Reviewing: Mike Holmes' article "8 Tips for planning a reno in 2014"

Hey everyone. I've been blogging a lot lately about renovations. I came across an article that might be of interest to folks. The Montreal Gazette published an article written by Mike Holme's entitled "8 tips for planning a reno in 2014."

In a nutshell, here are Mikes main renovation tips:

1. Right off the bat, Mike states, "Make decisions before you start. I've said it a million times. It takes longer to plan a renovation than to do it. The more time you spend making decisions before construction starts, the less time will be spent on actual labour, which helps control costs and work schedules."
2.  Find qualified pros: Mike suggest that you not rely on friends or family for recommendations and that you get 10-20 references for any contractor. He says, don't only look at recently completed projects and to check out work sites in progress.
3. Do a background check: Here Mike suggests that you do a background check. Bad contractors change incorporations to cover their tracks. Try speaking with the Better Business Bureau.
4.  Get a detailed contract: Mike states the more detail in the contract the better. It should review and specify every task. 
5.  Set up a payment schedule tied to project milestones: He also recommends that milestones be specified and that stages be completed and inspected before moving onto the next part of the reno.
6.  Discuss changes: Every time there is a change, Mike states, this causes delay and can increase costs. Speak openly with your contractor to ensure whether the change is worth this effort and delay.
7. Know the work schedule: This includes the daily work hours of the workers. Mike states if the workers visit the work site here and there at random hours then this will throw the timeline off track.
8. Should you stay or should you go? Mike suggest that during major renovations you should move out temporarily. Living through construction is never easy especially with young children and a busy work-life schedule. If you stay in your home Mike states that the workers will also spend more time cleaning daily at your expense rather than working faster towards project completion. 

Mike's tips are excellent. Like Mike, I am a huge fan of planning ahead before starting any project. The one part that Mike doesn't mention is financing. Here it's important to know what is your budget and how will you finance the renovation. Your dream project may need to be scaled down if it cannot be financed.

You may have the money in hand which helps tremendously or you may need a mortgage. Your two options here would be: 

(A) Auto-construction financing where the bank will give you a special mortgage that disperses funds (up to five dispersals) for the contractor at various milestones in the project. Here the bank will need to approve your contractor and project plan. 

(B) Refinance and use the net proceeds towards the construction. Here you will be in charge of the all the funds at once. Here the the bank may not need to see plans and budget. In both financing scenarios, it's important to stay on budget as the bank won't give you additional funds once the mortgage is notarized. 

The age of e-mortgages in Canada & a 2014 mortgage outlook

I hope everyone is having a good start to 2014. This week's blog entry has to do with market predictions for 2014. How does the real estate market look in 2014? Will 2014 bring us additional Federal mortgages changes? This time of year these are the "usual suspect" type questions. 

Often I listen to and read about speeches and articles that talk about the future of mortgages and the direction of real estate in Canada. I often follow Robert McLister, mortgage columnist for the Globe & Mail. On 30 December 2013, Robert wrote an article entitled "Five Canadian mortgage market predictions for 2014." This article outlines a couple areas such as:

1. The expectation that more mortgage tightening is on its way: I think that more change is definitely en route as the Feds try to further dampen market values. I can understand that controlling market values is paramount however I'd keep an eye on unsecured debt as well. Canadians tend to have equity which is great but I've seen more and more clients with more personal debt than equity in their property(ies).
2. Stronger online presence: More and more websites pop up that advertise mortgage rates. I agree with Rob that this trend will continue as more and more consumers look to the web to research mortgage information and options. People don't have the time to shop from bank to bank anymore. However, as we shift further into an indebted society and where mortgages are more challenging to qualify for, I still would argue that qualified mortgage brokers do serve a purpose. Here is where selling mortgages strictly based on rate can create a problem. For example, due to one's credit, income and equity circumstances you may not qualify for that posted online rate. As mortgage brokers we must do a better job at sharing and disseminating this information to the consumer. 
3. Credit unions will merge: I'd say this is more applicable in Western Canada and Ontario.
4. Hybrid mortgages will become more popular: A hybrid mortgage is a mortgage that is split into two segments. Typically one is fixed and the other portion could be on variable rate. Do these mortgages help save you money over time? I'd argue in most case probably not! Most banks that offer a hybrid mortgage would have each mortgage balance on a different term. In other words, if you need to sell or refinance then you could be faced with a larger penalty for no reason. If you are certain you won't touch your mortgage then this could be an option for you. Again, as mortgage brokers we must do a better job at explaining the in's and out's of such mortgages as they aren't designed for everyone. 
5. Consumer IQ will increase: In the age of open information the consumer has much more resources at their fingertips. I would argue the mortgage and other related information has been controlled. Given the role of the web, radio, and print I'd argue that it's important to share that information openly with the consumer. Yes the consumer is more informed but it's also important that we mortgage brokers continue to guide informed clients and gauge their expectations in a realistic manner. From there we can match the consumer’s needs and goals with the right mortgage.

I always welcome feedback and comments. Have a great week everyone.

Got construction financing?

Yes I know two blog entries this week. I was inspired this week to also speak a little about construction financing. 

Ever think of building your own property? Ever think of turning your duplex into fourplex or larger? Are you looking to build a new condo project? Lots of financing options exist. Your options and cost of borrowing depend on the overall project plan, risk and how much your willing to up down, i.e. cash into the mix.

Your lending options can vary from conventional banks, virtual lenders, pension or trust funds, and private lenders. The cost of borrowing or rate varies from approximately 3% to 15% depending on the overall project. 

Anyone that will finance your project will want to see project plan, architectural rendering, budget (land and construction costs), timeline, and market evaluation. Structuring and planning all this is critical and can be time or cost consuming if not planned out properly. I've seen a few projects that imploded because planning wasn't properly thought out in advance.

In one particular instance, a client met with me too late for me to help. The gentleman started building his home in a remote location without setting up mortgage financing in advance. When I met with him he reach past a point of no return with all banks and lenders. The house was 80% completed and he ran out of money. Furthermore, his credit was weak which didn't help matters.

On a larger scale, I worked with a client who wanted to build a condo project south of Montreal. He had bought the land, had a construction plan and budget, permits were on their way, he had 25% cash to work with and equity in other properties. Here I worked with a private lender to finance the construction and once the condos would be built and sold then the private loan would be repaid.

If you'd like to share your good and not so good mortgage or real estate moments let me know by phone or email. Have a good week everyone.

Should I renew my mortgage early? What's the deal?

Hope everyone is having a great last week of 2013. I recently met with a couple of clients that were looking into early mortgage renewals. I will be the first to admit if what you are being offered is a good deal or not. Canadians trust their banks way too much and it's good to be informed. I'd rather see a satisfied and informed consumer rather than just resigning blindly.

There's nothing wrong with being loyal to our banks but we assume that that after being years with them that they will always give us the best deal. Before I dive into the mortgage renewal world, here are a couple mortgage definitions to review...

A mortgage renewal is when your mortgage term comes to an end. Usually most mortgage terms can be 1-10 years. At the end of your term, you can decide to stay with your current lender or move to a new bank without penalty. Some banks will help cover the switching costs (only basic notary fees will be covered). A refinance only applies if you mortgage term expires and your looking to borrow more money, i.e. increase your original mortgage. Some people break their mortgage mid-term and incur a mortgage penalty. At your mortgage renewal typically you cannot borrow more money otherwise it's considered a refinance. Sounds silly but something people often forget.

Okay now down to the nitty gritty. A mortgage renewal can be a bit tricky. What you're being offered may not be the best deal. The banks try to re-sign their current clients as quickly as possible and they have a large customer service machine behind them doing this job. Some banks try to renew you 4 to 6 months in advance of the term ending. If you renew early either: (A) a small penalty is blended into the rate offered; or (B) the further out you renew before you term ends the higher the rate you receive. In other words the future out you reserve your renewal rate the higher it will be. The best rates in the mortgage market are typically 30-60 days out.

Here's a recent example. I met with a client who's term is ending in January 2014. I initially met with her in November 2013. What her bank was offering was not competitive. I managed to secure a mortgage for her where her evaluation and switching notary fees were covered by the lender. We often refer to such transactions as a mortgage switch.  The client tried to be proactive and inform herself what her options are. She had difficulty to surf through options and fine print. Together we dissected all her options and the mortgage is now complete and waiting for notary. The best tip I can give people is review the fine print of the mortgage offered. Also, the first offer might not be the best.

If anyone has any questions or would like to share a mortgage story feel free to email me.

Behind the scenes at CJAD 800AM

Morning Quebec. We have been wanting to create a behind the scenes video of our radio show for a while. Finally we've done it! Ever wonder how a radio show appears in action while on air? I think being on CJAD is my favorite part of what we do. You can say that I've taken a Q from Jian Ghomeshi. North East Mortgages on CJAD 800AM, behind the scenes video.

 

 

Dan Laxer and Terry Kilakos getting ready for the show. I'm behind the glass manning the phones

Yea I'm a little nerdy...I like talk radio

Mike Holmes' magazine on mortgages & the buying process

This past weekend I was reorganizing my chaotic office and came across an old issue of Mike Holmes' magazine. In it there was an interesting article about first time buyers called "The first time home buyer's guide" published in the May 2011 edition. In the article Nathalie Rodriquez outlines a step-by-step process to buying your first home. Some of the content jumps between content relevant to Ontario residents and US citizens hence I have translated the information into what is important in Quebec plus added my two cents.


Save cash to build a down payment nest egg. Clearly this shouldn't be a surprise to anyone. We've discussed this issue on several radio shows and I've blogged about it.

Get a pre-approval letter. I agree a pre-approval is critical as it is an initial review of your finances, credit and ideally creates proper budget for a buying that first property.

• (A) All banks and mortgage insurers in Canada base their income to debt ratio based on your "total debt service ratio" or TDS. The TDS accounts for your gross declared income and takes a walk into the future by accounting for annual future mortgage payments, property taxes, home heating, and all outstanding debts. In short, between 42-44% of your gross income can be diverted to managing these total debts. Clearly the TDS calculation does not account for all household debt and other personal obligations. I like how the article emphasizes other debts and obligations but also future anticipated debts. This is something I always try to explain and drive home to clients that are looking to buy. Buying has to make sense now but also in the future. 

• (B) Another great point the article mentions is that if you have a pre-approval with a bank you are not obligated to stick with them. The only time pre-approval becomes binding is when your mortgage actually becomes notarized. Something not mentioned is that even if you've signed for the mortgage in-branch it isn't binding yet either. I have a client that went to "mortgage signing" at a branch and was so badly taken care of that she walked out and we moved the mortgage to a virtual lender that same day. 

• (C) A pre-approval I will add also is very helpful in that any problem areas such as credit, income taxes owed and filing your taxes can be quickly identified and addressed. Nothing worse than being under a financing deadline for a purchase and losing that dream house because your paperwork wasn't in order.

Work with a realtor and start house hunting. Find the right realtor that genuinely works with you. Don't be shy and interview realtors if you must. Also, Buying your first time house is a contact sport. In other words, get out there and see what you like and don't like. I also like how the article mentions to shop smart.  Do your homework on the property and area, i.e. drive past it during the night, get a feel for the road traffic around, research the quality of schools in the area, check out neighborhood websites. If any major renovations have been completed why not research the permit history.

Order an inspection & make an offer. A proper inspection can take 3 to 4 hours and you should have a report in your hands within a few days. The report should outline any fixes, current problems or even potential future problems. Rodriquez is correct in that both lenders and insurer won't provide a mortgage on a property if there are major issues such as foundation concerns. Given my experience if your inspection report highlights major foundation issues and your go back to the vendor to adjust the price, the bank will probably see the price amendment and they could ask questions. Rodriquez is not a fan of offering more than asking price. I agree that this could go against your pre-approval and all prior budgeting. Second, don't feel pressured by anyone. Keep in mind that there are many other options out there on the market. More and more properties will be put on the market in the coming weeks.

If you've never put in an offer on a house your real estate broker hopefully will help you out. With your inspection completed you may also be able to renegotiate that offer price. Don't be afraid to request a final walk through before closing at notary. Ensure that the property is in the same condition that you saw when you made your initial offer.

Closing & occupancy (aka act of sale or notary). A week or two prior to the closing date on the property your notary will call you to book your appointment and give a check list of things to bring with you (photo ID, certificate of location and proof of property insurance). Some notaries host one meeting for the title and hyothecary loan, while most will split them up into two separate meetings.

Overall Nathalie Rodriquez's article is useful for first time buyers. Some of the article is confusing as she flips between US and Ontario-relevant content. Having said that I like that she distinguishes between going with a bank or mortgage broker. I disagree with her point that through a mortgage broker banks won't be as willing to overlook credit issues. Lastly, I completely disagree with her that through a mortgage broker mortgage terms can be "riskier." As a mortgage broker I look out for my client's interests now but also help them plan for the future. Your not gonna get that experience at the bank.

What’s my buying capacity? Maximum versus reasonable

Probably the number one question I get asked as a mortgage broker is “Hey Mark, what’s my buying capacity?” As a first time buyer or even a repeat buyer your buying capacity is mission critical. With my weekly column in the Hudson Gazette and my blog montrealmortgageblogger.com, I’ve received quite a few calls from home owners that are over their heads with mortgage and debt payments. It’s always good for the ego to see our maximum buying capacity, but does it make sense to stretch it that high? I will tell you from several horror stories that I’ve seen the past three weeks, clearer it’s not worth it.  

Your buying capacity is based on a couple mortgage calculations, one in particular referred at TDS or Total Debt Service ratio. Typically all Canadian banks use this calculation. This calculation takes a look at your annual expenses namely school and municipal taxes, home heating, and your personal debt load and is divided by your gross income (combined if you are a couple and a portion of your rental income, if any) multiplied by one hundred. On an insured purchase meaning your putting less than 20% down payment, your TDS can go up to 44%. Depending on the lender a refinance the TDS can range from 40-44% whether you are refinancing conventionally (up to 80% of market value of your home) or insured (85% of market value).

First and foremost if you are buying or refinancing mortgage planning is invaluable. You will not always get that detailed service at the branch-level at a bank. That statement is not intended knock the banks but one needs to be careful and budget conscious. A good mortgage broker can help you establish a plan and keep you on budget. What I mean by that is take a much closer look at that TDS calculation. TDS is a crude ratio and does not take into account a lot of your other annual expenses such as insurance, school tuition for the kids, food, gas, etc. With that in mind you can create a reasonable buying capacity. Lastly, when taking your income into account typically I look solely at base incomes and if appropriate exclude or take an average of your over time, bonuses and commission. I treat those as sugar because they can all disappear or fluctuate tremendously in this economy.

If you have any questions or would like to share a mortgage experience, I’d love to hear from you. Have a great week.

Ready for 2012 & Habitat for Humanity Announcement

I hope everyone has slowly gotten back into gear and that2012 is off to a good start. I took some time over the holidays to relax but also met with a few clients. One family that I met with had decided to take the plunge and build their own house five years ago in Saint Lazare. Now they were looking to renew their mortgage and pay off some debts. Let me tell you the house was very impressive and a good example how building your home with a contractor is possible! My client went to the bank herself to get the construction mortgage. She said her experience was mixed and she didn’t get the guidance she expected nor was the process clear.  Speaking to a mortgage broker about a new construction helps with not only planning but understanding all the steps involved in building a home in phases. 

Secondly, I wanted to take a second to announce a new initiative that we at North East Mortgages are working on. We have partnered with Habitat for Humanity Montreal and the Habitat for Humanity Montreal ReStore(http://habitatmontreal.qc.ca/en/restore).Many people know about the valuable contribution Habitat does in building homes but few have heard of the ReStore. Yes, I know it’s based near Atwater Market in Montreal but it’s worth the drive from the West Island, Saint Lazare or even Hudson. The ReStore is one of Montreal’s best kept secrets where manufacturers and hardware stores donate hardware goods from paint, sinks, and anything else you can think of when renovating.  The prices are incredible low and proceeds get pumped back into Habitat so they can keep helping people. Please check out their website and location.