Archive for October 19, 2007

Laurin Jeffrey | October 22, 2007
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How to be mortgage-free within 10 years

I am increasingly faced with clients who are intent on retiring their mortgage as quickly as possible. While most mortgages today are amortized over 25 years, below are the tips that I give my clients who want to be mortgage-free as quickly as possible. If you follow all the suggestions below, your mortgage will be gone quicker than you think.

1 ) Never get an open mortgage at a fixed rate unless you plan on paying it off within its term. Today’s closed mortgages generally offer 10 to 20 per cent prepayment privileges, and can usually be obtained at one per cent or more off the posted rate. Open mortgages at fixed rates carry higher interest. Why pay higher interest unless you are going to exceed this 10 to 20 per cent prepayment? You can always make bigger lump sum payments at renewal time with no penalty.

2 ) Use accelerated weekly or bi-weekly payments. Accelerated weekly payments are equivalent to one-quarter of your monthly payment. Accelerated bi-weekly payments are equivalent to half your monthly payment. Both of these methods enable you to make one extra monthly payment a year. The impact of this alone reduces your amortization from 25 to less than 21 years.

3 ) Give your mortgage the same raise that you get each year. If your income goes up 10 per cent, so should your mortgage payment. This extra increase in payment will go directly towards principal repayment.

4 ) Give your mortgage a portion of any bonus or extra income. If you spend 30 per cent of your income on your mortgage, then 30 per cent of any extra income should also go to your mortgage in the form of a prepayment. This bonus portion will go straight towards principal repayment.

5 ) Keep your payments the same, even if you renew at a lower rate. Since you know you can afford to pay at this level, don’t decrease your payment when you negotiate a lower rate. The difference in payments between your new rate and the old rate will go directly to the principal.

6 ) Use your income tax return to put a lump sum payment towards your mortgage. This is extra money that is not used in your monthly budget. Don’t indulge – make it really benefit you.

7 ) Use extra money from your budget. Most financially sound people have a budget that they live by. If you have a little bit extra then apply it to your mortgage. Minimum prepayments can be as little as $100.

8 ) Round up your mortgage payments. Why not round off that $656 bi-weekly to $660, or $675? You will be amazed at the difference.

9 ) Consider a variable rate mortgage. While the fluctuation will keep some people awake at night, those who can endure the rate adjustments can save money. Some variable rate, or adjustable rate mortgages are up to 0.5 per cent below prime.

10 ) Seek independent financial advice. While some bankers do look out for your best interest, they work for the bank, not you. Their branch, organization and shareholders all have a financial interest in lending at higher rates, and it is in their best interest for you to keep your mortgage for a long time. Talk to your financial planner, mortgage consultant, or talk to a financially savvy friend.

I know that these steps take discipline and dedication, but the old adage still holds true – a penny saved is a penny earned! The one thing that most financially successful people have in common is discipline. It might not feel fulfilling now, but believe me when I say that this short-term sacrifice will result in long-term gain. Just think of what you can buy when your mortgage is all gone.

Until next time, best of luck finding your mortgage and home.

Calum Ross is Vice-President and Practicing Mortgage Consultant with The Mortgage Centre. He has appeared on Canada AM, Investment Television, Report on Business Television and Citytv. He is the holder of both a B.Comm and an MBA in Finance. He can be reached at 416-410-9905.

New Homes & Condos Magazine is an excellent source of housing information for those looking for information on new homes in Ontario, Canada. We offer the most up-to-date information on new communities across the Greater Toronto Area.

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Contact the Jeffrey Team for more information – 416-388-1960

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Category: Ajax Real Estate, Mortgages, Pickering Real Estate | Tags: , , ,
Laurin Jeffrey | October 22, 2007
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Reduce the cost of homeowners insurance

Before you buy home insurance, consider these potentially cost-saving suggestions from the Financial Services Commission of Ontario (FSCO), the agency responsible for regulating insurance in the province:

• Shop around. Get quotes from various insurance agents, brokers and direct writers. When comparing quotes, keep in mind that the range of coverage, deductibles, limitations and exclusions may differ slightly from one insurance policy to the next. There are four main types of homeowner insurance policies:

• The “comprehensive” policy, which covers both the building and its contents for risks that are not specifically excluded in the policy.

• The “broad” policy, which provides “all risks” coverage on the building, plus “named perils” coverage on its contents.

• The “named perils” policy, which covers only those perils specifically included in the policy, such as fire.

• The “no-frills” policy, which provides barebones coverage for properties that don’t meet normal underwriting standards.

• Increase the deductible. Typically, homeowners’ insurance policies carry a $500 deductible – the amount you agree to pay towards the damages claim. But you may be able to reduce your premium by increasing the deductible from $500 to $1,000.

• Bundle your policy. Consider buying homeowners’ and automobile insurance coverage from the same company. You may be eligible for a discount.

• Improve security. Install a smoke detector, fire extinguisher, a monitored burglar alarm system or deadbolt locks. Ask your insurance representative if these measures will reduce your premium.

• Seek out discounts. Ask if you qualify for program savings, such as a loyalty discount (many years with the same insurance company) or discounts for retirees, non-smokers, or for affinity to recognized organizations.

• Patience. Don’t switch insurance companies midway through the policy. Wait until renewal time to avoid a cancellation penalty.

• Review the coverage annually. Items that appreciate in value, such as jewelry, may require additional coverage. Likewise, items that depreciate in value, such as computers, may no longer require extra insurance. Your coverage should accurately reflect your home’s current value and condition, including major improvements or purchases.

More information on insurance is available online at www.fsco.gov.on.ca.

New Homes & Condos Magazine is an excellent source of housing information for those looking for information on new homes in Ontario, Canada. We offer the most up-to-date information on new communities across the Greater Toronto Area.

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Contact the Jeffrey Team for more information – 416-388-1960

Category: Ajax Real Estate, General Real Estate, Miscellaneous, Pickering Real Estate, Scarborough Real Estate | Tags: , ,
Laurin Jeffrey | October 19, 2007
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Housing highs still showing

Another Record Set; Longer mortgage terms fuelling cost, industry warns

Garry Marr, Financial Post

Real estate prices hit another record high last month in the country’s top 25 markets, a move some commentators say reflects the growing dependency of Canadians on debt to finance purchases.

Real estate author Don Campbell says the latest statistics from the Canadian Real Estate Association are further proof that the newest trend in lending — long-term amortizations that have increased to 35 and 40 years from 25 years — is fuelling price increases.

“I would say one-third of the percentage point price increase is due to [longer amortizations],” Mr. Campbell said.

“Real estate is driven by monthly payments and you can afford more and pay less monthly when your amortization is moved from 25 years to 40 years.”

The Ottawa-based Canadian Real Estate Association said yesterday the average price of a home sold in the country’s largest cities rose to $325,881 last month, an 11.2% increase from a year ago.

With 10% down and a 7.19% interest rate on a five-year mortgage, a consumer with an average Canadian home would make monthly payments of $2,088.80 based on a 25-year amortization. Based on a 40-year amortization, the consumer would make monthly payments of $1,840.67.

The consumer with the longer amortization would pay interest costs of $589,786, compared with interest costs of $333,189 for the mortgage amortized over 25 years.

“I think this is having more of an effect on the low end of the market than the top end,” said Mr. Campbell, who thinks people are paying more for homes because with the new mortgage products they can afford more. “Instead of 11% price increases, they might be 6% to 8% without [longer amortization].”

A report from the Royal Bank of Canada this week suggested as much as 50% of new insured mortgages — those with less than 20% down payment — are going for amortizations of more than 25 years. The bank suggested as much as 25% of refinancings are for the longer amortizations.

Benjamin Tal, a senior economist with CIBC World Markets, said it’s probably too early to suggest the longer amortizations are fuelling an inflationary market for real estate. “It’s not a big enough piece of the market yet to matter,” he said. “Potentially, it could be big. Look at how much overall real estate there is and this is not enough to influence markets yet.”

Elton Ash, regional executive vice-president of Re/Max for Western Canada, said the new products are helping consumers to buy. “It certainly has helped with the affordability, especially in markets like Vancouver and Victoria,” he said. “But I don’t believe the escalation in prices is because of the mortgage products. It is because of strong economic performance, strong consumer confidence and interest rates still being favourable.”

Bob Linney, a spokesman for the Canadian Real Estate Association, said there is no data to indicate new mortgage products are responsible for some of the rising prices in the real estate markets. “I don’t have the stats to back that up,” he said.

It is starting to look like a surge in new listings could put some downward pressure on prices. Nationally, new listings were up 3.4% from a year ago.

Red-hot real estate markets such as Saskatoon, where prices are up 56.4% from a year ago, saw listings surge by 65.9% from August, 2006. In Edmonton, prices are up 27.7% from a year ago, while listings are up 57.8%.

“I’m relieved to see the listing inventories coming up. It’s better for the consumer,” said Mr. Ash.

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Contact the Jeffrey Team for more information – 416-388-1960

Category: Ajax Real Estate, Buying Real Estate, Detached Homes, General Real Estate, Mortgages, New Homes, Pickering Real Estate, Scarborough Real Estate, Selling Real Estate, Semi-Detached Homes, Townhouses | Tags: , ,
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