Muddy York: Toronto Real Estate Blog

Entries categorized as ‘Mortgage Information’

New effort promises to help Canadians learn more about mortgages

July 10, 2010 · Leave a Comment

Many Canadians are fixated on their monthly mortgage payments, interest rates and whether they should choose a fixed-rate or variable-rate mortgage. Fewer Canadians are interested in penalties for refinancing or knowing when or if they can make lump-sum payments on their mortgages.

That’s why the of the Canadian Association of Accredited Mortgage Professionals’ CAAMP Foundation and Credit Canada, a non-profit organization that helps Canadians understand credit and finances, have joined forces in order to help Canadians gain valuable industry knowledge about more of the fine print on their mortgage agreement.

“Our members firmly believe that financial literacy underpins a healthy economy, and certainly a table mortgage market. We are pleased that our knowledge and expertise in mortgage finance can be utilized in this initiative,” said the chair of the CAAMP Foundation, Paul Grewal in a press release.

It will begin with an educational campaign that includes an online initiative, interactive tools, mortgage calculators and tutorials. Eventually, plans are to introduce the same learning components and information into Canadian classrooms.

“Financial literacy is the key to financial success,” said executive director of Credit Canada Laurie Campbell, in a press release, “We are pleased to be partnering with CAAMP on this initiative and appreciate their dedication to healthy money management and fiscal responsibility. There is no doubt that having the foundation of financial literacy will result in more successful homeownership,” she said.

Categories: Mortgage Information
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Latest survey results brought to us by CAAMP:

May 14, 2010 · Leave a Comment

By Parmida Modiri, AMP

A recent report that has been released by CAAMP, the Canadian Association of Accredited Mortgage Professionals, indicates that Canadians on average are very smart with their mortgages and will be able to handle future changes that may come to the mortgage market.

Will Dunning, Chief Economist at CAAMP compiled the report with online results from approximately 3,000 Canadians surveyed in April of 2010.

The mortgage market in the last decade has greatly exceeded expectations.  Out of 9.3 million homeowners in Canada, approximately 5.55 million have mortgages.  Since 2000, the total volume of residential mortgages has doubled to $964 billion dollars at the end of 2009, and is anticipated to hit $1.04 trillion by the end of 2010.

For those who financed their home in the last year, about 65% are still opting for the more traditional route of getting a fixed interest rate, which locks in a specific rate for a particular term.  Of that 65%, 12% converted to a fixed rate after initially receiving a variable rate to prepare for the possibility of interest rate increases.  29% are still choosing the variable interest rate option, which is an interest rate that varies based on the Prime rate.  About 70% of borrowers tended to choose a term of 5 years or more, and only 17% of borrowers have extended amortization periods, meaning their amortization is greater than 25 years.  The percentage of individuals with extended amortizations has remained stable, which is an indicator that there is not a great risk picking an extended amortization versus a shorter amortization.

“Our spring survey report reveals a remarkably mature borrower,” quoted Jim Murphy, AMP, CEO and President of CAAMP.  Of those with mortgages, 93% have never missed a mortgage payment, which indicates that Canadians do not take their mortgage obligations lightly.  About 16% of mortgage holders have at some point increased their required payments to help pay off their mortgage quicker.  An average household has been found to put about $100 more a month than what is required.  As well, 13% of mortgage holders have made lump sums to their mortgage in the last year, which also reduces their total mortgage amount.  Taking advantage of the current low interest rates have assisted many in being able to put down more money towards paying off their mortgages.

Planning ahead and making extra payments while a household is able to is a very smart move on the part of many Canadians.  Currently, out of 5.55 million mortgage holders in Canada, 375,000 are finding themselves having trouble making their mortgage payments, and another 475,000 estimate they will have difficulties if their rates increase to 5.25%.  Even though feel like they are having trouble with payments, Dunning mentions that “many borrowers are paying more than required, they already have significant equity, and they have flexibility to adjust payments in the event of future challenges.”

Refinances uses the equity in a household to take money out for other expenses that are required.  Only 11% of home owners used the equity to refinance, which in total was approximately $20 billion.  This, however, was significantly less than the projected amount of $34 billion that was initially estimated for 2009.

Those that chose to refinance or renew their mortgage, 74% saw interest rate decreases.  The 20% that saw interest rate increases only saw very minor changes that did not make drastic effects.  In total, 80% of all mortgage holders who obtained a mortgage last year were able to do so with a mortgage interest rate that was about 1 percentage point or greater.  The posted rate for a 5-year fixed term was 5.57%, but on average, Canadians were able to receive about 4.10%.

50% of mortgage holders used the services of a bank to finance their home, while 30% were through a mortgage broker, and 20% through an alternate source.  Provinces such as Alberta, British Columbia and Ontario typically used mortgage brokers more so than other Canadian provinces.

In addition to be very smart and conservative with mortgages, Canadians are also very optimistic about the housing market.  About ½ of Canadians that were surveyed expect housing prices to increase, and 44% believe that housing prices will stay at a steady and stable level.  Even though many indicated that now is a good time to buy, only 3.4% of Canadians showed interest in actually considering purchasing a property in the near future.

If you would like more information on CAAMP’s most recent Consumer Report, please visit: www.caamp.org/press-releases.php?pid=31&article=504

Parmida Modiri, AMP is an Accredited Mortgage Professional with Signature Service Financial.  Parmida can be reached at parmida@ssfi.ca or visit her website at www.signaturemortgage.ca. Mortgage Agent, Lic. #: M08005765

Categories: Mortgage Information
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BMO alleges massive mortgage fraud

May 12, 2010 · 1 Comment

By Heather Rose

BMO Bank of Montreal is claiming it’s a victim of one of the largest mortgage frauds in history in a giant lawsuit that names hundreds of people ranging from their own employees, to lawyers and even Calgary Northeast MP Devinder Shory.

The bank is claiming it lost over $30 million in a scheme that involved more than 200 properties valued at about $120 million in total.

It’s alleged that homes with values less than nearby houses were targeted by fake buyers, who were paid between $3,000 and $8,000 for their involvement. These buyers would lie about their income to be approved for mortgages, and the prices of the homes would be inflated. The proceeds from each of these inflated homes is estimated to be between $40,000 to $60,000 for the fraudster. CBC used a more expensive example in one of its articles, showing a Calgary home that was bought for $900,000 and then artificially inflated to a value of $2.3 million in three years, which is a profit of $1.4 million. When this method of mortgage fraud is used, the bank alleges that the lawyers involved would have to be “in on it”.

Shory, the MP, was the lawyer on record for four mortgages involved where the bank says it lost around $300,000 total. Most of the people named, including Shory, have not yet seen a statement of claim or been informed of details about the accusations.

“When I am, I will defend myself vigorously against these accusations. I have done nothing wrong,” Shory said in a statement. “As the matter is before the courts, I have no further comment at this time.”

The RCMP is currently deciding whether or not it will launch an investigation and statements of defense have not been filed nor has anything been proven in court. The RCMP has about 100,000 documents left to go through that were brought up through the internal probe conducted by BMO.

Mortgage fraud is a billion dollar industry in Canada, and many financial experts estimate that this is mostly due to lenders not checking applicants more thoroughly. There were suspicions of the scam as early as 2006, according to BMO.

Heather Rose is a Toronto based Journalist, who is a regular contributor to the Muddy York Real Estate Blog.  Heather website is located at heatherroseportfolio.squarespace.com.

Categories: Mortgage Information
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The Latest Forecast on Interest Rates

May 4, 2010 · Leave a Comment

By Parmida Modiri, AMP

Announced Tuesday April 20th, the Bank of Canada has said that it is no longer sticking with its conditional commitment to keep rates low until mid 2010.  The Bank of Canada initially announced a conditional commitment of keeping rates low to help stimulate spending to help boost our economy.  Recent reports have shown that the Canadian economy progressed much quicker than anticipated in January, signaling the Bank of Canada to retract its commitment.  The commitment was conditional based on inflation rates in the country, which greatly influence interest rates that consumers receive.

Interest rates are partially determined by the national inflation rate, which is measured based on the Consumer Price Index, or CPI.  The CPI takes into account what a typical household would need to purchase on a regular basis.  This includes but is not limited to food, transportation, clothing, housing and a few other things.  It is almost like measuring the cost of living.

The Bank of Canada introduced a Monetary Policy in the early 1990s to try and watch the inflation rates in the country and how it is moving.  Typically, the inflation rate target is about 2%.  When inflation is low, like last year, the Bank of Canada will attempt to stimulate spending by dropping interest rates.  When inflation begins to rise, as we are beginning to see, the Bank of Canada raises interest rates to make it more difficult for consumers.  This balance tries to keep the inflation rate at a predictable and stable level, which is beneficial to help with the overall economy.  It helps the economy better handle any potential changes that can occur that may alter the Canadian economy.

After the release of the latest report, many were predicting that rates would sharply spike at the beginning of June, which is when the Bank of Canada is next scheduled to review key interest rates.  A new report showing inflation rates in March have taken some of the pressure to raise interest rates so drastically.

Initially, many economists were predicting a sharp jump in rates set by the Bank of Canada as early as June 1st.  With the new figures collected from March, some economists have said that the rate jump may not be as high as initially predicted or if there will even be one at all at the beginning of June.

Regardless of what data has been released about the Canadian economy, there is always the possibility of a rate increase, especially now that the Bank of Canada has removed its conditional commitment to keep interest rates at a very low rate until mid 2010.

If you’re in the market for a mortgage, your best bet is to start getting locked in now.  Getting a pre-approval will guarantee you a specific rate for 120 days, which may be good if you’re trying to avoid rate increases.

For more information, talk with an accredited mortgage professional.

Parmida Modiri, AMP is an Accredited Mortgage Professional with Signature Service Financial.  Parmida can be reached at parmida@ssfi.ca or visit her website at www.signaturemortgage.ca. Mortgage Agent, Lic. #: M08005765

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Avoidable mistakes that can affect your approval for a mortgage

May 1, 2010 · 1 Comment

With the climbing interest rates, it may be more difficult to qualify for a mortgage for some Canadians who are planning on buying a home, especially those who are first-time homebuyers. Some common mortgage hazards to avoid include:

Not being able to prove what’s originally disclosed to the lenders: If a buyer is pre-approved for a certain amount based on original information that is disclosed, and then the buyer cannot verify the information that was originally disclosed (such as income) then the pre-approved amount may be voided.

Support payment information: If the borrower is divorced and pays child support or spousal support, these payments affect the borrower’s income and must be disclosed by providing the lender with a copy of the separation amount as these payments can technically lower the original stated income of the borrower.

A falling credit score: Even if a borrower is approved for a mortgage, the lender may still run a credit check before the closing date. If the borrower’s credit score has fallen, the mortgage company is entitled to not provide the agreed amount. Missing payments on credit cards and applying for new credit (where a company runs a credit check) can all lower credit scores, as can carrying a balance on any existing forms of credit. Obtaining your credit report will show you any prior missed payments and your score is usually available for an additional fee. This will also provide you with a chance to fix any mistakes on your credit report, and errors on credit reports are much more common than some people might realize.

Every Canadian is entitled to one free credit report per year by mail, and alternatively one can pay a small fee online to see their credit report. Avoid any web site promising a free credit report, no matter how catchy their commercials might be.

Some lenders may also approve a lender without checking for a credit report first, but then decline the borrower later on after pulling the report and discovering a poor credit score.

Categories: Mortgage Information
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Have you ever heard of a mortgage accelerator program?

April 19, 2010 · Leave a Comment

By Heather Rose

Much like those debt consolidation and settlement lawyer commercials (“It’s my money and I want it now!” anyone?), advertisements for mortgage accelerator programs seem to pop up during hard times or in the middle of a gloomy economy.

Mortgage Accelerator Programs promise to help you pay off your mortgage in half the time, but despite the common misconception, they’re not the same as debt consolidation where a company pays off the bank for you and you then owe them the money instead. Mortgage Accelerator Programs are something like a combined bank account where you deposit all of your money, and it makes payments for you.

It’s not a scam at all, but it’s not really worth your time or the extra money. Why? Because you can do it yourself for free and not be trapped within a mortgage accelerating bank account. In other words, what a Mortgage Accelerator Program does for you (for a fee), you can easily accomplish on your own.

The basic principle of most Mortgage Accelerator Programs is that making payments every two weeks instead of once per month both a) slows down the accruement of interest and b) in a 52-week year, you’re making 26 mini-payments which equals one extra whole mortgage payment per year. For example, if your mortgage payment is $1,000 monthly, pay $500 biweekly instead of one lump sum of $1,000. If you do this biweekly, you’ll end up with thirteen payments of $1,000 instead of twelve.

Some lending and baking companies offer biweekly payment plans. They may offer this service completely free, but if there are charges they’ll be far less than the cost of a Mortgage Accelerator Program.

There are some things to check up on before beginning this process. The first is that the bank will be aware that you want the payments applied to the principal and not the next payment. The second thing you should be sure of is that there are no prepayment penalties on your mortgage.

Heather Rose is a Toronto based Journalist, who is a regular contributor to the Muddy York Real Estate Blog.  Heather website is located at heatherroseportfolio.squarespace.com.

Categories: Mortgage Information
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CMHC Green Home refunds hit $3 million

April 13, 2010 · Leave a Comment

By Diti Dumas and Morgan Dumas

At the end of March, the Canada Mortgage and Housing Corporation’s refunds for their Green Home mortgage insurance program hit $3 million.

“This important achievement demonstrates the Government of Canada’s ongoing commitment to making energy-efficient homes more accessible and affordable for everyone,” said Diane Finley, Minister of Human Resources of Skills Development and Minister Responsible for Canada Mortgage and Housing Corporation in a news release.

The program began in 2004 and provides eligible borrowers with a mortgage insurance premium refund of 10 per cent if the CMHC Mortgage Loan Insurance is used for an energy-efficient home or for energy-saving renovations.

According to the CMHC website, this means that a borrower with a $250,000 mortgage and a five per cent down payment would get a mortgage insurance premium refund of almost $700.

According to the CMHC, almost 20 per cent of the energy that Canadians consume is spent running their homes. Making your home more energy-efficient or buying a greener home can lead to increased savings down the road due to lower energy bills and less water consumption.

Many banks are offering similar programs for those who are refinancing their homes or are planning on buying a home, and the City of Toronto recommends asking mortgage lenders if they offer “green mortgages”.

The City of Toronto has also targeted 2050 as they year they intend to have their greenhouse gas emissions cut by at least 80 per cent. The city has also introduced a residential Toilet Replacement Program and a residential Washing Machine Rebate Program when water-conserving and energy-efficient appliances are installed. More information on these programs can be found here:

http://www.toronto.ca/livegreen/home_watersmarts.html#rebates

Diti Dumas is a Sales Representative with Royal LePage R.E.S. Ltd./JOHNSTON & DANIEL DIVISION, Brokerage.  Diti is a regular contributor to the Muddy York Blog.  Diti’s website is located at www.ditidumas.com.

Morgan Dumas is an aspiring writer and journalism student from Ryerson University in Toronto.

Categories: Green Energy · Mortgage Information
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Every Canadian’s Dilemma: Variable v.s Fixed

April 7, 2010 · Leave a Comment

By Parmida Modiri, AMP

The age old question when thinking about obtaining a mortgage is whether to go for a fixed mortgage or trust in the variable product. Today, with the fixed rates on the rise this has become questionable for every current home owner as well as those currently shopping for a home.

Historically, based on different studies including a more recent one done by BMO variable rate may be preferential to a fixed mortgage rate because in the long run, it will save you money.

For those that are unaware, there are two types of interest rates that can be given when obtaining a mortgage: fixed or variable. A fixed rate is a set interest rate for a specified period of time (example: 6 months, 1 year, 5 years) that is paid on top of the mortgage, whereas a variable rate can fluctuate based on the prime rate set by the Bank of Canada.

Today, the most competitive variable mortgages can be obtained at prime less half a percent: with prime being at 2.25%, this means a low rate of 1.75% to start with. The discount on prime rate is what would be fixed for the term of mortgage; however, prime rate can change every time Bank of Canada has a meeting.

Bank of Canada can increase the prime rate by 0.25% to 0.5% each meeting, which means that prime rate cannot jump up a lot and the increases would happen gradually.  One of the significant benefits of the variable rate mortgage is the convertibility option, meaning borrowers can convert to the fixed rate anytime during their mortgage term.  The best type of variable mortgages would offer the client to convert at anytime to the lender’s best fixed rate offered at that time for remaining of their term.  Meaning, if there is three years left of the term the client can lock into the lender’s best three years fixed rate offered at that time as opposed to locking into a longer term for a higher fixed rate!

Here’s some good questions that should be answered before you decide to stick with a variable mortgage:

1.  Do you want to take advantage of lower payments that a below prime mortgage provides?

2.  Do you want to pay down your mortgage faster while rates are lower?

3.  Do you want to save money in interest costs?

4.  Does your monthly budget allow for fluctuations in payments?

If your answer to these questions is YES, then perhaps a variable mortgage should be considered.  Let’s look at a comparison of a five year variable at Prime less 0.40% and a five year fixed rate at 4.39%, $200,000 mortgage balance over 25 years amortization:

On the variable rate mortgage not only is the balance remaining in five years $7,202 less but you paid less in monthly payments as well.  Although one can’t anticipate what prime will do over the next five years, historically variable mortgages outperform fixed rate mortgages.  Taking advantage of the lower rates of a variable mortgage can save you money but the critical factor remains in the golden question: Does your monthly budget allow for fluctuations in payments?  If the answer to this question is NO, then fixed rates should be considered as your safe option.

Parmida Modiri, AMP is an Accredited Mortgage Professional with Signature Service Financial.  Parmida can be reached at parmida@ssfi.ca or visit her website at www.signaturemortgage.ca. Mortgage Agent, Lic. #: M08005765

Categories: Mortgage Information
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Five tips for achieving great credit as a couple

March 22, 2010 · 1 Comment

By Parmida Modiri, AMP

Your credit report shows a very comprehensive financial history. Your credit score, which is a three digit number, is assigned to each individual based on a variety of factors: number of trading lines open, monthly payments, history of repayment, number of inquiries, etc.

A credit score can range from about 300 (worst) to 850 (best), with anything under a 620 making it challenging to obtain a good mortgage rate. Those with good credit scores are typically offered better rates and less down payment options on mortgage loans because lenders feel that they are less ‘risky’ in terms of repaying.

There are many do’s and don’ts to sharing financial responsibility with your partner, which are listed below:

1. Financial History

Do – Understand Your Partner’s Finances

It is important to know your life partner’s financial history and any debts that they have on their own.  Knowing your partner’s financial history can help you gauge their spending habits and how good they are with their money.  Sometimes opposites attract, therefore a penny pincher may find themselves with someone who enjoys spending more every once and a while.

Don’t – Turn a Blind Eye

Not being aware of your partner’s financial history can hinder you in the long run. For example, if buying a home together, it may be difficult to get a great rate from a top lender if one of the applicants has a low credit score or risky credit history.  You may also require a larger down payment, do your homework before you begin shopping.  Knowing financial situations in advance can help you both plan accordingly for the future.

2. Joint or Separate?

Do – Decide what’s Right for You!

There’s no ‘correct’ decision in this case. Having joint accounts for credit cards, loans, etc can be good or bad, depending on your unique relationship.  Having a joint account can improve the credit scores for both individuals considering that payments are made to the account accordingly.  If one partner has a low credit score, having a joint account with a partner that has good repayment history can bring up the lower credit score if the repayment history remains good.

Don’t – Hide Purchases!

If you do decide to opt for joint accounts, it is important to understand what you are spending and what needs to be paid.  Make sure you tell your partner about the purchases you have made, and check the balance of credit cards before putting a large sum of money on a card.

Having separate accounts are becoming more popular over time, where each individual contributes separately to payments, according to their income.

Just remember that your partner’s individual debts are theirs alone, you are only held accountable for any accounts that have on your own or share together.

3. Budgeting

Do – Make a Manageable Budget!

By looking at the expenses that you and your partner have on a regular basis, as well as what you can afford, sit down together and figure out a fool-proof budget. Spreadsheets and templates can be easily found all over the web to help you get started if you are unsure.

It makes sense when creating a budget to work how much each person should contribute according to how much they make and the outstanding debt balances.

Don’t – Expect Your Partner to Pay

It’ll turn into the classic case of “I thought you were going to pay for it”. It is important to know how much debt each of you accrues individually and together as a couple to make sure to avoid falling behind on essential payments, such as utilities and rent/mortgage.

4. Big Purchases

Do – Try Combined!

Couples that come in looking to obtain a mortgage typically have more success than those who are obtaining a mortgage by themselves. Couples usually have more luck because their combined income allows for a larger loan and therefore more options to consider while shopping for a house.  It doesn’t even always apply to just mortgages; it could mean credit card approvals, car loans, lines of credit, etc.

Don’t – Hinder Your Partner’s Credit

On the flipside, having a partner with poor credit history can actually hinder your chances when purchasing a property, or obtaining any loan for that matter. The lower the credit score, the riskier a person is to a lender, and usually interest rates and approval amounts reflect this. If you feel that your partner’s credit could be a detriment to a big purchase, such as a house, you may be better off using one individual’s credit or with proper planning help to improve the lower credit rating.

5. Emergency Plan

Do – Save for a Rainy Day

It is important for any individual, regardless of whether tied to a joint account or not, to try and save up money. By putting money aside, it helps you plan for unexpected expenses such as car repairs, a leaky roof, or even a flooded basement.

Couples that both contribute to setting some money aside each month can actually save up more than if one person does so alone. The money saved can even be good to use if trying to save up for a down payment on a car or house.

Don’t – Spend, spend, spend…

It’s alright to indulge once and a while, but it is important to have an emergency plan for you and your partner in case something goes awry. For example, if obtaining a mortgage, the more money you have set aside (and for longer) the better it looks to lenders because it shows that the couple is financially responsible.

You will find that after a while of having joint accounts, sharing liabilities such as a car loan or mortgage that both of your credit scores will ‘even out’ and begin to look fairly similar. This is when it becomes a benefit for those with previously low credit scores.

Whatever you choose to share with your partner regarding your finances, make sure that you have thoroughly discussed them and are both aware of the spending habits and repayment habits of both parties. Pre-planning financial responsibilities and understanding your partner is crucial for minimizing the money related stress couples can face, so that you both focus on the more important things: each other!

Parmida Modiri, AMP is an Accredited Mortgage Professional with Signature Service Financial.  Parmida can be reached at parmida@ssfi.ca or visit her website at www.signaturemortgage.ca. Mortgage Agent, Lic. #: M08005765

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