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- EFFECTIVE OCTOBER 17TH, ANY ONE BUYING A NEW PROPERTY WITH LESS THAN 20% DOWN MUST QUALIFY BASED ON THE POSTED RATE (4.64%)

- THIS CAN MEAN THE DIFFERENCE IN $150,000 OR MORE FOR SOME BUYERS IN BUYING POWER

 

Therefore, any first time buyers looking to buy with less than 20% down, must have a firm accepted offer) in place before October 17th, 2016.

 

If they had a pre approval in place based on the 5yr fixed rate mortgage of (say 2.39%)....their pre approval will not be the same after october 17th. The pre approval amount will go down and could down a lot.

 

This is not good for first time buyers or any one buying with less than 20% down....another hit to first time buyers.

 

 

Greater details:


1) If a client has an approval in place (firm excepted offer) prior to October 17th, they can close up to 120 days later.. the rules are grandfathered.


2) If your client has an insured pre approval now, they will have to get a new one after October 17th. This is very important, especially if anyone is considering waiving the financing condition. 


3) This rule change does not effect clients with at least 20% down payment (yet, but this could change as well) - we will see... fingers crossed it does not. 


What this means in real numbers... if a client is looking to buy a property with less than 20% down, their budget has dropped by 20 to 25% on average. This is very unfortunate for first time home buys especially. 


To see some examples of the impact:

Client before October 17th (buyer with 10% down)

- their budget to buy - $400,000 purchase price

After October 17th 

- their budget goes down to - $300,000 purchase price. 

This is drastic, but true. 

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When you’re completely new to the world of real estate, it can be an intimidating pool to wade into. In order to really get the big picture, you need understand a little bit about a lot of terms that are bandied about: interest rates, amortization, mortgage insurance, brokers, lenders . . . the list goes on. If you want to climb onto the first rung of the property ladder but aren’t independently wealthy – and maybe even if you are independently wealthy – then your first priority is to understand what a mortgage is. More than likely you’re going to need one.
 
You’ve undoubtedly heard the word before, but apart from a vague idea of something to do with property and a bank, what exactly is a mortgage? Simply speaking, a mortgage is a legal agreement in which property is used as security for the repayment of a loan. If all of the agreed-upon terms of the mortgage are met, the borrower will own the property outright by the end of the specified period.
 
Every mortgage has three components: the principal, the interest, and the amortization period.
 
A mortgage principal is the amount of money that you’re borrowing from a lender. If you have a $300,000 mortgage, it doesn’t mean that that was the sale price of the property; it’s the amount that you’re being loaned by the bank in order to purchase the property. Your mortgage principal is the sale price of the property minus your down payment, which is the amount of money you present upfront in order to purchase a property.

 

Interest is the catch of any loan, be it a mortgage or a student loan for university. Sure, a lender will loan you money – for a fee. This fee calculation is fairly tricky and is dependent on something known as the prime rate, which has traditionally been the lowest interest rate that a commercial bank charged its most optimal borrowers. Other factors determining your personal mortgage interest rate include your personal credit score and income level. And as with any other loan, all of the interest paid to your lender is added to your principal, which means that you’re paying more than you borrowed. Part of what to look for when getting a good mortgage is that you pay a competitive interest rate so that you’ll pay as little extra as possible. When you start making mortgage payments, a portion of each payment is dedicated to paying down the principal, but most of it will go toward the interest at first. Eventually, as the principal amount is reduced, there will be less to pay in interest, and therefore the bulk of the payment will continue to go toward the principal.
 
A loan’s amortization refers to the period of time in which you make scheduled payments in order to pay off that loan. The amortization period is not to be confused with the term of the loan; a term is the length of time that your specific loan parameters, such as the interest rate and payment amount, are agreed upon, while the amortization period is how long you have to pay off the loan. Amortization periods in Canada range from 10-35 years. The longer your amortization period, the lower your monthly payment. The shorter your amortization period, the less you’ll pay in interest over the life of your loan.
 
Relax, you don’t actually have to do any pencil-to-paper math. Just type some numbers into our mortgage payment calculator.
 
For example, a $300,000 mortgage with an interest rate of 2.8% and an amortization period of 25 years would mean that your monthly mortgage payments would be $1,391.62. Over the life of the mortgage, you’ll have paid $117,486.00 in interest on top of your original loan, which means that in 25 years you’ll have repaid your lender $417,486.
 
Use that same loan amount, $300,000, with the same 2.8% interest rate and an amortization period of 15 years, and you’ll see that your monthly mortgage payments are $2,043.01. Over the life of the mortgage, you’ll have paid $67,741.80 in interest on top of your original loan, which means that in 15 years, you’ll have paid the bank $367,741.80. You get the idea: the shorter the amortization period and/or the higher the monthly payments, the quicker you’ll pay off the loan, which means that you’ll pay your lender less in interest.

 

Two things thing to keep in mind, though. One is that your interest rate won’t stay the same throughout the life of your loan. Remember, the term of a mortgage is the period of time that the lender’s terms remain the same, and a term gets renewed after each period is over. Terms range from six months to 10 years, and the interest rates available to you will vary depending on the length of the term. Shorter terms tend to have lower interest rates, and longer terms tend to have higher rates – with the former, you’re trading stability for low prices. Depending on various factors at the time of your loan renewal, you can choose to renew with the same terms, different terms, or even switch to a different lender, if desired. Mortgage rates could rise and fall over the life of the loan – and generally will, especially if the term is for a long period of time – and whatever the new mortgage rate is at the time of your term renewal will alter your mortgage payments.
 
The second thing to keep in mind is that if you have less than 20% of the purchase price of your property available upfront as a down payment, then the maximum amortization period you can get is 25 years. There are 35-year amortization periods available, although they aren’t provided by every lender and they’re only available if your down payment is 20% or more. Part of that is because the longer the amortization period, the more likely it is for a borrower to default on the loan. If a borrower has less than 20% down toward a purchase of property, then they are required by law to get mortgage default insurance, also known as mortgage loan insurance, which protects the lender in case the borrower defaults on the loan. The lender pays the insurance premium to the insurance provider, but the cost gets passed on to the borrower, usually by combining it with mortgage, so that there is a single payment that combines the principal and interest of the home loan with the premium for the mortgage default insurance. Generally speaking, the mortgage default premium is calculated as a percentage of the loan and is based on the size of your down payment. The higher the percentage of the total house price/value that you borrow, the higher percentage you will pay in insurance premiums.
 
The minimum down payment allowed on any property is 5% of its value. If a property is sold for $500,000 or more, then the down payment is 5% up to $500,000, and 10% for any amount over that. Mortgage insurance is only available for properties purchased for less than $1,000,000.
 
For the most part, a mortgage works just like any other loan, although more safeguards are in place since so much money is at stake. Now that you’ve got a handle on the basics of a mortgage, you can figure out which mortgage product is right for you.

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The Toronto real estate market is being driven by these major factors.

The first is restricted supply. Eleven years ago, the Liberal government froze development on 1.4 million acres across 325 km of land from the Niagara River through Hamilton (Golden Horseshoe area), all across the north of the GTA and over to Lake Scugog and Rice Lake, under the Greenbelt Act 2005. This had the effect of creating the “GTA Island”, and like Manhattan in New York City, if you can’t afford to buy there, you will commute one to two hours to get to there.

 

The second factor is rapid population growth that increases demand.

 

The population of GTA and surrounding area has grown from 3.7 million people in 1986, to 5.5 million in 2005, to 6.3 million now. It will be 7.3 million people in 2021 and 9.1 million in 2036!

 

If you remember taking an economics course, you will recall a concept called supply and demand. If there is an increase in demand, there must either be a price or quantity adjustment. Right now, we have no capacity to increase the quantity of land available in the GTA and as a result, land prices have soared for building lots and condo development sites.

 

We also have record low interest rates. A $500,000 mortgage carries for $2,117/month at today’s interest rate. The same mortgage at 10 per cent interest is $4,472/month. A $1 million mortgage at today’s rates carries for $4,234/month.

The last time we had 10 per cent interest rates was 20 years ago and they have been falling ever since. In the last 20 years, there have only been two quarters when prices dropped in Toronto…see the correlation between prices and interest rates?

 

FULL ARTICLE HERE

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