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7 things you don’t know about mortgages

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  1. How much of your payments go toward interest

Most mortgage payments are what they call blended payments, which combine repayments of the principal as well as the interest at once. When you start paying off your mortgage, a significant part of your payments are going toward the interest, not the principal. Over time, however, the principal of your loan decreases, which means that the amount you will owe in interest decreases as well. As such, the portion of your payment that goes toward the interest will decrease over time, and the amount that goes toward the principal increases over time. This is why additional lump sum payments make such a big difference when it comes to your mortgage; they go directly toward your principal, whereas your usual mortgage payments do not. Use a mortgage calculator to determine how much you’ll end up paying in interest over the life of your loan.
 

  1. Your current lender won’t always give you the best deal at renewal

Most homeowners renew their mortgage with the same lender that holds their current mortgage. No problem there – except that more than half of homeowners renewed their mortgages without negotiating different terms than what was presented to them in their renewal statement, according to a 2015 mortgage consumer survey. Lenders are betting on the fact that you won’t want to switch lenders, and therefore aren’t bending over backwards to try and keep you. That means that you can probably find better rates and/or more flexible terms elsewhere. Don’t feel like shopping around? Call your mortgage broker to do it for you. Whether or not you used one for buying your home doesn’t mean that you can’t use them for refinancing.
 

  1. Lenders want your monthly housing costs to be less than 32 per cent of your income

When your lender qualifies you for your mortgage, they use a system based on your reported and provable income as well as your debts. They want to ensure that your monthly housing costs – including your mortgage, property taxes, heating, and condo fees, if applicable – don’t use more than 30-32 per cent of what you’re brining in. While this number is somewhat arbitrary and housing costs, incomes, and living expenses vary from one housing market to the next, if you don’t meet the criteria, then your mortgage application could be denied.
 

  1. A mortgage doesn’t equal a guaranteed good investment

A home is a big investment, and if you have a large mortgage, most of your net worth is tied up in one place. As any good financial planner will tell you, having all of your eggs in one basket isn’t a good long-term investment strategy; it’s the opposite of diversification. Still, everyone needs a place to live and if all goes well, you’ll end up with equity in your home, although you shouldn’t assume that you’ll be able to sell your home and cash in whenever you want to. Housing markets are cyclical, and the ups and downs can take decades to weather. If you want to buy a home, buy it because it fits into your overall long-term financial strategy, not because you want to retire in five years and need the income from the sale of your house.
 

  1. Missing a mortgage payment doesn’t automatically mean foreclosure

It’s pretty obvious that missing a mortgage payment isn’t a good thing. But life is full of unexpected surprises, and if you find yourself in a situation where you can’t come up with your mortgage payment one month, don’t throw your hands in the air and wait for the bank to issue an eviction notice. Foreclosure proceedings are a lengthy process, and everyone – your lender included – wants to avoid them if at all possible. So if you know you’re going to miss a mortgage payment, or if you already have, pick up the phone and call your lender. You may be able to negotiate with them and figure out a new or interim payment plan to get you back on your feel, or maybe an early refinancing in order to lower your monthly payments.
 

  1. Mortgage insurance can protects you as well as the lender

If you have a high-ratio mortgage, which means that you have a down payment of less than 20 percent, then you are required to get mortgage insurance, which protects your lender in the case you default on your mortgage. But the three main providers of mortgage insurance also have programs in place that homeowners can take advantage of if they fall into trouble. Genworth Canada has a Homeowner Assistance Program that is designed to help homeowners who are experiencing temporary financial difficulties work with the insurer to establish alternative arrangements to help homeowners stay in their homes. Canada Guaranty has a Homeownership Solutions Program, in which a member of their Loss Management team provides support to the lender in finding ways for borrowers to keep their homes, including enacting solutions such as reducing the contract interest rate to reflect current interest rates if it’s lower, extending the current mortgage term and/or extending the amortization period. Canada Mortgage and Housing Corporation (CMHC) provides tools to find a solution to your financial situation, including converting a variable interest rate mortgage to a fixed interest rate mortgage in order to protect you from a sudden interest rate increase, should one occur, offering a temporary short-term payment deferral, adding any missed payments to the mortgage balance and spreading them over the remaining mortgage repayment period, and other alternatives to resolve or avoid mortgage payment default.
 

  1. You can get longer terms than 5 years

The 5-year fixed rate mortgage is one of the most popular products in Canada, but it’s not the only game in town. If you like having the certainty of a fixed mortgage payment, then you want to keep that certainty for as long as possible. Generally speaking, the longer the mortgage term, the higher the interest rate, but if you expect interest rates to rise in the next several years – which, rates being at a historical low, they almost certainly will – then you may be willing to pay for that certainty. Terms exist for up to 25 years.
 

Related stories:
Tips to cut your mortgage payments
5 mortgage mistakes that could cost you thousands

 

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Victoria real estate agent disciplined for false advertising, encouraging cash deal to avoid taxes

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A Victoria real estate agent is facing $9,000 in fines and a 60-day licence suspension after breaking several professional rules during the sale of her father’s half-million-dollar property, according to a decision by the Real Estate Council of B.C. 

Whitney Garside’s missteps — outlined this week in a disciplinary decision posted on the council’s website — included falsely advertising the property as being almost twice its actual size and advising the buyer they could avoid the property transfer tax if they paid cash directly to the seller.

The property on Burnett Road in Victoria was being sold in 2016 by the real estate agent’s father. That relationship was disclosed and isn’t among the reasons she has been disciplined.

According to the disciplinary consent order, Garside told the buyer — whose name is redacted — that by paying $42,000 cash on the side, the value of the property could be reduced to avoid paying the property transfer tax.

That cash arrangement was not shared with Garside’s brokerage, Re/Max Camosun, a failure that contravened the Real Estate Services Act.

The council also ruled that she “failed to act honestly and with reasonable care and skill” when she advised the buyer the property transfer tax could be avoided by paying cash directly to the seller. 

The council’s discipline committee also found that Garside committed professional misconduct when she failed to recommend the seller and buyer seek independent legal advice, specifically regarding the property transfer tax and the cash agreement.

Another issue the council considered professional misconduct involved the size of the property in question.

The council ruled that Garside published false and misleading advertising and failed to act with reasonable care and skill when the property was advertised as 8,712 square feet, when in fact a portion of the lot belonged to the Ministry of Transportation, and the actual size was just 4,711 square feet.

The discipline committee ordered Garside’s licence be suspended for 60 days, which will be completed Jan. 3, 2021.

She has also been ordered to complete real estate ethics and remedial classes at her own expense.

Garside was also fined $7,500 as a disciplinary penalty and $1,500 in enforcement expenses.

She agreed to waive her right to appeal the council’s discipline committee’s decision in September.

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Frisco apartment community sells to Canadian investor

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A Canada-based investor has purchased a Frisco apartment community as part of a larger Texas deal.

The 330-unit Satori Frisco apartments opened last year on Research Road in Frisco.

BSR Real Estate Investment Trust bought the four-story rental community that was built by Atlanta-based Davis Development.

Satori Frisco was more than 90% leased at the time of sale. The property includes a two-story fitness center, a car care center, a dog park and a resort-style swimming pool.

The Frisco property sold along with Houston’s Vale luxury apartments in a deal valued at $129 million.

“BSR recently exited the smaller Beaumont and Longview, Texas, markets and also sold noncore properties in other markets,” John Bailey, BSR’s chief executive officer, said in a statement. “We are now using our strong liquidity position to invest in Vale and Satori Frisco, modern communities in core growth markets with the amenities our residents desire.”

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House prices on Prince Edward Island continue steady climb

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Residential real estate prices on Prince Edward Island continue to climb at a rate higher than the national average, according to the latest report from a national organization. 

The Canadian Real Estate Association released monthly figures for November 2020 on Tuesday.

They show that the average price for a resale home on P.E.I. is about 21 per cent higher than it was a year earlier. 

Only Quebec had a bigger year-over-year increase, at about 23 per cent. Overall across Canada, prices were up 13.8 per cent year over year in the ninth month of the COVID-19 pandemic.

“For the fifth straight month, year-over-year sales activity was up in almost all Canadian housing markets compared to the same month in 2019,” the report noted.

“Meanwhile, an ongoing shortage of supply of homes available for purchase across most of Ontario, Quebec and the Maritime provinces means sellers there hold the upper hand in sales negotiations.”

That lack of houses coming onto the market compared to the demand means that in those provinces, there is “increased competition among buyers for listings and … fertile ground for price gains.”

There have been anecdotal reports for months that Prince Edward Island’s low rate of COVID-19 infection and looser rules around social activities have been encouraging people to buy homes on the Island. 

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