You’re preparing to go house shopping and naturally one of your first thoughts is, “what can I afford?” You meet your mortgage professional to determine potential mortgage payments and get a feeling for the household budget, but have you remembered to set aside about 1.5% of the purchase price for closing costs?

Your mortgage professional should help you understand these costs early in the game so that you are shopping within your means. Even though the estimate is 1.5% (lenders require buyers to prove they have the money available) you may not spend the full amount – but you want a firm understanding of how much money you will need for the down payment and closing costs. Closing costs always fall outside the mortgage.

I advise my clients to calculate their closing costs first, then see what is available for the down payment. For example, if you have $50,000 and your closing costs are about $10,000, you will likely end up with $40,000 for your down payment. This reduced down payment will impact your mortgage size and may impact the house price range you can shop for.

Closing costs include things like lawyer or notary fees, municipal property tax adjustments, strata payment adjustments and in B.C., the Property Purchase Tax (PPT). PPT is 1% on the first $200,000 of the house purchase price and 2% on the balance. First time buyers may be eligible for an exemption – check out my previous blog about“tax savings”.

These costs are settled at the time of closing the purchase with the lawyer or notary.

Outside of the standard property purchase closing costs, I suggest my clients also include things like moving expenses, disconnect and new hook up charges for utilities like Hydro or phone and those little improvements like changing the locks, a couple of new window screens or a new cabinet for the laundry room. No move is complete without a few trips to the hardware store!

Make sure you like and trust your legal counsel. Many of the fees you will incur are non-negotiable, but lawyer or notary fees are. If you don’t have a lawyer you regularly work with, ask your mortgage professional or your realtor for recommendations. Get a quote on the fees. You have a choice in who you use and the ability to shop around.

Closing costs are part of every real estate transaction. Make sure you include them in your budgeting process to avoid those unpleasant surprises at the time you close the sale.

Post by Marci Deane, Mortgage Broker Mortgage Alliance West  www.askmarci.ca

Many people are under the belief that because they have been a loyal client with the institution they bank with they would automatically get a better rate.  This is not the case according to evidence in a Bank of Canada paper called Discounting in Mortgage Markets.  They found people who switch banks get a better deal.  This is due to the fact that new customers offer banks an opportunity to sell more products.

The study also found that mortgage brokers find the best rates, since mortgage brokers are paid by the lender not the customer so they are not confined to one lenders products.

First-time buyers do well because they are more likely to have shopped around since they have tight budges.  They’re a higher risk group for the bank because they have so much debt but over time the bank can sell them more services.

About 1/4 of Canadian mortgages are done via mortgage brokers but 40% of first time home buyers use a mortgage broker.  Upon renewal, people still just sign the letter from the bank thinking the bank is taking care of them.  It is time to read the small print.

For the full article click here.

It’s called “breaking” the contract because you are terminating your original mortgage contract.  The decision of whether to break the contract or not must be based on the numbers – and I don’t just mean the rate – it’s also about the amount of your penalty and the savings you would achieve in switching to the lower rate.

When you speak to your mortgage expert you need to assess how much money you will save at the new rate.  From this savings amount, deduct the penalty you will owe.  If there is money left over after deducting the penalty, this is the reason you will be considering breaking your contract.

Is this amount worth starting over with a new mortgage? Do you want to reduce the mortgage payments? Reduce the mortgage amortization? Or do you need money to pay for renovations, investments or a vacation home? Sometimes the mortgage principal can be increased without adding to the length of the amortization.  Look at whether a second mortgage, HELOC or line of credit would be a better option.

Understand how the penalty works. Whether you change lenders, or stay with your existing lender, you will pay a penalty – not to mention out of pocket expenses that come from establishing a new mortgage contract.  Learn more on how mortgage penalties work by reading about IRDs – the technical term for penalties.

To determine if breaking your mortgage contract is right for you, work with your mortgage expert to understand the overall financial picture.  Ask all of the questions in this exploratory stage to know exactly what you will be getting into.  This includes knowing what your new mortgage payment will be to help determine the impact on the household budget.  You must be saving enough in the long run to make it worthwhile to break the contract.

Rate alone isn’t the whole story.  Know what a reduced rate will mean in terms of your overall finances before making a change.
 

Post provided by Marci Deane, Mortgage Broker   www.askmarci.ca

I know that most everyone is inundated with e-mails every day and I know it is my challenge to keep up with them.  I must admit I use the delete button a lot, but there is one e-mail I look forward almost every afternoon. 

It is called Daily Secret, it comes to my inbox or you can go to their website, they are little tips about amazing secrets. The send one a day and ask them to just share it with only your close friends. 

This is where I heard about the Vancouver Trade School, Have you got the skills to pay the bills? They will swap you a pound of coffee for a butter making class… or how about a photography lesson in exchange for a knitting tutorial? Trade School Vancouver is in its first term and students barter goods and services in exchange for learning – teachers make a list of what they’d like to receive in return for a class. Sign up to trade your skills for some new ones!  http://tradeschool.coop/Vancouver/class

Local designer Mona Sultan was featured last spring and here things are amazing. Mona’s inspiration comes from old and new alike: the mosaic-works in her hometown of Damascus and the street style of fashion bloggers. Fabric content, weight, and size are all given special consideration so that the scarves hold their shape while being worn for hours. Wouldn’t you love to throw on some vibrant art as you head out into the summer sun? Visit monasultan.com to select your piece.

P.S.  Not the scarf type, but looking to add a little pattern to your home life? Mona also creates custom wallpaper. Check her website for examples of her work.

Intrigued?? Sign up for the e-mail.  It is one of my favorite.

1. Are you self-employed and have an office in your home? If you use part of your home for business, you are entitled to write off a portion of your mortgage interest. For example, if your office is 1/8 the size of your home, you can write off 1/8 of your mortgage interest. Of course, there are some other things to consider, so talk to your accountant or tax preparer about your options.
2.  If you hold an investment property, the mortgage interest on that property can be written off.
3.  If you are a first time home buyer (and first-timers aren’t always just first-timers, check out the provincial and federal criteria) you’ll love some of the tax breaks and other programs you are eligible for. Common ones are:
a.    The BC Land Transfer Tax Credit – the BC Land Transfer Tax is paid by the purchaser to the province at the time the transaction closes. First time buyers are exempt from the tax on properties of a fair market value of up to $425,000. Properties over $425,000 will require a payment for the amount above the threshold. Talk to your real estate lawyer about whether you qualify.
b.    First Time Homebuyers’ Tax Credit – this federal tax credit is part of Canada’s Economic Action Plan to help with the costs of purchasing a first home. Qualifying homes purchased after Jan. 27, 2009 will result in a $750 tax credit to first time buyers. This credit is claimable on the tax year the house was purchased in.
c.    Don’t forget the RRSP withdrawal plan for first time buyers. By using your accumulated RRSPs you might find it easier to come up with a down payment.

Is there more? Maybe. In each new budget year, provincial and Canadian governments announce their tax incentives. You will want to talk to your tax preparer or accountant or even do a Google search, to see what is new. For example, if you bought a new house that closed before April 2013 you might be eligible for a 2012 tax year incentive.

Ultimately, you need a good accountant or tax preparer on your side to ensure you get the benefits you are entitled to. Get recommendations, ask around and know that the person you’re working with is up on all the options.

Post by Marci Deane, Mortgage Broker  askmarci.ca

Mortgage default insurance, commonly referred to as “mortgage insurance or CMHC insurance” helps Canadians buy a home with a lower down payment.  It allows as little as five per cent down.

Mortgage insurance protects the lender and investor – not the homeowner – from losses related to borrowers defaulting and foreclosure.  Since it is considered a higher risk for lender, the government makes it mandatory for purchases with less than 20% down.  As well, there are times that even with 20% or more down, you will require mortgage insurance.

The type of mortgage applied for and the amount of the down payment determines the premium, for a purchase it ranges from 0.50% to 7% (the is for a very specialized product so don’t freak out).  The premium is added to the mortgage,  so you don’t not have to pay it out of pocket ( unless you really want to then you can ).

In Canada there are currently 3 insures, CMHC – Canada Mortgage and Housing Corporation, GE – Genworth Canada and CG – Canada Guaranty.   It depends on the lender which company they use, CMHC is a crown corporation vs the other two which are not. For the consumer it generally does not matter which company insures their Mortgage.

We are also very lucky have local representation for each of the 3 insurers who are always available to assist us and step in when needed.

Each site for the 3 Insurers provide extensive information and resources so check them out by clicking on the links.

Mortgage insurance is often confused with other types of insurance.

KEEP IN MIND THAT MORTGAGE DEFAULT INSURANCE IS NOT THE SAME AS:

Homeowner/Property Insurance: A form of property insurance designed to protect the individual’s home (or possessions in the home) against damages, including loss, theft, fire, or other unforeseen disaster.

Mortgage Life Insurance / Disability Insurance: A type of insurance designed specifically to repay any outstanding mortgage debt in the event of homeowner death or long-term disability.

If you have any questions talk to your mortgage broker…that’s what were here for!

In this article a spokesperson for the FCAC (Financial Consumer Agency of Canada) said to do your homework and get your credit report.  “Getting a credit report six months ahead of time allows you to check for errors or other items that need addressing so that you can improve your credit score before applying for a mortgage,” she says.

A credit report provides a summary of credit history including bill payment and debt repayment with credit providers such as banks and retail stores.  It also shows records that may affect creditworthiness such as court judgments, bankruptcies or liens.  FCAC provides information about how to obtain free credit reports and the steps that can be taken to improve credit scores.

This is great in theory but this fall we ran into a problem.  We had a client go to Equifax.ca and pay to check their credit, the score was 670, they had been working really hard to make sure their credit was good.  When we checked it as part of the mortgage application we got a 585 score, let me tell you we were surprised.

I ask my compliance officer to ask Equifax about it and this is the answer we got.  “Essentially there are different scoring models available. Within those models there are also different versions.   In many cases the scores will have vary minimally (70% within 40 points).   Although a large variation is rarer, these instances are not unheard of between scores.

What does this mean in english ? – basically I think there should be a huge disclaimer from Equifax saying your score may not be what it appears to be.  We cannot check a credit score unless they are ready to move ahead on the file, the client spends the money to check and they get a good score and then we pull it and it is could be 40 points lower – that is the difference between getting a mortgage or not or getting a rate of 2.89% or 4.5%

This is a huge issue with the consumer and it needs to be dealt with.

Getting on the road to financial success is within your reach. If you are like many women today, you are probably feeling stuck or perhaps overwhelmed with your life – like you can’t get ahead fast enough, save more money or even know where your money is going. There might be some unconscious thoughts that are holding you back and keeping you from moving forward, building wealth and saving more.
Don’t feel bad. You are not alone. All of us have some bad money habits. Recognizing them and doing something about it will change your life. Thinking about your life and your money, what do you think is holding you back? If you had to define the #1 mistake you are making with your money, what would that be?

The #1 money mistake in our opinion, the #1 mistake women make is not taking control of their money. It doesn’t matter why – there could be a thousand reasons or excuses. Every woman and every situation is different. But mark my words – it is a lack of control that is holding you back from financial success.
So how do you “get control” of your money? You make it a priority. You empower yourself by really looking at how you earn, save, spend and give away your money. Many of us are doing something with our money we don’t like. And we have all done things with our money we regret. Old habits and feeling overwhelmed by life’s pressures may be holding you back. By gaining personal insight, I guarantee you will get better control of your money.  Living more comfortably, Here’s something else to consider: Women are living longer. The average life expectancy for women in North America is 83.4. The average age of a widow is 56. Taking control over your money has never been more important. Especially if you want to ensure your family’s financial future, and that you’ll have enough money to lead a long and comfortable life. So how do you get control over your money?

5 easy steps to get control

#1 – Get informed.

The more you know about your money, the better decisions you will make. There’s no need to become a financial expert, but you do need to understand the basics about how you earn, spend, share and save your money. Becoming more aware of your habits will help you reach your goals.

#2 – Stop living day-to-day and set goals.

If you want to achieve more, setting goals is the way to do it. It doesn’t matter how much money you have or make, whether you are just starting out or have a successful career, setting goals will give you clarity. It’ll help you to stop squandering money and save more. It’ll inspire you to open yourself up to new possibilities. It’ll make you feel better too!

 
#3 – Organize every aspect of your life, from your mind and money, to your home, office, and kids.  It’s important to engage your family in your quest for organization, and to learn how to stay organized even when the unexpected throws you off your routine.

#4 – Seek expert advice.  If you don’t understand something, have doubts or are unclear about your money matters or investments, talk to a financial professional. Make an appointment and prepare a list of questions. Being informed will help you make better decisions.

 
#5 – Get a plan in place to manage your spending.  Making a budget and sticking to it is a challenge for many women. That’s why it is so important to create a budget that matches your spending patterns. And this will help you to set and achieve your financial goals. It’ll keep you motivated – and motivation is key to success.
Taking control of your money means investing in you. It means you have to start doing things a little differently. I know you want to do it. I know you can do it. And there’s no better time to start than right now!
Just follow the 5 steps – outline your spending habits, set goals, get organized, seek expert advice, and create a budget that works for you.
Start fresh. Get on the road to financial success.

With the devastating financial toll of the Feb 2011 earthquake in New Zealand predicted to reach $16-billion, many people in British Columbia are considering whether they should insure their homes and business against losses due to earthquakes.  And with good reason.

According to the Geological Survey of Canada, there is approximately a 10% chance that a subduction (oceanic plate) earthquake – similar in force as the catastrophic earthquake that killed over 300,000 people in the Southeast Asia – will occur off the coast of BC in the next 50 years.

There is a 12% chance that a crustal or shallow earthquake – similar to the Christchurch earthquake – would strike Vancouver in the next 50 years.  This type of earthquake could easily cause over $30-billion of structural damage to the city

Why should I have earthquake insurance?

A Habitat Insurance, we believe that the main objective of insurance is to protect you from a devastating loss from which you would find it difficult to financially recover.  A home or business is usually the most valuable asset that you will ever own.  So you must ask yourself,  “Could I easily recover without financial assistance if my home or business were damaged or destroyed by an earthquake?”  If the answer is no, you should seriously consider buying earthquake coverage.

Facts about earthquake insurance in BC

Earthquake insurance provides coverage for loss of or damage to personal property and buildings. It is optional coverage in all property insurance policies.

Earthquake rates are on the rise:  during the last 12 months, we have noted that many insurance companies have increased their premium rates and, with large losses such as those in New Zealand, this is a trend likely to continue.

If you own a detached home and have earthquake insurance, you will have coverage for the building and a certain percentage of coverage will be “built in” to the policy for personal property.  For example, a house valued at $500,000 replacement cost will be insured at $500,000 building cost with 80% ($400,000) for personal property.  (Depending on the insurance company, lower limits for personal property can be chosen. )

Insurance deductibles are always higher for losses due to earthquake.  Your house insurance or business policy may state $500 to $2,500 deductible for specific perils such as water damage.  Earthquake deductibles are typically stated as a percentage of the total loss.  So, if you have a 5% deductible on your $500,000 home, you will be responsible to pay the first $25,000.

A special note for condo owners about earthquake insurance

A condo owner policy provides coverage for your personal property, not the building.  (The building should have its own separate strata policy with earthquake coverage. )  You may also choose to add earthquake coverage to your condo policy.  We highly recommend that you do this, as your policy will can provide up to about $25,000for building earthquake deductibles coverage.

To illustrate the point more clearly, imagine this scenario:  your building is damaged/destroyed by an earthquake.  The condo owners will be responsible for paying the building earthquake insurance deductible.  A large strata building can be easily valued at $20,000,000; a total loss with a 10% deductible would result in a $2,000,000 earthquake deductible to pay.  If there is not enough money in the strata’s reserve fund, the remainder of the deductible to be paid will be divided between all of the condo owners.  If you have a condo owner’s policy with earthquake coverage, your insurance company will pay your portion of the deductible, up to the indicated policy limit.  If you don’t have earthquake coverage, your policy will likely pay no part of the earthquake deductible.

Condo policy limits can vary substantially for insurance deductible coverage.  Check with your broker about this important point.

How to pay less for earthquake coverage

Here are a few ways to reduce your premiums for earthquake coverage:

Location:  Premium rates for earthquake insurance in the Lower Mainland are highest for areas such as Richmond and parts of New Westminster, which would likely be most devastated by an earthquake.  You will pay lower rates elsewhere.

Deductible:  Ask for a higher earthquake deductible on your insurance policy.  For example, the standard earthquake deductible on your business or house insurance policy may be 5%.  You could opt instead for a 10% deductible.  Keep in mind that your deductible payment will also be much higher in the event of an earthquake claim.

Choose a lower personal property limit:  If you are home owner, some insurance companies will allow full value coverage for the building and a lower limit for personal property.  Ask your broker if this option is available.

Habitat Insurance Agencies, Ltd

Grace Catao – Managing Partner Tel. 604-438-5241 / Cell 778-997-2583

grace@habitatinsurance.com

www.habitatinsurance.com

Copyright © Habitat Insurance Agencies Ltd.   All rights reserved.

Disclaimer:  This article is designed to provide information for personal use only.  Please consult your professional insurance broker for further information. Habitat Insurance Agencies Ltd is not responsible for any legal disputes of this matter.

A $300,000 mortgage at 3.29 per cent, amortized over 30 years will cost $161,300 in interest. That is if you keep it for the 30 years and our goals is to try to make it end much earlier.

There are 3 easy ways to start taking the years off:

1. Make a lump sum payment

A lump sum payment reduces your outstanding principal.  The sooner you can make a prepayment, the less interest you’ll pay over the long term. Your mortgage contract will state how much pre-payment you are allowed to make without penalty. Most are 15-25% of the original mortgage amount and you can pay this annually.

Coming up with a large lump sum – up to $75,000 on a $300,000 mortgage – is huge and most people cannot do this annually. Even a small sum   can reduce your overall interest amount.

2. Increase the amount of your payments

Paying an extra $100 a month on a $300,000 mortgage at 3.29 per cent over 30 years will save you more than $11,000 in interest and reduce the amortization by 3 1/2 years. If $100 is too much, just start with $25 and work your way up.  Check your mortgage contract to see if there are rules about how often you can increase your payments without paying a fee.

3. Make more frequent payments

Financial institutions offer a number of payment options. The standard ones are:  monthly, semi-monthly, bi-weekly and weekly. I recommend that you line your payments up with the way you get paid.

If you decide to make more frequent payments, make sure you choose an accelerated option.  Accelerated weekly and bi-weekly payments can save you thousands because you’ll make the equivalent of one extra monthly payment each year.  If you do not get paid bi-weekly, I have found that you should not do bi-weekly since it is really easy to miss a payment.

There is very little extra savings if you just switch to a more frequent payment without taking the “accelerated” option.

On the same $300,000 mortgage as above, a bi-weekly payment will save $289 in interest over the life of the mortgage. On the other hand, with an accelerated bi-weekly payment (an extra $50 per payment) you’ll save more than $18,000 over the life of the mortgage.

You can save thousands in interest by paying off your mortgage as fast as your budget allows.  Choose any one, all, or a combination of the prepayment options available to you. Contact your mortgage broker to review your budget and to figure out your mortgage plan, then check with your lender to verify  your pre-payment options and any penalties or fees you may be required to pay.