With recent articles in the Financial Post and Toronto Star regarding the current fight between the Canadian Real Estate Association and the competition bureau, I'm thinking change is coming to the Real Estate industry. Finally!
Let me be clear. I believe there are many good, well qualified, hardworking Realtors out there. I just wonder if what they believe is the function of their job and what consumers believe, is the same thing. I mean let's look back.
Twenty years ago you as a consumer, would go out with a Realtor to look at homes and would rely heavily on your Realtors experience and knowledge of the Real Estate Market to help make your decision on the home that you would buy. That would include but not be limited to neighbourhood, price and possibly style. What you might not have understood back then is that your Realtor didn't work for you. That Realtor worked for the Sellor and therefore their job was to sell that home regardless of what your needs were.
Well times have changed and now we have Buyer Agency. This means that the Realtor now works for you! Or does it?
The Realtor is still paid by the Sellor and many Selling Agents will be quick to point this out to the Buying Agent. In fact, if you look at Real Estate teams you have to ask yourself. Is it not the job of the Buying agents on that team to facillitate the sale or the properties listed by the team?
That's why I believe change is important in our industry. If we truly believe that we bring something special to the table as Realtors then why would we be concerned with For Sale By Owners and Discount Brokerages having full access to the MLS? Doesn't this give us a chance to showcase our talent? Prove our worth? Won't we net the Sellor way more than they could net for themselves? I mean we only need to cover the $25,000 or so they're paying us right?
There is a longstanding joke in the Realtor community that goes a little like... "We haven't had a raise in 40 years." In truth, as Real Estate prices have gone up over the last 5-10 years, so have the commissions earned by Realtors. In a recent Financial Post article by Garry Marr he said:
"There is good reason for realtors to resist wholesale changes to their business. Last year, the industry did almost $150-billion in existing homes sales. At a 5% commission rate - the average in Canada - consumers forked out almost $7.5-billion in commissions. In the hot real estate market of 2007, when there was $160-billion in buying activity, realtors would have earned a total of $8-billion in commission (based on the 5% rule)."
With that much money at stake I imagine many new players will enter the market and with Social networking sites like Facebook and Twitter and other sites like Craigslist, Kijiji and Ebay, how long is it until more and more people take on the job of selling their home themselves? As I mentioned in a past blog, www.grapevine.ca is successfully marketing itself to For Sale By Owners, to the point of a true competitor of the MLS in Ottawa and is expanding itself to other markets in the area.
So let me ask a question. As a consumer, if I could fix my own car and save $500 I would. If I could successfully represent myself in a court of law and save potentially tens of thousands of dollars, I would. So if I can sell my own house and put the extra $20,000 in my pocket, why wouldn't I at least try it?
Competition may force us to lower our commissions or increase our value added services. Maybe it just gets rid of the highly producing agents who sell 50 or more homes a year. It will be a lot harder for them to justify $25,000 in commissions for listing a home on the MLS and waiting for a Buyer Agent to sell it.
In this epic battle between The Real Estate Community and The Competition Bureau, let's hope the winner is the consumer.
Sunday, March 28, 2010
Sunday, March 21, 2010
Fun with Numbers - Mortgage Consolidation
Why consolidate your debt into your Mortgage? Well let's see...
If you consolidate $50,000 worth of debt and put it into your mortgage (for fun let's assume that your mortgage has $200,000 left at a rate of 4% on a 25 year amortization) then you go from a mortgage payment of $1,052.04 to a mortgage payment of $1315.05. So you are paying an extra $263.01.
Now just to keep it simple let's assume that your $50,000 worth of debt is all credit cards and you were paying the 3% minimum every month. Your payments on the cards would have been $1,500 per month. So you have just reduced your monthly bills by $1,236.99! Wow! You are well on your way to financial freedom. Of course in truth you should be putting some of that extra cash into your mortgage to shorten the amortization period. Most lenders allow you to prepay at least 15% of your mortgage per year and many allow 20% but in reality few exercise this option and many will use this extra money for Johnnys Hockey or the new car.
Now this is where it gets interesting. At $200,000 if you paid your mortgage every month at that interest rate for all 25 years, then the total interest paid at the end of 25 years would be $115,612.12. (Yup there's alot of profit in financing homes.) But at $250,000 then your total interest paid is now $144,515.15. A difference of $28,903.03. So in total you would have paid $78,903.03. Where as if you paid your credit cards back directly at a rate of 21% interest at $1,500 per month it would take you 51 months (4 years 3 months) and your interest would be $25,698.12 for a total repayment of $75,698.12. So for just over $3,000 difference you can afford to eat more than mac and cheese every night and if you're smart, start accelarating your Mortgage payments by exercising your prepayment option and shorten your amortization period (which of course means you would payback even less in interest). Now that's assuming rates stay at 4% for the full 25 years, which of course they will not. Still, consolidating debt through your mortgage can make a whole lot of sense. Just don't wait until the debt gets too far behind because when your credit is affected the banks will no longer offer you 4%. You'll start to look at rates anywhere from 5% to 14%, dependant on how far you've let this debt slide and now the savings aren't so great.
If you consolidate $50,000 worth of debt and put it into your mortgage (for fun let's assume that your mortgage has $200,000 left at a rate of 4% on a 25 year amortization) then you go from a mortgage payment of $1,052.04 to a mortgage payment of $1315.05. So you are paying an extra $263.01.
Now just to keep it simple let's assume that your $50,000 worth of debt is all credit cards and you were paying the 3% minimum every month. Your payments on the cards would have been $1,500 per month. So you have just reduced your monthly bills by $1,236.99! Wow! You are well on your way to financial freedom. Of course in truth you should be putting some of that extra cash into your mortgage to shorten the amortization period. Most lenders allow you to prepay at least 15% of your mortgage per year and many allow 20% but in reality few exercise this option and many will use this extra money for Johnnys Hockey or the new car.
Now this is where it gets interesting. At $200,000 if you paid your mortgage every month at that interest rate for all 25 years, then the total interest paid at the end of 25 years would be $115,612.12. (Yup there's alot of profit in financing homes.) But at $250,000 then your total interest paid is now $144,515.15. A difference of $28,903.03. So in total you would have paid $78,903.03. Where as if you paid your credit cards back directly at a rate of 21% interest at $1,500 per month it would take you 51 months (4 years 3 months) and your interest would be $25,698.12 for a total repayment of $75,698.12. So for just over $3,000 difference you can afford to eat more than mac and cheese every night and if you're smart, start accelarating your Mortgage payments by exercising your prepayment option and shorten your amortization period (which of course means you would payback even less in interest). Now that's assuming rates stay at 4% for the full 25 years, which of course they will not. Still, consolidating debt through your mortgage can make a whole lot of sense. Just don't wait until the debt gets too far behind because when your credit is affected the banks will no longer offer you 4%. You'll start to look at rates anywhere from 5% to 14%, dependant on how far you've let this debt slide and now the savings aren't so great.
Sunday, March 14, 2010
Is That All It's Worth?
A few months ago I read the book Freakonomics. (Ok, I'm not being honest here, I actually listened to the audiobook.) Chapter 2 in the book centres on the theme of information and the way that individuals, organizations, and businesses often exploit their access to crucial information at the expense of others. Curiously the authors titled this chapter "How is the Ku Klux Klan like a Group of Real-Estate Agents?"
When the authors analyzed data what they found was Realtors will sell their own homes at a higher price than the homes of their clients! At first I thought that maybe this was just a US issue but then I began to think about properties that I have seen being sold by Realtors and in nearly every case I found the same situation.
My brother, who has been in Real Estate close to 25 years, had a property that he had bought and fixed up. His Contractor did an amazing job and the home looked fantastic. He placed it on the market and it sat around for awhile and wouldn't sell. He asked me to take a look at the home and then I went back to the office and ran the numbers. Needless to say it was overpriced. Eventually he reduced it and it sold and he still made a tidy profit but I'm not sure if this is what the authors meant. My brother lost his objectivity but shouldn't he have priced the home to sell from the get go. Isn't that what we Realtors preach?
The authors went on to show examples of properties sold by agents for clients and properties sold by agents for themselves and that the latter sold at higher prices. In essence the agents worked harder for themselves and didn't just try to facilitate a quick cheque.
This got me to thinking of what my Real Estate Broker in Ottawa believes. He believes that soon the MLS will be forced to open up and allow For Sale By Owners on to the MLS system. For anyone keeping tabs, The Competition Bureau has escalated its case against the Canadian Real Estate Association to the country's Competition Tribunal, in a bid to smash what it says is an anti-competitive home-listings system that artificially increases the cost of real estate transactions.
What will happen when the MLS is forced to open up? How will Realtors justify commission rates of 5 or 6%? I mean we Realtors can say whatever we want but we know that outside of a few areas such as 'the Beaches', if we try to market a property without the MLS we have a tough sell ahead of us. The MLS is our most effective tool. So if FSBO's (For Sale By Owners) get on the MLS, what will they need us for? Won't we then be as useful as a stager? Someone who comes in and tells us how to prepare our home for sale. Maybe that of an Appraiser, to help in setting the price of a home before the FSBO puts it up on the MLS. After all, don't we Realtors say that pricing is one of the most important factors in selling a home. What added value will a Realtor give to justify $25,000 commission on the sale of a home? A stager is approximately $300 for the initial consultation and an Appraiser with far more credentials than a Realtor, charges $400.
The other school of thought though is what will happen to Real Estate prices? Won't everyone demand top dollar for their home? Who will bridge the gap between the Buyer and the Seller? Well we can sell everything else without go betweens, just look at the popularity of Craigslist or Kijiji. In a free market economy homes will still get what they're worth. Buyers will still use Home inspectors (who will be beholden to the buyer and not the Realtor for the referral)and banks will do their own appraisals before agreeing to financing.
What about time? Who has the time to sell a home? Well in Ottawa they've been successfully selling their own homes for some time now. They use a system called www.grapevine.ca and Realtors in Ottawa are forced to search both their system and the MLS to find the right home. In fact, under $300,000 you can argue that the grapevine has much more to offer in quantity and quality. This means that the Selling agent is being forced out of the equation and commissions are being reduced to between 1.5% & 2.5% TOTAL! In many cases the home seller refuses to deal with an agent at all and pays nothing in commissions!
Maybe consumers in Ottawa have been seeing what the authors of Freakonomics have been talking about, that Real Estate as an organization has used the MLS to exploit consumers rather than offering a competitive service? If that is the case, how long before this spreads through out the rest of Canada? Is it time that Realtors take a long hard look at ourselves and our industry and change the consumers perspective of us before these changes are made for us?
When the authors analyzed data what they found was Realtors will sell their own homes at a higher price than the homes of their clients! At first I thought that maybe this was just a US issue but then I began to think about properties that I have seen being sold by Realtors and in nearly every case I found the same situation.
My brother, who has been in Real Estate close to 25 years, had a property that he had bought and fixed up. His Contractor did an amazing job and the home looked fantastic. He placed it on the market and it sat around for awhile and wouldn't sell. He asked me to take a look at the home and then I went back to the office and ran the numbers. Needless to say it was overpriced. Eventually he reduced it and it sold and he still made a tidy profit but I'm not sure if this is what the authors meant. My brother lost his objectivity but shouldn't he have priced the home to sell from the get go. Isn't that what we Realtors preach?
The authors went on to show examples of properties sold by agents for clients and properties sold by agents for themselves and that the latter sold at higher prices. In essence the agents worked harder for themselves and didn't just try to facilitate a quick cheque.
This got me to thinking of what my Real Estate Broker in Ottawa believes. He believes that soon the MLS will be forced to open up and allow For Sale By Owners on to the MLS system. For anyone keeping tabs, The Competition Bureau has escalated its case against the Canadian Real Estate Association to the country's Competition Tribunal, in a bid to smash what it says is an anti-competitive home-listings system that artificially increases the cost of real estate transactions.
What will happen when the MLS is forced to open up? How will Realtors justify commission rates of 5 or 6%? I mean we Realtors can say whatever we want but we know that outside of a few areas such as 'the Beaches', if we try to market a property without the MLS we have a tough sell ahead of us. The MLS is our most effective tool. So if FSBO's (For Sale By Owners) get on the MLS, what will they need us for? Won't we then be as useful as a stager? Someone who comes in and tells us how to prepare our home for sale. Maybe that of an Appraiser, to help in setting the price of a home before the FSBO puts it up on the MLS. After all, don't we Realtors say that pricing is one of the most important factors in selling a home. What added value will a Realtor give to justify $25,000 commission on the sale of a home? A stager is approximately $300 for the initial consultation and an Appraiser with far more credentials than a Realtor, charges $400.
The other school of thought though is what will happen to Real Estate prices? Won't everyone demand top dollar for their home? Who will bridge the gap between the Buyer and the Seller? Well we can sell everything else without go betweens, just look at the popularity of Craigslist or Kijiji. In a free market economy homes will still get what they're worth. Buyers will still use Home inspectors (who will be beholden to the buyer and not the Realtor for the referral)and banks will do their own appraisals before agreeing to financing.
What about time? Who has the time to sell a home? Well in Ottawa they've been successfully selling their own homes for some time now. They use a system called www.grapevine.ca and Realtors in Ottawa are forced to search both their system and the MLS to find the right home. In fact, under $300,000 you can argue that the grapevine has much more to offer in quantity and quality. This means that the Selling agent is being forced out of the equation and commissions are being reduced to between 1.5% & 2.5% TOTAL! In many cases the home seller refuses to deal with an agent at all and pays nothing in commissions!
Maybe consumers in Ottawa have been seeing what the authors of Freakonomics have been talking about, that Real Estate as an organization has used the MLS to exploit consumers rather than offering a competitive service? If that is the case, how long before this spreads through out the rest of Canada? Is it time that Realtors take a long hard look at ourselves and our industry and change the consumers perspective of us before these changes are made for us?
Saturday, March 6, 2010
CMHC Tightens Lending Guidelines
It seems like CMHC sees something in the air. They've started to tighten up their lending guidelines. Whether Genworth will follow suit, we'll have to wait and see. As I have been telling anyone who'll listen, I believe in the next 2 years we will see a sharp increase in interest rates and I believe that CMHC sees it too.
The latest victims are
1. Self Employed & Commissioned Income Earners who have been in the same role for 3 or more years.
Clarification:
If you are self employed and run your business through a Corporation, you better be paying yourself a fat enough salary after three years to qualify for your mortgage. No longer will CHMC Self Employed Simplified offer you a “stated income” type product.
If you are self employed and DO NOT run your business through a corporation, instead choose to be a sole prop – then you are already claiming all of your income – minus write off’s, so you MUST be making enough money to qualify for your mortgage. This is the “make sense” approach CMHC has taken. Furthermore, the maximum loan-to-value ratio available under the CMHC Self-Employed Product Without Traditional Third Party Validation of Income will be reduced from 95% to 90% for purchase transactions and from 90% to 85% for refinance.
So far, we have not heard if Genworth is going to follow suit. Let’s hope not.
2. Qualifying via Rate
Here are the new qualifying rules – through CMHC.
■If you choose a 5 year fixed rate (or longer term) mortgage – that is the rate you will have to qualify under. Easy, fine, okay.
■If you choose ANY other term, 4 year, or 3, 2, 1 or any term under a variable rate mortgage, you will have to qualify with the 5 year benchmark rate and the contract interest rate.
Fixed Rate Mortgages and Variable Rate Mortgages: For loans with a fixed rate term of less than 5 years and for all variable rate mortgages, regardless of the term, the qualifying interest rate is the greater of the benchmark rate and the contract interest rate.
CMHC defines the benchmark rate as the Chartered Bank – Conventional Mortgage 5-year rate that is the most recent interest rate published by the Bank of Canada in the series V121764 as of 12:01 AM (Eastern Time) each Monday, and which can be found here.
If this was happening today and your mortgage broker found you a 4 year rate of 3.4% you would still need to qualify at todays benchmark rate of 5.39% but if you go with a fixed 5 year (or longer term)rate of 3.69% then that remains your qualifying rate.
The latest victims are
1. Self Employed & Commissioned Income Earners who have been in the same role for 3 or more years.
Clarification:
If you are self employed and run your business through a Corporation, you better be paying yourself a fat enough salary after three years to qualify for your mortgage. No longer will CHMC Self Employed Simplified offer you a “stated income” type product.
If you are self employed and DO NOT run your business through a corporation, instead choose to be a sole prop – then you are already claiming all of your income – minus write off’s, so you MUST be making enough money to qualify for your mortgage. This is the “make sense” approach CMHC has taken. Furthermore, the maximum loan-to-value ratio available under the CMHC Self-Employed Product Without Traditional Third Party Validation of Income will be reduced from 95% to 90% for purchase transactions and from 90% to 85% for refinance.
So far, we have not heard if Genworth is going to follow suit. Let’s hope not.
2. Qualifying via Rate
Here are the new qualifying rules – through CMHC.
■If you choose a 5 year fixed rate (or longer term) mortgage – that is the rate you will have to qualify under. Easy, fine, okay.
■If you choose ANY other term, 4 year, or 3, 2, 1 or any term under a variable rate mortgage, you will have to qualify with the 5 year benchmark rate and the contract interest rate.
Fixed Rate Mortgages and Variable Rate Mortgages: For loans with a fixed rate term of less than 5 years and for all variable rate mortgages, regardless of the term, the qualifying interest rate is the greater of the benchmark rate and the contract interest rate.
CMHC defines the benchmark rate as the Chartered Bank – Conventional Mortgage 5-year rate that is the most recent interest rate published by the Bank of Canada in the series V121764 as of 12:01 AM (Eastern Time) each Monday, and which can be found here.
If this was happening today and your mortgage broker found you a 4 year rate of 3.4% you would still need to qualify at todays benchmark rate of 5.39% but if you go with a fixed 5 year (or longer term)rate of 3.69% then that remains your qualifying rate.
Wednesday, March 3, 2010
Diversify Your Mortgage
The National Post had an interesting article on diversifying your mortgage. Even though I preach rates over product this might be the right fit for some. That said, read the article and see what you think.
Diversify Your Mortgage as Insurance Strategy - Financial Post, March 3, 2010
You can't decide what to do with your mortgage? The good news is you don't have to.
Anyone negotiating a mortgage today is labouring over whether to lock in the rate. Yesterday, the Bank of Canada reiterated its pledge to keep its key lending rate at a record low until July, but has not committed to anything past the end of the second quarter. And that has everybody guessing.
It's tempting to stay variable. The banks are back to discounting and variable-rate products tied to the current prime rate of 2.25%, can be negotiated for as low as 1.95%. Meanwhile, if you do want to lock in the rate, you are guaranteed a rate as low as 3.75% for the next five years.
So, what to do? How about going long and short?
York University professor Moshe Milevsky, author of Your Money Milestones, says in many cases debt diversification does not make sense. For some, it means spreading out their liabilities across everything from mortgage to lines of credit, credit card debt to student loans.
"In many cases debt diversification does not make sense because you are borrowing money at rates that are a lot higher," says Mr. Milevsky, who hypothesizes in the book that people like to compartmentalize their debt rather than consolidate.
But if you have consolidated all your debt in your mortgage, he says there is no reason why you can't diversify your loan across different terms. "It's a bit of an insurance strategy against speculation," he says.
Think of yourself as a public company. No public company would want all its debt coming due at the same time. And most public companies would keep a certain amount of debt subject to short-term rates.
"With individuals, when it comes to mortgages, which is the biggest borrowing of their life, they go with the plain vanilla-- one duration, one maturity," he says, adding banks don't do a very good job of selling the concept of splitting up your mortgage. "They offer it, but they don't promote it."
John Turner, director of mortgages with Bank of Montreal, says consumers with at least a 20% down payment can split up their debt at his financial institution with only one charge made against the house. It's then up to the consumer to slice up the mortgage in the way that works for them. "You can have short-term variable, some long-term. You could also ladder your debt [so a certain percentage becomes due every year.]"
Of course, there is a cost to this. On a regular mortgage interest is calculated semi-annually, but on the split-mortgage, which is run like a line of credit, interest is calculated monthly. The difference can add up to five basis points.
On your statement, what you'll see will be all the terms consolidated into one monthly payment, making it just one loan you are receiving from the bank. "We are trying to make it look as much like a mortgage as we can. We've done a lot of research on this and Canadians love this type of flexibility," Mr. Turner says.
So far, only about 6% of Canadian mortgages are of the split variety, says the Canadian Association of Accredited Mortgage Professionals.
There are some downsides to the line of credit. For starters, it is loan that is callable on demand by your bank. Your mortgage is callable only when it comes due.
Another problem is a split mortgage can lock you into business with one bank. If you have a variable rate, a three-year term and a five-year term, your maturity dates are different. Say you don't like what the bank is offering on renewal of the three-year term, you can't switch financial institutions because you still have part of your mortgage with that bank.
So go ahead and diversify that debt, but make sure your bank offers some flexibility to negotiate rates when parts of the loan come due.
by Garry Marr
Diversify Your Mortgage as Insurance Strategy - Financial Post, March 3, 2010
You can't decide what to do with your mortgage? The good news is you don't have to.
Anyone negotiating a mortgage today is labouring over whether to lock in the rate. Yesterday, the Bank of Canada reiterated its pledge to keep its key lending rate at a record low until July, but has not committed to anything past the end of the second quarter. And that has everybody guessing.
It's tempting to stay variable. The banks are back to discounting and variable-rate products tied to the current prime rate of 2.25%, can be negotiated for as low as 1.95%. Meanwhile, if you do want to lock in the rate, you are guaranteed a rate as low as 3.75% for the next five years.
So, what to do? How about going long and short?
York University professor Moshe Milevsky, author of Your Money Milestones, says in many cases debt diversification does not make sense. For some, it means spreading out their liabilities across everything from mortgage to lines of credit, credit card debt to student loans.
"In many cases debt diversification does not make sense because you are borrowing money at rates that are a lot higher," says Mr. Milevsky, who hypothesizes in the book that people like to compartmentalize their debt rather than consolidate.
But if you have consolidated all your debt in your mortgage, he says there is no reason why you can't diversify your loan across different terms. "It's a bit of an insurance strategy against speculation," he says.
Think of yourself as a public company. No public company would want all its debt coming due at the same time. And most public companies would keep a certain amount of debt subject to short-term rates.
"With individuals, when it comes to mortgages, which is the biggest borrowing of their life, they go with the plain vanilla-- one duration, one maturity," he says, adding banks don't do a very good job of selling the concept of splitting up your mortgage. "They offer it, but they don't promote it."
John Turner, director of mortgages with Bank of Montreal, says consumers with at least a 20% down payment can split up their debt at his financial institution with only one charge made against the house. It's then up to the consumer to slice up the mortgage in the way that works for them. "You can have short-term variable, some long-term. You could also ladder your debt [so a certain percentage becomes due every year.]"
Of course, there is a cost to this. On a regular mortgage interest is calculated semi-annually, but on the split-mortgage, which is run like a line of credit, interest is calculated monthly. The difference can add up to five basis points.
On your statement, what you'll see will be all the terms consolidated into one monthly payment, making it just one loan you are receiving from the bank. "We are trying to make it look as much like a mortgage as we can. We've done a lot of research on this and Canadians love this type of flexibility," Mr. Turner says.
So far, only about 6% of Canadian mortgages are of the split variety, says the Canadian Association of Accredited Mortgage Professionals.
There are some downsides to the line of credit. For starters, it is loan that is callable on demand by your bank. Your mortgage is callable only when it comes due.
Another problem is a split mortgage can lock you into business with one bank. If you have a variable rate, a three-year term and a five-year term, your maturity dates are different. Say you don't like what the bank is offering on renewal of the three-year term, you can't switch financial institutions because you still have part of your mortgage with that bank.
So go ahead and diversify that debt, but make sure your bank offers some flexibility to negotiate rates when parts of the loan come due.
by Garry Marr
Saturday, February 27, 2010
Interest Rate Hike?
Last year I was busy warning people away from the ARM mortgages. At the time many of the lenders were offering Prime +0.60% or higher. In the last few months we have seen that drop and now lenders are offering the Prime -0.30%.
I am a believer in the ARM and I do believe that in the long run you pay less on the term of your mortgage barring any unforeseen calamities but when the banks swing from Prime -0.60% to Prime +0.60% in the space of six months, I just believe it's safer to go fixed at that time. Possibly taking one of the special 1 or 2 year rates that are available because we know that the pendulum will swing back.
In case you forgot how fast the Prime rate can change then let me remind you. November of 2007, we had a prime rate of 6.25%. Folks, that's less than 2 years and 4 months ago. So if rates get back there in 2 years and you have a Prime +0.60% rate then you'll be paying 6.85%. All of a sudden that dream home is not so affordable!
This is why I applaud the recent move to qualify borrowers on the 5 year fixed rate. It's a smart move. It's real easy to fall in love with a house and justify the purchase based on the current prime rate but we saw what happened to our neighbours in the South.
Ah well, back to my point. The current ARM rates are attractive but going out on a limb again I have to say that a 4 year mortgage at 3.4% sounds really attractive to me right now and in fact if I really go out there a 10 year at 5.20% sounds great too. Remember less that 2 and a half years ago Prime was at 6.25%.
I know, I know. It's supposed to be about great mortgage products but to me one of the greatest mortgage products is allowing the home owner to keep their home.
Just saying...
I am a believer in the ARM and I do believe that in the long run you pay less on the term of your mortgage barring any unforeseen calamities but when the banks swing from Prime -0.60% to Prime +0.60% in the space of six months, I just believe it's safer to go fixed at that time. Possibly taking one of the special 1 or 2 year rates that are available because we know that the pendulum will swing back.
In case you forgot how fast the Prime rate can change then let me remind you. November of 2007, we had a prime rate of 6.25%. Folks, that's less than 2 years and 4 months ago. So if rates get back there in 2 years and you have a Prime +0.60% rate then you'll be paying 6.85%. All of a sudden that dream home is not so affordable!
This is why I applaud the recent move to qualify borrowers on the 5 year fixed rate. It's a smart move. It's real easy to fall in love with a house and justify the purchase based on the current prime rate but we saw what happened to our neighbours in the South.
Ah well, back to my point. The current ARM rates are attractive but going out on a limb again I have to say that a 4 year mortgage at 3.4% sounds really attractive to me right now and in fact if I really go out there a 10 year at 5.20% sounds great too. Remember less that 2 and a half years ago Prime was at 6.25%.
I know, I know. It's supposed to be about great mortgage products but to me one of the greatest mortgage products is allowing the home owner to keep their home.
Just saying...
Thursday, February 25, 2010
Product over Rate?
One of the largest surprises I had when I first began doing mortgages was the concept of selling my clients the right product over the right rate. Now I guess that makes sense if your clients play the markets, or own many properties etc. But if the bulk of your clients are first time home buyers or move up buyers that are still in the process of accumulating savings then what product beats a great rate?
I mean seriously. If I can offer you a mortgage rate of 3% what mortgage product will beat that! I was told to sell the fact that they could double up on payments. Well most mortgages allow you to prepay 15% of your mortgage every year and most of my clients have no intention of using this service.
Then there was the great selling tool of a portable mortgage. Well again, most mortgages are portable and if your client is thinking about selling their home in the next couple of years then this is very important but the best rate might be the best product in this situation too. If they have a definitive plan, then placing them in a great 3 year variable at prime -0.40% (1.85%) or 4 year fixed at 3.4% might be a much better idea than a portable 5 year fixed at 3.89%. Can I hear a hallelujah? I guess what's more important here is the planning. If they really don't know when they might move then portable is the way to go but still at the best possible rate.
I guess I'm just not sold that you can sell product over rate and I don't think any of my clients are either and let's remember why we have great products at higher rates. It's all about MBS - Mortgage Backed Securities. But that's a different blog for a different day.
I mean seriously. If I can offer you a mortgage rate of 3% what mortgage product will beat that! I was told to sell the fact that they could double up on payments. Well most mortgages allow you to prepay 15% of your mortgage every year and most of my clients have no intention of using this service.
Then there was the great selling tool of a portable mortgage. Well again, most mortgages are portable and if your client is thinking about selling their home in the next couple of years then this is very important but the best rate might be the best product in this situation too. If they have a definitive plan, then placing them in a great 3 year variable at prime -0.40% (1.85%) or 4 year fixed at 3.4% might be a much better idea than a portable 5 year fixed at 3.89%. Can I hear a hallelujah? I guess what's more important here is the planning. If they really don't know when they might move then portable is the way to go but still at the best possible rate.
I guess I'm just not sold that you can sell product over rate and I don't think any of my clients are either and let's remember why we have great products at higher rates. It's all about MBS - Mortgage Backed Securities. But that's a different blog for a different day.
Wednesday, February 24, 2010
What about Rates!
I'm not sure what I'm going to rant about over the next few days, weeks, months or years but for now i definitely want to tell you about some amazing rates.
3 year ARM 1.85% (Prime 2.25 -0.40%)
4 year fixed 3.4%
5 year 3.69%
Now ask yourself this question. Wait first read my about me section so that you understand I've only been in the mortgage industry for 3 years THEN ask yourself this question. "Why hasn't my bank made these rates available for me?"
The answer is simple really... The higher the rate they charge you, the higher the rate of return or profit which means they can bundle you up and sell you with a bunch of your overpaying neighbours.
3 year ARM 1.85% (Prime 2.25 -0.40%)
4 year fixed 3.4%
5 year 3.69%
Now ask yourself this question. Wait first read my about me section so that you understand I've only been in the mortgage industry for 3 years THEN ask yourself this question. "Why hasn't my bank made these rates available for me?"
The answer is simple really... The higher the rate they charge you, the higher the rate of return or profit which means they can bundle you up and sell you with a bunch of your overpaying neighbours.
Where's The Brotherhood Now?
What happened to the tight brotherhood of Real Estate? When one of the Top GTA Brokers goes down you won't hear from the rest of the community. (See story here: David Seto)
What Blogs I have heard have crucified him. There's little there about the human Broker whose wife had cancer or when his agents were not paying there Re/Max desk fees he could not afford his overhead costs. Nothing about how many years it took this man to build one of the largest multi offices in the GTA.
They are very worried about not getting all the commission that's owed to them yet not a word from Re/Max, Re/Max Canada or Re/Max Ontario (or whatever they call themselves) guaranteeing to cover any losses above and beyond the insurance. Sure they rake in millions but I guess that moneys better spent sending their buddies in a balloon over North America so they can say they are above the crowd. Well here's one of your own.
It's funny how fast the Real Estate community eats its own.
What Blogs I have heard have crucified him. There's little there about the human Broker whose wife had cancer or when his agents were not paying there Re/Max desk fees he could not afford his overhead costs. Nothing about how many years it took this man to build one of the largest multi offices in the GTA.
They are very worried about not getting all the commission that's owed to them yet not a word from Re/Max, Re/Max Canada or Re/Max Ontario (or whatever they call themselves) guaranteeing to cover any losses above and beyond the insurance. Sure they rake in millions but I guess that moneys better spent sending their buddies in a balloon over North America so they can say they are above the crowd. Well here's one of your own.
It's funny how fast the Real Estate community eats its own.
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