Tag Archives: insurance

Why a 20% home down payment may not be worth it

Source: The Globe and Mail – Rob Carrick

Rob Carrick

It’s tough to feel financially prudent when buying a house these days.

That’s why an increasing number of first-time buyers are saving a down payment of 20 per cent or more. In doing so, they avoid having to buy mortgage default insurance which, in the case of a house price of $487,095 (the national average) bought with a 10 per cent down payment, would be 3.1 per cent or $13,590. This premium is generally added to the mortgage, which means more interest to pay.

It certainly sounds financially prudent to make a 20-per-cent down payment where possible, but this isn’t always the case. In fact, you may save money both now and in the future by making a slightly smaller down payment and taking on the cost of mortgage default insurance.

Listen up if you’re concerned about the new mortgage lending rules that were announced last week and will take effect on Jan. 1. When making a down payment of 20 per cent or more, the new rules require that you be able to qualify for a mortgage at the greater of the five-year benchmark rate published by the Bank of Canada, or the original contractual rate plus two percentage points. An easier path to a mortgage may be to make a smaller down payment.

To even propose this seems bizarre. “The story has been that you’re just throwing money away with mortgage insurance,” said Mike Bricknell, a mortgage agent with CanWise Financial. What this thinking ignores is the way today’s mortgage market discriminates against people who make down payments of 20 per cent or more. They may pay a fair bit more for a mortgage than someone with a high-ratio mortgage (down payment of less than 20 per cent) both now and on renewal.

A lender dealing with a client who has a sub-20 per cent down payment can take comfort from the fact that the loan is covered by government-backed insurance that is paid for by the borrower. A conventional mortgage (20 per cent or more) can be insured as well, but by the lender. All in all, a high-ratio mortgage is preferable from the lender’s point of view and often results in a lower mortgage rate.

Mr. Bricknell has lately found that rates on five-year fixed rate mortgages are about 0.45 of a percentage point less for high ratio as opposed to conventional mortgages. Maybe your lender can do better than that. If not, consider this example of how a down payment less than 20 per cent can pay off.

We start with a $450,000 house and a buyer with a 20-per-cent down payment already saved. With a conventional mortgage amortized over 25 years, Mr. Bricknell figures this person could get a five-year fixed rate mortgage at 3.29 per cent. That means a monthly payment of $1,758.

Now, let’s see what happens when this borrower makes a 19-per-cent down payment. A smaller down payment means borrowing a bit more, and thus more interest over the life of the mortgage. Also, mortgage insurance will be required at a cost of $10,206. All of this nets out to a monthly payment of $1,743, with the mortgage insurance premium included. How is this possible? Mr. Bricknell said it’s because the high-ratio borrower gets a mortgage rate of 2.84 per cent.

There’s a stress test for high-ratio mortgages as well, but it’s marginally less onerous than it is for conventional mortgages because you only have to be able to handle the Bank of Canada benchmark rate, currently 4.89 per cent. Thus the high-ratio mortgage in Mr. Bricknell’s example would have a qualifying rate of 4.89 per cent and the conventional mortgage would be at 5.29 per cent (the client’s actual rate plus two percentage points).

The two mortgages outlined by Mr. Bricknell are pretty much a wash right now when compared on cost. Looking ahead, the high-ratio mortgage offers the potential for lower interest rates when it’s time to renew your mortgage. This assumes that lenders will continue to look more favourably at high-ratio mortgages.

Mortgage industry data show that even as house prices increased from the early 2000s through the past few years, the percentage of people making down payments of less than 20 per cent has declined to 39 per cent from 54 per cent. If the rationale for this is to save money and be financially prudent, a rethink is required. Depending on the rates offered by your lender, a slightly smaller down payment could save you money in the long run.

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Why Canadians who own Florida homes need both hurricane and flood insurance

About 3 million Canadians visit Florida every year, and thousands own property there. So with Hurricane Irma threatening to do heavy damage to the state, should those property owners have flood or hurricane insurance?

The short answer is yes, they need both.

The latest forecasts suggest Irma’s winds could carve up much of Florida’s coast, damaging property from the Florida Keys through Jacksonville, and some experts say this could become the costliest storm in U.S. history.

For Canadian owners of property in Florida, the one bit of good news is that Irma is moving swiftly and should bring less than a quarter of the rain that Hurricane Harvey dumped on Texas when it stalled over the state. South Florida is also used to flooding and has a better flood control system than Texas.

Still, Irma could still cause significant water and wind damage. That’s why property owners need to be sure they have both hurricane and flood insurance – two distinct policies, says Brad Hubbard of National Flood Experts, a U.S.-based company that helps homeowners decide what kind of disaster insurance they need.

“If you have home insurance or even hurricane coverage, it does not cover flood. And flood insurance does not cover hurricane (damage). They are two, totally separate policies,” he told CTV Toronto from Tampa, Fla.

For Canadian snowbirds hoping to buy last-minute coverage before Irma hits, they will find they are out of luck. Most flooding polices must be purchased 30 days before a storm.

Property owners in areas known as Special Flood Hazard Zones are required to have federal flood insurance, through the National Flood Insurance Program (only a few private insurers offer flood insurance in Florida.).

In fact, U.S. mortgage lenders are required to make sure property owners living in flood hazard zones have the insurance in order to qualify for federally-backed loans.

Yet, according to an investigation by The Associated Press, just 42 per cent of homes in Florida’s 38 coastal counties are covered. In the counties currently under partial evacuation orders, only 34.3 per cent have proper coverage.

With storms becoming more severe and arriving more unpredictably, purchasing flood insurance is simply a smart investment for Canadians, says Hubbard.

Because Florida is particularly vulnerable to hurricane damage, many private insurance companies are reluctant to offer coverage to property owners who live in southern, coastal areas of the state.

That’s in part why the Florida state government created Citizens Property Insurance Corporation, a non-profit government agency that provides insurance to owners unable to find insurance in the private market.

Citizens’ spokesperson, Michael Peltier, says insurance premiums can vary depending on the type and the location of a property. He says premiums for “multi-peril insurance” — which includes hurricane coverage — in Miami-Dade County, for example, can range from an average of US$930 for a condominium unit, to $3,400 for a single-family home.

The same insurance in Orlando, Orange County, will cost an average of $1,400 for a single family home, simply because the county is further inland.

He recommends that Canadians who own property in Florida should ensure they are fully protected, before storms like Irma arrive.

“We would urge them to contact their insurance agent to make sure they have the coverage they need,” he told CTVNews.ca.

Source; With a report from CTV Toronto’s Pat Foran and files from The Associated Press

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New program will help first-time homebuyers in BC, but is it a good idea?

first-time buyers bc

 

New program will help first-time homebuyers in BC, but is it a good idea?

It looks like Christmas has come early, at least for some BC house hunters. The BC government has revealed plans to launch a new program for first-time buyers, and it’s expected to help as many as 42,000 households in the province enter the market.

Announced December 15th, the BC Home Owner Mortgage and Equity Partnership program will see the BC government match the amount of money first-time buyers put toward their down payment, to a maximum of $37,500. Loans will be interest free for five years, and recipients won’t have to start paying the money back during that time. Once five years have passed, they will be expected to begin making monthly payments at current interest rates.

“We believe every British Columbian deserves a place to call home,” Premier Christy Clark said in a press release. “We’ve invested in affordable rental housing, we’ve invested in transitional and emergency housing, and now we’re partnering with first-time buyers to make the purchase of their first home more affordable.”

The news came the same day that the BC Real Estate Association released its latest data on residential real estate sales and prices. While it shows that in November the average MLS price for a home in the province fell 6.4 per cent year-over-year to reach $625,871, that’s still out of reach for many first-time buyers.

First-time buyers hoping to participate in the program will have to meet a number of requirements in order to be eligible. For starters, applicants must be planning to buy a home for $750,000 or less and have total annual household income of $150,000 or less; they must also be preapproved for a high-ratio insured mortgage. Other requirements include being a Canadian citizen or permanent resident for at least five years, and living in BC for at least one year.

Reactions to the program have been mixed. While some have taken to Twitterto voice optimism about it, many people, including several key BC housing market commentators, have expressed concerns.

Speaking to The Times Colonist, Tom Davidoff of UBC’s Sauder School of Economics said that making it easier for people to buy homes when the province’s ability to increase housing supply is limited may drive up home prices. “I just think it’s lousy economics,” he said. NDP housing critic David Eby also pointed out that if interest rates are higher in five years, those who participate in the program will be at an increased risk of defaulting on their mortgages.

The program will start accepting applications on January 16th, 2017, and the BC government plans to invest about $703 million in it over the next three years. As there is no cap on the initiative it could eventually be expanded.

Sources: BuzzBuzzHome 

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Hurricane Matthew: Before it hits, take these insurance precautions

AP HURRICANE MATTHEW NORTH CAROLINA A WEA USA NC

America hasn’t seen a storm as strong as Hurricane Matthew in a decade, and the damages could be epic. The Consumer Federation of America predicts as many as 100,000 insurance claims for wind damage, and payouts for damages likely will exceed $7.4 billion.

As residents board up windows and stock up on bottled water, if they have time to safely do so, they should also consider preparing for the possibility that they soon could be facing an insurance claim.

Before the storm

The CFA offers these three tips:

  • Locate your homeowners or renters policy, and make sure it’s in a safe place where you can reach it after the storm.
  • Review your policy to find out how and where to report a claim.
  • If possible, document your belongings with photos or a video tour.

The Property Casualty Insurers Association of America also recommends a thorough documentation. A home inventory can be vital to ensure you get the most out of your insurance policy, said Don Griffin, vice president of personal lines for PCIAA.

“You see your stuff every day, but if you don’t have a picture or a video of it, you won’t remember,” Griffin said.

PCIAA recommends using a smartphone to supplement an inventory with photos and videos inside the home. You should save your inventory in a disaster-proof form, such as email or cloud-based note-taking services.

The more detailed the list, the better, said Joshua Butts, owner of Cornerstone Insurance in Tampa. That means tallying the contents of drawers and the make and model of furniture, TVs and other big-ticket electronics. A detailed list gets an owner more money back in a loss, and they get it back more quickly, Butts said — instead of dickering over the exact nature of lost items, insurers have the lists, photos and videos right before them.

“What you document is what you get back,” Butts said.

In addition to documenting your possessions, keep track of any expenses you incur to mitigate damage, like boarding up windows, because they may covered.

After the storm

The CFA recommends that you:

  • Report your claim as soon as possible, because they’re usually handled on a first-come, first-served basis.
  • Be sure to get a claim number and write it down. It’s the quickest and easiest way for insurance companies to locate your file.
  • Keep good records of anything you spend to make immediate repairs to secure your home. Also keep receipts for hotels or meals if you can’t return home right away after the storm.

After you file your claim

  • Immediately start a notebook with all contact information of the people you deal with from your insurance company, the CFA recommends. List the date, time and topic of conversations. Note any problems, as well. Documentation is key to resolving problems later.
  • Get a repair estimate from a local contractor you trust to use as a guide in talking with the insurance adjuster.

And, finally, if you’re considering skipping filing a claim because you’re worried about future premium hikes or policy cancellations, don’t.

“You’ve paid your premium and are entitled to coverage,” the CFA wrote in a release. “If you have a legitimate claim, do not hesitate to file it.”

Source: , USA TODAY8:13 a.m. EDT October 7, 2016

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