Wednesday, January 08, 2020

Reduce your holiday debt

Happy New Year! As we enter this new decade, do you have some spending regret?  You promised to stick to a budget; you promised to scale down and have an old-school, back-to-basics, holiday. But some items were just too hard to resist.

Well, you’re not alone. Holiday spending has been ticking up over the past few years, according to a report from PWC Canada. While the 2019 numbers aren’t out yet, PWC predicted that holiday spending would be up 1.9% to an average of CA$1,593. Why? Canadians’ confidence in the economy and their own personal finances is up. And while a quarter of Canadians planned to spend more than they did in 2018, it’s younger shoppers who are leading the charge, with 42% of Gen Z and 35% of millennials bringing more joy to their world.

Every holiday season, many consumers reach their debt limit. And January is when there is a rise in bankruptcy filings and consumer proposals.

What can you do?

Here are a few tips to help get rid of that extra debt quickly.

Create a budget
Know where you’re at financially and start wherever you are. If you’re unsure of where to start, try a budgeting app. Once you know what you earn and what you spend each month -- it helps to see those numbers written out and itemized -- any monies left over can be used to pay off debt.  See what bills have high-interest rates, and pay those off first.

Change spending habits in the short-term
Put away the credit cards. Pay at least the minimum amount owed to avoid extra fees, but if you can, pay extra to get that debt down faster. Look at your other expenses and see where you can trim.  You can review your grocery budget; cancel subscriptions and/or put memberships on hold.

Find, or negotiate, a lower interest rate
Credit card interest rates can be notoriously high. Sometimes, if your payments have been current, creditors may be willing to reduce the rate if you simply ask. Your card company wants to keep your business, after all, and now is when competitors unleash their most attractive balance-transfer campaigns.

Get a game plan to pay off multiple cards/debts
If you’re still stuck with high-interest cards, list them in order of rates, highest to lowest. A reasonable approach is to attack the highest-interest cards first (making sure you pay the minimum on the other cards) and work your way down.

Consolidate debt
This doesn’t actually reduce debt but it can make monthly payments easier and if the loan has a lower interest rate than a credit card, then you’ll save dollars in the long run.  If you own a home, consider speaking with a mortgage professional for a way to consolidate debt.

Refinance Your Mortgage
Mortgage rates are lower than consolidation loans and the increase can be amortized over the life of the mortgage. If you think refinancing may work for you, contact your mortgage professional and review all your current debts.

Use your holiday bonus
If you got one, consider using it toward paying off debt rather than spending it on a vacation or other luxury purchases. I know, you worked hard to get it, but you’ll be less stressed in the long run.

Life insurance loan  
If you’ve been paying into a life insurance policy that has built up a cash value, check to see how much is available to you. You won’t be cancelling your policy but companies may let you borrow the cash that’s been accumulated.

Don’t despair, there is usually a  solution for everything.


Thursday, December 05, 2019

Some predictions for the 2020 housing market

We have seen many challenges in the housing market over the past few years. Housing prices have been up and down; housing sales were down but have rallied in many areas of the country in the last half of 2019. The government also introduced the First Time Home Buyer Incentive. Yet, affordability continues to be a hot topic across Canada.

Interest rates inched up slightly for variable rates and lines of credit but on Wednesday, Dec 4, the Bank of Canada left the Prime lending rate at 1.75%.  Growth in Canada did slow in the third quarter of 2019, yet consumer spending expanded moderately, supported by stronger wage growth. Housing investment remained strong throughout the year.

We’ve also seen a slight increase to fixed-rates due to the upward pressure on bond yields and increases to the cost of funds. Still, rates are relatively low – perhaps this is the new normal.  
According to a recent report from RE/MAX, an increase in consumer confidence could be a key factor affecting the housing market in 2020. 

The report found that Canadians have adjusted to the mortgage stress test, which was introduced three years ago, and only two-in-ten Canadians say that the mortgage stress test negatively affected their ability to purchase a home in 2019. 

The report also found and that older millennials are now moving into their peak earning years and will drive the market in 2020. RE/MAX found that more than half (51%) of Canadians are considering buying a property in the next five years, especially those under the age of 45. This is up from 36% at the same time last year.

Here’s a cross-Canada snapshot:

British Columbia
Consumer confidence in early 2019 was shaky -- the number of sales declined by 7% cent. However, confidence is returning and most regions are experiencing a balanced market. The prediction is that BC will continue to strengthen through 2021 and become a powerhouse once again.

Alberta’s economy was still sluggish over the year and the unemployment rate is relatively high; however, Calgary is seeing some signs of life as its population grows. According to a national housing market outlook published by the Canada Mortgage and Housing Corp. (CMHC), Calgary is expected to see a return to market growth over the next two years, supported by an increase in the city’s population. This may fuel an increase in housing starts in 2020 and 2021.

In Winnipeg, residential sales were up by 5% over last year. Regina experienced the same increase. Construction starts and house sales are both expected to improve in Saskatchewan in 2020. CMHC predicts that anywhere between 700 to 1,400 new homes will be built in Regina next year and 1,300 to 2,000 new homes built in Saskatoon.

The markets in the Prairies are a mix of buyer's and balanced markets and are expected to stay the course going into 2020.

Toronto and the GTA are poised for a strong housing market in 2020. Most other cities in the province are expected to show strong growth as well, especially Ottawa and Windsor, and it’s predicted sales may rise by about 7%. Overall, it’s a seller’s market.

The Quebec housing market is on fire. The market is getting a boost by low interest rates and a vibrant Quebec economy, which supports wage increases and buying power. The challenge is a shortage of inventory, which may be the reason the market is expected to remain strong into 2021. Single-family homes are outshining other types of properties.

Atlantic Canada
Affordability is making this region is attractive to homebuyers, and they’re buying detached, single-family. The region's growing condominium market is being driven by retirees.  Increased consumer confidence is expected to stabilize the region. Halifax and Saint John have seen solid price growth of 6% and 5%, respectively.  Most markets are balanced.

The  Market Overall
The housing market has turned around slightly in the last half of 2019. A Reuters’ poll found that a strong domestic economy, rising immigration and lower mortgage rates have helped the housing market make a comeback in the second half of this year. "It is not just low interest rates that are helping the housing market – the fundamental support is demographic and that is largely from a rapidly growing population driven by international migration," Sal Guatieri, senior economist at BMO said in an interview with Reuters.

What will 2020 bring?
The Canadian Real Estate Association’s (CREA) prediction for 2020 is that housing sales will continue to improve through 2020, albeit slowly. National home sales are forecast to rise by 7.5% to 518,100 units next year. Ontario and Quebec are predicted to see sales rise by about 7% in 2020, while activity in Alberta will recover by about 5% compared to 2019. The number of homes trading hands in other provinces is predicted to edge up or down only marginally.

With all the positives going into 2020, if you’re thinking of buying a new home, renewing a mortgage or refinancing an existing mortgage, or just want an update about your local market, reach out to your TMG mortgage agent.

Thursday, November 07, 2019

Buying a house doesn’t have to be stressful

Buying a house should be an exciting time but it can get pretty stressful, not only for first time home buyers, but for move-up buyers as well.

The number one worry is finding problems after moving in. The next worry is that prices will drop and the house won’t be worth the original purchase price.

You can reduce some of that stress and worry by putting together a team of experts who will guide you through the entire process. 

It starts with a mortgage professional who will take a look at your finances, including your credit score, to qualify you for a mortgage. A lot of information about you and your credit management abilities come up during this process. For example, derogatory items may be on your report, but that doesn’t necessarily deny your ability to qualify for a mortgage. Everyone’s situation is different and a mortgage agent is familiar with most situations, and can offer options.

Once you know the amount of house you qualify for, you can confidently work with a Realtor to find the right home for you. On average, home buyers spend five months house-hunting and visit 10 locations before deciding to buy. It’s certainly a good idea to take your time to make sure to get the house that’s right for you. 

Interestingly, a 2013 BMO Psychology of House Hunting report found that 33% of home buyers felt rushed into making a purchase – that increased to 39% for first timers. Sixty-eight per cent were prepared to settle for a home that was less than perfect. Four-fifths of prospective buyers said they know a home is right for them as soon as they step inside. So, you may not be alone.

Once you’ve put together the Offer to Purchase with a Realtor, working with a trusted lawyer is the best way to make sure there are no surprises at closing. The bottom line is to take your time, work with professionals and do some research. 

Here are the suggested steps to make sure you get on the right track and into your new home:

  • Determine the location and the type of home to suit your  needs. Most people will have an idea of where they want to purchase their new home based largely on familiarity and convenience. For example, living close to work or schools might be a priority, or selecting a certain area of town with parks and amenities, and/or walkability scores. This is also a good time to think about how much you want to spend and what you can afford.
  •  Get your finances in order. During the pre-approval process is a good time to make sure you have the finances to cover your down payment and disbursements on your anticipated purchase.
  •  Start your home search. How you find the perfect property is entirely up to you. Many home buyers enlist the services of a Realtor. It’s important to only look at homes within your budget.
  • Hire professional services. You will need a lawyer to complete a real estate transaction. A real estate lawyer ensures your paperwork is correct and that the transaction is complete. They will review the contract and mortgage documents, conduct a title search, purchase title insurance on your behalf, register the property in your name, get signatures, prepare a Statement of Adjustments that shows the amount you will pay in closing costs, and collect and disburse fees.
  •  Hire a  home inspector. Home inspections have become part of the homebuying process for both new home purchases or resales. It might seem like a waste of money to pay for a home inspection for a newly-constructed home, but you might consider getting an inspection a few months before the expiration of the New Home Warranty.  Better safe than sorry.
  • Insurance Agent. Lenders also require you to have fire insurance so an insurance agent will help you find the best coverage and the best price.
  • Make an offer. This is done by presenting the seller with an Offer to Purchase. Sellers have the right to accept, reject or put in a counter offer. Remember to include all necessary details in your purchase offer. The deposit will be paid, in trust, to the Realtor.

If you’re planning on purchasing a first home or a new home, then get started with a mortgage professional.

Tuesday, September 24, 2019

Use the Smith Maneuver to Build Wealth

What’s the Smith Maneuver? It’s a wealth-building strategy to create a tax-deductible mortgage. You may have heard, and envied, that mortgage holders in the US can claim their mortgage interest as a tax deduction. Well, you may be able to use that strategy in Canada with the Smith Maneuver. Here’s how it works.

In Canada, if you borrow money to invest in a product that produces an income such as an investment property or a dividend paying stock, the interest on the borrowed money may become tax deductible.

If you borrow against the equity in your home, invest it in income-producing products, then you can use the tax refund to further pay down the mortgage. By repeating that a number of times, you can pay off your mortgage.

The man behind it all was Fraser Smith, a financial strategist based in Victoria, British Columbia. He pioneered The Smith Maneuver, a ground-breaking, legal strategy that lets ordinary Canadian homeowners make their mortgages tax deductible. In his work, he saw that too many Canadians were waiting until their mortgages were paid off before they started to build an investment portfolio, missing out on years of compounding interest, and putting themselves in the position of being house rich and cash poor in retirement, unlike his wealthier investors who used tax strategies to grow wealth. So, he learned the rules of tax deductibility and penned the book The Smith Maneuver for all Canadians.

In a simplified way -- here’s how it works: It starts with a re-advanceable mortgage, which is a mortgage linked with a line of credit. The credit limit for your mortgage plus the credit line is normally 80% of the appraised value of your home, but new rules have changed that to 65% of the value of your home. With each mortgage payment, you pay down some principal, which immediately becomes available credit in the credit line. You can now borrow this amount to invest directly from the credit line.  Your investment credit line interest is normally tax deductible and you should receive a refund, which will be small in the beginning.

Use the line of credit portion to invest in incoming-producing products but never in an RRSP – you’ll lose the tax deduction.

At tax season, you can deduct the annual amount of interest you paid on your line of credit against your income.  Then apply the tax return and investment income against your non-deductible mortgage and invest the new money that’s now in your line of credit. Repeat this until your nondeductible mortgage is paid off.

By doing this you get to build a large investment portfolio without waiting to pay off your mortgage first; you get to quickly pay down your non-deductible mortgage in a hurry; and your new investment loan is tax deductible.

To learn more about this strategy and to see if it can work in your situation, contact a mortgage broker.

Friday, August 30, 2019

Home Ownership, yes!

OOPS, what happened? I moved in and I didn’t consider all that needed to get done.

Most homeowners admit to making at least one mistake when they purchased their home, according to a homeownership poll conducted by RBC a few years ago. 

While owning a home is a dream come true for many, it can also be stressful if you find you’ve made an error. 

Below are the top three mistakes the poll found, along with a few more you might want to think about before taking the leap.

  1.  Property needed work – a lot of it. Even with a home inspection, new homebuyers may get into a home and find it’s become a money pit. Don’t rush in, sit down and plan.
  2. Not having a bigger down payment. Once in a house, many homeowners are overwhelmed with the costs. Once again, don’t rush in, sit down and plan.
  3. No Home Inspection. If you skip this step you might find the cost of repairs needed may be astronomical, especially if you purchase an older home. An inspector will look at the overall foundation and structural features of the house, the plumbing system, will look for the presence of mould or pest infestations, check the heating and air conditioning, as well as the electrical system.
  4. Not budgeting for the increased costs. When considering the extra costs, remember there are mortgage payments, property taxes, and usually higher utility bills. On top of that you’ll may want to redecorate, perhaps buy new furniture and/or appliances. There may be some landscaping work to be done and you may want to renovate. 
  5. Not knowing the closing costs. Closing day is coming and you get the call from the lawyer to come in and sign the papers and, bring a certified cheque or bank draft for X amount of dollars. WHAT? Yes, fees and disbursements. There’s the land transfer fee, the title fee, the lawyer’s fee, etc. Don’t get caught short.
  6. Forgetting about future needs. If you’re planning on having kids, you may want to consider the type and size of home you’re purchasing. 
  7. Not getting a pre-approved for a mortgage. You won’t know what price range you can afford and what a lender will give you without a pre-approval. It’s easy; it’s free and absolutely necessary. If something turns up that may prevent you from purchasing, a mortgage professional can offer you solutions. 
  8. Falling in love with a house. Fall in love with each other but not with a house because you may not listen to some good advice. You will ignore the obvious cracks in the foundation because it has 18ft. ceilings and has that great stone fireplace you’ve always wanted. Beware of buyer’s remorse.
  9. Not checking market value of neighbourhood. This can cause some purchasers to pay too much; especially a home that has been upgraded to the max in an area that won’t keep its value – unless you plan to live there the rest of your life.
  10. Focusing too much on interest rates. Don’t rush in to a market because the rates are low. And don’t focus on getting the lowest rate. Focus on the mortgage loan that works best for you and your financial situation. 

Having said all that, the most recent RBC poll (April 2019) found that Canadians are confident and know what they want.

  • Eight-in-10 Canadians say a home or condominium purchase is still a good investment
  • Canadians feel it makes more sense to buy than rent 
  • Canadians are well positioned to weather a potential downturn in housing prices or an increase in interest rates 
  • Affordability and being in a safe neighbourhood top the list of what Canadians must have, while buying in ‘the right‘ neighbourhood is less of a concern 
  • Canadians are most willing to sacrifice the conveniences of being close to a major highway (16%), dining and entertainment (13%), good schools (11%) and public transit (10%).

So, bottom line is: Don’t rush in, sit down and plan. A mortgage professional can help you get that home by walking you through every step of the home buying process, with fewer mistakes, and fewer regrets.

Monday, August 12, 2019

Important Mortgage Features to Consider

Real estate continues to be a hot commodity in most parts of the country, despite the many changes we’ve gone through over the last few years. Prices in some areas are up and listings are in short supply in other areas, but the housing market overall has been moderating over the last year, and analysts are forecasting a balanced market for the rest of 2019 and into 2020.

Interest rates are comparatively low and competition among lenders to offer favourable rates is high.  It’s always a good idea to read the fine print to make sure you’re getting the best mortgage product, at the best rate, for your particular need.

Because lenders do differ, it’s important to know what features are important to you before deciding on a lender. Here are six characteristics of mortgages to assist home buyers assess their offers:

  1. Blend and Extend. The “increase and blend” option has been around for almost 20 years and may be an option in some situations. For example, if your current lender doesn’t allow a change in the maturity date, then you’re locked into the remaining time left on the term.  While that’s not the end of the world, in a rising rate environment this can be inconvenient. If you’re moving up, and buying at your maximum loan-to-value, you probably don’t want just a 1 to 2-year term, and with the new benchmark rule, you may not even qualify.  If rates have dropped since the original mortgage you could run into the “Interest Rate Differential” (IRD), which might be too large and you can’t move.  
  2. Early Payout Penalty Calculation. Some chartered Banks are known for their extremely large IRD penalties.  If you don’t know whether you’ll keep the mortgage for the entire term then make sure you understand the payout penalty. 
  3. Mortgage Registration. Is the mortgage registered as a non-standard charge, either a running account, or a collateral charge? If so, then it becomes challenging to switch this mortgage out to take advantage of lower rates, although collateral switches are becoming more widely available. Consider this scenario: If the lending institution knows you will have to incur $1,000 or more in possible costs, as well as put in the time and effort to complete a refinance with another lender, then there might be little incentive to offer you best rates at renewal time when a small rate reduction might be enough to keep your business. On the other hand, there are advantages such as making it easier to qualify with fewer expenses down the road if you need to access additional funds.
  4. Pre-Payment Privileges. Is the lender offering 10/10, 15/15, or 20/20?  That means allowing prepayments of 10%, 15 % or 20% annually on the outstanding balance of the mortgage.  Also, can these lump sum payments be made anytime per year or only at the mortgage anniversary? And how easy is it to make lump sum payments? Do you have to go into the branch, call a 1-800 number? Or can you simply go online and do it.  These are important factors to consider.
  5. Porting Features. This feature can vary from lender to lender. Read the fine print, especially if you know you might need to move before the mortgage maturity date. Some lenders require a sale and purchase to occur on the same day in a port, which can be inconvenient. A more flexible, and available program allows typically up to 60 days gap or 60 days overlap; and then there can be exceptions allowing longer periods beyond that.
  6. Online Access. All of the chartered Banks offer online access as do a number of monoline lenders. Generally online access allows you to see your balance, make additional lump sum payments, or make a payment increase. This can be a time-saving feature for tech-savvy consumers. 

There is more to getting a mortgage than just rate. Talk to a mortgage broker first who can help you navigate the mortgage terms and who can help you find the best product for your needs.

Wednesday, July 17, 2019

Mortgage Fraud – Don’t Let It Happen to You

There has been a growing concern about fraud in the industry for a number of years.  According to Equifax, suspected fraudulent mortgage applications have increased by 52% in Canada since 2013.

Because the mortgage industry’s rules and guidelines have become more complex, there is increased diligence among lenders and brokers.

The mortgage stress test has made it more difficult for some consumers to qualify for a mortgage. And in today’s high-tech world, it’s not always the case that lenders and borrowers meet face-to-face.

There is also pressure for some files to close quickly, from consumers who expect their real estate transactions to be fast, with minimal paperwork, which could lead to potential fraud.

Categories of Fraud

These are the general categories of fraud:

  1. Fraud to get shelter. An individual commits fraud in order to get a mortgage on a home they could not otherwise obtain or afford.
  2.  Title Fraud. The identity of a homeowner is assumed and a new mortgage is taken out assuming the homeowner’s name and credit history but with loan proceeds going to the fraudster. The fraudster will use forged documents to transfer ownership and will use fake identification to get the mortgage on the property.
  3. As part of other criminal activities. A mortgage may be fraudulently obtained to get access to a home for illegal purposes.

These are the general types of fraud that occur:

  1. Fraud Involving Property.  Overvaluation of property; misrepresentation of property characteristics; builder bail-out scheme using a “straw” buyer.
  2. Fraud Involving Employment Status.  Forged employment letter; forged or altered pay stub; inflated income; misrepresentation regarding self-employment
  3. Identification Fraud.  Forged or altered ID, nonexistent individual
  4. Equity Fraud (Down Payment). Bogus gift letter; bank account statements not the borrower’s
  5. Title Fraud. Fraudulent title transfer when mortgage has not been paid in full; property not in name of seller; identity theft relating to title fraud

Fighting Fraud

It’s in the best interest of the real estate and mortgage industry to work together, along with consumers, to reduce fraud. To further protect yourself and to help avoid the situation:

  • Always store personal information, including birth certificate, SIN, bank account numbers and credit card details, in a secure place
  • Shred documents, such as credit card statements
  • Never reply to spam or e-mails that ask for banking information, credit card details, passwords or other sensitive information
  • Safeguard your personal financial information.
  • Contact your mortgage lender or broker first if you are having difficulty making your mortgage payments.
  • Consult your lawyer before giving another person a right to deal with your home or other assets.
  • Do a land title search with your provincial or territorial land registry office. This search will show the name of the property owner and any mortgages or liens registered on the title.

You can also help to protect yourself by inspecting your credit report at least annually by contacting Canada’s two credit-reporting agencies: Equifax Canada and TransUnion Canada.

Fraud is serious business in Canada and has a negative impact on the entire industry. Fraud hurts people, not just companies or the government. When lenders are defrauded, consumers pay the price.  Losses from fraud could ultimately result in higher interest rates and fees for borrowers.

TMG mortgage professionals stay up-to-date about mortgage fraud through internal training sessions, and through industry educational sessions. They understand the concept of fraud, recognize fraudulent schemes and understand their consequences. This knowledge helps brokers protect themselves, their clients, their business relationships, and the industry as a whole.