We in Mississauga & Canada are in a very unique & fortunate situation with mortgage rates that have reduced by more than 2% in 6 months!  This presents amazing opportunities for those who have mortgages on their homes.  There are some poor reasons to refinance your mortgage before its maturity date, but here are five very good reasons:

1. Risk mitigation – It is no secret that our economy is currently struggling and that it will take a while for it corrects itself.  None of us knows where the economy will be in three years time, thus if you are renewing your mortgage term in three years or less you might want to mitigate that uncertainty risk by refinancing your mortgage now while you current circumstances are favorable. If you refinance into a new 5 year term now, your maturity date would only be in 2014!
2. Mortgage rate improvement – If you secured a mortgage rate two years ago your mortgage rate is likely almost two percent above the current fixed rates.  Lower mortgage rates mean that less of your payment goes to interest and more goes to principal!
3. Cash flow improvements – Because of the lower mortgage rates you will save money on a monthly basis.  You can choose to use this money in any way that you want and it is tax free.  Your cash flow savings could pay for a car over the next five years!
4. Time (amortization) savings – If you refinance your mortgage and keep your mortgage payment the same (instead of using the monthly savings for something else), you can probably pay your mortgage off faster by three years, depending on mortgage amount etc.
5. Debt consolidation – If there was ever a time to get out of debt, it is now!  Debt diminishes our ability to make decisions for our future.  You will be able to pay off your debts and then if you take the monthly savings and put them back into your mortgage you can still pay off your mortgage faster than before you consolidated your debt!  Debt consolidation needs a strategy and I would love to help.

The decision to refinance your mortgage is not based on perception.  It should be purely based on the “numbers”.  In other words, I will calculate your new mortgage with the penalties etc. included and if you still save money over the next five years then it is a viable option.  However, if the calculations with the new mortgage reveal no savings, don’t refinance!

Thanks for reading….Please leave a comment below!

Good news for Mississauga property owners and indeed for all Canadian property owners.  Here is some of the benefits from the 2009 federal budget:

1. A $5,000 increase to the RRSP Home Buyers Plan.  This means first time home owners can now withdraw up to $25,000 from their RRSPs for a down payment; tax and interest free.
2. A $750 tax credit for first-time home buyers to help with closing costs, such as legal fees, disbursements and land transfer taxes.
3. A 15% tax credit of up to $1,350 on eligible home renovation expenses undertaken before 1 February 2010.
4. $300 million for Eco energy retrofit grants.
5. More “disclosures” for mortgage insurance designed to help consumers better understand the mortgage insurance transaction.

To get the full details please speak to your accountant or real estate solicitor.

As we mentioned in the previous blog, Joe & Mary have two obstacles that they have to overcome:

1) They will have to come up with equity to bring their mortgage below the maximum of 95% of the value of the property. (95% of $90,195 = $85,685.) However, their mortgage balance at renewal is $86,498, so they will have to pay in $86,498-$85,685 = $813 in equity to qualify for the mortgage.
2) Mortgage insurers such as CMHC and Genworth will not insure borrowers who have credit scores below 620. As I stated before, any mortgage that has a Loan to Value (LTV) higher than 80% is a high ratio mortgage and prime lenders will require it to be insured with a mortgage insurer. Thus, if Joe & Mary, or one of them, have damaged their credit so that their credit scores are below 620 they will no longer qualify for the mortgage insurer’s requirements and thus neither for a mortgage.

From all of this then we can see the following:

1) If your mortgage renewal is four or five years from today then you should have enough equity in your home to qualify for a mortgage. If your mortgage renewal is in 2009 I suggest that you do some estimations of your property value and then calculate your Loan to Value to ensure that it is below 95%. If it is above 95% make sure that you have access to equity to make up the difference. You will be able to borrow the difference, but only if your debt service ratios are not too high.
2) More than equity in our homes it is essential that we know how our credit works, what damages it and what builds it. Your credit worthiness is more important that your income! (Have you though why?) Check equifax.ca regularly to see the status of your credit. Although the report that you as a consumer sees at Equifax does not disclose your actual credit score it gives enough information that will enable you to judge your credit worthiness. If Joe and Mary have damaged their credit scores then no prime lender will borrow to them and they will be in default of their mortgage.

Their are many things that I could not mention here, just because there is not enough space for it. Things like debt service ratios and various options available to you through a mortgage broker (that banks don’t offer) are very important, but we ran out of space. It would be my privilege to meet with anyone who requires more information and a solution. You can compare other scenarios to determine your best mortgage options here.

Let’s use numbers that are easy to work with so that we can understand the concepts rather than having to struggle with the math:

Joe & Mary purchased a $100,000 home in Mississauga, in 2006 with a 5% down payment. They worked with a mortgage broker to get them an excellent 5 year mortgage rate of 5.09%. The math would be as follows:
Purchase Price: $100,000
Minus Down Payment: $5,000
Balance: $95,000
Plus Mortgage Insurance: $2,612.50
Final Mortgage Amount: $97,612.50

Let’s assume the following about the housing market over the five years of their mortgage term:
2006 & 2007 – Market appreciated by 5%
2008 & 2009 – Market depreciates by 10% per year
2010 – Market appreciates by 1%
Thus, after 5 years and at the time of their mortgage renewal, their Mississauga home would have an approximate value of $90,195. Equally, Joe & Mary would have an approximate mortgage balance of $86,498 (assuming they paid monthly and nothing extra). This means that their new mortgage would have a Loan to Value (LTV) of 95.9%

FYI: LTV = Mortgage Amount/Property Value ($86,498/$90,195 = 95.9%)

This presents at least two potential problems for Joe & Mary:
1) In Canada we don’t have insured mortgages with less than 5% equity (They only have 4.1% equity).
2) They would have to re-qualify for both the lender and the mortgage insurer’s requirements.

In the next blog we will look at their qualification criteria and how this could cause them to lose their home and what they can do to prevent this.

Stay tuned….and let me have your questions and comments.

Most people in the real estate business agree that it will take approximately two years before the real estate market in the GTA and thus Mississauga will start to correct itself so we see positive gains again.  As I mentioned before, if your mortgage is low compared to the value of your home you should not have a problem getting a mortgage (assuming your credit worthiness is reasonable).

However, what if you bought a home in 2007 with a down payment of less than 20%?  This would mean that you have an insured mortgage which your mortgage lender insured with one of Canada’s major mortgage insurers, CMHC, Genworth Financial or AIG.  Most people in Canada don’t understand the relationship that lenders have with the mortgage insurers, so maybe we will discuss this topic a little later. Suffice to say that if you have a down payment less than 20% you will have to qualify for both the lender’s and mortgage insurer’s requirements. This is because no mortgage lender will give you an insured mortgage loan without approval from the mortgage insurer. In a normal, improving housing market, the average borrower only insures his/her mortgage once. Why? The combination of the increased property value and their decreased mortgage balance over the mortgage term will cause them to have more than 20% equity in their home at the time of their mortgage renewal, thus no mortgage insurance is required. If a mortgage is not insured a mortgage lender can issue a mortgage approval solely on its own lending guidelines.

FYI: Equity = Property Value – Mortgage Balance

Let’s use an example of a home in a decreasing property value market, analyze the details and compile a checklist of what borrowers have to do to protect themselves from potentially losing their homes when it comes to mortgage renewal time. We will do this in the next blog.

Well we have all seen the reports that property prices are declining.   Although we know the press likes a good story, and declining property prices do make a good story these days, there is truth to property values decreasing, by how much in Mississauga, that is not clear.  Even if only half the stats are true about declines, as home owners in Mississauga it is still prudent to reflect on how this might affect us.  I hope this helps you to review your mortgage status so that you don’t stand a chance of loosing your home when it comes to refinancing time.  This is particularly applicable to those of us whose mortgages are up for renewal in 2009 or 2010.

If you have more than 30% equity in your home and your credit is good you should not have a problem getting a mortgage.  However, if you have less than 20% equity in your home I will write a series of articles to help you protect your home, which is probably your greatest asset.  Stay tuned for more shortly or give me a call to discuss!