Is the CMHC premium a tax deduction on investment properties?
http://www.cra-arc.gc.ca/E/pub/tg/t4036/t4036-07e.pdf
You can deduct certain fees you have when you get a mortgage or loan to buy or improve your rental property.
If the loans relate to the construction or renovation period, first read about soft costs on page 9.
Loan fees include:
¡ mortgage applications, appraisals, processing, and insurance fees
¡ mortgage guarantee fees
¡ mortgage brokerage and finders fees
¡ legal fees related to mortgage financing
You deduct these fees over a period of five years.
Deduct 20% in the current tax year and 20% in each of the following four years.
However, if you repay the mortgage or loan before the end of the five-year period, you can deduct the remaining financing fees at that time.
The number of years for which you can deduct these fees is not related to the term of your mortgage.
If you have standby charges, guarantee fees, service fees, or any other similar fees, you may be able to deduct them in full for the year you incur them.
To do so, they have torelate only to that tax year.
You can choose to treat finance fees you paid and the interest on money you borrowed to acquire depreciable property as capital expenses."
Monday, December 8, 2008
Monday, August 25, 2008
Understanding your credit score
If you are in the market for a mortgage loan, you might have heard your mortgage broker refer to your Beacon Score and you may have wondered what they were talking about. If so, what they were referring to is your credit score which is a number that tells lenders how much of a lending risk you are. Your interest rate and fees are determined by your Beacon Score, so it is very important that you understand what it is and what things can raise and lower it.
Beacon Scores range from 300-900 with the average Canadian having one around the 720 range. Borrowers at the higher end of the scale get better rates, and those at the lower end get the less desirable rates due to their higher lending risk. It is interesting to note that only about 11% of Canadians have a Beacon Score above 800 and nearly no one has a perfect score of 900.
If your Beacon Score is below the magic number of 600, lenders will consider you a “B” client and will view you as someone with serious credit issues. If you find yourself in the lower portion, approximately 300-580, you will find that lenders place you in the sub-prime category for lending. This means you will get horrible interest rates and high fees on any loans you take out.
If you have bad credit, don’t despair. You can fix your credit over time by understanding how the Beacon Score formula works and making sure to improve those areas of your personal financial situation which will also increase your Beacon Score. Here are some areas for you to consider:
Payment History – 35% of your Beacon Score – This is based on your payment history over the last few years. With on-time payments it will rise, and with late payments of even 30 days, it will fall. Any bankruptcy, judgments, or collection accounts are in this area of your Beacon Score.
Current Debt Load – 30% of your Beacon Score - Your current debt load is how much money you currently own and how many different creditors you owe money to. It also takes into consideration how much debt you would have if you maxed out all of your available credit.
Age of Accounts – 15% of your Beacon Score – This is a rating based on how long your credit accounts have been open with longer being better. You want to ensure that you have at least 3 credit accounts which have been open for longer than one year for the best score.
Type of Credit – 10% of your Beacon Score – Bank loans, credit cards, and revolving debt accounts each impact your Beacon Score in a different way.
Credit Enquiries – 10% of your Beacon Score – Each time someone pulls your credit report your Beacon Score will temporarily drop. For this reason you do not want to make a ton of credit applications all at one time or prior to trying to obtain a mortgage.
There are overall three things which can kill your Beacon scores like no other. They are: bankruptcy or judgments, payments over 30 days late, and maxing out your credit cards. For the best Beacon Score possible your credit card balances should always be below 50% of your credit line, or 75% at the absolute maximum.
Another thing that can negatively affect your credit scores are erroneous entries on your credit report. Make sure you get a copy of your report on a regular basis and contest any entries which are incorrect.
By understanding how your Beacon Score is tabulated, you can help your score to improve prior to attempting to obtain a mortgage loan. By doing so, you can ensure that you get the best mortgage loan rate possible.
Beacon Scores range from 300-900 with the average Canadian having one around the 720 range. Borrowers at the higher end of the scale get better rates, and those at the lower end get the less desirable rates due to their higher lending risk. It is interesting to note that only about 11% of Canadians have a Beacon Score above 800 and nearly no one has a perfect score of 900.
If your Beacon Score is below the magic number of 600, lenders will consider you a “B” client and will view you as someone with serious credit issues. If you find yourself in the lower portion, approximately 300-580, you will find that lenders place you in the sub-prime category for lending. This means you will get horrible interest rates and high fees on any loans you take out.
If you have bad credit, don’t despair. You can fix your credit over time by understanding how the Beacon Score formula works and making sure to improve those areas of your personal financial situation which will also increase your Beacon Score. Here are some areas for you to consider:
Payment History – 35% of your Beacon Score – This is based on your payment history over the last few years. With on-time payments it will rise, and with late payments of even 30 days, it will fall. Any bankruptcy, judgments, or collection accounts are in this area of your Beacon Score.
Current Debt Load – 30% of your Beacon Score - Your current debt load is how much money you currently own and how many different creditors you owe money to. It also takes into consideration how much debt you would have if you maxed out all of your available credit.
Age of Accounts – 15% of your Beacon Score – This is a rating based on how long your credit accounts have been open with longer being better. You want to ensure that you have at least 3 credit accounts which have been open for longer than one year for the best score.
Type of Credit – 10% of your Beacon Score – Bank loans, credit cards, and revolving debt accounts each impact your Beacon Score in a different way.
Credit Enquiries – 10% of your Beacon Score – Each time someone pulls your credit report your Beacon Score will temporarily drop. For this reason you do not want to make a ton of credit applications all at one time or prior to trying to obtain a mortgage.
There are overall three things which can kill your Beacon scores like no other. They are: bankruptcy or judgments, payments over 30 days late, and maxing out your credit cards. For the best Beacon Score possible your credit card balances should always be below 50% of your credit line, or 75% at the absolute maximum.
Another thing that can negatively affect your credit scores are erroneous entries on your credit report. Make sure you get a copy of your report on a regular basis and contest any entries which are incorrect.
By understanding how your Beacon Score is tabulated, you can help your score to improve prior to attempting to obtain a mortgage loan. By doing so, you can ensure that you get the best mortgage loan rate possible.
Monday, July 28, 2008
Gone are the days of 40 year AM's and 0 down
So a couple weeks ago I had sent out an email saying that we have a deadline of October 15th to do 0 down mortgages and 40 year amortizations.
Well it seems as though that deadline was not a real deadline for most of the lenders. As of right now all lenders, except for a very small handful, have cut the program all together.
We have verification that one lender for sure will use the October 15th deadline and that's it.If you know of anyone wanting to get in with this, let me know immediately and we will have them pre-approved for a purchase by the deadline.
Well it seems as though that deadline was not a real deadline for most of the lenders. As of right now all lenders, except for a very small handful, have cut the program all together.
We have verification that one lender for sure will use the October 15th deadline and that's it.If you know of anyone wanting to get in with this, let me know immediately and we will have them pre-approved for a purchase by the deadline.
Tuesday, July 1, 2008
Selling your home for maximum profit
When you decide it is time to list your home for sale, it is important to then work on getting the best possible sales price, and ultimately the highest profit from the sale that you can. To this end, there are four factors which will determine the price that your property will sell for. They are: location, price, condition and you’re listing agent. Let’s take a moment to look at each of these factors in-depth:
Condition
Your home’s condition is paramount when it comes to making or breaking a sale. Your home should be as clean as absolutely possible, and clutter free, at all times when the home could be shown to potential buyers. If your property is empty when you will have it on the market, then you might want to consider having the home “staged.” Staging is where you pay a company to come in and furnish your home in the best way possible to help buyers see the positive aspects of a home and notice less of the negative aspects of it. Staging a home can be completed for a couple thousand dollars and can greatly enhance its appeal to potential buyers.
The condition of your front and back yards should be impeccable as well. All trees and shrubs should be neatly trimmed, and flowers should be planted to make the home more inviting to prospective buyers.
Condition
Your home’s condition is paramount when it comes to making or breaking a sale. Your home should be as clean as absolutely possible, and clutter free, at all times when the home could be shown to potential buyers. If your property is empty when you will have it on the market, then you might want to consider having the home “staged.” Staging is where you pay a company to come in and furnish your home in the best way possible to help buyers see the positive aspects of a home and notice less of the negative aspects of it. Staging a home can be completed for a couple thousand dollars and can greatly enhance its appeal to potential buyers.
The condition of your front and back yards should be impeccable as well. All trees and shrubs should be neatly trimmed, and flowers should be planted to make the home more inviting to prospective buyers.
Thursday, May 22, 2008
7 Tips for flipping homes
"Flipping" has been a popular buzzword used by real estate investors for the past decade or so. This article will specifically address seven strategies that sophisticated Real Estate Investors use.
Flipping Real Estate simply means buying a property and reselling it quickly, as opposed to holding on to a property long term as a rental. Flipping comes in several varieties, most of which are legal and profitable, some of which are not.
Flip Strategy #1: Buy, fix, and flip
Let's start with the most common form--the good, old "fix n’ flip." This involves buying a property that needs work, fixing it up, then selling on the "retail" market, that is, to a person who will live in the house.
This method is tried and true and works very well. You can easily make $15,000 to $50,000 on one deal, depending on your market and how good you are at finding bargains.
The danger in fix and flips is either paying too much or underestimating repairs. Be very conservative in your fix-up costs and length of time it may take to resell. Also, make sure you consider the cost of paying a real estate agent to sell the property.
Flip Strategy #2: Buy, refinance, and lease option
Rather than sell the fixed up property for all cash, sell for terms. Once you have completed the rehab, refinance the property at its new appraised value. If you did the math correctly, you should have little or no money in the deal. Sell the property on a lease with option to buy.
The rent payment from your tenant/buyer should cover your mortgage payment.
When your tenant exercises his option, you reap a larger profit, since you don't have to pay a broker's fee. If the tenant exercises his option after twelve months, you benefit from a lower capital gains tax rate.
Flip Strategy #3: Buy and flip "as is"
Don't like to do fix-up work? Consider selling the property "as is" as a light fixer upper. If the local real estate market is hot, you should be able to sell the property in poor condition just a little below market.
This is especially the case with houses in "transitioning" neighborhoods. Make sure, of course, that you acquire the property cheap enough that you can sell it below market quickly and still profit.
Flip Strategy #4: Wholesale
Strategy #1, the fix and flip, is very popular, which means there are a lot of investors looking for rehabs. You can buy the property cheap and sell it for just a few thousand dollars more to another investor without doing any work. You won't make nearly as much as the rehabber, but you will realize your profit quickly.
Flip Strategy #5: Pre-construction
In very hot real estate markets, prices are appreciating as much as 2% per month. If you time things right, you can put a contract on a pre-construction house or condominium, then flip it to someone else when the development is complete.
If it takes 12 months for the development to be complete, and the condo price is $500,000, you could make $100,000 or more in one year! Of course, the opposite is also true. You could end up losing money if the local economy tanks and you end up with a worthless condo that you can't sell for more than you paid. Use this approach very carefully.
Flip Strategy #6: Scouting
The Scout is an information gatherer, so not technically a property flipper. He is the "bird dog" who finds potential deals and sells the information to other investors. Many people get started as a Scout for other investors because it does not take any cash or prior knowledge to look for distressed properties.
The Scout finds a property for sale, gathers the necessary information, and then provides this information to investors for a fee. The fee will vary depending on the price of the property and the profit potential. The Scout can expect to make $500 to $1,000 each time he provides information that leads to a purchase by another investor.
Flip Strategy #7: Illegal flipping
Okay, I am NOT advocating this approach because it is illegal. Illegal property-flipping schemes work as follows: Unscrupulous investors buy cheap, run-down properties in mostly low-income neighborhoods. They do shoddy renovations to the properties and sell them to unsophisticated buyers at inflated prices.
In most cases, the investor, appraiser, and mortgage broker conspire by submitting fraudulent loan documents and a bogus appraisal. The end result is a buyer that paid too much for a house and cannot afford the loan.
Since many of these loans are insured, the government authorities have investigated this practice and arrested many of the parties involved. As a result, the public perceives this flipping to be illegal. The fact is, "flipping" (as I described in the beginning of this article) is NOT illegal.
Mortgage fraud in the process of flipping is what is illegal. So don't confuse the two. The other six ways to flip are very legal, very ethical, and very profitable!
Flipping Real Estate simply means buying a property and reselling it quickly, as opposed to holding on to a property long term as a rental. Flipping comes in several varieties, most of which are legal and profitable, some of which are not.
Flip Strategy #1: Buy, fix, and flip
Let's start with the most common form--the good, old "fix n’ flip." This involves buying a property that needs work, fixing it up, then selling on the "retail" market, that is, to a person who will live in the house.
This method is tried and true and works very well. You can easily make $15,000 to $50,000 on one deal, depending on your market and how good you are at finding bargains.
The danger in fix and flips is either paying too much or underestimating repairs. Be very conservative in your fix-up costs and length of time it may take to resell. Also, make sure you consider the cost of paying a real estate agent to sell the property.
Flip Strategy #2: Buy, refinance, and lease option
Rather than sell the fixed up property for all cash, sell for terms. Once you have completed the rehab, refinance the property at its new appraised value. If you did the math correctly, you should have little or no money in the deal. Sell the property on a lease with option to buy.
The rent payment from your tenant/buyer should cover your mortgage payment.
When your tenant exercises his option, you reap a larger profit, since you don't have to pay a broker's fee. If the tenant exercises his option after twelve months, you benefit from a lower capital gains tax rate.
Flip Strategy #3: Buy and flip "as is"
Don't like to do fix-up work? Consider selling the property "as is" as a light fixer upper. If the local real estate market is hot, you should be able to sell the property in poor condition just a little below market.
This is especially the case with houses in "transitioning" neighborhoods. Make sure, of course, that you acquire the property cheap enough that you can sell it below market quickly and still profit.
Flip Strategy #4: Wholesale
Strategy #1, the fix and flip, is very popular, which means there are a lot of investors looking for rehabs. You can buy the property cheap and sell it for just a few thousand dollars more to another investor without doing any work. You won't make nearly as much as the rehabber, but you will realize your profit quickly.
Flip Strategy #5: Pre-construction
In very hot real estate markets, prices are appreciating as much as 2% per month. If you time things right, you can put a contract on a pre-construction house or condominium, then flip it to someone else when the development is complete.
If it takes 12 months for the development to be complete, and the condo price is $500,000, you could make $100,000 or more in one year! Of course, the opposite is also true. You could end up losing money if the local economy tanks and you end up with a worthless condo that you can't sell for more than you paid. Use this approach very carefully.
Flip Strategy #6: Scouting
The Scout is an information gatherer, so not technically a property flipper. He is the "bird dog" who finds potential deals and sells the information to other investors. Many people get started as a Scout for other investors because it does not take any cash or prior knowledge to look for distressed properties.
The Scout finds a property for sale, gathers the necessary information, and then provides this information to investors for a fee. The fee will vary depending on the price of the property and the profit potential. The Scout can expect to make $500 to $1,000 each time he provides information that leads to a purchase by another investor.
Flip Strategy #7: Illegal flipping
Okay, I am NOT advocating this approach because it is illegal. Illegal property-flipping schemes work as follows: Unscrupulous investors buy cheap, run-down properties in mostly low-income neighborhoods. They do shoddy renovations to the properties and sell them to unsophisticated buyers at inflated prices.
In most cases, the investor, appraiser, and mortgage broker conspire by submitting fraudulent loan documents and a bogus appraisal. The end result is a buyer that paid too much for a house and cannot afford the loan.
Since many of these loans are insured, the government authorities have investigated this practice and arrested many of the parties involved. As a result, the public perceives this flipping to be illegal. The fact is, "flipping" (as I described in the beginning of this article) is NOT illegal.
Mortgage fraud in the process of flipping is what is illegal. So don't confuse the two. The other six ways to flip are very legal, very ethical, and very profitable!
Thursday, April 24, 2008
Bank of Canada lowered rates
Once again, as expected, the Bank of Canada reduced the overnight lending rate. This is good news for us in a variable rate mortgage as the rate went down another half a percent.
If you're in a variable and have been for the last year you've seen some great savings. If you've kept your payments at the original amount, the savings are even more drastic, in the long run, not up front. This will cut years off your mortgage.
No one knows how long it will take until the rate starts coming up, which is more than likely going to happen at some point in time. With fixed rates staying low, and potentially becoming lower, locking in in the near future will be a no brainer!
Take care
If you're in a variable and have been for the last year you've seen some great savings. If you've kept your payments at the original amount, the savings are even more drastic, in the long run, not up front. This will cut years off your mortgage.
No one knows how long it will take until the rate starts coming up, which is more than likely going to happen at some point in time. With fixed rates staying low, and potentially becoming lower, locking in in the near future will be a no brainer!
Take care
Monday, April 7, 2008
10 ways to pay your mortgage down quicker
Tip #1 Seek the advice of a financial advisor who works for a set fee. Finding an independent financial advisor who works on a set fee, to work with you on your specific financial goals, is the best way to ensure that you get the best and the most unbiased financial advice. Rather than talking to someone at your bank or lending institution, who makes money based on their recommendations to you, work with an independent advisor who has nothing to gain from your decisions that you make.
Tip #2 Opt for a closed term mortgage rather than an open one unless you will be paying it off in full during the term. An open mortgage at a fixed rate of interest will carry a higher interest rate than a closed term mortgage will. Unless you need to pay off your mortgage during the term, it is always advisable to go with the closed term and know that you can always pay off the mortgage when you are looking at renewing without penalty. And, while you are in the term you can generally pay up to 10-20% of the mortgage without a prepayment penalty.
Tip #3 Pay your mortgage each week, or every two weeks. One great strategy to pay off your mortgage in a shorter period of time is to opt to pay your mortgage each week, or even every other week. Both options lower your interest paid over the term of your loan and also result in the equivalent of an extra month’s mortgage payment each year. Paying your mortgage in this way will take your mortgage from 25 years down to 21.
Tip #4 When your income increases, you should increase your mortgage payments. Let’s say you get a 5% cost-of-living raise each year at your place of employment. If you live like you never got a raise, spending what you did before the raise, and you send that extra 5% of your income to your mortgage, then you will never miss the money and your mortgage balance will drop a lot faster. This is a very painless way of paying down your mortgage without feeling like you are sacrificing your way of life in any way.
Tip #5 Pay down your mortgage with your income tax refunds each year. If you are in the position where you get an income tax refund each year, send that money directly off to your mortgage lender as an extra payment on the principle of your mortgage loan. You won’t miss the money in any way, and your mortgage will get a nice reduction which will save you a ton of interest over time.
Tip #6 Pay down your mortgage with windfall money which comes into your life. Just about everyone finds themselves with money they were not expecting at some point or another. Maybe you inherited some money from a distant relative or you got a nice holiday bonus at work? Take all of your extra windfall cash and send it, or a large portion of it, to your mortgage lender as a lump-sum payment towards your mortgage loan. Again, this is a way to whittle down your mortgage loan without feeling the pain of coming up with extra cash out of your month-to-month budget.
Tip #7 Maintain your payments even if you are able to renew your mortgage at a lower rate. When you renew your mortgage and find that you are able to get a lower rate (with the resulting lower payment) ignore the lower payment and continue to pay what you were paying before the new term took effect. All of the extra money paid will go towards the principle of your loan and once again you do not feel like you have to come up with extra money to make the extra principle payments with.
Tip #8 Round up you mortgage payments. Assume for a moment that your mortgage payment is $756 per month. You can very easily add extra principle payments on your mortgage by paying a more rounded number, such as $775 or $800 each month. Over time, by rounding up, the payments will lower your overall mortgage debt.
Tip #9 Squeeze extra money out of your budget or extra income. Most people have some money left over at the end of the month which is sitting in their checking accounts. Make a point to always squeeze out any available money and pay extra principle payments on your mortgage. Alternatively, if you have a second job or a way of earning extra income, use some of that money to pay down your mortgage.
Tip #10 Think about getting a variable rate mortgage. It has been shown that variable rate mortgages can save you money over time. If you can deal with the rate fluctuations, a variable rate mortgage is worth serious consideration.
Tip #2 Opt for a closed term mortgage rather than an open one unless you will be paying it off in full during the term. An open mortgage at a fixed rate of interest will carry a higher interest rate than a closed term mortgage will. Unless you need to pay off your mortgage during the term, it is always advisable to go with the closed term and know that you can always pay off the mortgage when you are looking at renewing without penalty. And, while you are in the term you can generally pay up to 10-20% of the mortgage without a prepayment penalty.
Tip #3 Pay your mortgage each week, or every two weeks. One great strategy to pay off your mortgage in a shorter period of time is to opt to pay your mortgage each week, or even every other week. Both options lower your interest paid over the term of your loan and also result in the equivalent of an extra month’s mortgage payment each year. Paying your mortgage in this way will take your mortgage from 25 years down to 21.
Tip #4 When your income increases, you should increase your mortgage payments. Let’s say you get a 5% cost-of-living raise each year at your place of employment. If you live like you never got a raise, spending what you did before the raise, and you send that extra 5% of your income to your mortgage, then you will never miss the money and your mortgage balance will drop a lot faster. This is a very painless way of paying down your mortgage without feeling like you are sacrificing your way of life in any way.
Tip #5 Pay down your mortgage with your income tax refunds each year. If you are in the position where you get an income tax refund each year, send that money directly off to your mortgage lender as an extra payment on the principle of your mortgage loan. You won’t miss the money in any way, and your mortgage will get a nice reduction which will save you a ton of interest over time.
Tip #6 Pay down your mortgage with windfall money which comes into your life. Just about everyone finds themselves with money they were not expecting at some point or another. Maybe you inherited some money from a distant relative or you got a nice holiday bonus at work? Take all of your extra windfall cash and send it, or a large portion of it, to your mortgage lender as a lump-sum payment towards your mortgage loan. Again, this is a way to whittle down your mortgage loan without feeling the pain of coming up with extra cash out of your month-to-month budget.
Tip #7 Maintain your payments even if you are able to renew your mortgage at a lower rate. When you renew your mortgage and find that you are able to get a lower rate (with the resulting lower payment) ignore the lower payment and continue to pay what you were paying before the new term took effect. All of the extra money paid will go towards the principle of your loan and once again you do not feel like you have to come up with extra money to make the extra principle payments with.
Tip #8 Round up you mortgage payments. Assume for a moment that your mortgage payment is $756 per month. You can very easily add extra principle payments on your mortgage by paying a more rounded number, such as $775 or $800 each month. Over time, by rounding up, the payments will lower your overall mortgage debt.
Tip #9 Squeeze extra money out of your budget or extra income. Most people have some money left over at the end of the month which is sitting in their checking accounts. Make a point to always squeeze out any available money and pay extra principle payments on your mortgage. Alternatively, if you have a second job or a way of earning extra income, use some of that money to pay down your mortgage.
Tip #10 Think about getting a variable rate mortgage. It has been shown that variable rate mortgages can save you money over time. If you can deal with the rate fluctuations, a variable rate mortgage is worth serious consideration.
Monday, January 21, 2008
US/Canada
The U.S. subprime crisis developed over several years as borrowers with little or no income, little or no equity, and a history of not paying their bills were approved for subprime mortgages. To attract even more of these borrowers, Option ARMs (specialized Adjustable Rate Mortgages) were offered. These mortgages started with a very low “teaser” rate for the first few months or years, then the rate automatically “reset” to a much higher level for the rest of the term.
The popularity of these mortgages helped drive the U.S. housing market to very high levels. House prices rose rapidly and homeowners, thinking they could rely on this forever, started extracting equity from their homes to increase their disposable income.
A "perfect storm" in the U.S.
What happened in 2007 was a “perfect storm”. U.S. mortgage rates had been creeping up and were reaching levels that slowed demand for houses. House prices stopped rising as quickly and eventually began to fall. The teaser rate on Option ARMs began to reset in large numbers leaving many borrowers unable to afford the new payments. With house values on the decline, many borrowers discovered they owed more than their house was now worth. Their only option was to default, which happened on a massive scale.
The effect on the U.S. economy has been dramatic. The housing market is already in recession and the news will get even worse over the next few months. According to CIBC World Markets, by mid-2008 the likelihood is for home sales to decline by 40%, housing starts to drop by 55%, and house prices to fall by 12-13%, from their peak. Forecasters still expect the U.S. economy to avoid recession, but it will come very close in the next few months.
In Canada, the story is different.
In Canada, our Bank Act requires lenders to be more conservative than in the U.S. The percentage of subprime mortgages in Canada is substantially less. And, according to CIBC World Markets, the percentage of Canadian mortgages in arrears is still near record lows–in stark contrast to the U.S. where delinquency and foreclosure rates have risen notably in recent months.
The bottom line is, unlike the U.S., the Canadian housing market has not been artificially driven by poor lending practices. Our long-term fundamentals are solid. We have a growing population, energy and commodities are in high demand, personal incomes are increasing, job creation is strong, and consumer confidence remains high.
Of course, if the U.S. does go into recession, Canada will feel the pain too. This concern has kept the Bank of Canada from raising interest rates, which creates yet another benefit for Canadian homeowners. Not only do we still enjoy access to readily available mortgage funds with no major default problems—but due to the U.S. subprime crisis, our mortgage rates should remain low for the foreseeable future.
If you have any questions about the mortgage situation in Canada or about your own mortgage, please don’t hesitate to contact me. I’d be happy to sit down with you, provide any answers you’re looking for, and offer professional objective advice.
The popularity of these mortgages helped drive the U.S. housing market to very high levels. House prices rose rapidly and homeowners, thinking they could rely on this forever, started extracting equity from their homes to increase their disposable income.
A "perfect storm" in the U.S.
What happened in 2007 was a “perfect storm”. U.S. mortgage rates had been creeping up and were reaching levels that slowed demand for houses. House prices stopped rising as quickly and eventually began to fall. The teaser rate on Option ARMs began to reset in large numbers leaving many borrowers unable to afford the new payments. With house values on the decline, many borrowers discovered they owed more than their house was now worth. Their only option was to default, which happened on a massive scale.
The effect on the U.S. economy has been dramatic. The housing market is already in recession and the news will get even worse over the next few months. According to CIBC World Markets, by mid-2008 the likelihood is for home sales to decline by 40%, housing starts to drop by 55%, and house prices to fall by 12-13%, from their peak. Forecasters still expect the U.S. economy to avoid recession, but it will come very close in the next few months.
In Canada, the story is different.
In Canada, our Bank Act requires lenders to be more conservative than in the U.S. The percentage of subprime mortgages in Canada is substantially less. And, according to CIBC World Markets, the percentage of Canadian mortgages in arrears is still near record lows–in stark contrast to the U.S. where delinquency and foreclosure rates have risen notably in recent months.
The bottom line is, unlike the U.S., the Canadian housing market has not been artificially driven by poor lending practices. Our long-term fundamentals are solid. We have a growing population, energy and commodities are in high demand, personal incomes are increasing, job creation is strong, and consumer confidence remains high.
Of course, if the U.S. does go into recession, Canada will feel the pain too. This concern has kept the Bank of Canada from raising interest rates, which creates yet another benefit for Canadian homeowners. Not only do we still enjoy access to readily available mortgage funds with no major default problems—but due to the U.S. subprime crisis, our mortgage rates should remain low for the foreseeable future.
If you have any questions about the mortgage situation in Canada or about your own mortgage, please don’t hesitate to contact me. I’d be happy to sit down with you, provide any answers you’re looking for, and offer professional objective advice.
Monday, January 14, 2008
Tips for paying off your mortgage fasterTip
#1 Seek the advice of a financial advisor who works for a set fee. Finding an independent financial advisor who works on a set fee, to work with you on your specific financial goals, is the best way to ensure that you get the best and the most unbiased financial advice. Rather than talking to someone at your bank or lending institution, who makes money based on their recommendations to you, work with an independent advisor who has nothing to gain from your decisions that you make.
Tip #2 Opt for a closed term mortgage rather than an open one unless you will be paying it off in full during the term. An open mortgage at a fixed rate of interest will carry a higher interest rate than a closed term mortgage will. Unless you need to pay off your mortgage during the term, it is always advisable to go with the closed term and know that you can always pay off the mortgage when you are looking at renewing without penalty. And, while you are in the term you can generally pay up to 10-20% of the mortgage without a prepayment penalty.
Tip #2 Opt for a closed term mortgage rather than an open one unless you will be paying it off in full during the term. An open mortgage at a fixed rate of interest will carry a higher interest rate than a closed term mortgage will. Unless you need to pay off your mortgage during the term, it is always advisable to go with the closed term and know that you can always pay off the mortgage when you are looking at renewing without penalty. And, while you are in the term you can generally pay up to 10-20% of the mortgage without a prepayment penalty.
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