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CategoryReal Estate Trends

Posted Case study

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…

Posted 2 Comments on Is this a good time to buy a Rental property? Mortgage Tips

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...

Posted Mortgage News

Lower housing and condo sales in the forecast

The Canadian Real Estate Association (CREA) has lowered it’s housing forecast again… they now forecast 459,600 resales in 2010..this is a 1.2% drop from 2009..

We’re also seeing signs the Condo market is starting to cool off… it’s been 16 years since condo prices have not increased.. 16 years!    We are certainly overdue for a cooling off period…

But this is just another sign our economy is not as ‘Red Hot’ as some first thought…  and it’s good news for interest rates…  The Bank of Canada is less likely to increase their rates as fast we once thought…

Give Variable rate more consideration.. Fixed rates have come down slightly… 5 year fixed rates are hovering around 4.09% to 4.19%…but Variable rates are available at 2.10%…

Posted Real Estate Trends

Cooler housing market in May

The Globe and Mail reported that CMHC has reported that housing starts dropped in May compared with April.   This isn’t something to fear… I think we want a cooling off period to avoid falling into the housing bubble trap.

A housing bubble would mean that house prices would fall dramatically… no one wants that…  but if we see a price levelling or modest price drop of 10% of so, this isn’t going to kill the market…

Watch for a cooler summer (house market that is) and a warm fall market…

Posted Real Estate Trends

Toronto Real Estate Board reports a 13% increase in sale prices

The Toronto Real Estate Board reported that sale prices are up 13%….The average sale price was $437,600 in April 2010 compared with $385,641 in April 2009.    Resales jumped 34% from last year April… and new listings jumped by 59%… Source National Post.

These figures could be viewed many different ways…. if listings are up, will the supply outpace the demand?  Or are homeowners just doing some profit taking?   Good topic for discussion….  We need to add in affordability to this mix… We’ll cover this further in the coming months.