Thinking of buying a vacation property?

When the weather in Canada turns cold and winter sets in, a lot of us think about a blue sky vacation, others think about buying a vacation property in the U.S. sunbelt or even in British Columbia where the weather is milder. Still others enjoy winter and look for a winter vacation property here or in the US.  While the allure of long beach walks, and the idea of hitting the ski hills just outside your chalet is attractive, the question is how to finance the dream. First do your research.

There are other considerations if buying in the U.S.

  • Your purchase could be subject to estate tax. That means, when you die, your heirs will not only have to shell out U.S. estate tax on the fair market value of that home, they would also be hit with Canadian income taxes.
  • Also, if you plan to rent out that property, then you’re subject to a whole host of issues.
  • Use a Realtor who is experienced with US property sales.

If the vacation property is in Canada, you still can refinance your existing home and purchase the property outright if you have the equity or you can use what you have as a down payment. The basic process of applying for and qualifying for a mortgage is the same as for your principle residence; however, lenders will look at many more variables when assessing a property.

Your strength as a borrower is important but equally as important is the property. Lenders will look at the location, its proximity to a major market, year-round access to the property, paved roads, etc.  Most lenders require at least 20% down. The rules changed in 2014 and they have just changed again. But don’t let that deter you if your dream is a vacation home.

Guy Ward is a Mortgage Broker in Calgary, Alberta with TMG (The Mortgage Group Alberta) and can be contacted at WWW.GUYTHEMORTGAGEGUY.COM

What the new mortgage changes may mean to you…

What the new mortgage changes may mean to you

Ottawa has announced new rules in response to concerns that some markets in Canada are overheated and that Canadian debt levels continue to increase. These changes are meant to alleviate risk in Canada’s housing market.

Here are the changes in a nutshell:

  • “A Mortgage Rate Stress Test” for all insured mortgages. This means that all insured mortgages will now be qualified at the Bank of Canada benchmark rate, currently at 4.64%, instead of the contract rate offered on their commitment.  For example, if you have a commitment for 2.49% on a five-year fixed rate, then you would have to qualify at the benchmark rate of 4.64%, rather than the commitment rate.  That does not mean your payments would increase to the higher amount, just that you would need to be able to afford the payments as if they were at that higher amount. This change is scheduled to come into effect on October 17, 2016.
  • “Safer Lending”. This means that mortgages insured through portfolio or bulk insurance must now meet the same criteria as those that are high ratio insured.  This change is scheduled to come into effect on November 30, 2016.
  • Closing “loopholes” on taxes. This refers to capital gains exemptions on principal residences that should apply only to residents of Canada.

The broader implications

We don’t know yet how this may affect the number of people who will no longer qualify, whether first time home buyers, those moving up or those who wish to refinance.  From what we know so far, those who already have mortgage insurance policies in place should continue to be qualified at the contract rate going forward and should have no problem at renewal.

Guy Ward is a Mortgage Broker in Calgary, Alberta with TMG (The Mortgage Group Alberta) and can be contacted at WWW.GUYTHEMORTGAGEGUY.COM

Department of Finance Housing Changes

Ottawa has announced new rules in response to concerns that some markets in Canada are overheated and that Canadian debt levels continue to increase. These changes are meant to alleviate risk in Canada’s housing market but may have a significant impact on the housing market, especially first time home buyers.

Here are the highlights:

Effective October 17th, all mortgages that require mortgage default insurance, which are typically those with less that 20% down payment, will now require borrowers prove they can qualify based on a higher mortgage rate set by the Bank of Canada called the “benchmark rate”. This measure was previously in place for mortgages with terms less than 5 years or variable rate mortgages, but will now apply to all mortgages, including 5-year fixed rate mortgages.
Effective October 3rd, a tax loophole that allowed non-residents to buy homes in Canada will be eliminated, and then get a tax exemption to avoid paying capital gains when they sell that home by claiming it as a principal residence. This increased scrutiny will ensure that the capital gain exemption is not abused, specifically by preventing non-residents from becoming residents then buying and selling a property in the same year.
The Government will continuously monitor the housing market to ensure that Canada’s housing finance system is healthy, competitive and stable by ensuring the market is balanced and appropriately reflects all parties’ abilities to share in the management of housing risks.

We are reviewing these changes for its deeper implications and will keep you informed. If you think that you may be impacted by these recent changes, please let me know so I can confirm that for you.

Guy Ward is a Mortgage Broker in Calgary, Alberta with TMG (The Mortgage Group Alberta) and can be contacted at WWW.GUYTHEMORTGAGEGUY.COM

Reduce Risk by Investing in Your Home

Many people have different ideas about how you should save for retirement. Some say you should max out your 401k. Others believe that you should speak to a financial advisor and carefully select a number of stocks and bonds to invest in. If you’re a home owner, the perfect investment may be right under your feet. After the economic collapse of 2008, many people are wary of investing in real estate. However, this may just be one of the best investments available to you. Let’s explore why.

Why Real Estate Is a Great Way to Save For Retirement
To put it simply, real estate is a very stable investment. The financial markets tend to go up and down on a yearly basis, but housing prices do not generally have massive spikes and pits that need to be avoided. Until recently, real estate was a difficult asset to liquidate. But thanks to creative financing techniques like reverse mortgages, your equity is easy to access after retirement.

Many people claim that mortgages are the lowest yearly interest rate available. In many ways they are right, the yearly interest is quite low. However, the interest over the duration of your payment period is extremely high. For most consumers, nearly 40% of their mortgage payments are going straight to interest. If you already own a home, the only way to reduce this interest is by paying off your home early.

Let’s say that that you are paying your mortgage, and contributing to an investment portfolio. If you were to take that same contribution you are already making and double your mortgage payment, you’d be able to reduce your interest liability by up to 70%, depending on the terms of your mortgage. After the house is paid off, your living expenses will plummet and you can focus on investing elsewhere.

If You’re Planning to Sell Your House, Consider Upgrades
Paying off your mortgage early isn’t the only way to invest in your home. If you’re considering selling the near future, you can consider putting in some upgrades. The general rule of thumb is that $1 invested in renovations raises that price of your home by $1.50. This isn’t always true, of course. But if your kitchen is looking a little dated or your bathrooms are bland, then some modern updates can really improve the appeal of your home to potential buyers.

Why Real Estate is Often Ignored
Up until a few years ago, your home was considered the most bulletproof investment anyone could make. The economic collapse of 2008 taught us that homes are not always guaranteed to go up in value. Fortunately, the goal of investing your extra income towards your homes equity does not rely on capital gain to be successful. The goal here is to simply reduce the amount of interest you are paying on your mortgage, and put your money in an investment that is easy to liquidate during your retirement. It’s important to look beyond the financial hype of financial investments and consider putting your money somewhere that hold long term value for you.

Renewing your mortgage? Let’s talk.

Consumers are becoming much more informed about mortgages and mortgage products before taking the plunge into home ownership. According to the Canadian Mortgage and Housing Corporation’s (CMHC) 2016 Consumer Survey, 72% of mortgage consumers did online research, 65% compared various mortgage products with professionals and 69% used a mortgage calculator.

Because consumers are highly engaged, they are more confident about their mortgage decisions, according to the survey. Still, with all that research, more than half contacted a mortgage broker to get further clarification. This is a good move, considering how much the mortgage rules have changed over the past few years.

The survey also found 83% of buyers were totally satisfied with the experience with their brokers and would most likely use that broker again. An overwhelming 75% would highly recommend their broker to family and friends.

Low mortgage rates have helped make owning a house affordable.  It’s likely that this low interest rate environment will go on for the next two years.

The biggest expense for most homeowners is a mortgage payment. Yet the CMHC survey found that 39% of households automatically renew their mortgages when the term is up instead of trying to find a better deal. When you’ve done your homework prior to purchasing a home, it only makes sense to do as much research at renewal time as you can. Quite often the renewal rate offered to you by your lender is higher than the market average.

There may also be material changes in your household. Perhaps you’ve started a family, or one of you has been promoted.  This is another good time to contact a mortgage broker to review your financial situation and see what makes sense for you to do.

Here are some tips to make sure you’re getting the best mortgage product for you:

  • Get going early. Contact me four to six months ahead of renewal time. Most lenders will guarantee a discounted rate for four months but your renewal agreement is usually sent only 30 days ahead of your maturity date.
  • Do your homework. Let me shop the rates for you and get you the best deal, tailored to your particular situation. If you decide to switch lenders, there are no penalties at renewal time.
  • It’s not always about interest rate. Don’t fixate on rate. There are other options that may appeal to you such as changes to amortizations or changes to the rate type.
  • Let me negotiate on your behalf. If you don’t like negotiating and don’t have the time to do the research, I will do the legwork for you. Homeowners who use a broker at renewal time usually pay less than those who don’t use one.

Guy Ward is a Mortgage Broker in Calgary, Alberta with TMG (The Mortgage Group Alberta) and can be contacted at WWW.GUYTHEMORTGAGEGUY.COM

Behind on mortgage payments? I can help

There are times in our lives when the unexpected happens and we find it difficult to cope financially. It could be a job loss, an unexpected illness, the death of a loved one or separation and divorce. There may be enough money to get by for a few months, but soon many families find themselves overwhelmed as the bills start to mount and household finances begin to dwindle. Then households may start to miss payments to creditors, including a mortgage payment. While a one-time missed payment can easily be dealt with, long term problems may need a different approach. Consider the following:

  • Missing payments. If there are a few missed mortgage payments, it might be difficult to get a bank loan to pay the arrears. By missing payments it looks as if there might be an issue repaying the loan. There is a difference between a missed payment and a late payment. A missed payment is one that is completely missed and never made up. A late payment is one that’s not paid on time, but made up.
  • How a lender views arrears. Again, it might be a challenge to get a loan when in arrears, especially if you’re not working. Lenders may, however, work with clients on a plan to pay the arrears while keeping other payments current. This can be quite onerous and stressful since lenders usually want the arrears cleared up as quickly as possible.
  • Interest rate for arrears and/or default. Lenders will charge a default or penalty interest rate, which is normally charged on the overdue amount. If the lender proceeds with a Power of Sale or foreclosure, then legal costs are added on top of the penalties.  Remember, mortgage payments must stay current and paid when due along with payment for the arrears as per the repayment plan, which includes the penalties.
  • When will the lender take action? Generally, after two missed payments. Some lenders may take action sooner. It’s important to be proactive and speak to the lender to try to work with them.
  • What can the homeowner do? The longer it’s left, the more bank fees and legal fees get tacked on, which eats into the equity in the property.  There is help. A mortgage broker with experience in arrears refinancing has access to many lending solutions.
If you have an insured mortgage, the insurer may have an assistance program that offers a variety of solutions. Some common options include:
  • Capitalize arrears
  • Increase amortization period
  • Partial or shared payment plan
  • Deferred payments
  • Restructure mortgage
For a fast mortgage solution, call me today.
Guy Ward is a Mortgage Broker in Calgary, Alberta with TMG (The Mortgage Group Alberta) and can be contacted at WWW.GUYTHEMORTGAGEGUY.COM

How Brexit will impact housing

There’s been much attention devoted to Brexit, with good reason. In an historic referendum, a majority of voters in Great Britain opted out of the European Union (EU) – a partnership that came into existence after the Second World War. It morphed into an economic and political union of 28 countries working as a single market, which allows free movement of goods, capital, services and people between member states.

The negative effects of this decision was immediate – markets dropped, currency values fell and trade relations have become shaky. The reason – uncertainty. No one really knows what will happen — not the economists, not the leaders of the remaining countries, not even those who voted to leave.  And it may take years to find out.

What we do know, however, is the impact in Canada and what it could mean for our housing market. Here a six ways that Brexit may affect us:

1. Interest rates will remain low

The immediate impact of the post-Brexit vote on Canada’s economy will be pressure to keep interest rates at historically low levels, according to BMO chief economist Douglas Porter. That’s good news for consumers.  TD Bank economists suggested a U.S. interest rate hike could be delayed, which will further stabilize our Loonie. The Bank of Canada’s next interest rate announcement is July 13, but it’s not expected to move on rates.

2. The Loonie

The Loonie fell fast after the vote. In the end, it lost more than a full cent, closing at 76.93 cents US. It’s been fluctuating since but is holding at approx. 76.5 cents so far. On a positive note: If you’re headed to the U.K., chances are you’ll encounter a weaker pound and perhaps even discounted prices as Europe grapples with the economic fallout.

3. Your savings

Your investment portfolio may have taken a bit of a hit if you have equities, especially European equities; however, most economists don’t believe another financial crisis is at hand. Markets tend to overreact at first then start to reclaim some of their losses. Although Brexit is a concern, the economy has not yet taken a direct hit.

4. The global economy

We’re not headed for another global recession; however global growth may be impacted. Much of that depends on what the other EU countries decide to do. This could impact the growth of the Canadian economy. Again, no one really knows yet.

5. Foreign investment in our real estate

Canada has a challenge right now. The federal government has an opportunity to play a role on where foreign investment money goes. If foreign investors want the stability of Canada’s real estate market, then it doesn’t matter what part of the country they invest in, whether it’s a $1 million property in Vancouver or five properties in St. John’s, Newfoundland worth $1 million. This could ease the pressure on hot markets like Toronto and Vancouver.

6. The housing market

The U.S., which appeared set to hike rates in September, will likely delay that plan now. In Canada, interest rates will almost certainly remain low for even longer. In the short term, property values will go up.

  • Fixed rate mortgages:  The short-term impact will be minimal. We saw a movement to safe-assets like Government of Canada (GoC) bonds but they were only up four basis points by the end of last week. Five-year fixed are available as low as 2.49
  • Variable rate mortgages: . The BoC was not expected to raise its prime lending rate until into 2017 – this may be delayed.  Variable rates are sitting as low as 2.25.

While Brexit has created uncertainty in a dramatic way, there is an upside. If you’re searching for a new home or want to refinance an existing mortgage you can take advantage of low interest rates and potentially save thousands of dollars in interest in the long run.

Act now, call me today.

Guy Ward is a Mortgage Broker in Calgary, Alberta with TMG (The Mortgage Group Alberta) and can be contacted at WWW.GUYTHEMORTGAGEGUY.COM

Refinance to consolidate debt

To no one’s surprise on May 25, the central bank left its key interest rate unchanged at 0.5 per cent. While the bank said it expects the economy to “rebound”, it stopped short of discussing the likelihood that this rebound will be enough to keep overall 2016 growth on track with its previous goal of 1.7%. Many economists are not expecting Governor Stephen Poloz to start pushing up the bank’s overnight rate for at least another year.

While low interest rates and soaring regional housing markets continue to be the norm, Canadians are burdened with record-high debt loads, which have been rising since 2011.  If you’re sitting with equity in your home yet can’t seem to manage your debt payments, perhaps refinancing is the answer, especially in this low-interest rate environment.

With credit card interest rates often pushing the 20% range, five-year fixed-rate mortgages in the 2.49% to 2.69% range and variable rates even lower, you may want to consider paying off high-interest debts. Like many financial decisions, you need to look at the big picture. Here’s what you need to know.

A refinance alters the terms and conditions of your mortgage; specifically you are increasing the amount of your mortgage to pay off debt. Your mortgage payment may or may not increase, depending on a number of factors, and you may incur a penalty to break your existing mortgage if you are refinancing midterm. Depending on your current mortgage you could be paying off the refinanced debt at a much lower interest rate, which could save you thousands of dollars in interest in the long run.

Here are some reasons to refinance:

Decrease your overall monthly debt payments by using your equity to pay off those high-interest credit cards or unsecured loans, which can help you better manage your budget.
You can refinance to purchase another property. Using the existing equity in your home can be a great way to buy a rental property which, if done right, can also make the interest you pay tax deductible.
You could also take out some of the equity for investment purposes — an option that many homeowners consider this time of year.
Or you may want to refinance to renovate.

Repayment
Remember that borrowing against your property is not free money. You need to understand the costs associated with having to repay this loan.

Spending Habits
While using the equity in your home to pay off debt certainly may help to ease financial stress, there may still be challenges. Some people have experienced a job lay-off or an illness that contributed to their unmanageable debt loads. Make sure you understand what got you into your current situation.

Speak to a Professional to Understand Your Options
As you can see there are many factors to consider before deciding to refinance. Each individual’s financial situation is different. Let’s talk about your unique situation and the options available to you.

Guy Ward is a Mortgage Broker in Calgary, Alberta with TMG (The Mortgage Group Alberta) and can be contacted at WWW.GUYTHEMORTGAGEGUY.COM

Norm Walton, House Rich or House Poor

Some days Torontonians love their real estate…and some days Torontonians hate their real estate.  That love-hate relationship can even happen all on the same day.

What is to love?

  • Toronto’s real estate is coveted internationally
  • There are approximately 100,000 new Canadians moving into the Greater Toronto Area each year, all needing housing
  • Toronto is cheaper than other major international cities
  • Toronto’s stock of freehold houses is relatively new and in decent shape relative to other large cities
  • Toronto is a fairly safe city
  • Toronto is the most multicultural city in the world and welcomes all people
  • Investments in improving residential houses in Toronto pays off when the property is then sold or refinanced

What is to hate?

traffic

  • There are no affordable freehold houses in Toronto
  • In a city of more than 2.6 million people, there are a mere handful of detached freehold houses for sale at any point in time, most of them adjacent to housing projects in far less desirable neighbourhoods in Toronto and even in those neighbourhoods, most freehold houses sell for closer to $1 million
  • Torontonians pay a large proportion of their take home pay on their housing costs, with most households paying at least 33% of take home pay on housing
  • Average mortgage costs in some higher end neighbourhoods are more than $10,000 per month
  • Average house costs in some higher end neighbourhoods are more than $2.5 million
  • The trend is to buy a house for $1 million plus and rip down whatever is there now to build a monster house to the maximum allowable density
  • Transaction costs in Toronto are far higher than surrounding areas because Toronto tacks on a city land transfer tax of about 1.5% of value in addition to the provincial tax of another 1.5% of value
  • There is a large number of condominium projects in the works and even the price points for condominiums is at least $250,000 for a tiny bachelor unit along with significant monthly common element fees

monster house 2

Predictions for the future:

  • In my opinion, Toronto’s freehold real estate will continue to increase in value over the long term given the demographics
  • Monster houses will continue to be built in higher end neighbourhoods, occupied by between two and four people at a ratio of 1 person per 1500 to 3000 square feet
  • There will continue to be a flight of young families and retirees to communities west, north and east of the city because they cannot possibly afford to live in the city
  • Basement apartments will be built in existing houses due to the immense demand for affordable rental housing of any kind and the need for homeowners to supplement their income to pay their mortgages
  • Despite the recent push by all levels of government to improve transit, commute times will continue to climb for those workers who live outside Toronto but work in the city and congestion on highways will worsen
  • The surrounding communities will benefit from an influx of numerous new residents as these bedroom communities evolve into hubs of their own over time
Happy young family spending time together outside in green nature.
Happy young family spending time together outside in green nature.

As illustrated above, the insatiable appetite for Toronto’s freehold real estate has both pros and cons.  Hence in the same day you can both love the market and hate the market.  The course of Toronto’s market seems unstoppable regardless of your personal views.  Hence you should probably either get on board with the lack of affordability in Toronto and embrace the city’s offerings or start looking for a house in the surrounding region and ensure your car has no kilometer restrictions on trade in.

yorkville

Top Six Mortgage Features

Real estate is a still a hot commodity in many parts of the country, and it’s also a competitive market. Prices are rising and listings are in short supply. And everyone wants your business — from Realtors to mortgage lenders. It’s important to understand the features of a mortgage and make sure it fits with your goals. Take a look at some of the features you might consider:

  • Blend and Extend. Many lenders offer this feature, which is simply a blend of your existing rate with the now current rate.  It may also mean extending your current maturity date as well. Depending on your situation, you may want the flexibility this feature offers.  If your current lender doesn’t allow a change in the maturity date, then you’re locked into the remaining time left on the term.  While that’s not the end of the world, in a rising rate environment this can be extremely inconvenient. If you’re moving up, and buying at your maximum loan-to-value, you may not want just a 1 to 2 year term.
  • Early Payout Penalty Calculation. Different Banks calculate their IRD (interest rate differential) penalties differently. The IRD is a compensation charge that may apply if you pay off your mortgage prior to the maturity date, or pay the mortgage principal down beyond the amount of your prepayment privileges. It’s important to understand how your early payout penalty would be calculated. Some chartered Banks are known for their extremely large IRD penalties. Most closed fixed-rate mortgages have a prepayment penalty that is the higher of 3-months interest or the IRD, while variable-rate mortgages do not have IRD penalties. If you don’t know you’ll keep the mortgage for the entire term then make sure to understand the fine print in your mortgage documents, especially as it pertains to the payout penalty.

  • Mortgage Registration. Is the mortgage registered as a non-standard charge, either a running account, or a collateral charge? If so, then it becomes harder to switch this mortgage out to take advantage of lower rates. Consider this scenario: If the lending institution knows you will have to incur $1,000 or more in possible costs, as well as put in the time and effort to complete a refinance with another lender, then there is less incentive to offer you best rates at renewal time when a small rate reduction might be enough to keep your business.

  • Pre-Payment Privileges. Is the lender offering 15/15, or 20/20?  That means allowing prepayments of 15 % or 20% annually on the outstanding balance of the mortgage.  It also means allowing you to increase your regular payments by up to 15 or 20%. Also, can these lump sum payments be made during the year or only at the mortgage anniversary? And how easy is it to make lump sum payments? Do you have to go into the branch, call a 1-800 number? Or can you simply go online and do it.  These are important factors to consider.

  • Porting Features. This feature, which allows you to keep your mortgage if you move properties, can vary from lender to lender.  This is an important factor if you think you might move before the mortgage maturity date.

  • Online Access. All of the chartered Banks offer online access as do a number of mortgage banks. Generally online access allows you to see your balance, make additional lump sum payments, or make a payment increase. This can be a time-saving feature for tech-savvy consumers.

Yes, there is more to getting a mortgage than just rate. Call me today and get help navigating mortgage features and find the best for you.

Guy Ward is a Mortgage Broker in Calgary, Alberta with TMG (The Mortgage Group Alberta) and can be contacted at WWW.GUYTHEMORTGAGEGUY.COM