 Mike Toporowsky AMP
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| Blog Description |
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| Educate yourself before you buy a condo |
Wednesday, February 1, 2012 |
Educate yourself before you buy a Condo
There are a few extra things you need to do before purchasing a condominium. Home ownership comes in different packages and your lifestyle will help you decide what type is best for you.
A condo can look like a single family home, a manufactured home, a town-home, a cottage home, a walk-up apartment or a high-rise. A condo plan usually means that the land around he buildings are common area and are maintained by the owners cooperatively either directly through a condo board or a property manager. Decisions regarding snow removal, roof repairs and general maintenance on the exteriors are made by the elected boards. If you own one unit you have a vote and you can also put your name forward to serve on the board.
Your lifestyle might include lots of travel and a condo lets you leave without having to worry about snow removal, garbage removal and lawn maintenance. Or you might simply want a smaller place with less maintenance.
All condos in Alberta are required to do a reserve fund study every 5 years. This is a report completed by condominium experts (building engineers, contractors etc) to determine the state of repair of the condos roof, heating systems, drainage, siding etc.
They determine if the required reserve fund is adequate to cover any major or minor upcoming maintenance.
When you are looking to purchase a condo, you should always be allowed to review the reserve fund study report plus a number of other items that will give you a history of what the owners are reporting.
When looking you should ask to review...
- a copy of the registered condominium plan
- a copy of the current bylaws of the corporation
- a copy of the most recent financial statements, if any, of the corporation
- a copy of the budget of the corporation
- A statement setting out the monthly contributions (condo fees) and the basis on which that amount was determined
- A copy of any minutes of the proceedings of a general meeting of the corporation or of the board for the past 12 months
- a copy of any special resolutions, if any
- a copy of the insurance certificate
- a copy of any lease agreement or exclusive use agreement with respect to the possession of a portion of the common property, including a parking stall or storage unit
- the particulars of, or a copy of, any subsisting management agreement
- the particulars of, or a copy of, any subsisting recreational agreement
- a statement setting out structural deficiencies the the corporation has knowledge of at the time of the request in any of the buildings that are included in the condo plan
- a statement setting out the amount of the capital replacement reserve fund
- a copy of the most recent reserve fund report
- a copy of the most recent reserve fund plan
- the particulars of any post tensioned cables located anywhere on or anywhere within the property
- a statement setting out the amount of contributions due and payable in respect to a unit
- the particulars of any action commenced against the corporation and served on the corporation
- the particulars of an unsatisfied judgment or order for which the corporation is liable
- the particulars of any written demand made on the corporation for an amount in excess of $5000 that, if not met, may result in an action being brought against the corporation
While not all these documents will be applicable these are all items to consider before purchasing your new home.
Take the time to read these through or have your real estate associate review them for you. This is the due diligence process that may save you some future shock of a special assessment amount levied against you for major repairs. This is a major reason for utilizing the service of a Realtor. They do not charge you a commission as your buying associate, so you have nothing to loose. Your second line of defense is your mortgage broker, who will also ask for these items to provide to the lender. If there is anything of concern that is read from the checklist, they will alert you before you remove that financing condition from your offer to purchase.
Once you are into your condo, there is no turning back. So make sure your condominium home ownership experience is enjoyable.
Share your Condo experiences with us |
posted by MIke Toporowsky at 3:27 pm - 0 comments
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| Reverse Mortgages, explained |
Tuesday, January 31, 2012 |
CHIP Reverse Mortgage
A Simple explanation…
Imagine the stress free lifestyle that financial freedom can bring.
You own a home, but no real savings and are one furnace repair away from being forced to sell. Your children care, but they have their own family’s to raise. Read further to find some answers to your CHIP reverse mortgage questions.
A CHIP Home Income Plan is a reverse mortgage secured by the equity in your home. Unlike a traditional mortgage in which you make regular payments to someone else, a reverse mortgage pays you.
The big advantage with CHIP is that you do not have to make any payments – principal or interest - for as long as you or your spouse live in your home. That's what has made reverse mortgages such a popular solution in Canada, the U.K., the U.S., Australia and other countries.
A CHIP Home Income Plan is designed exclusively for homeowners age 60 and older. This age qualification applies to both you and your spouse.
You can receive up to 40% of the value of your home. The specific amount is based on your age and that of your spouse, the location and type of home you have, and your home's current appraised value.
You can choose how you want to receive the money. CHIP gives you the option of receiving all the money you're eligible for in one lump sum advance, or you can take some now and more later, or you can receive planned advances over a set period of time. You can even combine a lump sum advance at the beginning with ongoing advances over time.
You receive the money tax-free. It is not added to your taxable income so it doesn't affect Old Age Security (OAS) or Guaranteed Income Supplement (GIS) government benefits you may receive.
You can use the money any way you wish. Maybe you want to build up your savings or cover unexpected expenses. Perhaps you want to update your home or help your family without depleting your current savings. The only condition is that any outstanding loans secured by your home must be retired with the proceeds from your CHIP Home Income Plan.
No payments are required while you or your spouse live in your home. The full amount only becomes due when your home is sold, or if you move out.
You maintain ownership and control of your home. You will never be asked to move or sell to repay your CHIP Home Income Plan. All that's required is that you maintain your property and stay up-to-date with property taxes, fire insurance and condominium or maintenance fees while you live there.
You keep all the equity remaining in your home. In CHIP’s many years of experience, 99 out of a 100 homeowners have money left over when their CHIP Home Income Plan is repaid. And on average, the amount left over is 50% of the value of the home when it is sold.
Your estate is well protected. CHIP guarantees that the amount to be repaid will never exceed the fair market value of your home at the time it is sold. If your heirs want to keep your home, they can repay the CHIP Home Income Plan from other funds.
You can save on taxes. If you decide to use the money you receive to buy non-registered investments such as GICs and mutual funds, you may be able to deduct the CHIP Home Income Plan interest charges from the income those investments earn. Be sure to consult a financial or tax advisor.
Posted Rates: Our interest rates start at just 4.75%
CHIP has a variable rate option with no fixed term or if you prefer a fixed rate, they can offer you six-month, one-year, three-year, or five-year terms. Your interest rate will be based on the length of term you choose.
Annual Percentage Rate (APR) *
Term Rate Effective Reset Date 10 Years 5 Years 3 Years 1 Year
Variable Rate 4.75% September 9, 2010 As Posted Rate Changes 4.89% 4.99% 5.12% 5.80%
6 months 4.90% September 9, 2010 April 15, 2011 5.04% 5.14% 5.28% 5.95%
1 year 4.90% September 9, 2010 October 1, 2011 5.04% 5.14% 5.28% 5.95%
3 years 5.65% September 9, 2010 October 20, 2013 5.81% 5.91% 6.05% 6.72%
5 years 5.90% September 9, 2010 October 5, 2015 6.06% 6.16% 6.30% 6.98%
* APR is based on a CHIP Home Income Plan of $150,000.The annual percentage rate (APR), is calculated as the rate of interest of the plan plus closing costs.
Rates are subject to change and will be posted on this site.
You can lower your borrowing costs with an interest rate discount.
• Interest payment discount - if you choose to pay your full annual interest, you will receive a 0.50% discount for the following year. You can pay in a single lump sum or make regular payments.
You have a number of payment options.
• No principal or interest payments are required for as long as you or your spouse live in your home.
• You can choose to pay all or part of the annual accrued interest ($1,000 minimum/year) without signing up for the interest payment discount plan. You can pay once every calendar year when it's convenient for you. If you pay the full year's accrued interest, you will qualify for a 0.50% discount on your next discount review date.
• The full amount only becomes due when you and your spouse pass away, when the home is sold, or if you both move out.
• You have the option to repay the principal and interest in full at any time. When you repay, an interest rate differential may apply. If you repay within the first three years, a prepayment amount will apply. These may be waived or reduced in the event of death or a move to a long-term care facility or retirement residence.
Set-up costs
Appraisal Fee
• Typically from $200 to $400 as an out-of-pocket cost.
• Actual amount varies by province and for urban and rural properties.
• Request for an independent appraisal is ordered through CHIP.
Independent legal advice is required
• Typically $300 to $600 as an out-of-pocket cost.
• Price range assumes no title issues.
• At your request, CHIP can provide a list of legal advisors in your area.
• It is recommended that you discuss fees with the legal advisor before proceeding.
Legal, closing and administrative costs
• Costs are $1,495 for all of our interest rate options.
• These costs will be deducted from your CHIP Home Income Plan funds so they are not an out-of-pocket expense.
• Includes title search, title insurance and registration.
For More information, contact Mike Toporowsky AMP Real Mortgage Solutions 780-940-0604 |
posted by MIke Toporowsky at 6:34 pm - 0 comments
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| Reverse Mortgages |
Tuesday, January 31, 2012 |
Reverse Mortgages
I was totally ignorant of the benefits of a Reverse Mortgage plan, until I took the time to corner the local CHIP rep.
Until that meeting, I was totally against the reverse mortgage in any way shape or form, because I thought they were designed to benefit CHIP more than the home owner.
I was WRONG! There are definitely times when a CHIP mortgage plan makes sense. I was even hurting myself as a well rounded mortgage broker. My local broker rep is Terry and he was totally aware of the criticisms and negativity associated with the plan. It will not work for everyone and sometimes even CHIP can't help, but for those folks who i can help, this plan is a beaut (That was my best Don Cherry impression). Poor Terry, I absolutely hammered him with questions that I had prepared before my inquisition.
He was very composed and resolved in the fact that in CHIP's 26 year history they have helped thousands of Canadians live in their homes until they were ready to move...not because they were forced out with high bill payments.
I called my friend in the financial planning industry to ask him his opinion of the CHIP reverse mortgage plan. He was opposed to it, but it was more or less along the same reasoning that I had...negative press. When I started pointing out real life scenarios that made sense, his negative push-back because less and less. While he was not yet 100% on-side he did promise to educate himself in the product and report back to me when he was done.
What I learned was... that by keeping an open mind and listening to the benefits of a tried and true plan I could better serve the needs of my customers (who need to be 60 years of age or older for this product). |
posted by MIke Toporowsky at 6:33 pm - 0 comments
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| Mortgage Strategy |
Tuesday, January 31, 2012 |
Mortgage Strategy
You keep hearing financial experts telling you that your personal mortgage strategy needs to match your mortgage selection.
Selecting a mortgage should be easy, right? I mean our parents were never given a choice. They walked into their bank and the loans officer slid a contract in front of them and they signed. There were few choices anyway and back then shopping for rates and features was unheard of. Everybody offered the same thing, so you went with the flow.
Since the dawn of the mortgage specialist, there have been many new options available to today's customer. The products are driven by customer demand and new lenders creating niche markets of boutique mortgage products. The big 5 Canadian banks pick and choose the ones they like and incorporate them into their own mortgage programs and there you have the evolution of the need for mortgage strategy.
So, how do you choose? First, your current circumstances will play a large roll in what you should choose. You make the best decision you can, with the information that you have available. That way you can always feel good about your decision.
Fixed closed mortgages are the traditional comfortable stress free mortgages that are the same as the ones our parents got. Why would you choose this mortgage? You will know what your payments are for the term that you choose, because the only time you negotiate rate is when they get renewed, when your term is up (6 month-10 year term options). The lifetime (amortization) of these mortgages can be up to 40 years (35 year CMHC maximum). If you can lock in a rate near the historic lows, you will benefit over the long-run. If you have pre-payment options you can pay your mortgage way ahead of schedule.
The negatives...payments are slightly higher than variable rate, penalties are very high to pay it out.
I recommend this payment if you are traditional and don't like stress. I also recommend this if you are living close the the end of your budget.
Fixed Open Mortgage If your plan is to mortgage for a short term, the fixed open mortgage is a good value. There are no penalties to break the contract. As an example, if you are buying to fix up a property and flip it for a profit, this would be a good choice.
The negatives...rates are about 4 percent higher than regular rates, because the lender knows he will not get a penalty when you are ready to pay it out. If your original plan to pay out this mortgage falls through, you will have to continue paying a very high rate, until you figure out how to either refinance or sell.
I recommend this if you have a short term plan, because the penalty savings will make sense.
Variable closed mortgage are for those customers who can afford to weather increases in interest rates. Rates currently are low and are forecast to stay low for a while, but when they do move, there is really only one way they will go. The penalty to break these contracts is usually a 3 month interest penalty, whether you refinance or sell. Currently these rates are extremely low and if you do the math, they can currently save you a lot of interest. Look for the terms that offer you prime or better. Sometimes you can get your variable rate at less than prime, so whenever the rates move you are below the lender's prime rate for the term of your variable rate mortgage. As an example prime minus .25% will give you the rate some of today's brokers are advertizing for 2% because 2.25% (today's bank prime) minus .25% = 2.00%. Another example is if the rate swings to say 2.50% your rate will be 2.25% etc. Read the previous variable rate blog.
The negatives...if the rate doubles (historic average rate in Canada is 7.5%) can you afford to pay twice as much as you are currently paying? The lender will offer to let you fix your rate if the rate starts to climb. You will be able to lock in at the new rate available, not today's historic low rates.
50/50 Split mortgages are the product of the evolution of mortgages. They are a split between a closed mortgage (to protect at least half of the mortgage at today's fixed rates) and a variable rate mortgage (to gain the benefit of today's incredible floating rates). The rate you pay is the average of the 2 plans. So you could pay 4% on a fixed 5 year plan and 2.25% on a variable, so your starting rate would be between the two rates. Now, if the variable rates skyrockets you still pay the average between the two products but half of your mortgage will anchor you, so the fluctuation will not be too stressful. For example, if within the 5 year term the variable jumps to 5%, your average rate would only be 4.5%.
The negatives...not many. You will have payment adjustments to make on half of your mortgage (assume they will eventually go up, not down). You will still have a penalty, but it won't be as high as the fixed closed rate.
I do recommend this mortgage if you are just slightly adventuristic and can afford to increase your payment a bit.
Watch for my next blog to see part 2 of this mortgage strategy feature.
What would you like to know about mortgage strategizing?
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posted by MIke Toporowsky at 6:33 pm - 0 comments
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| Seven Must Have Real Estate Contract Conditions |
Saturday, January 21, 2012 |
Seven Must Have Real estate Contract Conditions
Amy Fontinelle
When you formally make an offer on a home you want to buy, you'll fill out a lot of paperwork specifying the terms of your offer. Aside from such obvious things as the address and purchase price of the property on which you're making an offer, there are some items you should be sure to include in your real estate purchase contract.
1. Finance Terms
If you are like most people and you won't be able to buy the home without obtaining a mortgage, your purchase offer should state that your offer is contingent upon obtaining financing at a specified interest rate. If you know you can't afford the monthly payment on the house if the interest rate is higher than 6 per cent, don't put 6.5 per cent in your offer. If you do that and you are only able to obtain financing at 6.5 per cent, the seller will get to keep your earnest money deposit when you have to back out of the offer.
If you need to obtain a certain type of loan in order to complete the deal, you should also specify this in your contract. If you are paying all cash for the property, you should state this as well because it makes your offer more attractive to sellers. Why? If you don't have to get a mortgage, the deal is more likely to go through and closing is more likely to happen on time. (Learn more in
2. Seller Assist
If you want the seller to pay part or all of your closing costs, you must ask for it in your offer. The offer should state the amount of closing costs you are requesting as a dollar amount (e.g., $6,000) or as a percentage of the home's purchase price (e.g., 3 per cent).
3. Who Pays Specific Closing Costs
The agreement should specify whether the buyer or seller will pay for each of the common fees associated with the home purchase, such as escrow fees, title search fees, title insurance, notary fees, recording fees, transfer tax and so on. Your real estate agent can advise you as to whether it is the buyer or seller who customarily pays each of these fees in your area.
4. Home Inspection
Unless you are buying a tear-down, you should include a home inspection contingency in your offer. This clause allows you to walk away from the deal if a home inspection reveals significant and/or expensive-to-repair flaws in the structure's condition. For example, if the home inspection reveals that the home needs a new roof at a cost of $15,000, the home inspection contingency would give you the option to walk away from the deal.
5. Fixtures and Appliances
If you want the refrigerator, dishwasher, stove, oven, washing machine or any other fixtures and appliances, do not rely on a verbal agreement with the seller and do not assume anything. Specify in the contract any fixtures and appliances that are to be included in the purchase.
6. Closing Date
How much time do you need to complete the purchase transaction? Common time frames are 30 days, 45 days and 60 days. Issues that can affect this time frame might include the seller's need to find a new home, the remaining term on your lease if you are currently renting, the amount of time you have to relocate if you are moving from a job, and so on. Occasionally, the buyer or seller might want a closing as short as two weeks, but it's difficult to remove all the contingencies and obtain all the necessary paperwork and funding in such a short time period.
7. Sale of Existing Home
If you are an existing homeowner and you will need the funds from the sale of that home to buy the home you are making an offer on, you should make your purchase offer contingent upon the sale of your current home. You should also provide a reasonable time frame for you to sell your home, such as 30 or 60 days. The seller of the property you're interested in is not going to want to take his property off the market indefinitely while you search for a buyer.
There are many other things that go into a thorough real estate contract, but for the most part, you shouldn't have to worry about them. Real estate agents will commonly use standardized, fill-in-the-blank forms that cover all the bases, including the ones described in this article.
If you want to familiarize yourself with the details of the purchase agreement form you're likely to use before you write your offer, ask your real estate agent for a sample agreement, or search online for the standard form that is common in your locality. (If you are looking for a good deal and have time to wait, a short-sale house may be for you. To learn more, read Purchasing A Short-Sale Property.)
The Bottom Line
Even though these forms are common and standardized and a good real estate agent would not let you leave anything important out of your contract, it is still a good idea to educate yourself about the key components of a real estate purchase agreement. |
posted by MIke Toporowsky at 1:28 pm - 0 comments
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| Private mortgage lenders are not all created equal |
Saturday, January 21, 2012 |
Private Lenders are not all created equal
Shocked! Confused...I didn't think so, because most folks like yourself already realize that anybody can be a private lender. It's true; and you can even use your self directed RRSP as a mortgage lending fund.
As a mortgage broker I continuously interview many potential private lenders...some with experience and some are trying to start.
I always complete a background check on them. Much like a mortgage applicant I need to know who's lending the money, not just who is borrowing it. Does the money come from traceable sources? Does the lender have any kind of public record? I need to know who I can stake my 30 year reputation on, because I will always be known by the deals I complete.
My favorite private lenders have a some of these unique qualities...They are not nervous, they are sworn to uphold the privacy act, they know what mortgage niche they like to lend in, they are there when I need them, they are fair (but not greedy), they use common sense and my customers always give positive feedback from the experience. Every private lender wants to know what the exit strategy is for their investment, it is critical to their decision.
As a mortgage broker I need to rely on a few different types of private lenders. Some specialize in the short term stuff (like bridge financing and interim/construction financing). Some are looking for long term boring stuff that that makes a better return than their current mutual or savings. Some are even asking for high risk, but their rates reflect the risk (be prepared if you need one of these loans). You often hear about "equity lenders". Equity lenders lend based on the value of your home. If there is enough equity then they will lend you the money. Be prepared to pay both a high fee and a high rate. Even if they offer a low rate for 6.85% at say 6 months to a year and they get a 6% lender's fee from you...do the math. That low rate just jumped to the mid teens, and the lender yielded what he wanted. Yes, I have private equity lenders in my lists too, but i make sure they are ethical and I also make sure the deal is a win-win for everybody. There must be a clear exit strategy.
If your mortgage broker specializes in private lending, like I do, they will have a complete mix of potential lenders they can call on. My only real challenge is that during the really cold snaps in Alberta, my private lending sources are all down south waiting out the sub zeroes. That being said, if you would like to have a coffee and talk about how you can be added to my list, just contact me at mike@RealMortgageSolutions.ca . I have a close circle of licensed leading mortgage professionals whom I consult with and when the right deal comes along, your RRSP can suddenly become your great performer. |
posted by MIke Toporowsky at 1:27 pm - 0 comments
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| CHIP Reverse Mortgage Plans for Seniors |
Saturday, January 21, 2012 |
CHIP Reverse Mortgage Plan for Seniors
Never before have I seen a product that is so beneficial, yet is has been given such an UGLY amount of press. One would get the impression that to resort to a reverse mortgage is akin to declaring bankruptcy...The fact is a reverse mortgage is far from it. It can mean freedom and comfort and independence for many. Using a minor portion of the equity that exists in your home may be the savings tap that you need to release, to live your lifestyle comfortably.
This program is not for everybody, but for those who do qualify, it is certainly a retirement option to consider. It is true that something that seems "too good to be true, usually is". The reality is that it is not free money, but there are no monthly mortgage payments and the interest is bank rate. Over time your house usually increases in value, especially if you have the money to maintain it. Therefore you may even benefit from the inflationary increase in your property value, vs the minor amount you would have borrowed against your home. That way the equity you plan to leave to your children is still safe.
I work closely with Terry, the representative, at CHIP Home Income Plan and we have had so many folks considering the benefits of the plan. All too often it is the parents who are not willing to refinance their children's inheritance, but when you consider the options, it is the only one that makes sense to their lifestyle. Also, we get to a point where the parents understand the program, but one or two of their adult children are totally against it. There is usually a dignity issue at stake here. Sometimes the parents suffer without some of the comforts that they should be entitled to (i.e. Something as simple as paying for their car insurance to maintain their mobility).
If I can give a senior some comfort...each and every senior who has been investigating the use of CHIP will have one of 2 results. The program goes into place and you live comfortably again or the adult children finally pay attention to your financial situation and repay your years of loving attention. Either way, you win.
To get more information regarding the details of the reverse mortgage plan, contact Mike Toporowsky (real Mortgage Solutions) at 780-940-0604. My fee for this service is free.
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posted by MIke Toporowsky at 1:26 pm - 0 comments
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| Is your mortgage Locked in...try a blend and extend |
Tuesday, June 28, 2011 |
Is your mortgage locked in...try a blend and extend
If you are locked into a long term fixed rate mortgage and would like to take advantage of rates that are currently much lower, you could ask your lender for a "blend and extend"? Refinancing your mortgage, well before your renewal date, is not an option, because the interest rate differential penalty would be staggering.
What I am talking about is a compromise solution that allows both borrower and lender to win...at least a little bit.
For example, if you took out a mortgage 2 years ago, with a 5 year term at 5 percent annual interest and today's rate is 4 percent, you could ask for an early renewal. If the bank is allowed to do this, they will certainly not purposely lose a guaranteed higher rate in favour of a lower rate. Instead, they will offer you an option to average the 2 rates together and then renew for a new 5 year term.
Why would the bank allow you to do this? Remember, currently they are lending the 5 year mortgages at 4% so by taking your existing rate and reducing your interest, they now extend their earnings from their investment with you and will benefit from a longer
earning cycle.
You benefit by having a lower rate and a lower payment with the same principal reduction and schedule as before. If your strategy is a long term ownership of the property, this proposal works well.
Not all lenders will do this, because sometimes the way a mortgage is funded will dictate the lender's flexibility. You can get your broker's advice before you talk to your lender, but is usually fairly simple to approach your existing lender to discuss the option directly.
Have you experienced a Blend and Extend...share your stories
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posted by MIke Toporowsky at 5:26 am - 0 comments
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| Bank of Canada rate remains unchanged |
Tuesday, May 31, 2011 |
BoC leaves rates unchanged, warns of hikes to come
May 31, 2011 | 09:45
- Reuters
The Bank of Canada kept its key interest rate unchanged at 1 percent on Tuesday but for the first time since the recession it said it would eventually have to lift borrowing costs if economic growth continues.
“To the extent that the expansion continues and the current material excess supply in the economy is gradually absorbed, some of the considerable monetary policy stimulus currently in place will be eventually withdrawn, consistent with achieving the 2 percent inflation target,” it stated. “Such reduction would need to be carefully considered.
It did not say whether “eventually” meant the next rate increase would be in July, September or beyond, but its statement was more hawkish than previous ones, which only said that any future hikes “would need to be carefully considered.”
The central bank now sees underlying inflation as only ”relatively subdued” rather than “subdued” as in previous statements, but it did not change its overall outlook for inflation. It repeated that the persistent strength of the Canadian dollar “could create even greater headwinds for the Canadian economy” and dampen inflation.
Temporary supply chain disruptions from Japan will sharply restrain growth in the second quarter but this should be unwound afterward, it said.
It said the U.S. economy continued to grow modestly and European growth was maintaining momentum, but it said risks to peripheral European economies had increased.
The currency rose as high as C$0.9685 to the U.S. dollar, or $1.0325, up from C$0.9723 to the U.S. dollar, or $1.0285, immediately before the announcement. It was the Canadian dollar’s strongest level since May 20.
The central bank became the first in the Group of Seven advanced economies to tighten monetary policy following the global financial crisis, hiking three times from June-September last year but pausing since then due to the weak global recovery.
There has been no consensus among market players on when the bank would resume the tightening cycle but July had recently been ruled out by most as a possibility.
Three of Canada’s largest commercial banks pushed back their rate hike expectations to September from July over the past two weeks.
Thirty-five of 43 forecasters surveyed by Reuters last week predicted the next rate hike would be in the third quarter, implying a move in either July or September, or both.
Overnight index swaps, which trade based on expectations for the key central bank policy rate, showed investors slightly reducing the likelihood of a rate hike in July, but increasing the odds of tightening in September, October and December. Swaps showed markets see a 94.3 probability the central bank will keep its benchmark rate on hold in July, up from 93.56 percent just before the rate decision.
Copyright © 2009Post Content |
posted by MIke Toporowsky at 8:57 am - 0 comments
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| Know Thyself Part 2 |
Monday, March 28, 2011 |
Be wary of home-equity lines of credit
Can encourage the undisciplined to overspend
Jonathan Chevreau, Financial Post
A home-equity line of credit is an easy way for homeowners to consolidate debts. Perhaps too easy, critics say.
My informal poll of financial advisors reveals caution over so-called HELOCs, especially for spend-happy clients prone to get in over their heads.
Veteran mortgage broker Michael Maguire has seen too many clients with balances at or close to the limit. Lenders portray HELOCs as assets, but they are debt products, making them potentially dangerous for those not disciplined in handling money. "Most seem to find it too easy to borrow and end up living at their limit," says Mr. Maguire, of London, Ont.-based Mortgage Wise Financial.
HELOCs may be more appropriate for those who keep cash reserves in separate accounts in case of emergency and who save in advance for trips or big-ticket items like furniture.
A modest line of credit between $5,000 and $20,000 may be convenient, but beyond that, Mr. Maguire says the debt should be put on a term basis so it can be paid off.
And including car loans with a line of credit or mortgage and extending amortization is looking for trouble, he says. "What happens in three years when your car dies and you have hardly touched the principal of the line? Debt should always reflect the lifespan of the asset you are financing and cars depreciate."
Another downside is interest rates, which can only go up from here. Mortgage rates already started rising this week. The new, higher three-, four- and five-year fixed mortgage rates will impact HELOC owners if they put new money into the fixed-rate portion of their credit lines, says Laura Parsons, area manager for BMO Financial Group.
And though you may expect the variable portion of the line of credit to rise when central banks raise the prime rate in the summer, Bernice Dunby, a senior manager at Royal Bank of Canada, says that is not yet a certainty.
Asher Tward, vice-president of estate planning at Tridelta Insurance, says big savings can be realized by servicing debt efficiently, but you don't need a HELOC for this. "Many people have money sitting in GICs making 1.2%, yet still have a large mortgage. Or worse, money in chequing accounts making nothing."
Putting that money to work by cutting debt costs can save you far more than 1.2%.
At Rogers Group Financial in Vancouver, vice-president Clay Gillespie says all-in-one HELOCs can be effective planning tools if used properly. Typically, you have a mortgage, a line of credit and perhaps a car loan, and monthly payments are made against those accounts. "This allows individuals to have their cash flow immediately go against their debt and thus reduce borrowing costs," he says.
But as Mr. Gillespie points out, problems can arise with undisciplined investors. "It would be easy for an individual to build up a line of credit and spend more than they earn," he says. Before jumping into one, he suggests understanding your spending behaviour to see whether it would get you into further problems.
Fred Kirby, president of Armstrong, B.C.-based Dimensional Investment Planning, says the convenience of consolidating debt and savings can blur the distinction between them, making it too easy to replace old debt with new. He prefers keeping a healthy emergency fund in CDIC-insured cash equivalents held at an institution offering the highest rates. "There is something to be said for the value of inconvenience and searching for the best deals," he says.
He also worries about the impact of putting all your money with one financial institution.
Jeff Wareham, an investment advisor with London, Ont.-based MGI Securities, says the all-in-one approach provides better pricing power, but a second relationship with another bank "gives you a foot in the door in the event you need to find alternatives."
HELOCs are best suitable for those who keep positive balances on revolving credit arrangements, Mr. Wareham says. But he frets about a volatile real estate market and consumers' temptation to use their house like an ATM.
Nor is he keen on using HELOCs to leverage into mutual funds. He's seen investors take monthly income from long-term equity funds to meet monthly payments for their loans. This "effectively reverses the benefit of dollar-cost averaging, as you sell more fund units at a lower price than a higher price," he says.
Andrew Teasdale, of the Tamris Consultancy in Toronto, is usually a vocal critic of financial products. But he sees nothing wrong with HELOCs if used sensibly. They can smooth out short-term gaps between income and expenses, he says. But he warns they should not be used to fund permanent increases in debt or support long-term gaps between income and expenses.
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posted by MIke Toporowsky at 9:50 am - 0 comments
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Mike Toporowsky AMP
Real Mortgage Solutions
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