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5 Mar

March 2015 Edition of My Monthly Newsletter

General

Posted by:

March 2015
 

Stacey Doran

DLC – The Mortgage Hub

Phone: 604 649 6200604 649 6200
Fax: 604 608 3336
E-mail
Website

 
 


Introducing Dominion Lending Centre’s Chief Economist, Dr. Sherry Cooper
 
DID YOU KNOW…

Most mortgage lenders offer you the option of increasing your regular payment by a certain percentage each year.  Many also allow for an automated lump sum payment in addition to your regular payment.  One consideration for adjusting your payment up – even slightly each year – is that at the end of the term if interest rates have risen, you will reduce or even eliminate any kind of payment shock come renewal time.  With the added bonus of the extra dollars having all gone straight to your mortgage balance in the meantime.

 

HOMEOWNER TIPS

Recent studies have shown that the old adage of buying the worst house on the block may not offer the best rate of return.  Often it is the worst house, and priced accordingly, for good reason.  As an investment strategy, one is often better off focusing on the neighbourhood itself, with an average home in a hot neighbourhood often doing far better than the ugly duckling in a less desirable area.

 

About DLC Leasing Inc

* DLC Leasing is the leasing division within Dominion Lending Centres Inc.

* Our leasing programs provide up to 100% financing on business-related equipment.

* Leasing options include new equipment leasing; used equipment and vehicle leasing; customized solutions through vendor finance programs; and lease-backs –where the lender buys equipment from a business owner and the owner leases it back.

* Technology, heavy equipment and trailers, furniture and hospitality equipment, and manufacturing and industrial equipment are just a few examples of available leasing options.

* With access to multiple lending sources, Dominion Lending Centres’ Lease Professionals can cater to leasing deals for a variety of credit scenarios ranging from A to C credit quality.

* Because many of our Lease Professionals are also licensed mortgage agents, we can offer standard equipment leases and creatively structured solutions for seasonal, new or growing companies.

* Working with someone who is both a lease and mortgage expert enables you to even use commercial and residential mortgage and property credit line products, alone or in combination with lease financing, to help achieve the best solutions for your equipment acquisition needs.

* Our Lease Professionals can even break up large-dollar transactions into multiple leases across a number of funders to ease and simplify the approval process.

 

As we prepare to “spring forward” this weekend (don’t forget to move your clocks an hour forward this Sunday!) there is a lot of economic and mortgage related news to share. Please review the market summary below and feel free to contact me directly regarding any mortgage decisions you may be contemplating this spring!

 

MARKET SUMMARY

  • The Bank of Canada suggests that the dampening impact of lower oil prices will be felt in the first half of this year, leaving the possibility of another rate cut in coming months. A weaker Canadian dollar may offset the oil price shock by boosting non-energy exports and investment. Lower oil prices have been good for consumers and non-energy businesses that are heavy users of energy.
  • Analysts were uncertain as to whether or not the BoC would reduce the key lending rate for a second time in 2015. Governor Stephen Poloz suggested that January’s rate cut may have been the “appropriate amount of insurance” as the BoC held the key overnight rate “as is” for at least another month.
    • Prime remains: 2.85%, March 4, 2015 
    • Next rate announcement: April 15, 2015
  • Statistics Canada released January’s Consumer Price Index last week. Falling gasoline prices moved the annual rate of growth in the index down to 1.0% but the core inflation rate, which excludes volatile items like fuel and some food items, was 2.2%.
  • Canadian Real Estate: 
    • Year-over-year sales dropped 2.0% in January, softened by Calgary and Edmonton markets. CREA points out that removing Alberta numbers from the equation results in a 1.9% increase from a year ago. 
    • Toronto and Vancouver markets experienced increases of 6.1% and 8.7% respectively. 
    • 15 of the country’s 26 biggest markets were flat or lower to start 2015.
  • Qualifying for short-term mortgages (<5 year terms & Variable Rate Mortgages) eased recently. The “benchmark” qualifying rate has fallen 5bpts to 4.74%.
  • Incredibly low mortgage offers continue to flood the market (both variable & fixed). Be certain to contact your mortgage specialist to confirm the most current specials, any potential restrictions, and the corresponding prepayment details on all promotional products –

 

RATE SUMMARY

Variable Rate Mortgage (5 year) 2.00%* – 2.20%
3 year – Fixed Mortgage 2.49%
5 year  – Fixed Mortgage 2.49%* – 2.79%

*Promotional rates are subject to additional guidelines & qualification (check with your broker for more). Rates subject to change without notice (March 5, 2015)
 

The remainder of this month’s edition looks into mortgage payment frequency and a very important related keyword; ‘accelerated’.  We then offer some thoughts on whether or not now is the right day to purchase a property.

Please feel free to ask questions or offer feedback on anything outlined below via phone or email. Thanks again for your continued support and referrals!

Over the past number of years banks have come up with a rather confusing set of payment frequency options that have left some mortgage clients a bit disappointed 5 years down the road.

Rather than the Amortization crushing ‘Accelerated bi-weekly’ plan which a quality Mortgage Broker will discuss with you, clients left to their own devices run the risk of opting for simply ‘bi-weekly’ payments.  Here is the math;

Let’s use a $100,000 mortgage amount (to make working out your own numbers simpler) with a 25 year amortization, a 2.74% interest rate and a 5 year term.

Monthly Payments: $460.01
Ending Balance 60 months later: $85,043.18

Now let’s calculate bi-weekly payments and the balance remaining at the end of the 5 year term.

Bi-Weekly Payments: $212.18
Ending balance 60 months later: $85,043.60

The balance is 42 cents higher.  This is because you did not effectively pay anything extra over the 60 months to the lender.  The sum of the annual payments is identical.  Now let’s insert

  

the word ‘ACCELERATED’ (bi-weekly) into the equation.

Accelerated bi-weekly Payment: $230.00
Ending balance 60 months later: $82,563.13

Ah-ha, now you have a $2,480.47 lower balance, and you have paid $163.87 less interest over the 5 years.  Excellent!

How did this happen?  When one opts for ‘accelerated’ in the above scenario, the payment increases by $17.82 per payment, or $463.32 per year.  For a total of $2,316.60 in additional funds going straight to the mortgage balance.

The big picture is improved as well, as you have effectively lowered your amortization from 25 years to 22 years and 5 months.

Shaving 2.5 years off a 25 year mortgage might not seem huge, but in 22.5 years it surely will make you happy.  Imagine having $460.00 more per month (per $100,000 of mortgage balance) to play with for 2.5 years.

If you started with a $300,000 mortgage, then we are talking about $1380.02 per month X 30 which is a total of $41,400.60.  All from one word ‘accelerated’.

 

This question arises on a near daily basis within our social circles… Answer:  Today is the right day assuming one has found the specific property that works for them on all levels.

If the conversation is about a property which one plans to own for at least the next few years, then yes, the right time to buy is today.

Over a 7-10 year horizon the day-to-day, even the month-to-month gyrations of the market will tend to resemble those of a small yo-yo on a large escalator.  Yes there are some ups and downs but the lows often do not drop below the second last high. This is true of nearly any major urban 25 year chart of Real Estate Values.

There are some key considerations that will dictate not only the continued value, but perhaps more importantly your own ability to stay put for that magic 7-10 year timeframe:

  • Home location
  • Layout
  • Age
  • Size
  • Recreational amenities
  • Schools
  • Distance from workplace
  • Potential basement suite revenue

The list goes on…

Getting all of these variables aligned is something that takes dedication on the part of the both the buyer and Realtor.  The hunt itself can easily consume a few weeks or more, and for some may result in dozens of viewings.  This is more than enough to juggle without also trying to ‘time the market’ on that perfect home.

Speaking of timing; consider allowing for a small overlap during which you have access to both the current residence as well as the new one.  Being able to install new flooring throughout, complete interior painting, or upgrade kitchens and bathrooms, without having to live in the middle of the disruption is well worth an

  

extra month of rent or the marginal costs of bridge financing.  The costs involved are surprisingly lower than most clients expect.

Keep in mind during your search that the MLS #’s are an imperfect indicator of what is happening today in the market, as in literally ‘today’.  MLS data reflects purchase contracts that were negotiated 30, 60, 90 or even 120 days prior to the completion date which was itself in the previous months report.  In other words, by the time the MLS data indicates a trend one way or another, said trend has in fact been in motion for as long as 6 months and could be either reversing or ramping up further.

Where then to get the most accurate data? Talk to frontline folks, Realtors, Brokers, Appraisers, etc. for a better handle on up-to-the-minute trends.  Ask an Industry Expert.

Short term fluctuations in values and/or interest rates are themselves not the key factors in many peoples decision to buy. Instead it is finding that perfect combination of all the factors that create a home within a community and the realisation that homeowners win in the long run by owning, not by sitting on the sidelines.

It is all about finding a place you can call home for the duration. To be able to plant roots and become a part of a community.  Home ownership will undeniably continue to be a part of living the Canadian dream.

Perhaps the (short term) timing will feel imperfect, as it did for presale buyers in 2007, whose completion dates were set for Spring 2009.  However, a few years later most will be glad that they bought when they did.  In fact many were smiling again as soon as the Spring of 2010.

Home ownership remains the one true forced savings plan. It is one of the best investments we make socially as it provides an individual and/or a family with a certain sense of security, stability and community.

 
 
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  • We have more than 2,200 Mortgage Professionals from more than 350 locations across the country!
  • Our Mortgage Professionals are Experts in their field and many are ranked among the best nationally.
  • We work for you, not the lenders, so your best interests will always be our number one priority.
  • We have more than 100 mortgage programs, making it easy to choose the best fit for your unique situation.
  • We close loans in all 10 provinces and 3 territories.
  • We can process your mortgage in as few as 7 days.
  • We are the preferred mortgage lender for several of Canada’s top companies.
  • Dominion Lending Centres’ Mortgage Professionals are available anytime, anywhere, evenings and weekends – and we’ll even come to you!