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
What Is Your Home Affordability Range?
June 4th, 2009 Categories: Buying real estate, Mortgage, Pickering Village, Real Estate
When a client comes into the office looking to buy a new home, we send them off to the mortgage broker to see how much home they can afford. The broker will crunch some numbers and help them to define an “affordable house payment.”
But what is an affordable house payment?
According to CMHC (Canada Mortgage and Housing Corporation), your monthly housing costs should not exceed 32% of your gross monthly income. Your housing costs include monthly mortgage payments, taxes and heating expenses (and half of the condo fee, if necessary). Along with that , your entire monthly debt load should not be more than 40% of your gross monthly income. This includes all your housing costs, and other debts like car payments, personal loans, and credit card payments.
The trouble with these guidelines is that they fail to take into consideration other factors. For example, a couple with 4 children is probably going to be able to afford less house than a young couple with no children.
Let’s look at a specific example.
Suppose a family of four is pulling in about $6,000 per month. That’s 
$72,000 annually. We will assume that they are otherwise debt-free, just to make things easier. According to the DTI (debt-to-income) ratio of 32%, the couple should be able to afford a monthly house payment of $1920. That leaves $4080 per month to cover everything else.
Before I encourage them to purchase a $250,000 plus house, let’s take a look at their current monthly budget. Here is where the rest of the money might go:
Income taxes (30% very conservatively) $1800
Kid’s activities (hockey, soccer, dance) $400
Groceries $700
Car insurance $180
Gas (for the cars) $200
Car maintenance and repairs $200
Movies, TV, internet $120
Cell phone, telephones $200
Clothing, shoes $50
Dining out $150
Gifts $100
Personal care (hair cuts, sundries) $70
Pet care $50
Total $4220.00
Now, you wouldn’t exactly say that this family was living high on the hog, yet if the house payment was $1920 per month, they would be seriously struggling every month to make ends meet.
What can you learn from this?
That guidelines are just that. You need to talk to a professional about how much house you can afford based on your budget and projections and develop a realistic affordable payment plan. Every situation is unique.
I can tailor your house payment to fit your budget, not the other way around.
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Majority of Canadian Home Owners Hold More Than 50 Percent Equity
May 28th, 2009 Categories: Mortgage, Real Estate News
As Canadians weather the harsh economy, a beacon of their strength is the considerable amount of equity they have in their properties, according to a report released today by the Canadian Association of Accredited Mortgage Professionals (CAAMP). New challenges, such as budgeting for mortgage payments, are emerging, yet housingaffordability has dramatically improved due to lower interest rates and price reductions. The report is authored by CAAMP Chief Economist Will Dunning and based on information gathered by Maritz Research in an online survey conducted in March 2009.
Over 40 per cent of all mortgage holders have at least 50 per cent of the value of their homes in equity, and of all Canadian home owners, which includes those without mortgages, 65 per cent hold at least half the value of their properties. Only two per cent of mortgage holders have negative home equity, meaning the value of the mortgage exceeds the value of the home.
During the past year, 15 per cent of mortgage holders took equity out of their homes, representing a national total of $34 billion. Over half (57 per cent) used these funds for debt repayment or consolidation amounting to $12.5 billion.
“CAAMP’s report demonstrates that home owners have solid equity positions and although facing financial uncertainties, most Canadians have the ability to deal with temporary market fluctuations and reductions in personal income,” said Jim Murphy, AMP, President and CEO of CAAMP. “With only a very small number at risk of not being able to pay or refinance their mortgages, our overall market is very strong.”
There is no doubt that the current economic backdrop means increased financial challenges for Canadians. Job loss is a major risk factor for home owners and 18 per cent of those surveyed indicated an individual in their household had lost a job in the past six months.
The economy looms large when people consider buying a home. Despite the fact that 55 percent say now is a good time to buy, up almost 20 percentage points from fall 2008, only four percent of homeowners and six percent of non-owners actually say they anticipate buying – about the same number as last fall.
Low and flexible interest rates plus longer terms are adding buoyancy to the mortgage market. Mortgage holders are extremely successful negotiating their interest rates, knocking off an average of 1.68 per cent from the posted rate. Three-quarters of those who renewed their mortgage in the past year had their interest rate reduced. On average, renewals resulted in interest rate reductions of almost one full per cent. Three-quarters of Canadian borrowers are also likely to see reductions in their interest rates at their next renewal.
“While many Canadians are experiencing mortgage-related challenges, these issues are much less significant than the problems in the American market,” said Will Dunning, CAAMP Chief Economist. “We are not seeing the dramatic mortgage rate resets or panic selling that occurred in the United States, and Canadian mortgage lenders and insurers are demonstrating a willingness to work with those who encounter financial difficulties. These are good signs for the health of the market.”
The popularity of mortgage brokers continues to grow with almost half (46 per cent) of new mortgages taken out in the past year secured through brokers. Over one-half (61 per cent) of mortgage renewals occurred with the major banks.
“With increased choice and negotiation power in today’s market, informed mortgage consumers have an opportunity to leverage lower overall rates,” said Murphy. “CAAMP members are committed to educating consumers and increasing professional standards in the industry.”
Based on current housing market forecasts, the outstanding volume of residential mortgage credit is forecast to expand by close to $70 billion in both 2009 and 2010, growing at a rate of 7.6 per cent in 2009 and 7.0 per cent in 2010, although the growth rate has decreased from 10.4 per cent in 2008. Mortgage credit is expected to surpass $1 trillion about mid-2010. The volume of annual approvals may fall to about $150 billion in 2009 and $160 billion in 2010, down from totals that exceeded $200 billon per year in 2007 and 2008.
“The Canadian Residential Mortgage Market During Challenging Times” report contains a wealth of industry data, including consumers’ expectations of the housing market, profiles of mortgage holders, regional breakdowns of survey responses, and additional insight into challenges for mortgage holders in Canada. For a copy of the report, please visit: www.caamp.org.
For more information, please contact:
Renee Mellow; Jim Murphy
Media Profile; CAAMP
Office: (416) 504-8464; Direct: (416) 644-5465 Mobile: (416) 940-0011
renee@mediaprofile.com; jmurphy@caamp.org
About CAAMP
Established in 1994, the Canadian Association of Accredited Mortgage Professionals (CAAMP) is Canada’s national mortgage industry association. CAAMP has assumed a leadership role in the industry it serves and has set the standard for best practices for Canada’s mortgage practitioners. In 2004, CAAMP created the Accredited Mortgage Professional (AMP) designation as part of an ongoing commitment to increasing the level of professionalism in Canada’s mortgage industry.
As a membership-based organization, CAAMP strives to develop its network of professionals and to represent the interests of these individuals to government, media and consumers. CAAMP has attracted over 12,000 members and 1,400 companies from across Canada –representing over 90% of Canada’s mortgage activity. CAAMP members make up the largest and most respected network of mortgage professionals in the country. CAAMP’s membership base consists of mortgage lenders, brokers, insurers and other industry participants.
CAAMP’s other primary role is that of consumer advocate. On an ongoing basis CAAMP aims to educate and inform the public about the mortgage industry. Through its extensive membership database, CAAMP provides consumers with access to a cross-country network of the industry’s most respected and ethical professionals. Consumers should visit www.mortgageconsumer.ca for more information.
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What Can You Afford?
May 6th, 2009 Categories: Buying real estate, Mortgage, Pickering Village
I had a conversation with a colleague yesterday who was surprised to find that his mortgage payment was the same as when he bought the house 20 years ago. When he bought the house, he paid $190,000 and his interest rate was 11.25%. He now carried an $800,000 mortgage and the payments were the same with his mortgage interest running at 2.75% (prime plus a half). Not addressing the fact that he ran up his mortgage, I decided to test his theory on my house.
We moved into our house in 1993 and paid $318,000. The interest rate was about 7.25%. If we had put down 25% (I don’t feel like hunting for my original mortgage documents—cobwebs are creepy), our mortgage payment would have been about $1707.
My house is now worth about $490,000. If I again put 25% down (I’d have to save a little bit longer), my mortgage payment would be $1923 with the current posted rate of 3.95%. That rate is for a fixed mortgage with a 5 year term. There are several other options that I can now take that would bring my mortgage payment down.
What does this mean to you?
You might not be in the market for a $500,000 home (if you are, we can talk), but consider that my 2600 square foot house would rent for upwards of $2500. I can buy it for less.
Maybe you are looking for a $350,000 house. Check my mortgage calculator to find out how easy it is to afford more home. Moving up or moving out is a very attractive option right now.
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7 Things To Do Before Refinancing
April 24th, 2009 Categories: Ajax, Mortgage, Pickering, Pickering Village, Real Estate News
As I am sure you have heard, the Bank of Canada has reduced their prime interest rate by 0.25%. I am hear all you with variable rates cheering in the background. For those of you with a fixed rate, what should you do?
Now is not necessarily the time to jump into re-financing. Here are 8 things that you need to do before you take that step:
- What is your current mortgage rate? Hearing that the interest rate is almost at a level that the banks will start paying you (interesting concept!) often causes people to jump at their mortgage applications. Compare your rate and penalties to the savings. Only sign up if it is saving you money.
- Find out how much equity you have in your home. On average in the GTA, prices have fallen about 4% since last year. Depending on your area, that price drop could be eating away at your equity. Knowing that will help you determine what kind of re-financing candidate you are.
- If you are underwater with your mortgage, find out how deep. House values, like any investment, fluctuate. Having a mortgage that is more dear than the house it is secured on, doesn’t mean that you don’t have options. Collect all the information you can, and talk to your bank or mortgage broker, they can be your best ally.
- Know your credit history and score. Contact Equifax
to find out what shape your credit is in. With lending decisions becoming more rigid, know your score. Banks can decide only to give the best rates to the players with the top scores. - Start identifying potential lenders. Shopping for your mortgage can be a lot like shopping for you house. Check out the features and benefits of banks, trust companies, credit unions, and mortgage brokers. Find someone you are comfortable with and trust.
- Look at the big picture. Interest rates are just one of the pieces of your mortgage puzzle. There is often a discharge penalty and, possibly, a fee to create the mortgage. If the mortgage is going to cost you $5000 in penalties and fees, and you are saving only $50 a month, it will take you 100 months to realize any benefit.
- Get your paperwork together. Completing the mortgage can require you to submit your income letters, notice of assessment, bank statements, etc. Collecting those a head of time can save a lot of back and forth.
We have collected a team that can help you with almost all of this.
Adapted from Ilyce Glink, Inman News, Thursday, April 23.
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Canada Mortgage Rates Not Likely to Fall, Soper Says
April 24th, 2009 Categories: Mortgage, Real Estate News
April 14 (Bloomberg) — Mortgage rates in Canada, which have plunged by almost 50 percent in the last year, aren’t likely to fall further, said Phil Soper, chief executive officer of Brookfield Real Estate Services Fund.
“Certainly with the Bank of Canada’s target rate set at virtually zero, there’s very little room,” Soper said today at a conference in Toronto on Canada’s real estate market. The rate is “the lowest it’s been in anyone in this room’s lifetime.”
Rates for home loans have been dropping during the biggest financial crisis since the Great Depression, with some lenders offering mortgages approaching 4 percent, Soper said. That compares with an average posted five-year rate of 7.5 percent a year ago, according to the Bank of Canada. He added that home prices in Canada aren’t likely to rise “sharply” over the next two years.
Bank of Montreal, which sponsored the conference, lowered its rate for a five-year fixed-rate mortgage this month to 4.15 percent.
“We are approaching almost zero interest rates,” at the Bank of Canada, said John Turner, the Toronto-based bank’s director of mortgages. “The question becomes, how much upward pressure will there be as we come out of this recession?”
The Bank of Canada last month cut its benchmark lending rate to 0.5 percent, its lowest ever, and said it’s preparing to use policies beyond interest rate moves to revive an economy hit by a recession and tight credit markets. The next rate announcement is April 21.
Canadian existing home sales rose in February for the first time since September as buyers took advantage of lower mortgage rates and prices, according to the Canadian Real Estate Association’s Multiple Listing Service. Sales of existing homes rose 8.6 percent from January to 28,669 units.
Bank of Montreal senior economist Sal Guatieri predicted that Canada’s housing market will decline further this year, without the “crash” experienced in the U.S.
To contact the reporter on this story: Sean B. Pasternak in Toronto at spasternak@bloomberg.net.
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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 Serre, 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 homeit seemed to be as much as they could afforda 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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