Variable or Fixed Rate Mortgage?

Almost entirely for the past 30 years variable rates have outperformed the fixed rate mortgage.   So why are fixed terms so prevalent?  Most often reason, Peace of Mind knowing that your mortgage payment will remain the same throughout your term. 

What does Peace of Mind cost?

Today for example if  a lender has a 5 year fixed rate at 4.39% and a Variable Interest Rate Mortgage (VIRM) is PRIME +.40 which equals to a variable rate of 2.65%.  The difference is 1.74%. 

Calculating a mortgage amount of $100,000 over 25 year amortization with both options having a 5 year term.  The fixed rate monthly payment is $547 whereas the VIRM mortgage payment is $455.  The difference is $92 per month or $1100 per year. 

If fluctuating mortgage rates cause you distress a good option to choose is the VIRM with the lower payment but set your payments higher say to the fixed mortgage payment of $547.  Setting your payment higher should offset future rate increases and with each rate increase you can also increase your payment to keep on track for a shorter mortgage amortization and continued savings in the cost of borrowing.     

Using the example above.  Choose to pay $547 the additional $92 per month goes directly towards the principle which will save you $6,154 in the interest over the 5 year term. 

To further reduce your outstanding balance with little effort switch to paying every 2 weeks or 26 times per year; known as bi-weekly accelerated or bi-weekly rapid payments.  This will reduce your outstanding balance at the end of 5 years an additional $3,108.   This tactic will save in the cost of borrowing as well as reduces your amortization from 25 years to less than 18 years with this accelerated option.

Important to note that any client that chooses a variable interst rate mortgage has the option to convert to the very best fixed rates available at the time of switching.  Not all lenders offer this to their clients and this is a very important point to consider when choosing a variable rate lender.

There are clear benefits with Variable Interest Rate mortgages, but it is not for everyone.

Feel free to call or email if you would like to see which mortgage is right for you!

Anne 604 996 8388 anne.vanidour@td.com

Record July Home Purchases

The market has been very busy over the past few months and I wanted to share the article below from the BC Real Estate Association (BCREA).
If you are thinking of purchasing, by all appearances housing prices are on the rise.  According to the article the market has now become “balanced” which means it is no longer a buyers market.  

Interest rates on fixed term products remain historically low and competitive while Variable Interest Rate Mortgages have been reduced to Prime +.40%.

BC Housing Market Exhibits Balanced Conditions 

Vancouver, BC – August 14, 2009. The British Columbia Real Estate Association (BCREA) reports that Multiple Listing Service® (MLS®) residential sales in the province climbed 53 per cent to 10,051 units in July 2009 compared to the same month last year. After six consecutive months of rising home sales and declining inventories, the province moved into balanced conditions in July, the first time since April 2008. READ MORE: www.bcrea.bc.ca/news_room/2009-07.pdf 

What is the Home Buyer’s Tax Credit (HBTC)?

1. What is the Home Buyers’ Tax Credit (HBTC)?

For 2009 and subsequent years, the budget proposes to introduce a new non-refundable tax credit, based on an amount of $5,000, for certain home buyers that acquire a qualifying home after January 27, 2009 (i.e., closing after this date).

2. How is the new HBTC calculated?

The HBTC is calculated by multiplying the lowest personal income tax rate for the year (15% in 2009) by $5,000. For 2009, the credit will be $750.

3. Who is eligible for the HBTC?

An individual will qualify for the HBTC if:

• they acquire a qualifying home; and
• neither the individual nor the individual’s spouse or common-law partner owned and lived in another home in the year of purchase or any of the four preceding years.

If you are a person with a disability or are buying a house for a related person with a disability, you do not have to be a first time home buyer.  However, the home must be acquired to enable the person with a disability to live in a more accessible dwelling or in an environment better suited to the personal needs and care of that person.

4. What is a qualifying home?

A qualifying home is a housing unit located in Canada. This includes existing homes and those being constructed. Single-family homes, semi-detached homes, townhouses, mobile homes, condominium units, and apartments in duplexes, triplexes, fourplexes, or apartment buildings, all qualify. A share in a co-operative housing corporation that entitles you to possess and gives you an equity interest in a housing unit located in Canada also qualifies. However, a share that only provides you with a right to tenancy in the housing unit does not qualify.

As well, you or the related person with a disability must intend to occupy the home as a principal place of residence no later than one year after buying it.

5. If I buy a house, can my spouse or common-law partner claim the HBTC?

Either one of you can claim the credit or you can share the credit.  However, the total of both your claims cannot exceed $750.

6. My friend and I intend to purchase a home, and we both meet the conditions for the HBTC. Can we both claim the credit?

Either one of you can claim the credit or you can share the credit.  However, the total of both your claims cannot exceed $750.

7. Do I have to register the acquisition of the home under the applicable land registration system?

Yes.  The individual’s interest in the home must be registered in accordance with the applicable land registration system.

8. Who is considered a person with a disability for purposes of the HBTC?

For the purposes of the HBTC, an individual eligible for the Disability Tax Credit (DTC) is one for whom an amount can be claimed under the DTC for the year in which an agreement to acquire the home is entered into, or could be claimed if costs for an attendant care or care in a nursing home were not claimed for the [Medical Expense Tax Credit].

9. How will I claim the HBTC?

Beginning with the 2009 personal income tax return, a new line will be incorporated to allow you to claim the credit.

10. Do I have to submit any supporting documents with my income tax return?

No. However, you must ensure that this information is available, should it be requested by the CRA.

11. Is the HBTC connected to the existing Home Buyer’s Plan?

No. Although some of the eligibility conditions for the HBTC and the Home Buyer’s Plan are similar, they are not connected. Your eligibility for the HBTC will not change whether or not you also participate in the Home Buyer’s Plan.

12. Where can I get more information about the new HBTC?

The CRA encourages taxpayers to check our Web site often – all new forms, policies, and guidelines will be posted here as they become available.

Documents are also available immediately at Department of Finance’s Budget 2009 for details.

BC Property Tax Deferment & Financial Hardship Property Tax Deferment

The Financial Hardship Property Tax Deferment Program

In October 2008, the Provincial Government announced the Financial Hardship Property Tax Deferment Program for the years 2009 and 2010.

Financial Hardship Property Tax Deferment Program

How to Apply:  Homeowners can apply for the program after the tax notices have been issued by their municipal or rural tax authorities.

Before applying for the Financial Hardship Property Tax Deferment, please review the Eligibility Criteria.

1. Receive your property tax notice.
2. Complete the Application and Agreement for Financial Hardship Deferment of Property Taxes. The application form can be completed on screen and then printed out. Forms are also available at local municipal or Service BC-Government Agent offices. All registered owners must sign the deferment agreement.
3. Return the completed application and agreement to your municipal or Service BC-Government Agent office for processing before the property tax due date. If you miss the due date, you have until December 31 of the current tax year to apply.
4. Before applying, you must pay all penalties, interest, previous years’ property taxes, utility user fees, as these cannot be deferred. Only outstanding taxes can be deferred, so if you have already paid your taxes, you may not defer taxes for this year.
5. The municipal or Service-BC Government Agent office will complete the Collector portion and forward the application/agreement to the Tax Deferment Program.
6. We will acknowledge receipt and determine your eligibility. Please note, because of the volume of applications, you may not be notified about your application status for several months.
7. If your application is approved, it becomes a signed agreement and a certified copy is registered as a lien* in the Land Title Office or, if your home is a manufactured home, in the Personal Property Registry. 
8. The lien remains in effect until the account is paid in full.  Once the lien is registered, the deferment program pays your current property taxes for you. 

You must pay late payment penalty charges if, after the property tax due date, you:

• Are found ineligible for the program.
• Cancel or withdraw your application for any reason before deferment program pays the taxes on your behalf
• Apply for deferment after the property tax due date
• Sell your home before the taxes have been paid on your behalf

Once you have been approved and enrolled in the Financial Hardship Property Tax Deferment program, you will be sent a statement of account and a renewal application the following year.

*Note: Tax deferment liens are restrictive.  This means that title changes after deferment (other than to a surviving spouse) require repayment of your deferment account.  Please ensure you have completed all changes to the titled ownership (such as adding or removing owners, subdivisions, or refinancing) before applying for the deferment program.

For more information and application forms visit:  BC Government Website

Co-Signor VS Guarantor – Understanding the Difference!

Co-signor Vs Guarantor

The significant difference between a co-signor and guarantor is the right to ownership.  A guarantor does not have his/her name on title of the property but the co-signor does. 

A co-signor also known as co-applicant and co-borrower, will sign the legal documents for the land title office as well as the mortgage contracts.  The co-applicant’s name will appear on title and be registered with the Land Title office as one of the owners of the property.  Think of it this way, co-signor equals co-owner.  Co-signors are equally accountable for payments but most likely will not make payments.

A common reason to use a co-signor is when one borrower does not meet the income qualifications for gross debt service ratios or total debt service ratios (GDS and TDS respectively).  GDS is normally set to 32% and TDS approximately 40%.  GDS can be described as no more than 32% of your gross income can go towards services mortgage payments.  A co-signor must also meet the requirements for GDS and TDS.  Visit – How to calculate your GDS and TDS. 

A guarantor, on the other hand, personally guarantees that payments will be made if the original applicant defaults.  The guarantor has no claim to the property because he is not on title but s/he does sign the mortgage contracts. 

The guarantor will have no claim to the asset consequently; guarantors have less control and fewer rights than a co-signor.  Which begs the question; why would someone choose to be a guarantor instead of co-signor?  Several scenarios come to mind; a young adult wanting to establish credit and a parent or close relative guarantees the loan. Also, in cases when there is a credit flaw on record lenders will often request a guarantor on the application. 

Another common reasons for a guarantor is in the case of a couple where one has their own business.  The business for self (BFS) spouse, will be a guarantor consequently if the business should fail and go into bankruptcy the family home is not at risk because s/he is not on title and therefore not an owner.

Keep in mind that a guarantor must be stronger financially than a co-signor because s/he promises to pay the entire debt if the applicant goes into default.

2009 BC Assessments – View and Compare

2009 BC Assessments will be arriving in the mail soon but you can look online and compare:

IF you are in the market for a NEW HOME IN 2009 & you want a helpful guide of home values. 

All you need is a street name and area!

Or

Ever wonder how your assessment compares with your neighbours?

 Use the direct link to log in the authorized e-Value BC webpage from the BC Assessment website

 BC Assessment – e-Value BC Compare Assessments Online

 

1. Use the map feature to locate your area
2. Enter the street name etc then Click on Compare by Address
3. Next a listing will appear with all the home address for that street or complex for condos and town homes

§ North Fraser (10) – includes the Tri-cities. Burnaby, New West, Anmore, Belcarra etc

§ Surrey/WhiteRock (14), Surrey and White Rock

§ Fraser Valley (15) etc. Maple Ridge, Pitt Meadows, Langley, Abbottsford, Chilliwack, Mission etc

 For more information on the 2009 assessments and other related information visit: http://www.bcassessment.ca/  Click on the left side bar: For homeowners for more useful information.

This e-value feature displays home values for 2009 & 2008 assessments AND it also includes dates of 2007 & 2008 sales with the Sale Price.  Keep in mind, the sale dates may not include all sales for the last quarter of 2008.  This can be a very helpful guide for those home shopping but keep in mind the market has changed considerably and use the information a guide only!

Top 3 Beacon Score Killers

The TOP THREE Beacon Score Killers!

1. The obvious killers are bankruptcies, judgments, etc.
2. Payments over 30-days late
3. Maxing out credit cards (i.e. using over 75-80% of a high credit limit)

Interesting to note, maxing out your credit cards does not mean reaching your credit card limit but nearing your limit can hit a beacon hard as well!

If you have more than one maxed out cards, bring them at least below 50% of the limit but the magic number is below 30%.  Your credit score can jump considerably in as little as a month when you pay down debt and begin managing your credit correctly!

Keep in mind, even if your credit cards are paid off in full every month AND you are still maxing out your card the bureau calculators do not consider this.  The credit bureaus see only the balance last reported by the credit card company.   Yes it shows you made a payment on time but for how much it doesn’t factor into the equation.

 Did you know that over 70-80% of Canadians have mistakes on their credit report? 

As a mortgage specialist, I have witnessed many errors, including wrong birth dates, incorrect SIN numbers, Balances on closed accounts and other minor details like a wrong address or employer name.  The moral of the story is… check your credit bureau! 

It is best to verify your bureau information with all three Canadian credit bureaus, Equifax, Experian and TransUnion.  Remember you are entitled to a FREE credit bureau report annually but if you want to include your credit score you will have to pay small fee.

Click here to locate the contact information for all three Canadian credit burueau companies.

Debt Reduction – Credit Card Debt High & Minimum Payment set low!

Why do credit cards have such low minimum payments?

Are you ready for it?    Drum roll please….

The low minimum payments amounts allow consumers to carry more debt while keeping to the same low minimum payment. 

The lower the minimum payment, the deeper in debt someone could be in.

Based on income – Someone with the ability to pay $100 per month could qualify for a credit limit as high as $5,000 as long as they only had to pay 2% a month.  If the minimum payment is increased to 5% then the credit limit would drop to $2,000.

In addition to the higher credit limit more interest will ultimately be paid by the consumer.  E.g. $1,500 with the min 2% payment of $30 will take just under 8 years to pay off!  Interest paid $1,866 does not include cash advances or other charges. 

The links below steer you to excellent calculators to help you understand the cost of borrowing.  The debt calculator demonstrates methods to pay off debt  more strategically.  While the second calculator, Credit Card Payoff estimates how long it will take to pay off a credit card balance with minimum payments versus what the payment and interest costs will be if you want to pay off the card in a specific time frame – e.g. 2 years or 24 months. 

I personally have downloaded and regularly use these calculators and find them helpful.

Debt Reduction Calculator        Credit Card Payoff Calculator

Visit www.Vertex42.com for Debt Calculators and more

2009 Federal Budget – Home Renovation Tax Credit (HRTC)

Canada’s Federal Budget – Cozies up to Home Owners

The federal budget released January 27, 2009 contains a few items of interest to those in the residential construction industry.

In summary, they are as follows:

Home renovation tax credit (HRTC):
Homeowners can claim a non-refundable 15% tax credit on eligible home renovation costs incurred and paid after January 27, 2009, and before February 1, 2010, under agreements entered into after January 27, 2009.
The tax credit is available on expenses exceeding $1,000, but a maximum of $10,000 of expenses qualify per family unit, so that the maximum credit will be $1,350 (i.e., $9,000 x 15%).

Home Buyers’ Plan:
Commencing January 28, 2009, first-time home buyers can withdraw $25,000 from a Registered Retirement Savings Plan (RRSP) to purchase or build a home, without incurring tax. Previously, the limit was $20,000.

First-time home buyers’ tax credit:
First-time home buyers that acquire a qualifying home after January 27, 2009, can claim a 15% non-refundable tax credit on up to $5,000, for a maximum credit of $750. If a home is purchased jointly, the total credit that may be claimed by all purchasers is $750. The unused portion of the credit can be transferred to a spouse or common-law partner.

For more details visit: Canadian Tax Home Renovation Credit

5 Key Factors – REFINANCE or NOT to REFINANCE

REFINANCE or NOT to REFINANCE YOUR CURRENT MORTGAGE

 

With Interest Rates at historical lows most likely you are wondering if your mortgage is worth all the costs to renegotiate a lower interest rate.  Questions common to many  are:

1. With record low interest rates, is it a good time for me to refinance?
2. Will the lower interest rate outperform the costs to break my mortgage contract? 
3. How much will it cost in penalties and fees?
4. What other stumbling blocks could there be if I were to refinance? 

Here is some basic information to help you identify when and if refinancing is your best option.  Everyone wants to save money but what are the “hidden” costs of breaking your mortgage contract early and renegotiating at a lower rate?

 

The 5 key factors in understanding review are:

 

1. Loan –to-Value
2. Penalty Payout
3. When will Penalties be waived?
4. Other Costs to Consider
5. What if you have a 40 year Amortizations which are no longer available

 1. Loan-to-Value

The first hurdle is the process is how much is you home’s value?  One way to estimate your homes worth is looking at your most recent BC Assessment and using that value in your calculation.  Remember, 2009 home prices continue to fall consequently your assessment may be overstating the value.  In today’s market the rule of thumb is to use a slightly lower amount than the value stated on the assessment. 

 

Most preferred estimate of value is market value; what a buyer is willing to pay for a home of similar style, size and neighbourhood.  Ask a realtor for recent sales in your area and use that value in your estimate.  Remember it’s not what you think it’s worth or how much you could sell it for but what the market is willing to pay. 

 

Once you have established a value, now look at you mortgage amount including any secured home equity lines of credit.  Add the debt against your house and divide that number by the estimated value.  The result is estimates the Loan-to-Value (LTV).  If the number falls below 80% then move on to the next step in the process. 

 

For percentages above 80% then your mortgage would fall under an insured mortgage category and would be sent for approval to either CMHC or Genworth and additional costs would probably prohibit any savings in refinancing.  Also, lenders may not consider you application with a high ratio.

 

The best scenario for LTV is 70% or lower.  It is more likely that your application will be accepted with a lower LTV. 

 

 

2. Penalty Costs – 3 months interest or IRD?

Most people understand that if you renegotiate your mortgage prior to the term’s end you will pay a penalty.  When the interest rates are higher or similar to your current rate you will likely pay 3 months interest penalty.  But in times of historically low interest rates likely IRD or Interest Rate Differential will be the cost of refinancing.  Whichever is higher the lender will charge and in times of falling interest rates most lenders are charging the IRD.  IRD can be much more expensive than 3 months interest . 

 

ASK for both the 3 month penalty and the IRD penalty and have the lender be specific to  which amount affects your refinance options.  Have the lender put it in writing so you have something reference if the final discharge amount is different.  The further into your term the lower the penalty costs will be.  Example year 2 of a 5 year term will pay more than renegotiating in year 4 of a 5 year term. 

 

3. Window of Opportunity to Waive penalties! 

If you are within 120 days of the mortgage term ending most lenders will allow you to renew without penalty; there could still be fees to switch to another lending institution but likely it will be minimal.

 

4. Other Fees to Consider when Refinancing

Mortgage payout penalties can be the largest fee but consider other costs to refinance.  Legal fees can be anywhere from $440 – 800 or more.  For those who chose to life insure the mortgage consideration must be given to the increase payments because you age may fall under a higher premium.   There could also be an application fee $75 as well as $200 -300 to transfer to another institution.

 

5. What if you have an existing 40 year Amortization?

If you have a 40 year amortization and you are in you are first term your application will not proceed unless you r gross income can qualify at a revised amortization of 35 years or less.  The federal government discontinued the use of 40 year amortizations in October 2008.

 

 

CLOSING COSTS

Additional Costs to Consider When Purchasing Your Home

CLOSING COSTS

Your down payment and mortgage are only part of the costs of a home purchase. While the following list is not exhaustive, here are some of the many additional expenses many homebuyers need to plan for on their closing day or completion day.

Home inspection fee: An offer on a home often contains an addendum, Subject to home inspection. This is for your benefit in order to point out any potential flaws or expensive repairs in your prospective home. A home inspector will assess the condition of the house and identify major repairs or if there are fundamental flaws in the building’s structure.

Legal fees: These include the cost of hiring a real estate lawyer to negotiate the purchase agreement and close the deal, as well as out-of-pocket expenses incurred by the lawyer for such things as title searches and registrations. Mortgage Pre-Payment Penalty: If you currently have a mortgage is the mortgage portable or will you incur penalties for breaking the mortgage contract?

Appraisal Fee or Property valuation fee: Financial institutions normally require that the property be appraised if you’re arranging a new mortgage. The cost of the appraisal is normally borne by the borrower. Taxes: Some provinces levy a special charge — usually called Land Transfer Tax or Property Purchase Tax (PPT) and based on the purchase price. GST applies to New Home construction only.

Survey: It’s always wise to obtain an up-to-date survey of the property you intend to purchase. Often, lenders will also make this a requirement of lending to you. If the seller of the home doesn’t have a current survey and you aren’t obtaining title insurance, you may have to pay a land surveyor to prepare one.

Title insurance: You may wish to obtain a policy of title insurance to cover any title-related issues that may arise in connection with the property. In certain situations, lenders may even require that such a policy be put in place at your cost.

Adjustment costs: These typically involve reimbursing the original owner for any pre-paid taxes, utilities, pre-paid strata fees, etc.

Mortgage Insurance: The application for mortgage insurance occurs concurrently with your mortgage application when you have less than 20% down payment. This insurance benefits the lender to protect against mortgage default. The cost of mortgage insurance varies and depends on the percentage of down payment as well as the length of your amortization. The additional costs are normally added to the total mortgage amount or it can be paid for at time of signing with your solicitor.

Property insurance costs: These represent an ongoing expense associated with owning a home. Lenders require homeowners to invest in fire insurance to protect their investment.

Upgrades & New furnishings: Your new home may require paint, new flooring, drapery or upgraded windows to make your home more to your taste or livable. Also keep in mind that it makes sense to budget for new furnishing — inside and out. New home construction additional costs include landscaping and fencing even an automatic garage door opener may be an additional cost to the purchase of your new home.

Utility Hook Ups: Initial hook up charges may apply and are determined by the utility service provider, e.g. cable, gas and electric. Contact your service provider for details.

The key is planning ahead for these additional costs.

Prepared by: Your Mobile Mortgage Specialist Anne Vanidour 604 996 8388 anne.vanidour@td.com