Maurice Kwok, MBA CMA CGA
Mortgage and Real Estate Networking - Canada (LinkedIn)
To many homebuyers and real estate practitioners, how to calculate penalty, or called bonus interest, in breaking a fixed rate mortgage before maturity is a mystery. Believe it or not, many bank account managers don’t know the basis of penalty calculation. She will input your sale closing date in the system, print out an estimated penalty statement, but she will emphasize that it is “For Indication Only” and even highlight these 3 words with a yellow highlighter to protect herself/bank.
Penalty for variable rate closed term is easy: 3 months interest only. If you break a variable rate closed term of $500,000 and your net rate is 3%, then your penalty is about $500,000 x 3% x 3/12, approximately $3,750. But there is a subtle issue if you never exercise this year 10% or 15% or 20% bank's allowed maximum annual prepayment. Technically you can agrue that you pay the 10%/15%/20% one minute before you break the mortgage. Some banks automatically give it to you, some banks may not. But 10 out of 10 home sellers don't know the subtle situation.
Penalty for fixed rate closed term is complex: Greater of 3 months interest (per above) and IRD Interest Rate Differential. What is IRD?
e.g. If you purchased a house on 4/22/2011 for $685,000, and you locked a 5 year fixed rate when the posted rate was 5.49% and you received a discount of 1.79% from your bank, or contract rate of 3.70% for maturity on 4/21/2016. If you sell your house and close it on 3/22/2013 when the outstanding principal balance is $500,000, then the bank will use today’s 3-year posted rate minus the original discount you received, and compare the calculated net rate with your contract rate, and multiple it with the no. of months from now till maturity, and the outstanding principal.
Is it still too complicated?
A) 3 months interest = $500,000 x 3.70% x 3 / 12 = $4,625.
B) IRD
(1) use today’s 3-year posted rate 3.55% minus 1.79% the original discount you received on 4/22/2011 = 1.76% calculated net rate
(2) compare your contract rate with the calculated net rate. If the latter is greater than your contract rate, then there is no IRD. But in this case, 3.70% minus 1.76%, the IRD is 1.94%. Your bank suffers 1.94% for 37 months because of your early termination today.
(3) calculate IRD penalty: $500,000 x 1.94% x 37 months / 12 months = $29,908.
I did one refinance from another bank 3 years ago and the client was charged with $30,500 penalty, very similar scenario.
Hence, don't be happy if you get 2.89% today, because you have received a discount of 2.25%. If you sell your house 2 to 3 years later, you may port the outstanding mortgage to the new mortgage (if you buy again within a gap of 3 months, and if you are qualified again). But you should be prepared to pay a huge penalty. Of course if the rate rises by 2%, 3%, then there will be no IRD. But bear in mind the short term (1 to 3 years) posted rates are usually 1.50% to 2% lower than the 5-year rate. Check with your friends/clients, 1 out 3 or 4 clients who signed up a 5-year mortgage ends up paying penalty.
This accounts partially why Canadian banks do not want to lower the 5 year posted rate by 1% but offer you 2.25% discount. There are further implications, let's discuss tomorrow.
Thursday 28 March 2013
What is the purpose of Private Lenders?
Mortgage Market Updates
Question: What is the purpose of Private Lenders, if you already have Banks and what you call Mono Lenders?
Answer: Private Lenders are becoming more important in the mortgage world, as the Finance Minister tightens mortgage rules.
Here is a break down of the functions of various mortgage lending institutions:
Banks: some banks will give mortgage brokers lower interest rates for the clients. They have a limited amount of options and products. Clients have to exactly fit with their products. The Bank can only offer their own products, options and services. The bonus when dealing with a bank is that you can have all your banking in one place, ie credit cards, bank accounts, car loans and mortgages. Very Secure
Mono Lenders: Usually on line and limited amounts of offices. Only product is mortgages. Pays commissions to brokers for clients. Low over head. Competition among the many Mono Lenders, keeps interest rates low. Each have their own niche. One may accept lower credit scores while another may have better prepayment options.
Governed by the same rules that all Canadian Banks must follow. Very secure.
Credit Unions: They are community based, so may finance a project that no one else will if they can see the value in improving the community. Credit Unions are based in the community, they will look at funding a mortgage, because they know the community and believe it is non risk, while other lenders in major cities have no idea what the community is like. There motto is 'if it makes sense they will finance it' Great for small town lending, where the other bigger lenders will not lend because of the population limits. Very Secure.
Private Lenders: More and more Canadians are not fitting in with the strict rules for mortgages. Private Lenders are becoming more popular.
There are a multitude of reasons why borrowers seek to obtain financing from private lenders.These include:
As you can see there are many choices to choose from and your mortgage broker narrows down the list, to get you a well planned mortgage that will be truly unique and in the best interests for you.
Always, call a mortgage professional, to get a free no obligation quote. It can only save you money.
Question: What is the purpose of Private Lenders, if you already have Banks and what you call Mono Lenders?
Answer: Private Lenders are becoming more important in the mortgage world, as the Finance Minister tightens mortgage rules.
Here is a break down of the functions of various mortgage lending institutions:
Banks: some banks will give mortgage brokers lower interest rates for the clients. They have a limited amount of options and products. Clients have to exactly fit with their products. The Bank can only offer their own products, options and services. The bonus when dealing with a bank is that you can have all your banking in one place, ie credit cards, bank accounts, car loans and mortgages. Very Secure
Mono Lenders: Usually on line and limited amounts of offices. Only product is mortgages. Pays commissions to brokers for clients. Low over head. Competition among the many Mono Lenders, keeps interest rates low. Each have their own niche. One may accept lower credit scores while another may have better prepayment options.
Governed by the same rules that all Canadian Banks must follow. Very secure.
Credit Unions: They are community based, so may finance a project that no one else will if they can see the value in improving the community. Credit Unions are based in the community, they will look at funding a mortgage, because they know the community and believe it is non risk, while other lenders in major cities have no idea what the community is like. There motto is 'if it makes sense they will finance it' Great for small town lending, where the other bigger lenders will not lend because of the population limits. Very Secure.
Private Lenders: More and more Canadians are not fitting in with the strict rules for mortgages. Private Lenders are becoming more popular.
There are a multitude of reasons why borrowers seek to obtain financing from private lenders.These include:
- greater restrictions on traditional bank and trust company lending requirements, such as loans based on land value rather than borrower income;
- borrower’s that have a non-salaried income and do not therefore satisfy financial institutions’ structured lending guidelines;
- urgency to complete a transaction; and
- borrower’s with poor or no credit history rates
- construction loans
As you can see there are many choices to choose from and your mortgage broker narrows down the list, to get you a well planned mortgage that will be truly unique and in the best interests for you.
Always, call a mortgage professional, to get a free no obligation quote. It can only save you money.
Wednesday 27 March 2013
No crash in store for Canadian housing market: Scotiabank
Andrea Hopkins, Reuters, The Financial Post
TORONTO — A slowdown in Canada’s housing market will continue through 2013 and years of stagnation may follow, but no crash is likely because demographic trends will support demand in the medium term, a report by Scotiabank said on Monday.
The report by Canada’s third-largest bank said that home sales have already dropped more than 10% from spring 2012, with prices leveling off but not yet falling except in particularly hard-hit markets.
Housing, which slowed but did not crash as a result of the global financial crisis, helped sustain Canada’s economy through much of 2010 to 2012 but is now starting to slide just as the U.S. housing sector has begun a clear recovery.
Scotiabank said the housing slowdown will trim a quarter of a percentage point from Canada’s economic growth in 2013 and 2014, while the U.S. housing recovery is adding half a percentage point to annual growth rates there.
While Canadian home sales may continue to slump, the report said, prices will likely remain above year-ago levels until at least the second half of 2013, and will not drop as dramatically as they did in the United States.
Scotiabank senior economist Adrienne Warren said she expects a decline in prices of around 5% but that the drop will likely play out over the next couple of years rather than happen quickly.
She also said demographics, including steady immigration and the preference of baby boomers to remain in their homes, will support housing demand.
“Contrary to some dire predictions, population aging will not fuel a demographically induced sell-off in Canadian real estate. However, an aging population does point to a lower level of housing turnover, sales and listings,” Warren said in the report, the bank’s annual real estate outlook.
The report said today’s seniors are healthier, wealthier and living longer than previous generations, and attached to their homes, making them less likely to sell in a down market since many will not need to tap into their principal residence to finance retirement.
Warren said immigration, which adds some 250,000-300,000 people to Canada’s population every year, will increasingly be the dominant source of new household formation. And while immigrants typically rent on arrival in Canada, they seek home ownership after about five years and their rates of homeownership approach the 70% rate of native-born Canadians after 10 years.
Immigration is most likely to support house prices in big cities, Warren said. That should help put a floor under the market in Toronto and Vancouver, which had the hottest markets prior to the slowdown.
“Relative to their Canadian-born counterparts, immigrant households are more likely to reside in large and mid-sized urban centers, which could fuel relatively stronger housing demand and prices in those areas,” Warren said.
TORONTO — A slowdown in Canada’s housing market will continue through 2013 and years of stagnation may follow, but no crash is likely because demographic trends will support demand in the medium term, a report by Scotiabank said on Monday.
The report by Canada’s third-largest bank said that home sales have already dropped more than 10% from spring 2012, with prices leveling off but not yet falling except in particularly hard-hit markets.
Housing, which slowed but did not crash as a result of the global financial crisis, helped sustain Canada’s economy through much of 2010 to 2012 but is now starting to slide just as the U.S. housing sector has begun a clear recovery.
Scotiabank said the housing slowdown will trim a quarter of a percentage point from Canada’s economic growth in 2013 and 2014, while the U.S. housing recovery is adding half a percentage point to annual growth rates there.
While Canadian home sales may continue to slump, the report said, prices will likely remain above year-ago levels until at least the second half of 2013, and will not drop as dramatically as they did in the United States.
Scotiabank senior economist Adrienne Warren said she expects a decline in prices of around 5% but that the drop will likely play out over the next couple of years rather than happen quickly.
She also said demographics, including steady immigration and the preference of baby boomers to remain in their homes, will support housing demand.
“Contrary to some dire predictions, population aging will not fuel a demographically induced sell-off in Canadian real estate. However, an aging population does point to a lower level of housing turnover, sales and listings,” Warren said in the report, the bank’s annual real estate outlook.
The report said today’s seniors are healthier, wealthier and living longer than previous generations, and attached to their homes, making them less likely to sell in a down market since many will not need to tap into their principal residence to finance retirement.
Warren said immigration, which adds some 250,000-300,000 people to Canada’s population every year, will increasingly be the dominant source of new household formation. And while immigrants typically rent on arrival in Canada, they seek home ownership after about five years and their rates of homeownership approach the 70% rate of native-born Canadians after 10 years.
Immigration is most likely to support house prices in big cities, Warren said. That should help put a floor under the market in Toronto and Vancouver, which had the hottest markets prior to the slowdown.
“Relative to their Canadian-born counterparts, immigrant households are more likely to reside in large and mid-sized urban centers, which could fuel relatively stronger housing demand and prices in those areas,” Warren said.
Vancouver’s vacancies point to investors, not residents
Frances Bula
Nearly a quarter of condos in Vancouver are empty or occupied by non-residents in some dense areas of downtown, a signal that investors play a significant role in the city’s housing market.
And the city overall has a much higher rate of empty apartments and houses than other Canadian cities, with a rate closer to places like New York and San Francisco at the height of their mortgage crisis in 2010.
Downtown, the rate is so high that it’s as though there were 35 towers at 20 storeys apiece – empty.
That’s the latest discovery that adjunct UBC planning professor Andrew Yan made when he analyzed 2011 census numbers to try to add more information to the contentious debate over whether Vancouver is turning into a high-end resort or offshore investors’ holding tank.
He revealed those numbers Wednesday night, as a capacity crowd turned out to listen to speakers on a panel at SFU Woodward’s talk about “foreign investment in Vancouver real estate.”
In all, the city of Vancouver appears to have about 7,500 more vacant housing units than what would be expected in most other Canadian cities. For Metro Vancouver, there are around 15,000 to 20,000 more.
That sign of high vacancies and non-resident-owned units, which contradict some other studies and assurances that Vancouver is not being flooded with investors, should give the city pause, analysts say.
“What kind of community are you living in if there are that many empty? For a city to have that kind of vacancy, it’s like cancer,” said Richard Wozny, a real estate consultant, during an interview Wednesday. “It distorts density and it’s delaying the impact. It raises the question ‘Are we over-building?’”
Mr. Yan, who specified that it’s not possible to know exactly why so many apartments were empty, said data indicate Vancouver is creating neighbourhoods that appear to be very dense, but actually don’t have an active full-time population.
That gives a skewed picture of, for example, the amount of commercial activity they can support.
In Coal Harbour, where up to one in four condos is empty in the tower-dominated waterfront neighbourhood between Stanley Park and the downtown convention centre, the scattered shops in the area often struggle to stay in business. By contrast, the West End, which has a low rate of empty residential units, is bounded by three streets – Davie, Denman, and Robson – that are packed with busy small shops and restaurants.
Mr. Yan said that the high numbers of empty apartments don’t prove there’s a problem with foreign investors, but they do indicate that Vancouver has a large proportion of general investor buyers, be they offshore or Canadian.
Housing analyst Tsur Somerville, director of UBC’s Centre for Urban Economics and Real Estate, said the data he has seen also indicate that Vancouver built more housing in the 2006-2011 period than the number of new households that were added to the city’s ranks.
That means investors. There’s nothing wrong with that, as long as those units are occupied, said Mr. Somerville, also on the panel.
“The problem is vacant units since that’s demand for real estate without housing people.”
Mr. Yan’s analysis entailed isolating the census data on dwellings that showed up as either “unoccupied” or occupied “by a foreign resident and/or by temporarily present persons” on Census Day 2011, which was May 10.
“These units could be non-resident occupied because their occupants were just away for the Census Day, between rental tenants, or moving in a just-opened building, but there is also a chance that they are someone’s pied-à-terre, vacation home or empty investment holding,” observed Mr. Yan.
In the city of Vancouver, the rate of those kinds of dwellings stood at 7.7 per cent overall, with some parts of the downtown as high as 23 per cent. In the city of Toronto, the rate was 5.4 per cent; in Calgary, 5 per cent.
If Vancouver’s “non-resident” category had the same rate as Calgary’s, it would have had only about 16,500 empty units on Census Day – the level to be expected in a regular city, where some part of the housing stock is always going to be empty for one reason or another. Instead, more than 22,000 units showed up in that category. An analysis for the whole Lower Mainland shows that it has between 15,000 and 20,000 more empty units, proportionally, than the Calgary or Toronto metropolitan regions.
VANCOUVER — Special to The Globe and Mail
And the city overall has a much higher rate of empty apartments and houses than other Canadian cities, with a rate closer to places like New York and San Francisco at the height of their mortgage crisis in 2010.
Downtown, the rate is so high that it’s as though there were 35 towers at 20 storeys apiece – empty.
That’s the latest discovery that adjunct UBC planning professor Andrew Yan made when he analyzed 2011 census numbers to try to add more information to the contentious debate over whether Vancouver is turning into a high-end resort or offshore investors’ holding tank.
He revealed those numbers Wednesday night, as a capacity crowd turned out to listen to speakers on a panel at SFU Woodward’s talk about “foreign investment in Vancouver real estate.”
In all, the city of Vancouver appears to have about 7,500 more vacant housing units than what would be expected in most other Canadian cities. For Metro Vancouver, there are around 15,000 to 20,000 more.
That sign of high vacancies and non-resident-owned units, which contradict some other studies and assurances that Vancouver is not being flooded with investors, should give the city pause, analysts say.
“What kind of community are you living in if there are that many empty? For a city to have that kind of vacancy, it’s like cancer,” said Richard Wozny, a real estate consultant, during an interview Wednesday. “It distorts density and it’s delaying the impact. It raises the question ‘Are we over-building?’”
Mr. Yan, who specified that it’s not possible to know exactly why so many apartments were empty, said data indicate Vancouver is creating neighbourhoods that appear to be very dense, but actually don’t have an active full-time population.
That gives a skewed picture of, for example, the amount of commercial activity they can support.
In Coal Harbour, where up to one in four condos is empty in the tower-dominated waterfront neighbourhood between Stanley Park and the downtown convention centre, the scattered shops in the area often struggle to stay in business. By contrast, the West End, which has a low rate of empty residential units, is bounded by three streets – Davie, Denman, and Robson – that are packed with busy small shops and restaurants.
Mr. Yan said that the high numbers of empty apartments don’t prove there’s a problem with foreign investors, but they do indicate that Vancouver has a large proportion of general investor buyers, be they offshore or Canadian.
Housing analyst Tsur Somerville, director of UBC’s Centre for Urban Economics and Real Estate, said the data he has seen also indicate that Vancouver built more housing in the 2006-2011 period than the number of new households that were added to the city’s ranks.
That means investors. There’s nothing wrong with that, as long as those units are occupied, said Mr. Somerville, also on the panel.
“The problem is vacant units since that’s demand for real estate without housing people.”
Mr. Yan’s analysis entailed isolating the census data on dwellings that showed up as either “unoccupied” or occupied “by a foreign resident and/or by temporarily present persons” on Census Day 2011, which was May 10.
“These units could be non-resident occupied because their occupants were just away for the Census Day, between rental tenants, or moving in a just-opened building, but there is also a chance that they are someone’s pied-à-terre, vacation home or empty investment holding,” observed Mr. Yan.
In the city of Vancouver, the rate of those kinds of dwellings stood at 7.7 per cent overall, with some parts of the downtown as high as 23 per cent. In the city of Toronto, the rate was 5.4 per cent; in Calgary, 5 per cent.
If Vancouver’s “non-resident” category had the same rate as Calgary’s, it would have had only about 16,500 empty units on Census Day – the level to be expected in a regular city, where some part of the housing stock is always going to be empty for one reason or another. Instead, more than 22,000 units showed up in that category. An analysis for the whole Lower Mainland shows that it has between 15,000 and 20,000 more empty units, proportionally, than the Calgary or Toronto metropolitan regions.
Where do mortgage rates go from here?
Garry Marr
More from Garry Marr
More from Garry Marr
They can’t go lower, can they? And what if mortgage rates start to climb? Could that be the last straw for the housing market?
It’s tough to make a pan-Canadian call on where real estate will land in 2013. The Prairie provinces seemed posed to avoid the downturn, but sales are starting to fall in many markets with a price dip happening already or predicted to be on the horizon.
All this is happening with five-year fixed closed mortgage rates below 3%, even at some of the big banks. The 10-year mortgage, still not popular with Canadians, is down to 3.64%.
We think rates have to get to more normal levels
It’s not a stretch to think the rate on both of those terms will climb two percentage points. And what of the prime lending rate? It’s still 3% but tied to the Bank of Canada, which has been threatening to raise rates for months.
Rates could also go lower but one problem might be an antagonistic finance minister in Jim Flaherty who keeps warning the banks not to get into a so-called “mortgage war” by lowering rates.
This month Manulife Bank buckled under pressure from the Department of Finance and raised its 2.89% five-year fixed rate closed mortgage back up to 3.09% because of government concern.
“We think rates have to get to more normal levels,” said Craig Wright, chief economist with the Royal Bank of Canada, which said in a February report that one of the reasons home ownership has remained affordable is those low rates.
The bank’s affordability index shows the proportion of pre-tax household income required to service the cost of a mortgage, property taxes and utilities. On a two-storey home, it reached 47.8% in the fourth quarter of last year, but that was down 0.3 percentage points from a quarter earlier.
Mr. Wright said as rates have dropped, consumers have been moving into five-year mortgages at a faster pace and that will likely continue if the fear is they are going to rise. That’s a generally positive development because it means only a portion of five-year mortgages come due every year, so any interest rate shock is slowly worked into the market.
The real battle remains for first-time buyers. They already face tougher rules on eligibility for mortgages. They can only amortize over 25 years if they have mortgage default insurance, something required with less than a 20% downpayment.
That shorter amortization means higher monthly mortgage payments and ultimately qualifying for a smaller loan. A spike in interest rates would just push the first-time buyer further out of the market.
“Across Canada in many parts housing is still affordable,” said Mr. Wright. “A couple of markets, those that were looking stretched — Toronto and Vancouver — are starting to correct, and that’s not a bad news story as long as it’s a cooling and not a collapsing.”
Phil Soper, the chief executive of Royal LePage Residential Services, says he does see a decline in prices coming in the third quarter of 2013 but for the most part interest rates are offering some protection.
“It’s very difficult to conceive of a sharp downturn in this market when mortgage rates are so low,” said Mr. Soper. “There is absolutely no sociological change in people’s desires to own homes, young people want to be part of the 70% of Canadians who own homes.”
The price decline he predicts is a national number, meaning some local markets will probably need those low mortgage rates as they try to recover from a steeper downturn.
“With interest rates the way they are today, much of the correction in the Vancouver market will have worked its way through,” said Mr. Soper. “When people see a small opportunity, they leap in, particularly with mortgage rates where they are now.”
Martin Reid, president of Home Capital Group Inc., said while rates remain low, new guidelines from the office of superintendent of financial institutions have had a bigger impact. Among the key changes has been a restriction on home equity lines of credit being no more than 65% of the value of a home.
“There has been some scrambling to restructure products,” said Mr. Reid. “[OFSI] didn’t want 80% HELOCs that were really only loans [where you paid the interest].”
In some ways, the consumer has grown accustomed to low rates because housing has been slowing spite of the discounts.
“It was already slowing down [before the mortgage] rule changes,” said Mr. Reid. “The low rates help but employment has helped too. It may not be stellar but it is holding people in. People are working, people are still buying their homes, making their payments. Debt levels have been increasing so that risk is elevated but they are able to service that debt.”
His company isn’t forecasting rates to go up but even if they do, the increases are expected to be modest and occur gradually.
“A rapid rise in rates might be the concern,” said Mr. Reid. “That concern is off the table for now.”
Kelvin Mangaroo, president of ratesupermarket.ca, laughs when he thinks about rates going down even more.
“Over the past year, we’ve kept saying it can’t go any lower, it can’t go any lower,” he said. “Sometimes you break a certain barrier.”
The latest mortgage rate outlet panel he conducted with some experts in the industry came to the conclusion that fixed rates are got going to be moving very much in the near future.
“I think what that means is it offsets what we have seen with house sales going down,” said Mr. Mangaroo. “People still think they can afford their houses because interest rates are at an all-time low.”
He cautions that people really need to plan for a rainy day when rates will go up and that means having enough money to cover a mortgage based on that higher payment.
“We are already seeing some declines [in sales and prices] in some markets,” said Mr. Mangaroo.
What would happen if interest rates were actually to go up? He has no doubt.
“I think it would be the nail in the coffin,” said Mr. Mangaroo, adding he doesn’t see any rate hikes coming this year. “The Bank of Canada doesn’t want to do anything that would hinder the economy right now.”
Monday 25 March 2013
Why homebuyers should go short on amortizations
David Stewart-Patterson, Special to Financial Post
Both variable and five-year mortgages are now available for less than 3 per cent. Those low rates won’t last forever, and there’s a simple way to protect yourself against rising rates and save money at the same time.
Finance Minister Jim Flaherty had the right idea last year when he tightened the rules for mortgage insurance by cutting the maximum amortization from 30 years to 25.
Critics argued that because this measure boosted the minimum monthly payment for an insured mortgage, many Canadians who would have bought homes could no longer qualify – and have blamed this change for the subsequent slowdown in real estate markets.
But all Canadians planning to take advantage of today’s low rates to buy a home or renew a mortgage would be wise to follow Flaherty’s lead – and go a step further by opting for an even shorter amortization.
Let’s look at the numbers. According to the Canadian Real Estate Association, the average price of a home sold in Canada in February was $368,895. If we assume a moderate down payment of close to 20 per cent, that would mean a $300,000 mortgage.
A variable-rate mortgage at 3 per cent interest with a 25-year amortization would have monthly payments of $1,423. If instead you aim to pay off the mortgage in 20 years, the monthly payment jumps to $1,663, an increase of $240. (All numbers are generated by RBC Royal Bank’s online mortgage calculator).
Can’t afford it? Look at what happens if you stretch that 3 per cent mortgage over 25 years, and then have to renew at 4.5 per cent. Your new monthly payment becomes $1,667.
In other words, if you shorten the amortization by five years now, you can take comfort in knowing that you will still qualify on renewal even if rates go up by 1.5 percentage points.
You’re also going to save a lot of money over time if rates stay low. The total cost of interest on a 3 per cent mortgage paid off in 25 years is $126,789. If you pay it off in 20 years, the cost drops to $99,310.
Let’s take this to an extreme. What happens if you cut your amortization to just 15 years? Even at 3 per cent, the monthly payment jumps to $2,072.
But if you can afford that, you are safe against rates going as high as 6.75 per cent. That’s when a 25-year mortgage would hit monthly payments of $2,073. And by taking on that payment right away, you could save almost $54,000 in total interest costs if rates stay low.
It’s true that if you lock in a 3 per cent rate for five years, you’ll have a smaller balance when it comes time to renew. But at a 25-year amortization, you’ll pay off less than 15 per cent of the principal in the first five years.
And a lot can happen to interest rates in that time. Even within the past decade, the prime rate (which drives variable-rate mortgages) rose by as much as 1.75 percentage points in less than one year, between August 2005 and May 2006. Term mortgage rates have varied even more.
Last year’s decision to cut the maximum insurable amortization from 30 years to 25 simply protected Canadians against the risk of losing their homes over a single percentage point increase in rates. If you’re buying or renewing this year, save money and reduce your risk by cutting your amortization as much as you can afford.
David Stewart-Patterson is vice-president, public policy at The Conference Board of Canada, and once paid 20.25% for a mortgage.
Both variable and five-year mortgages are now available for less than 3 per cent. Those low rates won’t last forever, and there’s a simple way to protect yourself against rising rates and save money at the same time.
Finance Minister Jim Flaherty had the right idea last year when he tightened the rules for mortgage insurance by cutting the maximum amortization from 30 years to 25.
Critics argued that because this measure boosted the minimum monthly payment for an insured mortgage, many Canadians who would have bought homes could no longer qualify – and have blamed this change for the subsequent slowdown in real estate markets.
But all Canadians planning to take advantage of today’s low rates to buy a home or renew a mortgage would be wise to follow Flaherty’s lead – and go a step further by opting for an even shorter amortization.
Let’s look at the numbers. According to the Canadian Real Estate Association, the average price of a home sold in Canada in February was $368,895. If we assume a moderate down payment of close to 20 per cent, that would mean a $300,000 mortgage.
A variable-rate mortgage at 3 per cent interest with a 25-year amortization would have monthly payments of $1,423. If instead you aim to pay off the mortgage in 20 years, the monthly payment jumps to $1,663, an increase of $240. (All numbers are generated by RBC Royal Bank’s online mortgage calculator).
Can’t afford it? Look at what happens if you stretch that 3 per cent mortgage over 25 years, and then have to renew at 4.5 per cent. Your new monthly payment becomes $1,667.
In other words, if you shorten the amortization by five years now, you can take comfort in knowing that you will still qualify on renewal even if rates go up by 1.5 percentage points.
You’re also going to save a lot of money over time if rates stay low. The total cost of interest on a 3 per cent mortgage paid off in 25 years is $126,789. If you pay it off in 20 years, the cost drops to $99,310.
Let’s take this to an extreme. What happens if you cut your amortization to just 15 years? Even at 3 per cent, the monthly payment jumps to $2,072.
But if you can afford that, you are safe against rates going as high as 6.75 per cent. That’s when a 25-year mortgage would hit monthly payments of $2,073. And by taking on that payment right away, you could save almost $54,000 in total interest costs if rates stay low.
It’s true that if you lock in a 3 per cent rate for five years, you’ll have a smaller balance when it comes time to renew. But at a 25-year amortization, you’ll pay off less than 15 per cent of the principal in the first five years.
And a lot can happen to interest rates in that time. Even within the past decade, the prime rate (which drives variable-rate mortgages) rose by as much as 1.75 percentage points in less than one year, between August 2005 and May 2006. Term mortgage rates have varied even more.
Last year’s decision to cut the maximum insurable amortization from 30 years to 25 simply protected Canadians against the risk of losing their homes over a single percentage point increase in rates. If you’re buying or renewing this year, save money and reduce your risk by cutting your amortization as much as you can afford.
David Stewart-Patterson is vice-president, public policy at The Conference Board of Canada, and once paid 20.25% for a mortgage.
Friday 22 March 2013
Mortgage shopping has never been easier — so what’s stopping you?
Garry Marr, The Financial Post
Savings are basic once you are armed with information about the best rate and the best product. It has never been easier thanks to the Internet.
Google says it saw a 50% jump in the number of people using the term mortgage after one of the major banks announced it was cutting its five-year posted rate 10 basis point to 2.99%.
David Resnick, head of industry and financial services for Google Canada, says consumers actually start ramping up their search engines in January when they begin thinking about buying.
“We are seeing relatively similar volumes in mortgages that we saw last January,” said Mr. Resnick. “Whether it translates into home sales will depend on market forces but there is pent-up demand for housing based on what consumers are searching.”
The searching can yield some considerable savings, based on a recent study of the Canadian Association of Accredited Mortgage Professionals. It found the average consumer was saving 1.85 percentage points on a five-year mortgage in 2012.
In real dollars what does it mean? Consider a $500,000 five-year mortgage at 3% versus say 4.85%.
At 3% your monthly payment is $2,366.23 and your total interest over the term would be $69,346.66. Bump it up to 4.85% and the monthly rate goes to $2,865.48 and the total interest moves to $113,415.89.
Is there any reason to take the posted rate today, if you have an Internet connection?
CAAMP’s data shows first-time buyers get the need to shop around. The group’s annual survey found 47% of people who took out a new mortgage in 2012 used a broker.
“I think there is a whole generational thing that is happening with first-time buyers [using a broker],” said Jim Murphy, the chief executive of CAAMP.
But as educated as consumers have become, somehow that all goes out the window when it’s time to renew a mortgage. The same CAAMP survey found only 27% of consumers renewing a mortgage consulted a broker in 2012 – a percentage on the rise but still woeful when one considers the lost savings.
“They get something in the mail from the local lender six months before renewal telling them they are happy to offer you their best rate. Most of those people should be shopping around, a lot do but as your mortgage gets smaller, a quarter point doesn’t make a huge difference,” said Mr. Murphy.
That might be true as you whittle your mortgage down over time but by the time you get to your second mortgage, unless you’ve been making accelerated or lump sum payments, there is still much to be gained by shopping.
To go back to that $500,000, if you just make that monthly payment even at a 3% interest after five years you’ll be looking at signing a new mortgage for $427,372.86. Renewing at the posted rate for another five years would costs you more than $35,000 in interest over the next five years based on that 1.85 percentage point gap.
John Andrew, a professor at Queen’s University who specializes in real estate, says so much is negotiable in the mortgage sector, anybody not trying is missing out.
“I used a mortgage broker. Sure, they get paid by the lender and they have incentive to do business with certain companies over others but they are shopping around for you,” said Mr. Andrew. “They can probably get you a better rate than you can for yourself.”
He thinks while the Internet has helped people with negotiation, most are still scared to shop around. Mr. Andrew notes it is not just about rates but also the rules within the mortgage contract like the ability to make extra payments.
The key is to shop around. Not just on your first mortgage but every mortgage. That’s something Canadians still must learn.
Is there any reason to take the posted rate today, if you have an Internet connection?Canadians may finally be grasping the obvious when it comes to how to get the best mortgage rate. Shop around.
Savings are basic once you are armed with information about the best rate and the best product. It has never been easier thanks to the Internet.
Google says it saw a 50% jump in the number of people using the term mortgage after one of the major banks announced it was cutting its five-year posted rate 10 basis point to 2.99%.
David Resnick, head of industry and financial services for Google Canada, says consumers actually start ramping up their search engines in January when they begin thinking about buying.
“We are seeing relatively similar volumes in mortgages that we saw last January,” said Mr. Resnick. “Whether it translates into home sales will depend on market forces but there is pent-up demand for housing based on what consumers are searching.”
The searching can yield some considerable savings, based on a recent study of the Canadian Association of Accredited Mortgage Professionals. It found the average consumer was saving 1.85 percentage points on a five-year mortgage in 2012.
In real dollars what does it mean? Consider a $500,000 five-year mortgage at 3% versus say 4.85%.
At 3% your monthly payment is $2,366.23 and your total interest over the term would be $69,346.66. Bump it up to 4.85% and the monthly rate goes to $2,865.48 and the total interest moves to $113,415.89.
Is there any reason to take the posted rate today, if you have an Internet connection?
CAAMP’s data shows first-time buyers get the need to shop around. The group’s annual survey found 47% of people who took out a new mortgage in 2012 used a broker.
“I think there is a whole generational thing that is happening with first-time buyers [using a broker],” said Jim Murphy, the chief executive of CAAMP.
But as educated as consumers have become, somehow that all goes out the window when it’s time to renew a mortgage. The same CAAMP survey found only 27% of consumers renewing a mortgage consulted a broker in 2012 – a percentage on the rise but still woeful when one considers the lost savings.
“They get something in the mail from the local lender six months before renewal telling them they are happy to offer you their best rate. Most of those people should be shopping around, a lot do but as your mortgage gets smaller, a quarter point doesn’t make a huge difference,” said Mr. Murphy.
That might be true as you whittle your mortgage down over time but by the time you get to your second mortgage, unless you’ve been making accelerated or lump sum payments, there is still much to be gained by shopping.
To go back to that $500,000, if you just make that monthly payment even at a 3% interest after five years you’ll be looking at signing a new mortgage for $427,372.86. Renewing at the posted rate for another five years would costs you more than $35,000 in interest over the next five years based on that 1.85 percentage point gap.
John Andrew, a professor at Queen’s University who specializes in real estate, says so much is negotiable in the mortgage sector, anybody not trying is missing out.
“I used a mortgage broker. Sure, they get paid by the lender and they have incentive to do business with certain companies over others but they are shopping around for you,” said Mr. Andrew. “They can probably get you a better rate than you can for yourself.”
He thinks while the Internet has helped people with negotiation, most are still scared to shop around. Mr. Andrew notes it is not just about rates but also the rules within the mortgage contract like the ability to make extra payments.
The key is to shop around. Not just on your first mortgage but every mortgage. That’s something Canadians still must learn.
Brokers pursue mortgage break for first-time home buyers
Tara Perkins, The Globe and Mail
Mortgage brokers are pressing the federal government to make it easier for young people to buy their first homes, just as the spring sales season descends and Ottawa prepares its next budget.
Jim Murphy, the head of the Canadian Association of Accredited Mortgage Professionals, recently met with finance department officials in a bid to convince them that their efforts to cool the housing market have gone too far, especially when it comes to the impact on first-time buyers.
“March, April and May are the most important months for both new sales and re-sales,” said Mr. Murphy. “And the market is slowing.”
The government has deliberately taken measures to cool the growth of house prices and mortgage debt levels four times since the financial crisis, amid fears that it was heating up too quickly.
The most recent measures, which took effect in July, included chopping the maximum length of insured mortgages to 25 years from 30. All other things being equal, a shorter mortgage means higher monthly payments for the borrower.
Mr. Murphy and a number of other industry players say this rule change, coupled with stiffer lending guidelines that regulators have imposed on the banks, have made it too difficult for young people to enter the housing market at a time when prices remain high. While sales have dropped significantly in the wake of the July rule changes, prices have yet to follow suit.
Now Mr. Murphy is asking the government to resume its backing for insurance on 30-year mortgages, as long as the buyer can prove they could qualify for a 25-year mortgage. He is also pushing for an increase to the $750 tax break that first-time buyers receive.
The Finance Department declined to comment, but it is unlikely that Ottawa will take any such steps right now. Finance Minister Jim Flaherty signalled this year that he was pleased with the impact his changes have had so far, and wouldn’t mind seeing house prices come down.
And he took Bank of Montreal to task last week for its decision to cut the advertised price of its five-year fixed-rate mortgages from 3.09 per cent to 2.99 per cent (lower rates are available in the market, but that was the lowest posted five-year fixed rate among the largest banks), indicating that he continues to be worried about consumers racking up too much mortgage debt and inflating house prices.
Indeed, he went so far Friday as to pat other banks on the back for not following suit by dropping their posted five-year rates to such levels (customers can negotiate with banks and obtain discounts from the posted or advertised rates).
Some economists, such as Canadian Imperial Bank of Commerce’s Benjamin Tal, are cautioning that the housing market could rebound more quickly and to a greater degree than expected this spring after months of slumping sales. And the point at which consumer debt levels are likely to become a real issue for the economy is when interest rates finally begin to rise.
Phil Soper, the chief executive of real estate agency Royal LePage, supported Mr. Flaherty’s three earlier interventions in the market, agreeing it had become overheated, but thought the changes in July went too far and made it unnecessarily difficult for first-time buyers.
However, he suggested that, eight months on, the damage has been done, and so he is not pressing Mr. Flaherty to create new incentives for first-time buyers right now. The government might as well save those for when interest rates rise, he suggested.
“There is not an overwhelming cause from a public policy standpoint to provide further assistance to young people who want to own their own homes,” Mr. Soper said. “I think that might come, and we might be talking about that in a couple of years as it becomes more difficult for them.”
Mortgage brokers are pressing the federal government to make it easier for young people to buy their first homes, just as the spring sales season descends and Ottawa prepares its next budget.
Jim Murphy, the head of the Canadian Association of Accredited Mortgage Professionals, recently met with finance department officials in a bid to convince them that their efforts to cool the housing market have gone too far, especially when it comes to the impact on first-time buyers.
“March, April and May are the most important months for both new sales and re-sales,” said Mr. Murphy. “And the market is slowing.”
The government has deliberately taken measures to cool the growth of house prices and mortgage debt levels four times since the financial crisis, amid fears that it was heating up too quickly.
The most recent measures, which took effect in July, included chopping the maximum length of insured mortgages to 25 years from 30. All other things being equal, a shorter mortgage means higher monthly payments for the borrower.
Mr. Murphy and a number of other industry players say this rule change, coupled with stiffer lending guidelines that regulators have imposed on the banks, have made it too difficult for young people to enter the housing market at a time when prices remain high. While sales have dropped significantly in the wake of the July rule changes, prices have yet to follow suit.
Now Mr. Murphy is asking the government to resume its backing for insurance on 30-year mortgages, as long as the buyer can prove they could qualify for a 25-year mortgage. He is also pushing for an increase to the $750 tax break that first-time buyers receive.
The Finance Department declined to comment, but it is unlikely that Ottawa will take any such steps right now. Finance Minister Jim Flaherty signalled this year that he was pleased with the impact his changes have had so far, and wouldn’t mind seeing house prices come down.
And he took Bank of Montreal to task last week for its decision to cut the advertised price of its five-year fixed-rate mortgages from 3.09 per cent to 2.99 per cent (lower rates are available in the market, but that was the lowest posted five-year fixed rate among the largest banks), indicating that he continues to be worried about consumers racking up too much mortgage debt and inflating house prices.
Indeed, he went so far Friday as to pat other banks on the back for not following suit by dropping their posted five-year rates to such levels (customers can negotiate with banks and obtain discounts from the posted or advertised rates).
Some economists, such as Canadian Imperial Bank of Commerce’s Benjamin Tal, are cautioning that the housing market could rebound more quickly and to a greater degree than expected this spring after months of slumping sales. And the point at which consumer debt levels are likely to become a real issue for the economy is when interest rates finally begin to rise.
Phil Soper, the chief executive of real estate agency Royal LePage, supported Mr. Flaherty’s three earlier interventions in the market, agreeing it had become overheated, but thought the changes in July went too far and made it unnecessarily difficult for first-time buyers.
However, he suggested that, eight months on, the damage has been done, and so he is not pressing Mr. Flaherty to create new incentives for first-time buyers right now. The government might as well save those for when interest rates rise, he suggested.
“There is not an overwhelming cause from a public policy standpoint to provide further assistance to young people who want to own their own homes,” Mr. Soper said. “I think that might come, and we might be talking about that in a couple of years as it becomes more difficult for them.”
The Majority Find Mortgages Stressful
Rob McLister, CMT, CanadianMortgageTrend.com
Two-thirds of Canadians do not find getting a mortgage to be straightforward.
And only 7% consider the mortgage process “stress-free.”
Those findings come from a new ING Direct/Angus Reid poll released this week.
The most stressful parts, according to survey participants, are:
So, how do you simplify the process?
There are two main ways to seek out the optimal financing:
1. Contact numerous lenders yourself and ask all the right questions.
2. Engage a professional broker (or brokers) to do the heavy lifting and compare options for you.
But, remember three things:
In general, if:
Sidebar: Among current and former mortgage holders:
Survey Details: On February 27, 2013, this survey was conducted online among a sample of 1,519 Canadian adults who are Angus Reid Forum panel members. The margin of error — which measures sampling variability — is +/- 2.5%, 19 times out of 20. The sample was balanced by age, gender and region according to the most recent census data.
Two-thirds of Canadians do not find getting a mortgage to be straightforward.
And only 7% consider the mortgage process “stress-free.”
Those findings come from a new ING Direct/Angus Reid poll released this week.
The most stressful parts, according to survey participants, are:
- Negotiating a rate (59%)
- Deciding on the right term and payment schedule (55%)
- Getting customer service help from the lender (35%)
So, how do you simplify the process?
There are two main ways to seek out the optimal financing:
1. Contact numerous lenders yourself and ask all the right questions.
2. Engage a professional broker (or brokers) to do the heavy lifting and compare options for you.
But, remember three things:
- You can’t rely on a lender to provide objective information about competing products.
- It’s often the mortgage questions you don’t ask (specifically about the mortgage contract) that come back to bite you.
- Brokers don’t sell mortgages from all sources and may favour certain lenders.
In general, if:
a. You’re within 5-10 basis points of the best rate (for your chosen term and mortgage type), and…then you’ve done pretty well for yourself.
b. The mortgage’s flexibility matches your 5- to 10-year plans, and
c. The mortgage doesn’t come with needless restrictions…
Sidebar: Among current and former mortgage holders:
- 34% said lenders provided the most help when obtaining a mortgage
- 20% said brokers provided the most help
- 13% cited family and friends.
Survey Details: On February 27, 2013, this survey was conducted online among a sample of 1,519 Canadian adults who are Angus Reid Forum panel members. The margin of error — which measures sampling variability — is +/- 2.5%, 19 times out of 20. The sample was balanced by age, gender and region according to the most recent census data.
Wednesday 20 March 2013
Despite Challenges, Canada's Generation Y Still Plan to Own Homes, According to Royal LePage National Survey
New mortgage regulations and current home prices seen as obstacles by Generation Y
TORONTO, March 20, 2013 /CNW/ - Although there are genuine hurdles to owning a home for Canadians, a new Royal LePage Real Estate survey shows that Generation Y (born between 1980 and 1994) and Baby Boomers (born between 1947 and 1966) still strongly desire a house of their own.
The survey conducted by Leger Marketing found that four-in-five (80.9 per cent) of the Generation Y sample indicated that they have plans to move to another primary residence at some point in the future, with significant proportion (39 per cent) stating that they have a move planned at some point in the next two years. Baby Boomers were less interested in moving, with 56.6 per cent stating that they currently have no plans to move to another residence.
"Baby Boomers have built homes for themselves. They are established in their neighbourhoods and their residences have become a place of happiness for family and friends," said Phil Soper, CEO of Royal LePage Real Estate. "It's their children that are seeking to create a similar atmosphere of their own, even though new impediments exist for this younger generation."
While Generation Y is more likely to rent their primary residence at this stage in their lives, they do not see this as desirable long-term solution. An overwhelming 85.7 per cent disagreed with the statement that "I do not desire to own a property in my lifetime as renting is preferable to me," including 90.5 per cent of Quebecers. British Columbians in the same age group were among the most open to renting, with one-in-five (21.4 per cent) saying they prefer renting over home ownership.
Of those who are planning a move, 55.1 per cent of Generation Y and 60.1 per cent of Baby Boomers intend to purchase their next primary residence. While the majority prefers to purchase their next home, a sizeable proportion of Generation Y (32.6 per cent) says they plan to rent. When examined regionally, there are some interesting divergences in intentions on buying versus renting. For instance, Generation Y in the Prairies and Quebec (62.6 and 61.3 per cent, respectively) intend to purchase their next primary residence. On the other hand, British Columbians in the same age group are less likely to become home buyers, with 38.3 per cent stating that they intend to rent their next primary residence.
Regardless of intent to move or not, Canadians remain confident in the sturdiness of the real estate market. Trust in the value of real estate remains very high amongst Canadians young and old. The majority of respondents from both groups stated that they see real estate as a sound investment, including 80.3 per cent of Generation Y and 88.7 per cent of Baby Boomers. Only approximately one-in-ten (8.5 per cent and 12.8 per cent, respectively) from either group did not believe that real estate was a sound investment.
"Across locations and ages, Canadians are investing in their future and they see value in real estate," said Soper.
While interest in home ownership remains high, potential home buyers from Generation Y face a number of regulatory and financial barriers. For instance, the survey found discontent among Generation Y about recent changes made to mortgage rules. Just under half of respondents (45.8 per cent) said that the new rules will affect their ability to purchase a home to some or a large extent. A much smaller proportion (20.8 per cent) of Baby Boomers was concerned about the effect of the recent regulatory changes to mortgages.
Home affordability was also seen by many as a major challenge standing in the way of home ownership by both Generation Y and Baby Boomers. When asked, 72.4 per cent of Generation Y and 67.8 per cent of Baby Boomers agreed with the statement "I desire to own a property in my lifetime, but I am pessimistic about my ability to own a home because of the current house price affordability." British Columbians of Generation Y were particularly pessimistic, with 86.1 per cent agreeing with this statement. Quebecers were more optimistic with 39.9 per cent disagreeing with this statement.
Down payments on real estate also represent a challenge to Generation Y homebuyers, many of whom are entering the real estate market for the first time. Almost two-thirds (63.8 per cent) of Generation Y respondents plan to put down less than 20 per cent as a down payment on a new property. The majority of funds for down payments from Generation Y homebuyers (an average of 67 per cent) will come from a combination of savings, RRSP contributions and gifts from family. On average only 27 per cent of the funds for a Generation Y down payment will come from a sale of the current residence. The trend is opposite for Baby Boomers, where almost three-quarters (73 per cent) of their down payment will come from the sale of their current residence.
Methodology
The survey was completed online using Leger Marketing's online panel, LegerWeb, between September 13th and September 21st, 2012 with a sample of 1,013 Canadians born between the years 1980 and 1994 (Generation Y) and 1,011 Canadians born between the years 1947 and 1966 (Boomers). A probability sample of the same size would yield a margin of error of ± 3.08 per cent, 19 times out of 20, for each respective sample.
About Royal LePage
Serving Canadians since 1913, Royal LePage is the country's leading provider of services to real estate brokerages, with a network of 14,000 real estate professionals in over 600 locations nationwide. Royal LePage is the only Canadian real estate company to have its own charitable foundation, the Royal LePage Shelter Foundation, dedicated to supporting women's and children's shelters and educational programs aimed at ending domestic violence. Royal LePage is a Brookfield Real Estate Services Inc. company, a TSX-listed corporation trading under the symbol TSX:BRE.
For more information, visit www.royallepage.ca.
SOURCE: Royal LePage Real Estate Services
TORONTO, March 20, 2013 /CNW/ - Although there are genuine hurdles to owning a home for Canadians, a new Royal LePage Real Estate survey shows that Generation Y (born between 1980 and 1994) and Baby Boomers (born between 1947 and 1966) still strongly desire a house of their own.
The survey conducted by Leger Marketing found that four-in-five (80.9 per cent) of the Generation Y sample indicated that they have plans to move to another primary residence at some point in the future, with significant proportion (39 per cent) stating that they have a move planned at some point in the next two years. Baby Boomers were less interested in moving, with 56.6 per cent stating that they currently have no plans to move to another residence.
"Baby Boomers have built homes for themselves. They are established in their neighbourhoods and their residences have become a place of happiness for family and friends," said Phil Soper, CEO of Royal LePage Real Estate. "It's their children that are seeking to create a similar atmosphere of their own, even though new impediments exist for this younger generation."
While Generation Y is more likely to rent their primary residence at this stage in their lives, they do not see this as desirable long-term solution. An overwhelming 85.7 per cent disagreed with the statement that "I do not desire to own a property in my lifetime as renting is preferable to me," including 90.5 per cent of Quebecers. British Columbians in the same age group were among the most open to renting, with one-in-five (21.4 per cent) saying they prefer renting over home ownership.
Of those who are planning a move, 55.1 per cent of Generation Y and 60.1 per cent of Baby Boomers intend to purchase their next primary residence. While the majority prefers to purchase their next home, a sizeable proportion of Generation Y (32.6 per cent) says they plan to rent. When examined regionally, there are some interesting divergences in intentions on buying versus renting. For instance, Generation Y in the Prairies and Quebec (62.6 and 61.3 per cent, respectively) intend to purchase their next primary residence. On the other hand, British Columbians in the same age group are less likely to become home buyers, with 38.3 per cent stating that they intend to rent their next primary residence.
Regardless of intent to move or not, Canadians remain confident in the sturdiness of the real estate market. Trust in the value of real estate remains very high amongst Canadians young and old. The majority of respondents from both groups stated that they see real estate as a sound investment, including 80.3 per cent of Generation Y and 88.7 per cent of Baby Boomers. Only approximately one-in-ten (8.5 per cent and 12.8 per cent, respectively) from either group did not believe that real estate was a sound investment.
"Across locations and ages, Canadians are investing in their future and they see value in real estate," said Soper.
While interest in home ownership remains high, potential home buyers from Generation Y face a number of regulatory and financial barriers. For instance, the survey found discontent among Generation Y about recent changes made to mortgage rules. Just under half of respondents (45.8 per cent) said that the new rules will affect their ability to purchase a home to some or a large extent. A much smaller proportion (20.8 per cent) of Baby Boomers was concerned about the effect of the recent regulatory changes to mortgages.
Home affordability was also seen by many as a major challenge standing in the way of home ownership by both Generation Y and Baby Boomers. When asked, 72.4 per cent of Generation Y and 67.8 per cent of Baby Boomers agreed with the statement "I desire to own a property in my lifetime, but I am pessimistic about my ability to own a home because of the current house price affordability." British Columbians of Generation Y were particularly pessimistic, with 86.1 per cent agreeing with this statement. Quebecers were more optimistic with 39.9 per cent disagreeing with this statement.
Down payments on real estate also represent a challenge to Generation Y homebuyers, many of whom are entering the real estate market for the first time. Almost two-thirds (63.8 per cent) of Generation Y respondents plan to put down less than 20 per cent as a down payment on a new property. The majority of funds for down payments from Generation Y homebuyers (an average of 67 per cent) will come from a combination of savings, RRSP contributions and gifts from family. On average only 27 per cent of the funds for a Generation Y down payment will come from a sale of the current residence. The trend is opposite for Baby Boomers, where almost three-quarters (73 per cent) of their down payment will come from the sale of their current residence.
| Royal LePage Baby Boomer and Generation Y Survey | ||
| Generation Y (1980 - 1994) | Baby Boomers (1947 - 1966) | |
| Do you plan to purchase or rent your next primary residence? | ||
| Purchase | 55.1% | 60.1% |
| Rent | 32.6% | 18.0% |
| Other | 0.8% | 3.2% |
| Don't know | 11.5% | 18.7% |
| To what extent have the new mortgage rules affected your ability to purchase a home? | ||
| To a large extent | 12.5% | 6.9% |
| To some extent | 33.3% | 13.9% |
| To a little extent | 17.4% | 9.4% |
| To no extent at all | 14.0% | 65.8% |
| I don't know/prefer not to answer | 22.8% | 4.0% |
| How strongly do you agree or disagree with this statement? "I desire to own a property in my lifetime, but I am pessimistic about my ability to own a home because of current house price affordability." | ||
| Strongly disagree | 7.4% | 12.3% |
| Somewhat disagree | 16.4% | 13.9% |
| Somewhat agree | 44.2% | 36.4% |
| Strongly agree | 28.3% | 31.4% |
| I don't know/prefer not to answer | 3.8% | 6.0% |
Methodology
The survey was completed online using Leger Marketing's online panel, LegerWeb, between September 13th and September 21st, 2012 with a sample of 1,013 Canadians born between the years 1980 and 1994 (Generation Y) and 1,011 Canadians born between the years 1947 and 1966 (Boomers). A probability sample of the same size would yield a margin of error of ± 3.08 per cent, 19 times out of 20, for each respective sample.
About Royal LePage
Serving Canadians since 1913, Royal LePage is the country's leading provider of services to real estate brokerages, with a network of 14,000 real estate professionals in over 600 locations nationwide. Royal LePage is the only Canadian real estate company to have its own charitable foundation, the Royal LePage Shelter Foundation, dedicated to supporting women's and children's shelters and educational programs aimed at ending domestic violence. Royal LePage is a Brookfield Real Estate Services Inc. company, a TSX-listed corporation trading under the symbol TSX:BRE.
For more information, visit www.royallepage.ca.
SOURCE: Royal LePage Real Estate Services
Tuesday 19 March 2013
No crash in store for Canadian housing market: Scotiabank
TORONTO — A slowdown in Canada’s housing market will continue through 2013 and years of stagnation may follow, but no crash is likely because demographic trends will support demand in the medium term, a report by Scotiabank said on Monday.
The report by Canada’s third-largest bank said that home sales have already dropped more than 10% from spring 2012, with prices leveling off but not yet falling except in particularly hard-hit markets.
A slowing housing market could deal the most damage to CIBC, National Bank and TD, according to new a report by Barclays Capital.
Housing, which slowed but did not crash as a result of the global financial crisis, helped sustain Canada’s economy through much of 2010 to 2012 but is now starting to slide just as the U.S. housing sector has begun a clear recovery.
Scotiabank said the housing slowdown will trim a quarter of a percentage point from Canada’s economic growth in 2013 and 2014, while the U.S. housing recovery is adding half a percentage point to annual growth rates there.
While Canadian home sales may continue to slump, the report said, prices will likely remain above year-ago levels until at least the second half of 2013, and will not drop as dramatically as they did in the United States.
Scotiabank senior economist Adrienne Warren said she expects a decline in prices of around 5% but that the drop will likely play out over the next couple of years rather than happen quickly.
She also said demographics, including steady immigration and the preference of baby boomers to remain in their homes, will support housing demand.
“Contrary to some dire predictions, population aging will not fuel a demographically induced sell-off in Canadian real estate. However, an aging population does point to a lower level of housing turnover, sales and listings,” Warren said in the report, the bank’s annual real estate outlook.
The report said today’s seniors are healthier, wealthier and living longer than previous generations, and attached to their homes, making them less likely to sell in a down market since many will not need to tap into their principal residence to finance retirement.
Warren said immigration, which adds some 250,000-300,000 people to Canada’s population every year, will increasingly be the dominant source of new household formation. And while immigrants typically rent on arrival in Canada, they seek home ownership after about five years and their rates of homeownership approach the 70% rate of native-born Canadians after 10 years.
Immigration is most likely to support house prices in big cities, Warren said. That should help put a floor under the market in Toronto and Vancouver, which had the hottest markets prior to the slowdown.
“Relative to their Canadian-born counterparts, immigrant households are more likely to reside in large and mid-sized urban centers, which could fuel relatively stronger housing demand and prices in those areas,” Warren said.
More Canadians Adopt a Low Rate Mindset
Rob McLister, CMT, CanadianMortgageTrends.com
Fewer people are buying into the premise that mortgage rates could rise this year.
Almost half (46%) of Canadians believe that today’s record-low rates will stick around for at least one more year. That’s almost double the 24% who, in 2011, said the same thing. (This data comes from a new CIBC survey released today.)
These findings raise some interesting questions, not the least of which being: are Canadians’ rate expectations even relevant to the mortgage selection process?
“The short answer is no,” says Colette Delaney, Executive Vice President of Mortgage, Lending, Insurance and Deposit Products, CIBC.
CIBC recommends that borrowers consider setting their mortgage payment “at the amount it would be if rates were 1-2% higher.”
For example, on a standard $200,000 mortgage, a payment set at 4.99% instead of 2.99% would cost $217 more per month but save almost $1,000 of interest over five years. (Note: This 4.99% rate is solely used to calculate the payment. The actual interest is charged at 2.99%. The advisability of this tactic depends on whether you have a better use for your monthly cash flow.)
“Not only does this (strategy) help to reduce the principal amount owing,” says CIBC, “but it also prepares Canadians for future rate increases.”
Here are a few other tidbits from the survey:
Poll Details: These data were gathered by Harris/Decima in a sample of 1,006 Canadians between January 24-28, 2013. A sample of this size has a National margin of error of +/-3.1%, 19 times out of 20.
Fewer people are buying into the premise that mortgage rates could rise this year.
Almost half (46%) of Canadians believe that today’s record-low rates will stick around for at least one more year. That’s almost double the 24% who, in 2011, said the same thing. (This data comes from a new CIBC survey released today.)
These findings raise some interesting questions, not the least of which being: are Canadians’ rate expectations even relevant to the mortgage selection process?
In other words, if an individual now expects extended low rates, should that be a factor when he/she chooses a term?
“The short answer is no,” says Colette Delaney, Executive Vice President of Mortgage, Lending, Insurance and Deposit Products, CIBC.
“Rate is certainly a factor in the decision, but trying to predict rates as part of a decision to choose the best mortgage for you is not advisable,” she adds.
Rates have a long track record of defying expectations. Delaney says it’s more important to pick a term that matches your financial circumstances and plans.
One’s choice of term should thus be geared to things like:
- Your ability to absorb higher rates (and payments)
- The time you expect to hold your mortgage
- Job stability
- Ability to prove income (an issue for some self-employed borrowers with mortgages that are coming due in a tighter lending environment)
- And so on…
CIBC recommends that borrowers consider setting their mortgage payment “at the amount it would be if rates were 1-2% higher.”
For example, on a standard $200,000 mortgage, a payment set at 4.99% instead of 2.99% would cost $217 more per month but save almost $1,000 of interest over five years. (Note: This 4.99% rate is solely used to calculate the payment. The actual interest is charged at 2.99%. The advisability of this tactic depends on whether you have a better use for your monthly cash flow.)
“Not only does this (strategy) help to reduce the principal amount owing,” says CIBC, “but it also prepares Canadians for future rate increases.”
Here are a few other tidbits from the survey:- If people “had to decide” on a rate today:
- 45% would choose a fixed rate
(versus 50% in 2012) - 26% would choose a variable rate
(versus 32% in 2012) - The rest are primarily “uncertain,” a group that grew nine percentage points over last year (perhaps reflecting a lack of confidence in rate direction and/or in the historical research that supports variable and short-term rates)
- 45% would choose a fixed rate
Poll Details: These data were gathered by Harris/Decima in a sample of 1,006 Canadians between January 24-28, 2013. A sample of this size has a National margin of error of +/-3.1%, 19 times out of 20.
Friday 15 March 2013
The 2% BC Transition Tax on new homes coming April 1, 2013
Real Estate Board of Greater Vancouver
If you are planning on buying a new home over the next two years, then you need to know about the 2% BC Transition Tax.
It is a new tax that comes into effect on April 1, 2013. It will apply to the sale of new residential homes that are 10% or more complete as of April 1, 2013. The 2% BC Transition Tax will end on March 31, 2015.
The 2% BC Transition Tax applies to the full price of a new home, which is 10% or more complete, where ownership or possession is on or after April 1, 2013, but before April 1, 2015. The 5% GST also applies to the full price of a new home, where ownership or possession is on or after April 1, 2013.
With the end of the HST and the return to the PST/GST system, the BC government chose to introduce the 2% BC Transition Tax as a way, in their words, “to ensure the equitable application of tax for purchasers of new residential homes currently under the HST system” and after April 1, 2013 when the province returns to GST on new residential homes. The government also wishes to replace some of the revenue lost through the return to the PST.
BC’s portion of the HST will no longer apply to newly built homes where construction begins on or after April 1, 2013. Builders will once again pay 7% PST on their building materials (construction inputs). The provincial government asserts that on average, about 2% of the home’s final price is embedded PST that builders pay on their building materials.
For newly built homes where construction begins before April 1, 2013, but ownership and possession transfer afterwards, purchasers will not pay the 7% provincial portion of the HST. Instead, purchasers will pay 5% GST and the 2% Transition Tax on the full house price. The Transition Tax rebate for builders (sellers) recognizes that the builder will not be able to claim input tax credits on the PST paid on building materials acquired after March 31, 2013. The rebate is available where both of the following conditions are met:
If you are planning on buying a new home over the next two years, then you need to know about the 2% BC Transition Tax.
It is a new tax that comes into effect on April 1, 2013. It will apply to the sale of new residential homes that are 10% or more complete as of April 1, 2013. The 2% BC Transition Tax will end on March 31, 2015.
| before April 1, 2013 | April 1, 2013 | April 1, 2015 |
|---|---|---|
| 12% HST applies for new home: possesion OR ownership | 5% GST applies + 2% Transitional Tax for new homes: • 10% or more complete • possesion or ownership before April 1, 2015 | 5% GST applies |
Source: BCREA PST TransitionRules website www.bcrea.bc.ca/government-relations/pst-transition-rules
With the end of the HST and the return to the PST/GST system, the BC government chose to introduce the 2% BC Transition Tax as a way, in their words, “to ensure the equitable application of tax for purchasers of new residential homes currently under the HST system” and after April 1, 2013 when the province returns to GST on new residential homes. The government also wishes to replace some of the revenue lost through the return to the PST.
BC’s portion of the HST will no longer apply to newly built homes where construction begins on or after April 1, 2013. Builders will once again pay 7% PST on their building materials (construction inputs). The provincial government asserts that on average, about 2% of the home’s final price is embedded PST that builders pay on their building materials.
| The Transition Tax rebate for sellers of new housing will be calculated on its degree of completion as of April 1, 2013 | |
|---|---|
| Degree of construction complete as of April 1, 2013 | Transition Tax Rebate as a % of consideration or fair market value |
| Less than 10% | not applicable |
| 10% ≤ and <25% | 1.5% |
| 25% ≤ and <50% | 1.0% |
| 50% ≤ and <75% | 0.5% |
| 75% ≤ and <90% | 0.2% |
| 90% or greater | 0.0% |
For newly built homes where construction begins before April 1, 2013, but ownership and possession transfer afterwards, purchasers will not pay the 7% provincial portion of the HST. Instead, purchasers will pay 5% GST and the 2% Transition Tax on the full house price. The Transition Tax rebate for builders (sellers) recognizes that the builder will not be able to claim input tax credits on the PST paid on building materials acquired after March 31, 2013. The rebate is available where both of the following conditions are met:
- The 2% BC Transition Tax applies to the sale of new housing; and
- Construction or substantial renovation is at least 10%, but not more than 90%, complete before April 1, 2013.
“These transition rules are part of a comprehensive package designed to provide equity for buyers of newly built homes and clarity and certainty for the construction industry – an important job creator in our province.”
- former Finance Minister Hon Kevin Falcon, May 28, 2012
Thursday 14 March 2013
Oh, those house-crazy consumers
KONRAD YAKABUSKI
The Globe and Mail
If there’s one TV genre in which Canadian content rules are redundant, it’s the home renovation category. Canadian shows are so dominant that the U.S. HGTV network would be reduced to running endless House Hunters reruns without its popular northern imports. And that would upset Hillary Clinton; Love It or List It is her favourite program.
Still, Finance Minister Jim Flaherty should investigate whether all these taxpayer-supported reno shows have fuelled Canada’s lofty house prices. If so, he might have to send the Property Brothers into exile. He and Bank of Canada Governor Mark Carney have tried almost everything else to tame Canadians’ obsession with buying homes. Now, another mortgage “rate war” threatens to undo their hard work, as “bubble fatigue” sends consumers on a springtime buying spree.
Housing prices are ultimately a function of income and population growth. After a 15-year run – a marathon by historical standards – prices in Canada are out of whack with both of these fundamentals. The Economist thinks Canadian housing is overvalued by a third relative to income. The Fitch ratings agency pegs the overvaluation at 20 per cent.
To be sure, Mr. Carney no longer sounds as worried about a housing bubble as he did last year. On Wednesday, he indicated that repeated warnings by him and Mr. Flaherty may be scaring Canadians straight, curbing their appetite for debt. But both men are up against history. When property prices get this frothy, pendulum swings are more likely than soft landings.
Such is the pickle in which Mr. Flaherty and Mr. Carney (at least until the latter’s departure for the Bank of England) find themselves. Their risky experiment in guiding Canada through the recession by stoking housing demand is threatening to come undone. Household debt (largely the result of ever bigger mortgages) remains much higher in Canada than it was in the U.S. just before the 2008 crash. It wouldn’t take much to turn a vulnerability into a calamity.
But even as Mr. Carney predicts a salutary stabilization of household debt levels this year, he knows that only creates other problems for him. If house-crazy consumers go into hibernation, where will economic growth come from?
Even a mild retrenchment in housing would expose Canada’s recent overreliance on consumer debt-fuelled expansion. And it would leave the Canadian economy with little to run on, as the only other recent driver of growth hits a soft patch. Investment in the mining sector (including the oil industry) is expected to decline by 2.7 per cent this year, while what the central bank calls “ongoing competitiveness challenges” depresses manufacturing exports.
None of this would be nearly as threatening had it not been for fundamental policy errors made in 2006, when the previously staid Canada Mortgage and Housing Corp., the Crown-owned mortgage insurer, underwent an extreme makeover. U.S.-style no-down-payment mortgages, 40-year amortization periods and other supply-side “innovations” were introduced. With low interest rates, the new rules slashed the cost of carrying a mortgage. Any 25-year-old with two pay stubs could enter a bidding war on a downtown condo with all the upgrades.
After the 2008 U.S. crash, Ottawa ordered CMHC to tighten the mortgage rules somewhat. But, desperate for growth, it continued to encourage house hunters. CMHC bought $125-billion worth of mortgages from the banks, providing them with liquidity to dole out even more home loans. It was an understandable move, given the crisis. But it did not end there.
After that, CMHC dramatically grew its portfolio of so-called high-ratio insurance, covering homebuyers who make a down payment of less than 20 per cent. What’s more, it more than doubled – to $238-billion – the amount of insurance that banks have voluntarily purchased to cover their other mortgages. Fears of a bubble are undoubtedly one reason banks have sought the added protection.
CMHC now has $575-billion worth of mortgage insurance in force, a 67-per-cent increase since 2007. Ottawa further tightened mortgage rules last year. But the fact remains that even a mild economic shock would trigger rising defaults, leaving Mr. Carney’s successor to pick up the pieces.
Let’s hope it won’t come to that. Let’s hope that, unlike Federal Reserve chairman Ben Bernanke – who, in mid-2007, predicted that the U.S. housing market would “stabilize” – Mr. Carney won’t have to eat his words. And we can all go back to watching Love It or List It without worrying.
Still, Finance Minister Jim Flaherty should investigate whether all these taxpayer-supported reno shows have fuelled Canada’s lofty house prices. If so, he might have to send the Property Brothers into exile. He and Bank of Canada Governor Mark Carney have tried almost everything else to tame Canadians’ obsession with buying homes. Now, another mortgage “rate war” threatens to undo their hard work, as “bubble fatigue” sends consumers on a springtime buying spree.
Housing prices are ultimately a function of income and population growth. After a 15-year run – a marathon by historical standards – prices in Canada are out of whack with both of these fundamentals. The Economist thinks Canadian housing is overvalued by a third relative to income. The Fitch ratings agency pegs the overvaluation at 20 per cent.
To be sure, Mr. Carney no longer sounds as worried about a housing bubble as he did last year. On Wednesday, he indicated that repeated warnings by him and Mr. Flaherty may be scaring Canadians straight, curbing their appetite for debt. But both men are up against history. When property prices get this frothy, pendulum swings are more likely than soft landings.
Such is the pickle in which Mr. Flaherty and Mr. Carney (at least until the latter’s departure for the Bank of England) find themselves. Their risky experiment in guiding Canada through the recession by stoking housing demand is threatening to come undone. Household debt (largely the result of ever bigger mortgages) remains much higher in Canada than it was in the U.S. just before the 2008 crash. It wouldn’t take much to turn a vulnerability into a calamity.
But even as Mr. Carney predicts a salutary stabilization of household debt levels this year, he knows that only creates other problems for him. If house-crazy consumers go into hibernation, where will economic growth come from?
Even a mild retrenchment in housing would expose Canada’s recent overreliance on consumer debt-fuelled expansion. And it would leave the Canadian economy with little to run on, as the only other recent driver of growth hits a soft patch. Investment in the mining sector (including the oil industry) is expected to decline by 2.7 per cent this year, while what the central bank calls “ongoing competitiveness challenges” depresses manufacturing exports.
None of this would be nearly as threatening had it not been for fundamental policy errors made in 2006, when the previously staid Canada Mortgage and Housing Corp., the Crown-owned mortgage insurer, underwent an extreme makeover. U.S.-style no-down-payment mortgages, 40-year amortization periods and other supply-side “innovations” were introduced. With low interest rates, the new rules slashed the cost of carrying a mortgage. Any 25-year-old with two pay stubs could enter a bidding war on a downtown condo with all the upgrades.
After the 2008 U.S. crash, Ottawa ordered CMHC to tighten the mortgage rules somewhat. But, desperate for growth, it continued to encourage house hunters. CMHC bought $125-billion worth of mortgages from the banks, providing them with liquidity to dole out even more home loans. It was an understandable move, given the crisis. But it did not end there.
After that, CMHC dramatically grew its portfolio of so-called high-ratio insurance, covering homebuyers who make a down payment of less than 20 per cent. What’s more, it more than doubled – to $238-billion – the amount of insurance that banks have voluntarily purchased to cover their other mortgages. Fears of a bubble are undoubtedly one reason banks have sought the added protection.
CMHC now has $575-billion worth of mortgage insurance in force, a 67-per-cent increase since 2007. Ottawa further tightened mortgage rules last year. But the fact remains that even a mild economic shock would trigger rising defaults, leaving Mr. Carney’s successor to pick up the pieces.
Let’s hope it won’t come to that. Let’s hope that, unlike Federal Reserve chairman Ben Bernanke – who, in mid-2007, predicted that the U.S. housing market would “stabilize” – Mr. Carney won’t have to eat his words. And we can all go back to watching Love It or List It without worrying.
Urban Mortgages on an Extreme Budget
Rob McLister, CMT, CanadianMortgageTrend.com
Ever wondered what kind of mortgage you can get on minimum wage in a big city?
Minimum wage in Canada ranges from $9.75 per hour in Alberta to $11 in Nunavut. In Ontario and B.C., it’s $10.25.
Using standard insured lending guidelines, someone earning even $11 per hour and working 40 hours a week could theoretically qualify for a $118,000 house.1
Out of curiosity, we searched every MLS listing within Toronto, Montreal and Vancouver city limits for such a property.
Ever wondered what kind of mortgage you can get on minimum wage in a big city?
Minimum wage in Canada ranges from $9.75 per hour in Alberta to $11 in Nunavut. In Ontario and B.C., it’s $10.25.
Using standard insured lending guidelines, someone earning even $11 per hour and working 40 hours a week could theoretically qualify for a $118,000 house.1
Out of curiosity, we searched every MLS listing within Toronto, Montreal and Vancouver city limits for such a property.
We figured it would be a tall order to find properties accessible to a near-minimum wage earner in these cities, and it was. Out of thousands of real estate listings, there wasn’t one home that was cheap enough for an $11-an-hour employee to get a typical high-ratio mortgage on.
Interestingly, Toronto had numerous condos that met the price criteria (some as low as $80,000). But the condo fees in each case lifted the gross debt service (GDS) ratio of our hypothetical applicant well above the 39% government-set limit. That would immediately dash the mortgage approval hopes of any such borrower.
We also found a nice mobile home in West Vancouver, B.C. of all places—one of the most affluent locales in the country. But despite an $89,000 price tag, the obligatory monthly “pad rental” fee would jack up a minimum wage applicant’s GDS ratio and thwart approval.
In experiments like this, it quickly becomes apparent that employees at a subsistence-level income can’t go it alone when buying in our major cities.
For most near-minimum wage earners who don’t have down payment help, finding a co-applicant is often the only hope they have of buying in Canada's biggest cities.2
Footnotes:
1 Assumes good credit, 5% down, no other debt and a lender that’s comfortable with the borrower’s employment stability.
2 Down payment help can sometimes come from things like a family gift/loan or municipal housing programs.
Interestingly, Toronto had numerous condos that met the price criteria (some as low as $80,000). But the condo fees in each case lifted the gross debt service (GDS) ratio of our hypothetical applicant well above the 39% government-set limit. That would immediately dash the mortgage approval hopes of any such borrower.
We also found a nice mobile home in West Vancouver, B.C. of all places—one of the most affluent locales in the country. But despite an $89,000 price tag, the obligatory monthly “pad rental” fee would jack up a minimum wage applicant’s GDS ratio and thwart approval.
In experiments like this, it quickly becomes apparent that employees at a subsistence-level income can’t go it alone when buying in our major cities.
For most near-minimum wage earners who don’t have down payment help, finding a co-applicant is often the only hope they have of buying in Canada's biggest cities.2
Footnotes:
1 Assumes good credit, 5% down, no other debt and a lender that’s comfortable with the borrower’s employment stability.
2 Down payment help can sometimes come from things like a family gift/loan or municipal housing programs.
Tuesday 12 March 2013
‘Love and trust won’t cut it’: Couples need to clear up common-law confusion
Melissa Leong, The Financial Post
About a year ago, a conversation between Kristy Maurina and her good friend veered toward relationships.
“My boyfriend and I have been living together for six months, I’m going to owe him half of my stuff,” the friend said to Ms. Maurina.
“She is not different from so many of the clients who come in and meet with me,” Maurina says. “The people coming into my office have all of these misconceptions. It’s always the same thing: a friend of a friend told me that I was entitled to this.”
I’ve also heard horror stories: a friend of a friend, for example, is facing legal bills in the tens of thousands to fight her ex-boyfriend who is suing her for spousal support and payments to her mortgage. In my own ignorance years ago, I thrust a rental agreement in my boyfriend’s face, thinking if he signed it that my condo would be protected if the relationship imploded.
Widespread confusion is understandable.
In this climate of change, experts say, now is a good time to figure out what your rights are as a common-law spouse and to have the “talk” with your partner about money.
“There is just so much misunderstanding. There are so many people taking short cuts. Having a do-it yourself, namby pamby approach is not going to get you where you need to go,” Christine Van Cauwenberghe, assistant vice-president of tax and estate planning, at Investors Group says. “There are risks for the person who doesn’t have any assets and there are risks for the person who does. The lack of information and the lack of planning is what’s dangerous.”
It’s incumbent on women to also engage in the process. According to a recent TD poll, men remain more likely to manage investments and long-term financial planning; but a third of married Canadian women are out-earning their partners.
Whether you’re managing a posse of kids like Angelina Jolie and Brad Pitt, shacking up like Robert Pattinson and Kristen Stewart, or going the long haul like Goldie Hawn and Kurt Russell, love won’t protect you from financial hardship — and depending on where you live, neither will the law. And while common-law unions may outlast the average Hollywood relationship, they do have a higher break-up rate than marriages.
“It may be naive, but I refuse to live my life expecting the worst to happen,” says 37-year-old nursing student Charlynn Cox. The Cape Bretoner divides all of her assets and expenses with her common-law husband of 18 years; their daughters are seven and 12. Nova Scotia does not give common-law couples the right to an equal division of property.
“I love him and want to share my life with him, expecting him to cheat me of my share if we were to separate just doesn’t occur to me at all.”
While discussing money can be as off-putting to romance as cutting your toenails at the dining table, it is a necessary conversation as more Canadians forgo formal nuptials. Between 2006 and 2011, the rate of common-law climbed 13.9% in Canada, while marriages increased by only 3.1%, according to Statistics Canada. Quebec is home to the most common-law unions — more than a million live in common-law relationships — but spouses have no rights to what was accumulated during the relationship, the family home or alimony upon separation.
“B.C., Saskatchewan and Manitoba have legislation that does give common-law partners quite a lot of rights…Once you get east of the Manitoba border, there are very few rights at the time at separation,” Ms. Van Cauwenberghe says.
“The real growth in common-law couples is in older cohorts because you see a lot of people who were married, separated or divorced, widowed and they’re entering into a second relationship. They’re bringing in significant assets,” she says.
Do you want to keep everything separate? If you’re in a province that gives your spouse the right to half of your assets upon separation, you might consider putting something in writing to protect yourself.
“Have a cohabitation agreement. Don’t think that just because you’re shacking up that you’re going to be exempt from any repercussions if the relationship doesn’t work out. Two years passes so quickly and legal rights accrue,” said Pauline Duncan Bonneau, a family law lawyer based in Regina.
A once-soaring real estate market has inflated the value of many Canadian homes; that increase in value is sharable in some provinces, warns Winnipeg resident Susan L. Misner, co-founder of GoldenGirlFinance.com.
On the flip side, if you live in a jurisdiction where you don’t automatically get half, do you want to put your assets and investments in joint ownership?
“I’ve seen common law couples put assets in joint names. Particularly in Toronto, you just put your million dollar home in joint names. Now if you separate, it’s going to be split 50/50,” Ms. Van Cauwenberghe says. “They’ll say, ‘That’s not what I wanted. I just wanted him to get it at the time of death.’ Well, that’s what a will is for.”
In Ontario, the common-law relationship will not generate property rights and will not revoke a prior will, says wills and estate lawyer Barry Fish.
“I must emphasize that love and trust won’t cut it,” he says. “Here’s why. The husband has no will. The guy’s got three kids from his prior marriage. He has a heart attack — DOA at the hospital. What does the law say? She’s not married. The kids have full title to the house.
“The position of the common law spouse is like a ticking time bomb, if he does not do that will. The romantic element has to be accompanied by the practical element.”
Corina Newby and her partner, who are 32 and 33 respectively, consider themselves both romantic and practical. They have discussed their finances and have agreed upon savings strategies. They keep their investments and real estate assets separate.
“Trust and security are closely tied to finances,” said the Toronto-based media manager for Orderit.ca. “It’s less about planning for a separation, and more a matter of making decisions that bring the least amount of inconvenience down the road. If you have the option of keeping finances separate, it can make things easier, provided you are aware of your partner’s financial situation and you are both working towards a common goal. This common effort is what makes practical financial planning kind of romantic to me.”
Some provinces allow you to register your coupledom as a “civil union” or a “domestic partnership.” In Nova Scotia, for example, you just fill out a form for $22.68 and get the same rights as married couples under the law. If the relationship goes to crap, a Statement of Termination costs $30.29. (How cold would that be? A Dear John letter accompanied by three tens and three dimes.)
Continue reading.
About a year ago, a conversation between Kristy Maurina and her good friend veered toward relationships.
“My boyfriend and I have been living together for six months, I’m going to owe him half of my stuff,” the friend said to Ms. Maurina.
“She is not different from so many of the clients who come in and meet with me,” Maurina says. “The people coming into my office have all of these misconceptions. It’s always the same thing: a friend of a friend told me that I was entitled to this.”
I’ve also heard horror stories: a friend of a friend, for example, is facing legal bills in the tens of thousands to fight her ex-boyfriend who is suing her for spousal support and payments to her mortgage. In my own ignorance years ago, I thrust a rental agreement in my boyfriend’s face, thinking if he signed it that my condo would be protected if the relationship imploded.
Widespread confusion is understandable.
Having a do-it yourself, namby pamby approach is not going to get you where you need to goThe legislation is ever changing and varies from province to province. The Supreme Court ruled in January that Quebec does not have to give common-law spouses the same rights as married couples; meanwhile, beginning March 18, British Columbia will give common-law couples who have lived together for two years the same property rights as married folks.
In this climate of change, experts say, now is a good time to figure out what your rights are as a common-law spouse and to have the “talk” with your partner about money.
“There is just so much misunderstanding. There are so many people taking short cuts. Having a do-it yourself, namby pamby approach is not going to get you where you need to go,” Christine Van Cauwenberghe, assistant vice-president of tax and estate planning, at Investors Group says. “There are risks for the person who doesn’t have any assets and there are risks for the person who does. The lack of information and the lack of planning is what’s dangerous.”
It’s incumbent on women to also engage in the process. According to a recent TD poll, men remain more likely to manage investments and long-term financial planning; but a third of married Canadian women are out-earning their partners.
Whether you’re managing a posse of kids like Angelina Jolie and Brad Pitt, shacking up like Robert Pattinson and Kristen Stewart, or going the long haul like Goldie Hawn and Kurt Russell, love won’t protect you from financial hardship — and depending on where you live, neither will the law. And while common-law unions may outlast the average Hollywood relationship, they do have a higher break-up rate than marriages.
“I love him and want to share my life with him, expecting him to cheat me of my share if we were to separate just doesn’t occur to me at all.”
While discussing money can be as off-putting to romance as cutting your toenails at the dining table, it is a necessary conversation as more Canadians forgo formal nuptials. Between 2006 and 2011, the rate of common-law climbed 13.9% in Canada, while marriages increased by only 3.1%, according to Statistics Canada. Quebec is home to the most common-law unions — more than a million live in common-law relationships — but spouses have no rights to what was accumulated during the relationship, the family home or alimony upon separation.
“B.C., Saskatchewan and Manitoba have legislation that does give common-law partners quite a lot of rights…Once you get east of the Manitoba border, there are very few rights at the time at separation,” Ms. Van Cauwenberghe says.
“The real growth in common-law couples is in older cohorts because you see a lot of people who were married, separated or divorced, widowed and they’re entering into a second relationship. They’re bringing in significant assets,” she says.
Do you want to keep everything separate? If you’re in a province that gives your spouse the right to half of your assets upon separation, you might consider putting something in writing to protect yourself.
“Have a cohabitation agreement. Don’t think that just because you’re shacking up that you’re going to be exempt from any repercussions if the relationship doesn’t work out. Two years passes so quickly and legal rights accrue,” said Pauline Duncan Bonneau, a family law lawyer based in Regina.
I must emphasize that love and trust won’t cut it“You can only start over so many times in life. I’ve got clients who are hit three or four times with relationships that don’t work out. It’s the productive person who hooks up with a not-productive person and they lose assets every time they have to divide them.”
A once-soaring real estate market has inflated the value of many Canadian homes; that increase in value is sharable in some provinces, warns Winnipeg resident Susan L. Misner, co-founder of GoldenGirlFinance.com.
On the flip side, if you live in a jurisdiction where you don’t automatically get half, do you want to put your assets and investments in joint ownership?
“I’ve seen common law couples put assets in joint names. Particularly in Toronto, you just put your million dollar home in joint names. Now if you separate, it’s going to be split 50/50,” Ms. Van Cauwenberghe says. “They’ll say, ‘That’s not what I wanted. I just wanted him to get it at the time of death.’ Well, that’s what a will is for.”
In Ontario, the common-law relationship will not generate property rights and will not revoke a prior will, says wills and estate lawyer Barry Fish.
“I must emphasize that love and trust won’t cut it,” he says. “Here’s why. The husband has no will. The guy’s got three kids from his prior marriage. He has a heart attack — DOA at the hospital. What does the law say? She’s not married. The kids have full title to the house.
“The position of the common law spouse is like a ticking time bomb, if he does not do that will. The romantic element has to be accompanied by the practical element.”
Corina Newby and her partner, who are 32 and 33 respectively, consider themselves both romantic and practical. They have discussed their finances and have agreed upon savings strategies. They keep their investments and real estate assets separate.
“Trust and security are closely tied to finances,” said the Toronto-based media manager for Orderit.ca. “It’s less about planning for a separation, and more a matter of making decisions that bring the least amount of inconvenience down the road. If you have the option of keeping finances separate, it can make things easier, provided you are aware of your partner’s financial situation and you are both working towards a common goal. This common effort is what makes practical financial planning kind of romantic to me.”
9 frequently asked questions about common-law unions
1. What if I want the rights of a married couple but I don’t want the certificate or the whole wedding thing?Some provinces allow you to register your coupledom as a “civil union” or a “domestic partnership.” In Nova Scotia, for example, you just fill out a form for $22.68 and get the same rights as married couples under the law. If the relationship goes to crap, a Statement of Termination costs $30.29. (How cold would that be? A Dear John letter accompanied by three tens and three dimes.)
Continue reading.
Monday 11 March 2013
Brokers pursue mortgage break for first-time home buyers
Tara Perkins - Real Estate Reporter, The Globe and Mail
Mortgage brokers are pressing the federal government to make it easier for young people to buy their first homes, just as the spring sales season descends and Ottawa prepares its next budget.
Jim Murphy, the head of the Canadian Association of Accredited Mortgage Professionals, recently met with finance department officials in a bid to convince them that their efforts to cool the housing market have gone too far, especially when it comes to the impact on first-time buyers.
“March, April and May are the most important months for both new sales and re-sales,” said Mr. Murphy. “And the market is slowing.”
The government has deliberately taken measures to cool the growth of house prices and mortgage debt levels four times since the financial crisis, amid fears that it was heating up too quickly.
The most recent measures, which took effect in July, included chopping the maximum length of insured mortgages to 25 years from 30. All other things being equal, a shorter mortgage means higher monthly payments for the borrower.
Mr. Murphy and a number of other industry players say this rule change, coupled with stiffer lending guidelines that regulators have imposed on the banks, have made it too difficult for young people to enter the housing market at a time when prices remain high. While sales have dropped significantly in the wake of the July rule changes, prices have yet to follow suit.
Now Mr. Murphy is asking the government to resume its backing for insurance on 30-year mortgages, as long as the buyer can prove they could qualify for a 25-year mortgage. He is also pushing for an increase to the $750 tax break that first-time buyers receive.
The Finance Department declined to comment, but it is unlikely that Ottawa will take any such steps right now. Finance Minister Jim Flaherty signalled this year that he was pleased with the impact his changes have had so far, and wouldn’t mind seeing house prices come down.
And he took Bank of Montreal to task last week for its decision to cut the advertised price of its five-year fixed-rate mortgages from 3.09 per cent to 2.99 per cent (lower rates are available in the market, but that was the lowest posted five-year fixed rate among the largest banks), indicating that he continues to be worried about consumers racking up too much mortgage debt and inflating house prices.
Indeed, he went so far Friday as to pat other banks on the back for not following suit by dropping their posted five-year rates to such levels (customers can negotiate with banks and obtain discounts from the posted or advertised rates).
Some economists, such as Canadian Imperial Bank of Commerce’s Benjamin Tal, are cautioning that the housing market could rebound more quickly and to a greater degree than expected this spring after months of slumping sales. And the point at which consumer debt levels are likely to become a real issue for the economy is when interest rates finally begin to rise.
Phil Soper, the chief executive of real estate agency Royal LePage, supported Mr. Flaherty’s three earlier interventions in the market, agreeing it had become overheated, but thought the changes in July went too far and made it unnecessarily difficult for first-time buyers.
However, he suggested that, eight months on, the damage has been done, and so he is not pressing Mr. Flaherty to create new incentives for first-time buyers right now. The government might as well save those for when interest rates rise, he suggested.
“There is not an overwhelming cause from a public policy standpoint to provide further assistance to young people who want to own their own homes,” Mr. Soper said. “I think that might come, and we might be talking about that in a couple of years as it becomes more difficult for them.”
Friday 8 March 2013
Tips for Selecting and Contracting a Home Remodeling General Contractor
Are you considering a home remodeling project for your property? Most remodeling projects involve either structural or aesthetic aspects which might require several specialized technical skills. If this is the case, you may want to enlist the services of a general contractor.
A general contractor negotiates a contract for the entire remodeling project, and either completes the specialized work with his own crew, or sub-contracts to other various house remodeling contractors. Some of the specialized areas might include planning/architecture, concrete, plumbing, electrical, roofing, dry wall, cabinetry, or painting.
The Planning
To get an accurate bid from a potential general contractor, it is very important to plan carefully, with much thought and consideration. You may want to involve an architect or draftsman to generate the blueprints for your project. Remember that any home remodeling features not included in the plans will not be included in the bid.
Once you have detailed plans for your project, you need to start the selection process for a general contractor. Canadian residents can go on-line to for a list of qualified, licensed contractors.
The Contractor
It is a rule of thumb to get at least 3 bids from separate remodeling contractors. Provide each with an identical set of plans. Be upfront about your expectations, and request they be realistic about time, cost, and interruption factors. It is wise not to make a selection based on price alone; other considerations are equally important.
Before you accept a bid from a contractor ask questions: What experience and references do they have from projects similar to yours? Will they be working on other projects simultaneously with your own? If they will not be personally working at your site, how much time each day will they spend supervising? Will they use their own crew for some or all the work? How available will any sub-contractors be? What licenses and insurance do they carry? And what is the time line of the project, start to finish? These are questions any reliable, qualified general contractor should answer and outline in the contract.
The Contract
When negotiating the contract for your home remodeling project, be thorough and accurate. Include complete names and addresses of both parties, a detailed job description, material specifications, start and finish dates, any warranties on work or materials, and payment options.
It is fairly common for a general contractor to ask for 10-33% of the estimated cost in advance; most contracts provide for payment as work progresses.
A reliable, reputable contractor will agree to contract terms which help protect the interests of both parties.
By being thorough in your research, planning, and contracting process, you can look forward to enjoying the results of your home remodeling project for many years to come!
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