Most of us tend to think of our mortgage as the ultimate “buy and hold” purchase. After all, who wants to spend any more time in the “borrower” chair than is absolutely necessary? You get a 5-year term, and then go on automatic pilot until it comes due again. You might wring your hands over your other finances, but your mortgage is set in stone, right?
Well, not exactly. In fact, it’s a great idea to have an annual mortgage review to see if it’s really working for you – especially in the context of the rest of your financial picture. After all, a lot can happen in a year – especially during our “mortgage years”, when we tend to be juggling many commitments in our busy lives! Think of all the financial commitments we carry during these years: care of our children, tuition or school expenses, one or more cars, vacations, home renovations, travel… the list seems to go on and on.
Chances are that something in your financial life has changed since you took out your mortgage. Life doesn’t stand still, after all. The mortgage planners at Mortgage Architects – an elite firm of Canadian mortgage brokers – have identified a list of the most common reasons why a mortgage may need some adjustment:
• You’re considering a move to a new home in the next year or two;
• You wonder 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;
• You’re considering the benefits of investment property ownership;
• You’re a bit concerned about a large expense looming in your future: like university tuition, a wedding, a leave from work, a new career or business, a big vacation or a new vehicle, for example;
• You’re making more money – or less money – than you were when you began your mortgage;
• You’re carrying some credit card or other high-interest debt that is eating away at your monthly cashflow;
• You’re worried that you’re not saving enough for your retirement years, and you’ve heard there’s a way to convert your non-deductible mortgage debt into deductible investment loans using a re-advanceable mortgage. You’re interested in collecting annual tax refunds, paying off your mortgage faster, and having an investment portfolio for the future.
If any of these sound familiar to you – and if you have held your mortgage for a year or more – then it’s worthwhile to contact a qualified mortgage planner to give your mortgage a reality check.
At Mortgage Architects, the company’s mortgage planners provide this service free of charge and with no obligation. They tailor each mortgage to their client’s current needs and long-term goals, with an overall focus on mortgage planning, Mortgage Planners believe that a mortgage is not just a single transaction done in isolation of your goals and overall financial situation, but that a mortgage can accomplish so much more when property structured and integrated into your overall financial plan.
Mortgage Planners look at the mortgage as a financial keystone - the right mortgage can build your wealth, protect you from a financial downturn, and save you thousands of dollars. That’s why an annual mortgage review is part of their overall service offering. It’s also a smart financial move for Canadian homeowners.
This article is brought to you by Steven Porter, Mortgage Agent/Planner of Mortgage Architects Inc., steven.porter@mtgarc.ca, 1-905-875-2582
Showing posts with label Mortgage Planner. Show all posts
Showing posts with label Mortgage Planner. Show all posts
Monday, 26 September 2016
Friday, 27 May 2016
To rent or to buy? 8 questions Canadians should ask before taking the plunge
Conventional wisdom suggests it’s a no-brainer – buying real estate as a worthwhile investment with a high return.
Despite record low interest rates, sky high prices and carrying costs are causing many to rethink the allure of home ownership. When you factor in the costs of repair, maintenance and other expenses associated with owning a home, Toronto-based financial planner Shannon Simmons argues that renting and putting saved money into another investment may earn more in the long run.
If you've ever filled in a questionnaire asking where you see yourself in 10 years, many would answer “buying/owning a house.
Do you really care if you buy a house, but think you should? Lets look at both sides of the argument and give a balanced view of the Rent-vs-Own debate.
Based on advice from financial planners—both independent and those employed by banks—Global News has compiled a list of questions (and some context) to help you decide whether buying or renting is the right move for you:
But “the less you put down, the higher the amount that you’re actually being charged,” Simmons said. That could mean you end up paying an additional $10,000 or more.
What are my closing costs? Depending where you live, land transfer taxes can carry a “significant” price tag, said Farhaneh Haque, director of mortgage advice for TD Canada Trust. BC's current transfer tax is 1% on the first $200,000 and 2% on the balance, if you are a first time home buyer that is waived on your first purchase on a home up to a maximum of $450,000
“Lawyer fees, seller/buyer property tax adjustment, appraisal fees, home inspection fees, even just your moving costs,” Haque said.
David Stafford, Scotiabank’s managing director of real estate secured lending, added fire and loss insurance to the list, suggesting $50-$100 per month as a ballpark figure.
Stafford also stressed the value of a building inspection, particularly for first-time home buyers, who may be easily impressed by granite countertops and hardwood floors but miss such other details as an old furnace, a leaky roof, or electrical wiring that’s in need of repair.
“Given you’re contemplating a multi-hundred thousand dollar purchase, a building inspection for a couple hundred dollars isn’t a bad idea.”
So if you add it all up, housing payments and other debts should be between 35 and 40 per cent of your gross annual income.
Keeping this ratio under control ensures you have enough money left over to keep saving, and avoid becoming “house poor.”
“Once you buy a house, it’s not like retirement’s done; you still have to save for other things,” Simmons added. “You also want to make sure that you have enough cash flow every single month that you don’t have to go into credit card debt – and that’s what I see: house broke, all the time.”
Saving for a rainy day? Stafford suggests asking your realtor, and getting a home inspection. “Even if it’s in pretty good shape, most homes of any age, there’s something you’ve got to do every year… and you need to factor that into your cash flows,” he said.
Simmons advises setting aside 1-2 per cent of your after-tax income each year to what she calls a “house maintenance fund” to avoid going into debt. “When there’s not that extra cash sitting in an emergency fund, if there’s a $10,000 renovation or if you get cockroaches … It has to go on debt, because you’re not going to live in a place with cockroaches,” she said. “That can take a long time to pay off if you don’t have flexibility with your cash flow.”
Wihby suggests regarding a home as a long-term investment – it might not be worth it if you buy a home and sell it a year later.
These are some of the questions mortgage planners ask clients to determine how monthly payments and lifestyle would change as a result of job fluctuations.
“So you need to think of things like, will you be on a single income household instead of two?” Wihby said. “Maybe that means you won’t be taking those trips you thought you’d be taking or maybe you won’t be going to the gym as often.”
“A lot of people heard that it was almost a no-brainer to go into property, especially when we saw property prices rising like we did in the past,” Wihby said. “But I think a lot of people got into purchasing a home before they were ready emotionally.” The impact of what Stafford calls the “single biggest financial commitment for most people” includes the mental shock of going from a tenant to a homeowner. “When you’re a tenant, the month that cheque goes out, it clears your account, and then you don’t think about it for the next 30 days,” Haque explained. “But when you’re a homeowner, you have those multiple payments like home insurance, maintenance fee, utilities, property taxes, that you have to account for on an ongoing basis. And sometimes it’s very much a shock to your system.” “I know a lot of professionals who just don’t want to be bothered cutting the grass on Saturday, and doing the gardening. … They would much prefer to rent and save a bunch of money, so they can travel every weekend,” she said. “If you’re not actually going to enjoy the house, what’s the point in buying it?”
RENTAL INSECURITY
But, as anyone who has struggled to find a place to rent knows, renting isn’t a walk in the park either. Vacancy rates in the region hover at less than one per cent and have been on a downward trajectory since 2012, affected in part by the skyrocketing popularity of short-term rental platform Airbnb. Renting remains cheap relative to property values, but that doesn’t mean rentals are affordable. Rents are only expected to rise over time and there is already scarcity among certain types of rentals, such as three-bedroom units for families.
Final Word and other facts.
With Toronto's overheated real-estate market showing no signs of abating, many people are foregoing home ownership — at least for now — because the numbers simply don’t add up.
RENT-VS.-OWN CALCULATOR
A valuable number in real estate investing is the price to rent ratio, which is simply the purchase price divided by the rent received. For example, a condo purchased for $126,000 and rent for $1,300 / month would have a Price-Rent Ratio of 96.9 (monthly) or 8.08 (annualized).
One measure to determine whether it’s better to rent or to buy is a metric called the price-to-rent ratio, which takes the price of the property and divides it by its annual rent. Ratios in the 10-13 range indicate it’s better to buy than to rent, while a ratio in the 18-20 range is a sign in favour of renting over buying. Anything in between is a judgment call based on personal situation and local market conditions, according to Toronto-based BMO senior economist Robert Kavcic. This calculation doesn’t take into account other costs of home ownership, such as property taxes or maintenance and repairs.
Throughout most of the 20th century, renters have run the gamut of people in all socio-economic classes, said Andy Yan, an urban planner and acting director of Simon Fraser University’s City Program. Renting didn’t used to be just for those who couldn’t afford to buy. But since the Great Depression and the World Wars, governments in North America have promoted policies to support home ownership, said Yan. The American or Canadian dream of owning a home was used to stabilize the economy and ensure people have assets in their later years through the “forced” savings plan of a mortgage. “There’s a notion in Canada and the U.S. that rental is a temporary state only. But for an increasing population in places such as Vancouver and Toronto, it’s a housing reality,” Yan said, calling on government to recognize renting as a much-needed form of housing.
At the risk of over-simplifying, the rent-or-buy debate comes down to your values, what you prioritize in life, and what you can afford.
Financial decisions related to Renting verses Buying a home require the advice of seasoned professionals. Steven Porter is a former Realtor with 30 years experience in residential real estate and is now a Mortgage Planner/Agent with one of Canadas's top Mortgage Brokerages. Call him at 905-875-2582 or email him at steven.porter@mtgarc.ca for a confidential dioscussionon whether renting or buying fits your personal and financial lifestyle.
- Re-posted from the Global News by Steven Porter, Mortgage Agent - Mortgage Architects
Steven can be reached through his website at www.1800Mortgages.ca
Despite record low interest rates, sky high prices and carrying costs are causing many to rethink the allure of home ownership. When you factor in the costs of repair, maintenance and other expenses associated with owning a home, Toronto-based financial planner Shannon Simmons argues that renting and putting saved money into another investment may earn more in the long run.
If you've ever filled in a questionnaire asking where you see yourself in 10 years, many would answer “buying/owning a house.
Do you really care if you buy a house, but think you should? Lets look at both sides of the argument and give a balanced view of the Rent-vs-Own debate.
Based on advice from financial planners—both independent and those employed by banks—Global News has compiled a list of questions (and some context) to help you decide whether buying or renting is the right move for you:
- Do you have 10-20 per cent of the home’s purchase price saved for the down payment?
But “the less you put down, the higher the amount that you’re actually being charged,” Simmons said. That could mean you end up paying an additional $10,000 or more.
- Do you have another 1.5-5 per cent saved for closing costs?
What are my closing costs? Depending where you live, land transfer taxes can carry a “significant” price tag, said Farhaneh Haque, director of mortgage advice for TD Canada Trust. BC's current transfer tax is 1% on the first $200,000 and 2% on the balance, if you are a first time home buyer that is waived on your first purchase on a home up to a maximum of $450,000
“Lawyer fees, seller/buyer property tax adjustment, appraisal fees, home inspection fees, even just your moving costs,” Haque said.
David Stafford, Scotiabank’s managing director of real estate secured lending, added fire and loss insurance to the list, suggesting $50-$100 per month as a ballpark figure.
Stafford also stressed the value of a building inspection, particularly for first-time home buyers, who may be easily impressed by granite countertops and hardwood floors but miss such other details as an old furnace, a leaky roof, or electrical wiring that’s in need of repair.
“Given you’re contemplating a multi-hundred thousand dollar purchase, a building inspection for a couple hundred dollars isn’t a bad idea.”
- Can you keep debt servicing below 40 per cent of your income?
So if you add it all up, housing payments and other debts should be between 35 and 40 per cent of your gross annual income.
- Are your monthly fixed costs at 50-60 per cent of your after-tax income?
Keeping this ratio under control ensures you have enough money left over to keep saving, and avoid becoming “house poor.”
“Once you buy a house, it’s not like retirement’s done; you still have to save for other things,” Simmons added. “You also want to make sure that you have enough cash flow every single month that you don’t have to go into credit card debt – and that’s what I see: house broke, all the time.”
- Can you save 1-2 per cent of your income in a “housing maintenance fee” each year?
Saving for a rainy day? Stafford suggests asking your realtor, and getting a home inspection. “Even if it’s in pretty good shape, most homes of any age, there’s something you’ve got to do every year… and you need to factor that into your cash flows,” he said.
Simmons advises setting aside 1-2 per cent of your after-tax income each year to what she calls a “house maintenance fund” to avoid going into debt. “When there’s not that extra cash sitting in an emergency fund, if there’s a $10,000 renovation or if you get cockroaches … It has to go on debt, because you’re not going to live in a place with cockroaches,” she said. “That can take a long time to pay off if you don’t have flexibility with your cash flow.”
- Do you plan to stay in your home for at least three years?
Wihby suggests regarding a home as a long-term investment – it might not be worth it if you buy a home and sell it a year later.
- Is your job stable?
These are some of the questions mortgage planners ask clients to determine how monthly payments and lifestyle would change as a result of job fluctuations.
“So you need to think of things like, will you be on a single income household instead of two?” Wihby said. “Maybe that means you won’t be taking those trips you thought you’d be taking or maybe you won’t be going to the gym as often.”
- Are you emotionally ready to own a home?
“A lot of people heard that it was almost a no-brainer to go into property, especially when we saw property prices rising like we did in the past,” Wihby said. “But I think a lot of people got into purchasing a home before they were ready emotionally.” The impact of what Stafford calls the “single biggest financial commitment for most people” includes the mental shock of going from a tenant to a homeowner. “When you’re a tenant, the month that cheque goes out, it clears your account, and then you don’t think about it for the next 30 days,” Haque explained. “But when you’re a homeowner, you have those multiple payments like home insurance, maintenance fee, utilities, property taxes, that you have to account for on an ongoing basis. And sometimes it’s very much a shock to your system.” “I know a lot of professionals who just don’t want to be bothered cutting the grass on Saturday, and doing the gardening. … They would much prefer to rent and save a bunch of money, so they can travel every weekend,” she said. “If you’re not actually going to enjoy the house, what’s the point in buying it?”
RENTAL INSECURITY
But, as anyone who has struggled to find a place to rent knows, renting isn’t a walk in the park either. Vacancy rates in the region hover at less than one per cent and have been on a downward trajectory since 2012, affected in part by the skyrocketing popularity of short-term rental platform Airbnb. Renting remains cheap relative to property values, but that doesn’t mean rentals are affordable. Rents are only expected to rise over time and there is already scarcity among certain types of rentals, such as three-bedroom units for families.
Final Word and other facts.
With Toronto's overheated real-estate market showing no signs of abating, many people are foregoing home ownership — at least for now — because the numbers simply don’t add up.
RENT-VS.-OWN CALCULATOR
A valuable number in real estate investing is the price to rent ratio, which is simply the purchase price divided by the rent received. For example, a condo purchased for $126,000 and rent for $1,300 / month would have a Price-Rent Ratio of 96.9 (monthly) or 8.08 (annualized).
One measure to determine whether it’s better to rent or to buy is a metric called the price-to-rent ratio, which takes the price of the property and divides it by its annual rent. Ratios in the 10-13 range indicate it’s better to buy than to rent, while a ratio in the 18-20 range is a sign in favour of renting over buying. Anything in between is a judgment call based on personal situation and local market conditions, according to Toronto-based BMO senior economist Robert Kavcic. This calculation doesn’t take into account other costs of home ownership, such as property taxes or maintenance and repairs.
Throughout most of the 20th century, renters have run the gamut of people in all socio-economic classes, said Andy Yan, an urban planner and acting director of Simon Fraser University’s City Program. Renting didn’t used to be just for those who couldn’t afford to buy. But since the Great Depression and the World Wars, governments in North America have promoted policies to support home ownership, said Yan. The American or Canadian dream of owning a home was used to stabilize the economy and ensure people have assets in their later years through the “forced” savings plan of a mortgage. “There’s a notion in Canada and the U.S. that rental is a temporary state only. But for an increasing population in places such as Vancouver and Toronto, it’s a housing reality,” Yan said, calling on government to recognize renting as a much-needed form of housing.
At the risk of over-simplifying, the rent-or-buy debate comes down to your values, what you prioritize in life, and what you can afford.
Financial decisions related to Renting verses Buying a home require the advice of seasoned professionals. Steven Porter is a former Realtor with 30 years experience in residential real estate and is now a Mortgage Planner/Agent with one of Canadas's top Mortgage Brokerages. Call him at 905-875-2582 or email him at steven.porter@mtgarc.ca for a confidential dioscussionon whether renting or buying fits your personal and financial lifestyle.
- Re-posted from the Global News by Steven Porter, Mortgage Agent - Mortgage Architects
Steven can be reached through his website at www.1800Mortgages.ca
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