27 Nov

5 MISTAKES FIRST TIME HOME BUYERS MAKE

General

Posted by: Peter Paley & Associates

Today’s blog is so good.  It is so easy for a first time home buyer to get all caught up in the moment.  However, at calm and steadfast approach to home buying is required.   Love the house? GREAT!  Look at the roof, mechanicals, appliances and structure.  Even if some of these items require attention, get quotes and find out how serious the challenges are.

enjoy the blog…

5 MISTAKES FIRST TIME HOME BUYERS MAKE

Buying a home might just be the biggest purchase of your life—it’s important to do your homework before jumping in! We have outlined the 5 mistakes First Time Home Buyers commonly make, and how you can avoid them and look like a Home Buying Champ.

1. Shopping Outside Your Budget
It’s always an excellent idea to get pre-approved prior to starting your house hunting. This can give you a clear idea of exactly what your finances are and what you can comfortably afford. Your Mortgage Broker will give you the maximum amount that you can spend on a house but that does not mean that you should spend that full amount. There are additional costs that you need to consider (Property Transfer Tax, Strata Fees, Legal Fees, Moving Costs) and leave room for in your budget. Stretching yourself too thin can lead to you being “House Rich and Cash Poor” something you will want to avoid. Instead, buying a home within your home-buying limit will allow you to be ready for any potential curve balls and to keep your savings on track.

 

2. Forgetting to Budget for Closing Costs
Most first-time buyers know about the down payment, but fail to realize that there are a number of costs associated with closing on a home. These can be substantial and should not be overlooked. They include:

  • Legal and Notary Fees
  • Property Transfer Tax (though, as a First Time Home Buyer, you might be exempt from this cost).
  • Home Inspection fees

There can also be other costs included depending on the type of mortgage and lender you work with (ex. Insurance premiums, broker/lender fees). Check with your broker and get an estimate of what the cost will be once you have your pre-approval completed.

3. Buying a Home on Looks Alone
It can be easy to fall in love with a home the minute you walk into it. Updated kitchen + bathrooms, beautifully redone flooring, new appliances…what’s not to like? But before putting in an offer on the home, be sure to look past the cosmetic upgrades. Ask questions such as:

  1. When was the roof last done?
  2. How old is the furnace?
  3. How old is the water heater?
  4. How old is the house itself? And what upgrades have been done to electrical, plumbing, etc.
  5. When were the windows last updated?

All of these things are necessary pieces to a home and are quite expensive to finance, especially as a first- time buyer. Look for a home that has solid, good bones. Cosmetic upgrades can be made later and are far less of a headache than these bigger upgrades.

4. Skipping the Home Inspection
In a red-hot housing market a new trend is for homebuyers to skip the home inspection. This is one thing we recommend you do not skip! A home inspection can turn up so many unforeseen problems such as water damage, foundational cracks and other potential problems that would be expensive to have to repair down the road. The inspection report will provide you a handy checklist of all the things you should do to make sure your home is in great shape.

5. Not Using a Broker
We compare prices for everything: Cars, TV’s, Clothing… even groceries. So, it makes sense to shop around for your mortgage too! If you are relying solely on your bank to provide you with the best rate you may be missing out on great opportunities that a Dominion Lending Centres mortgage broker can offer you. They can work with you to and multiple lenders to find the sharpest rate and the best product for your lifestyle.

Geoff Lee

Geoff Lee

22 Nov

PAYMENT FREQUENCY

General

Posted by: Peter Paley & Associates

Adjusting your payment frequency and payment amount is an excellent waty to pay your mortgage down faster and help decrease that pesky compounded interest!

 

Enjoy the blog….

PAYMENT FREQUENCY

One of the decisions you will need to make before your new mortgage is set up, is what kind of payment frequency you would like to have. For many, sticking to a monthly payment is the default, however, different frequencies may end up saving you less interest over time.

Monthly Payments

Monthly payments are exactly as they sound, one payment every month until the maturity date of you mortgage at the end of your term. Took a 3-year term? You will make 36 payments (12 payments a year) and then you will need to renegotiate your interest rate. 5-year term? You will make 60 payments.

$500,000 mortgage

3% interest rate

5-year term

$2,366.23 monthly payment

 

$427,372.90 remaining over 20 years

$69,346.70 paid to interest

$72,627.01 paid to principal

 

Semi Monthly

Semi-monthly is not bi-weekly. Semi monthly is your monthly payment divided by two. That means, you are making 24 payments every year, but each payment is slightly less than half of what the monthly payment would of been.

$500,000 mortgage

3% interest rate

5-year term

$1,182.38 semi monthly payment

 

$427,372.99 remaining over 20 years

$69,258.59 paid to interest

$72,627.01 paid to principal

 

Bi-Weekly

Bi-weekly, you are not making 2 payments every month. With 52 weeks in a year, you are actually making 26 payments, 2 more than semi-monthly (2 months a year you make 3 bi-weekly payments). The interest paid and balance owing are slightly less than the others, but mere cents. You will still need to make payments for another 20 years.

$500,000 mortgage

3% interest rate

5-year term

$1,091.38 bi-weekly payment

 

$427,372.36 remaining over 20 years

$69,251.76 paid to interest

$72,627.64 paid to principal

 

Accelerated Bi-Weekly

Just like regular bi-weekly, you are not making 2 payments every month. With 52 weeks in a year, you are actually making 26 payments, 2 more than semi-monthly. However because this is accelerated, the payment amount is higher.

$500,000 mortgage

3% interest rate

5-year term

$1,183.11 accelerated bi-weekly payment

 

$414,521.40 remaining over 17 years 4 months

$68,325.70 paid to interest

$85,478.60 paid to principal

 

You have increased your yearly payment amount by $2,384.98, $11,924.90 over 5-years. That extra $11,924.90 has decreased your outstanding balance at the end of your mortgage term by $12,850.96 because more of your payments went to principal and less went to interest. Also, you will now have your mortgage paid off more than 2.5 years earlier.

The same option is available for accelerated weekly payments which will shave another month off of time required to pay back the whole loan as well. If you can afford to go accelerated, your best option is to do so! Especially in the early years where a larger portion of your payments are going towards interest, not paying down your principal.

If you have any more questions, please do not hesitate to reach out to a Dominion Lending Centres mortgage professional near you.

Ryan Oake
2 Nov

Bank of Canada Holds Policy Rate Steady Amid Global Uncertainty

General

Posted by: Peter Paley & Associates

It is rare for the Bank of Canada and the US Federal Reserve to announce rate decisions on the same day, but today’s announcements highlight the stark differences in policy in the two countries. The Bank this morning announced they would maintain their target for the overnight rate at 1.75% for the eighth straight meeting. The Fed is widely expected to cut its target for the fed funds rate by another 25 basis points, taking it below the key rate in Canada for the first time since 2016. More than 30 central banks have cut interest rates in the past year and the Bank of Canada in today’s Policy Statement highlighted the weakening in the global economic outlook since the release of its July Monetary Policy Report (MPR).

In today’s MPR, the Bank revised down its forecast for global economic growth this year to below 3.0%, reflecting a downward revision in growth in the United States to 2.3% (from 2.5%), the Euro area (to 1.1% from 1.2%), oil-importing emerging market economies and the rest of the world. China’s growth pace remains at a 30-year low of 6.1%.

Trade conflicts and uncertainty are weakening the world economy to its slowest pace since the 2007-09 economic and financial crisis. The slowdown has been most pronounced in business investment and the manufacturing sector and has coincided with a contraction in global trade (Chart 1). Despite the manufacturing slowdown, unemployment rates continue to be near historic lows in many advanced economies, as growth in employment in service sectors has remained resilient.

Growth is projected to strengthen modestly to around 3.25% by 2021, with a pickup in some emerging-market economies (EMEs) more than offsetting slower growth in the United States and China.

 

Canada has not been immune to these developments. Commodity prices have fallen amid concerns about global demand. Despite this, the Canada-US exchange rate is still near its July level, and the Canadian dollar has strengthened against other currencies.
Growth in Canada is expected to slow in the second half of this year to a rate below its potential. This reflects the uncertainty associated with trade conflicts, the continuing adjustment in the energy sector, and the unwinding of temporary factors that boosted growth in the second quarter. Business investment and exports are likely to contract before expanding again in 2020 and 2021. At the same time, government spending and lower borrowing rates are supporting domestic demand, and activity in the services sector remains robust. Employment is showing continuing strength and wage growth is picking up, although with some variation among regions. Consumer spending has been choppy but will be supported by solid income growth. Meanwhile, housing activity is picking up in most markets. The Bank continues to monitor the evolution of financial vulnerabilities in light of lower mortgage rates and past changes to housing market policies.Canadian Economy Boosted By Housing

The Canadian economy grew at a moderate pace over the past year, supported by a healthy labour market and the recent turnaround in housing. However, global trade conflicts and related uncertainty dampened business investment and export activities, and investment in the energy sector continued to decline. The impact on growth of both global headwinds and energy transportation constraints is expected to diminish, and the pace of economic expansion should gradually pick up in 2020 and 2021.

In 2020 and 2021, Canada’s economy is anticipated to grow near potential. Consumer spending is projected to increase at a steady pace, and housing activity to continue its ongoing recovery. Overall, investment and exports are anticipated to grow moderately. In the energy sector, investment is forecast to stabilize, and oil exports should improve as pipeline and rail capacity gradually expands.

In today’s MPR, the Bank states that housing resales have been catching up to underlying demand (see chart 7 from the MPR). Housing markets generally reflect regional economic conditions. Housing starts and resales have been particularly robust in Quebec and Ontario, where labour markets have been strong. These provinces will likely continue to be the main drivers of the growth in residential investment. In Alberta, where the oil industry is expected to stabilize, modest improvements in housing are expected. In British Columbia, residential investment has recovered in recent months and should remain near current levels, reflecting the creation of new households.

 

Bottom Line

The dovish tone of today’s policy statement suggests that the Bank of Canada has become more cautious in its holding pattern amid a weakening global economy. The central bank “is mindful that the resilience of Canada’s economy will be increasingly tested as trade conflicts and uncertainty persist,” policymakers led by Governor Stephen Poloz said in the statement. “In considering the appropriate path for monetary policy, the Bank will be monitoring the extent to which the global slowdown spreads beyond manufacturing and investment.”

The statement and the fresh batch of more pessimistic growth forecasts will raise questions about the central bank’s commitment to a neutral stance on rates, particularly in the face of global easing in many other countries that has made the Bank of Canada an outlier. If the Federal Reserve lowers its interest rates later today, as expected, the Bank of Canada would have the highest policy rate in the industrialized world.

It may well be that the Bank of Canada cuts rates early next year. Mitigating this prospect is that the Bank was more bullish on consumption and housing–fueled by the robust labour market. Another source of future growth is additional fiscal stimulus from Prime Minister Justin Trudeau’s newly elected Liberal government, which has promised to implement new spending and tax cuts next year. For now, the Bank is maintaining a neutral stance.

 

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drcooper@dominionlending.ca