The Mortgage Group

Home Inspections and Mortgage Approval

admin — Wed, 30 Jan 2013 15:00:26 +0000

The majority of purchase agreements that we see at The Mortgage Group are made subject to a “financing condition” and a “property inspection condition.” These conditions have been typically thought of as separate and unrelated by the participants, and by the professional real estate representatives who create the agreements. Over the past few years we have experienced a number of situations where the inspection directly influences the approval of the mortgage, with unforeseen consequences to the buyer.

The two conditions will sometimes have the same condition day, often giving the borrower about 5 business days to remove both conditions. Given that obtaining an approved mortgage usually does not cost anything, while a home inspection can cost up to several hundred dollars, the borrower often wants to have their mortgage approved prior to committing to the expense of the home inspection. Sometimes the borrower then finds that they have used most of their allowed time without having the inspection done, and may be pressured by an impatient seller to waive their financing condition in order to receive an extension for the inspection condition.

Most buyers, particularly first-timers, think of mortgage approval as strictly a matter of qualifying as a borrower, and are concerned about their credit history or income rather than whether or not the property is acceptable to the lender. While assembling pay-stubs and bank statements, it is easy to forget that the property itself is the lender’s security and that the property has to be acceptable to the lender just as the borrower does.

The lender will determine an approved lending value for the property based on the lower of the sale price and an option of value given by an appraiser or automated valuation system. Neither process takes into account shortcomings that may arise from a detailed professional home inspection.

An appraiser assumes that all the essential elements of a home (its furnace, roof, plumbing and electrical fixtures, to name only a few) are functional unless a cursory visual inspection reveals an obvious problem; an automated valuation system assumes everything is fine unless otherwise stated in the listing. The professional home inspector is hired to detect problems or shortcomings with the property that were not disclosed in the listing and are not obvious at first glance.

If a home inspector uncovers a deficiency, or a deficiency that exceeds a pre-agreedupon maximum repair cost, the buyer may refuse to buy the property, receive a full refund of their deposit, and move on being out only the cost of the inspection. Mortgage approval problems arise when the inspector uncovers a property deficiency, and the buyer still wants to buy the property. In the past, it would be typical for the buyer and seller to agree to a price reduction and removal of the inspection condition, and the lender would simply reduce the mortgage as required without comment.

What we now see with increasing frequency, is that a price reduction resulting from a property inspection completely re-opens the mortgage approval process. The lender will demand to know the reason for the price reduction. They may also potentially demand confirmation that a repair has been completed, or third party confirmation of the cost to remedy the deficiency uncovered by the inspection, or they may decline the mortgage outright. If this happens after the financing condition has already been waived, the buyer risks the loss of their deposit and may be sued for non-performance of their obligation to purchase the property.

We recently had a borrower with whom there were significant challenges in obtaining an approval because of the borrower’s credit and employment status. Eventually we obtained approval at a very attractive interest rate. The borrower waived his financing condition before proceeding with a home inspection, which he would not order until he received mortgage approval. The inspector discovered a deficiency that the borrower used to negotiate a lower price. He signed an amendment which reduced the price and removed his inspection condition making the purchase agreement unconditional. The lender then cancelled the approval when furnished with the new price and explanation for the reduction.

We recommend that borrowers try to avoid waiving their financing condition prior to the home inspection condition. If a borrower does not want to commit to the expense of the home inspection prior to receiving mortgage approval, then the borrower should try to get additional time for both conditions, get pre-approved before making any offers, and supply all documents to the broker as early as possible.

If circumstances compel one to waive a financing condition prior to an inspection condition, consider the inspection to be an all or nothing proposition rather than a lever to be used to negotiate a lower price.

The overall message to remember is that reopening the price negotiation after the mortgage is approved potentially reopens the approval question – just because the buyer still wants to buy a house with a problem doesn’t mean the lender still wants to mortgage it, even at a lower price.

Thank YouThis article was written by Pat Kelly of The Mortgage Group

RRSPs Can Help First-Time Home Buyers

admin — Tue, 29 Jan 2013 15:00:39 +0000

Twenty years ago, I borrowed $10,000 from my RRSPs, under the federal government’s Home Buyers’ Plan, to help me purchase my first home. Since then, I have always been an advocate of the Home Buyers’ Plan. It’s a great deal for those looking to purchase their first home because they can borrow up to $25,000 from their RRSPs. Under the plan, you do not pay tax on the withdrawal because it’s like a loan that has to be paid back into the RRSP over a 15-year period. Each year, you have to pay back one-fifteenth of the borrowed amount. If you don’t, then the required payment becomes taxable that year.

I recently talked to two young people who are planning to buy their first house this year. Their stories each illustrate how they are able to use their RRSPs and the Home Buyers Plan to their advantage.

When You Have No RRSP’s

Mark has been working for three years, since graduating from university. He has saved $10,000 toward the purchase of his first home. His parents are going to match his savings and give him another $10,000 toward the down payment.

Because he has focused his savings on purchasing a home, he has not put any money away in RRSPs and therefore has considerable unused RRSP contribution room available to him.

Since Mark has no RRSPs, he is not able to take advantage of the Home Buyers’ Plan. I suggested that Mark take both his $10,000 and his parents’ matching contribution and put it into to his RRSPs right away. After 90 days, he can get the money out through the Home Buyers’ Plan. This is advantageous because his $20,000 contribution creates a significant tax savings.

Let’s assume Mark is in a 32-per-cent marginal tax bracket. That means that a $20,000 RRSP contribution will give him a tax refund of $6,400. That $6,400 can be used toward the down payment of the home, or it can be used to deal with all the other costs like legal fees, moving costs, utility hook ups, etc.

By contributing the money to the RRSPs first, Mark is creating $26,500 for his home purchase, instead of just $20,000, because of the tax deduction.

Former Pension To The Rescue

In another case, I met Stan, who is also looking to buy his first home this year. He has only saved $6,500. He has an RRSP at the bank worth about $3,500 and he has $8,000 in a defined contribution pension plan from one of his previous employers. Stan was thinking about cashing in this pension and using it toward the purchase of his home.

Normally pension money cannot be cashed out. But because the balance of the pension is less than 20 per cent of the current Yearly Maximum Pensionable Earnings, he is able to do so. The problem with cashing out the pension is that Stan will have to pay tax on the withdrawal. Instead of getting $8,000, after paying tax he would only have $5,450. However, instead of cashing out the pension, Stan is able to transfer the pension to his RRSP. He won’t get a tax deduction, but he can use the entire $8,000 toward the down payment of the home through the Home Buyers’ Plan.

After transferring the $8,000 pension into the RRSP, he should also contribute his cash savings of $6,500 to it, as well. With the $3,500 already in his existing RRSP, he would then have $18,000 in the RRSP that can be pulled out through the Home Buyers’ Plan. In addition, his $6,500 contribution would result in a tax refund of approximately $2,000. This scenario will give Stan $20,000, compared to only $15,450 if he cashes out the pension and does not put the $6,500 into the RRSP.

The Bottom Line

Since we are in the heart of RRSP season, first-time home buyers should consider making a contribution to their RRSP, to get an immediate tax deduction and a corresponding refund in April or May of this year.

Any contributions to the RRSP can be withdrawn through the Home Buyers’ Plan 90 days after deposit. Any contributions will result in a tax deduction, which will give the homebuyer a little extra cash.

Basically, first-time homebuyers with cash should contribute to their RRSPs, if they have the contribution room.

Thank YouThank you to Jim Yih of the Edmonton Journal for this article.

Mortgage Crackdown Threatens Economy » Report Says

admin — Mon, 28 Jan 2013 15:00:47 +0000

Ottawa’s moves to crack down on the housing market go too far and are now harming Canada’s economy, the group that represents the mortgage industry says. The Canadian Association of Accredited Mortgage Professionals represents 12,250 mortgage professionals across the country.

In a report published Monday, CAAMP chief economist Will Dunning says the policy changes announced recently that made it harder for Canadians to obtain insured mortgages were unnecessary, let too much air out of the market, and are starting to eat into the broader economy.

“The opinions being expressed by this author are his own, and are strongly felt,” Dunning said. “The changes to mortgage insurance criteria are unnecessarily jeopardizing the health of Canada’s housing markets and the broader economy.”

This past summer, Finance Minister Jim Flaherty announced the fourth major change in as many years to mortgage rules at the CMHC, Canada’s national housing agency on whose books the vast majority of Canadian mortgages are held.

The major CMHC rule change was to limit the maximum amortization period to 25 years. That limits how long a homeowner has to pay back the loan, which limits the amount he or she can take out. And that, in effect, limits the amount they have available to spend on a house, keeping a lid on prices.

Realtors note that’s already having an impact, with some of the frothier markets showing year-over-year declines in prices. And almost all markets across the country are now seeing a reduced overall number of homes sold.

Dunning estimates that 16.9 per cent of high-ratio mortgages that were approved in 2010 would no longer qualify under the new rules implemented in July. (A high-ratio mortgage is one where the buyer has a down payment of less than 20 per cent and will require CMHC insurance.)

CAAMP data shows that about 55 per cent of of home purchases are funded with high-ratio mortgages. Using Dunning’s numbers, if 16.9 per cent of those would-be buyers can no longer qualify, that means total home sales are theoretically being reduced by nine per cent, he suggests.

Data from other agencies backs that up. The latest Canadian Real Estate Association data released last week showed home sales in October were 7.8 per cent lower this year than they were last year.

Dunning says that drag is likely to increase as time goes on. “Reduced activity at entry levels means that move-up activity will also be gradually impacted, because potential move-up buyers will find it more difficult to sell their current homes,” he says in his report.

Beyond the value of the homes themselves, Dunning argues that the “housing wealth” effect can’t be underestimated. That’s the term used to described the impact that higher home prices have on other parts of the economy, as people feel wealthier and more confident about spending and investing in other things.

“The U.S. experience has showed us that what starts as a small drop in housing prices can spiral into a dreadful outcome,” Dunning says. “This report is not concluding that the same will happen in Canada, but it is pointing out that the revised mortgage insurance criteria … is unnecessarily raising economic risks in Canada.”

The report also shows some interesting new numbers about the mortgage market overall. CAAMP says 79 per cent of Canadians go with a fixed rate mortgage, and about 10 per cent choose to go variable. Historically, about two thirds of Canadians normally lock in, and about a quarter stay variable.

That discrepancy is likely due to the record lows currently being seen in the fixed-rate mortgage market. Indeed, the average Canadian mortgage rate is currently 3.55 per cent, well under the average of 3.94 per cent found a year ago.

There are currently about 9.7 million homeowners in Canada, of whom about 5.95 million have mortgages, CAAMP says. About 3.75 million homeowners are mortgage-free, but CAAMP data shows 2.1 million Canadian homeowners owe some sort of money on a home-equity line of credit, or HELOC.

Thank YouThank you to CBC News for this article.

What Paperwork Do I Need To Get Approved For My Mortgage?

admin — Thu, 04 Oct 2012 21:27:58 +0000

Buying real estate takes careful planning whether you are a first-time home buyer or buying your second or third home. Having the proper paperwork in order will make the process of getting mortgage approval that much smoother.

Here is a list of the most common papers that we will be requesting from you depending on whether you are self employed or an employee.

I’m an Employee

If you are an employee, here are common documents that are required:

Most recent paystub(s).
Notice of Assessments from Revenue Canada, we need the page stating line 150.
Letter from your employer, stating date of hire, job title and annual gross salary. If paid by the hour, hourly wage and hours worked per week.
Bonuses and overtime can be used in the qualifying income. This income is supported by using a two year average.
Downpayment needs to be verified by showing bank statements for the previous three months. If it the funds are coming via a gift from a family member a Gift Letter is required, of which we can provide.

I’m self-employed

Self-employed applicants require a little more documentation:

Two years financial statements prepared by an accountant.
Articles of Incorporation and list of directors.
Two years Notice of Assessment from Revenue Canada, showing line 150.

These above-mentioned documents are the most common that we will be requesting during our initial interview. Of course every person’s situation is unique and we could ask for additional documents.

Bank Of Canada Holds Rate Steady As Global Storm Clouds Gather

admin — Thu, 04 Oct 2012 21:00:02 +0000

It’s been two years and counting, and Canada’s monetary policymakers are still looking to a stronger economy to provide a wedge to finally begin lifting borrowing costs.

The Bank of Canada has kept its trendsetting interest rate at 1% since September 2010. That’s just 75 basis points above its historic low during the worst of the recession.

On Wednesday, bank governor Mark Carney and his team said they were still waiting to strike, while noting there are signs that a long-awaited pick up could be coming next year — even as outside forces continue to slow growth elsewhere in the world.

But, for now, rates are staying put.

“Global growth prospects are unfolding largely as the bank projected” in July, policymakers said, in announcing that borrowing costs will remain at 1% for a while longer and pointing to “a widespread slowing of activity across advanced and emerging economies.”

But while many other central banks are considering even further rate easing — as well as other stimulus measures — Canada’s policymakers are sticking to their plan to raise rates when the time is right.

Using the same wording as in most of its rate statements, the bank said: “To the extent that the economic expansion continues and the current excess supply in the economy is gradually absorbed, some modest withdrawal of the present considerable monetary policy stimulus may become appropriate, consistent with achieving the 2% inflation target over the medium term.”

But there remain looming concerns for Canada: the still-unresolved European debt and banking crisis, as well as the weak recovery in the United States and slowing output elsewhere — in particular China, the world’s second-largest economy after the U.S.

Thank YouThank you to Gordon Isfeld, Financial Post for this article.

Calgary Condo Market On The Upswing

admin — Sat, 08 Sep 2012 14:00:38 +0000

Job gains, population growth, and low interest rates will support condominium demand in Calgary, says a national report released Thursday. And the city is the most affordable among the top eight large metropolitan areas when analyzed relative to local incomes.

“A balanced resale market is expected this year, with moderate sales increases and resumed price growth. Falling unsold builder stocks will help lift starts in 2012, before they drop in 2013,” said the Metropolitan Condo Outlook by Genworth Canada in conjunction with the Conference Board of Canada.

“The market for new condominium apartments is regaining its footing in Calgary. Although new unit absorptions fell sharply in 2011, this mainly reflected sagging completions, themselves the product of weak starts following the 2009 recession. More importantly, unsold builder inventories have generally eased. Although these ticked up in the first quarter of this year, such a wintertime increase is common in Calgary and followed significant declines in two of the previous three-quarters.

“More broadly, inventories remain below year-earlier levels and are expected to keep easing through most of the next two years. This reflects both a recovering Calgary economy and pent-up demand.”

Relatively high local incomes, combined with middle-of-the-pack condominium prices, give Calgary the best affordability among the eight cities covered in this report.The report said it expects condo starts to hit a four-year high of 2,373 units in 2012, up 15.5 per cent from the previous year but to drop by 11.7 per cent in 2013 to 2,099 units.

The report, which looked at eight large Canadian metropolitan areas, said resale condo transactions in Calgary would jump by 3.8 per cent this year to 3,555 and another 1.9 per cent in 2013 to 3,621.

Calgary’s resale condo price is forecast to increase by 0.9 per cent this year to $239,445 and by another 2.9 per cent in 2013 to $246,414.

“Relatively high local incomes, combined with middle-of-the-pack condominium prices, give Calgary the best affordability among the eight cities covered in this report,” it said. “Principle and interest charges are expected to consume only 8.9 per cent of local incomes during 2012, down from 9.2 per cent in 2011 and a peak of 12.7 per cent in 2007.

“Affordability is expected to remain good in 2013 as interest rates stay moderate and the median price rises at roughly the same pace as the expected increase in household income.”

Condo sales are up from the previous year while there have been fewer new listings.Richard Cho, senior market analyst in Calgary for Canada Mortgage and Housing Corp., said demand for condominium units has been stronger this year compared with 2011.

“Along with rising employment, higher migration and favourable mortgage rates, modest price growth and the decline in the rental vacancy rate have also contributed to the increase in condo sales,” he said.

“Condo sales are up from the previous year while there have been fewer new listings. This has helped active listings decline from 2011 levels. In addition, inventory of new condominium units has also moved lower from a year earlier. As such, we have seen more pressure on prices.”

The local resale market is stabilizing after a shortage of listings in early 2011 prompted an abrupt tightening, said the report.

“Although supply rose throughout the year, average listings over the full year were the fewest since 2006. Combined with a slight increase in sales during 2011, this lifted the full-year sales-to-active-listings ratio to 31 per cent, the highest since 2007. But the ongoing supply hikes, combined with generally steady sales, cut the ratio to 23 per cent by the fourth quarter and, further, to 21 per cent by the first quarter of 2012,” it said.

“High sales-to-new-listings ratios during the boom period prior to the recession make it difficult to determine what constitutes a balanced market here. But it seems likely that a sales-to-listings ratio hovering just above 20 per cent is at the low end of this range.”

Thank YouThank you to Mario Toneguzzi, Calgary Herald for this article.

Bidding Wars Can Leave You With Cash Shortfall

admin — Thu, 06 Sep 2012 14:00:31 +0000

Here’s a little something to ponder before a bidding war: Will the bank agree with how much you just paid for that home?

Appraisals are coming in below purchases price on some deals, with the potential to scuttle a transaction, lose a deposit or, at the very least, force buyers to look for other sources to cover the shortfall.

“This is happening all the time,” says Vince Gaetano, a principal at Monster Mortgage. “People are having to come up with more [cash] and, if they can’t, they better come up with an alternative means of financing.”

Mr. Gaetano wonders whether some appraisers have become more conservative and are almost anticipating a rapid drop in prices.

“Lenders are very nervous,” the mortgage broker says.

Vince GaetanoI have been cautioning people not to go in firm on any offer unless you are sure of your financing.It’s up to your financial institution to decide if it wants an appraisal unless you have less than a 20% down payment, in which case you need mortgage default insurance and an insurer like Canada Mortgage and housing Corp. takes on the responsibility.

Problems arise when a consumer bids above the precedent for the area. A home may be purchased for say $450,000 but the appraiser could say you jumped the gun on values in the area and your new house is only worth $400,000. At 95% debt to equity, the bank will then only give you a loan for $380,000 – meaning you need $70,000 down instead of $20,000.

“I have been cautioning people not to go in firm on any offer unless you are sure of your financing,” Mr. Gaetano says.

He had a client who recently bought a property in Toronto’s trendy high Park area for $1.6-million and the appraisal came in at $1.1-million, forcing the client to juggle some other investments to cover the shortfall the bank would not cover.

Keith Lancastle, chief executive of the Appraisal Institute of Canada, confirms that trend. “We understand anecdotally that it is happening in certain markets like parts of Toronto and parts of Vancouver,” he says. “Anytime you get into a seller’s market where you are looking at multiple offers, the market in that place at that time increases the value of the property.”

While purchase price may indeed be the current value, appraisers look at a wider range of factors that include comparable sales of property over time. “What somebody pays today might not be a lasting value,” he says. “[The appraisal] is more of a reality check.”

Mr. Lancastle says the appraisal process has kept the market in check by providing ac-curate values. “From a systemic perspective, it’s positive. What we saw in the United States is loan to value ratios went way out of whack,” he says.

Phil SoperAppraisers don’t want to get caught overvaluing a property.Phil Soper, chief executive of Royal LePage Real Estate Services, says appraisals typically can come in a little under purchase price.

“If you look at numbers that come out of the professional appraisals book of business, they are risk adjusted because their principal clients are looking at a way to measure risk,” he says.

Mr. Soper says the impression may be that appraisers have got-ten tougher, but he chalks it up to the rate of price appreciation slowing. As the rate of price appreciation falls, appraised values will follow.

“Appraisers don’t want to get caught overvaluing a property,” he says. “A change in market can make appraisers hyper sensitive to a change in market conditions.”

The message to consumers is to tread carefully when they make an offer and make it conditional on financing.

“What is at risk is you could lose your deposit,” Mr. Soper says, adding the vendor doesn’t really want to sell to somebody who doesn’t have the capacity to follow through on any deal. “Most people do have some wiggle room though.”

Farhaneh Haque, director of mortgage advice and real estate-secured lending at Toronto-Dominion Bank, said multiple offers are driving the situation. “We’ll see a differential between appraised value and the sale price in those situations,” she says.

Customers who get pre-approved for mortgages are told the banks lend money based on the home buyers’ credit strength but loans are also based on the property.

Bottom line is if you are getting into a bidding war, you may be on your own. Don’t count on your bank to back you up.

Thank YouThank you to Garry Marr, Financial Post for this article.

DIY Home Repair: Five Steps To Becoming Your Own Handyman

admin — Tue, 04 Sep 2012 14:00:22 +0000

Don’t be intimidated by home repairs. With a little research and some simple tips, most are far less complicated than they seem. Doing regular home maintenance can save you a lot of money over the long haul and even directly put some money in your pocket with a higher home value.

The problem is that many of these tasks can seem completely intimidating to the uninitiated.

I’m speaking from experience here. When I first moved into a home of my own, there were many simple tasks that seemed like a total mystery to me. I had no idea how the inside of a toilet tank worked. I didn’t know the first thing about re-starting a pilot light. I was pretty much afraid to go near the breaker box.

Yet I overcame all of that. I’ve fixed toilets. I’ve fixed hot water heaters. I’ve cleaned out drains. I’ve replaced faucets. I’ve caulked windows. I’ve done countless little tasks that would have been completely alien to me before I became a home owner.

I’ve done countless little tasks that would have been completely alien to me before I became a home owner.Each one of those things that I’ve been willing to do on my own has saved me money. It’s kept me from having to call in a repair person and it’s also kept me from just letting an item that I would otherwise know how to fix fall into disrepair.

So, what’s caused this transition? How did I go from someone who was practically afraid of changing a light bulb to a person who installs ceiling fans and replaces outlets without skipping a beat? There are a few basic tools that helped me through this change.

First, I realized that if you know how to turn off the power and how to turn off the water to a particular location in your house, there’s almost nothing you can mess up too badly. You can’t electrocute yourself if you’ve flipped the breaker. You can’t flood the bathroom if there’s no water flowing into the toilet. The first step is to simply learn how to turn these things off.

In most modern homes, there’s a breaker box that consists of a bunch of switches which are usually labeled. If you flip a switch for an appropriate area of your home, you’ll turn off the power to that area. Flip the switch back and there’s power again. Similarly, if you’re about to work on a sink or a toilet, look around for a simple valve that you can turn, either under the sink or behind the toilet. This will shut off the water supply, meaning you can’t flood anything, no matter what goes wrong.

In terms of pure maintenance, read your manuals. Almost everything in your home should have a manual.If you take these basic precautions, you don’t have to feel too bad about any attempt at maintaining or repairing anything. After all, if you mess things up too much, you can still call a repair person to fix it for you.

So, how do you figure out how to do these things? YouTube is my first stop when I’m looking for home repair help. If I can’t figure out what I want to know from a YouTube video, I ask friends for help and/or hit the local library for home repair and maintenance books.

In terms of pure maintenance, read your manuals. Almost everything in your home should have a manual. If you can’t find one, look at the equipment you have, identify any model numbers you can easily find, and hit the internet. Most manuals explain in very simple language what you need to do to maintain the equipment in question.

What you’ll find is that the more home and auto maintenance and minor repair that you do, the easier it all seems. Things no longer seem intimidating and you’re willing to try bigger and bigger tasks. Each thing you do on your own saves you the cost of hiring someone to do it and often gets the job done quicker, anyway.

Thank YouThank you to Trent Hamm, The Christian Science Monitor for this article.

Close To One-Quarter Of Canadians Willing To Enter Into House Bidding War: BMO Report

admin — Fri, 31 Aug 2012 23:47:50 +0000

About a quarter of Canadians say they are willing to enter into a “bidding war” in Canada’s housing market and pay up to 120 per cent of the asking price, according to a BMO report released Thursday.

The BMO Buying Report said Canadian respondents in the Prairies, Ontario and Alberta are more willing to enter into a bidding war than those in Quebec and Atlantic Canada.

In the survey, 22 per cent of Canadians said they were willing to enter into a bidding war when making an offer on a home.

“Of those prepared to fight, half would pay up to 110 per cent of the asking price, while a quarter would be willing to bid up to 120 per cent,” the report said.

Those surveyed in Manitoba/Saskatchewan ranked first in eagerness to enter into a mortgage bidding war (32 per cent). They were followed by respondents in: Ontario (28 per cent), Alberta (25 per cent), B.C. (23 per cent), Atlantic Canada (13 per cent) and Quebec (10 per cent).

John PasalisOne thing to keep in mind is the houses that are getting pretty crazy bidding wars are underpriced anywhere from five to 10 per cent.The study also noted that 52 per cent of Canadians surveyed said they’re willing to pay between 100 and 110 per cent of the asking price, with Quebec ranking first at 62 per cent. It was followed by: Alberta and B.C. (53 per cent), Ontario (51 per cent), Manitoba/Saskatchewan (48 per cent) and Atlantic Canada (44 per cent).

Meanwhile, 27 per cent of Canadians said they would pay between 100 to 120 per cent, with the highest in Atlantic Canada (33 per cent), then Ontario and B.C. (30 per cent), Quebec (25 per cent), Manitoba/Saskatchewan (22 per cent) and Alberta (17 per cent).

John Pasalis, broker owner of Realosophy Realty Inc., a Toronto-area real estate brokerage, cautioned that the bidding wars may not be as lucrative as they seem.

“One thing to keep in mind is the houses that are getting pretty crazy bidding wars are underpriced anywhere from five to 10 per cent,” he said. “The list prices aren’t always an indication of what they’re actually worth.”

Doug PorterToronto prices have risen 11 per cent over the past year, while Vancouver’s have fallen 3 per cent.Pasalis said his company has seen “multiple offers almost non-stop for years now,” including as much as 10 or more buyers bidding on a house.

“You just get these spikes and valleys in the market where things get a little bit more heated and demand starts outstripping supply as things get faster,” he explained.

However, the mortgage wars may backfire on owners if the bank’s appraisal of the home is lower than what a buyer pays for the home, he said.

To avoid this, Pasalis cautioned that homeowners need to know the actual market value of the property they want to buy as opposed to its listing price.

Nationally, the average home sale price is $369,677, the report said. The average home prices across Canada are “rising modestly,” it said, except in Toronto ($504,117) and Vancouver ($761,742).

“Toronto prices have risen 11 per cent over the past year, while Vancouver’s have fallen 3 per cent,” said Doug Porter, deputy chief economist for BMO Capital Markets.

The survey was completed online by Leger Marketing from March 19-22 with a sample of 1,000 Canadian home or condo owners. The margin of error is plus or minus 3.1 per cent, 19 times out of 20.

Thank YouThank you to Sheila Dabu Nonato, Postmedia News for this article.

New Mortgage Rules Make It Harder To Spend Money The Government Lent You

admin — Tue, 10 Jul 2012 23:13:07 +0000

The recent changes to mortgage rules in Canada — maximum terms of 25 years, only able to borrow up to 80% of the home’s value — are designed to “cool down” Canada’s hot housing market. For the average home owner, the changes will mean paying more each month to pay off the loan sooner. But that will also mean that families can borrow less — it’s estimated that a family with a household income of $75,000 will be able to borrow $50,000 less over the term of a 25 mortgage than they could if it was a 30-year.

And those who already own homes will have to ramp up their payments to cover off the loan in a shorter time frame after they refinance. In the long run, that will save them money on interest payments, but many Canadians are so leveraged that it may be hard to float the few hundred extra bucks a month that will cost them. CBC News quoted one woman in Edmonton as saying the added costs to her mortgage may mean the difference between her family “eating soup or real human food.”

Since when is soup not food? Soup is fantastic.

That particular woman’s irrational dismissal of wonderful, tasty broths and stews aside, the fact remains that the government is acting for a reason. The Canadian housing market is hot — over the last few years, it’s become common to hear real estate experts musing about whether Canada is in a housing bubble. The answer is probably more complex than that — certain cities in Canada may well be in a bubble, such as Vancouver, or even just certain sectors of individual cities, like Toronto’s condo market. But the rapid rise in real estate values in major markets, plus the general trend toward Canadian household indebtedness (Canadians now hold more consumer debt, as a percentage of earnings, than our friends to the south did before the 2008 crash), are certainly alarming. It’s no surprise that the government feels like it has to step up and do something.

But it is always faintly — or not so faintly — ridiculous to hear government officials or Bank of Canada suits warning about Canadian household debt when interest rates remain at near-historic lows. It was just last month that the Bank of Canada announced that it was keeping the overnight lending rate at 1%. The banks set their mortgage rates for the rest of us based on how low a rate they can get from the Bank of Canada, so keeping the overnight lending rate low keeps bank interest rates low. That lets people borrow money that they spend, both adding to their household debt and driving up the value of the goods they buy. This isn’t hard. Cheap borrowing equals debt and rising prices. Always has, always will.

The decision to keep the interest rate low is a very deliberate one by the government, of course. Given global economic uncertainty, they obviously worry that slowing down the Canadian economy could tip us back into recession — perhaps a nasty one, if the rest of the world also heads in that direction. Granted. But in ominously warning about rising debt levels while continuing to shovel cash out the door as fast as possible, the government is sending a clear and unpleasant signal. They know that what they’re doing is bad. They just don’t see a way they can stop doing it without bringing the economy crashing down.

It’ll be up to the individual consumer to interpret that message, buried not so subtley between the lines, and make their own choices to minimize the risk. But for many, it’s probably too late.

Thank YouThank you to Matt Gurney, National Post for this article.