By LuAnn LaSalle, The Canadian Press
Higher food and gasoline prices and hefty debt loads likely to be made worse by interest rate hikes will impact consumers' buying habits going forward, say those who track retail spending.
It's going to be tough for consumers who have depended on a low interest rate environment, said TD Bank economist Francis Fong, adding that rates are expected to go up this summer.
"The rising interest rate environment, this high household indebtedness situation — that's all going to impede the ability of consumers to spend going forward," Fong said Thursday from Toronto.
Statistics Canada said retail sales increased 0.4 per cent in February to $37.3 billion, giving retailers some relief after declining sales at the start of the year.
Consumers filling their tanks with higher-priced gas, along with those buying furniture and clothing, pushed sales higher in February.
But Fong said consumer spending will no longer be the same driving force going forward as it has been throughout the economic recovery.
The Retail Council of Canada said consumers are "still hanging back a little bit," especially now that they have to spend more of their incomes on food and gas.
"Clearly, if they're going to have spend a little bit more on basic necessities, they may pull back a little bit on the nice-to-haves, but not on the need-to-haves," said spokeswoman Anne Kothawala.
Consumer confidence is soft and that mirrors spending, she added.
"Gas and food prices are actually very closely related. It costs more to transport goods," Kothawala said.
Statistics Canada said the largest contributor to February's increase in retail purchases in dollar terms was gasoline sales, which increased 1.3 per cent.
Gasoline prices have been surging along with crude oil, which began rising sharply in February with the outbreak of unrest in Libya, an OPEC member that accounted for about two per cent of the world's crude output before civil war there.
As of Thursday, the Canadian average price compiled by GasBuddy.com was 129.6 cents per litre, up from about 118 cents per litre at the end of February.
But lower retail sales in Quebec — a 0.8 per cent decline — contributed the most towards the dampening of national retail sales, Statistics Canada said.
"The decline reflected, in part, lower sales of new motor vehicles in the province," the federal agency said. "This was the second decline in retail sales in Quebec following six consecutive monthly gains."
Quebec also increased its provincial sales tax to 8.5 per cent in January, up a percentage point.
Sales at clothing and clothing accessories stores were up 2.5 per cent, offsetting a decline in January. Sales at furniture and home furnishings stores grew 2.1 per cent in February, helped by gains in real estate sales.
Prof. Ken Wong of Queen's University business school said once consumers pay down debt and spend more money on food and gas, there isn't much left for anything else.
"You have to ask yourself what can be delayed and what can't be delayed," Wong said of consumer purchases.
"We cannot rely on interest rates remaining as low as they are as long as they have been going forward," said Wong, who teaches business and marketing strategy.
Geographically, retail sales in February gained in six of 10 provinces, powered by Ontario where sales increased 0.7 per cent after two consecutive monthly declines.
Tuesday, April 26, 2011
Monday, April 18, 2011
Interest rate hikes are coming - and soon
STEPHEN GORDON - The Globe and Mail
This is the passage in the Bank of Canada’s Monetary Policy Report that attracted most of my attention yesterday:
“On an average annual basis, real GDP is projected to grow by 2.9 per cent in 2011 and 2.6 per cent in 2012, while growth in 2013 is expected to equal that of potential output (2.1 per cent), with the economy operating at full capacity. This growth profile implies a slightly higher level of activity across the medium-term projection horizon, with the Bank now expecting the economy to return to full capacity around the middle of 2012, two quarters earlier than had been projected in the January Report.”
My post on the March 1 interest rate decision noted that the ‘output gap’ -- the difference between actual output and potential output -- plays a key role in how the Bank conducts policy. When output is below potential, interest rates are kept low to make sure that inflation does not fall below its 2 per cent target. When output is at potential -- that is, at the level where there are no pressures on inflation in either direction -- the Bank sets interest rates at a ‘neutral’ rate, which is widely believed to be between 3 and 4 per cent. In March, it was estimated that the closing of the gap was roughly 22 months away, at the end of 2012.
Six weeks later, the news that the gap is now expected to close in mid-2012 shortens the horizon to 14 months or so. If the Bank continues its custom of increasing rates in increments of 25 basis points, then going from the current level of 1 per cent to 3 per cent would require 8 increases in the next 10 interest rate decisions.
There are many reports that financial markets are expecting the Bank of Canada to wait until July 19 before increasing interest rates. It’s not clear to me why it would or should wait until then. In the opinion of the economists on the CD Howe Institute’s Monetary Policy Council -- which called for in interest rate increase in January, March and again in April -- the Bank has already waited long enough.
It is likely that the Bank’s reluctance to increase rates this time was in large part based on a desire to keep a low profile during the election. But after the election, financial markets should be preparing for a sustained round of interest hikes, and for it to start before July.
Stay up to date on mortgage rates, sign up to my 'Rate Alert' today!
This is the passage in the Bank of Canada’s Monetary Policy Report that attracted most of my attention yesterday:
“On an average annual basis, real GDP is projected to grow by 2.9 per cent in 2011 and 2.6 per cent in 2012, while growth in 2013 is expected to equal that of potential output (2.1 per cent), with the economy operating at full capacity. This growth profile implies a slightly higher level of activity across the medium-term projection horizon, with the Bank now expecting the economy to return to full capacity around the middle of 2012, two quarters earlier than had been projected in the January Report.”
My post on the March 1 interest rate decision noted that the ‘output gap’ -- the difference between actual output and potential output -- plays a key role in how the Bank conducts policy. When output is below potential, interest rates are kept low to make sure that inflation does not fall below its 2 per cent target. When output is at potential -- that is, at the level where there are no pressures on inflation in either direction -- the Bank sets interest rates at a ‘neutral’ rate, which is widely believed to be between 3 and 4 per cent. In March, it was estimated that the closing of the gap was roughly 22 months away, at the end of 2012.
Six weeks later, the news that the gap is now expected to close in mid-2012 shortens the horizon to 14 months or so. If the Bank continues its custom of increasing rates in increments of 25 basis points, then going from the current level of 1 per cent to 3 per cent would require 8 increases in the next 10 interest rate decisions.
There are many reports that financial markets are expecting the Bank of Canada to wait until July 19 before increasing interest rates. It’s not clear to me why it would or should wait until then. In the opinion of the economists on the CD Howe Institute’s Monetary Policy Council -- which called for in interest rate increase in January, March and again in April -- the Bank has already waited long enough.
It is likely that the Bank’s reluctance to increase rates this time was in large part based on a desire to keep a low profile during the election. But after the election, financial markets should be preparing for a sustained round of interest hikes, and for it to start before July.
Stay up to date on mortgage rates, sign up to my 'Rate Alert' today!
Friday, April 15, 2011
Don't be fooled by pause in rate hikes
BRIAN MILNER - The Globe and Mail
Central bankers everywhere are busy weighing the potential impact of various shocks, currency swings and inflation spikes on their economies. And most have decided it would be prudent to wait a bit longer before ratcheting up interest rates and potentially undermining fragile recoveries.
None of the decisions comes as a surprise. Nor does the tone of the central bankers' comments, which signal that further monetary tightening lies ahead. That’s true whether we’re talking about high-growth markets in Asia, modestly expanding ones in North America or contracting economies in Britain and the battered peripheral countries of the euro zone. Austerity and a “return to normal,” whatever that means, have become the policy makers’ watchwords everywhere.
Three Asian central banks joined Britain, Canada, Australia and others on the wait-and-see list Tuesday. South Korea, which has already boosted rates twice since the beginning of the year to rein in rising consumer prices, kept its benchmark base rate at 3 per cent. Indonesia, which hiked rates by a modest 25 basis points in February, also held the line at 6.75 per cent. And the Central Bank of Sri Lanka left its key rate unchanged at 7 per cent. But it tightened policy for the first time since the Great Financial Crisis by boosting banks’ reserve requirement ratio.
Bank Indonesia governor Nasution made the policy direction crystal clear, noting that the rate decision “doesn't change Bank Indonesia’s tightening bias.”
The upshot will be a string of rate hikes later this year, especially once the fallout from the Japanese supply-chain disruptions dissipates.
Central bankers everywhere are busy weighing the potential impact of various shocks, currency swings and inflation spikes on their economies. And most have decided it would be prudent to wait a bit longer before ratcheting up interest rates and potentially undermining fragile recoveries.
None of the decisions comes as a surprise. Nor does the tone of the central bankers' comments, which signal that further monetary tightening lies ahead. That’s true whether we’re talking about high-growth markets in Asia, modestly expanding ones in North America or contracting economies in Britain and the battered peripheral countries of the euro zone. Austerity and a “return to normal,” whatever that means, have become the policy makers’ watchwords everywhere.
Three Asian central banks joined Britain, Canada, Australia and others on the wait-and-see list Tuesday. South Korea, which has already boosted rates twice since the beginning of the year to rein in rising consumer prices, kept its benchmark base rate at 3 per cent. Indonesia, which hiked rates by a modest 25 basis points in February, also held the line at 6.75 per cent. And the Central Bank of Sri Lanka left its key rate unchanged at 7 per cent. But it tightened policy for the first time since the Great Financial Crisis by boosting banks’ reserve requirement ratio.
Bank Indonesia governor Nasution made the policy direction crystal clear, noting that the rate decision “doesn't change Bank Indonesia’s tightening bias.”
The upshot will be a string of rate hikes later this year, especially once the fallout from the Japanese supply-chain disruptions dissipates.
Friday, April 8, 2011
Tougher downpayment rules best way to cut mortgage risks
TED RECHTSHAFFEN - The Globe and Mail
Over the past couple of years, there has been a great deal of discussion and policy change aimed at protecting us from ourselves when it comes to debt.
There is one obvious idea that would meaningfully do the trick, but we seem afraid to implement it.
That would be to raise down payment minimums on a home from 5 per cent to 10 per cent.
From a taxpayer’s perspective, the big risk is the government-backed Canada Mortgage and Housing Corporation (CMHC). Many people think that banks would be at risk, but the first line of defence would be CMHC.
Today, if you are buying a home and you put in a down payment of less than 20 per cent, you will have to pay CMHC insurance. This insurance helps to pay for CMHC, and takes the risk off the lender (bank or mortgage company) in case of default. The default risk on this mortgage is held by CMHC.
In fact, this is one of the risk problems. Most banks would rather offer a mortgage with only 5 per cent down payment than 25 per cent down payment. The reason is that the bank in insured for the 5-per-cent down payment mortgage, but not for the 25 per cent down payment mortgage. This is just one of the ways that we encourage those who can least afford it to take on home ownership.
As a result, the key risk for taxpayers is that those with only 5 per cent to 20 per cent down payment might default on their mortgages. If this group bought houses, and the average price went down 10 per cent, then this group will now have negative equity in their homes. As we have seen frequently in the United States, when there is negative equity in homes, the losses pile up for the homeowner and the lender alike.
Rather than worrying about moving amortization rates from 35 years to 30 years, or only allowing refinancing to 85-per-cent debt levels, let’s get to the heart of the matter.
If the minimum down payment backed by CMHC is raised to 10 per cent, then home prices would have to drop more than 10 per cent before people faced negative equity. The total number of these high-debt mortgages would decline, and the entire market would have a much greater cushion.
When you think about it, why should someone who can only afford 5 per cent of a house be supported by the taxpayer in their home purchase? A large percentage of these home buyers are not yet in a financial position to become a home owner. Why should we encourage and support people taking on debt levels many times greater than their annual income?
There are only three answers I can think of for not making this change:
1) The notion of encouraging first-time home buyers is seen as noble, positive and patriotic. It encourages the Canadian Dream.
2) The economic fallout from losing a portion of first-time home buyers would be significant. Mortgage brokers, real estate agents, real estate lawyers, contractors, banks, home reno stores and builders would all suffer financially.
3) If some of the housing demand disappears from the first-time home buyer, all real estate prices could face some downside – at least temporarily.
My view is we should take our medicine now so we don’t all get sick.
There is no question that there will be some short-term pain if the 5-per-cent equity limit is moved up to 10 per cent, but think about what it would do to shore up the real risks that we all face in Canada.
A significant number of home buyers who are on the borderline of being able to afford a house might be saved from a financial disaster.
The CMHC would be put in a significantly lower risk position than it is in today. All we have to do is look at Fannie Mae and Freddie Mac in the United States to see what could happen if CMHC is left holding thousands of properties valued below their debt level.
We would significantly lower the risk of having many homeowners desperate to sell homes, and creating a plummeting housing market. This change would provide greater long-term stability for all home owners.
It is about time that Jim Flaherty makes the one tough decision on mortgages that will put Canada on a much stronger financial footing to withstand higher interest rates and declining housing prices.
Over the past couple of years, there has been a great deal of discussion and policy change aimed at protecting us from ourselves when it comes to debt.
There is one obvious idea that would meaningfully do the trick, but we seem afraid to implement it.
That would be to raise down payment minimums on a home from 5 per cent to 10 per cent.
From a taxpayer’s perspective, the big risk is the government-backed Canada Mortgage and Housing Corporation (CMHC). Many people think that banks would be at risk, but the first line of defence would be CMHC.
Today, if you are buying a home and you put in a down payment of less than 20 per cent, you will have to pay CMHC insurance. This insurance helps to pay for CMHC, and takes the risk off the lender (bank or mortgage company) in case of default. The default risk on this mortgage is held by CMHC.
In fact, this is one of the risk problems. Most banks would rather offer a mortgage with only 5 per cent down payment than 25 per cent down payment. The reason is that the bank in insured for the 5-per-cent down payment mortgage, but not for the 25 per cent down payment mortgage. This is just one of the ways that we encourage those who can least afford it to take on home ownership.
As a result, the key risk for taxpayers is that those with only 5 per cent to 20 per cent down payment might default on their mortgages. If this group bought houses, and the average price went down 10 per cent, then this group will now have negative equity in their homes. As we have seen frequently in the United States, when there is negative equity in homes, the losses pile up for the homeowner and the lender alike.
Rather than worrying about moving amortization rates from 35 years to 30 years, or only allowing refinancing to 85-per-cent debt levels, let’s get to the heart of the matter.
If the minimum down payment backed by CMHC is raised to 10 per cent, then home prices would have to drop more than 10 per cent before people faced negative equity. The total number of these high-debt mortgages would decline, and the entire market would have a much greater cushion.
When you think about it, why should someone who can only afford 5 per cent of a house be supported by the taxpayer in their home purchase? A large percentage of these home buyers are not yet in a financial position to become a home owner. Why should we encourage and support people taking on debt levels many times greater than their annual income?
There are only three answers I can think of for not making this change:
1) The notion of encouraging first-time home buyers is seen as noble, positive and patriotic. It encourages the Canadian Dream.
2) The economic fallout from losing a portion of first-time home buyers would be significant. Mortgage brokers, real estate agents, real estate lawyers, contractors, banks, home reno stores and builders would all suffer financially.
3) If some of the housing demand disappears from the first-time home buyer, all real estate prices could face some downside – at least temporarily.
My view is we should take our medicine now so we don’t all get sick.
There is no question that there will be some short-term pain if the 5-per-cent equity limit is moved up to 10 per cent, but think about what it would do to shore up the real risks that we all face in Canada.
A significant number of home buyers who are on the borderline of being able to afford a house might be saved from a financial disaster.
The CMHC would be put in a significantly lower risk position than it is in today. All we have to do is look at Fannie Mae and Freddie Mac in the United States to see what could happen if CMHC is left holding thousands of properties valued below their debt level.
We would significantly lower the risk of having many homeowners desperate to sell homes, and creating a plummeting housing market. This change would provide greater long-term stability for all home owners.
It is about time that Jim Flaherty makes the one tough decision on mortgages that will put Canada on a much stronger financial footing to withstand higher interest rates and declining housing prices.
Thursday, April 7, 2011
No simple answers for new buyers
Paul Barker, Postmedia News
Do you lock in or go variable? With mortgage rates tantalizingly low it is easy to see why so many people prefer the latter, but that could change if the rates start to rise.
Maria Dominelli, a mortgage specialist with independent mortgage brokerage firm Invis in Victoria, B.C., says deciding which route to choose depends on an individual or couple's short-and long-term goals, the amount of debt being carried and their overall tolerance to risk.
"I always ask clients whether they can afford to ride the wave, because there will be waves," she says. "If you cannot afford an extra couple of hundred dollars a month if rates rise, it is not for you."
Contrary to what many might think, there is not a downside to locking in, says Laura Parsons, a mortgage expert with BMO Financial Group in Calgary.
"Do your homework and if you do lock in, do not look back," she says. "It depends on the person and what they can tolerate. Some people can't sleep at night because they're worried about what the rates are going to do. In that case, of course, a variable rate would not be suitable. You may want to just know what your mortgage rate is going to be for the next five years."
Karen Blomquist, a mortgage associate with Invis affiliate Mortgage Intelligence based in Calgary, conducts a needs analysis with her clients to "find out a little more about who they are.
"If they can't sleep at night, what's the point?" she asks. "[But] if someone has enough money and enough savings and risk, why wouldn't you go variable? But if you are a little tight, you have a fear of fixed changing and you like to look at the long term, then I would say absolutely, lock in."
For anyone who is undecided, BMO offers a service called Online MortgageMate, which involves answering six questions in order to "pick the mortgage that fits."
"This slows someone down and helps them work through the thought process and making that decision," Ms. Parsons says.
"After they answer the questions online it will automatically tell them that they should be in a fixed or a variable, based on the information they provide. You should be setting your payments higher in order to avoid payment shock. It is the payment shock that most people have a problem with. At least have an emergency fund that you can draw on and lump sum your mortgage in order to reduce your payments as well."
Ms. Dominelli says that mortgage professionals have a responsibility to make sure that consumers really understand what they are getting into.
"Not all fixed rates are equal in terms of the product and not all variables are equal," she says.
"As an example, bi-weekly does nothing for you. It gives the lender your money more often. Accelerated is when you have 26 payments. You may think you have an accelerated payment, but in reality you don't. You have to really make sure you are signing the right document."
For the purpose of this story, she calculated the difference between a $250,000 mortgage, amortized over 25 years at a five-year fixed rate of 3.69%, and a variable mortgage at prime minus 0.80%. In each case, the monthly payments were $1,273.38.
"Assuming the current prime rate of three per cent steadily increases to five per cent by the end of the term at the end the five-year period, the principal balance in the fixed term (assuming no extra payments) would be $216,444 versus $208,027 in the variable rate mortgage," Ms. Dominelli says.
"That's what makes a variable mortgage attractive, when you work out the numbers and show people the potential. However, I say that with caution because I would never show that to a highratio borrower. The reality is that this is what has happened as of late: you have had the lowest interest rate on the variable and the fixed, but going forward I don't know if we can count on history repeating itself."
Ms. Parsons says people are really paying attention to interest costs, and so they should. "As an example, taking five years off the amortization of a $300,000 mortgage can save you $53,000," she says. "It's huge.
"There is nothing wrong with requesting an amortization schedule when you get your mortgage so you know where you're at in the first five years, 10, 15 and so on. Paying weekly, rather than monthly is a great way to battle that interest cost and also, get used to having a higher payment."
Do you lock in or go variable? With mortgage rates tantalizingly low it is easy to see why so many people prefer the latter, but that could change if the rates start to rise.
Maria Dominelli, a mortgage specialist with independent mortgage brokerage firm Invis in Victoria, B.C., says deciding which route to choose depends on an individual or couple's short-and long-term goals, the amount of debt being carried and their overall tolerance to risk.
"I always ask clients whether they can afford to ride the wave, because there will be waves," she says. "If you cannot afford an extra couple of hundred dollars a month if rates rise, it is not for you."
Contrary to what many might think, there is not a downside to locking in, says Laura Parsons, a mortgage expert with BMO Financial Group in Calgary.
"Do your homework and if you do lock in, do not look back," she says. "It depends on the person and what they can tolerate. Some people can't sleep at night because they're worried about what the rates are going to do. In that case, of course, a variable rate would not be suitable. You may want to just know what your mortgage rate is going to be for the next five years."
Karen Blomquist, a mortgage associate with Invis affiliate Mortgage Intelligence based in Calgary, conducts a needs analysis with her clients to "find out a little more about who they are.
"If they can't sleep at night, what's the point?" she asks. "[But] if someone has enough money and enough savings and risk, why wouldn't you go variable? But if you are a little tight, you have a fear of fixed changing and you like to look at the long term, then I would say absolutely, lock in."
For anyone who is undecided, BMO offers a service called Online MortgageMate, which involves answering six questions in order to "pick the mortgage that fits."
"This slows someone down and helps them work through the thought process and making that decision," Ms. Parsons says.
"After they answer the questions online it will automatically tell them that they should be in a fixed or a variable, based on the information they provide. You should be setting your payments higher in order to avoid payment shock. It is the payment shock that most people have a problem with. At least have an emergency fund that you can draw on and lump sum your mortgage in order to reduce your payments as well."
Ms. Dominelli says that mortgage professionals have a responsibility to make sure that consumers really understand what they are getting into.
"Not all fixed rates are equal in terms of the product and not all variables are equal," she says.
"As an example, bi-weekly does nothing for you. It gives the lender your money more often. Accelerated is when you have 26 payments. You may think you have an accelerated payment, but in reality you don't. You have to really make sure you are signing the right document."
For the purpose of this story, she calculated the difference between a $250,000 mortgage, amortized over 25 years at a five-year fixed rate of 3.69%, and a variable mortgage at prime minus 0.80%. In each case, the monthly payments were $1,273.38.
"Assuming the current prime rate of three per cent steadily increases to five per cent by the end of the term at the end the five-year period, the principal balance in the fixed term (assuming no extra payments) would be $216,444 versus $208,027 in the variable rate mortgage," Ms. Dominelli says.
"That's what makes a variable mortgage attractive, when you work out the numbers and show people the potential. However, I say that with caution because I would never show that to a highratio borrower. The reality is that this is what has happened as of late: you have had the lowest interest rate on the variable and the fixed, but going forward I don't know if we can count on history repeating itself."
Ms. Parsons says people are really paying attention to interest costs, and so they should. "As an example, taking five years off the amortization of a $300,000 mortgage can save you $53,000," she says. "It's huge.
"There is nothing wrong with requesting an amortization schedule when you get your mortgage so you know where you're at in the first five years, 10, 15 and so on. Paying weekly, rather than monthly is a great way to battle that interest cost and also, get used to having a higher payment."
Tuesday, April 5, 2011
Canada's big banks raising residential mortgage rates ahead of busy period
By The Canadian Press
TORONTO - Several of Canada's big banks are raising most of their fixed-term mortgage rates ahead of the busy spring real estate market.
TD Canada Trust (TSX:TD) TD said the biggest increases will be for mortgages with terms of five to 10 years, which will all go up by 0.35 percentage points starting Tuesday.
The move was matched by CIBC (TSX:CM).
The Royal Bank (TSX:RY) raised its rates on mortgages for five and 10-year terms by 0.35 percentage points and its seven-year rate by 0.15 percentage points. The posted rate for five-year closed mortgages — one of the most popular types of loans for Canadian home owners — will rise to 5.69 per cent.
Scotiabank (TSX:BNS) raised its posted rate for a five-year closed mortgage by 0.4 percentage points to bring it to 5.69 per cent.
Fixed mortgage rates, which are closely tied to the bond market, tend to climb when traders shift investment activity to riskier equity assets from bonds, which are considered safer.
TORONTO - Several of Canada's big banks are raising most of their fixed-term mortgage rates ahead of the busy spring real estate market.
TD Canada Trust (TSX:TD) TD said the biggest increases will be for mortgages with terms of five to 10 years, which will all go up by 0.35 percentage points starting Tuesday.
The move was matched by CIBC (TSX:CM).
The Royal Bank (TSX:RY) raised its rates on mortgages for five and 10-year terms by 0.35 percentage points and its seven-year rate by 0.15 percentage points. The posted rate for five-year closed mortgages — one of the most popular types of loans for Canadian home owners — will rise to 5.69 per cent.
Scotiabank (TSX:BNS) raised its posted rate for a five-year closed mortgage by 0.4 percentage points to bring it to 5.69 per cent.
Fixed mortgage rates, which are closely tied to the bond market, tend to climb when traders shift investment activity to riskier equity assets from bonds, which are considered safer.
Friday, April 1, 2011
Mortgage literacy crucial for first-time buyers
Vito Cupoli, Postmedia News
Two years ago, when Michelle Gompf and Jesse Bagelman started thinking about buying a house, they assumed it would be impossible to qualify for a mortgage because of some heavy debt and Mr. Bagelman's status as a self-employed stone mason.
Rather than give up, Ms. Gompf -now Gompf Bagelman -launched a campaign. "I made up some little posters with a target date called Operation Jesse & Michelle Buy a House. I put them up where we couldn't miss them -on our fridge, on the bedroom dresser, our laundry, office. I had them everywhere. I just wanted a house to be top of mind. We're going to figure it out."
A friend in real estate suggested she speak with a mortgage broker to see how close she was to qualifying for a first-time mortgage. "The broker really worked his magic, and next thing you know we were approved with a monthly payment that was less than the rent we were paying for our basement apartment," she says.
She knew very little about the mortgage process initially, which is typical for first-time buyers, says mortgage broker Sandra Grywul.
"For the most part, the first-time homebuyer doesn't know anything about financing a home," says Ms. Grywul, owner of Always A Mortgage in Toronto.
"It's funny, because buyers are thinking so much about what neighbourhood they want to live in, how many bedrooms, bathrooms, square footage. But they're not thinking about what kind of mortgage they want to enter into."
And buyers shopping for a mortgage have a lot of choices to sift through. Fixed term or open? Variable or fixed rate? Should they use their RRSPs for a down payment?
But Ms. Grywul says those decisions should be made after the buyers have tackled the most important element, which is to understand how much mortgage they can actually afford.
"The bank will look at your credit report but it won't know if you like to spend $300 for a haircut or eat in an expensive restaurant each night.
"New homeowners go in, they get the mortgage that the bank says they can qualify for, and after two or three months into the house they're calling around to see if they can do a consolidation or a refinance.
"The joy of their home has completely dissipated because they didn't take into account all their monthly expenses when figuring out how much they could afford per month on their mortgage.
"I see this all the time. So as part of getting pre-approved for a mortgage, buyers need to be very honest with themselves about how much money they need to live happily," Ms. Grywul says.
Toronto real estate agent Cameron Weir of Royal LePage, Johnston and Daniel has worked with a number of first-time home buyers.
He says it's exciting to watch people go from being renters to owners. He says mortgage pre-approval is vital because it allows the buyer to be nimble in an active market.
"A lot of times today we find that there's more than one offer in on a property. And if you don't have everything set with a pre-approval, when your perfect property comes up you can't close the deal without arranging financing first," Mr. Weir says.
"While you're working that out, a competitor who has already done his homework might make a firm offer at the same price and unfortunately you'll probably lose that property."
Mr. Weir describes the first-time buyer as "very excited, very nervous, lots of questions. It's the biggest purchase they're going to make, after all. But along with that, they're also pretty cautious."
Ms. Gompf Bagelman's fear of high lawyer fees made her cautious. She was also concerned about having a stable and predictable monthly mortgage payment, so she chose a five-year mortgage and a fixed interest rate on the house she and her husband took possession of in February.
"With a variable rate I worried that I don't have a lot of experience with these interest rates and anything could happen," Ms. Gompf Bagelman says. "But the five-year term gives me security right now. So I have the current safety net and hope for something better when the five years are up."
She also wondered if the recent mortgage crisis in the United States would complicate her home financing. And while that financial mess did foster changes in some Canadian mortgage regulations that take effect in April, Ms. Grywul says they don't have any impact on the first-time buyer.
Instead, they focus on the refinancing business and on those who purchase second homes or investment property.
In considering all the details and requirements of financing a home, Mr. Weir says, "the most important thing is to find the right place, at the right price at the right time."
Two years ago, when Michelle Gompf and Jesse Bagelman started thinking about buying a house, they assumed it would be impossible to qualify for a mortgage because of some heavy debt and Mr. Bagelman's status as a self-employed stone mason.
Rather than give up, Ms. Gompf -now Gompf Bagelman -launched a campaign. "I made up some little posters with a target date called Operation Jesse & Michelle Buy a House. I put them up where we couldn't miss them -on our fridge, on the bedroom dresser, our laundry, office. I had them everywhere. I just wanted a house to be top of mind. We're going to figure it out."
A friend in real estate suggested she speak with a mortgage broker to see how close she was to qualifying for a first-time mortgage. "The broker really worked his magic, and next thing you know we were approved with a monthly payment that was less than the rent we were paying for our basement apartment," she says.
She knew very little about the mortgage process initially, which is typical for first-time buyers, says mortgage broker Sandra Grywul.
"For the most part, the first-time homebuyer doesn't know anything about financing a home," says Ms. Grywul, owner of Always A Mortgage in Toronto.
"It's funny, because buyers are thinking so much about what neighbourhood they want to live in, how many bedrooms, bathrooms, square footage. But they're not thinking about what kind of mortgage they want to enter into."
And buyers shopping for a mortgage have a lot of choices to sift through. Fixed term or open? Variable or fixed rate? Should they use their RRSPs for a down payment?
But Ms. Grywul says those decisions should be made after the buyers have tackled the most important element, which is to understand how much mortgage they can actually afford.
"The bank will look at your credit report but it won't know if you like to spend $300 for a haircut or eat in an expensive restaurant each night.
"New homeowners go in, they get the mortgage that the bank says they can qualify for, and after two or three months into the house they're calling around to see if they can do a consolidation or a refinance.
"The joy of their home has completely dissipated because they didn't take into account all their monthly expenses when figuring out how much they could afford per month on their mortgage.
"I see this all the time. So as part of getting pre-approved for a mortgage, buyers need to be very honest with themselves about how much money they need to live happily," Ms. Grywul says.
Toronto real estate agent Cameron Weir of Royal LePage, Johnston and Daniel has worked with a number of first-time home buyers.
He says it's exciting to watch people go from being renters to owners. He says mortgage pre-approval is vital because it allows the buyer to be nimble in an active market.
"A lot of times today we find that there's more than one offer in on a property. And if you don't have everything set with a pre-approval, when your perfect property comes up you can't close the deal without arranging financing first," Mr. Weir says.
"While you're working that out, a competitor who has already done his homework might make a firm offer at the same price and unfortunately you'll probably lose that property."
Mr. Weir describes the first-time buyer as "very excited, very nervous, lots of questions. It's the biggest purchase they're going to make, after all. But along with that, they're also pretty cautious."
Ms. Gompf Bagelman's fear of high lawyer fees made her cautious. She was also concerned about having a stable and predictable monthly mortgage payment, so she chose a five-year mortgage and a fixed interest rate on the house she and her husband took possession of in February.
"With a variable rate I worried that I don't have a lot of experience with these interest rates and anything could happen," Ms. Gompf Bagelman says. "But the five-year term gives me security right now. So I have the current safety net and hope for something better when the five years are up."
She also wondered if the recent mortgage crisis in the United States would complicate her home financing. And while that financial mess did foster changes in some Canadian mortgage regulations that take effect in April, Ms. Grywul says they don't have any impact on the first-time buyer.
Instead, they focus on the refinancing business and on those who purchase second homes or investment property.
In considering all the details and requirements of financing a home, Mr. Weir says, "the most important thing is to find the right place, at the right price at the right time."
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