Toronto Mortgage Source

Totonto and Area MLS Housing Report for October 2010

    Greater Toronto Area Realtors registered with the Multiple Listing Service (MLS) reported 6,681 unit sales in October 2010. This represents a 21 percent decrease in contrast to sales figures in Toronto in October 2009. This said, the average cost for October transactions increased five percent when compared to the same time last year. A central motive for the increase in average selling price in the Greater Toronto Area is the affordability of home ownership, given stronger incomes and low Toronto Mortgage Rates.

    The Toronto Real Estate Board commented that composition of GTA homes sales differ according to location, with condominium apartments accounting for 42 percent of total sales in Toronto and 60 percent in the Toronto Real Estate Board’s central areas.  This said, in suburbs of Toronto, low rise homes accounted for almost 90 percent of transactions. The entire Toronto area continues to enjoy low mortgage rates which should continue to support sustainable increase in housing prices over the short to medium term.

For great mortgage rates and excellent service, check out my website at www.brentrichardson.ca. See what makes me different!

CMHC Spring 2010 Toronto Housing and Mortgage Report

The Spring 2010 CMHC Mortgage and Housing Report for the Greater Toronto Area states that MLS housing sales will reach a record high over the course of the year. Much of this growth will be supported by low mortgage rates in Toronto. This said, the market will decline towards the latter part of the year. New home sales will show a significant increase. An improving corporate environment will help push the unemployment rate down thus supporting the demand for home ownership. The resale market in the GTA will show record level activity. This growth however, is set to decline in the later part of the year, partly due to a possible increase in Toronto mortgage rates. According to the report, housing prices may consequently decline however such declines will be minimal and short lived. Prices can be expected to remain fairly flat over the next few years to allow income levels to catch up. Purchases for new semi detached homes may moderate and the construction industries in Toronto will rely more on high rise development.

High rise condo starts in Toronto will rise by close to 30 percent over the next year with a strong likelihood for more gains. Like the high rise expansion over 2010, starts for detached homes will have a 60 % increase in 2010 matched, however for detached homes in Toronto and the area, there is a more significant possibility for growth moderation in 2011. This said, and thanks in part to relatively low mortgage rates, single detached homes will remain limited and this fact will continue to push the prices for these homes up. Row homes which are conducive to infill development and more affordable than singles will take on the greatest share of low rise housing.

With respect to employment, rates should increase by 1.5 percent in 2010 and wages are expected to grow by 2.5 percent. The nature and timing for the latest downturn in Toronto has allowed for a quick recovery for the job market. As the economy has begun to recover, businesses are in a much stronger position to re hire. Along these lines, good employment opportunities in the Greater Toronto Area will attract a higher level of immigration.  This boost in population, when combined with low mortgage rates, will provide support for both home ownership and rental demand. At the time of writing, the prime mortgage rate is 0.25 percent. With the overnight bank rate expected to increase, mortgage rates have begun to rise. Rates could increase quickly if the economy recovers at a faster pace. This said, rate increases could be lessened if the recovery is modest.

DANGEROUS Credit Lines and Mortgage Products Offered by Banks

Over the past several years, some of the Big Banks have decided to design mortgage products that lock customers into their Bank- even when the mortgage comes up for renewal. The really unfortunate part about these Banks and products is that in most cases, the Bank will not disclose the negative information to its clients. Most in the broker industry consider these practices incredibly decietful.

With titles such as 'Step' or 'Homeline', these mortgages will offer a line of credit that is attached to the mortgage. The main issue is that when the Bank registers one of these products against your house, they register it under what is called a 'Collateral Charge Term' (not the usual 'Standard Charge Term') at 125% of the value of your home. This has the affects of:

• Disallowing any other financing to be placed against your home.
• Locking you in at mortgage term renewal. This gives Banks massive liberties to charge unfavourable rates when your term is up.  
• Charge major penalties to ever exit these products and lowers others abilities to compete for your future business.
• The ability to change their bank prime rate without your consent. For example, the Bank can decide, as they did in 2008, to move up credit lines across the board by 1% in 1 day. 

No wonder Banks call these products 'customer retention devices'. Good mortgage brokers will always fully disclose such information whereas most of the time, Banks have not been reporting this kind of information to thousands of customers. It is potentially costing customers $10,0000's each. Indeed, customers should be retained by providing excellent service, value and a good customer experience. There are many excellent mortgae products in the market that can meet your needs and goals, and give you the low rates and long term flexability that is far more desirable.

Questions? Comments? Feel free to contact me any time or leave a post below.

Best Regards,

Brent www.brentrichardson.ca - brent@brentrichardson.ca

How Credit Scores Work and How to Increase

How Credit Works and the Easiest ways to Increase Your Credit Score

            Because credit can affect many areas of our lives, especially when a loan or mortgage is needed, it is important to understand how the system works, and what kinds of things can affect your score. Indeed, for many, the credit system is somewhat of a mystery. Weather you are wondering about how the system works, or if you are looking for the easiest ways to improve your score, this article will help you.   

The following criteria lays out how the Beacon Score, or credit score is calculated. For each criteria, we look at how to increase your score. Remember, the following advice speaks of a perfect situation. Although perhaps not immediately attainable for many, the closer you can get to these ideal situations, the better your credit score will be. 

1. Payment History – 35% of Score Calculation: Factors in the number of debt payments over 30 days late, collections and any other matters resulting from late payments. A single payment currently showing over 30 days late removes 20 credit points instantly. Credit will begin to repair after only two months of on time payments, so use this rather short repair period for motivation to pay consistently.

2. Current Debts - 30% of Calculation: Looks at how much debt you have relative to your credit and debt limits. For example, a total credit limit of $10,000 which has $8,000 outstanding totals 80% of credit used. Any number above 50% of credit used will begin to diminish a credit score. If 50% can not be attained, a good goal is 70%. Your variety of debt will also affect your credit. Try to keep two credit cards and hold onebank loan to maximize your score in this area. A loan can be as simple as an RRSP loan which will build your credit, be invested to make interest for you, can be paid back quickly, and mainly, can give you a nice tax refund at the end of the year! Finally, be sure to NEVER go above your credit limit.

3.  Account Age – 15% of Calculation: How long you have held a bank account with your financial institution affects your score slightly. The optimal number of accounts held is three and the longer they have been open the better.

4. Types of Credit – 10% of Calculation: Similar to two. Focuses on the mix of debt you have (credit cards, bank loans, lines of credit). The optimal mix is one store credit card (ex. the bay, Best Buy…), one or maximum two bank credit cards, and one installment bank loan. Make sure to use your credit cards as well - even if just for gas, and to re-pay the balance every month. Again, this is an optimal position and any reasonably similar situation will not lower your credit much. 

5. Number of Credit Inquiries – 10% of Calculation: Over the past 12 months, how many times has your credit score been looked at? Having too many credit or loan applications could deem you a ‘credit seeker’, so try to keep the number less than 5 per year.  

Finally, have your credit bureau checked for mistakes. I have seen many individuals with mistakes on their credit score that resulted in higher interest payments. Check with Equifax regularly to ensure your credit score is accurate.   

Reasonable variation from this perfect situation will still give you a great credit score and obviously, the closer to it, the better it will be. Contact myself for further information on increasing your credit rating and save thousands of dollars on interest as a result.

I am always happy to help.

www.brentrichardson.ca - brent@brentrichardson.ca

Brent Richardson

Have a question or comment? Feel free to make a post.

Increase Your Credit Score and Save Thousands!

Indeed for many, savings of thousands of dollars per year could be had easily by reducing interest rates on loan and mortgage payments. For others, the dream of attaining an affordable mortgage and a home becomes attainable. In knowing how the credit scoring system works and how your credit score can be raised, the money saved on interest can be used to pay off your mortgage faster, or in any other way besides making your lender richer.

 

The credit scoring system:

Your Equifax Beacon Score informs lenders about how much of a lending risk you are, and ranges between 500-850. The following chart tells us how these scores generally affect mortgage rates:

Beacon Score	Interest Rate
719-850	The best rate
700-719	+0.20%
675-699	+0.65%
620-674	+1.70%
560-619	+2.50%
500-559	+3.50%

So given that the average Canadian credit score is about 690, most people have some room left to save thousands of dollars on interest payments.

 

How to raise your score then? The following criteria lay out how the Beacon Score is calculated. For each criteria, we look at how to increase your score. Remember, the following speaks of a perfect situation. Although perhaps not immediately attainable for many, the closer you can get to these ideal situations, the better your credit score will be.

 

1. Payment History – 35% of Score Calculation: Factors in the number of debt payments over 30 days late, collections and any other matters resulting from late payments. A single payment over 30 days late removes 20 credit points instantly. Credit will begin to repair after only two months of on time payments, so use this rather short repair period for motivation to pay consistently.

2. Current Debts - 30% of Calculation: Looks at how much debt you have relative to your credit and debt limits. For example, a total credit limit of $10,000 which has $8,000 outstanding totals 80% of credit used. Any number above 30% of credit used will begin to diminish a credit score. If 30% can not be attained, a good goal is 50%. Attempting to increase your credit or a debt consolidation loan are possible ways to help lower your percentage of outstanding credit limit. Your variety of debt will also affect your credit. Try to keep two credit cards and hold one consolidated bank loan to maximize your score in this area.

3.  Account Age – 15% of Calculation: How long you have held a bank account with your financial institution affects your score slightly. The optimal number of accounts held is three and the longer they have been open the better.

4. Types of Credit – 10% of Calculation: Similar to two. Focuses on the mix of debt you have (credit cards, bank loans, lines of credit). The optimal mix is one store credit card (ex. the bay, Best Buy…), one or maximum two bank credit cards, and one installment bank loan. Again, this is an optimal position and any reasonably similar situation will not lower your credit much.

5. Number of Credit Inquiries – 10% of Calculation: Over the past 12 months, how many times has your credit score been looked at? Having too many credit or loan applications could deem you a ‘credit seeker’, so try to keep the number less than 5 per year.

 

Finally, have your credit bureau checked for mistakes. I have seen many individuals with mistakes on their credit score that resulted in higher interest payments. Check with Equifax regularly to ensure your credit score is accurate.   

 

Reasonable variation from this perfect situation will still give you a great credit score and obviously, the closer to it, the better it will be. Contact a credit professional or myself for further information on increasing your credit rating and save thousands of dollars on interest as a result.

Brent Richardson

Have a question or comment? Feel free to make a post.

Pay Off your Mortgage Faster

After attaining the lowest possible interest rate, the second most important thing to Canadians regarding their mortgage is paying it off as fast as possible. Fortunately there are numerous ways to accomplish this task, so lets take a look at some here.

 

Make bi-weekly accelerated payments: Since there are 52 weeks in a year, we can devise that by making a mortgage payment once every two weeks, we would make 26 payments in a year. On the other hand, there are 12 months in a year, so if we made two payments every month, that would only amount to 24 payments in a year. So we can see that by making bi-weekly accelerated payments instead of two payments per month, it is as if there are 13 months in a year (because of the 26 bi-weekly payments). Thus, we make an extra months payment per year. This has the effect of saving thousands in interest on a mortgage and will reduce a 40 year amortization mortgage to 35 years.

 

Make Lump Sum Payments: Most mortgage lenders will allow you to make a lump sum payment of at least 10 % of the principle amount owed, once per year. Utilize this feature, even modestly, to save thousands in interest and pay your mortgage off faster. For example: A $200,000, 25 year amortization mortgage at 5.75% with $1000 extra paid each year will save 5 years and 10 months and $63,463 interest off of the mortgage.

 

Increase mortgage payments: Even a slight increase in your monthly or bi-weekly payments can make a substantial difference in how fast your mortgage is paid down. For example: A $200,000, 25 year amortization mortgage at 5.75% with $100 additional paid on a monthly basis would save 3 years and 8 months and $30,038 in interest of the mortgage. This method is effectively the same as reducing your total mortgage amortization period if commenced at the beginning of mortgage amortization. However, by opting for a longer amortization period and the ability to increase payments, you get the option of paying less on a monthly basis should your financial situation tighten during a period.

 

Start a small business: While mortgage interest in the USA is tax deductible, it isn't in Canada. So we pay mortgage interest with after tax dollars. What we can do, however, is write off a portion of our mortgage interest if we conduct a business out of the home. Check out some small/part time business opportunity websites or franchise web sites for some ideas on what business would work best for you. Besides tax write offs, you could use any business profit to help make lump sum payments to pay your mortgage down faster and save thousands in interest.

 

Obviously the best way to pay off your mortgage in the fastest time possible would involve some combination of these strategies based on your unique situation. These techniques also help underscore the importance of proper mortgage planning, as opposed to simply finding the best interest rate. There are many more details to consider. So, whether you are looking for a new mortgage, refinancing or renewing a current one, the best thing to do is find an experienced and knowledgeable mortgage broker that will take the time to find you the right mortgage and mortgage plan, at the best possible rates. 

Fixed or Variable Rate?

One of the biggest decisions to make when purchasing a mortgage is whether to take a fixed or variable interest rate. Many articles and mortgage professionals tend to lean towards one or the other, however it could be dangerous for you to be persuaded towards fixed or variable products by someone who is trusted and biased. In my opinion, the best person to make the decision is an educated purchaser, him or her self.

 

So, the remainder of this article will objectively explain the pros and cons of variable and fixed rates, and then will provide short profiles of who generally fits which mortgage category respectively.

 

Fixed Rate Mortgage:

This refers to the fact that the interest rate is fixed and does not change for the entire mortgage term.

Pros:

• Security: The central benefit of choosing fixed is its security feature.
• The borrower knows that the payment is the same throughout the entire term of the mortgage and can budget accordingly.
• If interest rates increase, fixed interest and payments remains the same.
• Many first time home buyers are used to fixed costs every month (like rent payments) and are comforted by the continuation of this practice.
• If inflation continues to increase, perhaps even more substantially, your home value and income should rise, but your mortgage payment will remain the same.

Cons:

• The only downside to having a fixed mortgage is the potential lack of savings. I emphasize the word ‘potential’ because a variable rate mortgage could end up costing more than fixed if rates increase.

Variable Rate Mortgage:

The interest rate on variable mortgages fluctuates according to the prime rate as set by the Bank of Canada.

Pros:

• Over the last 60 years, mortgage studies show that variable rate mortgages have been less expensive, with lower overall interest rates than fixed rate mortgages. Specifically, on a $100,000 mortgage, the average savings was $22,210. On the flip side, a consumer would have lost money by borrowing at the prime rate, compared to the 5-year rate, only 11.4% of the time.
• Ability to switch to a fixed rate: Many variable rate mortgages have the option of switching to a fixed rate without penalty. This provides comfort if rates begin to rise.

Cons:

• Volatility: While the borrower can save on interest rates by going variable, rates could increase quickly and catch the borrower off guard. A close watch should be kept on interest rates to decide when to lock into a fixed term.
• Some borrowers may not be able to afford payments if interest rates rise.
• The mortgage studies mentioned above include periods of time where many individuals lost their homes during relatively brief periods of interest rate spikes.
• Professional assistance should be sought for timing a variable mortgage.

Given this information on fixed and variable rate mortgages, the following profiles may help clarify which product is right for you.

Variable mortgages are best suited for people who are:

• Higher risk takers (would invest in more risky Mutual Funds or stocks)
• Debt free or have little outside debt
• Able to afford increases to their monthly payment should the Prime Rate increase
• Budget disciplined
• Income stability is strong

Fixed rate mortgages are better suited for people who are:

• Lower risk takers (would purchase safer investments)
• In debt with high monthly payments on their credit cards monthly loan payments
• Not able to afford increases to their mortgage payments should the Prime Rate go up
• Not good budget keepers
• Income stability is not strong

So we can see that deciding whether to go fixed or variable can be tricky, but with the proper amount of consideration and a realistic analysis of your life situation and goals, securing the right type of mortgage is a very rewarding experience.

 

Have a question or comment? Feel free to post below!

CDN Government Homebuyers Plan

Saving for the down payment towards a mortgage can be a major process. This said, by utilizing the Canadian Home Buyers Plan, most first time (in some cases second time) home buyers can benefit by saving thousands in tax dollars.

 

Set up by the Government of Canada, the plan allows an individual to take up to $20,000 out of their RRSP to finance the purchase of their first home. The benefit is that YOU NEVER HAVE TO PAY TAX ON THAT MONEY. Traditionally, taxes must be paid when money is withdrawn from an RRSP (perhaps in retirement), but under the Homebuyers plan, this issue is completely avoided. If you are purchasing the home with a spouse, you can withdraw up to $20,000 each from your accounts tax free. In terms of repayment, you have up to 15 years to pay back your RRSP starting the second year after the year of withdrawal. At this time at least 1/15 of your borrowed amount must be paid back per year. There are a few more rules that must be considered:

• In terms of penalties, if you don’t repay at least 1/15 of the borrowed amount per year, you’ll have to add the amount as income and pay tax on it.
• You MUST purchase or build your home before Oct 1 after the year of withdrawal.
• RRSP contributions must be made 90 days before the withdrawal using the Home Buyers Plan.

Visit the Government of Canada Website for more information on the Home Buyers Plan: http://www.cra-arc.gc.ca/E/pub/tg/rc4135/rc4135-e.html

 

Some may argue that you’re missing out on growth of your RRSP if this plan is utilized. This said, I think that if you get a good price for your first home relative to others in the neighborhood, the appreciation of the home will hopefully make up for this. Also consider that you pay mortgage interest with after tax income. So if you pay 5.5% in mortgage interest per year and you are in a 40% tax bracket, you are effectively paying over 7.5% due to the effects of taxes.

 

Determining the right mortgage strategy that is custom to your situation is critical. The Home Buyers Plan is just one part of that strategy. Contact a knowledgeable and experienced mortgage professional to help you create a good mortgage plan, and then reap the rewards in thousands of dollars in savings over the years to come.

 

Have questions? Ask below and Ill answer it ASAP.

Mortgage Closing Costs

Figuring out your optimal house price, best interest rate, mortgage and mortgage payment plan compose the majority of cost calculations regarding the purchase of your home. This said, there are a few other up front closing costs that a buyer must be aware of when taking into consideration the total cost of home purchase. Closing costs will vary depending on the type of mortgage you are closing as well, weather it is a home purchase, renewal or refinance/debt consolidation.

This article will take care in reviewing the most common closing costs, costs that you can help minimize by working with a knowledgeable and experienced mortgage broker. Remember, in most cases the services provided by a mortgage broker are completely free.

Lawyers Fees and Other Legal Fees: This is the most common type of closing cost that one will encounter. Lawyers are paid to do many things including, inspecting the mortgage documents for your best interest, deal with the sellers lawyer, handle the transfer of funds and register the property deed with the government. Depending on the type of mortgage, lawyers fees can run between $0 (for a mortgage renewal) to over $1000 (for a home purchase). 

CMHC Tax:If your mortgage is insured with the CMHC or another mortgage insurer, HST must be paid upfront on the insurance premium total. Although the mortgage insurance premium itself, which can often amount to thousands of dollars, does not have to be paid upfront (it is included in the mortgage total), the tax on the CMHC amount does have to be paid up front. Usually this is a few hundred dollars.

Land Registration Tax: The rate is 0.5 percent on the first $55,000 of the price, 1 percent on the next $195,000, 1.5 percent on the next $150,000 and 2 percent on the balance. If you are a first time home buyer, the majority, if not the entire tax is paid for you. 

Appraisal Fee: Some lenders will refund these fees after the mortgage has officially closed. Your mortgage lender may require that the property be appraised at your expense. An appraisal is an estimate of the value of your home. The cost is usually between $250 and $350.  

Home Inspection Cost: If you are purchasing a home, an inspection can be a very good idea. The inspection usually costs around $400 but can give you a peace of mind that you are not going to incur major expenses down the road.  

Estoppel Certificate Fee: Only if you are buying a condo and can cost up to $100.

These are the most common fees encountered when purchasing a home. As mentioned, a more qualified mortgage broker will help you fare better when dealing with these fees. A knowledgeable mortgage broker will know what to look for and who to refer you to, so you get the best service with the lowest fees.  

See the CMHC ‘Homebuying Step by Step’ for a more comprehensive home buying guide.

Feel free to leave a comment or question below! Otherwise contact me at your convenience.

www.brentrichardson.ca - brent@brentrichardson.ca

How to Qualify for a Mortgage

Some of the most frequently asked questions I receive surround the process of qualifying for a mortgage. Questions range from, How much home can I buy? To, Have I worked for long enough?  … The answers to these questions can be clarified by looking at three central lending criteria: 

1.Your current employment and income position 2.Your current debts 3.Your credit history.

It is important to recognize in looking at these criteria that there is flexibility from some lenders, and that mortgages can be had for a wide range of financial situations, at good rates.  All lenders will also allow combined incomes and credit histories to help strengthen an application.

Current Employment

Most lenders require a steady income that is able to support the mortgage payments. Full time work is preferable but some lenders will consider part time or probationary workers. Moreover, lenders will look at your length of time (or stability) in an occupation as well as future income potential. A good mortgage broker will be able to frame your situation in the best possible way.

Current Debts

All lenders look at your Gross Debt Service Ratio (GDS) and Total Debt Service Ratio (TDS). These ratios determine how much house you can potentially afford and what your maximum mortgage payment could be, given your other living expenses.

GDS: The percentage of gross annual income required to cover payments associated with housing only. It must be less than 32%.

• GDS = monthly housing expenses/gross monthly income
• For example: Mortgage payment = $ 1000, taxes = $200, heat/light=$200, insurance=$50. Therefore, monthly housing expenses = $1,450. Gross monthly income = $5,000
• GDS = $1,450/5000 = 29%

TDS: The percentage of gross annual income required to cover payments associated with housing AND other debt. It must be less than 44%.

• TDS = (monthly housing expenses + other monthly debt servicing)/gross monthly income
• For example: housing expenses = $1,450/mo, car loan = $500/month
• TDS = $1,450+$500/$5,000=39%

So in both cases the person passes comfortably.

Try this calculator to determine your GDS and TDS scores:

Click HERE

Some lenders will allow exceptions to the GDS and TDS ratios, but the rates on these mortgages can be a bit higher.

Credit History

The final major component that lenders review is the way you have handled your debts in the past. If your credit score is good (above 640), you will be placed with a top lender with the absolute lowest rates. If your credit is not in such good shape, and you have a larger down payment, you can be placed with an alternative lender that will carry a slightly higher interest rate. In many cases, an alternative mortgage can be reset after one year and placed with a top lender if the credit situation has improved. See my article on improving your credit score for more information. A good mortgage agent will help you establish good credit if needed.

It is usually good to get in to a mortgage as soon as possible because it helps provide structure for saving (because you build equity in your home), and it provides for a better lifestyle to own your own home.

Feel free to leave a comment, ask any questions below, or contact me to discuss the pre approval process.

www.brentrichardson.ca