Closing Costs when buying a house or condo

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I have found that many buyers are not aware of the fact that there are additional costs (called Closing Costs) when buying a home or condo.  I had always ‘assumed’ (I know…you’re not supposed to do that),  that banks would council their clients as to the actual costs involved, but learned that this is not always so.  Blame the hectic market pace, under-staffing or any number of things, but for whatever reason, it’s not being done.

So when buyers come to me, I sometimes have to give the bad news:  Here are some of the major expenses involved when buying a home (or condo).

Closing Costs

Legal Expenses: The basic legal fees for purchasing a home run around $600.00  Now, many lawyers will quote something like $299 or $349,  but that’s the basic fee…….there will be additional expenses on top of that, so you can expect to budget around $600.00.

House Taxes: Depending on the time of year you take possession, you may have to pay the remaining taxes for that year.  In Winnipeg, our taxes run from Jan to Dec, and are paid in June.  What this means, in short, is that if you take possession after June, you will most likely have to pay a portion of the taxes, (assuming the current owner has paid up the taxes for the entire year).  If you take possession before June, you may actually get a refund from the current owner.  The joy this brings will be short-lived, however, as you will then be responsible for the full tax bill on June 30th…..So depending on WHEN you take possession, these taxes could form a major part of your closing costs.

Land Titles Transfer Tax: This one is a real beauty and easily the biggest part of the closing costs.  Every sale of a house or condo, whether a re-sale or brand new, is subject to this tax.  The kicker is that the more expensive the home, the higher the tax.

So a $90,000 home will cost you $370.00.

A $150,000 home or condo will cost you $970.00.

A $200,000 home will cost you $1720.00

For every $1000 above this price, you can add another $20.00 for our provincial coffers  (you know, to keep our roads nicely repaired and stuff like that)

So if you’re up at a $300,000 house, you’ll be facing a $3720.00 bill….

Winnipeg REALTORS® have actually been lobbying hard, for years, to try and get the Provincial Government to understand that this tax-grab is unfair.

Of course, the buyer needs to be aware of moving costs, and other incident expenses.

If you’re looking to purchase a house or condo, please give me a call.  I work with a lot of first-time buyers, and will take the time to explain the entire process, including all Closing Costs to you.

Bo Kauffmann   333-2202

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Build and Maintain good credit to ensure Mortgage approval

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For most of us, buying a home means financing your purchase with a mortgage. Most often, getting a mortgage depends on your how good your credit score history.

While most consumers know that they have a “credit rating,” not all know their scores or how they were calculated. If your mortgage application is refused, or approved for less than expected, there’s an opportunity for you to improve the score.

Your creditworthiness is assessed two ways:

• Beacon score, and
• A detailed history.

Credit scores range from 350 (low) to 850 (high), with 680 being the median. The numerical score is calculated based on previous payment history, current indebtedness, credit history length, number and frequency of new credit inquiries and, the types of credit held. Two so-called “Beacon killers,” are payments more than 30 days late (even small amounts) and maxed-out credit cards. The detailed history adds personal information, banking information and specifics on accounts and payments.

Maintaining and improving credit depends upon:

1)            Pay all bills on time – late payments hurt your rating

2)            Keep credit balances below 75%of the maximum

3)            Avoid applying for additional credit; too many applications in a short period signals financial difficulties

4)            Make sure that personal information in your credit file is correct

You should also review your credit history at least once a year, it is free when requested in writing or by fax.

How can a Mortgage Broker help?

Getting your finances in order can be a daunting task. A Mortgage Broker can help you assess your current credit situation and help you determine a path for credit improvement. A Mortgage Broker will work with you to find a solution for your unique financial situation.

For more information on managing credit refer to Service Canada’s website or contact your Mortgage Broker today!

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Getting a Mortgage for Self-employed Canadians

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After enduring decades of mortgage hassles, self-employed Canadians now enjoy mortgage products designed specifically for them.

It was, after all, only a matter of time before lenders recognized that self-employed Canadians were a powerful – and attractive – group of customers. And their numbers are growing. More than 19% of all Canadian workers are self-employed, according to the latest data from Statistics Canada.

It was the non-traditional lenders who first recognized that the financing needs and qualifying criteria of this group of borrowers was very different than Canadians who receive pay stubs and T4s. But almost every lender – including the banks that turned these people away only a decade ago – now offers at least one option for self-employed homebuyers.

But if you’re self-employed or earn a commission-based salary, then you owe it to yourself to find a top-notch mortgage planner. Why? Because with all the mortgage and loan options now available, it’s a great idea to shop around. It’s a buyers’ market out there; get some guidance on how to build a plan around one of your most reliable and attractive assets: your home.

Consider some of the choices you now have in obtaining a mortgage:

•            You can qualify based on the income that you say you earn. This kind of mortgage is known as “stated income” because the lender takes into account the income you state, and not the income you can prove. After all, good tax planning aims to keep that income low. The income should be reasonable, of course, and the lender may want proof of your self-employment, and a copy of your Notice of Assessment. You will require a 10 per cent downpayment for a purchase and 15 per cent for a refinance on a high-ratio mortgage. For a conventional mortgage, you’ll need 65 to 80 per cent LTV;

•            You can qualify for a mortgage on the strength of a strong credit history, rather than on your income. You’ll need a good credit score and proof that you’ve been self-employed for at least two years;

•            Even with some spotty credit and no proof of income, you may qualify for a mortgage if you have some equity in your home (at least 25%). For these mortgages, qualification is based on your accumulated equity and the value of your home;

•            Re-advanceable mortgages are a great way to take advan­tage of increasing equity. As you create equity through mortgage paydown, the line of credit portion of the mortgage is automatically increased by the same amount. This way you can access your equity when needed without having to apply, offering you more convenience and flexibility than a traditional
line of credit.

It’s the job of lenders, of course, to carefully manage risk. While there is now broad recognition that self-employed Canadians are an excellent and reliable customer group, the rates and options are always best when risk is lowest. Be sure to talk to your mortgage planner about what you can provide: any documentation to prove income and/or employment, a great credit history, a significant down-payment, for example. Any of these will improve your mortgage options and help you get the best rates when shopping for a house or condo.

Forty per cent of all new mortgages in Canada are now arranged through mortgage brokers. If you have your own business, you probably already know it makes sense to go to a specialist to get the job done. The more complex your mortgage situation, the more sense it makes to find an experienced mortgage planner who can customize a mortgage plan to meet your short-term needs and your long-term financial plan. Your home is a very important asset; make the most of it!

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Pre-Approval Before House Shopping: a few tips!

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Credit to dolphinsdock photostream on flick.com

Talk about high-stress shopping. Searching for the perfect home – the place where many of the biggest dreams of your life will unfold – is not exactly like browsing for a new pair of shoes. It’s a much bigger purchase, for starters, and you’ll certainly enjoy it for longer. And of course a good part of your personal and financial life will be riding on the choice you make.

Given all that, it’s surprising that some people who go house-shopping have no clear idea of what they can afford. It’s often a recipe for heartbreak – when the house they’ve fallen in love with is NOT a house they can afford. There’s nothing more disheartening than seeing a client’s dream dissolve when he or she is turned down for a mortgage loan. On the other hand, many homebuyers set their sights too low, too, making a conservative guess on what they can afford, then spending time and thousands of dollars on “moving up” purchases that they might have skipped.

What you want to do is to go house-shopping with a full wallet: with an actual pre-approval from a lender. This way, you will know – to the dollar – what you qualify for and exactly how much it will cost you to carry the mortgage. You’ll also have the interest rate held for you for a specified time period, typically 90 to 120 days.

What is a “Pre-Approval”

So, what exactly is involved in the pre-approval process anyway? You should expect to provide your mortgage planner with information on your employment/income, assets and liabilities, and downpayment. The planner will also obtain a report on your credit history. This diligent analysis of your information is exactly what underpins the strength of a mortgage pre-approval. Your information will then be submitted to the best lender or lenders that can meet your needs.

Most lenders will quickly prepare your pre-approval, which essentially is a conditional mortgage approval that states the mortgage amount, term, interest rate, expiration date, required documents. Of course, it’s important to be aware that you’ll eventually need to substantiate the information you provided for the pre-approval when you go back to the lender for the actual mortgage. That’s why it’s important to provide accurate information.

Even if you have a pre-approval, it’s still recommended that you include in your offer a “subject to financing” clause. A pre-approval qualifies you – the borrower – and not the property. As a result, the final mortgage approval also depends on the house you decide to buy, so it will have to meet with the lending institution’s approval guidelines too. You’ll need to provide the necessary information such as the offer to purchase, MLS listing, and any other documents required by the lender so they can assess the property. Once all of the lender’s requirements have been met, the lender will submit the documents to your solicitor, who will set up an appointment with you prior to closing so you can sign all of the documents and review your closing costs. Then you’re done; you’ve gone from pre-approval to getting ready to move.

Pre-Approval vs. Pre-Qualification

Don’t get a pre-approval confused with a pre-qualification. A mortgage pre-qualification is a much more informal procedure and more of a ballpark figure only, not a firm number of exactly how many dollars will be lent. A preapproval lets you know precisely how much money the lender is willing to let you access, and you’ll receive proof of this offer in writing.

Before you go browsing for a home then, schedule a visit with us to secure your pre-approval. Sellers will know that you are serious, agents will go that extra mile for you, and you’ll know that your new home is within your budget.

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Canada Introduces Strict Mortgage Rules to Control Mortgage Debt

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Credit to dolphinsdock photostream on flick.com

The Canadian government has been concerned about the growing mortgage debt in the country for quite a while. Mortgage debt has increased by almost 90% in the last decade and personal debt level in Canada has crossed that of U.S after a long gap of ten years.  To combat this, the government has come up with strict mortgage rules. Jim Flaherty, finance minister recently announced that the maximum mortgage period for a government insured property has been cut down to 30 years from 35 years. He further added that the highest amount that can be drawn against collateral has been lowered and the insurance on HELOC has been revoked as well. The above steps by the government will allow the Bank of Canada to halt its plan to increase the interest rate in order to bring down mortgage debt.

The Bank of Canada was contemplating increasing the rates to counter mortgage debt. However, the announcement by Flaherty has lead to postponing the idea. Flaherty, however, told the press that the fiscal decisions of the government and that of the Bank of Canada are independent of each other. Nonetheless, the government policies, Flaherty said, would complement the Bank of Canada’s policies.

The Canadian economy is already facing a crisis owing to the recent financial depression. Consumer debt is soaring; debt settlement and debt consolidation companies are making unprecedented profits. The mortgage debt problem threatens to make the situation worse. The bank of Canada has already cautioned people about the soaring of mortgage debt though it has not increased the borrowing costs thanks to the initiatives taken by the government.

The financial experts opine that the increase in the interest rate is just a matter of time. By the end of this year, the interest rate is expected to climb from 1% to 2%. As a result, the mortgage lending rate can drop which would weigh on the banks but one cannot deny that the market needs some slowdown. However, the mortgage industry and the banks have welcomed the new rules. They perceive it as a pragmatic and sensible step which was much needed. Important figures from the banking industry like Frank Techar also believe that the new rules won’t harm the mortgage business in a significant way. Flaherty too mentioned that the new mortgage rules are essentially to precautionary in nature and are unlikely to affect the industry in a major way. The Canadian government emphasizes the importance of a stable and balanced mortgage market to maintain a healthy economy.

It might be relevant to mention here that the government has already tightened the mortgage rules a couple of times in the recent past. Last February, Flaherty introduced rules regarding fixed mortgage rates. In 2008, the amortization period was reduced to 35 years from 40 years. It was also made mandatory to insure mortgages in case the down payment was less than 20% of the value of the collateral.

The new mortgage rules will come into effect from March 2011.

Related articles

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Collateral Charge Mortgages or Standard Charge Mortgages?

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Credit to dolphinsdock photostream on flick.com

The mortgage world could be confusing – fixed vs. variable, term, amortization, pre payment and other privileges, restrictions, fees for breaking your mortgage early, porting, along with other fine details. And now homebuyers and owners need to consider between”collateral charge mortgages versus “standard charge” mortgages!
TD Bank announced that effective October 18, 2010 all new mortgages will be collateral charge mortgages. TD Bank joins the many credit unions that also offer only these types of mortgages. If you are considering a collateral charge mortgage it’s worth some investigation before you sign because while there are advantages, there are also some negatives to think about.

What are Collateral charge mortgages?

Collateral charge mortgages can make it easier for homeowners to tap into their equity if their properties increase in value, although making it harder for them to switch to another lender when their mortgages show up for renewal.
For TD Bank customers, they’ll now be able to register their mortgage for approximately 125% of the value at closing, that allows them to take equity out free of charge should their homes rise in value. The downside comes at renewal. For consumers who want to keep their options open at maturity, this isn’t the best product feature because collateral charge mortgages are hard to transfer to another lender. Which means if someone wants to change lenders for a better rate or product feature, they have to start from the beginning and pay new hips. Technically they can be assigned but lenders don’t accept the transfer. With regular standard charge mortgages, you can switch for free, although certain minor charges may apply.
The ability to take out equity is one of the primary options that come with Home Equity Lines of Credit, that are collateral charges for this reason. In these cases, clients want the ability to extract equity once they need it or as it becomes available. If you feel that there is a very good chance you’ll refinance to consolidate debt in order to extract equity for a renovation in order to invest, then a collateral charge mortgage can be a wise decision.

Standard Charge Mortgages

If you don’t believe that you’ll need to refinance or extract equity, then a regular standard charge mortgage will fit you fine, and it will give you the capability to move to another lender at renewal if you want to without incurring hips. In other words, it’s easier for you to maintain your options open.
Whenever the situation looks confusing and complicated, go to a mortgage professional, whose only focus is on mortgages and what each of their over 50 lender partners have to offer. They will analyze your situation and assist you to determine what’s right for you – collateral charge or standard charge mortgages, among the many other mortgage options and privileges that you need to consider.

For information on standard charge versus collateral charge mortgages, talk to an experienced Mortgage Professional.

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Mortgage Broker: Now the primary source for new mortgages!

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Photo by Feathered Tar on Flickr Photostream

A Fall 2010 study commissioned by the Canadian Association of Accredited Mortgage Professionals (CAAMP), in collaboration with Maritz, reveals that Canadian mortgage debt has exceeded one trillion dollars, an increase of 7.6 per cent over the same period last year. CAAMP expects this debt load to continue increasing, but at a slower pace.

The study highlights the excellent value provided by a mortgage broker (options from a wide range of lenders, expertise), with 40 per cent turning to a mortgage broker as the professional of choice for their new mortgages. Clearly, today’s generation of home-buyers are very savvy about seeking out options. They don’t feel like they’re tied to a particular bank. No one “owns” them, in their view.And when it comes to all homeowners with a mortgage, 40 per cent consulted a mortgage broker when shopping for their financing, up five per cent from last year.

Overall the report points to a healthy mortgage and real estate market in Canada. Some of the highlights include:

• The vast majority (84 per cent) are able to afford increases of $300 or more in their monthly mortgage payments.
• Overall home equity is at 72 per cent, and for homeowners who have mortgages, home equity levels average 50 per cent.
• Over one third of mortgage holders are making voluntary additional payments: 16 per cent have increased monthly payments during the past year, 12 per cent have made lump sum payments, and 7 per cent did both.
• The majority (66 per cent) continue to choose fixed-rate mortgages, highlighting the general conservatism of Canadian homeowners.

A Mortgage Broker can help

According to the study, 18 per cent of mortgage borrowers took advantage of their property’s value to take equity out of their homes .The most common purpose for equity take-out is debt consolidation (45 per cent), home renovations (43 per cent), purchases or education (19 per cent) and then investments (16 per cent). Several respondents used their equity for a combination of these purposes.

This increase in mortgage debt is not necessarily negative. It makes sense for many homeowners to refinance their high interest debt at today’s low mortgage rates, which allows them to save considerably on interest costs and boost their cash flow if needed.  Home renovations not only improve the quality of life for homeowners, they very often increase the value of the home (see http://www.aicanada.ca for tips on which renovations have the greatest payback). And of course, when borrowing to invest, the interest on the amount borrowed may be tax deductible (a tax and investment professional must be consulted when borrowing to invest).

Overall, the Canadian housing and mortgage market is sound, and Canadians continue to appreciate that real estate is an excellent long-term investment.

For your mortgaging or re-financing needs, consider using a Mortgage Broker.

Related articles

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Mortgage Rates: Variable is a good option!

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Photo by Christopher Chan on Flickr

It’s been a great ride! Canadian homeowners have been benefiting from ultra-low mortgage rates over the last two years. Unfortunately the time has come: the rate climate is starting to heat up. As the Prime lending rate starts to gradually increase toward more normal lending rates of 5% to 6%, do variable mortgage rates still make sense? Of course the answer depends on your own personal situation, but there are definite compelling reasons to choose variable mortgage rates.

Fixed-rate mortgages play a significant role with many Canadian homeowners, particularly those who may lose sleep wondering what will happen next with rates. Fixed mortgage rates are also ideal for those on a very tight budget; a fixed rate gives you the security of knowing exactly how much your mortgage will be so you can plan accordingly. Many first-time homebuyers are choosing fixed mortgage rates for this reason.

For those who are not on a tight budget,  variable mortgage rates can be a wise financial move, even in a rising rate environment. Lenders offer variable-rate mortgages at the Prime lending rate minus a certain percentage, which varies by lender. So as the Prime rate increases, so will your mortgage payments. How fast Prime will increase will be determined by inflation and other key economic factors. Studies have shown that most Canadians hold their mortgage for 15 years or longer, and that over the long term, less overall interest is paid with a variable-rate mortgage. If you believe that minimizing the total amount of interest you pay over the life of your mortgage is an important goal, then the case for variable-rate mortgages is very strong.

The question to ask is: what do you want to pay right now – a lower variable rate, or a higher fixed rate? Prime rate increases tend to be gradual so it can take several Prime increases to reach current fixed rates. In the meantime, you can keep your savings for lifestyle, investments or to pay down your mortgage! Let’s compare using today’s rates for a $250,000 mortgage, assuming Prime increases 0.50% per year:

5-year Fixed Mortgage Rates (3.69%)

Monthly                         Interest
Year            Payment            Balance            Paid

1                   $1,273            $243,770            $9,051

2                   $1,273            $237,309            $8,819

3                   $1,273            $230,607            $8,578

4                   $1,273            $223,655            $8,329

5                   $1,273            $216,444            $8,070

Total Paid:  $76,380            Total Interest: $42,847

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5-year Variable Mortgage Rates (Prime -0.7%)

Monthly                         Interest
Year                      Payment            Balance            Paid

1 (2.30%)            $1,095             $242,502            $5,644

2 (2.80%)           $1,155             $235,298            $6,659

3 (3.30%)            $1,215            $228,326            $7,608

4 (3.80%)            $1,274            $221,531            $8,482

5 (4.30%)            $1,332            $214,861            $9,312

Total Paid:  $72,852        Total Interest: $37,705

Difference in total payments                        $3,528

Difference in interest paid                            $5,142

Difference in total balance                            $1,583

Total Savings                                                $10,253

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In this case, choosing variable mortgage rates allows you to keep $10,253 over those five years, even though the Prime rate was rising. Of course, the Prime rate could increase faster than what has been used in this example. Since no one can accurately predict interest rate movements, your best bet is to have a good conversation with an experienced mortgage planner who can help you assess your own situation, and determine if a variable-rate mortgage is right for you.

If you would like to discuss your options when it comes to Mortgage Rates, be sure to consult a professional who has your best interest at heart.

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A Free annual mortgage checkup can be a smart financial move.

Hello everyone:

I have always said that a Mortgage Broker can be a very good source for mortgage information to a Winnipeg home owner.  Read the post on 10 reasons to use a Mortgage Broker.

Geoff Blacklin of Mortgage Architects in Winnipeg has this advice to any Winnipeg Home Owner (who HAS a mortgage on their property)

A lot can happen in a year, especially during the “mortgage years”, when we tend to be juggling many commitments in our busy lives! That’s the reason why I like to touch base with my clients each year to offer a free annual mortgage checkup.

Here are some of the common reasons why a mortgage may need some adjustment:

• You’re carrying some credit card or other high-interest debt that is eating away at your monthly cashflow and you are interested in consolidating this debt into your mortgage so you can pay less each month;
• You’re wondering if you can tap into some of your equity for a special renovation project to upgrade your home;
• You’re wondering if you can afford a vacation property, or are perhaps considering an investment property;
• You’re a bit concerned about a large expense looming in your future: for example, university tuition, a wedding, a leave from work, a new career or business, a big vacation or a new vehicle;
• You’re concerned with rising rates, whether to lock in or even break your mortgage to take advantage of today’s amazing rates.

If any of these apply to you, then it would probably benefit you to take advantage of my annual mortgage checkup. There’s no cost and no obligation. My goal is to tailor your mortgage to your changing needs – because the right mortgage can build your wealth, protect you from a financial downturn, and save you thousands of dollars.

If you’re interested in a quick mortgage checkup, call or send an email and we’ll set something up. I look forward to our next conversation!

E mail geoff.blacklin@mtgarc.ca or visit www.igloomortgage.ca

Ph. 204 942 6008

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