You Don't Need to Cry

Several years ago I had a lady call me and ask me to get her out of her mortgage.  She had a fixed rate mortgage with a home equity line of credit (HELOC) that grew as she paid down her mortgage. I asked her how that was going as many people find they can pay down their mortgages so much faster and they are very satisfied. Her response was not at all happy. She was close to tears.  As her mortgage balance went down and her HELOC increased she would go out and spend more money, on vacations, furniture etc. The result was that after 5 years she had owed just as much now as she did back then. On top of that the person who put her in the mortgage never explained that there was a monthly fee similar to a bank account fee. It wasn’t much but it peeved her that she had not been informed.

  My first question was “ Did the bank rep ask you if you were a spender or a saver?

”no,” she said I’m more of a spender than a saver.”  Now I understood her problem . She was meant to have a regular fixed rate mortgage.  My next question was “ are you paid every two weeks or monthly?  I then showed her an amortization table with monthly payments and bi-weekly side by side and showed her that she could shave 3 ½  years off her 30 year amortization by switching to bi-weekly payments.  What a relief she felt when I was able to put her in a regular mortgage.

    The morale of the story – mortgage brokers ask lots of questions in order to avoid problems in the future. Answer their questions true fully  and you will be happy with the results. 

for more information contact David Cooke - http://davidcooke.ca 

 

99 Year Mortgages and the Power of Amortization

Back in the late 80’s, the Japanese housing market came to a grinding halt. Homes were no longer affordable for your average Japanese consumer. The government came to the rescue with a novel idea: 99 year mortgages. You could buy a house, pay lower more affordable payments, your son or daughter would take over and pay the mortgage down and finally your grandchild at some time close to retirement age would finally pay off your mortgage. Who would want to do this? This was a short term solution. In 2007, we had 40-year amortized mortgages which allowed a great number of people to buy homes who normally would have continued to rent. This created a housing boom, but it made the banks nervous and terms were cut back to 35 years, then 30 and finally back to where they were in 2005 at 25 years. While longer amortizations mean lower monthly payments, the flip side is that you end up paying a lot more interest over time.
Calgary mortgage professionals use amortization as a tool to help their clients at various stages in their lives. Often we use the maximum 25 years to help people get into their first homes. The idea is to get them into home ownership regardless of the cost. Later when they renew we often suggest a shorter amortization if it’s possible.
For example, after paying down a mortgage for 5 years, a couple with a $300,000 mortgage renewing today would be offered a 20-year amortized mortgage with monthly payments of $1659. In 5 years the couple will have paid $40,356 in interest $59,214 in principal and have a balance of $240,785 left on the mortgage.
If the amortization was shortened to 17 years the payment would go up to $1,874.95, an increase of $215.95. but at the end of 5 years they would have paid  $39,365 in interest, $73,131 in principal and have a balance of $226,868.11. In addition, they would now only have 12 years instead of 13 years on their mortgage.
Now, if they are at a stage in life where their twins are going to be going to university or if they need to build a granny suite for aging parents, they may need to lower monthly payments in order to pay for renovations. If they have 20% equity in their home, they could extend their amortization to 30 or even 35 years with some lenders.
Now their monthly payment drops to $1,260 with a 30 year amortization.
And it drops to $1,149 with a 35 year amortization.
Amortization is only one tool that yourCalgary mortgaeg broker can use to save you interest, help you to pay off your mortgage quicker or to lower your mortgage payments. Be sure to call and ask them for help.

here's a great article written by my associate Mandy Reinhardt. 

The Role of a Mortgage Broker

Buying a home is a big step – a big, very exciting, potentially stressful step! How can you take the hassle out of the equation and keep your buying experience super positive? Easy… Surround yourself with a team of experienced professionals!
Many experienced realtors insist on starting your financing first, that’s where your Mortgage Broker comes in.
What is a Mortgage Broker? A Mortgage Broker is an expert in real estate loans that acts as a match-maker between home buyers looking for money and lenders with funds available to borrow. A broker will collect information from you about your employment, income, assets, loans and other financial obligations as well discuss your current budget, spending patterns and goals in order to get a thorough understanding of where you’re at and where you’d like to be. From here they assess the strengths and any weaknesses in your application and can advise on potential suitable financing options and any next steps you might need to take in preparing yourself for loan approval.
Talking with a Mortgage Broker before you start shopping is helpful for a number of reasons:

• You’ll develop a well-founded expectation of the price range and payments that you can afford.
• You’ll have a chance to address any potential gaps in your application for financing BEFORE you’re in a time crunch to meet deadlines for closing.
• Sellers may take your offer more seriously when you tell them you’ve been pre-approved for your financing putting you in a better position to negotiate (price, possession date, inclusions, other terms, etc).
• You and your Mortgage Broker will begin to compile your documentation so that your application is ready to go when you find the perfect home, leaving your mind free to start arranging furniture in your new place.

So why use a Mortgage Broker rather than your bank?
A Mortgage Broker has access to loans from a wide range of lenders. That means that you have more potential places to get approved, AND can take advantage of best products, top programs and lowest pricing!
A Mortgage Broker must complete a series of courses and pass the corresponding exams prior to obtaining a license to sell mortgages. In order to maintain that license a Broker must uphold the highest standards of moral, ethical, and professional conduct – including ongoing education and training.
A Mortgage Broker working with multiple lender options means that they truly SHOP for the best programs and rates for you based on comparisons and choices and don’t simply sell you the limited products they have to offer through a single bank source.
Mortgage Brokers work EXCLUSIVELY in mortgages so they are mortgage product specialists rather than banking generalists. Brokers deal with real estate transactions involving deadlines and conditions everyday as part of their job. They understand the urgency of meeting these commitments to ensure a successful transaction for everyone involved.
Learn more by contacting your Dominion Lending Centres mortgage professional today!
for more information contact me at http://davidcooke.ca or  on Facebook

Calgary home sales jump from record lows

Home sales in the Calgary market have jumped from their record lows of a year ago but remain well below the longer-term average.

Calgary Real Estate Board says that sales for January totaled 924 units, up 24 per cent from a year earlier but 21 per cent below the 10-year averages for the month.

"Conditions have improved over last year, but people need to remember that last year's market was one of the weakest on record,” said CREB chief economist Ann-Marie Lurie. “Despite the appearance of a major shift in activity, the transition in the housing market is going to be a slow process."

The improvement from a year earlier was driven by detached home sales which increased from 466 in January 2015 to 584 last month.

Inventory tightened to 4,112 units, 18 per cent lower than a year earlier and was equal to just 3.2 months of supply. This has helped price decreases ease and although the city-wide benchmark was down 2.82 per cent year-over-year to $437,400, the month-over-month decline was 0.16 per cent.

"While housing conditions continue to favour buyers, a slow transition toward more balanced conditions is helping to ease downward pressure on home prices," Lurie added.

CREB president David P. Brown says that the recent history shows that the market never stands still.

"The market isn't expected to be as unpredictable in 2017, but it's early in the year and there are still lots of unknowns that will shape decision-making for consumers," Brown said.

This article was first published in Mortgage Brokernews. For more information contact David Cooke, your Calgary mortgage broker . 

More Mortgage Rule Changes

 My associate Pam Pikkart from our Red Deer office wrote this article. It helps to explain the changes revealed by the Canadian government this morning. 
If you have any questions contact me at 403-836-1201 or visit my website.  

More Mortgage Rule Changes!
Over the past few years we have seen a large number of mortgage rule changes.
• Maximum amortizations decreased from 40 to 25 years
• Terms less than 5 years required a borrower to qualify at a higher interest rate
• Refinances capped at 80% of a property’s value
• Income for self-employed individuals had to be more verifiable
• Increased down payment for homes over $500,000
And the list can go on and on. We have heard rumors since March of this year that another round of rule changes were coming through but we were not 100% on exactly what they would entail.
The hot real estate markets and ever escalating prices in Vancouver and Toronto have been a great concern to the government. Couple that with the lousy economy in Alberta and arrears rates which are rising and the federal government has deemed it prudent to add additional mortgage lending rules.
Why are they even worried about it you may ask? The reason is simple, they are heavily invested in our real estate market. CMHC stands for the Canadian Housing and Mortgage Corporation which is owned by the federal government. They are issuing insurance policies that they are potentially going to have to cover losses on from tax payer’s money if/when people stop paying.
Say your neighbor bought their house with 5% down and has lost their job and can no longer make the payments so the bank steps in and forecloses. CMHC, and the other mortgage insurers, have guaranteed that they will step in and cover any monetary losses incurred by the bank. This means that the government and therefore all of us are literally heavily invested in the real estate market and at risk if it crashes.
On Monday October the 3rd the Ministry of Finance announced 3 more things.
1. Mortgage Stress Test
As of October 17th, 2016 all insured mortgages, regardless of term or type, will be required to qualify at the bank of Canada posted rate.
To put that in perspective.
Family Income $80,000
Monthly Debts $500
Property Taxes $3,500
25 year term
(Qualification rate today is 2.39% and after will be 4.64%)
Today that family can buy a home worth approx. $393,000 but after the 17th that drops to $310,000. That is a large decrease to say the least.
The rate you pay will not change, just the interest rate we have to use to qualify you for the loan.
Safer Lending
Mortgages with a loan to value of less than 80% were not subject to the same stringent rules as those with less than 20% equity. As of November 30th, 2016 that will change and mortgages will all be subject to the same lending criteria.
2. Closing Loopholes and Managing Tax Fairness
There is a proposed change to the tax laws on the table as well. They want to make sure that the Capital Gains tax exemption on a primary residence is not abused by either residents or non-residents buying and selling a primary residence within the same year. This is in all likelihood an attempt to cool Toronto and Vancouver markets.
3. Managing Risk and Protecting Tax Payers
The final piece in the announcement is a little bit unclear as to exact ramifications. Currently CMHC and the other mortgage insurers take on all the risk associated with mortgage default. They are planning to implement a consultation process on a policy option where mortgage lenders would have to manage a portion of their loss. We will have to wait and see what exactly happens from here.
So there you have it. Getting a mortgage just got even harder and it doesn’t matter if you walk into your trusted branch or go through a mortgage broker. The rules have changed for us all.
I cannot stress enough the necessity of making sure you speak to a well-qualified mortgage professional before you make any decisions about buying or selling in case you are one of the folks affected by these changes. I will keep you up to date on any changes which come down the road.

Changes to down payment requirements coming February 15, 2016

Today Finance Minister Bill Morneau announced changes to down payment requirements. Effective February 15, 2016, the minimum down payment for new insured mortgages will increase from five per cent to 10 per cent for the portion of the house price above $500,000. The five per cent minimum down payment for properties up to $500,000 remains unchanged.

Homes priced at more than $1 million by law require a minimum down payment of 20 per cent. Today's announcement therefore focuses on homes priced between $500,000 and $1 million.

In the Mortgage Professionals Canada (MPC) Fall Report, Chief Economist, Will Dunning discusses why raising the down payment could cause problems for the housing market, including this cautionary observation: “Rising prices have made it increasingly difficult for first-time home buyers to accumulate down payments. Increasing down payment requirements would, most likely, severely dampen housing demands from people who are financially well-qualified to make their monthly mortgage payments.”

MPC notes that the 10% requirement does represent a graduated approach while the Ministry of Finance commented that they believe this will only impact 1% of home purchasers.

Click here for the government’s official news release.

Handy chart below - click to enlarge.

Building a Custom Home with less than 20% downpayment

Becoming Mortgage-Free Faster

Regardless of how long you’ve had your mortgage or how large or small the current balance is, there are a variety of ways to make prepayments work for you to pay down your mortgage faster and, therefore, pay less interest throughout the life of your mortgage. After all, each extra payment amount will reduce your principal balance, which, in turn, reduces the amount of interest you’ll have to pay on your borrowed mortgage amount. Most lenders allow you to make a lump-sum payment of anywhere between 10% and 25% of the value of your mortgage per year. The lump-sum payment is based on either the original amount you borrowed or the amount currently outstanding. Since mortgages decrease with each payment, it’s best to negotiate a lump-sum payment option based on the original amount you borrow. That way, if you come into an inheritance, a bonus or save some extra money, you can pay down the largest amount possible. Another factor to consider is when you can make a lump-sum payment. Some mortgages allow prepayments throughout the year, while others permit them only on the anniversary date. Still others allow you to make prepayments on the day you make your regular payment. If you can’t pay the maximum prepayment amount, it’s still worth your while to at least make some form of extra payments, even if it’s a few

thousand dollars each year. That will still save you thousands of dollars in interest payments throughout the life of your mortgage. Another prepayment option involves taking advantage of flexible payments. Most lenders allow you to increase your regular payment up to a set maximum, such as 15%, while others allow you to double up your payments. If, for instance, you have a $1,000 per month mortgage payment and increase it by 15% to $1,150, you could shave off as much as five-and-a-half years on a $200,000 mortgage. Even rounding up your mortgage payments a few dollars each payment can help make your balance decline sooner. If you round up your mortgage payment from, say, $766 to an even figure such as $800, you can feel confident in knowing that every extra bit goes toward your principal. You can also pay off your mortgage faster by moving to a different payment schedule. Instead of making monthly payments, make them biweekly or even weekly. Using an accelerated mortgage payment plan – where you make payments every two weeks as opposed to twice a month – you actually make one extra payment each calendar year. By paying more and paying faster, you reduce your principal earlier, which lowers the amount of interest you pay. As always, if you have questions about paying your mortgage off quicker, or other mortgage-related questions, I’m here to help!

feel free to contact me with any questions at http://davidcooke.ca