 |
Your Landlord Says Hi, and Thanks Again for Paying His Mortgage. Before you make another payment on you Landlord’s mortgage, here are a few things you should know: Many people who rent can actually afford to buy their own homes - so what’s stopping them? Many tenants believe that they require a big down payment, which is difficult to save, while trying to keep up with payments on all of their other bills. Others are convinced that they don’t qualify for a mortgage and that the payment would be too difficult to carry anyway.Just about everybody is overwhelmed over the legal and financial red tape which often surrounds the purchase of a first home. It seems a whole lot easy to just keep paying rent. Here are a few facts: FACT:
Many people actually qualify for a 5% down mortgage and don’t realize it.
MY GUARANTEE TO YOU.........I will consult with you on an individual basis to help you determine what you can afford. (And you won’t have to sit in a bank to do it.) I will explain the whole process and answer any questions that you have until you feel you are ready to take the next step.Most importantly, if at any time you choose not to proceed, just tell me. I know that buying a home can be stressful. It is my job to make it as easy and as comfortable for you as possible.
*Based on 5.10% interest (interest rate is subject to change without notice). ***Taxes assumed to be 1.25% of value, factor for heat included.
Amortization Period: The time over which equal monthly payments would totally pay off the mortgage. This is normally 25 years for a new mortgage. Appraised Value: An estimate of the market value of the property. Assuming a mortgage: When the purchaser accepts responsibility for repayment of the mortgage on a house already being purchased. Closing date: The date on which the sale of a property becomes final and the new owner takes possession. CMHC: Canada Mortgage and Housing Corporation. CMHC administers the National Housing Act of Canada and provides default insurance on mortgages where the down payment is less than 25%. Conventional/high-ratio mortgages: A conventional mortgage is one that does not exceed 75% of the purchase price of the home. Mortgages that exceed this limit must be insured against default and are referred to as high-ratio mortgages. Home Equity: The difference between the value of the property and the mortgage. Interim Financing: Short term financing to help the buyer bridge the gap between the closiung date on the purchase of a new home and the closing date on the sale of the current home. Mortgagee and mortgagor: the lender is the mortgagee and tht borrower is the mortgagor. Mortgage term: The number of years or months over which you pay a specific interest rate. Terms range from 6 months to 10 years. P.I.T.: Principal, interest and taxes. This payment is used to calculate mortgage eligibility. Portability: This feature allows you to move your mortgage to another property without losing your current interest rate or a discharge penalty. Principal: The amount of the mortgage. If you own your own home, it is likely to comprise the largest single component of your balance sheet, both as an asset and liability (mortgage). With this in mind, then, it would only stand to reason that you would like to know how to protect that asset and even increase its value. The Ontario Association Appraisal Institute of Canada did a 1994 survey entitled "Renovation and Residential Value." Within this survey they measured the AVERAGE payback potential for typical home improvements. The results are as follows: + Kitchen
- 78%
* These figures reflect the return of the renovation costs. The range of return varied greatly. For example, a new kitchen, which increased functionality and appearance returned from 25% to 200%. Bathroom renovations returned from 25% to 130%. If you
are thinking of improving your home, the message is clear - upgrade and
improved the items which are used and appreciated on a daily basis. Stay
away from items that do not have a broad appeal.
How to Succeed at Mortgage Roulette A RISE in mortgage interest rates this week has some consumers wondering whether to take a low floating rate or lock in a higher fixed rate. It's a perennial question, but it deserves a thorough analysis. So, with some help, we are going to walk you through a few scenarios. Variable-rate mortgages tied to the banks' prime lending rate are still temptingly low — 4 per cent or less with the various discounts now available. A colleague brave enough to play goalie in hockey has just decided to take a floating rate. He negotiated a deal with the Canadian Imperial Bank of Commerce that would see his mortgage rate remain at three-quarters of a percentage point less than the prime rate for the next five years. He will start by paying an annual rate of 3.25 per cent, which will allow him to free up some extra cash or pay off principal quicker. The best five-year rate that a mortgage broker could find him yesterday was 6.25 per cent, a whopping difference of $160 a month for every $100,000 of principal amortized over 20 years. What's not known is how high prime rate — and hence my colleague's mortgage rate — will rise as the hoped-for recovery in the economy gains momentum. Economists disagree about whether the Bank of Canada moved too quickly when it raised its overnight lending rate a quarter percentage point this week, pushing up consumer and business loan rates. Ted Carmichael of J.P. Morgan Securities Canada is one who favours an early but gradual increase in rates. This, he argues, will help avert price inflation and spare us from larger increases later. He is projecting that the central bank's bellwether overnight rate will rise another 1.75 percentage points to 4 per cent by next June. That rate, says Carmichael, would neither stimulate nor retard the growth of the economy. If he proves to be right — a difficult task — then the prime lending rate would peak at 5.75 per cent. In that scenario, my friend would be a big winner. He would never pay as much per month as he would if he locked in now for five years. But what if the prime rate soars nearly as high as the 9.75 per cent that we saw seven years ago in order to bring inflation down from 2.2 per cent that year to 1.6 per cent the next year. With the help of Moshe Ayre Milevsky, associate professor of finance at York University's Schulich School of Business, we constructed a simplified scenario. Say someone paid the prime rate to borrow $100,000, with an amortization schedule of 20 years, and the rate rose by 1 percentage point every six months to a peak of 9 per cent before sliding back to 5.75 per cent. The total cost over a five-year period would be $42,637. Surprisingly, this cost would be $923 less than for someone who locked in at 6.25 per cent for the entire period — a reassuring finding for floaters like my friend the goalie. "The longer that floating rates stay below (the) locked-in rates, the higher rates have to rise and the longer they must stay there for you to just break even," says Roman Fedchyshyn, president of Manulife Bank of Canada. But the borrower would have to be prepared to see his or her monthly payment rise from $604.25 during the first six months to $856.35 at the peak. That difference of $252 a month could be too much for some households to absorb unless they banked enough of their savings in the early months to get over the hump. Milevsky found in an earlier study for Manulife Financial Corp. that during the past 50 years, a person would have done better borrowing at prime than taking a five-year mortgage 88.6 per cent of the time. Yet even he cautions that first-time home buyers and others with tight household budgets should be careful about riding the interest curve. A floating-rate mortgage is not for the faint of heart, or for the financially challenged. Like a hockey goalie, you need to have some extra padding. For those who can afford to float, though, many lenders are now offering discounts off the prime rate, cash back or additional services such as the Manulife One account that's a combination mortgage, line of credit and high-interest savings account. CIBC's Better Than Prime Mortgage will cut 1.01 percentage points off prime for nine months, and 0.25 points for the next 51 months. But, as my friend discovered, you can negotiate a better deal. Money Talk appears Tuesday, Thursday and Saturday. James Daw can be reached at Money Talk, Business, 1 Yonge St., Toronto ON M5E 1E6; at 416-945-8633; 416-865-3630 by fax; or at jdaw@thestar.ca for e-mail. Save
Money With A Variable Rate Mortgage
Everybody’s heard of Variable Rate Mortgages (VRMs), but very few people understand what they are, how they work and so people tend to shy away from one of the best products available to help them pay down their mortgage faster. The greatest difference between VRMs and fixed rate mortgages is how the rates are set. VRM rates are set based on the Bank of Canada rate. The chartered banks add a slight premium to the Bank Rate to establish the Prime Rate. This is what most lenders use to price their various VRM products. In our system, the Bank of Canada uses its bank rate to control inflation in the economy. When little or no inflation is present, as is the case right now, this rate tends to be set at very low levels and is relatively stable. The fixed rates, on the other hand, are set based on the yield in the bond market. The bond yields are very volatile and tend to fluctuate, often due to political and economic conditions. This volatility makes it impossible to gauge what fixed rates will do, even in the short-term. Here’s how the smart consumer wins by taking a VRM over a fixed rate product. Right now, you can get a discounted VRM with a rate, around 3.75%. Conversely, the discounted fixed rate for a 5 year mortgage is around 6.00%. The smart consumer takes the VRM with the low rate but makes the payments as if the mortgage is at the minimum, required payment, (calculated @ 3.75%) and the payment being made (calculated at 6.00%), is additional monies that are going directly to reducing the principal. Even if the Prime Rate starts to increase, it will probably take a long time before it reaches a level closed to the fixed rate currently available. Lock-In Option The VRM has an option to lock-in at any time to a fixed rate. But don’t be too hasty in doing just that. A quick analysis shows, that if you took out a 5 year, VRM anytime between January 1990 and now, set your payments at a higher rate, your outstanding mortgage balance would be lower than if you took a 5 year, fixed rate, mortgage. |