The Gimmick's Over Low Mortgage Rates

I get questions almost daily about the low rates being offered on mortgages. Most people are confused over the terms and the conditions, but know exactly what “the rate” is. We’ve been so programmed to consider just the mortgage rate. There’s been very little information about how the features in a mortgage can have a positive or negative impact on your ability to pay the loan or your lifestyle.


Here are the questions you should be asking aside from getting the lowest rate (which is always important):

1. What is the term of the mortgage?

This is where the biggest confusion lies. I’ve seen RBC ads in newspapers that compare 4-year fixed rate mortgages directly with 5-year mortgages. They are not comparing apples to apples in this scenario. Perhaps you would benefit from a longer term mortgage at a slightly higher rate than going shorter term. I’ve just helped a client arrange a 10-year mortgage term at a higher rate. She’ll pay that mortgage off in ten years and wants absolute stability for the next ten years.

2. Can I make extra payments on the mortgage to help me save interest? When can I do that and how much?

Some of the deeply discounted mortgages have limitations on making extra payments. For example, if you receive bonuses at work, and if you can only make lump-sum payments on your mortgage on the anniversary date of the mortgage – you will be stuck waiting possibly a year to make that extra payment, in the meantime accruing unnecessary interest expenses.

3. What happens if I need to make significant changes to the balance on the mortgage or sell my house? What is the penalty?

There’s been a lot of buzz around penalties to get out of a mortgage – and now it’s regulated by the Financial Services Commission of Ontario for banks and mortgage brokers to discuss the penalties around discharging the mortgage. Sometimes deeply discounted mortgages have constraints around making changes or getting out of the mortgage. Be sure to discuss this with your mortgage professional.

Women and money...do I dare say more?

Women (I've read) make better money managers and investors than men. They tell us we're more likely to collaborate, share ideas and not let ego in the way of investing. How does this differ from how men invest? We're more likely to do the research and make investment decisions on rational, objective terms rather than emotional.

On the debt and budgeting side, I see single women, and those in relationships, often managing their family's budget and expenses.

Have women come along way in managing money? I don't think we have, even though many women in families make more money than their spouses.  When I meet with clients to do mortgage planning sessions, most men still do the talking. Why? Is it ego or a lack of financial self-esteem?

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

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

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!

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?

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?

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!