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Need money for retirement? Cut off your kids – Consult with a Vancouver Mortgage Broker

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ROB CARRICK– The Globe and Mail

To support their adult children, today’s parents are working extra hours, dipping into their retirement savings and remortgaging their homes.

We’ve yet to build a consensus in this country that there’s anything unique or alarming about the problems that the young adults of Generation Y are having in establishing their financial independence today. But events are overtaking this debate. Quietly, the parents of the nation have been making significant financial sacrifices to support their kids in college and university and after graduation.

The extent of this support is shown in a new survey that the Canadian Alliance of Student Associations commissioned from the polling firm Abacus Data. The online survey reflects the lives of 604 parents from across the country with children who are currently pursuing a postsecondary education, who graduated in the past five years or who will attend college or university in the next five years. To set the stage, one-third of the parents in the survey said they live comfortably in their current financial situation, 46 per cent said they met basic expenses with a bit left over and 20 per cent were just meeting basic costs or lacked enough to do even that.

Though modest in size, the survey is significant as the first evidence of how Gen Y’s problems in starting careers and generating a living income are affecting families. A majority of parents reported making small sacrifices – eating out less and cancelling or scaling back a vacation. Roughly one-third have gone a lot further by either taking out a loan or opening a line of credit, or by dipping into their retirement savings. Almost 15 per cent said they had remortgaged their house.

These numbers got worse when parents who are supporting elderly parents as well as adult kids were singled out. For example, the number of people remortgaging their homes almost doubled in this sub-group, and the number dipping into their retirement savings jumped to 45 per cent from 33 per cent. The term sandwich generation is used for people with dependent kids and parents, and it’s such an apt description.

The difficulties faced by young adults in becoming financially independent were documented in a package that The Globe and Mail ran last week. While plenty of Gen Yers are thriving, there are large numbers who are living with parents and/or receiving parental help to pay off student loans, cover monthly bills and buy houses. The root cause appears to be finding full-time, career-building jobs with a decent salary.

The CASA survey found parents expect their children to be financially independent at age 23, but believe they’ll hit the milestone at 25. Asked what’s causing this delay, 72 per cent cited the cost of postsecondary education as a major cause, 70 per cent listed the cost of housing, 57 per cent pointed to the lack of well-paying, stable jobs, 35 per cent cited the lack of ambition of young adults and 18 per cent put the blame on other parents “who won’t let their kids go.”

The survey found a clear sense among parents that they have a duty to help their adult kids financially. Almost three-quarters said parents should help cover the cost of a postsecondary education, and 70 per cent said parents have a responsibility to let adult children live at home to save money.

The level of actual parental support documented in the survey offers some fresh perspective on two of the defining personal finance narratives of our time – high debts and insufficient retirement savings. The cost of helping adult children isn’t close to driving either one of these issues, but it certainly bears watching.

Family finances aren’t elastic. If more money is going to 20- and 30-somethings unable to pay their bills, then it has to come from somewhere. Retirement savings should be the last place to scrounge up this money, but the CASA survey says it’s happening. Going into debt to help your kids is preferable, but only as the lesser of two unfortunate evils.

Parental support for Gen Y may also help explain why student debt levels haven’t spiked higher in recent years, despite rising tuition costs and a tough job market for young adults. Instead of borrowing more, students appear to be relying more on help from home.

CASA, the student group, has made a savvy decision by trying to learn more about how Gen Y’s problems are affecting parents. Talk to parents with adult children and you’ll find a high level of anxiety about their prospects for university and college graduates in today’s economy. But outside that group, there’s next to no interest at all.

The “poor young people” narrative has no traction, it seems. Maybe switching to “poor parents” will change that.

Follow Rob Carrick on Twitter: @rcarrick

Canadian homebuilding beats expectations in May – Aska vancouver mortgage broker

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TORONTO — Canadian housing starts picked up more than expected in May and April was revised higher, suggesting housing will contribute to economic growth in the second quarter after a harsh winter put the brakes on construction, data released on Monday showed.

A report from the Canada Mortgage and Housing Corp showed the seasonally adjusted annualized rate of housing starts rose to 198,324 in May from an upwardly revised 196,687 units in April. That surpassed analysts’ expectations for a May reading of 185,000.

“Activity is picking back up to its pre-winter trend, another sign that it was the weather and not a fundamental slowdown that dampened Canadian growth in the last few months,” Bill Adams, senior international economist for PNC Financial Services Group, said in a statement.

“The trend so far in 2014 looks to be another year of activity more or less on par with 2013, and markedly lower than before the mid-2012 tightening of Canadian mortgage underwriting standards.”

While housing starts are within a healthy range now, a significant increase in months to come could catch the attention of Ottawa policymakers, said BMO economist Robert Kavcic.

“Canadian homebuilding activity has firmed up after a volatile winter. While current levels of starts are still within the range supported by fundamentals, a significant and sustained upward move from here could turn policymakers’ heads,” he said in a note Monday.

Canada’s housing market has risen unsteadily for the last five years and appears to be settling down for a soft landing, with housing starts slowing from red-hot 2012 levels in 2013 and maintaining the slower pace so far in 2014, on average.

The strong showing in April and May is likely a rebound from a weather-related slump in the winter, and took the two-month average 12.9 percent higher than the 175,000 recorded in the first three months of 2014, RBC economist Laura Cooper said in a research note.

“In the near-term, this rebound in residential investment is expected to lift overall GDP growth in the second quarter; however, with the weather-related volatility having likely now run its course, we anticipate that the pace of new home construction will cool once again over the second half of this year to levels similar to that averaged over the first half,” Cooper said.

May’s strength came from the single-detached housing sector, where starts rose 5.4%, as construction of multiples — typically condos — edged 0.8% lower.

The gains were fairly broad-based across the country, with starts in Quebec, British Columbia and the Atlantic region rising strongly, while Ontario was flat and the Prairies were lower.
© Thomson Reuters 2014

Credit unions take on banks in mortgage wars with rates as low as 2.69%- consult with a Vancouver mortgage broker

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The latest salvo in mortgage rates wars among financial institutions appears to be coming from credit unions, free from federal regulation and ready to take on the banks.

How this man plans to be mortgage free by age 31

The 29-year-old pension analyst is $130,000 away from paying off his $425,000 home in Toronto, without money from parents or the lotto
DUCA Credit Union six weeks ago quietly opened up “DUCA Brokers Services” which has been funding brokers with rates as low as 2.79% on a five-year fixed rate loan. Some brokers are even eating into their own commission to buy down that rate to 2.69%.

At 2.69% for five years, it undercuts the efforts of the banks to compete. Bank of Montreal kicked off a new round of competition earlier this year with a 2.99% five-year rate and Bank of Nova Scotia went slightly lower to 2.97% for the same term.

“This new channel seeks to partner with the broker community as a virtual extension of our branches,” said Richard Senechal, DUCA’s chief executive, in an email.

DUCA is also guaranteeing its rate discounting within broker contracts to counter mild rate fluctuations. Based on the five-year government of Canada bond which mortgage rates are priced off, Duca’s spread is an almost unheard of 115 basis points.

The credit union is also not using underwriters in its broker service network but instead provides that network with certain guidelines to meet, DUCA itself employs people for fraud and number checks.

“This system allows for the efficiencies necessary for DUCA’s unequalled pricing,” said Mr. Senechal.

Rob McLister, editor of Canadian Mortgage Trends, said the DUCA model “is to cut out all the fat” and push more of the work onto brokers.

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“Brokers are now widely posting below-market rates on mortgage comparison sites,” said Mr. McLister, who also runs the site http://www.ratespy.com. “Consumers increasingly see those hyper-competitive rates and ask their bank to match them. If their bank doesn’t match, more and more are taking their business to online brokers. Right now, online mortgage brokers are a speck of dust in terms of market share. But their impact on the market is disproportionately profound because lenders and consumers use their rates as benchmark.”

He says credit unions only have to answer to customers and shareholders and that could allow them to ultimately control a larger segment of the market over time. Credit Union Central of Canada, the national trade association of the industry, notes credit unions only have about 7% of the residential loan market.

But they do have the advantage of not being regulated by the Office of the Superintendent of Financial Institutions which last year implemented strict guidelines for loans with less than 20% down that included rules on better loan documentation, income documentation and tighter debt services ratios.

Peter Routledge, an analyst with National Bank who follows the industry, noted credit unions with loans that require mortgage default insurance are still subject to federal guidelines because companies in that sector like Canada Mortgage and Housing Corp. are regulated by OSFI.

“For the last two years and maybe like the next year it may seem like credit unions are getting an easier ride,” said Mr. Routledge, adding credit unions must also meet federal guidelines for any loans they want to securitize which narrows any advantage.

Ryan McKinley, senior mortgage development manager with VanCity a British Columbia credit union, said the the gap between federal and provincial rules does allow credit unions to compete on some products the banks can’t provide.

“Credit unions can offer some products that federal institutions can’t offer,” said Mr. McKinley, pointing to deals that allow cash back for down payment and longer amortizations.

Another aspect of credit unions not available from banks is an ability to share in dividends which ultimately lower your effective mortgage rate because you are getting cash back. VanCity’s 3.04% current five-year mortgage could be lower depending on its financial success.

“It does factor into the pricing,” said Mr. McKinley.

Meanwhile, the other factor that just might take rates even lower could be yields falling in the bond market.

Benjamin Tal, deputy chief economist with CIBC, wouldn’t rules out the possibility that rates could go even lower.

“In the long term, they’ll go up but I think they could shrink even more for now,” said Mr. Tal.

Low loonie lifts cottage sales after chilly start to season – Consult with a Vancouver Mortgage Broker

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One of the nation’s largest real estate company says recreational property sales are finally starting to pick up after a tough winter and slow start to the season.

In Toronto’s housing market, ‘$2-million is the new $1-million’

Try not to panic if you haven’t bought yet but the $2-million home is a growing segment of the market in Canada’s largest city. Find out more Based on a survey of its brokers who specialize in the market, Royal LePage says inventory levels are rising along with sales.

“Advisors across the country are reporting a significant increase in buyer interest and are anticipating the return of a healthy market for the remainder of the spring and summer. In many areas, snow remained well into the spring, hampering efforts to open and list summer properties, but sellers and buyers returned following the Victoria Day long weekend,” according to a release, which does not cite any sales statistics.

Related Vancouver realtors say there hasn’t been this much home buyer demand in three years Sotheby’s offers private jet, helicopter service to woo luxury homebuyers to Calgary How to prepare your home for a quick, profitable, summer sale Phil Soper, chief executive of LePage, says Baby Boomers had previously driven sale activity to record levels in the middle of the last decade.

“The subsequent economic downturn dampened demand in the sector,” said Mr. Soper, in the release. “Post-recession, our research found that incremental sales were driven largely by low interest rates and investors. With the 2014 market, we are seeing a return to primarily lifestyle-driven demand for cottages, cabins and chalets. Canadians continue to seek the opportunity to escape to a weekend retreat.”

LePage said a stable job market, low rates and consumers confidence are all in place to continue to drive the cottage market.

The Canadian market has also benefitted from a recovery in prices for recreational properties south of the border.

“U.S. regions favoured by Canadians, such as Arizona, Florida and California, coupled with a lower Canadian dollar relative to the American currency, is beginning to impact our domestic recreational market,” said Mr. Soper. “People who were previously wooed by bargain shopping for real estate south of the border are finding the real deals are now at home.”

The report states the higher-priced end of the market is seeing “healthy-price growth” in Ontario, Manitoba and Saskatchewan. LePage says there At “particularly good deals” at the lower end on in-land properties in Prince Edward Island, New Brunswick, Nova Scotia and some interior regions of British Columbia.

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Reverse mortgages rising fast to deal with retirement shortfalls – Consult with a Vancouver Mortgage Broker

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It could become a growing solution to our retirement savings problems, but opponents of reverse mortgages warn their spike in popularity could mean shrinking inheritances.

HomEquity Bank, which is owned by Birch Hill Equity Partners, and is behind the Canadian Home Income Plan, said reverse mortgages are up 26% year-to-date compared to the same period a year ago. It’s still a relatively tiny chunk of the 5.5 million mortgages outstanding, considering HomEquity only expects to issue about 3,000 reverse mortgages this year.

Related How to prepare your home for a quick, profitable, summer sale How record low interest rates are helping us pay off our mortgages faster A mortgage rate below 2% — but be ready for some surprises But is it a solution for people whose retirement savings don’t match their retirement spending? The interest costs, which are generally above market rates for a traditional mortgage, will ultimately eat into home equity and not leave much behind for heirs.

“A reverse mortgage is the last, last choice I consider for my clients,” says Lise Andreana, a certified financial planner with Continuum II Inc. who is based in Niagara-on-the-Lake. “It’s basically when they’re running out of money to live on.”

Jeff Spencer, vice-president of national sales for HomEquity Bank, says he’s heard it all before. He thinks it’s time Canadians start thinking about their home as part of their financial plan and incorporate a reverse mortgage into their strategy.

CARP, which represents retired Canadians, says two-thirds of the workforce — or about 12 millions working Canadians — do not have a workplace pension plan. Faced with a savings shortfall for retirement, their house can fill the gap.

“We think real estate needs to be treated very differently in a retirement plan. It’s not a passive asset but an active asset that is utilized at the start of retirement,” said Mr. Spencer, adding his company has created a new plan that starts delivering cash flow as soon as you retire as opposed to when you run out of cash.

The advantage of a reverse mortgage is you can take money out of your home and it is not taxed, which allows you to deplete your registered retirement income fund at a slower pace and potentially put yourself in a lower tax bracket. It might even help avoid clawbacks to Old Age Security by lowering your income threshold.

Canada Mortgage and Housing Corp. says reverse mortgages have been around since 1986 and generally allow you to take anywhere from 10% to 40% of the equity out of your house with the caveat that your interest rate will be about 150 basis points above the conventional rate for a five-year mortgage.

Mr. Spencer paints a scenario where a client might have a $1-million house paid off at 65 and qualify for a $350,000 mortgage. You could divide that amount over say 25 years.

“You might offset any type of interest you might accumulate on the reverse mortgage [with tax savings],” he says, acknowledging clients pay about 1.5 more percentage points above prime. “More importantly, it extends the horizon time on your portfolio.”

He says with life expectancy on the rise, this type of planning is going to become necessary or people are simply going to run out of money.

“When people retired at 65 and had a life expectancy of 75, we didn’t have to get too complicated with their retirement plan. They wouldn’t go through their investable assets even,” said Mr. Spencer. “But when you are retired as long as you are working, you need to utilize all of your assets.’

Plus, the real issue is people don’t want to leave their homes until they have to which is something a reverse mortgage accomplishes.

Ms. Andreana cautions if you do get a reverse mortgage, make sure both spouses names are on the contract because you can be pushed out after the spouse with the mortgage dies otherwise.

Still, she thinks the reverse mortgage could take off because people who are retired now are finding they are not making it financially. “They are in retirement for 10 years and their savings are running out and inflation is eating away at the lifestyle they’ve become accustomed to.”

Her recommendation is not the reverse mortgage but rather to sell your house outright if you can “stomach” the idea of moving. “You can only get so much money out of a reverse mortgage,” says the financial planner.

Phil Soper, the chief executive of Royal LePage Real Estate Services, agrees it is an expensive way to borrow but he can see the option making sense in some circumstances.

“You have someone who is older and quite sure they want to live in their home for an extended period of time and have limited other resources to draw upon,” he says, adding that the higher rate has to compensate for risk to the lender that your house could drop in value or you end up living in it longer than anticipated.

“In Canada, it’s been a pretty safe bet for reverse mortgage providers because over the long term, homes have risen 4% to 5% [annually],” says Mr. Soper.

As for the future, based on the strength of the housing market and the low savings rate, Mr. Soper says reverse mortgages just might become more popular.

“Conceptually, reverse mortgages are a way for people to consume the equity they have built up in their lifetime,” said Mr. Soper, who believes you provide for your children all your life so that home is yours. “If their wealth is tied up in their home, it will be something to consider.”

Housing market 10% overvalued in Canada amid condo risks, data uncertainty: TD executive – Ask a Vancouver Mortgage Broker

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TORONTO — Canada’s housing market is 10% overvalued, with the biggest risks in condominium overbuilding and uncertainty over how many investors are buying, but the risk of a U.S.-style collapse is low, a top executive at Canada’s second largest bank said on Monday.

Lisa Reikman, chief risk officer of Canadian banking at Toronto-Dominion Bank, said a spike in interest rates or unemployment could threaten Canada’s robust housing market, but the risk is fairly low.

Instead, TD Bank, one of the country’s top three mortgage lenders and a growing retail banking presence on the U.S. East Coast, is watching house appreciation and the growing supply of condominiums.

“The high-rise condo market is an area we’re certainly watching closely, and I think all of the other banks, as well and the regulator, (are watching),” Ms. Reikman said in an interview.

“Just by virtue of the fact there is a lot of new construction of high-rise condos, and there are some questions around … how many of those are being purchased by investors as opposed to people (who) are actually living in them as a primary residence,” she told Reuters.

Related Here’s why paying off your mortgage isn’t always the best idea Canada housing correction could trigger another recession, BMO report says Foreign investors have helped drive up Canadian real estate prices by parking their money in relatively cheap and plentiful real estate, but some fear that a sudden withdrawal of investors could leave a glut of condos and falling prices.

Ms. Reikman said the banks do not have much better data on investors than anyone else does.

“The data on that is less than perfect, so we don’t have a perfect line of sight … we rely on the buyer to basically be upfront and let us know if they are buying it to own or if they are buying it as an investment property,” she said. “You’ll find that that’s probably one area that all the banks will say is difficult to tell, as will the builders.”

While foreign observers, including the International Monetary Fund and the Organisation for Economic Co-operation and Development, have warned that Canada’s housing market is among the most overvalued in the world, the nation’s major banks have been more sanguine, saying there are structural reasons why the high prices are mores sustainable than they may appear.

“We think the (overvaluation) number might be — generally across the Canadian market — maybe about 10%, as opposed (to) the numbers we’ve seen from some of (those) external to Canada, anywhere between 30-to-60%,” she said.

The Canadian market cannot be compared to the U.S. sector before its collapse due to several factors: Canada’s requirement of insurance for mortgages with less than 80% loan-to-value; conservative underwriting standards; a tiny subprime market, and Canadian lenders typically keeping mortgage on their books, Ms. Reikman said.

“We look at all of those things and think there are some pretty fundamental reasons why the U.S.-style collapse can’t happen here or is highly unlikely to happen here,” she said.

© Thomson Reuters 2014

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