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What you need to know before, and after, buying a condo – Ask Bruce Coleman, Vancouver Mortgage Broker

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What you need to know before, and after, buying a condo

ROB CARRICK–  The Globe and Mail

Dan Barnabic, a former Realtor, developer and consumer advocate, has a number of tips for would-be condo owners.
(Fred Lum/The Globe and Mail)

Your life as a homeowner will likely include some time in a condo. Condos suit young adults, and retirees who want to downsize. As houses rise in price, more people in between those extremes may opt for condos. Given the strong foundations for condo demand, there are surprisingly few resources available to help people make smart buying decisions.

Into this void comes a new book called The Condo Bible For Canadians: Everything You Must Know Before and After Buying a Condo. (Read anexcerpt from the book here.) It’s written by Dan Barnabic, a former Realtor, developer and consumer advocate who now runs a paralegal firm in Toronto. Here’s an edited transcript of a recent conversation I had with Mr. Barnabic about condos.

What accounts for the big rise in popularity of the condo as a place to live?

It’s basically hype fuelled by several forces, many of them developers. The buildings themselves were built much nicer – not better – than ordinary apartment buildings, and they had more amenities. You had swimming pools, you had gyms, you had perks that made you say, why not? As a result, things mushroomed to the point of a deluge of condo towers, especially in Toronto.

Don’t you agree that condos serve a need for some people?

Yes. Condo ownership can be very advantageous for some, including older people who are tired of the hassles of maintaining a house.

What’s the main reason for unhappy condo ownership experiences?

The No. 1 reason is the management of the complex. You can hardly find a condo complex in which the tenants are very happy with the way it’s being run.

What’s the role of the condo board, and how can I make sure they know what they’re doing before I buy?

The condo board is supposed to be in charge of the governance of the complex, making sure that money is being spent properly, that management of the condo is performing its job diligently, that the proper bidding takes place for any repair – stuff like that. You have to find out for yourself if the board is doing its job. Talk to the residents and ask them if they’re happy.

When buying a condo, you suggest starting with a low offer, say 75 per cent of asking. Won’t that just insult the seller?

Is it better to try and get a chance of a better price on a condo, or should you worry about insulting the seller? You’ve got nothing to lose. The worst that will happen is that you’ll be rejected.

Can you explain your warning about buying a condo in a building where more than 25 per cent of units are rented?

If you’re an owner, then it is obvious that you will take care of your condo, that you will not abuse the common elements, that you will look after the amenities.

Tenants simply don’t have the same interest, and you don’t expect them to because they’re not owners.

How can I tell if condo fees in a particular building are reasonable – not kept low to suit the short-term interests of residents, or so high as to work against resale?

You have to basically hit the pavement and compare – go around to other buildings and ask how much people pay and how big their units are.

Special assessments in addition to regular condo fees are a recurring horror story of condo ownership – how can you avoid them?

There’s no such thing as avoiding them. In the first 10 years of a condo, not much happens and it’s unlikely you’d face a special assessment.

After that, the roof is usually good for 10 years and then you have to start patching it up. Elevators start coming into play in 10 years if they’re well made. Outside balconies can become a problem.

There have been reports about leaky condos in Vancouver and falling windows in Toronto – how do you protect yourself against buying a poorly built condo?

The idea is to check on the reputation of the builder. Buying a condo really requires two months’ preparation time to do your due diligence on everything. There are reputable builders, and we have to recognize that. But there are also guys doing things in a hurry to make a buck.

Where do you live?

I am actually renting a very nice apartment on the top floor and not worrying about what expenses the building may incur.

———-

Which makes more financial sense – owning a condo or renting an apartment? Read an excerpt here from The Condo Bible for Canadians by Dan Barnabic.

Talk of rising interest rates no reason for homeowners to panic – Consult with Bruce Coleman, Vancouver Mortgage Broker

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ROMINA MAURINO-  The Canadian Press

Per cent blocks.
(Golkin Oleg/Getty Images/iStockphoto)

Talk of rising interest rates tend to make homeowners jittery and, if you have a big mortgage, you may be feeling extra nervous.

But while Bank of Canada Governor Stephen Poloz may have made some people uneasy when he spoke in a televised interview last week about the likelihood of rising long-term fixed rates, experts say not to panic.

Peter Veselinovich, vice-president of banking and mortgage operations with Investors’ Group in Winnipeg, says that while rate increases are expected, any change will not be “as dramatic as the sound bite that comes out of an interview with Mr. Poloz.”

“People immediately assume that means (rates) continually rising over a short period of time and that it’s a cause for concern,” Veselinovich said.

“It’s certainly not a ‘sky is falling’ type of message. It will be modest increases.”

Poloz said last week he expected long-term interest rates to rise in response to tapering by the U.S. Federal Reserve, which has already decided to reduce its monthly $85-billion bond purchases by $10-billion.

A change in interest rates would translate to higher mortgage payments, although that would only apply to people with variable ones, since fixed-rate mortgages don’t change for the duration of their term.

Most home owners currently have fixed-rate, five-year mortgages. The mortgages come with the peace of mind of knowing what your payment will be, but with an interest of about 3.5 per cent.

Variable mortgage rates usually hover around 2.5 per cent, since they are based on a floating rate based on prime and are adjusted with each change in prime. Rates have been low since the financial crisis of 2008.

Variable rates appeal to home owners who want to minimize the size of their payment or pay the debt off sooner, but require a financial cushion to account for any changes, should interest rates increase. They also provide more flexibility than fixed mortgages, since most variable mortgages will let you convert to a fixed rate at any time during the term, for a fee.

Robert Stammers, director of investor education for the CFA Institute, said that when it comes to picking a mortgage, it’s important to consider why you purchased the home and how long you plan to live in it.

“You really have to understand — Am I buying this asset to hold it for three (years) and then go up into something else or relocate? Because that will really drive the kind of debt decision you’ll make,” he said.

“If you’re going to be in your home for a short period of time and that’s the reason that you have floating rate debt, then you may be OK because you were expecting some rise in rates over the time period,” he said.

What soft landing? Bullish realtors see no slowdown at all for ‘strong’ housing market – Ask Bruce Coleman, Vancouver Mortgage Broker

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What soft landing? Bullish realtors see no slowdown at all for ‘strong’ housing market

Not only does Royal Lepage not expect a correction in Canada’s housing market, they say conditions are right for a rebound not seen since after the recession.

TORONTO — The latest Royal LePage housing survey shows average price of a home in Canada increased between 1.2% and 3.8% in the fourth quarter of 2013.

It says the average cost of a standard two-storey home rose 3.6% year-over-year to $418,282, while detached bungalows went up 3.8% to $380,710.

Royal LePage says the price of a standard condominium rose 1.2% during the quarter to an average of $246,530.

The real estate company says prices are expected to maintain a “healthy momentum“ this year and rise a projected 3.7% over 2013.

CEO Phil Soper says late 2013 saw the housing market transition to “buoyant sales volumes“ and above-average growth.

He says that in the absence of “some calamitous event or material increase in mortgage financing costs,“ he expects positive momentum to characterize 2014.

“We predict continued upward pressure on home prices as we move towards the all-important spring market.“ he said.

“Talk of a ’soft landing’ for Canada’s real estate market in the new year is misguided,“ continued Soper.

“We expect no landing, no slowdown, and no correction in the near-term. Conditions are ripe for as strong a market as we saw in the post-recessionary rebound of the last decade.”

We expect no landing, no slowdown, and no correction in the near-term

Separate data out Thursday was not so optimistic however. Three separate reports released on Thursday showed a cooling trend, with weaker-than-expected readings for November’s new housing price index and building permits, and December’s housing starts.

Building permits fell by a sharper-than-expected 6.7% in November, more than double the 3.0% pullback expected by analysts, while housing starts dropped to 189,672 units in December, shy of economists’ forecasts for 190,000.

“The decline (in building permits) is in line with our expectation that residential construction will soften in the coming year in the face of affordability challenges to a pace more in line with underlying demographics,” CIBC World Markets economist Peter Buchanan said in a research note.

Statistics Canada said Canada’s new housing price index did not change in November, after a 0.1% rise in October, with prices rising in eight metropolitan areas, unchanged in eight and declining in five.

Canada’s housing market avoided the crash experienced in the United States five years ago due in part to more conservative lending standards and a stronger economy. While economists have long predicted an eventual correction in Canada, they are divided over whether prices will drop sharply or simply stagnate in a so-called soft landing scenario.

Prices in the closely watched Toronto-Oshawa region were up 0.1% on the month and a tame 1.4% on the year. Vancouver, to which authorities also pay attention, fell 0.2% on the month and 1.3% on the year. The oil town of Calgary was up 0.4% since October.

With prices stabilizing, economists expect new construction to cool further in 2014. Starts for all of 2013 slowed to 188,200 units, down sharply from 215,000 in 2012 and the lowest full-year tally since 2009, according to Robert Kavcic, senior economist at BMO Capital Markets.

“In fact, outside of that recession year, it was the slowest year for starts in more than a decade. We expect further cooling to about 180,000 units this year, which would reflect balanced overall building activity,” Kavcic said in a research note.

Notably, starts for both houses and multi-units – typically condos – fell in December. Condominium construction fuelled building in Canada’s biggest cities, including Toronto and Vancouver, during the height of the boom, but has since slowed dramatically. Many observers fear a glut of condos coming to market in 2014 and 2015 may drive prices lower, but are divided over whether a correction would spread to the broader residential housing market.

The outsized drop in November building permits was offset slightly by an upward revision to October data to show an 8.0% gain in the month, according to Statistics Canada.

Residential construction intentions sank by 7.6% with both single- and multi-family dwellings declining, while the nonresidential sector dropped by 5.2% as institutional and industrial building plans decreased.

Commercial building intentions, however, were once again robust, with the value of permits hitting a record level over the past 12 months, according to Kavcic.

With files from Canadian Press, Reuters

Beware of Big Bank Mortgage Penalties – Ask Bruce Coleman, Vancouver Mortgage Broker

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Beware of Big Bank Mortgage Penalties

The majority of Canadians still prefer to use the large banks when it comes to taking out a mortgage on their home. And, generally they often stick with the bank that they have their accounts, credit cards and some form of lending history.

For many mortgage borrowers, the reason you choose the large banks is because you simply do not have enough information on alternative mortgage lenders. Large banks tend to appear financially stable and many mortgage investors are still skittish about the recent economic turmoil.

The other side of the coin is that many of these mortgage borrowers will want or need to refinance your mortgage at some point. Breaking your mortgage before it comes to the end of the term means you will have to pay a “mortgage penalty.”

It turns out that close to 7 out of 10 mortgage borrowers will make some form of adjustment before their mortgage term ends and are doing so to either refinance their existing mortgage or moving to purchase a larger home.

Even though you might have obtained a mortgage rate which was lower than the rate posted by the bank, you might not be aware exactly how the bank will calculate the penalty. This can cost you thousands of dollars more than you might have been expecting.

Although you got a rate which was lower than the rate posted by the bank, most of these guys use the posted rate when it comes to calculating your mortgage penalty. These penalties are actually quite expensive and almost punitive in nature.

Mortgage Penalties for Variable Mortgages Versus Fixed Rate Mortgages

If you have a variable mortgage, the penalty is generally what you would pay for the comparable amount of three month’s interest.

If you have a fixed rate mortgage, it is based on the calculation of the IRD which is short for “Interest Rate Differential” or alternatively uses the higher of three month’s of interest. Many, but not all banks may simply use the posted rate when factoring this in to calculate the penalty.

It’s vital that you clearly find out whether the bank will be using the posted rate or the actual rate to calculate the mortgage penalty. Given the cost of homes in Vancouver and the mortgages people have to carry this can be significant difference in terms of how much you will have to pay in penalties when it comes to breaking the mortgage.

The reason why some experts say the banks do this is to ensure they keep you in the fold and so you won’t go with a competitor.

Who Has Cheaper Mortgage Penalties?

Yes, there are alternatives but that means you have to go with non-traditional lenders. Most alternative lenders asides from banks are more flexible when it comes to mortgage penalties and the savings can be in the thousands of dollars when it comes to what you will have to pay as a penalty. They also often have better rates.

Before you jump on the “Big Bank” band wagon to get your mortgage, consider the idea of getting not only better rates but less restrictive mortgage penalties by using an alternative lender instead.

The easiest way to learn more about the security of an alternative lender is to speak with a knowledgeable mortgage broker such as myself as we can help you compare the savings when it comes to deciding whether to get your mortgage with the banks and what other sources of alterative lenders are available so you don’t get stuck in the “Big Bank” trap.

Home Series: Should You Buy A Fixer-Upper? – Consult with Bruce Coleman, Vancouver Mortgage Broker

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Should You Buy A Fixer-Upper?

A home that has become rundown and poorly maintained can be either a great opportunity or a dreaded money pit if you aren’t careful.

Some people love older homes and you are very likely to snap them up at below market price, and spend time and money on renovations which can greatly enhance the value when you are finished.

This sounds good in principal and can often be very advantageous, but there is the other side of the coin that can bleed you financially dry if you don’t choose wisely

Figure Out the Costs Beforehand

It all boils down to dollars and cents. You need to do the following before you take the plunge when buying a fixer-upper. The offer you should make depends on the comparable real estate value of reasonably well maintained similar homes in that particular neighbourhood minus the costs of renovating the home.

The key is to be somewhat more liberal than conservative when making these estimates and you might add as much as another 5-10% on top to account for additional costs resulting from unexpected problems.

Always Use a Home Inspector

Although you might be fairly knowledgeable about home construction, there can be many issues you might easily overlook which can really hit your bottom line. A qualified licensed home inspector can help you more readily pick out the faults of the home and pinpoint what requires maintenance and expensive major renovations. You can also use the results of the home inspection when it comes to making a more equitable offer.

Which Fixer-Uppers should you Avoid?

Many renovation projects have a good ROI but some do not because the problems encountered are not visible and add little to increasing the overall market value of the home.

You should avoid any fixer-upper which has foundation problems. These are very expensive renovations and do not markedly add to the market value. Other problems which center on old electrical and plumbing problems should also be a red flag because these are also expensive renovations that do not significantly increase the market value. Another type of fixer-upper is one which might require a major addition such as an additional bedroom or family room because they also do not have a spectacular ROI.

Which Fixer-Uppers Pay Best?

The best fixer-uppers are ones that largely need cosmetic improvements, because these types of renovations do have a good to excellent ROI. This could include both minor and some major cosmetic renovations depending on your budget and the condition of the home.

You can include some cosmetic and some minor structural renovations such as including a skylight if you have to replace the roof. The key is not to over-improve the home above and beyond how it fits into the neighbourhood and how it affects the market value of the home.

Both major and minor cosmetic improvements could projects such as a partial or complete kitchen and/or bathroom renovation. Other improvements can include replacing old or tacky fixtures, redoing the floors, adding newer and more energy efficient doors and windows, outdoor siding, a deck.

Homes seem to add more value when they are visually renovated because they have more appeal to buyers.

You can save a lot of money if you are skilled at DIY projects, but remember that you should do the project right.

The Key Questions to Ask About Your Mortgage – Consult with Bruce Coleman, Vancouver Mortgage Broker

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The Key Questions to Ask About Your Mortgage

Whether you’re obtaining your mortgage directly through a bank or getting one through a mortgage broker, you will need to ask a lot of questions to get the best deal. It’s better if you are prepared beforehand and should have these questions written out regardless if you’re new to the process or been through it already.

Although you might think the mortgage rate is the most important factor, some of the responses you receive to your other questions may require you to re-think that the cheapest rate may not necessarily be the best deal for you.

You have to think down the road and consider such things as refinancing or what the penalties will be if you break a mortgage as the costs can outweigh the small benefit of a slightly cheaper rate and can end up costing you more than you think you will get with a slightly lower rate.

Key Mortgage Questions to Ask

The following questions should be posed to both a banking rep or to a mortgage broker when looking for the best possible mortgage deal

• Simply make sure you ask whether the rate they are quoting is the best possible rate they are offering given your circumstances. Ask whether they will match the rate if you find a similar one someplace else.
• Ask how long they will hold the rate and what the length of the holding period, and whether the lender will adjust rates should they fall.
• Ask whether the lender will provide you with a discounted rate when the mortgage comes up for renewal
• Ask about the lenders extra repayment options and how often they can be made, and whether there are any penalties involved
• You also want to know whether the lender will allow you to increase your ongoing mortgage payments as you financial situation changes because increasing your payments will help you to pay off your mortgage more rapidly.
• Another big question to be very clear about mortgage penalties if you break your mortgage before the term.
• Make sure you are very clear how the lender calculates mortgage penalties which you can also likely calculate using the lenders online mortgage calculator.
• Ask about what mortgage portability such as the terms or length if you plan to move to another home or property and what penalties might be involved.
• Ask about any restrictions or whether the lender will offer discounted rates when it comes to refinancing the mortgage and whether your mortgage is readvanceable (applies only if you have at least 20% equity). Note that that there are two types which include either manual or automatic.
• Ask whether you can split you mortgage into different parts which are known as “hybrid mortgages” and allows you to lock in a potion of your mortgage at a fixed rate with the other portion at a variable rate.
• Ask whether the lender offers early renewals
• Ask about the flexibility when it comes to the amortization.
• If you plan to sell your home to a sibling or one of your children you might also want to ask whether the lender will allow the mortgage to be assumed.
• Ask about “payment vacations” which allows you to skip a mortgage payment which can be important to someone who is self employed or works seasonal.

These are but a few of the key questions to keep in mind. But as you can see, there is a lot more to keep in mind than just the interest rate when it comes to finding the best terms for your mortgage.

Toronto home prices up almost 9% from last year at $520,398 – Ask Bruce Coleman, Vancouver Mortgage Broker

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December home sales in Toronto were up almost 14% and prices were up nearly 9% compared with a year earlier, the Toronto Real Estate Board said Monday

TORONTO — December home sales in Toronto were up almost 14% and prices were up nearly 9% compared with a year earlier, the Toronto Real Estate Board said Monday.

The board said sales through its multiple listings service totalled 4,078 for the month, up from 3,582 in December 2012.

Sales for all of 2013 totalled 87,111, up about 2% compared with 85,496 in 2012.

“After a slow start to the year, sales growth accelerated to a brisk pace in the second half of 2013,” Toronto Real Estate Board president Dianne Usher said.

“Despite the inclement weather in December, we finished the year with a respectable gain in transactions compared to 2012.”

The average price for a home sold in December was $520,398, up 8.9% compared with $477,756 in December 2012.

New listings for the Toronto market in December were down by almost 4% over the same period.

The results for Toronto followed a report last week by the Real Estate Board of Greater Vancouver that sales for December totalled 1,953, up 71% from 1,142 a year ago.

For the full year, the Vancouver board said sales of detached, attached and apartment properties in 2013 reached 28,524, up 14%from 25,032 sales in 2012.

“Home sales quietly improved last year compared to 2012, although the volume of activity didn’t compare to some of the record-breaking years we experienced over the last decade,” Vancouver board president Sandra Wyant said.

The total for 2013 was the third lowest for the region in the last 10 years.

Fewer Canadians will contribute to their RSPs this year: poll – Consult with Bruce Coleman, Vancouver Mortgage Broker

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Fewer Canadians plan to contribute to their retirement savings plans this year, according to a study released Monday.

Retirement savings jar
(Jupiterimages/Getty Images/Comstock Images)

Three in 10 – 31 per cent – are making plans to sock away some money in their RSPs (including registered and non-registered accounts) in 2014, an 8-per-cent decrease from 39 per cent in both 2012 and 2011, the poll by Bank of Nova Scotia found.

Of respondents with RSPs who have considered increasing their contribution, 74 per cent cite lack of affordability as the top reason for not contributing more often. That’s down from 84 per cent in 2012.

The survey also indicates that more Canadians are taking money out of their RSPs.

Among RSP holders polled, 40 per cent said they have withdrawn funds from their RSP, up 4 per cent from the 36 per cent in 2012.

The top reason for dipping into the funds is to take advantage of the federal Home Buyers’ Plan to buy or build a first home: 16 per cent, compared with 15 per cent in 2012.

That’s followed by the need to cover day-to-day living expenses – 8 per cent, up from 5 per cent in 2012 – and paying down debt (8 per cent versus 6 per cent in 2012).

“RSPs continue to be an important and tax-effective way to maximize retirement savings. If affordability is an issue, a financial advisor can help identify ways to make that all-important contribution, big or small, as well as develop a financial plan to help achieve retirement goals,” said Mike Henry, senior vice president of retail payments, deposits and lending at Scotia.

On a regional basis, the lowest rate of RSP investment for the 2013 tax year in the poll was found in British Columbia, at only 20 per cent.

The highest rate of RSP withdrawals is also in B.C. – 42 per cent.

The bank’s annual investment poll was conducted using Harris/Decima’s online panel. A total of 1,029 completed surveys were collected from a random sample of panel members across the country.

The survey was conducted between Nov. 12 and Nov. 27, 2013.

Five Canadian mortgage market predictions for 2014 – Consult with Bruce Coleman, Vancouver Mortgage Broker

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ROBERT MCLISTER–  Special to The Globe and Mail

Expect more rule tightening in 2014 designed to reduce mortgage risk for lenders, mortgage default insurers and the government.
(Deborah Baic/The Globe and Mail)

1. New mortgage rules

Expect more rule tightening in 2014 designed to reduce mortgage risk for lenders, mortgage default insurers and the government. By definition, those rules will make it slightly harder to get approved for some mortgages and further slow the housing market.

2. Credit unions will steal market share

Since they’re provincially regulated, credit unions have more flexible lending guidelines than federally regulated banks. They’ll use that to their advantage in addition to marketing more heavily, both online and to mortgage brokers. We’ll also see some big mergers this year as credit unions seek out economies of scale.

3. Stronger online players

A new breed of online mortgage broker is sacrificing commissions for volume, and selling cut-rate mortgages. This trend will heat up competition industrywide, delivering greater mortgage discounts to all consumers.

4. Hybrid mortgages will grow more popular

Economists and government officials have been warning us of higher rates for four years. So far they’ve been wrong, and now many consumers aren’t sure what to believe. More Canadians will hedge their rate bets with hybrid mortgages (part fixed and part variable).

5. Consumer IQs will increase

For those in the mortgage industry who prefer an uninformed consumer, your days are numbered. Canadians will spend more time researching rate comparison websites, online mortgage forums, news portals, blogs, calculators and other online mortgage tools. They’ll become increasingly savvy about fine print like penalty calculations, rate blend policies and refinance restrictions. (Find tips for securing the best mortgage in Robert McLister‘s Mortgage Checklist.)

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.

3 Financial Predictions For 2014 That Will Be Good For Your Wallet – Consult with Bruce Coleman, Vancouver Mortgage Broker

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What will the New Year bring? NerdWallet predicts it may come with a few changes that will boost your bank account.

The personal finance site published a list of upcoming financial trends and policy changes that could shape 2014. We pulled out three predictions that would be good for you and your money:

Credit cards will offer more perks.
“Last year, a number of high-end credit cards began offering partnerships with other products, from free FICO scores on some Barclays cards to Amazon Prime memberships with the American Express Blue Cash credit cards,” according to the site. Next year, more credit cards will likely offer similar perks to distinguish themselves.

Credit scores will become more realistic.
Since TransUnion joined Experian this year in factoring in rental payments in credit scores, NerdWallet expects credit score calculations to move toward rewarding people for living within their means rather than for borrowing money.

Pay-as-you-go car insurance will gain popularity.
To save on car insurance, NerdWallet predicts more drivers will move to use-based insurance plans, which use technology to measure mileage and driving habits. The plans reward drivers with savings and discounts for low speeds and less driving. According to Computerworld, major insurance companies such as Progressive, State Farm, National General, and Esurance currently offer such plans, but they may pose privacy risks.