Tag Archives: mortgages made simple

Why consumers should be wary of using the wildly popular home equity lines of credit as ATMs

A federal agency is warning consumers addicted to home equity lines of credit — a product increasingly driving debt —  could find themselves at increased risk of default if the housing market corrects.

“Falling housing prices may constrain HELOC borrowers’ access to credit, forcing them to curtail spending, which could in turn negatively affect the economy,” the Financial Consumer Agency of Canada wrote in a 15-page report out Wednesday. “Furthermore, during a severe and prolonged market correction, lenders may revise HELOC limits downward or call in loans.”

The timing of the release from FCAC is coincidental but it comes just two days after the Toronto Real Estate Board reported new data that clearly show the housing market in retreat. May sales dropped 20.3 per cent from a year ago and prices were off 6.2 per cent from April amid a massive surge of active listings.

The report, titled Home Equity Lines of Credit: Market Trends and Consumer Issues, focuses on the massive explosion of the HELOC market which grew from about $35 billion in 2000 to $186 billion by 2010 for an average annual growth rate of 20 per cent.

During that period, HELOC became the fastest growing segment of non-mortgage consumer debt. In 2000, the HELOC market made up just 10 per cent of non-mortgage consumer debt but had climbed to 40 per cent by 2010.

“At a time when consumers are carrying record amounts of debt, the persistence of HELOC debt may add stress to the financial well-being of Canadian households. HELOCs may lead Canadians to use their homes as ATMs, making it easier for them to borrow more than they can afford,” said Lucie Tedesco, commissioner of the FCAC. “Consumers carrying high levels of debt are more vulnerable to the impact of an unforeseen event or economic shock.”

The average annual growth of the HELOC market slowed to five per cent from 2011 to 2013 and has averaged two per cent since, the slowdown at least partially attributable to tougher federal guidelines on how much home equity consumers can access through a HELOC.

HELOC products have become popular because they work like credit cards or unsecured lines of credit, in terms of the ability to draw money from them. They are usually backed by a collateral charge on your home but a HELOC most often gives the consumer the ability to withdraw and pay off their HELOC with flexibility — financed at a rate which is usually close to the prime lending rate at most banks.

Unlike a mortgage, a HELOC is a demand loan, and while most borrowers can pay interest-only on them, the loans are callable by the bank at any moment — a practice rarely seen in the Canadian market at this time.

A positive feature of a HELOC is the ability to consolidate high-interest debt from items like credit cards, and the report says from 1999-2010, 26 per cent of loans were used for just that. Another 34 per cent were used for financial and non-financial investment. The remaining 40 per cent was used for consumption or home renovation — a market Altus Group said was worth $71.4 billion in 2016.

The federal agency noted that most HELOC products sold today are part of what is called readvanceable mortgage. In those cases a HELOC is combined with the mortgage and as the mortgage is paid down, the available credit in  HELOC increases.

“In recent years, lenders have been strongly encouraging consumers to use readvanceable mortgages to finance their new homes,” said Tedesco.

She said complaints have shown people are not understanding the product. “It’s not that they’ve been bamboozled,” said Tedesco. “One of the things that we will be doing with the results of our research is trying to see how we can improve the disclosure around readvanceable mortgages, and will communicate to the financial institutions our expectations on that front.”

Source: Financial Post – Garry Marr | June 7, 2017

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Real estate market uncertainty is forcing appraisers to take a second look

The potential for rapidly dropping prices in southern Ontario is forcing appraisers to have a second look at properties they have already assessed to see how much the market has shifted.

Claudio Polito, a Toronto appraiser and principal owner of Cross-town Appraisal Ltd., says lenders basing mortgage decisions on value, as opposed to income and credit history, are really trying to stay on top of a market that appears to be changing rapidly.

By his estimates, prices in the Greater Toronto Area have dropped anywhere from five per cent to 15 per cent over the last 30 days. The next set of statistics from the Toronto Real Estate Board are due out Monday and will mark the first full month of data since provincial changes to cool the market that included a tax on foreign buyers.

“Lenders I deal with they want to know if your property is still worth $1 million if they are loaning you say $650,000,” said Polito. “They don’t base it on anything else. We have to be precise because it’s not a bank, (smaller lenders) can’t afford to lose a dollar.”

 

It wouldn’t be the first time, appraisals have lagged purchases prices — a phenomenon that previously caught some Vancouver buyers by surprise when it was time to close.

A lower appraisal could increasingly be an issue for people with previous deals, not yet closed, in Toronto, especially when buyers are coming up with only the minimum 20 per cent down payment for a non-government backed loan.

If you buy a home for $1 million with $200,000 down, you need an $800,000 loan to close. But if your appraisal comes in at $900,000, your financial institution will only agree to a maximum $720,000 loan based on 80 per cent debt to 20 per cent equity. Those buyers are left searching for a second mortgage — at a higher rate — to get the extra $80,000 if they can find someone to loan them the money.

“We are seeing some people walk away from deals,” said Polito, because they can’t close — a move that comes with myriad problems if the sellers seek legal damages. “What we are seeing is properties sold in January and February, values are still there but if it sold in March, it is very hard to support the value.” Toronto prices rose 33 per cent in March from a year earlier.

 

Keith Lancastle, chief executive of the Appraisal Institute of Canada, said the warning for buyers is probably not to get into bidding wars if they don’t have a cushion to come up with a higher down payment. “I would expect it’s quite routine where the appraisals are being done and it’s coming in at lower than people hoped to see.”

He says the volume of sale in Toronto makes it easier to find comparable sales but the pace at which the market is changing makes it “tough to keep up” and that forces appraisers to look at some data and consider whether it’s an anomaly or part of trend.

A more difficult market to assess is one like Calgary, which has seen transactions drying up, making comparisons hard to find.

“The more valid data you have access to, the simpler the task of preparing the appraisal becomes,” said Lancastle. “When the Calgary market was slow, the lender would say we want sales that are within the last 90 days for comparable. If nothing has sold for comparable for 90 days, you ask the lender if they want to extend the time or the geographic window.”

Nicole Wells, vice-president of home equity financing at Royal Bank of Canada, said her institution is relatively conservative when it comes to appraisals to begin with — limiting the impact of a shifting market.

“Given how quickly prices rise, you really have to make sure you are adequately appraising the property,” said Wells. “We always promote affordability, making sure you know what you want and what you can pay. It’s really dangerous to get into a bidding war (with the minimum down payment).”

Source: Financial Post – Garry Marr | June 1, 2017 

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Why trouble at alternative lender Home Capital could reduce your mortgage options

A real estate sold sign hangs in front of a west-end Toronto property Friday, Nov. 4, 2016.

Alternative mortgage lender Home Capital Group is in hot water. Its stock has plunged and customers pulled $762 million in savings from some of its deposit accounts on Wednesday and Thursday alone.

 

The company’s woes are affecting other alternative lenders, which could have significant consequences for a number of Canadians looking to get a new mortgage or renew their existing loans.

Back-up: What does Home Capital do and why is it struggling?

Home Capital is a Toronto-based lender that offers so-called alternative mortgages, among other financial products, through its principal subsidiary, Home Trust Company. Home Trust provides uninsured mortgages to clients who generally can’t borrow from traditional banks to buy a house, usually because they have bad credit, little credit history or are self-employed. Alternative mortgages normally carry interest rates that are much higher than what you’d get at one of the big banks, because of the elevated risks involved in lending to this subset of borrowers.

The trouble for Home Capital, which is one of Canada’s largest alternative mortgage lenders, started last week, when the Ontario Securities Commission (OSC) alleged that the company broke securities law by making misleading disclosure after the company believed it discovered some brokers had falsified loan applications. The company has said the allegations are without merit and vowed to defend itself.

 

Although the events OSC referred to happened in 2015, many of the company’s customers reacted to the news by withdrawing deposits, which triggered a liquidity crisis. Home Capital said Thursday it had secured a $2-billion line of credit as a funding backstop, but, according to some, its future remains uncertain.

 

Home Capital’s problems are affecting other alternative mortgage lenders, whose stocks have also suffered.

“Home Capital contagion has spread to the entire mortgage market, in particular, alternative mortgage lenders,” National Bank of Canada analysts Jaeme Gloyn and Victor Dri form wrote Thursday.

Does this affect you?

It depends. Canadians who can get a regular mortgage likely have nothing to worry about. But if you’re looking to buy a house with little credit history or bruised credit, this could affect you. Self-employed Canadians who’ve been turned down by the banks might see the biggest impact.

The Home Capital crisis, in fact, could result in higher rates for alternative mortgages, according to Mike Rizvanovic at Veritas Investment Research.

Bad press on Home Capital has raised worries about companies that operate with a similar business model, he added.

 

“It’s not fair, in a sense, because Home Capital’s problem is not something that you see with these other lenders,” Rizvanovic told Global News.

But psychological as the reaction of savers and investors might be, it has very real consequences.

Some of Home Capital’s competitors could also face liquidity issues. They would then have to offer higher interest rates to attract the deposits they need to help fund their mortgages and have to pass on some of those costs to customers by raising mortgage rates, Rizvanovic said.

The end game could be even higher mortgage rates for Canadians who can’t access traditional mortgages.

Entrepreneurs and self-employed people are especially vulnerable because they are the ones most likely to not only get alternative mortgages but to renew their loan with an alternative lender at the end of the term, Rizvanovic noted.

 

Homeowners who got alternative mortgages because of little or poor credit history are often able to renew with an A-lender at a cheaper rate because they’ve been able to build up or repair their credit over the course of their previous mortgage term, he added.

Self-employed Canadians who don’t have enough proof of income to qualify for a plain vanilla mortgage, on the other hand, often have no choice but to stick to alternative mortgages, Rizvanovic said.

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Waterloo Region real estate: What you can get for $300,000, $500,000 or $800,000

Not all that long ago, it wasn’t hard to get a grasp on what was happening in Waterloo Region’s real estate market.

Prices were going up, sure – but at stable, predictable rates. Once a buyer knew how much they could afford, or a seller knew how much they were hoping for, it wasn’t hard to figure out what sort of house would sell for $250,000, or $450,000, or – for the dreamers among us — $1 million, even if it wouldn’t be for a couple years.

Now? Forget it. With homebuyers flocking in from Toronto in record numbers, with average sale prices rising by several per cent on even a month-to-month basis, it’s virtually impossible to do any advance planning around real estate deals, or to even predict what a house might sell for in a few months’ time.

This, then, is a snapshot. Not of where things will be in 2018, or even this fall, but of where Waterloo Region’s residential market stands as of May 2017, and of what sort of house is likely to sell around three price points.

$300,000: The starter home

With the average sale price of a detached home in Waterloo Region edging closer to $600,000, some buyers might think that cheaper homes are simply out of the question.

Not so, says real estate agent Kevin Reitzel.  While $300,000 may be associated with condos and townhouses these days, there are still some detached homes listing in that range.

“They’re just going to be smaller than they were a few years ago,” he says.

Reitzel estimates that a $300,000 detached home is now typically between 900 and 1,000 square feet, with two bedrooms and one or two bathrooms.

He says homes of that sort are becoming more popular with first-time buyers who may have been looking a little further upmarket until recently.

“They’ve become less picky,” he says.

$500,000: The family home

If you’re looking for the sort of home that’s traditionally been just out of reach for the typical first-time buyer, paying half a million dollars for it may be the new normal.

Reitzel says a typical $500,000 sale is now a house featuring three or four bedrooms, two or three bathrooms, 1,800 to 2,200 square feet of space, and a single or double garage.

In many cases, houses priced in this range will now sell as-is, without renovations designed to increase the home’s value.

“The house will sell itself in this market,” Reitzel says.

Part of that drive is coming from Toronto-area buyers, as they realize that their money takes them a lot further in Waterloo Region than in the cities they’re used to looking in.

$800,000: Living in luxury

It wasn’t that long ago that paying $800,000 meant you weren’t just getting one of the nicest homes in the region – you were getting one of the nicest of the nicest.

Now, though, that mark seems to be the running price in higher-end neighbourhoods like Waterloo’s Colonial Acres – and once again, newcomers to the area are part of the reason why.

“If you look on a map, it’s one of the furthest (neighbourhoods) from the 401 – but it’s a very, very popular area for Toronto people. They love it,” says Reitzel. At the other end of Waterloo, the same principle applies to Laurelwood.

Eight hundred thousand dollars is the current going price for the sort of house that would have fetched $500,000 or so at the beginning of the decade.

These are homes with larger lots and at least 2,400 square feet of space. They’re the sort of homes Reitzel refers to as “more of a lifestyle choice” than a pure housing decision.

Source: Ryan Flanagan, CTV Kitchener Published Monday, May 15, 2017

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SOLD: Uptown Home Sold For $1 Million Over Asking!!!

With so many house selling way over asking in Toronto these days, the tendency is to declare the expression meaningless. The value of a home, so the argument goes, is better judged by what nearby properties have sold for.

375 Glencairn Avenue TorontoThat’s mostly sound reasoning, but once in a while we get a bit of inside baseball from realtors about Toronto home sales, and this sheds some more insight on the wild prices that are being fetched of late.

375 Glencairn Avenue TorontoThis elegant and well equipped home at 375 Glencairn Avenue, for instance, just sold for $1,165,000 over asking after being on the market for seven days. During that period realtor André Kutyan of Harvey Kalles tells us that 165 people came through the home.

375 Glencairn Avenue TorontoOf the army of potential buyers who toured the property, nine made offers, which drove the price way up from its listing at $3,595,000. Worthy of note is that the listing price mostly reflects the sale prices of other nearby homes sold over the last 30 days.

375 Glencairn Avenue TorontoThe sample size might be too small for this to prove a trustworthy metric (only five other homes sold within 1,500 metres during this period), but one thing’s for sure: there was a ton of interest in this property.

375 Glencairn Avenue TorontoThe Essentials
  • Address: 375 Glencairn Ave.
  • Type: Detached house
  • Bedrooms: 4 + 1
  • Bathrooms: 7
  • Lot size: 50 x 219.66 feet
  • Realtor: André Kutyan
  • Hit the market at: $3,595,000
  • Time on market: 7 days
  • Sold for: $4,760,000
375 Glencairn Avenue TorontoWhy it sold for what it did

This house has a lot going for it. It’s been recently renovated, the enormous basement features a wine cellar, games room, mini movie theatre, and sauna, multiple bedrooms feature en suite washrooms, and the finishes around the house are top of the line.

375 Glencairn Avenue TorontoWas it worth it?

There are plenty of very nice homes in Lytton Park, but this one stands out when compared to recent listings. That alone was likely enough to start the bidding war that drove the price up into the ultra luxury range.

375 Glencairn Avenue Toronto375 Glencairn Avenue Toronto375 Glencairn Avenue Toronto375 Glencairn Avenue Toronto375 Glencairn Avenue Toronto375 Glencairn Avenue Toronto375 Glencairn Avenue Toronto375 Glencairn Avenue Toronto375 Glencairn Avenue Toronto375 Glencairn Avenue Toronto375 Glencairn Avenue Toronto375 Glencairn Avenue Toronto375 Glencairn Avenue Toronto375 Glencairn Avenue Toronto

Lead photo by Realtor


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Mike Holmes: Getting ready for cottage season

If you’ve been dreaming of going to the cottage all winter, well, it’s almost that time. But before you fire up the grill, and take that first jump off the dock – you’ve got the task of opening up the cottage.

Here are a few of the major jobs you want to get out of the way that first weekend up north.

Start From the Top

You probably cleared the eavestrough before shutting down for the season – but one of your first tasks should be to clean out any debris that accumulated over the winter. You want to make sure that water can properly drain away from you home. While you’re on your ladder, it’s a good idea to check the roof for any signs of damage or intruders.

Animal Patrol

You want to be on the lookout for telltale signs of animals. I’m talking about obvious signs of entry – things like torn window screens, or holes in your soffits. Animals can even pull away siding, or find entry through your chimney or roof venting.

Even a seemingly harmless mouse can cause issues. They will eat away at wood in your home or chew through electrical wires. If you spot any chewed up wires or cords make a call to your local electrician. They need to check your electrical system and make sure it’s safe.

If any critters have taken up space as unwanted tenants, you will also want to bring in a professional pest control expert. Believe me, you want them evicted before they reproduce and cause an infestation.

If you find signs of mice, you will want to spray any area they’ve been with a disinfectant. It’s important to keep those dirty particles from floating around, because breathing in materials from their droppings or saliva can make you sick. Remember to wear a disposable mask and gloves to reduce the risk of contact.

Let Your Home Breathe

Once you’ve checked for signs of pests, it’s time to inspect the interior. Start by opening the windows. The space will need circulation, especially if it was locked up tight all winter long.

Trust your nose. If you notice a strong musty smell, it could mean a moisture problem – and that can lead to mould. You need to stop the source of moisture first, otherwise you’re going to be dealing with mould problems again and again.

For small areas, you can likely clean it yourself as long as you have the proper cleaning solution and safety gear (goggles, gloves, and a respirator or mask), but for large mould infestations, bring in a remediation expert.

Check the caulking around windows and doors and replace any damaged areas. Broken caulking leaves the perfect entryway for water to seep in, and it’s an easy fix. Same with the weather stripping around doors – if it’s damaged it’s simple to fix, but if left unrepaired, you’re leaving an open invitation for water penetration.

Bring Back the Power

When you turn the power back on, take things room by room. Make sure everything is working as it should, and be on the hunt for flickering lights, a burning smell from appliances, or any sparking fixtures.

Next, switch the water back on. Again, room by room, you want to be looking for any leaks. Finally, test your HVAC system, and change the air filter.

Inspect Your Deck

Before entertaining this season – make sure you are checking your deck thoroughly. The railings, steps, and ledger board (the piece of the deck that holds the structure to the building) all need to be safe and secure. You want to see that the decking material is still in good condition with no dry rot, or damage from insects.

Most home inspections will include a deck safety check, so if you’re unsure of what you should be looking at, a licensed home inspector can help point out areas of concern.

Your cottage is your home away from home during the summer – but just because you may only be there on weekends, doesn’t mean you can slack on your regular maintenance. Cottage season goes by so quickly, but treat it like you would your home – make it right, and make it safe.

Watch Mike Holmes in his series, Holmes Makes It Right, on HGTV. For more information, visit makeitright.ca.

Source: National Post – Mike Holmes | May 6, 2017

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8 Things You Should Always Do Before Signing A Lease

things to do while apartment hunting

Make sure you know the full picture before you move in with all your stuff.

Finding the perfect rental can be a challenging process— scouring listings, cramming multiple viewings into a single day, and feeling like your ideal place is a needle in a haystack. So it’s understandable to quickly pull the trigger when you find that dream home in the perfect neighborhood with a reasonable monthly rent.

But before you sign on the dotted line for the keys to that perfect apartment for rent in Dallas, TX, there are some things to keep in mind. Pay attention to these 8 details, and you’re bound to be a happy camper once you’re all moved in.

8 Steps All Renters Should Take Before Signing a Lease:

  1. Read the entire lease

    Reading your entire lease will help prevent simple problems from popping up. But you can take this one step further and make sure you’re signing the right lease for your city or state. Ordinances vary by city and state, so be sure to call your local government to find out local regulations for landlord-tenant law. Fortunately, there are nonprofit renters’ rights organizations in most major cities, so a quick phone call can help make sure you’re on the right track.

  2. Remember: It’s a partnership

    The landlord-tenant relationship can be friendly, especially if it gets off to a good start. Present yourself well on viewing day and be as polite and professional as you would be for a job interview. They are probably showing the property to many prospective tenants — and you want to stand out in all the right ways. Also remember that as much as your landlord is trusting you with their property, you are trusting them to maintain a safe and healthy living environment. Don’t be afraid to ask questions or request repairs and note the response. If they’re not willing to hear your concerns or write repairs into the lease, it could foretell problems down the road.

  3. Visit the apartment at different times of day

    Maybe the master bedroom gets gorgeous morning sunlight — but also sits right under a street lamp, throwing off even the best sleeper’s circadian rhythms. (Potential solution: blackout shades!) Visiting a unit more than once and at different hours will help you get a better sense of the space, from changing noise levels to noting the best hours for soaking up the rays. And while it’s not possible to stretch out your visits over multiple seasons, it’s always a good idea to ask the landlord about the apartment under different weather conditions. He or she may be able to prepare you for a loud radiator come winter or give you the scoop on a lifesaving cross-breeze during the summer months.

  4. Ask about alterations (no matter how small)

    Most lease agreements will specify what changes you’re allowed to make to an apartment, but it’s always a good idea, before signing, to get specific. Whether you’re hoping to install patio stones in the backyard or just put some nails in the wall, be sure to bring up those enhancements at the first viewing. Landlords can differ greatly in what customization they will allow; taking it for granted that you can “make your rental home your own” could put your security deposit at risk. And if there are things you feel compromise the safety or integrity of the apartment, have your landlord agree — in writing — to make those repairs.

  5. Understand the rules for subletting

    Subletting can be a great option for renters who might need to move out early. Maybe you’re renting while planning to buy, and your dream home comes along mid-lease, or a job unexpectedly takes you to a new state. Subletting can help you avoid breaking your lease by letting someone else pay out the remaining months — but make sure your landlord allows it or would consider an exception to the rule. Penalties for subletting can range from a hefty fine to eviction, so best to be in the clear before passing off the keys to another renter.

  6. Ask what’s included (and be clear on what isn’t)

    Utilities and other hidden costs can add up if they’re not included in the monthly rent. Even if you determine that the basics like gas and electric come with the rental, be sure to ask about hidden fees like garbage pickup, on-site parking, or monthly pet fees. Or if the property hosts an on-site gym or free laundry, factor those savings into your household budget. If no utilities are included, try to get a ballpark idea of what they might cost and budget accordingly. Asking a neighbor or the previous tenant can help give you an idea of what others spend.

  7. Talk to your new neighbors

    Get to know your neighbors, even before you sign. If they’re in the same building, you can get an expert opinion on the ins and outs of your prospective rental. They can let you know what utilities usually cost, weigh in on the dependability of your landlord or property management company, and tell you what to expect from the neighborhood. Ask how long they’ve lived in their apartment: It’s a good sign if your neighbor has found reason to renew their yearly lease. Neighbors can be good for so much more than a borrowed cup of sugar!

  8. Have your papers in order

    Competitive rental markets like New York, NY, and San Francisco, CA, often see many qualified candidates vying for the same apartment. In these cases, the most crucial thing you can do before signing a lease is to be 100% prepared. Having your paperwork ready to go with your application will expedite the process and increase your chances of signing that lease.

Is there anything you wish you’d asked a landlord before signing on the dotted line?

 

Source: Trulia.com – By Christine Stulik | Apr 12, 2017

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