Mortgage Wise: Your Down Payment

Figuring out how much you can afford to spend each month is only half of the equation. You may want to make a down payment – the money you put toward the price of a home. A down payment generally ranges from 5 per cent to 25 per cent of the purchase price. Some financial institutions offer no-down payment mortgages. If you have a good credit history, but haven’t been able to save the down payment, this option may be for you. Keep in mind that the higher your down payment, the lower the interest costs over the life of the mortgage.

Coming up with a down payment may be your biggest challenge. If you make a down payment of 25 per cent of the appraised value or purchase price of the property, you can get an uninsured low-ratio or conventional mortgage. On a $200,000 home your down payment would be $50,000.

If you can’t come up with the 25 per cent required for an uninsured low-ratio or conventional mortgage, you can get a high-ratio mortgage – which is usually for more than 75 per cent of the appraised value or purchase price.

A high-ratio mortgage must be insured against default, or non-repayment, by the federal government through the Canada Mortgage and Housing Corporation (CMHC) or an approved private insurer (the lender usually arranges this). The borrower pays a one-time insurance premium to the insurer (the rate varies depending on the amount of the down payment – check with your lender) and additional charges may apply. The default insurance premium is usually added to the principal amount of the mortgage. With mortgage default insurance, if you default on your mortgage, the lender is paid back by the insurer.

Unless you have an inheritance, win the lottery or have generous relatives, getting your down payment together will mean a lot of saving, planning and budgeting. But it will be worth it. The more you put down, the more you’ll save in the long run (a smaller mortgage means less interest to pay). If you don’t have quite enough to make a down payment, try to get on a savings schedule where you set aside a percentage of your gross income each year.

The RRSP Home Buyer’s Plan

Are you a first-time homebuyer? If so, take a look at the federal government’s “RRSP Home Buyer’s Plan.” It allows first-time home buyers to withdraw up to $20,000 per person from their Registered Retirement Savings Plan (without tax liability) to buy a home in .

Among the conditions of the Plan:

You have to enter into a written agreement to buy or build a qualifying home.

The home must be your principal place of residence and includes all types of homes (e.g., single-family homes, semi-detached homes, townhouses, condominium units, or mobile homes).

Your RRSP contribution must be in your RRSP for at least 90 days before you make a Home Buyer’s Plan withdrawal.

You must withdraw funds within the same calendar year in one or more installments. For instance, if you withdraw funds over two years, you will be taxed on the funds withdrawn in the second year. In addition, you will lose contribution room in your RRSP. For more information, contact the Canada Revenue Agency or check the Web site at www.cra-arc.gc.ca.

Of the borrowed funds, a minimum of 1/15th must be repaid each year until the full amount is repaid to your RRSP. Basically, you’re borrowing a tax-free, interest-free loan from yourself. However, bear in mind that you are not earning interest on the RRSP funds used for your down payment. Your RRSP repayment period begins in the second year after your initial funds withdrawal.

Before you cash in your RRSP to buy a home, weigh the pros and cons carefully. Is it worth it to give up the advantages of long-term compounding interest on your RRSPs to buy a home? Can you afford the RRSP payback requirement? If you can get a low mortgage rate and your investments are paying a relatively low rate of return, financing your home with RRSPs may be a wise move.

- Canadian Bankers Association

While variable-rate mortgages continue to beat out fixed-rates when it comes to cost savings, the gap between the two is likely to become closer due to the economic environment, a new bank report says.

“Fixed rates were advantageous during only two recent periods – through the late 1970s and briefly in the late 1980s; in both cases, ahead of a period of rising interest rates, as is the case now,” the report by BMO economists Douglas Porter and Benjamin Reitzes said.

Variable rate products have proven the better option 82 per cent of the time since 1975, Porter and Reitzes wrote, and forecast that variables will continue to remain cheaper than fixed rate mortgages. This is in part due to the rising Canadian dollar, which has reduced the Bank of Canada’s short-term need to raise the key interest rate.

On the other side, the report argued the economic recovery – and the expected rise in interest rates next year – has potentially caused “one of those rare periods when a fixed rate turns out to be the superior choice.” It also pointed out that negotiated rates (as opposed to posted rates) make fixed and variable products closer to call.

Source: http://www.mortgagebrokernews.ca/news/38117/details.aspx
Monday, 26 October 2009

As brokers in the mortgage and lending industry, we will help find you the best mortgage to suit your needs; just as an insurance broker will get you the best insurance policy for your needs.

Mortgage brokers DO NOT work for one financial institution, we are independent. More lenders are available and competing for your business introducing more features and options. We find out what service is right for you.

Allows us to offer you more choices with competitive rates.

We save you time. We can shop dozens of lenders in the time it takes you to book an appointment at the bank. We also do house calls so you don’t have to take time off to visit a bank.

Our advice is impartial. We look after your best interest. We work for you. Unbiased professionals, we offer different options that will give you the freedom to choose .

We offer fast, efficient service. Our experience serves your needs and expectation. We are not hired by any of the lenders. We only get paid upon completion of your mortgage by the financial institution you chose. We are motivated in working efficiently to get your mortgage properly completed.

Today, more and more people chose mortgage brokers over banks because of the service and rates, mostly because we are specialists in mortgages and will not try to sell you other products like some banks do. Mortgage brokers specialise in serving all types of different clients: commercial, residential, good or impaired credit alike.

The Globe and Mail
Paul Brent
Published on Wednesday, Nov. 11, 2009 2:27PM EST
Last updated on Thursday, Nov. 12, 2009 11:28AM EST

When it comes to insurance, there are three almost universal truths: Canadians hate thinking about it, begrudge paying for it and the majority of us don’t have anywhere near enough of it.

The first two attitudes are easy to understand. Insurance is a downer. Besides that whole “death or dismemberment thing,” you are betting against the future health of yourself and your loved ones. And then you have to pay for it, when that cash flow could be put to “better” use paying down the mortgage, starting an education fund for the kids or replacing the rattling family beater.

“Nobody likes insurance. Generally when you mention insurance, people want to grab the waste paper basket and throw up into it,” said Brian Poncelet, who is an insurance specialist and independent certified financial planner based in Mississauga.

Like others in the field, Mr. Poncelet starts with the assumption that young families are seriously underinsured when it comes to covering the earnings of the breadwinners, even if they had group insurance through their employers. He also takes the approach that most twenty and thirtysomething families have limited ability – or desire – to buy additional insurance.

Because of that reality, he finds ways to pay for additional coverage within the family budget. One surprising source: existing insurance policies. A good example is raising the deductible on home insurance, as Mr. Poncelet did on his own policy, bumping it from $500 to $5,000 and freeing up $500 annually which can be put towards insurance against the loss of income. “Same thing with auto insurance,” he said, noting people generally carry a pricey low deductible on an aging vehicle that in many cases would not be worth committing to expensive repairs.

When sitting down with a “typical” young family with two kids and a house, insurance adviser Andy Hall of Mitchell Sandham looks first at the home. “First and foremost is protection of their biggest investment, which is their home.” Besides contents and property insurance, he is a big believer in mortgage insurance (more on that later).

Mr. Hall, like other experts, finds most people he sees do not carry enough life insurance to cover the loss of income of a family breadwinner. Group insurance, “usually one-and-a-half to two-times salary” is generally not enough to cover current and future liabilities. First of all, let’s look at the group policy covering someone with a $50,000 annual salary. “Everyone thinks it’s two-times $50,000, it isn’t,” he said. “It is two-times your actual [take home] pay. The other thing is that benefits paid through a work policy are taxable, benefits paid through a life insurance policy are not.” As well, that group insurance can quickly disappear with job loss.

While mortgage insurance is a valuable component of a family’s financial plan, where to buy it from is at least as important as the terms of the policies, says Mr. Poncelet. “A lot of people buy mortgage insurance through a bank which is a big No No.” While it may be convenient to obtain mortgage insurance from the same place that you obtain your mortgage, families can inadvertently cancel their insurance when they move their mortgages to a different lender. As well, the bank-offered policies are a bad deal because the payments stay the same even through the principal being insured falls shrinks over time. “If the person is healthy, it will be cheaper and they can get more coverage” with a non-bank insurer, Mr. Poncelet concluded.

When it comes to life insurance, Mr. Poncelet advises that not all policy types are created equal. He believes people should only buy Term policies which offer the option to convert to Permanent policies and that people should look to convert Term policies to Permanent insurance whenever possible because the incidence of chronic or serious conditions will make it harder to obtain insurance in a more-infirm future. “They may not be able to get any more insurance anywhere.”

While people may approach insurance as a commodity, prices vary widely so buyers are encouraged to either shop around themselves or use a broker who can quote rates from a number of insurers. “When it comes to life insurance, critical illness, long-term disability and long-term care insurance, there are more providers than most people know,” said Frank Wiginton, a certified financial planner with TriDelta Financial Partners. “If you are not dealing with an independent financial broker you may not be given the option or you may not be shown the other companies’ options.”

As a financial planner first and foremost, he believes insurance needs have to be looked at as part of an overall family financial plan that includes retirement goals, investments and education needs for children.

How much is enough?

While insurance professionals say most of us are under-insured, the reality of tight budgets and resistance to insurance makes it tough to convince families to buy more.

Mr. Poncelet gives the example of a married couple in their mid-30s with two young children as a representative example. The couple approached him about mortgage insurance for their $200,000 mortgage. Both the husband and wife, with a combined income of about $140,000, have two-times salary insurance through their employers but he convinced them to both take out 20-year Term policies with a death payout of $500,000 each. “It is still not enough,” he said, estimating that both should have taken out million-dollar policies each to maintain their current standard of living for a 15-year period if one of the main breadwinners were to die, effectively doubling their premiums to $100 monthly per person.

“For a lousy $50, if something happened [they] would have another half million dollars,” Mr. Poncelet said.

Special to The Globe and Mail