31 Jan

HOW TO MORTGAGE BROKERS HELP?

General

Posted by: Brad Lockey

How Do Mortgage Brokers Help?

The most important strategy that a home buyer could ever have is putting together a team of Real Estate professionals to help them make the wisest decisions in regard to the biggest purchase they will ever make; a property purchase. It is so very important to align yourself with a Realtor who has excellent property and market knowledge; an Accountant who understands the tax implications of buying a property, a House Inspector who knows what weaknesses to look for in the structure of a property, a Lawyer/Notary who has experience in property purchase contracts…

…and, of course, a Mortgage Broker who knows what products / offers are available and who can get you the best terms and sharpest rate available.

While one can simply go to their bank and get a mortgage (if they qualify), is it really the wisest decision to have that conversation with the financial officer at the bank without really knowing the ins and outs of what terms and conditions of a good mortgage should be?

Mortgage Brokers are meant to be professionals that reduce the stressful task of putting a mortgage application together and finding the best home for your mortgage. A good Mortgage Broker will explain all your loan options and suggest the programs that could be financially beneficial. When you go to the bank and speak with that same financial officer, they will only be able to provide you with information related to their bank. Simply put, they only know the products offered by the bank they work for and are not about to try and suggest other products offered by other banks, even if that is a better option for you.

Busy Mortgage Brokers that work for a successful mortgage arranging company have access to discounted rates that are not available anywhere else. Because of the sheer volume of mortgages that a busy company arranges, Mortgage Brokers are given better rates that you can’t find on your own. Since the Mortgage Broker is arranging mortgages every day, they know what products are available and they are aware of the sharpest rates being offered.

Reputable Mortgage Brokers have your best interest in mind FIRST!
A good Mortgage Broker understands that if you are happy as a client under their direction, then you will likely refer your friends and family back because you have had a successful and satisfying outcome with your mortgage arranging experience. Mortgage Brokers rely on referrals and although they continue to market their services, referrals remain the bread and butter for a Mortgage Broker.

Mortgage Brokers are available and flexible with meetings and appointments. They are not confined to an immovable roster but work with you on your time. Generally, people are busy, and time is a valuable commodity. Mortgage Brokers will arrange a time to speak with you at your convenience, so that you don’t have to take time off work and loose wages, or wait two weeks for an appointment with your bank’s financial advisor and miss out on a time sensitive purchase.

Mortgage Brokers advise their clients on how to make their financial profile look favourable forto the lender. Financial coaching is part of the overall value that you will receive from a Mortgage Broker. Advising you on how to use your credit and what to avoid in the preapproval process is all part of what a good Mortgage Broker does for their clients.

Mortgage Broker services are FREE! The lender pays a commission to the Mortgage Broker and the client ends up with the best possible mortgage at no cost for the arrangement. The Mortgage Broker will pull your credit only once and will approach several lenders with that same “pulled” credit bureau…. yet another way a Mortgage Broker helps their client’s and protects their clients best interests.

31 Jan

Title Insurance Can Be Your Best Friend When Purchasing Real Estate

General

Posted by: Brad Lockey

Title Insurance Can Be Your Best Friend When Purchasing Real Estate

Nearly everyone will buy a home and, in fact, most people will buy several, moving up from one to another more desirable home.  Each time they buy a home, the buyer‘s realtor will request a Real Property Report from the seller’s Realtor.

A Real Property Report (RPR) is a legal document that clearly illustrates the location of significant visible improvements relative to property boundaries. It takes the form of a plan or illustration of the various physical features of the property, including a written statement detailing the surveyor’s opinions or concerns. It can be relied upon by the buyer, seller, the lender and the municipality as an accurate assessment of the improvements on the property.

But what happens if the RPR is old, or even unavailable? The new buyer can’t be confident that the location of improvements (buildings) are within the property boundaries and that there are no encroachments from adjacent properties that they are unaware of. Knowledge of these things can help to protect buyers from potential future legal liabilities resulting from problems related to property boundaries and improvements.

Because of this, many realtors suggest the use of Title Insurance to protect their buyers from unknown defects in the title of the property causing financial loss. Title protection will protect a buyer from costs associated with:

  • Title Fraud
  • Survey and title issues and/or defects
  • Challenges against your ownership

It will also cover you against title defects that have occurred in the past, prior to you purchasing the home.

Title insurance will not expire as long as you own the home.

In some cases, the lender will also request title insurance under a loan policy. This allows them to feel comfortable after releasing the funds, and many lenders will accept title insurance in lieu of an up-to-date RPR.  As a result, the loan policy can save you time and money. If the lender requires a lender policy as a part of your agreement, the lawyer or notary will order a Loan Policy as a part of your closing.

Because the title can be used in lieu of the RPR and reduce the need for some legal searches, this again will save time and money making the Title Insurance a request that many realtors will suggest to their buyers.

For more information contact your Dominion Lending Centres mortgage professional.

21 Jan

Accelerated Bi-Weekly vs. Bi-Weekly Payments

General

Posted by: Brad Lockey

Accelerated Bi-Weekly vs. Bi-Weekly Payments

When signing your mortgage commitment letter you will have to choose your payment frequency. If your goal is to re-pay your mortgage as quickly as possible, then you need to understand how different payment options will affect your repayment schedule.

So what are your options?

In general, most lenders will offer the borrower the option to decide which repayment schedule fits best with their lifestyle. The options include monthly, semi-monthly, bi-weekly, accelerated bi-weekly, weekly and accelerated weekly payments. Let’s use some simple math to determine which payment frequency will assist you in paying back your mortgage in the shortest time possible.

For the purposes of this exercise and to keep things simple, let’s use $100,000 as our mortgage amount. We’ll use a 5 year fixed rate at 2.54% with a 25 year amortization period and interest being compounded semi-annually.

Increasing your payment frequency doesn’t mean shortening your amortization.

As you can see from the table above, choosing to pay your mortgage more frequently doesn’t result in reducing your amortization schedule. The key to reducing your amortization is to make sure you choose an accelerated re-payment schedule.

We are going to focus on Accelerated bi-weekly vs. bi-weekly payments but the same principle can be applied to accelerated weekly payments as well.

By accelerating your repayment schedule, you reduce your amortization by 2.5 years.

Okay, we’ve just determined that accelerating your mortgage payments will reduce your amortization and the interest you pay. How does accelerated bi-weekly vs bi-weekly result in more principal being repaid?

It’s important to think of your payments as a stream of income for the mortgage lender. Mortgage payments are comprised of principal and interest payments. The interest is calculated based on your outstanding principal balance, meaning once the interest has been paid, the remainder of your payment is used towards paying down your principal balance.

By choosing an accelerated repayment schedule, the monthly payment is divided by 2 (bi-weekly) or by 4 (weekly). There are 52 weeks in a calendar year so if you make 26 bi-weekly payments, you are in effect paying your Lender the equivalent of 13 months of payments per year compared to 12 months payments with all non-accelerated repayment schedules.

This accelerated repayment of principal is what shortens your amortization.

13 monthly payments ÷ 26 = accelerated bi-weekly payment

Example: ($449.96 per month x 13 months) ÷ 26 = $224.98 accelerated bi-weekly payment

With a non-accelerated or regular payment plan, the Lender takes 12 months worth of payments and divides this by either 26 or 52 to come up with the bi-weekly (or weekly) payment. With this adjusted payment, the Lender still receives a stream of income of 12 monthly payments per year, so there is no additional principal available to accelerate the amortization.

12 monthly payments ÷ 26 = regular bi-weekly payment

Example: ($449.96 per month x 12 months) ÷ 26 = $207.67 regular bi-weekly payment

So now you know why choosing accelerated bi-weekly vs. bi-weekly payments results in 1 extra month of payments per year, which in turn shortens your amortization.

I always recommend this to anyone who can afford the increase in payment but I understand this option isn’t right for everyone. Another option to help shorten your amortization is to increase your payments, meaning more principal paid.

When you’re choosing your next mortgage, make sure you discuss payment options with your Dominion Lending Centres mortgage professional that align with your overall goals for repaying your mortgage.

19 Jan

Estate Achiever for Children

General

Posted by: Brad Lockey

Today I have a guest post from a good friend of mine Kevin Gillepsie from Investors Group.
Feel free to reach out to him to explain this wealth accumulating strategy in more detail.


Would you spend a dollar a day on your child?
If yes,
I’d like to share this idea with you, maybe it makes sense for your family.

You have an opportunity to make a big difference in your childs life now.
The gift is wealth.

I introduced a program several years ago called the Millionaire Program. The idea is if you started saving for your child when they were born, and you only saved $38/mo, they could be a millionaire at age 65. As an offshoot of that program, providing life insurance for your child, that has an investment side to the policy is another very strong way to create wealth.

Here’s how it works:

  • –  You pay for a policy on your child. Depending on age, the policy is about $1/da;

  • –  You pay for this policy for 20 years only. No more payments are required after 20 year;

  • –  The death benefit starts at $25,000. This is enough to bury your child if god forbid premature death happene;

  • –  After 20 years the cash value (investment side of the policy) will be worth more than it cost you to fund. For example, if it costs $30/mo your total cost of this policy would be $7,200 after 20 years of premium payments. The cash value of this policy will be greater than $7,200;

  • –  This policy is designed so the cash value and death benefit go up over time, even when you have stopped paying (your investment keeps growing);

  • –  If you choose to give this policy to your child, you will have provided them with an amazing gift. Life insurance and an investment that are guaranteed to always increase;

  • –  The premiums never increase and this guarantees your child will always have life insurance (aslong as you pay for 20 years and they do not cash in the policy).

    I cannot tell you how many times I hear a child or adult for that matter get diagnosed with some disease that makes getting insurance impossible or improbable.
    This policy avoids that.

    A Child born October 1, 2015:

Description

Total Cost 20 years only

Cash Value after 20 year

Death Benefit after 20 years

Cash Value after 30 years

Cash Value at age 65

Death Benefit at age 65

$28.15/mo 25,000 death benefit Pay 20 policy

6,756

7,102

53,432

13,327

88,389

174,208

For less than $1/day you have secured a better financial future for your child and you actually provide two very important things: life insurance and an investment worth substantially more than you paid for! Now that is a good investment!!

By the way, what if your child is 17?
The premium goes up to $38 or so a month. Still a steal! And with the increased cost
means an increase in the cash value as well. So no matter how old, after 20 years the cash will be worth more than you paid.

Kevin Gillespie (CELL) 289-928-2294
kevin.gilllespie@investorsgroup.com

18 Jan

Will the Bank of Canada cut rates on January 20th 2016?

General

Posted by: Brad Lockey

Expectations of a Bank of Canada rate cut next week are mounting and for good reason. The Canadian economy is showing signs of considerable weakness and business investment plans have been cut. Oil prices continue to decline sharply and Iranian oil supply will be coming on stream shortly. Energy companies continue to slash payrolls and dividends. Alberta’s economy will contract sharply this quarter and although the Canadian trade deficit has improved, the decline is nowhere near sufficient to offset the dampening effects of the oil rout, despite the sharp decline in the loonie.

The loonie has just posted its worst 10-day performance since it was allowed to trade freely against the U.S. dollar in 1971. Part of the reason the Canadian dollar has fallen so much is the widening prospect of a Bank of Canada rate cut on January 20–a quarter-point cut to 25 basis points, its lowest level since the 2009 financial crisis. Is this warranted? I think so. The Bank cut rates in a surprise move this time last year when the economy was newly hit by the oil price decline. Since that time, oil prices have  declined dramatically further, especially for Canadian oil.

Some have argued that oil prices will remain low for an extended period and see the prospect of an initial public offering (IPO) of Saudi Arabia’s oil company, Aramco, as a sign of the end of the oil age, triggered by excess supply and  international efforts to combat global warming. Saudi Arabia sees the need to diversify its economy away from oil and so should Canada.

It is not that another rate cut will have a dramatic effect on the economy–with interest rates already so low, the Bank has little ammunition left, even if they take rates into negative territory, as they suggest is possible. They might be reticent to encourage household borrowing at a time when debt levels are at record highs and the government has taken actions to slow the growth in housing. Nevertheless, some Canadian banks nudged up mortgage rates recently, and a BoC rate cut might discourage further increases and could even trigger a rollback.

Fiscal stimulus is certainly coming, but when and how is still uncertain and the economy needs all the help it can get. Market interest rates are at record lows, the stock market has fallen sharply this year, and consumers are worried as food prices continue to rise, which hurst lower-income Canadians proportionately more than others.

In addition, the Federal government has gone ahead with its high-income tax increases (as well as middle class tax cuts), which could well discourage entrepreneurs, business investment and job creation. The tax increases to levels well above those in many other countries also make  it more difficult for Canadian business to attract foreign talent. The decline in the Canadian dollar, while boosting exports and foreign investment, reduces the value of the money Canadians earn and invest. The negative wealth effect damages consumer confidence. 

These are difficult times for Canada and extreme measures should be taken. The Bank should cut rates and the government should introduce larger increases in infrastructure spending than were promised during the election campaign.None of Canada’s economic pain was our own doing, but counter-cyclical policy measures can and should reduce the pain as we work our way towards a more diversified economy.

Will The Bank of Canada Cut Rates Next Week?
13 Jan

How To Maximize Your Cash Flow While Increasing Your Net Worth By Having a Mortgage Plan

General

Posted by: Brad Lockey

How To Maximize Your Cash Flow While Increasing Your Net Worth By Having a Mortgage Plan


Interest rates are only one of many features that should be looked at when you are applying for a mortgage. But all things being equal, the interest rate may be more important than you think.

I was reviewing mortgage options with a client and the only thing they were interested in was the mortgage rate. There was no concern about all the other conditions that could end up being quite costly and since I could only offer him what he considered a small reduction, the client said “the bank’s rate was only a little higher and I feel more comfortable leaving everything I have with my bank for such a small difference.” What was the difference? I will get to that in a minute.

The mortgage renewal form you get in the mail is another cautionary note. I have had clients send me a copy of their renewal form. So far, in every case the renewal rate was higher than what I was currently able to get them. The last one I saw was .25% higher than what I could offer.

According to a recent Maritz/CAAMP survey, clients who used the services of a Mortgage Broker benefited with an interest rate .045% lower than those that dealt directly with their lenders.

So what does this fraction of a percentage mean for you? Let’s look at a $500,000 mortgage at 2.64% compared to 2.84%. That is only .2% or, to look at it a different way, it is about $50 a month or $600 a year savings by taking the 2.64% mortgage.

Here are a few options to increase net worth.

  1. You take the 2.64% rate and you invest the $600 a year into a growth mutual fund that averages 10%. Even though over the years, as your mortgage goes down, the savings may not be as great, you make up the difference and keep investing that $600 a year for the next 30 years. That is a small difference, but in 30 years it has added up to over $100,000 in your tax free savings account.

  2. You take out the 2.84% and say I like my bank and I am comfortable with the bank making the extra money and increasing their bottom line off my mortgage.

  3. With interest rates being so low, you could look at increasing your cash flow by stretching out your amortization and lowering your payment. Then you take the extra cash flow and invest it with your financial adviser in your tax free savings account.

  4. If you have extra equity in your home and have not contributed to your Tax Free Savings Account, consider refinancing and topping up your TFSA. As of 2016, the accumulative amount you can contribute is $51,000 per person 19 years or old in BC. So that would be $102,000 per couple. Invest that $102,000 and get an 8% return, you end up with $698,544 tax free money after 25 years and you paid back the mortgage and interest payments. If rates stayed the same throughout the 25 years at 2.69%, the whole $139,906 would be paid back. So you make a tax free profit of $558,638 by freeing up some capital to invest. Your total cost is $37,906 in interest.

There are many details to a mortgage and the rate is just one of them. Any of us here at Dominion Lending Centres would be happy to review your future mortgage needs to make sure you are maximizing your mortgage to your benefit.

12 Jan

Now Is The Time To Get Aggressive

General

Posted by: Brad Lockey

The great majority of us are in mortgage contracts that contain a prepayment privilege of some sort. “Privilege” being the key word here. Not all mortgage contracts contain such privileges, but that’s a story for another day.

The mortgages that do allow prepayment privileges, usually allow at least 15% of your mortgage to be paid down, interest and penalty free, each year. On a $300,000 mortgage, that is $45,000 that you’re able to put directly towards your principle balance. That’s more than enough for the average Canadian, based on our saving habits.

But how many of you are actually taking advantage of even a portion of your prepayment privilege? For those of you who didn’t raise your hand, what are you waiting for?!

Never before has there been such a great opportunity to get ahead on the largest debt most of us will ever take on. We are paying less interest with each payment than we ever have before (just ask someone who owned a home in the ’80s). There’s never been a better time to increase your payments and begin knocking years off your amortization.

By simply adding $100 to your monthly payment on a $300,000 mortgage, you effectively reduce your amortization by almost 2.5 years!

Imagine what it would feel like to have no mortgage payments for the next two and a half years… Think of the things you could do or the savings you could accumulate in that time!

Now is the time to really chip away at our principle balance so that we can be in a financially stronger position when rates finally do begin to normalize. Odds are, if you aren’t taking advantage of pre-paying your mortgage today, you likely won’t when interest costs are higher either.

Don’t wait any longer – make a lump sum payment today and enjoy the benefits tomorrow! Should you need any more advice, please contact us at Dominion Lending Centres.