22 Jul

Do you have a HELOC on your home, vacation or rental property?

Buying & Refinancing a Home

Posted by: Garth Chapman

If you have a Line of Credit (HELOC or LOC) on your property you are paying a much higher rate of interest to the bank.  Why not put some of that money in your own pocket instead of in the bank’s? Your savings will likely be in the range of 1% or more of the outstanding balance.  That would amount to $3,000 per year or more on a $300,000 HELOC.

So let’s take a look at the details and at my philosophy around this.  I have split my thinking into two types of debt for purposes of this post.

YOUR LONG-TERM DEBT:

You want to have your long-term debt in a mortgage, which means it would be at a lower interest rate than you will pay on a LOC.  This is true for both Variable and Fixed rate mortgages. The mortgage should be/have:

  • Should be portable if there is any chance of you wanting to move during the 5-year term.
  • Can be registered at full appraised value if you want to later be able to increase the LOC or the mortgage without having to incur the costs of refinancing.  This option precludes putting a LOC or 2nd mortgage on the property with a different lender.
  • Should be transferable at time of maturity. When a mortgage matures (the term ends) you become essentially a ‘free agent’. By this I mean that you then can shop around for the best deal and move to another financial institution without cost. This works to ensure your existing mortgage lender offers you a competitive rate.
  • Lenders will normally allow the mortgage to be split into 2, 3 or more separate mortgages within the All-In-One product.  This allows borrowers to easily track amounts borrowed for various purposes.  This is especially helpful when some debt is tax deductible and some is not.
  • Collateral mortgages are generally not portable, and are not transferable at maturity.
  • Should have good pre-payment and payment increase privileges.

YOUR SHORT-TERM DEBT:

Your short term debt should be in a secured LOC at the higher rate.

  • Your LOC rate should be in the range of Prime + 0.50% (at the time of writing).
  • Your LOC should ideally be connected to your mortgage – referred to as an All-In-One (AIO) mortgage product. Each bank has their own name for this product.
  • Ideally the LOC should increase automatically as you pay down the mortgage. Only some banks do this. This gives you more flexibility over time especially when you decide to buy something.

We have several of these AIO mortgages, and over time they have allowed us to buy several more properties over the years by easily tapping the equity in our existing properties via those LOCs.

Some Lenders will allow the LOC to be split into 2, 3 or more (up to 9) separate accounts within the All-In-One product. This allows borrowers to easily track amounts borrowed for various purposes.  This is especially helpful when some debt is tax deductible and some is not.

A quick thought on mortgage pre-payment penalties:

If you don’t want/need a LOC that is connected to your mortgage, and if you are on a fixed rate mortgage, then you should consider having your mortgage with a lender that is not one of the big-6 banks. The reason is that their pre-payment penalties are 2-3 times higher than the non-bank (known as Monoline) lenders.  I have personal experience with this issue and would be happy to explain further, and even provide examples.

13 Jul

A MORE ACCURATE MEASURE OF HOUSING MARKET VALUES

Real Estate Market

Posted by: Garth Chapman

Do you want to know what the true year-over-year price changes are city by city in Canada?  The Teranet National Bank National Composite House Price Index is not distorted by our ever-larger and more luxurious houses and condos. Teranet tracks same-house sales by market across Canada that is easy to drill down into the data to see what is the true value change for same-property sales…  http://www.housepriceindex.ca/

13 Jul

BORDER TO BORDER – THE CANADIAN ROCKIES TO THE SONORAN DESERT

Just For Fun

Posted by: Garth Chapman

One of the world’s truly great drives, and one we have done almost from top to bottom more than once, is North America’s Highway 93.

It runs from Jasper Alberta down through Golden BC and to Invermere BC (where we used to have a summer home) and then south through Montana, Idaho, Utah and Nevada (you’ll get to see Las Vegas) and on to Phoenix AZ (where we now have a winter home) and then down to Nogales AZ and finally to Nogales Mexico.

https://roadtripusa.com/border-to-border/

13 Jul

Productivity via technology for entrepreneurs and small businesses

General

Posted by: Garth Chapman

I have had a couple of conversations with one of the business owners who I do some business coaching for on productivity and on how teams can share information and schedules to be more effective. So since then I have done some research, and this piece is one of the best I found. In fact I already use a some of what the author Paul Minors writes about, and I am going to take a good look at incorporating the pieces I am not already using.

So in hopes this might be of interest to you here it is How to be productive an in-depth guide

Part of the technology Paul uses is something called Asana, which looks interesting as it can help manage projects and it will integrate with your calendars (something I think is very important). Find it here https://asana.com

13 Jul

How tenants can help pay your mortgage

Buying a Home

Posted by: Garth Chapman

The single most common and often most significant road to financial security for Canadians is paved by home ownership.  And for first-time home-buyers often the largest barrier to getting started is the monthly cost.  So why not consider a home with a rental suite that would allow you to have a tenant who pays rent, which would lower your home ownership costs?  Such a property might not be the home of your dreams, but if it gets you into the game then it might just be a great way in.  After all, down the road you could move up and keep that first property – now with two renters covering all the costs and then some.

And if it works well for you, then why not have 2, or 3 or more such properties.  It doesn’t take many to, once paid off in say 25 years, to fund your financial freedom.

And for seniors and those on fixed incomes, or those living in high-price markets, the rental unit can make it much easier to stay in your home far longer than you might otherwise be able to.

Read more here: How tenants can pay your mortgage

11 Jul

Housing Affordability in Alberta is better than you might think

General

Posted by: Garth Chapman

Housing affordability in Alberta’s cities is better than it has been since the 1980’s in most areas. In measuring housing affordability there are 3 major components: Incomes, Housing Prices, and Mortgage Interest Rates.  So let’s briefly look at those 3 key factors.  Alberta incomes, though down, are still leading the nation.  Housing Prices are down marginally, and mortgage interest rates are as low as they have ever been.  And that make this an excellent time for buyers.

The Canadian Centre for Economic Analysis (CCEA) published a report on Shelter Affordability Across Canada’s Provinces which measures the proportion of income that households devote to their shelter-related needs (including transportation, utilities, and maintenance).

A sub-set of that report, CCEA’s bulletin of April 29, 2016 shows that Alberta and Newfoundland are the only provinces in Canada that feature a Shelter Consumption Affordability Ratio (SCAR ratio) of 35% or less, implying that shelter affordability is relatively less of a problem on average in these provinces than in the rest of Canada.

On the same subject, RBC Economics Research publishes a quarterly report looking at home ownership affordability in Canada entitled Housing Trends and Affordability.  The report attempts to balance out differences in incomes and in housing process by province and by city in order to show the ‘relative’ affordability from region to region.

Unfortunately the report does not also take into account different taxation levels, which would make the report much more accurate.  Having said that, it is an excellent review of housing costs around the country, and shows us that sometimes the lowest price is not actually the lowest cost for families when the regional variance in incomes is accounted for.

In descending order, here are Q1 2016 ratios for the 6 major cities, showing the percentage of average pre-tax income required for housing costs (mortgage payments, utilities and property taxes):

  • Vancouver 87.6% aggregate.  Single family homes 119.5%.
  • Toronto 60.6% aggregate.  Single family homes 71.7%.
  • Montreal 42.9% aggregate.  Single family homes 42.4% (as SF homes in Montreal are less expensive than multi-family).
  • Calgary 35.1% aggregate. Single family homes 37.9%.
  • Ottawa 33.0% aggregate.  Single family homes 36.8%.
  • Edmonton 31.2% aggregate.  Single family homes 33.5%.