The holiday season is fast upon us. Good luck to us last minute shoppers this week! Wow this year has totally flown by. I wanted to send my best wishes and happy holidays to all the vistors to the North East site and all our clients.
In true holiday spirit, we all will eat a lot, find great gifts for those we care about but also have dreams of Santa getting us that new home. Okay well maybe not Santa... If you’re thinking about putting your home on the market in January or February and in the hunt for a new home then take a minute to plan ahead a little. It’s not a bad idea to first figure out how much your home may realistically fetch and how much you will have net left in your pocket after repaying the mortgage, mortgage penalty (if any), real estate broker fees, lowering personal debts, etc.
With an idea of down payment in mind then it’s a good idea to get pre-approved for a mortgage. Make sure your mortgage pre-approval holds the rate into spring or early summer. Together this will give you good idea about budget and what’s reasonable to expect. What’s important is not be financially over-stretched. The step after that is the fun part, start the house hunting process with a good real estate broker.
If you have any questions or experiences you’d like to share please feel free to contact me even over the holidays.
Monday, December 19, 2011
Wednesday, December 14, 2011
Residential Mortgage ABC’s
I hope that everyone’s had a great week. I’ve decided tofocus this week’s column on a couple mortgage basics. I often hear thatterminology and mortgage options are not properly discussed at the bank.Hopefully this helps...
Interest rate: isthe rate of return a lender receives for permitting you (the borrower) for aspecified term (or duration).
Term: when yousign for a new mortgage you can usually choose the duration of your term (1, 2,3, 4, 5 years or more). If you decide to sell or refinance within your term youcan usually expect to pay a penalty to the bank. Upon completing your term, youare permitted to refinance or change banks without penalty.
Fixed and variable: Fixedrates remain set throughout your mortgage term. Variable rate mortgages arealso set to a term but fluctuate based on the Bank of Canada. Choosing betweeneither is based on your personal risk tolerance and you must qualify.
Amortization period:is the number of years it takes to pay back your mortgage. Maximum amortizationis currently 30 years but some lenders still offer 35 years but you need toqualify.
Frequency: refers to frequency of your mortgage paymentsuch as weekly, accelerate bi-weekly, and monthly. What frequency you choose isimportant as it help pay your mortgage down quicker.
Closed versus an openmortgage: If you are looking to buy a property and “flip-it” within 2-3months then an open mortgage may be what you’re looking for. The rate is higher but you can break yourmortgage at any time without penalty. A closed mortgage is exactly how itsounds closed for the duration of your term and there are generally penaltiesfor breaking it.
Cash back: A cashback mortgage is great if you’re a first time buying and need a little helpwith your down payment. If you have goodcredit then you could qualify to get up to 5% cash back to supplement yourexisting down payment. Make sure youwill keep your home for your term otherwise you will have two penalties, themortgage penalty and you will also be expected to repay the cash backportion.
Secured line ofcredit: is a line of credit attached to your home which is based on thesame principles as a variable mortgage. I would suggest that you use it as a short to medium term financial toolbecause the closer you get to your limit the more it could affect your creditscore. Lines of credit compound monthly.
If you have any specific questions or good and badexperiences you’d like to share please feel free to contact me.
Friday, December 9, 2011
What is a mortgage pre-approval?
Welcome to the calm before the upcoming buying storm. If youare thinking of buying between now and next summer then its good idea to getpre-approved by a bank. The mortgage pre-approval process is not that complexbut quite valuable. Think of it like a doctor’s check-up where your income,credit and downpayment are reviewed and “qualified.” All three factors areimportant considerations when a mortgage application is analyzed by not onlythe financial institution but also the mortgage insurer.
Some clients place ahead which is great but at times I havemet with clients after they have an accepted promise to purchase in play. Inmost cases that’s fine but I have seen more and more situations where the clientsrealize they are either over-budget, or don’t qualify due to other controllablefactors (that could have been fixed prior). It’s never fun to find out that inthe midst the financing deadline that you cannot qualify for a mortgage with anA-lender. A pre-approval is also importantas it shows the real estate broker representing the vendor that you are aserious buyer.
If you have any specific questions or good and bad experiencesyou’d like to share please feel free to contact me.
Tuesday, November 29, 2011
Are you thinking of buying a new “turn-key” home?
I hope everyone has had a great week. Last Tuesday, I took tothe CJAD air waves with a new call-in show on mortgages on debt. I usuallyco-host the show with Terry Kilakos but this time I ran solo as Terry was awayat a mortgage conference. I had some very interesting callers asking aboutrefinancing, the advantages of using a mortgage broker and some questions aboutmanaging debt load. I was hoping to get a caller asking about “turn-key” homesas this is the focus of this week’s article.
By my definition a “turn-key” purchase refers to you as aconsumer approaching a builder to purchase a new home. Typically, in such casesthe builder is creating multiple homes that are expected to be delivered atsome point in the near future (say 6 to 12 months away). Some builders have their own bankrepresentatives on-site to assist with your financing needs however their mortgageproducts may not necessarily be best suited for financial circumstances andneeds. As always some planning is not a bad idea.
When you identify serious interest in a turn-key home thebuilder literally reserves that property for you. In most cases, they will askfor cash deposit(s) and you may be permitted to customize the home. After signingthe pre-contract you may lose your job, get sick whatever the reason. What’s importantis to be aware of the pre-contract exit policies because at a certain point intime you may not be able to back-out. Also, keep in mind that even if you signyour mortgage papers today, rates and mortgage products change over time especiallyif the home is ready in 6 months. You can always switch banks at a later dateif you feel that you’ve found something better for your needs. The builder’s goalsare to complete the house quickly and sell just as fast. As long as you have afinal mortgage approval they will get paid. Keep in mind that the caveat isthat some builders may not permit you to seek financing elsewhere but I haveyet to see that occur.
If you have any specific questions you’d like to discuss innext week’s article please feel free to contact me.
Wednesday, November 23, 2011
Mortgage show on CJAD 800AM
Afternoon all, just wanted to thank all the listeners last night. I usually help co-host the show with Terry Kilakos but this time it was my first night at the helm solo. I really enjoy working with Abe Hefter from CJAD. Terry was returning from a national mortgage conference and couldn't make the show but glad that he called in from Toronto. The calls that came in were awesome as was all the feedback from everyone after the show.
Most of the callers focused their questions on refinancing, bad credit and one caller asked about purchasing a property 50/50 to help a friend. I will keep everyone posted for our next show.
Most of the callers focused their questions on refinancing, bad credit and one caller asked about purchasing a property 50/50 to help a friend. I will keep everyone posted for our next show.
Monday, November 21, 2011
Sunday, November 20, 2011
Are you thinking of building your own home?
This week I’d like to share some thoughts about new constructions. Lately, I’ve had quite a few clients that have decided to build their own homes. New constructions are different from “turn-key homes”. A new construction is a unique home where you directly hire a professional to build your home. In a turn-key home you approach a builder who is selling say twenty new homes that will be ready next spring.
This week’s article is inspired by a couple that I have been working with from St Lazare area who are building a new home with a contractor in Hudson. If you’re considering building your own dream house then here are a couple steps to keep in mind. First and foremost the banks will require that you purchase the land needed outright.It is possible to finance the purchase of land but typically most will purchase outright. Next, it is suggested that you partner with a construction company or contractor who has experience with this type of project. Here you and the builder will need to pen to paper in terms the project scope. The banks want to see housing specs, costs and timelines. Before you buy your land or hire a contractor it’s a good idea to confirm with the lender whether the contractor is acceptable for the bank. Certification is essential here.
With land in hand and bank approval on the contractor it’s also very important to clearly get a final approval on financing before you break ground. It’s also a very good idea to know how many funding dispersals the contractor will need over the life of the project. Typically, the bank will provide funds at every critical phase of the construction. You as the borrower will typically be paying interest only on the portions borrowed. Once the house is completed then the construction loan would be converted to a conventional mortgage. The banks will furthermore send an evaluator at every critical phase before funds are dispersed.
In general terms, the above covers an ideal outline how anew construction should be managed. Lately, I have also come across new constructions where the client approaches me after they have bought the land and completed 50% of the house. Banks don’t like to get involved in such late stage projects. Such late stage projects can be financed but through a private lender over the short term and after completion it’s possible to refinance the property with a conventional bank. I have also seen projects where the client came to me at such a late stage where both conventional banks and private lenders would not finance the completion of the home. In that case it was heartbreaking as the client found out very late that given the location of the home and construction costs it did not fetch his expected market value hence there was no interest to finance the rest of the house.
On a personal note, I wanted to thank everyone for the great questions the past couple weeks. I really appreciate the feedback and enjoy interactive part of these articles. If you have any specific questions you’d like to discuss in next week’s article please feel free to contact me.
Tuesday, November 15, 2011
As a new homebuyer, can renovations costs be rolled into my mortgage?
Welcome to the new winter buying season. Yes, I know I said the “w-word” already, i.e. winter. If you are thinking of buying a new home for next spring or summer then it’s not a bad idea to plan a little ahead. My next couple articles in the coming weeks will focus on home buying. There are three types of construction and renovations mortgages. First, there is a self-built home where you require multiple cash disbursements, a “turnkey” construction where the home would be built by a certain date with one disbursement and finally a purchase with renovations. This week I’d like to focus on the third type, buying a home and rolling renovations costs into the mortgage.
For example, I had a recent client that bought a home in Vaudreuil-Dorion.This client loved the house but it needed a little TLC in the kitchen and wood floors throughout the first floor. Most bank products of this nature permit you to buy the home and you can make renovations between 5-20% of the purchase amount for a maximum of $40,000. This renovations portion simply gets added on top of the mortgaged amount. If you exceed $40,000 it is still possible to get the funds needed but at that point it is typically seen as a construction loan as the renovations required would be considered major at that point.
It’s also a good idea to be as clear with yourself with what type of renovations you really would like to do and make sure that the money spent actually adds bang and value to the home. This latter point is important.You probably have a pretty good idea of your personality and what your future plans will be. Some clients will make the purchase with renovations with the expectation to hang onto the home for the medium to long term which is fine. However if you are expecting to refinance in the future here is where the value-added will be important.
If you have any specific questions you’d like to discuss in next week’s article please feel free to email me.
Thursday, November 10, 2011
Realtor-rating site Canadian first: Brokers’ track records posted
Allison Lampert from the Gazette just published an interesting article about rating real estate brokers. It's definately worth a read..
http://www.montrealgazette.com/business/Realtor+rating+site+Canadian+first/5684436/story.html
http://www.montrealgazette.com/business/Realtor+rating+site+Canadian+first/5684436/story.html
Homeownership and Bankruptcy
The past few weeks I’ve been touching upon bad credit and alittle about bankruptcy, this week I will touch upon homeownership andbankruptcy/consumer proposals from a mortgage perspective. On an annual basis, approximately100,000 Canadians go bankrupt or file for a consumer proposal. [1] If you are a homeowner and your realizingyour debt load is getting overwhelming and you’re using credit to pay debtsthen it might be a good idea to check out your options. I would say that some waitway too long to address the problem or simply don’t know where to turn for help.In most cases, your options are a debt consolidation loan, refinance your home,work with a credit counsellor, file for bankruptcy or file for a consumerproposal.
Before making a decision it’s not a bad idea to go step-by-step. A mortgage specialist can help you weighbetween a debt consolidation loan and/or refinancing your home. The goal herewould be to consolidate your debt load into one lower mortgage payment and/orone bank loan that encompasses all your debts. If your debt load is too largeand you owe more than equity available then I would suggest speaking to acredit counsellor or bankruptcy trustee. Credit counselors generally work for non-profits that genuinely can help you create a personal budgetand give you valuable money management advice. A bankruptcy trustee is licensedto review your options and should it get to that point advise you between aconsumer proposal or bankruptcy. Typically, if you have a lot of equity in yourhome then it could be seized and sold to repay your creditors. The seizure ofyour home depends on your specific circumstances.
To put things into better perspective, in 2010 there were 7288Quebecers that received foreclosure notices and of that amount 42% had theirproperties seized. Upon closer inspection only 175 Montrealers in 2010 losttheir homes.[2] Atface value looks that sounds pretty good, especially compared to the UnitedStates however keep in mind we are at record lows with regards to interestrates. Many of these mortgages will also be coming up for renewal where the newfuture rates could be much higher Also, if you have received a 60 day noticefor your home there are options but very individual case specific.
I hope that you feel more at ease knowing that if you havebad credit, considering a bankruptcy or consumer proposal there are optionsavailable to you. There are also options available if you presently own yourhome and have filed for a consumer proposal within your mortgage term. If youhave any specific questions please feel free to contact me.
https://www.ic.gc.ca/eic/site/bsf-osb.nsf/eng/h_br01011.html
[2]Lamey, Mary “Quebec foreclosure rates dropping” Montreal Gazette, 12 May 2011.
http://www.montrealgazette.com/business/Quebec+foreclosure+rates+dropping/4772026/story.html
Can I still buy or refinance with bad credit or after a bankruptcy?
On a regular basis I meet with individuals with bad credit,no credit, finishing off a consumer proposal or trying to establish creditafter being discharged from bankruptcy. Frankly,there’s no shortcut to fixing credit. It usually takes some discipline, timeand sometimes some money to sign up for guaranteed credit credits.
To obtain a mortgage the banks typically like to see clientswith two major credit cards, with limits of approximately $1200 each and goodcredit history for at least 2 years. Sometimeswith a couple late payments on credit cards or that pesky store credit card youforgot can affect your score. If you are concerned about your credit I wouldsuggest going online and paying for a full report. A self check into your owncredit does not affect your score. Your full report will give you not only yourscore but more detail on each account you have had the past 6 to 9 years. If you have no credit or bad history the past2 years then it might be worth it to order a secured credit card. You will needat least $500-600 to get that started. Please ensure that you are not getting apre-paid card as that new credithistory may not appear on your credit report and you’ve just wasted a lot oftime and effort.
If you feel absolutely over-whelmed with credit card debtand your mortgage payments then you may be forced to refinance which ispossible even if you have bad credit. Typically such mortgages have a shorter1-3 year term which can be enough time to get your credit back in order. Themost important factors to keep in mind are you need good equity in yourproperty and ensure that you pay your mortgage on-time. After that initial termif all goes according to plan you should be able to return with a AAA-bank.
If you’re looking to buy and have badcredit then typically banks would request 15-25% based on your specificcircumstances.
If you have any specific questions you’d like to discuss innext week’s article please feel free to email me.
Commercial and multi-unit lending
Alright, now we start to venture into the world ofcommercial and multi-unit lending. Most banks don’t have the staff tospecialize in each hence often times they combine both types of lending even ifthey are completely different mortgage creatures. Simply put, commerciallending refers to a property whereby 100% or the majority of revenues, i.e.rents, derived are commercial tenants such a storefront, restaurant, and/oroffices. On the other hand, multi-unit typically refers to properties that are100% residential and consist of 5 doors and up. Some mixed residential-commercial properties are still consideredresidential multi-unit but depends on the bank. When in doubt ask, as amulti-unit residential rate is lower versus a commercial mortgage.
If you are looking to acquire your first multi-unit propertythen there are a couple points to keep in mind. First, banks typically areinterested to see that the property can financially support itself from day onehence they will finance up to a certain portion and you as the buyer will beresponsible for the rest. For example, a multi-unit property by law requires aminimum of 15% down payment but if the bank or Canadian Mortgage and Housing Corporation (CMHC) feels the propertyis over-priced then you may be required to put additional down payment. In a recent purchase, my client was asked toput an additional 10% down on the property he eagerly wanted. In his case, hehad the extra down payment as we anticipated it.
Second, when purchasing a multi-unit or even commercialproperty for that matter such financing can take more time to receive financingthan a residential home. It’s a good idea to request at least 30 days forfinancing. Keep in mind that the bank needs time to review your information,review information about the subject property, you will need time for your owninspection, as well as the CMHC (in most cases) will need to perform theirevaluation.
Finally, if your thinking of refinancing your commercial ormulti-unit property now is a great time as the banks are hungry for business.
If you have any specific questions you’d like to discuss innext week’s article please feel free to email me.
What’s going on with my variable mortgage?
Quite a few important changes have been taking place in themortgage industry. This week, I will focus on closed variable rate mortgages.If you presently, have a variable rate mortgage, you’re looking to refinance ormaybe even buy then you should know that the variable discounts have beenshrinking. A variable rate mortgage is based on the Bank of Canada lending ratewhich currently rests at 1%. The Bank of Canada is responsible for printingmoney and managing interest rates. Great job, I know! The Bank of Canada meetsevery three months to discuss amongst other things whether to increase,maintain or decrease that 1% lending rate. Each bank turns around and adds 2%to the 1% giving 3% to which they can loan to the public. Depending on the typeof loan you require such as variable rate mortgage, a personal line of credit,secured line of credit and even some bank car loans are all based on thevariable.
Each of these variable-based loans can have a discount or anaddition added to the 3%. In other words, if you need a car loan through yourbank then they could charge you 3% plus 3% giving 6% and that addition of 3% iswhat follows you for the life of your loan or term. Currently, the closedvariable mortgages rest at 3% minus a discount. This year we have seendiscounts on average at minus 0.75%. Here is what I mean by the discounts areshrinking whereas the Bank of Canada lending rate of 1% has remained stableover the last few quarters. Whataccounts for this change, good question? Some reports suggest that the last jobfigures in the US have bumped up the cost of borrowing but my gut tells me thatmany Banks have lost by giving deep variable discounts and now they are tryingto recover.
Based on all this is variable still the way to go? That’salways a personal choice. I would say that many clients are still requestingthe variable but my advice is simple. You know yourself best. If you keep yourfinances organized and relatively in-tune with the economic buzz then thevariable might be for you.
If you have any specific questions you’d like to discuss innext week’s article please feel free to email me.
Self-employed and thinking of buying?
Hard to believe but another amazing week has flown by andnow we’re already into the month of October. A topic that I get askedfrequently about is first time buyers that are self-employed. Inother words, individuals that own their own registered company or professionssuch as independent copy-writers or truck drivers that are looking to buy ahome. If it sounds like you fit in one of these categories then here area couple suggestions to help you get closer to qualifying for a mortgage.
First, whether you have your own registered company or notplease file both Federal and Provincial income taxes (personal and business) ontime. I know it sounds very basic but I’ve seen many mortgages both residentialand commercial either delayed or cancelled because the client has not filed. Ifyou are thinking of buying in the near future and your 2010 Notice ofAssessments show that you owe balance to either Government please pay offthe balance and keep proof of payment. More and more banks are asking to seethis documented.
Next, figuring out your buying capacity as a self-employedperson is the next order of business. In Canada, we can pin-point your incomebased on an average of 2 years notice of assessment and/or having a look atyour financial statements (specifically gross annual sales) for your company.The general rule of thumb is that figuring out your income needs to make sense.Banks typically balance between personal and business assessments to figure outone’s overall personal income. As a self-employed individual, we generateincome but we tend to expense as much as possible, hence why our Notice ofAssessments can show low declared income. Some of those expenses can bemade with a registered company.
Finally, if your income is solely based on an average ofyour Notice of Assessments then you can put a minimum of 5% down. Ifhowever, your income is qualified on your Notice of Assessments andbusiness’ financial statements or “self-declared sales” then you will berequired to put 10% down. This rule applies to all banks in Canada.
If you have any specific questions you’d like to discuss innext week’s article please feel free to email me.
Too much debt?
Last week I spoke a little about mortgages and personal debtload. For the most part, I’d say the large majority of people have theirpersonal debt under control, however thus far in 2011 I have encountered a fewvery nice families where their mortgage payments and personal debts started toget or are out of control. If you think that your debt load is a burden itmakes sense to take a look at your options before things get worse. I don’twant to sound all gloomy as I am an optimist by nature, but I have seensituations where clients are forced to sell their homes due toover-indebtedness.
If you’re worried about debt, the first thing you want tocheck is credit score and report details. Keep in mind that three major factorscan affect your score. First, pay all yourdebts on time (i.e. making the minimum set monthly payment). Next, try not tomax out your limits on your credit cards and lines of credit. Finally, try tominimize the amount of credit checks. Credit checks include a new cell phoneplan, new credit cards (yes that includes department store cards) and otherservices where the vendor wants to know if you’d be a good client or not.
Let’s put a couple things in perspective. In 2010, as Canadians for every dollar earnedwe spent $1.48.[1] Thisaccounts largely for what is referred as personal or “bad debt.” On the otherhand, often times a mortgage is referred as “good debt.” Our banking system ismuch more regulated than our neighbours to the South but in general asCanadians we still over-spend. The old saying that it’s easier to spend it than earn it really makes sense. I don’t want to sound too dogmatic this weekbut keeping eye on debt and credit is very important. We often take credit forgranted. When we need it sometimes we don’t have enough and it can work againstthe consumer.
If you have any specific questions you’d like to discuss innext week’s article please feel free to email me.
[1]Jackson, Dale “Don’t let devotionto RRSPs distract from paying off debt” 17 Feb 2011, Globe & Mail http://www.theglobeandmail.com/globe-investor/personal-finance/rrsp/dont-let-devotion-to-rrsps-distract-from-paying-off-debt/article1893716/print/
Are you thinking of buying your first home?
The winter buying season is slowly upon us. If you’rethinking of buying your first home now is a good time to start planning ahead. Agood place to start is by putting aside some money towards a downpayment.Ideally, you need a minimum of 5% down for a home. If you don’t have exactly 5%then there are cash-back mortgage options available. In addition to downpayment,banks like to see that you have 1.5% of the purchase price meaning closingcosts such as notary fees and welcome taxes.
With some downpayment in hand you are now ready to getpre-approved. In other words, a pre-approval will access your buying capacity.Often times clients are anxious to know their buying capacity. That’s normal butit’s important to look closer into those numbers. A good rule of thumb is toask yourself, are these mortgage payments (including heat, property taxes,insurance) reasonable and sustainable for me over the next 5 years or so? Moreoften than not, I see clients that come to see me after they have bought andthey find themselves over-extended with mortgage payments and personal debts. Second,the pre-approval process will help identify any trouble areas that can hinderyour ability to buy (such as bad or no credit) but often such areas can befixed. This can take time but get you eventually into a position to buy.
With pre-approval inhand, I suggest meeting with a real estate broker. From there the home shoppingprocess can begin with a good foundation.
If you have any specific questions you’d like to discuss innext week’s article please feel free to email me.
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