Tuesday, 19 March 2013

Are mortgage rates really falling?


There has been plenty of media coverage lately about falling interest rates. Bank of Montreal announced a rate reduction for its five year fixed mortgage to 2.99%. But is this something new? Is it a good deal? Our resident mortgage expert Gianina Kumar explains: 

"Turn on the TV or open the newspaper and its there - BMO 2.99% for 5 year fixed. Sounds great right... but is it really? It showed up first Jan 2012 and has reared its head again March 2013.Fact is that there are other banks out there offering lower rates without any of restrictions and limitations of BMOs no-frills mortgage. This rate is nothing special and these type of no-frills mortgage offers have been around for years.   In our current low rate environment,  your client doesn't have to sacrifice flexibility on their mortgage terms for a great rate.  In particular BMO's restrictions include:   
  • Reduced prepayment privilege to annual lump sum of 10%
  • Max amortization period of 25 years
  • You can only increase your payments by 10%
  • You cannot payout this mortgage unless you are selling the property
  • 90 day instead of 120 day rate hold
  • You can only refinance this mortgage with BMO (and no other bank) - this restricts your ability to negotiate the rate if you are increasing the mortgage, leaving you at BMO's mercy  
There are better rates out there for no-frills mortgages, some even as low as 2.79%.. however, I would never recommend these either as they come with massive penalty consequences if paid out early. 

The fantastic news is that getting 2.99% with NO RESTRICTIONS is being offered by nearly every Lender right now. There are a handful of lenders even offering 2.89%
with all the bells and whistles.   

Gianina Kumar
Mortgage Agent

Direct: 416-854-4709
Toll free: 1-855-598-3325
Fax: 1-877-404-3117
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Monday, 20 August 2012

Bridge Financing-The Basics

In this week's blog, we discuss the issue of bridge financing. Recently, a client of mine purchased a new property and sold their existing home on the same day. Suffice it to say, it was an extremely long day, which could have easily been avoided had they purchased their new home on a date prior to the sale of their existing home. As they found out the hard way, the costs of bridging the gap between the sale and the purchase were relatively minor in comparison to the additional moving costs, stress and anxiety of closing two deals on the same day!

Gianina Kumar of CIBC, a mobile mortgage specialist, has contributed this piece and we thank her for her assistance.Gianina can be reached as follows:

Gianina Kumar
CIBC Mortgage Advisor
TEL:     1-888-414-4874
MOBILE: 416-854-4709
FAX:     1-877-404-3117 

"Bridge Financing 

Bridge financing is used when the SALE date on your existing property occurs after the PURCHASE date of your new home. To qualify for bridge financing, there must be an unconditional sale agreement on the home being sold.

The bridge covers the difference between the total down payment and the deposit paid upfront. The bank is essentially lending you the equity from the sale of your property for down payment on the new purchase.

An example illustrates this:

Jack and Jill are selling their current home on Sept 15-2012.  They are selling for $400,000 and after they pay off their $180,000 mortgage and closing costs (realtor fees), will have $200,000 in sale proceeds.

Jack and Jill have agreed to purchase a new home for $500,000 on Sept 1-2012, and paid a deposit of $50,000. They intend to put a total downpayment of $200,000 and will mortgage $300,000.

Here is the dilemma:  To purchase their new home on Sept 1-2012, Jack and Jill will need $150,000 (i.e. total down payment minus deposit) from their sale proceeds.  If and ONLY IF Jack and Jill have an unconditional sale agreement on their current home, the solution is bridge financing.

Since the bank knows 100% that Jack and Jill will be selling their home, they will LEND them the money they would have made from the sale.  So, the bank will give Jack and Jill a temporary loan (i.e. Bridge loan) for the $150,000 needed to close their new home on Sept 1-2012.  Here’s how it would look:

They would get a mortgage for $300,000 on Sept 1-2012 for the new property and also a bridge loan from the bank for $150,000. This ensures they have $500,000 to buy the house.  On Sept 1-2012 when their property sells, the sale lawyer will take the $150,000 equity left from the sale and pay out the bridge loan to the bank. Voila!!!

The biggest misconception about bridge financing is that people are not aware that you have to have a firm sale agreement on your home before the bank will agree to give you a bridge loan. Why? Because if you haven’t sold the property as yet, then you are still carrying the existing mortgage AND the new mortgage on the purchase.

In this example, the bridge would be needed for 15 days. Rates on bridge loans are typically 7% (prime + 4%). The total interest cost to bridge $150,000 at 7% over 15 days would be approximately $432. "

Thursday, 2 August 2012

Do You Need a Real Estate Professional?

In this weeks' blog, we tackle the issue of hiring a real estate professional. Many people don't know of a realtor or mortgage professional and you always need one when purchasing or selling real estate. Rather than do the  research yourself, why not get a referral from a trusted source who has worked with professionals before and tell you about them and the quality of their work! I work with many realtors and mortgage professionals and can put you in touch with one which suits your needs at no cost! If you ever need a referral, contact me. You won't be sorry!

Wednesday, 11 July 2012

Tips for Buying a New Condominium

In this weeks' blog, I cover the topic of buying a new construction condominium property. For anyone who has purchased a property from a builder, the process can be time consuming and stressful. Here are a few suggestions, which list is not exhaustive, when contemplating purchasing a condominium property from a builder:
  1. Ask for a copy of their standard agreement of purchase and sale and read it through carefully before making your offer. Often times, the standard agreement is replete with hidden charges and closing costs which you may not be aware of which can add thousands of dollars to the final closing costs;
  2. After reading through the agreement, make a plan for yourself as to what you are going to ask for in the sales office since the purchase price often does not include all the closing costs and fees;
  3. Ask to have all the closing costs capped at a maximum amount so you have some certainty as to what you will need to pay on closing. Pay close attention to those specific paragraphs in the agreement which allow the builder to pass on costs to you and make sure that the agreement you sign specifically references those parts of the agreement and have the costs "cap" apply to those provisions in the agreement; and
  4. Insist that the agreement be made conditional on your solicitors' approval.
What follows are some issues that I often see in builders' contracts:
  1. The size of the unit is approximate and may vary from the sketches or brochures in the sales office;
  2. None of the representations or information presented to you by the sales representatives is binding on the builder if it conflicts with the terms of the agreement of purchase and sale;
  3. The builder has the right to do a credit check on you and if they find your credit unsatisfactory, they have the right to terminate the transaction;
  4. Finishes and materials you select in the decor centre may not be available at the time of construction and the builder has the right to substitute those materials, provided the substitute material are of equal or better quality from the ones you chose in the decor centre;
  5. There are usually restrictions on the use of your patio or balcony including, a prohibition of the use of barbeques;
  6. There are also strict rules about pets, including a general provision that the board of directors of the condominium corporation has the right to require that you cease having a pet that the board finds is a nuisance to other unit owners.
The foregoing is just a small sample of issues and concerns when buying a condominium property from a builder. To make sure you are fully informed, retain the services of a lawyer before finalizing the transaction. 

Tuesday, 26 June 2012

New Mortgage Rules-What does it mean to you?

This week, we have a piece contributed by Gianina Kumar, a mortgage advisor with CIBC which I hope you will find helpful and informative. Happy reading!

Submitted by Gianina Kumar, CIBC Mortgage Advisor

"Have you heard the buzz about  mortgages recently? What does it mean for you?

The mortgage changes announced June 21st that are to take effect July 9th may appear on first sight to be sudden, but they certainly are not.

Almost 3 months ago, Finance Minister Jim Flaherty advised banks to tighten lending guidelines on their own. Now, it has been formally announced that he will be doing it for them.

First, let’s look at what these changes are:

  1. The max amortization is now 25 years (previously 30)
  2. The maximum mortgage amount on a currently owned property can only be refinanced to 80% of the value
  3. Any properties over $1 million require a minimum 20% down payment (ie. not CMHC insured)

Clients that I assist with mortgage financing are impacted in various ways depending on their role as a homebuyer/owner.

For those clients that are in the midst of purchasing a home, the reduced amortization is equivalent to paying almost 1% more on the mortgage rate. As an example, for a household earning $75,000/year and no debt, this reduces the maximum mortgage by $49,000 (ref: Canadian Mortgage Trends).  Its important to note that anyone currently holding a pre-approval can still get a 30 year amortization as long as an offer on a property is accepted before July 8, 2012. 

In the case of existing homeowners that are looking to consolidate high interest debts or renovation costs into their mortgage, the total mortgage cannot exceed 80% of the value of the home.  Currently, homeowners would be able to increase their mortgage to 85% of the value of their property if they agreed to pay a small CMHC premium.  Effective July 9th, however, no mortgage can be increased to over 80% of the value. Another way of putting this is that all existing mortgages cannot be increased to the point where they would require to be insured through CMHC (ie. > 80% loan to value).  This will create a larger subset of people that may turn to alternative banks (ie. B-lenders) that offer higher interest rates for the benefit of a larger mortgage.  Some industry experts speculate that refinancing with CASHBACK will become more popular as people look to stay with their A-lender bank (ie. major 5 banks like CIBC, BMO, TD etc..) for a favourable rate but with more equity take out options.

Lastly for the minority of the Canadian population (the majority of which resides in Toronto and Vancouver) that purchase for over $1 Million will now require at least 20% downpayment.  It may sound grand, but realistically a million dollar mortgage doesn’t buy very much in large urban centres like Toronto and Vancouver.  

Amidst all the industry buzz over these changes are whispers of more changes to come. What is expected is stricter lending guidelines for self employed individuals, and potentially having to re-qualify for mortgages at term maturity.  

Stay tuned…"

Gianina Kumar is a mortgage advisor with CIBC and can be reached as follows:

TEL:     1-888-414-4874
FAX:     1-877-404-3117

Monday, 4 June 2012

Sellers Providing Home Inspection Reports-A Tale of Caution

Part of the reason I started this blog was to inform others of mistakes past clients have made and educate my readers. In this week's blog, we deal with another potential issue in purchasing a resale property. As a result of high demand and low supply for resale residential real estate, the GTA housing market has come to understand multiple offer situations as commonplace. Often in a multiple offer situation, the Sellers encourage a potential buyer to submit an offer without conditions, what is otherwise known as a "clean offer". For the buyer, this means that all the normal steps that would be taken to investigate the property itself are dispensed with and no inspection of the property ever takes place. Of course, this is risky and dangerous as the buyer has no idea what problems await her after closing.

Sometimes, a shrewd listing agent will have an inspection report prepared and made available for a potential buyer to review prior to submitting an offer. Sounds pretty good, right? What if the inspector doesn't report all the problems in the report?

Using an inspection report prepared by the Seller's inspector is not a safe substitute for obtaining your own inspection report. For starters, you don't know if the inspector retained by the Seller is actually well qualified to prepare the report itself. More importantly, often these inspection reports have a disclaimer that it can not be relied upon by anyone other than the person who paid for it. If there are mistakes or errors in the report, it will be difficult to successfully sue the inspector since you never retained them.

If you do rely on an inspection report prepared for the Seller, you do so at your own risk. 

Wednesday, 23 May 2012

Are You a Small Business Owner? Have You Secured Your Shareholder Loans to Your Company?

[This week's entry discusses the laws of the Province of Ontario. For readers in other jurisdictions, please consult with a local lawyer]

This week we touch on an entirely different area for small business owners. Many of my clients are small business owners, either as a part time or full time endeavor. We have all heard about bank loans and collateral for the loans. If a bank takes collateral for a loan, what this means is that in the event that you do not pay your loan obligations as they become due, the bank has the right to seize and sell that collateral to pay itself back for the unpaid portion of the loan.

When small business owners first start their business and they incorporate a company to carry on that business, frequently they put their own personal funds into the company to allow it to operate. This can happen at any time. If you are a shareholder in your own company and the advance is documented properly, these advances then become loans owed by your company to you as a shareholder or shareholder loans.

Unfortunately, if a business starts to fail, often the owner of the business or shareholder, wants to take out money to repay themselves for past shareholder advances. If this occurs at a time when the business has creditors which aren't being paid, legislation in Ontario may apply and give rise to an action by a creditor to have those moneys repaid back to the company by you.

When you put money into your company you should do so on the basis that the advances are loans and you should make those loans secured loans, meaning, there is collateral for the loan to ensure that the loan is paid back to you. At the inception of your business or as soon as possible, you should enter into an agreement with your company to give you a lien against the assets of the company. This lien must be registered against the company. In Ontario, the legislation governing the granting of security in personal property is called the Personal Property Security Act. Ideally, this arrangement should be in place before you ever advance money to your company.

If completed properly, securing your personal loans to your company is a legitimate and legal method to secure your investment which will rank your investment ahead of the company’s unsecured creditors if the business gets into difficulty.

For more information on how to secure your shareholder advances to your company, please feel free to contact me.