What To Consider When Applying For A Mortgage

With a current range of approximately 2.5 percent to about four percent, mortgage rates for residential real estate are still at or near historic lows across Canada.

“Hmm” you think, “maybe it’s time to purchase my first home or trade up to a larger home.” Those can be big steps with long term financial implications, and you could end up paying a lot more for that new home than you bargained for by making a less than optimal mortgage choice.

So, let’s get you going in the right, and most cost-effective, direction with this basic mortgage info:

What’s best — a fixed rate or a variable mortgage? There is no single right answer to this question. The question you have to answer is, “Which option is most suited to my needs?”

• Fixed rate mortgages offer the security of a locked-in interest rate for the term you choose, typically five years. They provide peace of mind and predictable budget management because you know exactly what your mortgage payment will be for the length of the term. Approximately 66 percent of Canadians have chosen fixed rate mortgages.

• Variable rate mortgages are usually available at a lower interest rate than fixed rate mortgages, at least initially, but the interest rate is linked to the Bank of Canada‘s Prime Rate and fluctuates with it. That could mean decreases or increases in the rate you pay over the term you select and a corresponding impact on both total interest costs and the amount of your mortgage payment.

Among other considerations, your choice should depend on your tolerance for risk and a survey of options beyond conventional mortgages including:

• Blended rate mortgages which offer a combination of both fixed and variable rate financing, a split rate structure that combines the benefits and risks of each type of mortgage.

• Mortgage pre-approval is often encouraged by real estate agents because having your mortgage financing firmly in place indicates to prospective sellers that you are a serious buyer.

Be aware that the mortgage lender will probably pre-approve you for the largest possible mortgage amount and when you’re shopping for a home, you may get caught in the trap of stretching your finances to the maximum and putting your family’s finances at risk if your circumstances change or there is a significant interest rate increase at renewal time.

Don’t over-mortgage your future. Talk to your professional planner about the best choice for you based on your personal financial objectives and your overall financial plan.

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Steven Giffin

REALTOR® with Keller Williams Realty

902.233.7756 Mobile

902.482.5832 Fax

stevengiffin.kwrealty.com

            

Fix It or List It?

A majority of Canadians (83%) would rather renovate their homes than find a new place to live if their current home needed major work, according to the 19th Annual RBC Homeownership Poll.

Reasons for renovating ranged from wanting to make their home more attractive (66%), increasing the value (46%) and maintaining or repairing their home (39%). Four-in-ten Canadians (39%) said that they want to renovate to increase energy efficiency.

“Canadians are more likely to customize their homes based on their personal preferences rather than buying new. Setting a strict budget can help you stay on track,” said Richard Goyder, vice-president of Personal Lending at RBC.

“You can live in a home that you love without breaking the bank, as long as you have a prudent plan for financing your project.”

The rooms that typically add the most value to a house — bathrooms and kitchens – were the top home improvement projects on the minds of Canadians, tied at 43%, while 33% plan to renovate their basement. Almost half of respondents (46%) plan to do much of the work themselves, compared to 42% who expect to hire a contractor for their renovations — up five percentage points from 37% in 2010.

When asked about their renovation budget, more than three-quarters of Canadians (78%) estimated they would spend less than $10,000 on their renovations.

The majority of renovators (71%) said they would mostly finance these projects with cash or savings, while lines of credit (15%), home equity refinancing (13%), credit cards (10%) and personal loans (4%) trailed well behind.

“Your renovation checklist should include talking to a financial expert to assess all of your financing options,” advised Goyder.

http://goo.gl/s5QZm

Steven Giffin

REALTOR® with Keller Williams Realty

902.233.7756 Mobile

902.482.5832 Fax

stevengiffin.kwrealty.com

            

Do You Qualify For A Rebate?

Nova Scotia‘s First-Time Home Buyers Rebate is a rebate equivalent to 18.75 per cent of the provincial portion of the HST or 1.31 per cent of the purchase price of capital stock in a housing cooperative, up to $3,000, on newly built homes.

This program is for newly constructed homes only and does not include renovations or conversions from rentals to condominiums.

What’s New:

On April 3, 2012, the government announced that the maximum rebate provided under the First Time Home Buyers’ Rebate Program has risen to $3,000 from $1500, effective April 1, 2012. For details of the change see Maximum Rebate Increase – Does this apply to me?

You will qualify for the rebate if:

• the newly constructed home will be used as your primary residence; and
• the individuals that will occupy the newly constructed home:
  • have not owned and occupied a home in Canada in the last five years; or
  • the home they owned and were occupying at the time was involuntarily destroyed within the last five years

What Homes Qualify:

• homes built on land you owned before construction started
• homes built on land owned by the builder
• condominium units
• manufactured homes installed on leased land
• the purchase of a share in a Cooperative Housing Corporation

The Deadline:

• You have 24 months from the date of sale noted on your deed transfer documents, if you purchased your home.
• You have 24 months from the bill of sale date if you purchased a manufactured home installed on leased land or a share in a cooperative housing corporation.
• You have 24 months from the date of your occupancy permit if your home was built on land you own.

Get all the information you need at: http://goo.gl/Hl3ui or just contact me with any questions.

Steven Giffin

REALTOR® with Keller Williams Realty

902.233.7756 Mobile

902.482.5832 Fax

stevengiffin.kwrealty.com

            

Canadians Confused Over Real Estate Market

Despite highly-competitive interest rates, Canadians are backing away from the real estate market. And it’s no wonder. Consumers are bombarded with contradictory economic reports about the fragility of the housing market in the U.S., the blistering-hot Canadian real estate bubble — is it even a bubble? — and varying interest rates that seem to change on a dime according to the whims of the big-six Canadian banks.
These conflicting messages are playing out in housing market sentiment, suggests an annual Royal Bank of Canada survey.
According to the “19th Annual RBC Homeownership Poll”, an increasing majority of Canadians believe that now is the time to get into the housing market (59 per cent, up four percentage points from last year), instead of waiting until next year (41 per cent).
And yet, more Canadians say they are unlikely to buy within the next two years (73 per cent, up two percentage points), even as confidence in homeownership is on the rise.
“What we’re seeing here is consumers are taking a smart approach to buying a home. Canadians are recognizing housing is a good investment (88 per cent of respondents say so) and with the low interest rate environment and affordability at reasonable levels, they’re telling us that now’s a good time to buy,” says Claude DeMone, director, Strategy and Portfolio, Home Equity Financing at RBC in Toronto.
“However, they’re unlikely to do so within the next two years. I think that’s people taking a smart approach, looking at their budget, and ensuring they have the resources to buy a home they can afford and that they can keep their mortgage payments are kept in line going forward.”
The RBC poll also finds that after four years of sentiment favouring a buyer’s market, the tide appears to be turning. More Canadians surveyed this year feel the current housing market is a seller’s market, in which sellers have the advantage because the number of buyers exceeds the number of homes available (27 per cent, up from 20 per cent in 2011).
Nearly four-in-10 Canadians say it is a buyer’s market (38 per cent, down two percentage points from a year ago). Fewer believe that the housing market is balanced (36 per cent, down from 40 per cent a year ago).
“With the low interest rates we’ve been seeing recently, it’s a great story for consumers,” he says. “If you’re buying a home, this is a great time to get into the market but the right thing to do is to consider your budget and determine if you’re ready. That’s where some of the conflicting opinions on the market is: it’s the difference between desire and ability.”
Canadian economists have fretted about rising housing prices as household debt levels have soared. The ratio of debt to personal disposable income hit a record 151.9 per cent last year.
A Royal LePage House Price Survey shows strong year-over-year price gains for all housing types.
In Toronto, the numbers show it is most definitely a seller’s market with prices steaduly on the climb in the first quarter of 2012:
Standard two-storey homes posted the largest price increases rising 7.5 per cent year-over-year to $645,467
Detached bungalows rose 5.5 per cent year-over-year to $544,450
Standard condominiums witnessed an increase of 3.5 per cent to $353,355 compared to the same period last year
The same holds true for Vancouver’s hot housing market:
Standard two-storey homes saw the largest year-over-year price increases, rising 9.1 per cent to $1,182,250
Detached bungalows posted a similar 9.0 per cent year-over-year increase rising to $1,068,500
Standard condominiums rose a modest 0.5 per cent year-over-year to $510,000.
“Our housing market is being pulled in opposite directions by opposing economic forces,” Phil Soper, president and chief executive of Royal LePage Real Estate Services, said in a statement.
“On one hand, there is the rapidly strengthening U.S. economy, increasing Canadian consumer confidence and what can only be called a national mortgage sale encouraging activity and bidding up home prices. On the other, we have signs of over-shooting values and strained affordability in our largest cities. We are likely to see much more modest price appreciation as the year unfolds.”

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Steven Giffin

REALTOR® with Keller Williams Realty

902.233.7756 Mobile

902.482.5832 Fax

stevengiffin.kwrealty.com

            

Should You Terminate Your Mortgage Early?

Fixed-rate mortgages are at historic lows but if you are locked in to a contract with your bank, those benefits may be yet elusive.

First you have to do the math to see if breaking your contract is worth the penalties you may face.

“There is no grey area,” says Cindy David, a certified financial planner at Dupuis Langen Financial Management Ltd. in Vancouver. “It’s either worth it or it’s not.”

The big five banks are offering four and five year mortgages at just 2.99%.

“We’re even seeing 10-year fixed rate mortgages at 3.99%,” says Ms. David. “Think about that:  Interest and principal at 3.99% for 10 years. From a financial planning perspective if any client approached me and said ‘Should I look into breaking my mortgage?’ My answer would be yes.”

Step one comes down to meeting with your financial institution and doing the math to determine whether or not the cost of breaking your mortgage is worth the anticipated savings from the lower rates. The fact is the penalty for breaking a mortgage can be thousands of dollars and in many cases, the cost and the future savings cancel each other out, in which case you may be wise to wait until your mortgage is up for renewal.

When you cancel or break a mortgage you will be charged the greater of three months’ interest or the Interest Rate Differential better known as IRD in mortgage land. “IRD is an arbitrary number based on a formula the lender has predetermined to ensure the lender breaks even,” says. Ms. David. “Not all lenders use the exact same formula so you have to go to your financial institution directly to understand what the Interest Rate Differential is and what your penalty will be.”

Invis mortgage brokerage in Vancouver provides an actual calculation they conducted for a client. The client was mid term in a fixed-rate mortgage with a current balance of $286,691 at 4.49% due to mature on March 1, 2014. In this case, the IRD applied and the penalty came to $11,505 plus the legal and appraisal fees to obtain a replacement mortgage of about $1,200. The interest to be saved by getting a new mortgage at 3% was just $8,982. In this case, it did not make sense to break the mortgage.

One way to decrease the penalty is to make the most of your prepayment privileges before ordering your payout statement, says Laura Parsons, mortgage expert, BMO Bank of Montreal in Calgary. “For example, our maximum prepayment is 20% of the original mortgage — not the current balance. On a $60,000 mortgage that means you can prepay $12,000. Prepaying first and then calculating the penalty on the revised balance will lower the penalty.”

Another option: rather than doing an early renewal and paying the penalty, it may make sense renew early and blend and extend your mortgage. “That means the bank will take the going rate and your existing interest rate and blend them,” says Ms. Parsons.

“It’s a pro-rated happy medium rate.” Minus the penalty.

If it does make sense to break your mortgage in order to take advantage of the new low rates, both Ms. David and Ms. Parsons advise to maintain the repayment schedule you’ve already put in place. This will save you tens of thousands of dollars in interest costs over the life of the mortgage.

“These are in depth conversations you should have with a mortgage specialist,” says Ms. Parsons. “If the penalty is $20,000 what is the ROI on the lower rate? How long are you going to have the house? If you’re planning on moving in three years, don’t take a five-year mortgage or at least understand what’s going to happen at that time if you plan to break the mortgage. Make your decision based on a lot of factors. And if you’re looking for peace of mind, as many people are, ask your bank for historic trends on rates. Unfortunately, there is no crystal ball, but it may help give you a sense of what to expect.”

http://goo.gl/n758v

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Steven Giffin

REALTOR® with Keller Williams Realty

902.233.7756 Mobile

902.482.5832 Fax

stevengiffin.kwrealty.com