I just received an e-mail from a client asking the following question... "Given today's large Bank of Canada interest rate cut of .75%,should we be thinking about locking in our mortgage?"
I think a lot of people might be wondering the same thing so I thought I'd share my answer.
"Long term fixed rate mortgages ie. 3-5 year terms, are currently around the 5% mark. Fixed rates do not move exactly in tandem with the Bank of Canada overnight rate. When the Bank of Canada reduces the overnight rate as they did today, the banks normally follow by reducing their prime lending rate. After the Bank of Canada annoucement today, the banks dropped their prime lending rate almost immediately by .50% from 4% to 3.5%.
Variable rate mortgages are tied to the prime lending rate so if you have a variable rate mortgage you benefit directly the rate cuts. For example, if your rate is based on the prime rate less .60% (in the last few years many people took out mortgages rates below prime)then your current rate would be 2.9% which is a great rate. The premium you would have to pay to lock into a long term fixed rate of around 5% is pretty steep, therefore I would recommend you enjoy the current low rate for while".
Do you need help with your mortgage? Give me a call 416 876 2031.
Tuesday, December 9, 2008
Sunday, December 7, 2008
Investment Tip: You Can Buy a 5 unit apartment building w/as little as 15% down
With stock markets down, investors are looking for solutions to make up for steep losses.
Here’s a tip for people open to looking at a real estate investment as a way repair their badly bruised stock portfolios.
With a 5 + unit rental property, you can reduce your investment risk in comparison to a 1 or 2 unit rental property... in the event that you have a vacancy, you can count on the other tenants to ensure you have a steady income stream.
Real estate is a great investment.
With real estate, at least you can see your investment, so you know it’s not going to disappear on you (as long as you pay the mortgage that is !...)
Did you know that CMHC will insure a 5 + unit residential property with just 15% down, or up to 4 units with 5% down?
Sound interesting? Call me for more information.
Here’s a tip for people open to looking at a real estate investment as a way repair their badly bruised stock portfolios.
With a 5 + unit rental property, you can reduce your investment risk in comparison to a 1 or 2 unit rental property... in the event that you have a vacancy, you can count on the other tenants to ensure you have a steady income stream.
Real estate is a great investment.
With real estate, at least you can see your investment, so you know it’s not going to disappear on you (as long as you pay the mortgage that is !...)
Did you know that CMHC will insure a 5 + unit residential property with just 15% down, or up to 4 units with 5% down?
Sound interesting? Call me for more information.
Tuesday, November 25, 2008
Mortgage Investing Attractive Option to Stock Market Investing
Given the recent upheaval in the global stock market, many of us who thought their investments were safe because they own balanced mutual funds and blue chip stocks have of late, found that a substantial amount of their life savings has eroded. If you’re one of these people, what should you do? Should you cash in your mutual funds, sell your stocks and instead buy bonds and GICs? Selling low and locking in your losses is never a good strategy, but if you’re someone who has been losing a lot of sleep at night, and if you find you’re a bit frantic about checking out the daily financial reports, you may want to consider balancing out your portfolio with good quality, income producing mortgages.
One of the purported benefits of the mutual funds that many of us currently hold in our investment portfolios is that investment professionals take care of the stock picking for you. The average person doesn’t have the time to analyze individual companies and then figure out if the stock is underpriced or overpriced. An investment professional will take care of balancing your portfolio too, making sure that you have a balance of stocks and bonds, to level out the performance of the portfolio. Your mutual fund is probably also diversified by industry. The theory is that when one sector goes through a slump, better performance in another will keep your portfolio from bottoming out. Recently I have spoken with a lot of people at a loss, who have seen the value of their balanced, diversified portfolios shrink 30, 40 and in some cases as much as 50% since their peak.
Let me explain how mortgage investing works, what kind of returns you are likely to achieve and what the risks are. With mortgage investing you can see and touch the underlying asset that your loan is secured by, and without a lot of training and expertise, you can make a reasonable assessment about the value of the property. Where is the property located and what is its’ use? What condition is the property in and how much income can the property generate? You will also want to know something about the borrower and his or her ability to repay.
Private 1st mortgages will usually generate a return of around 8-9% while higher risk, second mortgages will give you a return of 10-12%.
There are risks associated with mortgage investing that you should know about. If the borrower stops making his mortgage payments and if in an economic downturn the value of the property drops below the sum of the mortgage(s) on the property, you could lose part or all of your investment. Second mortgages are a higher risk than 1st mortgages because the 1st mortgagee has the 1st claim to the property. As a rule of thumb, you should not lend more than 75% of the value of the property. That way, even if the property drops in value by 20%, your investment is safe, allowing an additional 5% margin for legal and selling costs.
It is important to note that if the property owner stops paying the mortgage, the mortgagee (the investor) has a right to foreclose on the property. In the late 80’s when interest rates were as high as 18-20% and a lot of people could not afford to pay their mortgages, a number of mortgage investors acquired substantial real estate holdings. When real estate values eventually started to go up, they made a nice profit on their holdings.
Although from a tax perspective mortgages are the least desirable because the income is 100% taxable in comparison to stock dividends and capital gains, you can defer the taxes by putting your mortgage investment into your RRSP. Jason Heath from E.E.S. Financial in Markham says that as a rule of thumb, given the costs involved in setting up a mortgage in your RRSP, the investment should be at least $75,000 for it to be worthwhile. The downside of putting the mortgage in the RRSP is that if you lose on the investment, you won’t get that RRSP room back.
If you would like to learn more about mortgage investing, call me at 416 876 2031, or send an e-mail to david@mortgagemensch.ca, and I'll keep you up to date with investment opportunities as they arise.
One of the purported benefits of the mutual funds that many of us currently hold in our investment portfolios is that investment professionals take care of the stock picking for you. The average person doesn’t have the time to analyze individual companies and then figure out if the stock is underpriced or overpriced. An investment professional will take care of balancing your portfolio too, making sure that you have a balance of stocks and bonds, to level out the performance of the portfolio. Your mutual fund is probably also diversified by industry. The theory is that when one sector goes through a slump, better performance in another will keep your portfolio from bottoming out. Recently I have spoken with a lot of people at a loss, who have seen the value of their balanced, diversified portfolios shrink 30, 40 and in some cases as much as 50% since their peak.
Let me explain how mortgage investing works, what kind of returns you are likely to achieve and what the risks are. With mortgage investing you can see and touch the underlying asset that your loan is secured by, and without a lot of training and expertise, you can make a reasonable assessment about the value of the property. Where is the property located and what is its’ use? What condition is the property in and how much income can the property generate? You will also want to know something about the borrower and his or her ability to repay.
Private 1st mortgages will usually generate a return of around 8-9% while higher risk, second mortgages will give you a return of 10-12%.
There are risks associated with mortgage investing that you should know about. If the borrower stops making his mortgage payments and if in an economic downturn the value of the property drops below the sum of the mortgage(s) on the property, you could lose part or all of your investment. Second mortgages are a higher risk than 1st mortgages because the 1st mortgagee has the 1st claim to the property. As a rule of thumb, you should not lend more than 75% of the value of the property. That way, even if the property drops in value by 20%, your investment is safe, allowing an additional 5% margin for legal and selling costs.
It is important to note that if the property owner stops paying the mortgage, the mortgagee (the investor) has a right to foreclose on the property. In the late 80’s when interest rates were as high as 18-20% and a lot of people could not afford to pay their mortgages, a number of mortgage investors acquired substantial real estate holdings. When real estate values eventually started to go up, they made a nice profit on their holdings.
Although from a tax perspective mortgages are the least desirable because the income is 100% taxable in comparison to stock dividends and capital gains, you can defer the taxes by putting your mortgage investment into your RRSP. Jason Heath from E.E.S. Financial in Markham says that as a rule of thumb, given the costs involved in setting up a mortgage in your RRSP, the investment should be at least $75,000 for it to be worthwhile. The downside of putting the mortgage in the RRSP is that if you lose on the investment, you won’t get that RRSP room back.
If you would like to learn more about mortgage investing, call me at 416 876 2031, or send an e-mail to david@mortgagemensch.ca, and I'll keep you up to date with investment opportunities as they arise.
Monday, October 27, 2008
Changes to Mortgage Lending in Canada
This past summer, Canada’s department of finance announced they would be making changes to insured mortgage lending guidelines, making it harder for prospective homebuyers to get a mortgage. In Canada, when you buy a property and you have less than 20% down, the mortgage has to be insured by one of the nation’s mortgage insurers. Since mortgage insurance is backed by the government of Canada, it is within their jurisdiction to mandate changes they feel are necessary. The changes, which took effect on October 15th this year were as follows:
1) Minimum 5% down required on a home purchase (previously zero down was allowed)
2) Maximum 35 years amortization (previously up to 40 years was allowed)
3) Minimum credit/beacon score requirement up from 600 to 620
These changes effectively make it harder for buyers to get mortgages. The changes were mandated in order to reduce the insurance risk and to protect Canadians.
How can prospective homebuyers deal with these changes?
Homebuyers who have been unable to save for a down payment should aim to take advantage of the Canadian Home Buyer’s Plan (HBP). In Canada, first time buyers are allowed to take up to $20,000 out of their RRSP for a down payment on a home and they do not have to pay taxes on the withdrawal. You have fifteen years to replenish the RRSP after taking out funds under the HBP. If you haven’t been making regular contributions to your RRSP, you may also want to consider taking out an RRSP loan to make the most of your allowable RRSP contribution room. Funds must be in the RRSP for at least 90 days before they can be withdrawn under the HBP.
To ensure you meet the minimum credit/beacon score requirements, be sure to establish at least two trade lines. A trade line is a credit card, line of credit or a loan. Don’t cancel older credit cards or make unnecessary loan applications -- doing so will negatively impact your credit score. Avoid carrying high balances on your cards and always pay at least the minimum amount owing.
If you are self employed, be sure to get your taxes done on time. Don’t worry about the fact that you’re not reporting a lot of income (this is a common concern for self employed people). It is understood that for accounting purposes you will minimize the amount of income you are reporting and that your ‘net income’ may not be a good measure of your ability to pay. You can still get a mortgage without have to prove income, as long your credit is good, and as long as you can prove that you’ve been self employed and working in the same business for at least a couple of years.
1) Minimum 5% down required on a home purchase (previously zero down was allowed)
2) Maximum 35 years amortization (previously up to 40 years was allowed)
3) Minimum credit/beacon score requirement up from 600 to 620
These changes effectively make it harder for buyers to get mortgages. The changes were mandated in order to reduce the insurance risk and to protect Canadians.
How can prospective homebuyers deal with these changes?
Homebuyers who have been unable to save for a down payment should aim to take advantage of the Canadian Home Buyer’s Plan (HBP). In Canada, first time buyers are allowed to take up to $20,000 out of their RRSP for a down payment on a home and they do not have to pay taxes on the withdrawal. You have fifteen years to replenish the RRSP after taking out funds under the HBP. If you haven’t been making regular contributions to your RRSP, you may also want to consider taking out an RRSP loan to make the most of your allowable RRSP contribution room. Funds must be in the RRSP for at least 90 days before they can be withdrawn under the HBP.
To ensure you meet the minimum credit/beacon score requirements, be sure to establish at least two trade lines. A trade line is a credit card, line of credit or a loan. Don’t cancel older credit cards or make unnecessary loan applications -- doing so will negatively impact your credit score. Avoid carrying high balances on your cards and always pay at least the minimum amount owing.
If you are self employed, be sure to get your taxes done on time. Don’t worry about the fact that you’re not reporting a lot of income (this is a common concern for self employed people). It is understood that for accounting purposes you will minimize the amount of income you are reporting and that your ‘net income’ may not be a good measure of your ability to pay. You can still get a mortgage without have to prove income, as long your credit is good, and as long as you can prove that you’ve been self employed and working in the same business for at least a couple of years.
Tuesday, October 14, 2008
David Grossman talks about improving your credit on CBC's Living in Toronto
Several changes to mortgage insurance will be taking place on October 15th 2008 which will impact Canadian homebuyers. Among the changes mandated by the department of finance, the minumum beacon/credit score requirement will be going up from 600 to 620.
Given these changes, it makes it that much more important that people know what is being reported on their credit report and how to build a good credit rating.
I recently spoke with Mio Adilman on CBC's Living in Toronto about building a good credit profile. For tips on how to build a good credit profile, click on the video below.
Call me if you have questions.
Given these changes, it makes it that much more important that people know what is being reported on their credit report and how to build a good credit rating.
I recently spoke with Mio Adilman on CBC's Living in Toronto about building a good credit profile. For tips on how to build a good credit profile, click on the video below.
Call me if you have questions.
Some Good Economic News for Canadians
The economy is suffering worldwide in what now appears to be a global credit crisis however there is some good news in Canada which might make you feel a little better.
Yesterday it was reported that a survey by the World Economic Forum found Canada to have the soundest banking system in the world. On a list of 134 countries Canada was ranked number one. Click here if you would like to read the article now.
Also, last Friday's Globe & Mail reported that Canadian employers created a blockbuster 107,000 new jobs in September. Though most were part time, this blew away economist’s expectations of an increase in 8,000 new jobs.
Also in Canada, sales of new vehicles rose 1.7% last month compared with the same month a year ago.
In an effort to stave off a worldwide crisis, most of the worlds banks reduced their rates this week. The Bank of Canada reduced their overnight lending rate by a half a percentage point.
The new Prime lending rates charged by the banks are:
TD Canada Trust – 4.35%
CIBC – 4.35%
Scotiabank – 4.25%
RBC – 4.25%
BMO – 4.25%
It's good news if you’re have a variable rate mortgage. Contact me if you have questions.
Yesterday it was reported that a survey by the World Economic Forum found Canada to have the soundest banking system in the world. On a list of 134 countries Canada was ranked number one. Click here if you would like to read the article now.
Also, last Friday's Globe & Mail reported that Canadian employers created a blockbuster 107,000 new jobs in September. Though most were part time, this blew away economist’s expectations of an increase in 8,000 new jobs.
Also in Canada, sales of new vehicles rose 1.7% last month compared with the same month a year ago.
In an effort to stave off a worldwide crisis, most of the worlds banks reduced their rates this week. The Bank of Canada reduced their overnight lending rate by a half a percentage point.
The new Prime lending rates charged by the banks are:
TD Canada Trust – 4.35%
CIBC – 4.35%
Scotiabank – 4.25%
RBC – 4.25%
BMO – 4.25%
It's good news if you’re have a variable rate mortgage. Contact me if you have questions.
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