CategoryCase study

Posted August 24, 2011 Case study

Solar power subsidy… part 3 and the conclusion of my application.

Solar power…. those words make me think of green energy.. no more smoke stacks… electric cars, no nuclear power plants..etc… These were some of the reasons I applied to get my own home approved for the Ontario Government’s Microfit subsidy program. Oh, that and the $0.805/ KwH that I would be earning… a $0.70/KwH profit… Sounds like a no-branier, but would that be enough of an incentive for me to go through with the purchase?

Three months ago, I began the process of applying to the Ontario Power Authority for approval to the Microfit program and was approved. I applied for approval to the Local Distributor Company (LDC local hydro company)..in my case it was Burlington Hydro. They sent out an Engineer to ensure my house would qualify….. good news is that I was approved… Everything was set. I just needed to get a site assessment for my our peace of mind to see if my house was positioned correctly to take advantage of the sun’s rays.

I contacted an installer and supplier… They did a free site assessment…(most installers and suppliers wanted to charge me a fee)… My house was not positioned to achieve optimum efficiency…. I would achieve only achieve 72% efficiency out of a recommended 90%…. Cost to install 30 high-end panels would be $45k. My expected annual return would be around $5,500.…

End result…it would take me almost 10 years to recover my investment… but then again, I would have that 20 year govt contract selling my power at $0.805/Kwh compared with paying $0.11/KwH…

So after several dozen hours spent researching, applying, meeting with inspectors, installers, etc and 3 months later, my decision is to not move forward with the install. There are many reasons but it seems to me that we still don’t know what effect this would have on the value of our homes…. Will prospective buyers like the panels in 3, 5, or 10 years? Will the panels be out of date when I go to sell? There just seems to be too many unanswered questions at this time…

The installer told me that my approval from OPA is good for 12 months… and maybe the price of the panels will drop enough that it could make sense for me to get the installation done…. but right now, a 10 year payback it way too long…. I’ll update you further should I have any new information…

My advice to anyone that is looking to participate is to do your research… there is a lot of data to be digested… Buy Canadian… don’t just go with the lowest cost panels… buy quality.. we have some harsh weather in Ontario… Contact the Canadian Solar Industries Association for some referrals…. seek out a reputable installer and supplier… Get recommendations directly from the manufacturer….

If you want more info, just drop me a line and I’d be happy to share more details of my research.

Posted March 30, 2011 Case study

Investing in a multi-unit properties? Take care…

Recently, I noticed something very strange happening with multi-unit properties and I want to share two experiences with you…

I was approached to refinance 2 separate and different Multi-unit properties by 2 completely different borrowers. Both properties were in the Greater Toronto area. They were both in great condition and were bringing in good rental income.

Property 1 was purchased in 2008 for $385k. There are 3 legal rental units. It generates good rental income of $3700/month. The owner paid utilities.

Property 2 was purchased in 2006 for $610k. There are 3 legal rental units. It generates rental income of $3400/mth…. The tenants paid utilities…(it should be noted that Property 2 is in a more expensive part of town where real estate prices are higher).

Fast forward to today…. Based on current appraised values, Property 1 is currently worth $460k, Property 2 is currently worth $660k. Keep in mind that these are actual rents for both properties.

So how can this happen? It’s clear to me… the buyer’s of Property 2 overpaid in 2006….Property 1 is in a less expensive part of town but the rental income and condition of the property are more relevant when dealing with investment properties….

How can you avoid this mistake? Seek out the help of a good Mortgage Broker… A good broker can seek out the opinions of a recognized real estate appraiser… and even crunch the numbers with an experienced Lender to determine the property’s Lending Value…

As an aside, the average sale price of a single family home in GTA in 2006 was $350k…. today, it’s around $427k. Multi-unit dwellings can be attractive but consider single family homes if you want to invest in real estate. Always discuss the purchase with a trusted group of advisors… including your Mortgage Broker.

Posted March 23, 201119 Comments Case study

CBC news reports Scotiabank slams client with $30,000 penalty!

A word about world events the past 4 weeks… We have seen a lot of turmoil overseas…… Egypt, Libya and other middle east countries…. We need to pay attention…. Let’s hope for an immediate and peaceful resolution…

The Tsunami in Japan has been horrible… the images on TV are tough to watch…what a tragedy… Our hearts go out to the people of that nation.

Fixed rates drop slightly and Variable rates remain flat.

We have also seen how mortgage rates can be affected by these events… The uncertainty has caused the Bond market to fall…. and we even saw a very small rate reduction by the Big Banks… Posted Fixed rates are down around 10bps… 5 yr fixed is 5.34%. Continue reading “CBC news reports Scotiabank slams client with $30,000 penalty!”

Posted February 18, 2011 Case study

Report shows Canadian borrowers are too complacent…don’t drink the koolaid.

That’s what a report in the latest Bank of Canada Review had to say… This article in the National Post sums it up well… “Simply put, borrowers are often complacent and end up paying more than they should.”

This is exactly the reason I started this site…..To make you an informed borrower. Like the review said, “consumers have different preferences and skills when shopping and bargaining for a mortgage and where lenders maximize profits based on observing these preferences and skills.”

So, how does the average Canadian borrower know if they are getting the absolute best rate or the right mortgage product? Is there a better product with a different Bank, Financial institutions or other Lender? How do you know if you aren’t speaking with an unbiased professional that doesn’t work for any one bank? For me, there is only one sure way to know you are getting a highly competitive mortgage product…..You must deal with a Mortgage Broker.

Here’s another quote from the Bank of Canada Review… “Canadian lenders appear to be extremely slow to pass on changes in the Bank Rate to their customers.” I’m sure this comes as no surprise to most of us.

Never forget that the Banks are a business… and they are here to make a profit… It’s imperative to seek unbiased, market neutral advice….. A Bank Mortgage Specialist just can’t be neutral or unbiased….They can only offer one set of products… I save the best for last….

**A Mortgage Broker helps to ‘creates competition’ as the report said.**

Hopefully, this site will keep you informed and awake…Don’t settle for the status quo….

Posted February 17, 2011 Case study

The Big Six have all raised their rates now…

A look at locking into a Fixed rate

By now, you’ve heard that Fixed Mortgage rates have gone up by 0.55% since November…5 year fixed is currently sitting at around 4.04% vs 3.49%. (these are best broker rates…the best retail bank rates are 4.39%)…. Let’s take a closer look at what this will cost you.

On a $200,000 mortgage with a 25 year amortization, your monthly payment goes up by $58.89 or about $3,500 over a 5 year period. That’s quite a bit of money…. and this probably gets a lot of us thinking about locking into a 5 year fixed rate….But is this the right strategy for everyone?

For some of us, it will make sense to take a 5 year fixed rate… this is not a bad option for those on a tight budget, pension income, or just can’t sleep at night thinking about rates… make sure you are locking in for the right reason…

A look at NOT locking into a Fixed rate

Current Variable is 2.25%…. A $200,000 mortgage with a 25 year amortization has lower monthly payments by $185.16. Okay, I know what you’re thinking and you’re right… this rate will not remain the same for 5 years.. In fact, we know it’s probably going to go up. So it’s difficult to calculate exactly how much you would save or lose by sticking with a Variable rate… History shows us Bank Prime goes up and down around 2 to 3 times a year….Look at this chart of Historical Rates. The RBC is forecasting for Bank Prime to go up by 1.00% this year and another 1.50% next year!! (not sure I agree with this forecast). If you like flexibility, are willing to tolerate rate movements, and want to take a calculated risk of floating your rate, then Variable could be a great option for you.

Is Variable rate more stable than Fixed rate?

The media keeps telling us mortgage rates are going up.. they will skyrocket….So why are people still considering Variable Rate mortgages? We looked a little deeper and found some interesting trends…

-From Oct 2008 (the month of the U.S. Mortgage crisis) to Oct 2009, the Bank of Canada only changed Bank Prime 4 times…This was the worst recession since the Great Depression of 30’s….and yet Bank Prime only changed a handful of times….

-the BOC raised rates in 1992 because they thought the economy was strong enough to handle… they quickly lowered them but it was a little late as the economy staggered for another few years… this pattern has repeated itself on more than one occasion…most recently, 2010…

-the BOC forecasted that interest rates would skyrocket in mid to late 2010… they were wrong…

-Variable rate has historically been 1% to 3% lower than fixed rates.

Conclusion….Variable rate moves less often than Fixed rates… And yes, it’s more stable if you measure stability by rate movements… But there will be movement.. and maybe that’s what makes Variable rate a choice for only 25% of Canadians… Us Canadians are a conservative bunch, or so our rep goes…. And by the way… The Banks would LOVE to have everyone take a 5 year fixed rate.. these are the most profitable mortgage products for them…. Keep that in mind…