Money Saving Features of Your Mortgage

For a typical mortgage repayment scenario of a $100,000 mortgage with monthly payments, an amortization period of 25 years and an annual interest rate at 6% over the five-year term you’ll notice that over a five-year term, with monthly payments of $639.81, the cost of borrowing $100,000 is actually $28,219.33. After five years, the outstanding principal amount would be $89,830.73. If you want to reduce this amount as much as possible, consider using any or all of the following strategies:

Strategy #1: Increase the frequency of payments

In the example above, the mortgage is paid on a monthly basis. However, you can arrange to switch your payments to half of the monthly payment amount on a biweekly basis, or even to a quarter of the monthly amount on a weekly basis.

The same mortgage with biweekly payments:

Payment

$319.91

Total interest

$27,622.40

Outstanding principal amount

$85,950.54

Your savings

$596.93

The same mortgage with weekly payments:

Payment

$159.96

Total interest

$27,594.75

Outstanding principal amount

$85,921.62

Your savings

$624.57

As you can see, simply taking advantage of biweekly or weekly payment options can reduce the cost of owning your home and help you to pay off your mortgage much faster.

Strategy #2: Take advantage of increased payment options

By simply increasing your mortgage payment by 10%, you can significantly reduce your overall costs and own your home faster.

The same mortgage with monthly payments increased by 10% to $703.79:

Total interest

$27,602.11

Outstanding principal amount

$85,374.71

Your savings

$617.22
   

Strategy #3: Take advantage of lump-sum payments

In addition to increased payment options, most banks offer the opportunity to make lump-sum payments on your mortgage. This first chart shows the effect of making a 2% lump-sum payment at the beginning of each calendar year of your mortgage. The results are impressive, to say the least.

The same mortgage with 2% lump-sum payments each year:

Annual lump-sum payment

$2,000

Total interest

$26,924.85

Outstanding principal amount

$78,536.25

Your savings

$1,294.48

 Do it all!

Now, imagine that you were able to take advantage of the three strategies above all at the same time. Here is what your mortgage repayment schedule would look like if you —

  • Switched to weekly payments (no cost to you)
  • Increased your payments by just 10% (to $175.95/week), and
  • Made lump-sum payments of just 2% ($2,000/year) at the beginning of each calendar year of your mortgage

Total interest

$25,620.87

Outstanding principal amount

$69,804.05

Your savings

$2,598.46

Strategy #4: Choose a shorter amortization period

You have the option of choosing the amortization period . Most mortgages are automatically amortized over a 25-year period, meaning that’s how long it will take for your combination of principal and interest payments to eliminate the principal balance on your mortgage. However, you can select a shorter amortization period at the beginning of your mortgage and dramatically reduce the amount of interest you pay over the shortened life of your mortgage.

On the same $100,000 mortgage at 6% interest, here’s how much money you could save by simply opting for a reduced amortization period.

Instead of 25 years, choose:

Amortization Period

Payment Amount
per month

Interest Cost

Interest Savings

20 years

$712.19 $70,882.81 $21,001.15

15 years

$839.89 $51,146.89 $40,737.07

10 years

$1,106.51 $32,757.92 $59,126.04

Please contact me, David@TorontoRealEstate.ca or at 416-520-6746.

Bank of Canada Rate Hike Expected

You may have seen the news or heard the news last Friday that the Bank of Canada warned that higher interest rates are around the corner.
 
In its latest monetary report issued last Thursday the central bank declared that the national economy is growing faster than it anticipated.  The time for record low interest rates is drawing to a close. The Bank’s key overnight lending rate ( the rate at which it lends money to commercial banks) is now .25% .
 
The Bank meets next on June 1 and it is expected that a rate hike of 25 basis points to .50%  will take place at that time. Economists predict that the Bank’s overnight rate will increase to 1.25% or 1.50% by the end of the year.  
 
Chartered banks base their prime lending rates and their variable mortgage rates on the Bank of Canada’s overnight lending rate. Fixed interest rates follow the bond market. We have already seen a couple of increases in fixed rate mortgages in the last weeks.
 
The Bank predicts that with higher interest rates forthcoming  the national housing sector will cool. Note I said cool which means less bidding wars in the hot markets .  I didn’t say prices will fall as some of my clients are predicting will happen in the G.T.A.  Annual average home prices recorded by the Toronto Real Estate Board have been on the rise since 1997.  
 
Protect yourself from interest rate increases. Have you locked-in your interest rate? If you are purchasing in the next 4-6 months then now is the time to visit your lender to obtain your FULL mortgage pre-approval.
 
If you would like a mortgage consultation with one of our Mortgage Specialists then please send me an email, David@TorontoRealEstate.ca or call me at 416-520-6746.
 

Real Estate Mortgage Scams

Being a homeowner is one of the biggest dreams for the Canadians. Due to record numbers of homeownership and cheap mortgage rates, individuals who did not own a home previously are now looking for mortgages for financing their ambitions. On certain occasions, the dream of home ownership is associated with a cost that exceeds the mortgage. 

To find out how much your mortgage is going to cost you, a loan mortgage calculator often works as a user-friendly tool. Nevertheless, this tool can’t save you all the time. Similar to other forms of investment, real estate mortgage loans are also subject to scams. Mortgage frauds and scams can make you lose thousands of dollars on interest as a minimum because of excessive fees and other hidden costs. The worst that can happen is that you can lose your home to foreclosure. 

According to industry professionals, there are three principal or familiar types of real estate fraud: 

1.   Identity theft via mortgage request
2. Bait and switch
3. Loan flipping 

To prevent scams the best offense is the best defense. Understand the truth and don’t hesitate to ask a lot of questions.

Bait and switch is a fraudulent sales technique where a loan product is publicized at a lucrative rate (bait). However, the product or rate is subsequently changed for the gain of the lender (switch). This is an utterly illegitimate and deceitful practice. For instance, one interest rate is assured at the time of selling a loan, but a bigger rate is provided at the time of closing. 

When you’re obtaining a pre-approval or mortgage quote, you believe that your question with the lender is secret, right? You’re wrong. On many occasions, important financial details about you and your mortgage requirements are hacked by vying lenders. This can happen within 24 hours of your credit bureau inquiry. Your loan officer is even unaware of this. Many firms provide countrywide accessibility to your financial details to the lenders and everybody in your city who requested for a mortgage within the last 24 hours. Any other lender can talk to these individuals the following day and give them a pre-approval for an improved mortgage loan. 

One more dilemma is mortgage solicitation through telephone, the Internet or door to door. These scams involve filling in an application through fax, the Internet or over the telephone and often the rates are phony. However, it is not the largest issue to be bothered about–it is nothing but identity theft. Even though the rates are legitimate, the company would get all your important details such as your social insurance number that can result in mortgage scam or identity theft. 

Another type of mortgage scam that is prevalent in the real estate industry is loan flipping. Loan flipping denotes frequent refinancing of a mortgage within a small time frame with very small gains to the borrower. It takes place when a borrower can’t keep up with the planned payments or constantly combines other unsecured loans into a new secured loan at the request of a lender. Lenders flipping loans ask for too much origination fee with every consecutive refinancing. They might ask for these fees on the basis of the whole loan amount, not only on the increased amount summed up with the loan principal through refinancing. In addition, every refinancing might attract prepayment penalties that can be funded as a portion of the overall loan amount, accumulating the debt of the borrower. 

If you’re buying a home, looking for a home equity loan or considering a mortgage refinance, it is better to work with a trustworthy lender. You must shop around and do some homework. Try to stay away from furnishing any details until you’re confident that the company or individual you’re talking to is right for you. I always say to my clients  ” If it is to good to be true then it probably is”.

For the contact information of the trusted mortgage specialists that I use please contact me, David@TorontoRealEstate.ca or 416-520-6746.

Tips For Improving Your Credit Score

Your FICO score is an important part of your application for a mortgage . You will need to have an excellent credit score (over 700) to secure the best possible interest rate from your lender. Now is the time to plan if you are thinking of purchasing in the next 6-12 months. Go to http://www.equifax.ca/ and order a credit report.  Failing to plan your credit file could significantly delay your home purchase.

What makes up your score?

35%-based on payment history

30%-capacity of credit

15%-length of credit history

10%-accumulation of debt in the past 12-18 months

10%-mix of credit; installment vs. revolving

Here are some tips to keep you in the credit game:

1.      Review your current credit report for accuracy. Get a copy of your credit report and look at it for accuracy. First, make sure that the information in your file is about you and only you, not someone who has a similar name or a similar Social Insurance Number. It is very common for your credit reports to have mistakes or incorrect information. At a minimum, make sure that the information you are being evaluated on is current and correct.

2.      Repair credit report mistakes. If you find something on your credit report that is incorrect or missing, you should dispute the mistake by contacting the credit bureaus directly ( Equifax or Genworth ). All credit bureaus have their dispute procedures on their website. They are also required by law to investigate any disputed items and these investigations will usually be done within 30 days of your request.

3.      Pay your bills on time. Sounds like a no-brainer, right? Payment history accounts for roughly 35% of your credit score. Paying bills on time is the most important thing to do. If you’re struggling to catch up, contact your creditors to work out a payment schedule. Missing one payment could take up to 24 months to repair your credit.

4.      Increase the length of your credit history. This accounts for about 15% of your score. Don’t cancel your old card or get a lot of new ones in a short time span because this can hurt your score.

5.      Keep credit card balances low. It’s a good idea to keep the balances below 25% of your available credit. Even if you pay off your credit cards every month, a high average balance will impact your score. This accounts for about 30% of your credit score.

6.      Keep new credit requests to a minimum. This accounts for 10% of your score. Every time a lender runs your credit, an inquiry is recorded. If you are trying to get a loan, don’t apply for new credit cards first.

7.      Be aware that paying off a collection account will not remove it from your credit report. It will stay on your report for seven years.

8.      Pay off debt rather than moving it around. The most effective way to improve your credit score in this area is by paying down your revolving credit. In fact, owing the same amount but having fewer open accounts may lower your score.

9.      Beware credit-repair scams. By all means, don’t pay someone to wipe away the negative items in your file. If they don’t follow through, the damaging items will reappear in two or three months.

Find out the approximate maximum financing a lender will provide to you. You can get all of the details and request the report at http://www.david.freehomeloanreport.com/

Please contact me, David@TorontoRealEstate.ca or 416-520-6756.

10 DIY Staging Tips to Help Your Home Sell

The key to making a positive first impression is to CLEAN your house. If your house is spotless you are ahead of the game and potential buyers will have positive thoughts that your house is well maintained. “Stage ” the house to make it as attractive as possible. Strip the house to its bare essentials so buyers can imagine themselves and their lifestyle in the house.

1. Curb appeal rules. The first impression is key. Give the house and the front door a fresh coat of paint , add shiny hardware to the front door,  clean up the yard and add some colourful flowers.

2.  Repaint rooms in a neutral colour. Add some personality with some colourful throw pillows and flowers. Open drapes and blinds to create a happy mood.

3. Declutter and depersonalize every room . You want the buyers to be able to envision themselves in each room.  Get rid of family pictures, trophies and knickknacks. Closets and drawers should be no more than 30% full. Clean, clean, clean!

4. Feature only a few pieces of furniture with mainstream appeal. . Pull pieces away from the walls to make rooms feel larger. Position furniture to emphasize windows, fireplaces and other architectural details.

5. Make sure a room’s primary use is obvious. A bedroom should look like a bedroom, not an office , junk room or gym.

6. Cure craziness in the kitchen by clearing all countertops, organizing all cabinets and cupbaords. New modern hardware, a new backsplash and a thorough cleaning can help with the transformation.

7. Clear all knicknacks and personal items from bedroom nightstands and dressers. Hide the laundry hamper. Rollup the rugs. Invest in pristine white bed linens. Reposition the furniture to highlight the room’s best features.

8. Cure the bathroom blues. Remove old wallpaper. Apply a fresh coat of neutral-hued paint . Replace old vanities and hardware to modernize and brighten. Recaulk where needed. Clean, clean, clean!

9. Minimize the “pet effect” . Remove food bowls and litter boxes to the utility room . Deordorize thoroughly.

10. Highlight the back patio . Clean up, add some furniture, lighting and stylish accessories.

Now invite your Family , Friends  and Realtor over for a viewing. What do they think?

10 MOST LIKELY FEATURES that builders will include in 2010

1. WALK-IN CLOSET in master bedroom

2. LAUNDRY ROOM

3. INSULATED front door

4. GREAT ROOM

5. LOW-E WINDOWS

6. LINEN CLOSET

7. PROGRAMMABLE THERMOSTAT

8. ENERGY EFFICIENT appliances and lighting

9. SEPARATE SHOWER & TUB in master bedroom

10. 9-FOOT CEILINGS or higher on main floor

WHAT’S NOT ON THE LIST?

1. OUTDOOR KITCHEN

2. OUTDOOR FIREPLACE

3. SUNROOM

4. BUTLER’S PANTRY

5. MEDIA ROOM/HOME THEATRE

Source: January 2010 National Association of Home Builders survey of builders.

Record First Quarter Sales

TREB Marketwatch 2010 MarchGreater Toronto Realtors reported 10,430 record sales in March a 69% increase over the same month last year. First quarter total sales amounted to 22,418, another record and a 75% increase over the same time last year. The average price for March was up 20%  from March 2009 to $434,696. The average price for first quarter transactions was $427,948 , also a 20% increase from the same period last year.

“The strong rebound in the existing home market was one of the initial drivers of the economic recovery,” said TREB President Tom LeBour. Strong growth rates in the housing market were due to both increasing consumer confidence and very low interest rates. However, keep in mind that the beginning of 2009 was a period of economic decline so the percentage increases are relatively high.
 
Growth in new listings continued to increase. The number of new listings in March 2010 grew by 42% from the same time last year  to 18,914. As more listings come on the market buyers will have more choice thus stabilizing prices. ( Note I did not say a reduction in prices. The rate of price appreciation will slow) . Home sellers have for the most part gained back the equity in their homes that was lost in late 2008 and in early 2009 when home prices dipped due to the financial market meltdown. Both buyers and sellers are riding a wave of confidence.
 
Other notable statistics include “days on the market ” falling 50% to 20 days from 40 days in March 2009. Sales in condo apartments remained a driving force at 23.1% of total sales.
 
Going forward expect consumer confidence to remain strong as the economy strengthens and employment in the G.T.A.  trend upwards. The broadly held view is that the Bank of Canada will start to raise its rates in the second half of 2010 to insure that inflation is kept in check. Long-term mortgage rates have already increased twice in the last weeks in anticipation of the Bank of Canada rate hikes. However, home ownership is still affordable as interest rates even with the recent increases are still very low. Listings will also continue to rise due to price growth.
 
If you are planning on purchasing in the next 4 months I strongly advise you to obtain your full mortgage pre-approval from your lender. This will lock-in your interest rate and protect you from interest rate increases.
 
Notable dates  upcoming include the Federal Governments new mortgage rules set to take effect on April 19 and the HST set to take effect on July 1.

Please call me at 416-520-6746 or email me, David@TorontoRealEstate.ca