How You Can Buy A Home With $24.95?
A client approached me a few weeks back with interest of getting pre-qualified for a mortgage to buy their first home. During our initial meeting, we discussed their goals, where they see themselves in 5 years and cash flow projections based on mortgage interest rates over the next 5 years. One of the questions I ask, is how the person's credit score is. The client stated they had no outstanding debt with very little credit card balance that is paid off every month. Once all the necessary information was gathered, a credit check was completed and I was shocked to what I saw in their report.There was an outstanding student loan which showed delinquency for over 21 months which literally had destroyed the client's credit score and history. I contacted the client to notify them of the issue and they were surprised to hear there was a balance since they stopped receiving a bill after they moved to their new address. They had thought the loan was paid off. Unfortunately, the outstanding balance was minimal but had accumulated lots of interest over the 21 months.
In this case, the client will have to re-establish their credit and show 2 years of good credit history to qualify for a mortgage at a decent mortgage interest rate. There are other alternatives, but are more costly.
By checking your own credit score annually from Equifax (http://goo.gl/5xqCP) these type of issues would be resolved. Similar to a medical annual check up, an annual credit check is important to verify there aren't any errors or items that need to be addressed immediately. The cost of checking your credit score is $24.95.
To discuss your personal mortgage financing needs, please contact me.
Why Ultra Low Mortgage Rates Are Not Good?
We have experienced low mortgage rates since the financial credit crisis in late 2008. The purpose of the low rates is to stimulate consumer spending which will result in economic growth and recovery out of the recession. In the last few weeks, there have been talks regarding the European debt crisis and how similar it looks like the 2008 credit crisis. It started with Ireland and Greece, which are considered small economies in Europe. The credit crisis talks have shifted to Spain and Italy which are large economies. As Germany and France continue to bailout their Euro zone counterparts, they accumulate more debt. There were talks last week that France is in financial trouble which resulted in a stock market sell off among other bad economic news. The bottom line there is a storm brewing in Europe which will come to fruition sooner or later. This uncertainity has resulted in bond yields dropping to historic lows which will result in lower fixed mortgage rates.
There are now possibilities the Bank of Canada might hold or even consider cutting its benchmark rate (which sets prime rate) to stimulate the Canadian economy just in case Canada gets dragged into a slowdown due to what's happening in US & Europe. This means continued low rates for the foreseeable future.
So What You Might Ask?
The concern with even lower interest rates, is creating more demand in the Canadian real estate market. This is good news for first time home buyers since the affordability requirements will drop, however, more bidding wars might result (I can only comment on Toronto's real estate market since this is where I conduct my business) and some would lose out. Canadian household debt is already at an all time high and taking on further debt could result in an unpleasant consequences for all (http://goo.gl/zzcDH). The lower rates will pull the future demand into the present and leave a void in the future. The other concern is Canadians getting used to these low mortgage rates and not plan for higher interest rate environment when mortgages renew in a few years from now.
Finally, taking on debt with a responsible plan to pay if off can be a good thing. However, taking on debt and not planning for higher interest environment will have dire consequences.
To discuss your personal mortgage financing situation, please contact me.
Are Mortgage Interest Rates Dropping?
My Commentary On What The Bank Of Canada Said Today
What's Your Best Interest Rate?
Typically, one asks for the best mortgage rate when looking for a mortgage. In this video, other questions to be considered are discussed to help one decide since a mortgage is an investment vehicle not a commodity.
Where Is Prime Rate Going?
Why Fixed Rates Move So Much?
Are You Ready For 6%?
Today's mortgage rates remain to be extremely low due to the uncertainity in the global market (risk of Greece defaulting), anemic job creation in the US and massive government debts and deficits. In Canada, we have been lucky not to experience the pain of our neighbours to the south or across the pond in Europe.Fixed mortgage interest rates are hovering in the mid to high 3% which are historically low. Over the last 25 years, fixed rates average around 6% (see chart below which shows posted rates. Typically, there is 1.5% difference between posted and discounted)
It is important to budget ahead for the time when mortgages are up for renewal at the 6% level. Inflation hedge strategy, is a pro-active plan where the mortgage is reviewed annually and adjusted according to the projected renewal rate. This strategy saves the borrower thousands of interest dollars and accelerates paying down the mortgage principal. At renewal, the borrower's mortgage balance is reduced and adjusted for higher interest rate environment eliminating any payment shock.
For variable mortgage holders, the savings are even greater, since the mortgage is paid at the fixed interest rate level which contributes more monies towards paying down the mortgage principal.
For your personal mortgage review and inflation hedge analysis, please contact me.
Is That The Best Rate You Have?
In today's competitive mortgage market, there is lots of "lowest interest rate" and "best mortgage rates" advertising in the media. I even saw a jeweler offering mortgages!! Is the best rate really what's best for one's situation?
Asking for and making a decision strictly on lowest rate is similar to someone walking into a financial planner's office and asking for the lowest MER mutual fund. Mortgages are investments and need to be chosen based on where the economy is currently, what's expected to happen with interest rates over the next few years (inflation, job creation and global factors), personal and financial situation and borrower's risk tolerance. The fine print of the mortgage such as compounding, prepayment priviliges, increased payments, portability, assumability and how the penalty is calculated are important features to be understood upfront prior to commiting to a mortgage product. It's unfortunate that homeonwers have been programmed to get the lowest rate, set the payment and not look at the mortgage till renewal time. There are significant opportunities in optimizing the mortgage to reduce the amortization and build significant equity in a shorter period of time if the mortgage is managed properly by a professional.
The next time you are in the market for a mortgage whether you are buying a home or an investment property, renewing, or refinancing, please email me to send you a checklist of factors to consider in choosing what's right for you and your family.
Please contact me should you have any questions regarding your mortgage.