Read more: http://www.montrealgazette.com/business/Good+real+estate+agent+make+difference/3732187/story.html#ixzz13lNbH0eY

Bank vs. budget: How much house can you afford?

Tim Parker Investopedia

We hear it all the time. The housing market is still in a slump and there are dozens of houses just a short drive from where you live that really need an owner and you may be that person.

It’s fate, right? Not so fast! If you noticed that a certain (expensive) home calls out for you each time you drive by, the obvious but most important questions must be asked: Can you really afford it?

Who Decides?

Your bank or lending institution decides. They will look at your application and based on a predefined set of criteria and decide if you can afford the home. You’ve probably heard that it’s much more difficult to get a loan following the mortgage crisis. That’s true! No longer is there a wealth of 0 per cent down mortgages or other types of loans that cater to those higher risk borrowers.

What Do They Look for?

Sometimes we think that our mortgage applications are judged by a person who uses a gut feeling rather than objective criteria. That’s not the case. In fact, even if your mortgage lender was having a bad day, you can rest assured that there is a predefined set of criteria that not only tell the lender if you’re approved or not but also what your interest rate will be. Wouldn’t you like to know what those criteria are?

Credit History

No secret here, right? For most, a home is the largest purchase they will ever make and, in turn, the largest loan they will ever need. This is when your flawless credit that you’ve worked so hard to establish and maintain is going to pay you back. The better your credit, the lower your rate. 

We should mention this now: If you know that you’re going to be looking for a home in the future, work on your credit score now. There isn’t a lot that you can do to remove accurate entries but you must keep a close eye on your reports. If there are inaccurate entries, it will take time to get them removed and you don’t want to miss out on that dream home because of something that is not your fault.

Down Payment

What are you giving them? If somebody asked you to lend them a large amount of money, wouldn’t it make you feel better if they gave you something that you could keep if they don’t pay you back? The banks feel the same way! The more they get from you upfront, the safer they feel. A higher down payment can also help offset negative entries in your credit report.

Banks want more money down than they used to so plan for a 10 per cent down payment. Also remember that if you can put at least 20 per cent down, you will avoid mortgage insurance.

Debt to Income Ratio

Before we look at this, you have some homework: You have to total up the amount of monthly payments you make. Then, total up your gross pay, the amount of money you make before taxes and other deductions which are subtracted from your paycheque.

Do you have it now? This is a vital metric that banks use to determine your eligibility. The debt to income ratio (DTI) looks at the amount of money you owe on a monthly basis and compares it to the money you make each month. The number is shown as a percentage of your gross income.

In other words if you pay $2,000 each month in expenses and you make $4,000 each month, your debt to income ratio is 50 per cent. (50 per cent of your monthly income is being used to pay debt.) Here’s the bad news, a 50 per cent debt to income ratio isn’t going to get you that dream home.

If you’re over 36 per cent, you will be considered a higher risk borrower. Each institution will have slightly different DTI requirements.

Your Income

If your DTI (debt to income ratio) is 25 per cent, but you only make $10,000 per year, you aren’t going to get that home. We won’t spend too much time on this because the obvious guideline is that the more you make, the better you look to the bank.

The Real Decider of Your Loan

The real person who should decide if you can afford a home is you and you have to put your emotions aside. Dave Ramsey, best selling consumer finance author and speaker believes that you shouldn’t use any more than 25 per cent of your take-home pay (net pay) on your mortgage payment. This is different than the bank formula which uses your gross pay.

The problem with using gross pay is simple: How much of your cheque is deducted before you get your money? Thirty per cent? Why would you factor in money, most of which you won’t ever see? Even if you get it back on your tax return, that doesn’t help you now – and how much will you really get back?

What can you realistically afford? That dream home may be everything you’ve wanted at a great price but is it worth overextending yourself and your family? Is it worth potential bankruptcy if you lose your job?

The Bottom Line

The bank may tell you that you can afford a huge estate making you look like a Hollywood celebrity, but can you? Be real with yourself and when you make your calculations, plan for the worst case scenario. Murphy’s law states that if it can go wrong, it will. As Dave Ramsey says, if you leave your front door open to Murphy, Murphy will move in.

http://ca.finance.yahoo.com/personal-finance/article/yfinance/1879/bank-vs-budget-how-much-house-can-you-afford

Your options in the brave new real estate world

Garry Marr, Financial Post · Saturday, Oct. 16, 2010

How would you sell your house today if it was on the market? Would you use a real estate agent or go it alone?

It’s no small issue given the typical commission paid by the seller in this country is about $15,000 based on the latest average sale price of an existing home. When you consider most home sales are for principal residences — and profits are not subject to capital gains taxes–that $15,000 looms larger because it is after-tax money.

The truth is not much has changed since the Canadian Real Estate Association updated its rules in March to make its Multiple Listing Service more flexible, thus allowing agents to simply list a home with the consumer handling all other aspects of a transaction. Those changes are about to be made permanent because of a consent agreement with the Competition Bureau reached last month.

So, what’s the difference today? On a practical level, it’s hard to argue against listing your home on the MLS, which controls about 90% of transactions in Canada. And while you may pay as little as $109 for that listing, you can almost be sure to pay a commission of 2% to 2.5% to any agent bringing his or her customer to your door.

The option to use one of the dozen or so for-sale-by-owner, or FSBO sites, exists, but you can expect to pay a fee for the service. Plus, you can also assume any customer who buys a house through a FSBO site wants a discount on the market price because they know you are saving commission.

I tried it myself for two weeks before listing my own home on the MLS six years ago. My agent encouraged me. What happened is people who did show interest immediately started to talk about a discount. I was back to an agent and the MLS system.

But maybe there is a compromise solution, where I list on the MLS using an agent who helps me with part of a transaction. After all, there are people who paint their own homes but are reluctant to dabble in electrical wiring.

“Commissions are flexible,” says Michael Polzler, executive vice-president of Re/Max Ontario-Atlantic Canada. “There is [a middle ground] and people have to look for it. Many agents will offer a menu of services and that is out there already. Most people will choose to list with an agent who manages an entire transaction.”

But now that that choice is part of the game within the confines of the MLS, expect consumers to take advantage of it to save some cash.

“I’d still use an agent. My life is too busy,” says Craig Alexander, chief economist with TD Bank Financial Group. “But there are going to be people who only want an agent for some things.”

Mr. Alexander thinks changes are coming, but couldn’t put a timetable on it. He says it is basic economic theory that once you introduce elements of competition to a system, it will start to become more efficient.

Robert McLister, editor of Canadian Mortgage Trends, says many realtors will start offering a la carte services such as document preparation, showings, valuation and offer negotiations. He believes high-end real estate will be less affected by the changes and the industry might gear its efforts more to that end of the market.

And, he adds, FSBO sites that charge listing fees could be devastated by a bargain-basement MLS.

“Removal of listing barriers will allow efficient markets to take over. That will put obvious pressure on realtor fees. The era of 5% commissions in Ontario [other jurisdictions vary] could become a distant memory in three to four years,” says Mr. McLister.
Read more: http://www.financialpost.com/personal-finance/Your+options+brave+real+estate+world/3680721/story.html#ixzz135MK523U

Bank of Canada says third-quarter growth was worst since recession

By Julian Beltrame

OTTAWA – The Canadian economy likely suffered the worst quarter since the recession over the summer months, but Bank of Canada governor Mark Carney warns against taking too gloomy a view.

“I wouldn’t obsess about the third quarter,” Carney told reporters Wednesday after Canada’s central bank released its latest global economic outlook.

The bank conceded the economy likely continued to brake in the July-September months to 1.6 per cent growth — down from two per cent in the second quarter and the distant memory of the first quarter’s 5.8 per cent advance.

But Carney said Canadians should take a longer view and also take comfort that no matter how modest, at least activity is still positive.

“Two years ago, I (would have said) the economic picture we’ve just seen would have made the bank happy, would have made Canadians happy, given the alternative,” he said.

“We’ve recovered the jobs, we’ve recovered the lost output, we are doing better than virtually anybody else in the advanced world.”

Canada’s current rate of growth is about half the pace the bank had expected a few months ago, and even slower than the U.S., but Carney notes that there’s no comparison between the Canadian and U.S. economies.

While all and more of the about 400,000 jobs Canada lost during the recession have been recovered, the U.S. has only recouped about 15 per cent of their losses. And Canadian domestic demand is outpacing the U.S. by 20 per cent.

Dangers lurk, however, as the bank’s latest quarterly review makes clear.

Both the Canadian and global recoveries, as well as future growth projections, are more modest now than they were three months ago.

To accommodate those diminished expectations and increased risks, the bank on Tuesday suspended the monetary tightening cycle it began in June. Analysts think the bank’s key interest rate will stay at one per cent for many months.

The bank says in the balance it still believes the recovery will continue, but it highlights “important” risks, both internal and external, with the potential to upset the apple cart.

Canadian households are steeped in debt and could become a drag to the economy should housing prices collapse. Latest data shows debt-to-disposable income among households has reached a record 147 per cent.

“If there were a sudden weakening in the Canadian housing sector, it could have sizable spillover effects on other areas of the economy, such as consumption, given the high debt loads of some Canadian households,” the bank states.

Carney acknowledged keeping rates low for an extended period only increases the debtload risk, but said he believes consumer spending, including on housing, is tracking lower.

Coincidentally, the TD Bank also warned about household debt in a report Wednesday, saying one-in-10 households could find themselves in financial distress when interest rates rise. Fortunately, that many not be for some time.

Externally, the bank heightened its concerns over the growing friction in the world over currency manipulation, with advanced economies threatening to retaliate against China’s undervalued yuan.

The issue will be central to discussions at this week’s G20 finance ministers in Korea, but Carney suggested a solution will be slow and laborious.

Advanced economies, particularly the U.S., have long complained that China and other fast-growing Asian economies are artificially keeping their currencies below their true value in order to boost exports and discourage imports.

Although China has made some moves to increase the value of the yuan and hike domestic consumption, advanced economies believe those actions have not gone far enough.

Carney said as big a concern is that frustration will grow in advanced economies to such an extent that it will touch off a currency war, although he said China was the key.

“It’s not just China’s position … but as part of rebalancing the global economy, increased flexibility of the (yuan) is absolutely essential,” the bank governor said.

Despite the challenges, the bank sees the Canadian economy advancing from the slow third quarter to a 2.6 per cent gain in the fourth, and an average 2.3 per cent in 2011, followed by 2.6 in 2012.

One encouraging signal is that businesses have begun to invest in new machinery and equipment, which should boost productivity going forward.

Another, said Carney, is that exports will turn from being a net drag on growth to a tiny positive sometime next year as global demand picks up.

Still, it’s going to be a slow, hard slog back to normalcy.

The economy is not nearly as strong as the bank thought it was in July. It calculates output gap — the slack in the economy — remains at 1.75 per cent, not 1.5 per cent as estimated in the previous review.

The bank’s best guess now is that the economy will eventually right itself, but won’t be firing on all cylinders for another two years.

The Canadian Press http://news.therecord.com/Business/article/797065

*BoC Keeps Key Rate Unchanged

The market widely predicted the Bank of Canada would not raise rates, and it was right. The BoC has left its key lending rate at 1.00%.

In turn, prime rate will remain at 3.00%, making today’s BoC meeting a non-event for mortgage holders in the short-term.

The BoC’s call comes amid languid recent growth and inflation numbers. Here’s a sampling of the Bank’s commentary from its official statement:

• The BoC sees a “weaker-than-projected recovery in the United States.” (No revelations there)
• The potential exists for “a more protracted and difficult global recovery.”
• “…domestic considerations…are expected to slow consumption and housing activity in Canada.”
• “Inflation in Canada has been slightly below the Bank’s July projection.”
• “The inflation outlook has been revised down and both total CPI and core inflation are now expected to converge to 2% by the end of 2012.” (That’s potential good news for mortgage rates)
• The 1% overnight target rate “leaves considerable monetary stimulus in place.”

The next and final interest rate meeting of 2010 is on December 7.

*BoC Keeps Key Rate Unchanged – Canadian Mortgage Trends – October 19, 2010

Click here to view article: http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2010/10/boc-keeps-key-rate-unchanged.html

There has been a bottoming out  Garry Marr, Financial Post ·

Rock-bottom long-term mortgage rates appear to have handed the housing sector the lifeline it desperately needs, helping to push up sales for a second consecutive month and keep prices from falling.

The Canadian Real Estate Association said Friday sales last month rose 3% from August on a seasonally adjusted annualized basis — highest since May 2010 — and the second straight month sales rose.

Meanwhile, prices have also begun to stabilize as fears of a dramatic meltdown appear to be abating. The average price of a home sold in Canada last month was $331,089, down slightly from the $331,683 average a year ago. But prices were up from a month earlier, when the average was $324,928.

“Supply and demand are rebalancing and that’s keeping prices steady in many markets,” said Georges Pahud, president of CREA.

The other factor keeping the market afloat are interest rates.

The Bank of Canada has signalled it will take a pause on raising its key lending rate which should keep the prime rate at most banks at 3%, affecting any variable rate borrowers.

But it’s consumers on the long end of the borrowing spectrum who appear to be getting a better deal with the five-year term fixed-rate mortgage reaching an all-time low over the past month.

Gary Siegle, the Calgary-based regional manager for mortgage broker Invis Inc., said the standard rate for locking in for five years is now 3.69% but adds some lenders have dropped to as low as 3.39%.

“I’ve been working for 38 years and I don’t recall rates this low ever in my career,” said Mr. Siegle, adding the discount on variable-rate mortgages has dropped to the point that consumers can float with a rate as low as 2.35%.

“The question I wonder about is at these rates is why are people not all over the real estate market?”

CREA said two-thirds of local markets last month posted sales increases with Winnipeg, Calgary and Montreal standing out. However, compared with last year, sales still lag across the country, down 19.8% in September from a year ago.

“Record level sales activity late last year and earlier this year is expected to further stretch year-over-year comparisons in the months ahead,” the group warned.

TD Bank Financial Group economist Shahrzad Mobasher Fard expects falling mortgage rates to be a significant boost for the market for the near future. “They are a factor that cannot be dismissed,” said Ms. Mobasher Fard. “[Current rates] won’t lead to an overheating but it will support further growth in home sales and prices. The last two months of data indicate there has been a bottoming out of home-selling activity and prices.”

Demand is still tepid but there has been a slowdown in new listings, which are 15% off the peak reached in April. The number of months of inventory, which represents the number of months it would take to sell inventories at the current rate of sales activity, was down to 6.6 months in September.

It was the second straight month inventory levels dropped, having stood at 6.9 months in August and 7.2 months in July.

“Mortgage lending rates eased in the third quarter, which helped support sales activity over the past couple of months,” said Gregory Klump, chief economist with CREA.

“Interest rates are going nowhere fast, so home ownership will remain within reach for many home buyers.”

The chief executive for Royal LePage Real Estate Services Ltd. said he was almost a bit relieved to see the latest figures.

“I was pleasantly surprised to see the year-over-year average price flat given the strength of last year’s September results,” said Phil Soper. “I expected a small decline in average price. It has been driven almost entirely by the low cost of money.”
Read more: http://www.financialpost.com/news/rates+bail+housing/3679749/story.html#ixzz12i6nm2z1

Are Mortgage Brokers Doomed or Are Origination Models Evolving?

by C.M. “Corky” Watts, CMB

Mortgage News Daily

“In the long history of humankind (and animal kind, too) those who learned to collaborate and improvise most effectively have prevailed” -Charles Darwin

Last week I debated one of my Management Advisory Program (MAP) clients who operates a mid-size retail mortgage banker. The topic of dispute: Are mortgage brokers a dying breed?

He felt passionately that top-producing independent mortgage brokers would soon be forced to attach themselves to a regional mortgage banker.  I believe markets ebb and flow and human nature tends to follow the crowd. Retail is vogue today. Wholesale is not.  Being a contrarian, I stated there may be an opportunity to develop a modified Third Party Originator (TPO) strategy in anticipation of the origination model changing in 1-2 years.  He disagreed and said emphatically, brokers are walking dead.

After a few more jabs, he provided some support for his opinion:

1. Regulatory Changes:  Numerous regulator changes have made it more difficult for independent originators to compete with regional bankers.  Whether its HVCC or disclosure of certain fees, brokers don’t have the control they once had  Moving a file from one wholesaler to another is very difficult today.
2. Profitability:  Without the owner originating a lion share of the loan volume, most mortgage brokers lose money.  Many owner/operators are strong producers, but poor business managers.  They lack skills in accounting, HR, IT, marketing, compliance, etc.  Furthermore, my client felt brokers don’t know how to effectively recruit, manage or fire loan officers. 

He believes these issues will eventually force broker originators toward working for a strong regional mortgage banker. 

According to my client, these originators are looking for the following attributes in a mortgage banker:  

• Strong Balance Sheet
• Few Legacy Issues and Limited Repurchase Risks
• Must Sell Loans Through Mandatory Conduit
• Cutting Edge IT Department. Web Based Technology is a Must
• Most Importantly, a Loan Officer Centric Culture and Management Team

I don’t agree that mortgage brokers are a dying breed.  I do believe mortgage originators and mortgage bankers are creating new ways to do business though.  A growing strategy for many wholesalers is to convert some of their better broker customers to retail branches. Is this the wrong move? Will these originators maintain this retail relationship in the future?  Only time will tell. 

The mortgage business is a study in Darwinism.  Mortgage participants that learn to collaborate and adjust to the business environment will prevail.   Those that don’t may become road kill.

http://www.mortgagenewsdaily.com/garrett_watts/149946.aspx

October 07, 2010

TD Mortgages To Become Collateral Charges

TD is making a big change with respect to how it registers its mortgages. 

Effective October 18, all new TD mortgages will be registered as “collateral charges.”

A collateral charge is a different way to secure a home loan than a standard mortgage. “The terms of a collateral mortgage are outlined in a loan agreement that’s not registered,” says Invis’s Gary Siegle. “With a regular mortgage, the terms are in a ‘registered document’.”

Effectively, collateral charges allow lenders to change the interest rate and/or loan more money to qualified borrowers after closing, without involving a lawyer.* That saves the borrower legal costs if he/she needs to withdraw equity from their home.

In TD’s case, customers will now be able to register their mortgage for up to 125% of the value at closing. Hence, if one’s property value goes from $200,000 to $250,000, qualified borrowers will be able to withdraw most of that new equity without refinancing. 

“If I’m a consumer and I’m told that I can get more money in the next few years without extra cost, I would think most consumers would find that appealing,” says Siegle.

The downside comes at renewal. For consumers who want to keep their options open at maturity, this is an unfriendly change. That’s because TD customers will now have to pay legal fees to switch lenders.

Obviously, people switch lenders for many reasons, not the least of which is better rates or features.  And, with most other lenders, you can switch your mortgage for free, save for the discharge fee or other minor charges. 

From our own informal polls, many industry observers we’ve spoken with view this change largely as a strategy to retain customers at renewal.  If this is TD’s intention, they’re definitely not the first lender to think this way. There are various credit unions, for example, that register all of their mortgages as collateral charges.  There are also banks that push readvanceable mortgages (which also use collateral charges), for similar reasons.  TD itself has used collateral charges with its variable and HELOC products for a while.

For now, it’s difficult to assess the impact of this change.  Everyone needs to renew, but not everyone needs to refinance. So TD’s move will benefit some while hurting others. 

On the other hand, most mortgagors renew with their existing lender anyway, so the number of TD customers who refinance may be higher than the number of people leaving TD at renewal. 

That depends on the term, of course. Someone in 1-year fixed has a low probability of refinancing. So, other things being equal, TD will now be a less attractive option for standard 1- to 3-year terms.

In any event, TD customers need to be aware of both the pros and cons of this move. 

One thing we’re not certain of at this time, is how existing TD mortgages will be affected.  TD spokesperson Kelly Hechler said TD would release a clarification on this soon.

We’ll post more information in the comments section as it becomes available.

____________________________________________________

*  A collateral charge generally doesn’t allow a lender to change a fixed rate or the discount on a variable-rate mortgage. However, it does allow the lender to change the rate if you ask for more money later, or if you have a line of credit portion with a floating rate.

What’s the difference between a mortgage broker and a road rep?

By Derek Sankey, Postmedia News October 5, 2010

When Laura Parsons’s son, a heavy-duty mechanic, graduated with student debt like so many of his post-secondary peers, he also wanted to get into home ownership. Realizing the financial burden, he found a creative solution.

Over two years, he put money that would have gone to pay student loans into an RRSP for home ownership, which triggered a rebate that paid off half his student loan.

He put $8,000 into the RRSP and received back $4,600.

“It’s smart use of debt and understanding all the programs out there,” says Parsons.

If it’s not managed well, everyone faces the potentially crushing grip of debt.

Parsons’s son, perhaps, had one advantage: His mother is a manager for BMO Financial Group in Calgary.

Canadians are living with rising levels of debt, but there’s good debt and bad debt.

How you deal with it, financial planners say, will either allow you to move forward with your finances or run you into roadblocks.

Fifty-one per cent of Canadians say they are focusing on reducing their debt over the next year. Meanwhile, 39 per cent plan to spend less, according to the RBC Canadian Consumer Outlook Index.

“It’s important that Canadians feel confident and understand that managing debt is crucial to their financial success,” Andrea Bolger, a senior vice-president in personal financing products for RBC, said in the report.

Most Canadians’ largest source of debt is their mortgage, and recent talk of a housing bubble has led to some fear in the market. But Parsons says that fear is unfounded because Canadian borrowing rules and regulations are vastly different than those in the U.S. Parsons cited a recent Canada Mortgage and Housing Corp. article that argues the housing market is stable in Canada.

“We’re nowhere near the U.S. rules that caused so many foreclosures,” Parsons says. “That didn’t exist in Canada.”

Debt needs to be actively managed, according to Calgary financial planner Debbie Ehrstien, with RBC Wealth Management.

“People really need to analyze what kind of debt they’re carrying and [determine] if it makes sense,” says Ehrstien.

Active debt is debt on which interest rate payments and other expenses associated with the debt are tax deductible, such as borrowing to invest.

Passive debt, such as credit card debt, is non-deductible and the borrower shoulders the entire cost.

Moving forward with any financial plan requires consumers to deal with their debt. Pay off high-interest debt first, understand the true cost of each kind of debt — the terms and the interest rates — and manage debt by consulting with planners and using online tools to find ways to pay it down in the most cost-effective way, says Ehrstien.

Eighty-three per cent of Canadians who develop a comprehensive financial plan feel in control of their finances, she adds.

“Most people are starting to slow down enough to ask those key questions [and] utilize the cheaper debt to pay out the more expensive debt,” says Parsons.

The Financial Planning Standards Council has launched Financial Planning Week this week, during which certified financial planners will go into the community and give “financial planning health checkups” in various community venues to raise awareness about debt management.

© Copyright (c) The Vancouver Sun

Read more: http://www.vancouversun.com/business/Managing+debt+crucial+financial+success/3624422/story.html#ixzz11aIWNiUj