Hamilton Mortgage Source

Hamilton Firms Optimistic About Future of Local Economy for 2009

An interesting article from the Hamilton Spec reports that although local businesses believe that 2009 will be a year of trouble, these same businesses also believe that their own outlook is brighter. Specifically, half of business owners surveyed in a major Ontario Chamber of Commerce study, report that their business will fare the same or even better in 2009.

It is in the nature of a business owner or an entrepreneur to rationalize their own success, but when business owners put their spending where their mouth is, the effects are tangible and thus a good sign for the local Hamilton economy.

It was found in the survey that 1/3 of business planned on increasing spending or would maintain spending in 2009. Another 1/3 said that they would cut spending, while 20% said that they would cut spending in some areas so that they could spend more in others.

Companies reported that the money would be spent on hiring, increased training and professional development.

It is important to note that Hamilton's and Brantford's economy is very diverse, and that manufacturing accounts for less than 20% of the City's workforce.

As housing prices remain relatively stable, this local economic and corporate diversiy continue to prove them selves in a generally weak economic environment. With mortgage rates at all time lows (like 4.18% for five years!) and with stable housing prices, this makes for a logical choice of City and excellent strategic timing to buy.

For questions or comments, feel free to leave a post! Or better yet, contact me, Brent Richardson, for the mortgage advice you deserve!

February 2009 Hamilton Area Housing and Mortgage Update

According to statistics released by  Realtors Association of Hamilton-Burlington, due to the seasonally weakest time of the year and a moderating economy, housing sales were down 27% in the month of February. Accordingly, home prices (housing and condos) showed a decrease of 4.2% when compared to the February of last year.

This said, total unit sales were up 58% from the month before (January, 2009) and housing prices are up 1.5% as well from the previous month. This gives us a strong indication that as we emerge from the weakest time of the year for the housing market (the winter months), Hamilton is showing remarkable resilience to the economic downturn as housing prices are currently on the rise.

It is still a buyers market in Hamilton and Brantford, which means that buyers are at a slight advantage in the negotiating process (this said, there are many reports from Realtors that multiple offers on properties are still prevalent, which means continued strength in housing prices). The buyers market, when combined with the lowest mortgage rates ever (like 4.18% for a 5 year fixed mortgage), means it is an excellent time to purchase a home in Hamilton, Brantford or the surrounding area. As we emerge from the broader recession in one to two years, purchasers who lock in now should be well rewarded.

For any other questions or details on this article, contact me, Brent Richardson, and I'll be happy to answer your Hamilton mortgage and housing market questions. Feel free to leave a post as well!

CMHC Hamilton and Brantford Winter 2009 Housing and Economy Outlook

‘Housing prices and sales in Hamilton and Brantford will remain steady in early 2009’, is the indication given by the Canada Mortgage and Housing Corporation’s latest area review. Due to a growing population and emerging job sectors, housing in the Hamilton area has preformed relatively well. Although more housing choice in the resale home markets will result in less housing starts in 2009, housing prices are expected to grow overall. The summary of this review will be broken down into New Home Sales, Resale Home Market, The Local Economy and Job Market, and Finally Mortgage Rates in the Hamiltonand Brantford area.

New Home Sales

New home starts will decline slightly in 2009 to 3,045 starts in Hamilton, slightly above the total witnessed in 2007. Housing prices for new homes will continue to increase, however, due in part to the rising costs of development. Demographic trends will move new housing purchases away from single detached homes, towards condos and attached homes. The empty-nester baby boom generation will be accounting for much of this trend. Specifically, these types of purchases will move from just under ¼ of all new home sales, to just over 1/3.

In Brantford, total home starts will increase by 2% going in to 2009, and the average price of a single detached home will reach a price of $252,000 by the end of the year.

Resale Home Market

Although the economic environment will be moderating in Hamilton and the broader Ontarioeconomy in 2009, the resale market continues to perform relatively well. Resale home sales have decreased 7.7% from the same period last year, but the average resale selling price is expected to reach $280,000  - an increase of 4% compared to the year before. It is useful to note that 2007 was a record high for home sales in Hamilton, and that other years will seem lower in comparison. Home sales remain healthy.

 

Throughout 2009, the resale market will be quite balanced in Hamilton

and housing price growth will come in around 3%, just above the rate of inflation.  Importantly though, this more moderate growth in housing prices will help increase demand in the future. In Brantford, housing prices will increase by 2.8% in 2009 and reach an average selling price of $224,000. More moderate housing prices in Brantford will attract some home buyers from the Hamilton area, but slowing employment growth in ’09 will place downward pressure on sales.

The Local Economy and Job Market

Today, the manufacturing sector in Hamilton represents only 14% of all jobs. Even with a continuing moderation of the manufacturing job sector, Hamilton’s total employment remains at a record high. Moreover, full time employment, which is a major factor in supporting the growth in housing prices and purchasing, remains at a strong high. The current unemployment rate at the end of 2008 is 6.5%.

On a very positive note, the targeted growth industries, including health sciences, bio technology and advanced manufacturing will continue to support job creation and long term local economic stimulation. The City of Hamilton Ontario is working diligently to secure innovation based corporate and education investment to ensure it competes well in the emerging, knowledge based global economy. Total employment is expected to increase by less than 1% in 2009.

In Brantford, incentive programs that are attracting new business to the area is supporting modest employment growth. Moreover, long term provincial plans to intensify cities surrounding the Golden Horse Shoe area will very likely maintain consistent population and employment growth in Brantford. Like Hamilton, employment rates are expected to increase by less than 1% in Brantford in 2009.

Mortgage Rates in Hamilton and Brantford

Mortgage rates are expected to decrease going into 2009 to very low levels. Rates are expected to increase towards the end of 2009 however due to a surplus of 5 Year Government bonds and a resulting increase in bond yields. This increase in Government bond yields is a result of massive stimulus and bail out packages that governments will need to raise capital for. Those who can lock in at 5 year fixed mortgage rates in Hamilton and Brantford at all time low rates will fare very well over the course of the term, especially given preferred home prices in a buyers housing market. Given a long term focus on high growth industry areas, the economy looks strong in the Hamilton and Brantford area going forward.

Contact me Brent Richardson, for any questions, comments or specifics about this article summary. Feel free to leave a post below as well! 

Increase Your Credit Score and Save Thousands

Indeed for many, savings of thousands of dollars per year could be had easily by reducing interest rates on loan and mortgage payments. For others, the dream of attaining an affordable mortgage and a home becomes attainable. In knowing how the credit scoring system works and how your credit score can be raised, the money saved on interest can be used to pay off your mortgage faster, or in any other way besides making your lender richer.

 

The credit scoring system:

Your Equifax Beacon Score informs lenders about how much of a lending risk you are, and ranges between 500-850. The following chart tells us how these scores generally affect mortgage rates:

Beacon Score	Interest Rate
719-850	The best rate
700-719	+0.20%
675-699	+0.65%
620-674	+1.70%
560-619	+2.50%
500-559	+3.50%

So given that the average Canadian credit score is about 690, most people have some room left to save thousands of dollars on interest payments.

 

How to raise your score then? The following criteria lay out how the Beacon Score is calculated. For each criteria, we look at how to increase your score. Remember, the following speaks of a perfect situation. Although perhaps not immediately attainable for many, the closer you can get to these ideal situations, the better your credit score will be.

 

1. Payment History – 35% of Score Calculation: Factors in the number of debt payments over 30 days late, collections and any other matters resulting from late payments. A single payment over 30 days late removes 20 credit points instantly. Credit will begin to repair after only two months of on time payments, so use this rather short repair period for motivation to pay consistently.

2. Current Debts - 30% of Calculation: Looks at how much debt you have relative to your credit and debt limits. For example, a total credit limit of $10,000 which has $8,000 outstanding totals 80% of credit used. Any number above 30% of credit used will begin to diminish a credit score. If 30% can not be attained, a good goal is 50%. Attempting to increase your credit or a debt consolidation loan are possible ways to help lower your percentage of outstanding credit limit. Your variety of debt will also affect your credit. Try to keep two credit cards and hold one consolidated bank loan to maximize your score in this area.

3.  Account Age – 15% of Calculation: How long you have held a bank account with your financial institution affects your score slightly. The optimal number of accounts held is three and the longer they have been open the better.

4. Types of Credit – 10% of Calculation: Similar to two. Focuses on the mix of debt you have (credit cards, bank loans, lines of credit). The optimal mix is one store credit card (ex. the bay, Best Buy…), one or maximum two bank credit cards, and one installment bank loan. Again, this is an optimal position and any reasonably similar situation will not lower your credit much.

5. Number of Credit Inquiries – 10% of Calculation: Over the past 12 months, how many times has your credit score been looked at? Having too many credit or loan applications could deem you a ‘credit seeker’, so try to keep the number less than 5 per year.

 

Finally, have your credit bureau checked for mistakes. I have seen many individuals with mistakes on their credit score that resulted in higher interest payments. Check with Equifax regularly to ensure your credit score is accurate.   

 

Reasonable variation from this perfect situation will still give you a great credit score and obviously, the closer to it, the better it will be. Contact a credit professional or myself for further information on increasing your credit rating and save thousands of dollars on interest as a result.

Brent Richardson

Have a question or comment? Feel free to make a post.

Pay Off your Mortgage Faster

After attaining the lowest possible interest rate, the second most important thing to Canadians regarding their mortgage is paying it off as fast as possible. Fortunately there are numerous ways to accomplish this task, so lets take a look at some here.

 

Make bi-weekly accelerated payments: Since there are 52 weeks in a year, we can devise that by making a mortgage payment once every two weeks, we would make 26 payments in a year. On the other hand, there are 12 months in a year, so if we made two payments every month, that would only amount to 24 payments in a year. So we can see that by making bi-weekly accelerated payments instead of two payments per month, it is as if there are 13 months in a year (because of the 26 bi-weekly payments). Thus, we make an extra months payment per year. This has the effect of saving thousands in interest on a mortgage and will reduce a 40 year amortization mortgage to 35 years.

 

Make Lump Sum Payments: Most mortgage lenders will allow you to make a lump sum payment of at least 10 % of the principle amount owed, once per year. Utilize this feature, even modestly, to save thousands in interest and pay your mortgage off faster. For example: A $200,000, 25 year amortization mortgage at 5.75% with $1000 extra paid each year will save 5 years and 10 months and $63,463 interest off of the mortgage.

 

Increase mortgage payments: Even a slight increase in your monthly or bi-weekly payments can make a substantial difference in how fast your mortgage is paid down. For example: A $200,000, 25 year amortization mortgage at 5.75% with $100 additional paid on a monthly basis would save 3 years and 8 months and $30,038 in interest of the mortgage. This method is effectively the same as reducing your total mortgage amortization period if commenced at the beginning of mortgage amortization. However, by opting for a longer amortization period and the ability to increase payments, you get the option of paying less on a monthly basis should your financial situation tighten during a period.

 

Start a small business: While mortgage interest in the USA is tax deductible, it isn't in Canada. So we pay mortgage interest with after tax dollars. What we can do, however, is write off a portion of our mortgage interest if we conduct a business out of the home. Check out some small/part time business opportunity websites or franchise web sites for some ideas on what business would work best for you. Besides tax write offs, you could use any business profit to help make lump sum payments to pay your mortgage down faster and save thousands in interest.

 

Obviously the best way to pay off your mortgage in the fastest time possible would involve some combination of these strategies based on your unique situation. These techniques also help underscore the importance of proper mortgage planning, as opposed to simply finding the best interest rate. There are many more details to consider. So, whether you are looking for a new mortgage, refinancing or renewing a current one, the best thing to do is find an experienced and knowledgeable mortgage broker that will take the time to find you the right mortgage and mortgage plan, at the best possible rates. 

Fixed or Variable Rate?

One of the biggest decisions to make when purchasing a mortgage is whether to take a fixed or variable interest rate. Many articles and mortgage professionals tend to lean towards one or the other, however it could be dangerous for you to be persuaded towards fixed or variable products by someone who is trusted and biased. In my opinion, the best person to make the decision is an educated purchaser, him or her self.

 

So, the remainder of this article will objectively explain the pros and cons of variable and fixed rates, and then will provide short profiles of who generally fits which mortgage category respectively.

 

Fixed Rate Mortgage:

This refers to the fact that the interest rate is fixed and does not change for the entire mortgage term.

Pros:

• Security: The central benefit of choosing fixed is its security feature.
• The borrower knows that the payment is the same throughout the entire term of the mortgage and can budget accordingly.
• If interest rates increase, fixed interest and payments remains the same.
• Many first time home buyers are used to fixed costs every month (like rent payments) and are comforted by the continuation of this practice.
• If inflation continues to increase, perhaps even more substantially, your home value and income should rise, but your mortgage payment will remain the same.

Cons:

• The only downside to having a fixed mortgage is the potential lack of savings. I emphasize the word ‘potential’ because a variable rate mortgage could end up costing more than fixed if rates increase.

Variable Rate Mortgage:

The interest rate on variable mortgages fluctuates according to the prime rate as set by the Bank of Canada.

Pros:

• Over the last 60 years, mortgage studies show that variable rate mortgages have been less expensive, with lower overall interest rates than fixed rate mortgages. Specifically, on a $100,000 mortgage, the average savings was $22,210. On the flip side, a consumer would have lost money by borrowing at the prime rate, compared to the 5-year rate, only 11.4% of the time.
• Ability to switch to a fixed rate: Many variable rate mortgages have the option of switching to a fixed rate without penalty. This provides comfort if rates begin to rise.

Cons:

• Volatility: While the borrower can save on interest rates by going variable, rates could increase quickly and catch the borrower off guard. A close watch should be kept on interest rates to decide when to lock into a fixed term.
• Some borrowers may not be able to afford payments if interest rates rise.
• The mortgage studies mentioned above include periods of time where many individuals lost their homes during relatively brief periods of interest rate spikes.
• Professional assistance should be sought for timing a variable mortgage.

Given this information on fixed and variable rate mortgages, the following profiles may help clarify which product is right for you.

Variable mortgages are best suited for people who are:

• Higher risk takers (would invest in more risky Mutual Funds or stocks)
• Debt free or have little outside debt
• Able to afford increases to their monthly payment should the Prime Rate increase
• Budget disciplined
• Income stability is strong

Fixed rate mortgages are better suited for people who are:

• Lower risk takers (would purchase safer investments)
• In debt with high monthly payments on their credit cards monthly loan payments
• Not able to afford increases to their mortgage payments should the Prime Rate go up
• Not good budget keepers
• Income stability is not strong

So we can see that deciding whether to go fixed or variable can be tricky, but with the proper amount of consideration and a realistic analysis of your life situation and goals, securing the right type of mortgage is a very rewarding experience.

 

Have a question or comment? Feel free to post below!

CDN Government Homebuyers Plan

Saving for the down payment towards a mortgage can be a major process. This said, by utilizing the Canadian Home Buyers Plan, most first time (in some cases second time) home buyers can benefit by saving thousands in tax dollars.

 

Set up by the Government of Canada, the plan allows an individual to take up to $20,000 out of their RRSP to finance the purchase of their first home. The benefit is that YOU NEVER HAVE TO PAY TAX ON THAT MONEY. Traditionally, taxes must be paid when money is withdrawn from an RRSP (perhaps in retirement), but under the Homebuyers plan, this issue is completely avoided. If you are purchasing the home with a spouse, you can withdraw up to $20,000 each from your accounts tax free. In terms of repayment, you have up to 15 years to pay back your RRSP starting the second year after the year of withdrawal. At this time at least 1/15 of your borrowed amount must be paid back per year. There are a few more rules that must be considered:

• In terms of penalties, if you don’t repay at least 1/15 of the borrowed amount per year, you’ll have to add the amount as income and pay tax on it.
• You MUST purchase or build your home before Oct 1 after the year of withdrawal.
• RRSP contributions must be made 90 days before the withdrawal using the Home Buyers Plan.

Visit the Government of Canada Website for more information on the Home Buyers Plan: http://www.cra-arc.gc.ca/E/pub/tg/rc4135/rc4135-e.html

 

Some may argue that you’re missing out on growth of your RRSP if this plan is utilized. This said, I think that if you get a good price for your first home relative to others in the neighborhood, the appreciation of the home will hopefully make up for this. Also consider that you pay mortgage interest with after tax income. So if you pay 5.5% in mortgage interest per year and you are in a 40% tax bracket, you are effectively paying over 7.5% due to the effects of taxes.

 

Determining the right mortgage strategy that is custom to your situation is critical. The Home Buyers Plan is just one part of that strategy. Contact a knowledgeable and experienced mortgage professional to help you create a good mortgage plan, and then reap the rewards in thousands of dollars in savings over the years to come.

 

Have questions? Ask below and Ill answer it ASAP.

Other Mortgage Costs

Figuring your optimal house price, best interest rate, mortgage and mortgage payments compose the majority of cost calculations regarding the purchase of your home. This said, there are a few other up front costs that a buyer must be aware of when taking into consideration the total cost of home purchase. This article will take care in describing the honest, yet brutal upfront home purchase costs, costs that you can help minimize by working with a knowledgeable and experienced mortgage broker, such as myselfJ. In most cases the services provided by a mortgage broker are completely free.

You will need to plan ahead to cover the many up front costs of buying a home. Here we go…

 

Mortgage Loan Insurance Premium: If yours is a high ratio mortgage (less than 20% down payment), your lender will probably need mortgage insurance. This could be upwards of 6% of the total cost of the mortgage and can be integrated into your mortgage aggregate to be paid off over years. Talk to your broker about lowering these fees.

Appraisal Fee: Your mortgage lender may require that the property be appraised at your expense. An appraisal is an estimate of the value of your home. The cost is usually between $250 and $350. Some lenders will refund these fees after the mortgage has officially closed.

Deposit: This can form part of your down payment and must be paid when you make an offer to purchase. The charge could be up to 5% of the purchase price. If you give a deposit of 5% and your down payment is 5%, then your down payment is considered to be made.

Down Payment: You can own your home with little or no down payment. If you have at least 20% down payment, you will not require any mortgage insurance as long as your mortgage is 25 years or less.

Estoppel Certificate Fee: Only if you are buying a condo and can cost up to $100.

Home Inspection Fee: This may be a condition of your offer to purchase and can cost around $500, depending of the complexities of the inspection.

Land Registration Fees: This is a provincial and municipal. The rate is 0.5 percent on the first $55,000 of the price, 1 percent on the next $195,000, 1.5 percent on the next $150,000 and 2 percent on the balance.

Legal Fees: This fee must be paid on closing and costs a minimum of $500 (plus GST and PST).

Property Insurance: Any lender will require to purchase home insurance to ensure security of the mortgage.

These are the most common fees encountered when purchasing a home. As mentioned, the more qualified your mortgage broker, the better you will fare when dealing with these fees. A knowledge mortgage broker will know who to refer you to, so you get the best service with the lowest fees. We all know that every dollar counts.

See the CMHC ‘Homebuying Step by Step’ for a more comprehensive home buying guide.

Feel free to leave a comment or question below!

How to Qualify for a Mortgage

Some of the most frequently asked questions I receive surround the process of qualifying for a mortgage. Questions range from, How much home can I buy? To, Have I worked for long enough?  … The answers to these questions can be clarified by looking at three central lending criteria: 1.Your current employment and income position 2.Your current debts 3.Your credit history. It is important to recognize in looking at these criteria that there is a lot of flexibility from some lenders, and that mortgages can be had for a wide range of financial situations, at good rates.  All lenders will also allow combined incomes and credit histories to help strengthen an application.

Current Employment

Most lenders require a steady income that is able to support the mortgage payments. Full time work is preferable but some lenders will consider part time or probationary workers. Moreover, lenders will look at your length of time (or stability) in an occupation as well as future income potential. A good mortgage broker will be able to frame your situation in the best possible way for the various lending adjudicators (persons who approve the mortgage).

Current Debts

All lenders look at your Gross Debt Service Ratio (GDS) and Total Debt Service Ratio (TDS). These ratios determine how much house you can potentially afford and what your maximum mortgage payment could be, given your other living expenses.

GDS: The percentage of gross annual income required to cover payments associated with housing only. It must be less than 32%.

• GDS = monthly housing expenses/gross monthly income
• For example: Mortgage payment = $ 1000, taxes = $200, heat/light=$200, insurance=$50. Therefore, monthly housing expenses = $1,450. Gross monthly income = $5,000
• GDS = $1,450/5000 = 29%

TDS: The percentage of gross annual income required to cover payments associated with housing AND other debt. It must be less than 42%.

• TDS = (monthly housing expenses + other monthly debt servicing)/gross monthly income
• For example: housing expenses = $1,450/mo, car loan = $500/month
• TDS = $1,450+$500/$5,000=39%

So in both cases the person passes comfortably.

Try this calculator to determine your GDS and TDS scores:

Click HERE

Some lenders will allow exceptions to th eGDS and TDS ratios, but the rates on these mortgages are usually a bit higher.

Credit History

The final major component that lenders review is the way you have handled your debts in the past. If your credit score is good (above 640), you will be placed with a top lender with the absolute lowest rates. If your credit is not in such good shape, you can be placed with an alternative lender that will carry a slightly higher interest rate. In many cases, an alternative mortgage can be reset after one year and placed with a top lender if the credit situation has improved. See my article on improving your credit score for more information. A good mortgage agent will help you establish good credit if needed.

It is usually good to get in to a mortgage as soon as possible because it helps provide structure for saving (because you build equity in your home), and it provides for a better lifestyle to own your own home.

Feel free to leave a comment, ask any questions below, or contact me to discuss the pre approval process.

0% and Small Down Payment Mortgages

Ironically, for many new home buyers, these types of mortgages are not ‘specialty mortgages’, but the norm. First time home buyers, or any home buyer for that matter, are able to purchase mortgages at the lowest interest rates with as little as zero down. This is done through the use of mortgage protection insurance that is provided by a number of companies such as Canada Mortgage and Housing Corporation (CMHC) or Genworth. These mortgage insurance companies operate separately from the mortgage lender through which your mortgage is held and charge a fee depending on the size of your down payment. As we can see, the less down, the higher the % fee. Any mortgage with a down payment of 20% or less must be insured.

Up to and including 80%	1.00
Up to and including 85%	1.75
Up to and including 90%	2.00
Up to and including 95%	2.75
Up to and including 97%	2.90
Up to and including 100%	3.10

These fees are based on the total original value of the mortgage and are then included in the total sum of the mortgage. So a $100,000 mortgage, zero down, would now be a $103,100 mortgage. Although it is preferable to attempt at least a 5% down payment (and a resulting 2.75% fee), a 100% mortgage can make sense since the value of housing in the Ontario area is forecasted to increase at a rate greater than 3% per year over the long term (not to mention the quality of life associated with owning a home). This said, it is always important to remember additional costs (closing costs) associated with purchasing a house that average 2-3% extra. These costs can be seen in my article here. Down payments or closing costs can be borrowed as long as debt service ratios are not over their limits (See lending criteria here).

 

The details of such mortgage insurance should be discussed based with me, your local mortgage expert.

Have a comment or question? Feel free to make a post!