Last week the President of Dominion Lending Centres was invited to the 2011 Pre-Budget Consultation chaired by Finance Minister Jim Flaherty in Regina. Participants included 17 hand-picked Canadians representing a leadership position in their respective industries. The day consisted of:

• An overview by Minister Flaherty of Canada’s past performance and outlook for 2011 and beyond
• A break-out discussion into four groups to solicit ideas and suggestions on cost-neutral or non-spending steps the government can take in the next Federal Budget to help create jobs and promote economic growth
• Feedback on whether the government is on track for a balanced budget by 2015-2016, or if this too ambitious or unrealistic
• Suggestions on ways that the federal government can be more efficient and effective
• Suggestions on what Canadians’ priorities should be for the short and long term to encourage private sector growth, and leadership in the economy

A plenary session followed with Minister Flaherty and the finance department. Each participant spoke about their specific industry, and provided feedback and discussion. There was also a Federal Finance Briefing on Canada’s Recent Economic Performance presented by Deputy Minister Michael Horgan.

Highlights

With strong policy support, an economic recovery is continuing.

Economic activity in Canada is back to pre-recession levels (the best performance in the G7).

Canada’s solid economic recovery has supported a recovery in the labour market (since July 2009, employment has increased by more than 460,000 jobs, more than offsetting all of the jobs lost during the recession).

Real GDP Growth is expected to remain moderate in the near term.

Canada is expected to have the strongest average growth in the G7 over 2010 and 2011 (IMF Forecast).

The Global recovery is expected to be modest led by emerging economies, particularly Asia.

Canada has had the highest growth in real income Per Capita for G7 countries (1999-2009).

Although we have many positives, Global recovery remains fragile.

Risks to the Global Outlook

Uncertain strength of private demand in advanced economies, particularly in the US.

High sovereign debt levels in some European Countries.

Global imbalances and implications for the Canadian Dollar.

Fiscal Situation and Outlook

Canada is on track to return to a balanced budget by 2015-2016 (current federal deficit is $55 billion.

Position on Behalf of the Mortgage Industry & Dominion Lending Centres I articulated our views to the Minister privately, at the roundtable discussions, and then wrapped up with a very passionate overview of our industry’s perspective to the entire group. This created great discussion, feedback and support from many other participants including questions and dialogue from Minister Flaherty.   My main points included:

• Our industry is sincerely grateful, and the Minister’s office along with Bank of Canada’s Governor Mark Carney should be congratulated on their swift prudent actions, including emergency mortgage pricing, when the global debt crisis began. Their actions were significant in helping Canadians avoid the housing collapse that our US neighbours experienced.
• Although we support and encourage household fiscal responsibility, we think a sweeping policy change like the one we saw earlier this week wasn’t necessary. Mortgage default in Canada is the lowest in the world. Rather than pairing back the amortization term from 35 to 30 years, they should have made the borrower qualify based on payments for a 30-year amortization and kept the maximum amortization at 35. Qualification and purchasing power just dropped significantly, especially affecting first-time homebuyers, making it more difficult for our most valuable assets, young adults and young families, to experience homeownership and participate in our real estate sector.
• I spoke about the changes regarding refinancing up to 85% loan to value. One of the most effective ways that we as mortgage professionals can eliminate high-interest, unsecured consumer debt and over extension is to retire this debt by refinancing at today’s low interest rates, sometimes saving the consumer hundreds of dollars per month in throw away interest. This policy is going to force many homeowners who are experiencing job loss, illness, separation, divorce or urgent unforeseen family crisis into having to sell their homes to gain access to their very own equity. Just under two years ago, we could refinance up to 95%. On a $300,000 home, that’s a difference of $30,000 homeowners can no longer access. Having access to that money could be the difference between getting through the tough times or spiralling into much more dire straits, including having to quickly sell their home at a discount, and finding themselves in a much more serious situation.
• I spoke about the unlevel playing field between our Canadian insurers, specifically about the unlevel playing field enjoyed by CMHC. We discussed the need for the government to support our insurers equally. This benefits the consumer, and supports consumer choice and fair play.
• My most passionate plea was for the government to have a very hard look at unsecured debt and specifically the credit card issuers. Canadians’ biggest financial struggles, their over extension and record debt levels are not due to their mortgages (again, we have the lowest mortgage default in the world). They are due to easy access to high-interest credit cards and other unsecured debt. How is it that my very own son, who is 19, attends second-year University, does not have a job and was issued two separate credit cards on his own? One of them had an initial credit limit of $500 and is now at $3,500 in just over a year. The feedback from all the participants in the consultation was remarkable. Several very high-profile participants expressed similar stories and recognized this as a very serious pressing issue for Canadians. I explained that we have very strict qualifications for mortgages, including TDS and GDS ratios to ensure that consumers have the financial wherewithal to make the payments, and similar qualifications based on the credit card limits should apply. The Minister took notes, asked for suggestions on how to implement and recognized it as a more important issue than he had initially considered. We did have discussions and I commended them on taking the first step, and a very valuable one at that, by putting the length required to pay off your credit card based on making the minimum payments.

The day was incredibly interesting, and I truly felt that these sessions were much more than a ceremonial photo opportunity, and that the Minister’s office was truly listening and valued the panel’s feedback. I will continue to stand up for what I believe in and speak for what is right, not what is popular, politically correct or the easiest point of view. Our industry is under assault, and Canadians are the ones who are most affected. We need to bind together, regardless of our companies or our competitors, and speak with a common voice and stand up so that we can continue delivering choice, value, options and trusted advice to Canadians.

DREAM TODAY. OWN TOMORROW.

A friend of mine recently contacted me with questions about refinaning his current mortgage. This would mean breaking his current contract and buying a lower rate. His main question, could I save money?, the answer was YES…thousands! So I have decided to show you what an average mortgage looks like with a rate purchased 3 years ago. And how much you might be able to save over the life of the fully amortized mortgage if you decreased the interest to todays rate.

Current Morgage Summary

Penatly for terminating the current mortgage is $6,500.00. It is currently a 5 year term 3 years lapsed, 2 years remaining).

You could save $22,138.12 in interest. Over the life of your new mortgage your total interest paid will be $150,472.18 with a monthly payment of $1,509.14. Refinancing will breakeven in 26 months.

Refinance Results

Refinancing will change your monthly payment for principal and interest from $1,798.79 to $1,509.14. Your new loan will be $302,268.62 at 3.500% for 25 years. Closing costs are estimated at $1,000.00 not including a $6,500.00 prepayment penalty. Additional refinancing results are summarized below.

Original vs. Refinance Comparison

The results are clear…YES you can save, it this case, $22,138.12. Do you want to give that to the lender? Or put it in your bank account, invest it, renovate your home to increase the value, venture on a dream holiday…the options are endless.

DREAM TODAY. OWN TOMORROW.

• Most December and early January buyers are serious about purchasing and likely facing some sort of deadline.
• January is the biggest transfer month of the year and job transferee’s use the holidays to house hunt.
• Many people want to buy before the end of the year for financial and tax reasons.  Investors usually want to close by year-end for tax purposes.
• Homes show well when decorated for the holidays creating a sense of family and people are much more emotionally drawn to the house, emotion sells.
• Many people take vacation around the holidays allowing more time to look for a home.
• Remodelling, decorating, appliance installation and other services are more available and at less of a premium. Lenders aren’t as busy and can process mortgage loans faster.
• Showings will be fewer and less intrusive, but more likely to be fruitful with motivated, qualified buyers.
• Buyers are a bit more emotional during the holidays which can work positively in your favour.
• Historically, there are FEWER homes for Buyers to choose from during the holidays, so those homes ON the market generally have less competition.
• You can sell now, but specify a delayed closing or extend occupancy until January, if you so desire.
• By selling now, you will have an opportunity to buy during the Spring, when MANY homes are on the market and price will then become more negotiable for you as the Buyer.

DREAM TODAY. OWN TOMORROW.

courtesy of Michelle Wright – thewrightmove.ca

Transitioning from renter to homeowner is one of the biggest decisions you’ll make throughout your lifetime. That’s why it’s essential to surround yourself with a team of experts – including both a mortgage and real estate professional – to walk you through the steps to home ownership, answer all of your questions and concerns, help you decide what kind of home you can afford and get you pre-approved for a mortgage.

With interest rates still hovering just above record low rates never before seen by your parents and even your grandparents – now is an ideal time for first-time homebuyers to embark upon homeownership.

Down payment

The main reason many renters feel they can’t afford to purchase a home has to do with saving for a down payment. But there are many solutions available today that can help first-time buyers with their down payments. Many lenders will allow for a gifted or borrowed down payment. And of those lenders that will not provide this alternative, many offer cash-back options that can be used as a down payment.

Better yet, there are programs available from some financial institutions where they will offer a “free down payment” or a “flex down”. Of course, you will end up paying about 1% more in your interest rate, but the program will help you get in the homeownership door and start accumulating equity earlier. You must, however, stay with the original lender for the full initial five-year term or else you’ll have to pay the down payment back.

Last year, a $5,000 increase was made to the RRSP Home Buyers’ Plan, meaning first-time homebuyers can now withdraw up to $25,000 from their RRSPs for a down payment, tax and interest free. And if you’re part of a couple making a home purchase together, you can each withdraw up to $25,000 from your RRSPs.

Educating and coaching

There’s an endless amount of information available to prospective homeowners – through the internet, friends, family members and anyone willing to voice their opinion on a given subject. What you really need, therefore, is education and coaching as opposed to being bombarded with more information.

Speaking with me in order to obtain a pre-approval prior to setting out home shopping can help set your mind at ease, because many first-time buyers are overwhelmed by the financing and buying processes, and often don’t know what it truly costs to purchase a home. Real examples can go a long way in showing you what it costs to buy a home in your area versus what you’re currently paying in rent. For instance, if a renter is currently paying $800 per month, with that same payment (including taxes) they could afford to buy a $120,000 home. And assuming real estate values increase 2% per year over the next five years, the new homeowner would have accumulated $27,000 in equity in their home. If they continue renting, however, this $27,000 has generated equity in someone else’s home.

Please contact me so that I can help you move from renting to owning real estate.

DREAM TODAY. OWN TOMORROW.

Michael Hallett, 604 616 2266, mhallett@dominionlending.ca,

More than two-thirds of repeat homebuyers expect their next house purchase won’t be their last, states a survery conducted by TD. 23% of the more than 1,000 participants — all repeat homebuyers — said they plan to move again within six years. One in five repeat buyers has owned more than five homes.

All participants had either purchased a home that was not their first home within the past 24 months, or intend to purchase a home that is not their first home within the next 24 months. Roughly half of Canadians will hunt for a smaller house, while the rest will look to upsize. Most intend to find a fully-detached home next time around. As a result, 51% will need to take out a mortgage to finance their next purchase.

The majority said they plan to save as much as possible to limit the debt burden. Still, 21% said they will take out the maximum mortgage that they qualified for from their bank. This increases to 28% of those under 40.

As a mortgage broker I recommend that homebuyers buy the house that fits their budget, not just their lifestyle. After all, if you buy a house that is too big for you to afford, you could be giving up that lifestyle just to pay it off.

Ottawa has already taken steps to tighten mortgage lending rules as interest rates begin to come off historic lows. Finance Minister Jim Flaherty just last week said he would revisit the issue if he sees signs Canadians are getting in over their heads with debt.

Repeat homebuyers should consider taking their mortgage with them when they switch homes for additional savings or use their mortgage as a selling feature if the seller’s rate is lower than the current market rate.

Canada’s housing market, which helped drag the economy out of recession, has been cooling rapidly over the past few months. Economists have said the slight jump in sales recorded in August is likely to prove a blip in a declining trend.

Canadians like change, so perhaps the standard 5 year term is not always the best product, even if the buyer and their bank seem to initially think otherwise. Buck the trend…make your own decision that suites your lifestyle and long term goals. Next time you sell and buy a home consider a shorter term and save thousands on prepayment penalties. A shorter term will generally offer lower discounted mortgage rates.

In the new era of financial lending the Canadian government is trying harder than ever to control Canada’s debt load in order not to repeat what happened in the USA last year. As credit has become more and more abundant in our society, your credit report, and thus your credit rating, has become more important in your daily life. Your credit rating affects all aspects of your financial activities when it comes to borrowing money. Your credit rating also has the ability to affect the job you get, the apartment you rent, and even the ability to open a bank account. Your credit report itself is simply a listing of all of your mortgage and consumer debt.

There are two major credit reporting agencies in Canada, Equifax and TransUnion. An account with usually both these credit reporting agencies is created when a consumer applies for credit. Every time you borrow money, or make a payment on a loan or credit card, the lender then reports the information about the transaction to these two agencies. There are very few situations in which the extension of credit to a consumer does not result in a report going to the credit reporting agencies.

The credit reporting agencies then track all the credit information reported to them and thus create the consumer’s credit profile. The credit information collected reflects the amount of credit an individual has accumulated, minimum amount of payments, the regularity of payments, any missed payments, credit judgements against them, etc. The information on your credit report varies based on your creditors and what they have reported about you. Potential lenders and others, such as employers, view your credit history as a reflection of your character. Whether we like it or not, our financial habits have a lot to say about the way in which we choose to live our lives. The credit report also lists their employer, or if self-employed, occupation, address, date of birth and social insurance number, who has extended the credit, to whom the consumer has requested credit from, and often any former names  or aliases.

Since Equifax is used most commonly by brokers, I will refer primarily to the BEACON SCORE. TransUnion refers to their calculation as IMPERICA; beacon score makes more literal sense – in my mind! The assessment of the consumer’s credit worthiness by the credit reporting agency is based on statistics and various calculations that are translated into a credit score. A credit score is a risk assessment. It is a prediction of the consumer’s probability or likeliness to default on a debt over a 2 year period. The lower the credit score, the higher the risk of default. GOOD NEWS, your credit report is a working document and you repair any damaged credit over time to increase your beacon score. A beacon score can range from 300 to 850. Creditors usually interpret the score as follows:

680 – 850: good to superior credit

600 – 679: average to good credit

570 – 600: below average credit

Below 570: poor credit

There are 5 main factors that influence the beacon score:

The mortgage products and interest rate that you qualify for are often determined by your credit score. It is important to note that a high beacon score and relatively new credit profile may not necessarily lead to a credit approval. The creditor may not view the short period of credit history as sufficient evidence of the consumer’s ability to handle debt repayment. Don’t have too many credit cards or credit inquiries as this will work against your credit profile. A mortgage consultant, such as myself, can help you obtain a copy of this report and go through it with you to verify that all of the information and help you fix any bad debt.

For any questions related to your personal credit report or mortgage inquiries, I can be reached at 604 616 2266 or mhallett@dominionlending.ca – evenings and weekends, not just bank hours and my services are FREE!

DREAM TODAY. OWN TOMORROW.

1. Have You Explored All Your Options? Once you receive your mortgage renewal statement, there is nothing easier than signing on for another term. This may make sense in some cases, but your family and financial situation may change over time. I can look for opportunities that may better meet your needs right now.

2. Are You Comfortable With Your Payments? If your monthly payments are barely letting you breakeven each month then it might be time to reduce payments. On the other hand, if you are earning more why not pay down your mortgage faster and save thousands in interest over time.

3. Do You Need Cash Flow For Other Things? Your priorities may have changed since you purchased the home, things like your child(s) post secondary education, planning a career change or a major purchase. You can access equity in your home and refinance your mortgage.

4. Can You Handle Fluctuating Rates? Some homeowners are comfortable with the ebb and flow of interest rates and some are not. It is best to base your decision on your personal situation, not what you read. I can help you decide on a fixed or variable rate mortgage.

5. Will You Sell Soon? If so, consider a shorter term mortgage that has flexible terms to if you decide to sell your home.

6. Are You Thinking of a Major Renovation? Upgrades can increase the value of your home but the cost of having the work done can tie up a lot your money. Make sure to allow for ample finances to complete.

7. When Do You Want To Be “Mortgage-Free?” Increasing your payments will raise your monthly expenses now, but you’ll ultimately save thousands on interest in the long term, a mortgage-free lifestyle.

8. Could You Use Your Home Equity to Fulfill Other Goals? Refinancing a mortgage can be one way to free up cash you need for other things, which could even include purchasing another property.

9. Have Your Insurance Needs Changed? If your home equity has increased, there may not be the need for default insurance.

10. Are You Getting the Best Rates and Terms? In a competitive mortgage environment your good credit history can make refinancing work to your advantage. We analyze mortgage markets daily to ensure you don’t miss any money saving opportunities.

With the uncertainty of job loss racing through many people’s minds these days, taking a proactive approach to this issue by putting mortgage payments aside while you’re still actively employed can help set your mind at ease. Planning for the future and potential job loss is one of the most important undertakings you can make to ensure you can pay your mortgage in an uncertain economy.

I suggest you put money aside each pay period so you can place six to 12 months’ worth of mortgage payments into a short-term GIC as security for a possible job loss. And, best of all, if your job remains secure, you can take the money out of your GIC and make a pre-payment back on your mortgage on your anniversary date, which can end up saving you thousands of dollars in interest payments.

Refinancing to access your home’s equity

If it’s not plausible to save money each pay period, refinancing to access the equity you’ve already built up in your home is another valid option for planning ahead in uncertain times. In addition to freeing up money to store future mortgage payments in a GIC, some of the money can also be used to pay off high-interest debt – such as credit cards – and get you and your family off to a fresh financial start.

You will find that taking equity out of your home to pay off high-interest debt can put more money in your bank account each month. And since interest rates are still quite low, switching to a lower rate may save you a lot of money – possibly thousands of dollars per year.

There are penalties for paying your mortgage loan out prior to renewal, but these could be offset by the extra money you acquire through a refinance. With access to more money, you will be better able to manage your debt. Refinancing your first mortgage and taking some existing equity out could also enable you to make other investments, go on vacation, do some renovations or even invest in your children’s education. Keep in mind, however, that by refinancing you may extend the time it will take to pay off your mortgage.

Options for paying your mortgage down quicker

There are many ways to pay down your mortgage sooner that could save you thousands of dollars in interest payments throughout the term of your mortgage. Most mortgage products, for instance, include prepayment privileges that enable you to pay up to 20% of the principal (the true value of your mortgage minus the interest payments) per calendar year. This will also help reduce your amortization period (the length of your mortgage), which, in turn, saves you money.

Another way to lower the time it takes to pay off your mortgage involves changing the way you make your payments by opting for accelerated bi-weekly mortgage payments. Not to be confused with semi-monthly mortgage payments (24 payments per year), accelerated bi-weekly mortgage payments (26 payments per year) will not only pay your mortgage off quicker, but it’s guaranteed to save you a significant amount of money over the term of your mortgage.

If, for instance, you have a $100,000 mortgage, an interest rate of 5% and an amortization period of 25 years, your monthly mortgage payment would be $581.60 and your total payments for a year would be $6,979.20 ($581.60 x 12).

To understand the savings accelerated bi-weekly mortgage payments can make, take the monthly mortgage payment of $581.60 and divide it by two ($581.60 ÷ 2 = $290.80).  Next, take that payment and multiple it by 26 to arrive at your total payments for the year ($290.80 x 26 = $7,560.80).

As you can see, by using the monthly mortgage payment plan, you’ve made payments totalling $6,979.20 for the year, while using the accelerated bi-weekly mortgage plan you’ve made payments totalling $7,560.80 – a difference of $581.60. 

Basically, with accelerated bi-weekly mortgage payments, you’re making one additional monthly payment per year. Using this example, you would reduce the amortization on your $100,000 mortgage from 25 years to just over 21 years and your total savings on interest over the life of the mortgage would be just over $12,000. By refinancing now and paying off your debt or putting money aside for future mortgage payments, you can put yourself and your family in a better financial position.

DREAM TODAY. OWN TOMORROW