Tagreal-estate

Posted October 17, 201214 Comments Money saving tips

Bridge Loans…your bank hates them but they can be a great financial tool when buying….

Bridge loans are short-term loans that bridge the gap between two different closing dates. More commonly used when an existing homeowner sells their home, and buys another home, with two different closing dates. But bridge loans have become a very popular way to take possession of that new home while it’s empty for 2 or 3 weeks to allow for renos. Best of all, it’s really inexpensive!

In the past, most homebuyers would have their selling and buying dates match. It’s always been a bit of a juggling act as you have to pack your moving truck and unpack it, all in less than a day. Somehow, everyone manages to get it done… but you talk about one of the most stressful days in your life….moving ranks right up there! Throw in some kids, maybe a dog, and a house full of stuff and you have a real chore on your hands….

More buyers are taking a more relaxed approach. Bridge Loans are gaining in popularity.. It allows for a more relaxed move over a 2 or 3 day period… or in the case of renos, maybe 2 or 3 weeks. It’s certainly less stressful and could even save you money if you are doing a bigger reno…(contractors could end up charging you a little more if they have to deal with a family living in the house during renos).

Let’s take a look at one example on how much Bridge Financing works and what it costs…

In this example we’ll use a couple that sold for $400k. Closing is November 1. There is an existing mortgage of $250k. They bought another house for $600k. Closing is November 22. They will spend $50k in renos for a new kitchen and bathroom. They want a $450k mortgage to cover renos, closing costs and take out some money for personal use. Here’s how the Bridge loan works:

Bridge loan amount would be $150k… we calculate this by taking the Purchase price ($600k) less the new mortgage amount ($450k).
Rate of interest will vary but it’s around Prime plus 2.00% (today’s prime rate is 3.00%).
Lender admin fees range from $250 to $500.
Legal fees vary depending on Lender and Lawyer… $200 to $400.
Interest costs are $20.55 per day. Total interest would be $287.70.
Overall total cost of the Bridge Loan would be between $737 and $1200 depending on your lawyer’s legal fees and Lender admin fees.

Some qualification, limitations and risks when getting a Bridge Loan.

Bridge Loans are only offered by the mortgage provider for your new home. It’s a product most Banks don’t like to offer as there is really no profit for them. They get nervous about the possibility of your existing home not closing. There is some exposure and risk to the Bank… it’s limited but it’s there.
Your lawyer will be required to provide an undertaking to register a mortgage if the sale of your existing home collapses (that’s not a common occurrence but it can happen).
Speaking of sales… you must have entered into a firm sale on your current home to qualify for a Bridge Loan.
Lenders will only offer a Bridge Loan equal to the down payment required for your new home. This amount cannot be greater than the equity remaining in your current home.
There is also the option of obtaining Private Lender bridge financing but this is more expensive and should only be considered as a last alternative.

Standing back and looking at the big picture, I think most of us would be happy to pay $700 to $2,000 for sake of being able to have an empty house for 2 to 4 weeks to do a clean up or reno, etc.

If you need more info on how Bridge loans work or need help with a situation, call me anytime. Always happy to help.

Steve Garganis

steve@mortgagenow.ca

416 224 0114

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 25, 20121 Comment Mortgage Rates

Listings down, prices up…. housing bubble?

Latest housing stats show listings are down, sales are down… but prices are up, only slightly…. and houses aren’t on the market as long. They are selling faster. Doesn’t sound like a bubble to me. More like a soft landing.

This is exactly what the govt had in mind when it changed mortgage rules a few months ago and made it tougher to qualify for a mortgage. It’s still too early to say if these changes are just right or went too far….. We’ll need another 6 months or so to see the full effect. Best guesses are that the housing market could slow by 5%. But I haven’t seen that happen… In the Greater Toronto area, we are still seeing multiple offers and sales go above asking price…. The interesting stat for me is the fewer number of sales… We’ll be watching that stat… fewer sales over an extended period of time will stop any price increases…

This also means we should expect interest rates to remain low. The Bank of Canada will be under less pressure to raise rates with a flat housing market. Throw in the U.S. Fed’s announcement last week that they were going to keep rates the same until 2014-15, and we have the perfect setting for low rates.

RECORD LOW INTEREST ARE STILL HERE…. WHY AREN’T WE TALKING ABOUT THIS?

Speaking of low interest rates… Here’s some advice… before you put your plans to buy on hold, you should remember that we are still enjoying historically low interest rates. 5 year fixed rates at 3.09%… Variable rates at 2.65%..!! This is a fact that so many of us tend to ignore…. maybe it’s just too boring to talk about. I’ll make it more exciting…

A $400k mortgage will carry for $1912/mth based on today’s 3.09% 5 yr fixed rate…….Wanna wait for house prices to fall and save some money? Ok, but you should also expect interest rates to rise… lower house prices are caused by higher interest rates and higher unemployment… We don’t expect higher unemployment so we must attribute any house price drop to a rise in interest rates……a look back at the last housing crash in 1989 showed interest rates went up to 11% and 12% just before the crash….. make sense so far?

This is where so many of us stop thinking or analyzing…Cashflow and affordability are probably just as important or more important than rate, mortgage balance, purchase price, etc… if you aren’t comfortable with the payment, you will run into problems…. By the way, affordability is still VERY good according the RBC affordability index.

REAL MORTGAGE MATH SHOWS TRUE COST OF WAITING TO BUY

Let’s continue….Let’s say rates go to more normal levels… we’ll use 5% interest rates.. That same $400k mortgage will cost you $2326/mth.…. and if you wanna adjust the mortgage size by $40k because house prices should fall 10%, okay… a $360k mortgage at 5% will cost you $2094/mth... That’s still $182/mth more… and let’s also not forget, that you may have lost 1, 2, 3 or more years of not paying a mortgage down…. Did you know you will pay your mortgage down by around $10k per year in the first 3 yrs alone?

Real Estate isn’t always a great investment, but it usually makes more sense to buy, hold and enjoy, than it does not to buy and rent…. And with interest rates at record lows, it’s even easier to make that recommendation. Stop listening to the pessimist that say the sky is falling or the world is ending… If we listened to them, we would be renting for the last 10+ years… for that’s how long they have been saying house prices are inflated and need to drop…..

As always, if you aren’t sure where you fit in or what’s best for you, feel free to contact me to discuss… Your questions and comments are welcome.

Steve Garganis

steve@mortgagenow.ca

416 224 0114

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 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