Archive for August 2008

ENTERING THE HOUSING MARKET… OPPORTUNITES YOU MAY NOT BE AWARE OF

With the extensive Economic changes the Unites States is enduring right now, many House Insurers and Lenders have tightened their belts and either modified or completely removed some of their products that were once available to homebuyers.

Government-backed insurers, CMHC and Genworth, have both recalled their 40 year Amortization and Zero Down Mortgage Products, effective October 15, 2008 and many Lending Institutions have already implemented these guidelines despite the fact that these changes have not yet become mandatory.

So where does this leave you as a Home Buyer?

Your Mortgage Professional can not only help you understand the multitude of options available to you, but can also introduce you to alternate lenders that you may not presently be aware of.  Typically these non-confirming or self-insured lenders offer their products almost exclusively through Mortgage Brokers which means that a large number of Canadians have not been informed of the flexible policies they offer which have ultimately made home-ownership for thousands of Canadians a reality. 

By allowing Consumers to take on higher debt loads, extending amortizations, and enabling flexibility with income requirements, these Lenders provide Canadians with the opportunity to enter the housing market.  While these relaxed policies and innovative products offered are fantastic, they often times come with a slightly higher interest rate or less desirable terms.  Lenders base their rates and fees on the perceived risk of not only the borrower (including a client’s credit history, size of down payment, and source of income) but also the property being purchased.  After evaluating the borrower and the property, a lender will determine this perceived risk and apply the terms of the mortgage and applicable interest rates and fees accordingly.

One cannot lose sight of the end goal and ultimate achievement though when looking at the terms and rates being offered.  To enter the market using an alternative lender does not mean you have to remain in the market under those terms for the entirety of your homeownership lifetime.  Often times your Mortgage Professional will provide you with a temporary short term solution that will provide you the opportunity to purchase a home and enter the market.  However, during the term of your mortgage, your Mortgage Professional will work with you to mitigate the concerns a typical big bank might have when considering providing you financing and will guide you on ways to improve your qualifying ability with a typical lender or banking institution.  For example, often times cleaning up your credit and decreasing your debt loads will make a significant difference.

It is important to examine your local market as well - House prices have increased across Alberta at unprecedented rates and consumers are actively searching for a way to take part in the wealth that is created by these increases.  While it may only be possible for a consumer to enter the market under a Zero Down, 40 year Amortization Product, the increase in the value of their purchase over the term of their mortgage might more than make up for the higher rates required to initially complete that purchase.  This increase in value is a huge advantage to individuals once they are in the market as lenders consider this equity a down payment when refinancing or negotiating the terms of your mortgage.

Perhaps your only option today is a “no money down” option but upon the maturity of your mortgage term the equity in your property may help you negotiate a better mortgage.  The larger your down payment or equity position, when applying for a new mortgage, the less perceived risk there is by a lender and ultimately the terms of the mortgage being offered to you should be more favorable. 

There are many options available to you, and numerous mortgage  products that will enable you to enter the housing market.  Work with your Mortgage Specialist and follow their guidance to improve your negotiating position and ultimately, form a partnership with them to not only achieve your Home Ownership goals but to continually improve the terms of your mortgage.

Whether you and your mortgage specialist choose to use a Big Bank or a Non-Confirming Lender, becoming a homeowner is a great step in the right direction for your financial future.

When you signed your mortgage a few years back, you were thrilled with the rate you had negotiated: possibly the lowest in your home-owning memory. That was then. Who would have believed that mortgage rates would have continued that marvelous downward trend? Today, mortgage shoppers are looking at some of the lowest rates in history, and many homeowners with existing fixed-term mortgages are experiencing some “rate envy” about today’s rockbottom mortgage rates.

It might be worth a conversation about your options. Typically, we think of a fixed term mortgage as a non-negotiable contract. And it’s true that there are financial penalties to re-negotiate. But, many homeowners have been asking mortgage brokers for a mortgage analysis – a detailed look at the penalties versus the payoffs — to determine whether it’s worth refinancing. Like many Canadian homeowners, you may find that refinancing makes sense.

There are two approaches to refinancing: you can simply pay out the penalty on your existing mortgage and start fresh with a new mortgage, or you can opt for what is termed a “blend and extend.” Firstly, understand that you won’t reap immediate rewards when you refinance; it will take time to see the savings, since you’ll have some up-front penalties. So if you’re going to be selling the home in the next year, you’re unlikely to benefit from refinancing now, but as with anything in mortgages, it depends on your specific needs and situation.

Your mortgage broker can help you to assess your “payback” period: the length of time required to see any savings, based on the penalties you will incur and the difference between your existing rate and your new one.

Speaking of penalties, what does it cost to get out of your existing mortgage? Generally, you can expect to pay out the greater of either a) three months’ interest, or b) the interest-rate differential. The interest rate differential can be high; in effect, your mortgage lender will expect you to pay them the equivalent of what they will lose by releasing you from your mortgage and lending the money at current rates. If you are close to the end of your mortgage, these penalties may not be too severe, but if you are early in your mortgage arrangement, the cost can add up. Don’t be put off by what looks like a big penalty: it’s only one factor in your analysis.

So is it worth it? Only your mortgage professional can tell you for sure, but many homeowners are experiencing significant savings – even with rate differentials of two points (or possibly more). Begin with a visit to a mortgage broker, who has access to rate information from a broad selection of lending institutions – and who can provide you withthe kind of detailed analysis you’ll need to assess your options.

As with every market, the real estate sector experiences its fair share of ups and downs. According to the Canadian Real Estate Association (CREA), annual residential sales activity in 2007
was up 7.6% from 2006 levels. CREA predicts that the average residential property price will increase by a healthy 5.5% in 2008. Knowing when to enter the market can be a difficult decision in an environment where property prices are rising. However, with mortgage rates continuing to sit at near-20-year lows, now is as good a time as any to jump into the market as a buyer or a seller.

Here are some tips to get your house hunt started:
• Know the neighbourhood. Start studying listings in the area you want to buy to better understand what constitutes fair pricing. Drive around to count “for sale” signs and get a feel for
activity levels. As a buyer, more signs can be a good thing for a long-term purchase, but may hold values stable over the short term, because of supply and demand economics.
• Get pre-approved. Know what you can afford before you buy and know what terms mortgage lenders are willing to give you. Mortgage brokers can usually secure an interest rate guarantee for up to 120 days from lenders to protect you from fluctuating rates. A pre-approval strengthens your negotiation position, as you are fully aware of your financing position, and can get other terms and conditions or even more favourable pricing from a lender.
• Watch the calendar. Time of year is a major driver of market activity. Buying during seasonal winter and mid-summer slowdowns can give the buyer an advantage. In Calgary for example, August is a historically slow month, as many Calgarians are on vacation, out of the City, and not buying homes.
• Consider your timeline. Are you buying your house as a long-term investment or do you simply want to flip it in a couple of years at a profit? Longer term investors are less sensitive to short-term
fluctuations in rates and market activity.

MBN Mortgage Specialists work closely with home buyers and their realtors to assess their personal and financial goals and develop a home ownership plan uniquely tailored to their clients.