CategoryMortgage News

Posted November 6, 20124 Comments Case study

Baby Boomers 10 yr real estate retirement plan

Last week, I was asked to comment on BMO’s Retirement Report which pointed out that more Canadian Baby Boomers are using their home as their retirement fund. The BMO study shows the baby boomer generation were not downsizing like many experts were thinking. But instead, they are buying bigger, more expensive homes. The thinking is that the higher priced homes will grow their retirement fund more quickly and more securely.

Several Financial Experts commented on this study…. mostly offering negative reviews about this retirement strategy….. including BMO… you know, eggs in one basket, diversification, that sort of thing… there is merit in the statements but I really don’t agree with the negative spin….. Here’s a link to my quotes about the “10 year plan” in The Star.

The 10 year plan has grown in popularity over the last 5 years as we’ve seen the value of our RRSPs or other investment drop in value. It’s capitalizing on real estate values going up over the long-term. It’s really simple to understand….

THE 10 YEAR RETIREMENT PLAN

Here’s an example of what one couple did….Let’s say you’re between the ages of 35 and 55.

You own a home worth $500k.
You have a $300k mortgage., but you can afford to buy a $700k home.
Your new mortgage is $500k.
You are committed to keeping that home for 10 years….and you can afford the payments..
In that 10 years, the goal is to pay down your mortgage by at least half, if not more. (a realistic goal considering the average Canadian pays off their home in 12 to 17 years).
if your home goes up by 5% each year, on average (and this is probably a realistic number looking back at historical values), then your home should be worth $1.14million.
the 10 year timeframe is critical… we want to give enough time to live through any up or down real estate market…

Using the example above, in 1o years you should have a mortgage of $350k or less and house worth $1.14millon… that’s $790,000 of equity in your home. Oh, and it’s all Capital Gains Tax Free….

Does it sound too easy or too good to be true? It’s really not… take any 10 year period in history… work out your own stats… This is reality…

By the way, the couple I’m referring to are real… they are actual clients of mine. They bought their home in 2007 for $850k… They have paid down their mortgage to $300k…this is way ahead of schedule…(the low interest rates have helped)…. The value of their home today is approximately $1.5million. They have $1.2million in equity today. They estimate the home will be worth $2million in 5 years… but even if it isn’t, even if the property is only worth $1.2million 5 years from now, I’d say they’ve done pretty well, wouldn’t you agree?

And for those that prefer stocks and bonds, then stick with those investments… There isn’t one good strategy… This plan is less exciting and probably a little boring… but I like boring when it comes to my money and my retirement…

This plan isn’t for everyone. You need to be comfortable with debt and understand real estate…. and you need to commit to owning real estate for 10 yrs (it doesn’t have to be the same house.. you can move)…

If you need help with this plan or just want more info to help understand it, give me a call anytime.

Steve Garganis 416 224 0114 steve@mortgagenow.ca

Posted October 11, 20127 Comments Mortgage News

CMHC flawed data? Or is this just a shock value article?

The Globe and Mail’s Grant Robertson and Tara Perkins wrote a shocking article entitled “Potentially flawed data used by banks and lenders bump up house prices”. Wow, that headline is sure to get a lot of attention. I mean that’s a really serious allegation. Let’s continue…

They claim to have documents that quote “confidential statements from banks, appraisers and mortgage insurers show rising worry over the use of a database operated by the Canada Mortgage and Housing Corporation (CMHC). The documents suggest the data are flawed and help push home prices up.”

But keep reading this article… and tell me if you see any substance to this allegation. The article goes on to explain that CMHC has been using an automated evaluation system called EMILI, since 1996 that can determine house values. They also say CMHC will order appraisals when they deem necessary. They even quoted an appraiser that says the system is flawed… So this article must be right… after all, it’s in the Globe and Mail!!

I read this article a few times over, to try and find any real facts to suggest that CMHC is using flawed data…. but I came up empty. Did they make any mention of how many times the EMILI system was used over the past 16 years? Or how many instances this system produced a wrong property valuation? How about how many appraisals were required when EMILI couldn’t support a value? What about the $$ losses that CMHC has incurred due to incorrect property valuation using EMILI? NO.. no data provided… Just a reference to some document that raised concerns about the EMILI system. My guess is that any losses were limited or we would have heard a lot more about it….

Folks, this article is another example the media using shock value to get you reading… This is the type of ‘water cooler talk’ that causes us to panic, to make mistakes. We tend to flock to the negative… bad news travels faster than good news…it’s human nature. Last night, when I saw this article, there were 62 comments…. as of this morning, when I wrote this article, there were over 300.

I want you to read these comments.… full of angry people… all celebrating the possible scandal of a flawed property valuation system… Hooray! There’s a scam…banks, and homeowners got ripped off! Let’s celebrate!!… The attitudes were disturbing… Hey, I want to associate with positive people.. not pessimists… If this is the audience that the Globe is attracting, then maybe we should rethink where we get our information from.

Sensationalism is a dangerous thing. Let’s continue to take emotion out of it… Let’s make sure we look at facts and clearly separate our opinions. Buying a house for personal use or as an investment needs to be given careful consideration. You’ve heard me say that real estate should be a 7 year investment. History shows us that this is how long it takes to amortize the expenses involved with buying and selling a home. It’s also how long it takes to go through an up and down economic cycle. Real Estate isn’t about making a quick buck.

Interest rates are at historical, all-time lows… Have you seen any articles about this lately? Not many… but that’s because it’s lost it’s shock value. This won’t grab your attention. But’s true… and for most of us, it still makes good financial sense to buy a house.

Make decisions based on fact… based on your own personal circumstances… based on what works for you… based on what your goals are…based on professional advice…

As always, I welcome your comments and questions… If you have any questions about mortgages or mortgage related issues, please free to contact me.

Steve Garganis

416 224 0114

steve@mortgagenow.ca

Posted September 19, 2012 Mortgage News

Mortgage Broker vs. Mortgage Specialist

Getting calls on this topic once again so I thought I’d clear the air on this very important topic. So what’s difference? They both arrange mortgages…. and both can offer advice and product select, right? WRONG!!!. The differences are a plenty….I’ll cover the more relevant ones here.

I’ll start with the a quote from a recent Bank of Canada study that tells the story very clearly: “… borrowers who use a mortgage broker pay less, on average, than borrowers who negotiate with lenders directly.” click here for the entire study.

I can probably stop writing after that statement but I wanted to point out a few more things:

A Specialist works for one Bank or a single Lender. They are employees of the Bank or Lender. They can only offer you one brand of products.
A Broker is independent. They are not employees of any Bank or Lender. They can offer products from several different Lenders.
More Lenders competing for your business means betters terms and rates.
A Specialist isn’t required to be licensed to arrange mortgages. There are no standards for educational requirements (although most Lenders do provide some in-house training).
A Broker must successfully complete a Provincially regulated Broker course and continue to maintain their good status to keep that license.
A Broker can provide unbiased advice. They work for you, the borrower.

Look, you wouldn’t ask Burger King who makes the best burgers and expect them to say Harvey’s? So why would you ask a Bank Mortgage Specialist to tell you which Lender has the best mortgage product for you? Enough said.

Banks and Lenders are great suppliers of money, but they can’t give unbiased advice. They can only offer you their products…and they will try to charge the highest rate possible… but that’s okay. They are a business. And they will always try to maximize the profit for their employer, the Bank.

If you would like to compare mortgage products and rates, call your Mortgage Broker.

Don’t have one?, then call me. I’d be happy to help.

Steve Garganis

416 224 0114

Posted September 13, 2012 Mortgage News

HELOC’s capped at 65% but some exceptions still apply..

Earlier this month marked the beginning of the end of 80% loan to value HELOCs. Several Banks and of the Financial Institutions began to cut back the maximum LTV from 80% to 65% as per OSFI’s regulations. But there are a few loopholes in the new rules….

The good news is that existing HELOC clients don’t have to worry.. these changes don’t apply to them. OSFI is allowing them to keep their HELOCs at 80%….
Only OSFI regulated Financial Institutions are affected… Provincially regulated FI’s aren’t affected… Credit Unions don’t fall under OSFI’s rule… there are still some Credit Unions offering HELOCs to 75% and even 80% loan to value.
Some of the Banks are still offering a combination of a HELOC and a mortgage of up to 80% ltv as long at you have at least 15% of your balance in an amortized payment schedule, and not interest only payments.

There is more good news… The BIG SIX BANKS can’t offer you an 80% LTV HELOC but the credit unions can… Maybe Canadians will start to seek other Lenders……They may finally discover that there much better options out there. Watch for the Credit Unions to take a chunk out of the BIG SIX BANK mortgage pie.

Not sure where you fit in? Call me for details.

Steve Garganis

416 224 0114

Posted September 5, 2012 Interest rates

Bank of Cda doesn’t change rate…U.S. Fed not to raise rates until 2015?

Bank of Canada announced they were keeping the Target Rate unchanged today, during their 6th of 8 regularly scheduled meetings for 2012. (This is not a recording..Lol!)

A more interesting topic is the U.S. Fed. There was an article last week that caught my eye. The article quotes the San Francisco Federal Reserve Bank president as saying he doesn’t believe the U.S. Fed will raise rates until 2015. And even if you don’t agree with that forecast, we must acknowledge that US Fed Chairman Ben Bernanke has stated he doesn’t forecast any increases until 2014.

Why is this important for Canadians to follow? They say when the U.S sneezes, Canada catches a cold. There’s a lot of truth to that statement. The U.S. is our biggest trading partner. History tells us we follow U.S. economic policies and trends.

CANADA MAKES IT’S OWN PATH

But something changed in 2008. The U.S. had a financial meltdown. The entire world was impacted and pushed into a global recession. Somehow, Canada came out of this with minimal damage. No housing crash. No Bank failures. No meltdown. In fact, many sectors our industry have flourished including our housing industry. We don’t have any mortgage default problem. Our unemployment rate is 7.3% compared with the 30 yr average of 8.4%. And our Banks are reporting $billion quarterly profits. We are the envy of the world….financially speaking.

CDA GOVT CONTINUES TO FOLLOW US GOVT

Still, the Cda govt continues to follow the U.S. Fed with regards to any rate increases or decreases. After all, we are still a very small economy compared with the U.S. and the rest of the world. The Bank of Canada has not increased the Target Rate for 24 months. Bank Prime currently sits at 3.00%. And many economists believe we won’t see any increase until late 2013 or even 2014. This leads me to believe mortgage rates will remain low for some time to come.

BUT WHICH MORTGAGE TERM SHOULD YOU CHOOSE?

The big question is which mortgage term to choose today… short or long? fixed or variable? The answer depends on you…. your goals, plans, financial strategy, risk tolerance, etc. Each of us has different needs… Product selection is very different today. There is an interested Variable rate product at Prime less 0.35% that has my attention. 5 yr fixed at 3.19% and 3.09% are still available… not a bad option for most of us…. My best advice is to get some advice. Speak with a qualified, unbiased professional. Speak with a Mortgage Broker. A Mortgage Broker doesn’t work for any one Bank.. they can offer a wide variety of products from a large number of Lenders….

As always, if you have any questions or comments, feel free to contact me.

Steve Garganis

steve@mortgagenow.ca

416 224 0114