A tale of property values and Quebec politics

A question I get asked about is whether or not what's transpiring in Quebec politics is affecting the value of your home and investment properties? I think it might be too early to answer that question given the upcoming election. Stay tuned folks...

As most of you are aware, in an attempt to cool market values in Canada the Federal Government has implemented a few mortgage changes. These changes have been happening the past couple years. I agree with some changes such as amortization and limiting lines of credit however it's too soon to comment about the impact of Quebec politics. Having said that, the Federal changes are working.

I believe that what the Quebec Government has been focused on unfortunately distracts the public attention away from the real economic issues facing the Province. Market values in the Greater Montreal area have slowed or adjusted in many cities. I think this was expected as I've seen bank evaluations drop over the past three years. The banks are definitely playing it safe especially with condo values. I agree with this conservative approach. The future is still uncertain. I'm not suggesting we will have a market crash after the Quebec Provincial election however I do think market values will continue to slow. We do need job creation and economic growth in Quebec above anything else.

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.

I'm thinking of buying. Where can down payment come from?

That's right! We're slowing headed into another buying season in Quebec. Many Quebecers and Canadians alike are contemplating the sale of their property or perhaps that first purchase. This blog entry will focus on the latter. First time home buyers are my favorite clients to work with. Maybe it's the former teacher within me that's speaking. There is so much information to share and discuss. I often read the Globe & Mail, and I think the timing of Robert McLister's article on down payments is important to review. 

If you're looking to buy a primary home, condo or duplex for yourself then you will still need a minimum of 5% down. So the question is where can down payment originate from? Here is a down payment quick snapshot:

1. Many people like to tap into their RRSPs with the Home Buyer's Plan (HBP). As a first time buyer you are permitted to use up to $25,000 per person. after buying you have a 2 year grace period upon which your 3rd year you will need to reimburse 1/15 of your amount borrowed. Rob is very correct in that bank's do not take into account that new future debt as part of their TDS calculation but also future debt planning. In other words think twice about using your RRSPs as some Canadians are having trouble repaying that loan.

2. Some folks with generous family members (parents, brother, sister, grandparents) provide a down payment gift. This remains fairly popular given the price of homes. Rob is right in that banks try to ensure that the cash is genuinely a gift rather than a personal loan. This is something that is challenging to monitor after the purchase.

3. In my opinion, building up your personal savings is still the best way to create down payment. Yes it is slow and old fashioned but less potential headaches later.

4. If you are pressed to buy and are low on down payment, in certain circumstances banks will permit you to dip into your credit cards and personal line(s) of credit for the missing down payment. The banks refer to this as alternative sources of down payment. Rob is correct to highlight that the borrower(s) must be well qualified, i.e. great credit, good job. Also, borrowing money towards your down payment has to make financial sense given the your overall indebtedness increases and that needs to be taken into account. In such circumstances approving such mortgages are case-by-case and not the norm.

Once upon a time prior to 2012 mortgage changes, many people took advantage of the "cash-back mortgage" programs. In such cases, the bank would give your 5% down in exchange for paying a much higher 5 year fixed rate. Usually the bank of Canada posted rate. In essence, you self-finance the cash back. However, the penalties for such mortgages should you sell or refinance are costly as you are expected to reimburse some or all of the original cash-back.  If you have such a mortgage, ride out your term before refinancing unless the penalties aren't an issue.

Stay on course with the right financial and mortgage plan

I agree with Rob's sentiment throughout his article in that buying a home without having  properly saved down payment and with having the right financial/mortgage plan is risky.

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McLister, Robert "Canadians can still buy a house without saving their pennie" Published Monday, Jan. 07 2013, The Globe & Mail.
http://www.theglobeandmail.com/globe-investor/personal-finance/mortgages/canadians-can-still-buy-a-house-without-saving-their-pennies/article6970799/