Victoria Market Watch

Qualifications Tightened. Rates Stable

January 17th, 2011.

The Federal government has made some changes to mortgage qualification which will go into effect in March.  Important to note that for now, rates stay the same.

Finance Minister Jim Flaherty cracked down on Canadians' ability to qualify for a mortgage, in the government's latest attempt to rein in consumer debt.

Flaherty announced Monday the government is reducing the maximum amortization period for government-backed mortgages to 30 years from 35 years. The change will affect mortgages with loan-to-value ratios over 80 per cent.

Canadians will only be able to borrow up to 85 per cent of the value of their homes, down from 90 per cent.

Flaherty said the changes are designed to prevent the kind of housing bubbles that developed in other countries, most notably in the United States, where the collapse of the subprime mortgage market triggered the global financial crisis.

While this may seem like a negative, my feeling is that long term this is actually good news.  No one wants a scenario developing in Canada like we saw south of the border in 2008.  Aiming for a 25 year amortization should be the goal in any case, not 35 years !

Tighter federal mortgage rules may squeeze some potential homebuyers out of the market but are not expected to drastically affect prices, say Greater Victoria real estate officials.

Victoria Real Estate president Dennis Fimrite said Monday he does not think the changes will have a huge impact. "We are always disappointed when it makes it tougher, especially for first-time home- buyers, to purchase a home. But the changes that they've made aren't dramatic," said Fimrite.

He expects prices to be similar to last year's.

Meeting Your Mortgage Broker

Client asks:  When someone makes an appointment with a Mortgage Broker to discuss their mortgage qualification status, in order to make the meeting as fruitful as possible, what kinds of information would they be advised to bring with them?

 Joshua: I am glad you asked this question as this kind of forward thinking will create a stress free process on the back end. The documentation that is most important at the pre-approval/rate hold stage is as follows:

 

 - most recent two years of Notice of Assessments (NOA's)
- most recent two years of T1 generals (if self-employed)
- most recent pay stub
- SIN#
- A good idea of the down payment amount and where it is located i.e. RRSP's, stocks,      bonds, mutual funds, cash in the bank, equity taken from an owned property, gift money or other.

The rest of the application consists of information that most will have off the top of their heads, such as 3 years of living/employment history and any fine details that are forgotten can be worked out over the phone quickly after your client has left my office.

If your clients are looking at refinancing an owned property to extract equity for the down payment they may need to pay their penalty and possibly move their mortgage to another financial company. In a lot of cases clients could kill two birds with one stone. By restructuring debt and having enough of a reduction in interest rate, clients could save thousands of dollars on their current mortgage by the end of the term they are currently in. If this scenario is the case your clients should also bring in:

- most resent mortgage statement showing the mortgage balance, payment, interest rate and the maturity date of their term
- they should also phone their financial institute to see what their penalty payout is.

I will calculate where clients stand at the end of their term and show them whether or not they will save money or spend more money by restructuring their debt. It will then be the client’s decision how they would like to proceed. In some cases it is in their best interest to go back and negotiate with their current lender. I will advise accordingly and send them into the meeting with some tips on how they can squeeze the most out of their lender.

Hopefully this help....

Have a wonderful day!

Sincerely,

Joshua Ward

Mortgage Depot
Cell: (250) 886-7172
[email protected]

Are You Pre-qualified or Pre-approved

Are You Pre-qualified or Pre-approved?

Bill:  There is some confusion out there about the difference between the terms Pre-qualified and Pre-approved.  Can you help to differentiate between the two?

 Josh:  Both these terms are now used to describe the action of seeking a mortgage approval before actually negotiating a property purchase. Unfortunately, in most cases, the borrower is not really fully approved for the mortgage and the lender does little or nothing to actually qualify the borrower.

 What really happens is that the typical lender now provides an interest rate guarantee for a period of time, usually to a maximum of 120 days. The borrower is advised that they are pre-approved and can begin shopping for a home.

 At the pre-approval stage, many lenders typically do not review credit or even determine if the client meets their guidelines for income and down payment.  Lenders begin the actual qualification process when the file goes 'live' (meaning the Borrower now has an accepted Contract of Purchase). At this point the lender will begin a serious examination of the borrower's qualifications and may refuse to proceed with the pre-approved mortgage for a wide variety of reasons. Because of this, it is very important for purchasers to keep their offer to purchase “subject to mortgage approval” or “subject to financing.” 

 If rates have risen since the original pre-approval and the lender now declines the mortgage, the client may no longer be able to get as good a rate elsewhere. Borrowers can reduce the chance of disappointment and get full approval faster by working with a thorough broker early in the process.  Such a broker will recognize potential concerns and address them directly with lenders at the time the pre-approval is requested. It may even be prudent to gather employment and income documentation at this stage, particularly for individuals who are self-employed or have had changes or inconsistencies in income or employment. Gathering documents early also helps reduce stress and waiting time after that hard search for the right property at the right price!

 An experienced professional and will assist in reviewing and advising you in the process. You will be doing yourself a favour by reviewing your situation thoroughly before you write that offer!

 Joshua Ward, Mortgage Depot, 250-886-7172

 

Mortgages: Best Rates? Best Terms?

Whether this is your first foray into the Real Estate Market or you are looking at your options down the road, questions inevitably come up regarding Mortgages and what rates and terms are best.  Everyone can benefit from the best rate, but when it comes to terms, knowledge is everything.

Question:

How can I get the lowest interest rate on my mortgage?

Answer:

You can do this by comparing the rates on mortgages that are available through banks, trust companies, credit unions, caisses populaires, mortgage loan companies, mortgage brokers and government lending institutions. Ask about the terms and conditions, and compare similar types of mortgages to find the mortgage that suits you best. Also, don't be afraid to ask for a lower rate than the one that is quoted on the mortgage, since the rates that are "posted" are only guidelines and not necessarily the actual rate you will pay. A simple question could save you thousands of dollars.

It's also a good idea to shop around for quotes from different mortgage brokers and institutions to ensure you are getting the best deal. Before signing a service agreement with a broker, make sure you understand your responsibilities and the commitments you are making.

Question:

Can my financial institution refuse to provide me with a copy of my mortgage appraisal, even though I've paid for it?

Answer:

Yes. The financial institution can refuse to provide you with a copy of your mortgage appraisal. The financial institution obtains the appraisal report for the purposes of underwriting the mortgage. It is meant for its own internal use.

Question:

I've heard that some financial institutions are now offering 30- and 35-year mortgages. What are these and how do they work?

Answer:

These types of mortgages — 30- and 35-year mortgages — refer to the amortization period, which is the length of time you have agreed to repay your mortgage. Longer amortization periods are fairly new in Canada. Until 2006, the longest amortization period offered by financial institutions was 25 years.

Since your mortgage payments might be lower with 30- and 35-year mortgages, this could make it possible for you to purchase a home sooner. However, because of the long amortization period for these types of mortgages, you will end up paying a lot more interest over the lifetime of the mortgage.

The following table illustrates how much interest you would pay, if you were making monthly payments on a mortgage of $150,000, with a fixed annual interest rate of 6.45 per cent.

Amount of the mortgage	Amortization	Monthly payments	Total amount of interest paid
$150,000	20 years	$1,106	$115,553
$150,000	25 years	$1,000	$150,058
$150,000	30 years	$935	$186,537
$150,000	35 years	$895	$224,793

Before choosing a longer amortization period, you should determine whether or not your income will remain constant in the coming years and if you will be able to continue with the same payments in 30 or 35 years. You will also need to decide whether or not — over the lifetime of your mortgage — you are willing to pay a lot more interest than you would have had to pay with a shorter amortization period.

If you decide to take a mortgage with a long amortization period, there are some things you can do to reduce the amount of interest you will pay, and to shorten the length of time required to repay the mortgage. Every time you renew your mortgage, you should consider increasing your payments and shortening the amortization period. Rather than making monthly or semi-monthly mortgage payments, another option is to make accelerated biweekly payments. This means that you would make a payment that is equal to half of your monthly payment every two weeks.

The following table shows how much time and money you could save by making accelerated biweekly payments rather than monthly payments, on a mortgage of $150,000, with a fixed annual interest rate of 6.45 per cent and a 35-year amortization period.

information provided by Financial Consumer Agency of Canada

Should I Rent or Should I Buy ? ?

SHOULD I RENT OR OWN A HOME ANALYSIS?

Somewhat surprisingly, people often ask this question.  As a Real Estate Consultant the question seems somewhat rhetorical, but people need to decide for themselves.  Here is a analysis table comparing renting versus renting.

 This example cites a $299,000 condo with 25% down payment 3 year term at 2.99 % mortgage interest rate.

Monthly Rent: $			No. of Years you plan on keeping the home:
Annual Rental Increases:	%		Yearly Appreciation on the Home:  %
Monthly Renter Insurance:	$		Annual Home Maintenance: %
Savings or Investment Rate:	%

 

Your Results

Your customized Rent versus Owning analysis is based upon: An initial monthly rental payment of $1,000.00. We assume that your rent will increase by 2.5% per year. You are considering buying a home valued at $299,000.00, with a down payment of 25.08% or $75,000.00. Your monthly mortgage payment of $930.27 includes both principal and interest and is based upon a loan amount at an interest rate of 2.9%. (current 3 year term )

Summary:  By buying your home versus renting you will have saved $93,040.76 over the next 5 years.  (Net Appreciation - Total Investment Return + Total Rental Payment - Total Mortgage Payment)

Breakdown of this Analysis: Total Rental Payment: $64,875.94   Total Mortgage Payment: $67,776.40 Down Payment: $75,000.00   Home Value: $381,608.19 Interest Earned: $11,945.55   Remaining Loan Balance: $198,721.41 Total Investment Return: $86,945.56   Net Appreciation: $182,886.78

$93,000 is a lot of money for anyone to lose out on.

You can play around with various scenarios using the link below:

http://www.ic.gc.ca/eic/site/oca-bc.nsf/eng/ca01821.html

Overview of the Canadian Market

The Canadian Real Estate market has been pedestrian in the last quarter of 2010.  There appears to be a sense of fear, perhaps because of what has taken place in the U.S., about the future.  This despite near historical lows in interest rates.  The following article offers a perspective:

http://money.cnn.com/2010/11/12/real_estate/canada_housing_bust.fortune/index.htm?section=money_realestate&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+rss%2Fmoney_realestate+%28Real+Estate%29