22 Jan

The Great Real Estate Migration

General

Posted by: Jennifer Price

Living in Centre Wellington today, you have likely either met new people in the community that have ‘migrated’ out of the GTA or other areas in Southern Ontario where real estate values have exploded, or you know people that are ‘migrating’ out of CW to less populated and less expensive areas, due to rapid growth and changes to our local communities. In fact, it’s been cited that the population of CW could explode to up to 100,000 within the next 15 years!!

 

In a nutshell, here are the top 3 reasons we are seeing for the current migration trend.

 

Number 1: The cost of home ownership has become unattainable for many first time buyers in urban and suburban areas. There’s no doubt about it, the cost of real estate in Centre Wellington offers ‘better bang for your buck’ and it’s all about perspective. and this trend is affecting us all in many ways. To someone paying rent in excess of $3000/mo for an 800 sqft condo in downtown Toronto, a price tag of $500,000 for a house in Fergus is very appealing and actually works out to be less expensive on a monthly basis… plus, owning builds equity. (5% down on a purchase price of $500K yields a mortgage payment of approximately $2100/mo + taxes & utilities = shelter expenses of about $2700/mo). For those that have the ability to work from home, commute a few days per week, or change jobs to something more local, this is a very attractive option.

 

Number 2: A desire for an improved quality of life for families is driving people to more rural areas. Let’s face it, raising kids in heavily populated urban areas often comes with many limitations. Lack of personal dwelling space, competitive and limited access to extra-circular programs for kids, strict school catchments, etc can be difficult for families. Smaller communities are appealing for many reasons, and CW is certainly attracting many families. There are several reasons why year after year it’s continuously ranked amongst the most desirable places to live in Canada.

 

Number 3:Many folks are cashing out, moving to more remote areas and retiring. We are seeing a trend of cash purchases in the CW area, resulting in people living mortgage-free, and often with a nest egg derived from their real estate profit.

These trends don’t only apply for people moving into Centre Wellington; they also mirror the reasons many are moving out of CW as well. Everywhere, first-time buyers are being pushed out by high prices, especially the ‘stress test’… in fact, the benchmark qualifying rate for all mortgages is sitting at 5.19%. Growth in CW comes with increased density and congestion. For those averse to this, the desire for space and solitude is driving them further away as well.

 

Change is inevitable and it’s constant. If you’re thinking of making a move, contact us to explore your financial options. I’m here to help!

22 Jan

Co-Signer Beware! Have an Exit Strategy

General

Posted by: Jennifer Price

We’ve all needed a little help in our lives and those of us who have been fortunate to receive it are (or at least should be) forever grateful. Helping a child, sibling or parent by co-signing for a mortgage or other type of loan can change the trajectory of your loved one’s life. However, it doesn’t come without risks or possible consequences. Before you co-sign, be aware of what the impact could be to your financial health and understand what the risks are. Above all else, have an exit strategy.

 

If we had a dollar for every time we’ve heard “but I only co-signed, my son/daughter makes the payments” we’d have a nice slush fund by now.

 

Too many times, we see parents whose debt-service ratios are crippled because they have co-signed for their children to help them purchase something. Even though their child makes all the payments, the co-signer is still 100% liable in case of default. It reports on both of your credit bureaus and it is treated as though it’s 100% your monthly payment (even if it’s serviced by someone else).

 

Co-signing for a mortgage can produce a miracle for a loved one. It gives them a chance to get into home-ownership, which can truly set them up for their future in many ways. It comes with risks and these risks aren’t to be taken lightly. Co-signing should be treated as a short-term solution… a means to an end. We can help you plan for an exit strategy.

Marion was happily in a relationship and living in a house owned by her partner. Her daughter Jessica, was purchasing a new condo and discovered some issues on his credit that required him to have a co-signer. Marion happily co-signed for Jess for her 5-year fixed rate bank. She had strong income, great credit and no debt. Tragically, a couple of years later, Marion’s partner passed and she found herself evicted from her home. When she came to us for a mortgage, we discovered Jessica’s credit had become even worse, and penalties to break the bank mortgage were astronomical. There was no way we could refinance Jess and remove Marion from title at that time. We found another solution for Marion and are working with them to get them both into a prime mortgage within a couple of years.

 

Richard was preparing to co-sign on a mortgage for his daughter Bailey, when his son Bobby’s car died. Richard happily co-signed for a new lease for Bobby, not realizing the impact it would have on his ability to co-sign for Bailey. We had to find Bailey a new strategy to enable her to purchase her first home. Richard was just trying to be fair to his two kids, but the timing of everything was a disaster.

 

Always look at the big picture and consider the options you’d like to have available to you down the road. If co-signing might impact you negatively and remove your options, consider saying no. Be sure to consult with a professional that has your best interest in mind; one that will look at all of the factors in your life help you plan for the future. I’m just a phone call or email away and I’m here to help!

22 Jan

Old-School Mindset Can Lead to Big Debt

General

Posted by: Jennifer Price

There is an older generational belief that our main goal should be to pay off our mortgage as quickly as possible (and pump as much money into RSPs as we can). We hear this frequently. Many clients feel they should crank down their Amortization periods to pay off their mortgages more quickly.

We disagree and here’s why… Taylor and Christine were referred to us by their neighbours, whom we recently helped when their current big bank couldn’t (or wouldn’t). Taylor and Christine told us that they now realize they have been too aggressive with their mortgage amortization period and RSP contributions over the last 10 years, which has resulted in the accumulation of $60,000 of high-interest consumer debt. This includes a $40,000 secured line of credit (SLOC) against their home (of course with an interest rate higher than their mortgage).

Both sets of parents strong-armed them into thinking mortgage debt is bad debt, and they need to pay it down as quickly as possible. (Their parents also encouraged them to max out their RSP contributions annually to save on income tax… only to be taxed later at current rates at retirement, I might add. I know, I used to do it myself.)

This old-school mentality lead them to sign up for a mortgage with a 15 year Amortization (AM), with their bank, locking them into $2000/month payments. A standard 25 year AM would have had $1200/month payments; leaving them devoid of $800/month in cash flow, money borrowed for only 3%.

Had Taylor and Christine been our clients from day one, we would have looked at their entire cash flow picture, their future goals etc., and advised them differently. You see, banks have a completely different set of goals. They are trained to sell us products with the highest interest rates possible, reeling clients in with mortgages at low interest rates.

Here are the facts. Amortization periods are generally 25 years. They can be extended to 30 years and with some lenders, 35 or even 40. Extending the AM lowers your monthly payments and also enables you to qualify for a bigger mortgage.

There is a more flexible way to pay down your mortgage faster, by taking advantage of your pre-payment privileges. Most of the lenders we work with offer generous pre-payment privileges of up to 20% (contact me for details). Many banks offer only 10%.

By taking advantage of your pre-payment privileges with our lenders, you can cut your AM period down by over 5 years over the course of a 5-year term. The difference? You do it when you can, not because you’re locked into an inflated monthly payment.

By paying down their mortgage too aggressively, Taylor and Christine’s cash flow and ability to save liquid funds for rainy days was crippled. They were told by the bank that their best option was to take out an SLOC, rather than to refinance their mortgage. Since then, they have been paying much more interest to consumer debt products than they’ve been paying on their mortgage, (or earning on their RSPs for that matter).

Finally, they were lead to us by trusted friends and we have changed the course of their financial lives so they can now breathe, enjoy the home they own and most importantly enjoy their lives! Contact me to see how I can help you. ~Written by Jenn Price