Monday, December 7, 2009

Inflation...what the...

I recently had a great conversation with a friend who is a financial planner. His feedback concerning inflation mirrored my opinions on where interest rates are heading in 2010.

One of the main indicators for inflation over the next year will be the price of oil. This opinion makes a lot of sense as it takes time for the increased cost of oil to show up in our groceries, plastic packaged items, toys and so on, even if the higher cost of oil shows up immediately at the pump. But the higher the cost of oil over a sustained amount of time, the more likely this will have an impact on our figures for inflation.

We'll likely see an increase in the price of oil sometime late next year as economies gain momentum. As a result we should expect inflation to start trickling into the system shortly after that, with the bulk of the increase in 2011. So for people wondering if they should renew their mortgages early or consider a variable rate, it's important to remember that the fixed rates will move up based on the expectations for inflation - so making a move before 2011 may be a wise decision.

With the Bank of Canada likely not to move their rates much until 2011, we may see a giant spread between variable and fixed mortgage rates. So don't take your eye off the ball if you want to have a fixed rate with a stable payment. Consider locking-in sometime around the summer of 2010.

Monday, November 16, 2009

Clear up debt for 2010: a great financial goal because of low rates

About a quarter of my mortgage practise consists of people who come to ask advice and help around paying off debt. Considering that a mortgage is normally a person’s largest liability, there are a couple of simple things you can do if you’re carrying balances on credit cards, or lines of credit.

With the recession affects lingering for another six to eight months, and overtime pay at many companies cut, consumer debt has steadily increased. The majority of individuals carry balances on credit cards and lines-of-credit from month-to-month.

A financial focus to pay off debt in 2010 will give your personal balance sheet a boost and increase your net worth.

Here are a few ideas:

1. Pay off higher-interest debt first
Paying-off higher interest debt first such as credit cards is a good approach to paying down consumer debt. The interest rates on credit cards is normally much higher than on debt that is secured by a property (such has a mortgage) or a loan on a vehicle. The reason is that the greatest incidence on credit defaults occurs on credit cards.

If you have a budget that’s aggressive to allow you to pay-off the debt in a few months, you may want to consider consolidating all your debt onto the card or line-of-credit that has the lowest interest because it will save you money. However, beware of credit-cards that offer low-interest payments for the first months.

2. Pay off debt that has the highest payments first

A positive cash flow is the most important aspect of an individual or family’s financial health. The reason why people don't pay off their credit facilities every month is because they spend more than they make. A simple family budget can help you eliminate this trend. Another approach to paying-off debt is to review all the monthly payments on your credit facilities and look at paying off the ones with the highest payments first. This approach will help you improve your family’s cash flow until you have paid-off all your debt.

3. Consolidate debt into a lower-interest mortgage

If you’re still finding that you can’t pay-off your outstanding debt in six months, consider wrapping it into your mortgage. There will often be a penalty to pay, even if you go with the financial institution that you have your mortgage with. However, it makes sense if you are paying-off high-interest debt.

If this is the approach you’re going to take, ensure you speak to both a mortgage broker and a bank and look for options that can help you pay-off the debt. The mortgage professional should also advise you on a family budget and how to structure it so that you don’t run into the same situation again.

The benefits of paying-off consumer debt are that it will allow you to increase your credit score and put you in a better financial position.

Friday, October 30, 2009

How to pay your mortgage off before you retire...

Most people want to pay their mortgage off before they retire. It’s a good plan because if you don’t have a mortgage payment to worry about when you’re retired, you can often live more freely in retirement. If your goal is to have your mortgage paid off before you retire, this information is for you.

Here are three simple suggestions on how to pay off your mortgage as soon as possible

1. Change how you pay your mortgage

The majority of the people that I see in my mortgage practice have the pay that they earn deposited directly into their bank account and then make their mortgage payment. To accelerate the payment on your mortgage, there are ways to deposit your entire pay directly into your mortgage and then move the money into an account to pay for your day-to-day living expenses.

The benefit of paying your mortgage this way is that by depositing your pay directly into your mortgage you are significantly accelerating the payment. Your money is still easily accessible for day-to-day living. There are also handy tools attached to this type of mortgage that allow you to decrease the fees that you pay on banking and help you budget for your lifestyle.

2. Think of a floating mortgage rate

In the last three years, more people have considered a variable rate mortgage because of the low rates. Historically, research shows that people tend to pay less money in interest over the long-term with mortgages that have floating rates based on the prime rate. Floating-rate mortgages have come a long way and there are many ways to create stability and protect against changes in the rate, while allowing you to pay less money in interest.

3. Budget : A little pain means long-term gain

Develop a family budget so that you understand how much money you have coming into your household versus your expenses. Many people choose longer amortizations because they are unsure of how much they can actually afford in a mortgage payment. I’ve found that working with my clients and helping them create a budget shows they can be more aggressive with paying down their mortgage and shortening the amortization, while not impacting their lifestyle significantly. Shortening an amortization can save thousands of dollars in the interest paid.

Now’s a great time to revisit your mortgage, especially if you’d like to pay it off before you retire. Rates are low and there are many good options.

Tuesday, October 13, 2009

Pay attention to the econmy and its effects on mortgage rates.

It would appear that things are turning the corner. At least that’s what many people are assuming since the unemployment rate dropped 0.3%. The September unemployment rate of 8.4% was lower than many expected and as a result it pushed the yields up on fixed-rate bonds. Stock markets have seen a similar rise. This will lead many mortgage lenders to bump their fixed-rates up a bit, until another set of data comes out to suggest things aren’t as rosy as they had appeared.

Most gains in the economy came in the manufacturing and construction sectors, which will be a surprise to most given the state of affairs in the auto industry. The province posting the largest gains was British Columbia. Ontario ended the month pretty neutral, with gains offset by losses in part-time work. Frankly, I will take gains in the full-time workforce over the part-time work force as it leads to a stronger economic base of consumers.

The strenght in employment will be a precursor to a rise in mortgage rates. The latest report suggests that things are improving; however, we will need to see 2 to 3 months of improvement in the unemployment figures before we see rates really start to take off. If you are going with a variable rate mortgage (or already have one) start paying attention to the fixed rates as the current rates will be gone quickly.

Wednesday, September 16, 2009

Big News in the Real Estate Sector Today

There’s some big news in the real estate sector today, with the National Post putting the story on the front page. Sales in Vancouver were up 117% in August this year over last year, and nationally prices have increased approximately 11%.

There is no question that low mortgage rates have fuelled most of the positive numbers in real estate. It will be interesting to see what happens to real estate as rates start to rise. When they rise is up for debate, but it is safe to say that they will likely start rising sometime in late 2010 if not sooner.

The Federal Reserve Chairman (in the US) has indicated that he thinks that the US is finally out of their recession. He did provide some caution, stating that he thinks it will be a while before the unemployment rate eases, and that the recovery will be slow. This is good news for mortgage rates if it is true, as weak markets have little inflationary pressures and translate into the low mortgage rates that we have today. Expect low rates in their current range for at least 6 months.

Monday, September 7, 2009

$100,000 to invest? Expect returns of 10 to 15 per cent with low-risk private mortgages

Earlier this year, I sited three opportunities that exist in real estate for 2009. They are: a) investing in real property; b) early renewing your mortgage to pay-off your mortgage quicker; and c) investing in private mortgages.

Most people think they should call a mortgage broker only if they are buying their first home. However, a seasoned mortgage broker can help you re-examine the largest liability you have, which is normally a mortgage.

In my October article I’ll look at private mortgages and investing in them. This is one area where we’ve helped individuals invest their money into secure, shorter-term mortgages. Our track-record in this area is better than most banks because of our low borrower default ratio, which is less-than a half a per cent.

Are you a good candidate for investing in private mortgages?

Most private investors have some experience in owning real estate. Many have owned real estate investments and know that real estate does not fluctuate nor is as risky as investing in the market.

Because of the tightening of the credit markets, financial institutions are only giving mortgages to individuals with great credit history and good job stability. Individuals with weaknesses in these two areas require alternative mortgage-financing which often includes a private mortgage. Essentially the private investor, replaces the role of the financial institution, and gives a borrower a mortgage.

Another area of opportunity with private mortgages is in commercial real estate investments. Again this opportunity is a result of the tightening of the credit markets. In this area, the borrowers tend to be stronger than residential borrowers. One key reason for their need in a private mortgage is that they can’t come up with the 35% or 40% that the banks are requiring now for a commercial mortgage.

What are the risks?

The main risk in investing money into a private mortgage is that the borrower defaults on the mortgage. If you a working with a reputable mortgage-broker, before you invest in the mortgage, they will review the borrower’s profile and the pros and cons of the investment.

You will also work with your lawyer who can counsel you on the investment.

Nonetheless, if the borrower is to default on the mortgage, you will still have access to the real estate asset which you can sell and recoup most of your losses. You will likely get the majority of your investment back, which is more than we can say with investing into the markets.

How do I learn more?

Contact The Mortgage Centre to learn more or a reputable mortgage broker that has been referred to you.

Monday, August 31, 2009

If you're self-employed you can still get a great mortgage.

A mortgage has the most direct impact on your lifestyle and allowing yourself enough time to talk about mortgages with the right mortgage professional sets you up for financial success.

There’s a lot to know when you’re arranging a mortgage. Understanding how the five C’s of credit impact your ability to obtain a mortgage will help you get a better mortgage in the end. Ensure that your mortgage professional spends time talking about the five C’s of credit and offers you advice, rather than only quoting interest rates. Allow yourself enough time to get your financing in order before you purchase the home of your dreams. Explore all the mortgage options available to you and pick the product that best suits your needs.


The five C’s

Knowing how mortgages are evaluated can help you—especially if you are self-employed—get the best combination of features and rates.

Captial: The down payment

In all mortgages the more money put down, the better. For individuals who can’t confirm their income but have stellar credit will need a minimum down payment of 10 per cent to get the best mortgage rates.

Credit: Your track record

To maintain a good credit score it’s best to pay bills on time, even if you’re making only the minimum payment. For self-employed people, a higher credit score means less weight is placed on income verification.

Collateral: The state of property

A good location and a solid property are key features mortgage lenders look for. In a self-employed situation where income can’t always be confirmed, the property should be highly marketable.

Capacity: Your ability to pay

Capacity is often difficult to prove in self-employed people and refers to the client’s ability to pay, which is often proven by T4’s, NOA’s, and a job letter. No more than one-third of the family income should be allocated to the mortgage, heat, and property taxes.

Character: Stability is king

Mortgage lenders like to see trends in a person’s job stability and job stability within a specific sector is often more important than staying at the same company for any period of time