Financing & What happens if it goes wrong

First of all, before you go house hunting, go to your bank, trust company, or other financial institutions and see what mortgage amount you can qualify for.

Take your significant other, if you have one, because everyone’s income and assets help.

Once you know how much you can get, get the best rate you can and get it locked in for as long a time period as possible.

Do not be afraid to negotiate- the banks want and need your business. And do not be afraid to shop rates and lockup periods.

Get your commitment in writing!

Remember, time is important because of the time it takes to have your house ready, and remember to allow for extensions or construction delays.

Now, we are ready for the builder. Go to the sales office armed with your knowledge, and look to see what mortgage rate and term the builder is offering.

Take note, the builder may have brought the rate down to make his package more attractive, or may have persuaded his bank as part of his deal with them to offer special packages.

Remember, if your banks offered rate and terms are close, you may be able to negotiate a better deal with the builder. If you don’t take the builder mortgage, you may be able to get some leverage in your overall negotiations, as the builder may save money by not having to pay his bank for the better rate. Question this and make sure you understand all of the financing details.

When we walk into that sales office all ready to buy our beautiful new home, perhaps the most important piece of the puzzle is security in our financial arrangements.

A tragedy waiting to happen occurs when you sign an unconditional offer, give your hard earned and saved deposit to the builder, and later find out you do not qualify for the mortgage.

In other words, don’t buy the house unless you have a mortgage commitment or a conditional deal! This leads us into the next part of today’s discussion- what happens if it goes wrong?

An Agreement of Purchase and Sale for the purchase of land is a contract, and, once it is unconditional, binds both of the parties to do the things that they are obligated to under that contract.

If either party does not perform their part of the bargain, they can be held liable to the other party for either specific performance or damages.

Firstly, if the purchasers default, they will likely lose their deposit. The builder will then option of suing to force them to close the deal and pay all legal fees related thereto (specific performance), or sue them for any damages the builder might suffer before he resells the house (things like interest, changes, price differential, etc.) and legal fees.

Sometimes in a booming market, kindhearted builders will release purchasers who have made a mistake or encountered personal tragedies, but don’t count on it!

The moral of the story is make sure you have financing, or that the offer is conditional for a few days pending both financing and review by a lawyer. It is critical that you get the right advise: that is the law. When you select a lawyer, find one who cares about you and a long-term relationship.

Good luck and happy house hunting.

Always be an informed client.

For more information contact your Toronto Mortgage Broker at 416-920-9931

Credit and Debt Management

As the credit system continues to evolve in Canada, consumers are getting increasingly confused with a greater variety of credit products from financial institutions.

In fact, the average Canadian gets more correspondence from financial institutions than they do from family and friends combined.

Just to complicate matters, institutions are granting credit to consumers at a pace never seen before.

The combination of increasingly sophisticated marketing techniques to consumers coupled with more and more available credit truly becomes too much temptation for many people to bear.

Consumer debt is a major crisis in North America. The concept of keeping up with the Jones has destroyed both people’s financial health and their personal lives. What I am here to tell you is that you do not need to fall into this trap!

What I am going to show you are some simple guidelines that will prevent you from becoming yet another consumer credit victim.

1. Control spending by knowing exactly where every dollar spent goes.

Tracking your spending habits in detail periodically will enlighten you in ways that you never considered. While doing this on a monthly basis is not realistic, try to do this in detail for at least one month a year.

2. Watch your liquidity closely.

Liquidity refers to you and your family’s ability to pay its short-term debt obligations. Watching what available funds you have to pay upcoming debt obligations is fundamental to avoiding credit problems.

3. Plan, plan, plan – live and die by a budget.

Develop a realistic budget and live by it always.

A good budget must have specific financial goals with a clearly defined time horizon.

Be sure to take into account all of your payments including loans, utilities, dry cleaning and etc. If you pay for it monthly it should be allocated in your budget.

Most financially successful people are excellent financial planners. They have investment plans, loan repayment plans, and a clear idea of how much time they need before they can purchase big-ticket consumer items. Also be sure to budget for some kind of treat on a periodic basis. Budgets without a treat allowance often result in failure.

While these rules seem fairly simple, they are a little like a diet- easy to start but tough to follow through.EHelH

Despite popular opinion, material items will not bring you happiness.

Always be an informed client.

For more information contact your Toronto Mortgage Broker at 416-920-9931

Shopping For the Right Mortgage

Unfortunately, many consumers do not spend enough time exploring the many options made available by lenders who are eager for their business.

Here are some options to consider.

Open and Closed Mortgages: An open mortgage is a mortgage which allows you to pay off as much of the principal amount of the loan at any time without a penalty.

A closed mortgage does not offer this benefit. However, a closed mortgage usually offers a lower interest rate than an open mortgage.

Fixed or Variable Rate: A fixed rate mortgage allows you to budget precisely for whatever term you select because the interest rate is fixed for a certain time period. The rate on a variable rate mortgage will fluctuate with the prime rate.

Prepayment Privileges: Prepayment Privileges allow you to pay your mortgage faster. By making a lump sum payment, you can greatly reduce the amount of interest you will pay over the life of the loan, thus saving you money. Typically, annual prepayment privileges are allowed for as much as 10 to 20 percent of the original amount borrowed.

Portability: This is an extremely important feature for long-term mortgages because a portable mortgage will eliminate the financial penalty involved when you break the mortgage prior to maturity.

This is often the case when you have sold your home and are purchasing another property. If you have a portable mortgage, you will be able to move the mortgage with you to your new property without a penalty.

Weekly or Bi-Weekly Payments: Your goal should be to pay off your mortgage as early as possible. Many consumers are astounded to learn that they will have paid thousands of dollars in interest if they only make the regular monthly payments as called for in the mortgage.

Along with taking advantage of your prepayment privileges, you should consider making weekly or bi-weekly payments instead of monthly payments. By doing this, you will end up making extra payments each year which will go towards reducing the principle portion of the debt. You could end up saving thousands of dollars in interest payments by doing this.

Prior to committing to book your mortgage with one lender, you should shop around.

Lenders are very eager for your business and mortgage brokers will be able to provide you with the information that you need in order to make an informed decision.

Aside from receiving a discount on the posted rates, lenders may offer you a variety of incentives to obtain your business. You should compare lenders and negotiate the best deal possible.

Choosing a mortgage is really no different than shopping for any other product on the market. You should spend as much time negotiating the terms of your mortgage as you do looking for your dream house.

What type of mortgage is best for you?

Bottom line:  Not all mortgages are the same and having the right mortgage for you can make your house feel more like a home – more comfortable and secure. 

Let’s assume that your immediate need is a home purchase, or even renewing a mortgage; How do you decide what type of mortgage is best for you? 

Here are a few questions to start with: 

1. How knowledgeable are you about mortgages?
2. What are your borrowing goals?  Or the ability to pay down your mortgage as fast as possible?
3. Do you think you can make extra payments against your mortgage each year?
4. Are you someone who almost never follows interest rates, follows them occasionally, or very closely?
5. Do you know the impact of an interest rate increase on your payments?
6. How would you cope with high payments?
7. How long do you plan to stay in your home?  Less than two years?  Three to five years? Longer?

Depending upon how you answer each of these questions determines which type of mortgage and term may be best suited for you.  If you have a reasonable level of knowledge and you have some awareness of interest rates and room in your cash flow to cope with increasing (or fluctuating) interest rates, then you may want to consider a short-term or variable-rate mortgage solution.

If you think you have a lower risk tolerance, in that you could have difficulty with increasing rates and if you expect to live in your home over the long term, then a longer-term fixed-rate mortgage might let you sleep better at night.

There is one way to get the advantage of a variable-rate mortgage with an interest rate that moves with prime rate, but without all the exposure to a potentially risk rate environment:  ask you lender if their variable rate mortgage has protection from rate spikes with a cap that sets a maximum interest rate you’ll pay.  This type of mortgage allows you to get a mortgage rate float with the prime rate, but which protects you from big interest-rate increases, and the resulting higher payments.

Whatever you do, don’t let rate alone determine which mortgage you choose.

It really is in your best interest to assess mortgage features against price.

Make sure you get good value.

Always be an informed client.

For more information contact your Toronto Mortgage Broker at 416-920-9931

Property Taxes and your new home.

It is best not to let the thrill of buying a new home be dampened by not considering the impact of property taxes on your purchase.

Start off on the right track by deciding which method of payment is right for you and for you budget.

You have the option of paying property taxes directly to the municipality or by having your financial institution pay them on you behalf.

When choosing option two, your bank collects funds from each mortgage payment and saves them in a special property tax account.  To cover the first tax bill, banks usually do what is called a tax hold-back from the initial mortgage advance.  The bank calculates what it thinks the first tax bill will be and holds those funds back at time of closing the mortgage.

When buying a newly constructed home things can be a little more complicated because property taxes may not have been assessed yet for the area.  You may at first pay taxes based only on the value of the land.  A municipal assessment may take up to three years at which time your taxes will be based on the value of land and home and you many find yourself owing back taxes! 

If land value alone generated a tax bill of just $800 but three years later land and home value generated taxes of $2,400, you will find your self owing back taxes of $3,200 (the difference between $800 and $2,400 for two consecutive years.)  Add the tax bill for the current year and your total bill three years into owning your new home could be $5,600.

It’s a good idea to research property taxes in the area to better prepare you for the bill once the formal tax assessment has been completed.

Always be an informed client.

For more information contact your Toronto Mortgage Broker at 416-920-9931