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Posted 11 Comments on O’Leary only wants Fixed rate mortgages…really? Interest rates

O’Leary only wants Fixed rate mortgages…really?

CBC News did a report about Renting vs. Buying, earlier this week.. And it featured Kevin O’Leary and Amanda Lang, two well-known TV personalities….Ok, we covered Rent vs. Own in great detail just a few months ago…  And I also talked about using your home as a retirement fund, earlier this week in my Baby Boomer 10 year retirement plan article.. But this isn’t what I want to talk about…  I want to talk about some comments O’Leary made about Fixed Rates, during that report.

UNPOPULAR COMMENTS AGAINST O’LEARY

I’m taking a chance by speaking out against Kevin O’Leary.   But I must speak up regarding something as important as this…   So here it goes…

O’Leary is starting a new mortgage company….Congrats!  I’m sure he’ll do well.    He said his company would ONLY offer Fixed rate mortgages because Mr. O’Leary doesn’t believe ANYONE should be in a Variable Rate mortgage…. he went on to say that because Fixed Rates are so low, you would have to be insane to stay in a Variable Rate…Hmm.. well, if you are one of my clients then you know how absurd this statement is…

2008-09 MORTGAGE HISTORY LESSONS

Over 80% of my clients are, or have been in a Variable rate mortgage… Most of them enjoyed rates of Prime less 0.75% or better… some even had Prime less 0.90%..and for a while, they enjoyed rates as low at 1.35%!!!  During the 2008-09 recession, we were inundated with TV and Media personalities telling us to lock into a 5 year Fixed rate mortgage because of the sub-prime mortgage crisis and stock market crash…  You remember that?  I do… and I recommended clients do the opposite..  take short-term mortgages until the dust settled on interest rates…  This WAS NOT the popular advice…  It was panic time…. but that’s when you need to remain calm and review the facts…

Fortunately, most of my clients didn’t listen to the media and followed my advice.   I recommended several different products… 6 months, 1 year, 2 year, 3 year and even the short-lived 3 yr Variable rate… In ALL cases, it was the right product choice…. It was the best option at the time for that particular client…My clients have saved $$thousands each and every year through my advice!

(historical fact… Variable rate mortgages have been a cheaper way to finance your home in over 88% of time…Professor Milevsky study.) 

TODAY’S STRATEGY

Unfortunately, new Variable rate products aren’t priced as well today…. This is probably that other 12% of the time….And although I am not recommending Variable rates today for most borrowers, it still might be the right product for some…  To say everyone should get out of their Variable rate is just bad advice!  The GOAL IS TO PAY THE LEAST AMOUNT OF MONEY TO OWN OUR HOMES!

My criteria for choosing Fixed over Variable depends on many factors but here are 3 things I pay close attention to:

1-Variable rate pricing not as attractive.. the best Variable rate today is Prime less 0.35% (3.00% less 0.35% = 2.65%)…..

2-Fixed rates are at historical lows (just over 3.00%).

3-the spread between 5 yr Fixed and Variable should be over 1.00%…today it’s less than 0.50%.

Add all of this up and it’s an easy choice today….I cannot recommend Variable Rate for most NEW mortgages….

THIS DOESN’T MEAN YOU SHOULD GET OUT OF YOUR VARIABLE RATE!!!

If you have a Variable rate of Prime less 0.75%, I would stick with that… that’s 2.25%…  why start paying over 3.00%?   There is no forecast for immediate rate increases…   And this is where I am very concerned…. We have a very well known TV personality that comes out and says everyone should lock into a Fixed Rate mortgage…. I’m sure the BANKS would love to see you out of a 2.25% mortgage and into a 3.00%+ rate.   I completely disagree with O’Leary.    There is no ‘One size fits all’ mortgage.   Everyone is different and has different needs…   I’d be very careful about listening to anyone that wants to pigeon-hole all Canadians.

BEWARE THE TV EXPERTS…  Just a final note….  How many times have you heard ‘Rates are going up soon’ in the last 4 years.?  You must lock into a Fixed Rate…    I hear it everyday…. and if my clients listened to these ‘Experts’ they would have been out of their Prime less 0.75% Variable rate and into a 4.00%, 5.00% or even 6.00% fixed rate mortgage!   Those that have listened to the facts have done extremely well.   There isn’t a crystal ball… it’s not magic, it’s simply viewing the mortgage landscape, current economic trends, monitoring inflation rates and paying attention to govt and policy makers… I really don’t watch the news or listen to any media or TV personalities.   I just look at the facts and present them here.

As always, if you have any comments or questions or would like to know what strategy is best for you, give your mortgage broker a call.. or call me if you don’t have a broker.  I’d be happy to help.

Steve Garganis 416 224 0114 steve@mortgagenow.ca

 

Posted 4 Comments on Baby Boomers 10 yr real estate retirement plan 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 7 Comments on CMHC flawed data? Or is this just a shock value article? 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 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 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