I Don't Understand

 

Many of us will remember the television show, Mork and Mindy .

 Imagine that you have just moved to Canada and you overhear a conversation, “ I was watching NBC and they said that the FBI arrested a terrorist at IGA”

 You probably wouldn’t understand what they said because we all use acronyms used We often replace the long descriptions for many organizations, institutions and government bodies with the initials or short forms in conversations. The show was based on Mork, an alien, misunderstanding terms, expressions and common traditions that we have in our society. It made for a funny show but it’s not so funny if you are new to Canada or want to make the largest purchase in your life.

. Imagine this same person speaking to a realtor or a mortgage broker when they started using abbreviations for words used in their industry. As a public service to any of you who may have recently arrived from a foreign county or another planet, I am going to define a few expressions that we all take for granted.

AMORTIZATION – How long you have to pay off the mortgage on a home. Typically in Canada you have 25 years. In Japan it can be 99 years. Payments are spread out equally over the specified time period . If they were not you would have huge payments in the first few years and very small ones in the last6 months of your mortgage term.

DOWN -  short for down payment. A deposit of 5% minimum is required for a home purchase.

FLEX DOWN – a borrowed down payment program, where the repayment of the loan is included in the debt calculations.

PULL – “He pulled my credit before the loan approval “ – a pull is a credit bureau report inquiry.

TRADE LINES -  a trade line is a credit card or cellphone  account, a loan or mortgage that appears on your credit report.

DEROGS – short for derogatory , referring to late payments on your credit report.

20/20 – refer to your ability to repay 20% of the mortgage balance or increase your payment by 20% without incurring a penalty.

MIC – short for a Mortgage Investment Corporation – a group of investors who will lend you the money for a mortgage if a traditional lender will not due to unusual circumstances.

TERM – although mortgages have 25 year amortizations, Canadians traditionally take terms of 1- 5 years and then renegotiate their mortgages. 1-5 years is the TERM.

DEFAULT – failing to pay your mortgage on time puts your mortgage into DEFAULT

FORECLOSURE – If your mortgage is in default you can make your payments up or the lender will put your home in FORECLOSURE and you will lose your home.

OPEN MORTGAGE – a mortgage where you can pay out the mortgage at any time during the term.

CLOSED MORTGAGE –a mortgage where you have agreed to pay the lender for a specified period of time . If you wish to terminate the mortgage, a penalty will have to be paid.

PIT – principal, interest and taxes – an amount  used to calculate how much  you  can afford to pay monthly on your home .  Often  heat is also included in this calculation (PITH) .

High Ratio – a mortgage where the buyer has less than 20% for the down payment and needs to pay CMHC fees to insure it.

CONVENTIONAL – a mortgage where the buyer has 20% or more down payment or equity in their home.

While I have not covered all the terms you may encounter I hope that I have covered most of them.

If you find yourself talking to a mortgage broker who is using business expressions you should feel free to remind them that you are not in the industry and would like to the terms explained. Any broker worth their salt will be very happy to explain these terms to you.

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Thinking Outside of the Box - Blanket Mortgages

Thinking outside of the box – blanket mortgages

When someone calls me up out of the blue for a mortgage , I often ask them, “Why did you call me?”

 Often the reply is that a family member suggested it. I then ask, “Do you know what I do?”

 Once again , I will get a reply that they aren’t sure.  I will then explain to them that while banks do mortgages, they don’t specialize in them. They also do deposits, GIC’s, RRSP’s , insurance ,car loans etc.

 I only do mortgages, day after day. As I result I have more experience in unusual situations and we are getting more of them all the time. Sometimes you need to think outside of the box.

   Here’s an example,  Sally and Ted want to buy a home but they don’t have a down payment.  A recent HSBC Bank study found that 37% of young Canadians count on the Bank of Mom and Dad for their down payment.

Unfortunately in many cases, Mom and Dad would like to help them out but they don’t have the cash.

They own their home or have a low mortgage balance but their savings are tied up .  This is where thinking outside of the box comes in handy.  A blanket mortgage is a mortgage that covers the subject property and another property that has sufficient equity in it to carry both properties.

 

    If the parents are willing, a mortgage can put  placed on the parents ‘ home and the new home. If the property value for the 2 homes is more than 80% of the mortgage amount the new home can be purchased without the young couple having to save a down payment and pay expensive CMHC fees.

     What risks or down sides are there to this idea.?  If Mom and Dad want to sell their home and move to Arizona the children will have to get a new mortgage to cover their home .There may be penalties for breaking the mortgage which will have to be paid.  There’s also the risk that the children may fall behind on their mortgage due to layoffs  or maternity leaves and that could jeopardize the parent’s home.

 Is a blanket mortgage a good idea for everyone? No. Discuss your issues with your mortgage broker and they may find this to be the best solution for you or they may suggest something else .Email me  You can contact me here . 

The Compound Effect: Building Your Household’s Wealth

Wealth is within reach for many people; however, according to a recent study, 63 percent of Americans said it’s not likely they’ll become rich.¹ While younger people are more likely to say they’ll achieve wealth one day, only 34 percent of people aged 30 to 49 and 21 percent of people aged 50 or older say the same. There is no secret to becoming rich: it takes time, sacrifice and good financial sense. Here are a few ways to build your household’s wealth.
Let Compound Interest Work for You
Compound interest is your interest earning interest. While the concept may work against you when you take out a loan to buy a car or use your credit card, it works in your favor when you’re saving money. For example, if your savings is growing at a rate of four percent, your investment will double in eight years and quadruple in 16 years. Your money will grow exponentially the longer you save: the more money you’ve saved, the more your money will grow.
Tap into Your Home Appreciation
Experts expect home prices to appreciate 3.24 percent and grow by 21.4 percent cumulatively.²  If a homeowner purchases a home this year for $250,000, they could earn more than $40,000 in equity over the next five years. Although the home value of the average American family’s home is $165,000, home values vary by market.³ If you’re curious about the value of your home, give us a call!
Build Equity in Your Home
One of the most compelling reasons to own a home is it allows you to build wealth over time. According to one study, the average homeowner has a net worth of $200,000, which is 31 to 46 times the net worth of the average renter.⁴ Saving for a down payment, especially if you plan to put down more than 20 percent, helps you adopt good financial habits. The more you put down when you buy, the higher your share of equity when you close. Although for the first five to seven years, the majority of your payment will go toward interest, over time more money will be applied to the principal. There are many tools online that calculate your current and future equity in your home, including this one here.
Build equity sooner by choosing a shorter amortization term. While your payment may be higher, you’ll likely qualify for a lower interest rate and will pay less interest over the life of the loan.
Build Equity Faster in Your Home

Mortgage Term	30 Years	15 Years
Loan amount	$118,000	$118,00
Months to pay	360	180
Annual percentage rate	4.0%	3.0%
Monthly payment	$563	$815
Total interest	$84,806	$28,680
Interest savings	–	$56,126

Source: Federal Reserve Bank of Dallas, Building Wealth: A Beginner’s Guide to Securing Your Financial Future
Pay Down Your Mortgage…or Not
Many homeowners grapple with whether or not to pay down their mortgage. On one hand, if you pay it down, or pay it off early, you’ll save money on interest, which you can use to make other investments. On the other hand, if your goal is to be debt free, it’s better to pay off your higher-interest debt, such as credit card debt, first before paying down your mortgage debt. Additionally, if you’re saving for retirement, putting extra cash toward your retirement accounts will help you build a nice nest egg to enjoy later on.
If you decide to pay off your mortgage sooner, here are a few ways to do so:

1. Pay more money at the beginning of your amortization period and apply it to your principal.
2. If you receive a tax refund or other windfall, apply it toward your principal.
3. Make one extra payment each year. You’ll save money on interest and pay your loan off sooner.
4. Add an extra $50, or another amount you can afford, to the principal of your payment each month.
5. If you locked into a 30-year fixed loan, refinance to a shorter, 15-year fixed loan. Your payment may be higher, but you’ll pay it off sooner.

Your financial advisor can help you decide if paying off or paying down your mortgage is right for your goals.
Purchase Investment Property
Investment properties provide passive income to your growing financial portfolio. More than 25 percent of Americans say real estate is the best way to invest money you may not need for the next 10 years.⁵ While many people flip houses to make money—that is, they buy a home at a low price, fix it up and sell it quickly—others purchase multifamily properties to create monthly cash flow to save or to reinvest in other properties.
The longer you own a property, the better investment it becomes as you’ll continue to build equity. While rental costs rise with inflation, your mortgage will remain the same. The best part? Once you pay off the mortgage, your cash flow will increase. Remember to create a budget for maintenance each month, between 10 to 20 percent of the rent you receive, or more if the home is older. This will help you save more money in the long run and allow you to prepare for unexpected repairs.
There are tax benefits to owning investment property as well. You may be able to claim deductions for depreciation, as long as it fits within the guidelines; repairs, travel expenses, interest and more. If you’re thinking of purchasing investment property, talk to your tax professional to get the details.
Achieve More Wealth by Creating Financial Goals
Setting a goal will help you achieve your desired level of wealth. Once you achieve one goal, reassess and set the bar higher.

1. What is your idea of wealth? Your idea of wealth will change as you earn more money. That’s why it’s vital to set goals along the way. What do you want your net worth to be in 5 years, in 10 years and in 20 years?

2. Write down your short-term and long-term goals. Once you have determined your goals, write them down. This is the first step towards getting your desires out of your mind and into motion and it will be easier to refer to them later on.

3. Develop a budget to help you reach these goals. A budget not only helps you understand where your money goes each month, it may also prevent you from overspending. That way you can have more money to save and invest.

Your Budget

Income
Earned	$
Investments	+ $
Total Income	= $
Daily Expenses	–       $
Monthly Bills	–       $
Total Available for Investment	=

To increase the amount you can invest, make adjustments to your daily spending and monthly bills, if possible. Look for opportunities to save money and transfer that savings into your accounts.
It’s never too late to begin building your family’s wealth. Whether you’re interested in buying a first home, upgrading to a larger home or are thinking of renovating, we have you covered. Give us a call and we’ll answer all of your real estate questions and offer suggestions to help you increase the value of your home.
Sources: 1. BankRate.com

2. Pulsenomics, Home Price Expectation Survey Q4 2016
3. Statistic Brain, August 1, 2016
4. National Association of REALTORS, Economists’ Outlook, September 8, 2014
5. The Motley Fool, July 30, 2016

• For more information on growing wealth , contact me

The Lady with the Dog wants a Mortgage

     Several  years ago, I got an email from a prospective client. She said she was a single mother with 3 kids and a well behaved dog. She was looking for a home in a small town. I told her that I would be happy to help her get into the home of her dreams but I would need to know more about her. She asked me what homes I had that would accommodate her family. It was at that moment that I realized that she didn’t know what a mortgage broker does. She thought that I was a realtor. I also realized now that she had rented her whole life and stating that her dog was well-behaved was important when renting so she thought that banks would not provide mortgages to people with dogs who would mess up the house.

   That is when I started asking people who called me , “Why did you call me and do you know what a mortgage broker does?” The responses I got were interesting. I often was told that a family member told them that they needed to call a mortgage broker. They followed this advice even if they did not know what brokers do. This isn’t a surprise, as a recent survey showed that 76% of new home buyers sought advice from family members while 70% consulted a mortgage broker. (source: CMHC 2015 First-time home buyers survey)

   This reminds me of the TV commercial where a man is told by his doctor over the phone that he can perform his own open heart surgery and he says “Shouldn’t you do this?” , the idea being leave the complicated stuff to the experts. People still refer to family members who may have bought a home 20 years ago rather than consulting with a professional who does mortgages 40 hours a week. I think this all comes back to the fact that the general public does not really know what we do. They have heard that we can help people with bad credit get into a home but they do not realize what we can do for the rest of the people we work with.

   People are at different stages in their lives. Some have kids about to go to university, others are nearing retirement and want to pay off their mortgages as quickly as possible. I ran into someone the other day who had just had twins. Twice the fun but also twice the expenses. He needed to lower his mortgage payments to free up his cash flow for his suddenly larger than expected family.

   Mortgage brokers ask more questions than the banks. We want to know where you are in life and what is coming up in the next few years so that we can advise you on the way to finance your home. 

Contact me before you start your spring home search at 403-836-1201 or visit my website