The following is a selection of key statistics published by the Canadian Association of Accredited Mortgage Professionals. The numbers reflect the slight increases we have seen to fixed rate mortgages and the spreads on variable rate mortgages.

Down payment is an important piece of the puzzle when you apply for your first mortgage. Lenders like to see that you are coming to the table with your own money at play. It shows that you have had the ability to save/invest which helps with the overall application.

If you are considering buying a home for the first time you should have a good idea of how much money you will have available to put toward the down payment before moving forward. Down payment is the amount of your own money that you pay when you purchase a home. The remaining amount is covered by the mortgage loan.

Current mortgage rules allow purchasers the ability to buy a home with a minimum of 5% down payment. So if the purchase price is $200,000 then the borrower must have at least $10,000 available for the down payment. While it is possible to buy with 5%, borrowers buying with a small down payment need to show strength with their credit and other merits. Type and location of the property are also factors.

When buying with a small down payment it is important that the majority of the down payment funds come from your own sources. However it is possible to have a portion of the money gifted from a related family member or in some cases borrowed.

Show Me The Money!
You will be expected to show the source of all down payments funds, the following are acceptable sources:
-Chequing or savings accounts
-Tax-Free Savings Account (TFSA)
-Canada Savings Bonds
-RRSP (under the Home Buyer’s Plan)
-GICs
-Stocks, bonds, and other investments
-Other assets
-Gift from related family member

Coming in with a large down payment helps you not only reduce your interest expense to the lender but also helps you reduce or eliminate the CMHC insurance premium if your down payment exceeds 20%.

If you’d like to work with a mortgage broker who loves educating first time home buyers give me a call 416.461.0204ext2 or email me to set up an appointment today. Best of all my services are free to you because i get compensated by the lenders through a finders fee.

The Canadian Association of Accredited Mortgage Professionals, a body that serves as the industry voice to government, media and regulators,  released their Annual State of the Resident Mortgage Market in Canada Report this week.  The sixth annual report compiles data to give an overview of the evolving state of the residential mortgage market in Canada.

Aside from revealing that the Canadian Mortgage Market has exceeded the $1 Trillion benchmark I found the 43 paged report contained some other statistics that might be interesting to someone other than a self professed mortgage geek like me. If you would like to read the report in its entirety click here to download the PDF version.

The following are some of the highlights from the report:

• 35% of all mortgage holders have either increased their payments or made a lump sum
payment on their mortgage in the last 12 months

• Vast majority of Canadians have ability to afford higher mortgage payments. 84% said
they could handle monthly increases of $300 or more in their monthly payments

• 90% of Canadian homeowners have at least 10% equity in their homes, 81% have over
20% equity

• 70% of Canadians are satisfied with their mortgage terms

• Despite low Bank of Canada interest rates reflected in low variable rate mortgages, a
majority (66%) of Canadians still have a five year fixed mortgage, 29% have variable
mortgages and 4% a combination

• Overall, 22% of mortgages have an amortization of greater than 25 years compared to
18% last year

• Overall home equity is 72%. For homeowners with mortgages, equity level averages
50%

• Mortgage rates continue to drop.  Average mortgage rate is 4.22% versus 4.55% last
year.  For those who took out a mortgage in the last year, the average rate was 3.75%,
72% of those renewing saw a decrease in their mortgage rate

• Overall, mortgage brokers account for 25% of all mortgages, for new mortgages in the
past year this number rises to 40%

• As of August 2010, there was over $1 trillion in outstanding residential mortgage credit in
Canada

• Mortgage arrears rate remains stable at 0.42%, lower than for most of the 1990s

• 40% of all new mortgages this year were arranged by mortgage brokers

An old man and a young boy were traveling through a village with their donkey. The boy rode on the donkey and the old man walked. As they went along they passed some people who remarked it was a shame that the old man was walking and the boy was riding.

The man and boy thought maybe the critics were right, so they changed positions.

Later, they passed some people that remarked, “What a shame, he makes that little boy walk.” They then decided they both would walk.

Soon they passed some more people who thought they were silly to walk when they had a decent donkey to ride. So, they both rode the donkey.

Now they passed some people that shamed them by saying, “How awful to put such a load on a poor donkey.”

The boy and the old man said they were probably right, so they decided to carry the donkey. As they crossed the bridge, they lost their grip on the animal and he fell into the river and drowned.

With a tear in his eye, watching his donkey being carried away by the current, the old man turned to the boy and said “Young boy, fools are the ones that listen to the world!”

While you might think that this story is about my father (the old man) and I, it’s not! In the story everyone had an opinion about how the donkey should be used, likewise, everyone has an opinion about mortgage financing and how best to go about it. Think of the conversation at the water cooler or the next neighborhood barbecue.

Over the years I have observed that most people think of mortgage financing as being very static. in reality, mortgage financing should be viewed as dynamic and fluid. The advice and guidance being offered should be the result of understanding current economic conditions, market timing and most importantly, personal circumstances.

For guidance about your mortgage give us a call. Christopher & Arnold Molder 416.461.0204ext2

This week I read an article in The Financial Post stating that 60% of mortgages in Canada are held by chartered banks. My father often talks to me about the ‘good ol’days’ when chartered banks weren’t in the residential mortgage business period. He often reflects back on the time when the majority of residential mortgages were provided by small specialized Trust & Insurance companies and private lenders. It was a very different world back then and it was only in the last 20 years that chartered backs have really started to dominate the Canadian residential mortgage market. This latest article from the Financial Post highlights this shift and why today the banks hold most of the cards in the mortgage game.

For many borrowers a mortgage seems like a pretty straight forward business. “The bank approves me for a loan, I go to my lawyer’s office to sign for the mortgage and then I pay the bank my regular principal and interest payments.” This is only the surface and really the side show of the facsinating business that are mortgages in Canada.

In my last post I wrote about an astute investor who exploited the opportunity of a Judicial Sale when he bought a unique, mixed-use property, for a bargain price of under $100,000. Such opportunities come up frequently but are missed by most people because they don’t know where to look specifically. In addition, the term Judicial Sale is not part of the everyday vocabulary and opportunities are missed.

The term judicial sale is a legal notice informing the public of an intended sale of a property to the highest bidder, in an auction environment by a sheriff. The reason for a judicial sale is most commonly for arrears of property taxes owed to a municipality.

The action of resorting to a Judicial Sale occurs only after a municipality has failed to collect tax arrears from the owner, and all other methods of suasion have also failed. In other words, a Judicial Sale is the final legal act to obtain these arrears through a property sale to the highest bidder.

Such notices appear typically in the newspaper column under legal matters/auctions.

Notices of smaller communities and municipalities, especially in cottage country, offer greater opportunities for investors. The first reason is that due to population numbers, there is a smaller interested audience than in a city. Secondly, it requires special geographic knowledge. Finally, it takes a lot less money to be a successful bidder.

If you are patient and interested in cottage country properties, this may be an opportunity worthwhile exploring. One of our clients, a couple, purchased a property for summer vacations under Judicial Sale on Prince Edward Island, where they grew up.

Granted, the pursuit of Judicial Sales opportunities requires effort, but it can be a rewarding experience.

It is highly unlikely in these situations for a Bank to be your financial partner. More often than not, such situations require private mortgage financing and backing of an experienced mortgage broker.

From the Files Of The Broker: Arnold Molder 416.461.0204

What do you get when you try to buy a property that was once a jail, fire hall, dance hall & town hall? A financing conundrum.

This is exactly what one of our clients purchased, where we provided private mortgage financing.  The purchase is even more remarkable when you consider that the jail, fire-hall, town-hall and dance hall are joined as one property, on one deed.

The property has an interesting history going back to the early days of Ontario, when towns sprung up around employment opportunities of budding industries. The property is located in a small sawmill town, along a railway line, and developed to serve the needs of the town’s people. Construction of the town-hall was considered for obvious administrative functions with an office on the ground floor, town hall and stage on the floor above to function not only for meetings, but also on weekends for dances, theatre and other festivities.

The fire-hall evolved from the voluntary fire brigade of citizens who were ready to spring into action when needed. But the jail is more intriguing and amusing. Crime was not a big problem but there were plenty of people who liked to have a good time with alcohol. When they became a nuisance they were simply put up for the night in the specifically constructed cell, adjacent to the office on the ground floor. It has three-foot-thick walls of field stones and a solid, heavy wooden door, making escape virtually impossible and muffling any sound such as singing from the intoxicated revelers.

Over the years the building became redundant, not for lack of drunks, but through amalgamation of administrative functions and services with a nearby, larger town.

In time the building deteriorated and was in need of maintenance and upgrading for which there was no money in the budget. In addition the lack of income, via property taxes persuaded the Town to sell via a judicial sale.

Our handy purchaser obtained the entire property, bounded by a park on two sides, for less than $100,000 when it was offered for sale to the highest bidder. He now lives there happily after renovating and restoring the property extensively with ‘sweat money’ and converted the jail into a wine cellar.

Such situations require private mortgage financing not only due to the zoning but also in circumstances of judicial sales. Because we are over 30 years in business as mortgage brokers we have come into contact with many situation that require private mortgage financing. Over the years, we forged long term relationships with private investors who approach lending, besides concerns over security, with a lot of common sense.

This story serves to illustrate our pivotal broker-role in transactions. Furthermore, it shows how borrowers can benefit from our experience and connection with private mortgage investors with whom we have developed, over the years, trusted relationships.

If you are a private investor looking for opportunities to invest, or a borrower needing help with your own unique and challenging circumstances, we invite you to call us with your story.

From the “Files of the broker”

Following the Bank of Canada’s interest rate announcement last Tuesday we weren’t too sure in which direction the fixed rate market would move. Mortgage lenders responded by lowering their fixed rate mortgage rates. They also increased the spread on the 5 year variable rate mortgage from P-0.50 to P-.60 giving an effective rate of 1.90% based on the new prime rate of 2.50%. If you are just entering the interest rate market because you are considering buying or your mortgage is coming up for renewal it may not be obvious whether to go fixed or variable in this market. The circumstances are individuals are unique and there is a mortgage solution to suit your circumstances give me a call to discuss. 416.461.0204ext2

Chris Molder – Son Of A Broker

2.80% – 1 Year Fixed

3.75% – 3 Year Fixed

4.25% – 5 Year Fixed

3.10% – Merix 50/50 Mortgage (Fixed/Variable hybrid)

P-.50   3 Year Variable

P-.60   5 Year Variable

Prime Rate is currently 2.50%.

NOTE: Rates are subject to change without warning at the lender’s discretion.

Click here to view the embedded video.

Toronto mortgage interest rates haven’t changed over the past 7 days. However tomorrow morning after the Bank of Canada makes their decision regarding the prime rate we could see some interesting movement in the fixed rate mortgage market. Stay tuned for more.

Chris Molder – Son Of A Broker

2.85% – 1 Year Fixed

3.85% – 3 Year Fixed

4.35% – 5 Year Fixed

3.10% – Merix 50/50 Mortgage (Fixed/Variable hybrid)

P-.50   3 Year Variable

P-.50   5 Year Variable

NOTE: Rates are subject to change without warning at the lender’s discretion.

Click here to view the embedded video.

On April 19th 2010 new mortgage rules came into effect which have made it a little bit more challenging to qualify for a variable rate mortgage. Traditionally lenders qualified your maximum mortgage amount based on their current 3 year fixed rate. However, today it is a little bit more complicated and this post will help you if you are considering financing with a variable rate mortgage.

The rate used to qualify your maximum mortgage amount now depends on whether your mortgage is high ratio or not. Generally speaking if the mortgage you require represents 80% (i.e. less than 20% down payment)  or more of the value of your home, then your mortgage is high ratio. If your mortgage is high ratio, then the lender is required to use the new Bank of Canada Qualifying rate. This rate is set every Wednesday by the Bank of Canada (Look for series V121764).

If your mortgage represents less than 80% (i.e. more than 20% down payment) of the value of your home then the rate used to qualify is the traditional 3 year fixed rate offered by your lender.

So in practical terms what does this all mean and what is the significance to you?

Based on the rates at time of publishing this post the difference is huge. Consider the following scenario for illustration purposes. Assume that your household income is $50,000 per year and you carry no outside debt. If your mortgage is high ratio then the maximum variable rate mortgage you could qualify for would be $184,815 based on the new bank of Canada qualifying rate of 6.25%.

If your mortgage is conventional (or represents less than 80% of the value of your home) then the total mortgage amount you qualify for would be $248,835 based on today’s best 3 year of 3.84%.

That is a difference of $64,000! That means that you may have to sacrifice variable to move into the neighbourhood or home that you want. That means that when you renew your mortgage you may be limited to taking a fixed. That means that you maybe forced to purchase with 20% or more to get the interest rate that you want.