31 Aug

WHY A BIG DOWN PAYMENT IS BETTER

General

Posted by: Brad Lockey

Why a Big Down Payment is Better

First time home buyers look to their families, the media and the Internet for all their information on how to buy a home. As a result, they know that they need 5% of the total home purchase price to buy the home of their dreams. While this is true, there are a few things that family may not tell you or they may not be aware of.

Putting down as much as you can afford is a great idea. We have all heard that mortgage rules are tightening, the economy in Alberta is down and lenders are being a lot more selective in who they give mortgages to. What you may not have heard is that the mortgage insurers – CMHC, Genworth Financial and Canada Guaranty – are also looking at lenders more carefully before approving mortgage default insurance. They are looking closely at employment, credit and how likely you are to stop paying your mortgage. While 5% is the minimum, if you have a few late payments from your college days or a collection from a cellphone company on your credit report, they will think twice about giving you an approval. However, if you put 10% down they will look at your differently. Putting twice the minimum down payment shows commitment. It shows that you have “skin in the game” and are less likely to default on your mortgage. If they are reluctant to approve your mortgage, a higher down payment can sway their decision.

The second advantage of a larger down payment is lower monthly payments. Let’s face it, when you get into a home, your paid off car will eventually need to be replaced and you will now have car payments and repairs chipping away at your monthly income. If you are newly married, child care expenses, baby furniture and starting an RESP will come up. You may be able to afford higher monthly payments, but you will be better off down the road if you have lower payments.

The third advantage is a lower CMHC premium rate. The bigger your down payment, the lower the risk to the mortgage insurer and the rate that they charge you. With 5% down you must pay 3.60% on the mortgage balance. On a home purchase of $350,000 this comes out to a premium of $11,970.

10% down results in a lower premium of $7560 and if you can make a 20% down payment you can avoid mortgage default insurance and pay $0.

Why a Big Down Payment is Better

Finally, the bigger your down payment the smaller your mortgage balance is to start. As a result you will save lots of money over the term of your mortgage.

A 5% down payment will result in a payment over 25 years of $115,381 of interest. 10% down lowers this to $108,042 and 20% down lowers this to $93,786.

In other words, if you can come up with a 20% down payment you will save over $21,000 in interest over the term of your mortgage. This is based on today’s historically low interest rates. I’m sure that sometime over the next 25 years rates will go up to the 5.79% that people were paying 6 years ago and they could go higher.

In conclusion, if you have a chance to put more money down on the purchase of your new home, you should consider it. You can save BIG TIME money by doing so. If you need more advice, contact your local Dominion Lending Centres office.

24 Aug

RENOVATING MAY MAKE MORE SENSE THAN BUYING

General

Posted by: Brad Lockey

Renovating May Make More Sense Than Buying

If you’re finding your family has grown out of your current home or your house could use a makeover to better fit your changing needs, renovating is a great option to examine. Instead of putting your home on the selling block and heading out shopping for a new home right away, it may be worth considering using some of your home equity to renovate so you can remain at your current address.

The first consideration is whether your home can be adjusted to meet your needs. Is your lot big enough for an addition? Will your foundation handle the weight of an extra floor? Does the tired look of your home require a major overhaul? Will the renovations add value to the home?

Plan out the changes you’d like to make and speak to professional renovators to seek several quotes before making your decision.

Next, depending on the complexity of the project, you have to decide if it’s worthwhile for you and your family to live in a construction zone for several weeks or even months while improvements are being made to your home.

Finally, unless you have a lot of money saved up, you have to weigh your finances to determine what makes the most financial sense to you and your family in the long run.

Weighing your finances

Now is a great time to think about making renovations to your existing home to create your dream home. With mortgage rates still sitting at historic lows, it makes sense to use some of your home equity to put towards renovations that could help you remain in the house you love, in the neighbourhood you desire that’s close to work, school and amenities to which you’ve grown accustomed.

Other possibilities include a home equity line of credit (HELOC) – where you can access money as required for each stage of your renovation – or even a construction mortgage may be your best bet. The key is to talk to your Dominion Lending Centres mortgage professional who has access to multiple financial institutions and products to ensure you get the most bang for your buck.

It’s important to weigh the renovation costs with the potential for your home to increase in value as well.

Moving can also be quite expensive. Possible costs to consider when moving include:

* real estate fees (upon selling your existing home)

* legal fees

* property transfer tax

* moving expenses

* decorating the new home

* mortgage penalty

Other considerations

The decision between renovating and upgrading to a new house is not solely financial. You should also consider your time, energy and peace of mind.

Each choice has advantages and disadvantages. When determining the best option for you and your family, consider the pros and cons of both renovating your existing home and moving to a new home.

By taking into account what you want to do, why you want to do it, the costs of the renovations and upgrades, and the value of your renovated home in relation to other homes in your neighbourhood versus the costs of buying a new home, you can determine which option is best for you.

15 Aug

Saving for your child’s education?

General

Posted by: Brad Lockey

Let them help you once they get there by following these imporatnt tips:

You’re ready to head off for college or university and you know your money will be tight. Relieve some of that financial pressure now, enjoy a healthier bank account through your post secondary years, and perhaps graduate with less student debt by following these ten savings tips.

Consider the cost of where you lay your head at night Living in a residence or apartment can be a great experience but it is also very expensive. In 2009, the average cost of a four year degree for someone living away from home was $77,132, compared to $51,763 for those living at home. So, by living at home, you could potentially save $25,000 or more*. If you do decide to live away from home, sharing an apartment is usually cheaper than living on your own or in a dorm.

Investigate every possible income source Before applying for a student loan, check out scholarship or bursary possibilities from the school, provincial governments, foundations, religious groups, service clubs and civic groups – and at these websites: Canlearn.ca and Studentawards.com.

Budget realistically and don’t budge Start with the many expenses you’ll encounter during your school years – fixed costs such as tuition, books, accommodation, travel, food and variable costs like entertainment. Balance those costs against your known resources — RESP income, family contributions, personal savings and so on — and expected income from summer or part-time employment.

Manage your borrowing and debt If you do apply for a student loan don’t deepen your debt by requesting or accepting more money than you’ll actually need. Credit cards are typically readily available to college and university students but they can drown you in debt. They can also be helpful in an emergency or for establishing a credit history. Make the responsible choice.

Don’t pay needless fees Universities often charge for a student medical plan but you can opt out of the school’s coverage when you’re covered by a parent’s plan.

Buy used textbooks A lot of learning is now done on e-devices but when you need traditional textbooks, buy used – and sell them at the end of the semester.

Take advantage of free or inexpensive programs Use the school gym or clubs and sporting events.

Eat economically If your tuition includes a meal card use it instead of eating at restaurants. If you’re not on a meal plan, cooking your own food saves money.

Shop economically Use your student card — look for businesses that offer student discounts. Shop around for bargains and use money-off coupons.

Make the most of government relief for students File a tax return to take advantage of tax deductions and tax credits for tuition fees, books, moving expenses, student loan interest, GST refunds and so on. Filing a tax return also allows you to build RRSP contribution room for the future.

Talk to a professional advisor about these and other strategies for relieving the financial stress of your education and for a sound financial future after graduation. 

9 Aug

QUICK BANKING DEPOSIT TIP

General

Posted by: Brad Lockey

Most of us are sensitive about our privacy and who we share our financial details with.

Some are impartial.
Some are ultra-sensitive.

I see both sides of the coin when it comes to requesting client documents.

Money tip: Separate your debit/spending account from your pay deposits and auto withdrawals (ie: car payment, insurance, etc). 

Why?

If you’re applying for a mortgage, your incumbent lender may want to see 90 days of your income deposits … do you want to give them the opportunity to see how you spend your money as well?

Your ancillary spending habits could be deemed exemplary and cause a mortgage to be rejected.

Keep them separate.

Ask questions, get answers.

8 Aug

UNDERSTANDING THE BENEFITS OF GETTING PRE-APPROVED FOR A MORTGAGE

General

Posted by: Brad Lockey

Understanding the Benefits of Getting Pre-Approved for a Mortgage

Pre-approvals are certainly beneficial. However, they can also be very disappointing if you are not prepared to know what they actually mean.

They DON’T mean…

They don’t mean that you have a mortgage.Until there is a Purchase Agreement (a written up contract to purchase a property) actually submitted to a bank and a commitment from the bank offered to the client, there is no mortgage. Your bank will often say, “You are pre-approved on a mortgage based on a specific rate that is being offered during this time.” Factors such as the amount of income you bring in, the amount of debt you have and even the property itself will determine whether or not the bank will actually give you a mortgage.

They don’t mean that the rate you are pre-approved for will be the rate you pay. Rate holds are temporary and depending on whether or not you qualify for the rate, you may not get what you initially bargained for.

To get a pre-approval that is solid it is important to know exactly what the terms of the pre-approval mortgage are. Pre-approvals should show exactly what you qualify for in terms of how much money you will be able to borrow for a mortgage based on your financial profile.

A good pre-approval…

A good pre-approval will reflect that you properly income qualify. As mentioned previously, many banks will give you a pre-approval based on a rate guarantee, NOT ON YOUR INCOME. This means that you may be in a lurch because the bank has not pre-approved you properly. A good pre-approval will be based on asking for documents to prove your income. The last thing you want is to be “pre-approved” only to be told after you’ve made an offer on a property that you actually don’t qualify.

A good pre-approval will let you know how much money you will need to provide for a down payment along with closing costs. There are more costs involved in purchasing a property than just the down payment. Costs such as legal costs, title transfer costs, property transfer tax costs (if applicable), appraisal costs (if applicable), etc. are often not talked about when initially going to your bank to ask for a mortgage loan.

A good pre-approval will secure a rate for 90 to 120 days. If rates are trending down, even when you have a negotiated pre-approval rate, you should be able to take advantage of the lower rate. Pre-approvals are excellent when rates are trending up. They secure the lowest rate, even when the bank has raised their rates. But be careful! Every bank has their own guidelines as to guaranteed rates and whether or not they will commit to the lower rate they initially negotiated with you.

A good pre-approval will be aware of lender guidelines concerning properties. Appraisals are not done for a pre-approval. But when contracting for a mortgage, depending on amount of down payment, contract details, etc. you may have to have one. The lender and the insurer ultimately look at the property to see if they deem it marketable and low risk for resale.

A good pre-approval gives the Realtor sure negotiating power. In today’s market there are properties selling so fast that financing has to be secured before going in to make an offer. A good pre-approval ensures that your chances of getting an accepted offer on a popular property are sure. Taking part of a multi-offer negotiation increases your opportunities for success, which can only be the result of a firm pre-approval.

A good pre-approval will prepare you for what you should expect your monthly mortgage spending budget to look like. With your pre-approval in place you know what kind of payments to expect, including the amount of taxes, strata fees (if applicable), etc. you will likely be paying. Your pre-approval explores the costs involved in purchasing a property and carrying a mortgage.