Bank of Canada Announcement - January 20, 2015

It looks like the drop in oil has benefits other than lower prices at the pumps. The Bank of Canada announced it will lower its target for the overnight rate by 0.25%--taking it down to 0.75%.

While oil's decline is also expected to boost global economic growth, particularly in the United States, the good news pretty much ends there, according to the Bank. The oil price shock puts a lot of things at risk-most notably the inflation profile and financial stability. The Bank of Canada believes lower interest rates will provide insurance against these risks, as well as provide the support necessary to strengthen investment and growth, and bring the Canadian economy back to full capacity and the inflation target of 2%.

While it admits the outlook is uncertain, the Bank expects the economy to gradually strengthen in the second half of this year, and return to full capacity at the end of 2016; slightly later than its October prediction of the "second half" of 2016. This likely means interest rates won't increase until sometime in 2016 as well.

Have you chatted to a financial advisor about a Tax Free Savings Account or some RRSP contributions to trigger a potential income tax refund this year as your payments continue to remain low and potentially even drop?  If you don’t have a financial advisor, let me know and I’d be happy to recommend one to you.

On another note, now that the credit card statements are starting to arrive, if you or anyone you know just got a little carried away and have some high interest credit card debt that they can’t seem to pay off in full each month, now is a great time to chat about options with rates so low.   Let’s budget and plan together - maybe you are planning a renovation project soon or purchasing a second home or rental property – chat to me about your options ….it’s never too late to start planning. 

Even though there is uncertainty of the economic outlook at this time, the bank did remind us that when the economy continues on a more upward direction and sustainable long term, rates will rise.  Remember, that any increase to the prime rate since 1992 has only been by 0.25% at any ONE time, so you won’t see a large significant increase all at once.

Fixed rates have actually dropped slightly since the last announcement and are around 2.79% to 3.09% for a five year fixed term.

Based on this recent announcement, and the anticipation that the prime rate will still remain low for a while now, unless you feel otherwise, I’d recommend that you remain with your current variable rate product as the interest is lower than a fixed term rate right now.  However, if having a fixed payment is important to you, call me so I can calculate what your new payment would look like and also if it is suitable for you. The next announcement on any change to the prime rate is March 4, 2015 at which time I’ll be in touch again.

I wonder if I can ask a favor, if you hear a friend or family member talk about going thru a financially tough time – maybe I can help with some budgeting, credit counselling and debt consolidation options for them.   It is also that time of year that many think about what they want to accomplish this year – if buying their first home is on the “wish list”, would you mind passing my contact information on to them – this is very much appreciated.

The Mortgage Guy Niagara Website

Understanding Debt Service Ratios

Understanding Debt Service Ratios

One of the primary considerations in determining mortgage product suitability is an applicant’s debt service ratios.  The Mortgage Industry looks at the current income level for the applicant(s) and puts a cap on the maximum amount of money to be advanced for mortgage purposes.  There are two ratios used in the underwriting process; Gross Debt Service (GDS) and Total Debt Service (TDS).

Gross Debt Service Ratio

The GDS is determined by using the following calculation:

GDS = Principle & Interest + Taxes + Heat (PITH) + Condo Fees (if applicable) / Total Monthly Gross Income

The P & I calculation is obtained from the monthly payment for the desired interest rate and mortgage amount including any applicable mortgage insurance premiums (CMHC, Genworth, or Canada Guarantee).

The monthly property taxes must be the current Municipal billing level.  Get this from the Listing Realtor or Tax Roll.  It should be included on the Broker MLS document.

Many Lenders use set amounts for the monthly Heat requirement.  This amount is based on the square footage of the subject property and is not necessarily the same amount of expense you will pay when living in the home.  This amount is for mortgage qualification purposes only so obtaining the exact heating amounts from the home owner is not necessary.  Please check with your Mortgage Professional.

The Condominium Fees are the current monthly requirement as set by the property Board of Directors.  Get this from the Listing Realtor.  It should be included on the Broker MLS document.

This ratio can be no greater than 35% for applicants with Beacon Scores lower than 680 or 39% for applicant’s with Beacon Scores higher than 680.

Total Debt Service Ratio

The TDS is determined by using the following calculation:

TDS = PITH + Condo Fees + All other monthly obligations / Total Monthly Gross Income

All other monthly obligations include Credit Cards, Car payments, Student Loans, Child or Spousal Support payments, personal loans etc.  It does not include items like cell phones and car or home insurance.

This ratio can be no greater than 39% for applicants with Beacon Scores lower than 680 or 44% for applicants with Beacon Scores higher than 680.

Please note that while the above stated ratio values are industry accepted standards, some Lenders have different ratios to support their products.

Examples

Now that we've defined the framework, let’s look as some examples to see the effect on GDS and TDS.

Example #1

Down payment - $9,250 plus 1.5% for closing costs (approximately $2,800 in this example)

Subject Property - $185,000 Single Family Dwelling 1,165 sq. ft., Property Taxes - $2,000

Current 5-year “A” Interest Rate – 2.89%, 25-year amortization

Applicant #1

Annual Income: $40,000 – Full time regular employment for past 5 years, Credit Score: 674, Visa Balance: $5,200, Car Payment: $325/month, Student Loans: $175/month. For mortgage qualification purposes, 3% of outstanding credit card payments are used.  All other obligations are taken at their contracted monthly rates.  Therefore the total monthly debt payment is $656 for Applicant #1.

Applicant #2

Annual Income: $26,000 – Full time regular employment for past 2 years, Credit Score: 700, Visa Balance: $2,900, Car Payment: $245/month.  Therefore the total monthly debt payment is $332 for Applicant #2.

Crunching the Numbers

Based on this scenario, the GDS calculation would be as follows:

GDS = Principle & Interest + Taxes + Heat (PITH) + Condo Fees (if applicable) / Total Monthly Gross Income

GDS = $847.73 + 166.67 + $85 / $5,500 = 19.99%

Based on this scenario, the TDS calculation would be as follows:

TDS = PITH + Condo Fees + All other monthly obligations / Total Monthly Gross Income

TDS = PITH ($847.73 + 166.67 + $85) + All other monthly obligations ($998) / $5,500 = 38.13%

Therefore, this deal would work as the GDS and TDS maximum ratios for Credit Scores less than 680 of 35% and 42% have not been exceeded.  These applicants are within their level of affordability.

Example #2

Down payment - $175,000 plus 1.5% for closing costs (approximately $6,000 in this example)

Subject Property - $575,000 Single Family Dwelling 3,600 sq. ft., Property Taxes - $6,000

Current 5-year “B” Stated Income Interest Rate – 3.09%, 25-year amortization

Applicant #1

Annual Income: $80,000 – Business owner for past 7 years, Credit Score: 764, Visa Balance: $17,000, Car Payment: $725/month, Child Support Payments for the next eight years: $450/month. For mortgage qualification purposes, 3% of outstanding credit card payments are used.  All other obligations are taken at their contracted monthly rates.  Therefore the total monthly debt payment is $1,685 for Applicant #1.

Applicant #2

Annual Income: $26,000 – Full time regular employment for past 4 years, Credit Score: 700, Visa Balance: $5,900, Car Payment: $560/month.  Therefore the total monthly debt payment is $737 for Applicant #2.

Crunching the Numbers

Based on this scenario, the GDS calculation would be as follows:

GDS = Principle & Interest + Taxes + Heat (PITH) + Condo Fees (if applicable) / Total Monthly Gross Income

GDS = $1,915.62 + 500 + $115 / $8,833 = 28.65%

Based on this scenario, the TDS calculation would be as follows:

TDS = PITH + Condo Fees + All other monthly obligations / Total Monthly Gross Income

TDS = PITH ($1,915.62 + 500 + $115) + All other monthly obligations ($2,422) / $8,833 = 56.07%

Therefore, this deal would NOT work as the GDS and TDS maximum ratios for Credit Scores greater than 680 of 39% and 44% have been exceeded.

While these applicants are within their level of affordability for the GDS (housing) calculation, their additional monthly obligations bring their TDS levels beyond accepted levels for mortgage financing approvals.

TheMortgageGuyNiagara.com

Renovating Before Selling – Is it Worth it?

Does your home and current market conditions warrant a home renovation before you sell?

Here are some things to consider before you start that large renovation job.

Every day a homeowner asks the question, "should we renovate and sell or sell this home as it is?" And every day a homeowner gets the renovation bug and spends thousands of dollars on their aging home only to find that they really made no profit on the work after selling.

Do-it-yourself and home renovation is an extremely enormous market. And with all the inspiring shows we see on television each day, it is hard not to get the bug! Absolutely everything we need is available at the local hardware outlet - some of them even offer free renovation classes.

All that is missing is experience. The experience required to select professional materials and not just buying what is presented in the sale catalogue; the experience to handle the difficulties of the job, to prepare the many different types of surfaces that people are confronted with, and the experience to know what can and cannot be achieved without specialized tools or without time to cure products or allow them to settle so that inherent problems do not affect how the finish performs over time.

So what do you do if selling the home is intentional and a profit essential? You need to do a serious market survey and compare your home with what is in your street and area and what they had that you don’t. If you are the best home in your street, then you have already hit the top of your market and it will be hard to predict what you will get. In this situation you need to find a buyer who is simply as passionate about your home as you are, and hope that an emotional bid may allow your home to hold the new highest street price as a future comparative yard stick for others.

At the same time, a professional finish can be achieved with a very minor budget. It would be very worth bringing in a professional painter and painting the home in soft colours that provide a warm or cool contrast but do not dominate the colours within your rooms. Another low budget recommendation is to invest your budget in hiring new, fresh furniture for the auction or sale period, so that the furnishings are not tired and worn and can actually modernize the feel of the home.

In closing, your best bet is to have a serious chat with agents or the right people for advice on what is an acceptable limit for your renovation work given the area you live in. Remember, everyone out there wants to purchase a bargain. Why not give your next buyer a home worth renovating! It might be just the thing that attracts them to it.

Source: hgtv.ca
URL: http://www.hgtv.ca/articles/articledetails.aspx?ContentId=1917&cat=3&by=2

www.TheMortgageGuyNiagara.com

4635 Second Ave, Niagara Falls, ON

7933 Mount Carmel Blvd, Niagara Falls, ON

105 - 3955 PORTAGE Road Niagara Falls, Ontario

Bank of Canada Announcement - December 2, 2014

Good morning,

As you know, your variable rate mortgage, line of credit and/or student loans are all based on the Prime Rate and here is your personal update from me on the recent Bank of Canada announcement on changes to their overnight rate which in most cases impacts your Prime Rate. 

At 10:00 am EST, Wednesday December 3rd, 2014 the Bank of Canada again did what we expected them to do … they continue to maintain their overnight rate and in fact are not likely to make any change until possibly 2016 now!

So the holiday season is upon us,  which typically results in some splurging on family, friends and yourself of course – we are often tempted to get carried away and then “worry about the extra debt later”.  I still want to make sure you stay on track to not only reach that Mortgage Burning Party date but also save as much unnecessary interest as possible.  

If you or anyone you know just got a little carried away and have some high interest credit card debt that you can’t seem to pay off in full each month, now is a great time to chat about options with rates so low.   Let’s budget and plan together - maybe you are planning a renovation project soon or purchasing a second home or rental property – chat to me about your options ….it’s never too late to start planning. 

To continue with the Bank of Canada news, here is an excerpt of the announcement and what they had to say about their decision yesterday:

“Although the outlook remains for stronger momentum in the global economy in 2015 and 2016, the profile is weaker than in July and growth prospects are diverging across regions. Persistent headwinds continue to buffet most economies and growth remains reliant on exceptional policy stimulus. Against a background of ongoing geopolitical uncertainties and lower confidence, energy prices have declined and there has been a significant correction in global financial markets, resulting in lower government bond yields. Despite weakness elsewhere, the U.S. economy is gaining traction, particularly in sectors that are beneficial to Canada’s export prospects.  The U.S. dollar has strengthened against other major currencies, including the Canadian dollar.

In this context, Canada’s exports have begun to respond. However, business investment remains weak. Meanwhile, the housing market and consumer spending are showing renewed vigor and auto sales have reached record highs, all fueled by very low borrowing rates. The lower terms of trade will have a tempering effect on income”

The Bank still feels that they won’t consider increasing rates to as far out as 2016!  They continue to wait and see economic growth continue on a more upward direction and sustainable long term.  Remember, that any increase to the prime rate since 1992 has only been by 0.25% at any ONE time, so you won’t see a large significant increase all at once.

Fixed rates haven’t changed much at all since the last announcement and are around 2.99% to 3.09% for a five year fixed term.  Many of my Lenders offer deeper discounts throughout the year so check-in on the best rate!

Based on this recent announcement, and the anticipation that the prime rate will still remain low for a while now, unless you feel otherwise, I’d recommend that you remain with your current variable rate product as the interest is lower than a fixed term rate right now.  

However, if having a fixed payment is important to you, call me so I can calculate what your new payment would look like and also if it is suitable for you. The next announcement on any change to the prime rate is January 21, 2015 at which time I’ll be in touch again.

I wonder if I can ask a favour, going with my theme of “Let the sun set and the leaves fall along with Canadian consumer debt with our help” if you hear a friend or family member talk about going through a financially tough time – maybe I can help with some budgeting, credit counselling and debt consolidation options for them.  In either of these cases, would you mind passing my contact information on to them?  This is very much appreciated.