Sandra Lastovic Mortgage Freedom Blog

Jim: Love's his bank, but they can't "get" what he wants to do...

2012-02-16T20:38:00.000-05:00

Have you ever gone into your bank and the banker didn't understand what your financial goal was? I'm working with Jim, a professional who wants to keep the current property he lives in as a rental and then buy another, more modern home to live in. His bank couldn't understand why he wanted to do that. Of course, Jim's a smart guy because he knows that the rental property will help him financially with his retirement.

When Jim came into see me (a referral from a local lawyer), he was frustrated and was almost ready to give up on his plans. About a half an hour later we determined that he had about $55,000.00 equity that he could extract from his current home valued at $270,000, and put about 10% down on the next house he wanted to buy. The great news for Jim is that he made a wise decision when he bought his originally house 6 years ago. The house was in a perfect spot for a rental - close to most amenities and centrally located.

Within another half hour we determined that the rental should have a longer amorization, to keep the cashflow high and also to limit the tax implications sometimes associated with the principal pay-down on a rental. A five-year fixed rate was a good choice here. For his new primary residence we set the amorization shorter to help him pay this mortgage off in 20 years on a weekly accelerated basis.

What took Jim almost 2 weeks to negotiate with his bank, took me about 1 hour to do. Let's just say Jim's story has a happy ending! :)

Julie: A single mom, who makes $35,000 per year just bought a house in Guelph

2012-02-08T08:58:00.000-05:00

In my next series of blog postings, I'd like to share with you some of the clients that I've helped...because every mortgage has a story! This is a great story about Julie, a single mom with one child who works part-time.

Julie's almost 40 years old and has never owned a home. She has great credit, not alot of debt and pays almost $1300 per month in rent. That's the going rate in Guelph when renting a nice town house. The only thing that was holding Julie back was her ability to save for a down payment. On an income of $35,000 per year - there's not much left over while you're raising a child on your own. Julie was referred to me through a friend that I helped several years ago.

This is how I helped her buy a semi-detatched house in Guelph for $200,000. Because Julie had great credit she qualified for a "no down payment mortgage". Essentially, the financial institution lent her the five per cent requirment for a down payment on a house. The rates are a little higher with this kind of mortgage, but the monthly payments on the mortgage plus property taxes where approximately the same amount that Julie was paying in rent. So she knew she could do this. Julie and her daughter are moving into her home at the end of February. She's happy and I'm so glad that she decided to buy instead of continuing to rent.

If you've got questions about how to get into a house please call or e-mail me. My number is 519-763-3900 ext.1001. E-mail: lastovic.s@mortgagecentre.com.

Ugh, taxes again!

2012-01-31T08:56:00.000-05:00

I'm just in the process of finalizing my income taxes for last year, so taxes are top-of-mind for me. I've seen a lot of clients recently who are behind in their income taxes and/or property taxes. Are there any quick fixes to bringing your income or property taxes up-to-date if you're refinancing your mortgage or moving.

You may wonder why this is relevant. Most mortgage companies (bank or wholesale bank) will require confirmation that your income and property taxes are up-to-day, if you’re selling a house or renegotiating your mortgage.
I recommend paying your property taxes directly to the City of Guelph (or any other city/town you live in). I like being in control of that. Most municipalities allow pre-authorized debt and you can even pull the forms off the web site.

Here's the link for the City of Guelph's pre-authorized debit for property taxes http://guelph.ca/living.cfm?subCatID=2035&smocid=2608

If you’re behind in your property taxes, look for ways to pay them off by borrowing from a family member or putting them on credit. If you renegotiate your mortgage you can then use the extra money through the refinance to pay back the money. Then make a promise to yourself to do pre-authorized debit either through your mortgage holder or directly through the city.

You can employ this strategy with your income taxes as well.

Is this the year to buy your first home?

2012-01-11T18:21:00.000-05:00

With low interest rates and home prices in Guelph remaining stable, 2012 will be a good year to buy a home if you don’t already own one!

Canada Housing and Mortgage Corporation (CMHC) states that many of the potential first-time buyers of 2011 didn’t buy a house when they could qualify for one because of the unpredictable job market. However, Guelph’s employment rate has always been strong boasting an unemployment rate of just over 4% - one of the lowest in the country.

Here are a few tips if you’re considering buying your first home in 2012…

How do I know I can qualify for a mortgage?

There are several “on-line” mortgage calculators that will give you a rough idea of a mortgage amount that you can qualify for based on your income and your debts. But don’t use this as a true mortgage pre-approval. Why? There are many factors that can influence your ability to really qualify for a mortgage loan, such as credit history and income stability. For example, if you work at a job that pays an hourly rate and your are entitled to overtime, overtime income can only be used to help you qualify for a mortgage, based on a two year average.

A good credit is also essential to qualify for a mortgage loan. If you’re interest in obtaining your own credit history you can purchase it at www.equifax.ca. Otherwise if you consult your mortgage broker they will review your credit history with you.

How to come up with a down payment?

The minimum down payment required to buy a home is 5% of the purchase price. You can get a loan from the bank for the down payment, from savings, or through a family gift. If you have great credit history and good job stability you may also be able to qualify for a mortgage – even if you don’t have the full 5% saved.

How much can I buy?

There are two ratios that are used to help determine how much you can qualify for in a mortgage. They are the Total Debt Service Ratio (TDSR) and the Gross Debt Service Ratio (GDSR). Essentially, these ratios compare the carrying costs of the house (mortgage payment, property taxes heat and debt) to your gross income. These ratios should be between 32 and 44 per cent. What I’ve found is that most home buyers can qualify for more of a mortgage, than they feel they need. Have your mortgage broker work with you to help you develop a budget and determine what the ideal monthly mortgage amount should be based on your budget. We can then help you work back to determine the purchase price.

What's in store for Guelph's housing market in 2012?

2011-11-21T07:11:00.000-05:00

As I’m doing my own business planning for 2012, many should also consider what their housing prospects will be for 2012. If you’re thinking about buying your first house or moving to another home, understanding the forecast and the local housing will help you be better prepared.

Thanks to Canada Market and Housing Corporation who has collected housing data for decades in Canada, they have a library of historical information and have a good handle on what may happen in 2012.

A few highlights for Guelph housing in 2012:

2012 will be your opportunity if you do not own a home

Price appreciation in Guelph on average is modest for 2011. That’s great news for individuals who currently do not own a home. With consistently low mortgage rates predicted into 2012, if you’re in the market to buy your first home, it will be an affordable purchase.

I should also mention that the mortgage industry is riddled with bankers and mortgage brokers who have varying levels of experience and motives. If you’re a first-time buyer the best way to find a good mortgage profession to get your mortgage pre-approval is to go through a recommendation or source a company that has an established business and reputation. Remember that a true mortgage broker (one who doesn’t work for the major banks) has several options from many institutions available so that you get the best combination of rates and features to help you achieve your budget goals.

Own a house and moving up? Don’t be surprised at your home’s value

Net appreciation growth in home values in 2011 is expected to be modest in Guelph and throughout 2012. The final appreciation growth number for 2011 in Guelph will be approximately 2%, and less than 1% in 2012.

Guelph will continue to be in an overall balanced home market, which means that there are an equal number of buyers and sellers. This translates into little upward pressure on home prices. If you are moving up into the >$500,000 price range this is certainly an opportunity for you if you’ve done a good job at paying down your existing mortgage.

More to come...stay tuned!

Be your best, reach your goals...

2011-10-22T11:19:00.000-04:00

I'm just returning from The Sales Mastery Conference in Palm Desert, California. The Duncan Group is a company that is commited to helping mortgage professionals be the best that they can be.

Below is a list of some key ideas that will not only help mortgage professionals but anyone who's interested in being their best! I've summarized some key thoughts:

- Own the clock: do one thing at a time, don't multi-task. Do fewer things, more often and get better at them.

- Who do I need to become to achieve the goals that I want and the people that I want to attract?

- Become an expert for my clients and my strategic business partners.

- Think BIG don't be fearful of disrupting the status quo - operate at level 10.

- Seek out failure and embrace it.

- Often the thing that you don't want to do the most, is the thing you should be doing the most.

- Little changes over time create mammoth impacts in the future.

Divorced/Separated: Avoid going back to renting

2011-09-19T07:06:00.000-04:00

When a couple decides to separate, normally their largest asset is their matrimonial home. I have worked with several lawyers who see the value of consulting an experienced mortgage broker for their clients. Why not call a mortgage broker directly and have them review your options, even if your mortgage is through a chartered bank? Mortgage brokers can be a good, unbiased source of information that will help you be financially objective in a time which is often emotional.

If your budget will allow, attempt to make your next move into a house that you purchase instead of resorting to renting. It can be difficult once you begin renting to get back into home ownership. Rent is expensive in Guelph, and if you have a family, you may find yourself paying more money towards rent, that could otherwise go to paying down a mortgage.

Here are some key things to consider if you’re going through a separation or divorce when reviewing how to divide the asset of your matrimonial home:

Understand how much equity you have in the matrimonial home

Getting pre-approved is always a good first step even if you’ve owned a home before your separation. Work with your mortgage professional to help you determine home much equity you have when this asset is divided. In many instances if you’ve owned your home for 10 years, and the equity in your house is divided – after paying out consumer debts there may only be 5 to 10 percent left over to put as a down payment on your next house. I often find that people over-estimate how much equity they actually have. Ensure that you consider the penalty to discharge the current mortgage on your matrimonial home including the legal and the land-transfer tax on your next purchase (in the case you are selling the matrimonial home).

Child support can be used if there is a 6 month history

Explain to your mortgage professional what child support you’re entitled to receive as noted in your separation agreement. If the separation is recent, you may not be able to use child support as a supplement to your income to help you qualify for a new mortgage. That’s because most financial institutions require a six-month history of the child support payments. However, if you are required to pay child support, this will immediately count as a liability which will limit the new amount you can qualify for in a mortgage.

Mortgage brokers have more options than your bank

Don’t be discouraged if you initially went to your own bank and they told you could be pre-approved for a mortgage significantly less than what your own living expectations are. Banks aren’t flexible in their mortgage-lending criteria. True mortgage brokers who have access to mortgage products outside of chartered banks can give you options. Your mortgage broker can help you work through scenarios because they have good, cost-effective options that will help you buy your next home after a separation or divorce.

If you want to pay off your mortgage faster – read this article

2011-07-15T10:03:00.000-04:00

If you got a new mortgage before 2008, you may have a mortgage that has an extended amortization of 35 or 40 years. In 2008, many first-time home buyers where keen to choose longer amortizations to keep monthly mortgage payments low. Although longer amortizations can keep mortgage payments affordable, it also means that it takes longer to pay down the principal on the mortgage.

I normally recommend going with as short of an amortization as your budget can afford. There is considerable interest cost savings on shorter amortizations.

Here are a few tips to help you pay down your mortgage faster…

Know the difference between bi-weekly and bi-weekly accelerated payments

There is a difference between bi-weekly and bi-weekly accelerated payments. The difference lies in how the payments are calculated, which make them accelerated. Here is an example of a $200,000 at 4% based on a 25 year amortization. Look at the savings!

                         Principal        Interest      Total payment   Real amortization       Balance 5 years

Bi-weekly            $180.24       $304.89       $485.13              25 years                        $174,107.21

Bi-weekly            $221.1        $304.89        $526.03               21 years, 11 mnths        $168,231.61
Accelerated

I’ve have clients bring their mortgage statements to my office looking for mortgage advice and had no idea that they were not paying accelerated payments, which was their originally request.

Set lifestyle priorities that include making extra payments on your mortgage

I did a mortgage earlier this year for a client who became angry that the option of a bi-weekly payment was not available to her, instead of only a bi-weekly accelerated payment. The difference in payment between the two options was about $40 per payment higher on the accelerated option. The bi-weekly accelerated payments on a 30 year amortization also allowed her to shave three years off of her mortgage. When I asked why the accelerated option was problematic, she stated that she had a certain material lifestyle she wanted to lead and that extra money would help with that lifestyle.

In times of economic and financial instability, setting priorities that include debt pay down, such as mortgage principal pay down is crucial. Your home is virtually the most valuable financial asset you have. By paying down your mortgage it will place you in a better financial position, now and in the future.

No problem? Get it in writing...

2011-06-18T05:33:00.002-04:00

This past week I've worked with two separate clients and in each case things where tight with their mortgage approvals. And both of these borrowers owned homes and where not first time home buyers.

In both cases each client was told that their financing would be "no problem" but weren't given anything in writing. In both cases neither client understood how much equity they had available in their house. This is always the first step in looking at home-financing, especially if you already own a house.

Here's one scenario:

These borrowers where selling their home for $275,000 and wanted to move up to a $420,000 house. They had two good incomes but last year they refinanced their home to consolidate debt so their current mortgage on their home was about $225,000. When I took into account the real estate commission plus the legal and land transfer tax on the purchase of their new home of $420,000 there was barely 5% to put down on the purchase of $420,000.

Up until now they had worked with their own bank and I recommended that they get something in writing from their bank regarding their pre-approval. Their banker had previously recommended paying out some more debt from the equity in their home, but it was obvious through the first calculations that there would not be enough equity to pay out any debt.

When they finally did get an answer from their banker the bank told them they couldn't guarantee the pre-approval because "CMHC doesn't do pre-approvals". This is absolutely true, but CMHC (the company that insures mortgages against default for banks - this is normally required if you have less than 20% as a down payment), their guidelines are clear. They're even posted on the CMHC web site! It was obvious after pulling their credit history that they wouldn't fall under some of the requirements of CMHC. Nonetheless through a little maneuvering I was able to get them a pre-approval, but this was not a mortgage pre-approval that was "no problem".

The moral of the story - work with someone who has the experience to help you. Get it in writing.

Should you buy a house even if you have consumer debt or student loans to pay?

2011-06-03T08:52:00.001-04:00

In the last week, I've see three clients in similar situations. All three clients had good paying jobs, where in their late 30's and had over $20,000 of consumer debt outside of traditional car loans. Should they be considering buying a home? Here's my opinion...if you have any comments on this topic, please share them on my blog!

A home is one of the only appreciating assets you'll own. The trouble with these particular clients is that they have kept waiting to pay off their debt and are now almost 40 years old and still do not own a home. My recommendation would be to review their family budget with them and find a monthly mortgage payment that will help them get into a house, while also developing a plan to pay down their debt.

If they had savings to put as a down payment they could also look at paying their debt down with their savings and getting a cashback mortgage, which gives them the money for the down payment. Remember that you can withdraw up to $25,000 from an RRSP the year you buy a home under the RRSP Home Buyer's Plan. That money does not need to go to the down payment, it could go to paying off debt. Now that's a good idea!

Will your variable rate mortgage increase in rate tomorrow?

2011-05-30T08:53:00.000-04:00

It's safe to say that the Bank of Canada (BofC) will eventually lift interest rates. But what's less clear is when. We can expect that the BofC will maintain the current interest rates, with no rise in tomorrow's interest rate announcement. That means if you have a Variable Rate Mortgage (VRM), your rate will remain the same.

If you own a house in Guelph or the Tri-City area you know that our housing market has been strong and steady. On the mortgage front, one area of concern is the mortgages choices I'm seeing. A VRM is a great option if you're looking at paying down your mortgage in the next few years. Accelerating the payments while rates are low will help you pay down your mortgage principal. If however you're choosing a VRM just to keep the payments low to help with your budget - then you may want to reconsider a fixed-rate mortgage.

Your mortgage broker can get you a five-year fixed rate mortgage now for under 4% which is a great option.

This is a really great visualization of a trillion dollars....

2011-05-25T14:00:00.000-04:00

Inflation is up - what about my Varible Rate Mortgage?

2011-04-19T08:32:00.000-04:00

With the price of oil affecting other items in the consumer price index, can we expect the overnight lending rate to rise on May 31? The overnight lending rate has an impact on the a bank's prime rate, directly effecting variable rate mortgages.

If you have a variable rate mortgage - don't panic! If the bank of Canada raises rates at the end of May, the benefit of locking into a fixed-rate mortgage may not be the best choice. Remember that the economic indicators that affect the prime rate, don't directly affect fixed-rate mortgages. Over the last week, we've actually seen a slight decrease in the bond market, which impacts fixed rate mortgages.

Stay-tuned to find out if you should fix your mortgage or keep it floating with the prime rate.

65 and I still have a mortgage

2011-04-14T09:35:00.000-04:00

If you own a home in Guelph, often a goal is to have your mortgage paid-off by the time they reach 60. What I'm noticing in my mortgage practice is more and more people over the age of 55 require the assistance of a mortgage agent because they haven't yet paid their mortgage off.

There are a few consistent reasons that have come up recently on why a mortgage balance still exists (even after the age of 60):

- overspending on grandchildren (not wanting to let their own children know that they are having problems making ends meet on a retirement income, so the overspending happens on credit cards to "treat" grandchildren)

- unexpected job loss (given we're still in a recession, many older employees have been "let go" close to retirement. The unexpected job loss and the reduced income means a change in lifestyle, which is often a difficult transition)

If you're in this situation and are wondering what your next course of action is...please don't hesitate to contact me directly. I'll also be writing a few articles on this topic over the next week.

Using your home’s equity to “get ahead”

2011-04-07T08:07:00.000-04:00

If you’re in your 40’s or 50’s and have looked at your investments and thought, “How can I generate more revenue?” – this article is for you. Using the equity in your home for good investments can help you spring ahead financially.

This can be a smart financial move, but you need to work with individuals who are experts. Seek the advice of a professional who has first-hand experience on using home equity as a financial tool. I always recommend getting a referral from someone you know and trust.

There are specialized mortgages available that allow you to easily access the equity in your home for cash investments or real estate. They allow you to convert equity in your home into money and then use that money to invest.

What kind of investments?

Whenever you use your home’s equity to invest in non-RRSP investments or real estate, that portion of your mortgage becomes a tax deduction. Often called “leveraging”, you’re essentially using someone else’s money to make money for yourself. By having a plan of action and a goal in mind, leveraging can help you increase your net worth and help you become financially-free sooner.

I’ve had many clients come to me who had good net worth and ask, “How can I purchase an investment property when all my money is tied up in RRSP’s?”. Often the best place to look is your own home. If you’ve done a good job at paying down the mortgage on your principal residence there is equity that you can access. Financial institutions will allow you to easily access the equity in your home to 80% of the appraised value. This is normally done through a secured-line-of-credit (SLOC). However, not all secured-lines are the same.

What features should I be looking for?

There are certain nuances in the repayment terms and how the interest is charged that you can be a benefit or detriment. An example of a feature that benefits you financially on a SLOC would include having a bank account tied directly to the secured line. When using the SLOC for real estate investing, you can deposit your rent cheques directly into the account, thus making your payment on the SLOC.

Another important feature may be having third-party access to the SLOC. In this case if you’re using your money to buy dividend-paying investments, then the dividends can go directly into paying the interest on the SLOC.

There’s more to mortgages and SLOC’s that can help you become financially free sooner. Ask the advice of someone who has first -hand experience and that you know and trust.

New mortgage rules in place for March 18, 2011

2011-03-15T21:26:00.000-04:00

New mortgage-lending rules will be in place on March 18, 2011.

These new changes are two-fold:

1. People looking to buy a home with less than a 20% down payment will be allowed to have a maximum amortization of 30 years (down from 35 years). How this impacts first-time home buyers is that it will decrease their borrowing capacity by about $25,000 in purchase price. This is less than 5% of the total market for first-time home buyers.

2. People looking to refinance their mortgage to consolidate dept will have the options to refinance to 85% of the value of their home (down from 90%).

How will this impact you personally if you’re looking for your first home?

If you’re looking for your first home, you may need to consider a lesser value home. In Guelph, the majority of first-time buyers purchase in the price range of less than $250,000. I find the majority of first-time homebuyers understand the maximum amount of mortgage they can be approved for, and how that differs from what their budget can manage. Most first-time buyers who I see don’t want to be house poor.

How will it impact you personally if you’re carrying high-interest credit debt you’d like to consolidate?

If you’re looking to consolidate debt into your mortgage, you will be limited to how much debt can be wrapped into your mortgage. Once you’ve looked at better ways to manage your debt, your mortgage broker can also show you how to set up a budget to help pay down the debt that you could not consolidate.

How will these changes impact the market?

Remember, the media often publishes stories to sell papers and create buzz. For instance, there have been some recent reports that the housing market will tumble by 25 percent. There have also been reports that say the exact opposite. With so many opposing views, what will actually happen? Locally, the Guelph market has been protected by the downturn in the housing market that some other Canadian cities have experienced. On average, price appreciation in Guelph will plateau compared to previous years. When speaking to realtors, they note that we are in a “seller’s market”, which means that there is more buyer demand than houses available to purchase. On the other hand, buyers are being more picky about prices and the types of home they are buying.

Look at getting your pre-approval rate "locked-in" as fixed-rates jump up

2011-02-04T09:09:00.000-05:00

The Bond Market affects the pricing on fixed-rate mortgages. With unemployment figures holding steading, and jobs being added to the economy, bond yields are up and are putting pressure to mortgage lenders to move fixed-rates up.

If you're thinking about buying or selling a home in the next 4 months, one of the best ways to ensure that you'll get a five-year fixed rate below 4%, is to reset your pre-approval rate. You may also want to consider having a second opinion on your pre-approval considering that there will be major changes occurring to mortgage-lending starting on March 18th.

Not only does a mortgage pre-approval help you secure an interest rate for 120 days (4 months), it also can ensure that when you do find a house that there will be no issues with solidifying the mortgage-financing. Ensure that your mortgage professional has pulled a credit score and asked for income confirmation by way of an employment letter and pay stub. Credit score and income confirmation are necessary to issue a full pre-approval. Many banks are getting lazy and only pre-qualifying their customers, which can lead to problems when you've finally found a home.

Beware: Your bank may not be thorough in their mortgage pre-approval

2011-02-01T08:53:00.000-05:00

At least once a week, my office receives a call from a panicked customer who thought they where pre-approved for a mortgage, only to find out they weren't. The reason why the person is often panicked is because the pre-approval for the mortgage was in fact only a pre-qualification.

Here's the main difference between a pre-approval and a pre-qualification for a mortgage. Protect yourself from any unexpected surprises and ensure that a thorough pre-approval is done before you decide to sell your home and move or even if you're buying your first home.

Also, it's extremely important to speak to you mortgage broker before you list your home (I'll cover this topic in another posting).

Credit Check
Your mortgage broker can pull your credit report almost instantly once you've completed an application. The broker will review your credit history and accounts to confirm balances on your credit cards and lines-of-credit and car loans. A credit bureau will also show if there are any collections including any spousal support or child support payments outstanding. I've also found that in cases where people have common names, there may be errors on the credit history (e.g. someone else's credit can appear mistakenly on your credit history).

Employment letters
If you're an employee an employment or job letter is always a good thing to have when you're applying for a mortgage. The job letter states the length of time you've been with your employer and how you get paid. If you've just started a new job, and plan on buying a house, try and negotiate a no probationary period for your employment. Getting a mortgage approved while your on a probationary period at work can be tricky because technically the individual is not employed "full-time"

Beware: Banks scare customers into not talking to mortgage brokers (part 1)

2011-01-26T07:12:00.000-05:00

Just this week, I've spoken to two clients who came to me despite their banks advice, which was "don't go to a mortgage broker for your mortgage". I asked them why they still decided to shop around for their mortgage and visit a mortgage broker after the banker told them not to. They both answered in a similar way, "I wanted to see what all the bankers anxiety was about".

The realty is that the majority of people who need to revisit their mortgage because they are moving or refinancing, normally go to their bank and then a mortgage broker. I suggest it's two hours of time well spent (one for the bank and one for the broker) considering it's the largest debt that most people have and the largest household expense.

I'll be writing a series of articles on the bankers' myths about mortgage brokers:

It's not a good idea to shop around for your mortgage because it hurts your credit score.

For most people who have good credit history, having a few credit inquiries in a short period of time is the normal course of doing business for them and it will not be detrimental to your credit history.

In fact, I've found that banks have become lazy in qualify people for mortgages and don't necessarily do a credit check until there is an actual mortgage to process. This could be detrimental for the client who's looking to buy a house. That's because if there are any issues that the client is not aware of regarding their credit history, and the credit history is not checked before an offer is made on a house, the client may be disappointed to find that the mortgage they thought they could qualify for, is not in fact the case.

At my office we receive about one referral each week from either the bank directly or the client where this has happened. The client is normally angry or in tears that the proper credit history checks were not completed by their bank. When I do a pre-approval for my clients, we ensure a credit history is done immediately so there are no surpises.

Also, mortgage brokers can shop your mortgage to multiple lenders with one credit history. If you where to do the same, each bank would (hopefully) do a credit check.

Regardless, when someone does a credit check on you ensure you give them authorization to do so.

More to come on the facts around mortgage brokers...stay tuned.

New lending impacts first-time home buyers

2011-01-18T07:04:00.000-05:00

The new changes that have been put into motion by the Canadian Minister of Finance will have a significant impact on first-time buyers. The impact is the limit on a first-time home buyer’s borrowing capacity.

In Guelph and the surrounding area, most first-time home buyers choose to purchase a townhouse condo. Most “nice” detached, free-hold homes are out of the price range of a first-time home buyer. I believe that the average price of a detached home in Guelph is over $350,000.

You can purchase a “nice” town house condo in Guelph for approximately $225,000 – the condo fee is on average $200/month, and property taxes would be approximately $2800 per year. The average household income to support a mortgage with 5% down is approximately $55,000 in this scenario (without any household debt). Under the new lending guidelines, with a decreased amortization to 30 years from 35 years, the household income would need to be approximately $5000 more per year. Big deal? Actually it is. What I’m finding in my business is that many first-time homebuyers require two jobs just to carry a mortgage on a decent home. Given the country is in a recession few employers are giving their employees pay raises.

I believe expectations will change among first-time buyers on what they can afford to purchase – and there will be a change in expectations on what sellers ought to sell their home for.

So here’s one important point to consider. If you know someone who is looking to buy a home in the next six months ensure they speak to a mortgage broker, who has the experience to help. In this market – experience counts.

A financial fresh 2011

2010-12-14T09:05:00.000-05:00

Make 2011 a year in which you’ll organize your financial matters. Whether it’s investing more for the future or simply paying off debt, set a goal.

Here are some key ideas when setting up S.M.A.R.T financial goals:

Specific

Specific goals will help you keep laser-focused. Whenever you need to make a financial decision, ask yourself: “Does this work toward my financial goal?” If you’re considering curbing spending, make a spontaneous-purchase goal limit. For example, in our family we use the “two-week rule”. For any purchases over $200, we take two weeks to consider the item before we buy it. For instance, if I just happen to stumble upon a great pair of shoes, but I wasn’t planning on purchasing them, I’ll take two weeks to consider the purchase. Usually the two weeks passes and I’ve forgotten about them, which means I didn’t really need them and it would have been a waste of money.

Measurable

Breaking down your goal into key measures and tracking it helps you achieve your goal. The goal does not need to be complicated. For example, you may want to set a regular investing goal. Many people set a goal of saving 10% of their pay each pay period. You can then work to set up automated withdrawals from your bank account so that as soon as you get paid, the 10% savings comes straight out of your account. This can help make the goal attainable.

Attainable

When you develop goals that are important to you, you start to figure out ways to make them happen. You’ll find your attitude and habits start to change and your goals become attainable.

Realistic

Your goal is probably realistic if you truly believe you can achieve it. There are also logistical things you’ll need to consider.

One simple way to get out from under a debt load is to consider refinancing your debt into your mortgage. Is this goal attainable for you? Ask yourself these questions: What is the value of my home versus the current balance on my mortgage? Is there equity available to pay out debt?

If you do have equity available, pick up the phone and call a local mortgage broker who can help you determine the next step in the process.

Timely

Set a time frame for when you want to achieve your goal. If you’d like to save $5000 in a tax-free savings account, for example, set a deadline for yourself in achieving this goal. You may also want to break the goal down into increments, which will help you attain the goal.

Use the same principals in setting up your financial goals as you would any other goal you have in your life. The beginning of the year is a great time to revisit what you did the previous year and make improvements for the coming year.

Include a financing condition when you put an offer on a home

2010-12-03T09:14:00.002-05:00

Even if you've been pre-approved for a mortgage, I recommend having a financing condition.

Whether you're selling a home and moving into another, or you're buying your first home the financing condition protects you should there be a deficiency in the collateral (the house you're buying).

There are several things that could come up if you don't have a financing condition, here's an example of one:

If you have a 20% down payment, most lenders require an appraisal of the property. The appraisal is ordered by the mortgage broker who contacts a Certified Real Estate Appraiser (CRA) to do the work.This is a third part who evaluates the value of the home. With a 20% down payment most lenders to not insure the mortgage against default, therefore the lender wants to confirm market value. If the appraiser, assess the property for less than the value on the offer you've made, the lender will only give the mortgage based on the appraised value. The impact is that you may be short of funds on closing if you haven't discussed this in advance.

Don't feel the pressure to buy a house without a financing condition, even if you've been pre-approved.

I'm on the fence - variable or fixed

2010-11-30T08:56:00.003-05:00

After returning from the Canadian Association of Accredited Mortgage Professionals (CAAMP) conference in Montreal last week, I'm on the fence about recommending a fixed- versus a variable-rate mortgage (VRM). Benjamin Tal of CIBC World Markets notes that over the next five years the savings of a VRM won't be as great compared to a fixed-rate mortgage. How do you determine what's the right mortgage for your financial situation? I believe it comes down to two criteria, here they are:

1. Are you choosing a variable rate mortgage now because of the low monthly payment? If this is the case than a VRM is not the right choice. The main reason to choose a VRM is that over the next two years you want to accelerate the payments on the mortgage and pay down as much principal as possible. Because the prime rate is low and will continue to be until likely the end of 2012, now is your chance to pay down your mortgage.

2. Are you nervous about interest rate fluctuations? If you're nervous about rates or don't have the time to follow what's happening with interest rates, a nice low three- or five-year fixed rate mortgage is always a good option.

A low mortgage rate that’s too good to be true – you’re probably right

2010-10-05T11:29:00.002-04:00

When you notice a low mortgage rate that stands out in an advertisement, ensure you do some research before you make a commitment to a mortgage. The low rate up front usually means that you need to sacrifice other features that can help you down the road.

The mortgage market is a competitive business. It seems that everyone wants your business! The banking psychology is that once a chartered bank has your bank account or mortgage – they can count on getting more business from you. Sometimes banks see mortgages as lost-leaders. Brokers have also become increasingly competitive – primarily because in the last few years many people have entered the business for the wrong reasons.

My recommendation is that if you need to make changes to your mortgage ensure that you work with someone who has been recommended to you. You’ll also want to look at the track record and years of experience – even if they work with a bank.

Here are a couple of tips to ensure that you get a good mortgage that will help you financially.

1. Extremely low rates often mean sacrifices in other features of the mortgage. Often the mortgage will not have as robust pre-payment options or it may be more difficult to change down the road. Because the financial institution is giving you an extremely low rate, they want you locked-in for the term of the mortgage and they’re not letting you out of it unless there’s a large penalty to pay. Read the fine details and understand them.

2. Ask how the banker or the broker makes their money. Don’t be shy. The individual should have a clear answer to how the money is made on your transaction. This will give you a clear picture of why the rate is being charged. Sometimes bankers need to make their targets for the month. Brokers on the other hand may need the money for their own personal interests rather than keeping yours first.

Carrying more than you like on credit? Try wrapping your debt into your mortgage

2010-07-28T09:21:00.002-04:00

Many individuals and families that I’ve recently met in my mortgage practise are still digging out of the recession, with unexpected debt. As the economy grew between 2004 and 2008 at a high pace, many manufacturing and labour workers relied on overtime income as a part of their regular pay. This is also true for white-collar workers where bonuses became expected as an income supplement.

We’ve been in an economic recession for almost a year-and-a-half and many sectors still haven’t recovered. A turn-around in manufacturing and more job prospects is expected; however, growth in the future will be slower and gradual.

If you’re carrying debts that total more than $15,000 outside of your home mortgage or a car loans/leases, you should consider refinancing that debt into your mortgage. The two benefits include a decrease in your monthly carrying costs and improved household cash flow. It’s also a great time to look at a family budget and understand what you can reasonably expect for income versus the expenses you have.

Here’s a summary of things you need to consider:

You’ll need 20% equity in your home

A good place to start is to determine what equity you have in your home. It’s best to look into refinancing if you have at least 20% equity in your home. At this point you have enough equity to refinance some debt but there will be a default insurance premium that you’ll need to pay. If you’re revolving debts plus your mortgage, and mortgage-related refinance costs equal less than 80% of the value of your home, you likely won’t have to pay the default insurance premium. The value of your home will be determined by an independent appraisal because banks and lenders want to ensure that you are not overleveraging the new mortgage loan that they’re giving.

Know your penalty costs

Call your mortgage lender or broker and they will help you determine the penalty costs. If your mortgage is with a traditional chartered bank, most good mortgage brokers have access to those lenders and can help you get the penalty cost, even if you did not get the mortgage through them originally. They will have you sign a “client consent” form which gives them the authority to call the lender on your behalf and ask the correct questions so that an exact penalty cost can be determined.

No fee refinances are available

Some wholesale banks that mortgage brokers work with will offer no-fee refinances. If there is no change to the title of the mortgage, a title-closing company can be used in place of a lawyer. The main benefit of this is that there are no legal costs. Some lenders will also pay up to $2000 worth of penalty costs. The only thing you may need to pay is the cost of an independent appraisal which is normally less than $300.

Things you need to know for the next six months in real estate

2010-04-19T09:44:00.002-04:00

I'm getting right to the point here...a quick snap shot of things to consider for the next six months if you're interested in real estate...

A prime rate that’s “back-to-normal”

The prime rate has been artificially low throughout the recession. The Bank of Canada has kept their policy rate low to help stimulate activity in the economy. When interest rates are low, money is cheap to borrow, and consumers and industry spend. Now that things are getting back to normal, the Bank of Canada will move its policy rate. The increases in the rate will begin in mid-summer and continue. The forecast for the prime rate is an increase of 2% over the next year to year and a half. This adjustment is a reaction to the continued improvement in the economic outlook.

Fixed rates are moving up, buy why not variable rates?

Fixed-rate mortgages are based on the bond market which forecasts the outlook for future inflation. Because of the predicted improvement in the economy, inflation is expected to kick-in. The recent increases in fixed rates are a predictable move given that the Bank of Canada key policy rate will move up in mid-summer. The increase in rates does not mean that inflation will be a problem, but that we are moving out of the recession and into a marketplace where growth is slow and steady.

Smart real estate investing – it may not be smart

Over the past two years many have lost money in their traditional financial investments. With the strength in the real estate market, we’ve seen a strong movement to buy rental properties. Why have prices been so high in real estate investment properties? It’s because interest rates are so low. Low rates give rise to low mortgage payments, which in return justify higher prices in investment properties. Recent changes in the lending guidelines for real estate investing, such as a 20% down payment requirement, will help eliminate investors who may not have enough capital to cover changes to future interest rates. In my own investing, I normally watch what the mass market is doing and do the opposite. A herd mentality in any type of investment leads to unprofitability. It's always a good time to invest in real estate by keeping the fundamental of positive cash flow the goal.

Private mortgage investments

If your financial investments have suffered in the last two years and you are looking for a more conservative investment with a good rate of return, I believe private mortgage investing is an option worth exploring. As mortgage-lending guidelines have tightened, there are still borrowers who are willing to pay a higher interest rate, in order to consolidate debt or purchase a home. Private mortgages can balance the need for borrowers and real estate investors. The higher the risk, the higher the rate-of-return for investors. When considering if a private mortgage is a good investment ensure you work with a reputable mortgage broker who has experience in this area and can advise you on both the benefits and the risks of each private mortgage investment.

Changes in mortgage lending shouldn't stifle prudent borrowers

2010-02-16T10:03:00.002-05:00

The Minister of Finance announced changes to mortgage lending aimed at helping Canadians with borrowing against their homes. The changes shouldn’t stifle borrowers who have been good with their money. Here’s a commentary on each of the changes slated to come into effect on April 19, 2010.

Mortgage lenders will qualify borrowers on a five-year fixed rate mortgage, even if they want a variable-rate mortgage

In the last three years variable-rate mortgages have increased in popularity because the interest charged on variable-rates has been lower than fixed-rate mortgages. In my practise, nearly 35% of clients choose variable-rate mortgages. Understanding the risks associated with variable-rate mortgages can help people make good financial choices. This changes proposed mean that the majority of Canadians will be shielded against some of the rate increases that will occur in 2010 to the prime rate. By being more conservative and qualify mortgage borrowers on higher interest rates, the likelihood of running into problems with making mortgage payments in the future will be less. A slight adjustment in the qualifying rate shouldn’t discourage borrowers since I find that most borrowers don’t want to be house poor and are conservative in budgeting for their mortgage payments anyway.

Refinances up to 90% instead of 95%

Although the default insurance premium guidelines allow borrowers to refinance to 95% of the value of their home, I’ve had a hard time finding any lenders that would allow this anyway. Certainly in Guelph and Wellington County, homes under $250,000 are holding their value and in some cases appreciating considerably because of the demand in homes for first time home buyers and investors. If home prices are to soften in 2011, the ability to refinance a home to 90% instead of 95% will allow these borrowers to have more equity left in their homes should they decide to sell within three to five years.

20% down payment on rental properties

Guelph is a hot market for real estate investing because of the driving force of student rental properties. The government will be requiring a 20% down payment on rental properties in order to insure them against default. Ensuring that a borrower has a good down payment, means the landlord has more at stake in the property. Many people in the last year have wanted to get into owning rental properties because they believe they can make a quick buck. Buying real estate is a get rich slowly plan. There are creative ways to work around the 20% down payment, which can still make sense. These will be available for people who have good credit and a history of managing their money.

Inflation...what the...

2009-12-07T22:37:00.002-05:00

I recently had a great conversation with a friend who is a financial planner. His feedback concerning inflation mirrored my opinions on where interest rates are heading in 2010.

One of the main indicators for inflation over the next year will be the price of oil. This opinion makes a lot of sense as it takes time for the increased cost of oil to show up in our groceries, plastic packaged items, toys and so on, even if the higher cost of oil shows up immediately at the pump. But the higher the cost of oil over a sustained amount of time, the more likely this will have an impact on our figures for inflation.

We'll likely see an increase in the price of oil sometime late next year as economies gain momentum. As a result we should expect inflation to start trickling into the system shortly after that, with the bulk of the increase in 2011. So for people wondering if they should renew their mortgages early or consider a variable rate, it's important to remember that the fixed rates will move up based on the expectations for inflation - so making a move before 2011 may be a wise decision.

With the Bank of Canada likely not to move their rates much until 2011, we may see a giant spread between variable and fixed mortgage rates. So don't take your eye off the ball if you want to have a fixed rate with a stable payment. Consider locking-in sometime around the summer of 2010.

Clear up debt for 2010: a great financial goal because of low rates

2009-11-16T13:11:00.002-05:00

About a quarter of my mortgage practise consists of people who come to ask advice and help around paying off debt. Considering that a mortgage is normally a person’s largest liability, there are a couple of simple things you can do if you’re carrying balances on credit cards, or lines of credit.

With the recession affects lingering for another six to eight months, and overtime pay at many companies cut, consumer debt has steadily increased. The majority of individuals carry balances on credit cards and lines-of-credit from month-to-month.

A financial focus to pay off debt in 2010 will give your personal balance sheet a boost and increase your net worth.

Here are a few ideas:

1. Pay off higher-interest debt first
Paying-off higher interest debt first such as credit cards is a good approach to paying down consumer debt. The interest rates on credit cards is normally much higher than on debt that is secured by a property (such has a mortgage) or a loan on a vehicle. The reason is that the greatest incidence on credit defaults occurs on credit cards.

If you have a budget that’s aggressive to allow you to pay-off the debt in a few months, you may want to consider consolidating all your debt onto the card or line-of-credit that has the lowest interest because it will save you money. However, beware of credit-cards that offer low-interest payments for the first months.

2. Pay off debt that has the highest payments first

A positive cash flow is the most important aspect of an individual or family’s financial health. The reason why people don't pay off their credit facilities every month is because they spend more than they make. A simple family budget can help you eliminate this trend. Another approach to paying-off debt is to review all the monthly payments on your credit facilities and look at paying off the ones with the highest payments first. This approach will help you improve your family’s cash flow until you have paid-off all your debt.

3. Consolidate debt into a lower-interest mortgage

If you’re still finding that you can’t pay-off your outstanding debt in six months, consider wrapping it into your mortgage. There will often be a penalty to pay, even if you go with the financial institution that you have your mortgage with. However, it makes sense if you are paying-off high-interest debt.

If this is the approach you’re going to take, ensure you speak to both a mortgage broker and a bank and look for options that can help you pay-off the debt. The mortgage professional should also advise you on a family budget and how to structure it so that you don’t run into the same situation again.

The benefits of paying-off consumer debt are that it will allow you to increase your credit score and put you in a better financial position.

How to pay your mortgage off before you retire...

2009-10-30T10:36:00.000-04:00

Most people want to pay their mortgage off before they retire. It’s a good plan because if you don’t have a mortgage payment to worry about when you’re retired, you can often live more freely in retirement. If your goal is to have your mortgage paid off before you retire, this information is for you.

Here are three simple suggestions on how to pay off your mortgage as soon as possible

1. Change how you pay your mortgage

The majority of the people that I see in my mortgage practice have the pay that they earn deposited directly into their bank account and then make their mortgage payment. To accelerate the payment on your mortgage, there are ways to deposit your entire pay directly into your mortgage and then move the money into an account to pay for your day-to-day living expenses.

The benefit of paying your mortgage this way is that by depositing your pay directly into your mortgage you are significantly accelerating the payment. Your money is still easily accessible for day-to-day living. There are also handy tools attached to this type of mortgage that allow you to decrease the fees that you pay on banking and help you budget for your lifestyle.

2. Think of a floating mortgage rate

In the last three years, more people have considered a variable rate mortgage because of the low rates. Historically, research shows that people tend to pay less money in interest over the long-term with mortgages that have floating rates based on the prime rate. Floating-rate mortgages have come a long way and there are many ways to create stability and protect against changes in the rate, while allowing you to pay less money in interest.

3. Budget : A little pain means long-term gain

Develop a family budget so that you understand how much money you have coming into your household versus your expenses. Many people choose longer amortizations because they are unsure of how much they can actually afford in a mortgage payment. I’ve found that working with my clients and helping them create a budget shows they can be more aggressive with paying down their mortgage and shortening the amortization, while not impacting their lifestyle significantly. Shortening an amortization can save thousands of dollars in the interest paid.

Now’s a great time to revisit your mortgage, especially if you’d like to pay it off before you retire. Rates are low and there are many good options.

Pay attention to the econmy and its effects on mortgage rates.

2009-10-13T16:38:00.004-04:00

It would appear that things are turning the corner. At least that’s what many people are assuming since the unemployment rate dropped 0.3%. The September unemployment rate of 8.4% was lower than many expected and as a result it pushed the yields up on fixed-rate bonds. Stock markets have seen a similar rise. This will lead many mortgage lenders to bump their fixed-rates up a bit, until another set of data comes out to suggest things aren’t as rosy as they had appeared.

Most gains in the economy came in the manufacturing and construction sectors, which will be a surprise to most given the state of affairs in the auto industry. The province posting the largest gains was British Columbia. Ontario ended the month pretty neutral, with gains offset by losses in part-time work. Frankly, I will take gains in the full-time workforce over the part-time work force as it leads to a stronger economic base of consumers.

The strenght in employment will be a precursor to a rise in mortgage rates. The latest report suggests that things are improving; however, we will need to see 2 to 3 months of improvement in the unemployment figures before we see rates really start to take off. If you are going with a variable rate mortgage (or already have one) start paying attention to the fixed rates as the current rates will be gone quickly.

Big News in the Real Estate Sector Today

2009-09-16T09:10:00.001-04:00

There’s some big news in the real estate sector today, with the National Post putting the story on the front page. Sales in Vancouver were up 117% in August this year over last year, and nationally prices have increased approximately 11%.

There is no question that low mortgage rates have fuelled most of the positive numbers in real estate. It will be interesting to see what happens to real estate as rates start to rise. When they rise is up for debate, but it is safe to say that they will likely start rising sometime in late 2010 if not sooner.

The Federal Reserve Chairman (in the US) has indicated that he thinks that the US is finally out of their recession. He did provide some caution, stating that he thinks it will be a while before the unemployment rate eases, and that the recovery will be slow. This is good news for mortgage rates if it is true, as weak markets have little inflationary pressures and translate into the low mortgage rates that we have today. Expect low rates in their current range for at least 6 months.

$100,000 to invest? Expect returns of 10 to 15 per cent with low-risk private mortgages

2009-09-07T16:06:00.002-04:00

Earlier this year, I sited three opportunities that exist in real estate for 2009. They are: a) investing in real property; b) early renewing your mortgage to pay-off your mortgage quicker; and c) investing in private mortgages.

Most people think they should call a mortgage broker only if they are buying their first home. However, a seasoned mortgage broker can help you re-examine the largest liability you have, which is normally a mortgage.

In my October article I’ll look at private mortgages and investing in them. This is one area where we’ve helped individuals invest their money into secure, shorter-term mortgages. Our track-record in this area is better than most banks because of our low borrower default ratio, which is less-than a half a per cent.

Are you a good candidate for investing in private mortgages?

Most private investors have some experience in owning real estate. Many have owned real estate investments and know that real estate does not fluctuate nor is as risky as investing in the market.

Because of the tightening of the credit markets, financial institutions are only giving mortgages to individuals with great credit history and good job stability. Individuals with weaknesses in these two areas require alternative mortgage-financing which often includes a private mortgage. Essentially the private investor, replaces the role of the financial institution, and gives a borrower a mortgage.

Another area of opportunity with private mortgages is in commercial real estate investments. Again this opportunity is a result of the tightening of the credit markets. In this area, the borrowers tend to be stronger than residential borrowers. One key reason for their need in a private mortgage is that they can’t come up with the 35% or 40% that the banks are requiring now for a commercial mortgage.

What are the risks?

The main risk in investing money into a private mortgage is that the borrower defaults on the mortgage. If you a working with a reputable mortgage-broker, before you invest in the mortgage, they will review the borrower’s profile and the pros and cons of the investment.

You will also work with your lawyer who can counsel you on the investment.

Nonetheless, if the borrower is to default on the mortgage, you will still have access to the real estate asset which you can sell and recoup most of your losses. You will likely get the majority of your investment back, which is more than we can say with investing into the markets.

How do I learn more?

Contact The Mortgage Centre to learn more or a reputable mortgage broker that has been referred to you.

If you're self-employed you can still get a great mortgage.

2009-08-31T09:40:00.002-04:00

A mortgage has the most direct impact on your lifestyle and allowing yourself enough time to talk about mortgages with the right mortgage professional sets you up for financial success.

There’s a lot to know when you’re arranging a mortgage. Understanding how the five C’s of credit impact your ability to obtain a mortgage will help you get a better mortgage in the end. Ensure that your mortgage professional spends time talking about the five C’s of credit and offers you advice, rather than only quoting interest rates. Allow yourself enough time to get your financing in order before you purchase the home of your dreams. Explore all the mortgage options available to you and pick the product that best suits your needs.

The five C’s

Knowing how mortgages are evaluated can help you—especially if you are self-employed—get the best combination of features and rates.

Captial: The down payment

In all mortgages the more money put down, the better. For individuals who can’t confirm their income but have stellar credit will need a minimum down payment of 10 per cent to get the best mortgage rates.

Credit: Your track record

To maintain a good credit score it’s best to pay bills on time, even if you’re making only the minimum payment. For self-employed people, a higher credit score means less weight is placed on income verification.

Collateral: The state of property

A good location and a solid property are key features mortgage lenders look for. In a self-employed situation where income can’t always be confirmed, the property should be highly marketable.

Capacity: Your ability to pay

Capacity is often difficult to prove in self-employed people and refers to the client’s ability to pay, which is often proven by T4’s, NOA’s, and a job letter. No more than one-third of the family income should be allocated to the mortgage, heat, and property taxes.

Character: Stability is king

Mortgage lenders like to see trends in a person’s job stability and job stability within a specific sector is often more important than staying at the same company for any period of time

Retails sales and the impact on mortgages

2009-07-23T11:33:00.003-04:00

Statistics Canada reported that retail sales were up slightly in May, countering a slight decline in April. Overall, retail sales were up about 1%. (See http://www.statcan.gc.ca/daily-quotidien/090722/dq090722a-eng.htm for the complete news release.) This will likely send some retail-related stocks higher for a short period.

Retails sales should not be confused with Gross Domestic Product, which is the total value of all output for the Canadian economy, including exports.

It is important to note the increase in retail sales will produce neutral results for the next 6 months. As a result, it is likely that the Bank of Canada will hold its overnight lending rate at the current level until 2010. The Bank eluded to this in their recent policy announcement on Tuesday of this week, stating that if the economy keeps tracking the way it is, that they will keep their rate the same until Spring 2010. (See http://www.bankofcanada.ca/en/fixed-dates/2009/rate_210709.html for the press release.)

The wild-card in all this is inflation. Inflation is driven by a number of factors, and as inflation rises, or the expectation for inflation builds, so to will mortgage rates. Be prepared for steadily increasing interest rates starting in 2010. With fixed rates where they are today, fixed-rate mortgages are a good option for some. Variable-rate mortgage shouldn't be overlooked as there are immediate interest savings for at least the next year.

Mortgage Opportunities that Match the Marketplace

2009-07-13T09:57:00.001-04:00

The recession is a good time to revisit your net worth and look for opportunities where others are retreating. I’ve summarised three opportunities that I see exist in the marketplace when it comes to increasing your net worth.

1. It’s cheap to borrow money to increase your net worth

I’m a believer of using someone else’s money to make money for you. What I mean is the time is good to borrow money against your home to invest. If you’ve owned a home for 10 years or more, you’ve gotten good appreciation value in that home. Using that equity to invest into the market or to purchase real estate as an investment is a sound decision. Keep in mind the we are near the bottom of low interest rates, and there will likely be rate increases the latter part of 2010. If you’re borrowing against your home through a Secured Line of Credit, ensure you take into account the 10 year averages of the prime rate. Remember the lowest the prime rate has been is now at 2.25%, the highest it’s been is 7.5% and the 10-year average is 5.22%.

2. Aren’t happy with your investments...invest in a private mortgage

If you’re still wondering how to get back some of the money you may have lost in the market, lending money through private mortgages is a good way to limit your risk and make good returns. In this market place borrowers who don’t have a good credit history and job stability, have few options available. That’s where private lenders come in. If you have money to invest, private mortgages can offer returns from 9 % to 15 % depending on the borrower risks. The default ratio in Canada is low on mortgages – nearly .5% and at The Mortgage Centre we have a good track record on helping our private investors lend money to higher-risk borrowers.

3. Reverse mortgages – they’ve come a long way

Reverse mortgages have a stigma attached to them, which is that they are the lender-of-last-resort for seniors. That’s not the case anymore. If you’re over the age of 60 and require money for day-to-day living expenses, a reverse mortgage can be a good option. A reverse mortgage allows you to borrow money against your home at a certain percentage of the home’s value. You can then take the money and bring it to a reputable financial planner who can show you ways to use the money to generate cash flow for your living expenses. The benefit of a reverse mortgage over a secured-line-of credit or traditional mortgage is that there are no monthly payments to be made on the mortgage until the house is sold or the borrower passes away – at which time the estate will handle the money. I’ve found that many seniors are reluctant to do this because they are worried about leaving something behind for their children. Although I’m of the generation that appreciates this sentiment – I do also hope that my parents, who are in their 60’s, are also able to live their life to the fullest, for their years of hard work.

Should I stay or should I go?

2009-05-27T21:56:00.000-04:00

There are conflicting messages about when Canada will move out of the recession. One thing is certain buying real estate in 2009 is a safe place to put your money.

2009 not like 1929

I’ve heard some compare the recession of 2009 with the Great Depression of 1929, and that’s wrong and irresponsible. One main distinguishing factor of the two recessions is the rate of unemployment. In 1929 the unemployment rate was 25% versus in 2009 it is hovering at 7%.

Manufacturing has been hit hardest in this recession. However, Guelph’s economy and the Tri-City area remains a star in the Canadian market place because of the diversity of its economy.

Government spending replaces consumer spending

The low interest rates we are currently experiencing in this recession where created to spark consumer spending. Consumers however are not spending and saving instead!

In the immediate future, this consumer savings isn’t helping the recession, so governments are picking up by spending. To stimulate the economy, governments are spending on infrastructure. The immediate benefit is job creation, but there will be long-term consequences of increased inflation in the coming years.

Low interest rates lead the way for real estate

House values in Guelph are holding steady. Don’t expect to get the same bargain-basement prices that consumers are getting in the US. The reason is that in Canada our foreclosure rate has remained steady for the last 20 years. High foreclosures in the US created a glut of homes in the market place. The result was increased supply, while demand for homes came down. Most price ranges in Guelph remain the same as last year. The Canada Housing and Market Corporation (CMHC) is forecasting an overall 2% increase in home values in 2009.

Fixed-rate mortgages have never been lower. I’m finding that people who are confident in their employment are buying real estate. Families continue to move and real estate investors continue to buy properties.

A reputable mortgage broker is different than the banks because they can shop the mortgage market for you. The ability for you to choose which financial institution, be it a bank or another finance company, gives you the ability to customize your own mortgage. If your current mortgage is with the bank, be sure to bring in your mortgage statement so that the broker can compare your current mortgage with alternatives.

If you’re in the market for a mortgage, here’s some sound advice…

2009-02-11T09:15:00.000-05:00

Rates have been falling steadily for 2 months, with some large decreases having taken place in the last 2 weeks. Given this, it is a good time to review the following data:

The Prime Rate has averaged 5.32% over the last 10 years. With the current Variable Rate Mortgage pricing sitting at or about Prime plus 0.80% most clients will average a rate of 6.15% if they stick with a VRM long-term. The current VRM rate is 3.80% and is expected to decrease a little more in the next 2 months.

The current 5-year fixed rate mortgage rate is approximately 4.35%, depending on the lender. Some conditions apply and the rate might get lower, however this is close to the low that I have seen in the last 10 years, which is 4.20%. There is room, given the banks’ costs, to lower the fixed rate, and it might even hit 4.00%. That is only a prediction but I wouldn’t be surprised if it happened.

With the above in mind many people will still opt for a variable rate mortgage with the view of locking it into a fixed rate mortgage in the next 6 months. This is a great strategy but one with a downside: That the fixed rates rise before they lock-in. I am currently purchasing a property from a family member and am opting for a 5-year fixed rate. At 4.35% I feel the rate is great and that I will average better than the VRM will. Lastly, I don’t have to worry about locking-in sometime in the future. It’s a “no-brainer”.

Please don’t hesitate to contact me if you have any questions on the above. Sandra Lastovic, The Mortgage Mentor

Making your mortgage work hard for you.

2009-01-30T06:37:00.007-05:00

With all the buzz about a possible market turn around in the later part of 2009 and into 2010, interest rates on fixed-rate mortgages have never been better.

The main impact of low rates on higher net worth individuals is that they can accelerate the payment of their mortgage and quickly build equity in their homes for other things.

Using the equity in your home to build wealth is where my team and I come in. There are many ways to release the equity in your home to build your net worth and here are a couple of examples. BTW, each of these examples may allow you a tax write-off on your mortgage interest.

1. Use the equity in your home to buy other real estate. Commercial properties are holding their value, but will likely feel the pinch of the economy as those properties. Because buyers are expecting higher capitalization rates, prices may come down. Commercial properties such as plazas and multi-units are a great way to generate cash flow.

2. Use the equity in your home to invest in the market. Do I need to say more? Obviously working with a good financial planner who understands this market is extremely important.

3. If you're a sole proprietor, use the equity in your home to run your business expenses through. This often called "The Cash Flow Dam". It's something that I've worked on with my clients and can show you how to do this.

Sandra, The Mortgage Mentor

How can you be prepared to grow your real estate business in the current economy

2009-01-26T09:50:00.004-05:00

Whether you're a real estate investor or real estate is a part of your business, you're likely concerned about the market and how it will impact your business in 2009.

How can you be prepared and still grow your business in the current economy? If you have questions, we'll provide you with answers. Attend this year's premiere real estate conference: The Real Estate Pulse Conference.

Participants will be armed with the facts on the current economic and real estate situation in Guelph and be prepared to face the upcoming market head on.

This years Key Note Speaker is Peter Vukanovich, CEO of Genworth Financial. Peter will provide a "CEO's Perspective" on the state of the real estate market in Canada and the impact on mortgage financing.

Book this date in your calendar now and register quickly as space is limited! The conference is being help on Thursday, March 12 from 12:30 p.m to 3:30 p.m. at The River Run Centre.

If your business depends on the real estate market, this conference is for you.

Please don't hesitate to e-mail if you have questions or would like to register. Sandra, The Mortgage Mentor

Low mortgage rates are one benefit of a recession.

2009-01-12T09:56:00.003-05:00

One positive aspect of this recession is low mortgage interest rates. If you're buying real estate for the Spring of 2009 or renewing your mortgage, you will benefit from low interest rates on both fixed-rate and variable-rate mortgages.

Remember that even if you're moving to a new home, it's worthwhile to shop around for your mortgage. You do not have to deal with your existing financial institution if they do not have the best mortgage and interest rate available on the market. Sometimes a minimal cost can save you thousands on a lower interest rate.

Canadian employment numbers were released last week and the prognosis is that over the first half of 2009, we can expect the unemployment rate to head towards 8% before coming back down as the economy stages a recovery in the latter part of the year. Employment figures are key in predicting economic activity, which also includes looking at what is happening at GDP.

Mortgage rates will remain consistently low for 2009, but I'm encouraging my clients that if they're looking for real estate in 2009 to get pre-approved in January as a pre-approval locks in a fixed-rate for you and protects you from subtle market fluctuations.

If you have any questions, please don't hesitate to post a comment or contact me directly through e-mail. Sandra, The Mortgage Mentor

If you're "moving-up" in 2009 why you'll win in this market

2009-01-07T10:17:00.003-05:00

There are many benefits to a market that favours buyers, even if you're selling a home in 2009. I've been working with several clients lately who are considering moving to a larger home in the spring of 2009 and have asked me if this is a good time to do so.

The main advantage to moving up in a market that favours buyers is that you can buy more for less. Although home prices in Guelph and area are remaining stable, let's take a worse-case scenario approach and say that they decrease by 5% across the board.

For example, if I'm selling my home of $200,000 and the price decreases by 5%, I'm selling at a $10,000 loss. The individual selling their home for $400,000, which I am interested in buying will also have a 5% decrease which benefits the buyer by $20,000. That means that as a buyer of a larger home I'm getting a $400,000 home for $380,000.

Home prices that are stabilizing and slightly depreciating are a great opportunity for a savvy homeowner looking to move up. Even though your home sale price may be lower the smaller loss at sale can be compensated by greater savings at purchase. To boot, we're at historically low interest rates which means that the larger home becomes more affordable.

For more information, please don't hesitate to contact me at lastovic.s@mortgagecentre.com. Sandra, The Mortgage Mentor.

Renewing your mortgage early may make sense if you have a 6.5% interest rate or higher on your fixed rate mortgage

2009-01-06T09:58:00.005-05:00

If you're into fixed-rate mortgages because you like stability and security, now may be a good time to revisit your mortgage and renew it early. There are times when it makes sense to break your old mortgage, pay the penalty and get a new mortgage at a lower rate.

Some of the things that you'll need to talk about with your mortgage professional to help them evaluate the pros and cons of renewing early include:

your current mortgage balance and value of home
your interest rate
renewal date

In the last month, I've worked with two families where it made sense to break their existing mortgage pay the penalty and get a new five year fixed rate mortgage. One family went from an interest rate of 7.1% to 4.89%. What they were able to do with this lower interest rate is shorten the amoritization by 9 years while still maintaining about the same bi-weekly payment. They are now able to pay their mortgage off in 10 years rather than 19 years. The penalty of $2000, plus an additional $800 for a lawyer visit made sense considering the ability to shave-off nine years on their mortgage.

If you have any questions about this and how it would apply to your own mortgage situation. Please e-mail me! Sandra, The Mortgage Mentor

2008-12-22T14:01:00.002-05:00

With the current volatility in the economy, one thing is certain; namely, that real estate in Guelph will remain stable and low interest rates will benefit those who are buying in 2009.

Here are a couple of areas where you can benefit if you’re buying real estate in 2009:

Real Estate Investment Properties

Because of the credit crisis around the world, most financial institutions have tightened the reins as to whom they will give mortgages. This means that people who were qualified to buy a house a year ago may not be able to buy a house now because of the new mortgage lending guidelines. In Guelph, we’ve seen vacancy rates go down, which means there are more people renting and fewer rental options available. If you have good equity built-up in your home you can tap into this equity wisely and buy an investment property, which will have a significant impact on your personal net worth.

Moving to a bigger home

Although you may not get as much as you hoped for if you’re selling your home this year, you’ll find that you can easily make up the difference on the purchase of a home. If you’re making a significant upgrade to your home you will benefit from competitive home prices and good interest rates.

Keep in mind that going directly to a mortgage broker can significantly benefit you. Most mortgage brokers deal with all of the traditional chartered banks and can offer you a comparison of what your own financial institution has to offer you versus other options on the market.

First-time buyer

If you have 5% as a down payment and have good credit, you’re likely in the market to buy a home. However, you don’t want to delay in buying a home. You can never predict the bottom of the market until it has actually taken a turn for the better. As a first-time home buyer you’ll have a lot of choose from but, if you hesitate to buy, you’ll lose out on the really good homes that are priced competitively.

The most important thing to remember about a shifting real estate market is to do your homework.

Look-out for lower fixed-rates in 2009

2008-12-15T10:29:00.004-05:00

In the last week, we've seen the rate on five-year fixed rate mortgages come down. If you're renewing your mortgage in the next four to six months, ask your mortgage broker to have a closer look at fixed-rate mortgages.

Remember that fixed-rate mortgages are set based on what's happening in the bond market, not what's occurring with the prime rate. I often have clients call me when the Bank of Canada makes a change in their overnight lending rate, which can impact a financial institutions prime rate. I've even heard people in the industry look at the wrong indicator. As a consumer, ensure that the person who is helping you with your mortgage is looking at the correct indicator.

The average yield of five-year bonds has been coming down and that has had a positive impact on fixed-rate mortgages. For example on December 10th the yield on the five-year bond was 2.2 and on December 11th the yield was 2.15. The bond yields bounce around and they are a good indication of what's to come with fixed rate mortgages.

If we think that historically five-year fixed rate mortgages where based on the five-year bond plus a two percent margin, five-year fixed rate mortgages should be priced at about 4.5%. As of today, many institutions are offering 4.99%.

Stay-tuned for more good news if you're renewing a fixed rate mortgage at the beginning of 2009. Sandra

Mortgages that work like bank accounts can help you save on interest

2008-12-10T10:10:00.003-05:00

If you have at least 20% equity in your home and have a couple of mortgages under you belt, you may want to consider having a closer look at a mortgage that works like a bank account. The main benefit of this type of mortgage is that you are able to deposit your pay directly into your mortgage account. What this does is automatically accelerate the payment on your mortgage thereby decreasing the amount of interest that you pay.

It's thinking about your mortgage as a financial tool, rather than a liability.

This type of mortgage works best if you have a family budget. Essentially you would deposit your pay directly into your "mortgage account". You can then set up a separate account that has a pre-set amount that you can use as your family operating account for things such as groceries and other incidentals.

Be wary of mortgages such as the Manulife One mortgage. Many financial planners have access to this mortgage and sell it as a part of their financial planning package. Understand that financial planners are essential in helping you plan your assets, but not necessarily pros when it comes to helping you manage your liabilities. I work in conjunction with several financial planners to help their clients determine the best mortgage that will fit their short- and long-term plans. The Manulife One mortgage is a great tool, but overspending is often a problem with this mortgage. As a mortgage broker we've helped people get out of this mortgage because what they've found after a few years is that they're not paying down the principal on their mortgage and the balance is about the same as when they started.

If you're talking to your financial planner now (I'm sure you are, given the state of the stock market and the economy), you may want to ask them if they could refer you to someone who could show you how to use your mortgage in a way that can benefit you financially.

Or you could contact me directly via e-mail. Sandra

Take a closer look at a Convertible Mortgage

2008-12-09T09:56:00.003-05:00

The Bank of Canada will announce a lowering of it's overnight lender rate today, which will have a positive impact on Variable Rate Mortgages (VRMs) if financial institutions lower their own prime rate.

The pricing on VRMs however has not made them as attractive as some fixed-rate mortgages. Until September 2008 most VRMs were priced at the prime rate minus a percentage. So a typical rate of a VRM would be prime minus 0.6%. Now most VRMs are priced at prime plus 1%.

If you haven't considered a convertible mortgage for 2009, you may want to do so. The way a convertible mortgage works is that the lender guarantee a low rate for six months or a year (so you're entering into a one-year fixed rate term) and then you have an opportunity to review the economic and your own personal financial situation in a year and decide to go from there. I think it's worthwhile strategy to consider if you're into variable rate mortgages. That's because we will likely start to see the pricing change on VRMs in a year and you may see the VRM at prime (which is better than prime plus 1%).

Don't hesitate to contact me if you have any further thoughts. Sandra

Chartered banks are reining in their lending to consumers, reputable mortgage brokers continue to have options

2008-12-03T09:12:00.000-05:00

Today the Bank of Nova Scotia announced that it is pulling back on lending to consumers as the economy slides into a recession. As a mortgage broker, and being at the front-end of mortgage lending, I've already noticed that RBC and CIBC have done this. At my office we're seeing more and more people walk through our doors that are not being approved for mortgage-financing at their own banking institutions. Perhaps they could have been approved a year ago, but not now because of credit-market tightening, they can't get a mortgage.

As the local Guelph real estate market moves into a buyers market, they'll be some good buys to be had in 2009. Consumers should ensure that they get a full pre-approval, not a pre-qualification from their mortgage broker or banker. If your lending institution hasn't pulled your credit history and asked for preliminary documents on income qualification and downpayment they have done a disservice to you. The reason is that when you do find a home, you'll want to feel confident that you will be approved for a mortgage.

If you have any specific questions about this, please don't hesitate to e-mail me.

Newspapers sell doom and gloom, we could be a light in a dim economy

2008-12-02T21:38:00.000-05:00

Today The National Post reported that the US economy has been in a recession for a year and they didn't even know it! Canada is heading into an economic recession as well. How will Guelph and the K/W area fair in the continued slowdown? Likely better than most regions in Ontario if not Canada. Our economy is diversified and is predicted to absorb many of the losses in manufacturing. Although I am cautiously optimistic, we continue to see people buying and selling real estate and coming in to see us about their mortgage financing.