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Pick the right term, pay off mortgage faster – Ask Bruce Coleman, Vancouver Mortgage Broker

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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

The trick to making a mortgage disappear faster is to minimize your total borrowing cost. And nothing dictates total borrowing cost more than the term you chose.

Picking the right term is even more important than selecting the best lender, choosing the appropriate mortgage features and finding the lowest rate. Choosing the wrong term can lock you into a punitive rate for years to come or, conversely, expose you to rising rates because you haven’t locked in for long enough.

“Term” refers to the length of a mortgage contract. The most common option is the five-year fixed term, chosen by well over half of Canadian borrowers.

But popularity doesn’t make a mortgage right for you. The ideal term will vary as interest rates and your financial circumstances change.

In the last two months, longer-term fixed rates have jumped by up to half a percentage point. That’s made certain terms less appetizing than others. These are some of the best and worst terms du jour – the stars and the dogs of today’s mortgage market.

THE STARS

Four-year fixed

Four-year fixed rates are still less than 3 per cent, and will save you about one-third of a percentage point versus the interest rate on a five-year fixed term. Multiply that by four years and you’re talking about potential savings of more than a couple thousand dollars of interest on a $200,000 mortgage.

To be sure, a five-year fixed term may shield you from rate hikes for one extra year, but it also boosts your chances of paying a penalty if you break or renegotiate your mortgage early.

If you instead take a four-year term and renew into a one-year term, you’ve covered the same five-year timespan and given yourself more flexibility in the process. Bump up the payment on your four-year mortgage to match a higher five-year payment and you’ll whittle down your mortgage even quicker.

One-year fixed

One-year fixed mortgages are low-margin products that most lenders don’t push, but they can be an attractive product for the right borrower. For starters, one-year fixed mortgages come with rock-bottom interest rates, roughly 2.39 per cent as we speak.

That’s a good solution for well-qualified borrowers with less than 15 years remaining on their mortgage – who don’t mind taking a gamble that interest rates will stay low for longer.

One-year terms are also an ideal substitute for a variable rate. The rates on a one-year term are lower up front and you can renew into a variable rate mortgage in 2014, a time when many expect variable-rate discounts to improve. If you would rather lock into a fixed rate at renewal, you can secure that rate ahead of time – typically six to nine months after starting your one-year mortgage.

THE DOGS

Five-year variable

You’ll save 0.40 percentage points by choosing a variable rate mortgage instead of a four-year fixed term. But you give up all rate protection, which could come in handy by 2015. Moreover, the 0.5 percentage point discounts on the prime rate (that today’s variable mortgages offer) could improve by next year with a drop in lenders’ cost of funding these mortgages.

Three-year fixed

Unless there’s a good chance you’ll break your mortgage in three years, look elsewhere. The 0.10 percentage points you’ll save off a four-year fixed term could easily be offset by higher rates when you renew.

Seven-year fixed

Mathematically, seven-year terms are a bad idea and almost always have been.

The few extra years of certainty simply don’t justify the rate premium you’ll pay over a four- or five-year fixed rate.

If you’re that worried about inflation driving up interest rates, shell out another tenth of a percentage point and get a 10-year term.

THE IDEAL MORTGAGE

Calling one mortgage term the “best” is like declaring the best flavour of ice cream. The ideal mortgage is different things to different people.

Picking the right term rests on your individual circumstances and will depend upon the risks that you may face. If there’s a significant possibility that your cash flow may dip in a few years, or that you won’t be able to prove your income or credit worthiness at renewal, then a one– or four-year mortgage may not be worth it.

Instead, the extra up-front cost of a 10-year fixed might actually be justified.

Moreover, if your debt levels are above-average, you might not even qualify for a variable-rate or a one- to four-year fixed term. (Lenders’ affordability standards are stricter on those terms.) If that’s the case, you may be forced into a five- or 10-year fixed term. There’s no question that more folks will wind up in this boat as rates climb and qualifying becomes tougher.

All that said, spend as much time on picking a term as you do on picking a rate. Your investment in time will pay dividends through lower borrowing costs.

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

Get a mortgage without a salary – Consult with a Vancouver Mortgage Broker for help

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There are things that you can do to help you qualify for a mortgage.

Landing a mortgage is trickier for the self-employed than their salaried counterparts. Not only do self-employed people face higher interest rates and CMHC mortgage insurance premiums, they are also more likely to have their loan applications rejected outright. If you’re self-employed, you’re best off seeing a mortgage broker a few years prior to your purchase so you can make a plan.

It sounds counterintuitive, but you may want to keep tax deductions to a minimum for at least two years before applying for a mortgage. You’ll show more income on your tax return, which will make it easier to qualify. “It’s about foregoing some short-term tax savings in order to qualify for a future mortgage,” says Scott Plaskett, CEO at Ironshield Financial Planning. You want to show income stability, he says.

Keep in mind that the larger the down payment, the better your chances of getting a low-rate mortgage, as greater equity means less risk to your lender. While banks are fairly strict on their lending criteria, a mortgage broker can help you access other types of lenders that are more likely to approve your loan.

-Vanessa Santilli

By Special to MoneySense | From MoneySense Magazine, Summer 2013

101 Series – Preparing your Landscaping for Home Viewing Re-Sale

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One of the first things that a prospective buyer notices when they approach your home is your front yard. This is known as “curb appeal” and makes a vital first impression when you are trying to sell your home.

How important is the quality of yard? Well, you might be surprised to learn that a well-groomed front yard actually helps sell a home five times quicker than an unkempt yard. It’s the psychological effect that can create a positive or a negative mindset of a prospective buyer before they even step inside your home.

Although you might have taken the time and spent some money on prepping the inside of your home, take some time and groom the exterior as well.

Here are a few ideas to get you started in the right direction.

Planning

You want to draw u some kind of plan before you make any landscaping improvements. Most landscaping experts suggest you take a two-fold approach. The reason is that most properties consist of both the front and the back yard.

You should draw a scaled diagram and for both yards and consider that each has a different function. The front yard is a reflection of the people who own the home and what you want to focus on here is “eye-appeal.”  This is the area that should concentrate on a bit of artistic endeavour.

The back yard is where people like to relax and enjoy their down-time. Here, you might want to consider both privacy and the deck area along with an aesthetic or functional approach.

Basic Maintenance

If you don’t have the cash or a lot of time to spend on your yards, you still have to do the basic maintenance when you are showing your house. Sweeping the walkway or hosing down the driveway will make it look cleaner.

Don’t forget your exterior windows and make sure they look nice and clean. Sweep away any cobwebs and maybe consider adding some fresh caulking if it’s looking old, weathered or cracked.

You also might want to consider pressure washing the siding or the back yard deck. If your deck is showing a bit of wear and tear then you it might be time for some fresh staining.

If you have a wooden door or shutters, then a bit of prep work and some fresh paint can make all the difference.

You want to weed any flower beds, and trim away all the dead branches. It is also a good idea to neatly trim the edges of flower or shrub beds. And, nothing makes a yard look more appealing when the lawn is freshly mowed and raked.

Also, clear away any clutter such as toys, bikes and tools because the neater the look the greater the appeal it has for a prospective buyer.

Increase Eye Appeal by Adding Some Colour

If your front yard is plain or bland looking than you might want to add some colour to give your property some extra visual impact. If you’re are lacking some ideas then take a walk around the neighbourhood to see what catches your eye or visit the local garden center as they have the expertise on how to get some very appealing colour contrast that will add some visual appeal.

You can get perennials or shrubs that flower at different times of the growing season so your yards always have some stunning colour that stands out.

It’s the little things that catches a person’s eye and says a lot about the people who own the house.

Can you handle higher interest rates? – Consult with a Vancouver Mortgage Broker

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Garry Marr  | @DustyWallet

It may be stressful to think about it but higher mortgage rates are on the horizon.

The questions for homeowners is whether they can handle a hike in interest rates.

Bank of Montreal says consumers should stress test their mortgages a couple of ways, considering higher interest rates and a shorter amortization period.

Canadians new to the home market can be particularly vulnerable to changes in the mortgage market.

“First-time buyers should stress-test their mortgage to ensure they are well financially prepared for home ownership and a potential upswing in interest rates, not only to manage costs but also to pay off their mortgage as soon as possible,” said Frances Hinojosa, a mortgage expert with Bank of Montreal.

While new governor Stephen Poloz did not raise the overnight lending rate, the Bank of Canada did indicate this past week the long-term goal is still a “gradual normalization” of rates. The overnight lending rate, which prime tracks, has an immediate impact on variable rate mortgage.

Consumers with long-term loans may already be feeling the squeeze. If you are coming up for renewal, it may be time to work in higher rates into your budget.

The fixed-rate five-year closed mortgage, which was once as low as 2.99%, has risen steadily in the past few weeks and is closer to 3.5% at most banks. It’s only a different of 50 basis points but it means a larger payment.

On a $500,000 mortgage with a 25-year amortization, at 3% your monthly payment would be $2,366.23 and you would pay $69,346.66 in interest over a five-year term. Take that same mortgage and raise the rate to 3.5% and the monthly payment jumps to $2,496.36 and the interest over the term reaches $81,180.96.

The real question might be what are you going to do if rates rise to 5%. That $500,000 mortgage with a 25-year amortization would now cost you $2,908.03 and the total interest cost over the five-year term would jump to $117,018.99.

“It remains vital for Canadians, particularly homeowners, to be prepared for for the inevitable rise in interest rates,” said Ms. Hinojosa, adding Canadians should also consider shorter amortization periods.

It’s been just over a year since federal government cracked on the maximum length allowed for amortization for insured mortgages backed by taxpayers. The maximum length is now 25 years, down from a peak of 40 years. A longer amortization period lowers monthly payments and allows consumers to qualify for a larger loan.

That $500,000 mortgage with a 5% rate would become even more burdensome if the amortization length was cut to say 20 years — not something Ottawa is currently considering though.

With a 20 year amortization, the monthly payment would jump to $3,285.63. The good news is the interest over the five-year term would drop to $114,029.48

gmarr@nationalpost.com
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How to turn your property into a vacation rental- Ask a Vancouver Mortgage broker

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Want to make a few extra bucks renting out your home when you’re out of town? Or maybe you have a cottage you’d like to rent out when you’re not using it. Here’s what you need to know to turn your property into a money-making vacation destination.

Dropping off the keys

All property owners have their own rules about handing over the keys, says Bordo. Some hide them under a rock, others have secure key holders near the front door that require a pass code. Some even take the time to meet with renters in person and walk them around the property. Returning the keys can be as simple as tossing them through a mail slot in the door.

Go the extra mile

“Marketing your property doesn’t end when your renter signs up,” says Bordo. You need to offer the same level of hospitality as a hotel. “Leave a bottle of wine or chocolates as thank-you gifts,” says Bordo. Doing so will help ensure they’ll rent from you again and they’ll give you a great review.”

Avoiding problem guests

Worried your place will be trashed? Ask your renters for references and look them up on Facebook and LinkedIn—a professional is less likely to punch holes in your walls. Rental sites can tell you if anyone has lodged a complaint about them. If you’re really worried, try meeting the renter in person or chat by phone. As a final protection make sure you ask for a deposit of between 15% to 20% of the rental fee to pay for any damages.

Your sales pitch

Before you can rent your place, you have to get noticed. Sites likeCottageCountry.com and Airbnb offer one-stop spots for listings, but you still need to stand out from the crowd. Start by writing a detailed description of your property that flaunts the features of your place and highlights local amenities and activities, says Mark Bordo, founder and president of CottageCountry.com. Crisp high-quality photos are key. Make sure rooms are cleared of clutter and well-lit.

Make sure you’re covered

“Once you start offering your property for rent the standard home insurance policy won’t apply,” warns Pete Karageorgos of the Insurance Bureau of Canada. If renters damage your property you may not be covered. Before you rent, call your insurance company to add appropriate coverage (usually called a rider or endorsement), he says. You also need to be aware of any local or provincial laws that could restrict short-term rentals.

What should you charge?

Airbnb suggests researching nearby hotels and other vacation rentals to get a sense of what the market will bear. Low prices are a good way to get people through the door initially and will help you build up reviews. There’s money to be made: The average place on CottageCountry.com goes for about $1,500 a week. The major sites accept credit cards from renters and pay you directly so you don’t have to worry about a renter skipping out on the bill. Typically the money is transferred to you via PayPal when the renter leaves.

101 Series: How to Find an Interior Designer – Consult with a Vancouver Mortgage Broker

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Whether you just bought a home or condo, you might not be satisfied with the look. It doesn’t matter whether it’s a brand new or older property as you want may very well likely want to make your own statement about what your new purchase says about you.

Bank Break Fee Calculators Can be Unreliable – Ask a Vancouver Mortgage Broker

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Bank Break Fee Calculators Can be Unreliable

If you want break from your mortgage early then you obviously want to know what your lender will be charging you for “break fees.”

To make this process more transparent, the Federal Finance Department implemented new changes just recently which requires banks to provide you with online guidelines and penalty calculators.

Although this new requirement makes the process more convenient for borrowers, one problem which has emerged is that the quote you receive from a bank lending representative and what is displayed by the calculator shows can have a significant discrepancy. The quote provided by the rep versus the calculator can contain anything from a minor to a major difference.

Some Background

Back in September of 2012, the FCAC (Financial Consumer Agency of Canada) required that all banks would now have to provide penalty calculators along with a description of the formula used on their website.

The purpose was that consumers would know how much they could expect to pay when it cam to deciding whether to refinance or renew their mortgage. The most popular mortgage in Canada is the 5 year fixed mortgage and almost half of the people who opt for this mortgage alter it before the term ends.

And, many of those who do refinance or decide to renew their mortgage early have to pay what is called a “prepayment charge” or penalty to do so.

Anyone who wants to consider this route also wants to know the mortgage break penalty prior to refinancing because a very expensive penalty can make refinancing too costly.

The idea of requiring penalty calculators was meant to empower the borrower so they could estimate their penalty before making their decision but some problems have emerged with these calculators.

Problems with Online Breakage Fee Calculators

The biggest problem that has emerged is one of accuracy. In one instant there was one consumer who obtained an online penalty quote from a calculator that was just slightly more than $1,000 than what they received in writing from the bank rep.

When the bank was asked about the discrepancy, they claimed they didn’t want the customer to be unpleasantly surprised. They also pointed out that Penalty Disclosure requirements outlined by the Feds specifically requires that the calculator estimate should be higher than the actual penalty.

To be fair, most discrepancies that you find between the bank reps and the calculators are relatively small, but this is not always the case. There are no FCAC guidelines that stipulate how close the discrepancies between the estimate and the actual penalty should be.

Some calculators Are Confusing

Another problem with these online calculators is that they require information which is obscure and leave people as being uncertain about what they should input. Some of these banks make your search around their site time consuming as you have to search their sites for data which could have been automatically input for you.

Some of the data required can lead to the input of incorrect data which could result in costly mistakes.

Who Has the Best and Worst Calculators?

The most user friendly calculator is found at ING bank. One of the most unfriendly user calculators is found at HSBC which requires looking up much more detailed information than calculators found at other online bank sites.

Although calculators are a convenient tool, you should not consider the results as being entirely accurate. If you make a simple input error, the mistake could mean thousands of dollars. So, use the calculator as a tool but you should always call the bank to get a quote from one of their reps so you don’t end up unpleasantly surprised.

A New Site for Private Mortgages – Consult with Bruce Coleman, Vancouver Mortgage Broker

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A New Site for Private Mortgages

One of the newest sites set up to assist independent mortgage brokers help their non prime borrower clients find suitable lenders is called Strategic Matches. The purpose of this site is so these “B” borrowers can find the best possible deal online through their broker.

This site is simple to use. All the broker has to do is complete their client’s application and submit tit o the site. The results show all the lenders which meet the borrower’s needs. The broker can send their client’s application to either just a single lender or to any number of lenders that show up in the results.

The lender has 2 days to reply by either making a commitment or getting in touch with the broker. After the lender provides a quote, then the broker’s client has 2 days to accept the commitment.

The Advantages of Strategic Matches

• Many brokers prefer to use lenders they know. Strategic Matches allows the offer to come from lenders they don’t know and exposes the deal to more lenders which can help the borrower have a better chance in finding a better rate and even possibly better terms or fees.
• Both the broker and borrower can save time as a broker has to spend more time manually when shopping around for a private deal for their clients.
• This site also allows the lender to pre-screen their deals more easily because they can set their own criteria that they enter so they don’t have to waste time on deals which don’t meet these criteria.
• This site is also convenient for those private lenders who want to attract business when they have the available cash to lend.
• It is also advantageous for a broker because they can retain control of their files such as when they have to co-broker with another broker or a “B-desk.”
• Another advantage for brokers is that they won’t have to split their broker fees with another party unless it’s an in-house deal.

The Disadvantages of Strategic Matches

• Strategic Matches isn’t free and takes as commission a ¼ point from each broker that closes a deal. This will likely be passed back to their client through a broker fee which has been marked up.
• There are also some lenders which will take a submission that has been sent multiple lenders and require the submission be made on an individual basis and then must wait before sending to another lender. This could be a bit more time consuming for the broker.
• Another problem is that the broker may not perform sufficient due diligence on the lender before they recommend it to their client.

The focus right now for Strategic Matches is currently in B.C. which currently has 29 lenders on the system. Additionally, there are14 lenders from Alberta and another 7 lenders from Ontario who signed onto the site. The site intends to continue to promote more lenders from the latter 2 provinces in the next little while as the demand grows.

Also, the focus is strictly for residential financing but commercial lenders may be added later on. The site is a simple premise that promises to be very convenient for brokers, lenders and consumers.

Canadian housing market defies skeptics as starts top expectations – Vancouver Mortgage Broker, Bruce Coleman

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TORONTO — Canadian housing starts were stronger than expected in June and May figures were revised higher, according to data released on Tuesday, the latest report to show the property market rebounding from last year’s government-induced slowdown.

The seasonally adjusted annualized rate of housing starts was 199,586 units in June, according to data from the Canadian government’s housing agency. Analysts polled by Reuters had expected 187,000 starts in June.

The Canada Mortgage and Housing Corp also revised May starts higher, to 204,616 from the 200,178 originally reported.

The stronger-than-expected numbers helped boost the Canadian dollar in early trading.

With sales finding a floor in recent months, prices well behaved and homebuilding close to demographic demand, the soft landing story looks firmly in place

The latest data come exactly one year after tough new mortgage rules aimed at cooling the market came into effect. Canada’s Conservative government tightened the rules in a bid to prevent a possible housing bubble.

Those rule changes, the government’s fourth such crackdown since the financial crisis, succeeded in dampening housing market activity.

But after nearly a year of cooling sales and concern that Canada could have a U.S.-style housing crash, demand has roared back in key markets, helped by borrowing costs that remain near historic lows.

“Canada’s housing market continued to defy the skeptics in June, not to mention Mother Nature and a bout of labour market unrest,” BMO Capital Markets economist Robert Kavcic said in a note to clients.

“With sales finding a floor in recent months, prices well behaved and homebuilding close to demographic demand, the soft landing story looks firmly in place.”

The data on Tuesday showed starts of single urban homes decreased by 4.1% to 62,743 units in June. Starts in the multiple urban starts segment, which includes Toronto once-booming condominium sector, decreased by 2.0% to 114,342 units.

Urban starts increased in the west coast province of British Columbia, but fell in all other regions, including Atlantic Canada, Ontario and Quebec.

The report suggest homebuilding was likely a mild contributor to second-quarter economic growth, rather than a drag, said Emanuella Enenajor, an economist with CIBC World Markets.

“We still see housing slowing in later quarters, although that softening will likely be deferred until late 2013 and 2014,” she said in a note.

© Thomson Reuters 2013

First-time home buyers undeterred by mortgage rules and rates – Bruce Coleman, Vancouver Mortgage Broker

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by Garry Marr 

About two-thirds of first-time buyers say they’ll purchase a home as planned and are unaffected by new mortgage rules brought in by Ottawa a year ago, says a new survey.

The findings come as the banks continue to increase long-term interest rates in the face of rising bond yields but refuse to bump up the posted rate for a five-year, fixed rate closed mortgage — a key measure in deciding how much a consumer can borrow after the new rules were introduced.

Rates on the five-year mortgage have been rising steadily since the beginning of May in response to bond yields. At one point the Bank of Montreal offered a five-year, fixed rate closed mortgage for as little as 2.99% but that’s now up to 3.59%.

Meanwhile the posted rate has stayed at 5.14% at most banks. That posted rate is used by Ottawa to establish what is called the qualifying rate for consumers who require mortgage default insurance. Consumers not locking in for five years or more face the qualifying rate but since it has hasn’t risen they can borrow as much as ever.

A department of finance spokeswoman noted the five-year is set by the Bank of Canada and is based on the posted rates at Canada’s largest banks.

“The Government continues to monitor the mortgage market and protect taxpayers,” said Stéphanie Rubec manager, media relations, via email. “Prices for financial products, including mortgage interest rates, reflect a financial institution’s business decisions. Due to the fact that taxpayers are the ultimate backstop for government-backed insured mortgages, financial institutions are expected to lend prudently.”

Farhaneh Haque, director of mortgage advice and real estate-secured lending at Toronto-Dominion Bank, said for most consumers it hasn’t had an impact because the majority of mortgages are for longer than five years — meaning consumers can use the lower rate on their contracts to qualify.

“The profile for our customers is the longer term anyway so it hasn’t had a material impact,” said Ms. Haque.

The Bank of Montreal survey, conducted by Pollara, found on the one year anniversary of the latest mortgage rule changes 66% of Canadians buying for the first-time will do so as planned.

Among the other changes was shortening of amortization lengths from 30 years to 25 years. The survey found 14% of Canadians will buy sooner, partially out of fear rules could get even tougher.

Meanwhile there is very little to indicate the posted rate will be rising any time soon, despite the fact government of Canada five-year bond has risen about 65 basis points since May 1.

“You do have to remember when rates where at all-time lows they didn’t lower the qualifying rate either,” said Rob McLister, editor of canadianmortgagetrends.com. “I have never talked to a banker or lender who has openly admitted they are keeping the rates low to qualify more people.”

He says it’s mostly a practical issue for qualification because very few people actually take the posted rate. Mr. McLister said some lenders like to keep it low to appear more competitive.

But there is no question the qualification rate will have to rise if bond yields keep rising. Plus, rising long-term rates might send people back to cheaper variable rate products, creating a more urgent need to tighten loan requirements.

“Once you get a one percentage point gap between short-term and long term, people start looking at variable,” said Mr. McLister.

David Madani, an economist for Capital Economics, agrees it is just a matter of time before the qualifying rate and posted rates start to jump. “There is usually a bit of a lag,” said Mr. Madani.

One bank economist, who asked not to be named, said there is a caution at the banks right now about the bond market. “They want to know that these rates are here to stay,” said the economist.