Flaherty considering measures to cool housing market. What does it meen for Kelowna

If our federal finance minister Jim Flaherty follows through with his warning to cool off the housing market; more people will have a tougher time getting into the housing market in Kelowna.

He is worried that homeowners may find it too difficult to cope with their mortgage payments if the rates have gone up by the time they renew their mortgages in 5 years.

He is talking about raising the minimum down payment needed and possibly lowering the amortization period.

I for one hope he does not do anything. The housing market is one of the brightest segments of our sagging economy at the moment and only 4% of mortgages originated each year are with clients using only 5% as a down payment and taking the longest amortization at 35 years.


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Dave Lytton
Dominion Lending Centres Kelowna
Toll Free: 1-866-862-5040
Tel: 250-862-5040
Cel: 250-862-6630
E: dlytton@shaw.ca
http://www.davelytton.com/

RRSP HOME BUYER PROGRAM

You can withdraw RRSP money “tax free” as part of your down payment…..
Highlights:

Each purchaser may borrow up to $20,000 from their RRSP to use as a down payment.

Available to homebuyers that have not owned in the last 5 years or never owned.

Repayment of the funds to your RRSP must be made within a 15-year period, 15 annual installments is the usual practice.

If the amount is not repaid in a year, the year’s repayment amount will be added to your income and taxed.

Example:

$15,000 is borrowed for a down payment on December 31, 2007. The first $1,000 becomes due but is not paid. The borrower must declare the $1,000 as income in 2008.
The home must be located in Canada and is used as your principle residence.

This program may be used with the CMHC/GE 5% First Time Buyers program.

The program has been extended indefinitely.

Dave Lytton
Dominion Lending Centres Kelowna
Toll Free: 1-866-862-5040
Tel: 250-862-5040
Cel: 250-862-6630
E: dlytton@shaw.ca
http://www.davelytton.com/

SOME MORTGAGE BASICS FOR KELOWNA HOME PURCHASE

You will get the best potential rates with a minimum of 5% down payment from your own resources (not putting on a credit card) or that from an immediate relative. There are products available that don’t require a down payment, or allow you to put it on a credit card; however, the rate will be higher because the risk to the lender is higher.

Anything less that 20% down is termed a high ratio mortgage and must have either CMHC (Canada Mortgage and Housing Corp) or Genworth mortgage insurance. This is paid by the borrower for the benefit of the lender. In case of default where the lender cannot recoup their money from the borrower through sale of the home; the lender will get their money from one of the above mentioned corporations. The cost graduates from 2.75 % of the value of the mortgage for 5% down to 1 3/4% of mortgage value for those that put down 15%. The insurance premium can be added to the mortgage and doesn’t have to be an out of pocket expense. There is also a .2% increase for each five year period added to the amortization.

Traditional lenders work with two equations. The first is 32% of the family’s gross income for those that are T-4’d. For those that may be self employed, it is of their net income. For example, if a couple’s income is 60,000 then 32% of this would be $19,200. This is the maximum allowed and covers the mortgage payment (principal and interest), property taxes, heat, (minimum of $600 annually and up depending on the size of your house), and ½ of any applicable condo or strata fees.

The next equation is 40% and above. This leaves 8% for the other debts such as loans and credit card payments. Again based on a household income of $60,000, this would amount to $24,000. Let’s say you have a personal loan and you are paying $200 a month for it ($2400 annually) and a car loan of $350 per month ($4200 annually) and have $10,000 of credit card debt with minimum payments of 3% or $300 per month ($3600 annually). These debts add up to $10,200 which must be deducted from your $24,000 allowable. This leaves $13,800 (instead of $19,200) to pay for your mortgage, heat property tax and applicable strata fees.

If you have very good credit (score of 680 or higher), you may disregard the 32% and use a TDSR (total debt service ratio) or 44%. This would encompass your entire debt load.

There are non traditional lenders that will allow higher debt service ratios, however, as the risk increases, so does the rate.

There are many programs available for those that are in business for themselves or run a business on the side. Some of them don’t require the borrower to prove their income and are called “stated income” mortgages. This means the borrower can purchase just about anything they wish. All that is needed is a minimum of 5-10% for a down payment. Again, the downside is the rate is slightly higher than with provable or verifiable income.

Traditional lenders require the borrower to have 1.5% of the value of the property in their bank to cover closing costs (such as legal fees, the property transfer tax if applicable, interest and tax adjustment to name a few). 1.5% often isn’t enough to cover all the closing costs but that’s all the lenders require you to have. This means that coming up with 5% as a down payment is a little misleading. It would be better to say 6.5%

It is important to note that almost all mortgages are not the same. Lenders all have their particular idiosyncrasies and surely every borrower is different. Don’t be afraid to talk to me to find out exactly where you stand. I’ll explain to you all of the options open to you and if you can’t get the mortgage you want today, I’ll offer suggestions on how to improve your situation for a future application.


Dave Lytton
Dominion Lending Centres Kelowna
Toll Free: 1-866-862-5040
Tel: 250-862-5040
Cel: 250-862-6630
E: dlytton@shaw.ca
http://www.davelytton.com/

Canadian Mortgage Market Optimisim

Canadians are emerging from the recession confident that the value of their homes is rising and optimistic about their local housing markets. The Canadian mortgage market is rebounding and will surpass the $1 trillion mark in 2010, reports the Canadian Association of Accredited Mortgage Professionals (CAAMP) in the fifth edition of the Annual State of the Residential Mortgage Market, released in late November.

Canadians are positive about house prices, and attitudes about whether this is a good time to buy a home have never been higher in the three years that CAAMP has surveyed on that question. The overwhelming majority of those surveyed (40%) expect house prices to go up, which is more than double the opinion of those surveyed in spring 2009 (18%).

In past surveys, negative house price sentiments were most evident in British Columbia, Alberta and Ontario – provinces that, in retrospect, were hardest hit by the economic downturn. On a 10-point scale (where 1 is very negative and 10 is very positive), attitudes in these provinces have sharply rebounded to 6.44 from 4.77 in fall 2008, 6.24 from 5.00, and 6.30 from 5.11, respectively, and are now in line with the 6.25 national average.

Most Canadians are optimistic and believe now is a good time to purchase a home, setting a record-high national average of 6.56 out of 10, up almost a full point from 5.58 last fall. Ontarians are most positive at 6.82, while Saskatchewan residents, who have seen house prices increase rapidly, are most negative at 6.05.

As interest rates remain low, it is not surprising that Canadians continue to be satisfied with their mortgages. Of those who renewed in the last year, 73% received lower rates than their original mortgage term.
“Mortgage consumers have been busy, and have effectively capitalized on low interest rates to shop and renegotiate,” said Jim Murphy, President and CEO of CAAMP. “CAAMP’s survey found that, on average, negotiated rates were discounted by 1.23 percentage points lower than typical advertised rates for five-year

mortgages, and we see this discounting trend continuing. ”In spite of continued job loss concerns, Canadians’ mortgage debt load remains reasonable. Homeowners have close to three-quarters (74%) of the value of their properties in equity and for those with mortgages, equity is more than one-half (52%) of the value of their homes. Fewer Canadians took equity out of their mortgages this fall (down to 18% from 22% last year). The primary motivator was, once again, debt consolidation or payment (approximately $17 billion), followed by home renovations (approximately $12 billion, down from $14.5 billion in 2008). One third of respondents who took out equity to fund home renovations said the Home Renovation Tax Credit had influenced their decision.
Significant Statistics from the Study
• Overall, Canadians remain very satisfied with their current mortgage, with 77% either completely satisfied or satisfied. The top reason cited is the mortgage rate, which averaged 4.55% this past year – a dramatic decline from 5.41% last year.
• Canadians in provinces that have felt the greatest effect of the recession are also the most optimistic about the increase in house prices – 42% of people in Ontario, 43% of people in Alberta and 47% of people in British Columbia feel that house prices will increase in the next year.
• Two-thirds of all mortgages are fixed for terms of four or more years, with five-year terms remaining the most popular at 56%. But many people who took out a mortgage in the past year chose a shorter term, with 20% at one year or less.
• 68% of mortgage holders have fixed-rate mortgages, while 27% have variable- and adjustable-rate mortgages. Fixed-rate mortgages are the most popular among people between the ages of 18 and 34, while those in the 55+ age group are more likely to opt for variable-rate mortgages.

Dave Lytton
Dominion Lending Centres Kelowna
Toll Free: 1-866-862-5040
Tel: 250-862-5040
Cel: 250-862-6630
E: dlytton@shaw.ca
http://www.davelytton.com/

Planning ahead for Holiday Spending in Kelowna

Many people have faced tough times in lieu of the recession, and with the high-cost holiday gift-buying and entertaining season quickly approaching, this may be the perfect time to refinance your mortgage and free up some money instead of relying on high-interest credit cards.

You may find that taking equity out of your home will help bring joy back into your holiday season – and start the New Year off on a debt-free note, as you may also be able to use some of the equity in your home to pay off high-interest debt such as your credit card balances. This will enable you to put more money in your bank account each month.

And since interest rates are hovering near historic lows, 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 lower rates and extra money you could acquire through a refinance. I can sit down with you and work through all of the equations to ensure this is the right move for you.

With access to more money, you will be better able to manage both your holiday spending and existing debt. Refinancing your first mortgage and taking some existing equity out could also enable you to do many things you’ve been longing to accomplish – such as purchasing an investment property, taking that well-deserved vacation, renovating your home or even investing in your children’s education.

By refinancing, you may extend the time it will take to pay off your mortgage, but there are many ways to pay down your mortgage sooner to save you thousands of dollars in interest payments. 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.

You can also increase the frequency of your mortgage payments by opting for accelerated bi-weekly 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.

By opting for 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 – before the holiday season is in full swing – and planning ahead, you can put yourself and your family in a better financial position.

As always, if you have any questions about refinancing, reducing debt or paying down your mortgage quicker, I’m here to help!


Dave Lytton
Dominion Lending Centres Kelowna
Toll Free: 1-866-862-5040
Tel: 250-862-5040
Cel: 250-862-6630
E: dlytton@shaw.ca
http://www.davelytton.com/