Blog posts labelled: mortgages

Friday, November 30, 2012

Variable Mortgage - what does it mean? Most people don't know and wont ask

by Amalia Liapis on Fri, Nov, 30, 2012 07:31 PM

Categories:2012,mortgages

What is a variable interest rate mortgage?
A variable interest rate mortgage is a mortgage loan with an interest rate that can change during the term. The interest rate varies with changes in market interest rates (typically the bank's prime lending rate). The mortgage payments can be fixed, or they could change if the interest rate changes — it depends on the lender and type of product.

What are the benefits?
If market interest rates are stable or go down during your term, you could pay less in interest than with a fixed interest rate mortgage. By the end of your term, it is possible that you could have paid more toward your principal than expected and less towards interest, which would reduce the balance owing and shorten the time needed to pay off your mortgage.

What are the risks?
If market interest rates go up during your term, your interest rate would increase and you would pay more in interest to the lender. As a result, by the end of the term, you might have paid more in interest than if you had chosen a fixed interest rate mortgage. It also means that by the end of your term, you might pay less of the principal than expected, which would lengthen the time needed to pay off the mortgage.

Depending on the lender and the terms of the variable rate mortgage, another risk is that your payment could increase if the interest rates increase. Consider how much of an increase in mortgage payments you could handle. If you don't think you can handle the risk of your mortgage payment increasing, or do not have enough cash flow, you may be better off with a fixed interest rate mortgage. Below, you can see an example of how interest rate changes can affect a mortgage.

What makes variable interest rate mortgages attractive?
The interest rates on variable rate mortgages are often lower than the fixed interest rate offered at the time you sign the contract. However, whether you are better off with a variable interest rate mortgage compared to a fixed interest rate mortgage depends on the movement of market interest rates during the life of your mortgage, called the "term". This movement is difficult to predict. For example, between 2000 and 2009, the Bank of Canada Bank Rate varied from 0.5% to 6.00%.

What happens to mortgage payments when interest rates change?
When interest rates change, depending on the lender and the terms of your mortgage, the following scenarios are possible:

Your payment goes up or down each time market interest rates change.
Your payment stays the same when market interest rates go down, but increases when market interest rates go up. In this scenario, more of your payment goes toward paying down the principal when the interest rate falls.
Your payment does not change unless market interest rates increase to a "trigger" point (shown in your mortgage agreement). Only at that point will the lender increase your payment.

Example:John takes a mortgage with variable interest rate and the following terms and conditions:

principal amount borrowed: $200,000
term (length of the mortgage agreement): 5 years
amortization period: 25 years
interest rate: variable, initially set at 3.00 %
monthly payment: variable.

The lender explains to John that his payments will go up and down with the interest rates. At first, John's interest rate is stable at 3.00 percent %. Starting in the second year, market interest rates begin to climb and so do his payments.

	Interest rate¹	Monthly payment	Interest paid	Principal paid
(1) In this scenario, interest rate changes happen at the beginning of the year
Year 1	Initial interest rate: 3.00%	$946	$5,889	$5,469
Year 2	rises to 3.50%	$997	$6,676	$5,285
Year 3	rises to 4.00%	$1,046	$7,415	$5,143
Year 4	rises to 4.50%	$1,096	$8,106	$5,041
Year 5	rises to 5.00%	$1,144	$8,749	$4,978
TOTAL	-	-	$36,834	$25,916

In this example, the interest rate goes up 2% over the five-year term. Keep in mind that interest rates could go up or down more or less than 2% over that period, and those changes would affect calculations.

John's alternative at the time was a five-year fixed-rate mortgage. In the example below, the bank offered him a fixed rate of 4.00 percent for five years.

	Interest rate	Monthly payment	Interest paid	Principal paid
Years 1 to 5	4.00%	$1,052	$37,230	$25,892

After five years the amount of interest and the amount of principal John paid with a fixed or variable rate mortgage would be almost the same. The main difference is that with a variable rate mortgage, John's monthly payments would change from year to year, but with a fixed interest rate John would know that his payments would stay the same for the full five-year term.

Protecting yourself against a rise in interest rates
Some lenders offer interest rate caps or convertibility features on their mortgages. These features can offer some protection if interest rates go up. You can only get these features when you sign a new mortgage agreement that includes them.

A cap is the maximum interest rate that can be charged on a mortgage, regardless of the rise in market interest rates. For these types of mortgages, usually the payment amount is based on the cap rate and will stay the same for the term.

If you have a mortgage with a convertibility feature, you can change it to a fixed interest rate mortgage during the term. Although the lender will usually not charge a penalty for doing this, conditions may apply—check with the lender.

Questions to ask a mortgage lender

How often could my payments change — each time the interest changes, or on what other basis?
If the interest rate goes up by 1.00% during the term of my mortgage, how much would my payments increase based on my current mortgage balance? If the rate increased by 2.00%, how much would my payments increase?
If my interest rate increases, can I choose to increase my payment so that the length of time to pay off my mortgage stays the same?
Are there any conditions under which the payments would stay the same? For example, is there a minimum interest rate increase required to trigger an increase in my mortgage payments?
If there is a "trigger" interest rate, how would I be notified of the increase in mortgage payments?
Do you offer mortgages with interest rate caps or convertibility features? What are the conditions of using these features?

Read Full Story

Monday, July 23, 2012

Additional mortgage changes

by Amalia Liapis on Mon, Jul, 23, 2012 12:33 PM

Categories:2012,banking,mortgages

Still more new mortgage rules

The government has announced that as of July 9, 2012, new rules will apply to government-backs insured mortgages where the borrower has less than a 20% downpayment.

The government will:
• reduce the maximun amortization (pay back) period on a mortgage to 25 years from 30 years;
• lower the maximun amount borrowers can refinance to 80% loan-to-value (LTV) for 85%;
• limit the Gross Debt Service (GDS) ratio to a maximum of 39% or income. The GDS ratio represents the amount of household income spent on the mortgage, property taxes and heating;
• limit the Total Debt Service (TDS) ratio to a maximum of 44% of income. The TDS ratios represents the amount of household income spent on all debts including the mortgage; and
• limit government-insured mortgages to homes prices at less that $1 million. Buyers of homes prices at $1 million or more must have mumimum 20% downpayment.

The new rules apply to mortgages on residential property with four units or less. They DO NOT apply to:
• mortgages with a 20% downpayment or more which don't require government-backed mortgage insurance;
• borrowers renewing their existing insured mortgages, where there are no new funds being added to the mortgage; or
• development or construction or multi-unit bulidings of five units or more, owned by a landlord.

Federal Finance Minister Flaherty explained that the reasons for the changes are to "keep the housing market strong, and help ensure households do not become overextended."
This explanation doesn't make sense to Cameron Muir, BC Real Estate Association's chief econmist.
"Instead of helping make the housing market strong, the new rules will erode the purchasing power of first-time buyers who will be restricted to borrowing less money for their homes."
Muir explains the effect of the changes is the equivilant to having a 1% increase in interest rates. This translates into about $50 more on each monthly payment for every $1000,000 of mortgage loan.
What this means is new buyers who can afford a home today with a benchmark price of $625,100 will now only be able to afford a home prices at $550,550 under the new rules. This is a potential loss of $74,550 in buying power.
"Given that the market is already slowing, the new rules are totally unnecessary," says Muir.

Refinancing
What will the new rules cost buyers refinancing a home values at $625,000?
• When refinancing at 85%, the home owner can access up to $531,250.
• When refinacing at 80%, the home owner can access up to $500,000.

What about the new rule limiting mortgage insurance on homes prices a $1 million or more?

Four years of tightening borrowing rules
This is the fourth time in four years that the government has tightened borrowing rules.
• In 2008, the government reduced the maximum amortization period to 35 years from 40, required home buyers to have a minimum downpayment of 5% (compate to the previous 0% down), and introduced new loan documentation standards.
• In 2010, the government required all borrowers to meet standards for a five-year fixed-rate mortgage, reduced the maximum amount borrowers could refinance to 90% from 95%, and for non-owner-occupied investment properties, requred a minimum 20% down payment.
• In January 2011, the government reduced the maximum amortization period for government-backed insured mortgages to 30 years from 35 years and reduced the amount borrowers could refinance to 85% from 90%.

What will the new rules cost home buyers?

Note: calculations assume a 10% downpayment. $625,100 is the benchmark price of a home in the REBGV area as of June 1, 2011.

Article from RealtorLink, July 13, 2012, Volume 13, Number 14

Read Full Story

Tuesday, May 1, 2012

50 Ways to Green Your Home and Save $$$ in Greater Vancouver

by Amalia Liapis on Tue, May, 1, 2012 07:09 PM

Categories:mortgages,stats,Vancouver

LOCATION
Choosing where you live

1. Green neigbourhoods
Buy a home in a neighbourhood close to work, transit, shopping, community centres and other services

2. Transit-orientated density (TOD)
New, compact, complete green neighbourhoods are being built with transit as their focus. Instead of owning a car, join a car share cooperative, take transit, cycle or walk.

3. Lower Cost Luxury
If it's features such as a gym, or pool you want, buy a strata unit with these amenities and share costs.

4. Score your location
Walkable neighbourhoods offer health, environmental, financial and community benefits. Enter your address or the address of a home you want to buy at www.walkscore.com. This tool calculates a walkability soce based on the home's proximity to transit, grocery stores, schools and other amenities.

HOME IMPROVEMENT
Heating and Cooling

5. Get an energy audit
LiveSmart BC will cover $150 of the cost.

6. Install a high-efficiency heating system
Make sure it's ENERGY STAR rated.

7. Weatherize your home
From windows (BC Hydro provides grants of $60-$120) to doors to insulation and weather stripping. Don't forget to seal your ducts.

8. Insulate your pipes
It will prevent costly heat loss. Here's how.

9. Insulate your hot water heater
Buy a pre-cut jacket or blanket for $10-$20. You'll save up to 10% on heating costs.

10. Install a programmable termostat
Set it lower at night and during the day when you're away. Lower the temperature. Each degree below 20C saves you 3-5% on heating costs.

11. Clean your furnace filter
This optimizes performance.

12. Get the most from your fireplace
Here's how to make it efficient.

13. Use curtains
In the daytime during summer, close to help cool your home.

14. Install ceiling fans
The energy it takes to run a fan is less than an air conditioner. In summer, make sure the fan's blades are rotating anti-clockwise for a cooling effect. In winter, the fan should be running clockwise, pushing the warm air down.

15. Use an electric fan
Skip the air conditioning. On hot summer days, place a bowl of ice in front of a fan to cool down.

WATER

16. Fix leaks. Fix leaking taps
One drop per second equals to 7,000 litres of water wasted per year.

17. Instal a filter
Stop buying costly bottled water which adds to the landfill.

LIGHTING

18. Change your light bulbs
Lighting accounts for 15% of your energy bill. Replace old bulbs with ENERGY STAR rated bulbs. Check for rebates.

19. Sensor lights
Turn lights off outside when not in use.

20. Keep it dark
Light pollution is an increasing problem. Turn off outdoor lights to save energy and encourage night life such as bats and frogs. A single bat can eat tens and thousands of mosquitoes nightly. If you have safety concerns, use motion detector lights - which come on, only as needed.

21. Holiday lights
Use LED lights.

KITCHEN

22. Replace your fridge
An old energy guzzling fridge costs you about $85 a year to operate. Replace it with an ENERGY STAR Fridge, BC Hydro will rebate you $50. BC Hydro will also not only come and pick up your old fridge for free-of charge, they'll rebate you $30.

23. Replace your dishwasher
Buy an ENERGY STAR appliance. BC Hydro will rebate you $25.

24. Replace your freezer
Buy an ENERGY STAR appliance and BC Hydro will rebate you $25.

BATHROOM

25. Low flow shower
Hot water accounts for 25% of your energy costs. For a $15 investment you can save half the water of a standard shower say experts.

26. High efficiency or dual flush (you choose the amount of water used) toilets
These are now required in new homes because of water savings.

OFFICE

27. Use smart strips
Also know as power bars, this lets you power off all equipment at the same time.

28. Buy energy smart electronics
There are rebates available.

29. Recycle your old electronics
Here's how.

YARD IMPROVEMENT

30. Conserve Water
Fresh water comprises just 3% the world's total water supply, so conserve. Get a rain barrel and harvest water you can use in your garden. Local governments such as Vancouver and Richmond will subsidize the cost.

31. Drip irrigation
It saves water compared to sprinklers.

32. Elbow grease
Don't power wash your driveway. Sweep it or use a scrub brush and pail.

33. Less lawn
Lawns waste water. Instead conserve and beautify using indigenous plants such as ferns, tiger lillies and hostas.

34. Grow your own
How much more will you spend on food this year. Even a few miniature fruit trees and a small vegetable garden in a raised bed or in containers will help keep you healthey and save you dollars. Lettuce, spinach, tomatoes, cucumbers, strawberries and blueberries thrive in our climate. Here's how.

35. Presever your produce
Invest in home canning jars and equipment and a small freezer and enjoy your produce year round - at considerable savings. Here's how.

36. Bee friendly
We need bees to polinate, so get a few plant bee friendly annuals such as asters, marigolds, sunflowers, zinnias; or perennials such a clematis, foxgloves, hollyhocks, roses or shrubs such as Buddleia.

37. Go chemical-free
"Get rid of weeds without using chemicals that harm us and our pets," advises REALTOR and Rechmond City counselor, Derek Dang, who led the way to a bylaw banning cosmetic pesticides. His suggestion, "Use dish detergent or weed by hand."

38. Plant fruit trees
They'll give you shade and fruit. Plum, apple, pear and more.

39. Compost
It will make your garden grow and divert waste from the landfill.

GREEN AND CLEAN

40. Clean freen
Vinegar, baking soda and lemons clean as well as expensive, chemical filled cleaning supplies for a fraction of the cost.

41. Green Laundry detergent
Use phosphate-free, biodegradable detergent.

42. Upgrade your washing machine
Replace your old washing machine with an ENERGY STAR washer that gets clothes clean using cold water and BC Hydro will rebate you $75. Wait until you have a full load instead of washing clothes as you need them. Clean your lint trap after every use.

43. Install a clothesline
Dryers use a huge amount of energy.

44. Get a rack
If your neighbourhood or strata prohibits clotheslines, buy a small drying rack.

LIVING GREEN

45. Recycle

46. Buy local
your food doesn't travel long distances, you support local farmers and the local economy and you consume less pesticides.

47. Don't use paper or plastic
Use cloth bags when you shop or reuse your plastic bags.

FINANCING

48. Borrow green
Most financial institutions offer "green" mortgages, including:
• BMO Eco Smart Mortgage offers home buyers a 3.89% rate on qualifying green properties.
• RBC Energy Saver Mortgage gives home buyers a $300 rebate for a home energy audit and five-year 4.34% rate.
• TD Canada Trust offers a Green Mortgage and Green Home Equity line of credit - for each green mortgage TD donates $100 to the TD Friends of the Environment Foundation.
• Vancity offers a Bright Ideas home renovation loan - at prime +1% to home buyers and owners making green renovations.
• The City of Vancouver with Vancity offers a home energy loan program for home buyers and owners makeng energy efficient upgrades and 4.5% fixed rate over 10 years. The loan program is a 12 month pilot project with a goal of 500 homes participating. It will wrap up October 21, 2012. For more information attend a loan info workshop or call 604-374-0507.
• CMHC offers a 10% Mortgage Loan Premium refund a possible extended amortization for buyers purchasing and energy-efficient mortgage or making energy saving rennovations.

RESOURCES

49. Green Tool Kit
BC Real Estate Association's Green Tool Kit provides information, references and links. It also provides comprehensive information of rebates and incentives.

COMING SOON

50. Loan programs
Pay-as-you-Save (PAYS) loan program will help home owners and businessed finance energy efficiency improvements through a loan from BC Hydro or FortisBC. Expected to launch in 2012.

February 6, 2012, Real Estate Board of Greater Vancouver Article

Read Full Story

Friday, January 27, 2012

Is record household debt a problem for home owners?

by Amalia Liapis on Fri, Jan, 27, 2012 09:28 PM

Categories:Finances,mortgage,mortgages

Continuous bad news about rising Canadian debt has been making headlines for the past few years – and now we’re hearing over and over again that mortgage debt has reached epic proportions.

Is all of this negativity accurate? We decided to find out by asking some credible sources.

The truth about household debt.

It is true: the overall household debt of Canadians is at a record of $1.5 trillion, growing from $147 billion in 1982. Two-thirds of the increase from 1982 - 2010 occurred from 1999 - 2010.
The largest component of debt among households is residential mortgages which account for two-thirds of all household debt.
The debt has kept pace with home prices, and is larger in BC and Ontario than other provinces.
In 2010, residential mortgages represented about 68% of total household debt. This compares to a low of 63% in 1971 and a high of 75% in 1993, during the 1971- 2010 period.
The largest component of debt among households is residential mortgages which account for two-thirds of all household debt. This debt has kept pace with home prices, and is larger in BC and Ontario than other provinces.
In 2010, residential mortgages represented about 68% of total household debt. This compares to a low of 63% in 1971 and a high of 75% in 1993, during the 1971 – 2010 period.

Why have we seen high mortgage debt?
The reasons include:

historically low interest rates which allowed households to increase borrowing activity including home equity loans for home improvements, cars and vacations;
rising household income and net worth which allowed households to borrow larger amounts
financial product innovations (low down payments and longer amortization periods) that let Canadians carry a larger debt load, since they allow for lower monthly payments;
rising home prices boost debt since larger amounts must be borrowed; and
beginning in 2009, sudden lower income growth as a result of the global economic depression.

Mortgage holders are also typically younger, who have bought their home within five years, and who carry higher mortgage debt than those who have been in their homes longer.

How does mortgage debt compare with other debt?

In 2010, residential mortgages represented 58% of total household debt held by chartered banks. Consumer credit accounted for 42%.
Credit cards as a share of household debt held by chartered banks remained constant from 1982 to 2010 at 7% per year.
In 2010, the share of personal loans significantly decreased to 10% from 39% ion 1986.
In 2010, the share of personal lines of credit increased to a whopping 25% from 3% in 1986 indicating that consumer and credit card debt has considerably outpaced mortgage growth.
CMHC s mortgage arrears rate is 0.42%

Annual Growth Rates of Canadians’ Debt

Year	Total Household Consumer Debt	Total Household Mortgage Debt	Total Household Debt
1981 - 1990	8.3%	10.7%	10.0%
1991 - 2000	7.2%	5.5%	6.0%
2001 - 2010	9.6%	9.3%	9.4%

Excerpt from January 2012 Edition of Realtor Link, Volume 13, Number 01

Read Full Story

Tuesday, October 25, 2011

Bank of Canada Interest Rate Announcement

by Amalia Liapis on Tue, Oct, 25, 2011 12:00 PM

Categories:banking,Canada,Finances,financing,forecast,mortgage,mortgages

As was universally anticipated, the Bank of Canada opted to hold its target overnight rate at 1 per cent this morning. Ongoing uncertainty in the Euro-zone continues to weigh heavily on the Bank's outlook. In its statement accompanying the interest rate decision, it was noted that the bank is now projecting a contained Euro-crisis, but also a brief recession in the Euro-area due to ongoing deleveraging and fiscal austerity. The Bank also expects continued weakness, but no recession, in the United States through the first half of 2012 before a resumption of stronger growth. Given various challenges in the global economy, the Bank of Canada trimmed its outlook for Canadian economic growth to 2.1 per cent in 2011, 1.9 per cent in 2012 and 2.9 per cent in 2013 which is in line with our own forecast. On inflation, the Bank now expects slack in the economy to persist longer than originally forecast, leading to a closing of the output gap at the end of 2013. This implies softer than expected inflation in coming quarters, with consumer price growth moderating before returning to the Bank's 2 per cent target by the end of 2013.

Overall, this morning's statement shows a very cautious Bank of Canada that is unlikely to make any significant movements on interest rates over the next two to three quarters. Further monetary tightening will be highly contingent on a brighter growth outlook in the United States and a credible solution to the Euro sovereign debt crisis. Therefore we expect the Bank of Canada to remain on the sidelines through the end of 2011 and the first half of 2012.

Cameron Muir

BCREA, Chief Economist

Read Full Story

Friday, January 28, 2011

Federal government announces changes to mortgage financing requirements

by Amalia Liapis on Fri, Jan, 28, 2011 12:00 PM

Categories:Financing,mortgages,real estate,vancouver

The federal government recently announced three changes to the rules for government-backed insured mortgages.

First, the government will reduce the maximum mortgage amortization period from 35 to 30 years. Second, the maximum amount of the value of a home that can be re-financed will drop from 90 per cent to 85 per cent. And finally, government insurance will no longer be available to financial institutions wishing to insure home equity lines of credit.

“These are prudent measures that promote responsible lending practices and further strengthen our internationally recognized mortgage finance system,” Jake Moldowan, Board president said.

The adjustments to the mortgage insurance guarantee framework will come into force on March 18, 2011. The withdrawal of government insurance backing on lines of credit secured by homes will come into force on April 18, 2011.

source: REBGV

Read Full Story