Here is a great article talking, indirectly, on how mortgage brokers are very good for the economy and the end-consumers.
In Australia, banks own over 93% of the mortgage market. There is no mortgage-securitization (CMHC) over there, which makes it very difficult for non-bank lenders (mono-line lenders) to compete in that marketplace. And – for those of you who have a very basic understanding of economics – what does a lack of competition in an industry lead to? More expensive pricing and less options for the consumer!
Having mortgage brokers active and competitive in the marketplace creates very healthy competition in the mortgage market. Independent mortgage brokers have access to multitudes of "mono-line" lenders (meaning they only do mortgages; no chequing, savings accounts, or opportunities for cross-selling 🙂 ) that the consumer only has access to through the mortgage broker channel. Often times the interest rates are lower than what the banks are advertising, and ultimately are more products and niches for the end consumer to choose from.
Click here for the article.
As a first time buyer beginning to do some research on your first home, where do you begin? Well, let's start at first base – Down Payment On A Home.
How much? When? Why? How? Where? All kinds of questions!!!!
The minimum down payment you** are required to put down on a home is 5% of the purchase price. Yes, if you are purchasing a brand new home that is subject to the all-mighty HST, it is 5% of the purchase price, including net HST after any applicable rebates. This 5% is preferred to have come from your own resources, such as accrued savings, or RRSPs (to be discussed on a later post), however many lenders and insurers are allowing your down payment to be "gifted" from an immediate family member. This is where a very nice member of your family kindly deposits 5% of your purchase price in to your bank account, and signs a Gift Letter stating that this money is a gift towards the purchase of your new home and never has to be repaid 🙂
The 5% down payment that you provide will form the start of your equity in your new home. As you pay your mortgage down and your home's value increases, this equity will grow.
I know there are some of you out there who are wondering about zero down mortgages. Are they available? Yes, there are a limited number of lenders out there who will provide you with 5% cash-back to form the down payment on your home, which is essentially a zero down mortgage, however you are paying higher interest rates for this cash back.
5% is the norm for most individuals. Count on that and begin your savings and you will be on your way to home ownership sooner than you expected.
**5% is the minimum down payment most people are required to put down on a home. If you are self-employed and in a situation where we will be needing to "state" your income, then you will be required to put down 10% of the purchase price. This is a new regulation as of April 2010.**
Statistics show that most first time buyers begin their search for their inaugural piece of real estate, 11 months prior to actually making a purchase. While scouring the internet for educational tidbits, most first-timers come out of the research process with one transparent piece of advice: Speak to a mortgage broker and get yourself a pre-approval!
First and foremost, getting yourself pre-approved by a mortgage broker is a great starting point for first time home buyers. After analyzing your current situation and future goals with you, a mortgage broker will be able to inform you how much "home" you can afford, based on your current debt load and annual income. This is a great tool to have in your back pocket before meeting with a realtor, so that you know the price range of houses you should be looking at, rather than falling in love with places that you aren't able to afford.
A pre-approval will also "hold" an interest rate for you for up to 120 days. Should interest rates rise during this time, you are hedged against any increases with your pre-approval. However, should rates drop during this time, you will be guaranteed the lower rate.
The beauty of all this is that there is no cost, whatsoever, to obtaining a pre-approval from a mortgage broker! There is also no obligation to follow through with the pre-approval! You may begin shopping for homes and, for whatever reason, decide that now is not the right time to enter the real estate market. Your pre-approval will simply expire after 120 days – no harm, no foul.
So now I ask all you internet real estate shoppers out there… do you have a pre-approval in your back pocket? If no, why not?!
Yes, we've all heard every economist, from all corners of the country, come out and say that low rates are here to stay for a long time. However, just because the doors are open, doesn't mean that everyone should be entering. People with large amounts of consumer debt should first be looking at tackling these obligations before succumbing to the inner pressures of building your own equity through home ownership. If you already have a mortgage and have some equity in your home, now may be a good time to consolidate these other debts in to one low payment. Now this would be taking advantage of today's low rates! It is the perfect time for Canadians to be strategizing their financial picture, and ensuring they aren't going crazy in a low rate environment racking up more than they can handle. The latter will only lead you to short term pleasures, and some possible headaches down the road when we may very well find ourselves in a rising interest rate environment. Now is an excellent time to speak with a mortgage broker, even if purchasing a home is not in your immediate plans. A broker will be able to analyze your goals with you and put you on the right track to stabilizing your finances so that you can soon find yourself in a position where it is the right time for home ownership.
Read this article for a further viewpoint.
This is a good article on variable rate pricing and the reason for the increase on variable rates last week. The underlying theme of the article sort of pushes people towards taking a fixed rate product, however I am still a big fan of taking a variable rate today, if you have the risk tolerance for it.
95% of economists believe that the Bank of Canada will leave interest rates untouched at their next meeting. And, given the horrific state the US economy continues to boast to us, there is a very good chance that rates will remain low for quite some time. This leads me to ask: why would you want to lock in to a higher fixed rate today?
Fixed rates today are as low as 3.49%, whereas you can grab yourself a variable rate for Prime – .60 (2.40%). That is still 119 basis point difference in pricing. If you opt to take a variable at 2.40%, why not set your payments as if you were paying 3.49%? By doing this, you not only shelter yourself from any payment shocks that you may experience if Prime does increase slightly, but you are also paying down your principle balance much quicker, and knocking years off of your amortization. Every payment you make at the 3.49% level, the payment difference on those 119 basis points goes directly towards your principle, interest-free.
Does saving money and paying less interest sound like something that you could stomach? My point exactly.
Bank of Canada Governor, Mark Carney, confirms that "Canadian growth over the second half will be slower than first thought". However, growth is still in our country's near future, just not at the pace we initially expected.
Carney cites the continuing problems in Europe and the United States as "delicate issues" that will likely face reduced growth through 2013.
The sum of everything will mean that rates will continue to remain low for an extended period of time.
Carney concludes by cautioning consumers not to go overboard, just because rates are low. He warns people not to "get in over their heads with debt loads they may not be able to afford when rates inevitably rise."
Read the full article here.
Thanks to the continually flailing US economy, the US Fed has announced that they now plan to keep short term rates at all time lows through mid-2013. They state that "growth had been considerably slower than expected".
Click here to read the full report.
My question to you is, do you think this is a good thing in the long run of the US' financial stability?
This is a must watch! Corning's view on what the future of technology has in store for us. Very cool!
Things are looking good… for now. It appears as though the Republicans and Democrats have inked a deal which will allow the US to raise their debt ceiling enough to avoid defaulting on their payments, which come due tomorrow. This is good news for interest rates and investments, however, did the terms of this deal really fall in favour of the American people?
Rather than raising tax rates, they simply cut spending in a number of different sectors. To me, this would mean that the average-income earning American citizen (majority of the population) will feel the largest impact, as class sizes in schools continue to grow, or crime rates in their neighbourhoods rise because police staffing has been cut back. These are the types of sectors that could very well experience spending cuts. Meanwhile, the smallest percentage of the population – the extremely wealthy – will feel little to no impact at all. The old adage of, "the rich get richer, the poor get poorer" continues to become a way of life with our neighbours to the south.
Is it just me, or did the Republicans seem to treat this ordeal as nothing more than a "political game". Their "game" of 'how to make the Democrats look as bad as possible', caused the entire global economy to teeter on a financial fence, wondering which way they were going to fall. In the end, I don't think the Republicans did themselves any favours at all. The majority of the American population was aware of the potential calamity that could have come to fruition if the US were to default on one of their payments. Any American who watched the Republicans play with this fire, simply to try and get an edge in the voting polls next year, cannot feel that their best interests were always on the forefront. If you read in to the details of the deal, it would appear that the Democrats have been bent over on this one – The Republicans received almost everything they were wagering for, except for the raising of the debt ceiling.
In the end, I guess Obama knew what had to be done, and did everything he could to avoid a total financial meltdown. Yes, the immediate crisis has been averted. But, have they just put things "on hold" until after the 2012 elections? I guess only time will tell.
Read the full article here.
What is your opinion?
A "Gifted" Down Payment is very common for first time buyers. Essentially, a buyer's family member (usually very nice, warm and loving parents) will offer up money to go towards the down payment. Often this is done because their son or daughter doesn't quite have enough funds saved up for the full 5% to put down. Or, because they want to make sure their child has enough money to make up 20% for a down payment to avoid CMHC premiums.
All that is required for documentation is a signed Gift Letter from the parents, which simply states that the money does not have to be re-paid, and a snapshot of the child's bank account showing that the gifted funds have actually been transferred.
A gifted down payment is viewed as an acceptable form of down payment by almost all lenders. Talk to your mortgage broker to make sure that your lender accepts "gifts" as an acceptable down payment.
To find out how to talk to your parents about gifting you money, talk to your aunt or uncle; they usually provide some good advice.