of an institution's portfolio in a particular type of mortgage. Your mortgage broker keeps current and knows which lender to approach first. As a result, mortgage rates obtained by brokers are among the best available at the time of placement.
Why should I go to a Canada mortgage broker first?
A professional presentation to a lender on the first application will get the best response and save you valuable time and money. Secondary applications with previous credit bureau inquiries may be more costly.
Often the success of obtaining mortgage approval depends on the way a proposal is presented and to whom it is sent. Your mortgage broker is trained to present your mortgage proposal where and how it will get the most immediate, positive result.
You don't call an insurance company for insurance - you use an insurance broker, because of their expertise, product knowledge and rates. So remember, call your mortgage broker first!
Do Canada mortgage brokers only do residential mortgages?
Brokers can place all types of loans provided they are backed by mortgage collateral. This includes small loans backed by a residential property to million dollar commercial loans backed by commercial property. Mortgage-backed loans in the millions are not uncommon with private pension funds and private lenders.
In addition to handling straight mortgages, mortgage brokers are often called on to assemble financing ( based on mortgage collateral) for businesses. Mortgage brokers excel in this type of financing package because of their expertise in looking at loans from a mortgaging perspective, as well as their knowledge of financial institutions' interests and desires for a particular product at specific times.
How do Canada mortgage brokers get better deals than many banks?
The lenders who work with mortgage brokers include traditional sources, such as chartered banks, trust companies, as well as corporate and private pension funds.
In addition to these sources, brokers often develop professional relationships with private sources of funds, termed private lenders. These lenders can provide many various mortgage products not available at conventional sources. For best results call your Broker first.
Can I still go through my bank with my mortgage broker?
Yes, letting a mortgage broker represent you to your own financial institution can often result in a better mortgage rate than you could get on your own.
Thursday, October 25, 2012
Comment on Bank of Canada report
The Bank of Canada came out with the 2
reports this week. The first as I am sure you have heard is holding
interest rates firm so there will be no impact on any variable rate
loans people might have. All good news for those trying to lower their
debt load. The news that came out with the report though, while as
careful as ever, does indicate that Canada is doing fairly but global
conditions are not looking to help raise the boat any time soon.
In summary, the US is not doing too badly with some forward momentum, Europe is still on the down slope and China and other emerging economies have slowed "somewhat" more than expected. They also indicate that the rates of growth might be stabilizing, but the "somewhat" makes me think they may be being optimistic. It is good news that our commodities are holding us up as prices have increased.
I did like the call for our economy to be at full capacity by the end of 2013. I also like the dichotomy of talking about our growth is related to consumption and the concern over household debt burden. I heard a comment on CBC that summed this up well. They want the people that can afford to build debt to spend and keep the economy going, sort of like the encouragement the US gave people before the collapse, but they also want those who cannot afford the debt to pay it down so we do not collapse. Somewhere in there I guess there is a happy middle ground of debt where people keep the economy going but do not collapse the system. This also assumes people are good judges of where that is. All I can say is that I hope people are getting the advice they need to make good decisions.
The sad news is for our industry is that they expect housing activity to decline from historically high levels and a high dollar to continue. They also expect inflation to get back to the 2% target range by the end of 2013. The rest of the piece says essentially that they would like to raise rates, but can't.
So, assuming these very smart people have a handle on things we are not looking at any major mortgage rate changes for the next year or so. There will be the small ups and downs we have come to see, but we will probably remain in historically low territory for the foreseeable future. Great news for home buyers and people renegotiating their deals.
In summary, the US is not doing too badly with some forward momentum, Europe is still on the down slope and China and other emerging economies have slowed "somewhat" more than expected. They also indicate that the rates of growth might be stabilizing, but the "somewhat" makes me think they may be being optimistic. It is good news that our commodities are holding us up as prices have increased.
I did like the call for our economy to be at full capacity by the end of 2013. I also like the dichotomy of talking about our growth is related to consumption and the concern over household debt burden. I heard a comment on CBC that summed this up well. They want the people that can afford to build debt to spend and keep the economy going, sort of like the encouragement the US gave people before the collapse, but they also want those who cannot afford the debt to pay it down so we do not collapse. Somewhere in there I guess there is a happy middle ground of debt where people keep the economy going but do not collapse the system. This also assumes people are good judges of where that is. All I can say is that I hope people are getting the advice they need to make good decisions.
The sad news is for our industry is that they expect housing activity to decline from historically high levels and a high dollar to continue. They also expect inflation to get back to the 2% target range by the end of 2013. The rest of the piece says essentially that they would like to raise rates, but can't.
So, assuming these very smart people have a handle on things we are not looking at any major mortgage rate changes for the next year or so. There will be the small ups and downs we have come to see, but we will probably remain in historically low territory for the foreseeable future. Great news for home buyers and people renegotiating their deals.
Friday, October 19, 2012
Mortgage Fraud - CMHC provides great information
I could write something up here myself, but I think the CMHC site has a great piece that is worth highlighting. So here is the link and a copy of the piece. I think the more people that see it the better. Thank you CMHC.
http://www.cmhc-schl.gc.ca/en/co/buho/plmayomo/plmayomo_004.cfm
There are several different forms of mortgage fraud. One of the most common is when a con artist convinces someone with good credit to act as a “straw buyer.”
A straw buyer is someone who agrees to put his or her name on a mortgage application for a home that someone else will be buying. Mortgage applications for straw buyers also often misrepresent other important information as well, such as their income, occupation and the real source of a down payment. In return for their participation, straw buyers may be offered cash or promised high returns when the property is sold.
While the promise of an easy payday may be tempting, consumers should be aware that in most cases, the fraudsters are the ones who walk away with all the profits, while the straw buyer is left “holding the bag” when the mortgage defaults. Consumers who knowingly take part in these frauds will also be responsible for any shortfall when the property is resold, and could even be held criminally responsible for their misrepresentation.
To find out more about mortgage fraud, visit the fraud prevention section of the Canadian Association of Accredited Mortgage Professionals (CAAMP) website at http://mortgageconsumer.org/protect-yourself-from-real-estate-fraud.
http://www.cmhc-schl.gc.ca/en/co/buho/plmayomo/plmayomo_004.cfm
Mortgage Fraud
How to Protect Yourself When Purchasing or Refinancing a Home
The promise of “easy money in real estate” can be hard to resist. But consumers who knowingly misrepresent information when buying or refinancing a home could find themselves becoming accomplices to mortgage fraud.What is Mortgage Fraud?
Mortgage fraud occurs when someone deliberately misrepresents information on a loan application, to obtain mortgage financing that likely would not have been approved if the truth had been known.There are several different forms of mortgage fraud. One of the most common is when a con artist convinces someone with good credit to act as a “straw buyer.”
A straw buyer is someone who agrees to put his or her name on a mortgage application for a home that someone else will be buying. Mortgage applications for straw buyers also often misrepresent other important information as well, such as their income, occupation and the real source of a down payment. In return for their participation, straw buyers may be offered cash or promised high returns when the property is sold.
While the promise of an easy payday may be tempting, consumers should be aware that in most cases, the fraudsters are the ones who walk away with all the profits, while the straw buyer is left “holding the bag” when the mortgage defaults. Consumers who knowingly take part in these frauds will also be responsible for any shortfall when the property is resold, and could even be held criminally responsible for their misrepresentation.
What Can You Do to Protect Yourself?
To protect yourself and your family from becoming victims of, or accomplices to, mortgage fraud, be an informed consumer. This means:- Never accept money, guarantee a loan or add your name to a mortgage unless you fully intend to purchase the property. If you allow your personal information to be used for a mortgage, even for a brief period, you could be held responsible for the entire debt even after the property is sold.
- Always know who you are doing business with. If you are buying or selling a home, use only licensed Real Estate Agents and other industry professionals. And never sign anything until you know exactly what you are signing.
- Determine the sales history of any property you are thinking about buying, and consider having it inspected and appraised. Ask for a copy of the land title search.
- Find out if anyone other than the seller has a financial interest in the home. If a deposit is required, make sure the funds are held “in trust” by the Vendor’s Realty company or lawyer / notary.
- Get independent legal advice from your own lawyer / notary. Talk to your lawyer / notary about title insurance and other alternative methods of protection.
- Be wary of anyone who approaches you with an offer to make “easy money” in real estate. Remember: if a deal sounds too good to be true, it probably is.
- Never give out your personal information until you know who you are dealing with and how your information will be used. This includes requests for information in person, by mail, or over the phone or Internet.
- Never reply to e-mails or phone calls that ask for your banking information, credit card details, passwords or other personal or sensitive information, particularly if you did not initiate the exchange.
- Review your mail, bank statements and other financial statements on a regular basis to look for any inconsistencies. If you don’t receive a bill on time, follow up with your creditors or service providers.
- Shred or destroy all personal and financial documents before you throw them away.
- Inspect your credit report on a regular basis by contacting Canada’s two credit-reporting agencies: Equifax Canada at www.equifax.ca and TransUnion Canada at www.transunion.ca.
Find Out More
If you suspect that you or someone you know has been the victim of mortgage fraud, contact your local police department immediately.To find out more about mortgage fraud, visit the fraud prevention section of the Canadian Association of Accredited Mortgage Professionals (CAAMP) website at http://mortgageconsumer.org/protect-yourself-from-real-estate-fraud.
Friday, October 12, 2012
Value of buying whatever the market.
It is
interesting, this week I heard from some realtors, one side said things
are normalizing and sales will move slower and others remain confident
that the hot properties will disappear in days. I guess really it comes
down to what the seller expects in price, bidding war with high
expectations or OK with something closer to the most recent sale in the
area?
There are more articles out than usual about the state of the market. The naysayers and the "keep the optimism going" crowds battling it out for the hearts of the public. I know that any spin can be put on most of the numbers that are out there, but it does seem to me that the drop in sales is real and if prices drop OK. I do like the piece by Gail Johnson. Basically it supports buying a home in any market, assuming you are planning to stay. The interest rates are low and it is a hard deal to beat.
I was thinking about people buying homes in the 70s, since then we have had some pretty mad swings in the market, but think of this example.
If in 1972 someone bought a home in Toronto for $125,000, today, according to the Bank of Canada calculator, that amount would be $685,810.81 (love the pennies), if nothing major is done to that house over all those years other than maintenance, repairs, paint, carpet, roof, new heating and cooling etc., the house might be worth some $2 million on the market today. In the meantime, the family would have had a house to live in, bills to pay and maintenance. I somehow do not think that the cost of maintaining the home exceeded the $1.31 million markup plus the rent they would have paid had they not bought the house in the first place. So they would probably come out ahead. Therefore, I tend to agree, buying a home is worthwhile if you plan to stay, flipping has risks and sometimes things happen that cause people to move for work or personal reasons, but even that might get worked out if the buying and selling are happening in the same up or down market.
OR Look at things another way. Allowing strictly for inflation a house bought in 2005 for $450K, would now cost $509,860.47, now the actual value of the house because of the recent boom years means it is probably closer to $630,000, again without major renovations. It would mean clients would have to save almost $200K in 7 years, now while possible for some not always feasible.
Why are you considering a home? What are your long term goals, if you are looking longer term but worried about a drop in the value, then consider houses that can be renovated down the road to accommodate the changing needs of the family.
There are more articles out than usual about the state of the market. The naysayers and the "keep the optimism going" crowds battling it out for the hearts of the public. I know that any spin can be put on most of the numbers that are out there, but it does seem to me that the drop in sales is real and if prices drop OK. I do like the piece by Gail Johnson. Basically it supports buying a home in any market, assuming you are planning to stay. The interest rates are low and it is a hard deal to beat.
I was thinking about people buying homes in the 70s, since then we have had some pretty mad swings in the market, but think of this example.
If in 1972 someone bought a home in Toronto for $125,000, today, according to the Bank of Canada calculator, that amount would be $685,810.81 (love the pennies), if nothing major is done to that house over all those years other than maintenance, repairs, paint, carpet, roof, new heating and cooling etc., the house might be worth some $2 million on the market today. In the meantime, the family would have had a house to live in, bills to pay and maintenance. I somehow do not think that the cost of maintaining the home exceeded the $1.31 million markup plus the rent they would have paid had they not bought the house in the first place. So they would probably come out ahead. Therefore, I tend to agree, buying a home is worthwhile if you plan to stay, flipping has risks and sometimes things happen that cause people to move for work or personal reasons, but even that might get worked out if the buying and selling are happening in the same up or down market.
OR Look at things another way. Allowing strictly for inflation a house bought in 2005 for $450K, would now cost $509,860.47, now the actual value of the house because of the recent boom years means it is probably closer to $630,000, again without major renovations. It would mean clients would have to save almost $200K in 7 years, now while possible for some not always feasible.
Why are you considering a home? What are your long term goals, if you are looking longer term but worried about a drop in the value, then consider houses that can be renovated down the road to accommodate the changing needs of the family.
Friday, September 14, 2012
Inflation & housing
I am sure you have heard that the Fed (US Federal reserve bank) has opened the floodgates of new money to bolster the US economy. All this in a bid to boost jobs in the US and help the US economy get out of the LONG slump.
The good news is that your stock portfolio should have seen a bump, and interest rates are likely to stay low. The bad news is all that money flowing around will have a real cost in the long term.
For the younger people out there inflation, I mean real inflation, might conjure vague memories from economics 101 or some article you might have read in the paper. The real effect of inflation is significant for the average person. I am not talking about the target inflation of 2%, I am referring to real double digit inflation.
High inflation means prices go up, but sometimes not everything goes up at the same rate and some things might even drop. One example was in the US when oil jumped to an all time high of $148 a barrel and house prices dropped 31% in 2008.
So what?
Let us take a real world example of high inflation and while I believe governments and banks will do everything to prevent this level of chaos it has happened before and as we know humanity seems destined at some point to repeat the mistakes.
For every example out there i am sure there is a "Yeah, but..." just remember how close the disaster was in 2008.
From wikipedia
The Fed has kept up a consistent pace to feed this inflation first in the spring and then this week. No one has put a date on when this "debt" is going to be paid for all the free money flowing into the European and US markets to bolster what is otherwise pretty depressing news, but most agree it will come.
The upside is we know it is coming and rates are low so what are the 3 big things you can do to protect yourself. While gold is often talked about and certainly many people flock to gold in uncertain times it is not for everyone. Number of sites have differing suggestions but here are three fairly common points, note that every strategy has an inherent risk:
I know the home one sounds self serving, but think about it. Rents can increase but if you lock in a rate you have stability and savings built in and when the home is paid off other than the standard overhead, taxes, maintenance and utilities, your housing costs are limited.
Consider your options. I would be happy to discuss how long term fixed rates can help some people and if you are bold we can discuss variable as I do not see any major increase this year or possibly next for the prime rate, some experts have even whispered about a drop, but I am not sure how they would ever manage that.
The good news is that your stock portfolio should have seen a bump, and interest rates are likely to stay low. The bad news is all that money flowing around will have a real cost in the long term.
For the younger people out there inflation, I mean real inflation, might conjure vague memories from economics 101 or some article you might have read in the paper. The real effect of inflation is significant for the average person. I am not talking about the target inflation of 2%, I am referring to real double digit inflation.
High inflation means prices go up, but sometimes not everything goes up at the same rate and some things might even drop. One example was in the US when oil jumped to an all time high of $148 a barrel and house prices dropped 31% in 2008.
So what?
- Well, often wages do not increase at the same rate as prices for food and fuel so people have less money for discretionary spending, this further weakens the economy because we are not out there buying all the new tech if we need to feed the kids and it is getting harder.
- People's retirement plans get hammered. People might be planning on retiring with a $60,000/year income and that was going to maintain their standard of living. All of a sudden $60,000 won't cut it, so it is either back to work or significant changes to the plan. If one is not yet retired it means putting off buying now to save for the more expensive future, either way consumption is down as is standard of living.
Let us take a real world example of high inflation and while I believe governments and banks will do everything to prevent this level of chaos it has happened before and as we know humanity seems destined at some point to repeat the mistakes.
For every example out there i am sure there is a "Yeah, but..." just remember how close the disaster was in 2008.
From wikipedia
Poland, 1989–1990
Poland experienced a second hyperinflation between 1989 and 1990. The highest denomination in 1989 was 200,000 zlotych. It was 1,000,000 zlotych in 1991 and 2,000,000 zlotych in 1992; the exchange rate was 9500 zlotych for 1 US dollar in January 1990 and 19600 zlotych at the end of August 1992. In the 1994 currency reform, 1 new zloty was exchanged for 10,000 old zlotych and 1 US$ exchange rate was ca. 2.5 zlotych (new).- Start and End Date: Oct. 1989- Jan. 1990
- Peak Month and Rate of Inflation: Jan. 1990, 77.3%[56]
The Fed has kept up a consistent pace to feed this inflation first in the spring and then this week. No one has put a date on when this "debt" is going to be paid for all the free money flowing into the European and US markets to bolster what is otherwise pretty depressing news, but most agree it will come.
The upside is we know it is coming and rates are low so what are the 3 big things you can do to protect yourself. While gold is often talked about and certainly many people flock to gold in uncertain times it is not for everyone. Number of sites have differing suggestions but here are three fairly common points, note that every strategy has an inherent risk:
- Invest in the stock market. Companies are motivated to get the best returns and to find ways to hedge themselves against inflation, just look at the markets post announcement.
- Buy a home and fix your expenses as much as possible. People need a place to live and if they lock in rates before any major increases paying off the mortgage at the lower rate is actually a huge form of savings. Getting the mortgage paid off before any major increase would be a huge bonus especially if we ever head back to 16% mortgage rates. (Makes me cringe to think about it, personally I am weighing the idea that if it ever looks like I might actually have to pay anything close to that I will cash out some savings and pay my mortgage down as much as possible to reduce the impact that would have on my monthly cash flow. Then hope to rebuild the savings from what I am not spending on interest costs.)
- If you can find inflation adjusted securities you like. Or if you are a sophisticated investor or have one on the payroll follow their best advise, because a high interest savings account or T Bills etc. are not going to give you rates that will let you stay even with inflation let alone move you ahead on your savings goals.
I know the home one sounds self serving, but think about it. Rents can increase but if you lock in a rate you have stability and savings built in and when the home is paid off other than the standard overhead, taxes, maintenance and utilities, your housing costs are limited.
Consider your options. I would be happy to discuss how long term fixed rates can help some people and if you are bold we can discuss variable as I do not see any major increase this year or possibly next for the prime rate, some experts have even whispered about a drop, but I am not sure how they would ever manage that.
Friday, August 3, 2012
Collateral Charge
Collateral
Charge
A
collateral charge is basically a different method of securing a mortgage or
loan against your property.
It
differs from a standard (traditional) mortgage in some very important ways:
- Unlike a standard mortgage, a collateral charge is readvanceable — That means the lender can lend you more money after closing without you needing to refinance and pay a lawyer.
- A collateral charge is non-transferable — It cannot be assigned (switched) to a new lender like a regular mortgage.
In
addition, regular mortgages put all of their key terms in a document that's
registered with your provincial land title/registry office. A collateral
mortgage, however, puts key terms in a loan agreement and is not registered in
the same way.
That
collateral loan agreement may therefore contain terms that other lenders are
not aware of, or might find objectionable. For that and other reasons, lenders
don't accept transfers from borrowers with collateral charges. Instead, the
borrower must refinance in order to switch lenders, and that entails legal
costs.
Collateral
charges also allow lenders to do things like change your interest rate,
increase your loan amount, and use your mortgage payment to pay down other
debts you have with that lender (if you default on those debts).
If
you're considering a collateral charge, let me explain the
pros and cons before you jump in.
Tuesday, June 5, 2012
How IRD can change and Penalties get bigger
Do you know how your penalty is calculated?
There was a client who was quoted a penalty of about $6,370 to break her $280,000 mortgage a month ago, yet today, her penalty has ballooned to over $12,000.
How did this happen in the span of a month?
On both penalty quotes, the client is being charged the interest rate differential: the interest lost to the lender for the remainder of the term.
The IRD is based on several factors: the difference between your rate and the rate at which the lender could re-lend the money (the spread), the amount being prepaid, and the time remaining.
Here's how it's calculated:
IRD = spread x balance x # of months left to end of term/12
When she first called the bank to get a penalty quote, she had 42 months left which is closest to a 4 year term. At the time, the bank's posted 4 year rate was 4.64% & the penalty was calculated as follows:
Client's rate: 3.64%
4 year rate: 4.64%
Client negotiated a GREAT discount of 1.65% when she got the mortgage 18 months ago ( now she's going to pay for it).
You'd think the spread would be the difference between would be the difference between 3.64% and 4.64% (now the bank can EARN an extra 1% by getting the money back early), but, THIS bank takes into account the discount of 1.65% negotiated by the client. They would theoretically lend the funds out based on a rate of only 2.99% "passing along" the 1.65% discount.
spread = 3.64% - 2.99% = 0.65%.
IRD = 0.65% x $280,000 x 42/12 = $6,370
Easy math, but how does that become over $12,000 a month later.
The spread is based on the rate closest to the remaining term. With only 41 months remaining, the bank now looks at their 3 year rate which is 3.95%.
Client's rate: 3.64%
3 year rate: 3.95%
Don't forget the discount of 1.65%
spread = 3.64% less (3.95%-1.65%) = 1.34%
IRD = 1.34% x $280,000 x 41/12 = $12,819
The additional month that has passed has resulted in a penalty that is almost $6,500 higher than quoted a month ago.
How the IRD is calculated varies between one lender and another.
As a mortgage agent I can help you understand these risks and steer you to lenders who are less "calculating" in how they punish their clients.
There was a client who was quoted a penalty of about $6,370 to break her $280,000 mortgage a month ago, yet today, her penalty has ballooned to over $12,000.
How did this happen in the span of a month?
On both penalty quotes, the client is being charged the interest rate differential: the interest lost to the lender for the remainder of the term.
The IRD is based on several factors: the difference between your rate and the rate at which the lender could re-lend the money (the spread), the amount being prepaid, and the time remaining.
Here's how it's calculated:
IRD = spread x balance x # of months left to end of term/12
When she first called the bank to get a penalty quote, she had 42 months left which is closest to a 4 year term. At the time, the bank's posted 4 year rate was 4.64% & the penalty was calculated as follows:
Client's rate: 3.64%
4 year rate: 4.64%
Client negotiated a GREAT discount of 1.65% when she got the mortgage 18 months ago ( now she's going to pay for it).
You'd think the spread would be the difference between would be the difference between 3.64% and 4.64% (now the bank can EARN an extra 1% by getting the money back early), but, THIS bank takes into account the discount of 1.65% negotiated by the client. They would theoretically lend the funds out based on a rate of only 2.99% "passing along" the 1.65% discount.
spread = 3.64% - 2.99% = 0.65%.
IRD = 0.65% x $280,000 x 42/12 = $6,370
Easy math, but how does that become over $12,000 a month later.
The spread is based on the rate closest to the remaining term. With only 41 months remaining, the bank now looks at their 3 year rate which is 3.95%.
Client's rate: 3.64%
3 year rate: 3.95%
Don't forget the discount of 1.65%
spread = 3.64% less (3.95%-1.65%) = 1.34%
IRD = 1.34% x $280,000 x 41/12 = $12,819
The additional month that has passed has resulted in a penalty that is almost $6,500 higher than quoted a month ago.
How the IRD is calculated varies between one lender and another.
As a mortgage agent I can help you understand these risks and steer you to lenders who are less "calculating" in how they punish their clients.
Monday, May 14, 2012
Part 2 On paying down your Mortgage Faster
If you really want to make a dent, then aside from simply increasing your regular mortgage payment you can use your lump sum allowance.
This is for people who are really serious about getting their mortgage down. If you budget your life and know your expenses and savings goals, or you just know that you have some extra money at the end of the month, or year, then you can opt to put a little more on the mortgage without upsetting your monthly cash-flow.
This, like any other form of savings takes discipline, but unlike savings it is not as easy to take it out again so it is a much bigger commitment. The impact can be huge.
In the last piece I showed you how increasing your regular payments had the combined effect of lowering the balance, reducing the total interest cost and reducing the time you actually have a mortgage. While this is not great for my business it probably will be great for your future. Even if your current payment is as low at 1,000/month, think about what that extra thousand can do for you.
The trick for a lot of people though is foregoing what they want today for the future, and in fairness, living life is important so I am not advocating being house poor and not enjoying life, I am suggesting moderation because the debt figures suggest that too many of us are leveraging too far the other way.
Look, if Canada's richest man, when he was alive, could pack a lunch to take to work, then you have to question how someone struggling to pull it all together can justify a regular trip to a fancy coffee place.
So, consider even taking a few lunches to work and putting the savings on your mortgage, topping up your RRSP, or RESP or whatever form of savings make sense to you, every dollar counts. Or put a little on each.
Personally, as you know I hate debt, but of all debts I do understand and appreciate mortgages, not just because I now help people get them, but because they make owning a home possible for so many.
Next piece is on why I like property.
This is for people who are really serious about getting their mortgage down. If you budget your life and know your expenses and savings goals, or you just know that you have some extra money at the end of the month, or year, then you can opt to put a little more on the mortgage without upsetting your monthly cash-flow.
This, like any other form of savings takes discipline, but unlike savings it is not as easy to take it out again so it is a much bigger commitment. The impact can be huge.
In the last piece I showed you how increasing your regular payments had the combined effect of lowering the balance, reducing the total interest cost and reducing the time you actually have a mortgage. While this is not great for my business it probably will be great for your future. Even if your current payment is as low at 1,000/month, think about what that extra thousand can do for you.
The trick for a lot of people though is foregoing what they want today for the future, and in fairness, living life is important so I am not advocating being house poor and not enjoying life, I am suggesting moderation because the debt figures suggest that too many of us are leveraging too far the other way.
Look, if Canada's richest man, when he was alive, could pack a lunch to take to work, then you have to question how someone struggling to pull it all together can justify a regular trip to a fancy coffee place.
So, consider even taking a few lunches to work and putting the savings on your mortgage, topping up your RRSP, or RESP or whatever form of savings make sense to you, every dollar counts. Or put a little on each.
Personally, as you know I hate debt, but of all debts I do understand and appreciate mortgages, not just because I now help people get them, but because they make owning a home possible for so many.
Next piece is on why I like property.
Friday, March 16, 2012
Part 1 on Paying Mortgage down faster
Part 1 shows how simply increasing you regular mortgage can make a difference
Why pay it down faster when rates are so cheap? Isn’t this the time to reduce my payments and spend on other things and enjoy myself a little?
Why pay it down faster when rates are so cheap? Isn’t this the time to reduce my payments and spend on other things and enjoy myself a little?
Well yes, it is certainly a great time to free up some cash
to do enjoy yourself or top up the RRSP, TFSA or other investment
accounts. You may make more money there
if you, or your investment person, is good at watching the markets and making
the right calls. In fact, you could make
a great deal of money, but this article is more for the people who might need a
little more cash later and are not as confident about the markets, or whose job
or income security is not as certain in the future, or who might have heavily
leveraged themselves in this low interest rate market to get the house they
want.
Paying debt off now is easier because interest rates are
lower and at the very least paying down debt is a reasonable form of
diversification.
Think about it in this way.
The average borrowing cost for a 5 year mortgage from 1986-2011 was been
8.04%, from 2000 to 2011 it was 6.05%.
Today you might be lucky enough to be locked in at 2.99%. What would an increase of 3% to 5% do to your
ability to pay?
Double-digit mortgages (10% +) ran from the end of 1973
until November 1991 with a couple of months in 1992, 1994 and 1995 also tipping
the scale just to add to the fun. I
think we can all safely say we are glad not to be there.
Assuming a mortgage of $250,000, what do the payments look like
for a 25-year amortization and without going all that high? Let’s look at the impact.
Monthly – 1,181.83 1,606.95 435.12 5,221.44
Semi Monthly - 590.92 803.48 212.56 5,101.44
Bi-Weekly - 545.46 741.67 196.21 5,101.46
Accelerated
Bi-weekly - 590.92 803.48 212.56 5,526.56
Weekly - 272.73 370.84 98.11 5,101.72
Accelerated
Weekly - 295.46 401.74 106.28 5,526.56
$5,000 per year can go a long way for most people and while
your mortgage will not be as high when you go to renew, if the rates are higher
you will still feel the effect.
In this scenario at 2.99%
At the end of the 5 years, assuming monthly minimum payments
and no prepayments, your balance would be 213,645.52.
If at the end of that term rates have gone to 6.05%, then in
order to stay on track to pay down your mortgage in the 20 remaining years your
payments would jump to $1,527.56. That
is a pretty big jump for a lot of people.
If you make your payments monthly, on the 2.99% rate, but
pay them as if the rate were 4.5%, $1,383.68, then at the end of the first 5
years you would see some great improvements
- the balance would only be $200,605.93, so at renewal you are less exposed
- you would be 5 years closer to paying off the mortgage
- and for those benefits you still would have paid $928.59 less in interest payments meaning more has gone to principal
With that new balance and a rate of 6.05% and 15 years
remaining on the mortgage your payments would jump to $1,690.13, still a big
jump, but $128.67 less than if you had been making the minimum payments at
2.99% and you are still 5 years closer to being mortgage free.
If you are thinking about retirement or have kids with university or college plans, this might free up some cash just when you need it.
Thursday, February 2, 2012
Wants vs. Needs when buying - my story
I
think one of the toughest parts of buying a home for me was coming to
terms with all the wants versus the needs and which took precedence.
Needs -
Needs -
- A home in a good school district for my soon to arrive son (some years ago)
- Ideally not too far from my parents who would help with babysitting and who often needed my help on some things.
- Affordable, both in operating costs and a mortgage that would not cause excessive strain.
Wants -
- Biggish back yard
- Driveway (optimistic)
- Detached
- Snazzy and done up
When
it came to the time to put the offer in I was in a market similar to
this, bidding wars were the norm and prices were going up weekly. I
soon realized that the needs outweighed the wants. The most important,
as a new mom with all the new expenses that entailed, was affordability
and in the areas I wanted that was fast disappearing, so I "overpaid"
and won the bid on the third house I went after. It had none of the
things I "wanted," but it was bright, some were very dark, it was in
decent shape and as my father said at the time, how much did you want to
clean anyway (inside and out). Truer words as toys find themselves
everywhere...
While
many people out there are at various levels of the economic spectrum I
think similar tales can be told everywhere. The trick is identifying
what is really a need vs. a want and where are we willing to
compromise. In the end, I am in a great area and a school that has been
incredible and while I might have "over paid" several years ago the
value to me in terms of both the value of the home itself and the life I
have in the area makes it look like small change now.
Helping
people find the right deal is what I do with mortgages so that when my
clients go out to find the right fit for them in term of homes, they are
ready to move when the perfect home comes along..
Tuesday, January 17, 2012
The Economy and Rates
Welcome to 2012. We have had a couple of weeks to get used to the New Year and we have gone from spring to real winter in a matter of hours and back. I am sure we are all back to getting our normal routines in order and hopefully tackling new challenges.
The news from the Bank of Canada is not a huge surprise as rates stay the same and the Prime rate remains at 3%.
I am sure everyone has heard about the deals in the news and while some of them come with some real hitches I cannot argue with the rates. The interesting thing is that these days the range of rates for mortgage terms of 1 - 5 years and even the variable is 0.44%, so while you might be edging out a slightly better deal at one lender or another on the rate, please remember the fine print also counts for something when it comes to your options down the road.
The really interesting deal right now is a 10 year mortgage at 3.89%. Talk about stability. If you are planning to stay put and worried that increased rates in 5 years might make things a bit uncertain then this is the term for you. Honestly, if you look at historic rates this is an unheard of opportunity. While it may not be for everyone it is a great option for many. Here is what Rob Carrick from the Globe had to say.
"Let's get back to the housing market for a moment. The biggest support for prices right now are the low mortgage rates we've been talking about here. When rates rise, that support crumbles. Things could get ugly.
Why consider buying now? Because you can borrow money at 3.99 per cent or a bit less for 10 years. It's like freezing time at the exact best moment ever to finance the purchase of a house. If the price of your home declines, it's bound to be on the rise again a decade from now. Meanwhile, you'd have the chance to put a decade's worth of salary increases to work in ramping up your payments and making periodic lump-sum payments."
So consider your plans and your options. Note that after 5 years the penalty to break a mortgage is only 3 months interest - just like a variable rate loan.
it would seem the banks may have done the heavy lifting for now on the economy so the rates are holding for now. Global stability is still not on the horizon and $100/ barrel oil is really going to drain disposable income.
While Canada still seems to be strong, largely related to our resource and financial services sectors. However our labour market is not doing very much and is pretty flat and the housing market in some areas is showing signs of cooling. The US economy is looking a bit better but everyone is affected by the events in Europe and even China is slowing.
In Europe, Germany is seen to be weakening and doubts are being raised about its ability to support the weaker members of the EU, or at least the effects on Germany may be more than expected. Whatever happens in Europe, they seem to be taking it as slowly as possible. My main hope is that whatever they decide to do that they keep their minds open to new ideas, since old ones seem to have created the problem and recession and more banks collapsing is still possible.
The effect in Canada though of the low rates may reboot the housing sector a bit, and despite the December over spending many seem to be getting their debts under control.
The news from the Bank of Canada is not a huge surprise as rates stay the same and the Prime rate remains at 3%.
I am sure everyone has heard about the deals in the news and while some of them come with some real hitches I cannot argue with the rates. The interesting thing is that these days the range of rates for mortgage terms of 1 - 5 years and even the variable is 0.44%, so while you might be edging out a slightly better deal at one lender or another on the rate, please remember the fine print also counts for something when it comes to your options down the road.
The really interesting deal right now is a 10 year mortgage at 3.89%. Talk about stability. If you are planning to stay put and worried that increased rates in 5 years might make things a bit uncertain then this is the term for you. Honestly, if you look at historic rates this is an unheard of opportunity. While it may not be for everyone it is a great option for many. Here is what Rob Carrick from the Globe had to say.
"Let's get back to the housing market for a moment. The biggest support for prices right now are the low mortgage rates we've been talking about here. When rates rise, that support crumbles. Things could get ugly.
Why consider buying now? Because you can borrow money at 3.99 per cent or a bit less for 10 years. It's like freezing time at the exact best moment ever to finance the purchase of a house. If the price of your home declines, it's bound to be on the rise again a decade from now. Meanwhile, you'd have the chance to put a decade's worth of salary increases to work in ramping up your payments and making periodic lump-sum payments."
So consider your plans and your options. Note that after 5 years the penalty to break a mortgage is only 3 months interest - just like a variable rate loan.
it would seem the banks may have done the heavy lifting for now on the economy so the rates are holding for now. Global stability is still not on the horizon and $100/ barrel oil is really going to drain disposable income.
While Canada still seems to be strong, largely related to our resource and financial services sectors. However our labour market is not doing very much and is pretty flat and the housing market in some areas is showing signs of cooling. The US economy is looking a bit better but everyone is affected by the events in Europe and even China is slowing.
In Europe, Germany is seen to be weakening and doubts are being raised about its ability to support the weaker members of the EU, or at least the effects on Germany may be more than expected. Whatever happens in Europe, they seem to be taking it as slowly as possible. My main hope is that whatever they decide to do that they keep their minds open to new ideas, since old ones seem to have created the problem and recession and more banks collapsing is still possible.
The effect in Canada though of the low rates may reboot the housing sector a bit, and despite the December over spending many seem to be getting their debts under control.
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