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Posts Tagged ‘Mortgages’

How will the HST affect Buying a Home?

Wednesday, March 24th, 2010

What is the new HST?

Effective July 1st, 2010 the Government is implementing the Harmonized Sales Tax in Ontario. This means that services that are currently NOT subject to Provincial Sales Tax of 8% will now be taxed. ….at a rate of 15% which is a combination of the current GST of 7% + Provincial Sales Tax of 8%.

How does this affect Buying a Home?

Services that are part of the Home Buying process; Home Inspection, Appraisal, Real Estate Fees, Legal Fees, Moving costs etc; are currently only taxed at 7% GST. Starting July 1st these services will all be taxed at 15%. As a buyer you are going to be paying more for all of these services.

What about Buying a NEW home in Ontario after July 1st 2010?

Yes; you will pay HST on the purchase of a new home……but……

Buyers of new homes will receive a rebate of up to $24,000 regardless of the price of the new home.

This rebate ensures that buyers of homes priced up to $400,000 (about three-quarters of new homes built in Ontario) will, on average, pay no more – or possibly even less – tax than under the PST system.

For a full list of services that are affected CLICK HERE

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Buying a Rental Property

Friday, March 19th, 2010

Are you consider purchasing a Rental Residental property with 1-4 units?

I have been investing in Rental properties for the past 7 years. I would like to share with you at this time HOW I evaluate a residential rental property that I am considering buying.

I will use the following property as an example: 319 Broadway Ave, Orangeville Ontario as listed on 519Property

(See my calculations below). What I look for:

a) property should be cash flow positive

b) Return on Investment; I like to be higher than 10%, the calculations below do not include ROI for increase in property value; which would increase the ROI even more

c) there is room for a second mortgage so that I do not need to come up with the entire 20% down payment

Based on this evaluation; this is an excellent investment. Other things to consider when buying a rental property;

-who pays the utilities; tenant or landlord?

-what is the “Curb” appeal of the property (how it looks from the outside can have a great impact on quality of tenants)

-is it currently rented and if so what are the terms of the leases (one year, month to month)

CMHC is implementing new regulations in April that are tightening up lending on Rental Properties. They will not insure a mortgage more than 80% loan to value, and they are only going to use 50% of the rental income to qualify the debt ratios. There are other options available to Investors than going through CMHC insurance. I would be happy to talk to you on how you can still buy a property with less than 20% down. If there is a property that you are interested in I will prepare free of charge a complete analysis like the one below for you.

sarah@dropmyrate.ca

319 Broadway Supplimentary Mortgage Information
Monthly Annual
Rental Income $ 3,100 $ 37,200
Less Expenses:
Insurance $ 250 $ 3,000
Prop Tax $ 300 $ 3,600
Net Income $ 2,550 $ 30,600
Mortgage Info:
DownPayment 20% $ 83,800
Mortgage amount 80% $ 335,200
Interest Rate 4%
Monthly Pmts (35 yr am) $ 1,484
***OAC
Monthly Cash Flow $ 1,066
Annual Cash Flow $ 12,792
Annual ROI 15.26%

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How to Keep your Credit in Good Standing

Thursday, March 11th, 2010

Here are a few tips to keep in mind to ensure your credit is in good standing:

Pay your bills on time: always pay your credit cards, lines of credit, car leases, store credit cards etc. on time. Even if you make the minimum payment each month make sure you pay it on or before the due date. Never let any other items go into collections.

Check your credit report for accuracy and often-at least once a year request from Equifax or TransUnion a copy of your own credit report. Make sure that there are no items that you do not recognize. Unfortunately Identity Theft is a real problem in Canada; so you want to make sure that there are no accounts being opened in your name that you are not aware of.

Keep your credit card balances in check; never go over your maximum balance and wherever possible only use 75-80% of the available credit.

If you have no credit, or have a previous bankruptcy you will need to rebuild your credit score. But how can you do that if the bank will not approve you for a credit card? You can actually get a pre-paid credit card that will help you rebuild your credit. Ideally you want to have a few credit cards/store cards with approx $2000-$2500 of available credit which you are making the monthly minimum payments each month on time for about a year after bankruptcy to then start thinking about a mortgage.

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Mortgages for Commercial Property

Friday, March 5th, 2010

Commercial lending can be a very challenging arena to enter. There are a limited number of Lenders that will consider Commercial deals. A deal is generally considered to be commercial if it is a Multi-residential building with more than 4 units, an office or retail building, industrial condo’s or buildings, and any other type of income generating property that is NOT residential.

Once a Property is considered Commercial, a few things change when looking into Financing the property. Generally you will require more money as a down payment. Anywhere from 15% to 50% depending on the type of property. The interest rate on the Mortgage will be higher than current posted Residential Rates. And you may require private lending as opposed to a traditional bank.

Your best approach to financing a commercial property is to work with a Mortgage Broker who has access to Multiple Lenders, and will have experience placing many different types of commercial properties. Mortgage Brokers usually have contacts in private lending also, that may give you some flexibility. For example if a Lender on an office building is only willing to loan up to 65% Loan to Value, your Mortgage broker may be able to find Private funds for a second mortgage up to 75% or even 85% so you need to invest less of your own funds.

If the building is being purchased by a corporation, generally the lender will require the Personal Gaurantee of the principals behind the Corporation.

To apply for a commercial mortgage the following information will be reviewed:

Typical Information Required to Obtain Detailed Loan Proposal
• Loan Amount Required and Purpose
• Rent Roll or Leases
• Project Operating Statements
• Ownership Details
• Pictures / Property Description
• Details of Registered Debt or Purchase and Sale Agreement

For more information about Commercial Lending please contact us by using our contact page or the comment form below, and one of our Licensed Mortgage Agents will be in touch with you within 24 hours.

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Bank of Canada maintains overnight rate

Tuesday, March 2nd, 2010

Not too much of a surprise here; most experts did not expect that the Bank of Canada would raise its overnight lending rate, and they did not.

http://www.bankofcanada.ca/en/fixed-dates/2010/rate_020310.html

Bank of Canada maintains overnight rate target at 1/4 per cent and reiterates conditional commitment to hold current policy rate until the end of the second quarter of 2010

OTTAWA — The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1/4 per cent. The Bank Rate is unchanged at 1/2 per cent and the deposit rate is 1/4 per cent.

In the statement accompanying Tuesday’s decision, Governor Mark Carney and his rate-setting panel acknowledged that growth and inflation have been hotter than policy makers estimated in their January forecast, saying the economy’s 5-per-cent growth in the fourth quarter was “spurred by vigorous domestic spending and further recovery in exports.”

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Mortgage Changes Coming in April

Monday, March 1st, 2010

A few weeks ago Finance Minister, Jim Flaherty, announced new mortgage rules will be implemented in Canada on April 19th. The reaction across the country has ranged from panic (for those investing in rental properties or flipping homes), to indifference. Overall though, I sense a lot of confusion over the announcement as many people just do not understand the changes.

I have been contacted by clients and Real Estate Agents that are confused about the new rules, and the most common question I am getting is from first time home-buyers concerned that they will need a 10 or 20% down payment. This is not the case.

Here is an overview of the changes:

1. Tighter restrictions to Qualify for a Mortgage

All ARM (variable rate mortgages) and Fixed mortgages with terms less than 5 years are to be qualified at the 5 year posted rates.

Currently most banks use the 3 year posted rate to qualify ARM clients. The current spread between a 3 and 5 year posted rate is approximately 50 bps. This will reflect higher debt service ratios many borrowers, making slightly more difficult to be approved IF the borrower has a large debt load and not enough income to cover.

2. Need to keep more Equity in your home if you Refinance your Mortgage

The maximum LTV for refinances changes from 95% to 90%. Many lenders had reduced this criterion independently over the course of the last year or so. It is designed to prevent mortgagors from “turning their houses into ATMs”. Again note that this only applies when you are REFINANCING your mortgage, NOT a new purchase, or a Mortgage Renewal.

3. More money needed as a down payment for Investment Properties

The maximum LTV for non-owner occupied houses is reduced to 80%. The intent here is to reduce the degree speculative buying that would be naturally encouraged with such low interest rates. This will affect investors that were using the CMHC insurance for rental properties to purchase either residential rental units, or purchasing homes for “flipping”, or speculating i.e. Condo buying. Furthermore, the government is only going to allow 50% of the rental income to be used to qualify the debt service ratios, so this will also make it tougher for this type of investor.

In Summary

It is estimated that these changes will only affect a very small percentage of the marketplace, and most experts agree will not have a signifigant impact on the HOT housing market in Canada. The spring market is just around the corner, and with the low inventories of homes for sale, and interest rates at all time lows, the coming months are going to prove to be a very exciting time for Real Estate Agents and Mortgage Brokers.

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