Buy New or Existing?

With construction of new homes in Calgary soaring, one major choice that homebuyers often have to consider is whether to buy or build a brand new home or move into a previously owned house. As an existing homeowner, this is a question that will be up for debate before our next move. Buying a brand new home obviously has its advantages but there are also some downsides to it. I came upon an article in the Globe and Mail that goes over the benefits and drawbacks of being a home’s first owner. Here are some things to think about before you decide.

Customization
If you buy brand new, you have the option to customize. This can include the planning and design of every element in your home if you start from scratch or having an input on minor elements such as colors and materials if you buy a pre-planned house. If you buy an existing home, it comes as is and customizing it may involve more work and more money.

Warranty
Builders usually provide a warranty on their brand new homes to cover any defects in the home’s construction. This can offer you peace of mind because you know you won’t have to spend any money on major repairs for the first few years. Having said that, new homes do need time to settle so whether the construction is sound and foundation likely to shift are unknown. Homeowners can also run into issues with builder warranties if the builder goes out of business or if the defect is not covered under the warranty.

Safety and Building Codes
Brand new homes must comply with up to date building codes that apply to the area such as electrical, plumbing, fire safety and natural disaster protection whereas older homes may need to be brought up to date. The one thing that I would have to agree with though is that new homes tend to use less expensive materials that don’t match the quality or lifespan as the materials more likely found in older homes.

Contemporary Style
Newer homes have better layouts because they get with the times but newer homes tend to be farther from the core of the city. If you don’t mind living in the suburbs then this won’t be an issue for you but if want a shorter commute, then you may have to settle for an older home.

Low Maintenance
With a brand new home you can just move right in and not worry about having to get your hands dirty, so if you like something low maintenance, then buying new may appeal to you.

If you decide to buy new, TD can hold your interest rate for up to 12 months from the application date subject to approval of the builder. On single homes, this can be extended to 18 months in the Greater Toronto and Vancouver areas or 24 months on townhomes and condominiums. In a rising interest rate environment, this is a good option to have, especially since it takes a while for new homes to be built. Talk to your lender to see if they have any special programs in place if you decide to buy new or give me a call and I can show you your options. No matter what type of mortgage financing you are looking for, it makes sense to speak to me first. If you have any questions or would like to leave a comment, please do so below. Thank You!

Sincerely,
Josephine Ng
www.tdmortgage.wordpress.com

Original Article: The Globe and Mail

Buy New or Existing?

With construction of new homes in Calgary soaring, one major choice that homebuyers often have to consider is whether to buy or build a brand new home or move into a previously owned house. As an existing homeowner, this is a question that will be up for debate before our next move. Buying a brand new home obviously has its advantages but there are also some downsides to it. I came upon an article in the Globe and Mail that goes over the benefits and drawbacks of being a home’s first owner. Here are some things to think about before you decide.

Customization
If you buy brand new, you have the option to customize. This can include the planning and design of every element in your home if you start from scratch or having an input on minor elements such as colors and materials if you buy a pre-planned house. If you buy an existing home, it comes as is and customizing it may involve more work and more money.

Warranty
Builders usually provide a warranty on their brand new homes to cover any defects in the home’s construction. This can offer you peace of mind because you know you won’t have to spend any money on major repairs for the first few years. Having said that, new homes do need time to settle so whether the construction is sound and foundation likely to shift are unknown. Homeowners can also run into issues with builder warranties if the builder goes out of business or if the defect is not covered under the warranty.

Safety and Building Codes
Brand new homes must comply with up to date building codes that apply to the area such as electrical, plumbing, fire safety and natural disaster protection whereas older homes may need to be brought up to date. The one thing that I would have to agree with though is that new homes tend to use less expensive materials that don’t match the quality or lifespan as the materials more likely found in older homes.

Contemporary Style
Newer homes have better layouts because they get with the times but newer homes tend to be farther from the core of the city. If you don’t mind living in the suburbs then this won’t be an issue for you but if want a shorter commute, then you may have to settle for an older home.

Low Maintenance
With a brand new home you can just move right in and not worry about having to get your hands dirty, so if you like something low maintenance, then buying new may appeal to you.

If you decide to buy new, TD can hold your interest rate for up to 12 months from the application date subject to approval of the builder. On single homes, this can be extended to 18 months in the Greater Toronto and Vancouver areas or 24 months on townhomes and condominiums. In a rising interest rate environment, this is a good option to have, especially since it takes a while for new homes to be built. Talk to your lender to see if they have any special programs in place if you decide to buy new or give me a call and I can show you your options. No matter what type of mortgage financing you are looking for, it makes sense to speak to me first. If you have any questions or would like to leave a comment, please do so below. Thank You!

Sincerely,
Josephine Ng
www.tdmortgage.wordpress.com

Original Article: The Globe and Mail

CMHC/Genworth Mortgage Insurance

The first question I get from a lot of first time homebuyers is what is CMHC and what does it stand for? Now there are mainly two mortgage insurers but CMHC stands for Canada Mortgage and Housing Insurance and its basically mortgage loan insurance that you have to pay if you are making a down payment of less than 20% of the purchase price of your home. Mortgage loan insurance helps protects the lender against mortgage default and enables you to purchase a home with a minimum down payment of 5%. So to give you an example, it would look something like this:

Purchase Price: $300,000
Down Payment: $15000
Required loan: $285000
Mortgage Insurance (Standard Premum): $7837.50
Mortgage Amount: $292837.50

The premium payable is based on the size of your down payment. The lower your down payment, the higher percentage you will pay in insurance premiums. There are also extended amortization surcharges if you choose an amortization of greater than 25 years. To learn more about the insurance premiums, you can visit the CMHC website. With both mortgage insurers, you can pay the premium in full upfront or you can add the premium to the principal amount of the mortgage like the example above. TD Canada Trust no longer offers insured Home Equity Lines of Credits  therefore they are only available on a conventional basis. Remember if you choose a mortage term of less than 5 years or a variable rate option, we will qualify you by using the 5 year posted interest rate. For more information on qualifying rates, please visit my blog on New Mortgage Rules.

Keep in mind that Mortgage loan insurance enables you to purchase a home with only 5% downpayment but once you own your home, the maximum loan to value that lenders will grant is 90% if you refinance. In other words, you will need to have at least 10% equity in your home. Mortgage loan insurance is also not to be confused with mortgage life insurance which guarantees that your remaining mortgage at the time of your death will not be a burden to your estate. To learn more about TD Mortgage Life and Critical illness insurance and other home insurance, please visit our website. If you have any questions or would like to leave a comment, please do so below. Thank You!

Sincerely,
Josephine Ng
www.tdmortgage.wordpress.com

How to Confirm Income

One of the most important factors that lenders look at when assessing a credit request such as a mortgage is a customers capacity to repay the loan. Now it may seem as simple as just providing a paystub or a letter from your employer but lenders may not just look at your current ability to pay but other factors such as the stability of your employment and job security. For example, if you work in an industry that is highly seasonal in nature, you may be asked to provide not only a recent paystub but also Notice of Assessments for the last 2 years. Now today I want to go over the different ways to confirm income and what documents your lender may expect from you prior to your credit request. Most importantly, I want to clearly define what these documents are or may look like because a lot of times when I ask for things like Notice of Assessments, I’m getting T4′s or indiviual prepared tax returns. Every lender will have its own policies when it comes to confirming income so use this only as a general guideline.

Salaried or Hourly Income
If you are salaried or receive regular hourly income, typically you will be asked to provide a recent or a few recent paystubs dated within the last 2 months. In addition to the paystubs, you may also be asked to provide a recent letter of employment, also dated within the last 2 months. These documents should indicate your name, your employer’s name, and your base pay. If you are providing paystubs, they should also show your pay period and your pay rate per hour. For a letter of employment, the name and title of the person should be indicated on the letter. If you work for a family business, most lenders will usually consider you to be self employed and will not accept a letter of employment. If your bank account is with the same lender, they may consider looking at your direct deposit history for the last 2 months. Since it discloses your net pay, most banks will use a certain multiplier to estimate your gross pay.

Self Employed or Fluctuating Income
If you are self employed/Professional, employed by a relative, have fluctuating income such as commissions, bonuses, profit sharing, overtime, gratuities, fluctuating hourly, seasonal employment, contract employment or receive other investment income, then you will most like be asked to provide your 2 most recent years Notice of Assessments from Revenue Canada. To clarify what we consider most recent, your 2009 NOA may be used up until June 30th, 2011. After that deadline, you will be asked to provide your 2010 NOA.

So what is a Notice of Assessment? It is the form that the Canada Revenue Agency sends to all taxpayers after processing their returns, that states the amount of taxes to be paid or refunded. A T4 is what you receive from your employer to file your tax return but does not give us any indication of whether you will owe taxes or receive a refund. A T1 General also does not constitute as a Notice of Assessment because this is what you or your accountant prepares to submit to the CRA. If you do not have a copy, you can obtain one by accessing the Canada Revenue Agency Web Site or alternatively, by requesting a copy from CRA by phone.

Line 150 on your Notice of Assessments provides a total of all reported sources of income so lenders will take the average of your last 2 years. If you have any income taxes owing, lenders will ask that it be paid prior to granting you any credit. There are certain programs in place for self employed individuals who may have numerous write-offs and cannot show the require income on paper. Please visit my blog on Self Employed Borrowers to learn more about these programs.

Other Sources of Income
You may receive other sources of income including rental, alimony or child support, maternity or parental leave, or other investment income including Non Canadian Currency. The best thing to do in these instances is to contact your lender to find out what they will accept as proof for these sources of income.

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

Sincerely,
Josephine Ng
www.tdmortgage.wordpress.com

Is it Time for a Mortgage Check-up?

Hi! It’s Josephine Ng, your Mobile Mortgage Specialist with TD Canada Trust. While many of us visit our Doctors and Dentists to ensure our health is in check, how many of us are checking our financial health by reviewing our mortgage? With many changes that we all go through including career, kids, retirement and who knows, even new found money, having the right mortgage can make a huge difference on our financial health. So today I want you to take a moment and think about the following things.

Mortgage Term – Is your mortgage coming up for renewal? If so, how are you choosing your mortgage term? Instead of just signing the renewal letter without considering your current needs, you may end up savings thousands of dollars by spending less than 15 minutes speaking with a mortgage advisor. You should put just as much thought into a renewal as you did when you signed the initial deal.

Interest Rates – This is obviously one of the most important factors to consider. If you’re making a commitment to be mortgage free in 25 years, you should have a longer term view of what interest rates will look like over that period. If they’re going up, make sure you can afford the higher monthly payment that may come at renewal time, or lock into a fixed rate if you’re on a variable. If rates are dropping below your existing rate, you might want to refinance or renew early. Choosing between a fixed or variable option can be a tough decision but the more adverse you become to risk, the less likely a variable mortgage will be right for you. To get more insight on this topic, please visit my blog on Fixed or Variable. I have also attached our Historical Rates for your information.

Consolidate – Consolidating higher interest unsecured debt into your mortgage can save you significant interest costs and may possibly help you get out of debt sooner. It may also help you free up some cash flow by combining all your debts into one monthly payment. The best thing to do is to always continue making the same level of payments which will reduce your principal and lower your interest costs. The Example attached demonstrates how one family with mortgage, line of credit, and credit card payments exceeding $1800 per month was able to reduce their annual interest expenses by $4200, while also saving over $900 per month in debt repayments. By consolidating all of their financial debts and exploring the benefits of a home equity line of credit, the family has the ability to better manage their monthly payments.

Amortization – Knowing how amortization works will help you to understand how to properly manage your debts and also pay it off quicker. Amortization is how long you are scheduled to repay a mortgage or loan. Most banks will allow you to make a certain percentage of lump sum payments against the principal of your mortgage and increase your monthly payments. For tips on paying down your mortgage faster, please visit by blog on Saying Goodbye to Your Mortgage Faster.

At the end of the day, understanding your whole financial situation and not just your mortgage can help. Even something simple like undertaking renovations can affect your mortgage options. A mortgage also has its tax advantages if you’re thinking of investing in a business, buying a rental property or purchasing other investments. The interest paid on money borrowed on a principal property can be written off against revenue from those investments. No matter what type of mortgage financing you are looking for, it makes sense to speak to me first. It may be a lot easier to review your situation now and do something before your situation changes. If you have any questions or would like to leave a comment, please do so below. Thank You!

Sincerely,
Josephine Ng
www.tdmortgage.wordpress.com

Porting or Replacing your mortgage

Hi everyone! It Josephine Ng, your mobile Mortgage Specialist with TD Canada Trust. Last week I touched a little on IRD and how choosing the wrong term can cost you thousands of dollars. So today I wanted to talk about what options you may have to avoid paying a penalty with your lender if you decide to move and take out another mortgage. Two things I should note here. First, the information here is specific to TD Canada Trust. Second, most portability and replacement options are only applicable if you take out another mortgage with the same Financial Instution that you took your first mortgage out with.

So what’s the difference between portability and replacement? Portability waives all or part of your pre-payment charge, and allows you to take your current rate and term with you when you move or refinance. This is usually applicable to fixed rate mortgages only. A replacement mortgage also waives all or part of your prepayment charge when you have already paid or are being charged 3 months compensation on the discharge of your existing mortgage and you are replacing it with a new closed term mortgage taking a new rate and a new term. These are usually applicable to variable rate mortgages only. So for example, lets say you are currently locked into a 5 year term at 4.5%. Youre 2 years in and you decide to move. Assuming that interest rates are the same or higher, it doesn’t make sense for you to pay a penalty to take out a new term and new rate on the purchase of your new home. So in this scenario, you may want to port your mortgage. Let’s look at another scenario. If you are currently locked into a closed variable mortgage term, most Financial Instutions will charge 3 months interest penalty if you pay it out before the term is up. Again, if you decide to move before your term is up, this mortgage is replaceable. In other words, after you pay your 3 months compensation and you take out another closed mortgage of equal or greater value, this charge should be reimbursed.

With a port, typically the posession date should be 120 days before or after the payout of your old mortgage. You must have a firm agreement for both purchase and sale and like I said earlier, they’re only applicable to fixed rate mortgages. If your new mortgage happens to be more than the old mortgage, the existing rate is transferred with additional funds priced at current rates. The final rate is a blended rate of the existing and new rates. With a replacement mortgage, the new mortgage must be granted within one year of the old mortgage discharge. And if you’re existing mortgage has an IRD instead of a 3 month compensation charge, then you won’t be eligible for a rebate. Most replacement rebates are applicable to variable rate mortgages only. Keep in mind that the new mortgage must be replaced by a new CLOSED term mortgage (variable or fixed) and the amount can be less than, equal to or greater than the discharged mortgage.

This may all seem very confusing but the bottom line is to make sure that you ask your financial institution what their policies are for porting and replacing. Most people who take out a  5 year fixed term don’t end up staying in their home for 5 years. The last thing you want to find out is that you cannot port or replace your mortgage and pay a hefty penalty. 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

Interest Rate Increase – Bank of Canada

The Bank of Canada raised their rates today to .5% which is up from .25%.  This is the first time since 2007 that the rates have increased.  You will most likely see the banks in canada change the prime rate to 2.50% from 2.25% which it has been at for some time.

Here’s a full article from Today’s Globe and Mail…

The Bank of Canada raised its benchmark interest rate for the first time since 2007, saying inflation is unfolding as expected and that spillover from the European debt crisis has been limited, while stressing there remains “considerable uncertainty” about an “increasingly uneven” global recovery.

With his much anticipated decision to lift the central bank’s overnight rate by one-quarter of a percentage point to 0.5 per cent after more than a year at a record low level, Governor Mark Carney has become the first central banker in the Group of Seven to tighten since the financial crisis and recession began in 2008.

In a statement on the move, however, Mr. Carney and his rate-setting panel sought to emphasize that investors should not necessarily interpret the increase as the first in an uninterrupted series.

“This decision still leaves considerable monetary stimulus in place, consistent with achieving the 2 per cent inflation target in light of the significant excess supply in Canada, the strength of domestic spending and the uneven global recovery,” the central bank said Tuesday. “Given the considerable uncertainty surrounding the outlook, any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments.”

Economists interpreted the Bank of Canada’s statement as a bucket of cold water on any remaining expectations for an aggressive tightening campaign, as policy makers nervously monitor economic and financial-market developments in the weeks leading up to their next decision on July 20.

“Those looking for a clear roadmap (or GPS) for the Bank’s tightening path will be sorely disappointed by today’s cautious statement,’’ said Doug Porter, deputy chief economist at BMO Nesbitt Burns in Toronto. “The Bank has left its options wide open even on the July rate decision.’’

Markets clearly took the same message, with bond yields dropping and the Canadian dollar slipping after the decision, “definitely not standard fare for a rate hike day,” Mr. Porter noted.

The loonie fell 0.8 per cent against the U.S. dollar as of 9:45 a.m. in Toronto, while the yield on two-year Canadian government bonds retreated to 1.71 per cent from yesterday’s 1.82 per cent.

Eric Lascelles, chief macro strategist with TD Securities, said while he expects a second straight 25-basis-point increase on July 20, “barring significant negative developments either domestically or globally,” further moves won’t be any bigger.

“What is clear is that despite the ultra-low level of the overnight rate, the present environment is not one conducive to outsized rate hikes of the 50-basis-point or larger variety,” Mr. Lascelles said.

The central bank’s statement touched on themes that will no doubt be front-and-centre at the Group of 20 leaders’ meeting in Toronto at the end of June, where Canadian officials have said they will be pushing for continued efforts to smooth out the global imbalances that exacerbated the slump that much of the world is still clawing out of.

“The required rebalancing of global growth has not yet materialized,” the bank said, contrasting “strong momentum” in emerging markets with recoveries in economies such as the United States and Japan that remains “heavily dependent” on low interest rates and government spending.

“In general, broad forces of household, bank, and sovereign deleveraging will add to the variability, and temper the pace, of global growth,”’ policy makers said.

The bank flagged the possibility of “renewed weakness’’ in Europe, where drastic spending cuts and higher borrowing costs will be the likely result of continent-wide debt problems, but said that, so far, the effects of the crisis on Canada have been “limited to a modest fall in commodity prices’’ and somewhat tighter financial conditions.

The Canadian economy, which on Monday posted a whopping 6.1-per-cent annualized growth rate for the first quarter – the fastest in more than a decade – is “unfolding largely as expected,’’ the bank said, led mostly by a hot housing market, higher incomes and a labour-market recovery that have helped fuel consumer spending.

Still, the central bank suggested that household spending and the economy will slow in the coming months as consumers deal with higher borrowing costs and try to limit or reduce their debt loads and as government stimulus spending fades. As a result, an “anticipated pickup in business investment will be important for a more balanced recovery,’’ the bank said.

Inflation, which the central bank has been watching closely for months, has been in line with policy makers’ projections to exceed 2 per cent this year and reflects a combination of strong domestic demand, slowing wage increases and “excess supply’’ leftover from the recession.

The central bank also said it is making a technical, yet significant, change to re-establish “normal functioning’’ of the overnight market, whereby its benchmark will return to halfway between the rate it pays to chartered banks to hold deposits and the amount that it charges private-sector lenders for loans.