Canada’s housing market forecast cut after mortgage rules bite, but what about Guelph & K/W Cambridge

Here's an article I stumbled across in the Financial Post. It's a bit "dooms day" for real estate. One economist from Capital Markets states that he expects home prices to decrease by about 25% in the next two years...let's remember newspapers print stories to help them sell publications and advertising!

Some of the figures that I've seen for Guelph and the area include a more balanced market with equal distribution of sellers and buyers.  I also believe that homes under $300,000 will hold their value where as homes over $500,000 may see some value depression.

I believe it's good to get the opinion of a realtor that you know and trust before you make any decision related to real estate!

Canada’s housing market forecast cut after mortgage rules bite:
OTTAWA, Ont. — The Canadian Real Estate Association cut its sales forecast for this year and next on Monday as it reported slower sales for November in the wake of tighter lending rules that came into force in summer.
The industry association now expects home sales this year to slip 0.5% compared with 2011 to about 456,300.
That compared with a forecast in September that called for sales this year to rise 1.9% to 466,900 units.

CREA also said it now expects sales next year to drop 2% to 447,400 compared with earlier expectations for a drop of 1.9% to 457,800 in 2013.
“Annual sales in 2012 reflect a stronger profile prior to recent mortgage rule changes followed by weaker activity following their implementation,” said Gregory Klump, CREA’s chief economist.
“By contrast, forecast sales in 2013 reflect an improvement from levels this summer in the immediate wake of mortgage rule changes. Even so, sales in most provinces next year are expected to remain down from levels posted prior to the most recent changes to mortgage regulations.”
Finance Minister Jim Flaherty moved in July to tighten mortgage rules for the fourth time in as many years in order to discourage Canadians from taking on too much debt. Among the changes, Flaherty made mortgage payments more expensive by dropping the maximum amortization period to 25 years.
CREA said the average price for 2012 is expected to be $363,900, up 0.3% compared with a September forecast of $365,000, up 0.6%.
For 2013, CREA said it expects prices to gain 0.3% to an average $365,100. That compared with earlier expectations of a drop of one tenth of 1% to $364,500 in 2013.
The downgrade for the outlook for the year came as home sales edged down 1.7% month over month in November and were back where they stood in August. The decrease followed a drop of about one-tenth of a per cent in September.
BMO deputy chief economist Doug Porter said for all the attention it has received, the market’s performance has been far from exciting this year.
“It increasingly looks like most major markets are indeed undergoing a policy-induced correction,” Porter wrote in a note to clients.
“But, for now, the landing looks to be soft in most cities, with the rather obvious exception of Vancouver.”
However, economist David Madani of Capital Economics said the belief that the Canadian market was enjoying a “soft landing” because prices have not fallen sharply was misplaced.
“The continued decline in existing home sales support our view that a potentially severe housing correction is underway,” Madani said.
“Assuming that sales continue to trend lower heading into next year, then sharper demand and supply imbalances will eventually lead to widespread home price declines. We still think that house prices will decline by 25% over the next year or two.”
Actual, or non-seasonally adjusted sales, were down 11.9% from November 2011 while the national average home price in November was $356,687, off 0.8% from November 2011.
Sales were down on a year-over-year basis in three of every four local markets in November, including most large urban centres. Calgary stood out as an exception, with sales up 10.6% from a year ago.
Toronto, Montreal and Vancouver contributed most to the small decline at the national level.
A total of 432,861 homes have traded hands over the MLS system so far this year, down 0.2% from levels reported over the first 11 months of 2011 and 0.8% below the 10-year average for the period.
The MLS Home Price Index, which is not affected changes in the mix of sales, showed prices up 3.5% nationally on a year-over-year basis in November.
However, it was the seventh consecutive month in which the year-over-year gain shrank and marked the slowest rate of increase since May 2011.
The MLS HPI rose fastest in Regina, up 11.6% year over year in November, though down from 13% in October.
Among other markets, the HPI was up 4.6% year over year in Toronto, 1.9% in Montreal and 7.1% in Calgary. In Greater Vancouver, the HPI was down 1.7% year over year.

Guelph and Area Real Estate Forcast for 2013

I've attached an article below from the Financial Post published earlier this week about Canadian housing market and the cooling we'll see in 2013. I've also listed below local forecasts for the Guelph Real Estate Market quoted from Canada Mortgage Housing Corporation (CMHC), with a summary of the implications. I'd love to hear from you on your thoughts.

Here is the local forecast for 2013:

- Balanced market for Guelph is forecasted with an equal number of buyers and sellers (as compared to a sellers market in 2012)
- the forecase sales decrease in Guelph will be approximately 5.3%
- the housing market will pick up in the second half of 2013 (the key drivers will be low rates and net migration)
- first-time homebuyer demand will be lower, as buyers take longer to make choices
- listings in 2013 will decline
- Guelph will experience slower employment and growth, with a boost in job creation in the second half of 2013

What does this mean if you own real estate in the area?

- If you are serious about selling your home in 2013, ensure your house is priced correctly. If buyers are pickier and there's more buyers in the market, the longer your home sits on the market, the less likely you'll be able to sell it.

- Be conservative on what equity you can expect in 2013. When you run your numbers with your mortgage professional, be sure there is enough equity to pay for the costs of buying your new home. I find people in general think their home is worth more than what the market will bear.

- Get a full pre-approved for a mortgage in advance regardless if you are a first-time homebuyer or already have a mortgage.  Because of the tighter mortgage rules, you want to be sure you can buy the house your realtor is showing you!

Please call or e-mail me if you have any questions at tel: 5197633900 ext. 1001 or lastovic.s@mortgagecentre.com. Your comments are also appreciated it!




Cooling housing market shows stricter mortgage rules working: Flaherty:
Canada’s finance minister is taking credit for the recent cooling in the hot housing market, saying a slowdown now is better than a crash later.
Jim Flaherty was reacting to the sudden loss of momentum in the Canadian economy and the role housing, with the sector contracting 3.5% annualized in the third quarter, is playing.

Less demand, lower prices, modestly, in the housing market are much better for Canadians than a boom followed by a bust

The government moved for the fourth time in as many years to tighten mortgage availability in July, resulting in a sharp reduction in housing activity, resales and even lower prices in some markets.
“The housing market has softened somewhat in part because of steps that I’ve taken and I’m happy about that,” he said.

Related

• Condo buyers unfazed by rising fees
• Toronto condo projects on hold as sales plunge
• Calgary housing market bucks national slowdown
• As housing market slows, industry scrambles to paint positive pictur

“Less demand, lower prices, modestly, in the housing market are much better for Canadians than a boom followed by a bust. So I’m all for a soft landing.”
Flaherty and Bank of Canada governor Mark Carney have been warning Canadians for more that two years they were taking on too much debt, particularly in real estate. But with the economic growth at low ebb, Carney was unable to slow down the market with interest rate hikes without impacting the economy as a whole.
That left the policy brake in the hands of Ottawa, and in late spring Flaherty announced government insured mortgages would have their amortization periods cut to 25 years from 30. The impact was to raise the cost of monthly payments on a typical $350,000 mortgage with 3% interest by $184. The move also reduces the amount a homeowner pays in interest over the life of a mortgage.
CIBC economists Benjamin Tal said Flaherty’s latest move, which went into effect in July, was the only one of the four that was done at a time the housing market was already showing signs of cooling.
That speeded up the decline, Tal said, adding he does not believe the correction is over. He expects house prices will drop about 10% on average over the next year.
“(Still) I do agree it was necessary,” he said. “It’s good to slow housing when you want to slow it, as opposed to having it slow because interest rates rise or there’s another recession.
“(The correction) is not insignificant, but it’s not going to push us into a U.S.-style crash,” he added.
Flaherty said he is also pleased that Canadians appear to have heeded the message about getting their finances on a more sound basis.
Canadian households now hold about 162% more debt than their disposable annual income, a record level. But the growth in credit has been slowing in recent months.
“When it comes to consumer debt, I am encouraged by the reaction of Canadians. More Canadians are paying down their mortgages, more Canadians are paying their credit cards on time. This is very desirable,” he said.
With housing acting as an unexpected drag, Statistics Canada reported Friday that growth braked to a meagre 0.6% in the third quarter this year, the third consecutive quarterly decline of the year.
Flaherty said he was not overly concerned about the disappointing third-quarter result, saying he believes the momentum loss is temporary.
“It’s a time in which we are going to be buffeted, there’s going to some months better than others, but overall we will be OK with modest growth next year,” he predicted.
“We are on track … for modest growth, moderate growth, in the next fiscal year.”
Economists do expect a economic rebound in the current fourth quarter of 2012, blaming part of the third quarter’s losses to temporary shutdowns in the oil patch, but still say the economy will remain weak.

What kind of a house could you buy today with $400,000?

I found this article in the Globe and Mail today.  It's interesting to see what $400K will buy you around the country. I work and live in Guelph, ON.,  and I believe $400K will buy you a nice, 1500 square foot home in a decent subdivision, with 3/4 bedrooms. The average home price in the area is about $385K and you can still buy a detached house in Guelph for that!

What kind of a house could you buy today with $400,000?: The Globe's personal finance team found some beautiful properties for this price. But don't expect to live in Toronto or Vancouver.

I'd love to hear your comments on what you think $400K can buy in your city.  Please e-mail me or post your comment below.

Sandra
e-mail: Lastovic.s@mortgagecentre.com

Give your mortgage a gift this holiday...(are you kidding?)

Give your mortgage a gift this holiday season. It's not as "far out" as you may think. It's a gift that has reciprocity, because it gives back to you.

Here are some suggested gift ideas for your mortgage (courtesy of your favourite mortgage professional):

Give your mortgage a lower rate, it will thank you

Do I need to say it again? Mortgage interest rates are at historical lows! If you have a fixed-rate mortgage and the rate is higher than 4%, it's worth the time to investigate your options on refinancing your mortgage into a lower rate. There may be a penalty to discharge your current mortgage; however, a good mortgage professional will do an analysis for you to determine if in fact it makes sense to redo your mortgage.  When looking through the analysis the answer should be apparent, because numbers don't lie!

Increase each mortgage payment by $20

Most people don't use the regular pre-payment options that are available on their mortgage. Mortgages often have two types of pre-payment options: 1. increase your regular payments by a percentage; and, 2. a lump sum payment. For example, if  you have a $240,000 mortgage with a 25 year amortization,by increasing your regular bi-weekly payment by $20 each payment, you can shave almost 3 years off your current mortgage amortization.  Wow! It's amazing how such a small change can have a significant impact.

Get a second opinion if you think your mortgage and finances are sick

Banks are product pushers, they aren't out to help individuals financially. Although most of the marketing materials from the banks indicate they want to help people, the banks are primarily profit driven.  Don't get me wrong, I love helping people make money and I enjoy making money for myself and family. However, when that's the only motive, there will be problems.  If you find that you're under more debt than you feel comfortable and you own a home that may have equity, going to a mortgage professional for a second opinion on how to restructure your debt is a good option.

I'd love to hear your gift giving ideas about real estate.  Please call or e-mail me if you'd like to discuss your personal financial situation.

Sandra

tel: 519-763-3900 ext. 1001
e-mail: lastovic.s@mortgagecentre.com

Can you be "Randomly Kind"?

I'm looking forward to this Friday, November 9 for many reasons. Like most, I love Friday's because it's the start of the weekend.  But this Friday, The Mortgage Centre, Guelph and I are participating in Guelph's annual "Randon Acts of Kindness" Day. Don't stop ready just yet, I'm not going to sell or pitch you anything! :)

I've found that being "randomly kind" lifts my attitude, my spirits and the spirits of the person I'm being kind to. It reminds me of an event I was invited to yesterday, as a "expert panelist". The great networking event was hosted by the Workforce Planning Board, which is a community directed, non-profit corporation that helps people find jobs. I met so many highly skilled immigrants and others who where looking for advice on how to find a good job. I was saddened by the fact that many had difficulty finding work in Canada because of several issues that the Canadian market place presented. I'm hoping to help a few folks that I met yesterday get better connected in the community (that's me being randomly kind).

If you've read to here...do something randomly kind for someone today!

I'd love to hear your stories and successes...please contact me at 519-763-3900 ext. 1001 or through e-mail at lastovic.s@mortgagecentre.com.

 

Is a hurricane going through your finances? Here's Kim's story.

Hearing all of the news reports and the tragedy in New York and the Eastern U.S. seaboard, it reminded me that you can have a plan for your future, but there are circumstances and events you can't control.

Earlier this week, Kim came into see me to get help so that she could get back on her feet financially.  Kim was married and had three great kids. A case study for a family doing well! Until her husband developed cancer and passed away. Much of the family's savings were spent taking care of him and when she returned back to her job, she found that the company had restructured her role and she was now unemployed.  Unfortunately, Kim's husband didn't have mortgage insurance, but just a small mortgage was left on her $400K house.

Fast track 4 years later...(this past week), Kim came into see me on the recommendation of her lawyer.  Kim still hasn't found suitable employment and is having a hard time making ends meet.  She consistently has had problems paying her TD mortgage and some other bills.  Her bank hasn't been kind to her and threatens to reposes her house.

What can be done?

Kim's on the verge of getting a new job and prospects look good for her in the next few months.  This is where a private mortgage can help her financially.  Because many private lenders will work with borrowers and create terms and conditions that will satisfy both parties.  I suggested a private loan to pay out her existing TD Mortgage, her current bills and loans and also to grab hold of $15,000 in equity from her home for personal savings.  The private mortgage that was set up allowed her no payments for a year to get her back on track.  In a year we fast forwarded that her credit score would improve and she would be employed. Without the debt payments hanging over her, she could now focus on getting a job and her life back in order.

Has a hurricane gone through your life and finances? Call or e-mail me if you'd like to discuss your financial situation. Sandra

tel: 5197633900 ext.1001
e-mail: lastovic.s@mortgagecentre.com

My desk is clean, but I filed everything in the garbage

One of my goals this year fiscal year is to post more regularly on my blog. Over the last month I've had an amazing vacation with my family and attended a great conference that Todd Duncan hosted called Sales Mastery. As a result, things have piled up on my desk at work. I couldn't concentrate on the task at had, with the clutter on my desk. So I filed my clutter into the recycling box under my desk. My plan is to work through the pile later today.

Getting rid of clutter in your life and finances can help you get back on the path that you want. I met with a lady earlier this week that was moving, just to get ride of the clutter in her life and her house! The mortgage financing was tricky. I had to pull Home Trust into the deal. But with their great rates on 6-month open mortgages, the client will be able to purchase her new house first, move, de-clutter and repair her old house and then put it on the market to get a maximum sale price!

One thing I need to keep in mind though, is to ensure I get through my own recycle box today, so when the cleaning staff come that they don't "recycle" the papers in my recycle box, which I still need to review myself.

Please call or email me if you'd like to talk about "de-cluttering" your debt or finances, at tel: 519-763-3900 ext.1001 or e-mail: lastovic.s@mortgagecentre.com. 

How are you de-cluttering your life?

Secured lines of credit: What are they good for?

I’ve recently recommended secured lines of credit (or SLOCs) to a few of my clients instead of a mortgage.  SLOCs are similar to variable-rate mortgages, as the rate changes depending on the prime rate. However, SLOCs are also unlike variable-rate mortgages because: (1) only the interest is due on the payment date (instead of both the interest and principal), and (2) they are fully open (which means that they can be paid off at any time without a penalty).

Here are a few scenarios where it may be more appropriate to get a SLOC instead of going with a more traditional mortgage:

1. A SLOC could be for you if your mortgage is coming up for renewal and you are planning on purchasing a new house, or if you are not sure what your future plans may be

SLOCs are an inexpensive way to allow yourself more time to decide what you’d like to do with your home.  For instance, if you’re planning on moving within a year but aren’t sure about specific plans, SLOC’s can help bridge the gap until you’ve got a more solid “game plan.” Moreover, speaking with a mortgage professional can further help you plan out your next move – from a financial perspective.

2. A SLOC could be for you if you are planning a significant renovation on your home

You can incorporate renovations into your home through your mortgage, but if you’re planning a significant renovation you may want to consider a SLOC. A SLOC would allow you to pay your contactors as required, and would put you in control of the money – as opposed to your bank, for instance, which can be inefficient. Once the renovations are complete, a traditional amortized mortgage can be put into place. Your “new” property would then be appraised at that time to confirm the improved value, and an amortized mortgage would help you pay down the renovations in a timely and organized way.

3. A SLOC could be for you if you are investing equity from your home into a non-RRSP, or real estate

Whenever you use the equity in your home to invest in a non-RRSP or real estate, the interest on that portion of the mortgage, or SLOC, is a tax deduction. Because you may not want to pay off the principal on the investment loan, a SLOC could be a more appropriate loan than a traditional mortgage.

These examples are just some of the ways to best use a secured line of credit. Please contact me directly via e-mail at lastovic.s@mortgagecentre.com or call me at 519-763-3900 ext.1001 to discuss your questions. 

Two e-mail messages that stood out yesterday...

Yesterday I received two e-mails that stood-out in my inbox: one from Scotiabank letting me know that they are discontinuing their no-downpayment mortgage; and, the second message came from MCAP (a wholesale bank) letting me know that their maximum loan-to-value on a secured-line-of-credit would only be to 65% of the value of a home, instead of the 80% value traditionally lent.

While I was anticipating these changes later this year, they've come as a surprise because they happened quickly and without much notice.  Normally, when drastic changes happen in lending there is usually a lead-up of several weeks.  This allows borrowers to get their applications approved before the cut-off dates.  This time there was no far-advance warning.

What are the main implications on these changes?

• For real estate investors who would normally use the equity that they've built up in their homes to purchase investments, the amount that they can use from their home has decreased by 25%. Although there are other lenders who will still allow you to access 80% of the value of your home through a secured-line-of-credit, I think we'll be seeing most lenders drop their maximum loan-to-value to 65% down from 80%.
• For those who wanted to buy a house and had good job stability and credit, but have had difficulty saving for a downpayment, their chances of buying a home and getting good financing is limited.  Although there are lenders who will still do "no downpayment" mortgages, we'll likely see this program being cancelled with most mortgage lenders.

Your feedback and comments are welcomed! If you have any further questions that you'd like to discuss please give me a call or send me an e-mail:

Tel: 519-763-3900 ext.1001
E-mail: lastovic.s@mortgagecentre.com
www.guelphmortgagecentre.com

Think you can't qualify to buy a home...think again...

I just had a BBQ at my house and invited some of my clients to it. It was a great opportunity to get to know them better and to thank them for their business.  One message that kept coming up during friendly conversations at the BBQ, was that they were surprised they could get a good mortgage. A few of my clients had mentioned to me that they were turned-down for a mortgage at their own bank and even discouraged by their friends or family.

Have you wanted to buy home, but think you can’t qualify for a mortgage? Here are some common misconceptions about qualifying for a mortgage.

Myth:               I don’t have a down payment I can’t qualify for a mortgage.

Fact:              There are mortgage options for people with good credit history and job stability, but don’t have the full 5% for the minimum down payment. Some mortgage lenders will lend you the money for the down payment.  Rates are normally about 2% higher than the best discounted rate.  The rate would still be below 5.5% but you would not need a down payment!  This is a great way to get into a home, if you’re having a hard time saving for the down payment.

Myth:               I was turned down by my own bank before for a mortgage – I won’t be able to get one now.

Fact:             There are options for people who have been turned down by their bank, that are cost effective. For example, some banks will turn you down for a mortgage, if you haven’t been employed with the same company for a three full years. As a mortgage broker, if you have a full-time job and are no longer on probation, even if you’ve only been at the job for a few months, you likely would be able to get a mortgage.

Myth:               Mortgage brokers charge a fee. I should go to my bank first.

Fact:              Mortgage brokers have become one of Canada’s top choices for people looking to buy a home or investment property.  That’s because they offer great rates. If you have good credit and job stability you can get better rates through mortgage brokers and there are no extra fees!

If you're interested in how you can qualify for a mortgage please call me at 519-763-39 ext.1001 or e-mail me at lastovic.s@mortgagecentre.com

The Ant Philosophy and Real Estate

While waiting at my chiropractor's office yesterday, I watched Jim Rohn, talk about his "Ant Philosophy".  Jim Rohn is kind-of-like a preacher for business people and entrepeneurs. The Ant Philosophy is based on the habits of a common ant.  In the summer, ants work hard, and persistantly to gather up as much as they can for the winter.  In the winter they sit back and enjoy the fruits of their labour.

Many people who work in real estate, do the exact opposit of the common an.  It's natural to work hard during the spring real estate market and then do little in the summer. That's where I see real estate professionals, be it realtors, other mortgage professionals, home inspectors run into financial difficulty.

The Ant Philosophy is similar to Warren Buffet's mantra of doing the exact opposit of what others do.  If you've ever tried this in your own life, you'll see how challenging it can be.  Peer pressure is intense.

How does this relate to real estate and mortgages? For example, if you have a variable-rate mortgage with an amazing rate of under 3%, instead of riding out the mortgage because everyone is complementing you on the rate, look at locking in before rates go up...try the ant philosophy.

If you'd like to discuss your mortgage (or the Ant Philosophy), please call me at The Mortgage Centre 519-763-3900 ext.1001 or e-mail at lastovic.s@mortgagecentre.com.

Guelph’s unemployment rate dips once more

When it comes to buying real estate, it's important to be objective especially if you're considering it for an investment.

There are many key drivers that influence the phases of the real estate cycle.  Employment is one of the demographic drivers.  Other key demographic drivers include:

-Net migration;
-Vacancy rates;
-Housing Constructions; and,
-First-time homebuyers.

Today Stats Canada released unemployment rates for Canada, and Guelph as usual, has one of the lowest rates on unemployment in the country.

What does this mean for the local real estate market? When people have jobs, they buy homes.  That's one of the reason's why home sales are up year-over-year in Guelph.  Furthermore, when unemployment is low, people migrate to these cities for employment.  Guelph's vacancy rates are also at record lows.
 
GuelphMercury - Guelph’s unemployment rate dips once more

Buying a rental property for the wrong reasons...

One of my specialities is helping people build their their real-estate-investment portfolio. Because I'm in the business of owning and managing rental properties myself, most of my clients appreciate the fact that I have first-hand experience of what to do (and what not to do).  I've made several mistakes over the last ten years where I've lost money, but I have also had several success.  I'm proud to say that I'm finally making a decent profit.

I love Don Campbell's quote from the Real Estate Investment Network (REIN), "Real estate is not a get-rich-quick-scheme, it's a get-rich-slow-and-steady strategy". 

Here are some typical reasons people give for buying a rental property, that may be the wrong reason for purchasing (I'd love your feedback):

1. I want to supplement my income now. If you purchase a rental property and need to put a mortgage on the property to 80 per cent of it's value, you're likely not making more than $500/month on it.  I'm referring to the marketplace which I know best KW, Cambridge, Guelph, Brantford, and Niagara.

2. You want passive income. Owning a rental property is not a passive business.  There's allot of work that goes into managing a property and making money.  Depending on the property, it should take you an hour each week BUT you need to do some work each week per property.

3. You're retiring in a year. If you're retiring shortly and you're looking for something fun to do, then a rental property may be the way to go.  I've also helped retires buy properties to leave a legacy for their children.  If you have money to invest and want to make a "dividend" or supplement your monthly income, investing in a private mortgage is a good alternative.

Implications of new mortgage-lending guidelines...

With little surprise in Canada, the Minister of Finance has finally made a formal announcement that there will be significant changes to mortgage lending. The main changes are a decrease in maximum amortizations from 30 to 25 years and a maximum loan-to-value refinance amount for your primary residence to 80% of the home's value (down from 85%).

What are some of the practical implications?

1. For first-time home buyers (especially in Guelph or the surrounding area), it's difficult to find a detached, suitable home for under $260,000. The shorter amortizations will decrease a person's borrowing capacity and purchase price by approximately $40,000. The exact date of the changes is unknown yet; however, if someone has been pre-approved for a mortgage 4 months ago, be sure they call their mortgage broker and speak to them about their maximum purchase price.

2. Qualifying to purchase a rental property has tightened in the last 6 months.  We have seen most lenders go to sticker uses of how rental income is used in qualifying someone for a new mortgage loan. The shorter amortizations will also limit one's ability to purchase rental homes.  In Guelph, we've seen a surge in prices for rental properties.  The change in shorter amortizations may cool rental property prices.

3. Refinancing to only 80% of the value of your primary residence will limit one's ability to take equity out of their home to pay-off debt, or to purchase other properties.  For example if a home is worth $350,000, under the new guidelines, the individual will have access to $17,500 less equity.

Kelly and Jan almost didn't get their home...

Kelly and Jan (like most people) rely and trust their bank. They've owned a home before, had a mortgage with their bank (TD) and all went well.  They only had a $60,000 mortgage left on their main house, and with a growing family, where ready to move into a bigger home. They wanted to keep their main house as a rental because it was close to the university and offered great rental potential. So they went back to their bank to get pre-approved for a mortgage before looking to buy their next house.  Their bank said yes to the financing and away they went!

After spending hours with their realtor, they finally found a great home, put an offer on the home, and went back to their bank to finalize the mortgage. Here's where the story gets bad...

The bank came back and rejected their mortgage approval.  Kelly and Jan where stunned...how could this be possible?  What I've learned through my clients' experiences, are that banks don't pre-approve people for mortgages they only pre-qualify.  The missing piece in Kelly and Jan's original pre-approval was a credit check that their bank didn't do.  Kelly's credit history was weak because of a job loss she experienced a year ago.  Although she was now back to work, a few missed bill payments from the previous year appeared on her credit history. 

Here's where the story gets better...

Their realtor referred them to The Mortgage Centre, and with the skill of a trained, mortgage agent where still able to get a decent mortgage and they where still able to buy their dream house.  The great part of this story is that the mortgage payments where in-line with their monthly budget.

The lesson from this story is to ensure that whomever helps you with your mortgage financing, ensure they do a thorough job for you so that there are no surprises once you find a home.

It takes a 12-year old to help adults understand debt - great video by local celebrity

12-year old Victoria Grant explains why her homeland, Canada (she's actually from Kitchener, Ontario), and most of the world, is in debt. April 27, 2012 at the Public Banking in America Conference, Philadelphia, PA.

Private mortgages...here's an interesting investment...

If you’ve owned real estate in the past, you know what a good investment it is. The key to investing in private mortgages successfully is to work with a mortgage professional that can review the application and make a balanced recommendation.


If you’re interest in putting your money into an investment with good returns and relative low risk, than a private mortgage is a good option. I have a private lender who boasts that in three years we converted his money from one million to $1.5 million.

I get questions regularly from individuals interested in lending money to high-risk borrowers. Here’s a summary of the things you need to consider when putting your money into a private mortgage:

1. Does the mortgage professional have a good understanding of the applicant?

I normally collect as much information as possible on the borrowers. If I have a good understanding of the applicant and their current financial situation, I believe I can advise the private lender accordingly. We pull a credit history to get a picture of the applicant’s credit repayment. Most borrowers’ who need private mortgage loans have had credit issues in the past. We also collect relevant income and tax information that we provide to the private lender.

2. Who conducted the appraisal? What comparable properties did they use?

Understanding who did the appraisal and what comparable properties they used is key. Most private lenders will lend to 85 or 90 per cent of the value of the property. The appraisal will give you an unbiased value of the property, which may be different than the value a real estate agent would have. Most private lenders will drive by the property and inspect the property themselves.

3. What is the long-term potential of the borrower paying-out the private mortgage?

I believe private mortgages are a short-term, band-aid for the individual borrowing the money. Ask the mortgage professional you are working with, if they’ve discussed a plan with the borrower to pay out the private mortgage. In most cases, if the borrower’s credit history improves in a year than the private mortgage can be paid out. Other times the borrower’s financial situation requires a long-term plan.

As with anything else, ensure you do your “homework” when working with a mortgage professional and lending money as a private mortgage.

How Kevin bought his first home, even after his bank said no to a mortgage

Kevin went to his bank to get pre-approved to buy his first home. I find most first-time buyers are well-informed on the process. Kevin was working with a good, experienced  realtor, who didn't want to get involved in the mortgage pre-approval process. However, after Kevin put an offer on a home, he couldn't get the financing approved.

Buyers hirer Realtors not only to help them find a house, but also for their professional advice.  Although it's not a Realtors job to figure-out the mortgage details for their clients, they should have a list of mortgage professionals that they know and trust whom they can refer their clients to.  This is especially true for first time buyers, who are often well-informed but aren't aware of the subtleties of a pre-approval versus a pre-qualification on mortgage.

Kevin in fact was only pre-qualified. At the last minute, the realtor gave me a call and I was able to get a mortgage for Kevin, but it caused Kevin distress.  As a first-time buyer I would encourage you to take the advice from your realtor on whom they would recommend for mortgage financing.  As a realtor, my advice is to be more pro-active with your clients when it comes to financing.

How Julia was able to move into another home, even if her separation wasn't finalized

In the last week I've met with three clients whose personal situation was almost identical. All three where in the initial stages of their separation and wanted to move out of their matrimonial home and into another house. 

All three cited that it was difficult to stay in the same home with their ex. spouse and needed a physical separation.  When they looked into renting, all noted that rents where high in Guelph for places that where substandard to what they where accustomed to. After having gone to their bank to see if they could qualify for a new mortgage, the banks turned them down. Why? They had great credit and good employment stability and felt they could carry the mortgage on a new property.

With some creative financing I was able to get mortgage approval for all three.  The new mortgages where temporary for a year or two until the details of their separation where finalized.  Each had 10% as a down payment and knew the amount of child support they where to pay or receive. Some mortgage-lenders do not require a full separation agreement to put a mortgage in place. Just a statutory declaration that is signed at the lawyer's office by both parties identifying what the child support payments would be.

Aside from the financial stress of going through a separation, I've attached a link to a local counselling centre who can help you work through the emotional side of a divorce or separation.

http://www.walkingwithyou.ca/grief.html

Here's one way to pay-off your mortgage if you have rental properties

This week I met Sam who has been an astute real estate investor over the last 7 years. He's been strategic about his real estate purchases, focusing on good locations and positive cash flow.

Although he's retired, Sam still has a significant mortgage of $250,000 on his primary residence and carries a secured-line-of credit (SLOC) of $70,000.  Don't be surprised at this debt level, because more and more baby boomers are not paying-off their mortgages before they retire.  In this case, Sam went through a divorce almost 10 years ago where his assets where divided, which is the main reason he still carries a mortgage.

The great thing about Sam's situation is that he has a stable teacher's pension and he's done a good job at managing his real estate investments.  He has enough equity in his real estate investments to pay-off his secured line-of-credit. This SLOC could be an issue in the future, given that rates on SLOC's show a 10-year historic average rate of about 6%.

Sam's meeting with his accountant this week to determine how to minimize the tax implications of this restructuring.  But I'm a big believer of using the equity in your real estate to help your personal finances, while still maintaining a positive cash flow on the properties.

Here's a good link from a recent story in the Financial Post on how to manage SLOC debt.

Smoke and mirrors - longer-term may be better...

In the last week most banks and wholesale mortgage lenders have raised their four- and five-year rates.  It was a marginal increase but we're now programmed to think we can get a five-year fixed rate mortgage for under three per cent.

What I've found in the last week is that there is now mortgage lenders are promoting their three-year fixed rate mortgage. Why? Because the rate could still be under three-percent.  Is this a good financial decision? It depends...

I recently had a client who came to see me about moving into a bigger home.  She will be starting a family and needed more room. She also went to see her bank (Scotia) and they managed to convince her that the three-year rate was the right decision.  What do you think? Here's my analysis...if we consider the 10-year average on fixed-rate mortgages, the rate is close to six-percent. I'm also renewing clients I did mortgages for five years ago and the best rates at that time where about 5.7 per cent.

Considering that in three years the rates may show a spike of about 3 percent, on a $400,000.00 mortgage, amoritized over 25 years, that would mean monthly payments would increase by about $600/month.  When you're on maternity leave, or are paying daycare costs, that increase is significant.  In this scenario, my recommendation is to go to a longer term (at least a five-year fixed rate mortgage). Although you may be paying a little more in the short-term, it is worth the extra security.

Shaking hands with the Govenor...

Today I heard the Bank of Canada Governor, Mark Carney speak at The Kitchener/Waterloo Chamber of Commerce lunch. Although the food was terrible, Carney's sense of humour and insight into the challenges of the Canadian economy left me with indigestion about Canada's housing market.

The growth and strength in the Canadian economy has largely been dependent on consumer spending. Essentially, spending the equity that Canadian's have in their homes.  Canada's exports have lagged because our economy is still dependant on the U.S. as it's major trading partner.  Carney suggested that Canada needs to invest more in emerging markets such as China and India.

What about the housing market and rising rates? Nothing was mentioned in his talk this afternoon.

What was interesting is Canada's economic reliance on construction.  If housing starts cool,  and as rates increase, a slow down in construction may have a wider impact on the employment rate.

By-the-way, I did get to shake Mark Carney's hand...it was soft!

The Gimmick's Over Low Mortgage Rates

I get questions almost daily about the low rates being offered on mortgages. Most people are confused over the terms and the conditions, but know exactly what “the rate” is. We’ve been so programmed to consider just the mortgage rate. There’s been very little information about how the features in a mortgage can have a positive or negative impact on your ability to pay the loan or your lifestyle.


Here are the questions you should be asking aside from getting the lowest rate (which is always important):

1. What is the term of the mortgage?

This is where the biggest confusion lies. I’ve seen RBC ads in newspapers that compare 4-year fixed rate mortgages directly with 5-year mortgages. They are not comparing apples to apples in this scenario. Perhaps you would benefit from a longer term mortgage at a slightly higher rate than going shorter term. I’ve just helped a client arrange a 10-year mortgage term at a higher rate. She’ll pay that mortgage off in ten years and wants absolute stability for the next ten years.

2. Can I make extra payments on the mortgage to help me save interest? When can I do that and how much?

Some of the deeply discounted mortgages have limitations on making extra payments. For example, if you receive bonuses at work, and if you can only make lump-sum payments on your mortgage on the anniversary date of the mortgage – you will be stuck waiting possibly a year to make that extra payment, in the meantime accruing unnecessary interest expenses.

3. What happens if I need to make significant changes to the balance on the mortgage or sell my house? What is the penalty?

There’s been a lot of buzz around penalties to get out of a mortgage – and now it’s regulated by the Financial Services Commission of Ontario for banks and mortgage brokers to discuss the penalties around discharging the mortgage. Sometimes deeply discounted mortgages have constraints around making changes or getting out of the mortgage. Be sure to discuss this with your mortgage professional.

Women and money...do I dare say more?

Women (I've read) make better money managers and investors than men. They tell us we're more likely to collaborate, share ideas and not let ego in the way of investing. How does this differ from how men invest? We're more likely to do the research and make investment decisions on rational, objective terms rather than emotional.

On the debt and budgeting side, I see single women, and those in relationships, often managing their family's budget and expenses.

Have women come along way in managing money? I don't think we have, even though many women in families make more money than their spouses.  When I meet with clients to do mortgage planning sessions, most men still do the talking. Why? Is it ego or a lack of financial self-esteem?

Jim: Love's his bank, but they can't "get" what he wants to do...

Have you ever gone into your bank and the banker didn't understand what your financial goal was?  I'm working with Jim, a professional who wants to keep the current property he lives in as a rental and then buy another, more modern home to live in.  His bank couldn't understand why he wanted to do that.  Of course, Jim's a smart guy because he knows that the rental property will help him financially with his retirement.

When Jim came into see me (a referral from a local lawyer), he was frustrated and was almost ready to give up on his plans.  About a half an hour later we determined that he had about $55,000.00 equity that he could extract from his current home valued at $270,000, and put about 10% down on the next house he wanted to buy.  The great news for Jim is that he made a wise decision when he bought his originally house 6 years ago.  The house was in a perfect spot for a rental - close to most amenities and centrally located.

Within another half hour we determined that the rental should have a longer amorization, to keep the cashflow high and also to limit the tax implications sometimes associated with the principal pay-down on a rental.  A five-year fixed rate was a good choice here. For his new primary residence we set the amorization shorter to help him pay this mortgage off in 20 years on a weekly accelerated basis.

What took Jim almost 2 weeks to negotiate with his bank, took me about 1 hour to do.  Let's just say Jim's story has a happy ending! :)

Julie: A single mom, who makes $35,000 per year just bought a house in Guelph

In my next series of blog postings, I'd like to share with you some of the clients that I've helped...because every mortgage has a story!  This is a great story about Julie, a single mom with one child who works part-time.

Julie's almost 40 years old and has never owned a home. She has great credit, not alot of debt and pays almost $1300 per month in rent.  That's the going rate in Guelph when renting a nice town house.  The only thing that was holding Julie back was her ability to save for a down payment.  On an income of $35,000 per year - there's not much left over while you're raising a child on your own.  Julie was referred to me through a friend that I helped several years ago.

This is how I helped her buy a semi-detatched house in Guelph for $200,000.  Because Julie had great credit she qualified for a "no down payment mortgage".  Essentially, the financial institution lent her the five per cent requirment for a down payment on a house.  The rates are a little higher with this kind of mortgage, but the monthly payments on the mortgage plus property taxes where approximately the same amount that Julie was paying in rent.  So she knew she could do this.  Julie and her daughter are moving into her home at the end of February.  She's happy and I'm so glad that she decided to buy instead of continuing to rent.

If you've got questions about how to get into a house please call or e-mail me.  My number is 519-763-3900 ext.1001. E-mail: lastovic.s@mortgagecentre.com.

Ugh, taxes again!

I'm just in the process of finalizing my income taxes for last year, so taxes are top-of-mind for me. I've seen a lot of clients recently who are behind in their income taxes and/or property taxes. Are there any quick fixes to bringing your income or property taxes up-to-date if you're refinancing your mortgage or moving.

You may wonder why this is relevant. Most mortgage companies (bank or wholesale bank) will require confirmation that your income and property taxes are up-to-day, if you’re selling a house or renegotiating your mortgage.
I recommend paying your property taxes directly to the City of Guelph (or any other city/town you live in). I like being in control of that. Most municipalities allow pre-authorized debt and you can even pull the forms off the web site.

Here's the link for the City of Guelph's pre-authorized debit for property taxes http://guelph.ca/living.cfm?subCatID=2035&smocid=2608

If you’re behind in your property taxes, look for ways to pay them off by borrowing from a family member or putting them on credit. If you renegotiate your mortgage you can then use the extra money through the refinance to pay back the money. Then make a promise to yourself to do pre-authorized debit either through your mortgage holder or directly through the city.

You can employ this strategy with your income taxes as well.

Is this the year to buy your first home?

With low interest rates and home prices in Guelph remaining stable, 2012 will be a good year to buy a home if you don’t already own one!  

Canada Housing and Mortgage Corporation (CMHC) states that many of the potential first-time buyers of 2011 didn’t buy a house when they could qualify for one because of the unpredictable job market.  However, Guelph’s employment rate has always been strong boasting an unemployment rate of just over 4% - one of the lowest in the country.

Here are a few tips if you’re considering buying your first home in 2012…

How do I know I can qualify for a mortgage?

There are several  “on-line” mortgage calculators that will give you a rough idea of a mortgage amount that you can qualify for based on your income and your debts.  But don’t use this as a true mortgage pre-approval.  Why? There are many factors that can influence your ability to really qualify for a mortgage loan, such as credit history and income stability.  For example, if you work at a job that pays an hourly rate and your are entitled to overtime, overtime income can only be used to help you qualify for a mortgage, based on a two year average.

A good credit is also essential to qualify for a mortgage loan.  If you’re interest in obtaining your own credit history you can purchase it at www.equifax.ca.  Otherwise if you consult your mortgage broker they will review your credit history with you.

How to come up with a down payment?

The minimum down payment required to buy a home is 5% of the purchase price.  You can get a loan from the bank for the down payment, from savings, or through a family gift.  If you have great credit history and good job stability you may also be able to qualify for a mortgage – even if you don’t have the full 5% saved.

How much can I buy?                                      

There are two ratios that are used to help determine how much you can qualify for in a mortgage.  They are the Total Debt Service Ratio (TDSR) and the Gross Debt Service Ratio (GDSR). Essentially, these ratios compare the carrying costs of the house (mortgage payment, property taxes heat and debt) to your gross income.  These ratios should be between 32 and 44 per cent.  What I’ve found is that most home buyers can qualify for more of a mortgage, than they feel they need.  Have your mortgage broker work with you to help you develop a budget and determine what the ideal monthly mortgage amount should be based on your budget.  We can then help you work back to determine the purchase price.