19 Mar

Transitioning from Renter to Homeowner

General

Posted by: Sarah Alexander

Transitioning from renter to homeowner is one of the biggest decisions you’ll make throughout your lifetime. That’s why it’s essential to surround yourself with a team of experts – including both a mortgage and real estate professional – to walk you through the steps to home ownership, answer all of your questions and concerns, help you decide what kind of home you can afford and get you pre-approved for a mortgage.

With interest rates still hovering around “emergency” levels – low rates never before seen by your parents and even your grandparents – now is an ideal time for first-time homebuyers to embark upon homeownership.

Down payment

The main reason many renters feel they can’t afford to purchase a home has to do with saving for a down payment. But there are many solutions available today that can help first-time buyers with their down payments.

Many lenders will allow for a gifted or borrowed down payment. And of those lenders that will not provide this alternative, many offer cash-back options that can be used as a down payment.

Better yet, there are programs available from some financial institutions where they will offer a “free down payment” or a “flex down”. Of course, you will end up paying about 1% more in your interest rate, but the program will help you get in the homeownership door and start accumulating equity earlier. You must, however, stay with the original lender for the full initial five-year term or else you’ll have to pay the down payment back.

Under the RRSP Home Buyers’ Plan first-time homebuyers can now withdraw up to $25,000 from their RRSPs for a down payment – tax- and interest-free.

And if you’re part of a couple making a home purchase together, you can each withdraw up to $25,000 from your RRSPs.

Educating and coaching

There’s an endless amount of information available to prospective homeowners – through the Internet, friends, family members and anyone willing to voice their opinion on a given subject. What you really need, therefore, is education and coaching as opposed to being bombarded with more information.

Speaking to a mortgage professional in order to obtain a pre-approval prior to setting out home shopping can help set your mind at ease, because many first-time buyers are overwhelmed by the financing and buying processes, and often don’t know what it truly costs to purchase a home. Real examples can go a long way in showing you what it costs to buy a home in your area versus what you’re currently paying in rent. For instance, if a renter is currently paying $800 per month, with that same payment (including taxes) they could afford to buy a $120,000 home. And assuming real estate values increase 2% per year over the next five years, the new homeowner would have accumulated $27,000 in equity in their home. If they continue renting, however, this $27,000 has generated equity in someone else’s home.

 

24 Jan

Mortgage Portability Options

General

Posted by: Sarah Alexander

Is Your Mortgage Portable?

Selling your current home and moving into a new one can be stressful enough, let alone worrying about your current mortgage and whether you’re able to carry it over to your new home.

 

Porting enables you to move to another property without having to lose your existing interest rate, mortgage balance and term. And, better yet, the ability to port also saves you money by avoiding early discharge penalties.

 

It’s important to note, however, that not all mortgages are portable. When it comes to fixed-rate mortgage products, you usually have a portability option. Lenders often use a “blended” system where your current mortgage rate stays the same on the mortgage amount ported over to the new property and the new balance is calculated using the current interest rate.

 

With variable-rate mortgages, on the other hand, porting is usually not available. As such, upon breaking your existing mortgage, a three-month interest penalty will be charged. This charge – which can be a surprising $1,500-$4,000 penalty at closing – may or may not be reimbursed with your new mortgage.

 

Porting Conditions

While porting typically ensures no penalty will be charged when you sell your existing property and buy a new one, some conditions that may apply include:

  • Some lenders allow you to port your mortgage, but your sale and purchase have to happen on the same day. Other lenders offer a week to do this, some a month, and others up to three months.
  • Some lenders don’t allow a changed term or force you into a longer term as part of agreeing to port you mortgage.
  • Some lenders will, in fact, reimburse your entire penalty whether you are a fixed or variable borrower if you simply get a new mortgage with the same lender – replacing the one being discharged. Additionally, some lenders will even allow you to move into a brand new term of your choice and start fresh.
  • There are instances where it’s better to pay a penalty at the time of selling and get into a new term at a brand new rate that could save back your penalty over the course of the new term.

 

While this may sound like a complicated subject, your mortgage professional will be able to explain all of your options and help you select the right mortgage based on your own specific needs.

 

7 Jan

Further Ahead by Paying off Mortgage Faster?

General

Posted by: Sarah Alexander

Here’s an interesting article that I came across last month in the Globe and Mail – thought I would share it with you all. 

________________________________________________________________________________
Many Canadians paying off mortgages faster, but are they further ahead?
Dawn Walton
The Globe and Mail
Published Wednesday, Dec. 19 2012, 6:00 AM EST
Last updated Thursday, Dec. 20 2012, 9:16 AM EST

While I’ve been busy sinking money into mortgage payments, daycare costs, RESPs, RRSPs, utilities, groceries, vehicle maintenance and the occasional vacation, I’ve somehow failed to notice that many Canadians seem to be doing all this – and stepping up their mortgage repayments, too.
According to the Canadian Association of Accredited Mortgage Professionals
[http://www.caamp.org/], over the past 20 years mortgage repayment periods have shrunk to
two-thirds of the actual contracted period. Furthermore, during the past year – a time when
household debt has soared to a record high – 32 per cent of borrowers have managed to dramatically accelerate their mortgage payment schedules. Yes, you read that right. At a time when Canadians have loaded up on consumer, house and car debt, it appears that many people are finding ways to pay off their mortgages faster.

Of the almost 6 million mortgage-holders in Canada, about 1.9 million made additional payment
efforts during the past year. I was not one of them, unless the biweekly payment option counts.
Instead, I am among the 60 per cent of mortgage holders who made only their minimum mortgage
payment. The association’s annual survey, which was released last month, contains some interesting data about those aspiring to be mortgage-free sooner.

$300 – the average monthly increase to regular mortgage payments in the past year
$22,500 – the average lump sum payment among mortgage-holders in the past year
$29,000 – the average lump sum payment among those now mortgage-free during the last year
of their mortgage

Of course, paying off a mortgage faster is a good thing. But is all this bumping up regular payment
amounts, making an annual balloon payment and increasing the frequency of payments, actually
making a serious dent in people’s overall debt load?

Not necessarily, says Rona Birenbaum, a financial planner with Caring for Clients in Toronto. When
she sees clients with very aggressive amortization schedules, a closer look at their cash flow reveals a starkly troubling overall financial picture. “How are you affording this?” she asks them, “You must be creating debt somewhere else, and they are.”

Credit card balances and lines of credit are often rising on the other side of the ledger, she said. Keep in mind that credit card debt comes with higher – often very high – interest rates. All of that means that while people’s mortgage debt is falling, their consumer debt is rising.

“Overall, they are not getting ahead,” Ms. Birenbaum said.  Ultimately, the goal of mortgage freedom makes financial sense for everyone. But Ms. Birenbaum believes that the right approach to repaying mortgage debt depends on the individual or family. It requires discipline with cash flow, and a commitment not to spend a sudden injection of income, such as inheritances or bonuses, on items other than mortgage repayment.

“Interest rates may be low, but any interest is money out of your pocket and into the banks,” she said. And with mortgage rates well below historical averages, borrowers can certainly save money by taking advantage of the low rates to shorten their amortization period. The survey also noted that the average interest rate was 3.55 per cent, and that mortgage rate discounting remains “widespread” in Canada – with the average actual rate for a five-year fixed rate mortgage at 1.85 percentage points lower than the posted rates.

The report, which is based on an online survey of 2,018 Canadians, found that one-third said low
interest rates have helped them beef up repayments, and that the majority planned to pay off their
mortgage in less than 25 years. For Ms. Birenbaum, the report shows that borrowers are getting savvy when it comes to the flexibility offered in their mortgages, but it also reflects some anxiety about what rising interest rates can mean if they don’t have the capacity to pay.

“Canadians are pretty freaked out by what happened in the U.S. and they don’t want to go down that
path,” she said.

19 Oct

All the Single Ladies ….. Put Your Hands Up

General

Posted by: Sarah Alexander

It’s becoming increasingly apparent that a greater number of women are now taking the reigns when it comes to home purchases. There’s a growing trend among single women – and, more precisely, professional single women – who are becoming independent homeowners. While many of may be putting off marriage, they’re not waiting around for Mr Right before taking the plunge into homeownership.

 

It’s believed that around 20% of homebuyers in North America are single women based on a 2011 report released by the US National Association of Realtors. Harvard University’s Joint Center for Housing Studies also released a report that said single women are buying in record numbers.

 

There’s no equivalent data for Canada, but an abundance of anecdotal information has led to the creation of shows like HGTV’s Buy Herself, which follows single women making their first real estate purchases.

 

Women are looking for ways to become financially independent, and investing in real estate and building equity for themselves are ways to invest in their future – building financial security.  Women are taking advantage of historically low interest rates and recognizing homeownership is often more affordable than renting.


Seeking expert advice

One of the amazing things about women looking to invest in real estate is that they’re getting more advice before they make the decision to enter the market. They’re seeking out mortgage experts and real estate agents, and building a plan for the perfect entry into the market. They’re making lists of areas in which they’re interested in purchasing, itemizing amenities they would need in their ideal neighbourhoods, ensuring they have all the facts around closing costs and fees associated with making the purchase, and securing a mortgage.

 

Buying a home is likely one of the largest purchases you’ll ever make in your lifetime, and can feel overwhelming. That’s why working with a professional mortgage agent, real estate agent, home inspector and so on is essential. You’ll be working with these professionals closely – possibly for months – so interactions should feel comfortable, and they should be knowledgeable and responsive even to the smallest question.

 

The more prepared you are, the smoother the experience will be so do a little research on your own over the Internet to get a good idea of what types of properties and areas are of interest to you. Make a list of questions to ask your mortgage agent or realtor – and keep it on hand so you can add to it as more questions arise.

 

Interest rates are still the lowest they’ve been in history and they have nowhere to go but up. Industry professionals believe that as rates begin to rise, they’ll continue to rise for some time. There has never been a better time for women to make the decision to get into the real estate market to find the perfect place to call home.