Thursday, March 31, 2011

Experts Best at Brokering Mortgage

Cheryl Hutton and Aaron Coates always thought getting a mortgage would be a challenge. But within 18 days of visiting a mortgage broker, they were able to close a deal on a new townhouse in Calgary without a hitch.

Now in their early thirties, both have careers in the theatre, something Ms. Hutton says has been a bit of a sticking point with banks. "In our industry we never fit the paperwork guidelines 'for the banks.' For some reason, people don't think we pay our bills."

Although it was their first home purchase, Ms. Hutton says it was surprising how easy the whole process was once they had someone who could walk them through it. "He sat us down, told us what our options were, showed us that it was possible and explained all the steps we needed to take. If it wasn't for him, we may not have made the leap."

Sorting through a mortgage process and negotiating rates can be overwhelming for first-time and seasoned home buyers alike. That's why people such as Ms. Hutton and Mr. Coates turn to brokers to do the legwork for them.

Yet mortgage brokers will tell you that a good portion of home buyers out there don't really understand what they do. "Part of the challenge we have in our world is that people aren't really sure what a mortgage broker is," says Gary Siegle, regional manager for Invis Inc., a mortgage brokerage firm in Calgary.

Brokers should not be confused with "rovers," mortgage specialists attached to a specific financial institution who visit customers outside of banking hours, Mr. Siegle explains.

"They only deal with that bank's product. A broker, however, is an intermediary whose job is to make a match between a lender and a borrower. We represent the individual, not the bank."

About 30% of mortgages in Canada are done through a broker, according to Perry Quinton, vicepresident, marketing, for Investor Education Fund, a Toronto-based non-profit financial information service.

"The reason more people don't know about them is because the banks are so visible. It's easy to gravitate to them when you have your savings accounts, credit cards and investments there already," Ms. Quinton says.

Going for the comfort factor could cost you however, she adds. "A broker has access to different lenders including banks, and can shop rates and features. A half per-cent may not sound like much but that could make a difference of about $20,000 for a $250,000 mortgage amortized over 25 years. Any little bit helps."

Mr. Siegle confirms that shopping around can deliver significant savings. "Let's take today's average posted rate of 5.44%, and you get a point off that at your bank. So you think you just got a really great deal. But the vast majority of rates we deal with as brokers would be another 30 basis points lower - around 4.14%. And if you look at preferred deals that don't offer features such as prepayment privileges, it can get as low as 3.89%. That's another 25 basis points below what's generally available."

The reason for that is simple, he says. "We offer wholesale rates, banks offer retail."

For anyone considering a broker, Ms. Quinton advises people to do a bit of groundwork first if they have the time. "It helps to educate yourself about options and what you can afford. Look at all your living expenses, including student loans and credit card debt. Chances are you are understating those."

Another thing to look into is the different types of available mortgages and features, including interest rates, payment frequency, amortization, cash-back programs and the ability to make lump sum payments.

"Knowing these things before you go in can save you a lot of money," she adds.

Any mortgage broker you choose should always meet the right licensing and education requirements, so be sure to check their registration.

If you're not completely prepared, however, that shouldn't be a concern when working with a good mortgage broker, Mr. Siegle says. "After all, mortgages are pretty much all we do. So even if you come in cold, good brokers will walk you through the process and ask all sorts of questions," Mr. Siegle notes.

"You just need to be prepared to answer them openly and honestly so they can get you the best deal possible."

Denise Deveau, Postmedia News National Post - March 30, 2011

Monday, March 28, 2011

Three ways to free up monthly cash flow

Let's face it - we can all use a little extra money in our pockets. While getting a raise or finding a higher-paying job may be in the cards for some of us, for the rest it's not as easy. That's why it's important to review your existing expenses every once in a while to uncover new ways to 'trim the fat'. Below are three areas you might want to target first: 1. Car Insurance. As is the case with mortgages, when it comes to renew their auto insurance policy, most car owners opt to blindly renew with their existing insurance provider, rather than shopping around. If your policy is up for renewal in the coming months, you may want to do a bit of shopping yourself, or ask your insurance broker to do the legwork for you. Some policies differ by as much as $600/year or more - and if you switch your home insurance to a packaged policy, the savings can be even greater. 2. Communications Services. Most households spend the bulk of their discretionary income on communications - such as phone, cable, Internet and cell phones. If your communications bill has ballooned to a larger number than you'd like to see, it might be time to give your communications provider a call. It seems every week they're offering a different promotion that could end up saving you significant cash. Just call their customer service line and, if you have more than one service with them, ask if they can walk you through each one to make sure you're getting the best possible deal. Another option is to re-evaluate your services. If you haven't watched the movie channel in months, or could realistically get away with just using your cell phone instead of both a land line and a cell phone, trim away! 3. Bank charges. If you're the type of person who gravitates towards the nearest ATM - regardless of whether it's your home bank's or not - you may want to spend a bit of time tallying up your bank fees. If you're racking up ATM fee or overdraft charges, it may be time to re-evaluate the type of account you're using. For an additional monthly fee, many banks will increase the amount of times you can use Interac or external bank machines. Depending on how much you're currently spending in bank fees, the higher package may be worth the extra cost. -Axiom Mortgage Partners

Tuesday, March 22, 2011

35 year amortizations are gone- but not entirely

While Canada's tighter mortgage rules - which took effect on March 18 - saw the maximum amortization drop from 35 years to 30, that rule actually only applies to insured mortgages.

Any mortgage has to be insured if it makes up more than 80% of the value of the home. So if you have a 20% down payment or above - or if you have more than 20% equity in your home upon renewal - you don't require the help of CMHC or its counterpart, Genworth Financial. Technically, that also mean you should be able to get your hands on a 35-year amortization.

The thing is, as we've seen with the tightening of previous mortgage rules, lenders seem to abide by the government's new guidelines whether they are offering insured mortgages or not. This time around, however, certain lenders are going out on a limb and continuing to offer 35-year amortizations for "conventional" (or uninsured) mortgages. One lender that comes to mind is ING Direct.

Many lenders, however, are still opting to eliminate the 35-year amortization all together. If you're up for renewal, or in the market for a new mortgage, and would like to obtain a 35-year amortization, drop me a line and I'll be sure to tell you what your options are.

-Axiom Mortgage Partners

Tuesday, March 15, 2011

Keep more coins on your piggy bank with the HBTC!

What is the HBTC?

Since it’s tax season I figured it’s a good time to remind all of you about the HBTC. The HBTC applies to individual’s that have purchased a property after January 27th 2009. If this applies to you, you may be eligible for the First-Time Home Buyers' Tax Credit offered by the federal government.

Click here to get the nitty-gritty on the program!

Monday, March 14, 2011

Don't treat your mortgage like rent!

For many first-time buyers it is easy to get into a new home and a mortgage and continue to treat the same way you did when you were renting. You can make a significant impact on how quickly you payoff your mortgage by just paying a little attention to it.

While renting you get into the habit of paying your regular monthly rent bill month in and month out. With your mortgage it is important to remember that you have the opportunity to pay extra whenever you can. Yes, I know paying extra never sounds like a great idea. Trust me, in the instance it is a fantastic idea!

By making additional regular payments you can significantly shorten the time it takes to pay off your mortgage and therefore save yourself thousands of dollars. Lets consider a real life example of a first-time buyer with an aggressive mortgage paydown strategy. Lets call them Jane and Joe. Jane and Joe realized that their mortgage was potentially going to be the biggest purchase they ever made (Yes, more expensive than their house if they took a full 35 years to pay it off). They asked their mortgage broker about some strategies to reduce their mortgage faster.

Their mortgage broker recomended bi-weekly accelerated payments to start, that is they took the regular monthly payment (amortized over 25 years) divided that by two and made that payment every two weeks. As any of you who get paid every two weeks knows, that means that there are two months out of the year where they were making 3 payments. The net effect of this was to reduce their amortization to about 21 and a half years.

Joe really liked the idea of getting rid of their mortgage faster and once he got into the house and established their budget he started looking for other ways to accelerate the mortgage paydown. The couple had a water cooler that they had brought from their apartment that cost them $26/month, they also had those 'free' (for the first 3 months) movie channels that actually cost them almost $40/mo. Joe quickly removed both of these expenses and called his bank to increase his bi-weekly payment by $50 (now they were down to about 18.x years).

The couple took their tax refunds over the next 3 years and applied them to the mortgage each year (down to under 14 years now). They had originally taken a 3 year term at 7.15% in 2000 and when it came up for renewal they were fortunate enough to obtain an interest rate of 4.49% for a new five year term. They kept their payments the same as the previous term so now they were paying off a substantial portion of principal each month. This combined with the application of more tax refunds left them in a spot where today (2011) they are now mortgage free!

Now you may not want to be quite as aggressive as Joe and Jane, but the point is that with a little bit of effort and focus you can make a substantial impact on the amount of interest you pay over the life of the mortgage without significantly affecting your lifestyle.

-Axiom Mortgage Partners

Saturday, March 12, 2011

Talking about mortgage penalties...

Peter Taylor, with ReMax in Edmonton interviewed me last Friday for his video blog. The topic? Mortgage payout penalties.
What's the deal with payout penalties? If you sign a closed mortgage and end up paying your mortgage out early, you'll incur a payout penalty. Generally speaking, most institutions charge a 3 month interest penalty or an interest rate differential, charging you whichever number comes out the highest. The difficult part to figure out, in regards to payout penalties, is how to actually calculate yours. This is simply because different mortgage lenders calculate the penalty in a variety of ways. It can get very complicated and confusing. Thankfully, in the March 2010 federal budget, the Finance Minister Jim Flaherty, promised to work on standardizing the mortgage payout penalties charged by lending institutions. This would be a welcome move, appreciated by mortgage consumers and independent mortgage brokers across the country!
Should you have a question regarding a mortgage penalty, please contact me anytime!

Thank you Peter for taking the time to interview and promote me!

Here's a clip of my interview with Peter. Wow! I didn't realize how much I talked with my hands (try your best to ignore my flailing limbs which seem to almost take Peter out a few times)! :)

Wednesday, March 9, 2011

A shout out to my fellow industry members, this is basic stuff!

Last week I received a call from someone that was selling their house and was already working with a mortgage broker but wanted a second opinion.
You see, she had listed her house for sale, via a real estate agent and was pre-approved by a mortgage broker.
She was planning on paying out her mortgage and getting a new mortgage on the new house for credit reasons.
The reason that she phoned me was that her mortgage broker originally told her that her payout penalty with one of the big banks would be $2,000, thus leaving her enough money, after all was said and done, for a down payment on her new house.
The problem was, when this woman phoned her bank directly, she was told that her payout penalty was significantly higher than $2,000.
Let me point out that I would NEVER calculate a mortgage penalty for someone...simply because this is what can happen. Banks calculate penalties in different ways so it’s important to obtain a penalty quote directly from the bank itself.
I asked this lady if her Realtor or Mortgage Broker had taken a few minutes to calculate what her net proceeds would be after she sold her house. No one had! I was absolutely shocked. Now, I don’t like to slag my industry members but this really isn’t acceptable. I got out my form and went through the calculations with her, coming to the conclusion that if she sold her house she actually wouldn’t end up with enough money to purchase a new home. How disappointing for her, and the whole thing could have been avoided had her Realtor and Mortgage Broker done some very basic calculations.
For anyone out there that has a house for sale and needs to know how to figure out their net proceeds, you can use the form below. Please note that these calculations are approximations but should give you a general idea of how much you will net after all is said and done.

Net Proceeds from Sale:

Use this form to figure out approximately how much money you will receive after all of your selling costs have been paid out. This is a great form to use to estimate the amount of funds you will have leftover for the down payment on your next home!

Name:_________________________________________________________ Date:__________________________
Projected Sale Price:______________________

Annual Property Taxes:_______________________
Mortgage Balance:______________________________________________

Interest Rate:_____________
Approximate Gross Equity:____________________

Projected Close Date:_____________________

 Real Estate Commissions (please ask your agent for %) $______________
 GST on Real Estate Commissions $______________
 Legal Fees $______________
 Property Tax Balance Owing $______________
 Discharge Penalty on Mortgage $______________
 Repairs etc. $______________
 Other $______________

Projected Sale Price: $______________
ESTIMATE OF NET EQUITY: $______________

Monday, March 7, 2011

Calculating your debt service ratio

With all the talk about debt thats been in the news lately, you may be tempted to see where you stand financially, especially with the looming threat of increasing interest rates.

An easy way to do this is by calculating your debt-service ratio, the same calculation that banks use to determine whether you're a prime candidate for a mortgage. Simply calculate all your monthly debt payments, including your mortgage, minimum credit card payments, car loans, student loans, leases and any other form of loan. Next, calculate your gross monthly household income. Divide your debts by your income, multiply by 100 and that's your debt service ratio. To be in a healthy range, that number should be under 40 or, better yet, 35.

Some people find it more accurate to use their net income, rather than their gross income, for their personal debt service ratio calculation. Since you don't really have access to their full gross income, net income is a little more helpful in determining what percentage of your take-home income you're actually spending.

With interest rates expected to go up, you may want to fiddle around with the numbers, particularly higher mortgage payments. If you're set on sticking with a variable rate mortgage, experiment with different interest rates to see how high they can climb before you start to feel uncomfortable. While you're at it, see what your financial state would be if you locked in to a fixed rate today.

If you're already on the high end of the debt service ratio, you may want to consider trimming down your other debts, or uncovering ways to bring in extra income, to prepare for the upcoming increases.

-Axiom Mortgage Partners

Wednesday, March 2, 2011

A sigh of relief for variable rate mortgage holders...

Bank of Canada maintains overnight rate target at 1 per cent

The Bank of Canada announced that it is maintaining its target for the overnight rate at 1 per cent.

In its decision, the Bank showed caution in the face of an improving Canadian economy.

“The recovery in Canada is proceeding slightly faster than expected, and there is more evidence of the anticipated rebalancing of demand,” stated the Bank. “While consumption growth remains strong, there are signs that household spending is moving more in line with the growth in household incomes”

Bank of Canada Governor Mark Carney indicated that while there is evidence of a recovery in net exports, “supported by stronger U.S. activity and global demand for commodities” the global economic recovery still poses risks, such as the upheaval in Middle East oil-producing countries.
“Ongoing challenges associated with sovereign and bank balance sheets will limit the pace of the European recovery and are a significant source of uncertainty to the global outlook. Robust demand from emerging-market economies is driving the underlying strength in commodity prices, which could be further reinforced temporarily by supply shocks arising from recent geopolitical events,” said the Bank.

TD senior economist Pascal Gauthier said in a statement that he thinks July 19 is the likeliest date for a raise in the BoC policy rate. "Those looking for a change to a more hawkish tone, particularly in the forward-looking guidance part of the statement were disappointed."

RBC said today's announcment indicates that the Bank needs to be convinced that the stronger momentum will continue. "Our forecast is that the economy will record another solid gain in the first quarter of 2011 of 3.7 per cent and that the economy will grow by 3.2 per cent this year, which is well above the Bank's current 2.4 per cent estimate. The balance of risks to the Bank's current outlook is clearly skewed to the upside, and we maintain our call for 100 basis points of rate increase in 2011 with the first hike coming in May 2011," said Dawn Desjardins, assistant chief economist, RBC Economics.

The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.

Tuesday, March 1, 2011

Mortgage Advice for Couples Planning a Divorce

Maybe it’s something in the air, or maybe the exceptionally long, cold winter is taking its toll on Canadian marriages. I am coming across an awful lot of articles and blog entries on divorce and real estate. Here is a blog post from another Toronto based mortgage planner explaining the nitty gritty of divorce and property ownership.