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The ultimate mortgage checklist: How to get the best possible deal

ROBERT MCLISTER– Special to The Globe and Mail

The lowest possible rate is how many define a good mortgage. But that’s like judging the “best car” by the one with the lowest monthly payment.

Anyone who’s had to cough up a mortgage penalty or deal with refinance limitations can vouch for one thing: Mortgage restrictions can easily outweigh small (e.g., 0.10 to 0.15 percentage point) differences in interest rates.

It’s tough to predict your refinance needs three or four years out. Statistics show that well over half of Canadians with a mortgage renegotiate before their term is up. And the average five-year borrower changes their mortgage every three-and-a-half years.

That’s why it often pays to trade a slightly lower rate for more flexibility, unless you know you won’t change your mortgage during its term. A cheap rate can certainly save hundreds of dollars up front. Just be sure it doesn’t cost thousands after closing.

On that note, here’s a list of questions to ask your mortgage expert of choice. Check the boxes one by one as you talk with your adviser. With a little effort, this list will help you snare the most feature-rich mortgage possible, at a rate that’s better than average.

Download the PDF version of this checklist.

Here’s what you need to consider Click to see more

• The rate
• Extra payments
• Penalties
• Refinancing
• Variable-rate mortgages
• Other features
• Extra costs

The Rate

1. Is the rate you’re quoting me the lowest I can possibly get, given my qualifications and mortgage preferences?

2. If I find a lower rate for a similar product elsewhere, will you match it?

3. How many other lenders did you check when shopping around my mortgage? Which major banks and credit unions did you not check?

• These questions apply to brokers because bankers and credit union reps generally don’t shop around for you.
• RateSpy.com is a tool I created to help mortgage shoppers benchmark the competitiveness of their rate. If you’re within 0.10 per cent to 0.15 per cent of the lowest rates on this site (for the term you’ve selected), you’re in good shape. Just be sure to compare apples to apples because the cheapest rates are often for no frills mortgages with potentially costly restrictions.

4. How long will the lender hold my rate, once I apply?

• The best rates often come with only 30-45 day rate hold periods (aka. “quick close rates”).

5. If I get approved and rates drop, how will I know? Will the lender automatically adjust my rate lower? Will I get the lender’s very best promotional rates if its rates fall?

6. Can I get a pre-approval at this rate?

• Pre-approvals often come with rate premiums.

7. Do you offer fully discounted rates up front at renewal? Or do you send me an inflated rate in a renewal letter and hope I sign it?

 

Extra Payments

8. How much extra can I prepay each year without penalty?

• Standard “closed” mortgages offer annual “lump-sum” prepayment options ranging from 10 to 30 per cent of the original mortgage amount.
• Don’t pay for more prepayments than you need (only 18 per cent of Canadians use lump-sum prepayments in any given year). But, just as importantly, don’t underestimate the prepayment options you’ll need. Prepayment flexibility can help you reduce a mortgage penalty, or it can save you interest in the event of a cash windfall.

9. When can I make these prepayments?

The best lenders allow you to make prepayments any time during the year, in multiple instalments.

10. How much can I increase my ongoing payments each year?

Most mortgages let you increase your ongoing payments by 15 to 20 per cent each year. Some go up to 100 per cent and/or offer double-up payments.

11. What payment frequencies do you have?

• Examples include monthly, bi-weekly, weekly, and semi-monthly.
• Accelerated payments (like “accelerated bi-weekly”) are the equivalent of making one extra monthly payment per year. RBC Mortgage Specialist Jennifer Bissonnette notes: “A 25 year amortization can be reduced to 22 years simply choosing accelerated bi-weekly payments instead of monthly.” Being mortgage-free three years sooner will cost you just $59 more every two weeks, she adds. That’s on a $300,000 mortgage at 3.69 per cent with a 25-year amortization.

Penalties

12. Can I break my mortgage any time I want?

• Most lenders let you pay a penalty and get out of a closed mortgage early. Some no-frills lenders only let you out if you sell your property. Some don’t let you discharge your mortgage at all, until the term is up.
• You’ll almost always pay a rate premium for an “open” mortgage with no penalties. If you plan to keep the mortgage for more than six months, you’re often better off choosing a lower rate and paying the penalty to get out early (if needed).

13. If a mortgage penalty applies, how do you calculate it?

• Fixed rate penalties are usually three months of interest or theinterest rate differential (IRD), whichever is more. Variable-rate penalties are typically three months of interest based on your current rate.
• Penalty calculations based on posted rates (i.e. rates higher than the rate you actually pay) can sometimes be several thousand dollars more expensive. This method is common at most large banks, and is their single greatest weakness. If you want to compare penalties, try some sample calculations using each lender’s online penalty calculator.
• Some lenders get tricky. For example, instead of a standard three-month interest penalty based on your current rate, some lenders charge three-month interest penalties based on posted rates. Others charge interest rate differential penalties when three-month interest charges normally apply. A few even ding you with 12-month interest penalties or penalties equal to three per cent of your balance. Avoid such mortgages unless the rate savings is significant.

14. Can I port my mortgage to a new property to avoid penalties?

• Don’t underestimate your odds of moving. Look for good porting flexibility, especially if you’re young, need job mobility and/or have a growing family.
• Some lenders let you port, but not increase. That forces you to pay a penalty if you buy a pricier house and need more financing.
• Note that credit unions typically prevent porting across provincial lines–a problem if you move out of province.
• If you have a line of credit attached to your mortgage, make sure you can easily port it as well and keep your rate.

15. How long do you give me to port my mortgage?

• The longer the better. At least 60 days is preferable. Some lenders make you close your old property and new property on the same day, which can be unrealistic.

16. Do you deduct interest from my penalty rebate if I port my mortgage and my old and new house don’t close on the same day?

17. If I break the mortgage early, can I use my unused prepayment privileges to lower the penalty?

• Some lenders restrict you from using your prepayment options for this purpose, if you do so within 30 days of discharging the mortgage. Some lenders, like RBC, automatically apply unused prepayment privileges to lower your penalty when refinancing–a cost-saving feature.

18. If the mortgage includes cash back, how much of that cash do I have to repay if I break the mortgage early?

• Usually it’s a pro-rated amount but some lenders make you repay 100 per cent of the cash back, even if you break the mortgage one day early.
• Have your mortgage adviser calculate your “effective rate,” including the cash back. That tells you how much of a rate premium you’re paying for the cash.

Refinancing

19. Is there any restriction on when I can refinance?

20. Can I increase my mortgage at any time, at fully discounted rates, and without paying any penalty?

• This is vital if you need to refinance or buy a more expensive home.
• Some lenders have a policy of charging penalties, or not giving you the best rates when you increase your mortgage.

21. Can I extend my mortgage term at any time without penalty, and at fully discounted rates?

• This is useful if rates drop and you want to blend your rate with the new lower rate (which lowers your payment). It’s also key if you’re past the middle of your term and you want to mitigate the risk of higher rates at renewal.
• Beware of lenders that let you “blend and extend” but then bake a prepayment charge into your new mortgage rate.

22. Is your mortgage readvanceable?

• Readvanceable mortgages let people with at least 20 per cent equity re-borrow principal that they’ve previously paid off. This feature usually involves a credit line linked to your mortgage. Readvanceables are good low-cost sources of funds for investment opportunities, a small business, renovations and so on. Readvanceables also let you pre-pay your mortgage without the fear of not having cash on hand in an emergency. Some people even use them as an alternative to a contingency fund.
• There are two types of readvanceables: manual (where you must apply to re-borrow paid-down principal) or automatic (where every principal payment is instantly available to you if you need it).

23. Can I roll in my refinance or switch costs to the new mortgage?

 

Variable-rate Mortgages

24. Does your variable rate mortgage have any restrictions?

• Some variable-rate mortgages prevent you from porting or blending your rate, prevent increases and have fewer prepayment privileges.

25. Can I fix my payment so that it doesn’t move if rates increase?

• If so, and rates rise, more of your payment goes to interest. If rates fall, less of your payment goes to interest. Note that most fixed payment variable mortgages have “trigger rates.” If prime rate increases so much that it exceeds the trigger rate, the lender will boost your “fixed payment.”

26. How fast does the lender increase rates when prime rate rises?

• Some lenders, like ING, adjust their variable rates every three months, which keeps your rate lower longer. (This delay works against you if rates drop)
• A few lenders offer capped-rate variables with a ceiling on how high your rate can go. These are usually a bad deal if you do the math.

27. Can I convert my variable rate to any of the lender’s fixed rates, at any time?

• Remember, you’ll rarely get the best fixed rate when you convert. Moreover, it’s impossible to successfully time interest rates over the long run. For those reasons, do not go variable to save money in the short run, hoping to lock in “at the right time.” Variables are a long-term strategy.

28. If I convert my variable rate to a fixed rate, will I get the absolute lowest rate the lender offers for that term?

• Typically you won’t. Lenders know you’d have to break your mortgage and pay a penalty. Most use that as leverage to offer merely average rates on conversions.

 

Other Features

29. Can I split the mortgage into different parts?

• “Hybrid mortgages,” as they’re called, let you lock part of your mortgage into a fixed rate, or various fixed rate components, while the other parts may float at a variable rate. The purpose is to diversify your rate risk.
• If you pick a mortgage with both long and short terms, remember that the lender may not offer you the best rates on the renewal of your shorter term. It knows you’d have to pay a penalty to get out of your longer term, making you less rate sensitive.

30. Can you offer the amortization I want?

• Some lenders have minimum amortizations (like 18 years) while a handful of others still offer amortizations up to 35 years (assuming you have 20 per cent-plus equity).

31. Does the lender let me check my balance and remaining amortization online? Make prepayments online?

• Major banks and large non-bank lenders (like First National, Street Capital and the big credit unions) usually have the best online access.

32. Is the lender a bank or credit union with branches?

• Nowadays you can fully service your mortgage online or by phone, but some people still like a branch presence.
• Almost all lenders link to your chequing account to automatically withdraw mortgage payments and make prepayments. So it’s no longer inconvenient to separate your mortgage and banking.
• There are over 300 mortgage lenders in Canada. Don’t fear small lenders that you’ve never heard of.

33. Do you offer early renewals at your best discounted rates with no fees or penalties?

• A 120 to 180 day early renewal can potentially reduce your rate risk. But beware of lenders that try to create false urgency and lock you into a “limited time” offer well before your renewal date.

34. Do you offer an all-in-one style mortgage where I can combine chequing, savings and my mortgage into one account?

• Doing this can save interest as your spare cash lowers your mortgage balance, thus reducing the amount used to calculate your interest.

35. If I sell my house, can the buyer assume my mortgage?

36. If I get a one-year fixed, can it be converted to any of the lender’s fixed rates, at any time?

• Only a handful of lenders offer this option, which gives you variable-rate type features without committing to a long term.

37. Can I skip a payment if needed? If so, how often and under what circumstances?

• “Payment vacations” can be handy in emergencies. But some lenders require that you make an equivalent pre-payment first. Remember that skipped payments aren’t free. You still have to make all payments eventually, and interest accrues in the meantime.

38. Do you pay profit sharing on my mortgage?

• Available only at credit unions who rebate a small portion of your interest paid. You can access these funds only after a vesting period, which can last 3-7 years or more.

39. What default insurer will insure my mortgage?

• Default insurance generally applies if you have less than 20 per cent equity. When you switch lenders with an insured mortgage, you must ensure that the new lender accepts that insurer’s mortgages. CMHC and Genworth allow you the most flexibility when switching lenders.

40. If I purchase creditor life insurance through you, can I port that insurance to a new lender without having to requalify and lose the premium I’m paying on my current mortgage amount?

• Insurance premiums go up as you age, so you want insurance that’s not tied to one lender. That way, you can keep your premiums as-is on your original mortgage amount, even if you change lenders.
• If you don’t have portable creditor life insurance and get sick, your pre-existing condition may not be covered by the new lender’s insurer.

 

Extra Costs

41. Will you pay my appraisal fee?

• Appraisal fees are usually $225 to $325, but can be significantly more based on location and property-type. There is usually no appraisal cost if your mortgage is insured.

42. Do you have any processing fees?

43. Do you have any cancellation fees?

44. How is the mortgage compounded?

• Semi-annual compounding costs you less than monthly compounding.

45. Do you charge “reinvestment fees” on top of the penalty if I break my mortgage early?

46. Do I have to pay legal (aka. mortgage registration) fees?

• Most lenders cover this cost on switches where the loan amount, loan-to-value and amortization are not increasing.
• A few even pay legal fees on refinances, but the rate is often higher than you can get elsewhere.

47. Is the mortgage a “collateral charge” mortgage?

• Collateral charges help you avoid paying legal fees to refinance with your lender. But they also make it potentially more expensive to switch institutions at maturity. The reason: most lenders only pay switch fees on “standard charges,” not collateral charges.
• Some collateral charge lenders register your mortgage for 100 to 125 per cent of your property value. That lets you borrow more if your property value rises. The tradeoff: It prevents you from securing anything else against your property, like a second mortgage.

48. If I switch my mortgage to you, will you pay my old lender’s discharge fee?

• Very few lenders do this, but it can’t hurt to ask.

49. Do I have to pay title insurance if I switch my mortgage to you?

• The answer is commonly yes, but some lenders don’t require title insurance, or they will pay it for you. It can be $150 to $300 or more.

50. Will I pay a higher rate if I’m self-employed and cannot prove my income in the traditional manner?

51. Does the mortgage come with free banking or significant discounts on other financial products?

• Unlike days gone by, you no longer need to bundle financial products to get the market’s best mortgage rates. Nor do you need a “special relationship” with your banker. Simply shopping around and negotiating will get you the same mortgage discounts 99 per cent of the time.

52. If I switch lenders and have a mortgage and line of credit, will the lender charge me a separate discharge fee on both the mortgage and line of credit?

53. If I need bridge financing to cover the gap between the purchase of my new home and the sale of my old home, what rate and fees will you charge?

• Also ask how long the bridge lasts. 30 days is typical.

54. Will I pay an extra fee if I break my open mortgage within 12 months?

 

Service

55. If I have a problem with my mortgage, who do I call?

• Large mortgage providers like banks often have live chat or 24-hour telephone support, all tracked and recorded in case you have a problem later.
• Large lenders also have systems that enable multiple agents to work on your file. This yields faster service if your main contact is unavailable.

56. Will I get a dedicated mortgage adviser, or talk to someone different each time I have a mortgage question?

• You should always have the email address and direct number of your primary mortgage contact.

57. How long do I have to wait on hold to speak to my mortgage adviser? What are his/her hours?

58. Will my mortgage adviser contact me annually for a mortgage check-up?

• This service ensures that your rate is still competitive and that your mortgage type still makes sense for your changing needs.

 

Advice

59. What are your qualifications as a mortgage adviser?

• How long have you been a mortgage adviser? (The more experience, the less chance for costly mistakes. Look for two years minimum experience.)
• Do you specialize in mortgages or are you a generalist who sells many financial products but is a master of none?
• Have you closed over $10-million of financing in the last 12 months? (That’s a minimum rule of thumb for professional mortgage advisers.)
• Are you the right mortgage adviser for me? (Read this)

60. Given my lifestyle and savings, will you be honest with me about whether I can truly afford this mortgage?

• Just because a lender approves you doesn’t mean you can safely afford the payments. Moreover, alternative down payment options may not be worth the trade-offs.

61. What methods will you use to help me pick the right term?

• Proper term selection saves you way more than small rate differences, almost every time. Find an adviser that does more than glibly quote industry research or ask if you can “sleep at night” with a variable rate. At a minimum, your adviser should compare the estimated interest cost of various terms, given sample rate increases over the next five years.

62. Will you help me stress test my mortgage?

• Be sure you can afford your mortgage if rates jump 2 to 3 per cent.

63. What mortgage strategies will you provide to help me retire faster?

• Your mortgage can be used as a key financial planning tool to accelerate your savings, create future equity and build your investment portfolio.

Note: This checklist assumes you’re a qualified borrower who’s getting a mortgage on his/her primary residence, with provable income and decent credit. If this doesn’t reflect your scenario, other important questions will apply.

Robert McLister is the editor of CanadianMortgageTrends.com and a mortgage planner at VERICO intelliMortgage, a mortgage brokerage. You can also follow him on twitter at @CdnMortgageNews.

Canada’s soaring real estate market: Feel good now, pay later- Consult with Bruce Coleman, Vancouver Mortgage Broker

Canadian Mortgage News

CMI 101 Series

Dreyer Group 101 Series

Financial FYI Series

First Time Buyers

Home Buying 101

Home Insurance

Latest News

Mortgage Rates

Refinancing

Retirement Planning

Self Employed

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Many home or condo owners in Vancouver will be using a portion of their property or the entire home or condo for the purpose of rental income. This is often popular with people who like to engage in small-time speculation for the purpose of flipping properties for a profit.

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Canadian Mortgage News

CMI 101 Series

Dreyer Group 101 Series

Financial FYI Series

First Time Buyers

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Home Insurance

Latest News

Mortgage Rates

Refinancing

Retirement Planning

Self Employed

Small businesses want Canadians to ditch credit cards every Friday

Retirement Planning: Want a tropical paradise? Here are five hot property markets – Consult with Bruce Coleman. Vancouver Mortgage Broker

Canadian Mortgage News

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MARK DAVID- The Globe and Mail

The following article is from Canadian Real Estate Wealth Magazine.

Buried treasure can be found in the Caribbean, and you don’t need a pirate ship to find it. The treasure comes in the form of affordable real estate in five sub-tropical markets primed for growth. These areas are all poised to experience an economic boom in 2013 and beyond, and that has put wind in the sails of North American baby boomers. Each market has an inventory of move-in-ready properties that are suitable for retirement and investment purposes. They are also relatively inexpensive.

As well, the large ex-pat populations there provide Canadians with the social familiarity they need to call a place home. Savvy investors are now moving to capitalize on the opportunity to furnish North American snowbirds with rental accommodations, at the same time they make second homes for themselves. CREW selected these areas based on average prices, expected rents, and projected economic growth. We spoke to local experts who explain why the time to get in on the ground floor and set sail for big profits is now.

Believe in Belize
An increasing number of Canadians are tapping into Belize’s thriving real estate market.

Located in the middle of Central America, Belize originally failed to command the attention surrounding countries have. But in recent years, the country’s real estate market has matured and Canadian buyers are getting an eyeful.

The country’s economy is relatively stable, which is good news for buyers. According to data from the International Monetary Fund, Belize’s GDP growth is forecast to climb 2.5 per cent in 2013, and jump by another 2.5 per cent in 2014.

Why invest?
Marie-France Dayan, founder of The Zen Investor in Montreal, has been behind some successful developments in the country. As she explains, there are five main reasons why Canadian investors are warming up to Belize.

“If you look at Belize in relation to North America, it’s very easy to access, as it’s only one hour and 45 minutes from Miami.”

Investing internationally also has certain legal pitfalls that can trap investors. But there are no so such traps in Belize as their legal structure is similar to Canada’s.

“Belize is part of the British Commonwealth, and the legal system they apply is based on common law,” says Dayan. “So in terms of ownership titles, the terms are very similar to those used in Canada.”

The country is also considered a “tax heaven” in the sense that there is no capital gain in Belize, Dayan says. “When an investor sells a property, there is no capital gain, and that’s important for us here.”

More foreign investors have been discovering Belize recently, as its markets are quickly emerging as real estate hotbeds. “Belize has yet to be discovered (by investors),” Dayan explains. “There is so much potential for growth, new businesses and ventures, and the prices are relatively low compared to other Caribbean regions.”

Belize’s hot spots
The country’s top markets include the Cayo district, which includes Belmopan, Belize’s capital. Dayan notes that this area has resonated well with tenants who are interested in eco-tourism.

“I would say that the Cayo district would be the number one place to go,” says Dayan. “The return on investment in this area is very good because people are just beginning to discover it, and it’s a great place to attract eco-tourists.”

San Pedro is another hot area. This city, notes Dayan, is known to be a big hit with vacationers. “San Pedro is one of the most visited areas in Belize,” she says. “The main attraction there is the beaches. From an investment point of view, it’s a great place because you would have (tenants) pretty much all year long.”

Financial issues
Many countries have strict rules for foreign business. These rules often discourage buyers from entering their markets, and can create headaches for those who already have.

“Whenever Canadians invest offshore, it’s always tougher to get mortgage conditions,” Dayan says. “It’s difficult because if they default on their loan, the banks have no choice but to go after the property.”

Belize’s mortgage rules differ from those in Canada. “You’re looking at about 60 to 65 per cent LTV for Belize,” Dayan explains. “The interest rates are high, and can be anywhere from nine to 11 per cent and the amortization rates are only between five and 10 years maximum.”

Looking ahead
As more foreign buyers begin to discover Belize, the market is expected to respond accordingly. Several new projects are in the works, a direct effect of the growing demand from those looking for retirement homes.

“Baby boomers are looking for a place where prices are affordable and they can feel comfortable and safe,” says Dayan. “Over the next 10 years, Belize is going to have a huge capital gain as a result of more people entering and leaving the market.”

Island insights
No Canadian investor is an island, but several have been looking to the Cayman Islands. There are plenty of properties in this region that are sure to keep portfolios afloat with steady profits.

Canadian buyers looking to expand into international markets will find that there is far more to the Cayman Islands than waterskiing, tanning, and the vacation lifestyle. The British colony’s property inventory is affordably priced, leading to increased business from foreign buyers.

Economic forecasts are favourable for the Cayman Islands, with the GDP expected to increase 1.8 per cent this year and by another 2.3 per cent the following year, according to the IMF. Analysis from TradingEconomics. com is even more optimistic, with growth of 3.44 per cent and 3.53, respectively.

Why invest?
“The Cayman Islands are not overpriced like some countries where they saw 60 to 80 per cent (fall) off their prices,” explains Heidi Kiss, broker and owner of Capital Realty in Grand Cayman. “We have slow and steady gains year after year.”

The Cayman Islands’ rules for international transactions are relatively relaxed, which has attracted more foreign business to the country. “There are no restrictions on foreign ownership, (and) the Cayman Islands (government) encourages foreign investment,” Kiss says. “The title can go into your own personal name or company name.”

Also comprehensive is how the colony’s government deals with land purchased for development. “We have a very sophisticated lands and survey system where the Cayman Islands government guarantees titles,” says Kiss. “So there are no worries that someone will come along and take back your property.”

Hot spots
George Town, the colony’s capital and largest metropolitan centre, is among its best markets. The properties in this market are generally affordable, and provide good rental returns.

“A two-bedroom condo generally sells for $350,000,” Kiss says. “You can rent them out for $2,500 net, and you can earn a 7 per cent ROI from them over time.”

As many Cayman Islanders are on short-term work permits, they prefer to rent. “We have a work force consisting of people who are here on two to three year work permits,” she says. “This means that they usually rent a condo or home for anywhere between $3,000 and $5,000 a month.”

Financial freedom
While other countries in the Caribbean region have strict rules for foreign transactions, Canadians find that the rules in the Cayman Islands actually work to their advantage. “There is no income tax, property tax, or capital gain tax on any properties,” says Kiss. “Additionally, there are no onerous landlord legislations.”

The Cayman Islands did not become a real estate hotbed overnight. It took several years for the colony’s markets to reach their current state. Kiss chalks this up to the stability of the market.

“There are no surprises here, just consistent income,” she says. “We have a small population of slightly over 50,000, (and) about half of those are foreigners on work permits or retirees from all over the world.”

The Cayman Islands are primed to continue their steady growth. As the colony’s employment market grows, the demand for new housing will naturally grow alongside it.

“We have been seeing a few very large projects across the country, and employment is on the rise,” says Kiss. “So there is a definite need for more housing.

“The Cayman Islands only started to be developed in the late 70s, so there are is a lot more land to develop,” says Kiss. “The infrastructure of roads, power and reverse osmosis water treatment, along with many upscale buildings, proves that there is a huge upside still to investing in Cayman.”

Riches in Costa Rica
As one of the most economically and politically stable countries in Latin America, Costa Rica is viewed as a safe bet. We examine why now is the best time to get a slice of the action.

From its political to natural landscape, there are many reasons why Costa Rica is viewed by investors as one of the safest emerging markets to expand their real estate portfolio.

Its exports remain strong, tourism numbers are at record levels while the country has one of the highest levels of foreign direct investment per capita in Latin America. Historically, Costa Rica has been a profitable real estate investment with 15-20 per cent returns recorded year-on-year from 2000 to 2008. The financial crisis did have an impact on the market, but prices have stabilized in recent years.

Foreign investors have been capitalizing on this particular market of late with purchasing activity already up 14 per cent in the first quarter of 2013 compared to the same period last year.

Economically, Costa Rica’s GDP is expected to rise, which will fuel investor interest. The IMF indicates that the GDP will increase by 4.2 per cent in 2013 and 4.4 per cent in 2014.

Why invest?
In the aftermath of the global crisis, overinflated real estate prices dipped to more realistic and fair market values, according to local real estate agents.

“There is definitely a lot more interest in Costa Rica as investors see the long-term potential there, especially with the new airport terminal providing more access and new residential development projects,” says David Otanez from Recap Investments. “Prices have levelled off, so now is a great time to consider buying.”

Gross rental yields in Costa Rica remains generally healthy with average figures between 6 and 7.8 per cent. “The rental market is quite strong, as Canadian and U.S. snowbirds and tourists continue to flock to the country,” he says. “Investors can get from between $125 to $150 per night on a short-term rental basis. The returns in the long run are just as attractive.”

Hot spots
Costa Rica’s hot spots are the northern Pacific Coast and the southern zone. The former can be accessed by the Daniel Oduber International Airport in Liberia near the popular Guanacaste Gold Coast.

The southern zone is considered as the best place to invest due to advances in infrastructure, including a planned new airport and highway. A number of government-approved projects are expected to drive up property values and boost the region.

Much of the commercial activity is taking place in the Central Valley and San José’s greater metropolitan area.

Buying in Costa Rica
It is relatively easy to buy property in Costa Rica with a simple tourist visa. Many foreign investors set up a private business or corporation, as there is a lot of commercial freedom and protection with this method. It is even possible to establish a corporation in Costa Rica without having to obtain legal residency or citizenship. The taxes paid are based on gross income but applied to net income through this method.

Locals and foreigners enjoy the same rights in terms property ownership in Costa Rica. All potential buyers should hire a lawyer to carry out an independent title search and investigation to ensure the title details are true and accurate. When buying Costa Rican property, the title is transferred from seller to buyer by executing a transfer deed (escritura) before a public notary.

Otanez warns investors to be cautious and practical when assessing potential properties in Costa Rica. “As with all countries, there are a few good and bad projects, so due diligence is essential, especially when you are looking at the title of the land lot,” he says. “Look at regions that enjoy positive tourism figures, are near major access routes and (ensure) that the developer is legitimate.”

Once a sale has been agreed, a 10 per cent deposit is generally required and it is recommended that the monies be placed in a government-registered escrow account. Final closing can take between 30 and 60 days and it is also recommended to get title insurance to safeguard buyer interests.

Prices
Prices in Costa Rica vary from coast to coast. “You can pay anything from $65,000 to $250,000 CAD, depending whether it’s a land lot, house or new development,” says Otanez. The least expensive properties are more prominent in “up and coming areas,” such as the new developments in the South. Otanez says there has been a significant increase in residential development in recent years with many investors gravitating towards gated communities.

“With the U.S. local economies improving again, prices in Costa Rica are also rising as Americans are increasingly attracted to the region,” says Otanez. “I have seen that in some areas, but there is still a lot of value and return for investment.”

There have been an increasing number of Canadian real estate investment companies buying land in Costa Rica to construct eco-developments. Otanez says this type of investment is more suited to those who are more interested in buy-and-holds than flipping.

“The best returns are in the long run, especially as the country is set to continue enjoying increasing tourist and snowbird numbers.” With more foreigners moving into Costa Rica, demand for high end property has risen in key areas, such as San José.

Tenancy laws
Costa Rica’s tenancy laws are still very much pro-tenant. Rents can initially be freely negotiated between landlord and tenant and the minimum lease term is three years but the tenant can cancel it by serving a three month notice period.

If the rent has been agreed in any foreign currency, no yearly increases are allowed. Increases are only permitted if transactions are agreed and paid in the Costa Rican currency (the colones), while unpaid rent can be very difficult to collect.

Heating up in Honduras
To find the best real estate investment opportunities in Honduras, one must look beyond the tropical climate and attractions. Investor Randy Jorgensen did that, and is now profiting from the experience.

Successful real estate portfolios are not built overnight. It took Randy Jorgensen 16 years before he found the answers he had been looking for. A frequent visitor to Honduras, particularly the city of Trujillo, he realized there was money to be made there.

“After 16 years of vacationing and visiting, becoming familiar with the local regulations, and developing relationships, the opportunity presented itself, as Honduras began to encourage foreign investment with a focus on tourism,” the CEO of Life Vision Properties recounts.

“I felt if Honduras met all the criteria and Trujillo specifically met the ambience and location expectations I had; it would for others as well.”

In addition to being a great area for investing, the country’s economy is relatively strong. According to the IMF, the GDP is forecast to expand by 3.3 per cent in 2013 and 3 per cent the following year.

The first purchase
Originally from Moosomin, Sask., Jorgensen took the first step and built a vacation home in 1992. “My initial purchase was 42 acres with 1,000 feet of beachfront,” he says. “The property was covered with extremely thick jungle that could only be walked across by blazing a trail with a machete.”

Jorgensen knew that he faced an uphill battle with the undeveloped land. “The property was raw land with no services or infrastructure with a large swampy, low area,” he says. “The purchase price was $50,000 USD, and the original documentation stated 50 acres.”

He also faced issues with the actual size of the land. “It is common in Honduras for land size to be significantly different from documents to actual survey,” he continues. “The final size should only be accepted if a recent survey by a qualified surveyor and reviewed by a qualified civil engineer.”

Once the land survey process was complete, Jorgensen performed an extensive cleanup of the area. “After purchasing the land, plans were made to clear the property so topography could be conducted and further plans for road access, power, water, drainage where required, and choosing a site for the home,” says Jorgensen.

Jorgensen generally prefers to focus on areas that have had some development, as it makes the process easier for both investors and developers. “Clearing and infrastructure costs initially cost about $60,000,” Jorgensen says. “The low cost was mainly due to the ability to perform most of the work myself without paying outside contractors, and the luxury of taking four years to complete.”

Hot spot: Trujillo
Since entering the market 21 years ago, Jorgensen has always focused his attention on Trujillo. “I personally have begun developing property producing serviced acreages to enable ease of acquisition for foreign property owners, specifically Canadians,” Jorgensen says. “Currently, 1,500 acres are under development with 500 lots sold to date.”

Two key factors are responsible for Trujillo’s growth. The first is affordable average prices. Many properties in Trujillo can be purchased for between $200,000 and $250,000, according to the Global Property Guide.

The second reason is an expected influx of retirees and vacationers over the next 15 years. “The time to purchase at an affordable cost grows shorter each year, so anyone considering a tropical property should take action sooner than later to enjoy the lower pricing still available.”

Developing a strategy
As Jorgensen began to add to his portfolio, he developed an investment strategy that would best fit his personal needs. “When purchasing property as an investment, I first decide if it’s a short-term (3 to 5 years), or long-term (10 to 20 years) project,” he says.

He prefers the long-term approach when it comes to his holdings. He says he finds this method more financially stable and less susceptible to changes that may occur in the market.

Before entering a foreign market, Jorgensen advises investors to perform a detailed analysis of the area they’ll be targeting. “In both short– and long-term investments, use of the property needs to be clear, exit strategy developed, target market identified, and improvements to add value begin immediately,” he says. “Carrying costs need to be included in the projections and personal use needs a value assigned.”

Obtaining finance
One of the biggest obstacles Canadian investors face with international properties is obtaining financing. Jorgensen experienced a litany of financial issues when he began investing in Honduras, but he was able to find some solutions over time.

“Leveraging equity in current assets, (and) then using the funds to purchase the investment property is the most common (solution), followed closely by paying cash from (your) savings,” he reveals. “Vendor financing is sometimes available, particularly on serviced lots and raw land, but improvements, such as home building, will need financing as above, or be paid by cash.

“I usually only leverage the property when a clear income is being, or can be, realized that will carry the debt,” Jorgensen says. “I usually only consider this (for) commercial properties or long term residential rental properties, and only if I need the cash for a specific purpose; otherwise, I just enjoy the cash flow and income they produce.”

Although his portfolio has been profitable, Jorgensen believes his holdings have the potential to boost the Honduran economy. “(They) will provide a much-needed industry that will support local residents, create reasonably-paying jobs for young people, create government revenue to improve public services, improve and expand recreational activities for vacationers and visitors and expand product and service selection to improve living conditions for local residents,” he says.

Treasure islands
The Turks and Caicos Islands, located north of the Dominican Republic, is emerging as one of the fastest-growing markets in the Caribbean region.

Why invest?
A rapidly emerging market, Turks and Caicos is only beginning to attract Canadian investors. “Currently, the prices are down to what they were prior to 2008, when the economic situation in most of the world went down,” explains Kathryn Brown, Chief Operating Officer of ERA Coralie Properties.

The numbers tell the real story about the region’s market. “If you want a two-bedroom condominium, you will probably pay between $450,000 and $800,000, depending on where the development is, and the size of the unit,” she says.

Single-family homes are also attractively priced. “If you’re buying a home, you may be able to get a two-bedroom home for $250,000,” says Brown. “Most properties are sold fully furnished. The reason for this is because there is not often enough room to move furniture.”

She also believes the returns will increase in time. “I would say that the properties here can provide Canadians with good returns,” says Brown. “Going forward, the returns will be even better, and our values are already starting to increase.”

Dealing with financial issues
Many countries have stringent rules for conducting business. However, this is not the case in the Turks and Caicos Islands, as there is far less for investors to worry about there.

“We have no taxes,” Brown says. “There is no property tax, income tax, or any other tax. There is, however, a one-time stamp duty that is paid at the time of purchase, depending on the price.”

The Turks and Caicos Islands rely on the British legal system for business dealings, similar to the Canadian system. “We are a British protectorate, which means that we are under British common law,” says Brown. “So when your name is on the deed, this guarantees ownership of property.”

Sourcing finance from financial institutions there is also much easier. “Our banks here are all Canadian banks,” Brown reveals. “Canadians can get access to some of the major Canadian institutions, including Royal Bank, Scotiabank and CIBC.”

Looking ahead
The Turks and Caicos Islands weren’t always a popular investment locale. “Ten years ago, most Canadians had never even heard of the Turks and Caicos Islands,” Brown says. “And now, when it’s mentioned, people say the opposite. We have a great reputation, and anyone that comes to visit comes home and tells their friends and family about it.”

Brown is optimistic about the colony’s potential. “I believe that the future of the Turks and Caicos Islands is very bright,” she says. “We are a developing country, and we’re just getting started. We will never be like the Dominican Republic or Jamaica, but the islands are trying to maintain their integrity as being a paradise. And that’s what people expect when they come here.”

From Canadian Real Estate Wealth Magazine, a monthly publication focused on building value through property investment, covering topics such as values and trends, mortgages, investment strategies, surveys of regional markets and general tips for buyers and sellers.

Dreyer Group Home Series: How to Save on Your Vancouver Home Heating Costs – Consult with Bruce Coleman, Vancouver Mortgage Broker

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How to Save on Your Vancouver Home Heating Costs

Winter is almost upon us and the thermometer is a witness to the diminishing temperatures. All of you who own homes also know that your heating costs are going to climb as a result.

That’s the bad news. The good news is that there are ways and steps that you can take to lower those heating costs and the measures you take can vary according to your budget.

Some of the following tips won’t cost you a dime while others will only involve a small investment.

No Cost Money Saving Heating Steps

Thermostat and Water Heater

One of the obvious first things you can do to lower your heating costs is to lower your thermostat. It’s a no-brainer but here’s something that maybe you didn’t know about. Most experts say that as a rule of thumb you can save as much as 3% on the monthly bill for each degree that you turn it down.

If you’re going to work, skiing for the weekend or simply to sleep each night then why no lower your thermostat down to about 10 degrees. Between your sleep time and work time, this will work out to about 16 hours each day from Monday to Friday which could to a savings as much as 14% per month.

You can also adjust the temperature on many water heater models. Lowering it by a mere five degrees will not be very noticeable and will save you money.

Fans and Fireplace/Wood Stove

Be wary of any kitchen or bathroom fans which expel air outside. Don’t let them run needlessly because they’re bleeding off your heat.

If you have a fireplace or wood stove then make sure that the dampers are fully closed when not being used. If they are not in use then this is just another way that heat can seep outside.

Heating Vents, Curtains and Rooms Not in Use

Check your heating vents to ensure they are not being covered up or blocked by rugs, furniture or other items.

Curtains can also help save some money. Open curtains which are facing the sun and close curtains which don’t. At night time, close all your curtains as that will help reduce the effects of draughts and keep heat inside.

If you aren’t using a room such as the bathroom, a spare room, bedrooms or other rooms, then ensure you keep the doors closed because you’re simply spending money on heating rooms that serve no purpose. If they have individual thermostats then make sure they are either turned completely off or sufficiently lowered.

Low Cost Heat Savings

If you’re a bit handy with tools then you can do many of the following on your own.

Fixing Draughts and Heat Leaks

Check around doors and windows, and electrical outlets with either a candle or piece of incense. It will tell you if have an air leak or draught. Many leaks can be fixed with any of the following that can save as much as 10% on your heating costs.

• Replace old or damaged caulking as poor caulking can see a lot of energy seepage.
• Add door sweeps or weather strips around doors because houses do settle and the frame might be just a smidge out of alignment.
• Buy programmable thermostats. It’s easy forget to turn thermostats up and down as needed, so buy one that you can programme and change the hours and temperatures to your needs so you don’t have to worry about it.
• Consider outlet gaskets for leaky electrical outlets
• Buy a thermo blanket for your water heater and consider investing in swaddling material for your hot water pipes.
• If your windows are only single paned, then consider adding on some specialized plastic film
• Purchase a shower-head which is low flow and won’t waste as much hot water. There are also sink faucets which can do the same thing to save on your hot water use.

If you’re concerned about your heating costs, there is a lot you can do to reduce your bill but it’s all comes down to you.

101 Series: Advice on How to Relocate to Another City – Consult with Bruce Coleman, Vancouver Mortgage Broker

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Advice on How to Relocate to Another City

Many professionally employed Canadians will encounter situations where they are being transferred to Vancouver or relocated to another city.

They may have changed jobs or recently been hired for a new position in another city. A good many of these urban dwellers already own a home and want to continue with home ownership.

Whether you’re moving from another city to Vancouver or just the opposite and are looking to buy a home in that new city, here a few tips to help you get relocated more smoothly and quickly.

Research your New Location Beforehand

Needless to say, the Internet is the best place to start. You can get everything planned out in advance by checking out many of the applicable local websites beforehand. Some of the ones you might to research before your move include:

• Municipal websites – Start with the official city website and you will get a good detailed synopsis of what the city is like and what it has to offer. You ca use their maps to get a gander at the neighbourhood zoning as it relates to your place of work. These maps will give you an idea about transportation access, availability of public transportation, schools and any other services you require.
• Real Estate Brokers – There is an abundance of available real estate agents with their own websites that can give you a snapshot of their experience. When you find one that suits your needs relative to the type of home you want, then you can email them whatever questions you have so you can initiate your search for a new home quickly.
• Mortgage Broker – You will need to finance your new home and you want the best rates and terms for your new mortgage so you will want to find an experienced broker such as myself to help you find the most suitable lender.

Finding Temporary Digs

Relocating to a new city means that either you alone, or you and your family will need some temporary accommodation for the transition period. Just about every city has an abundance and variety of accommodations that can be rented monthly. It also depends on what your employer will cover.

For some cities, finding temporary accommodation can be a challenge especially if the city you’re moving to is especially active such as Vancouver, Calgary or other hot spots. Temporary accomodatins can be anything ranging from executive apartments which you can lease on a temporary basis, an actual apartment which allows for short leases, or a motel/hotel with kitchen facilities.

As you or your family may be required to live in those accommodations just remember that many of your home furnishings and possessions may end up being in temporary storage in the meantime. This means you will have to very selective about the things you will need to have on hand for the duration.

Buying a new home along with selling your previous home will take time so plan for a temporary stay of anywhere from 1 month (if you’re really fortunate) to as long as 3 or more months before you can move into that new home.

Additional Things to Research

When you’ve settled into your temporary accommodation, and as your realtor begins selecting homes for you to view and your mortgage has been pre-approved, there are several other areas which you must prepare in advance including:

• Finding a real estate lawyer. Your real estate or mortgage broker may have some suggestions, but again you do most of your own research online.
• Find an insurance broker. If your current insurance broker isn’t a national brand then you will also want to find a local agent to get title insurance and your home and contents insured.
• Find a Home Inspector. An experienced home inspector should also be obtained to ensure that any prospective home you’re thinking of buying is free of problems and won’t end up being a “money pit.”

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Mortgage referrals to banks could lead to conflicts of interest

Where are the Top Prices for Homes and Condos in Canada? – Consult with Bruce Coleman, Vancouver Mortgage Broker

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Where are the Top Prices for Homes and Condos in Canada?

Those of you who like to invest in real estate in Vancouver should also realize that Vancouver doesn’t necessarily have to be the only city in Canada where you can invest in real estate. If you’re buying property as rental income or strictly as an investment there are other markets you might want to consider for the single family home or condo.

If you’re wondering what’s happening in the housing market elsewhere in the country, here is brief synopsis of what’s happening in some of the other major urban markets.

Halifax Housing Market

Over the past year both condos and 2 story homes saw the biggest gains with both seeing an average price increase of 5.9%. A two story home in Halifax is valued roughly at $329,333 while a condo is $214,000. Prices for a detached bungalow rose 2% to $299,000.

St John’s Housing Market

In St John’s there was a significant price appreciation for 2 storey and detached bungalow homes along with condo price increases. All three saw an average increase of around 12.1% right across the board. A two storey home is worth around $329,333, a condo is valued at $214,000, while a detached home rose to $299,000

Montreal Housing Market

Prices in Montreal saw a slow start with some stabilizing later on. Buyers were more preferential towards 2 storey homes which rose 3.9% with an average price of $403,007 and the market saw less demand for detached bungalows which had a meagre increase of 0.6% and were valued at $289,306. Condos saw an increase of 1.6% and are valued on average at around $239,819.

Ottawa Housing Market

Ottawa saw its major preference in the area of high end price homes. A 2 storey home rose 2.4% to $401,500 while a detached bungalow rise 2.3% to $398,417, but prices for condos actually declined by 1.1% to $259,000.

Toronto Housing Market

Toronto started slow but saw an increase later on in the year as the prices of a detached home which rose 5.0% to $577,563 and 4.1% for a 2 storey home which climbed to $678,016. Condo prices were relatively flat and rose a modest 0.3% to $355,483.

Winnipeg Housing Market

Prices in Winnipeg remained relatively flat until the third quarter when the price for 2 storey homes zoomed up to 8.6% for an average price of $346,765. A detached bungalow increased by 4.2% to $307,069 and condos increased by 3.5% to $195,226.

Regina Housing Market

Housing and condo prices rose early but began levelling off later on in the year. The biggest gain was for 2 story homes which rose by 3.5% to $372,250 while prices for detached homes were relatively flat at an increase of 0.4% and average $336,500. Condo prices rose by a modest 0.9% and are valued on average at $212,622.

Calgary Housing Market

Calgary saw a problem with low housing inventory and an increase in corporate workers and saw a detached bungalow rise by 7.2% to an average of 465,411 while a 2 storey home rose by 3.4% to $465,411. Condo prices in Calgary rose by 5.6% to an average condo valued at $446,411.

How to determine if you are ‘house poor’ – Consult with Bruce Coleman, Vancouver Mortgage Broker

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How to determine if you are ‘house poor’