Refinancing Archives - Page 20 of 49 - Bruce Coleman, Senior Vancouver Mortgage Broker Archive - – Bruce Coleman, Senior Vancouver Mortgage Broker

20 May

2014

Alycia

Breaking a closed mortgage can be costly: Ask a Vancouver Mortgage Broker

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You can get a low mortgage rate by signing up for a five-year term. But you could be penalized for an early exit if your plans change.

By: Ellen Roseman On Your Side, Published on Sun May 11 2014

Brian Hyytiainen bought a house and took out a five-year mortgage in 2011. Things have changed in his life, forcing him to put the house up for sale.

“I’m unable to continue to afford the house on my own,” he says. “I’d heard there would be a prepayment fee, but I had no idea the bank would take advantage of an already difficult situation and charge $13,000.”

He was dealing with RBC, Canada’s largest bank, which charged him an interest rate of 3.79 per cent. That was what he saw on the first page of his mortgage agreement.

Only on the third page – in fine print – did he find out that he had received a rate discount of 1.55 per cent.

“Pretty sneaky if you ask me,” he says. “Everyone is given a rate discount. No one would take a closed mortgage at five per cent when rates have been lower for several years.”

Most of the Big Five banks start with a high posted rate and offer discounts to customers who ask for one. It’s a game that has gone on for many years. However, the high posted rate can come back to haunt customers who decide to break a closed mortgage at a time when rates are falling.

Hyytiainen learned how much the inflated rate hurt him after speaking to a client care manager at the branch.

“We calculated the breakage without a discount and it was about $5,000, which is much more reasonable. I tried to challenge the amount.”

RBC client care said there was nothing that could be done. Though he was selling the house because of financial setbacks, he still had to pay the $13,000 penalty when his deal closed.

His appeal to the RBC ombudsman didn’t help. He then filed a complaint with ADR Chambers Banking Ombuds Office (ADRBO), which reviews decisions of participating banks when customers are dissatisfied.

“This has been a frustrating situation,” he says. “I will likely withdraw all my accounts from RBC and tell others about my experience in the hopes they may go elsewhere.”

Mortgage brokers help clients get the best rates from a variety of lenders. Many prefer to use smaller banks that post their best rates and don’t offer discounted rates.

“If you’re going for a fixed-rate mortgage, I’d suggest using a Big Five bank as a last resort,” says Calum Ross, a Toronto mortgage broker.

“As long as the big banks play the rate discount game, consumers will never have fair mortgage lending.”

Luckily, you can find more disclosure than before. Federally regulated banks must show customers how they calculate their mortgage prepayment charges – including rate discounts – using examples that can be easily understood.

However, the banks’ calculators include lots of numbers and technical terms – and don’t always provide a definitive answer.

“Note: This example is based on a formula for estimating the cost of prepaying a mortgage before the end of the term,” says RBC’s website.

“RBC Royal Bank uses a more complex calculation that will result in a lower charge than the estimate. You will have to contact us for your exact prepayment charge.”

How can you avoid getting hit with a mortgage prepayment charge that eats up your home equity when you sell?

Here are some tips:

Did you receive a rate discount? You may not see it shown prominently on your mortgage documents. Ask the bank how much the discount was and how it will be used in the calculation.

Have you used your prepayment privileges? The bank should deduct the prepayments you are allowed to make each year from the balance on which the penalty is calculated. Speak up if this is not done.

Do you need help figuring out the penalty or negotiating a lower one? Consult a mortgage broker with the Accredited Mortgage Professional (AMP) credential. Mortgage brokers can run the numbers at no cost and help you find a way to cut the cost.

Can you weight the costs and benefits of breaking your mortgage? Check the Financial Consumer Agency of Canada’s online guide to renewing and renegotiating your mortgage.

Ellen Roseman writes about personal finance and consumer issues. You can reach her at eroseman@thestar.ca or www.ellenroseman.com

Tags: Bruce Coleman, Entrepreneurs, Vancouver Mortgage Broker

19 May

2014

Alycia

Home prices showing ‘early signs of accelerating’ – Consult with a Vancouver Mortgage Broker

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The Globe’s new Real Estate Beat offers news and analysis on the Canadian housing market from real estate reporter, Tara Perkins, and others. Read more on The Globe’s housing page and follow Tara on Twitter @TaraPerkins.

Canadian home prices appear to be picking up a little steam.

The gains come even after a sluggish winter for home sales, and forecasts from a number of economists for price growth to peter out.

Teranet-National Bank’s house price index, which tracks 11 cities, hit an all-time high in April, with prices rising 0.5 per cent from March and 4.9 per cent from a year earlier.

“Home prices are starting to show early signs of accelerating – even when adjusting for quality,” Toronto-Dominion Bank economist Diana Petramala wrote in a research note after the numbers came out, saying prices have maintained more momentum this year than TD economists anticipated.

“We continue to believe that home price growth will moderate in the second half of 2014,” she added.

In the meantime, Royal Bank of Canada economist Robert Hogue says that prices are rising faster than incomes. And if the current pace of price growth keeps up, that could be problematic. “This is starting to get uncomfortable, because it’s going to affect affordability,” he told me.

It’s not going to become an issue immediately. Declines in mortgage rates in recent months have helped to offset price gains when it comes to affordability, he points out. “But at some point interest rates are going to start moving up.”

“With home prices already estimated to be 10 per cent overvalued, the risk is for more froth to gather in the Canadian housing market,” Ms. Petramala wrote.

Digging into the numbers, there is a wide variation between markets. Some, such as Winnipeg, Toronto, Calgary and Vancouver, saw prices hit new highs in April. Others saw prices fall. Here’s how the markets fared, first from the prior month, and then from a year earlier:

Calgary: 1.5 per cent, 10 per cent
Edmonton: 0.6 per cent, 4 per cent
Halifax: 0.7 per cent, –3.5 per cent
Hamilton: 0.7 per cent, 5.3 per cent
Montreal: 0.8 per cent, –0.4 per cent
Ottawa: 0.7 per cent, –0.4 per cent
Quebec City: –0.5 per cent, –2.4 per cent
Toronto: 0.3 per cent, 5.8 per cent
Vancouver: 0.5 per cent, 9 per cent
Victoria: –1 per cent, –0.7 per cent
Winnipeg: 0.4 per cent, 2.5 per cent

It’s the first time since October 2010 that prices were down year-over-year in five markets, and it’s the third-weakest gain in prices for the month of April since 1999, outside of a recession. But it’s still stronger than many economists expected.

“Lack of homes for sale in many of Canada’s major markets appears to be a key reason for mounting price pressures,” Ms. Petramala wrote.

The cities with the sharpest price growth – Vancouver, Calgary and Toronto – are currently seller’s markets, while those where prices are falling are buyer’s markets, she said. “Following many years of rampant new home construction, Montreal, Quebec City and Ottawa are currently grappling with an inventory overhang of condos on the market,” she added.

Follow Tara Perkins on Twitter: @taraperkins

Tags: Bruce Coleman, self-employed, Vancouver Mortgage Broker

15 May

2014

Alycia

Canada’s million-dollar housing markets: Look out Vancouver, Toronto’s moving in – As a Vancouver Mortgage Broker

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Toronto is on the verge of becoming the second Canadian city where the average price of a detached home hits the $1-million mark.

“We went over that mark a few years ago in Vancouver and now we are going to hit it in Toronto. It’s not inexpensive to own a house in the city of Toronto,” Brookfield Real Estate Services Inc. president Phil Soper said Tuesday after the the company’s annual general meeting.

The Toronto Real Estate Board released its results for April sales Tuesday and those results show increased pressure on the single family portion of the resale housing market, pushing prices in the old City of Toronto close to $1-million for a detached piece of property.

TREB said there were 4,878 detached home transactions across the city proper last month and the average price jumped to $965,670, a 13.2% increase from the average sale price for the same month a year ago. The average price of a semi-detached home reached $702,332 in the city, an 18% increase from a year ago.

Developers have long complained about government land use policies they maintain have restricted construction and created the widest gap between high-rise condominiums and single family homes in Toronto history.

“Price growth for the GTA as a whole was driven by the single-detached, semi-detached and townhouse market segments in the City of Toronto. So far this year, there has been no relief on the listings front for these home types in many neighbourhoods in Toronto and surrounding regions,” said Jason Mercer, senior manager of market analysis with TREB. “Until we see a marked and sustained increase in listings, we should expect to see the annual rate of price growth above the long-term norm.”

Toronto would just be entering lofty territory Vancouver has long occupied. The Real Estate Board of Greater Vancouver said this month the average detached home in the city sold for $1,198,828 in April.

Even in Toronto’s 905 belt, the average sale price of a detached home reached $645,179 in April, a 9.6% increase from a year ago. By comparison a condominium apartment in Toronto’s suburbs had an average sale price of $296,078.

Mr. Soper, who is also chief executive of Brookfield’s Royal LePage brand, told shareholders at its AGM that the first quarter of this year was soft because of a winter that was unprecedented in terms of its impact on the Canadian market as a whole.

“The market came roaring back to life in the later weeks of the quarter and April was a very strong month,” said Mr. Soper.

Brookfield is mostly shielded from the cyclical nature of the real estate market as 71% of its income comes from fixed contracts with brokers. The other 29% comes from a variable royalty stream.

“There was a downturn that lasted from the middle of 2012 to the middle of 2013. While home prices were not affected by the downturn, we did see double digit declines in volumes of homes sales during that downturn,” said Mr. Soper.

Over the past 35 years though, the real estate industry shows a compound growth rate of 9.7% annually with about half of it coming from volume and half of it coming from price.

Brookfield itself is increasing its dividend to $1.20 per share in 2014 after three years of it being stuck at $1.10 which Mr. Soper said was partially due to taxation resulting from the company’s conversion to a corporation from an income trust. twitter.come/dustywallet

14 May

2014

Alycia

Homebuilding rebounds quicker than expected with 35% jump in condos and apartments – Consult with a Vancouver Mortgage Broker

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TORONTO — New home construction in Canada picked up in April, shaking off the effects of this year’s harsh winter, though economists still expect activity to cool gradually in 2014.

The seasonally adjusted annualized rate of housing starts rose to 194,809 last month from 156,592 units in March, data from the Canada Mortgage and Housing Corp showed on Thursday.

That surpassed analysts’ expectations for a gain to 175,000.
March’s housing starts were revised slightly lower from the 156,823 reported initially.

The volatile figure for multiple-dwelling urban starts surged 35.1% to 117,612 units, while single-detached urban starts rose 6.5% to 59,180 units.

“A bounce-back in new home construction activity in April had been expected following the sharp outsized drop in the previous month that likely reflected the negative, though transitory, impact of lingering severe winter weather,” Laura Cooper, economist at RBC, wrote in a note.

RBC forecasts starts will slow to an overall pace of 181,000 this year from 2013’s 188,000.

Canada escaped the U.S. housing crash that accompanied the 2008-09 financial crisis, and home prices have risen sharply, if not steadily, over the past five years.

Indeed, separate data on Thursday showed the price of new homes rose 0.2% in March, in line with expectations.

While some economists have predicted the Canadian market will crash, most have said they expect sales and new construction to level off in 2014 and 2015 as mortgage rates rise, with prices continuing to tick slowly higher.

“Looking through the recent volatility in housing starts shows that Canadian homebuilding activity is stable and running at levels supported by demographic demand,” BMO Capital Markets senior economist Robert Kavcic wrote in a note.

Aside from weather disruptions and a spike in condo projects breaking ground in early 2012, starts have held within a stable 175,000 to 200,000 range since about the end of 2009, Kavcic said.
“In other words, homebuilders have been, and remain, quite well behaved.”

Year-on-year, new-home prices nationwide were up 1.6%, data from Statistics Canada showed, within the 1 to 2% range registered over the previous year.

Prices were unchanged in 11 of the 21 urban areas surveyed, up in five and down in five. Prices were flat in the Toronto-Oshawa region and in Montreal, while they fell by 0.1% and 0.2% in Vancouver and Victoria, respectively.

The Canadian government, which has intervened in the mortgage market several times since 2008 to cool the sector, has long warned that the combination of high housing prices and heavily indebted Canadians could trigger widespread defaults in the case of an economic shock. But officials now expect the market to stabilize gradually.

The new housing price index excludes condominiums, which the government has said have been a particular cause for concern.
© Thomson Reuters 2014

13 May

2014

Alycia

Canada’s next housing bubble: real estate agents – Consult with a Vancouver Mortgage Broker

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The housing boom has not only resulted in record real estate prices, it has spawned an unprecedented number of realtors.

The number of people selling real estate reached 108,706 during the first quarter of the year, according to the Canadian Real Estate Association. To put it another way, that’s one realtor for every 245 Canadians over the age of 19.

Canada’s million-dollar housing markets: Look out Vancouver, Toronto’s moving in

Toronto is on the verge of becoming the second Canadian city where the average price of a detached home hits the $1-million mark. <em>Keep reading.

No where is the bubble in agents more apparent than Toronto, perhaps the hottest market in the country for property. The Toronto Real Estate Board wouldn’t provide an exact number for its members but TREB’s boiler plate statement this month said it had reached more than 39,000 — or about one for every 140 people in the Greater Toronto Area.

Just over a year ago in December, 2012, that number was 35,000. That number grew from 31,000 a year earlier. TREB had about 20,000 members a decade ago.

We have almost as many people selling houses as making them. Statistics Canada said in its labour force survey for the year 2013, there were 131,000 carpenters. There are only 202,200 cooks in Canada.

You do two deals and you make $50,000

So what’s going on? Much of it is an influx of speculative careers from would-be real estate agents who see a quick buck to be made because they know someone selling their house and they want to get the listing and the fat commission — up to 5% of the house price — that comes with it.

“You’ve got some nice person making $30,000 or $40,000 as a receptionist. This is the American dream. You do two deals and you make $50,000,” says Lawrence Dale, a long-time thorn in the side of both CREA and TREB having sued both.

FP0510_CREA_membership_C_AB

There is no data on commission rates but the general rule in Ontario is 5% of the sale price is split by two realtors on a deal while other provinces have a sliding scale where the percentage increases at higher amounts.

Toronto prices are soaring, especially single family homes. TREB reported this past week that average single detached home in Toronto sold for $965,670 last month, a 13.2% increase from a year ago. At $1-million, there’s $50,000 to be split by realtors.

OREA says the average student takes about 11 months to complete the course although they have up to 18 months after they start. Once registered with RECO, students have two years to complete the articling segment of the training program with a broker. The total program costs about $3,180 but that just makes you a salesperson and not a broker.

“We see a very diverse mix in our classes. They’re made of a combination of high school graduates, folks at university doing it on the side, retirees and a diverse mix in terms of cultural background,” says Shelley Koral, director of the OREA College.

Tim Fraser for National PostPhil Soper, chief executive of one the largest real estate companies in the country, Royal LePage Real Estate Services Inc., says there has been a rise in what he calls “the speculative” agent.

But Phil Soper, chief executive of one the largest real estate companies in the country, Royal LePage Real Estate Services Inc., says there has been a rise in what he calls “the speculative” agent.

“This is a real regional story. If you look at Quebec, where they took a different approach to licensing and professionalism by increasing the length of time and difficulty to get your licence, their ranks have shrunk,” says Mr. Soper, who said at his parent corporation’s annual general meeting this month he wasn’t interested in adding agents just doing one-off deals.

Changes dictated by the Competition Bureau have made it easier to access the Multiple Listing Service where about 90% of transactions take place. Some boards have been flooded with people ready to offer discount deals because they have access to that information.

“You’ve got speculative agents who get their licence on the chance they might be able to sell a home,” says Mr. Soper.

You still have to work under the licence of a brokerage in Ontario but he says “licence warehouses” have been created in the industry where sales people doing a deal or two can quickly join.

“They are really only brokerages in name only,” says Mr. Soper. “They have hundreds or thousands of people, there is no training, there is no management.”

Doug Porter, chief economist with Bank of Montreal, says the rise in realtors, doesn’t surprise him considering the strength of the housing market.

“There’s the pull that home sales have been strong and prices on a tear. The push has been the underlying job market has improved but it’s weaker than when the recession began,” he said.

The benefit of all these realtors jumping into the market is negligible, when it comes to adding to gross domestic product. “It adds only modestly,” said Mr. Porter.

12 May

2014

Alycia

Updates on Stated Income & Second Home Programs – Consult with Vancouver Mortgage Broker

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CMHC surprised the market last week by eliminating its insuredsecond home andstated incomeprograms. Many believed that the Department of Finance (DoF) had something to do with it.

We asked the DoF directly. Here’s what they told us:

“CMHC’s decision to discontinue its Second Home and Self-Employed Without 3rd Party Income Validation mortgage insurance products (both high and low ratio) is the result of the Corporation’s review of its mortgage loan insurance business…

The CMHC changes are aligned with the Government’s continued efforts to adjust the housing finance framework to restrain the growth of taxpayer-backed mortgage insurance, as noted in Economic Action Plan 2014. The Government has not amended regulations related to these products.”

CMHC’s withdraw from this space will create opportunity for private insurers, at least for the foreseeable future.

On Genworth Canada’s conference callyesterday, CEO Brian Hurley said, “These are two (programs) we are evaluating right now.”

The self-employed program is about 5% of Genworth’s business, notably more than CMHC. The secondary homes program is only 1-1.5% of its volume.

“(There is) no mandate for us to follow (CMHC),” Hurley added. “These two particular products perform quite well for us.”

Genworth’s evaluation has led to just one change so far. Today the company announced that it is reducing the maximum number of allowable units under its Vacation/Second Home program from two units to one unit.

Fortunately for self-employed borrowers, it has left its stated income product alone, saying today that, “Upon review of the current Business for Self Program, we will not be making any amendments to current product guidelines.”

The company also clarified that “There will be no amendment to the maximum number of Genworth-insured properties per borrower.” CMHC said last week that it would “limit the availability of homeowner mortgage loan insurance to only one property (1-4 units) per borrower/co-borrower at any given time.”

Update: After this story first went to press we received confirmation that Canada Guaranty is not changing its stated income program. Like Genworth, however, Canada Guaranty will limit its second home program to one unit, effective May 30.

Rob McLister, CMT (email)

Tags: Bruce Coleman, Entrepreneurs, Vancouver Mortgage Broker

12 May

2014

Alycia

Five mortgage market truths, like you can do better than 2.99% – Consult with a Vancouver Mortgage Broker

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Here are five things you need to know about the mortgage market as the spring home-buying season gets going:

1. That 2.99 per cent Bank of Montreal five-year mortgage isn’t quite as good as it sounds.

BMO’s recent move to bring its rate below the psychologically significant 3-per-cent mark for fixed-rate five-year mortgages is being treated as a big deal because a similar move a year ago provoked then-finance minister Jim Flaherty to admonish the bank. Joe Oliver, Mr. Flaherty’s successor, is taking a more laissez-faire attitude.

What BMO is offering until April 17 is a competitive rate in a mortgage with uncompetitive terms. Most importantly, you can’t break this mortgage before it comes up for renewal in five years unless you sell the property, refinance with BMO or do an early renewal into another BMO product. All the usual prepayment penalties would apply in these situations. Veteran mortgage broker Vince Gaetano’s summary: “You’re handcuffed.”

Other issues:

-BMO will hold the rate for 90 days, compared with 120 days at some other lenders.

-You can prepay 10 per cent of the mortgage annually without penalty and increase your payment by 10 per cent a year; 20 per cent is the usual standard for both types of payment increase.

-The skip-a-payment option – a bad idea, admittedly – is not available.

-The maximum amortization period is 25 years; you can typically go up to 30 years if you have a down payment of 20 per cent or more.

2. You can do better than 2.99 per cent.

Mr. Gaetano said late last week that he had a 2.84-per-cent rate on five-year fixed mortgages, but it only applied to clients who had down payments of less than 20 per cent and thus required mortgage default insurance.

The RateSpy.com website confirmed this rate from Mr. Gaetano’s firm, Monster Mortgage, while also showing competing brokers and credit unions with rates in the range of 2.83 per cent to 2.94 per cent. Some other rate comparison sites to try include RateSupermarket.ca,RateHub.ca and LowestRates.ca.

3. We will see wide open rate competition this spring.

“I think there will be a full-scale rate war with some mortgage brokers,” said Bruce Joseph, a broker with Anthem Mortgage Group in Barrie, Ont. “We’ve got a huge amount of competition in the market. The market is quite saturated with realtors and brokers.”

Mr. Joseph wonders whether we’ll see more of a practice called “mortgage rate buydowns,” where brokers sacrifice some of their compensation from selling a mortgage in order to get a lower rate for the client. He said some brokerage firms have been aggressive users of buydowns to build sales volume.

Borrowers, there’s nothing to stop you from asking for a rate buydown. You just have to recognize that less compensation for a broker may mean less advice and hand-holding.

4. Variable-rate mortgages are looking good.

Rates on variable-rate mortgages are based on the major banks’ prime lending rate, which has been stuck at 3 per cent since September, 2010, minus a discount. Mr. Gaetano said discounts have widened out to 0.6 percentage points or more from roughly half that level about eight months ago, and that means a variable rate around 2.4 per cent.

His preference for variable-rate mortgages over the fixed-rate alternative right now is based both on the discounts being offered, and his interest rate outlook. “I don’t think rates are going anywhere soon, and getting a variable in the prime minus 0.60 range give you a considerable advantage in hammering down a mortgage.”

That said, many of Mr. Gaetano’s first-time home buyer clients are going with five-year fixed-rate mortgages, which is smart. In today’s expensive housing market, it makes good sense to buy yourself a five-year period to find your financial equilibrium as a homeowner without the risk that your payments will rise.

5. The banks will crush you if you want to break your mortgage.

The penalties that the big banks charge to break a mortgage before it comes up for renewal are abusive. They’re a far more deserving target for the federal finance minister than lenders aggressively undercutting each other on mortgage rates.

Get the lowdown on bank mortgage penalties in this column I wrote not too long ago. If there’s any chance you might have to break your mortgage – brokers say this is by no means unusual – then consider using a non-big bank lender with a lighter touch on penalties. These same lenders are often good on rates, too.

Follow me on Twitter: @rcarrick

——

Why low mortgage rates matter

Even small differences in payments can add up.

Assumptions

-you’re buying a house at the average national price in February of $406,372

-you have a 5 per cent down payment

-CMHC mortgage insurance costs are added to your principal

(table source: RateSpy.com, Canequity.com)

Mortgage Example	Bi-weekly accelerated payment	Total Payments Over Five Years
Five-Year Fixed
2.84 per cent (best rate found online)	$922.41	$119,913
2.99 per cent (BMO’s special offer)	$937.60	$121,888
3.39 per cent (another bank’s best special offer)	$978.75	$127,237
Variable rate
2.29 per cent (prime minus 0.71; best rate found online)	$867.87	$112,823
2.40 per cent (prime minus 0.6; a widely available discount)	$878.63	$114,222
2.55 per cent (prime minus 0.45; discounted bank rate)	$893.42	$116,145

Follow Rob Carrick on Twitter: @rcarrick

Tags: Bruce Coleman, Entrepreneurs, self-employed, Vancouver Mortgage Broker

11 May

2014

Alycia

How badly would you be hurt in a housing market price correction? – Ask a Vancouver Mortgage Broker

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A question for everyone who thinks houses are an investment: How much would a market decline hurt you?

Help yourself be a smarter homeowner by using The Globe and Mail’s Housing Price Correction Calculator to find out. Housing bulls, don’t self-combust. Our calculator shows the result of both price gains and losses over the next five years. Just plug in the current value of your house price – c’mon, you know you know it – and select from among our preset levels of price gains or declines.

Houses are a financial asset that can rise and fall in price, just like stocks, bonds and gold. It’s important to remind ourselves of this after a 25-per-cent price gain between 2008 and 2013 on a national basis and a doubling of prices in Vancouver, Calgary and Toronto over the past 10 to 12 or so years.

In fact, there are already signs of market softness in some parts of the country. “The markets that are strong in Canada are very strong,” housing analyst Ben Rabidoux said. “And the ones that are weak are showing weakness that we haven’t seen since the late 1980s and early 1990s.

Ottawa home prices are down 2.5 per cent on a year-to-date basis, according to the Teranet – National Bank National Composite House Price Index. Montreal is off 1.0 per cent, Quebec 1.2 per cent and Halifax 2.6 per cent. “The next markets that will crack are the Prairies outside of Alberta,” said Mr. Rabidoux, president of market research firm North Cove Advisors Inc.

Much larger price declines happened long enough ago that the most recent crop of buyers may not have any recollection of them. In Calgary, troubles in the oil patch caused a house price decline from $107,739 on average in 1981 to $80,462 in 1985, or about 25 per cent. After a few years of rampant speculation in Toronto, the average resale home price fell from $254,197 in 1989 to $195,311 in 1995, or 23 per cent. Vancouver, always a volatile market, plunged more than 25 per cent in a year in the early 1980s and has a couple of times fallen more than 6 per cent in a year.

Want to see what a 25-per-cent decline would look like in today’s market? Our Correction Calculator shows you the numbers for the Canadian market as a whole, as well as the Big Three markets of Vancouver, Calgary and Toronto.

The calculator in no way predicts a downturn in housing prices. It’s only a tool for helping people understand how both declines and increases in house prices might affect them.

Be cautious when viewing how a rising market will increase the value of your home. Interest rates are close to rock bottom levels after a 30-year down cycle and likely to rise in the next couple of years. The impact on affordability will be significant.

“I think it’s going to be a huge shock to the Canadian real estate market,” said Craig Alexander, chief economist at Toronto-Dominion Bank. “I do a lot of real estate presentations from coast to coast and an awful lot of young people think these low interest rates are normal. They don’t see anything abnormal about a 3-per-cent five-year mortgage. I always have to say, can you please have a conversation with the grey-haired gentleman at your table about the normal level of interest rates.”

As you’ll see in a chart included with our correction calculator, five-year mortgage rates reached 18 per cent in the early 1980s. The runaway inflation that drove rates to that height is extinct today, but even a small rise in borrowing costs will have an impact on housing.

Mr. Alexander’s 10-year view is that housing prices will increase by an average rate of inflation plus one to 1.5 percentage points, instead of the real returns of 2 to 3 per cent in the past several years. But he also warns of a “reversion to the mean,” a term that stock market investors should be familiar with.

It means that when a financial asset has a really good run, it’s wise to expect a period of weaker performance that brings the longer-term numbers back to the mean (the midpoint between the high and the low). A period of price stagnation could bring average price gains back to the mean, and so could a price decline.

When you invest in the stock market, you’re supposed to keep your eye on the long term and not worry about upsets along the way. The same applies to housing, although keeping a cool head in a declining market will be hard. A lot of owners have only lived in a world of rising prices.

Follow Rob Carrick on Twitter: @rcarrick

Tags: Bruce Coleman, self-employed, Vancouver Mortgage Broker

09 May

2014

Alycia

Can this young Toronto family really afford a house? – Consult with a Vancouver Mortgage Broker

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ROB CARRICK The Globe and Mail

I really want to tell this couple it’s okay to buy a house.

Let’s call them Grace and Jim, both 35 years old. They live at Jim’s parents’ place in Toronto with two kids, aged 2 and five months, and they have differing views on buying a home. Jim, a self-employed musician who describes himself as being conservative with money, is nervous about taking on the financial burden and sees houses as overvalued. “These are mainly my issues, not my wife’s,” he said. “I am well aware of that.”

Grace, who stays home with the kids while doing a little freelance writing on the side, is ready to buy. “We just keep saving and saving and putting it off,” she said. “And now, here we are with a sizable down payment, and we’re still hemming and hawing. We’ve got to bite the bullet.”

I’ve written a lot of contrarian columns on buying and owning homes in the past couple of years, but I’m not anti-ownership. If you can truly afford a house and have realistic expectations of where the market is headed, then go for it.

Based on what they told me, Grace and Jim can truly afford to buy. What keeps me from giving them an unreserved thumbs up is their insistence on living in Toronto, rather than the less expensive suburbs outside the city. “All of our family is in Toronto, and we were both born and raised here,” Grace said. “My husband travels quite a bit, so with the two young kids we want to say close to my in-laws.”

In terms of a down payment, this couple is golden. They pay $450 in monthly rent to Jim’s parents, but save enough to have $120,000 ready for a home purchase. Their income is a little more problematic because of Jim’s non-traditional job. However, Grace plugged their household income into my Real Life Ratio spreadsheet and came away encouraged.

The Real Life Ratio is designed to show prospective or current homeowners whether they can balance the financial demands of home ownership with saving for retirement and household costs such as daycare and car loans (Download the Real Life Ratio interactive spreadsheet here). Grace got a score of 71.6, which means a home is affordable based on her and Jim’s income and frugal, debt-free lifestyle ().

The complication: She used their preferred maximum mortgage payment of $1,700 per month, which means the couple’s borrowing ceiling is roughly $350,000 (assuming a 3-per-cent five-year mortgage). Even with a $120,000 down payment, that doesn’t buy much house in Toronto.

Grace says the couple is willing to live in a townhouse, or buy a home with a basement apartment that can be rented out. In any case, a quick run through the Realtor.ca website did uncover a few townhouses in the city in the range of $470,000 or so.

Jim, the housing skeptic, worries that prices are too high right now. “My first degree is economics and, looking at this market, I’m thinking, whoa, it’s way overvalued.” And yet, he concedes that waiting for prices to fall hasn’t worked out. “We’ve been doing that for years.”

It would be unfortunate if Grace and Jim bought just before a price decline, but they shouldn’t worry if they can stay put for 10 to 12 years at least. That would be long enough for the market to recover from any setback in the next few years.

Grace and Jim say they’re willing to stay in the house they buy, but will they? I recently asked the people in my Facebook personal finance community how old they are, how long they’ve lived in their house and how much longer they plan to stay. The surprise was how many younger buyers with just a few years in their homes had near– to medium-term plans to move.

So, are Grace and Jim good to go? Provided they buy on a 10-year plan and make any needed home-buying compromises on location rather than price, the answer is yes. What’s more, they should get moving.

For one thing, delaying a home purchase for years could compromise their ability to retire with ample savings and a paid-off house. They also need to act soon if they want to lock in today’s low mortgage rates. If they wait, they might learn the hard way that a modest rise in mortgage rates has more of an impact on affordability than a comparable fall in home prices.

Grace and Jim, home buyers through history can tell you that money worries and a house are a package deal. But I think you can handle it.

Follow Rob Carrick on Twitter: @rcarrick

Tags: Bruce Coleman, self-employed, Vancouver Mortgage Broker

08 May

2014

Alycia

Royal Bank taps auto industry strategy of ‘employee pricing’ to sell mortgages – Consult with a Vancouver Mortgage Broker

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In the latest twist on the mortgage wars being waged by Canadian banks to win customers, Royal Bank of Canada is taking a page from auto dealers by offering “employee pricing” to home buyers.

The same interest rate offered to RBC employees is being given to customers seeking new and “switch-in” mortgages across Canada.

“This is a first for RBC, and a first for the big banks,” says Sean Amato-Gauci, senior vice-president of home equity financing at RBC. “Home buying season is competitive and cluttered, and it’s not just rates that get you noticed.”

He says the bank is confident it can “break through the clutter of price wars within the mortgage marketplace” by offering lower employee mortgage pricing to non-employees in “a twist on what’s being done in the auto industry.”

Canadian banks have been battling for mortgage market share – often a gateway to selling customers other banking services — with a variety of low-rate enticements, such as a recent 2.99% rate on a five-year fixed-rate closed mortgage at Bank of Montreal.

“I wouldn’t call it a price war… but price competition in the mortgage market remains as intense as it has been over the past several years,” says Peter Routledge, a financial services analyst at National Bank Financial.

The mortgage price wars began a couple of years ago after federal officials took steps to cool the hot housing market to try to avoid a real estate bubble and rein in household debt loads. Former federal finance minister Jim Flaherty also let the banks know he wasn’t in favour of any tactics — including offering very low mortgage rates — that could drive demand for housing and contribute to a housing bubble. There was particular concern over home prices in Vancouver and Toronto.

But there is a sense this spring that the banks can operate more freely than in the past in trying to wrangle the biggest slice of the new mortgage pie, or wrest market share from one another. In March, federal finance minister Joe Oliver told reporters in Ottawa that “the government is gradually reducing its involvement in the mortgage market.”

A spokesperson for Royal Bank said the promoted “employee pricing” rate is set based on current rates when an application is made. It is so far being offered on four and five-year fixed rate mortgages sought between April 28 and June 6 of this year.

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