Tuesday, January 17, 2012
Bank of Canada holds firm on Prime lending rate
The Bank of Canada held firm on the prime lending rate this morning at 1%. This should result in the major retail banks holding at 3.00%. In it's statement this morning, the bank sighted further weakness in the European economies with further down side risk going forward. While the US seems to be experiencing an economic up tick, the bank expects this to be muted through 2012 and picking up some steam toward the end of 2013. Also China's growth has started to moderate to a slower pace. These factors as well as less than previously expected growth outlook in our domestic economy for 2012 are sighted as reasons for the rate hold. This of course is good news for variable rate borrowers who managed to take advantage of the ultra low rates offered in the first half of 2011.
2.99%..So what's all the fuss about?
I came home from vacation this weekend to discover that last Friday one
of the big five banks announced (through the media..tricky tricky..) a
historic 5 year fixed rate of 2.99% (what the heck??) in an attempt to
shore up their market share. The rest of the lending industry
is working with an average 3.29% which was, and in fact still is the
lowest rate ever historically offered when comparing apples to apples.
The move to announce through the media made a huge splash and the media
bit. Every news outlet from here to Timbuktu had it as "breaking news"
and front page fodder. As you would expect this is creating allot of
fuss.
The question is, what's all the fuss about? The devil is in the details. The two mortgage products are simply not the same. My understanding is that these "deeply discounted" products are extremely restrictive, available for a very short time, eliminate the borrower's ability to get out of the mortgage for the full 5 years, force a 25 year amortization, drastically reduce pre payment privileges, eliminate double up or miss a payment options, all limiting increased equity, allow refinances only with the incumbent lender and last but not least, eliminate the borrower's bargaining power to negotiate at refinance or renewal time. These are basically the stripped down economy car of mortgage offerings with a catch... The car can only be serviced at the dealer. And when it comes time to sell, it can only be sold back to the dealer at a price they dictate. Am I saying this is all bad? Well no, I guess. If one likes to drive the most basic of cars with hands shackled to the wheel while hurtling toward a cliff with no way to avoid the inevitable plunge...then I guess it's great.
I for one am not advising borrowers to move to this type of loan for a mere 3 tenths of 1%, regardless of lender. In my opinion, flexibility is power. The power to manage debt is far greater than the power of a low rate with heavy restrictions. Savvy borrowers work toward debt reduction actively managing their mortgages by taking advantage of the perks and flexibility offered through sound mortgage structure not restrictive discounting. The bottom line is that actively managing a mortgage with plentiful pre payment opportunities and refinances calculated with discounted rates rather than posted rates can drive the cost of borrowing way down while also increasing the borrower's equity in the property.
The bottom line is, when an already deeply discounted item is put on sale.... check the code date cause it could get smelly very quickly..
That's my two cents..
Have a great day all!!
The question is, what's all the fuss about? The devil is in the details. The two mortgage products are simply not the same. My understanding is that these "deeply discounted" products are extremely restrictive, available for a very short time, eliminate the borrower's ability to get out of the mortgage for the full 5 years, force a 25 year amortization, drastically reduce pre payment privileges, eliminate double up or miss a payment options, all limiting increased equity, allow refinances only with the incumbent lender and last but not least, eliminate the borrower's bargaining power to negotiate at refinance or renewal time. These are basically the stripped down economy car of mortgage offerings with a catch... The car can only be serviced at the dealer. And when it comes time to sell, it can only be sold back to the dealer at a price they dictate. Am I saying this is all bad? Well no, I guess. If one likes to drive the most basic of cars with hands shackled to the wheel while hurtling toward a cliff with no way to avoid the inevitable plunge...then I guess it's great.
I for one am not advising borrowers to move to this type of loan for a mere 3 tenths of 1%, regardless of lender. In my opinion, flexibility is power. The power to manage debt is far greater than the power of a low rate with heavy restrictions. Savvy borrowers work toward debt reduction actively managing their mortgages by taking advantage of the perks and flexibility offered through sound mortgage structure not restrictive discounting. The bottom line is that actively managing a mortgage with plentiful pre payment opportunities and refinances calculated with discounted rates rather than posted rates can drive the cost of borrowing way down while also increasing the borrower's equity in the property.
The bottom line is, when an already deeply discounted item is put on sale.... check the code date cause it could get smelly very quickly..
That's my two cents..
Have a great day all!!
Thursday, December 15, 2011
Feds Misguided in tightening mortgage rules
It's the old story, too much dept, blame mortgages..
This is a subject that drive's me nuts.. Why does government routinely blame low interest, low risk, secured mortgage dept for the ills of Canadian consumer borrowing? With a national mortgage default rate of .047% what on earth are they thinking? Have they seen whats happening south of the border? Mortgage default rates are in outer space.. Are we seeing Canadians overwhelmingly using homes as cash machines? No.. Are we seeing a trend toward paying off mortgage debt faster? Yes. Are we seeing Canadians using common sense and re financing high interest credit card debt into low interest secured mortgage debt? Certainly not lately.. There in lies the rub. Instead of leaving our already conservative mortgage regulations alone and clamping down on easy access, high interest credit cards, the feds have made it near impossible for the average home owner to re organize their debt by strangling the mortgage option. It's almost perverse..
TransUnion's quarterly analysis of Canadian credit trends has confirmed that we are listening...
After 26 straight quarters of increases in average consumer debt, we have just experienced 3 straight quarters of consumer debt reduction. Third quarter results show average consumer debt (excluding mortgages) of $25,594. However, year over year we are still up by 1.71% from $25,163 in Q3 2010. That said, Canadians are actively working toward consumer debt reduction (with no help from the feds). This is a good thing, no question.
Canadian banks are seriously exposed..
A report from Moody’s is vindicating brokers by pointing out unsecured debt – and not secured mortgages – poses the real threat to RBC and other Canadian banks.
"It's an uncertain world that we're living in,” said author David Beattie, VP and senior analyst at Moody's Investor Services in Toronto. “The macro environment is unclear as to what negative shocks may occur, and the banks that have positioned themselves a bit more aggressively against an increasingly leveraged Canadian consumer could run into problems in the event that we have some adverse economic developments."
To be perfectly clear: that possible bump in the road is unsecured debt, says the report. RBC, Scotia and CIBC are exposed to unsecured credit card debt at 24, 21 and 20 percent respectively.
Those levels are coming dangerously close to the 30 per cent of total managed assets Moody’s says would negatively impact their credit ratings.
It's a truly mixed message..
Canadians are bombarded with messages that we are too far in debt.. And others telling us we need to spend to shore up the economy.. Mortgages at 3.5% are bad but credit cards at 6% to19% are good? Wait, no, pay them off...hang on..no spend! While our financial leaders are considered near gods everywhere on the planet, they have missed the boat with regards to domestic debt regulations. At least this time around. Helping Canadians manage through our current debt situation by making low risk, low cost, secured credit available to absorb the high cost unsecured consumer debt should be the focus. I'm not suggesting that we all run to our Mortgage Pros and refinance our way to credit card freedom. I am however suggesting that regulations that look a little more like a conditioned refinance program aimed at reducing our exposure to high interest debt as well as reducing our bank's exposure to unsecured debt would have been more effective for both lenders and borrowers..
What's the moral of the story?
Without the correct tools, there is no fix. It's time we spent more energy developing the tools rather than telling the mechanic to "just figure it out, and do it now"
This is a subject that drive's me nuts.. Why does government routinely blame low interest, low risk, secured mortgage dept for the ills of Canadian consumer borrowing? With a national mortgage default rate of .047% what on earth are they thinking? Have they seen whats happening south of the border? Mortgage default rates are in outer space.. Are we seeing Canadians overwhelmingly using homes as cash machines? No.. Are we seeing a trend toward paying off mortgage debt faster? Yes. Are we seeing Canadians using common sense and re financing high interest credit card debt into low interest secured mortgage debt? Certainly not lately.. There in lies the rub. Instead of leaving our already conservative mortgage regulations alone and clamping down on easy access, high interest credit cards, the feds have made it near impossible for the average home owner to re organize their debt by strangling the mortgage option. It's almost perverse..
TransUnion's quarterly analysis of Canadian credit trends has confirmed that we are listening...
After 26 straight quarters of increases in average consumer debt, we have just experienced 3 straight quarters of consumer debt reduction. Third quarter results show average consumer debt (excluding mortgages) of $25,594. However, year over year we are still up by 1.71% from $25,163 in Q3 2010. That said, Canadians are actively working toward consumer debt reduction (with no help from the feds). This is a good thing, no question.
Canadian banks are seriously exposed..
A report from Moody’s is vindicating brokers by pointing out unsecured debt – and not secured mortgages – poses the real threat to RBC and other Canadian banks.
"It's an uncertain world that we're living in,” said author David Beattie, VP and senior analyst at Moody's Investor Services in Toronto. “The macro environment is unclear as to what negative shocks may occur, and the banks that have positioned themselves a bit more aggressively against an increasingly leveraged Canadian consumer could run into problems in the event that we have some adverse economic developments."
To be perfectly clear: that possible bump in the road is unsecured debt, says the report. RBC, Scotia and CIBC are exposed to unsecured credit card debt at 24, 21 and 20 percent respectively.
Those levels are coming dangerously close to the 30 per cent of total managed assets Moody’s says would negatively impact their credit ratings.
It's a truly mixed message..
Canadians are bombarded with messages that we are too far in debt.. And others telling us we need to spend to shore up the economy.. Mortgages at 3.5% are bad but credit cards at 6% to19% are good? Wait, no, pay them off...hang on..no spend! While our financial leaders are considered near gods everywhere on the planet, they have missed the boat with regards to domestic debt regulations. At least this time around. Helping Canadians manage through our current debt situation by making low risk, low cost, secured credit available to absorb the high cost unsecured consumer debt should be the focus. I'm not suggesting that we all run to our Mortgage Pros and refinance our way to credit card freedom. I am however suggesting that regulations that look a little more like a conditioned refinance program aimed at reducing our exposure to high interest debt as well as reducing our bank's exposure to unsecured debt would have been more effective for both lenders and borrowers..
What's the moral of the story?
Without the correct tools, there is no fix. It's time we spent more energy developing the tools rather than telling the mechanic to "just figure it out, and do it now"
Wednesday, December 7, 2011
Mortgage Default Insurance. A quick lesson..
Mortgage Default Insurance
What is mortgage default insurance?
Mortgage default insurance is an insurance policy that covers the mortgage lender against a loss caused by non-payment of the mortgage by the borrower.
Who benefits from default insurance?
It is important to understand that the insurance provides protection to the mortgage lending institution only and not to the homeowner. It does not include any payments or benefits not related to mortgage default insurance. It does not protect a borrower or the borrower’s interest in the property and is not the type of insurance that pays the mortgage payment if the borrower cannot pay it or dies.
The mortgage lender does not receive any payments or benefits, including rebates, discounts, fees or commissions from the mortgage insurers. The benefit is for mortgage default instances only.
Why is mortgage default insurance required?
The Government of Canada allows banks to lend up to 80% of the value of the property (loan to value ratio) being mortgaged without requiring the mortgage to be insured by a mortgage default insurer. For this purpose, the value of the property is the lower of the purchase price or the appraised value. This type of mortgage is called a conventional mortgage.
A conventional mortgage requires a down payment of at least 20%. The down payment is that portion of the purchase price the borrowers furnish themselves. Conventional mortgages have the lowest carrying costs because they do not have to be insured against default.
When a borrower does not have a down payment of at least 20%, the mortgage must be insured by a mortgage default insurer. This type of mortgage is called a high ratio insured mortgage.
The Government of Canada requires that lenders obtain mortgage default insurance on high ratio insured mortgages to cover potential default of payment; as a result, their carrying costs are higher than a conventional mortgage because they include the insurance premium.
A bank may also ask for mortgage default insurance when the loan to value ratio is less than 80% and when there are unique risks such as a property in a remote location with limited or poor marketability or in a community supported by a single industry.
All mortgages must meet the bank’s lending qualifications and, high ratio insured mortgages must also meet the underwriting qualifications of the mortgage insurer.
Who provides default insurance?
Mortgage default insurance is provided by insurers such as Canada Mortgage and Housing Corporation (CMHC), Genworth Financial Canada, Canada Guaranty or another approved private insurer.
Each mortgage insurer has its own criteria for evaluating the borrower and the property, and it decides whether or not a mortgage can be insured. The bank, not the borrower, selects the mortgage insurer. It is possible that a mortgage application may be approved by a bank, but the application for insurance may be declined by a mortgage insurer.
Who pays the cost of default insurance?
If you require default insurance, The Your Mortgage Pro and the lender will arrange for the purchase of mortgage default insurance at the time you take out your mortgage. The cost of the insurance is a one-time charge and may be paid at the time of closing or added to your mortgage balance. You will also be charged all applicable government sales taxes, which must be paid up front. The cost covers the life of the mortgage.
How is the cost determined?
The cost of default insurance is calculated by multiplying the amount of funds that are being borrowed by the default insurance premium, which typically varies between 0.5% and 6.0%. Premiums vary depending on the amortization period of your mortgage, the loan to value ratio, the size of your down payment and the product.
Example:
Property value: $250,000
Down payment: 5% or $12,500
Mortgage basic loan amount: $250,000 – $12,500 = $237,500
Amortization: 25 years
Loan-to-value ratio: 95% ($237,500/$250,000)
Premium amount: $237,500 x 2.75%
Default Insurance cost: $6,531.25
Total Mortgage Amount: $244,031.25 *
*If premium amount is added to the basic loan amount
Note: The premium amount may be subject to an additional charge for the additional years of amortization above the traditional 25-year mortgage amortization period.
Note: The cost of default insurance is subject to change if the purchase price or appraised value, the amount of down payment or the amortization changes. The final premium and the cost of your mortgage default insurance will be disclosed in your mortgage commitment/loan document.
Mortgage default insurance is an insurance policy that covers the mortgage lender against a loss caused by non-payment of the mortgage by the borrower.
Who benefits from default insurance?
It is important to understand that the insurance provides protection to the mortgage lending institution only and not to the homeowner. It does not include any payments or benefits not related to mortgage default insurance. It does not protect a borrower or the borrower’s interest in the property and is not the type of insurance that pays the mortgage payment if the borrower cannot pay it or dies.
The mortgage lender does not receive any payments or benefits, including rebates, discounts, fees or commissions from the mortgage insurers. The benefit is for mortgage default instances only.
Why is mortgage default insurance required?
The Government of Canada allows banks to lend up to 80% of the value of the property (loan to value ratio) being mortgaged without requiring the mortgage to be insured by a mortgage default insurer. For this purpose, the value of the property is the lower of the purchase price or the appraised value. This type of mortgage is called a conventional mortgage.
A conventional mortgage requires a down payment of at least 20%. The down payment is that portion of the purchase price the borrowers furnish themselves. Conventional mortgages have the lowest carrying costs because they do not have to be insured against default.
When a borrower does not have a down payment of at least 20%, the mortgage must be insured by a mortgage default insurer. This type of mortgage is called a high ratio insured mortgage.
The Government of Canada requires that lenders obtain mortgage default insurance on high ratio insured mortgages to cover potential default of payment; as a result, their carrying costs are higher than a conventional mortgage because they include the insurance premium.
A bank may also ask for mortgage default insurance when the loan to value ratio is less than 80% and when there are unique risks such as a property in a remote location with limited or poor marketability or in a community supported by a single industry.
All mortgages must meet the bank’s lending qualifications and, high ratio insured mortgages must also meet the underwriting qualifications of the mortgage insurer.
Who provides default insurance?
Mortgage default insurance is provided by insurers such as Canada Mortgage and Housing Corporation (CMHC), Genworth Financial Canada, Canada Guaranty or another approved private insurer.
Each mortgage insurer has its own criteria for evaluating the borrower and the property, and it decides whether or not a mortgage can be insured. The bank, not the borrower, selects the mortgage insurer. It is possible that a mortgage application may be approved by a bank, but the application for insurance may be declined by a mortgage insurer.
Who pays the cost of default insurance?
If you require default insurance, The Your Mortgage Pro and the lender will arrange for the purchase of mortgage default insurance at the time you take out your mortgage. The cost of the insurance is a one-time charge and may be paid at the time of closing or added to your mortgage balance. You will also be charged all applicable government sales taxes, which must be paid up front. The cost covers the life of the mortgage.
How is the cost determined?
The cost of default insurance is calculated by multiplying the amount of funds that are being borrowed by the default insurance premium, which typically varies between 0.5% and 6.0%. Premiums vary depending on the amortization period of your mortgage, the loan to value ratio, the size of your down payment and the product.
Example:
Property value: $250,000
Down payment: 5% or $12,500
Mortgage basic loan amount: $250,000 – $12,500 = $237,500
Amortization: 25 years
Loan-to-value ratio: 95% ($237,500/$250,000)
Premium amount: $237,500 x 2.75%
Default Insurance cost: $6,531.25
Total Mortgage Amount: $244,031.25 *
*If premium amount is added to the basic loan amount
Note: The premium amount may be subject to an additional charge for the additional years of amortization above the traditional 25-year mortgage amortization period.
Note: The cost of default insurance is subject to change if the purchase price or appraised value, the amount of down payment or the amortization changes. The final premium and the cost of your mortgage default insurance will be disclosed in your mortgage commitment/loan document.
Wednesday, November 30, 2011
In The First Time Home Buyer's "Tornado"
I work with allot of First Time Buyers. The one universal theme I experience time after time is what I call the "First Time Buyer Tornado". If you are one of my previous FTB clients we have had this chat, and you are probably having a chuckle right now.
What exactly is the First Time Buyer Tornado? It is the inevitable inward "pull" that every First Time Buyer experiences almost the minute they disclose that they are in the market to buy their first home. Everyone from family, friends, co-workers, the next door neighbour, some guy walking his dog, heck even the cousin they have never met wants to be the one who provides that pearl of wisdom with regards to buying and financing real estate. The Tornado describes the whirlwind of advice coming from all sources, usually inconsistent, which turns the excited First Time Buyer into the stressed out "I want off this ride" individual who can no longer enjoy the process of looking for and securing their first home.
The advice is usually well intended. There is an upside to the Tornado. More often than not, the tornado is made up of very well intentioned folks who only want to help the First Time Buyer through the process. I am a perfect example. I receive far more First Time Buyer referrals from members of a tornado than from any other source. To me, this is a huge compliment as my referral source wants to pass along a positive mortgage experience to their family, friends or co workers. They want to "pay it forward"
Regardless of intentions, receiving constant "advice" can be increasingly frustrating. Where the "Tornado" becomes a problem is when it moves away from referring a professional and becomes a friend who fancies them selves as an authority on the subject and starts dispensing what they see as good advice. Or worse, when multiple "advisers" start speaking to the same subject, usually with no consistency. I cannot count how many times a First Time Buyer has come to me in a state of complete frustration explaining that everyone they know seems to have a different take on mortgage details and available rates and terms. The mortgage industry is very fluid. Regulations change on a regular basis and lending policies/rates can change from day to day. As such there is no way that a lay person can possibly have accurate information to give. At this point the First Time Buyer is the epicentre of the tornado and just needs help calming the winds and charting an accurate course.
What's the answer? In the case of mortgages, the First Time Buyer should always seek sound mortgage advice form an Independent Mortgage Pro such as myself. As a veteran in the business of securing mortgages, I am up to date on all facets of the mortgage process from initial application all the way through to closing. We have access to most of the major banks and many alternative lending sources who compete directly with the banks. Getting accurate information and a pre approval from an Independent Mortgage Pro allows the First Time Buyer to step out of the tornado and concentrate on finding the perfect first home without the worry of securing the right loan for their needs.
So, next time a member of your Tornado gives you advice, remember their intentions are good. Smile and simply say "Thanks, I'll run that past Adrian, MY MORTGAGE PRO!"
What exactly is the First Time Buyer Tornado? It is the inevitable inward "pull" that every First Time Buyer experiences almost the minute they disclose that they are in the market to buy their first home. Everyone from family, friends, co-workers, the next door neighbour, some guy walking his dog, heck even the cousin they have never met wants to be the one who provides that pearl of wisdom with regards to buying and financing real estate. The Tornado describes the whirlwind of advice coming from all sources, usually inconsistent, which turns the excited First Time Buyer into the stressed out "I want off this ride" individual who can no longer enjoy the process of looking for and securing their first home.
The advice is usually well intended. There is an upside to the Tornado. More often than not, the tornado is made up of very well intentioned folks who only want to help the First Time Buyer through the process. I am a perfect example. I receive far more First Time Buyer referrals from members of a tornado than from any other source. To me, this is a huge compliment as my referral source wants to pass along a positive mortgage experience to their family, friends or co workers. They want to "pay it forward"
Regardless of intentions, receiving constant "advice" can be increasingly frustrating. Where the "Tornado" becomes a problem is when it moves away from referring a professional and becomes a friend who fancies them selves as an authority on the subject and starts dispensing what they see as good advice. Or worse, when multiple "advisers" start speaking to the same subject, usually with no consistency. I cannot count how many times a First Time Buyer has come to me in a state of complete frustration explaining that everyone they know seems to have a different take on mortgage details and available rates and terms. The mortgage industry is very fluid. Regulations change on a regular basis and lending policies/rates can change from day to day. As such there is no way that a lay person can possibly have accurate information to give. At this point the First Time Buyer is the epicentre of the tornado and just needs help calming the winds and charting an accurate course.
What's the answer? In the case of mortgages, the First Time Buyer should always seek sound mortgage advice form an Independent Mortgage Pro such as myself. As a veteran in the business of securing mortgages, I am up to date on all facets of the mortgage process from initial application all the way through to closing. We have access to most of the major banks and many alternative lending sources who compete directly with the banks. Getting accurate information and a pre approval from an Independent Mortgage Pro allows the First Time Buyer to step out of the tornado and concentrate on finding the perfect first home without the worry of securing the right loan for their needs.
So, next time a member of your Tornado gives you advice, remember their intentions are good. Smile and simply say "Thanks, I'll run that past Adrian, MY MORTGAGE PRO!"
Thursday, November 24, 2011
Will you retire mortgage free?
Do you want to retire mortgage free? I know I certainly do.. In a recent Canadian poll, 72% of respondents acknowledged that they "hope" to be mortgage free by age 65 but 33% of Canadians polled over age 55 admit that they still have at least 16 years left on their mortgage. What the poll does not reflect is how many of those respondents are taking advantage of or, are even aware of the flexible pre payment options that may be available to them and how they can effectively drive down the outstanding time left on a their mortgage.
Overwhelmingly respondents cited the lowest interest rate as the most important aspect to their mortgage. Interestingly 85% of those described payment flexibility as "desirable". This is a glaring example of how the financial services industry is not educating borrowers about the advantages of payment flexibility over rate. I am not surprised. With over a decade of mortgage origination experience, I find most of my new clients admit that their previous mortgage originator either ignored the subject all together or barely gave it a mention during the disclosure process.
Rate while important should not, within reason, be the driving force behind a mortgage decision. A combination of the right rate and terms however should. A well informed borrower, given the correct tools by their trusted Mortgage Pro, can knock many years off the life of their mortgage. By reducing the amortization (life) of the mortgage with pre payments you are effectively reducing the interest rate, as doing so reduces the over all amount of interest paid on the loan. It's really very simple and yet, most borrowers are left unaware by the institution or individual who sold them the mortgage.
Would it surprise you to know that 2.5 years can be knocked off of a 25 year mortgage just by making your payments every two weeks rather than monthly? how about reducing the amortization by a further 4 years just by increasing your payment by 15% of itself? That's just $7.50 per day based on a $1,500 monthly payment. That's about half of what the average worker spends on lunch at a coffee truck each day! When we reduce it to that simple example it really comes home that paying off a mortgage early is a realistic and achievable goal. The combination shown above results in a reduction of 6.5 years! That's 6.5 years of saved interest which effectively reduces the rate over the life of the mortgage. Now that is powerful. And who holds the power? The borrower, that's who.
What is the moral of the story? Get the facts, do not concentrate solely on rate but rather the whole picture. Lastly, Only deal with an independent Mortgage Pro who has your best interest at heart and is willing to do what it takes to educate you with impartial advice that maximizes your return, not theirs. Don't miss understand me, there are some top notch bankers out there but at the end of the day, they do not represent you, they represent maximizing return for the bank's share holders.
Overwhelmingly respondents cited the lowest interest rate as the most important aspect to their mortgage. Interestingly 85% of those described payment flexibility as "desirable". This is a glaring example of how the financial services industry is not educating borrowers about the advantages of payment flexibility over rate. I am not surprised. With over a decade of mortgage origination experience, I find most of my new clients admit that their previous mortgage originator either ignored the subject all together or barely gave it a mention during the disclosure process.
Rate while important should not, within reason, be the driving force behind a mortgage decision. A combination of the right rate and terms however should. A well informed borrower, given the correct tools by their trusted Mortgage Pro, can knock many years off the life of their mortgage. By reducing the amortization (life) of the mortgage with pre payments you are effectively reducing the interest rate, as doing so reduces the over all amount of interest paid on the loan. It's really very simple and yet, most borrowers are left unaware by the institution or individual who sold them the mortgage.
Would it surprise you to know that 2.5 years can be knocked off of a 25 year mortgage just by making your payments every two weeks rather than monthly? how about reducing the amortization by a further 4 years just by increasing your payment by 15% of itself? That's just $7.50 per day based on a $1,500 monthly payment. That's about half of what the average worker spends on lunch at a coffee truck each day! When we reduce it to that simple example it really comes home that paying off a mortgage early is a realistic and achievable goal. The combination shown above results in a reduction of 6.5 years! That's 6.5 years of saved interest which effectively reduces the rate over the life of the mortgage. Now that is powerful. And who holds the power? The borrower, that's who.
What is the moral of the story? Get the facts, do not concentrate solely on rate but rather the whole picture. Lastly, Only deal with an independent Mortgage Pro who has your best interest at heart and is willing to do what it takes to educate you with impartial advice that maximizes your return, not theirs. Don't miss understand me, there are some top notch bankers out there but at the end of the day, they do not represent you, they represent maximizing return for the bank's share holders.
Thursday, January 27, 2011
Profitable Properties
Buying property is always an investment. As an independent mortgage Pro, I love helping clients get their dream home or property. Sometimes it’s a home they will live in. Other times, it’s a way for them to make money. Given the volatility of the stock market, these days many people are turning to real estate when they have money to invest. Here are some of the more popular types of real estate investments we've been seeing - and some hints on getting the most for your money if you're thinking about investing:
Undeveloped Land
Millionaire Donald Trump is famous for “banking” land – buying and holding it for future sale or development. Few of us have such deep pockets, but buying residential or commercial land that is in newly developed or developing communities can have a nice payoff. You should be prepared to do some work to protect your investment such as following planning decisions that might affect your land and negotiating with prospective buyers.
Rental Buildings
Buying either a commercial or residential rental property, especially one with more than one unit, can be a very profitable investment. In general, commercial tenants tend to be more reliable about paying their rent but you are likely to get a greater return on your money with a residential building.
Condominiums
You can make two to three times more money on a high-rise residence than a landed property. Renting condos are often the choice of businesses looking for a place for their executives or of expatriates because of the services and facilities in these buildings. Of course, one must consider the impact of the maintenance and management fees.
New Residential Developments
Buying into a new development before it is built can be a good investment. These units could be townhouse, semi-detached, bungalows or fully detached houses and, if the construction is good and it finishes on time, they can be resold for a handsome profit. But the old rule still applies: a good location is the most important factor.
Basement Apartments
Building a basement apartment – in a house you just bought or the one you’ve been living in – can be a great investment. There are costs to making a basement apartment legal such as ensuring it has a separate exit and proper ventilation, but with a regular rent cheque coming in you should be able to recoup those costs within a couple of years and then start making a profit. It is, however, a profit you have to declare to the income tax department. On the upside, you get to deduct some the expenses related to the apartment.
Fix and Flip
Buying a fixer-upper is a matter of doing the math up front. Once you have your eye on a property to flip, check out houses in the neighbourhood that match your plans. Find out what they sold for. Then calculate how much the renovations are going to cost – including a healthy line item for unexpected costs. Figure out how much profit you want to make. Take the sale price of the other property, subtract the cost of the renovation and your profit and that’s the most you should spend on a property. If you get one for that price, go for it.
Commercial Properties
Many property investors prefer commercial to residential properties because they are easier to manage. For a commercial tenant, your property is their place of business and it is in their interest to keep it maintained to attract customers. Usually there is also less turnover of tenants, which reduces your work. Unfortunately, it is often a higher initial investment, than a residential property.
Recreational – Cottage or Camp
These vacation spots can be bought as rental properties, something you use but also rent out or for strictly personal use until you sell it. No matter what your planned use, before you buy you should investigate government regulations about building near or on any waterfront. Also check out all the services such as electricity, water, waste and access so you know what you’re getting for your money.
Foreign Properties
We’ve all heard about the great deals available in the United States recently. That may be true, but investing in foreign property is always more risky than buying at home. With the proper precautions, however, it can be worthwhile. If you are buying property in a different country, contact a local law firm that deals with real estate. You will want to visit the property and probably hire a local manager to oversee it for you.
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