A growing number of Canadians see mortgage qualification as the biggest barrier to homeownership, according to a recent study by Zillow and Ipsos.
Around 56% of Canadians see qualifying for a mortgage as a barrier to homeownership, a six-point increase from 2018. After mortgage qualification, the next top worry for buyers is whether they can afford the mortgage payment, with roughly 54% saying so.
Canadian borrowers have to qualify under the stricter mortgage requirements and stress test that took effect in January 2018. Under the new rules, borrowers should be able to prove that they can service a mortgage at a higher rate.
“The rule only applies to newly originated mortgages and is designed to prevent borrowers from taking on more debt than they can handle if interest rates go up,” the study said.
One in two Canadians said they are concerned that these new rules will prevent them from qualifying from a mortgage.
Younger borrowers bear the weight of the new rules the most, with 69% of those in the 18-34 age bracket feeling concerned about qualifying for a mortgage.
“These mortgage regulations could impact a substantial portion of potential buyers, as the survey results show a large share of Canadian homeowners get mortgages. This worry is also present for current renters who may be considering the purchase of their first home,” the study said.
A recent report by the Canadian Mortgage and Housing Corporation, however, indicated that most buyers felt there were benefits to the stress test. The CMHC survey found that 65% of buyers believe the mortgage qualification stress test will prevent more Canadians from taking on a mortgage they can’t afford in the future.
Houses and townhouses are seen in an aerial view, in Langley, B.C., on Wednesday May 16, 2018. (Darryl Dyck/CP)
When it comes to mortgages, a government survey finds most Canadians don’t know their terms from their amortizations
It’s no secret that the financial literacy of Canadians is tenuous at best, but given the fact that households are carrying $1.6 trillion worth of residential mortgage debt, we should be particularly nervous about just how yawning the knowledge gaps are when it comes to the basics of a mortgage.
A survey conducted for the Financial Consumer Agency of Canada and the Bank of Canada and made public this week found when it comes to simple mortgage terminology like “term” and “amortization” most Canadians are hopelessly lost.
According to the survey slightly more than half of consumers failed to correctly identity what “mortgage term” means. Only 49 per cent offered purely correct responses like “the years you have a mortgage/contract term,” “the length of time you are committed to a mortgage rate,” or “the length of time before renewal.”
Canadians have an even shakier grasp on what “amortization” means — while just over one quarter (28 per cent) of the general population could offer a proper definition of the word, they also said things in their answers that made it clear they didn’t fully know what they were talking about.
Fewer than one per cent of Canadians could give a strictly correct definition for amortization as “the time to pay the mortgage in full.”
Just so we’re clear, the amortization period is the length of time it will take you to completely pay off a mortgage (generally 25 years) while the mortgage term is the length of time you commit to a specific mortgage rate and conditions with a lender (usually five years).
While the above responses from the survey reflect the mortgage knowledge of the general population, even those people specifically targeted in the survey who have a mortgage or plan to buy a home in the next five years had only a marginally-better understanding of mortgage basics. As the survey results note, “three-in-10 in the target audience … do not know what the phrase ‘amortization period’ means,” which suggests a large number of people plunged into the biggest financial decision of their lives with a dubious understanding of the core terminology in the documents they were signing.
“The responses indicate that there is a significant lack of knowledge about mortgage terms among both the general population and the target audience,” wrote the authors of the survey. The survey, which was published was conducted by Ipsos Public Affairs and involved interviews with 5,000 Canadians between May and June 2019.
The findings were meant to establish the “baseline knowledge” Canadians have about mortgages as part of a larger quest: to find out what Canadians know about long-term mortgages and why they don’t chose that option more.
In fact just as the survey was getting underway last May, Bank of Canada governor Stephen Poloz gave a speech in Winnipeg where he made an impassioned (well, for a central banker, at least) case for the financial industry and Canadians homebuyers to embrace longer-term mortgages. It was part of a broader call by him for innovation in the mortgage sector.
While fixed-rate mortgages with terms longer than five years are widely available, they’re little used — just two per cent of all mortgages issued in 2018 were fixed-rate loans with terms longer than five years, according to the Bank of Canada. Yet Poloz sees a lot of benefits to both consumers and the financial system if that number were to rise. For one thing, he said, a longer term means fewer renewals and hence less risk that when households do renew it will be at a higher rate. (Poloz acknowledged a longer-term mortgage will have a higher interest rate, but for some homebuyers the trade-off for lower risk will be worth it.)
As for the financial system, the fact that nearly half of all mortgages in Canada carry fixed-rate five-year terms means that when interest rates do start to rise again, which they will, a whole lot of borrowers who took on massive mortgages in recent years will be up for renewal each year. “Simple math tells you that of all those five-year mortgages, roughly 20 per cent will be renewed every year,” he said. “That is a lot of households. If all the mortgages were 10-year loans, only 10 per cent of these homeowners would renew every year.”
Based on the survey results Poloz has his work cut out for him — only one-in-10 homeowners or likely buyers can correctly define both a mortgage term and an amortization period and at the same time even know that mortgages with terms longer than five years exist in Canada.
Your security deposit is not supposed to be used as last month’s rent.
It is now illegal in New York state for landlords to require you to pay last month’s rent in addition to a month’s security deposit when you sign a lease. New rent reforms clearly state that in nearly all cases, “no deposit or advance shall exceed the amount of one month’s rent.”
Nor can landlords require renters with bad credit histories or annual salaries less than 40 to 45 times the monthly rent to pay multiple months of rent up front. In the past, they’ve typically asked for anywhere from three to 12 months worth of rent.
The new law lowers financial barriers to renting an apartment in New York City, a good thing for most renters. But it complicates things for renters who don’t meet the landlords’ income requirements (including students and retirees), have a blemish on their credit record or no credit history at all, such as international renters.
Elizabeth Stone, the managing agent at Stone Realty Management, says the protections may backfire. “We are going to require guarantors or just reject the tenants outright. So those that have lower incomes are going to miss out because landlords are not going to take the risk,” she says.
A lease guarantor is someone who lives in the tri-state area and earns an annual salary of around 80 times the monthly rent. Another option is an institutional guarantor like Insurent (a Brick Underground sponsor), which charges renters a fee for the service, usually 70 to 85 percent of one month’s rent for U.S. renters and 90 to 110 percent of one month’s rent for international renters without U.S. credit history for the 12 to 14 month lease.
What’s the difference between a security deposit and last month’s rent anyway?
Your security deposit covers the cost of repairing damages to your apartment, while your last month’s rent is pretty much what it sounds like. The two are not supposed to be interchangeable.
While the security deposit is capped at an amount equal to one month’s rent, it doesn’t change the fact any rent paid in advance and the deposit are different things and a landlord is entitled to deduct money from the deposit for any costs associated with damage to the apartment when a tenant moves out.
Your lease will make clear what the security deposit is for; it’s designed to make sure you leave a clean, undamaged apartment with a working set of keys so the landlord can easily rent the unit to someone else.
In most buildings with more than six units, the landlord is required by law to put the security deposit in escrow, giving the tenant more protections than if the money was in a private account.
The practice of not paying the last month’s rent
Some New Yorkers claim they never pay their last month’s rent, figuring the security deposit can stand in as the rent.
Adam Frisch, managing principal at Lee & Associates Residential NYC, a real estate company representing building owners in Manhattan, says a tenant might tell a landlord, “I’m not going to initiate the final rent payment and you can keep my security and there’s nothing you can do about it.” He says they are right, “there isn’t much we can do about it,” but if there’s damage to the apartment, a landlord would be entitled to sue to recover the costs.
“Tenants have gotten away with this and will continue to do so, but they are not supposed to,” he says. Certainly, in situations where the apartment needs nothing more than a lick of paint, there’s no loss to the landlord.
Getting landlords and tenants in sync
In the past, the security deposit was legally required to be returned in a ‘reasonable’ time frame, a vague term that gave renters no reassurances. Landlords must now pay back the security deposit within 14 days of the end of the tenancy.
This has some landlords furious, saying the timing is too tight to assess and price out any damage or close the escrow account where the security is held. They are also required to do walk-throughs at the beginning and end of a tenancy so any damage can be properly itemized.
If walk-throughs allow renters to work towards correcting any issues and they know they will get their deposit back promptly, it’s possible landlords may find it cuts down on the practice of using the deposit as the last month’s rent.
Stone disagrees, pointing out the kind of tenant who makes a landlord take the security deposit as the final rent payment is the same kind of tenant who doesn’t take care of their rental during their tenancy.
“Limiting how much money [a landlord] can take up front and limiting the security deposit is designed to stop tenants being excluded from some of these apartments but I don’t think in practicality, it will work for them,” she says.
Source: BrickUnderground -DECEMBER 23, 2019 BY EMILY MYERS
If you’re hoping to purchase a home—especially as a first-time homebuyer—in 2020, you will face a challenging market defined by low inventory and high prices (which appear to be climbing higher).
But you’ll also enjoy low interest rates and, if you qualify, help from the federal government’s First-Time Home Buyer Incentive.
Penelope Graham, the managing editor of real estate brokerage and website Zoocasa, says that the current dearth in housing supply (just 335 homes hit the market in December 2019) has driven the average home price up to $799,593 in Mississauga.
While the supply and demand imbalance is tough, there are homes available for under $500,000 in the city.
Here’s a look at some affordable homes that hit the market in late 2019.
This one-bedroom, one-bathroom, 500+ square foot unit just sold for $285,000 after being listed for $275,000. The suite, which is good for investors or first-time buyers who don’t mind giving the place a little TLC, offers a large balcony and proximity to shopping and transit.
This approximately 499 square foot bachelor suite offers one bathroom and no parking space, but it’s a pretty rare find in the city. The unit just sold for $325,000 after being listed for $354,900, and it offers ensuite laundry, a back door exit to the patio, low condo fees and a pretty prime location.
This 599 square foot condo boasts one bedroom, one bathroom and one parking spot. It sold for $364,000 after being listed for $361,000, and it features an open-concept living, dining and kitchen combo and additional cabinets in the kitchen.
This two-bedroom, one-bathroom unit boasts up to 799 square feet of space and two parking spaces (which is rare). The unit sold for $373,000 after being listed for $375,000, and the building features a gym, party room, tennis court, sauna, outdoor pool, children’s playground and visitor parking.
This one-bedroom, one-bathroom unit spans about 599 square feet and offers one parking spot. It sold for $380,000 after being listed for $395,000. It offers laminate flooring, ensuite laundry, a modern kitchen and double sinks.
New year, no vacancy. Renters in cities across Ontario will spend another year struggling to find rental housing as prices continue to rise in the face of tight market conditions.
In 2019, the vacancy rate was 1.6 percent and it will likely drop further through 2020 to a near record low of 1.5 percent, according to Central 1 Credit Union economist Edgard Navarrete. For context, the vacancy rate for Ontario’s rental market averaged 2.6 percent between 1991 and 2018.
In his 2019-2022 housing forecast published at the end of 2019, Navarrete noted that the province has seen a substantial uptick in completed new rental units over the last three years. Through the same 1991 to 2018 period, the average number of new rental units added to the market was 1,500. From 2017 to 2019, the average increased to 7,000 units.
The trouble is that increase still doesn’t satisfy the demand for rentals in some of the province’s most competitive markets, especially Toronto, which is said to have the worst rental supply deficit in Canada.
“Government investments in rental housing will continue to add to the rental universe but expect [the province’s] rental vacancy rate to remain stubbornly lower than the long-term average due to continued strong demand from immigrants settling in Ontario and existing renters opting to remain in rental longer until they have a sufficient down payment to qualify for a mortgage loan,” wrote Navarrete in the Central 1 Housing Forecast.
Unfortunately, the main takeaway here for Ontario renters is monthly rents will continue to climb above inflation as long as this sharp disparity exists between rental supply and persistent demand. Navarrete singles out Toronto, Ottawa-Gatineau, London, Kitchener-Cambridge-Waterloo and Hamilton as markets where rental prices will log especially steep increases and bidding wars will keep intensifying. These cities will feel the strain on their rental markets particularly acutely because they are set to absorb the most new residents to the province.
There is hope for a rental unit supply uptick in the next few years, but for those looking for a new rental this year, it’s unlikely to offer much relief. The provincial government under Premier Doug Ford rolled back the rent control measures introduced by the Wynne Liberal government just a couple years earlier. With more flexibility to price rental units in response to market demand, investors are more likely to see condos as a solid long-term moneymaker and purchase units to add to the rental market.
These investor-owned condos are known as the “secondary rental market” since they are not built for the sole purpose of being added to the rental pool. Purpose-built rental units are known as the primary rental market.
The caveat is that the positive market changes this policy shift from the Ford government intended to inspire won’t be felt for at least a few years.
“If we see a large number of investors entering the market today, with the average completion time of high-density housing such as condo apartments anywhere from two to three years from the time shovels hit the ground, it wouldn’t be until after 2022 when the increased rental market supply will alleviate some of the pressures from the primary rental market,” wrote Navarrete.
Knowing the best age to invest in real estate is one of the most frequent doubts that those who are beginning to think about their future have. Especially because they see in the real estate area a financial security that other types of investment as the stock market no longer offers.
The short answer is that there is no right age to invest, but the sooner you do it, the more opportunities you will have to make money – and your investment will last longer.
However, it is true that investing is not a habit that we have all been taught. Not all of us receive financial education, and some do not even have the habit of saving money. We know that it can be difficult to do when you are young and you are between your twenties or beginning the thirties: travel, shopping, transportation expenses and fashion technology tend to monopolize the attention of your money.
Unfortunately, this lack of financial education ultimately affects the future. Especially when you decide to start investing and you realize how much time you lost because you did not do it before.
Why should we start investing as soon as possible?
Something that guarantees the value of a property is the capital gain that it has, depends on the location in which the property is located. The capital gain acquires more value over time. That is why the big investors are those who can analyze the market and see beyond what is trendy. Imagine if 10 years ago you had invested in real estate developments in the Riviera Maya, or in real estate developments in Tulum, places that are currently a magnet for tourism and foreign investment.
That’s why we say that the best time to invest is now; the more time you spend, the less chance you will have of acquiring properties at a lower cost that guarantees a high return on investment.
We must also consider that the responsibilities we acquire over time can make it more difficult to become a real estate investor. Marrying or having children can make you reconsider your expenses and how much money you can use to invest.
Each individual has different priorities and opportunities. There are those who see in their twenties the opportunity to promote a future while there are others who can invest only after their 30’s or 40’s. It is also normal and natural for some to think about investing until after retirement, when they have the money to do so.
Nor can we deny that each generation has different perspectives on what we should consider a priority and what not. For example, while for millennials acquiring experiences is a priority -as traveling- for generation x and baby boomers, acquiring properties is more important.
However, this does not mean that millennials – who are between the ages of 23 and 38 – have a chip that prevents them from being good at investing in real estate, on the contrary it is they who are changing the notions of success and ways of doing business and even as we think about work and lifestyle, this makes them less incompatible in investing in real estate, they are the ones who are beginning to consider investing their money to obtain financial independence.
For example, for the baby boomers and generation X financial security meant having a stable job and a fixed salary in order to save for retirement or get their pension. Today the notion of working from home without the need to attend an office is a reality for many people, as well as the existence of jobs that 30 years ago were difficult to imagine.
30 years ago it was hard to think that ordinary people could make money using the internet. Computers and the Internet were exclusive to those who were studying something related to technology. Today you do not need to be a hacker to be able to use digital platforms to make money like blogs or investing in services like Uber.
The orange economy – that is, the creative economy – allows retirement to become more possible at an early age. Which has also become possible because more and more people decide to invest their money in a smarter way – and do it at a young age – to be able to live on their investments and not have to be dependent on a job.
Years ago we thought that buying a property was to live in, today thanks to applications like Airbnb, more and more investors decide to buy apartments and houses only to rent them on these platforms.
You do not need to be a millennial to start investing. The technological evolution has made both applications and platforms as well as access to them, are increasingly easier to use.
For example, since 2017 Airbnb host users over 60 years have increased by 120%, while women over this age have become the best rated on the platform. Which indicates that even baby boomers see technology as an opportunity to get a better return on investment with their property.
What is the best age to invest in real estate?
As we mentioned, not all ages or stages are the same for every person. For some it may be impossible to invest in their twenties and find the possibility of doing it later.
Our best recommendation is that rather than being guided byan ideal age you start doing it for the goals you have and the opportunities that come your way.
There are many myths around investment, especially when you want to do it at a young age, and one of the factors that keep people away from real estate investment is the lack of knowledge on the subject and investor stereotypes. We are not surprised when we hear cases of clients who want to become investors but fear not being able to do so because they do not understand numbers or be experts in the subject.
Knowing the real estate sector is one of the biggest keys to becoming a successful investor, this does not mean that it is a privileged knowledge that you cannot access.
Many millennials have the fear of investing in real estate because they think they need to buy a house to do so, and they ignore the investment possibilities that residential or industrial lots have.
For this reason, they fear not being able to do it because they believe that it is economically impossible for them, and they do not consider the possibilities of acquiring properties in other cities. For example, for some foreigners, investing in Mexico is a better option than doing it in their countries, but in the same way for some Mexican residents, investing in states such as Merida where there is increasingly strong demand in properties not only for housing but also for businesses and offices, it can be more accessible and profitable than doing it in places like Mexico City.
That is why it is important that you do not wait to have an ideal age and start thinking about becoming an investor or making an investment from now on. So the sooner you do it, the sooner you can designate your budget and create a work plan to invest or start saving money and then invest.
Otherwise, as you let time go by, you will be less likely to find suitable properties for yourself and especially if you have the opportunity to invest in places that are in presale in areas that will later have even more capital gain.
How to start investing in real estate?
One of the most common mistakes made by young people who aspire to become investors is to obtain immediate profits and be able to spend them on whatever they want. But as you know, this is not possible in the real estate market.
Being an investor is a goal of many to be able to have financial freedom and not be tied to a job or to live experiences like traveling or living in different parts of the world, investing to earn money immediately is not an actual goal.
This does not mean that you cannot earn an income in a short period of time. For example, apartments near tourist areas can generate profits if you decide to rent them. The same happens if you acquire property near schools, universities or hospitals.
What we really mean is that if you want to invest to enjoy the results you need to be patient and prepare constantly about the subject.
The preparation on the subject not only includes understanding how the market works, but also observing and analyzing where it is going.
That is why it is very important that you start to know very well and read everything about the area and the developments that are developing in the city you are looking to invest. Find out about the market and how real estate works in the place. About the papers you must have in order and the types of credits -if you’re considering obtaining one- to which you can access.
Begin to consume information and observe how other real estate investors are generating income with their properties. One of the advantages of investing in real estate is that it is a safe investment, but it also gives you the opportunity to take advantage of your investment.
There is a lot of information especially now that we live in the age of the Internet, but it is always good that you can approach the experts and work with a real estate agent to solve your doubts if you are already thinking about acquiring a property. Ask everything you need to know about the property and the area: the places of access, the maintenance fees, the projection of growth and the amenities with which the development has.
What factors should I consider when investing in real estate?
We already mentioned in our definitive guide of the real estate investor, if you want to be successful when acquiring a property you need to analyze the location and interests of your possible market without letting yourself be guided by the trends.
Actually, what makes your property acquire value is the capital gain of the area. This depends on external factors such as the location, amenities and even the roads that the property has.
Mérida is a city that we love to take as an example because the boom that is experiencing is related to the intervention of factors such as security and the excellent location in an area that attracts tourists and allows them to have access to beaches and archaeological sites.
In the best cities to invest in Mexico we have also mentioned the importance of decentralization that Mexico is living and Mérida is an example of how the diversity of industries can be an important factor in the development of the economy and in the demand for properties and offices, and therefore is another opportunity to ensure your future.
The more diverse of jobs and industries, the more likely you are to be victorious in your investment, as in the case of a crisis, for example, the closure of a factory or a big company that is in the area.
That’s why we emphasize the importance of not investing where everyone is investing, in the end -it may sound cliche- you get what you pay for.
Many new investors make the mistake of acquiring goods in areas that, although cheap, end up being insecure. In the end these investments end up being losses because they end up investing even in luxury finishes in areas where house prices are quoted in an amount lower than what they are thinking of asking for, whether they are rents or for sale.
The capital gain depends a lot on the area, the location and the amenities. And even if you get a very cheap property, in the end you will not be able to generate income if it is located in an area where there is no capital gain or the market cannot access the amount of money you propose. You will lose more money, unlike you decide to invest in an area with a guaranteed gain capital, thanks to all these external factors that we already mentioned.
Another factor that we highlight and that you have to take into account are pre-sales. There is no better way to guarantee your money than buying before, remember our example of the Riviera Maya and Tulum? Now imagine how much it will cost to buy a housing development once it is popular.
Acquiring properties in pre-sale is an excellent way to invest your money, since once the developments begin to acquire capital gain, your property will have more value than what it cost and you can adapt your income according to the costs of the area or decide to sell it to a higher price, or keep it to get more return.
So, if you’re wondering what is the best age to invest in real estate? It is better to start asking yourself; how can I start investing in real estate? And start making a plan so you can reach your goals and start creating a safe economic future for you.
Ninety-two percent of Canadians see at least one barrier to home ownership, and two of the top concerns are related to the mortgage process, according to a recent survey from Zillow and Ipsos.
Canadians report feeling pressured by stricter mortgage regulations that went into effect in 2018 and Zillow’s survey found that 56% of Canadians see qualifying for a mortgage as a barrier to home ownership—a six-point increase from 2018. This concern rises to 64% for consumers who recently purchased a home, likely linked to the impending mortgage regulation changes at the time of their home search.
New and stricter mortgage requirements took effect in January 2018 with the addition of a stress test, requiring borrowers to qualify under a higher rate. The rule only applies to newly originated mortgages and is designed to prevent borrowers from taking on more debt than they can handle if interest rates go up. Since its passing, buyers’ worries are growing according to the survey. Half of Canadians (51%) say they are specifically concerned that stricter rules will prevent them from qualifying for a mortgage, up five points since 2018.
Steve Garganis, lead mortgage planner with Mortgage Architects in Mississauga, said that the concerns have risen due to more information flowing to consumers.
“Canadians are surprised to learn that even a large down payment won’t guarantee you a mortgage approval. Got 30%, 40%, 50%, 60% down payment and great credit? Guess what? You still may not qualify for a mortgage. This is ridiculous, in my opinion,” Garganis said. “Those of us with years of experience in risk mitigation and credit adjudication know that if you have a large down payment, the chances of default are slim and none. Chances of any loss to the lender is nil.”
Younger home shoppers also feel the weight of the law. Sixty-nine percent of younger home shoppers, those between 18-34 years old, are concerned about qualifying for a mortgage under the stricter guidelines. This worry is also present for current renters who may be considering the purchase of their first home: 66% express concerns about mortgage qualification under stricter guidelines.
Garganis added that more Canadians are being forced back to the six big banks, as smaller lenders now have more costs in raising funds to lend. This results in Canadians paying more than they should.
Most people have heard the buzz word “stress test” but don’t really know what it means or know the specifics of what it did, said Jeff Evans, mortgage broker with Canada Innovative Financial in Richmond, B.C. He thinks that the higher qualifying standard is “quite unreasonable,” and that the government has “taken a hatchet to anything to do with helping the average Canadian to own a home.”
Evans says that Canadians have a right to be concerned, although there’s no sign of their concerns hampering their desire to purchase a home.
“Life has gone on. They qualify for less, the market has gone down primarily because of the changes the government has made, so it’s starting to get more affordable again and people are gradually coming into the market as it becomes more affordable, “Evans said.
Other perceived barriers to home ownership include coming up with a down payment (66%), debt (56%), lack of job security (47%), property taxes (46%), not being in a position to settle down (15%), or not being enough homes for sale (13%). Only 8% of Canadians claim not to see any barriers to owning a home.
Source: Mortgage Broker News – by Kimberly Greene10th January, 2020