Uncover the hidden equity in your home

Turn on the TV, listen to the radio, read a newspaper or talk to someone at the office water cooler.   What are we hearing?  ‘House prices fall’….  ‘Mortgage rates are going up’…

Okay, are you ready to hear some good news?   Let’s talk about what’s really happening and how YOU can benefit.

Firstly, house values are actually stable according to the Canadian Real Estate Association (CREA).  The article goes on to say that House sales may cool this fall due to a robust Spring market and that house prices may fall.  Hey, that’s okay.. we don’t want to see a runaway market… but that should trigger us to do something now.   Take advantage of these incredibly low rates.

Interest Rates are at historical lows and yet I don’t see much news coverage about that…did you know that a 5 year fixed rate can be had for around 3.69% and in some cases even better for qualified borrowers….   Variable rate is also great… 2.30% is an excellent rate…. and Economists are forecasting for no real increases until the Spring…

REFINANCE WHEN RATES ARE LOW

It’s really no secret…. you’ve heard of buy low and sell high?… well, with interest rates it’s ‘borrow when rates are low and get rid of high interest rate debt’….. This is the best time to borrow money. Here’s how you can benefit….

Let’s suppose your situation looks like this:

  • have a house worth $350,000
  • a mortgage balance of $200,000 @ 5.00% with payments of $1,100/mth.
  • credit cards $8,000 @ 12.00% with payments of $240/mth
  • a line of credit $10,000 @ 6.00% with payments of $300/mth
  • car loan of $15,000 @ 6.00% with payments of $480/mth
  • you want to invest some money into rrsps or resps or some other GOOD investment for $20,000….
  • your monthly payments total $1,640.

Here’s what you could be doing:

  • increase your mortgage by up to $80,000 to $280,000
  • pay off all that debt and take the extra funds (up to $47,000) and invest or use as you require
  • your payment based on today’s 5 year fixed rate of 3.695 would be $1,427/mth
  • your payment based on today’s Variable rate of 2.30% would be $1,227/mth

Your cashflow would actually improve and you would put money in your pocket.

This is just one example of how you could benefit… we all have different needs and different situations…get your finances analyzed by a qualified Mortgage Broker.   See how you could benefit….It’s a great time to borrow…

More speculation that interest rates will remain low

We’re starting to see more evidence that the recovery is not going as well as the Bank of Canada first thought.   Inflation has dipped slightly, even with the HST.

CIBC Chief Economist, Avery Shenfeld, says we are beyond the ‘Great Depression of 2008-09 but we are in the ‘Great Disappointment’ of  a sub-par recovery.   He’s forecasting for interest rates to remain flat until the spring of next year, followed by only gradual increases thereafter.

Great news for anyone that has a mortgage…

Is this a good time to buy a Rental property?

Owning a rental property can be a great way to build your net worth and also enhance your income.   In recent years, house values increased to a point where it was next to impossible to find a property that had a positive cashflow.

The biggest cost in owing a rental property is the mortgage.    And we are seeing historical low interest rates …. under 4.00% for a 5 year fixed and variable rates of under 3.00%….

Does the math work for you? Let’s take a look at a mortgage I arranged for someone who bought a townhouse for $320,000. Here’s what the math looked like:

  • We arranged a 1st mortgage for $256,000.
  • negotiated a 5 year fixed rate of 3.89% amortized over 35 years.
  • Monthly payment is $1127.
  • property taxes are $240/mth.
  • tenant pays $1500/mth rent plus utilities.
  • end result is a $133/mth positive cashflow.

This was a good situation.. not all rentals will produce a positive cashflow but they don’t always have to.  There are usually some tax advantages to owing a rental property that is producing a slight loss..

Here are my tips when buying a rental property:

  • you should plan on holding for at least 7 years… most economic cycles will have run their course in that time and property appreciation is more likely…any initial costs incurred when the property was purchased are easier to absorb over that time.
  • speak with your accountant and mortgage broker about obtaining the best financing…it usually makes sense to buy with as little down as possible, finance as much as possible and minimize or eliminate any profits to reduce income tax exposure….again, speak with your accountant.
  • maximize the amortization your rental property so  you can minimize the amount you pay towards the principal portion of the  mortgage… again, this requires thorough of your personal situation but generally speaking, most borrowers carry other personal debt that should be paid off before the rental property mortgage.
  • pay off all other personal debt first….. good debt is tax-deductible debt like a rental property mortgage….bad debt is non tax-deductible debt like credit cards, personal loans, mortgage on your principal residence.
  • I love variable rate mortgages, but when it comes to rental properties, you need to consider a fixed rate… it’s important to know what your costs are when buying a rental property… many lenders don’t even offer a variable rate mortgage on rental properties which will limit your choice of lenders.

Qualifying for a mortgage on a rental property has changed significantly in recent years.

The biggest changes started immediately after the U.S. mortgage crisis in October 2008.  Lenders all but stopped financing them.  Earlier this year, the Federal government stepped in and changed CMHC’s rental policies for those with less than 20% down.   I would say it’s almost impossible to qualify for a 1st mortgage greater than 80% on a rental property with ‘AAA’ rates.

And for those with 20% down or greater (a conventional mortgage), it was still difficult to qualify.  Most lenders changed their polices here as well.   Some Lenders wanted as much as 35% down or had debt servicing ratios that were not reasonable or practical.

The good news.… Lenders are interested in rental properties again.. not like pre-Oct. 2008 days, but we are seeing more reasonable qualifying.   These record low rates make rental properties very appealing...

5.5% Cashback mortgage… is this a good deal?

There are some interesting cashback mortgages available these days…. I’ve been asked if they are worth considering…

Let’s take a look at one of the better ones being offered out there…

The deal is simple.. you must take a posted 5 year fixed rate….currently at a very low 5.39%.  You get 5.50% back in cash.  Sounds pretty good but how does this compare with taking a discounted 5 year fixed rate of 3.69%?

We’ll use a $200,000 mortgage with a 25 year amortization in this example….

CASHBACK OFFER

  • 5.5% cashback equals $11,000 in cash to you.
  • mortgage rate of 5.39% will give you a monthly payment of $1,208.01.
  • your mortgage balance after 5 years will be $178,080.91

NO CASHBACK AND A DISCOUNTED RATE

  • interest rate would be 3.69%.
  • monthly payment is $1,018.70
  • your mortgage balance after 5 years will be $173,155.72.

And the end result is…..your monthly payments alone would almost balance out… there is a savings of $358.60 in favour of the discounted rate.   But look at the difference in the balance at the end of 5 years…. a $4,925.19 additional savings.

The obvious first choice is to take the discounted rate….but the Cashback is a good option for those that are just starting out or need funds for the initial expenses associated with buying a home….  The best choice for you will depend on your circumstances, goals and plans….. Talk to a qualified Mortgage Broker that doesn’t work for any one bank to understand the differences…

Mortgage Rate history…25 year chart

Here’s an updated 25 year Interest Rate Chart.   The chart gets updated monthly by Firstline Mortgages, a division of CIBC.   Click here to see the data.

The only surprise is that interest rates didn’t go up as many experts had predicted last year and earlier this year…  To sum up why in just one word……UNCERTAINTY…..  there is a lot of uncertainty about he global recovery and the domestic economy…. watch for interest rates to stay fairly flat through the rest of 2010….

Taking a look at a 1 year and 3 year fixed rates

I’ve had some inquiries about taking a 1 year and 3 year fixed rate…and for good reason.   A 1 year fixed rate can be had for about 2.50% and a 3 year fixed rate is 2.90%.   This does make going with a shorter fixed term an attractive option if Bank Prime rate continues to increase.

Best Variable rate is around Prime less 0.65% or 0.70% for qualified applicants with some conditions….  that puts the Variable rate at 2.30% or 2.35%…

I like Variable rate mortgages for many reasons but these shorter, fixed terms can be a good alternative.. Make sure you understand all the terms and conditions… speak with a qualified Mortgage Broker.

Variable Rate is up 0.25%

Bank of Canada raised their Target Rate by 0.25% to 1.00%.   We will see the Retail Bank’s Prime lending rate go up from 2.75% to 3.00%.

Governor, Mark Carney, said “Any further reduction in monetary stimulus would need to be carefully considered in light of the unusual uncertainty surrounding the outlook,” .    This is sounding like we won’t see any further hikes til some time next year as the Government evaluates the economy and the global markets.

I still like Variable rate… at 2.30% to 2.50%, this is still much better than the 5 year fixed rate of 3.75%, which is what we are seeing today.

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