What is IRD?

Hello! With interest rates being so low over the past year, many customers have tried to refinance their mortgages but have been faced with one dreadful word. IRD. So today I wanted to talk a little bit about IRD, what it stands for and what it means. There’s an old saying, “The lowest rate will save you hundreds, but the wrong term can cost you thousands.”

So what is IRD? It stands for Interest Rate Differential and it’s designed to compensate a lender when a borrower breaks the term of their mortgage by paying it out prior to the maturity date or early renewing at current interest rates. Banks act as intermediaries between borrowers and savers. So for example, a savers 5 year term deposit can be used to fund a borrowers 5 year mortgage. The bank will pay the saver interest but will collect interest from the borrower. If you request to end your mortgage early, the bank still has to pay interest on the term deposit. Where the bank cannot lend the funds at the same or better interest rate, an IRD is charged.

So how is it calculated? It is calculated based on the difference between the mortgage interest rate and the interest rate that the bank could lend out the funds for the remaining term. So as you can see, the term is very important. The longer term remaining, the higher the potential IRD. The most important thing to note is that the interest rate for the remaining term is called the prevailing interest rate and is based on the posted interest rate for the term most closely matching the remaining term minus the interest rate discount that you last received. Where the prevailing interest rate is equal or higher than the interest rate of your mortgage, then there may be no IRD. The best thing to do is to sit down with your financial institution to find out how they calulate their IRD and note that it can change on a daily basis.

Most lenders including TD Canada Trust offer mortgages that are open and closed to prepayment. Mortgages that are open to prepayment can usually early renew or payout without an IRD charge, but I would double check with your lender as different rules may apply. We also offer mortgages that are convertible to another term. These mortgages can be early renewed without an IRD, but not paid out. All other mortgages are subject to an IRD charge.

So as you can see, your term can have a far greater impact on interest cost than the upfront interest rate. The wrong term can cost you a lot of money if interest rates differ from your assumptions or if you  need to break your term early. My advice? Talk to a mortgage specialist who can walk you through the different options and scenarios suitable to your needs and take your time. You want to get the right term the first time. No matter what type of mortgage financing you are looking for, it makes sense to speak to me first. Let me know if you have any questions. Thank you!

Sincerely,
Josephine Ng
www.tdmortgage.wordpress.com

Benefits of Getting Pre-approved

Hi Everyone! Its Josephine Ng, your Mobile Mortgage Specialist with TD Canada Trust. Today I wanted to talk about pre-approvals. What are pre-approvals, what are the benefits and how can it make your next home purchase or refinance a more comfortable experience. With the new mortgage rules and fluctuating interest rates in the past few months, there are several imortant reasons why you should get pre-approved first.

1) You can book your interest rate – With potential interest rate increases down the road, getting a pre-approval is one way to lock in todays rates for a period of time. At TD, we can hold your rate for 120 days for regular purchases or up to a year if you plan on building a home. Now keep in mind that a pre-approval is just like a regular approval where we ask you to fill out a credit application and obtain your consent to check your credit. The only missing piece of information with a pre-approval may be the property address.

2) More time to look for a house – With a pre-approved mortgage, you will know how much you can afford therefore you can take the time searching for the home that you really want. Since we can guarantee your rate for 120 days (subject to conditions) this can take a lot of pressure off while searching for the right home. If you dont find something that you like within 120 days, you can simply renew your pre-approval at the interest rate in effect at that time.

3) Helping you budget – Getting a pre-approval may encourage you think ahead financially. I can show you what other costs are associated with buying a home as well as the ongoing costs of maintaining a home. you can also check out my article on Additional Costs to Consider When Purchasing Your Home.

4) Whats your limit – Getting pre-approved can help you establish a spending limit so you have a clear idea of the size of mortgage you may qualify for and are comfortable with, relative to your income. This can bring you confidence in making a sound offer on a home when you think the time is right.

5) Equity Take-Out – Use the equity you may have built up in your home to finance renovations or to consolidate debt. This can save you thousands of dollars and getting pre-approved locks in current rates for 120 days, leaving you with the flexibility to choose a mortgage term or other features.

All in all, getting a pre-approval is a great way to plan ahead, understand your financing options and learn about the different mortgage products available to suit your needs. There is absolutley no obligation attached so it’s a valuable service as you prepare to make a home-buying decision. No matter what type of mortgage financing you are looking for, it makes sense to speak to me first. Thank you!

Sincerely,
Josephine ng
www.tdmortgage.wordpress.com

Affordability in Canada… Where do We Stand?

Here are the headlines from the most recent RBC – Housing Trends & Affordability Report  (May 2010)… Where do you think Alberta stands?

British Columbia — Unaffordable and becoming riskier
Saskatchewan — Getter tougher on the wallet
Manitoba — Crossing the line
Ontario — Not letting up
Quebec — Bursting at the seams
Atlantic — The Goldilocks market?

AND…

Alberta — Bucking the trend

The Alberta housing market continued to buck the Canada-wide deteriorating trend in affordability in the first quarter. RBC affordability measures eased be- tween 0.1 and 0.6 percentage points, the only province to show declines. This further extended the significant drop in the measures since the end of 2007, a trend that only briefly halted last summer. In contrast to most other provinces, house prices remained relatively tame in Alberta, keeping the cost of homeownership in check. In the first quarter, all RBC measures were at or below their long-term averages, suggesting that affordability remains at favourable levels.

Now let’s take a look at the major center’s… What are the headlines saying?

Vancouver — Gone too far?
Toronto — Still flying high
Ottawa — Charting a record-breaking path
Montreal — On a winning streak

AND…

Calgary — All in moderation

The housing market rebound turned out to be a much more subdued affair in Calgary compared to most of the other major markets in Canada. After posting strong gains in the early stages of the rebound, resale activity has slowed considerably since the fall likely reflecting the lack of traction in the city’s job recovery. Meanwhile, home prices have maintained an upward trajectory, yet the overall pace has fallen short of the national average. In the first quarter, the increase in the costs of home ownership in Calgary was roughly equal to or slightly smaller than household income growth, leaving RBC affordability measures hovering around the zero markdown from as much as 0.5 percentage points (two-storey home) to up as much as 0.2 percentage points (standard townhouse). Affordability continues to be attractive in the city with RBC measures near long-term averages.

Absorption Rate

We always talk about the Absorption Rate in Calgary and how that is a huge factor in where the market is in Calgary and even in your community, you may be wondering what is the rest of Canada doing?  See the image below for more info…

Using a HELOC for Investments

Jared Chamberlain Video Blogs about using a HELOC (Home Equity Line of Credit) from your home to invest with.  You will want to ensure that you keep your Lines of Credit separate from each other as you may not be able to write off the interest payments if you mix the usage of the LOC’s.  As well, don’t use your HELOC for any investments.  This is not free money for you to put into crazy risky investments. It has happened to too many people where they bet it all (majority or all of their equity)… and then loose it ‘all’ from a supposed excellent investment that didn’t cash out.  Please consult an expert in the field of your investment or someone you trust that is a sophisticated investor. If you would like to leave a comment or don’t agree with what Jared is saying please leave a comment below or email Jared at jared@tcgroup.ca.

Understanding HELOC’s

Hi everybody! Its Josephine, your Mobile Mortgage Specialist with TD Canada Trust. With recent mortgage rates on a roller coaster ride and expected rate hikes from the BOC, choosing between and fixed or variable mortgage can be a difficult decision. That’s why I wanted to touch on a product that not everybody is familiar with and that is HELOC’s. First off, some of you may be wondering what a HELOC is. It stands for Home Equity Line of Credit. Its a flexible mortgage alternative using the equity available in your home to take advantage of a low variable interest rate with continuing access to funds. So how can it give you the best of both worlds? It comes with a security of a fixed rate feature at conventional mortgage rates. Before I show you what this looks like, there are two things I want to point out. This product is only available on a conventional basis. In other words, you must have at least 20% down pyament or 20% available equity in the home. Secondly, the maximum amortization of the fixed rate feature is 25 years versus 35 years on a standard mortgage product. So what does this look like? Lets say for example you applied for a Home Equity Line of Credit in the amount of $200,000. You like the variable rate and your spouse wants a fixed rate, or you’re on your own but you can’t decide. Your mortgage can look like this:

• $100,000 in a 3 year fixed
• $100,000 at the variable rate

                        or

• $50,000 in a 3 year fixed
• $50,000 in a 5 year fixed
• $100,000 at the variable rate

Since the Home Equity Line of Credit is a revolving product, you may want to review your spending habits before applying for this product because without an established repayment term, you may never get it paid down. That’s just a side note. Unlike the 5 year variable closed mortgage which is currently priced below the bank prime, Home Equity Lines of Credit are priced above the bank’s prime lending rate. The trade off? Interest only payments on the revolving variable portion and the flexibility to lock in all or parts of the outstanding balance between 1-5 year fixed mortgages rates…at a discount of course. Also, if you think you may have a need to re-borrow in the future for things like renovations or to consolidate higher interest debts, this is a good choice to consider. Since nobody can really predict how rates are going to move over the next five years, this product is a good form of managing interest rate risk. Diversifying your interest rates as a borrower can benefit you just like it benefits investors who don’t put all their eggs in one basket. You can review TD’s latest long term interest rate forecast here. Remember, no matter what type of mortgage financing you are looking for, it makes sense to speak to me first. Thank you!

Sincerely,
Josephine Ng
www.tdmortgage.wordpress.com

The Winnings of A Monkey Hunter

Jared Chamberlain brings you along as he calls the Monkey Hunter winner and hand delivers the goods… Thank you for all joining in the fun in the Monkey Hunt and stay tuned to see more of this Monkey in the future!

For any future comments or feedback on our new website please comment here…

May 2010 Calgary Real Estate Market Update – What Happened?

If you have been watching the real estate market in Calgary, you would have noticed that the market has changed very quickly…

What has caused this?

Well, back in March the listing count in Calgary was approx 4,400, now it’s at apx. 8100 an 84% increase in properties listed on the MLS.  This is a huge increase in a short amount of time… why?

As you have probably heard, the media has been talking about the ramifications of interest rates increasing, “if interest rates go up it will be more expensive to own a house, if buyers can’t afford to buy houses, houses won’t sell and as a result prices will drop.”  They have been talking about this ALOT!

Now if you were thinking of selling your home and you were hearing the same story, you probably are thinking to yourself “I better get my property on the market before prices start dropping”… hence the big increase in listings in such a short period.

So what happens from here? Perception becomes reality, the buyers see a high volume of properties coming on the market and now they see no sense of urgency and they’re waiting to see if prices will adjust down as they have heard they might.

Eventually the media will tire of this story and buyers who have to buy to get moved in before September will come back into the market, in the mean time buyers are taking their time and only moving on properties that show the best and are listed very close to the selling price, like 1% of the potential sale price.

What are prices going to do? Any increase has already happened at the tale end of last year, this year at best is balanced although I feel there has been at least 1% to 2.5% shaved off the prices in the last few weeks.

We will have to wait until 2011 to truly see what happens, any increase in price will depend on housing starts and builders inventory and the over all economy mixed with a whole lot of perception.

These are just our thoughts…

Building a home

Hello! Its Josephine, your Mobile Mortgage Specialist with TD Canada Trust. Today I wanted to blog about the process of financing the construction of a new home. With summer arriving, I have had numerous clients inquire about this process because as you can imagine, construction draw financing requests are not that straight forward. Unlike a builders mortgage which is granted for the purpose of financing the purchase of a newly built home from a builder and are single advances only, a construction draw facility is used when a home is being built in stages and requires multiple advances…typically 3 or 4 within a year. Now the home can be purchased from either a residential home builder or it can be a self built home. In other words, you hire contractors to come in and build the home and or do it yourself. So with a typical mortgage, you receive all of the money when you obtain title to the property. With construction financing, you pay the upfront costs and then receive up to 3-4 advances, depending on your situation. Your first advance is at the rough-in stage, second advance at the drywall stage, and third advance at the completed stage. So what do this stages entail?

Your home is at rough-in when foundation, sub-floor, framing, sheathing, roof, rough-in electrical and plumbing are completed. This is typically around 35% complete. At dry-wall, your exterior is done, pouring of the basement floor, and installation of the heating source is complete. At this point, it should be around 65% complete. Finally, your home is at completion with finished interior doors, floors, carpentry, painting, heating, plumbing. electrical, walks and driveways. So what do you need to get started? Here are some key points for you to review before deciding to take on this kind of project.

• Land – To secure construction financing, you are required to own the land
• Servicing – The land you intend to build on must be fully serviced
• Soft costs – Out of pocket expenses you will likely incur such as property taxes, municipal permits etc…
• Initial building costs – You are expected to finance initial stage of construction (35%)
• Cost overruns – It is recommended that you set aside 15% of estimated constuction costs to cover unexpected overruns.
• Interest costs – Interest only payments are obligated on all amounts advanced until P+I payments begin.
• Lien Holdbacks – Your lawyer is required to hold back some of the money advanced at each stage of your construction project in the event that a contractor or supplier claims a lien on your property. The amount of lien holdback and number of days held depends on your province. Refer to full details below.

To review some construction draw financing examples, please review full article below. Remember, no matter what type of mortgage financing you are looking for, it makes sense to speak to me first. I am available outside of normal banking hours, weekends and evenings to suit your schedule. Have a great weekend everybody!

Sincerely,
Josephine Ng
www.tdmortgage.wordpress.com

TD Canada Trust: Construction Financing Process

Should I lock in?

Leah's Bottom Line: If you are debating whether to lock in or not, ask yourself: What was the prime rate at when I chose this product a few years ago? Let's assume it was 2007 and you chose a prime minus 0.6% variable rate mortgage. At that point in time, prime rate was 4.75% (meaning your rate was 4.15%) and you clearly qualified with respect to your financial situation at that point in time.

While most of us have gotten used to incredibly low interest rates, this isn't the norm. Prime rate has been at 2.25% for the last 11 months so when we hear that it will rise, we generally panic. However, you need to ask yourself "are you comfortable in your current financial situation to sustain an increase in prime back to where it normally is?" If prime rate has averaged roughly 4.81% over the last 5 years, and you have a built in discount of say, prime minus 0.6% - that means your rate would be 4.2% on average. Translated into a monthly payment via any mortgage calculator on the web and see if you are comfortable with that figure. This is roughly what your payments would have started out at back in 2007 if we use the above example. If something has changed in your life and you are no longer comfortable with that figure or you feel more secure in a fixed rate, you may want to lock in.

Leah

ARTICLE from Canadian Mortgage Trends:

With people banking on the main interest rate going up in June, it seems like a good time to for homeowners to lock in their fixed-rate mortgages.

About 12 percent of mortgage holders with fixed-rate mortgages "locked in," or switched from variable rate mortgages, in the past year, , according to a report this month by Will Dunning, chief economist at the CAAMP , and another 10 percent had already switched from variable more than a year ago.

The rate for conventional five-year mortgages was at 6.25 per cent at the end of April, nearing the 5.25 per cent rate at the end of May last year - the lowest since 1973 when the Bank of Canada data began.

"As interest rates rise, expect home buyers to increasingly opt for fixed-rate loans, in turn leaving banks with more fixed-rate assets to hedge in the swap market" said Mohammed Ahmed, a rates strategist at Canadian Imperial Bank of Commerce in Toronto.

Housing starts rose to a seasonally adjusted annual pace of 201,700 units last month.

Your Mortgage Application Guide

Hi Everyone! If you’re thinking of purchasing a new home or refinancing or transferring your mortgage on your existing home, my goal is to help you get the right mortgage or Home Equity Line of Credit as quickly and easily as possible. I want to share this checklist with you to help you be prepared and to ensure your next mortgage application is a comfortable one.

For all applications
Income Confirmation
If you are salaried/hourly, provide one of the following:
- Letter from employer on company letterhead dated within 60 days of the application which includes your name, start date, salary or hourly pay rate, and contact information of the person signing the letter
- Current Paystub dated within 60 days
- Last 2 months bank account statements showing direct deposit
If self-employed, on contract, have fluctuating income, and/or wish to include bonuses, overtime, gratuities, or profit sharing, provide your last 2 years income tax notice of assessments from Canada Revenue Agency.
If income source is something other then mentioned above, please contact me for more information.
Property information
- Actual or estimated property taxes
- Actual or estimated condo fees
- Estimated property value or purchase price
- Square footage, lot size and age of home
Financial information about your Assets and Liabilities

If you are Purchasing a Home
Confirmation of down payment
You will need to confirm the source of your down payment and we may require seeing an additional 1.5% of the purchase price in cash to cover closing costs. Your down payment may come from the following sources:
- Savings account with 30 days history
- Statement of liquid or other assets
- Gift letter – Giftor may also have to provide 30 day bank account history
- Proceeds from sale of another property – Sale agreement required
Agreement of Purchase and Sale including schedules and waivers
MLS listing
Lawyer information

If you are Refinancing your Property
- Recent Mortgage Statement if applicable
- Current homeowner insurance policy
- Most recent property tax bill/statement

It helps to understand what goes into making the decision about your approval. Here are the key things that lenders generally consider when looking at an application.

• Capacity to Repay
- Gross Debt Servicing Ratio (GDSR) should not be more than 32% of your income
- Total Debt Servicing Ratio (TDSR) should not be more than 40% of your income
• Credit History – When you apply for credit, you provide your consent for us to review your credit report which contains up to 6 years of information about your outstanding and past debts and history of repayment.
• Collateral – When applying for a mortgage, the property will be used as security. We may require an appraisal to assess the value of the property which may involve a detailed inspection of the interior and exterior.
• Net worth – Your net worth is considered to be a good indication of your overall financial situation. This is the difference between what you own and what you owe.

No matter what type of mortgage financing you are looking for, it makes sense to speak to me first. Thank you!

Sincerely,
Josephine Ng
www.tdmortgage.wordpress.com

Home Financing Checklist

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