Condo Buyers Feel the Pinch!

Tightened lending guidelines are particularly affecting one type of homebuyer in major cities, according to one broker.

“In my marketplace … we are surrounded by so many condos, and a lot of our clients trying to purchase with bad credit are having a tough time,” Phil Edwards, a Toronto-based broker with MorCan Direct told MortgageBrokerNews.ca. “They put their deposit down four or five years ago and then they’re ready to register the unit and get a mortgage and they’re walking into tough times because over those four or five years something may have happened with their credit and they can’t now get approved for a CMHC insured mortgage.”

It’s an issue homebuyers – who may have been pre-approved in a less strict environment a few years ago – are having as they try to get their finances in order to officially move in upon completion.

According to Edwards, the problem can be avoided if clients approach a broker early on in the buying process, as opposed to merely getting pre-approved with the lender’s bank affiliate.

“If the client comes to us (beforehand) we let them know that obviously we can’t hold rates for that amount of time but if they can be pre-approved we usually tell them to keep their credit up because it’s obviously based on credit being in good standing,” he said. “Pay your bills on time; simple things like that will keep credit where it needs to be and for the most part they follow along with that.”

Issues arise, however, when clients are late in approaching brokers; though there are some creative workarounds Edwards has figured out to help clients secure financing.

“The problem is when a client hasn’t met us and their building comes up for registration,” Edwards said. “There are some lenders that will do a boost credit score with the insurer just because they have a little more relaxed guidelines, like a Bridgewater, for example. But it’s still pretty stringent on how bad the credit is.

“(In) most cases you’re still looking at first and second mortgages, trying to help them repair their credit and then afterwards trying to refinance them out of that mortgage because the property has appreciated in value so we may be able to finance at 80 per cent loan-to-value and get them out of that product.”

Though he admits it can be difficult and it requires a number of puzzle pieces to fall perfectly in place.

“It’s kind of tricky because they have to have certain things like other properties or equity in the property, appreciation in value on the existing property,” Edwards said. “So things have to kind of align in order for that to happen.”

Consumer debt swells to $1.4-trillion, but Canadians able to pay it!

LINDA NGUYEN

TORONTO — The Canadian Press

Published Monday, Feb. 10 2014, 4:42 AM EST

 

The love affair Canadians have with debt is still going strong, according to a new report by credit monitoring agency Equifax Canada.

 

Equifax said Monday that its figures show that consumer debt, excluding mortgages, rose to $518.3-billion through the end of November 2013. That was up 4.2 per cent from $497.4-billion a year earlier.

 

Despite the increase in debt, however, the overall delinquency rate — bills due past 90 days — declined to a record low of 1.12 per cent from 1.19 per cent in the same period of 2012.

 

“The real pattern that we’ve been observing is that Canadians are taking on more debt, but they can handle it well and are making those monthly payments,” said Regina Malina, director of analytics for Equifax.

 

Meanwhile, overall consumer debt, including mortgages, also continues to rise — up 9.1 per cent to $1.422-trillion from $1.303-trillion a year earlier.

 

Malina says the data shows that Canadians are willing to take on more debt — from car loans to credit card purchases — but are more aware of how important it is to keep their debt levels under control.

 

High debt levels are not a big concern in current conditions, which signal a stabilizing economy, improvement in the unemployment rate and an anticipated gradual increase in interest rates.

 

But Malina says if any or all of these conditions change, Canadians should reconsider how much debt they are piling on.

 

“That is the reason why we should remain vigilant,” she said. “It’s easy to get complacent. Even if the debt is up, and the delinquency is going down, it is no cause for alarm but as I said, we have to watch out for these other economic factors.”

 

Equifax uses data from 25 million files on consumer credit history, including national credit cards, loans and mortgages in compiling the report each quarter.

Buying a house? Here’s how to get a big tax refund!

The $25,000 Ottawa allows you take out of your retirement fund to buy your first home sure doesn’t go as far as it used to.

The Financial Post’s Melissa Leong explains why RRSPs are much like your beloved social media and as deserving of your attention.

Under the home buyers’ plan, Canadians can take $25,000 out of their registered retirement savings plan and pay it back over the next 15 years without incurring any penalty. For a couple that means $50,000.

But the dollar amount has been stuck at $25,000 since 1999 while house prices have continued to escalate. At $50,000, you’re barely making the  minimum downpayment if you are buying a home in Vancouver with a mortgage backed by the government.

The Canadian Real Estate Association says the average price of a home will climb to $391,000 next year, meaning that $50,000 is less than 13% and not enough to avoid costly mortgage default insurance.

“I don’t know how effective the plan is now, so I’m not sure what would happen, if you increase the amount,” says Don Lawby, chief executive of Century 21 Canada.

It’s not just the amount. The tax-free savings account is now just as an effective savings vehicle. As of 2014, Canadians were allowed to contribute $31,000 and the amount increases every year. You can also withdraw money from a TFSA and put it an equal amount back later.

“I think you almost need a combination of the two plans together to fund that kind of investment,” said Mr. Lawby, about buying a house. “It depends on where you live in Canada.”

The home buyers’ plan was launched with a $20,000 withdrawal limit and it jumped to $25,000 in 2009.

One of the arguments against increasing the limit is it will encourage young Canadians to rob their retirement savings to buy a first home. Paying the money back over 15 years — there are significant penalties if you don’t — means you might not have the money to make current contributions.

“Some people say the RRSP is not the most efficient way of saving for a house,” says Benjamin Tal, deputy chief economist with CIBC World Markets.

He says there hasn’t been an acceleration in the use of the home buyers’ plan because first-time buyers are being squeezed out of the market.

“Older people and people buying second properties don’t use their RRSPs to buy homes,” says Mr. Tal. “You would expect given rising prices there would be more use [of the plan.].”

This is the most popular time of the year to do it. They manipulate the system to deliver a tax return on the downpayment they will [already be] making on their purchase.

If you know you are buying your first home in the next 90 days, you make a $25,000 contribution or $50,000 for two people. That means a big refund in April. You then withdraw the $25,000 or $50,000 to pay for that initial home.

“Most people have the RRSP room. If you are buying a house by June and you have the downpayment in cash, you make the contribution to trigger the the refund,” said Mr. Gaetano, noting the $25,000 has to be in the plan for 90 days before you can take it out.

“You can garner $20,000 in refunds,” said Mr. Gaetano, pointing out it will depend on what your marginal tax rate is.

More from Garry Marr | @DustyWallet

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Low factory-built homes are shedding their ‘cheap’ label and exploding

Armina Ligaya | January 20, 2014 | Last Updated: Jan 20 6:36 PM ET
More from Armina Ligaya | @arminaligaya

After more than three decades in her Toronto bungalow amid growing mildew problems in the 1940s-era home, Ruth Wiens decided it was to start fresh.

She still loved her East York neighbourhood, so the IT professional decided to demolish her existing house and build a two-storey, three-bedroom, 2,000-square-foot home from scratch.

But instead of hiring a builder to construct her new home, piece by piece, Ms. Wiens ordered one from a factory, based on a design she saw in a magazine. She didn’t want the harsh Canadian weather to pummel the shell of her home during construction, as her neighbours’ new homes had been over the years.

Ms. Wiens wanted a house that was constructed indoors, under controlled conditions.

“There would never be in an unexpected rainstorm that just soaked everything,” Ms. Wiens said. “And having watched my neighbourhood over the years, I just thought, there are alternatives. You don’t have to be the lucky one that has the two weeks of good weather.”

Most new homes are built stick by stick, brick by brick, by a construction crew on-site, but a growing number of Canadians are buying homes right off the factory floor to be assembled on the lot within days.

However, the stigma of the earlier, shoddy iterations of these prefabricated or modular homes still lingers and the Canadian construction industry is reluctant to change, industry insiders say.

http://business.financialpost.com/2014/01/20/how-factory-built-homes-are-shedding-their-cheap-label-and-exploding-in-popularity/

 

How To Make Your Home Ready for Retirement

The majority of seniors live in conventional housing, as opposed to a senior citizen facility, according to science writer Rachel Adelson, author of "Staying Power: Age-Proof Your Home for Comfort, Safety and Style". Some of the benefits of staying in your own home, or aging in place as it's sometimes called, are: It costs less, keeps you in familiar surroundings and offers greater independence.

The tough housing market of the past few years has led many older homeowners  to stay in their homes longer than they'd originally planned. As a result, many people are remodeling rather than moving, not to improve the market value of their home, but to individualize their home and make it more suitable to their own needs.

Many baby boomers are simply not interested in moving to a traditional continuing care retirement community. Boomers have redefined a number of lifestyle areas over the years, and the process of aging is no different. So many boomers won't want to live in the same community as their parents or grandparents did. They feel younger, they're working longer and they're considering other options.
The paradox is that in order for seniors to stay in the same home by aging in place, they must embrace change: their changing bodies, changing capabilities and the modifications to their environment necessary to accommodate those changes.

The time to think about aging in place is not after you retire , but before you retire. One preliminary step is to research the services available in your own community. Often there is more than meets the eye, including support for transportation, nutrition, fitness and entertainment. Then long before you need to, you should start age-proofing your home, like we baby-proof our homes when we're expecting a new child.

If you're moving or remodeling, consider living on one floor, so you won't have to negotiate stairs. Yes, running up and down stairs is good exercise when you're younger, but stairs can be a hazard for older people.

Some people plan ahead. My own parents moved to a one-story house when they were in their early 60s. Then they both lived comfortably through their 80s. Another couple I know remodeled their home and turned their second floor into the kids' bedrooms. They moved the master bedroom down to the first floor, complete with an oversized shower and wide doorways. The couple did this when they were in their 40s and in good health, and their plan is to use the upstairs for guestrooms as soon as the kids grow up and move out.

But if you do still find yourself going up and down stairs, be sure to improve lighting in the area to make the stairs more visible and less hazardous. Another idea: install traction tape along the front edge of each stair, in contrasting colors, to outline the stairs more clearly and prevent falls. While you're at it, improve the lighting in your bathroom and kitchen, outfit the kitchen with easy-to-use tools and utensils and get rid of scatter rugs throughout the house. Also consider installing grab bars in the bathroom, as well as a raised toilet seat to help people with bad knees or a bad back.

Again, there's no reason to wait to make your changes, as I found out recently myself. I took a nasty spill in my own shower. I slipped as I was stepping over the side of the tub, grabbed for the soap dish and pulled it right out of the wall. I tumbled over the side of the bathtub onto the floor and gave myself a big bruise. This was several weeks ago and I still have an ugly brownish splotch as big as a basketball from waist to armpit.

So you don't have to be old to start making your home a safer place to live. It's better to plan ahead than fall on your head. But one last point. Figuring out how and where to live in old age isn't necessarily a one-time decision. You can do a lot in your own home for a long time, even if it has stairs. Then, if and when things do change, you can reassess your options, and still go the way of your parents and grandparents if you want to.

By Tom Sightings | U.S.News & World Report LP – Wed, 19 Jun, 2013 3:04 PM EDT

A Great Product for Seniors to Access Home Equity without increased Payments

CHIP is rapidly gaining popularity across Canada, and it is easy to understand why. The senior population is the fastest growing group in the country and they are living longer than ever before. CHIP offers secure and flexible access to an otherwise illiquid asset. Plus, since becoming a schedule 1 bank the provider of CHIP, HomEquity Bank, is able to offer increasingly competitive rates.

CHIP is often used to help seniors stay in their homes, but you can also use it to provide your clients with creative solutions when they are moving. Here are some ideas of ways CHIP could benefit you
:
1. Downsizing


Many seniors choose to downsize to pay off debt and increase retirement income. Unfortunately, this often means relocating to a different neighborhood or an inferior house. CHIP can help you help your clients down size financially, without harming their quality of life.

Example: You help clients sell their $500,000 home, which leaves them with $300,000 after paying off their debt.

They want $100,000 for retirement income, which only leaves $200,000 to buy their new property and limits them to a small apartment. So, you suggest a CHIP for $100,000 which would allow them to buy a townhouse. They have no payments, keep their $100,000 in cash, and you sell a higher priced home.
2. Upgrading


You can help clients who want to upgrade but cannot with their current income level. By applying the proceeds of their sale as a down payment, and using CHIP to complete the purchase, your clients can have the upgrad e they did not think was possible without ever having to make monthly payments.

Example: Your clients own a $600,000 home that is becoming too much work. They want to move to a Vancouver water front condo, but the price is $1,000,000 and they cannot afford a $400,000 mortgage. After selling the house, they put $600,000 on the condo and use CHIP for the remaining $400,000. You help your clients upgrade their lifestyle without increasing their expenses.
3. Purchasing a Vacation Property
 
Retirees may rent a vacation home because their income is not high enough to qualify for a mortgage on a second property. You can use CHIP to help them buy the vacation property of their dreams by using some of the equity in their primary home.

Example: Your clients own a $950,000 home and want to buy a $275,000 cottage. You help them utilize CHIP to unlock just under 30% of their home’s equity and use it to buy the cottage. They have improved their quality of life and you have gained a sale.


4. Providing a Down Payment for Children Buying a Home
 Often, parents would like to help their children financially but cannot do so without decreasing their quality of life or incurring debt with monthly payments. CHIP can be a great way for parents to assist their children, without making sacrifices, when it will be the most beneficial.

Example: A 30 year old couple wants to buy a rental income property worth $400,000 but they need a 20%

down payment. Their parents have a $450,000 house, so you help them use CHIP to access $80,000 to give to

their children for a down payment. This helps the couple purchase the property, and gives you a purchase that

may have had to wait until when, or if, they have more money.

For more information on the CHIP Program contact me elwells@telus.net

  

Low-rate pledge revives fears of hard reckoning for Canada’s housing market

Andrea Hopkins, Reuters | 28/10/13 | Last Updated: 28/10/13 1:50 PM ET

TORONTO — The Bank of Canada’s surprising signal last week that it will not raise interest rates any time soon will lift the housing market and give indebted households breathing room, but it leaves many apprehensive there will be a hard reckoning.

Canada sidestepped the worst of the financial crisis because it avoided the real estate excesses of its U.S. neighbour, and a post-recession housing boom helped it recover more quickly than its Group of Seven peers.

But the housing market began to cool last year after Prime Minister Stephen Harper’s Conservative government, worried about a potential property bubble, tightened mortgage rules.

Debt is at record levels, and we know consumers are biting off more than they can chew

The prospect of lower-for-longer interest rates, needed to help a struggling economy, has revived those bubble fears.

“This is a double-edged sword,” said Laurie Campbell, chief executive at Credit Canada, a nonprofit credit counselling agency that is funded by banks and other lenders.

“It’s going to keep more home buyers in the market, but … I worry. Because, fine, interest rates are going to be stable and (home buyers) can get a good rate, but are they getting into the market only because of that? Debt is at record levels, and we know consumers are biting off more than they can chew financially, so does this lead to more problems down the road?”

Finance Minister Jim Flaherty said Monday he intends to get more directly involved with players in the housing sector to ensure the market doesn’t over heat.

Flaherty says the responsibility of keeping the market stable falls on his department.

The central bank’s position comes amid signs home sales and prices are regaining momentum after cooling last year when Flaherty clamped down on mortgage rules.

Flaherty says he speaks regularly with market players, but is going to do more of it now to ensure the recent pick-up in sales and prices is a temporary phenomenon, and not the early signs of a housing bubble.

He says at the present time he has no intention of intervening by clamping down on borrowing.

Most analysts say he could take the steam out of the market by increasing the minimum requirement for a down payment to buy a new home.

BROKERS SEE FRESH BOOM

The Bank of Canada has underpinned the housing market by holding its key policy rate at a near-record low of 1% since 2010. But early last year, worried by soaring household debt levels, it began warning its next move would be a rate hike and that Canadians should plan accordingly.

But even as it continued to acknowledge the problem of soaring debt levels in its latest report on Wednesday, it dropped that language, putting more emphasis on the risks of weak inflation and an economy still operating well below potential,

The bank’s omission of the rate warning left players in the housing market anticipating a renewed surge of strength.

“What is going to happen is rates are going to be lower for longer, and that means it is more appealing for buyers to get into the market,” said Kim Gibbons, a mortgage broker in Toronto.

Already, brokers are seeing borrowers shifting back to variable rate mortgages as home buyers bet rates will stay at ultra-low levels for a few more years. When rates had looked like they were on the rise, fixed-rate mortgages seemed the safer bet, locking in a low rate before costs rise.

I would suspect that we’ll see a significant trend away from longer-term fixed into shorter-term variable rates

A five-year variable rate mortgage at 2.5% allows a borrower to lower the early cost of a loan, compared with a five-year fixed rate at 3.5 or 4 %. Effectively, that allows them to borrow more and buy a more expensive house.

A Reuters poll published on Thursday showed primary bond dealers, who work directly with the central bank, now expect interest rates to stay on hold until the second quarter of 2015.

“With the BOC keeping rates low for a long period of time, I would suspect that we’ll see a significant trend away from longer-term fixed into shorter-term variable rates,” said Toronto broker Calum Ross.

“What we know in the housing sector is people don’t buy prices, they buy payments. So if the payment shock isn’t there … they’ll buy a payment today not having realistic expectations about what the long-term budget implications are.”

The long-term implications of Canada’s huge household debt burden is part of what had driven Bank of Canada policymakers, along with officials at the Finance Department, to repeatedly warn Canadians that their debt burden will become harder to bear when interest rates rise eventually.

Canada’s debt-to-income ratio reached a historical high of 163.4% in the second quarter, meaning Canadians owed C$1.63 for every C$1.00 they were bringing home.

Low interest rates were partly to blame as Canadians reached for ever-larger mortgages in a booming market for residential real estate.

The federal government has tightened mortgage lending rules four times in the past five years in a bid to cool the market and prevent home buyers from taking on too much debt. And the Bank of Canada did its bit by using the threat of rising interest rates to remind consumers that cheap money would not last.

No longer. Having dropped the threat of raising interest rates, analysts said the central bank has pushed the consequences of higher levels of borrowing well into the future.

“(In the parlance of) Monopoly, we picked up a ‘Get out of jail free’ card, and managed kick that can down the road several months and probably not before 2015,” said David Rosenberg, chief economist at Gluskin Sheff, who famously predicted the last U.S. housing crash.

“Household debt ratios are problematic, and the central bank knows it, but … the good news out of bank is we’ve been told we have a little more time to get our finances in order before the debt to service ratio starts to play some catch-up.”

© Thomson Reuters 2013, with files from the Canadian Press