Posts Tagged ‘Mortgage broker’
What’s more important, the story or the headline? These days, it’s seems like the latter. Most of us get our info in 140 characters or less (twitter)… anything longer and it’s lost next to an ad in one of those dated methods of information (newspapers).
With hardly any warnings or hints Jim Flaherty announced new rules that set the my twitter feed on fire. Realtors, Mortgage Brokers and the ever present “Condo Bubble Babies” posted details of Jim’s big announcement. The most common tweet was about amortization period shortening from 30 to 25 years… with that came the fear of hellfire and damnation for all.
… and then the phone started ringing. The online panic had spread, with most people being concerned with how the changes would effect their prospects (both of buying and selling). After several emails, and phone calls I figured a blog post would be best share with you the conversations I’ve had with them.
For starters, let’s clear up the biggest misconception. THE CHANGES DO NOT APPLY TO ALL PURCHASERS. Only if you’re purchasing with LESS THAN 20% need you read further. The changes announced on Thursday only apply to new government-backed insured mortgages with loan-to-value ratios of more than 80 per cent.
If you haven’t already spoken with a bank or mortgage broker, here’s how to tell if you’ll be getting a government backed mortgage: If the downpayment is less than 20% of your purchase price these changes will affect you. So for that $350,000 condo you’ve been looking for, you’ll need at least $70,000 down to avoid the new rules.
Now let’s say you’re buying with less than 20% down, here’s what you need to know effective July 9th, 2012:
The maximum amortization period has been reduced to 25 years from 30 years. This was the biggest point being shared on the changes, so I wanted to spend a bit of this post describing what this means. I’m going to use a worse case scenario to illustrate the change. I’ll stick to a $350,000 purchase price and assume the buyer only has 5% to put down. A 3.29% fixed mortgage rate is pretty much the norm these days, so i’ll be using it in this example. If purchasing before July 9th, 2012 and amortizing for 30 years, you’ll be putting down $17,500 and you’re looking at a monthly mortgage of $1,493. Your CMHC premium will cost $9,809. After the 9th, you’d only be allowed to amortize for 25 years (max) making your monthly amount $1,668 (a $175/month difference). The good news is that the CMHC premium drops to $9,114 (savings of $695) AND your mortgage will be paid down 5 years faster with much less interest than before. I see a very small segment of the market being affected by the changes. Properties under $500,000 will probably see the biggest change since that’s the target range for first timers. My hopes is that the new rules will bring some relief to the over heated bidding wars we’ve been seeing!
The maximum amount Canadians can borrow when refinancing their home is 80 per cent instead of the former 85 per cent of the value of their homes. This change is aimed at the home owners looking to borrow against the equity in their home. It’s pretty straight forward and basically means you’ll have a bit less to borrow but more saved up in your home. I think this is a great move that creates even more stability in the Canadian market.
Purchasers can only put less than 20% down on homes (and condos) with a purchase price of less than $1 million. In my opinion, this is the most interesting of all the changes. Essentially the move puts a cap on the government backed mortgages to buyers with a purchase price of a million or less. With the new rules, you’ll need to put down a minium of $200,000. As limiting as the change may sound, the reality is that very few people buy million plus homes with less than 20% down. Most purchasers in this category are typically move up buyers, and if you’ve owned a home in Toronto for the last 10-15 years chances are you’ve probably seen gains of at least $200,000. As you may have heard, CMHC is nearing it’s limit to the amount it’s allowed to insure. I think this move was made to keep the program open to those who need it most – the first time buyer. Also, the cap add’s a new level to the guidelines. Down the road the decision makers may change the million dollar benchmark, especially with rising prices in the major areas like Vancouver, Toronto and Montreal.
The wild world of calculators has come a long way since it’s early “abacus” roots! Today we have formula’s and devices that can compute just about anything…from the amount of calories we eat to that subject we kept failing in high school, alga-something-acus! Yet, in Canada, there’s been a massive gap for one of the most practical calculations and one we all need to know: Buying A Property!!!
Shortly after becoming a newly licensed Realtor, I took to the streets fully armed and ready to educate my clients on everything from amortizing to double compounding. I had formulas, scientific calculators and several bookmarked websites all within a few clicks away. The problem was, there was no central calculator that could perform all the functions in one place. Even the Canada Mortgage and Housing Corporation website (CMHC) didn’t have a simple method of adding insurance premiums to those who wanted to purchase with a less than 20% down!
Finally I did what any mid 20′s Realtor would do in today’s day and age…I tweeted my frustration to my followers in the Twitter-verse. With in minutes several Realtors from across the country echoed my comments. Thankfully and to my surprise, a solution was already out there, just waiting to be found! The answer cam from @RateHub_Canada who sent a tweet linking to their “Mortgage Payment Calculator“.
This my friends is not your typical copy-and-paste-crappy-bank-calculator that the big 5 offer…no, no, this is much bigger, and waaay better! The RateHub mortgage calculator not only spits out numbers for your purchase or renewal, it covers the whole process! It first asks you to put in your desired purchase price. From there it breaks down the different scenarios based on a 5,10,15 or 20% down payment. Say you wanted to put down more than the preset percentages, you can easily adjust the numbers to reflect that…all in real time. Green bubbles help guide the user through the process and if at anytime you’re not sure what one of the “terms” mean, simply click the question mark for it’s explanation!
Where most bank calculators fail is the only offer their companies rates. Since RateHub is independent of any banks, they’re able to show the rates of several providers right across Canada! Once you’ve inputed the nessecary amounts, it let’s the user know exactly how much is needed per month…all in a nice and easy to read package!
The “Cash Needed” section is my personal fav…it answers one of the most basic AND important question a buyer should ask: “How much will this cost?” Remember that problem I had with the CMHC website earlier in the post? Well, the RateHub calculator solves that in a few quick clicks! This section goes over everything from PST on CMHC insurance to potential appraisal costs. It allows you to plan your purchase based on the 4 scenarios you enter at the start of the process (super helpful).
The “Monthly Expense” section covers exactly that. It has several editiable boxes so users can add the “other” costs that tend to go unnoticed in the budgeting process! And it doesn’t stop there…
The “Interest Rate Risk” helps budget way after your first few years in the new place! This is one of the most realistic functions I’ve ever seen in a mortgage calculator. It shows how much will be owning at the end of 5 years and what payments will be if rates go up. This is huuuuuuge as we’ve been spoiled with historically low mortgage rates as of late.
If couldn’t have been able to tell yet, I absolutly love this calulator!!! My hopes is that more buyers, bankers and Realtors find out about it as it’ll make your purchase a much more realistic and planned buy!
Once you’ve figured out how much you can afford…give me a call or send me an email so we can figure out where you’ll live!
Chris Molder, Toronto Mortgage Broker, recently launched his newest blog appropriately named “SonOfABroker.com” The name came to be from the fact that he literally is the son of a mortgage broker. As Chris puts it: “Since 1975 my father has been sharing his wisdom and insights about mortgages with his clients and myself. The purpose of this blog is to share the knowledge and experience of over 30 years in the mortgage business with you!”
I’ve been following his work for the past few months and really like the approach he takes. I’m a firm believer that “the devil is in the details”, so it’s only natural for me to take a likening to Chris’ informed and educated approach when talking mortgages. Watch Chris in action as he explains ‘the 5 things everybody should know about their mortgage’ in the video below: Read the rest of this entry »