MORTGAGE CHANGES JULY 2012

Alright enough is enough. After receiving emails from several clients and even more from Mortgage specialists all over the city, I have decided that we need a nice easy to read explanation as to what new mortgage changes Canada’s Finance Minister Jim Flaherty has indicated will come into effect on July 9th, 2012.

1. Mortgage Amortization periods(length of the full mortgage) will be reduced from 30 years to 25 years. What that means for you buyers is a bit more money in terms of a monthly payment. Really this is better though. 30 and 40 year mortgages were a bit much anyways and in the long run we are better off. A family earning approx. 75k a year will be able to afford about 50k less of a mortgage however. Again, better safe than sorry.

2. The max amount that one can borrow when refinancing will be lowered to 80% from 85%. Again, good in the long term to not have more debt than people can handle. They also dropped this last year from 90% to 85%.

3. No more government back mortgage insurance on over 1million dollars.

4. Lines of Credit taken from the equity in your home will now be a maximum of 65% of your home’s value down from 80%. A home equity line of credit is similar to a standard line of credit but is secured against the equity in your home

5. The federal government will set maximum gross debt-service ratio (GDS) at 39% and lower maximum total debt-service ratio (TDS) to 44% from 45%.

Basically they are putting things back to normal. Since 2008 there have been 4 main changes done to tighten up lending policies. We are going back now to how things were before 2004. It's not to say they are making purchasing a home harder, they are more ensuring that those that are getting mortgages will be able to handle the debt more easily. This is a good thing, we do not want to end up like the states and have our market collapse and since the beginning of the changes in 2008 we are moving in the right direction to ensure that doesn't happen.

If you need anymore information please don't hesitate to ask.

Breakdown of Closing Costs in a Purchase

This blog is from one of my fantastic Mortgage Specialists Nick Bachusky over at Mortgage Specialist Direct, a new branch of Dominion Lending. Be sure to check out his website for other great information at www.mortageinottawa.com

Estimating your closing costs after the excitement of buying your home is about as appealing as sorting out travel insurance after you’ve booked your dream vacation. That said, closing costs are unavoidable so the best approach is to prepare for them ahead of time. The old rule of thumb for closing costs was to conservatively assume that they would account for approximately 2% of your purchase price but with HST being applied to some new home purchases, that approach is somewhat dated. Today’s post will give you a brief explanation of closing costs and then I’ll close with a couple of insights that I think every home buyer should hear.

Closing Costs for Every Buyer

Land Transfer Tax:

This is usually the largest single charge. It is calculated by taking your purchase price and multiplying it by a table of rates that rise with the purchase price. The top rate of 2% kicks in after $400,000, which means you pay 2% in tax on every dollar that you spend over $400,000. I know. Ouch. At least first-time home buyers get a rebate of up to $2,000.

The tax rate has not changed since June 1, 1989.

• 0.5% of the value of the consideration up to and including $55,000,
• 1% of the value of the consideration which exceeds $55,000 up to and including $250,000, and
• 1.5% of the value of the consideration which exceeds $250,000, and
• 2% of the amount by which the value of the consideration exceeds $400,000 for land that contains at least one and not more than two single family residences.

Legal Fees and Disbursements:

The lawyer’s fee for his/her time can only be estimated until you get a quote. Don’t be shy to ask for one. If you need a great real estate lawyer, let me know, I work closely with a few excellent ones that will be in great contact with you. I know a lot that are not very good at communication. Fees vary widely from lawyer to lawyer and they are often based more on law firm policy than on difference in service. Standard disbursements include registering the deed and mortgage charge, performing a title search and preparing your tax certificate. Each disbursement includes a standard administration fee with the lawyer’s time added on top.

Closing Adjustments:

These are reimbursements to the seller for any payments that were made for a period extending beyond the closing date. Put another way, you are reimbursing the seller for the portion of each charge that applies to the time when you are the owner. Examples include property taxes and condo maintenance fees. Interest Adjustment: Lenders like to start mortgage contracts on the first of the month, but buyers and sellers aren’t as regimented. Your interest adjustment cost covers the period between your closing date and your first scheduled payment (which if you choose to pay monthly is the first day of the following month). It works out to a little less than you would be paying if your mortgage term started on the same day you bought your house because it doesn’t include any principle repayment (it’s an interest only charge).

Fire Insurance:

If you need a mortgage, your lender will insist that you have fire insurance. This isn’t a big upfront cost because you can pay it monthly, but you have to prove you’re covered before the lender will advance funds on your behalf.

Closing Costs for Sub-groups of Buyers
Mortgage Default Insurance:

If you have a down payment of less than 20% you have to pay for mortgage default insurance so that if you default on your loan, the lender gets reimbursed. It’s based on a sliding scale where the smaller your down payment, the higher your insurance fee (CMHC is the largest provider). The fee is calculated as a percentage of your purchase price and you can add it to your mortgage balance, but you have to pay PST (8%) on the fee at closing. This is commonly forgotten by many financial advisors at banks.

HST for New Home Buyers:

If you buy a new house after July 1, 2010, you have to pay HST. All buyers get a rebate of $24,000 regardless of the purchase price, which is the same as paying no tax on the first $185,000. Some builders are including the HST in their sale price, so be sure to check. Go to the government for always up to date information here!

New Home Warranty Program:

New home buyers are required to enroll in the Tarion New Home Warranty program. Most builders also include this cost in the sale price but otherwise you will have to pay the fee at closing. Your new home warranty begins before you even move in. Once you provide the down payment for your new home, it’s protected. You also have a right to compensation if your builder delays the closing of the sale without giving you proper notice. Before you take possession of your new home or condominium, your builder will walk you through a pre-delivery inspection (PDI). For freehold homes, the builder pays the warranty enrolment fee to Tarion on or before the date the building permit for the home is issued. Condominiums are enrolled at least 30 days before construction begins. Tarion then gives the builder an enrolment number for the home. Some builders will include the warranty enrolment fee in the purchase price of the home, while others show it as an item on the Statement of Adjustments. You can find out more here!

Status Certificate:

Condo buyers need to pay for a status certificate, which their lawyer will review at closing. It includes the condo corporation’s financial statements and bylaws and it will give you a sense of the overall financial health of the partnership you are about to join. Your lawyer will use this document to gauge the probability of a significant increase in your condo fees. The good news is that the fee for this certificate is capped at $100. Want more information, go here!

Lastly, estimate your closing costs upfront and include them in your purchasing budget. Too many people wait until they’ve signed a purchase and sale agreement and then the money has to come out of their budget for new carpets and curtains. If you need to work out the costs, I can do that for you!

Market Outlook for 2012 is looking good!

I just finished up at a 2012 Mortgage Outlook with CMHC today. There were a lot of great things said. Mainly that Ottawa's housing market is in great shape to be living right now and for the future! I know there was recent press about that and may have you believing otherwise, but here are a few notes that I took in from todays meeting that could change your mind.

- Ottawa is currently in a strong balanced market, and prices expected to RISE with rate of inflation.
A 2.7% increase in home prices over the year is projected.

- Ottawa is definitely more stable as compared to other markets in Canada. So don't believe everything you see on TV

- Average employment by the government in 2002-08 was approx 95k, while average in 2008-12 was just shy of 120k.

- The government cuts that we are hearing of now represent approximately 1.5% job loss. That isn't as large of an
impact as most are thinking or hearing about.

- Other job sectors are still growing.

- Ottawa is at the top of the employment rate at 84.9%(ages 25-45) second only to Kitchener.

- Ottawa has grown approx. 47% in terms of income over the last 11 years and Ottawa has the highest weekly salaries anywhere in canada at just over $1000.

- Mortgage rates are still historically low, there is no better time to be buying! I've heard a recent deal was 3.89% for 10 year fixed!!! That's insane.

- Average of approx. 6000 immigrants per year are coming to Ottawa. 50% are economic immigrants meaning that they have degrees and support job growth. This combined with other factors translate to approx 5800 new houses a year required here in Ottawa.

- New homes are sitting at about 24% higher pricing then resale homes.

I think all this information I gathered says it all. The Ottawa housing market is fantastic. Rates are lower than most of us will see in our lifetimes. Prices aren't going down like some people may be telling you. There's not many times like this to be buying and selling homes.

Mortgage Updates

Well last week the government announced yet again that they are going to be making some changes this coming March 18th. A lot of my clients have been asking what these changes are and how they will be affected. In short here's what we are looking at:

1. the maximum amortization is now 30 years on insured products having less than 20% down. For conventional mortgages 35 year amortization should continue to be available.

2. when refinancing your home, the limit has been lowered to 85% of the appraised value.(where it was 90%)

3. The government will no longer insurance lines of credit secured by homes (this rule will take affect on April 18th)

4. for purchases, people can continue to buy with as little as 5% down (self-employed individuals require 10% down)


Well that's it for today folks. Stay warm out there!

Canadian Housing Market showing some Groth

Canadian home sales gained for the first time in five months in August, led by Ontario and British Columbia, though economists warned the uptick is likely to prove a blip in a declining trend.
Sales of existing homes through the Multiple Listing System rose 4.1% from July, figures released Wednesday by the Canadian Real Estate Association showed. It was the first increase since March, it said. On a year-over-year basis, sales are down 22.5%.
Canada’s housing market, which helped drag the economy out of recession, has been cooling rapidly over the past few months. Consumers made purchases that would have been made in summer earlier in the year to beat rising interest rates and the introduction of the harmonized sales tax in Ontario and B.C.
“A large part of the August increase comes from Ontario and B.C. because there was a lot of confusion in July as to how the HST would affect home sales,” CREA chief economist Gregory Klump said. “This is a bit of a relief rally and one car does not make a parade.”
Klump still expects housing sales to cool throughout the rest of the year, though he says it’s a healthy slowdown from the feverish levels seen at the end of last year.
TD Bank Financial said in a note the August figures are likely to have been a blip.
The bank said high household debt, the weakening employment outlook and declining personal income would all weigh on the market. It expects sales to drop by 20% next year and prices to decline 7%.
The average price of homes sold in August was $324,928, which is on a par with the same period last year. Excluding Alberta and New Brunswick, where prices eased, gains in every other province exceeded the national increase, CREA said.
Seasonally adjusted sales activity was either flat or increased in half of all markets across the country, it said.
The Organization for Economic Co-operation and Development in a report on Canada earlier this week warned prices may still be too high and more intervention may be needed to cool the market.
CREA president Georges Pahud on Wednesday rebuffed those suggestions, saying any further tightening in mortgage regulations risk damaging the market.
“Rising interest rates and a projected slowdown in job growth mean that the Canadian housing market is expected to continue to cool,” Pahud said. “This is overlooked in recent commentary that suggests further changes to mortgage regulations may be needed.”

-Ottawa Sun Sept 15, 2010

HOTTEST APRIL EVER!!!

Members of the Ottawa Real Estate Board sold 1,841 residential properties in April through the Board's Multiple Listing Service® system compared with 1,591 in April 2009, an increase of 15.7 per cent. Of those sales, 425 were in the condominium property class, while 1,416 were in the residential property class. The condominium property class includes any property, regardless of style (i.e. detached, semi-detached, apartment, stacked etc.) which is registered as a condominium, as well as properties which are co-operatives, life leases and timeshares. The residential property class includes all other residential properties. "Last month's sales blew away the record for April, which is always one of the busiest months of the year for our market," said Board President Pierre de Varennes. "The increased sales activity may be partially due to buyers trying to avoid the impending HST and the mortgage changes that came into effect on April 19, but also demonstrates that consumers feel confident about our local economy," he added.

The average sale price of residential properties, including condominiums, sold in April in the Ottawa area was $332,979, an increase of 11.6 per cent over April 2009. The average sale price for a condominium-class property was $254,220, an increase of 17.4 per cent over April 2009. The average sale price of a residential-class property was $356,617, an increase of 11.7 per cent over April 2009.

The Board cautions that average sale price information can be useful in establishing trends over time but should not be used as an indicator that specific properties have increased or decreased in value. The average sale price is calculated based on the total dollar volume of all properties sold.

"information provided by the Ottawa Real Estate Board."

Canadian Housing Market Bouncing Back

Amid the month-to-month torrent of real estate statistics, economists pegged particular significance on new numbers because they reveal widespread strength at strong prices and showed mounting momentum over a three-month span, carried by what had been the weakest region – the West.

It's a radically stark contrast with the United States, where prices – after three long years – are still falling, down a third from their bubble peak.

In Canada, buyers are back, sales are surging, and prices are edging up. “People thought the world was coming to an end,” said Mr. Stewart, a top-selling agent at his Century 21 office near
False Creek in downtown Vancouver. “Now, the fiscal stimulus and ultralow interest rates have supercharged real estate.”

Almost 150,000 sales of existing houses and condominiums were tallied in the April-May-June period, according to Canadian Real Estate Association data published Tuesday. It was the fourth-best quarter ever since CREA began recording the sales data in 1994, the industry marketing group said.

In frigid January, by comparison, barely 16,000 houses were sold. The “Phoenix-like rise” of real estate sales is the “most astonishing economic development of 2009,” economists at
BMO Nesbitt Burns declared. And even though there are asterisks – the job market remains weak – Canada appears to have skirted “the clutches of a lengthy, painful downturn.”

Nationally, for the April-June period, sales were up 1.4 per cent from a year ago. It was the first quarter that markeda year-over-year advance since late 2007, and the period strengthened as the spring warmed. In June, sales were up 22.8 per cent nationally – and prices climbed 4 per cent. In Toronto, the sales jump was 27.4 per cent, with prices up 2 per cent.

In fact, the average price of a home in Canada has never been higher. At $318,700, the figure is slightly higher than the record set a year ago, pushed up by the flurry of sales in expensive big-city markets.

Pre-approvals

Many buyers call their lender seeking information about financing. In the process, they become pre-qualified. That gives them a good idea of what they can afford, or more accurately, what loan amount they qualify for.

You should take it one step further, however, and ask to be pre-approved. When you become pre-approved, you actually apply for a loan. The lender checks credit, verifies employment, and often verifies that you have sufficient funds to close. Then once you find your dream home, just about the only thing left is the appraisal.

The reason savvy buyers obtain loan approval before shopping for a home is that it strengthens their negotiating position when they make an offer. All sellers want to sell their home to a pre-approved buyer.

Pre-approval can also cut days, even weeks, off the closing process.Pre-approval can really help you to determine your price range, which helps you narrow your choices of homes to buy. You will already know how much you can afford before you even start looking.

Call or email me if you would like the name of a lender to pre-approve you for a loan, or if you have any questions about preapproval. I am happy to help.

Renovation Tax Credit a Hit

A new poll suggests more than one in three Canadians plan to take advantage of the federal government's home-renovation tax credit.
More than eight in 10 questioned in the Harris-Decima/Canadian Press survey said they were aware of the program, under which eligible applicants can receive a tax rebate of as much as $1,350 if they invest up to $10,000 in renovations on their home.

1. What is the Home Renovation Tax Credit (HRTC)?
The proposed HRTC is a non-refundable tax credit for work performed or goods acquired in respect of an eligible dwelling.
2. What is meant by eligible dwelling?
An eligible dwelling is a housing unit that is eligible to be an individual's principal residence or that of one or more of their family members, at any time between January 27, 2009 and February 1, 2010.
3. What is the eligibility period?
The credit will be based on eligible expenditures for work performed or goods acquired after January 27, 2009, and before February 1, 2010. Expenditures incurred pursuant to an agreement that was entered into before January 28, 2009, will not be eligible for the credit.
4. Who will be eligible for the credit?
Eligibility for the HRTC will be family based. A family will generally be considered to consist of an individual or an individual and his or her spouse or common-law partner, including children who will be under 18 years of age, at the end of 2009. A family will be allowed a single credit that may be shared within the family.
5. How will the credit be calculated?
The credit will only be available for the 2009 tax year and applies to eligible expenditures of more than $1,000, but not more than $10,000, resulting in a maximum credit of $1,350 ($9,000 x 15%).
6. What are eligible expenditures?
To be eligible, expenditures incurred in relation to a renovation or alteration to an eligible dwelling (or the land that forms part of the eligible dwelling) must be of an enduring nature and integral to the dwelling, and includes the cost of labour and professional services, building materials, fixtures, rentals, and permits.
Eligible expenditures must be supported by acceptable documentation.
For more information please visit https://mail.kwottawa.ca/exchweb/bin/redir.asp?URL=http://newsletter.coconutapp.com/t/r/l/iiuyjd/jkukeui/r

RATE UPDATE

Prime rate is still holding steady at 2.25% with an apparent commitment by the Bank of Canada to keep it at this level until at least the end of Q2 2010. Variables are still looking attractive as a low cost mortgage option! Fixed rates have tweaked up slightly over the last month, but still represent good long term security.