Tag Archives: mortgage

How and When to Buy Your First Home

Graduation comes in different stages. It might be high school, university, entering the work world, or for any age – the graduation to acting your wage.

Today we’ll talk about buying your first home and every single one of the four sections in here are chapters in the Money Tools book. It’s THE best $20 gift for yourself or anyone graduating to any stage in life. Mosaic has a bunch of signed copies now, or just go to yourmoneybook.com – it’s a tiny investment in yourself or paying it forward to help someone else avoid what many of us wish we had known.

There’s an old Rod Stewart song with the title: I wish that I knew what I know now – when I was younger. Oh boy, I wish I could make that happen. I bought my first house in the early ‘80s when rates were insane. To hang onto it, I had two years of using my Visa cash advance in order to pay my MasterCard. Owning a home is so worth it, because it builds equity in two ways: By the principal you pay on your mortgage and a historical five percent return each year.

But I wish I had held off for a few years in order to build up my savings. The younger you start saving, the bigger the amount when you retire.

Don’t listen to developers who advertise that buying a place is cheaper than renting. It’s totally false. You are now responsible for property taxes and at least a couple of hundred bucks a month for everything from paint to plumbing problems and repairs.

One of the biggest blessing you can get is from your parents or grandparents lending or gifting you the money for a down payment. Do NOT make it on a condo, but a duplex or single family home. Condos are the first to plummet in value if there’s a correction, and the last to regain their value. You’re also competing with everyone else in the condo complex who may want to sell. There’s a condo complex on the popular Whyte Avenue in Edmonton that currently has 13 units for sale. (I’ve posted the picture). If you’re selling, you need to always lower your price to be the bottom two or it’ll be years before it’ll sell.

If you as a parent or grandparent lend someone in your family the money for a down-payment you can do it in three common ways: Just as a gift, or have a lawyer put a lien against the property to assure you’ll be paid back, or have the amount of that gift or loan noted on your will to be paid back out of your estate to the beneficiary.

George Boelcke – Money Tools & Rules book – yourmoneybook.com

Is Your House Helping Or Holding You Back?

On my December cruise, I overheard a whole lot of people talking about the purchase of their home. This isn’t scientific and I have no clue where they live. There’s also no such thing as an average price. There’s a difference between New York city or White Rock and rural Saskatchewan or Wisconsin.

One couple was talking about a $104,000 purchase. Another paid $127,000 two years ago, another just refinanced their $185,000 home. We’ll never see those prices in the Okanagan, lower mainland, or here in Edmonton, or Calgary. Our prices start with a 4 or a 5…and that’s if we’re lucky.

Incomes aren’t really different in the US and Canada. But what would our life be like if we didn’t have mortgage payments double or triple those of someone who didn’t come close to paying half our purchase price? It’s not as though we all choose to live in a mansion. If that were so, we would deserve the huge payments that come with a chosen lifestyle. We’re paying the huge taxes, utilities, upkeep and mortgage payments because our prices are so much higher. We’re now one of the highest countries in our income to debts at 1.6 times. The US is down to 1.1 times. So we’re way broker than Americans, and a large part of that is our cost of housing.

I’m not wishing for a housing crash, and that wouldn’t solve anything anyway. But, if I had a $150,000 home, I would now be mortgage free and have over $200,000 saved. That would have been the monthly payment after the house was paid off diverted into investments. Instead, you, me, and tons of Western Canadians can’t really save much, because it’s all going into our homes.

I don’t have an answer, because I’m not moving to rural Saskatchewan or Wisconsin. Even selling my home and renting won’t put me ahead financially. It’s just depressing sometimes to think of how much of our finite incomes go into our homes. It’s also nice to dream sometimes of what it’d be like to be mortgage free before age 30. That isn’t hard when the house cost $140,000 or so and the interest is tax deductible…

If you actually have money and are investing, you might want to check with your financial or investment advisor on something in the area of housing. Real Estate Investment Trust (REITs) are not normally something to invest in when rates are about to rise. But there is, and will continue to be, a stall in home sales. Right now, the 20 to 30 something generation is still buried in $1.3 trillion student loan debt. They aren’t buying homes, because they can’t qualify for a mortgage, so first time homebuyers are a rare breed in the market. As a result, they’ll continue to rent, and that’s what REITs are all about. Don’t do it because I said so, but the logic makes sense.

Another Wave Of New Mortgage Rules

Another round of new mortgage rules was announced by the Finance Minister last week.
Minister Flaherty told the bank a few months ago to tighten lending and now is doing it for them. In his words: I’ve been listening to the market and I don’t like what I hear. In other words, we’re still borrowing too much, and the government is still very concerned about our debt levels.

Canada has 9.6 million home owners who will only be affected if they decide to refinance. But tighter restrictions will impact the 260,000 new buyers each year.

Refinancing is now capped at 80% of the home value, down from 85%. The good news is that it will save borrowers an average of $6,000 mortgage insurance that kicks in over 80%.

The debt ratio of what you can have for a maximum mortgage payment is reduced to a total of 39% of your gross income, down from 44%. I’m all for that. Even if you do the math on 39%, it would be pretty tight for affordability, and remember that it’s based on your gross income – and nobody takes home their gross pay!

The maximum amortization for mortgages is now back down to 25 years total. Over the past four years it was up to 35 years, down to 30 and now back at where it should always have been: A maximum of 25 years.

As you can imagine, the mortgage brokerage industry is incensed. They claim, and with some justification that this will impact home prices and the $66 billion renovation industry. Less refinancing money is less spending – but then it’s still legal to spend cash instead of borrowed money!

As to the impact on home prices? When the government moved from 30 year maximum amortization to 30 years, home sales were impacted by about three percent. Tightening that again, plus the average home price, could take a lot of the 260,000 new buyer each year out of the market.