Archive for November 2009

The Annual Mortgage Checkup

As life changes, a regular once-over helps keep finances in shape

For many Canadians, financial matters are about as enjoyable as their yearly physical exam. But the current low-rate environment may make it a good time for homeowners to become proactive about their overall financial health by taking a close look at one of their most important obligations – their mortgage.

“A mortgage isn’t something you sign once every few years and then forget about,” says Brad Gavin, mortgage professional with Mortgage Intelligence in Calgary. “Life can change substantially in a year, and a regular review can help ensure that your mortgage is still the right fit for your financial situation.”

According to Mr. Gavin, a number of major life changes may call for looking over your mortgage, such as starting or growing a family, starting a business, loss or interruption of income, home renovations, purchasing investment property or other major expenditures. A mortgage professional can assess a homeowner’s current interest rate, payments and other mortgage terms, determine available home equity, and recommend options that may help them better reach their goals.   

Brad offers some common reasons to revisit your mortgage: 

1. 1.    Paying down your mortgage faster: If you receive extra cash like an inheritance, tax refund or a work bonus, think about putting it toward your mortgage. For example, paying an extra $3,000 once every year toward the principal on a $250,000 mortgage can result in interest savings of $42,442 over the life of the mortgage, assuming a 25-year amortization and a fixed rate of 4.19%. 

1. 2.    Lowering monthly payments: Renegotiating for a lower interest rate can protect your finances from unforeseen factors like a reduced income, and allow you to save up a rainy day fund.

1. 3.    Debt consolidation: Transferring high-cost consumer debt like a credit card balance to a lower interest rate by consolidating it into your mortgage can help you boost your cash flow to build up savings or pay down your debt faster. 

1. 4.    Securing a Home Equity Line of Credit (HELOC): A HELOC can help you access lower-cost funds for investing, such as topping up your RRSP or TFSA contribution for the year. It can also help you pay for home improvement projects, so you can take advantage of the federal Home Renovation Tax Credit for eligible projects done before February 1, 2010.

1. 5.    Improving credit: A mortgage professional can coach you on how to improve your credit score, which can help you work toward future goals such as buying a vacation property for your family. 

In some cases, a mortgage checkup may show that refinancing could improve your mortgage strategy.  However, most mortgages require the borrower to pay a penalty if they pay off their mortgage in full before the maturity date.  A mortgage professional can provide advice on what penalties you may incur and if refinancing is indeed your best option. 

“In the end, a yearly mortgage checkup could reveal that the best course of action is no change at all,” says Brad. “Mortgage professionals can be excellent resources to help homeowners better understand their financing options, whether they’re buying a new home or staying put.”

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To arrange an interview, please contact:

Mortgage Intelligence is a leading mortgage brokerage firm with a national team of mortgage professionals.  At Mortgage Intelligence our mortgage experts provide unbiased mortgage advice to first time homebuyers as well as those looking to renew or refinance their mortgage, or consolidate debts.

Consumers need to prepare for higher mortgage rates next year: advisers

by Kristine Owram, THE CANADIAN PRESS
Thursday, November 19, 2009provided by

TORONTO – The Canadian housing market has seen a stronger and faster rebound from the recession than any other segment of the economy, due in large part to enticingly low mortgage rates.

But rates this low – 5.59 per cent for a five-year fixed-rate mortgage and 2.25 per cent for a five-year variable-rate mortgage at one bank – can’t last forever, and experts are advising borrowers to prepare for higher rates within the next 12 months.

“We have to realize those are emergency interest rates,” said CIBC economist Benjamin Tal.

“Interest rates will rise – it’s just a question of time, it’s not a question of if. And if that’s the case, we have to make sure that when we borrow this money we can afford the same mortgage 200 or 300 basis points higher. That’s the key responsibility now of borrowers and lenders, to make sure that what we do, we do it in a prudent way.”

Depending on whether they are fixed or floating-rate, mortgages are tied to either the bond market or the Bank of Canada’s key lending rate, which are closely related. The central bank’s rate has been sitting at a record low of 0.25 per cent since the spring and it has said it will keep it steady until at least next June to help stimulate the ailing economy.

On Wednesday, three of Canada’s biggest banks – Royal Bank (TSX:RY), Bank of Montreal (TSX:BMO) and TD Bank (TSX:TD) – announced that they will cut posted rates for fixed-rate mortgages by up to 0.25 percentage points. On Thursday, CIBC (TSX:CM), Laurentian Bank (TSX:LB) and Scotiabank (TSX:BNS) followed suit by cutting their five-year mortgages by 0.25 per cent to 5.59 per cent, in the case of CIBC and Scotiabank, and 5.6 per cent at Laurentian.

But mortgage lenders agree that rates are nearing the bottom and will begin to rise again in 2010.

“The only sort of assurance that you hear in the marketplace is the Bank of Canada’s going to try to maintain that rate until June. But past that, there are already warnings that if there need to be adjustments, the adjustments could be a little more abrupt than we’ve been used to in the past,” said Martin Beaudry, vice-president of retail lending at ING Direct.

CIBC’s Tal said that with rates this low, “it’s almost a crime not to take a mortgage out,” but warned that consumers need to be prepared for higher interest rates later on and what this could mean for their personal finances.

For example, a $200,000 mortgage with a term of 25 years and an interest rate of 2.25 per cent has monthly payments of $876.26. For the same mortgage with an interest rate of five per cent, the monthly payments become $1,169.18.

And this doesn’t only apply to variable-rate mortgages, but to fixed-rate mortgages that are coming up for renewal, Tal said.

“It’s not just variable rates, because five years from now the rates will be much higher, so you don’t want to find yourself in a situation five years from now where you can’t afford the house,” he said.

“It’s important to be extremely prudent and not to be totally blinded by those rates.”

Both John Turner, director of mortgages at BMO, and ING’s Beaudry said they’ve seen an increase in the number of people opting for fixed-rate mortgages to ensure some certainty when interest rates begin to rise again.

“In the first six months (of 2009), we saw well over 60 per cent of our applications being for variable-rate mortgages, and in particular in our case five-year variable-rate mortgages,” Beaudry said.

“Towards the latter part of the summer, until now, the trend has reversed to where we’re seeing about 70 to 80 per cent of our applications going for five-year fixed-rate mortgages.”

Turner agreed, saying 60 to 70 per cent of BMO’s customers were opting for variable-rate mortgages in the past, but lately “there’s been a slight shift to fixed.”

The key is finding a monthly payment you feel comfortable with and then thinking ahead – if you have a variable-rate mortgage, or a fixed-rate mortgage that’s coming up for renewal soon, will you be able to afford to continue to make your payments if interest rates go up?

Turner said now is the time to begin making more frequent payments, while interest rates are still low, if you can afford it. This will reduce your principal more quickly and will mean lower payments down the road when interest rates are higher.

“For example, if you have a $200,000 mortgage and you opt to pay biweekly (instead of monthly), you knock four years off your mortgage and save about $47,000 in interest just by doing that,” he said.

As well, if you have a variable-rate mortgage, it’s important to keep an eye on interest rates and lock in if you feel they’re getting too high, said Jim Murphy, president and CEO of the Canadian Association of Accredited Mortgage Professionals, or CAAMP.

The association also recommends that homeowners renew their mortgages before the scheduled renewal dates given the current low level of interest rates.

However, Murphy predicted that when interest rates do start to go up it will be a gradual climb, and Canadians shouldn’t worry about a sudden jump in the number of people who are forced to default on their mortgages.

“I think people are predicting that rates will start to increase in 2010 at some point in time, but it’ll be more of a slow, measured increase as it goes up, and most Canadians who have variable products will have the ability to lock in,” Murphy said.

CAAMP says the volumes of residential mortgage credit outstanding is forecast to grow by seven per cent between 2009 and 2011, and is predicted to pass $1 trillion in 2010. The average mortgage interest rate was 4.55 per cent as of October, down from 5.41 per cent a year ago.

Call 403-685-7025 to take advantage of historic low interest rates!!

We help clients in the Alberta and BC markets, including Calgary and surrounding areas.

Whatever the weatherman or the almanac says, we know that the warm season really ends with the changing of the clocks to mark the beginning of standard time again. Mornings are suddenly dark and frigid, and we know that winter is upon us. Protect your home and garden investment – by taking some time to batten down the hatches outdoors before the snow flies!

LAST CHANCE FOR REPAIRS

Begin by looking up. Your roof and eaves troughs will need to be in good condition to protect your home in the coming months. In particularly, be sure to clear leaves and debris from gutters and downspouts; if a clog forces melting ice back against the shingles, you’ll be dealing with an ice dam – a serious hazard to the integrity of your roof. While you’re checking the eaves trough, make a visual inspection of the roof itself – looking for loose or broken shingles, or damaged vents. Check your chimney for any loose brick or crumbling mortar. Mortar is temperature-sensitive and difficult to repair as the weather gets cold. Any work on the roof should be considered a two-person job, we should add. Always have a strong adult to steady the ladder for the person working at the roof. Now is also the time to repair any fence, lattice, or trellis – before the winter winds and ice take their toll.

TOOL SHED TUNE-UP

Many a fine garden tool has met its demise far too soon, because it has been left outside over the winter. Your yard and garden tools have been working hard this summer, and they’ll be in need of proper care and storage for winter. Begin by removing any caked dirt with a good wire brush; some gardeners prefer using a wire whisk attachment on a power drill. Now’s the time to sharpen any tools that have become blunted by a season’s use: hoe’s, spades, pruners, loppers and saws, if you have them. As you’re cleaning, check your tools carefully for any loose screws or nuts. Finally, spray any metal parts and cutting edges with a good penetrating oil like WD-40. Wooden handles should be wiped with boiled linseed oil to prevent cracking and drying.

 POWER TOOLS OFTEN HAVE SPECIAL REQUIREMENTS AT THE END OF SEASON

In general, you should change the oil and sparkplugs of any equipment, and have blades sharpened. This can be done professionally, if you prefer.

 BEFORE THE FREEZE

Garden hoses don’t need much care, and it’s easy to forget about them at the end of the season. But take some time to straighten and drain your hose, and store it in a loose coil or on a reel – not hanging from a nail. Be sure you don’t leave an opportunity for water to enter the hose over the winter months. If you have an irrigation system, be sure to winterize it as well – blowing out the lines to ensure that ice doesn’t have an opportunity to split and break the waterlines below ground. Turn off any outside taps at source, then drain them at the faucet.

 WHEELBARROWS, CARTS AND WAGONS

These workhorses also deserve some attention at the end of the season. Touch up any paint chips and treat any rust spots. Give wheels a spray of oil to keep them running smoothly.

TURN ON THE LIGHTS

You’ll need your outdoor lighting as the nightfall comes sooner. Take the time to replace bulbs and ensure that any switches and timers are adjusted for the shorter daylight hours.

Credit Scoring

The credit score, also referred to as a “FICO score,” is a mathematical formulae created by Fair, Issac and Company.

The credit score is used by most companies to decide if the applicant is a good credit risk or not. Equifax and Trans Union will calculate the numbers from the credit report and generate a number between 300 and 900.

A low score indicates a bad risk. A score of 700 or more puts the applicant in the lenders’ good books.

 How scores are calculated:

How Clients Can Improve Their Credit Score

1. Order a copy of the credit report, review it carefully and correct any significant errors.
2. Pay bills on time.
3. If there is a questionable credit history, they could open a few new accounts and use them responsibly, paying them off on time.
4. Avoid opening accounts without intention of using them. Having five or six of the same credit card type (e.g., Visa), is not favourable.
5. Having a credit card or instalment loan can help boost a credit score, as long as the balance is not too high.
6. Keep balance low in relation to available credit. If the credit limit is $10,000, keeping the balance below $2,500 (or 25 per cent of the limit) will improve the score. Balances of more than $7,500 (or 75 per cent of the limit) will decrease the score. Going over the limit has an even more negative effect.
7. Pay off credit card debt instead of moving it around to lower rate cards. Moving balances to other credit cards (i.e., “balance transfer”) and closing an old account can hurt the score.