Archive for October 2008

Many Canadian lenders will provide a pre-qualification or an interest rate guarantee to a client while they are looking for a property.  The purchaser is then often protected in the event that interest rates increase and, should they decrease the purchaser has the ability to accept the lower rate at the time of closing.  A rate guarantee can save a home-buyer money, and ultimately could protect their ability to purchase their dream home.

If interest rates increase then characteristically the amount a borrower can qualify for decreases.  If interest rates increase enough and you are purchasing a home at the peak of your price range, then it is quite possible that after the increase, the home that you once qualified for could be out of your reach, or could require a larger down payment to offset the increase in rate.

Should interest rates decrease, the lender will , more often than not, honor the lower rate at the time of closing which would mean your mortgage payments could ultimately decrease, depending on the size of the rate drop.

What does Pre-Qualification Mean?  It means the lender has reviewed your documentation, and depending on the institution, possibly sent it to the insurer for approval.  A pre-qualification is different from a rate-hold.  A rate hold only guarantees your interest rate in the event that you are approved for a mortgage; agreeing to an interest rate does not mean a lender has to follow-through on the approval.

In order to receive a pre-qualification you will have to provide your Mortgage Broker with supporting documents, including but not limited to; employment verification (employment letter and paystub for a T4 employee or Articles of Incorporation for a Stated Income Applicant), and verification of any large debts you may have.  The lender reviews these documents and not only provides a rate guarantee but also approves your employment and issues a commitment.

Pre-Qualifications, if done correctly, enable a purchaser to begin their home search and put in an offer, still subject to financing, but provides them and the seller, with the confidence that they have been pre-approved.  The only item that should require approval at this time is the property.  The lender will want to ensure the property meets their minimum requirements and this is usually determined by an appraisal by a Certified and Designated Appraiser. 

A pre-qualification ensures the affordability of the home you are purchasing and provides you, as a buyer, the peace of mind to begin your search.  Contact your Calgary and Southern Alberta Mortgage Specialists at MBN Mortgage by clicking on http://www.mbnmortgage.com and they will help you with your pre-qualification and home search.   

With the occurrence of the subprime market crisis, and consequent affect on the Stock and Equity Markets, many consumers are wondering what is going to happen to their investments.  The volatility of the market has affected old and young alike; it’s not only the Baby Boomers whose retirement funds are being affected, but young families who are interested in investing in RESPs for their children’s education are also affected.  The big question being asked by consumers is:  What do I do with my Investments; do I leave them where they are and wait it out, or do I withdraw them?

Consumers are torn between withdrawing their registered investments and leaving them where they are, in the hopes that the market direction will change and we will move out of the global recession we are in.  Young families are confused as to whether they should wait to begin investing for their children’s education and for their own retirement.  And then you’ve got retirees who were unaware that their RSPs are stock and equity backed and are baffled at the fact that their retirement savings have decreased drastically, wondering how they are going to maintain their lifestyle now that they have lost the majority of their retirement income.

Numerous studies have concluded that the main sources of retirement are typically government pensions, company pensions, registered investments (RSPs), and non-registered investments (GICs or Mutual Funds).  Would you be surprised to learn that RSPs are our second largest source for retirement income, and that the majority of these RSPs are stock or equity based?  Would you be surprised to learn that their value (if stock based) is directly associated to Consumer Confidence and the Profitability of the company they are invested with?  Leaving you with little control of your investments?  In saying this, how would you respond to the economic crisis?

Let’s begin by examining what would happen if you left your registered investments where they are.  On Friday, The Conference Board of Canada reported that Canadian Consumer Confidence has dropped to levels not seen since 1982, when the country was in recession.  Based on a poll of 2000 people between October 2 and 8, the conference board said its index of consumer sentiment fell 11.9 points to a reading of 73.9; the weakest point since the third quart of 1982*. 

This drop in Consumer Confidence has a direct correlation to the value of your stock backed RSPs as the value of these RSPs is based on the level of consumer confidence (the demand for a stock and the amount willing to be paid) and the profitability and dividend yields of the company whose stocks you are investing in.  When consumer confidence drops, as it has, it affects the market capitalization and stock valuation of your investment, ultimately decreasing the value of your stocks, and consequently the value of your stock backed RSPs.  By leaving your investments where they are, you are “hoping” that consumers will all of a sudden decide to begin investing again and that this sudden surge will “hopefully” drive up the value of stocks and consequently again, the value of your stock backed RSPs.  This strategy is highly subjected to the volatility of the market and is based on your confidence in other consumers, which, as evidenced above, is currently at a record low.  Subsequently, leaving your registered investments in stock and equity backed funds is not ideal.

Let’s move on to evaluate what would happen if you withdrew your registered investments.  Each of the different types of investment income – interest, dividend, and capital gains, is taxed differently.  The amount of tax you pay is also based on your marginal tax rate.  With that being said, the interest component tends to be affected the most as it is taxed annually at your full marginal tax rate, the way your employment income is. You’ll receive interest income from investments like GICs, Canada Savings Bonds, term deposits, and mutual funds containing money market investments and bonds.  Dividend income comes from owning common or preferred shares in a stock company. You’ll pay less tax on dividend income than on interest income because of the dividend tax credit (this acknowledges that the stock company has already paid tax on the income they are distributing to shareholders). Dividend income received from foreign corporations is not eligible for this tax credit, and is taxed in the same way as interest income.  Capital gains may result from the normal activity involved in managing an investment (for example, selling an asset for more than was paid for it). You pay tax on 50% of the net capital gains distributed by the fund (total capital gains minus total capital losses in a given year).

In general, to minimize taxes and take advantage of the tax treatment of the various sources of investment income, you might want to continue to hold your interest paying investments within the RSPs, or registered investments, you currently have.  In other words, cashing in your registered investments is not an ideal response to the market crisis.

So, if leaving your stock and equity backed registered investments where they currently are isn’t ideal, and if cashing in these registered investments isn’t ideal, what is?

Transferring your Registered Investments to a fund that is not affected by the volatility of the Stock and Equity based markets is the ideal answer.  You are not “cashing in” your investments thereby ensuring you are not required to pay taxes, but you are also not relying on the confidence of other consumers to dictate the value of your stocks and ultimately the value of your registered investments.  A fund that is Hard Asset Backed, not stock or equity baked, where you can earn a fixed rate of return over a locked in period, is ideal.  So where do you find a fund that provides all of the above?

The MBN (7-1) Bond Fund does just that.  It is an RSP eligible bond that provides a 7.0% annual fixed rate of return compounding over a 4 year period, which provides an annualized rate of return of 7.7%.  This fund, unlike most other funds, is Hard Asset Backed, meaning it is secured to real estate which is a tangible asset.  Hard Asset value offers an objective measure of value, based largely on supply and demand economics (market forces) and the law of substitution.  All of these factors, when combined, make for an extremely secure investment and create the asset backed investment, rather than stock backed investment, that most Canadian Financial Institutions are comfortable lending on.  Ask yourself this: What do most of the Major Banks lend on?  Real Estate (mortgages) or Stocks?   The answer is Hard Asset Backed Mortgages, or Real Estate.

With the MBN Bond Fund the principal is backed by real estate and the interest is covered by a performance bond.  This gives you peace of mind with regards to the security of your investment.

By transferring your registered investments to the MBN Bond Fund there are no tax implications to be had as you are moving your investments from one Registered Fund to another; you are not relying on consumer confidence to increase the value of your stocks; and you are removing the market volatility that has caused the decrease in your investments.

By doing your research and being a knowledgeable investor you can protect your investments; your lifestyle, your children’s college funds, and your retirement income.  Your investments are too important to leave to chance.  Contact your MBN Bond Fund Specialist at 1-877-212-8002 or www.mbnbondfund.com to learn about how you can transfer your Registered Investments and begin earning a fixed 7% rate of return.

In addition to the Bond Fund, MBN offers a financing team with Mortgage Associates specialized in first-time home buyer financing and investment property financing. 

To learn more about your mortgage options please contact your Calgary and Southern Alberta Mortgage Specialists at MBN Mortgage at 1-866-955-9662 or http://www.mbnmortgage.com .

MBN Mortgage

*CBC.ca

The numbers are in, and they bring good news for Canadian homebuyers. Price growth is beginning to ease up across the nation, according to Genworth Financial Canada’s Metropolitan Housing Outlook report. For new and resale homes, price growth has quadrupled since 2001, but is expected to slow over the next five years, allowing potential homebuyers to feel a little breathing room.

Calmer market ahead:

In 2008, the rate of price growth should drop about 50% from last year for both new and resale homes across Canada. The return to historically normal levels will give consumer incomes a chance to catch up and buyers should feel less pressure and more opportunity to explore all the choices and financing options available to them.

“Now we’re seeing a calmer market,” said Peter Vukanovich, president of Genworth Financial Canada. “That translates into better opportunities for first-time homebuyers to make an informed decision.”

For homebuyers, this more stable growth is a welcome change from the increases in recent years. Both 2006 and 2007 saw an 8.7% increase in the price of new homes, and there has been a 10.2% average jump in the price of resale homes each year since 2002.

“Rapid price increases, which were virtually unsustainable in regions like Alberta, had begun to erode affordability and put a lot of pressure on first-time homebuyers in terms of their decision-making process,” said Vukanovich.

Housing market still strong:

Overall, Canada’s housing market is expected to remain strong, supported by steady demand and modest price increases across the country. This year’s national average new home price is forecast at $397,789 (a 3.8% increase) with the 2008 average resale home price expected to reach $322,424 (a 5.1% increase). Regionally, the strongest housing demand can be found in B.C., Manitoba, Alberta, and Saskatchewan, as a result of the commodity-fuelled economic growth in the West.

National housing starts, however, are expected to ease to just below 215,000 units this year and 194,000 units in 2009. This represents a 15% drop, after eight years of steady increases. The drop in single-unit starts is expected to be greater than for multiples, reflecting the number of empty nesters looking to downsize and the affordability of these properties for first-time buyers.

Mortgage rates to drop:

Mortgage rates will also see a drop this year as the lowered Bank of Canada interest rate flows through to the mortgage market. Prime Rates dropped as of today by half a point and are currently sitting at 4.25%. This is good news for those of you who have Variable Rate Mortgages; this quarter point drop can have a significant impact on your monthly mortgage savings.

The Canadian Response:

The central bank describes this rate cut as its key policy interest rate, signaling its intentions to credit markets everywhere. Numerous studies have been released regarding Canada’s economic situation and there is no doubt that both the real estate and mortgage markets, while slowing, are not stalling, and the Bank of Canada’s Rate Cut exemplifies this.

Contact your Calgary and Southern Alberta Mortgage Specialists to learn more about financing options available to you.  MBN Mortgage has a team dedicated to all your financing needs, http://www.mbnmortgage.com.

MBN Mortgage

*Merix Financial

The financial crisis that has left some of the largest financial institutions begging for help and has ultimately triggered the plunge of the stock market, is taking its toll on individuals and their retirement plans.

Many Canadians are having to re-evaluate their retirement and are being forced to stare the grim reality in its face; their lifetime savings have dwindled down to almost nothing and their hopes of retirement have dwindled with them.

More than half the people surveyed in a poll done by The Associated Press, released earlier this week, said they worry they will now be forced to work until an older age, due to the decrease in value of their retirement savings.

In an era where baby boomers are counting on their stocks, GICs, and pensions to carry them throughout their retirement, they are quickly realizing that all of the above are severely depleated.

The meltdown in this market comes as pensions are being eliminated which just further emphasizes the need for action. As the recent instability of the market shows, Canadians cannot continue to rely on stocks, mutual funds, and GIC’s, which are typically more volatile and whose underlying assets are mainly stock based. Instead, they must secure their retirement funds to Hard Assets, such as gold and land. History shows that Hard Assets are more stable, this is evidenced by the fact that large financial institutions typically allow you to borrow against your hard assets, because they are safer and much more secure.

With this being said, we have a solution for you. The MBN (7-1) Bond Fund is an RSP eligible fund where the principal is backed at a 1.5:1 ratio by real estate, or Hard Assets, and the interest is covered by a performance bond. By transferring your RSPs, which as studies show are currently not performing, to the MBN Bond Fund, you are taking advantage of a 7% annual rate of return on your investment, without deductions, compounding over a 4 year term. As well, the Bond Fund provides annual internal and dividend returns paid to each Bond Fund Shareholder.

MBN Finance Ltd., a division of MBN Ltd. administers all of the capital within the fund to finance Building and Land Development Projects. In addition, these funds are used to provide Bridge and Interim Financing through MBN Mortgage, and to contribute to viable real estate projects across North America, with its primary focus in the stable Alberta market.

Due to the US housing crisis and inevitable fallout from this crisis, consumers are seeking local investments opportunities in the Canadian Market and are turning to safer, secured investments, such as the MBN 7-1 Bond Fund, which is managed by the Professional Services of Collins Barrow, Canada’s largest association of Chartered Accountancy Firms, and Scott Hall LLP - a full service law firm established since 1986 and is required to report to its qualified Board of Directors. This accurate management is paramount in the success of a fund such as this provides the safety that Canadian Investors are currently lacking in their US and Foreign Investments.

If you don’t want to become a statistic of the plummeting stock market and consequent loss of retirement savings, invest your future in the MBN Bond Fund.

We will analyze your current estimated rate of return on your RSPs and show you how they can perform at a greater rate of return if you invest them in the safe and secure MBN Bond Fund. The difference is staggering.

Speak to your MBN Specialist today to learn more about the Bond Fund and how you can earn an exceptional return on your RSP eligible investment.

Contact us at 1-866-955-9662 to learn more.

MBN Mortgage

*Associated Press