25 Mar

Thinking of Purchasing Real Estate…Important Dates to Keep in Mind!


Posted by: Michael Hallett

The provincial and federal government have forced some Canadians into looking for real estate than they thought. Both have ushered in two different laws that will cost buyers money.

At the provincial level the government has implemented the HST (Harmonized Sales Tax), effect July 1, 2010. It is a 12% tax on new homes and condominiums priced to $525,000.00. Homes costing less than the stated amount will be eligible for a rebate, up to a maximum of $26,250.00. The rebate will only apply to primary residences, not second homes or investment properties. Check out this link for additional information, http://www.sbr.gov.bc.ca/documents_library/shared_documents/HST/new-housing-rebates.pdf

On April 19, 2010 the federal government is trying to brace the Canadian real estate buyers market for the increase in interest rates. The first adjustment has been made to the qualifying details. Mortgage insurers will have to ensure that all borrowers qualify using a 5 year fixed rate when calculating the debt servicing ratios. Secondly, borrowers seeking financial flexibility can currently refinance their mortgage and increase the amount they are borrowing on the security of their home up to a limit of 95% of the value of the property. The adjustment will lower the maximum amount of the mortgage loan in a refinancing of a government-backed high-ratio mortgage loan to 90% of the value of the property, consistent with the principle that home ownership is a tool for savings. Lastly, a minimum down payment of 20% is required for non-owner-occupied properties. At present, borrowers may purchase a residential property with a 5% down payment. The change will require a 20% down payment for small non-owner-occupied residential rental properties. Borrowers purchasing owner-occupied residential properties which also include some rental units (such as a duplex) will still be able to access government-backed mortgage insurance with a 5% down payment.

Contact me to find out how these changes in legislation will effect your real estate transaction.


22 Mar

Bond Yields and Fixed Mortgage Rates


Posted by: Michael Hallett

This article is courtesy of Canadian Mortgage Trends. Its a great read and also something to follow if your intentions are to purchase a new home, refinance or consolidate your debt into a mortgage.

Mortgage rates and the bond market have a nice little marriage; 9+ times out of 10, when bond rates rocket higher, fixed mortgage rates move up too.

As seen in the chart below, 5-year fixed rates and bond yields track each other fairly closely over time. In fact, on a monthly basis going back to 1980, there’s been a 97% correlation between the two.

5-year_Posted_Mortgage_vs_5-year_Bond_YieldIt’s not a perfect marriage though, as we’ve seen recently.

On March 9, mortgage rates and the bond market unexpectedly kicked their relationship to the curb. Yields went way up, and mortgage rates actually fell slightly.

Banks are behind this pleasant divergence. In a rush for market share, they’ve started ‘buying’ customers with, what some say, are “unsustainably low” mortgage rates. (See “Banks Wage War”)

Put another way, big banks are pricing 5-year fixed mortgages at unusually low spreads above bond yields.

This is a party for homeowners. You don’t find 5-year terms at 70-85 basis points above the GOC very often.

Hopefully this “unsustainable” trend can be sustained well into the future. But odds are, spreads will normalize after the spring (at least until the banks decide to ‘give away’ mortgages once again).

This is far from the first time that fixed rates have drifted apart from bond yields. From late 2007 to mid 2009, spreads were way out of whack. The credit crisis kept mortgage rates high while bond yields dropped to multi-decade lows.

5-year_Mortgage_Bond-Yield_SpreadEverything needs to be put into perspective though. Despite deviations from the norm, the norm isn’t dead yet.  In general, lenders still need to pay bond rates for mortgage money, and they still have similar costs as before.

So when yields go one way, and fixed mortgage rates go the other, remember they’re still married. They’re just temporarily separated.


Sidebar:  Speculating on long term rate direction is like flipping a coin. It’s almost certain you’ll be wrong as much as you’re right.

Yet, when you see a big move in yields, on a short-term basis, there’s usually predictive power there. 

This comes into play when you want to lock in a rate on a new mortgage.  If you see yields jump 1/4 point, for example, it’s usually worthwhile to move quickly and get a rate hold.  If you don’t, there’s a good chance you’ll pay a slightly higher rate. 

Paying a fraction of a percent more isn’t the world, but the extra interest does add up over five years.

Whenever we see yields move in big spurts, we write about it here. When you see these stories, it helps to remember:

  • The short term isn’t the long term. If you read that rates may go up next week,” that’s a short term statement. Economic news could come out two weeks later and drive rates the other way.
  • The relationship between bonds and mortgage rates isn’t perfect, and even short-term forecasts won’t always be accurate.

That said, over the long run you’ll be right far more than you’re wrong by assuming fixed rates will track bond yields.

16 Mar

Simple Math!


Posted by: Michael Hallett

Just because your mortgage term has not expired, doesn’t mean you cannot take advantage of the low interest rates. Let me show you some numbers, which might help you, think about your current mortgage and how I might be able to put more money into your pocket on a monthly basis.

Client ‘X’ current mortgage

Original Balance – $515,250.00

Outstanding Principal (after 1 yr of payments) – $510,500.00

Amortization – 40 yrs

Interest Rate – 5.02%

Term – 5 yrs

Mortgage – fixed

Payment Frequency – semi monthly

Payment – $1235.00 ($2470.00/month)

By switching to a modest 3.85% fixed 5 year rate client ‘X’ is saving $206,874.12 over 35 year amortization (Please note that 40 yr amortization schedules are no longer offered in Canada), $286.00 per month or $3,432.00 per annum or $17,160.00 over 5 years. There are countless things one could do with that money; pay your property taxes, take a vacation, small home renovation, RRSPs, etc… Remember by decrease the amortization period, even slightly, we allow you to put more of your hard earned money towards the principal and less into the bottomless pit of interest.

If you do consider switching lenders for a better rate and paying out your current mortgage before term maturity, there may be a penalty issued from you current lender and additional closing costs for the new mortgage.

10 Mar

Things to Consider When Purchasing a New Home


Posted by: Michael Hallett

Before you begin searching for a home, it’s always helpful to think about your needs both now and in the future. And if you have any questions about the home-buying process or different types of real estate, you can always ask me or your real estate agent for input.

Following are some things to consider when you’re deciding which type of home to buy:

Location. Do you want to live in a city, town or in the countryside? How long will your work commute be? Where will your children attend school and how will they get there? Are you close to amenities?

Size requirements. Do you need several bedrooms, more than one bathroom, space for a home office, a two-car garage?

Special features. Do you want air conditioning, storage or hobby space, a fireplace, a swimming pool? Do you have family members with special needs? Do you want special features to save energy, enhance indoor air quality and reduce environmental impact?

Lifestyles and stages. Do you plan to have children? Do you have teenagers who will be moving away soon? Are you close to retirement? Will you need a home that can accommodate different stages of life?

New Versus Resale Homes

When thinking about your ideal home, the first thing you should consider is whether you want a previously owned home (often called a resale) or a new home. Here are some characteristics that may help you decide:

New Home

Modern design. A new home has an up-to-date design that takes into account the latest trends, materials and features.

Personalized choices. You may be able to upgrade or choose certain items such as siding, flooring, cabinets, plumbing and electrical fixtures.

Up-to-date with the latest codes/standards. The latest building codes, electrical and energy-efficiency standards will be applied.

Maintenance costs. Maintenance costs will be lower because everything is new and many items are covered by a warranty. You should still set aside money every year for future maintenance costs.

Builder warranty. This is a warranty that may be provided by the builder of the home. Be sure to check all the conditions of the warranty. A homebuilder’s warranty can be important if a major system such as plumbing or heating breaks down.

Neighbourhood amenities. Schools, shopping malls and other services may not be complete for years.

Extra costs. You may have to pay extra if you want to add a fireplace, plant trees and sod or pave your driveway. Make sure you know exactly what’s included in the price of your home.

Resale Home

You can see what you are buying. Easy access to services. Probably established in a neighbourhood with schools, shopping malls and other services.

Landscaping is usually complete and fencing already installed. Previously owned homes may have extras like fireplaces, finished basements or swimming pools.

No GST. You don’t have to pay the GST unless the house has been substantially renovated, and then the taxes are applied as if it were a new house.

Possible redecorating and renovations. You may need to redecorate, renovate or do major repairs such as replacing the roof, windows and doors.

Deciding Which Type of Home to Buy

There are many types of homes to choose from and each has its advantages and disadvantages. Think about your needs before making a decision, and don’t forget to look beyond the interior walls. The environment surrounding your home can be as important as the environment within.

Following are some different types of homes from which to choose:

Single-Family Detached – A home containing one dwelling unit that stands alone and sits on its own lot, thereby offering a greater degree of privacy.

Semi-Detached – A single-family home that is joined to another one by a common wall. It can offer many of the advantages of a single-family detached home and is usually less expensive to buy and maintain.

Row House or Townhouse – Many similar single-family homes, side-by-side, separated by common walls. They can be freehold, condominiums or rental units. They offer less privacy than a single-family detached home but still provide a separate outdoor space. These homes can cost less to buy and maintain but they can also be large, luxury units.

Link or Carriage Home – Houses joined by garages or carports, which provide access to the front and back yards. Builders sometimes join basement walls so that link houses appear to be single-family homes on small lots. These houses can be less expensive than single-family detached homes.

Condominiums or Stratas – A condo or strata is a form of ownership, not a type of construction. They can be high-rise residential buildings, townhouse complexes, individual houses and low-rise residential buildings.