Hybrid Mortgages - What are they?

Back in the 80's when interest rates were going up , a popular investing strategy was to go long and short. That's to say, you would take half your investments and lock  them in bonds at the 5 year rate and half in the one or two year rate. The idea is that you can never time exactly when rates will be at their peak or bottom so it's best to have half your investment in short term and half in long term. 

    Hybrid mortgages – also known as 50/50 mortgage products – include an equal mix of fixed-rate and variable-rate components within your single mortgage. This means you get the best of both worlds – the security of fixed repayments with the flexibility of a variable rate.

Although there was a time in recent years when mortgage experts considered a variable-rate mortgage as the obvious choice to save mortgage consumers money over the long term, with fixed rates remaining near historic lows, a 50/50 mortgage may be a great alternative for you.

In essence, since it’s extremely difficult to accurately predict rates over the long term, a 50/50 mortgage offers interest rate diversification, which can help reduce your level of risk.

If you opt for a 50/50 product, half of your mortgage is locked into a five-year fixed rate and half is at a five-year variable rate. You can lock in your variable-rate portion at any time without paying a penalty. As well, each portion of the 50/50 mortgage operates independently – like two separate mortgages – yet the product is registered as only one collateral charge.

The 50/50 mortgage product is well-suited to a variety of borrowers, including those who:

·         Would normally go fully variable but are afraid prime rate is at its bottom

·         Aren’t comfortable being locked into a fully fixed rate

·         Can’t decide between a fixed or variable mortgage

·         Savvy first-time home buyers

Some features of the 50/50 mortgage include:

·         20% annual lump-sum pre-payment privileges

·         20% annual payment increase ability

·         Portability (the option to transfer your existing loan amount to a new property without penalty)

As the 50/50 option is a fairly new offering, according to a recent study by the Canadian Association of Accredited Mortgage Professionals (CAAMP), 5% of Canadian mortgage holders have 50/50 mortgages compared to 28% with variable-rate mortgages and 68% with fixed-rate mortgages. But many experts believe the 50/50 mortgage is quickly gaining momentum. David Cooke is a senior mortgage broker at Dominion Lending Centres Westcor in Calgary. For more information contact him here.

How to avoid having your mortgage approval “unapproved”

 It happens every year.  A client will go to a mortgage broker or the bank and get a pre-approval and then go house hunting.  They find a home and make an offer which is accepted. They then go back to the lender with the offer and all the paperwork and all of a sudden, they are not approved.

 How did that happen? What happened to the preapproval?   What most people do not realize is that a preapproval is a brief overview to see if you are creditworthy and it tells you how much you can afford. The pre-approval is really no more than an interest rate hold.

   Inexperienced bank employees and a few brokers fail to give their clients the 5 Commandments when they give their clients the pre-approval.

 Here they are:

1-   Don’t make any large purchases – don’t buy a new car or change the lease. Do not go out to buy the new furniture for your home until after the mortgage is approved. Even if you have one of those no payments for 90 days plans from the Brick, Sears or Leon's , they do appear as purchases made at this time on your credit bureau report.

2-      Don’t apply for new credit – I know the zero down balance transfer looks appealing but you don’t need another hit on your credit bureau. Put off the temptation until after the deal is done.

3-      Keep your job – This may sound like a no-brainer but there are a lot of people who will switch forgetting about the 3 month probation or will become consultants which means they are self-employed. Don’t change industries.  More than one mortgage has been shot down by a job change.

4-      Pay your bills – pay them on time and don’t let the balances get close to the credit limit.

                           If you let your balance get close to your limit you can lose 30 points. Go over by a                   dollar and you will lose 35 points in a flash. Lenders often check for credit score drops in the days leading up to your visit to the lawyer’s office.

5-      Don’t move large amounts of cash around in your accounts. If you are receiving a gift for your down payment from your parents be sure to photocopy the cheque and the deposit receipt. Money laundering is a big worry with lenders so you should wait until your broker tells you it’s okay to move funds.

Finally,  be aware that the lawyer will ask you for 2 pieces of identification. If you make an offer on a house use your formal name, not your nickname. If the name on the offer and the name on your identification do not match you could delay or kill the home purchase at the last minute.

Let’s face it. Buying a home is a life changing event. Deal with a professional mortgage broker and you can avoid making stupid mistakes that will deprive you of owning the house of your dreams. 

60% of 1st time home buyers surprised by costs - Survey

Today , TD Canada Trust issued a customer survey. The item that caught my eye was that 60% of home buyers did not know all the costs associated with the purchase of their home.


“From being more thorough in their budget to exploring their mortgage options carefully, many first time buyers think they could have prepared better for their house-hunt,” says Farhaneh Haque, Director of Mortgage Advice, TD Canada Trust. “Prospective buyers can learn from other buyers’ mistakes. If you think you’re ready for home ownership, do your research and make sure you know as much as you can about the process and on-going commitment.”
    I was shocked by this figure. I know that when I have a first time buyer, I always go over the costs with them. I've put together a info letter on all the steps from pre-approval up to possession. Some people have rented their whole lives and don't know anything about buying a home and the costs involved. In addition, Canada and the United States are countries that attract large numbers of immigrants. The home buying process is very different in other countries and these people need to be educated in order to make proper decisions.
   You may think of legal costs, appraisals and surveys as being common knowledge but it really isn't. Many people are in the dark about the whole home buying process. I find the hardest thing for first time homebuyers to get their heads around is reconciliation of the property taxes. They don't quite get the part about the sellers having paid next years' taxes and that they have to re-pay the seller for this.
  How niave are people? I had a lady contact me 4 years ago. She said she wanted to buy a home and she had 3 children and a well behaved dog. I wondered why she would include this information in her email to me. Then the penny dropped, this woman has always rented and having a well behaved dog is important to landlords.
   I responded to her and asked her where she was going to live and what sort of a budget did she have. She asked me what houses I had available. I then realized that this lady thought that a mortgage broker and a realtor were the same thing. I wrote her back and suggested she contact a realtor and that I would only be able to help her with the financial side of the home buying process.
    If 60% of first time homebuyers in Canada feel that there were hidden costs that they had not budgeted for then banks and mortgage brokers are not doing their jobs properly. By asking just one more question;-Do you know all the costs involved in buying a home? - 60% of home buyers would be feeling satisfied now.
  If you have any questions about the TD Survey
contact me via my website

My question for you, my readers , is - What did a first time home buyers say or do that surprised you, even though you are a real estate professional?

Market Commentary

Earlier today, First National Financial, one of Canada's largest mortgage companies issued a market summary. This is what their economists predict will be happening for the rest of 2012. It's a guess, but it's an educated guess. Here's what they had to say. "The latest interest rate announcement and policy statement from the Bank of Canada make it pretty clear there’s unlikely to be any increase this year. While the economy appeared to be making all the right moves early in the first quarter, in the end, the results didn’t meet expectations. The resurgence of the Greek problem, the growing troubles in Spain (the euro zone finance ministers agreed to lend Spain up to $125-billion (U.S.) to shore up its struggling banks),slowing in the rest of Europe, China and the U.S., and weaker than expect growth at home have the central bank backing away from hints about a hike. Nonetheless the Bank remains concerned about the risk of a housing bubble and a high level of household debt." With rates this low, is it time for you to renew your mortgage early or consider getting a preapproval? Contact me to discuss your options. If you would like to get a weekly email with current mortgage rates click here and fill out your email address under Subscribe to News and Rates. David Cooke - your Calgary mortgage broker

What it really costs to own a Home

A great article on home ownership costs. It's American but many of the items are just as valid in Canada.
http://bit.ly/1cztPP