Frank Steinhausen, Broker
FSteinhausen@REMAX.net
RE/MAX Rouge River Realty Ltd., Brokerage
Phone 905-428-6533
Fax 905-668-1850
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Archive for the 'Mortgage' Category
Is A Long Term Mortgage the Best Option for First Time Home Buyers?
May 18th, 2008 Categories: Buying real estate, Durham Region, Mortgage, Real Estate News
It is nice to get confirmation of your opinion from the press. The National Post published an article on long-term mortgages that echoes the post where I urged first time buyers to be cautious.
The article referenced a report from Re/Max Ontario-Atlantic, stating:
“Innovative financing” is now the key to home ownership in today’s environment, the report said, with longer amortization periods being used by 62% of first-time buyers. Low or no down payments were popular with 38% of surveyed buyers, it added.
While that may conjure comparisons with loose lending standards in the American subprime-ravaged housing market, Michael Polzler, Re/ Max’s Ontario-Atlantic regional director, said mortgage qualifications remain tougher in Canada.
“If the client is perceived of being a risk in Canada, it’s much harder to get this type of financing,” he said. “A 40-year mortgage allows them to jump into the game and capitalize on home-price gains.”
Adrian Mastracci, a Vancouver-based portfolio manager with KCM Wealth Management, referred to such mortgages as the “Freedom 95″ plan, in reference to the Freedom 55 retirement plan once popularized by London Life.
“The banks will love you because you’re going to be paying for life,” Mr. Mastracci says. If people don’t speed up repayments on such debt, they will find themselves paying it off well into their senior years, he adds.
“With a 40-year mortgage, you’re not buying, you’re just leasing long-term,” and will spend the first 30 years making mostly interest payments.
Caution is a word that Canadians take to heart. Real estate is still a great investment opportunity. Get all the facts you need to make a good decision.
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Gather the Facts Before You Jump Into Your First Mortgage
May 6th, 2008 Categories: Buying real estate, Mortgage, Real estate investment
There was recently it was reported that many young women buying their 
first home alone. It is no longer love, marriage and a house with a baby carriage. More single, young women are opting for the home first.
I am all for the forced saving, nest-egg growing opportunity that home-buying offers. I wouldn’t be in real estate otherwise. I would like to present a little bit of the devil’s advocate position to caution young people before they jump in with both feet. Make sure you have all the information that you need.
Here is some helpful information:
- Two-thirds of all buyers are taking mortgages of up to 40 years amortization. This means that without pre-payment options or accelerated payments, young first time buyers may be paying their mortgage when they hit retirement age.
A 40–year amortization means that you are paying over $736,000 for a $300,000 house. That is $436,000 in interest payments. - An increasing number of buyers are putting little or no-money down. Increasing your mortgage principle increases your monthly payments, or your amortization. Either way, you are paying the bank more money to borrow theirs.
- Canadian Mortgage and Housing Corporation introduced an interest-only mortgage option echoing the US mortgage market trouble where house prices stopped increasing and people have ended up owing more than the house is worth.
Canada has taken some precautions to ensure that our housing market does not follow the US down. Higher risk mortgages are only available to buyers with good credit. However, buyers who are stretching themselves into buying a home make themselves susceptible to financial difficulties if the housing or job markets soften or if interest rates climb again.
Do you have questions about what mortgages are right for you, or when to buy into the market? I can help.
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What We Can Learn From the U.S. Mortgage Fallout
April 25th, 2008 Categories: Area interest, Durham Region, Mortgage, Real Estate, Real Estate News
U.S. President George Bush recently announced a stop-gap (albeit limited) 
measure that may assist many U.S. homeowners from experiencing what millions already have – losing their homes. In light of the dilemma south of the border, what can we Canadians learn from all this, and how can we be better prepared to avoid similar devastating effects?
A brief history of U.S. home lending practices: it all started when credit was provided early in the 20th century after the Great Depression. Lenders first offered simple interest 80/20 short-term loans; 80 per cent down and 20 per cent financing. Then some ingenious private entrepreneurs and banks decided they could charge more interest by providing 50/50 loans over longer periods. They saw the opportunity to really make large returns on their investments. 50/50 soon became 80/20, with 20 per cent down and 80 per cent financed. After lobbyists pressed Congress, they eventually passed a law approving compound interest, not long after the Second World War when all the vets returned home.
Amortization schedules and pay-off times went from five and 10 years to 15, 20, 25, 30, 40 years and more. The banks capitalized enormously on these lending practices. Compound interest extended for as long as the gullible public would bear, and made the banks astronomically profitable. Initially they weren’t even sure if they could convince the general public to contract such huge long-term debt commitments. But untethered capitalism and the desire for “more than one could really afford” reigned supreme. Communities like Levittown (America’s first planned “assembly-line” subdivision in Long Island, N.Y.) were enormously successful. The groundwork for today’s real estate and mortgage template was cast.
People who really couldn’t afford the credit they desired were given loans at higher rates to counter balance higher gross-debt-ratios. Even those who didn’t qualify under normal circumstance could also live beyond their means through creative and exotic loans like
Adjustable Rate Mortgages (ARMs) and 40- or 50-year amortization periods. Therein lies the core-formula for millions of Americans losing what used to be their most valued and protected asset, their homes. The formula was to over-extend ourselves, live beyond our means or buy more than we could really afford, with funding provided by a lending system that understood high-risk, high-return and gladly participated. Lenders became ‘enablers’ for a public who acted like dope-crazed addicts, never able to satisfy their need for more of this euphoric drug – extended credit.
As long as equity in their investments continued to grow, they were safe. But when over-inflated house values soon began to deflate, they could no longer tap into the reservoir of ‘savings’ built into their homes.
After extending themselves even further with home equity loans, thus adding another monthly payment, the American public was trapped. They became unable and/or unwilling to continue to pay for homes that were worth less than what they owed on them, especially if it crimped their salacious appetite for a lifestyle they could no longer afford. The fallout became apparent to the lending institutions and they quickly lobbied Congress to make it harder for people to bail out through bankruptcy. To nobody’s surprise, the law was passed.
To date, Canada and Canadians have been spared, for the most part from the major fallout experienced in the U.S. Why? We have yet to lower our standards to the point of our neighbours to the south. But will we continue to hold higher standards – and for how long?
That’s the key.
So as a dual citizen who has lived and worked for equal years in the U.S. and Canada, I say, take heed. Be cautious. Real estate, though cyclical, is being influenced by new parameters that have to be weighed in the balance – including demographics and preferences of aging baby boomers, the economic impact of ever-increasing oil prices and the like. How can we protect ourselves? We can try to avoid extended amortization periods, exotic loans and creative financing; but most importantly, simply live within our means – an unpopular idea, but the undeniable truth.
Frank Kirschner, MBA has been licensed in real estate since 1982. He has held a variety of executive positions in the industry, including vice-president and director of operations for Prudential Real Estate Affiliates/Canada; broker/owner of Atlanta Buckhead Realty and executive vice-president, Prudential Sadie Moranis Realty. Email frank@atlantabuckheadrealty.com
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Ontario Mortgage Consumers Confident in their Ability to Manage their Debt
April 18th, 2008 Categories: Mortgage, Real Estate News
OTTAWA— Canada Mortgage and Housing Corporation’s (CMHC) 2007 Mortgage Consumer Survey shows that the overwhelming majority of Ontarians who recently purchased a home, or renewed or refinanced a mortgage are confident in their ability to manage their mortgage debt.
“The fact that Ontario homeowners are confident in their ability to manage their mortgages is a good sign for the province’s mortgage market,” said Pierre Serré, Vice-President, Insurance Product & Business Development, CMHC. “The survey also confirms that Ontarians, like most Canadians, remain fundamentally cautious when it comes to managing their mortgage debt.”
The 2007 survey focused primarily on recent purchasers and also for the first time included questions on homeowner behaviour regarding mortgage debt re-payment since arranging their mortgage.
In Ontario, 92 per cent of mortgage consumers felt confident in their ability to manage their debt, over the national average of 88 per cent. Also, the survey finds that 77 per cent of those who recently purchased a home intend to pay it off as quickly as possible and more than half agreed that, whenever possible, they would use extra money to pay down the principal on their mortgage. The majority of homebuyers in Ontario (57 per cent) are making weekly or bi-weekly mortgage payments, and the vast majority of these are on an accelerated basis which has the effect of shortening the time required to payoff the mortgage. A significant proportion (42 per cent) of purchasers in Ontario also intend to reduce their mortgage amortization period when their mortgage comes up for renewal.
Overall, 83 per cent of mortgage consumers in Ontario were satisfied with the services they received from either their mortgage lender or broker. CMHC’s survey also reveals that a significant proportion of mortgage consumers in Ontario (61 per cent) were totally satisfied with the services they received compared with 52 per cent in 2006.
In addition, 32 per cent of Ontario mortgage consumers buying a home used the services of a mortgage broker to arrange their mortgage, on par with the national average of 33 per cent.
CMHC’s Mortgage Consumer Survey is conducted each fall to examine consumer behaviour, attitudes and expectations when acquiring, renewing or refinancing a mortgage. The survey is based on a national probability sample of more than 1,400 recent active mortgage consumers comprised of first-time buyers, repeat buyers, mortgage renewers and refinance consumers. The results for the entire sample are accurate within 2.6 percentage points 19 times out of 20.
As Canada’s leading mortgage insurer, CMHC shares a wealth of knowledge and housing expertise for the benefit of Canadians. CMHC’s mortgage insurance has opened doors for millions of Canadians, giving them the assurance and piece of mind that comes with homeownership.
As Canada’s national housing agency, CMHC draws on over 60 years of experience to help Canadians access a variety of quality, environmentally sustainable, and affordable homes — homes that will continue to create vibrant and healthy communities and cities across the country.
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When To Plan Your Mortgage Burning Party In Durham Region.
November 18th, 2007 Categories: Buying real estate, Durham Region, Mortgage
The Toronto Star published an article about how house bidding wars in Toronto was stretching budgets. I am curious and amazed how a couple started out being qualified to buy a $450,000 home—it seemed to be as much as they could afford—a year later they bought a home for $700,000.
How do you go from paying a belt-tightening $2100 in mortgage payments each month to over $3300 per month? Even stretching the amortization to 40 years, it would mean that the payments would be about $2900. And their retirement party will likely be before their mortgage burning party.
I generously calculated that in the ensuing year they were able to save the extra $61,000 that kept them from a high ratio mortgage and there by adding mortgage insurance into the picture. I am flabbergasted.
That same article sited studies that indicated carrying such long term debt is quite a burden. A mortgage-burning party is a remote possibility. The stress causes anxiety or depression about trying to make ends meet.
It is not surprising that the rate of savings has gone down to 1.8% from 20% in 1982. Household debt has increased 43% from 1999.
The bright light in the GTA seems to be Durham Region. Although housing affordability is on everyone’s mind, most areas in Durham Region, including Pickering, Ajax and Whitby, price gains are slower than metro Toronto. That means that your mortgage burning party could be before you retire.
The home that this couple could have bought in High Park for about 
$700,000 could have been anywhere between $300,000 to $400,000 in Pickering, Ajax, or Whitby, depending on the neighbourhood. So not only could they have pocketed the extra $800 to $1200 per month (GO train fares come cheap for the extra commute) to enjoy their new home, they could have paid off their mortgage in plenty of time to enjoy their retirement
Consider your affordability options. Durham Region looks pretty good.
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