Kitchener Waterloo Mortgage Source

July 2008 Waterloo Region/Guelph Economic Review

According to a Bank of Montreal analysis of the Waterloo-Guelph area, the regions economy and housing market should continue to cool slightly through the second half of this year and into 2009. This decline is mostly attributable to weakness in the manufacturing sector which in turn is a result of a high Canadian Dollar and weak US demand. This said, the region is faring better than the rest of Ontario and Canada as a whole, and is very well positioned to continue in this leadership position as the economy strengthens and as Canadian companies adjust to operating with a higher Canadian Dollar. The research suggests five central factors that will support local growth over the medium term (2009-2012):

1. The Canadian Dollar has leveled off and should decline slightly allowing manufacturers to focus on improving efficiency.

2. US economic recovery which will improve our exports.

3. A youthful population and strong net migration which will support residential construction and retail sales.

4. Excellent educational institutions are a source of strength. All are growing, have strong community connections and are good incubators for new companies through their research programs.

5. The areas industrial diversification positions it for growth. Advanced manufacturing, information and communications technology and biotech clusters in particular have strong growth prospects.

Longer term outlook:

In 2006, the Ontario Government released ‘A Growth Plan for the Golden Horseshoe’. The Waterloo-Guelph area is considered what is to be the ‘outer ring’ of the Greater Golden Horseshoe. Surrounding the inner ring (Hamilton, Mississauga, Toronto…), the province plans to maintain a greenbelt, and will limit development in this area. Therefore, growth in the Greater Golden Horseshoe will leapfrog the greenbelt over the next 25 years into the outer ring. This should result in a rapid population expansion in Waterloo-Guelph. Specifically, between 2001-2031, the areas population is expected to rise 60% from 456,000 to 729,000.

This means solid increases in housing prices that make attaining a mortgage all the more attractive. See my other local information articles for more detailed reasons to have a mortgage in the Kitchener Waterloo Guelph Area.

For a more detailed look at this report, click HERE.

KW Area Housing Board Sales Report

April 2008

According to the report, housing sales decreased for the third month in a row in April in Kitchener and Waterloo, but prices continued to climb. Specifically, a total of 691 residential dwellings were sold last month, a drop of 2.9 per cent compared to the 712 sold in April of 2007.

The average sale price of a house was $261,865, up 6% compared to April of 2007.

Karen Shartun, board president reports that the local real estate market continues to be healthy.

"Sales of residential properties in April continued to be solid, though they are indicative of the fact the record-setting pace of last year could not be sustained," she said.

So while growth is slowing, housing prices continue to increase at a nice rate in the area. Accordingly, most individuals are experiencing growth in the value of their homes which continues to outpace the interest rate paid on their mortgage. In other words, it pays to have a mortgage, and this is forecasted to continue over the long term.

Other Important Costs

Kitchener Waterloo Cambridge and Guelph Mortgage Source

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 (KW) charge. 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!

KW is Ontario's 'Economic Alberta'

"The Kitchener-Waterloo-Cambridge area is the top place in Ontario to invest in real estate, with the most potential for future price appreciation of any area in the province" Says Tony Wong, a Business Reporter from the Toronto Star. The Region beat out  Barrie, which for years took this claim.

The reasons for such an optimistic title as 'Ontario's Economic Alberta' are many, but tend to focus around the Regions highly educated and diverse workforce, its proximity to Toronto and other large urban centers and its diversified manufacturing and service industries. In particular, technology will continue to play a major role.

And this affects your mortgage how?

The main reason that most purchase real estate is to provide a comfortable place to live and enjoy life. In close second for many though is the effect of building home equity, or looking at ones home as a valuable and growing asset. Seen from this perspective, a mortgage can be seen as a leveraging tool that helps one realize this home asset growth. First of all, rent won't ever lead to the growth of home equity (because the real estate is not owned) and second, the owner will not realize an increase in value of their property unless it is owned by him or herself.

So, the Waterloo Region and Guelph offer a compelling picture for a mortgage holder, since interest rates remain at historical lows and the choice of mortgae types diverse, while the prospect of solid increases in home value will do much to create wealth for its owner over time. 

Brent Richardson

CMHC Kitchener Waterloo and Guelph Housing and Mortgage Outlook

Spring/Summer 2008

According to the Canada Mortgage and Housing Corporation, KW and Guelph home sales are forecasted to decline slightly throughout 2008 and into 2009. Furthermore, in continuation from 2007, housing markets in the Kitchener-Guelph area will favour sellers.

However, “Despite the forecasted decline, MLS sales will be at the second highest level on record” (CMHC, Spring 2008).  Specifically “…the price gap between new and resale homes, a high level of new listings, diverse financing options and continued population growth will combine to keep existing home sales at very high levels. In addition, Kitchener/Waterloo incomes relative to mortgage carrying costs are higher than in either Hamilton or Toronto” (CMHC, Spring 2008). 

The Kitchener-Waterloo Real Estate Board expects average home prices to rise 4.6% to $264,000 in 2008 and increase by 4.5% in Guelph.

“Mortgage Rates Predicted to Remain Relatively Flat”

Mortgage rates are expected to trend slightly lower throughout 2008, but will be within .25-.50 % of their current levels. For 2009, posted mortgage rates should begin to drift up slightly as the year progresses.

CDN Government Home Buyers Plan

"Your Source for Mortgages in Kitchener Waterloo Cambridge and Guelph"

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.

Fixed or Variable Rate?

Kitchener Waterloo Cambridge and Guelph Mortgage Source

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!

Pay Off your Mortgage Faster

How to pay off your mortgage the fastest - Kitchener Waterloo Cambridge and Guelph

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. 

Increase your Credit Score and Save

The easiest way to lower your interest rates: Increase your credit score

Kitchener Waterloo Mortgage Source

            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

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