Nine signs you can’t afford a mortgage

Michele Lerner Investopedia.com

While plenty of individuals live from paycheque to paycheque, most consumers know they should be saving money and reducing debt. The recession has drummed that concept into everyone’s head as people have watched their neighbours and friends lose jobs and sometimes their home.

Many people say that money worries keep them awake at night, but that doesn’t necessarily translate to imminent bankruptcy. How do you know when you are truly teetering on the edge of a financial disaster versus simply needing to do a little belt-tightening?

Here are nine signs that indicate you are heading for trouble and may be unable to pay your mortgage in upcoming months:

1. Late Fees

If you missed a payment or let your bill go past due because you didn’t have the money to pay your mortgage or another bill on time, you need to re-evaluate your budget. Not only does this indicate an imbalance between your income and expenditures, but it will also ruin your credit score, potentially causing your creditors to increase your interest rate.

2. You Can’t Pay All of Your Bills

Every month, you are forced to decide which bills to pay and which bills to ignore. A lot of people opt to pay their credit card bill to stop harassment from the credit card company and to make sure they have available credit. But it is far more important to pay the bills that protect your home first. Always pay your mortgage first so that you will have a place to live. Next, pay for your car so that you can get to work and keep your job.

3. Making Minimum Payments on Credit Cards

In your mind, paying the minimum due on each bill may mean you are keeping up with your financial commitments, but financial experts know that minimum-only payments are a key indicator of financial distress. While this may mean that you carry too much debt, this also means that all your income is barely covering your spending. Take a careful look at your mortgage payment, other debts and your income to get back on track. Paying only the minimum on credit cards will extend your debt for years and amass expensive interest payments.

4. No Emergency Savings

While amassing six to 12 months of funds to cover you expenses, as many financial planners now recommend, may be a monumental task, every homeowner should have at least one month’s worth of expenses in the bank. At the very least, you need to have enough money in a savings account or a money market fund to pay your mortgage for one month if your income drops or disappears. If you cannot save that much money you need to seriously evaluate your overall household budget.

5. You Can’t Afford Maintenance

Your home needs to be painted and your dishwasher broke two months ago. If you are ignoring basic maintenance because you cannot afford to buy paint or call a repairman, this is a significant indication that you are in financial trouble. Not only does this show that you don’t have any emergency savings or a home maintenance budget, but this will also reduce the value of your home.

6. Reduced Income

Money is already tight and now your work hours have been reduced or you have been laid off. If meeting your monthly budget depends on every dime you earn, then even a small reduction in income can be a disaster. Search for a new job or a second job and, at the same time, start slashing your budget as much as you can.

7. Using Credit or Cash Advances to Pay Bills

You are using your credit cards or, even worse, cash advances on credit cards to pay other bills such as a utility bill or to buy groceries or just to have cash in your pocket. This is a strong indication that your spending is outpacing your income and it is extremely expensive. You need to put yourself on a debt management program or perhaps meet with a credit counselor to straighten out your finances.

8. Using Your Retirement Fund

You have borrowed money from your retirement account for your mortgage payment or other debt. This could seriously jeopardize your future financial security.

9. You’re Maxed Out

One or more of your credit card balances has reached or, worse, gone over the limit. If you are transferring your balances to new accounts in order to avoid paying the debt, this is a sign of a financial imbalance. If you are applying for new credit cards because your other cards have reached their limit, you are in serious danger of a financial meltdown. While you may be making your mortgage payments just fine, if you cannot control your use of credit cards it can be an indication that housing payments are too high.

While these financial woes can mean that you cannot afford your home, they may also be a sign that your spending is out of control. For most people, the mortgage payment is the largest monthly bill, so they often assume that the size of their mortgage is the problem. If your housing payment fits into that budget but you are having difficulty making your payment, then the issue may be that you have taken on too much other debt. Whether the problem is your mortgage or your other debt, you need to find a way to reduce your spending and/or boost your income before the situation gets worse.

The Bottom Line

Handling financial problems is never easy, but the first step is always to know what you owe. Solutions can only become clear once you have every bill written down with the amount owed, the monthly payment and the interest rate you are being charged. Pencil and paper work just fine, or you can create a spreadsheet or invest in some personal finance software. The important thing is to know where you stand so you can create a plan that will get your money under control. http://www.theglobeandmail.com/globe-investor/personal-finance/mortgages/nine-signs-you-cant-afford-a-mortgage/article2003996/page2/

Rent or buy? Do the math

William Hanley, Financial Post · Apr. 28, 2011

A young couple who have been renting in our modest Toronto condo building recently bought a home a couple of miles away in a nice old neighbourhood with the aim of starting a family. The house is a big, detached fixer-upper and the renovation costs will be extensive.

In moving up to the rungs on the property ownership ladder, our young friends are committing themselves to a quantum leap in monthly expenses: They came up with a substantial down payment; they are taking on a mortgage payment, property tax bill and other expenses almost twice as large as their $1,600 rent; and they are spending a large amount on the renovation and other costs associated with buying a house.

It is a story that has unfolded millions of times in Canadian history and one that will continue to unfold because home ownership is deeply ingrained in our culture, a cornerstone of getting established and getting on our way in life. People will make great sacrifices and otherwise twist themselves out of financial and emotional shape to buy into the dream.

They willingly become what we used to call “house-poor,” paying well over the one-third of household income that many professionals believe should be the threshold.

Over the past decade, owning has been a financial success for most people, with prices rising almost in a straight line, with low, low interest rates feeding into the equation and with homeowners’ equity subsequently bounding higher.

And yet, if it has been just about as good as it gets for so long, perhaps conditions are going to deteriorate at least somewhat, with prices likely to stabilize or retreat a little and with interest rates set to rise modestly at least.

Our friends and other buyers this spring will know that Canadian house price gains have been flattening out. The Teranet-National Bank House Price Index for February published this week showed house prices gained just 0.1% from January for a 12-month gain of 3.8%. It was the eighth consecutive month of deteriorating gains.

While the forecast of a 25% drop in house prices over the next few years by one widely quoted economist seems far-fetched under present circumstances, a pattern of smaller gains likely signals a flat to slightly lower market.

So, is it time to revisit buying versus renting? For most of the 30% of Canadians who rent their accommodation it’s simply not an option. Getting their hands on a significant down payment and having the flexibility to meet higher payments if rates rise is difficult at best.

But some people with the wherewithal to buy a property might want to keep renting, keep saving and investing, and keep their options open. Other long-time owners might even want to consider selling and renting, thereby locking in their tax-free gains.

If you wish to see how the math works, visit United Mortgage Group’s Rent vs. Buy Calculator website. Even your technodunce reporter could plug in some numbers and come away with worthwhile conclusions.

A two-bedroom condo in our building might sell for $400,000. Let’s say you have a $100,000 down payment, a mortgage rate of 4.5% over five years, a $672 monthly condo fee, $200 a month in property taxes and other expenses of, say, $100 month.

Let’s also say that a two-bedroom might rent for $1,600 a month in the building, other costs might total $100 a month and the rent might rise 2% a year over five years.

All other things considered, the purchased condo would have to appreciate 2.33% a year, selling at $441,571 to match the gain made by renting a similar property in the building and investing the difference in outgoings at a conservative 2.5% a year.

The other way around, an owner could sell for $400,000 — with net proceeds of about $375,000 — and rent for $1,600 a month. The $375,000 could pay a conservative net return of, say, $10,000 a year. That $1,600 a month plus $100 in expenses would add up to $20,400 a year.

But deduct the net investment return of $10,000 a year and the condo fees of $672 a month, property tax of $200 and other expenses of $100 (for $11,664 a year), and the monthly rent for the former owner is basically paid. Or the former owner could invest the $10,000 a year and still end up paying only about $728 a month more than he was when he was owning.

Of course, this is just the rough math, which doesn’t take into account other factors, such as pride of ownership, the sense of place and the strong probability of building equity.

But geez. If I could live in the building basically for what I’m paying now in fees, taxes and insurance (by deploying my $10,000 a year investing return), and have my $375,000 to “invest” in winters in Waikiki and nice overnighters in Niagara-on-the-Lake, well then ….

It’s a thought, but only that. They’ll probably carry me out of here feet first from our condo, the equity in which may one day be needed to help us out in one of the emergency situations that can arise in older age.

Meantime, it wouldn’t hurt for everyone to do some math and determine what’s best financially for them — renting versus buying. And then, of course, throw the math out the window and succumb to the emotional tug of home and hearth. http://www.financialpost.com/personal-finance/mortgages/Rent+math/4691358/story.html

The ‘thrill’ of buying a house

William Hanley, Financial Post · Apr. 21, 2011

You walk into the open house, take one look and say to yourself: This is it. It’s the house I have to live in. Where do I pay? A bidding war? I’m in.

Over my years of buying houses, I never bought one that did not have that frisson moment, that thrill of finding a place so suited to my wants. Indeed, I have in the past decided that I wanted to buy a house in what seems, in retrospect, to be nanoseconds. (By contrast, I’ve taken weeks to decide on the right pair of shoes.)

It is no way to make an “investment,” to be sure. But, as I’ve previously discussed in this space, buying a house is perhaps the most uninvestment-like of investments.

Just about anyone who’s purchased a property or thought about purchasing knows that it is much about gut-feel, in which the senses can conspire to trump sense.

Now, as the major real estate selling season gets under way, along comes a survey commissioned by BMO Bank of Montreal to give statistical weight to the notion that intuition carries a particularly heavy weight in the house-buying process.

The survey by Leger Marketing found that more than two-thirds of Canadians cited a “good feeling” toward the property as a reason to buy. Meantime, though, good sense is not thrown out of that gorgeous bay window and into those manicured flower beds. More than 90% of house-hunters value affordability and location over resale value.

So, the axiom that there are three important things in real estate – location, location and location – might reasonably be replaced by the Three Ps: Price, place and personality.

Nevertheless, that resale value is not a big concern to these surveyed house-hunters – people between 25 and 45 who plan to buy a home within two years – is a telling sign of the real estate times.

With some dips here and there, Canadian house prices have been rising strongly for more than a decade. Indeed, even the recession created just a downward blip in the chart of ever-growing values, with the average national price rising 8.9% last month from the previous March (but just 4.3% excluding Vancouver).

As a result, most of the house-hunters surveyed might never have been aware of a housing market that was not rising. I suspect many in this 25-to-45 demographic believe house prices basically keep going up forever, that though they downplay resale value in the survey, the expectation for solid gains is, well, a given. (Any significant drop in prices would surely shake that belief.)

In recent times, investors have been asked if they are stocks or bonds. If you’re a stock, you are prepared to take on more investment risk. If you’re a bond, you are not.

Perhaps, though, many people are probably houses when it comes to investing. A home is both partly a stock and a bond – and somehow neither.

It is a bond because over the long term it will likely produce modest returns through the enforced savings required by paying down the mortgage. It is a stock because the gains could be outsized if the investor were to buy and sell at propitious entry and exit points for market-timing gains.

And it is neither because it is an “investment” with many moving parts and frictional costs. You don’t live in a stock or a bond, but when the house leaks, it costs money and cuts into the investment. Meantime, the costs associated with buying and selling a property are becoming more daunting in many jurisdictions, with some observers reckoning that a house is often a mediocre investment at best.

But most young first-time buyers and mover-uppers are not fazed by such commentary. Home ownership is a cornerstone of our culture, with 70% of the population owning properties and many of the other 30% looking to join the majority.

And the real estate industry has become far more adept at marketing and selling than in the days decades ago when I was in the market. Today, houses are often professionally “staged” to produce that frisson moment. Prices are sometimes set artificially low to produce that exciting bidding war and that extra frisson of “winning.”

A house, it is said, is not a home. And a home is not strictly an investment. But does a stock have granite counters? Does a bond have stainless steel appliances? http://www.financialpost.com/personal-finance/thrill+buying+house/4655339/story.html

 

Canadians struggling to save and pay off debt; 38 per cent have no savings

LuAnn LaSalle, The Canadian Press

Many Canadians are finding themselves caught between the struggle to save money and repay their debts, says a survey from TD Bank.

And with interest rates expected to rise this summer, clearing debts probably won’t get any easier. In the report, 38 per cent of Canadians surveyed said they had no savings at all.

“I think it’s worrisome,” said Carrie Russell, senior vice-president of retail banking at TD Canada Trust “The reality is that we are all going to come into unexpected expenses from time to time, be it a car or health or a job loss and this can really derail you and your family if you have no cushion behind you,” Russell said from Toronto.

Russell said the major factor preventing Canadians from saving is that they are using disposable income to pay down debt, whether it be credit cards, car loans or mortgages.

She recommends a cushion of three to six months of income saved to get through unexpected financial shocks.

One-third of Canadians who responded to the recent online survey also said they didn’t have enough money to cover living expenses like rent or food bills.

The survey found that 54 per cent of the 1,003 people who took part in the survey said it was a real struggle or impossible to save.

Repaying those debts will only get harder if the Bank of Canada raises interest rates this summer, as expected. A spike in Canada’s inflation rate in March was driven by higher food and gasoline prices.

Shopping is also taking a toll on tucking money away for a rainy day.

Russell said 12 per cent of those surveyed said they couldn’t save because “they shopped beyond their means.” Nineteen per cent of those surveyed under the age of 35 said they spent too much on shopping, she added. “This really comes down to the age-old question of budgeting, choices and skills required in making plans for a healthy financial future.”

Changing habits starts with children and making sure they understand how much things cost and understanding the difference between a “want” versus a “need,” she said.

“We don’t send our children into the deep end of the ocean without teaching them how to swim. We shouldn’t send our children out into the workforce and independent lives without giving them the basics of financial literacy.”

On the flip side, 30 per cent of respondents said they had enough money saved to cover living expenses for at least four months.

Russell said those who were most successful with savings were “paying themselves first” and using automatic savings programs to put money aside.

Certified financial planner Marta Stiteler had some tough love for Canadians without nest eggs: learn to live with less and start saving every month even if it’s just $50.

“People are using the downturn as an excuse,” said Stiteler, an associate at Pillar Retirement in Hamilton, Ont..

“The reality is you just have to bite the bullet and save. If you don’t save you’re going to spend it because your lifestyle will eat up that money,” she said. “It’s about discipline.”

The Vanier Institute of the Family has said that average family debt in Canada hit $100,000 in 2010.

“I do think many families are behind the eight ball and the public supports really aren’t there where they once were,” said Katherine Scott, director of programs at the Ottawa-based organization.

Scott said local credit and non-profit agencies can provide resources to help families get a financial plan so they can “start to dig themselves out of that hole.”

The online survey, based on a representative sample of Canadian adults, was conducted from Dec. 2 to Dec. 7, 2010, by Environics Research for the bank. http://ca.finance.yahoo.com/news/Canadians-struggling-save-pay-capress-2491348161.html?x=0

White Rock the New Richmond?

As anyone who has resided in the Lower Mainland in the past decade or so knows, Richmond has been a favorite desti-nation for real estate buyers from China. Forty-five percent of the Richmond population was of Chinese ethnicity accord-ing to the 2006 Census figures. It was 34% in 1996. While I haven’t been able to find a similar table for South Surrey/White Rock, according to the 2006 census, 81.6% of South Surrey residents identified a single mother tongue as English. Even without statistics it is clearly apparent to anyone who has visited both areas that Richmond has a much larger Chi-nese population than the Peninsula.

However if the current sales trend continues, it won’t be long before our community will have a significant demographic shift, with immigrants from China and the city of Richmond as well.

As you can see from the table above, the number of sales of detached homes soared 150% compared to last March. The average price also vaulted to $960,856, almost a 20% rise from 2010, yet the Benchmark price, which measures the in-crease in the price of a house typical to the area, only rose 3.6%. This is due to a large number of expensive house sales, as in one million plus dollars, to predominantly Chinese buyers.

Why have the Chinese suddenly become so interested in our neck of the woods? For one, our schools have become a major draw. The mainland Chinese want their children to learn English so they send them to English speaking schools. Chinese Richmond parents are moving to our area because our schools are more “English” than those in Richmond.

Another reason that has been put forth for this shift to South Surrey/White Rock has to do with the tragic earthquake and resulting tsunami in Japan. Richmond is flat, surrounded by dykes and subject to the danger of liquefaction should a se-vere earthquake happen. Most of our area is much safer looking to potential offshore and Richmond buyers.

Another stimulus for this activity involves restrictive real estate policies in China which prohibit individuals from own-ing more than two properties.

As if the reasons above are not enough, our real estate prices are a bargain in the eyes of the Chinese, especially taking into account what a wonderful place our Peninsula is to live in.

It will be interesting to see if the trend continues at its current torrid pace. Chinese New Year was in February and many feel that this holiday period was the stimulus for the upsurge in activity. My feeling is that we will settle into a less fren-zied but still strong Seller’s market for detached homes. Apartment and townhouse sales have thus far remained stable and it remains to be seen if these categories will also become targets of the offshore buyers.

Len Doray

Managing Partner

HomeLife Benchmark Realty Corp.,

Email: len@lendoray.com

Phone: 604-531-1111 Detached
White Rock/South Surrey	11-March	10-March	%Change	11-February	%Change
Sales	249	98	154.1%	145	71.7%
New Listings	305	212	43.9%	230	32.6%
Active Listings	475	538	-11.7%	471	0.8%
Benchmark Price	$796,434	$768,747	3.6%	$782,773	1.7%
Median Price	$838,000	$720,000	16.4%	$826,500	1.4%
Average Price	$906,856	$803,305	19.6%	$905,934	6.1%

News Release: April 4, 2011

 

March home sale activity reaches 5-year high in Fraser Valley  

(Surrey, BC) – Last month, Fraser Valley REALTORS® experienced their busiest March in terms of sales on the Multiple Listing Service®, since 2006.

 

The Fraser Valley Real Estate Board processed 1,818 property sales in March, an increase of 16 per cent compared to 1,565 sold during March of last year, and an increase of 42 per cent compared to February’s 1,279 sales. In March of 2006, there were 2,072 sales.

 

Sukh Sidhu, Board president, explains, “We are seeing strong demand in Fraser Valley but not necessarily for every product type in every community, underlining the importance for consumers to ask their REALTOR® for a detailed, local market analysis.

 

“For example, sales of single family detached homes in White Rock/South Surrey increased by over 150 per cent in March compared to last year, however in Abbotsford they were down by almost 7 per cent. The property type that saw the largest increase in sales in Abbotsford during the month of March was condominiums.”

 

Sidhu adds that in addition to sales volumes, the number of new properties being listed for sale also increased by 11 per cent, going from 3,038 new listings in February to 3,376 in March. “Giving buyers more choice during one of the most popular times of the year to house hunt.”

 

March finished with 6 per cent more active listings on the MLS® than it had in February, 9,228 compared to 8,680, however still 6 per cent fewer compared to the 9,828 listings that were active during March of 2010.  

 

Regarding prices, in March, the benchmark price for Fraser Valley detached homes was $519,628, an increase of 0.9 per cent from the March 2010 price of $514,787.

 

The benchmark price of Fraser Valley townhouses in March remained on par year-over-year going from $326,307 in 2010 to $327,328 in 2011. The benchmark price of apartments was $249,463 in March, a 1.1 per cent increase compared to $246,673 in March 2010.  

 

Information and photos of all Fraser Valley Real Estate Board listings can be found on the national, public web site www.REALTOR.ca. Further market statistics can be found on the Board’s web page at www.fvreb.bc.ca. The Fraser Valley Real Estate Board is an association of 2,919 real estate professionals who live and work in the communities of North Delta, Surrey, White Rock, Langley, Abbotsford, and Mission.

 

Full package:

 

http://www.fvreb.bc.ca/statistics/Package%20201103.pdf  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Experts best at brokering mortgage

Denise Deveau, Postmedia News · Mar. 30, 2011 |

Cheryl Hutton and Aaron Coates always thought getting a mortgage would be a challenge. But within 18 days of visiting a mortgage broker, they were able to close a deal on a new townhouse in Calgary without a hitch.

Now in their early thirties, both have careers in the theatre, something Ms. Hutton says has been a bit of a sticking point with banks. “In our industry we never fit the paperwork guidelines ‘for the banks.’ For some reason, people don’t think we pay our bills.”

Although it was their first home purchase, Ms. Hutton says it was surprising how easy the whole process was once they had someone who could walk them through it. “He sat us down, told us what our options were, showed us that it was possible and explained all the steps we needed to take. If it wasn’t for him, we may not have made the leap.”

Sorting through a mortgage process and negotiating rates can be overwhelming for first-time and seasoned home buyers alike. That’s why people such as Ms. Hutton and Mr. Coates turn to brokers to do the legwork for them.

Yet mortgage brokers will tell you that a good portion of home buyers out there don’t really understand what they do. “Part of the challenge we have in our world is that people aren’t really sure what a mortgage broker is,” says Gary Siegle, regional manager for Invis Inc., a mortgage brokerage firm in Calgary.

Brokers should not be confused with “rovers,” mortgage specialists attached to a specific financial institution who visit customers outside of banking hours, Mr. Siegle explains.

“They only deal with that bank’s product. A broker, however, is an intermediary whose job is to make a match between a lender and a borrower. We represent the individual, not the bank.”

About 30% of mortgages in Canada are done through a broker, according to Perry Quinton, vice-president, marketing, for Investor Education Fund, a Toronto-based non-profit financial information service.

“The reason more people don’t know about them is because the banks are so visible. It’s easy to gravitate to them when you have your savings accounts, credit cards and investments there already,” Ms. Quinton says.

Going for the comfort factor could cost you however, she adds. “A broker has access to different lenders including banks, and can shop rates and features. A half per-cent may not sound like much but that could make a difference of about $20,000 for a $250,000 mortgage amortized over 25 years. Any little bit helps.”

Mr. Siegle confirms that shopping around can deliver significant savings.

“Let’s take today’s average posted rate of 5.44%, and you get a point off that at your bank. So you think you just got a really great deal. But the vast majority of rates we deal with as brokers would be another 30 basis points lower -around 4.14%. And if you look at preferred deals that don’t offer features such as prepayment privileges, it can get as low as 3.89%. That’s another 25 basis points below what’s generally available.”

The reason for that is simple, he says. “We offer wholesale rates, banks offer retail.”

For anyone considering a broker, Ms. Quinton advises people to do a bit of groundwork first if they have the time.

“It helps to educate yourself about options and what you can afford. Look at all your living expenses, including student loans and credit card debt. Chances are you are understating those.”

Another thing to look into is the different types of available mortgages and features, including interest rates, payment frequency, amortization, cash-back programs and the ability to make lump sum payments.

“Knowing these things before you go in can save you a lot of money,” she adds.

Any mortgage broker you choose should always meet the right licensing and education requirements, so be sure to check their registration.

If you’re not completely prepared, however, that shouldn’t be a concern when working with a good mortgage broker, Mr. Siegle says.

“After all, mortgages are pretty much all we do. So even if you come in cold, good brokers will walk you through the process and ask all sorts of questions,” Mr. Siegle notes.

“You just need to be prepared to answer them openly and honestly so they can get you the best deal possible.”

http://www.nationalpost.com/news/Experts+best+brokering+mortgage/4525573/story.html

Mortgage literacy crucial for first-time buyers

Vito Cupoli, Postmedia News · Mar. 30, 2011 | Last Updated: Mar. 30, 2011 4:04 AM ET

Two years ago, when Michelle Gompf and Jesse Bagelman started thinking about buying a house, they assumed it would be impossible to qualify for a mortgage because of some heavy debt and Mr. Bagelman’s status as a self-employed stone mason.

Rather than give up, Ms. Gompf -now Gompf Bagelman -launched a campaign. “I made up some little posters with a target date called Operation Jesse & Michelle Buy a House. I put them up where we couldn’t miss them -on our fridge, on the bedroom dresser, our laundry, office. I had them everywhere. I just wanted a house to be top of mind. We’re going to figure it out.”

A friend in real estate suggested she speak with a mortgage broker to see how close she was to qualifying for a first-time mortgage. “The broker really worked his magic, and next thing you know we were approved with a monthly payment that was less than the rent we were paying for our basement apartment,” she says.

She knew very little about the mortgage process initially, which is typical for first-time buyers, says mortgage broker Sandra Grywul.

“For the most part, the first-time homebuyer doesn’t know anything about financing a home,” says Ms. Grywul, owner of Always A Mortgage in Toronto.

“It’s funny, because buyers are thinking so much about what neighbourhood they want to live in, how many bedrooms, bathrooms, square footage. But they’re not thinking about what kind of mortgage they want to enter into.”

And buyers shopping for a mortgage have a lot of choices to sift through. Fixed term or open? Variable or fixed rate? Should they use their RRSPs for a down payment?

But Ms. Grywul says those decisions should be made after the buyers have tackled the most important element, which is to understand how much mortgage they can actually afford.

“The bank will look at your credit report but it won’t know if you like to spend $300 for a haircut or eat in an expensive restaurant each night.

“New homeowners go in, they get the mortgage that the bank says they can qualify for, and after two or three months into the house they’re calling around to see if they can do a consolidation or a refinance.

“The joy of their home has completely dissipated because they didn’t take into account all their monthly expenses when figuring out how much they could afford per month on their mortgage.

“I see this all the time. So as part of getting pre-approved for a mortgage, buyers need to be very honest with themselves about how much money they need to live happily,” Ms. Grywul says.

Toronto real estate agent Cameron Weir of Royal LePage, Johnston and Daniel has worked with a number of first-time home buyers.

He says it’s exciting to watch people go from being renters to owners. He says mortgage pre-approval is vital because it allows the buyer to be nimble in an active market.

“A lot of times today we find that there’s more than one offer in on a property. And if you don’t have everything set with a pre-approval, when your perfect property comes up you can’t close the deal without arranging financing first,” Mr. Weir says.

“While you’re working that out, a competitor who has already done his homework might make a firm offer at the same price and unfortunately you’ll probably lose that property.”

Mr. Weir describes the first-time buyer as “very excited, very nervous, lots of questions. It’s the biggest purchase they’re going to make, after all. But along with that, they’re also pretty cautious.”

Ms. Gompf Bagelman’s fear of high lawyer fees made her cautious. She was also concerned about having a stable and predictable monthly mortgage payment, so she chose a five-year mortgage and a fixed interest rate on the house she and her husband took possession of in February.

“With a variable rate I worried that I don’t have a lot of experience with these interest rates and anything could happen,” Ms. Gompf Bagelman says. “But the five-year term gives me security right now. So I have the current safety net and hope for something better when the five years are up.”

She also wondered if the recent mortgage crisis in the United States would complicate her home financing. And while that financial mess did foster changes in some Canadian mortgage regulations that take effect in April, Ms. Grywul says they don’t have any impact on the first-time buyer.

Instead, they focus on the refinancing business and on those who purchase second homes or investment property.

In considering all the details and requirements of financing a home, Mr. Weir says, “the most important thing is to find the right place, at the right price at the right time.”

http://www.nationalpost.com/news/Mortgage+literacy+crucial+first+time+buyers/4525570/story.html

 

Lower inflation in February likely to keep interest rates low

 

Canada’s annual inflation rate fell slightly in February, giving the Bank of Canada room to keep interest rates low over the next few months, economists say.

 

Statistics Canada said Friday its consumer price index edged down one-tenth of a point to 2.2 per cent in February, with rising energy and gas prices keeping inflation just above the Bank of Canada’s ideal two per cent target.

 

The core inflation rate, which excludes volatile items such as gas and food, fell to 0.9 per cent — its lowest level since the government started keeping records in 1984. Economists had predicted an annual core rate of 1.1 per cent and annual inflation to remain at the January level of 2.3 per cent.

 

It all means the country’s central bank might take its time when it comes to raising interest rates, said CIBC World Markets economist Emanuella Enenajor.

 

“These (inflation) numbers certainly make it less likely that a May rate hike could happen, we do have to admit,” she said.

 

“Such a soft core number suggests there’s less pressure for the Bank of Canada to really start hiking rates aggressively so it gives it a little more leeway.”

 

She said CIBC is for now sticking with its prediction that Canadians will see rates go above the current one per cent in May and that they will end up at two per cent by the end of the year.

 

Canada’s economic growth surpassed expectations in the last half of 2010 and the Bank of Canada may want to get ahead of any resulting spike in prices by raising interest rates and cooling lending conditions, she said.

 

Doug Porter, deputy chief economist at BMO Capital Markets said he believes the central bank is likely to stick with lower rates for the short term.

 

“Both headline and core inflation have eased since the start of the year, at least partly thanks to the lofty loonie,” he wrote in a note to investors, pointing out that Canada’s core inflation rate is lower than that of the U.S. and rest of the world.

 

“This is set to reverse next month, as Canada gets with the global program, but the low starting point is very favourable. Suffice it to say that this keeps the pressure well off the Bank of Canada to get back in tightening mode any time soon.”

 

Enenajor said the March inflation rate will likely depend on oil price movement during the rest of the month.

 

“However, expect both the annual headline and core rate to move higher in March on a year-on-year basis,” she said.

 

Prices were higher in February in six of the eight major categories tracked by the agency, but items like women’s clothing, footwear and travel tours cost less than a year earlier.

 

On a month-to-month basis, consumer goods were 0.3 per cent more expensive last month than in January, mostly due to higher energy and gasoline prices. Canadians paid 10.6 per cent more for energy during the year leading up to February, after posting a nine per cent increase in January.

 

Gas prices soared 15.7 per cent last month, on top of the already recorded 13 per cent increase in the 12 months leading up to January.

 

On a regional basis, Nova Scotia remained the province with the highest inflation rate at 3.4 per cent. Many people in that province use oil and other fuel to heat their homes.

 

Alberta continued to enjoy the most stable prices, with an inflation rate of 1.2 per cent.

 

Drivers in every province except Manitoba faced double-digit price increases for gasoline on a year-over-year basis. The price at the pumps was up 15.7 per cent from a year earlier.

 

The Canadian Press http://www.therecord.com/news/business/article/503435–lower-inflation-in-february-likely-to-keep-interest-rates-low 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective March 14, 2011

 

Maximum Amortization Period

 

High Ratio Business

• For high ratio deals, (loan to values greater than 80%) the maximum amortization has been reduced to 30 years from 35 years.

 

Conventional Business

For conventional deals, (loan to values less than 80%) the maximum amortization will remain at 35 years for Dominion Mortgages

 

Refinance Maximum Loan to Value

 

• The maximum loan to value for 1-4 unit residential properties will be reduced to 85% from 90%. 

 

How does this impact my existing borrowers that are looking to straight port? 

 

• For high ratio deals with amortizations greater than 30 years borrowers will maintain their existing amortization on a straight port (no additional funds).
• The loan to value maximum will remain at 95% for port transactions.  Product and program specific guidelines apply.

 

How does this impact my existing borrowers looking to refinance or port and increase?

 

• In some instances, but not all, for high ratio transactions borrowers with amortizations greater than 30 years will be permitted to blend their amortization.  The maximum loan to value for refinance transactions will be 85% and the maximum loan to value for a port and increase will remain at 95%.  Product and program specific policies apply.

 

• Blended Amortization example:
  • Original high ratio loan: $200,000 with 38-yrs amortization remaining (original 40yrs – 2yrs elapsed = 38 remaining)
  • Formula: (200,000 x 38 + 100,000 x 30) / (200,000 + 100,000)
  • Blended Amortization = 35 yrs

 

 

Average bankrupt person is 41, married and has four credit cards, study says

The average Canadian who files for bankruptcy owes $59,800 not counting his mortgage and is a 41-year-old married man with four credit cards, according to a report by a Kitchener-based bankruptcy trustee.

The information, released Monday by Hoyes Michalos & Associates, says this amount owed by the average bankruptcy filer is about three-and-a-half times more than the debt level of the average Canadian.

The report is based on an analysis of 8,000 insolvency filings the firm dealt with in 2009 and 2010 and offers a profile of men, women, and seniors.

“The current economic climate, combined with easy access to credit has increased the risk of insolvency for the average Canadian,” the report said. “It now takes more of each Canadian’s take-home pay to service the debt that they have accumulated. If anything interrupts the average person’s income, even for as little as a month or two, they find themselves unable to meet their obligations.”

The report, called Joe Debtor: The Face of Bankruptcy found:

58 per cent of those who file for bankruptcy are male and they take home $2,240 a month after tax, slightly less than the national average;

60 per cent are between the ages of 30 and 59;

The average bankrupt has credit card debt of $24,400, owes $13,800 to banks, $5,400 in back taxes, and has other debts worth about $16,200, owed to finance companies, payday loans, for student loans, and to family and friends;

The number of over-55s in financial trouble is increasing and their debts are greater.

The report takes aim at the assumption that people who file for bankruptcy are unemployed: in fact, the average insolvent person is working and earns close to the Canadian average of $2,419 per month.

“The principle difference between our debtors and the average Canadian is their debt,” the report said.

The report found that between 2008 and 2010 the average debt carried by those who file for bankruptcy increased 17 per cent. The largest increase was in credit card debt – which grew by about one-third.

“The recent downturn in the economy, combined with job loss or income reduction, has forced more families to rely on credit to pay their every day bills,” the report said.

There has also been an increase in the number of people over age 55 who are snowed under by debt. In the same two years the portion in that age group rose to 16 per cent from 12.5 per cent.

“An increasing number of Canadians are entering retirement with debt,” the report said. “Another alarming trend is the increasing propensity of retired Canadians to assume more debt during retirement.”

On average, debtors in the 55-plus group owed about $74,000 in unsecured debt, including credit card debt of $37,000. Half of these debtors are living on their own but one-third still has a dependant at home. Their average take home pay was $2,133, well below the Canadian average.

Only one-third of older bankruptcy filers had RRSP savings and the average total value was about $30,000.

“Approaching retirement without a safety net savings, combined with higher debt levels, significantly increases the risks of bankruptcy,” the report said.

The profile of the average student debtor is a single female, 35, owing about $50,000 of which about $14,400 is student loans. She is also more likely to be divorced or separated and a single parent.

The firm’s research also shows that more than half of bankrupts admitted that they were overextended and mismanaged their finances, but that mismanagement was typically caused or dramatically increased by separation or divorce, job loss or personal illness.

“The difference between a bankrupt and a non-bankrupt may be as simple as this: the bankrupt lost his job, and the non-bankrupt didn’t. Or perhaps the bankrupt got divorced, or was off work for a medical issue, and the non-bankrupt wasn’t,” trustee Doug Hoyes said in an interview.

“If you want to predict whether you will have financial trouble in the future, ask yourself this question: If I lost my job tomorrow, how long would it take before I could no longer pay my bills?”

The report is sure to add to fodder to the ongoing national debate over Canadian household debt levels.

Two weeks ago, the Vanier Institute of the Family reported that average family debt has now hit $100,000, and that for every $1,000 in after-tax income, Canadian families now owe $1,500.

Some economists say the odds of a national crisis spawned by consumer debt are remote as the economy continues to recover and add jobs.

But the Bank of Canada has been sounding the alarm on household debt for months, warning that interest rates are now set to rise from record-low levels, and that may put some consumers at risk. http://www.therecord.com/news/business/article/494137–average-bankrupt-person-is-41-married-and-has-four-credit-cards-kitchener-study-says