I am Montreal-based Mortgage Broker. I love my job and often write about mortgages, debt, and real estate but also about community matters. I like to share ideas and write about what matters to me in Quebec.
Afternoon #mortgageland, it's a drizzly day in Montreal but still a great day regardless. On 3 June 2014, Montreal's CJAD 800 AM hosted an interview about reserve mortgages with Kelley Keehn (personal finance expert and speaker). At the time, I tweeted through @cdnmortgages, that I would write an article about that conversation hence voila!
A reverse mortgage is designed for seniors. To qualify you must be 55 and older. Ideally by 55, you have little or no mortgage on your home. Everyone's desire is to have decent quality of life especially in the later stages of life and sometimes that is challenging with shrinking pensions. A reverse mortgage can unlock up to 40% (depending where you home is located) of the value of your home. These funds can be used at your discretion for: travel, pay debts, help others, renovate your home. I agree with Kelley that a reverse mortgage should be a last resort option as it is an expensive option.
A reverse mortgage is payment free because the interest is accrued and added to your mortgage balance over time. When you pass away or should sell your home then your mortgage shall be repaid back to Chip (the sole reserve mortgage company in Canada). Be aware this option does chew through the equity in your home. There are alternative options to a reverse mortgage. For instance, it can make more sense to take on a mortgage or line of credit up and put aside some proceeds to cover your payments over next few years. It's all depends on your needs, the costs and comfort level.
Lately, I’ve been keeping an eye on
theGlobe & Mail.I am glad to see more good
articles written about house-hold debt. In the past I've written about this
topic, buying what’s reasonable versus maximum. Rob Carrick from theGlobe
& Mailwrote two
excellent pieces on6 March 2014and19 March 2014. In the March 6th piece, entitled “Can you really
afford that mortgage? Know your Real Life Ratio”, Rob makes a bold outright statement when he says,
"Someone ought to explain the facts of life to the nation’s bankers....Nevertake a lender’s word for it that you
can afford a house." Rob highlights what he callsthe real life ratiowhich accounts for the basic costs of
home ownership but also the real world expenses such as education, insurance,
and long-term home maintenance. Thereal
life ratio(see attached
link, excel sheet)also
shifts depending on what stage you are in life including your kids.
In Rob’s second article,
entitled“West Coaster making $86,000 can barely afford his modest life,”
Rob shares the life ofHamish Telford.Hamish is separated from his wife, has a 7 year old son and a
professor of political science who is considered upper middle class living in
Abbotsford, BC. Hamish spends over 50% of his net income towards household
expenses. Hamish is hanging
and “isn’t looking for sympathy, just some understanding of how hard it is to
get by even for a member of the upper middle class.” He is more worried about
others, “I can only imagine how stressed the other 95 per cent of the
population must feel."
The point of the article was that Hamish had car trouble and needed to spend approximately $1500-$2000 to fix his car and he sadly had trouble doing so. People should think about the Real Life Ratio when considering the home they wish to purchase.
Hey everyone. So I've disappeared from the mortgage blogging world the past few months but now I'm back. I enjoy blogging way too much and there's so much new mortgage info ideas that I've wanted to share with everyone.
I've noticed a couple things in the Montreal real estate and mortgage industry lately which is personal debt and market values. I don't have any concrete statistics yet but what I can say is that I'm seeing clients lately that bought the past few years are realizing they cannot afford both their homes and a growing debt load. For many it's becoming harder and harder to refinance one's home and pull some equity to pay off debt.
From time to time I read Garth Turner's blog. Garth spends a lot of time speaking out about Canadian real estate, the economy and debt. On 16 December 2013, Garth wrote in a recent blog entry entitled, "The Blame," where he states,
"Ultimately there’s nobody to blame but those who create the demand for over-valued assets. People keep buying houses regardless of the process, since they have an endless appetite for debt....Since we’ve achieved another all-time debt record, with $1.2 trillion in outstanding homeowner mortgages (doubled within the last decade) and unprecedented line of credit and credit card balances, the central bank is handcuffed. If rates rise to chill house horniness and temper our piggish appetite for even more debt, it’ll push the economy into true deflation and ugly employment numbers."
Market values, cheap debt and the economic growth are all tied together. The dilemma is cooling the market and trying to manage debt. On my end I'm seeing market values cooling in the greater Montreal area however because cheap debt is still available many are still taking advantage.
Municipal values of homes in the greater Montreal area have increased as much as 25% in some areas but property values have not followed suit. So what does all this mean for the average person? Good question. First, if you're feeling the debt pinch and don't see yourself paying off that debt quickly (i.e. work bonus, extra commission, extra over-time, an inheritance or willing the lotto) then perhaps it might be a good time to down size or refinance. Yes this can play with emotions and ego but could save you a lot of stress and frustration by simply maintaining the debt load.
I've recommended to some of my clients lately to sell their homes, pay off debt (including close certain trade lines or lower limits) and still put a good amount down towards a new home. What's important to keep in mind, is don't wait too long before you start becoming late or default on you debt obligations. I have many clients and individuals that I've met with that have waited too long and are now stuck with expensive short to medium term 2nd mortgages.
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.
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.
