Mortgage Essentials

When I was younger, the whole concept of being a homeowner seemed as alien to me as the need for life insurance, RRSP’s and arthritis cream; any conversation that veered towards the topic of purchasing property always filled me with an unexplainable sense of dread…then the word “mortgage” would surface.

While paying off the last three years on my 1991 Honda Accord seemed daunting enough, I couldn’t at the time imagine buying something that carried with it the certainty that for the next 20 to 30 years, a large chunk of my future paycheques would be disappearing towards paying down what seemed to be an incalculable and insurmountable number.

In and of itself, the very word “mortgage” means to expose (oneself) to future risk for the sake of immediate advantage. This definition seems quite fitting, after all, how many times in the world of sports for example have we heard that such and such major league team has “mortgaged the future of the organization by trading for player “x” or signing player “Y”?

This hardly sounds like a good thing, but it is! When you are a mortgagor you own a portion of something tangible: property. Assuming you’ve done your due diligence, researched everything and crunched the numbers properly, bought in the right area and at the right price, the last remaining block in building equity and maximizing one of the only tax-free capital gains available out there is to ensure you’ve negotiated for and obtained the proper mortgage that’s right for you.

With expensive housing prices in the GTA that are climbing steadily and seemingly with no end in sight, scraping together the 20% down payment that allows you to bypass mortgage insurance is getting more and more difficult and can seem an outright impossible pipe-dream for many.

The easiest way to set yourself up for the best mortgage in your particular situation is to contact an independent mortgage broker. Unlike the major banks who can only offer their limited and fairly broad products, these specialists will sit down with you and carefully evaluate your credit history, finances, short and long-term goals before comparing what is being offered by the major lenders as well as from the dozens of other, lesser-known yet equally reputable mortgage backers. Your broker will explain to you how mortgage insurance works, what your payment options are, as well as the differences between and benefits and drawbacks of fixed, variable and blended mortgages.

While rates are of primary concern, he or she will also explain to you how the portability of your mortgage and the possibility of early or accelerated repayments should factor heavily in your decision, and will point out which penalties to look out for and to consider when making your final choice.

Ultimately, whether you decide to use an independent mortgage broker, to go directly through your bank, or to do your own research and secure your own financing, it’s critical to shop around before signing on the dotted line. Plan correctly and you could save yourself thousands of dollars in interest payments over the term of your mortgage, money that can be used to purchase say, a 1991 lime green Honda Accord with 300 000 KMs on the odometer and a tape deck with no Fast-Forward button…

How to Buy a Property

So you’ve done all the preliminary work, your financing is in order and you’ve committed to either door A – a condominium, or door B – a house. Let’s look at what comes next.

 

Expectations – Setting a clear understanding of what your day to day needs will be is very important and will help you focus on only the properties that match those needs. How many bedrooms do you need? Are stairs ok or do you prefer a bungalow? Is a yard important to you? What about parking? Make a list and prioritize – Can you really not live without those gold-flecked quartz counters?

 

The Search – This is the fun part!  Your agent will send you listings that on a daily basis and make recommendations based on your feedback.  When the market is busy, you should try and view the property as quickly as possible – Great properties sell fast! It’s important here to be realistic and to keep an open mind. That trendy new neighbourhood may well be above your price point, but there are lots of up-and-coming areas that are worth investigating…

 

Offer time – Once you’ve located a home that you are interested in purchasing, it’s time to submit an offer. Your agent will go over the terms of the offer and give you a thorough explanation of what they mean. These will include conditions of finance approval, home inspections, closing date and of course, the offer purchase price! Negotiations can be tense and you should be prepared for a possible bidding war – this is where preparation and strategy come in. A good agent will know exactly how much comparable properties in the area have sold for and how much the competition is listed for. Armed with this information you’ll know how low you can start negotiating and how high you should go before walking away – Don’t let your emotions get the best of you!

 

Closing Day – You’re almost there! The property has been appraised, your financing has been approved, and the home inspection is complete. On the day you are to take possession, it is important to view the property as quickly as possible. In general, your lawyer will contact you to pick up the key to your new home somewhere between 2-4pm. You’ll conduct one last walkthrough to look for any outstanding issues and if everything checks out, that’s it, you’re officially a new homeowner! Time to pop the bubbly and start unpacking…

Toronto Bidding Wars: Scourge of Buyers Everywhere

If you’re like me and you devour the Real Estate section of your favourite newspaper, you’ve undoubtedly come across headlines such as this one: “Detached Leaside fixer-upper sells for $110K above asking!” or “Mimico bungalow sold for $90,000 more than listed price!”. But what do these numbers really mean? Did someone really overpay by these amounts to purchase both these homes, and if so – why?

Welcome to the crazy world of bidding wars – where frenzy and frustration meet, emotions run high, and everything is not always as it seems. How you feel about them depends on whether you’re buying or selling, and how conservative or adventurous you are by nature…

In a typical Real estate negotiation, the client finds and falls in love with a property, and after doing his/her due diligence, the buyer agent submits his client’s “Offer to Purchase” form 400, that contains his client’s offered price and any conditions and clauses.

While these are all obviously very important to both parties, what often comes into play more than anything else is the Irrevocability that is given by the buyer- that is the period of time during which the sellers can choose to accept, counter or reject the offer. Some offers can contain irrevocables of mere hours while others may be good for 24 or 48 hrs.

What matters here is that from the time a seller receives that form 400, a countdown clock starts ticking. If no decision has been made when that clock hits the “zero hour”, the offer is considered dead and the buyer is free to walk.

Understandably this places enormous pressure on the sellers and forces them to decide between accepting an offer that may end up being inferior to the next one coming down the pipe, or to reject it and risk not receiving another one for weeks or months!

Holding back offers flips this model on its head by forcing all suitors to present their bids on the same day, resulting in a double-benefit for the sellers: they get to sort through the different proposals and weigh the pros and cons of each one in relation to their competitors, and by eliminating the timer which normally works against them, they force buyers to put their best foot forward and reveal their hand right off the bat.

Although this unconventional approach to marketing a property has been around for a while, it’s been more prevalent than ever this year due to the fact that we’re very much once again in a sellers market and there is just very little inventory available out there. Houses that show well, that are in prime or in-demand neighbourhoods, or that may be ready for a tear-down but are located on a great lot are the ideal candidates for this approach.

Knowing that there may be even just one other agent presenting an offer at the same time as yours puts pressure on both sides to up the ante by either removing clauses, increasing the size of the deposit, of the offered dollar amount, or some combination of all three.

Next thing you know, you’re huddled in your car outside the house for sale with your agent, it’s 11pm and minus twenty outside and there are ten other cars with ten other buyers and their agents waiting to hear who’s been picked or whether you’ll be privileged enough to be given the chance to improve your offer…All that’s missing is Michael Buffer standing on the front porch with his megaphone yelling “Let’s get ready to ruuuuuuuummmmmble!”

This, my friends, is what bidding wars are all about, and it’s the reason why if you’re looking to purchase a house in the city or have found a property that is holding back offers, it’s imperative that you talk to your agent and that the two of you put together a strong plan of attack and a sound strategy for dealing with these increasingly common situations…

The Million-Dollar Question: “Should I buy a home or a condo?”

This is probably the number one question family, friends and clients ask us here at Property Guide.

At some point in most peoples’ lives the home-ownership urge starts creeping in, until suddenly, the itch can be denied no longer! The idea of having to ask for permission to change a carpet, paint a wall or fix a leaky faucet becomes unbearable – After all, there’s a reason the (sexist) expression “A man’s home is his castle” has been around for so long…

But in order for us to help answer your question, there are many factors YOU as the buyer have to consider and a little introspection is required:

What is your budget? Homes in Toronto, especially in the downtown area are now starting north of $600,000- and this for a property most likely in need of significant upgrading and improvements. If this number scares you, you’re already being pushed into the condo market.

What’s your lifestyle, friend? International jet-setter or stay-at-home hobbyist? Do you have a green thumb and enjoy wielding a lawn mower, weed-whacker and snow-blower? Do you even own a shovel? If not, perhaps the minimal “hands-on” of condo-life is more up your alley. Then again, a home is a lot more “customizable” than a condo, and having neighbors above, below and all around is not for everyone. Besides, where are you going to keep your Great Dane? Your snowmobile? The triplets? And where’s the band gonna practice? You definitely need your own house – with a soundproof garage!

Location – City or suburbs? Highways vs bus routes? Community centre or neighbourhood watering hole? The choice is yours, all you have to do is choose between your work, your friends, family, schools, pubs…etc. No problem!

Costs – At first glance, a monthly maintenance fee on top of your mortgage payments can seem rather unpalatable – after all, how many times are you really going to use that party room? – but look a little deeper and you’ll realize that the reserve fund you’re contributing to is there to handle everything from replacing leaky windows, to creaky elevators and ripped wallpaper…Suddenly $500/month doesn’t look so bad – especially when one considers that re-shingling a roof on a 3 bedroom home can easily run you $6000-$7000 dollars – and what about buying the aforementioned snowblower, or installing a garage-door opener, or building that deck you’ve wanted for so long? So much to consider…

So there you have it, hopefully this checklist has helped give you a better general idea of the pros and cons of home vs condo ownership. Of course we’re just scratching the surface here, and while it’s still possible to buy a small bungalow or semi-detached in a not yet gentrified neighbourhood for $500,000, it’s just as easy to find hundreds of two-bedroom condo units in the $800,000 price range. Investment potential, upgrades, renovations and additions then also enter the conversation, as well as a discussion of where you see yourself in 2, 5, and possibly ten years. Married with children? Retired? Running your own yoga retreat in the Costa Rican rainforest?

Don’t sweat it though – this is why you called us to work with you!