What's Your Lowest Mortgage Rate?

If I had a dollar everytime someone asked "What's your lowest rate?".....Ok, you get how often people ask this question.  You probably have heard mortgage brokers state there is more to mortgages than rates and the fine print is important.  As a mortgage broker who provides detailed analysis, here is a scenario for you to contemplate:A lender came out with a new mortgage product with ultra low rate with following features:

• Mortgage Rate: 2.89% (conventional and insured mortgages)
• Mortgage Term: 5 year fixed
• Prepayment features: 20/20 (20% lump sum pre-payments & 20% increased payments)
• Portable but not assumable
• No increase and blend (I will explain what this means)
• Early penalty payout: IRD or 3% of remaining balance

I liked the mortgage product till I read the last 2 features for the following 2 reasons:

• If the homeowner moves prior to mortgage maturity, they can transfer the mortgage balance but can NOT add to the mortgage amount which will force them to break the mortgage
• Typical penalty is IRD or 3 month interest. In the latter stages of the mortgage as it get closer to maturity date, 3 month interest is the typical penalty to break the mortgage not 3% of mortgage balance

I did the following comparison between 2 mortgage products to see if this product is beneficial to the homeowner:

• Mortgage 1: 3.04% 5 year fixed, has same features as low rate product with the addition of being assumable, borrower can increase and blend and penalty is IRD or 3 month interest
• Mortgage 2: 2.89% product as described above
• Assume homeowner decides to sell their home and move 4 years into the 5 year mortgage term

As you can see in the above chart, after 4 years of mortgage payment, the difference between the 2 mortgage balances is $789 and the payment savings is $1,488 ($1690-$1659 x 48 months) for a total savings of $2,277.

Increase And Blend

Allows the borrower to increase the mortgage balance without paying a penalty and maintaining the interest rate on the existing balance. Example: The homeowner wants to increase the existing mortgage (assume current balance is $300,000, mortgage rate 2.99%) to $400,000. Utilizing this feature, the homeowner would add $100,000 at current market rate and blends the 2 rates together. The 2.99% interest rate would not be lost on the $300,000 and no penalty would be paid.

Lowest Mortgage Rate Fine Print

The low rate mortgage product does NOT allow the homeowner to increase and blend therefore they would have to break the mortgage and pay a penalty. In this case, since the penalty is 3% of the balance and not 3 month interest penalty, the penalty would be $10,930 (3% of $364,362) as opposed to $2,632 (3 month interest penalty)!  As you can see the original savings of $2,277 are wiped out by the penalty and the howeowners would have to take on a new mortgage at a higher interest rate (assuming rates will be higher in 2017 than 2013).

Now, the lender does state they would "rebate a portion of the penalty if clients return within 90 days of payout". Personally, I would not want to be tied to one lender and who knows if the offered rates would be competitive relative to other lenders.

This mortgage product can be beneficial if the homeowner knows they will be in their home for at least 5 years and do not anticipate any changes in lifestyle prior to mortgage maturity.

You can see from the above analysis, there is more to mortgages than rates.  So, the next time someone asks "what's your lowest rate?".......

To discuss your personal mortgage financing needs whether you are buying a home, an investment property or renewing your mortgage, please contact Nawar.

3 Things You Need To Know When Selling An Investment Property

As many of you know, I got into mortgage brokering after I purchased my first investment property (triplex) in Hamilton in July 2006.  I recently exited the business venture and sold the property. Overall, the investment was a great one; it appreciated by approximately 50% over 6.5 years, generated strong cash flow from day 1, had great tenants and it provided capital for more investments.  You might be wondering why I sold if it was such a great investment property.  The reality is I live and conduct my business in Toronto, I have 2 young children and I want to focus on buying more properties in Toronto's east end (Leslieville, Upper Beach, The Beach, East York...) where I have a duplex.Selling an investment property can be a tricky ordeal especially when all 3 units are tenanted. Here are 3 things you need to know when selling an investment property:

1. Tenants

You might ask why would the seller care about the tenants if the property is for sale.  What if the property doesn't sell or the deal falls apart at the last minute, then how will the relationship with the tenants be repaired?  As much as investing in real estate is about numbers, it is also about the people. If the landlord takes care of the tenants who are paying customers, they will take care of the property like it is their own home.  The tip here is to speak to the tenants in person to let them know your intentions of selling the property and understand their working hours (you don't want to show the property at 10am if the tenant is a night shift nurse).  Giving the tenants a Starbucks or Tim Horton's gift card is a nice gesture.

2. Period Between Sale Going Firm And Closing

The period when the sale goes firm to closing day is a transitional period where the property has to be kept up and all issues have to be addressed by the landlord such as furnace malfunction and electrical repairs. The property has to be in "working condition" when the ownership is transfered to the buyers. Otherwise, the buyers can come back and request reimbursement.

3. Closing Day

I found closing day to be the busiest day of all due to 2 tenants moving out.  The property had to be handed over in clean condition and free of debris. Having many tenants over the years, certain items were left in the storage area which took 2 trips to the city dump to discard of.  I am lucky to have my realtor who has a pick up truck (he is a real estate investor as well) who helped me purge the garbage.

Everyone's experience will be different depending on the property owned: condo apartment in Toronto, multiplex building or duplex.  Falling in love with the numbers is one aspect of real estate investing, but getting your hands dirty is another part of the business that many don't talk about. Happy investing!

Bank Of Canada Rate Announcement

As expected, the Bank of Canada rate left its benchmark rate unchanged at 1% on December 4, 2012. Here are 2 things you need to know from the Bank of Canada rate announcement:

Global Economy

US economy grew gradually but is held back by the looming fiscal cliff which could push it back into a recession dragging Canada with it. China's economy is soft landing which is a good thing for Canada's resource economy (oil & minerals) whereas Europe is in recession. The global economic situation is negative which puts less pressure on increasing interest rates in the near future.

Canada's Economy

Canada's economy grew below expectations in the third quarter, housing market is cooling and household credit has slowed. The Canadian dollar continues to be strong and inflation is as expected. These indicators point to a slowing economy and the lack of need to raise interest rates in the near future.

The surprising statement was:"Over time, some modest withdrawal of monetary policy stimulus will likely be required". Based on the current economic situation around the world and Canada, there doesn't seem to be any requirement to increase interest rates, if anything, additional stimulus might be required.

For now, enjoy the variable mortgages and take advantage of the decreasing fixed mortgage rates.

To discuss your mortgage financing needs, whether you are buying a home, an investment property or renewing your mortgage, please contact me.

Business Owners Mortgage Options

More and more Canadians are working for themselves which is a growing sector of the Canadian economy. For mortgage financing, business owners mortgage options have been limited as the government has introduced 4 rounds of changes over the last few years. In this post, I will discuss the prime (triple A) lending options and in a future post will discuss the alternative lending options which are more costly.

Business Owners Mortgage Options

Before we get into the bread and butter of mortgage options, I want to elaborate on who is considered a business owner by the lenders and insurers:

• Sole Proprietor
• Partnership
• Corporation

Commissioned salespeople such as mortgage brokers and real estate agents are not considered business owners unless they are incorporated.

The insurers (CMHC, Genworth and Canada Guaranty) look at business owners depending on length of owning a business:

• Less than 2 years: None will finance a mortgage (note there are the odd exceptions depending on applicant's scenario). This type of applicant is best served by alternative lenders.
• 2-3 years: All 3 insurers will consider providing a mortgage up to 90% loan to value for a purchase (all refinances regardless of employment status have been reduced to 80% loan to value in Canada)
• More than 3 years: Genworth and Canada Guaranty will consider providing a mortgage up to 90% loan to value

A business owner can obtain 90% loan to value mortgage using a "reasonable" stated income as per the above pending credit score and history.  The insurance premium for a stated income applicant can be as high as 4.95% of the mortgage amount.

Business Owners Mortgage Downpayment

There are cases where the business owner has access to a large downpayment and wants to avoid the mortgage insurance premium which can be costly.  If the business owner can:

• Put 35% downpayment
• Provide proof of operating business for 2 years or more (article of incorporation)
• Provide proof of not owing taxes to Revenue Canada (notice of assessment)

The borrower can obtain a mortgage up to 65% loan to value using a stated income without paying an insurance premium. The stated income option is not available when the borrower is buying an investment property, the actual income income per Notice of Assessment is used which complicates the mortgage approval process.

Overwhelming? Here is a flowchart summarizing the above options:

Confused? No problem, this is what I do for a living; finding the right mortgage option for my clients. If you are buying a home, an investment property or renewing your mortgage, please contact me.

 

The End Of Variable Mortgages!

As of November 1, 2012, OSFI (Office of Superintendent of Financial Institutions) requires lenders to qualify conventional and insured variable mortgages using Bank of Canada's benchmark rate.  Will this lead to the end of variable mortgages?Prior to November 1, 2012, all insured mortgages were required to qualify based on Bank of Canada's benchmark rate.  The new rules will restrict Canadians' ability to qualify for conventional variable mortgages and conventional shorter term (1-4 year) mortgages.

Here is an example:

Annual Income: $100,000 Mortgage Amount: $450,000 (assuming 20% downpayment) Annual Property Tax: $4,500 Annual Heating: $1,200 Monthly Car Lease & Personal Debt: $750

Prior to the new mortgage rules, the borrowers would have qualified for a variable mortgage using a 3 year rate which have put the GDS/TDS ratios at 28.67/37.67.  As of November 1, 2012, the GDS/TDS is 35.3/44.29 since the Bank of Canada benchmark rate (currently 5.24%) is used to qualify.

Is This The End Of Variable Mortgages?

As you can see, the borrowers will be forced to take a fixed mortgage for 5 year term or longer since they can't qualify for a variable mortgage.  My issue with the new mortgage rules is how will anyone qualify for a variable mortgage or fixed mortgage of 1-4 year term when the benchmark rate is at 7-8% as rates normalize in the future? Having borrowers lock into longer terms than they need to might result in paying IRD (interest rate differential) penalty to get out of the mortgage which can be exorbitant.

The solution to this issue is putting more downpayment if possible to get the mortgage qualification ratios in line.

To discuss your downpayment options and how to qualify for short term fixed mortgage or variable mortgage, please contact me.

 

Sell Or Refinance Your Condo?

A large number of condo buyers in downtown Toronto are first time buyers who enter the journey of homeownership with the intent of moving up to a larger home after a few years to start a family. The data is loud and clear about Toronto's condo market; it has shifted into buyers territory and now buyers have the upper hand in the condo market.  The days of bidding wars seem to be long gone.  Condo sellers are having a hard time getting the price they thought they could have gotten earlier in 2012.  Should one sell or refinance the condo and rent it?

Opportunity in Toronto Condos

I recently had a number of clients who had their condos for sale, but didn't get the price they wanted. They had 2 options to entertain:

1. Sell at a price lower than expected and take a loss 2. Refinance condo, pull the equity out and rent the unit

I choose to look at situations with a glass half full perspective.  I showed the clients by taking advantage of today's low rates and the shortage of rental units in downtown Toronto, there is an opportunity to generate positive cash flow, have someone else pay down their mortgage and wait for a few years till the market balances itself out.

In all cases, the clients had multiple offers on their condos for rent, got higher rent what they listed the condo for and rented the condos to professionals who are easier to manage.  Here are examples of what some of the condos were listed and rented for:

List: $1800, Rent: $1900 (Bathurst & King) List: $1600, Rent: $1700 (Cityplace) List: $2300, Rent: $2350 (King & Sherbourne) List: $1450, Rent: $1500 (King & Portland)

Investing In Toronto Condos

If you own a condo in downtown Toronto, this is a great time to consider locking into the historic low mortgage rates and take advantage of the high rental demand.

Now is the best time to consider restructuring the condo's mortgage due to the following 2 reasons:

1. Condo values have not dropped significantly 2. Mortgage rates at historic lows

Waiting for the "right time" can be costly especially if condo values drop there will be less equity to take out and when interest rates rise (even slightly), the monthly carrying costs will increase and might result in negative cash flow.

There is a lot of doom and gloom in the media and blogosphere, but there is always an opportunity if you have a long term approach to real estate investment.

To find out if you can refinance and rent your condo, please email Nawar or call at 416.637.3308.

Mortgage Rules Restrict Qualification

Mortgage Qualification

As of November 1, 2012, the Office of Superintendent of Financial Services (OSFI), has brought new mortgage rules to restrict qualification and curb Canadians' household debt to protect the Canadian economy from a US style housing correction. Here is what you need to know:

1. Cashback Mortgage

Cashback cannot be used for downpayment, only for closing costs. Downpayment must be from own resources or gifted from family (parents or siblings) only.

2. Home Equity Line of Credit (HELOC)

Restricted to 65% of home value. One can have a mortgage of 15% of home value bringing the total to 80% (65% HELOC + 15% mortgage) as long as HELOC does not exceed 65%.

3. Mortgage Qualifying Rate

1-4 year fixed mortgages and variable mortgages to qualify at Bank of Canada benchmark rate (in other words 5 year posted rate). This will make it very difficult for Canadians to qualify for shorter term mortgages and variable mortgages. How will anyone qualify for a variable mortgage when when the 5 year posted rate is at 6-7% range? I hope OSFI would revisit this rule in the future.

4. Self Employed Mortgage

The maximum allowed loan to value (mortgage and HELOC) for stated income applicants is reduced to 65%. Stated income programs are for business owners who maximize their tax write offs to reduce taxable declared income.  Commissioned applicants such as real estate agents and mortgage brokers do not fall under the self employed program unless they have an incorporated business.

5. GDS/TDS

For applicants with 680+ beacon credit score, the maximum GDS/TDS is 39/44.  For applicants with less than 680 beacon credit score, the maximum GDS/TDS is 35/42.

As you can see the new mortgage rules restrict qualification and might not be popular with various groups of Canadians, however they are designed to protect the economy since a significant real estate correction would have a major impact on employment numbers.  In my opinion, the new rules unfairly penalize self employed Canadians since they will be forced to access funding through secondary more expensive channels; alternative and private lenders.

To discuss how the new mortgage rules impact your qualification whether you are a first time home buyer or self employed, please email Nawar. 

What Is Bridge Financing?

When Is Bridge Financing Required?

When homeowners move from one home to another, sometimes the closing date for the purchase of the new home and the sale of the existing home do not fall on the same day.

For example, if the purchase of the new home closes on July 1 and the sale of the existing home closes on September 1 where the proceeds from the sale are needed for the downpayment, a bridge loan is provided by the lender to cover the shortfall in downpayment for the two months period.

Bridge Financing Conditions

The bridge financing loan is provided based on the following conditions:

1. There must be a firm sale agreement on the existing home
2. Bridge financing loan is provided for up to 120 days

Bridge Financing Costs

The bridge financing loan is provided at prime plus 2% to 5% depending on the lender.  Some lenders have a bridge finance loan set up fee of a few hundred dollars.  There are some additional legal fees to account for since the lawyer has to do additional work.

It is important to review your options with a mortgage professional and run worst case scenarios if:

1. The existing home is sold for a less than expected price
2. The existing home sale closing date is past 120 days
3. The existing home is not sold

To review your personal mortgage situation and plan your next move, please contact me.

How To Access Your Home Equity

There are a few possible reasons to access your home equity, some are:

• Investment purposes: to buy an investment property or invest in the market (stocks, mutual funds...)
• Consolidate debt: move high interest debt into low interest debt
• Home purchase: buying a home that requires a larger mortgage amount

Canadians are taking advantage of today's low rates and locking into 5 and 10 year fixed mortgages. What happens if the homeowner needs to access additional equity prior to mortgage maturity?  The options are:

Increase And Blend Mortgage

I believe this option will be very popular as more homeowners lock into historically low rates and for most, it won't make sense to break the mortgage in the future.  An example would be: current mortgage amount & interest rates are $300,000 and 3.09%. The homeowner requires to access an additional $150,000 of their home equity.  They would add $150,000 to their existing mortgage balance of $300,000 at current market rate for the remaining term. In this case if the homeowner is 3 years into the 5 year term, the $150,000 would be lent at the 2 year term mortgage rate. The costs associated with an increase and blend option are completing an appraisal on the home and legal fees to register the new mortgage addition.

HELOC: Home Equity Line Of Credit

Secured lines of credit are a great way to access your home equity. The borrower only pays for what they borrow and the funds can be accessed again since this is a revolving credit (you can access whatever is paid back). The costs associated with this option are appraisal and legal fees which are sometimes covered or subsidized by the lender.

Refinance Mortgage

This requires breaking the mortgage, paying a penalty, appraisal and legal fees. It is the most expensive option upfront, however it might be the best option if the homeowner is coming from a higher interest rate mortgage and locking into a lower interest rate mortgage.

It is important to sit with a mortgage professional to discuss your needs and run through the numbers to see which option makes more financial sense.

To discuss your personal options and complete the numerical analysis, please contact me.

Can I Afford That Home & How To Qualify For A Mortgage?

How do you determine how much you can afford?  I will provide you with insight on how banks and lenders determine affordability.  There are 2 important ratios to consider:

• Gross Debt Service (GDS)
• Total Debt Service (TDS)

GDS = (Mortgage principal + mortgage interest + 50% of condo fees (if applicable) + property tax + heat )/Gross income

TDS = (GDS + other debts such as car payment, lines of credit, credit cards and investment loans) / Gross income

Expenses such daycare, home insurance, cable, internet and cell phone are not included in the above ratios.  The GDS/TDS ratios vary from one lender to another due to their internal underwriting guidelines.  Furthermore, the ratios are more stringent for borrowers with less than 680 credit score. Generally speaking, a GDS/TDS ratio of 32/40 would increase the likelihood of getting a mortgage approved. For borrowers with a credit score of 680 credit score or higher, the TDS requirement can go up to 44.

In summary, lenders have various levels of credit risk and they look at unsecured debt (credit cards & unsecured lines of credit) differently.  Another point to take away is strong credit score applicants have a better opportunity of getting approved for a larger mortgage amount.

It is best to consult with a mortgage professional prior to starting the home buying process to ensure one is qualified. To determine your affordability and financial goals, please click contact me.

Variable Mortgage Holders Celebrate!

The US Federal Reserve announced on September 13, 2012 that it will embark on a third round of stimulus (QE3) to improve the employment numbers in the US.  What does this announcement have to do with Canadian mortgage rates?Mr. Carney, the governor of the Bank of Canada, has to keep the benchmark rate which sets prime rate relatively close the US Federal Reserve benchmark rate, otherwise the Canadian dollar would appreciate and have downward pressure on Canadian exports due to the higher cost of Canadian goods.  This would be bad for the Canadian economy and force the Bank of Canada to hold its benchmark rate at or close to its current level to late 2015 along with its US counterpart.

If you are variable mortgage holder who has a prime minus mortgage, this announcement is great news since prime would probably not move dramatically in the next while.  However, the risk is as central bankers "print" money to stimulate the economy, inflation will become an issue sometime in the future.  The message here is to take advantage of your current variable mortgage but plan and prepare for the future.

To discuss how you can shave 3 years off your mortgage amortization, please click here. To contact me, please click here.

Downpayment Requirement For Investment Properties

Depending on owner's intentions, there are 2 downpayment requirements for investment properties depending on whether the owner intends to live int the investment property (duplex, triplex, fourplex) or not:

1. 5% downpayment if owner is planning to live in one of the units in the duplex, triplex or fourplex with maximum amortization of 25 years
2. 20% dowpayment if the investment property will not be occupied by the owner and maximum amortization of 30 years

However, it is important to review one's goals over 5-7 years and understand the downpayment requirement if planning to buy additional properties.  The number one challenge for real estate investors is running out of capital (downpayment). It is important to plan ahead and divide the monies accordingly to achieve the long term goals. I have met with too many investors who had the need to restructure their mortgages since the focus was on the next deal and not the long term plan.

To discuss your investment property plans, contact me.

Numbers Tell The Truth!

There is never a dull moment in the Canadian mortgage landscape with new rules introduced by the Minister of Finance and OSFI, Office of Superintendent of Financial Institutions.  I want to state upfront that I support these changes with the exception of reducing secured lines of credit (HELOCs) from 80% to 65% of home values.  Canada's housing market has been very hot since the credit crunch of late 2008 and the house prices to income ratio gap has grown significantly due to stimulus low mortgage rates.I want to clarify what families will be facing in 2016, 2017 and beyond.  Today's 5 year fixed rates are in the low 3's (3.09%-3.19%) which are fantastic.  However, the extended period of low interest rates will be followed by periods of high interest rates due to the following:

• Focus will turn from stimulus in the global economy to combating inflation due to excessive stimulus (money printing and quantitative easing) since 2008
• Cost of borrowing will increase due the European credit crisis which will only intensify as Italy & Spain (3rd & 4th largest economies in Europe) deal with their debt issues. As you recall, in late 2008 when Lehman Brothers collapsed, money (capital) disappeared from the market, creating a supply issue and variable mortgages went from primes less 0.75% to prime plus 1% in a short period of time

I want to share the following numbers to help you see where I am going:

Family household income (pre-tax): $100,000 Income tax bracket: 45% Mortgage amount: $400,000 Interest rate: 3.09% Mortgage amortization: 30 years Monthly payment: $1912 Renewal Rate in 2017: 5.5% (an increase of 2-2.5% over 5 years is very reasonable based on historical data and the above stated issues) Mortgage payment at renewal: $2103 (increase of $416 per month)

Some would assume taking on an additional $416 per month in 5 years is doable.  Let's dissect a little further:

In order to absorb $416 of additional mortgage payment, the family's pre-tax income has to increase by $9,000.  That might sound reasonable , however, it's equivalent to getting 2.5% raise every year for the next 5 years.  The economy is not in the greatest condition: not many companies are hiring, some are cutting back and the reality is keeping a job nowadays is great news. Furthermore, the increased cost of living (property taxes as municipalities deal with their debt and deficit issues, gasoline which affects goods prices, higher hydro rates....) will eat away into a family's affordability. I didn't mention that children cost more as they grow up!

This blog post is a reality check.  We have been drunk for too long on cheap money.  Plan for the long term and understand how future events should play into your decisions today.  This is a golden opportunity to consider long term mortgages such as a 10 year fixed.

To get more information please visit: www.10YearFixedMortgages.com

Whether you agree or disagree with me, I would love to hear from you.

Double Your Money By Renting Your Home

Lately, I have been dealing with an increasing number of clients who are deciding not to sell their home.  They are choosing to keep their existing property by turning in it into an investment property and using the proceeds of the refinance to buy a home.  Since the financial credit crunch in late 2008, more Canadians are skeptical about the markets, are worried about having enough to retire and are looking for alternative ways to diversify their investments.A greater number of homeowners, after reviewing the numbers, are deciding to refinance their existing home up to 80% of its current market value, take advantage of today's historic low interest rates and rent the property.  Here is real example that I did for a client who owns a condo in downtown Toronto.

Condo value: $350,000 Mortgage amount: $280,000 (80% loan to value) Mortgage amortization: 30 years Mortgage interest rate: 3.29% Mortgage term: 5 years Annual appreciation: 2%

There are two items to pay attention to in the above chart: 1/ initial equity is $70,000 and after 5 years based on 2% capital appreciation and utilizing the inflation hedge mortgage strategy, 2/home equity is at $135,771.  By having the tenant paydown the mortgage and adjusting the mortgage payment gradually for higher interest rate environment, the home owner almost doubles their money in 5 years.  Imagine the financial freedom a fully paid off investment property would create.

If you are interested in finding out how to turn your current home into an investment property and use your home equity to buy a home, please contact me.

Don't Buy An Investment Property For Cashflow!

You are probably thinking "What is he saying, especially since he always talks about buying an investment property is buying a business". You are correct, buying an investment property is buying a business. Here is what I mean:A property is purchased at $625,000 with a mortgage of $500,000 (80% loan to value), borrowed at 3.99% for a 10 year term amortized over 35 years.  Rental income for the duplex is $3800 per month, which nets $800 after taking into account 10% safety (for repairs & maintenance as well as vacancy).

There are 2 options when it comes to using the surplus:

1. Increase the mortgage payment by $800 per month
2. Use the lump sum feature to pay down the mortgage $800 every month or at a set frequency (quarterly or semi-annually)

If the real estate investor is planning to acquire more properties, option 2 is best, since increasing the mortgage payment would hinder qualification of further properties.  The pre-payment feature would accomplish the same result without sacrificing the ability to qualify for more investment properties.

Let's dig deeper into the numbers:

If the mortgage is pre-paid by $800 every month, the mortgage amortization would drop from 35 years to 20.25 years! Imagine what would it feel like if you owned your investment property free and clear 15 years ahead of schedule and what that additional income would do to your lifestyle.

The next time you are buying an investment property, don't buy it to use the cashflow for personal expenditure, rather use it to payoff the mortgage.

Every real estate investor has unique goals, to discuss your personal real estate investment portfolio and goals, please contact me.

Variable Mortgages Are Not Portable!

Variable mortgages up to late summer of 2011 were very attractive due to the large discount off prime at that time (prime less 0.75%).  Many homeowners and real estate investors took advantage of getting a variable mortgage on their home or real estate investment properties.  The mortgage product is portable and assumable which means the homeowner or real estate investor can port (transfer) the mortgage to a new home as long they qualify and it's done within a certain period of time between selling one property and buying another (typically 90 to 120 days). As for being assumable, the mortgage can be taken over by the buyer should they qualify.There is a catch however when porting a variable mortgage.  Unless the exact mortgage amount is transferred over to the new property, lenders will reset the rate to whatever the market rate is at that time.  Here is an example, let's say the borrower got a variable mortgage at prime-0.75% and the balance at the time of moving is $250,000. They are buying a home which will require the mortgage amount to increase to $300,000.  The borrower can consider 2 options:

• Port the mortgage of $250,000 and obtain a line of credit for the difference, in this case $50,000 in order to maintain the prime-0.75% on the variable mortgage
• Obtain a new $300,000 variable mortgage at today's rates (prime-0.1% to prime+0.1%) with the same lender without incurring a penalty

In the above case, it's clear that keeping the mortgage at prime-0.75% is a wise option.  It's important to understand the fine print of the mortgage and and discuss the available options with your mortgage professional.

As for the blog post title, yes variable mortgages are portable, but with a catch!

To discuss your personal mortgage financing situation, please contact me.

How To Get Your Renovations On Budget And On Time

Recently I completed a renovation job of a duplex investment property in the upper beach area.  Yes, I was on time and on budget! I have been approached by a few people who wanted to know how did I get a 3 month, $100k renovation job right on budget and on time.  The answer is simple: plan, communicate and trust.Plan As a retired Engineer who spent 10 years as a project manager, I gained valuable skills in managing projects. Initially, when I viewed the property of interest, I brought in my contractor to show him the scope of work I intended to do and my vision for the property once completed.  We sat down and created a timeline with contingency factored in over the 3 month period.  Based on the timeline and required manpower, he was able to complete his quotation.  During the renovation period, I had weekly reviews with my contractor to see where we were per the timeline and if there were any issues that we didn't plan for. An important factor I was always 2-3 weeks ahead in having materials ready to avoid a situation where work would stop since they didn't have tiles or vanities or kitchen....

Communicate I stopped by the property 3-4 times a week in the first month, 2-3 times in the second month and 1-2 time in the last month to communicate with the contractor and subcontractors (HVAC, electrician, plumber...). I also clearly stated to the team what I wanted and how I wanted certain things to save them the time/money of redoing the work.

Trust You might be wondering what does trust have to do with renovations.  In my opinion, it's very important since I trusted my contractors' skills to do an excellent job and I trusted the professionals that were referred to me.  By trusting the contractor and subcontractors, I gave them the space and confidence to do the job without micromanaging and being overbearing.  Imagine you being at work and your boss pops in every half an hour to see what you are doing. I'm sure it would drive you crazy! I choose to treat my team the way I like to be treated.

We did have problems and challenges, we dealt with them and got the job done on time and on budget.

I hope you find this blog post helpful and if you ever need to connect with my trusted team (contractor, electrician, realtor....) or to discuss financing your home/investment property renovations, please contact me.

Do US Elections Impact Canadian Mortgage Rates?

Over the last month or so, I have heard some mortgage brokers promoting the 4 year fixed rates to their clients since it coincides with the US presidential cycle based on the argument that in US election years, mortgage rates remain low for the incumbent President to be re-elected.  As a mortgage broker who is driven by data and facts, I had to do some research to justify these statements.Before we dive into data, let's understand what drives mortgage rates:

• Fixed rates are driven by the bond market which moves up and down based on economic news. Good news drive the bond yields higher, therefore increasing rates and vice versa; bad economic news drive the bond yields lower therefore reducing fixed mortgage rates.
• Variable mortgages are driven by prime rate which is set by the Bank of Canada (independent of government) and the discounts on prime are driven by liquidity and credit risk factors. In good times, variable mortgages were at prime-0.8%, during the financial meltdown of late 2008, variable mortgages were at prime+1%

Based on the above 2 points I don't see how US elections can drive the bond market or influence the decisions of the Bank of Canada.  The only connecting factor is the Bank of Canada benchmark rate has to remain relatively close to the US Federal Reserve benchmark rate.  If Canada's benchmark rate was much higher, the Canadian dollar would rise in value negatively affecting exports and would dampen the economy.

Let's look at the numbers.  Over the last 25 years, fixed rates on US re-election years: 2012, 2004, 1996 and 1988 the fixed rates based on the chart do not show a dip in these specific years.  The data shows that interest rates have been decreasing over the last 25 years.

Finally, when someone makes a statement, always ask for data to back up their claim. It's easy to make generic statements.

To discuss your mortgage situation and to make decisions based on data and facts, please contact me.

Getting A Mortgage Is Like Day Trading!

Have you recently shopped for a mortgage? Were you trying to choose the lowest available rate? Many Canadians shop based on "lowest rate" and I don't blame them.  When was the last time a homeowner sat down with a mortgage broker or banker to discuss a strategy for their mortgage?  I'm sure you will understand where I'm going with this, let's say you have $50,000 to invest:

• How would you go about choosing a financial planner?
• Would you choose a financial planner based on the stock/mutual fund price on that day?
• How will you choose which financial planner gets to manage your investments if all them have the same stock/mutual fund price?

I believe the majority of people choose their financial planner based on their belief the planner can deliver the proposed strategy that will achieve their long term goals.

Now let's go back to mortgages, let's say you receive 3 different rate quotes which are exactly the same, how will you choose who will get the privilege of managing your debt?  If you have an asset manager shouldn't you have a debt manager?

I believe that a mortgage professional is ought to provide more than filling out applications and quoting rates.  They should provide a well executed strategy to achieve your desired mortgage freedom, a mortgage product that fits your changing lifestyle and a mortgage term based on current and projected economic conditions.

A stock is chosen by a day trader by timing the market whereas a mortgage is a vehicle to achieve your financial freedom.

To discuss your personal mortgage financing needs, please contact me.

How To Use A 40 Year Mortgage To Payoff A Mortgage In 20 Years

You might be thinking can I really use a 40 year mortgage to payoff a mortgage in 20 years.  The answer is yes. Here is a real example of a recent client case that I helped structure:  Client has one rental property which he was paying down aggressively by taking all the net cash flow ($400 monthly) and putting it down on the principal.  This might sound like a good idea, however it is inefficient.  Here is why:

• Paying down an investment property aggressively reduces interest portion of mortgage payment which is tax deductible, therefore resulting in higher taxable income
• Net positive cash flow can be used to pay down non tax efficient debt (home mortgage)

The solution for the client was the following:

• Leave the investment property mortgage at its original 40 year amortization (which is still available for conventional mortgages)
• Use the net positive cash flow ($400 per month) to paydown principal residence ($300,000 mortgage amortized over 30 years at 3.29% is reduced to 20 years of amortization saving $62,461 of interest payments)

The cash repositioning helped the client paydown their principal residence, save thousands of interest dollars and be tax efficient.  It is important when choosing a mortgage for your investment property, the right product is selected that will fit into your long term goal.  Please consult with your accountant regarding your taxes.

In conclusion, there is more to mortgages than rates.  If a mortgage product is used properly, mortgage freedom can achieved faster which is the goal of many homeowners.

To discuss your personal mortgage situation, please contact me.