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Location, Location, Location

2010-04-20 | 11:41:30

Location, location, location crucial to first-time home buyers: Survey

CALGARY - In residential real estate, there's an old saying about how location is an important factor in any purchase - besides the price of course.

A BMO Bank of Montreal survey, released today, says that among current and future first-time home owners, location is the main reason they would consider offering more than the asking price for a home.

The survey found that:

• 70 per cent of current home owners would consider offering more for a home based on its location

• 63 per cent of future first-time home owners would consider offering more for a home based on its location.

• Future first-time home owners who are men are more likely (70 per cent) than their female counterparts (57 per cent) to consider offering more for a home based on its location.

“Especially in today’s heated market, it’s easy to get caught up in the emotions of a home purchase,” said Jane Yuen, Senior Manager of Mortgages, BMO Bank of Montreal. “It’s hard to walk away from a home you believe is ‘the one’ but homebuyers need to avoid getting caught in a bidding war that pushes their mortgage payments outside their comfort zone. In short, you need to know your limit and stay within it.”

Among future first time home owners the study found some notable gender differences:

• Men are more likely than women to agree that talk of rising interest rates has influenced their decision to enter the housing market (39 per cent vs. 26 per cent).

• Twice the number of men compared to women report that they have been caught up in a bidding war (16 per cent vs. eight per cent)

• Females are more likely than their male counterparts to say they are being overwhelmed by the choices/decisions involved in the home buying process (44 per cent vs. 28 per cent)

The Harris/Decima online poll was conducted from February 16-22 2010 and is based on a sample of 1,000 Canadians between the ages of 25-45 years, who are either current home owners (who currently have a mortgage on their home and needed one when they purchased their home) or are planning on purchasing their first home in the next 12 months, and at least share in their household’s financial decisions.

mtoneguzzi@theherald.canwest.com

Active Spring Home Buying Market

2010-03-24 | 15:04:19

Canada’s housing boom will continue this spring as exceptionally low mortgage rates – and the expectation that borrowing costs will soon be headed higher – add a sense of urgency to consumer buying.
 
A Scotiabank global real estate trends report released yesterday predicts most Canadian regions will remain sellers’ markets for the first half of the year, as strong demand and rising prices continue.
 
“I think you’re going to have a very active spring market, probably some cooling off in the second half of the year,” Adrienne Warren, the Scotiabank economist who wrote the report said in a presentation yesterday.
 
“We’re looking at once in a lifetime interest rates that people are taking advantage of... but certainly confidence is coming back, the job markets are stabilizing,” she said.

Majority of Canadians View Buying a Home a Good Investment

2010-03-09 | 11:23:31

"With the Canadian housing market showing continued vigour, it's not surprising that Canadians feel more confident in the long-term value of owning a home," said Robert Hogue, senior economist, RBC. "Exceptionally low mortgage rates and improved affordability have been key reasons for the resurgence in the housing market this past year."

Most Canadians who intend to buy a new home in the next two years are planning to take a fixed rate mortgage (44 per cent). However, combination mortgages had the highest increase in popularity this year, with 40 per cent intending to take both a variable and fixed rate component, up from 32 per cent last year.

For Canadians planning to take a fixed rate or combination mortgage, seven-in-10 intend to take a term of five years or longer. Sixteen per cent said they intend to take a variable rate mortgage, down from 20 per cent in 2009.

"Canadians seem to be opting for more caution this year and may be factoring in potential rate increases down the road," said Marcia Moffat, RBC's head of home equity financing. "Choosing a combination mortgage can take some of the guesswork out of making a decision between whether it is better to lock in to a longer-term or stay in a variable rate."

In the wake of the recent housing rebound, most Canadians (six-in-10) also believe housing prices will rise in 2010, up significantly from 25 per cent in 2009. Similarly, a majority (64 per cent) believe mortgage rates will be higher over the next year, also up from 33 per cent a year ago.

"The expectation of higher mortgage rates on the horizon could be motivating buying intentions this year. But it's important that homeowners - especially first time buyers - get solid advice about what they can afford, not only today, but down the road," added Moffat.

In addition to seeking customized advice from a financial advisor, Moffat provides the following tips:

For homebuyers:

1. Lock in your rate when you apply for your mortgage.

Depending on your situation, there are rate guarantees that allow you to lock in your mortgage rate for up to 120 days.

2. "Stress test" your mortgage for rate increases.

If you are concerned about affordability down the road, knowing what your payments would be with a one - three per cent rate increase will give you greater peace of mind that your new home is affordable both today and in a few years time, when rates might be higher.

3. For first time homebuyers, leave some wiggle room.

With a pre-approved mortgage you will know what you can afford today. But before making a decision to find a home at the top of your pre-approval amount, also consider your current lifestyle preferences and how future changes in your circumstances could impact your payment comfort zone.

For homeowners renewing their mortgage:

1. Take advantage of early renewal options.

Some mortgages allow you to renew up to 120 days before the end of your term. This means you can lock in your new mortgage rate early.

2. Consider a combination (hybrid) mortgage to manage your interest costs.

If you are unsure of where rates are headed, consider splitting your mortgage into part fixed and part variable. You will have rate protection on the fixed rate mortgage portion, while you benefit from today's low interest rates on the variable rate mortgage portion. Transmitted by CNW Group

Regular Reviews of Your Mortgage a Good Idea!

2010-03-08 | 14:42:35

Regular reviews of your mortgage ensures your loan is still right for your financial situation

by Malcolm Morrison, THE CANADIAN PRESS
TORONTO - Buying a home is probably the most expensive purchase you will ever make and if you're like the vast majority of Canadians, you used a lot of borrowed money to experience the joys of home ownership.

Because you have to pay interest on a loan over years and decades, that means you will end up paying a lot more money for your house or condo than what you paid the seller.

You have to take advantage of every break to reduce your mortgage balance and the amount of time it will take to pay off your home. And that means it's a good idea to take a good hard look at that loan at least once a year.

"There's a lot of things that people don't actually think about," said Jim Rawson, regional manager for mortgage broker Invis in Toronto. For starters, he thinks it is a good idea to keep a mortgage table handy just to remind you how much you're actually paying for that house.

"And you should take a look at it every year and take a look at where you are on it and how much you paid down," he said.

One of the most obvious things you can do - and will shave years off your mortgage term - is make sure you are not paying in monthly installments."You can switch to weekly or bi-weekly and generally most institutions will allow you to do that." Doing so amounts to an extra monthly payment every year. Also, most mortgages are built with an annual pre-payment feature.

"And if you can make a portion of that, any portion of it, you're obviously going to be saving some interest," said Rawson.

Many institutions will allow you to pre-pay at least 15 per cent of your principal balance every year. (MERIX allows 20%)

You may not be able to come up with a huge amount of money every year. But even nibbling away at the balance can carve years off the payment term.

"Ten dollars (a week) is not going to make a huge difference (to you) - but $10 a payment can make a difference," said Rawson.

"And you know a lot of people are getting raises every year, or every couple of years and if they were to apply even a portion of their raise to their mortgage, they would be saving a lot of money over the course of their mortgage."

You may also be thinking of embarking on a major renovation for your kitchen or bathroom or slapping on a new roof.

Many would go the home equity loan route but instead, you could just add the cost to your mortgage for a lower interest rate.

"Absolutely, if you have enough equity built in to your home right now and you're looking at a major renovation, certainly refinancing and adding, increasing your mortgage amount can certainly be a very cost-effective way of borrowing for that renovation," said Charles Lambert, Managing Director, Mortgages, at Bank of Nova Scotia.

"You look at it in terms of relative size of the renovation that you want to do - I'm not sure you want to (do this) if you're repainting your house or something like that."

Instead, he said, a line of credit could be the appropriate way to do a smaller project. And here again, you can use your home as security for a line of credit.

"You can borrow up to 80 per cent of the value of your home," said Lambert.

Secured lines of credit generally charge a point or two above the prime rate.

You could also think about consolidating debt like a credit card balance to a lower rate by tacking it onto your mortgage. But don't use it as an excuse to rack up more debt.

"One of the key things that I always advise clients about is if they're going to pay off credit cards by refinancing your mortgage, you better be cutting up those credit cards," said Rawson.

"It doesn't mean you can spend some more money because that's not going to help at all."

Finally, mortgage interest rates are at extremely low levels now - but they won't stay that way and economists expect the Bank of Canada to start hiking rates later this year.

So for peace of mind, homeowners on a variable rate might want to opt for something fixed right about now.

"If you're looking for long-term stability, then you're probably taking a look at trying to do something fixed for five years or so," said Rawson.

But, historically, rates fluctuate and at some time in the future, you may find that it makes sense to break your mortgage so you can take advantage of a lower rate, despite a high penalty.

For example, Scotiabank would charge you the greater of three months' interest on the mortgage balance or the interest rate differential.

"Sit down with a mortgage pro, they can work out for you whether it makes sense or not," added Rawson, adding if you can save yourself two percentage points over the next five years, you're way ahead.

Changes to Mortgage Qualifying

2010-02-18 | 13:50:33

Many Canadians will be forced to scale down their real estate ambitions under new mortgage rules that aim to both keep people from taking on too much debt and rein in speculators, all without knee-capping an industry that has been a major driver of the recovery.
 
The tighter standards come after months of debate about whether a bubble is forming in the housing market, and repeated urging by policymakers for borrowers and lenders to be prepared for higher interest rates.
 
The changes, announced yesterday by Finance Minister Jim Flaherty, are designed to keep Canadian consumers from becoming perilously overstretched, and deter speculators from buying houses solely as investments. Observers and industry players said the steps aren’t likely to smother the broad strength in the housing market, where eager buyers often armed with hefty mortgages have bid up prices sharply over much of the past year. The Finance Minister said he was unveiling the measures now, before the need for them becomes more urgent.
 
“There are no definitive signs of a housing bubble,” Flaherty told reporters in Ottawa. Nonetheless, “we’re being proactive,” he said, to “help prevent negative trends from developing.”
 
Starting April 19th, all new borrowers will have to meet standards for five-year, fixed-rate mortgages even if they’re seeking a shorter, variable-rate loan. Also, the government is lowering the maximum amount Canadians can withdraw when refinancing to 90% of the value of their homes, from the current 95%, and requiring a 20% down payment down payment for government-backed mortgage insurance on “speculative” investment properties.
 

 

The security of fixed-rate or the cost savings of adjustable-rate — which mortgage is better for you?

2009-12-14 | 15:33:53

All mortgages are not created equal. In addition to principal amount, interest rate, amortization period, prepayment options and whether the mortgage is “open” or “closed,” the remaining major characteristic is whether the interest rate is fixed or adjustable.

Both fixed and adjustable-rate mortgages have consistent monthly payments that blend interest costs and principal repayment. They differ in how the payment is applied between interest and principal. 

On a fixed-rate mortgage, the proportion of the payment applied to interest and principal changes over time according to a standard schedule. In the early years of a mortgage, more of each payment is applied to interest, and less to the principal. In later years, less is applied to interest and more to reducing the principal.

With a adjustable-rate mortgage, the amounts applied to interest and principal vary [from the standard schedule] as the interest rate moves up or down. As rates increase, more of the payment is applied to interest and less goes to principal. When interest rates go down, less is applied to interest costs and more to principal.

Which is right for you depends on your risk tolerance. If an increase of 0.25 per cent in the interest rate would concern you, or substantially affect your budget, then a fixed-rate mortgage may be a better choice. However, today, the security of a fixed rate comes at a slightly higher price.

Research suggests adjustable-rate mortgages benefit consumers. From 1950 – 2000, Milevsky found that homeowners with a $100,000 mortgage (15 year amortization) would have saved approximately $22,000 in interest costs by borrowing at the prime rate instead of the five-year rate. Further, he found that choosing the adjustable rate benefited the homeowner during 88 per cent of the period studied.

To find out more about fixed versus adjustable mortgages or to see what solution best suits your needs, contact me today!