Many industry professionals will agree that we are currently in a buyer’s market. As we start to enter the spring market, traditionally one of the most active times of year in Real Estate, sellers may wind up disappointed. Many of the first time home buyers of a few years ago, who have built up some equity in their property value and are now looking to sell, need a strong first time buyers’ market in order to move up the property ladder. Once they sell, they become the ‘move-up’ market. This has, historically, been the natural progression of an orderly real estate market. In simple terms, it is very much like a food chain. The move-up market is dependent upon the existence of first time home buyers.

A majority of Canadian economists agree that the Bank of Canada is expected to begin to slowly raise interest rates later this year. My best guess is that this gradual rate increase will start this coming August. However, based on what I think will be strong competition within the mortgage lenders as a result of a slower spring market and, thus, a lower demand for financing, I feel that many lenders will be forced to decrease their five year mortgage rates to be competitive in this market. Looking at the current five year mortgage interest rates and five year Canadian Bond Rate interest rates, it is clear that lenders have the ability to maintain satisfactory profit margins while decreasing their rates.

While many potential first time home buyers may want to sit back and wait a year to perhaps study the market and the changes in lending rules that have been forced upon us, the bottom line is they may very well miss an opportunity to take advantage of lower interest rates and realty prices. With a delay of one year, potentially higher interest rates and a more competitive market may mean the home you are seeking to buy might come with a larger-than-expected price tag. Sometimes it pays to be a contrarian, and this may just be one of those times.

Paul E. Croy

The Bank of Canada always attempts to make available an adequate supply of money to satisfy the market demand for residential mortgages. At the same time, Canada Mortgage and Housing Corporation (CMHC) works very hard to stimulate and educate our housing market while attempting to make residential home ownership opportunities available to a broad section of our society. Policies developed by the Minister of Finance are directly aimed at maintaining an inflation rate that will insure the long term economic value of home ownership. With the Canadian core inflation rate being reported now in the 1.5% range, the strategy of home ownership will certainly help to provide a strong and stable financial future for many Canadians. When our government considers the future, looking at potential options to deal with pension short falls and the growing cost of health care, it should be no mystery that a healthy and stable housing market is very important to our economy. Economic policy will be crafted in Ottawa with this in mind. With core inflation well in line and a very strong Canadian dollar, the need to raise interest rates might seem just a bit redundant.

Recent trends in the mortgage rules have not made the dream of home ownership easier. Combined with the credit industry’s trend toward centralized approval systems, most financial institution staff have not been given the opportunity to develop the knowledge or skills required to adjudicate or understand credit risk. I, for one, enjoyed a time in the not so distant past when a branch manager had interest rate discretion and the ability to grant mortgage approvals based on local market knowledge, experience, common sense and sometimes just a gut feeling. This style of lending may today seem old fashioned, but it was more in the borrower’s best interest.

Paul E. Croy

In one generation, we have gone from 33% of young adults (Baby Boomers) living with parents to the now record 50%. Past generations tended to get married earlier, start careers sooner, and buy houses pretty much as a scheduled series of events. The Echo Boomers, however, tend to delay both getting married and homeownership.

Over the coming years, this group of 9.2 million potential consumers will certainly become targets to be marketed to by the realty and mortgage industries. The industries will stress the lifestyle and financial advantages of home ownership to this unique, well-educated group:
-> 97% own a Computer (the same percentage that also use social media every day.)
-> 94% own a cell phone (and perhaps will never own a traditional land line telephone.)
-> 56% own a MP3 Player (I will have to ask my kids what that is, I might even own one!)
-> 40% of Echo Boomers chose television as their main source of news. (I’m sure that you can guess where some of the advertising dollars will be spent.)
-> Most use Email, text, Facebook, MySpace, UTube and Twitter to communicate.

The dream of home ownership is still very much alive in Canada. This Echo Boomer generation has only delayed homeownership rather than eliminating it. When they do buy, they will buy as a demographic group and are sure to become a major force in the Canadian realty and mortgage market. In the interim, perhaps we Baby Boomers can still have help solving computer problems while the Echo Boomers still live at home.

On a side note, one other interesting statistic is that, on average, this group of Echo Boomers speaks with their parents 1.5 times per day.

Paul E. Croy

Over the years, we have seen both hot and cool real estate markets and heard the terms buyer’s market and seller’s market. It is interesting to note, however, that since the three recent increases in the bank rate, residential mortgage rates have been declining. It is now very much a buyer’s market and five year mortgage rates are at a historical low.

It is however, the opinion of more than just a few that the recent moves designed to crack down on what has been described as reckless real estate speculation may have swung the regulatory pendulum just a wee bit too far. Out here on the West Coast we are also dealing with the effects of the recent imposition of harmonized sales tax and a provincial government that is suffering from a financial budget hangover of Olympic proportions.

Making it harder for first time buyers to qualify for mortgages and increasing the required down payment for investors purchasing rental properties have contributed to a cooling of the real estate market. Perhaps, by its recent actions, the Bank of Canada may have pulled a rabbit out of the hat, thereby reducing a need for future interest rate hikes in the short term. We are truly living in interesting times.

Paul E. Croy

Just to set the record straight, yes, you have to have the funds in your RRSP in order to fund the mortgage. What you will also find out is that due to the “Non Arm’s Length” relationship between the Mortgagee (your RRSP) and the Mortgagor (yourself), the mortgage will have to be insured by Canada Mortgage & Housing Corporation in order to become a qualified asset for your RRSP to hold. The main focus of all the administrative rules and conditions that apply is to insure that both you and your RRSP are not gaining an advantage or being put at a disadvantage when compared to rates and terms available in the “open mortgage market”. In addition, your RRSP funds would have to be transferred to a self directed RRSP (SDRRSP) account administrated by a Trustee who is an approved National Housing Act lender and who is also willing to administrate this type of RRSP asset. You will quickly find that not every SDRRSP Trustee wants to undertake the task of administrating this type of asset.

When doing your research you will soon become very aware of the many costs and fees. There are one-time set up costs plus ongoing annual SDRRSP Trustee administrative fees. For some clients, once a careful review of the costs is done, lending RRSP funds to yourself can make sense. Prior to 1984, it was commonly thought that Canadians could not use their RRSP funds for such a transaction. In 1984, a tax lawyer based in Toronto obtained a tax ruling establishing that, provided a mortgage met the strict lending guidelines established for an RRSP “Non Arm’s Length” transaction, it could qualify as an asset held in a SDRRSP plan.

Based on my calculations and due to the many costs and fees involved, I found that it was important to have a minimum mortgage amount of at least $50,000.00 available in your RRSP plus a minimum of a 6 – 7 year time horizon before even considering any economic or emotional benefits that might be derived from lending yourself your own RRSP money. The first SDRRSP funded mortgage that I helped set up was in 1984 for a client who was an accountant. Years later, I had the opportunity to ask this client if, in his opinion, it had been worth all the effort and expense. After a long pause, his answer was simply, “It sure just felt good to be paying myself”.

Paul E. Croy

Firstly, the mortgage balance will be declining but the insurance premium will remain consistent, hence over time, the borrower will be receiving less. Secondly, if you decide to port (move) your mortgage to another lender when the term is up, the insurance will not be transferable.

I propose that if a borrower wishes to have the additional security offered by insurance (and I totally agree) then an insurance policy outside of the mortgage contract should be considered. This insurance can be a fixed term or whole life policy.

There are several advantages to this strategy:

Firstly, the policy is with the borrower and stays with the borrower no matter who holds the mortgage.

Secondly, the borrower can pick an amount that is appropriate to their situation. He or she does not have to purchase an amount to pay off the full mortgage.

Thirdly, the amount of payout from the “life” insurance remains consistent.

Finally, and probably most importantly, in the event of the demise (death) of the borrower, cash from the policy will go to the beneficiary. The beneficiary, who often is the spouse, will have money to make mortgage payments, pay utility bills, buy food, etc. for the family while they get their life adjusted to the new situation.

It makes no sense to have a debt free house if the hydro, water, gas and telephone are disconnected. This is a morbid subject, but it needs to be considered by all borrowers.

P.S. Be sure to obtain competitive quotes from a few life insurance agents before committing.

Jeffery Moses

These are the benefits of using a mortgage broker:

1. DISCUSS – I will discuss your mortgages needs with you and prepare your application for presentation to lenders.
2. EXPLAIN – I will explain the mortgage approval process. I will obtain a mortgage commitment, lock-in the best rates and terms, and provide you with a pre-approval so you can confidently look for your new home.
3. INFORM – I will inform you about the costs associated with arranging a mortgage. These may include: appraisal and survey fees, property transfer taxes, municipal tax adjustments, and, if applicable, CMHC premiums.
4. RESEARCH – I will research the market for the best interest rates and terms available. This includes special discounts and rates, available only through mortgage brokers.
5. PRESENT – I will present your application to the lenders most likely to approve your deal. I will highlight the strengths of your application in a manner that will be favorably viewed by lenders.
6. NEGOTIATE – I will negotiate on your behalf. I work for you, not the lender.
7. ADVISE – I will advise you about the terms, rates and details of each mortgage lender’s offer, in order to help you make the most suitable financing choice.

Financial institutions will only offer you their own mortgage product. A mortgage broker is able to mix and match different products from a variety of institutions in order to meet your particular mortgage requirements.

Financial Institutions offer lower rates, special discounts and a wider variety of mortgage products through mortgage brokers. Mortgage Brokers are a better way for banks and other major lenders to deliver their products to new customers and lower retail banking costs. The savings are then passed along to you.

Mortgage brokers are motivated to get the job done for you. We get paid only when you’re satisfied and your mortgage is funded. Last but not least, in the case of most residential mortgages, the lender/bank pays our fee.

Chris Pahl

#1- Residence

Purchasing a home tends to be the largest capital investment most people make. It also tends to be the best investment most people make.

Rents go up but mortgage payments remain constant. So with time, the cost of mortgaging remains constant while rents rise with inflation. (There are interest rate fluctuations both up and down but I am assuming a constant interest rate for this example.)

It may seem a long way off at the beginning, but mortgages do get paid off and any capital appreciation from your own house is non-taxable. Equity in property also provides the ability to access funds for other investment opportunities.

#2- Investment Properties

There are several types of investment properties:

A – Revenue Investment (Residential, Commercial, Industrial revenue properties)
I do not have a pension other than CPP so I need to plan for my retirement by creating an income stream that is indexed so that inflation doesn’t erode my standard of living. Buying a rental property can be an effective method to satisfy this goal.

When looking for revenue property to meet this goal, you need to consider how soon the property’s income will cover all of its expenses including debt servicing, management, maintenance, repairs and of course, the various taxes. This may mean that you will need to cover a shortfall at the beginning, but when you have reached the breakeven level time becomes your ally and the property will start paying you an indexed cash flow.

B – Speculative Investment
This investment is to attract a capital gain by selling a property for a higher price than you paid. This investment is quite popular when the market is increasing or expanding. An example of speculative investment would be buying a piece of land that is not yet developed but is in an area where development is approaching. When development does reach your property then there will be an increase in its value. This type of investment is higher risk than rental property (time is not your ally) but it does not require as much ongoing work and can be very lucrative. This investment is more interested in the market and not in revenue.

There are several investments that are part revenue and part speculative. One example is an underdeveloped property that does not have cash flow to pay all costs but can offset some of the costs.

Housing is something that we all need. It has proven to be a stable and manageable investment that one can control or at least influence. Talk to your realtor, lawyer, accountant, mortgage broker, neighbour etc. Everyone has something to say about real estate and some of them can give you good advice, but remember that it is your choice. Be bold and you should be rewarded.

Rory Campbell

For most people, getting into a mortgage is much easier than getting out of it if they find that they have made the wrong choice. Making the wrong choice can be a source of stress with potentially large financial and emotional costs to be paid.  The mortgage you select should be comfortable and flexible, fitting with your lifestyle expectations.  It is very important that your mortgage leaves some financial room for you to still be able to enjoy the things in life that are important to you.  Feeling ‘mortgage poor’ can be somewhat like being forced to walk a long distance in the wrong pair of shoes.

It is important to spend time up front looking at the economic realities of your cash flow prior signing your mortgage documents.

What I would recommend for many clients is to try living within a budget based on the proposed mortgage payment prior to committing to it.

Paul Croy

See the March 11, 2010, Business Week article, Canada January New Home Prices Rise 0.4%, Seventh Straight Gain

We are presently enjoying the lowest interest rates seen since the Korean War, and the only thing we can absolutely count on is that rates will inevitably rise. The ‘experts’ cannot seem to agree on when or by how much, but the varied opinions range upwards to an increase of 2.0% – 2.5% by the end of 2011.

I believe that now is the time to become pro-active and ensure that you take advantage of the present interest rate environment. Do you wish to explore the possibility of ‘renegotiating’ an existing mortgage? Would you like to ‘lock-in’ an interest rate for an upcoming purchase? Does your mortgage ‘mature’ in the next few months? Fixed rate vs. variable rate?

Our mortgage professionals are your best source for mortgage advice and can explain all your available options.

Walt Neufeld