27 Sep

A Recap Of Summer Real Estate and Heading Into Fall

General

Posted by: Roberto Pelaccia

Summer 2018 has officially come to an end and looking back on it, summer was great for real estate. In this article, we are going to do a quick recap of what we saw in the summer and what we can expect in the fall months of 2018.

We saw sales increase and ending with the month of August having a 8.5% increase in sales volume from last August. We also saw home prices increase 4.7% year-over-year this August with the average price in the GTA being $765,270.00.

This summer’s GTA real estate market has grown tighter with sales outpacing new listings and it is a sure sign that supply is not keeping up with demand. But, we are certainly not in an overheated market, which we saw between 2015 to 2017. Well, at least not yet.

Rate market

In terms of rates, they held steady in the month of September but there is anticipation of more increases coming. The decision to not increasing in September has been mainly from trade uncertainty.

We have seen the stress test come in January of this year. This created varying rate scenarios that individuals can qualify for. This left the lending market segmented into price points based on credit score and loan to value, and being able to qualify under restrictive guidelines getting you better rates. But Credit Unions – who don’t adhere to federal lending regulation – were still available to offer non-stress options to those that really needed it. I expect Credit Unions to play a bigger role in mortgage lending in Ontario for as long we are dealing with stress testing guidelines.

What to consider in the fall?

It’s important that we prepare for what is ahead. Some of these things include saving for the holidays. You should try to get ahead in the game by thinking about saving for the holidays now versus putting money on your credit cards that you can’t pay off right away. It’s all about avoiding putting yourself in a situation where you’re spending more than what’s within your budget.

You can also do this by setting financial goals that you can start to implement now and continue into the new year. You’ll find that you avoid overspending in December and you’ve set yourself up for an amazing financial year in 2019. This is where cash flow planning comes in. It can get you to your goals that mean the most to you. That could be paying off debt, taking a family vacation, finally doing that basement renovation, and so much more. Why not start now and get yourself on the right track to achieve your goals as early as spring and summer of 2019. It’s really not that far off!

Enjoy the fall time activities in your community.

Call me if you need anything.

11 Sep

Understanding Down Payments When Buying A Home

General

Posted by: Roberto Pelaccia

One of the biggest hurdles when you’re looking to purchase a home is coming up with the down payment. This is on top of all the other expenses people have in their day-to-day lives. But, at the end of the day, it’s something that needs to happen to become a homeowner.  Most people think that having a 20% down payment really has its benefits.

In this article, I am going to through some of the reasons why people should take a look at their finances, so that they can effectively decide what size of a down payment is right for them.

1. Save more up front to pay less per month

The reality is, the more you save for a down payment, the less you have to pay per month on your mortgage. The simple math shows that the more you put down means the less you borrow and the less you have to pay back. The challenge is saving more to put down and still have more for other things you’d like to invest in or do.

2. Mortgage default insurance

If you have less than 20% for a down payment, you are required to have mortgage default insurance. This allows the banks to give mortgage applicants who have less than a 20% down payment lower interest rates, as that default insurance decreases the bank’s cost to lend and they pass that down to the borrower. The lower your down payment, the higher your insurance premium will be though. Typically between 5-10% down-payment means you will pay 4% of your loan amount as the premium, and a low interest rate of 2.8% if you have 15%-19.99% down.  Most people pay for the insurance by adding it to their mortgage, which they will therefore pay over the course of their mortgage. If you have 20% or more you can avoid this extra expense.

3. Lower Interest Payments

Pure interest savings can be achieved with a lot of different strategies. Your sticker rate is typically lowest with more than 20% down payment.  

4. Easier To Debt Service

Having a down payment that 20% or more can make it easier to qualify for a mortgage. You can extend the amortization of the mortgage up to 30 years, which can make your payment lower.  Banks want to know that you will be able to successfully service your debt, and they believe you can do that by looking at whether or not your monthly housing costs are below 39% of your combined gross monthly income and if your total debt accounts for less than 44% of your gross monthly income. A lower mortgage payment can help you get there.  

 

As you can see, there are some real pros and cons to having more or less of that key 20% down payment when you go to purchase a home. If you’d like to understand your options, or if you like to talk about planning your finances so you can get the right down payment amount, then feel free to get in touch with me.

 

4 Sep

What Does It Mean When The Bank Of Canada Raises Interest Rates

General

Posted by: Roberto Pelaccia

With all the news about rates on the rise you may be wondering: “What does it really mean to me and my pocket book?”  

Rates rise to control spending in the economy.  When the Bank of Canada has data indicating that inflation is rising too quickly it works to simmer down the rise by making borrowing (the fuel of spending) more expensive. They do that by raising their overnight lending rate. This makes it more expensive for everyone who is borrowing and has any sort of revolving credit or floating rate of interest.  

So, what does that looks like for you ?

Variable rate starts moving up. For a 0.25% increase in your rate you can expect to cost you $10.76 extra per month for every $100,000 on the average 25 year amortized mortgage.  

On your home equity line of credit or other simple interest credit lines you will find your payment will increase by another $20.84 for every $100,000 balance. That may not seem like a lot, but once you add it up it means more of your cash flow is going toward debt and not toward other goals you may have. Also, you should consider your effective rate on your debts.  

If you have $250,000 variable rate mortgage at 3.3%, $100,000 home equity line of credit at 4.2%, and a $25,000 personal line of credit at 8%, and Visa of $10,000 at 18.5%, your effect interest rate for all of these debts is actually 5.59%.  If your balances are going down slower than the increase to the rates then you will be effectively paying more over time for your debts. That really means that you are not moving ahead financially like you once were.

Being aware of this is important because if you have multiple types of debts at varying rates you may be unknowingly giving away more of your income to interest charges. As the era of precedent setting low rates is effectively now over, you need to really examine your portfolio of debt and equity and ask yourself  “With my equity, can I create more cash-flow and get better returns on my debts?”

Yes! Your debts have a return. Every dollar saved on interest is a dollar earned. GUARANTEED!  

 

Managing your debts and equity side of your balance sheet is more important than ever. It is often not spoken about with your Financial Advisor, because it not a very attractive topic as compared to what stock or fund to get into these days. We may see another rate increase tomorrow, and surely more in the future.  If you would like to review your Debts and Equity side of your balance sheet, please let me know.