Last updated 5 years ago
When it comes time to choosing a mortgage, many homeowners opt for the lowest rate they can find, at the traditional five-year term, without paying attention to the fine print. In many cases, these no-frills mortgages - and even some that have frills, can make a huge dent in your wallet if you ever try to break them.
The concept of Interest Rate Differential (IRD) is one that often comes up in these situations - and is currently in the news thanks to a single mom's lawsuit against CIBC. The woman, who recently went through a divorce and was forced to break her mortgage, is suing CIBC for using vague language in her mortgage contract that is forcing her to pay the IRD - the amount of money the financial institution will lose in interest payments as a result of the broken contract. In this situation, it's around $45,000 because she had eight years left on her mortgage.
The formula that banks use to calculate the IRD are among life's great mysteries, and often differ between bank to bank, and whether you have a fixed or variable rate mortgage. If you're signing a mortgage, it's best to find out what your bank's policy is upfront, just in case you may have to break it at some point. You may also want to pay a few extra points to ensure your mortgage is portable (can be moved to another home, if you choose to move during the term of the mortgage) or, if you're not quite sure what the future might bring, sign on for a shorter term. There's no rule that says you have to sign on for five years - and, in many cases, a lesser term makes more sense, and might even save you money.
Until next time,
Last updated 6 years ago
As Canadian consumer debt levels creep higher and higher, many articles have been written about how a U.S.style recession is destined to hit Canada. That's why it's refreshing to come across the odd article that opposes this Chicken Little type view, like this one in the Montreal Gazette found here: http://www.montrealgazette.com/business/Bryan+Debt+ratio+numbers+meaningful/5426999/story.html#ixzz1YnMiVhPf
The article brings up a number of good points as to why Canada isn't like its American counterpart. Among the highlights:
- While Canadians' debt-to-income ratio is now equal to that of Americans' when things went south back in 2008, this ratio isn't an accurate tool to predict a Canadian recession. After all, when looking at income, Canadians don't have the burden of healthcare costs to pay for. With the average American spending approximately 19% of their take-home pay on their health, their income is actually much less than ours and their debt-to-income ratio, therefore, much higher.
- You shouldn't just look at debt and income when measuring the debt burden, you have to look at assets too. When you incorporate this into the equation, you'll find that Canadians are typically much better off than Americans. Here, debt amounts to just 24% of a household's average net worth, compared to 29% in the U.S.
- Canadians are still more conservative when it comes to mortgage borrowing and while some of us are using our homes like credit cards, most of us aren't. In fact, an average of 63% of a household's home value is equity in Canada, compared to 39% in the States. Forty percent of Canadians also don't have any mortgage debt, compared to 31% in the U.S.
Last updated 6 years ago
Today I thought I would touch on a topic that is pretty well always mentioned in a mortgage commitment but rarely explained or truly understood. Hoping this will help shed some light on Title Insurance.
Among the slew of insurance options that come with purchasing a new home, you've likely come across the term "title insurance". But what exactly is it - and is it worth forking over the extra money?
In a nutshell, "title" refers to your ownership of a property - so "title insurance" protects both you ( the owner) and the lender against loss resulting from title defects or fraud. While other types of insurance may protect your home from things that may happen in the future -such as fire or flooding - title insurance protects your home from things that may have already happened, but weren't immediately evident upon the purchase of your home. Some examples, as cited by title insurance company, Stewart Title, include:
- someone else owns an interest in your title
- existing liens against the title
- violations of municipal zoning by-laws
- encroachments onto an adjoining property (other than fences and boundary walls)
- setback violations
- realty tax arrears
- outstanding municipal utility charges, provided such charges form a lien on title
- existing work orders
- lack of legal access to the property
- unmarketability of the land due to adverse matters that would have been revealed by an up-to-date survey / RPR/ Building Location Certificate
- fraud, forgery and false impersonation to the extent they affect the validity of title
Many homeowners find title insurance to be a worthwhile purchase because it's a minimal one-time fee with no deductible, and stays in effect for the amount of time you own the home. While title insurance is typically acquired at the time a home is purchased, there are options available to those home owners who are refinancing. For more information, give us a call - or check out one of Canada's title insurance companies, such as Stewart Title, First Canadian Title or Chicago Title Canada.
Hope you found this usefull and as always you can reach me via e-mail or phone to discuss any questions you may have.
Last updated 6 years ago
The average Canadian homebuyer takes 11 months to plan their purchase, according to CMHC. If you're thinking about buying in the next year, our four-part series will explain how you should be dividing your time.
Part 4: The Home Search
Now that you've been preapproved for a mortgage and know your housing price range, it's time to start looking!
While a Realtor can definitely help you find that ideal home (at no cost to you, since the seller pays their commission), it's wise to have a sense of what you're looking for before heading in.
If you're worried about the direction of the real estate market in your area, your best bet is to find a home that will suit your needs for the next five years or more, if you can afford it. Sit down and think about what your short-term and long-term priorities are, how many bedrooms you'll need to grow into, what your ideal area looks like, and whether your lifestyle is best suited to a condo or house. You might also want to take into consideration such things as commute times and proximity to sports teams and other community activities.
If your price point doesn't allow you to purchase a home that you can grow into, try to find one that will give you the most bang for your buck and the biggest return on your investment. This can mean purchasing in an up-and-coming area, or buying close to soon-to-be-built infrastructure improvements like public transit lines. The old real estate adage, location, location, location?, still rings true, so if you can buy the worst house on a nice street it is likely worth the investment. In the same sense, you may want to buy a home that's a little more expensive but well-located, so that you can rent out the basement for some extra income.
Again, a Realtor is probably the best person to discuss your strategies with. They'll be able to highlight areas that make sense for you, your budget and your current lifestyle.
Last updated 6 years ago
In the summertime - when the weather is fine - Canadians just don't like being bogged down with financial responsibilities, a new report reveals.
The TD Canada Trust Summer Spending Survey reveals that the majority of Canadians throw their budgeting (38%), saving (37%) and bill payments (50%) out the window in favour of taking advantage of the warmer weather.
While this is easy to understand, it's also easy to avoid. Below are a few tips to keep in mind:
1. Set your budget in cooler months.
One of the best times to set a household budget is in the cold, winter months following the New Year - when your head is still throbbing from that holiday credit card hangover. At that point, it's best to set up a few different savings accounts - including one for Christmas/holiday spending and vacations. If the summer is a soft spot for you, why not sock a little bit extra aside for those care-free months as well?
2. Take advantage of free activities.
While there are a lot of expensive things to do in the summer, there are also a lot more free activities as well! If enjoying the sun is your main priority, you can do that in a variety of ways - including those that are easier on your wallet. Instead of hitting a patio, why not host a BYOB barbeque at your place? Or keep an eye out for free summer concerts, fringe festivals and other forms of entertainment that seem to happen every weekend in the summer. If you have one nearby, a beach or pool is also a cheap way to keep cool.
3. Automate those payments!
If your prime bill-paying time is on weekends, and if your weekends are taking you out of town, make it a priority to automate as many payments as possible. This is the best (and easiest) way to ensure you're getting those bills paid. While you're at it, why not automate your savings as well, before you have a chance to spend the extra cash on a patio somewhere?