24 May

A Few Reasons Why You Should Consider A Variable Rate Mortgage

General

Posted by: John Panagakos

Five-year fixed mortgage rates continued their upward march last week as the five-year Government of Canada (GoC) bond yield they are priced on hit its highest level in seven years. Meanwhile, five-year variable-rate discounts deepened, further widening the gap between five-year fixed and variable rates.

Years ago variable rate mortgages saved you more money than fixed rate mortgages 95 out of the past 100 years. First time home buyers were worried about what their home costs would be and avoided variable rate mortgages (VRM’s) because of the risk of rates going up higher than the fixed rate, but experienced home owners often took a VRM at mortgage renewal time.

However, in the past 5 years, most people have gravitated towards fixed rates because the gap between fixed and variable rates was small enough that the cost of uncertainty outweighed the potential reward for most borrowers.

Once again , the gap is widening. While fixed rate mortgages are going up due to the bond yield, variable rate mortgages have moved in the other direction.  Two years ago a VRM would be offered at Prime rate + .20%,  but later it reverted to Prime – .30% . In recent months, rates have dropped even further with some lenders offering Prime -1.0% !  You now have a choice between a 5-year fixed rate of 3.44-3.59% depending on the lender and a variable rate with a discount that calculates out to 2.45% . With a gap this large, it’s worth considering if you are risk tolerant enough to have a VRM. Remember once in a VRM, if rates start to so above a certain percentage you can always switch to a fixed rate.

 

 

 

11 Apr

SMART FEATURES THAT WILL BOOST THE VALUE OF YOUR PROPERTY

General

Posted by: John Panagakos

People have a lot of different ideas on how they want their home to look. Some want a modern look while others like traditional cottages. But one thing that more and more people want is smart technology in their homes. This adds value and desirability to your home making it easier to sell for the asking price.

In a recent survey, 35% of first time home buyers put smart technology as a priority in their home purchase.
What is a smart home? A smart home is a residence that uses internet-connected devices to enable the remote monitoring and management of appliances and systems, such as lighting and heating.

Smart thermostat – Is a thermostat that can be controlled remotely by your smart phone and will eventually learn your heating and cooling patterns. You can turn up the A/C in the summer from your office and the house will be cool by the time you get home. These features are convenient but they also help you save money on home heating and cooling costs.

Connected Lights – allow you to turn on or dim lights at different times of the day. Combined with a Smart thermostat they can help you to save half your average energy costs.

Smart Locks – these are really cool ! You can program your front door to unlock when guests arrive using Bluetooth or WiFi or some smart phones.

Wireless Security – We have all seen photos of burglars stealing packages from the front door of a home , or perhaps you have seen the TV ad of the lady at the spa who can see 2 unsavory looking guys at her front door and speaking to them and scaring them off. You may have seen the YouTube video of a house that caught fire in Ft. MacMurray and the firefighters extinguishing the blaze. The home owners were able to watch this from a hotel room in Edmonton. Check with your insurance company, you may qualify for a large discount in your rates by having this home security.

Finally, not only is your home more desirable and comfortable, but this is achievable in both new and existing homes. If you are thinking of boosting the value in your home and need financing, just give me a call and I can help.

18 Jan

Bank of Canada Raises Rates Cautiously

General

Posted by: John Panagakos

As was widely expected, the Bank of Canada announced another quarter-point interest rate increase this morning, saying that more hikes are ahead. According to Governor Stephen Poloz, the “big cloud” over the Canadian economy is the uncertainty associated with NAFTA and he cautioned that it would be some time before interest rates return to normal levels as some monetary stimulus remains warranted.

The Bank of Canada increased the target overnight interest rate to 1.25%, its highest level since the global financial crisis marking the third rate hike since July. The move comes in the wake of unexpected labour market tightening and strong business confidence and investment. The Canadian economy is bumping up against capacity constraints as the jobless rate has fallen to its lowest level in more than 40 years.

Inflation is just shy of the 2.0% target level and wage rates are rising, albeit at a relatively moderate pace.

Exports have been weaker than expected. NAFTA uncertainty is “weighing increasingly” on Canada’s economic outlook as cross-border shifts in auto production are already beginning.

Consumption and housing will slow due to higher interest rates and new mortgage guidelines. According to today’s Monetary Policy Report (MPR), “growth of household credit has slowed somewhat since the first half of 2017, even though some households may have pulled forward borrowing in anticipation of the new B-20 guidelines related to mortgage underwriting from the Office of the Superintendent of Financial Institutions (OSFI). This slowing is consistent with higher borrowing costs due to the two policy rate increases in 2017.” Home sales increased considerably in the fourth quarter in advance of the tightening OSFI mortgage rules implemented beginning this year.

The MPR goes on to comment that “residential investment is now expected to be roughly flat over the two-year projection horizon. The rate of new household formation is anticipated to support a solid level of housing activity, particularly in the Greater Toronto Area, where the supply of new housing units has not kept pace with demand. However, interest rate increases, as well as macroprudential and other housing policy measures, are expected to weigh on growth in residential investment, since some prospective homebuyers may take on smaller mortgages or delay purchases.”

With higher interest rates, debt-service costs will rise, thus dampening consumption growth, particularly of durable goods, which have been a significant driver of spending in recent quarters. “Elevated levels of household debt are likely to amplify the impact of higher interest rates on consumption, since increased debt-service costs are more likely to constrain some borrowers, forcing them to moderate their expenditures.”

While global oil price benchmarks have risen in the past quarter or so, Canadian oil prices have been flat. Transportation constraints facing Canadian oil producers have held down the price of Western Canada Select oil, leaving it just below October levels. Canadian oil producers have trouble getting oil to the U.S. market, and with no East-West pipelines, they cannot export oil to markets outside of the U.S. This has been a long-standing negative for the Canadian economy.
Markets have been expecting three rate hikes this year, taking the overnight rate to 1.75% by yearend. This level is considerably below the Bank of Canada’s estimate of the so-called neutral overnight rate, which is defined as “the rate consistent with output at its potential level (approximately 1.6%) and inflation equal to the 2.0% target.” For Canada, the neutral benchmark policy rate is estimated to be between 2 .5% and 3 .5%. The need for continued monetary accommodation at full capacity suggests policymakers aren’t anticipating a return to neutral anytime soon.

The Bank’s revised forecasts for inflation and real GDP growth are in the following table. The numbers in parentheses are from the projection in the October Monetary Policy Report. Today’s MPR forecasts that inflation will edge upward while economic growth slows from the rapid 2017 pace (3.0%) to levels more consistent with long-term potential (1.7% to 1.8%).

The Bank of Canada’s future actions will continue to be data dependent. The next policy announcement is on March 7.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

 

7 Jul

Happy 150th Birthday Canada!!

General

Posted by: John Panagakos

Sending you our best wishes for Canada’s 150th Birthday!!

May your day day be sparkling with fun and may you surround yourself with friends and family on this very special day for our country.

Happy 150th Birthday Canada!!

Happy Canada Day!!

Sincerely,

John Panagakos

 

2 Jun

Find Your Perfect Home Type

General

Posted by: John Panagakos

Single-family detached homes are the most popular choice of Canadian homeowners, but aspiring first-time home buyers should consider all their options before starting their house hunt. Don’t overlook the perfect option for your family – you may be surprised by what’s out there, at or below your budget.

According to Statistics Canada, over half (55 per cent) of Canadian households have opted for the classic single-family detached house. While condos are a distant second with roughly a quarter of homeowners opting for them, they are significantly more popular in big metro areas like Toronto and Vancouver. Rounding out the homeowner choices at 17.8 per cent of households, are other housing options like row houses, semi-detached houses, mobile or modular homes, and other single-attached dwellings (such as urban infill homes).

What starter home is right for you? Read on for a look at the most common (and lesser known) home options. Consider all your options, so you can maximize your opportunity to find the perfect dwelling to call home sweet home.

SINGLE FAMILY DETACHED:
Definition: A single-family, standalone house that sits on its own lot
Strengths:
• Privacy
• Less noise from neighbours
• Consistent demand in established neighbourhoods
Considerations:
• Generally costs more to buy
• Maintenance costs
• Highly competitive market in large metro areas, which can include bidding wars and houses selling for well over asking price

SINGLE-FAMILY, SEMI-DETACHED:
Definition: A single-family house attached to another house on one side only
Strengths:
• More affordable to buy than a fully detached home
• Most of the privacy of a single family detached
• Can be more affordable to maintain than a fully detached home
Considerations:
• Less privacy than a detached home
• Some noise from neighbours through shared wall

DUPLEX:
Definition: A structure with two single-family units on separate levels
Strengths:
• Great way to reduce home purchase and carrying costs: live in one unit, rent the second one out
• Flexibility: move adult children or ageing parents into the second unit as needed down the road
Considerations:
• Less privacy than a single-family detached home
• Some noise from tenants through floor/ceiling

TOWNHOUSE OR ROWHOUSE:
Definition: A row of single-family homes, connected on both sides to the next home (except for the end units which are only connected on one side). All have their own separate yards. May be freehold or have condo-style shared ownership rights and responsibilities.
Strengths:
• More affordable to buy than a detached or demi-detached home
• Can be more affordable to maintain than a fully detached home
• Private yard
Considerations:
• Less privacy than a single-family detached home
• Some noise from neighbours through shared walls
• Condominium-style ownership include monthly condo fees/maintenance costs.

CONDOMINIUM:
Definition: Low- or high-rise buildings containing many apartment units. Units are individually owned, with shared ownership rights and responsibilities to the common areas and building.
Strengths:
• Affordable
• Swimming pool, fitness centre, party room and other shared amenities are standard
• Minimal maintenance work required
Considerations:
• Monthly condo/maintenance fees in addition to mortgage payments
• Less privacy/more noise with neighbours on all sides, plus shared common areas
• Typically smaller than detached or semi-detached homes

MODULAR or MOBILE HOME:
Definition: Factory-built homes delivered to a home-site for installation. The home is owned outright, while the land it sits on could be owned or rented.
Strengths:
• Affordable
• Flexibility: if you relocate, you could sell the mobile home in situ, or move it with you to a different home-site
• Useful in areas where it can be hard to build (due to climate or location)
Considerations:
• Less resale demand than other housing types
• Annual rent increases if renting land in a mobile home community

CARRIAGE HOUSE or URBAN INFILL:
Definition: A carriage house is located on the periphery of a single family detached house. Urban infill homes are a modern solution to crowded cities, re-purposing existing spaces in established residential or commercial areas to maximize use and reduce urban sprawl.
Strengths:
• Often located in interesting, urban environments
• Unique, character dwellings
• Often less expensive than a typical single-family detached house
Considerations:
• Limited inventory
• Potential for noise pollution in a busy location
• Limited or non-existent yard space
• Finding the right home for your needs means considering your lifestyle and budget now, as well as where you’ll be a few years down the road.

***This article was written by Marc Shendale, Vice President business Development, Genworth Canada***

Want more new-homeowner inspiration?

Contact my office to learn more about your options when it comes to buying and owning a home.

12 Sep

Single Ladies Buying Homes

General

Posted by: John Panagakos

It’s becoming increasingly apparent that a greater number of women are now taking the reigns when it comes to home purchases. There’s a growing trend among single women – and, more precisely, professional single women – who are becoming independent homeowners. While many of them may be putting off marriage, they’re not waiting around for Mr Right before taking the plunge into homeownership.

It’s believed that around 20% of homebuyers in North America are single women based on a 2011 report released by the US National Association of Realtors. Harvard University’s Joint Center for Housing Studies also released a report that said single women are buying in record numbers.

There’s no equivalent data for Canada, but an abundance of anecdotal information has led to the creation of shows like HGTV’s Buy Herself, which follows single women making their first real estate purchases.

Women are looking for ways to become financially independent, and investing in real estate and building equity for themselves are ways to invest in their future – building financial security.

Women are taking advantage of historically low interest rates and recognizing homeownership is often more affordable than renting.

Seeking expert advice

One of the amazing things about women looking to invest in real estate is that they’re getting more advice before they make the decision to enter the market. They’re seeking out mortgage experts and real estate agents, and building a plan for the perfect entry into the market. They’re making lists of areas in which they’re interested in purchasing, itemizing amenities they would need in their ideal neighbourhoods, ensuring they have all the facts around closing costs and fees associated with making the purchase, and securing a mortgage.

Buying a home is likely one of the largest purchases you’ll ever make in your lifetime, and can feel overwhelming. That’s why working with a professional mortgage agent, real estate agent, home inspector and so on is essential. You’ll be working with these professionals closely – possibly for months – so interactions should feel comfortable, and they should be knowledgeable and responsive even to the smallest question.

The more prepared you are, the smoother the experience will be so do a little research on your own over the Internet to get a good idea of what types of properties and areas are of interest to you. Make a list of questions to ask your mortgage agent or realtor – and keep it on hand so you can add to it as more questions arise.

Interest rates are the lowest they’ve been in history and they have nowhere to go but up. Industry professionals believe that as rates begin to rise, they’ll continue to rise for some time. There has never been a better time for women to make the decision to get into the real estate market to find the perfect place to call home.

28 Aug

10 Questions to Ask Your Home Inspector

General

Posted by: John Panagakos

The purchase of a home is likely the largest financial expenditure you’ll ever make. And getting your home inspected is an essential step in the home-buying process. No one wants to buy a money pit – and once you have signed on the dotted line, there is no turning back.

The best way to ensure you use a professional home inspector is to seek referrals from your mortgage professional, real estate agent or friends. Since you want to be able to trust your home inspector’s judgement, you have to ensure they’re not part-time home inspectors just trying to make some extra cash on the side, or they aren’t only home inspecting so they can also offer to complete any work for you that you need done on the home. To ensure the job’s done right, after all, the home inspection must not be biased.

The purpose of a home inspection is for the inspector to be able to tell you everything you need to know about the home you’re going to purchase so that you can make an informed decision.

Following are 10 key questions you can ask your home inspector before they’re hired to ensure the inspection will be completed professionally and thoroughly:

  1. -Can I see your licence/professional credentials and proof of insurance?
  2. -How many years’ experience do you have as a home inspector? (Make sure they’re talking specifically about home inspection and not just how much experience they have in a single trade.)
  3. -How many inspections have you personally completed?
  4. -What qualifications and training do you have? Are you a member of a professional organization? –What’s your background – construction, engineering, plumbing, etc?
  5. -Can I see some references? (Make sure you also check the references.)
  6. -What kind of report do you provide? Do you take pictures of the house and add them to your report?
  7. -What kind of tools do you use during your inspection?
  8. -Can you give me an idea of what kind of repairs the house may need? (Be wary if they offer to fix the issues themselves or can recommend someone else to complete the job cheap.)
  9. -When do you do the inspection? (Let’s hope they don’t have a day job, and can only do them at night when it’s too dark to see the roof. It’s best to stay away from part-time inspectors.)
  10. -How long do your inspections usually take?
31 Jul

Making Your Mortgage Interest Tax Deductible

General

Posted by: John Panagakos

Making Your Mortgage Interest Tax Deductible

For US homeowners, mortgage interest is automatically tax deductible. But for Canadians, the write-off is not so straightforward. In order to make your mortgage interest tax deductible, homeowners must be able to prove that the money is being reinvested and is not being used for personal expenses.

A properly structured mortgage-centric tax strategy has several key elements – the most important of which is a multi-component, readvanceable mortgage or line of credit.

It’s best to have a single collateral charge with at least two components – usually a fixed-term mortgage and an open line of credit that can track and report interest independently. This is absolutely essential under Canada Revenue Agency (CRA) rules and guidelines.

Second, the strategy must employ conservative leverage-investment techniques – which is why a financial advisor must be involved in order to comply with federal regulations. The financial advisor should be a Certified Financial Planner (CFP) who is experienced in leveraged investing, and able to actively monitor a homeowner’s portfolio on an ongoing basis.

Homeowners who opt for a tax-deductible mortgage interest plan make their monthly or bimonthly mortgage payments the same way they would when making any type of mortgage payment. The payments go towards reducing the principal amount of the mortgage and are then moved over to the line of credit as the mortgage is paid down. But in order to be tax-deductible, the funds must then be transferred to an investment bank account, which can be done automatically by your CFP.

Once the money is in an investment bank account, it can be reinvested and the money becomes tax deductible. Essentially, the homeowner is borrowing from the paid portion of the mortgage for reinvestment purposes.

On average, a typical 25-year mortgage can become fully tax deductible in 22.5 years.

If you have a rental property, you can also use this tax-reduction strategy even further. When you receive your rent, you can then use the funds to help pay down your personal mortgage. Once paid, the rental funds move to the line of credit and are then transferred to the investment bank account. They are then used to pay down the mortgage on the rental property. Using this method, it is possible to have your mortgage interest become fully tax deductible in only 3.5 years.

 

The ideal client

Ideal borrowers for an advanced mortgage and tax strategy are typically professionals or other high-income earners who have a conventional mortgage (have at least 20% of the cost of the home to put towards a down payment) and have built up substantial equity.

As high-income earners, their total debt-servicing ratio will be quite low and they will have excellent credit (700+ Beacon scores). These borrowers are financially sophisticated homeowners that are keenly interested in establishing a secure financial future and comfortable retirement. They also have good investment knowledge. 

The risks

The financial benefits of tax-deductible mortgage interest are indisputable and justify the risks to the right borrower. That said, a problem can arise if a homeowner spends the funds as opposed to reinvesting them. As well, any tax refunds have to flow through the investment cycle in order to realize the benefits of paying down the mortgage as quickly as possible – and making as much of the interest payment as possible tax deductible.

Short-term financial risk is liquidity risk (sometimes referred to as cash flow risk). Cash flow risk addresses the possibility that interest rates will sharply drive up the cost of borrowing at the same time as markets falter, resulting in a negative client monthly cash flow for a brief period of time.

This short-term risk is typically only prevalent in the first two to four years because, after this period of time, the homeowner has stockpiled enough equity through annual tax refunds that other liquidity options exist and the risk is fully mitigated.

Liquidity risk varies widely based on the balance sheet strength of the homeowner. Highly qualified homeowners are easy to manage as these borrowers have no difficulty meeting the short-term cash flow demand should the need arise.

31 Jul

Thinking of Ways to Finance Cottage Improvements?

General

Posted by: John Panagakos

Thinking of Ways to Finance Cottage Improvements?

With interest rates sitting at “emergency” levels – low rates never before seen by your parents and even your grandparents – now is an ideal time to tap into the available equity in your home or cottage to fund your renovation or landscape needs. But these rock-bottom rates won’t be available forever – the Bank of Canada estimates fixed mortgage rates will likely begin to rise next year.

As a cottage owner, you understand the importance of maintaining your cottage and property to ensure it ages well with the times. But you also know that it can be daunting when you think about all of the ongoing costs for renovations and maintenance required to keep your cottage to your liking – especially if you also own a primary residence.

The good news is, if you have built up equity in your primary residence or even your cottage, refinancing your mortgage is a cost-effective way to have funds available for upgrades to your home away from home.

One refinance strategy that mortgage consumers often use involves extending their amortization period – to a maximum of 35 years (with no age discrimination on this product) – so they can lock into an excellent fixed rate for their mortgage and renovation expenses.

In addition to setting you up with a new lower mortgage payment, your mortgage professional can also find a lender that offers the most flexible prepayment privileges.

If you choose to refinance, it’s important to note that there may be penalties for paying out your existing mortgage loan prior to renewal, but these penalties will be offset by a lower interest rate and, at the same time, you can access extra money to put towards your cottage renovations.

By refinancing, thanks to lower interest rates, even though you’re taking on more debt, you can pay your mortgage off faster. Most mortgage products, for instance, include prepayment privileges that enable you to pay up to 20% of the principal (the true value of your mortgage minus the interest payments) in lump sum payments per calendar year. This will also help reduce your amortization period (the length of your mortgage), which, in turn, saves you money.

Some lenders also allow consumers to pay anywhere from an extra 20% of their monthly mortgage payment to up to double the payment.

Using a line of credit

Another option to enable you to access funds for cottage renovations is to take out a home equity line of credit (HELOC) on your primary residence. Although HELOC interest rates are lower than credit cards or other high-interest means of accessing funds, a refinance at today’s low rates is your best option.

A HELOC is a good tool for those who know they want to renovate their cottage in the future but do not know exactly when they want to make the improvements. In other words, a HELOC enables you to access equity on an add-needed basis and you only pay interest on the portion of the HELOC that you use. Another benefit is that you can pay the HELOC off at any time without a penalty.

There are also combination mortgage products available that enable you to have a portion of your mortgage in a fixed interest rate and another portion as a HELOC, which mean the HELOC can be used as a rainy day fund.

By using a HELOC to fund renovations, etc, the savings are substantial versus using a credit card or loan. Just the comparison of paying 3.25% interest with a HELOC compared to 18% for a credit card or loan clearly shows the HELOC advantage.

The other savings is seen in your monthly repayment of the debt. With loans or credit cards, the minimum is typically 3% of the total balance, whereas with the HELOC you’re only paying interest on the loan.

For instance, a $50,000 credit card balance with a 3% monthly payment means $1,500 must be paid each month. With the interest-only payment on the HELOC, you’re only required to pay $135 per month.

If your primary residence does not have enough equity for a refinance or HELOC but your cottage does, you still have options depending on whether your cottage is a vacation property (year-round with road access) or seasonal.

Financial institutions will lend on year-round property up to a maximum loan to value (LTV) of 95% (which means you will only have to have 5% equity remaining in your second home).

Most mortgage financing products are available for year-round cottages as long as the property is in good shape and is marketable. Your lender will want to know they will easily be able to sell your property if you do not continue paying your mortgage or HELOC.

When looking to access home equity, it’s best to speak to your mortgage broker to find an option that suits your unique needs.

Mortgage Product Comparison

Product

Amount

Interest Rate

Amortization

Monthly Payment

HELOC

$200,000

3.25%

25 Years

$541.67 (interest only)

5-Year Variable-Rate Mortgage

$200,000

2.00%

25 Years

$846.90

5-Year Fixed-Rate Mortgage

$200,000

$3.89%

25 Years

$1040.15

24 Jul

Looking Beyond Mortgage Rates

General

Posted by: John Panagakos

 It’s easy to get caught up in the idea that comparing mortgage rates will guarantee you get the best bang for your mortgage buck. While this may be true for particular situations, there are many scenarios where this strategy is not effective. Following are three reasons why it doesn’t always pay to make a decision based solely on rates.

Reason #1

Your long-term plan and risk tolerance should determine which mortgage product is right for you. This product may or may not have the lowest rate.

For instance, there are cases where lenders will offer lower rates for insured mortgages. With insured mortgages, however, you’re charged an insurance premium, which is usually added to the mortgage amount. But if you’re not planning on keeping the property for a long enough time to offset that cost, it may be better to take an uninsured mortgage with a slightly higher rate. The cost difference you will pay with the higher interest rate may still be less than what you may pay in insurance premiums.

As another example, if you prefer to budget for a consistent payment and can’t handle rate fluctuations, it may be better to go with a higher fixed-rate mortgage. If you think current rates are low enough and you will be living in your property for at least five years, it may be wise to also opt for a mortgage with a longer term.

Reason #2

One of the biggest mistakes people make when merely comparing mortgage rates is failing to consider important factors such as prepayment options to help pay off the mortgage faster, whether secondary financing options are allowed, early payout penalties, or what fees are involved.

It’s not enough to simply compare mortgage rates because you have to know what “clauses” are contained within the mortgage deal. There may be cases where you will find a lender with the lowest rate and willing to pay for your closing costs, or even provide you with cash-backs after closing.

Reason #3

Lenders can change their rates at any time. As such, if you’re shopping for rates with one lender and then approach another that gives you a lower rate, it’s quite possible that the first lender has also dropped its rates. This is why it’s important to get pre-approved with a lender once you a mortgage that fits your needs. In some cases, you can secure your rate and conditions for up to 120 days.

These are just three reasons why it’s not enough to merely compare mortgage rates. The mortgage rate you may qualify for is also highly dependent on your credit score among other things. In order to get the best mortgage deals, you need to have solid credit.