I saw some interesting facts on the US National Debt over the weekend that I thought would be worth sharing. Many people, including the US Government were up in arms a couple of months ago when the S&P announced they were downgrading the US debt rating.  After all how could a super power like the United States, long known as the land of opportunity, possibly have a bad credit rating. It is interesting how similar a country and an individual can be when it comes to credit worthiness. As somebody who sees the credit of individuals from janitors to doctors, I have learned that a decent salary and prominent job do not necessarily equate to strong credit. It’s not the amount of money you make, it is how you spend it.

How Bad is The US National Debt Situation?

Let’s get back to the US debt for a moment. Below are a few interesting numbers:

US Tax Revenue: $2,170,000,000,000

Federal Budget: $3,820,000,000,000

New Debt: $1,650,000,000,000

Current National Debt: $14,271,000,000,000

Recent Budget cuts: $38,000,000,000

That’s quite a few zeros and is a little hard to comprehend. Let’s pretend this is a family budget and remove a few of those zeros

Annual Family income: $21,700

Money they spent: $38,200

New credit card debt: $16,500

Total credit card debt: $142,710

Total spending cuts: $380

Now we can see why the US had their debt rating decreased. If your family was spending almost twice as much as it earned in a year, how long do you think you would be able to keep that up? Do you think cutting your expenses by only $380 would help your family reduce its debt load? Most clients I see in a situation like this would have to declare bankruptcy or enter a consumer proposal to wipe the slate clean and start again. Unfortunately for the US Government , that is not a solution anyone wants to see.

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The Internet has given us unlimited access to information. As a small business owner, the Internet has also provided an affordable way to effectively market to millions of people. One of the ways some Mortgage Agents choose to market on the Internet is through lead generation sites. If you have searched for a mortgage rate on-line chances are you have visited one of these sites. They usually offer a choice of rates from several different Lenders/Brokers.

This can be great for getting an idea of the best mortgage rates out there, but I caution most people when they are looking at these sites. There is much more to a mortgage than just a low rate. These sites do a good job of presenting several rate options, but they do not let the consumer know the terms and conditions associated with that rate. Mortgage rates have unfortunately turned into a commodity where lower is always perceived as better. Imagine you were shopping for a car and all the info the sites gave you was the price……wouldn’t you have questions about the details of the car? Is it a Hyundai or a Mercedes?

Buying a home is most likely the biggest purchase you will make in your life and the decisions you make regarding your mortgage will affect you and your family for years to come. Flexibility in your mortgage is key and I personally feel paying .1% more for a flexible mortgage will pay off many times over in the long run if you ever need to make an unexpected change to your mortgage. I have several clients a year who come to me looking for help to get out of a very restrictive mortgage. The rate looked great at the time, but they were not made aware of the conditions of the mortgage and how it might affect them down the road.

Here are a few questions you should be asking your mortgage professional when it comes time to sign up for your mortgage:

1. What are the pre-payment allowances and when during the year can it be made.
2. How is the mortgage registered against the property
3. How is the interest compounded
4. Is it portable to a new property
5. Can it be assumed by another party
6. How is the penalty calculated if you need to get out of the mortgage early

A competitive rate should always be a consideration when looking for your next mortgage. Just be sure you are also aware of the terms that accompany that rate. Ask your mortgage professional to calculate the difference in monthly payment between the lowest rate and the rate with the best terms. I think you would be surprised how little of an impact the slight rate difference will have.

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A renewal occurs at the end of your mortgage term. Your lender will send you a renewal notice and you will have the option to sign it for a new term…..or if you are smart you will speak with your broker to see if there is a better offer available. Most likely there will be a more attractive offer available and you will “switch” your mortgage to a new lender. A mortgage switch is when you move your mortgage to a new lender with all of the terms intact…..the only thing that changes is the rate. The amortization and mortgage amount remain the same. A switch is free to the client. The new lender covers any legal or appraisal costs that arise. The only possible expense to the client would be the small discharge fee from the current lender….which may also be covered in part or whole by the new lender.

When is a mortgage renewal a mortgage refinance?

In short if you change any of the terms of the mortgage (increase mortgage amount, increase mortgage amortization…etc) it is now a refinance. Unlike a switch, the new lender does not usually cover the expenses associated with a mortgage refinance. You can expect to pay about $1,000 for legal and appraisal fees.

I have had many conversations with clients about there renewal and after I have finished telling them it is a free process they mention they need extra money to consolidate debt. I then have to explain the difference. However, if you are considering consolidating debt, a renewal is the right time to do it. Your mortgage is open at that point so you do not have to pay the penalty to break the mortgage.

If you have any questions please feel free to contact me. I would be happy to speak with you about your mortgage needs!

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What you need to know when buying your rental property

The first thing you need to remember is to stay objective. You are not going to be living in this property so you do not need to “love” it. It is all about the numbers and whether or not it makes sense from an investment point of view. You need to ask yourself “will I make money on this purchase”

You also need to be aware of the costs associated with purchasing a building over 4 units. You can expect everything to cost more:

• CMHC will charge you a per unit application fee, plus a higher premium
• You will have higher legal fees, plus you will most likely be required to pay for the lender’s legal fees as well
• You will most likely have a lender fee and be expected to pay some of it up front as good will
• There might be an environmental report required
• The appraisal on a multi-unit building can be $1,000-$2,000 depending on the location

All of tis adds up to a more expensive transaction than when you purchased your home. Keep in mind most of these expenses can be written-off and you have to take them into account when looking at the profitability of your investment.

Most important of all is to be sure you are working with an experienced team. Your Realtor, Mortgage Broker and lawyer should all have experience in larger investment properties and be able to guide you through the process.

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Really, there were not many surprises. By this point we all know mortgage rates only have one place to go and that is up. When we will start to see this increase is up for debate, but most “experts” agree it will be before the end of this year. Originally variable rates were predicted to start moving by July, but several bank economists have recently come out saying it will now be early fall. That is great news for those of us with variable rates.

So how high will mortgage rates climb?

It is hard to see the future without a crystal ball, but Genworth feels by the end of 2012 we will see prime rate around 6% and 5 year fixed rates around 7%. Keep in mind the 5 year fixed is the posted rate  and most lenders discount the posted rate by about 1.5%.

Genworth also felt there would be a slight increase in housing starts in 2012 and for those of us that live in the Greater Toronto area you won’t be surprised to hear most of those new homes will be condos. There is still a healthy demand for condos in Toronto as people are looking for an affordable solution for living in the city.

The moral of the story is get your mortgage pre-approval or approval while rates are still low. If you have a mortgage renewing within the next year or so you might want to consider renewing early to avoid the higher rates. You might have a penalty, but in the long run the interest savings might be worth it.

If you would like to explore your early renewal options, please contact me to discuss how you might be able to save some money.

Thank you for visiting www.YourLowMortgage.ca

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So what can you do to win your next bidding war?

Well, the first thing you need to do is ignore the asking price and focus on the value of the property. This is where using a buyer agent pays off. Your agent can quickly let you know what similar properties in the nighbourhood have sold for recently, giving you an idea of the approximate value of your new home.

Many agents will list a property well below value to generate interest and a possible multiple offer situation for their seller client. Again, your buyer agent should be able to tell you if the property is listed low. This will help prevent you offering on properties you can’t afford and most importantly avoid disappointment!

Of course you are not going to win every offer you make. Even if you offer true value for the property, there could always be someone else who is willing to offer over value to win the property. You should always have a maximum price in mind and stick to it.

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What causes Mortgage Rates to increase?

As I have mentioned in previous posts, Canadian mortgage rates use 5 year bond yields as  a benchmark. The graph above illustrates bond yields over the last couple of weeks and as you can see, it has been a steady climb. As bond yields increase, Lenders’ profits decrease. Most lenders like to keep their margins around 1.25%. In many cases deeply discounted rates were being offered at 3.69%. With a bond yield of close to 2.90% they were far from their desired margins.

So where are rates going?

It is hard to say. I can see the current upward trend softening and possibly seeing a slight retreat. It is important to remember that even though rates have seen a recent increase, we are still at historically low levels. Be sure to get your Pre-approvals to protect yourself from any further increases.

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Taking action at the first sign of credit trouble is the key to avoiding a credit meltdown. As a Toronto Mortgage Broker, I spend quite a bit of time helping my clients consolidate and repair their debt. I also work closely with a very reputable Credit Counselling agency who work on the clients’ behalf to negotiate with the lenders to reduce their debt owing.

5 Tips For Tackling Credit Problems

1. Act fast! Don’t be embarrassed to ask for help.
2. Consider using the equity in your home to consolidate high interest debt and save thousands on interest
3. Speak with a credit professional. They might be able to reduce the amount of outstanding debt
4. Stop getting new credit to shuffle your balances. This is a very slippery slope and just delays the inevitable
5. Pay more than the minimum payments which are really only interest. You will never get rid of your debt by paying the minimum. Also, your credit rating can be damaged by consistently only paying the minimum.

If you are someone you know is struggling with debt, act fast and speak with a professional who can help. For more information feel free to CONTACT me. Also feel free to visit Debtcare.ca for more great information.

Thank you for visiting www.YourLowMortgage.ca

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As you can see by the above chart, Canadian Bond Yields have been falling for the past two weeks or so due to unrest in Libya and the Japanese Earthquake and resulting tsunami. The unfortunate events in other parts of the world actually have a positive affect on Toronto’s Mortgage Rates.

You can also see I have drawn a “Resistance” line across the graph. This level has proven to be a resistance point in the past. I will watch to see if yields creep above this line in the coming weeks as a substantial cross above will be a sure indicator bond yields are on the rise again and Toronto Mortgage Rates could follow. Is your Toronto Mortgage Broker watching rates on your behalf?

Thank you for visiting www.YourLowMortgage.ca

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If you are like me, you have probably dreamed about one day purchasing a vacation property at your dream holiday destination. For some of you it might be a cottage on the lake at your secret fishing spot and for others it might be a time-share at your favourite Mexican resort.

Whatever your dream vacation home looks like, the way in which you pay for it will be very different.

Vacation Property Mortgage Options.

The main determining factor for if you will be eligible for a mortgage will be the ownership of the property. A cottage or condo type property will fall under the same rules and regulations that most homes fall under. However, a time-share or other fractional ownership type property will probably not be eligible for mortgage financing. Why you might ask? Well, you do not actually own the property. You own the right to use it or possibly even a share of the corporation that owns it, but at the end of the day there bank would be unable to re-posses something you never owned in the first place. Because of this, banks do not want to take the risk of lending.

So How Can I Finance My Vacation Property?

Accessing the equity in your home is the simplest and most affordable option available. Refinancing your current mortgage or getting a home equity line of credit (HELOC) on your property could provide you with some or all of the money you require. The flexibility of the line of credit will allow you to pay down your vacation property as fast as possible without penalty.

Keep in mind you can refinance your property up to a loan to value of 85% and the maximum loan to value for a line of credit is 80%.

Thank you for visiting www.YourLowMortgage.ca

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