Want to Buy U.S. Real Estate?

Many of my customers have asked me how to buy U.S. real estate. It's easy to assume the laws and regulations will be similar in the U.S. and underestimate the costs involved. U.S. real estate is a money-making opportunity right now but there are several expenses to pay. What follows is a partial list of the costs to be prepared for: 1) Property Tax: All property buyers need to pay property taxes. This tax is levied by the government where the property is located. Property tax regulations vary from state to state, so it's possible that your property in the U.S. is subject to pay taxes to the national government, the state and/or the local municipality. Beware: some states charge higher property taxes for non-residents. 2) Home Owners Association (HOA) transfer fees: Homeowner's association or HOA (condo) transfer fees are paid in accordance to property jurisdiction. These fees vary from state to state as each association has discretionary authority for fees on the transfer of the property. 3) Accounting Fees: The U.S. Internal Revenue Service (IRS) describes real estate as 'a capital asset'. In the U.S., property must be accounted according to the rules provided by the IRS. To save yourself from the headache of trying to follow the IRS procedures and discover creative ways to save money, it is smart to simply budget for accounting fees. 4) Closing Costs: These are Legal and Title Insurance fees that the buyer needs to pay for the services rendered when acquiring U.S. property. Legal and Title Insurance fees will vary based on time and effort required, value of the property, difficulty of transaction, etc. 5) Property Management: Property management might be part of your operating budget (i.e. it comes out of your monthly rental income). Managing the property involves maintenance, screening of prospective tenants, lease contracting and solving issues as needed. 6) Exchange Rates: Be aware of the cost of transferring your currency and the impact of currency exchange on your money. Canadian currency is strong right now so transfers to U.S. cash will be beneficial. Remember to use a foreign exchange service provider to actually have your money converted. There are other fees, so consulting a professional with experience is strongly recommended. Christopher Bisson The Mortgage Centre bisson.c@mortgagecentre.com 1-866-838-4366 x1003

Job Numbers Surprise!

The new jobs numbers are out, and they are more positive than expected. This will likely send mortgages rates up in the near-term. One thing to keep in mind is that the actual unemployment rate showed higher than last month. This is because more people are looking for work than in the summer, and are now being included in the unemployment rate. Wait for one bit of bad economic news and the rates will drop down. If you are wondering if you should buy a home or not I would look at what the total employment numbers are for your city or region. If they are going up then you can make a pretty good bet that the real estate prices there will go up too. For information about rates and our services please give me a call! Warm regards, Chris -- Christopher Bisson The Mortgage Centre 519-763-3900 x1003 www.mortgageconcierge.ca

The Rate Isn’t the Only Thing

Two years ago I helped a couple who wanted to buy their second home. They were moving up from their first, smaller home, and wanted to get a great rate in order to keep their payments down. After reviewing their information with them, and considering their options, they decided to go with a 5-year fixed rate mortgage. They had a mortgage at bank already that they had to break in order to take advantage of the rates at the time. The bank’s rate was competitive with other lenders but didn’t offer the best package. You see, there’s more to a mortgage than the rate you pay. One policy within the mortgage is what the penalty would be in the future for breaking the mortgage before the end of the term. For a 0.1 per cent difference between the bank’s rate and the rate of another lender I had recommended, the difference in the way the bank calculated the penalty should they leave the bank came back to haunt them. Two years later the clients found out about an interesting way to make your mortgage interest tax deductible. They did the research and figured that it would be worth it for them to pay a penalty to break their mortgage with the bank in order to get the type of mortgage needed to make their interest tax deductible. The only thing was that they never really checked out what their penalty would be, and the day before everything was supposed to swap over they found that the bank was charging $10,000 more than they had estimated. So for 0.10% difference in their interest rate which saved them about $250 in interest cost per year they had a penalty that was $10,000 higher. Hardly worth it in my books, and the main reason why they decided to stay status quo until the renewal. I will leave you with one more tidbit of information: The average borrower make some type of change in their mortgage 38 months after they buy their house. Doesn’t it make sense to get a full-featured mortgage instead of just focusing on the rate as a result? Chris -- Christopher Bisson President and Mortgage Broker The Mortgage Centre 519-763-3900 x1003 www.guelphmortgagecentre.com

Mortgage Rates - Why aren't they better?

There was a time not that long ago when fixed mortgage rates would be priced about 1.20% higher than a Government of Canada Bond with the same term. For example, when the 5 year bond was at 2.5% you would be able to get a 5 year fixed-rate mortgage at 3.7%. Enter the Mortgage Meltdown: When the “mortgage crisis” hit in the USA the spread between the bond and the mortgage rates increased quite a bit. The consensus was that it would probably return to its traditional spread of about 1.50%.

It seems like people have forgotten about this spread with the current low level of fixed mortgage rates. Most people would think that a 3.5% 5-year mortgage rate is a great deal, and it is. I just think more people would be frustrated with their banks if they knew that the 5-year bond yield is currently sitting at 1.4%. This means they are charging more than 2% above the bond.

While bankers will tell you a sad story about how they are losing money on their Variable Rate Mortgages (more on that in a future Rate Watch) I think they are profit grabbing. The average consumer is not informed like we are so; if you want to make sure you (or any of your friends and family) are paying the least amount of money to the banks please give us a call. We’d be happy to help!

Warm regards,
Chris
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Christopher Bisson
The Mortgage Centre
Toll Free 1-866-838-4366 x1003

www.mortgageconcierge.ca

Zero Down Mortgages Still an Option

Down Payment Money Available to Qualified Applicants (OAC)

With the sweeping mortgage reforms that have taken place in the past 2 years most people think that they need to have at least 10% of their purchase price saved up for the down payment. Although the actual rule is that buyers need at least 5% for the down payment, it is a little known fact that they don’t need to have saved that money.

Yes, you read that right. You don’t have to have the 5% saved up. Here are a couple of options for people who don’t have the 5% saved:

• Gifted Down Payment: There’s nothing better than free money, so if your parents or your kids want to give you a gift for part or all of your 5% down payment take it if it won’t change your relationship with them;
• Cash Back Mortgage: Some lenders offer the 5% in the form of Cash Back on closing. During your 5 year fixed rate term mortgage you will have a higher rate than the best on the market, but you get the 5% down so you can buy;
• Personal Loan: You can borrow your down payment from a bank, trust company, credit union, or any other party that is arm’s length. That means you can borrow the down payment from a private person too, as long as they aren’t related to you. All we need to do is take the payment from the loan into account when figuring out your affordability ratios to qualify for the mortgage.

Here are a few types of people who might be having a hard time saving their down payment that would really like to own a home: A single mom or dad, a recently married couple who have some of their down payment saved but not all of it, or someone who has recently graduated from post-secondary school and has just obtained a good job with a good company (maybe a year on the job).

If you know anyone who laments that they’d like to buy a home but they think they can’t because they don’t have their down payment saved please tell them to call us. They might just be in their new house by Christmas!

Warm regards,
Chris
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Christopher Bisson
President and Mortgage Broker
The Mortgage Centre
519-763-3900 x1003

www.guelphmortgagecentre.com

USA Housing Still in Turmoil

For those who thought that things were getting better in the USA, have a look at these sobering numbers: The median sale price for resale homes is down more than 5% compared to last year; distressed sales accounted for more than 31% of all transactions; and depending on the source there are anywhere between 3 and 4 million homes that will hit the market as foreclosures in the next 18 months.

The U.S. economy isn’t on strong footing, and the government and Fed Reserve there are doing everything they can to keep borrowing costs low and drive money into the economy to keep people employed.

Flip over to Canada and you can’t help but think that we are in a much better situation, but we would be fooling ourselves if we thought that the U.S. problems won’t spill over to us in some way. For example, as the U.S. GDP shrinks, there’s less demand for imports, including ours from Canada. So that will make it harder on our exporters. Think big ticket items like cars, and you start to see where this can go. For every automotive job that gets lost another 4-6 jobs in the same community are lost.

There’s a distinct worry that we can fall into another recession, and it is well founded when considering the U.S. situation. The good news is that borrowing costs should remain low for some time as a result of weak economic factors here, in the USA and Europe. This means mortgage rates should stay low into 2013.

While the USA’s housing market will continue to weaken we are fortunate to have ours remain flat. That will be the theme in housing prices and number of sales in the coming year, in Canada.

Cheers,
Chris
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Christopher Bisson
The Mortgage Centre
1-866-838-4366 x1003

www.mortgageconcierge.ca

Is Opportunity Knocking?

Is Opportunity Knocking?

Every once in a while opportunity seems to come knocking on our doors. Most of the time it goes unnoticed and other times it may seem that the opportunity is actually a threat. Every few years that opportunity is actually a big one.

Take the recent crash in the stock market. There’s a lot of people running to the safety of the bond market, or cashing out. What a shame! If you don’t need this money for more than 10 years you really should be buying these undervalued stocks. And if you needed the money in less than 10 years, you need to ask yourself why you were in the stock market in the first place. But I digress….

Back to the matter at hand: The current decline in stock prices may continue for a little while longer. If you would like to take advantage of the “sale” prices that many of these stocks are trading at you should be paying careful attention to the market, and get in when you think they’re near bottom.

So what do you do if you aren’t sitting on a stack of cash? Many people are sitting on thousands of dollars worth of equity in their homes that can be put to use towards buying investments. You can use that money to buy rental properties or stocks and bonds, and the interest is tax deductible. If you think you have 25% or more equity in your home and would like to use some of that money to buy investments, please give us a call. Secured lines of credit run at an interest rate of Prime + 0.5% (on average), and cost about $350 to set up. If the markets come back just 10% you will be “in the money.”

One thing is certain, the current decline has most economists predicting Variable Rates will remain low well into 2012, and it is likely we will see low fixed rates well into 2012 too. This is a great time to be borrowing money, especially if the money is invested.

Warm regards,
Chris
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Christopher Bisson
President and Mortgage Broker
The Mortgage Centre
519-763-3900 x1003

www.guelphmortgagecentre.com