So long 2013...

As I sit in a quiet office on Friday Jan 3rd, it’s hard not to notice that though the New Year has begun, seems like everyone is still off work. Richmond Rd, which I normally cross at 8 am to get my morning coffee, was eerily quiet today, reminding me that maybe I should be off too, enjoying what’s left of the holiday season. But this is the best time, while the phones are quiet and no one is around, to get the last of my end of year administration stuff done, in preparation for the new year ahead. It’s the paper work that you avoid that always takes the most time, and the less people around to distract you, the sooner it’s done.

In our industry, 2013 brought a number of changes that affected the average borrower and therefore how we do business. The maximum amortization which in 2012 was 30 years, was dropped to 25 years. If you took a mortgage term shorter than 5 years, you are forced now to qualify on a government set bench mark rate that is much higher than the actual rate you were getting. Both changes in the governments eyes, meant to tighten up the lending guidelines, and force the public into being more conservative in their borrowing practises. Even the qualifying ratios that CMHC uses to qualify purchasers were reduced. Again this year, restrictions imposed to keep us from over borrowing, and the hope that the housing market will not stumble, or at least only slow at a reasonable rate. We don’t want to relive the American housing bubble, here at home!

In my personal life, it’s also a time of year to do the annual New Year resolutions. I an article I read earlier they suggested we see the resolutions as “commitments”, and I think I will also change my though process to that. Not something I will try to achieve, but rather something I will commit to doing or achieving.

So for whatever it is you choose to “commit” to for 2014, I hope that some will bring more happiness in to your lives, and some will be to bring you more prosperity. I have placed a link below to a Globe and Mail video, that I thought, though quite general, would be a good start for all of us with our financial plans.

http://www.theglobeandmail.com/report-on-business/video/rob-carricks-top-5-personal-finance-tips-for-the-year-ahead/article16124745/#dashboard/follows/

So in closing, I would like to wish everyone a Happy and Prosperous 2014. We’re only here once, so take life by the horns, and make it what you want it to be.

Dan :)

“We cannot control how our life begins or ends. We can only control how we live it.”

Credit and Christmas

As we get into the Christmas spending mode, I thought I would throw out my thoughts on credit cards. I know we don't live in a perfect world, so take what you can from below.

Credit card companies are in the business of making money, lots of it actually, and their money is made by charging high rates of interest on money you borrow and don't pay back within 30 days. So when at all possible, take advantage of the convenience of using a credit card, but pay the account to zero before the no interest period expires (usually within 30 days).

If you use a credit card, and can't pay the card to zero within the “free” period, make sure you ALWAYS pay the min required payment by the payment due date. As well, make sure you NEVER carry a balance on the card over 75% of the cards limit.

In Canada, all credit cards report to credit agencies such as Equifax or Trans Union. It is these agencies who track your history and rate your credit history with a credit score. In general, an excellent score is 800, an average score 675, and anything under 600 will be problematic when you need to borrow money.

If you pay the credit cards min payment past the due date, not only are you charged interest on the money owed, the credit card can(and does) report to these agencies on whether or not you paid on time. If you pay the minimum payment or more on time, you are rated an “R1”, if 30 days late an R2 etc. The more frequently you are late the greater the negative affect on your credit score.

If you carry a balance on the card over 75% of its limit (even if you pay the minimum payments on time), the credit bureaus algorithm will also use that to class you in a higher risk category, and therefore reduce your score further.

In borrowing money today, the approval of your loan or mortgage has become almost completely dependent on having a good credit score from these agencies. So it is more important than ever to be conscious of your credit habits. In my opinion, everyone should personally check their credit bureau every year or so. It is your information they are storing, and you have a legal right to know what that information is. Take a look at the links below, what they know may surprise you!
http://www.consumer.equifax.ca/home/en_ca
http://www.transunion.ca/ca/personal/creditreport/consumerdisclosure_en.page
Both Equifax and Trans Union offer a free report, and though it doesn’t show your score, it still shows you all the information they hold. A credit bureau with your score is also available, but with a cost.

So in a nutshell, live within your means. I’m not saying if you don’t have the money don’t buy it, but simply be aware that credit will always come with a cost if not managed wisely. I have seen the consequences far too many times in my business and my personal life. Use credit wisely and it can allow you to take advantage of opportunities that arise, use it foolishly, and it will impact your borrowing ability for years to come.

Broker Channel loses ING Direct

When Scotia Bank purchased the Canadian arm of ING Direct last September with a closing Dec 31, we knew that the writing was on the wall, only question was to what degree. Obviously, there is a duplication of services, and direct competition between what would now become one lenders services. ING for the last year has been one of our lowest rate lenders cutting .10 BPS off their web site rates to broker channel business, which has therefore undercut Scotia bank rates(and many other banks for that matter). We at least expected that to end with the Scotia purchase.

ING's letter to brokers stated that it's hope was that the broker channel will now funnel that ING business through to Scotia. Well the reality is that if Scotia doesn't become more aggressive with rates that will never happen.

In early 2011, ING began registering all of their mortgages as collateral, similar as to what T.D. Bank did in 2011. Brokers see and the public should see, that as a negative change, being sold to the public as easier future lending, when in fact in my eyes it is all about customer retention. Making it harder(more expensive) to the client when they try and leave when the mortgage is up for maturity.

Since the announcement of ING departing, the reality is that the other lenders in the broker channel are all lining up to get their piece of the ING business, so Scotia will likely see very little of the past ING business, unless as mentioned, they become very aggressive in rates. That being said, the reality is that Scotia may not care. ING is a no fee bank, and Scotia may be saying that the profit structure in paying brokers and aggressive rates is not cost effective, thus the decision to leave the broker channel.

Yes, we will miss ING, and in time the name may also be swallowed up by Scotia, and the public could lose a good no fee bank. Only time will tell to what degree that happens. But the bottom line is we all lose in this acquisition.

Dan :)

"Serial Movers", may be me, but so what!

I just read an interesting article that I don't necessarily agree with, but may be true for some. The article is on "serial movers" of which some who know me, may say I am. I likely have not owned a home for more than 5 years(and I have owned a few), and though I understand the costs involved in buying and selling, look at my residence as my nest egg. Yes I always love where I live, that is why I buy the house in the first place, but to me, I always look at it as an investment. If I don't think it has the attributes to appreciate over time, I wouldn't buy it, regardless if I love the house or not. Many people buy with emotion, not that there is anything wrong with that, but to me it has to first and foremost have the potential to make money. Anyhow, the article is worth the read. See here,

The article has its merits, and I don't think anyone should consider buying or selling a home without careful thought. It is and likely always will be our biggest purchase.

Borrowing against your home?

A common question asked, are my thoughts on HELOC’s, or Home Equity Lines of Credit. This is not a new source of borrowing, but certainly one that has become more common today due to large increases in our residential property values. Who wouldn’t want to borrow money at 4% today, when they could pay off credit card debt sitting at 18% or more?

The basic problem starts with our desire to have the material things in life today rather than saving up for them, and purchasing in the future. Most of us, including myself are guilty of this. I see clients regularly with thousands of dollars in credit card debt, and with fixed incomes, a daunting task to pay them off. There’s a reason the government legislated the credit card companies to start disclosing the actual time it would take to pay a balance to zero. A wake up call to all of us, that there’s a heavy cost in satisfying our have it now mentality.

So now the HELOC becomes a very interesting option, to either consolidate debts, or get an inexpensive, unrestrictive source of funds to do with what you like. The thing that people forget though, is that the reason the banks offer you the lower rates, is that they are secured with a mortgage( yes you read that correctly- a HELOC is a mortgage against you’re home) that almost guarantees them that they will get their money back at some point in time, whether you like it or not. It‘s amazing how often people say to me with pride, that they paid their mortgage off, and yet they have a large mortgage which is their HELOC.

I ONLY recommend getting a HELOC for a specific need such as a renovation that you know will add value to the property, or for an emergency. It‘s just another way for the bank to make it easy to pull out your hard earned equity, and spend it without much thought. There was a time society thought of their home as an investment that would hopefully appreciate, with their mortgage being paid down over time. When retirement comes, you would be living in a home free and clear of debt, therefore no mortgage payments, and a more financially secure future. More and more I am seeing those nest eggs being eroded, with the money being used for purposes they should never have been used for, such as expensive holidays, purchasing cars, and paying off frivolous credit card debt that should never have been spent in the first place.

If you must have a line of credit, get it separate from your 1st mortgage(as a second mortgage) and then it leaves you options when your 1st comes up for renewal. Remember that lines of credit have a floating rate and therefore are exposed to fluctuating rates in the future. Today we are at a point of historical low mortgage rates, and it is only a matter of time before they begin to rise. And when they do, it will be anyone’s guess to how quickly. Now is the time to be paying down useless consumer debt, not getting into more of it. On the other hand, low rates make for a great time to be purchasing long term appreciable assets such as real estate, or things you need such as a vehicle, I just don’t believe in using the equity in your home as a source of easy money to satisfy that have it now mentality.

I still answer mortgage questions here........

I know it's 'old-school' but I still answer mortgage related questions on this 'forum' - until I get  all of the people who are looking for mortgage and finance related answers to use my new platforms I'll be continuing to be active on the FORUM.

Just click the link and ask your question or reply to one of my Tweets to ask a question or use my Facebook page (links on the right).

Dan

Inaugural blog-post on my new blog!

I am the senior mortgage broker with Ottawa-Carleton Mortgage. With 25 years serving the Ottawa real estate market, I know the importance of ensuring my clients are informed and understand the process of closing a succesful mortgage transaction. As a broker, I deal with dozens of financial institutions, including the "Big Banks" and many life and trust companies. It is with this varied source of funds I am able to offer competitive rates and products to fill many individual needs.

You get more information at my website - www.mortgagemoney.ca

This blog will generally be complimentary to my website, twitter and my Facebook page and will allow me to provide weekly updates and my view of the market.