Your Home is your best investment!

We are again in a period of economic uncertainty and we all wonder if there is a safe place to put our hard earned savings. The answer is…..you could be living in it. The strategy of buying a home (if you are renting) can pay off many years into the future. While no one likes to have a mortgage you should really think of it as an investment.

Lets take an example of a renter buying their first home in the year 2000. We’ll assume it was bought for the average price in Toronto (at the time) of approx. $250,000. Assuming you had put 5% down and the interest rate averaged is 5% over 25 years. Now fast forward 11 years to 2011, your debt is down to $170,000. …..however, the value of your “average priced home” in Toronto is now $450,000 which means you have earned (the equity in your home) of $275,000 in 11 years (that is $25,000 per year) all TAX FREE. The mortgage in this example would be approx $1,400 per month ($16,800 year)……so the home yearly increase in value would have offset your mortgage cost PLUS over $8,000 per year……your living in an investment. This example above is taken in a very good market where the average prices increased about 7%…….but in the long term your can expect to get 4% compounded. Therefore, your $250,000 home will likely be worth easily over $700,000 and possibly close to a million dollars in 2025…..a very nice tax free amount when you are heading toward retirement.
If you are thinking about a mortgage please please call me at 416 994 5281. Or send me an email at taylormortgage@bell.net

Home equity to finance home improvements

Unlike our American neighbours to the south, most Canadian homes have had at least some to significant increases in their property values over the past few years, particularly in the mid to larger populated cities. Along with home values increasing, Canadian interest rates have continued to stay at very low levels; this makes it prime time to take advantage of your home equity (current the value of your home minus your mortgage) to do some upgrades. If you make the correct improvements, the value of your home may actually increase to the value of the upgrade. Therefore, you will have taken on more debt, but the value of your home has now increased and future increases will be based on the new upgraded value. Therefore you get to enjoy the upgrade and you’ll get the cost back when you sell at a higher price!

The actual cash required for your upgrades can be accessed either by increasing your mortgage or by taking a loan/line of credit (typically using your home equity as the collateral). Increasing your mortgage amount can be done at any time on an open mortgage, but only at the end of the term on a closed mortgage (unless you want to pay a rather hefty penalty). The loan/line of credit can be started at anytime, but the interest rate may be higher than your mortgage rate…..check with your lender for their mortgage renewal and loan rates. When considering a major upgrade by using your home’s equity, make sure you have a very good idea of your home’s current value to help determine the actual amount of equity in your home. Your mortgage and real estate professionals can help you establish this prior to working with your lender.

The best upgrades to increase the value of your home are kitchens, bathrooms and flooring. If these are done appropriately for your home you may find they increase the value of your home over what you paid for the upgrade. On the other side of the coin, items like swimming pools, saunas and wall to wall carpeting are examples of upgrades that may not increase the value in your home value; these items would be strictly for your enjoyment, knowing they may have little payback when you sell.

Things to keep in mind when planning improvements to your home:

• Keep in mind that your taste may not be everyone’s taste. Try to choose finishes that will appeal to the masses or expect to have to change them when you sell your home.
• Keep in mind the value of your home in relation to the other homes on the street. For example, an expensive home on a moderate street may not fetch its true value as the other homes may pull the value down to their level. Keep your improvements within these confines.
• Have a budget and stick to it. Choose expensive upgrades wisely mixing them in with more cost effective upgrades — the overall effect will be a look that’s on the more expensive side.
• Create a 5-year plan for home improvements, prioritizing as necessary.

My final comment on considering any home improvement for resale value is make sure it is done correctly, tastefully and is suitable for your type of home. If you make the improvement cheap looking, unsafe, wildly coloured or highly unusual you may find it will actually reduce your home’s value……spend wisely.

I’d be happy to chat with you (in Ontario). Please call me at 416 994 5281. Or send me an email at taylormortgage@bell.net

 

Borrower Documents

When applying for a mortgage there are typically several documents that you must submit to the lender before final mortgage approval. These document will help authenticate to the lender who you are and your ability to pay the mortgage. Below are the usual documents you will be asked for and a brief description of what they are.

T4/T4A: These are the statements you receive from Canada Revenue Agency each year for your income from working (T4) or from commissions/pensions etc (T4A).

Job Letter: You will usually be asked to have a job letter from your employer stating, among other things, that you are currently an employee and your income.

Paystub: To confirm your income from your job letter.

Notice of Assessment (NOA): This document that you receive after you have submitted your income taxes provides a final breakdown of your past year’s income .

Business License/Balance Sheet/Income Statement: IF, you are self employed you will likely be asked for these 3 business documents to help the lender better understand your potential income.

MLS Listing: If you already have a property in mind to purchase the lender would also like to get the MLS listing, which will have details of the property that the mortgage will be applied to.

Purchase and Sale Agreement: If you have already signed a purchase and sale agreement on a property you will require a copy of this for the lender. If not pre-approved for a mortgage, make sure the agreement includes a clause that it is conditional on you getting financing.

Bank Accounts: To help determine your net worth, the lender will want statements of all your bank, RRSP and investment accounts. You will have to show from your accounts where the down payment is coming from. If, you are receiving money for your down payment from a family member or friend they will have to state this in a letter (called a gift letter) and show account statement(s) where their money is coming for you.

Therefore be prepared to have these documents ready for your lender in a timely basis.

I’d be happy to chat with you (in Ontario). Please call me at 416 994 5281. Or send me an email at taylormortgage@bell.net

Insurance in the Mortgage Industry

There are several types of insurances that you should be farmilar with when buying a home/condo. I will attempt to give you a brief overview of each insurance, but you should speak to your friendly mortgage agent or bank for more details, or who may directed to the insurance group involved.

Mortgage default insurance is actually insurance for your lender that you pay premium for. This insurance was initially devised back in the 1950′s as an incentive to lenders to give mortgages for potential homeowners with small down payments. In the event of non-payment of your mortgage, the lender would get paid by the insurance company to avoid any potential loss. If you are buying a home/condo with less than a 20% down payment, you will have a one time premium cost of 1% to 3% of the value of your new property added to your mortgage. Therefore, if you have a $300,000 home and put down 10% ($30,000) your mortgage will be $270,000 + default insurance of $6,000 (2% of 300,000) for a total mortgage of $276,000.

Mortgage creditor and mortgage life insurance are as you may expect insurance policies to be, they pay off your mortgage in the event of your death. In the event of your death the creditor’s insurance will pay the lender the amount left on your mortgage. The premiums for this insurance are typically less than life insurance and are usually added onto your mortgage. Mortgage creditors insurance would pay out to the lender the amount left owing on the the mortgage. Life insurance is typically arranged from a third party life insurance company and would pay the beneficiary the amount on the policy which never changes. Obviously, both insurances will have monthly premiums based on your circumstance.

Property insurance is for the protection of your home/condo and its contents. If you have a ligitament loss due to fire or theft, etc you would be reinbursed for your loss up to your policy maximum. The premiums for property insurance may be paid by you to an insurance company or could be administered by your lender with the premiums added on to your mortgage payment.

Title insurance is the new kid on the block as far as home insurances are concerned. The need for this insurance grew out of the ever increasing numbers of fraudulent title thefts. Your lawyer typically arranges this insurance on your behalf. There is a one time payment (usually less than $1,000) for this insurance when you buy your home/condo. This insurance protects you from unscrupulous people who may try to steel title of your property or for issues about your title that may have happened prior to your purchase. This moves the risk associated with the title from you to your lender or lawyer and ultimately to the title insurance policy holder.

As mentioned in the beginning, these are just very quick overviews of the types of insurances you should be aware of. Speak to unbiased qualified people in each area to give yourself the best information to help make your insurance decisions.

Taylormortgage@bell.net
416-994-5281

First time buyers.

Are you trying to figure out if you can make the big move from a renter to a home/condo owner. How do you know how much you can afford?

First and foremost you will require a down payment. The days of no money down are gone…..typically you will need at least a 5% of the value of your home/condo. If you have less than 20% down payment there is an extra insurance cost (to protect the bank). The cost of this insurance is between 1% to almost 3% of the value of your home/condo; this cost is added onto your mortgage.

Next you need a mortgage, you can get one from any of the large banks or from your friendly mortgage broker (me!). The maximum mortgage your lender is willing to give you is determined by your family income and your debts. Banks use 2 calculations to help determine your elgibility:
Gross Debt Service (GDS) is used to determine the buyer’s ability for a particular mortgage based on their income verses the potential home/condo costs. The formula for GDS is the cost of your proposed mortgage plus condo fees, if applicable plus property taxes, plus heating costs against your gross monthly family income (the amount before taxes and deductions). As an example if you had a pending mortgage of $1500/mth, condo fees of $300/mth, property taxes $400/mth, and heat $100/mth, your total monthly cost would be $2300. This amount must be no more than 32% of your gross monthly income and in this case you’d need a gross family income of at least $7200 per month ($86,000 per year) for most banks to offer you a mortgage.

Total Debt Service (TDS) is the second calculation to help determine your eligbily which also includes other debts that you may have. These other debts may include other loans, car leases, credit cards, child support…basically anything that would result in a balance owning, if not paid. In this case you add up your monthly payments for your proposed mortgage, property taxes, heat plus all monthly debts. This amount must be less than 40% of your gross family income. For this example we take the $2300 from our last example for the mortgage, taxes, heat and we’ll add $300 for a car lease and $250 for credit card totalling $2850 per month. Using our $7200/mth income from above we must be less than $7,200 x 40% which is $2,880 which we are.

Banks will also ask your permission to look at your credit history. If you have had a personal bankruptcy or even a few delinquent payments, they may determine that you are a too high risk for them. Typically a mortgage broker is better able to work with potential new home/condo buyer than banks as they have many different lending options.

Now, you are pre approved for your mortgage and you’ve found your dream home, you need to know the details of the many costs of moving. Check out my blog “Are you moving?”

I’d be happy to chat with you about your options (in Ontario). Please call me at 416 994 5281. Or send me an email at taylormortgage@bell.net

Are you moving?

One of the most nerve racking,
but ultimately pleasant times for anyone is moving into your new home or condo. Unfortunately, there are several things you must do to make sure you have a seamless move to your new location.

Now that you have signed your purchase and sale agreement and it has been accepted by all, you must prepare for the big move. In the final few weeks before your move, there are several initiatives with key services that are required prior to actually taking possession. Here is a list many of the usual services you will be either use or need to contact:

Moving company (or several of your best friends), booking an elevator if required, all utilities (telephone, cable, internet, hydro, gas, newspaper etc) credit cards, employers, insurance companies, memberships, friends and basically anyone who you have contact with. A check list put together by you and your partner and dividing the duties to help minimize the workload and hopefully not let anyone/group be forgotten.

Weather you have a mortgage or not there are several closing costs that you will need to budget for which typically cost between 1% and 3% of the sale price of your home or condo (ie a $400,000 home/condo will likely require payments of between $4,000 to $12,000 for closing costs depending on service/government fees for your particular situation). To find out your exact closing costs always check with your real-estate agent, your mortgage professional and your lawyer. However, below is a list of typical closing costs to give you an idea of what they could be:

1) Ontario land transfer tax with a floating scale ranging from 0.5% to 2% (in the city of Toronto it is 1% to 4%) of the value paid for your home/condo
2) Legal fees which are typically a few thousand dollars
3) appraisal fees sometimes required by the lender
4) title insurance
5) property insurance
6) mortgage insurance, if required
7) new home warranty (Tarion, for brand new construction only)
8) status certificate fee (condo’s only)
9) closing adjustment on a mortgage (if not closing at a month end)
10) home inspection fee.
However, most of your out of pocket costs will be in the land transfer tax and legal fees. Therefore, make sure you have done your homework on the closing costs so you will have enough in reserves to pay these costs.

If you are moving from an existing property that you own to a new home/condo you will have two more major costs at closing that relate to the sale of you existing home:
First, you will have to pay the real-estate fees (assuming you have used the services of a real-estate company) which are typically 4%-6% of the sale price of your existing property. Secondly, you will have to pay the legal fees for the transaction which will likely be a few thousand dollars.

I’d be happy to chat with you about your particular situation (in Ontario). Please call me at 416 994 5281. Or send me an email at taylormortgage@bell.net

Canadian Mortgage Rules Change Again for 2011

In a effort to help prevent consumers from over spending the Canadian Federal Government has once again tweaked the rules for obtaining a mortgage. These new rules will take into effect March 18th, 2011. Lets look at the 3 areas that have changed.

1) Mortgage amortization change from 35 to 30 years:

We all want our mortgage payments as low as possible, so having a longer period to pay it back may seem to work for some people. However, the reality is the higher cost of housing has caused many potential home buyers to wait longer to get the down payment required; this combined with our culture wanting to retire earlier and earlier the longer amortization will likely result in having a mortgage into retirement or having to sell due to lower retirement income. The hard cost between a 35 and 30 year amortization is about $35 per $100,000 mortgage at a 4% mortgage. Therefore a $300,000 mortgage would cost over $100 more per month.

2) Reduction of the mortgage renewals from 90% to 85%:

It is a very common practice with homeowners to renew their mortgage for more than what is owed after a term has been completed and literally take cash out of their home. By changing these rules our Government is pushing us to lower our housing debt. By reducing the upper limit on the renewal homeowners are forced to (at least the home owners with a high mortgage to value ratio) pay more off their mortgage and not get access to mortgage backed cash.

3) No more CMHC for HELOC:

What this mean is that the Government housing insurance (Canadian Mortgage and Housing Corp) which insures the banks for any default in mortgages will no longer insure home equity, line of credit (LOC). CMHC insures the banking community for high loan to value mortgages (typical any mortgage over 80% is insured). However, many people now are adding a LOC secured by the value of the home. CMHC insurance which would previously cover both the home and the LOC over the 80%. However, now the Government has restricted the CMHC to insure the banks to cover losses on just the mortgage defaults and not to any home secured home equity LOC. Therefore, if your mortgage is 80% or more of the value of your home, your bank may not be willing to offer you a LOC as it will not be insured.

Want to find out more? Call me at 416 994 5281 or email at taylormortgage@bell.net

Who needs a Mortgage Agent….maybe you do.

Who needs a mortgage agent? You can just go to you local bank and get the best deal for you……or them? Who is looking out for you?

First and foremost mortgage agents work under the “Mortgage Brokerages, Lenders and Administrators Act, 2006″ which clearly states that the agent’s primary responsibility, by law, is to the borrower. Mortgage agents are required to completely assess a borrower’s financial situation and recommend the best program for the borrower. The mortgage agent will likely spend significantly more time with the borrower than will a bank due to the fiduciary responsibility of the agent to see the borrower through the entire process until closing.

The major Canadian banks are very large and must keep their product lines to a minimum for easier management. Therefore, a borrower’s needs must be pigeon hold into one of the banks limited products. Mortgage agents typically deal with several lending institutions and sometimes even private lenders are able to offer many more options for a borrower. Does it not make sense to deal with someone who has access to many different options that can be tailored to your specific needs?

Do you have an A1 credit rating? Have you ever checked? If not, it’s a good idea, even if you’re not intending to buy a home at this time. You’ll want to make sure the information from the credit bureau is correct, regardless. Go on line to one of the credit bureaus like “Equifax.ca” and check out your rating. If you discover you have a low credit rating, don’t worry – it may be due to your age, you may be new to the country or you may have experienced a financial issue in your past. Depending on the circumstances our friendly big 5 banks may not be interested in a mortgage with you. Luckily, a mortgage agent may be able to secure a mortgage through the dozens of other lending institutions who have typically more flexible conditions for the borrower.

Who are these “other” lending institutions? Can I trust them with my mortgage? Will they just disappear one day? For one, we live in Canada, for a lending institution to become authorized to sell mortgages in Ontario they must meet very stringent regulations. It is highly improbable you would ever have an issue with your mortgage when dealing outside the large banks. However, in the unlikelihood something did go wrong with your lender, the mortgage would be transferred to another lender as every mortgage is registered with the government.

These days there are more and more people who are self employed. Banks are not big fans of the self employed; they believe that an electrician working for GM is more secure than an electrician working for himself out of his own truck. Therefore, if you are self employed and have ever tried to get a mortgage with a big 5 bank, you likely found it very difficult, potentially not even possible. Again to the rescue, the mortgage agent. The lenders used by mortgage agents typically have more mortgage options for the self employed.

Rates, rates, rates……..that is the question everyone wants to know, who has the best rates; it is the only question many people have. First off, the “best rate” from any bank or lender is subject to your specific credit rating. If you have not researched your credit score, you may be in for a surprise. Banks have “posted rates” which they are extremely happy to offer to you. However, as most of us have learned the bank rates are negotiable (assuming you have a good credit). Therefore, the negotiated bank rates are usually fairly competitive, but they are not typically the best rates in the market place. The smaller banks and lending institutions are often a little hungrier and will be a few basis points better than the banks, unless the bank is very determined for your business. Therefore, it is always good to compare rates, but it should not be your only deciding factor. You must also be comfortable with the person you are dealing with AND the program they have offered.

Canadian banks are the financial backbone of our country. They helped mitigate our country’s involvement with the international financial crisis over the last year or so. However, the big banks are, BIG. Your mortgage may not be all that important to them. You are a much larger client to your local mortgage agent who will typically be much more responsive and legally obligated to make sure you get the best program for YOU.

If you have any questions or need help please don’t hesitate to contact me at taylormortgage@bell.net

Is it time to retire your mortgage early?

Lets say you bought a house a couple of years ago just prior to the financial crises for $400,000 and are now the lucky owner of a $250,000 mortgage. You wanted to have a comfortable mortgage that you did not need to tend to for a number of years. Since you have an A1 credit rating you went with a 5 year close, 25 year amortization at a fixed rate of 5.5% for your $250,000 mortgage from your local bank. You are now paying approx $1,530 per month. Are you happy? Can you do better?

Sure you can or I would not be writing this…….

Most lending institutions will typically charge a penalty of 3 months of payments to cancel your mortgage early (check with your institution on exactly what their penalties and other fees may be).  For this example we are using the standard 3 month penalty X  our monthly payment of $1,530 for a total of $4,590 penalty cost. In todays market (if you look carefully) you can get a 5 year closed rate of about 3.7% (for AI credit). This would translate into a new monthly mortgage cost (using the same information as the first example) of $1,275…….a savings of $255 per month. Therefore, it would take exactly 18 months ($255 X 18 months = $4,590) to pay for the penalty. Therefore with 36 months left in on our 5 year term example you would save $255 per month over the last 18 months of the term ($4,590 in your pocket not the lending institutions). Also, a rate of 3.7% for 5 years that you can get now will be very hard to compete with in the future as interest rates are touted to be increasing later this year and we “may” never get to these low levels ever again.

Do yourself a favour. ……..do the math. If your penalty and fees are less than your re-financing savings over the term, why not do it…………. it  just makes “cents”.

If you have a mortgage on residential or commercial property in Ontario, Canada and considering re-financing your mortgage for any reason please don’t hesitate to contact me for a complete evaluation of your property and mortgage options at: taylormortgage@bell.net

Variable vs fixed rate mortgage.

The low interest mortgage rate bubble is soon to burst according to most experts. So what do you do…..lock into a comfy 5 year, fixed rate (around 4-4 1/2%) mortgage or do you keep (move into) a nice low “bank rate tied” 2.25% variable rate mortgage. The question of coarse is “how much, how fast and for how long will the rates increase. There is a lot of speculation, everything from: a little increase starting later this year as the economy continues to struggle forward to a major increase during the next quarter due to some signs of improvement and the massive debts that governments are burden with.
So what do you do?
Well, frankly it is all about your personal comfort level and financial resources. If the bank rate goes up 2% and your variable rate mortgage is tied to it, you would then be paying approx. the same as if you locked into today’s 5 year rate. If however, the bank rate goes up to say 6% your variable rate mortgage monthly payments would increase somewhere around $200 per month for every $100,000 of mortgage, assuming a 25 year amortization.
The experts (which I am not) say that over the long run you will save on the variable rate, but there could be some short term pain (and even disaster) if you are very close to your spending limitations.
Therefore, I would suggest that anyone who may get into serious financial difficulties if rates go above the 5-6%, should lock into a 5 year closed fixed rate (about the 4%) and breath easy for at least the next 5 years. However, if you can take a “potential hit” of several $100 dollars per month for every $100,000, it is worth the gamble (in my humble opinion). Remember, the bank rate would have to increase over 2% for you to lose, verses the 5 year fixed rates now available.
The decision is yours. There is rarely an absolute right or wrong decision just know your spending threshold and live within it.

Call me at 416 994 5281 or email at taylormortgage@bell.net