Should I buy a pre-construction condo in Toronto?
For individuals considering this type of investment, there are a few things to know before signing on the dotted line.
1. Find Out The Deposit Structure
As an industry standard, pre-construction condos typically require a 20 percent down payment to purchase a property. The deposit structure is provided by the vendor and it will inform you of the timing of the deposits. For example, are you depositing 20% in the first year after contract signing or is it spread out over 2 or more years?
When buying pre-construction, the lucrative advantage of a 20 percent down payment is the power of leverage. For instance, if you were to purchase a $650,000 property with a 20% down payment, as construction of the condo commences, assume the average rate of real estate continues to climb by 5% per year. By completion in 4 years, your condo is now valued at $790,080. That’s a $140,000 equity head start (which you can capitalize on if you have an assignment clause, see below) and your return on investment is approximately 108%! Leverage allows you to magnify your return before you even move in.
2. Take Advantage of the 10-Days Cooling Off Clause
In Ontario, every pre-construction condo purchaser has 10 calendar days to reconsider and withdraw their purchase. During the 10-day cooling off period, also known as the “rescission period”, it is advised that you have an experienced lawyer review your purchase and sale agreement. This is also a good time to get a mortgage approval. You may have up to 30 days after contract signing to provide the vendor with your mortgage approval, but if you are unable to secure a lender, and you have surpassed the 10-day cooling off period, you may be unable to get your deposit back.
3. Work With An Experienced Specialized Lawyer
From negotiating closing costs to reviewing your purchase and sale agreement and possibly suggesting amendments, a lawyer with pre-construction condo experience will help you understand the fine print. A pre-construction condo contract, including all the amendments and condo documents can be hundreds of pages long. Know your rights and obligations completely and in simple words by discussing this with a specialist in the field.
4. Have An Assignment Clause In Your Contract
Having an assignment clause is a great feature as it allows you to sell your contract to another buyer before occupancy. This clause is especially important to investors seeking an ROI, sooner rather than later. It is advised that you speak with a pre-construction lawyer as there is usually some fine print that may limit your ability or means to sell your condo to another buyer.
5. Expect Construction Delays
Building completion approximations are just that, approximations. Developers may suffer delays due to unexpected schedule changes like, harsh weather, trade-related shortages and strikes. Delays can happen to the most reputable builder, and unfortunately, this is not something you can predict. Construction deadlines are outlined in the Tarion addendum in your purchase and sales agreement but plan for at least 3-6 months in delays.
6. Material Changes May Occur
Embedded in your sales agreement are details about ‘Material Changes’. These changes could very well be the relocation of the Penthouse Sports Club to the second floor of the building or an increase in storeys. Your purchase price won’t be affected but the completion expectancy date may change.
7. Condo Fees Will Increase
Condo fees, also known as ‘maintenance fees’ are estimated several years in advance. The vendor can never be sure how much it will cost to run a building prior to construction. Consider the fee advertised as an approximation as the cost will change with the inflation rate among other things. Low condo fees can be enticing when comparing condo projects to one another, but prepare for fees to increase somewhat as the years go by.
8. Prepare For The Interim Occupancy Period
You may have received the keys and taken occupancy, but you are not yet the owner of the suite. Until the building registers and passes all required inspections, you are obliged to make monthly payments to cover the builder’s mortgage, property taxes and utilities. The registration period typically takes 6-9 months and can be inconvenient for most, but it is worth the wait to get the health and safety stamp of approval.
9. Prepare For Closing Costs
-Land Transfer Taxes
-Development Levies (these can be capped, speak with a CondoNow agent for more info)
-Utility Connection Fees
-HST On Appliances
-Reserve Fund Contribution
These costs can add approximately 1.5 to 4% to your purchase price.
10. Taxes are Rebatable
Condo prices quoted by vendors include the HST New Housing Rebate. This means that, if you are moving into your new condo, there is no HST to pay. Conversely, if the vendor deduces that you are investing with the intent to rent the property, the HST rebate is removed.
We strongly advise that you speak to an accountant well-versed in pre-construction condos.
When it comes to purchasing a pre-construction condo, making the most informed decision can be challenging.
As energy costs rise, you might be looking for ways to be more energy-efficient without breaking the bank. Here are eight money-smart moves to consider when making home renovations.
1. ANYTHING LOW-FLOW
In addition to saving water, low-flow fixtures will save you more than a buck or two. Inexpensive and easily installed, low-flow fixtures can reduce your home water consumption by as much as 50 percent and can save you up to $145 per year, according to Energy Star, a government program that promotes energy-efficiency. Low-flow showerheads cost about $20 at home improvement stores.
2. FIBERGLASS INSULATION
Insulation keeps your house warm in the winter, cool in the summer and reduces heating and cooling costs by as much as 20 percent, according to Green Energy Solutions, Inc., a company that specializes in retrofitting buildings to make them more energy-efficient. You can pick up a roll of insulation for about $15 at home improvement stores.
3. COMPACT FLOURESCENT LIGHT BULBS
Fluorescent bulbs last four to 10 times longer than regular light bulbs. While they’re more expensive initially, you’ll save about $6 per year on energy bills, according to Energy Star.
4. A CLEAN DISHWASHER
Modern dishwashers use an average of 5.8 gallons of water per cycle, while older models can use as much as 10 gallons per cycle. According to Energy Star, you could save around $8 per year in energy costs by making this upgrade. Or, you could clean and repair your current washer if it’s only a few years old. Check out this guide from Better Homes and Gardens to learn how to maintain your dishwasher.
5. A PROGRAMMABLE THERMOSTAT
Programmable thermostats have become popular due to their energy- and money-saving benefits. When used properly, this device can save users up to $150 per year, and it’s generally more accurate than a regular thermostat, according to Energy Star.
6. WEATHER STRIPPING
You might be surprised to find how much money you could save by patching up that draft in your kitchen or bedroom. In homes that haven’t been weather stripped, air leaks account for 30 to 40 percent of heating and cooling loss, according to Energy Star. Weather stripping materials start for as little as $5 at home improvement stores.
7. A TANKLESS WATER HEATER
Tankless water heaters allow users to shave 20 percent off their water bill. In addition to lasting five to 10 years longer than tank heaters, tankless heaters never run out of hot water. Plus, you get a federal tax rebate if you purchase one, according to Energy Star.
8. CEILING FANS
A ceiling fan will help keep your home at a comfortable temperature while reducing your energy bill by about $15 per year, according to Energy Star. Ceiling fans are priced at about $50 at home improvement stores
According to the Office of the Superintendent of Financial Institutions (OSFI), tougher mortgage qualifying rules will take effect as soon as January 2018.
Why is this so important?
If you barely qualify for a mortgage now, you won’t in 2 months.
The new OSFI minimum qualifying rate, also known as the “stress test”, will be a requirement for all home buyers, including pre-construction condos, resale, freehold, and others requiring a mortgage. Presently, prospective home buyers with down payments of 20% or greater are not required to purchase mortgage insurance, and therefore forgo any preliminary testing.
Come January, new home buyers who fall under the uninsured borrower umbrella will submit to the same assessment as insured borrowers, with the qualifying rate ensuring that new mortgages, regardless of the down payment size, will be able to pay the loan if interest rates become higher than they are today. Meaning that, borrowers will be tested at either greater than the five-year benchmark rate, or two percent higher than their actual mortgage rate- whichever one is higher.
This equivalent of a 2% rate hike will equate to a drop of about 15-20% in purchasing power.
By the new year, some potential mortgagees may no longer be able to afford buying real estate.
With the help of Ratehub.ca’s Mortgage Affordability Calculator, here is an example of how the numbers tally up now, versus just about two months from now.
OCTOBER 2017 Vs. JANUARY 2018
Buyer’s mortgage rate is lower than the bank of Canada’s five-year benchmark rate
Current Bank of Canada Benchmark: 4.89%
Annual Income: $100,000
Down Payment: 20%
5 Year Fixed Mortgage Rate of 3.09%
Amortized over 25 Years
October 2017 maximum affordability: $706,692
January 2017 maximum affordability: $559,896
*Noteworthy: The new stress test rules will not apply to mortgage renewals as long as you remain a client of your existing lender.
VISIT IHOUSEU.CA AND GET IN TOUCH.
The Toronto real estate market after a scorching hot spring, the summer has brought a cooldown to the delight of many homebuyers. Sales dropped by 34.8 per cent compared to August 2016 and amounted 6,357. The average price reached $732,292 and was still up by 3 per cent year-over-year but down from the April peak of $920,791. The number of new listings was at its lowest since 2010, it was down by 6.7 percent compared to August 2016 and amounted 11, 523. The active listings surged by 65% year-over-year.
This growth was driven by the semi-detached, townhouse and condominium apartment market segments that continued to experience high single-digit or double digit year-over-year average price increases.
The MLS® Home Price Index composite benchmark, which accounts for typical home types throughout TREB’s market area, was up by 14.3 per cent year-over-year in August. The fact that MLS® HPI growth outstripped average price growth, points to fewer high-end home sales this year compared to last.
“The relationship between sales and listings in the marketplace today suggests a balanced market. If current conditions are sustained over the coming months, we would expect to see year-over-year price growth normalize slightly above the rate of inflation. However, if some buyers move from the sidelines back into the marketplace, as TREB consumer research suggests may happen, an acceleration in price growth could result if listings remain at current levels,” said Jason Mercer, TREB’s Director of Market Analysis
THREE MISTAKES FIRST-TIME BUYERS MAKE THE MOST:
1. Choosing the wrong agent. "People call the person they see on the sign outside the home they want, and that's exactly who not to call, They think the agent selling the house will know the most about the home, but if you don't go in with your own agent, there's no one in your corner." Instead, ask friends for referrals, check online reviews and shop around. "It's a long process and can become a big relationship—find someone you're comfortable with. (Suffice it to say, not calling an agent at all is also a mistake!)
2. Not knowing what you want. Newbies often don't have a good idea of what they're looking for and can become overwhelmed, which is why they need to see different types of properties—a bungalow, a two-storey, a duplex—in various locations. They can find out what types of homes and areas they like and don't like, and we can taper the search from there.
3. Forgetting to check finances first. First-time buyers often think they can afford a home that is actually out of their financial league. "The number you go in with should be based on a plan. Draft a budget for the expenses in your new home, or do a trial run by setting aside the money you'd need if you were living there and see if it works. If it doesn't, lower your expectations. And don't forget to have money that's accessible for your down payment. You usually need at least five percent of the overall purchase price for the down payment, then budget three percent for closing costs, which means you should have at least eight percent of the purchase price on hand going in.
ADVICE FOR THE FIRST-TIME SELLER
Once the house was listed, they started looking for their new home. "I wanted something that was close to the school in a nice neighbourhood and had at least three bedrooms and two bathrooms to fit our family," says Kisha.
Things got stressful when they hadn't received an offer on their current home after two weeks on the market. So they ended up dropping their asking price slightly, a strategy that worked—they got the offer they wanted. Shortly after, they found a home . They left a week between the two closing dates to give themselves time to clean and move the clan in. To save money, they cleaned both homes themselves and enlisted friends to help with the move. Fortunately, the house didn't need any work and they could settle in right away.
Timing is everything when it comes to making the most on your home, and it all depends on the market. In a seller's market, it's better to buy before selling. "If you sell first, by the time you start looking for another house, there's a good chance your existing home will increase in value."
If prices are dropping, I'd recommend selling first and renting while you watch the market. Still, Mann says to be wary of Realtors who urge you to sell no matter what. "They don't have your best interests at heart. A good Realtor should explain the market trends and give you options."
It's also important to decide whether to keep your existing mortgage. Paul and Kisha decided to switch to a new mortgage to take advantage of a lower interest rate. "Many mortgages are portable, meaning you can apply your existing mortgage to the new home as long as your lender approves the new property. Check to see if interest rates for a new mortgage are lower, but also look at your repayment terms and the length of time remaining in your term before you make any decisions.
TWO MISTAKES FIRST TIME SELLERS MAKE THE MOST:
1. Giving buyers a reason to say "no." "Many people rush a listing onto the market before it's ready to go live. Fix the little things, like making sure all the lightbulbs work. One area that's often missed is the mechanical room. "If it's clean and organized, buyers will have a better feeling about the home. I'd recommend getting a presale home inspection (about $200 to $400, depending on the home size and where you live) so you know what you need to do before you list, as well as sticking points for potential buyers.
2. Not getting an appraisal. It might cost $300 to $400, but having a certified appraiser evaluate your home is money well spent. It gives you a piece of mind knowing your house is up to the standard you think it is.
If you are a buyer these days do yourself a favor and not listen to the news about real estate in Toronto. Speak to real estate professional like myself about what is actually happening in the market. Different parts of the city produce different results whether planning on buying or selling.
Yesterday's announcement of this 'much anticipated' mortgage hike by the Bank of Canada is nothing to worry about.
A 0.25 point increase in mortgage rates literally means an extra $25 per every $100,000 borrowed.
This is virtually nothing for most property owners! If $25 - $75 extra creates a problem you have been lying to yourself. Variable rates are always subject to change. And people who have variable rate mortgages need to keep an eye on it at all times and plan accordingly.
The Toronto market is very active yet more balanced than it was even a month ago.
Overall, these changes should have little, if any effect on the market.
The Greater Toronto Area’s housing market continued to cool during the second full month after Ontario unveiled its Fair Housing Plan, a major policy move including a much-publicized foreign-homebuyer tax for the Greater Golden Horseshoe.
Some 7,974 home sales were recorded via the Toronto Real Estate Board (TREB)’s listing system in June, plunging 37.3 per cent from the activity observed during the same month in 2016, the best year on record for GTA home sales.
But this June’s slowdown wasn’t primarily due to foreign buyers leaving the market, TREB suggests, as observers continue to debate their impact on home prices.
The board refers to recent provincial government data showing that from April 24th to May 26th, foreign homebuyers accounted for just 4.7 per cent of the 18,282 transactions recorded throughout the Greater Golden Horseshoe.
Pointing to that sliver of overall sales, TREB instead attributes the cooling to buyers sticking to the sidelines to see how the effects of the plan pan out as well as sellers rushing to list homes on a hunch that prices have peaked.
“The end result has been a better supplied market and a moderating annual pace of price growth,” writes Tim Syrianos, TREB’s president, in the board’s latest monthly news release of data.
As the number of new listings in June surged 15.9 per cent on a year-over-year basis, annual price growth moderated once again.
Until last month, the average selling price of a GTA home had been posting double-digit annual gains. But in June, the average sale price was $793,915, up 6.3 per cent compared to a year earlier.
“A better supplied market has certainly been a key factor influencing the moderation in price growth,” the TREB report reads. “However, the average selling price has also been impacted by the fact that the greatest home sales declines were for more expensive home types, most notably detached houses,” the news release continues.
Detached homes in the GTA sold for an average of $1,055,863 in June at an annual rate of increase of 7.8 per cent. In May, this segment saw prices surge 15.6 per cent annually.
June price growth was strongest in the more-affordable condo market, where condos averaged a selling price of $519,784, an increase of 23.2 per cent from a year ago.
Demand for condos has been insulated from the effects of the Ontario Housing Plan as these dwellings remain the final affordable option for many homebuyers in the Greater Golden Horseshoe, one economist recently noted.
All housing types posted month-over-month benchmark price declines this June with the exception of condo apartments, which saw prices up 1 per cent from May. Detached, attached and townhouses experienced monthly price drops of 1.3 per cent, 1.4 per cent and 0.04 per cent, respectively.
The Ontario Fair Housing Plan, which also included an expanded rent control mandate for virtually all rental units — not just those built before 1991 as was previously the case — and the possibility of higher interest rates have also led TREB to update its forecast.
A day after RBC downgraded its forecast for Ontario home sales, TREB has done the same for the GTA, the province’s most-active market.
The board now expects home sales to fall within the range of 89,000 and 100,000 this year, shy of the 2016 yearly record of 113,133.
At the same time, GTA home prices are expected to fall short of last year’s 17.3 per cent annual appreciation, as per TREB’s MLS index.
This year, TREB projects home prices in the GTA will rise between 13 and 18 per cent.
“While an annual rate of growth in this range will still be very strong from a historic perspective, it is important to note that it will also represent a moderation in year-over-year average price growth in the second half of the year,” the TREB news release adds.
Here is a look at Central Toronto real estate market statistics for May.
For an interactive chart see: http://ihouseu.ca/toronto-sales-charts.html
Toronto Real Estate Board President Larry Cerqua announced that Greater Toronto Area REALTORS® reported 10,196 sales through TREB’s MLS® System in May 2017 – down by 20.3 per cent compared to 12,790 sales reported in May 2016.
Sales of detached homes were down by 26.3 per cent. Sales of condominium apartments were down by 6.4 per cent. The supply of listings was up strongly over the same period.
Active listings – the number of properties available for sale – at the end of May were up by 42.9 per cent compared to the record low a year earlier. “Home buyers definitely benefitted from a better supplied market in May, both in comparison to the same time last year and to the first four months of 2017. However, even with the robust increase in active listings, inventory levels remain low. At the end of May, we had less than two months of inventory. This is why we continued to see very strong annual rates of price growth, albeit lower than the peak growth rates earlier this year,” said Mr. Cerqua.
Selling prices continued to increase strongly in May compared to the same month in 2016. The average selling price for all home types combined for the TREB Market Area as a whole was up by 14.9 per cent to $863,910. “The actual, or normalized, effect of the Ontario Fair Housing Plan remains to be seen. In the past, some housing policy changes have initially led to an overreaction on the part of homeowners and buyers, which later balanced out. On the listings front, the increase in active listings suggests that homeowners, after a protracted delay, are starting to react to the strong price growth we’ve experienced over the past year by listing their home for sale to take advantage of these equity gains,” said Jason Mercer, TREB’s Director of Market Analysis.
February 2017 figures released by the Toronto Real Estate Board for the 6IX
The average selling price was up by 27.7 per cent year-over-year to $875,983.
Annual rates of price growth continued to be strongest for low-rise home types, particularly
detached houses. Growth rates for condominium apartment prices were also in the double
digits, likely a result of strong demand from first-time buyers.
It's always a good idea to spruce up the exterior and interior of your home before listing it for sale. But that doesn't mean you have to undertake major and/or expensive project.
Just a little effort will greatly increase the perceived value of your home. Here are some simple steps you can take to increase the perceived value of your home and make a great first impression.
- Keep lawns cut
- Trim hedges and shrubs
- Weed and edge gardens
- Clear driveway and clean up oil spills
- Clean out garage
- Power wash
- Touch up paint
- Plant colourful, inexpensive flowers in pots if necessary
At the Front Door
- Clean porch and foyer
- Ensure door bell works
- Repair any broken screens
- Fresh paint or varnish front door
- Repair door locks and key access
Create a Buying Mood
- Make sure your home smells fresh and clean
- Turn on lights
- Turn on air conditioner/heater
- Open the drapes
- Light the fireplace
- Clear halls and stairs of clutter
- Store surplus furniture
- Clear kitchen counter and stove top
- Clear closets of unnecessary clothing and stuff
- Remove empty boxes and containers
- Put away personal photos so buyers can envision the house as theirs
- Repair leaking taps and toilets
- Clean furnace and filters
- Tighten door knobs and latches
- Repair cracked plaster
- Apply fresh coat of paint or touch up where necessary
- Clean and repair windows
- Repair seals around tubs and basins
- Replace defective light bulbs
- Oil squeaking doors
- Repair squeaking floor boards
- Clean and freshen bathrooms
- Clean fridge and stove (in and out)
- Clean around heating vents
- Clean washer and dryer
- Clean carpets, drapes and window blinds
- Eliminate pet odors and stains
Let's face it, some people, if they don't get in soon they may never get in.
We are experiencing the Manhattanization of Toronto, with housing becoming less and less affordable.
Why pay $2,000 a month in rent for that 500 square foot condo when you can own it for around the same amount?
This mortgage product is for those with excellent credit and healthy incomes:
The mortgage product is called the Flex Down Mortgage.
We all know the minumim down payment is 5%... with this we allow clients to borrow the required 5% down from a line of credit or loan. As long as they can qualify for both the line of credit and the mortgage, buying is simple!
Here is how it works and how it looks by comparison:
Flex Down Mortgage based on $350,000 purchase price - with no down payment
$350,000 - $17,500 (5% down) = $332,500
+ $14,962.50 (CMHC Premium of 4.50%)
= Total mortgage amount on closing of $347,462.50
@ 2.20% VRM = $1,505.08 per month
@ 2.69% FIXED = $1,598.58 per month
+ $350 (est. condo fees)
+ $120 (est. property tax)
= $1,975 to $2,068 per month ALL IN
Flex down means the client is borrowing the legal minimum down payment of 5% down. Therefore the client would borrow the 5% down ($17,250) and also maybe the closing costs.
*** Keep in mind, for first time buyers there is ZERO ($0) land transfer tax for purchases up to $368,000 ***
GET IN TOUCH TO GET MORE INFORMATION
2016 was a record year for home sales in the Greater Toronto Area.
GTA Realtors reported 113,133 sales, which is an 11.8 per cent increase compared to sales in 2015. In December 2016, 5,338 properties have been sold – up by 8.6 per cent in a year-over-year comparison.
The condominium segment experienced a 19.5 per cent increase in December 2016 compared to the year before, and the strongest annual rate of sales growth for the whole 2016 was also recorded in the condominium segment. It is obvious that the demand has shifted from freehold to condos, due to low inventory and higher prices in the freehold segment.
See the below image focusing Central Toronto.
Can this summers' heated market lead to more tension for home-buyers this fall?
Overseas buyers are increasingly looking to buy in Toronto as Vancouver prices continue to skyrocket.
If you think Toronto's market is seeing drastic increases – consider the older 800 sq. ft., 1 bath, 2 bedroom homes being listed for as much as $1.9 million in Vancouver. This may seem absurd but it is the reality in many desirable Vancouver neighbourhoods - comparatively, Toronto homes are a steal.
The BC government introduced a 15 per cent tax for foreign buyers in July and the interest has shifted to Toronto homes more than ever. Although most of the current investors are after the luxury market – the activity will have a trickle-down effect to other markets. The new tax has intensified Toronto's appeal, butthe shift was already well underway.
The short window between the time the tax was announced and implemented left many buyers in a bind. The Ontario government has stated that there are no plans to implement such a tax in Toronto but foreign investors are not quite convinced and still looking for quick closes. TREB announced that they will be looking into foreign-buyer activity and issues affecting supply of properties.
Last month, active listings decreased by 38 per cent compared to August of last year. The substantial decline in listings hasn't stopped sales from increasing at a rate of 23.5 per cent from the same time last year – with the average price rising 17.7 per cent.
With all the drastic changes, many Toronto buyers still feel the urgency to get into the market before they are priced out completely, while others are opening up to the idea of purchasing away from the city and commuting to work. Even with higher availability and lower prices outside the city – bidding wars have moved as far out as Port Hope and Cobourg.
Those cautious about price, but insistent on location, are increasingly considering condo-living. Condo sales have increased 32 per cent from the same time last year.
With summer ending, and people returning from their vacations and summer engagements, many are hopeful that fall will bring new listings and more activity. We're not counting on supply meeting demand any time soon, but we are hopeful that more availability will decrease some tension this fall.
- EFFECTIVE OCTOBER 17TH, ANY ONE BUYING A NEW PROPERTY WITH LESS THAN 20% DOWN MUST QUALIFY BASED ON THE POSTED RATE (4.64%)
- THIS CAN MEAN THE DIFFERENCE IN $150,000 OR MORE FOR SOME BUYERS IN BUYING POWER
Therefore, any first time buyers looking to buy with less than 20% down, must have a firm accepted offer) in place before October 17th, 2016.
If they had a pre approval in place based on the 5yr fixed rate mortgage of (say 2.39%)....their pre approval will not be the same after october 17th. The pre approval amount will go down and could down a lot.
This is not good for first time buyers or any one buying with less than 20% down....another hit to first time buyers.
1) If a client has an approval in place (firm excepted offer) prior to October 17th, they can close up to 120 days later.. the rules are grandfathered.
2) If your client has an insured pre approval now, they will have to get a new one after October 17th. This is very important, especially if anyone is considering waiving the financing condition.
3) This rule change does not effect clients with at least 20% down payment (yet, but this could change as well) - we will see... fingers crossed it does not.
What this means in real numbers... if a client is looking to buy a property with less than 20% down, their budget has dropped by 20 to 25% on average. This is very unfortunate for first time home buys especially.
To see some examples of the impact:
Client before October 17th (buyer with 10% down)
- their budget to buy - $400,000 purchase price
After October 17th
- their budget goes down to - $300,000 purchase price.
This is drastic, but true.
When you’re completely new to the world of real estate, it can be an intimidating pool to wade into. In order to really get the big picture, you need understand a little bit about a lot of terms that are bandied about: interest rates, amortization, mortgage insurance, brokers, lenders . . . the list goes on. If you want to climb onto the first rung of the property ladder but aren’t independently wealthy – and maybe even if you are independently wealthy – then your first priority is to understand what a mortgage is. More than likely you’re going to need one.
You’ve undoubtedly heard the word before, but apart from a vague idea of something to do with property and a bank, what exactly is a mortgage? Simply speaking, a mortgage is a legal agreement in which property is used as security for the repayment of a loan. If all of the agreed-upon terms of the mortgage are met, the borrower will own the property outright by the end of the specified period.
Every mortgage has three components: the principal, the interest, and the amortization period.
A mortgage principal is the amount of money that you’re borrowing from a lender. If you have a $300,000 mortgage, it doesn’t mean that that was the sale price of the property; it’s the amount that you’re being loaned by the bank in order to purchase the property. Your mortgage principal is the sale price of the property minus your down payment, which is the amount of money you present upfront in order to purchase a property.
Interest is the catch of any loan, be it a mortgage or a student loan for university. Sure, a lender will loan you money – for a fee. This fee calculation is fairly tricky and is dependent on something known as the prime rate, which has traditionally been the lowest interest rate that a commercial bank charged its most optimal borrowers. Other factors determining your personal mortgage interest rate include your personal credit score and income level. And as with any other loan, all of the interest paid to your lender is added to your principal, which means that you’re paying more than you borrowed. Part of what to look for when getting a good mortgage is that you pay a competitive interest rate so that you’ll pay as little extra as possible. When you start making mortgage payments, a portion of each payment is dedicated to paying down the principal, but most of it will go toward the interest at first. Eventually, as the principal amount is reduced, there will be less to pay in interest, and therefore the bulk of the payment will continue to go toward the principal.
A loan’s amortization refers to the period of time in which you make scheduled payments in order to pay off that loan. The amortization period is not to be confused with the term of the loan; a term is the length of time that your specific loan parameters, such as the interest rate and payment amount, are agreed upon, while the amortization period is how long you have to pay off the loan. Amortization periods in Canada range from 10-35 years. The longer your amortization period, the lower your monthly payment. The shorter your amortization period, the less you’ll pay in interest over the life of your loan.
Relax, you don’t actually have to do any pencil-to-paper math. Just type some numbers into our mortgage payment calculator.
For example, a $300,000 mortgage with an interest rate of 2.8% and an amortization period of 25 years would mean that your monthly mortgage payments would be $1,391.62. Over the life of the mortgage, you’ll have paid $117,486.00 in interest on top of your original loan, which means that in 25 years you’ll have repaid your lender $417,486.
Use that same loan amount, $300,000, with the same 2.8% interest rate and an amortization period of 15 years, and you’ll see that your monthly mortgage payments are $2,043.01. Over the life of the mortgage, you’ll have paid $67,741.80 in interest on top of your original loan, which means that in 15 years, you’ll have paid the bank $367,741.80. You get the idea: the shorter the amortization period and/or the higher the monthly payments, the quicker you’ll pay off the loan, which means that you’ll pay your lender less in interest.
Two things thing to keep in mind, though. One is that your interest rate won’t stay the same throughout the life of your loan. Remember, the term of a mortgage is the period of time that the lender’s terms remain the same, and a term gets renewed after each period is over. Terms range from six months to 10 years, and the interest rates available to you will vary depending on the length of the term. Shorter terms tend to have lower interest rates, and longer terms tend to have higher rates – with the former, you’re trading stability for low prices. Depending on various factors at the time of your loan renewal, you can choose to renew with the same terms, different terms, or even switch to a different lender, if desired. Mortgage rates could rise and fall over the life of the loan – and generally will, especially if the term is for a long period of time – and whatever the new mortgage rate is at the time of your term renewal will alter your mortgage payments.
The second thing to keep in mind is that if you have less than 20% of the purchase price of your property available upfront as a down payment, then the maximum amortization period you can get is 25 years. There are 35-year amortization periods available, although they aren’t provided by every lender and they’re only available if your down payment is 20% or more. Part of that is because the longer the amortization period, the more likely it is for a borrower to default on the loan. If a borrower has less than 20% down toward a purchase of property, then they are required by law to get mortgage default insurance, also known as mortgage loan insurance, which protects the lender in case the borrower defaults on the loan. The lender pays the insurance premium to the insurance provider, but the cost gets passed on to the borrower, usually by combining it with mortgage, so that there is a single payment that combines the principal and interest of the home loan with the premium for the mortgage default insurance. Generally speaking, the mortgage default premium is calculated as a percentage of the loan and is based on the size of your down payment. The higher the percentage of the total house price/value that you borrow, the higher percentage you will pay in insurance premiums.
The minimum down payment allowed on any property is 5% of its value. If a property is sold for $500,000 or more, then the down payment is 5% up to $500,000, and 10% for any amount over that. Mortgage insurance is only available for properties purchased for less than $1,000,000.
For the most part, a mortgage works just like any other loan, although more safeguards are in place since so much money is at stake. Now that you’ve got a handle on the basics of a mortgage, you can figure out which mortgage product is right for you.
The Toronto real estate market is being driven by these major factors.
The first is restricted supply. Eleven years ago, the Liberal government froze development on 1.4 million acres across 325 km of land from the Niagara River through Hamilton (Golden Horseshoe area), all across the north of the GTA and over to Lake Scugog and Rice Lake, under the Greenbelt Act 2005. This had the effect of creating the “GTA Island”, and like Manhattan in New York City, if you can’t afford to buy there, you will commute one to two hours to get to there.
The second factor is rapid population growth that increases demand.
The population of GTA and surrounding area has grown from 3.7 million people in 1986, to 5.5 million in 2005, to 6.3 million now. It will be 7.3 million people in 2021 and 9.1 million in 2036!
If you remember taking an economics course, you will recall a concept called supply and demand. If there is an increase in demand, there must either be a price or quantity adjustment. Right now, we have no capacity to increase the quantity of land available in the GTA and as a result, land prices have soared for building lots and condo development sites.
We also have record low interest rates. A $500,000 mortgage carries for $2,117/month at today’s interest rate. The same mortgage at 10 per cent interest is $4,472/month. A $1 million mortgage at today’s rates carries for $4,234/month.
The last time we had 10 per cent interest rates was 20 years ago and they have been falling ever since. In the last 20 years, there have only been two quarters when prices dropped in Toronto…see the correlation between prices and interest rates?
FULL ARTICLE HERE
Kitec plumbing was commonly used in homes built between 1995 and 2007, and otherwise for general plumbing repairs or renovations. The Kitec system was sold under a number of different brand names and in a variety of colours, and it consists of pipes and fittings. In 2005, it was recalled because the pipes and fittings were found to have a tendency to corrode quickly and can fail entirely, which can lead to flooding.
The repair of Kitec can cost from a few thousand dollars up to tens of thousands of dollars. The bill to remove and repair this plumbing can be substantial, and it can also lead to insurance or mortgage issues. This should not necessarily be considered minor matter.
REALTORS® and consumers may wish to speak to a lawyer about this type of claim.
"The bill to remove and repair this plumbing can be substantial."
Not only do you have to replace the pipes but you also have to get access to them, which can mean knocking down the walls and then repairing them after replacing the pipes.
Some condo coroporation have started planning and allocating money in their Reserve Funds in which case when buying a condo buyers can breath a little easier knowing there is money to at least cover partly of the upcoming expenses.
Some townhouse complexes around Toronto also have this problem.
Kitec can sometimes be identified by examining the pipes/fittings around the water heater, or beneath sinks. This resource lists the various brand names that were used for the pipes.
There is also a class action settlement regarding Kitec, against IPEX Inc., the manufacturer of Kitec. Funds are set aside to enable for claimants to possibly recoup some money to help cover the cost of repairs and remediation of Kitec plumbing if needed. They will be accepting claims until early 2020. The settlement website has helpful information.
This article on Moneysense.ca provides a helpful overview of the Kitec issue.
Optimism for housing prices in Canada has reached a two-year high as consumer confidence continues its upward march.
The share of Canadians expecting home prices to increase in their neighborhoods over the next six months rose to 43.3 percent last week, the highest level since October 2014, polling for the Bloomberg Nanos Consumer Confidence Index shows. At the start of this year, just 30.6 percent believed home prices would increase.
Nationally, the broad consumer confidence score reached a 2016 high of 57.7, driven by record levels in British Columbia and a rebound in the energy-rich prairies, where optimism rose to a 2016 high of 48.9 despite the commodities price crunch and a wildfire near Alberta’s oil sands that has sapped production levels.
Despite the upward trend, the sub-indexes show uncertainty looming. While the expectations index -- measuring optimism for real estate and the broader economy -- rose to 57.0 from 55.0, the pocketbook index that measures personal finances slipped to 58.4 from 58.9.
“The latest economic data releases hint at upcoming issues for the economy and the labor force,” Bloomberg economist Robert Lawrie said. Manufacturing shipments, imports and exports have all declined as of late,“highlighting Canada’s dependency on global economic trends and the impact of the commodities glut,” he said.
Households continue to be impacted by job losses in manufacturing and gains in the service sector -- a sign of Canada’s transition “away from basic materials and toward higher value-added enterprises,” Lawrie said.
Statistics Canada data last week showed a slender net loss of 2,100 positions in April, however the economy added almost 50,000 jobs in consumer-related sectors. Consumer spending also tempered a 0.1 percent contraction in gross domestic product in February.
According to the Nanos data, the share of those expecting the Canadian economy to gain strength in the next six months rose to 27.6 percent, the highest level since November.
The share of those who say their personal finances have improved over the past year rose to 14.8 percent from 14.5, while the share of those whose finances worsened declined to 28.9 from 29.3 -- leaving the net difference between the two measures at its lowest level since January. The share of those who say their employment is either somewhat or not at all secure, however, rose to 14.5 percent from 13.4 percent a week earlier.
The data is based on a rolling four-week average of telephone polling totaling 1,000 respondents. It’s considered accurate within 3.1 percentage points, 19 times out of 20, with larger margins of error in regional data. The latest polling concluded on May 6.
Here are Toronto's March 2016 Final Resale House and Condo Sales figures.
Sales transactions were UP by 16.2% year-over-year compared to March 2015!
While Average Selling Prices were UP 12.1% compared to the average for the same time in 2015!
6ix Interactive Charts
Check out the detailed report here...
Or if you are really into numbers, check out this link
Here are Toronto's February 2016 Final Resale House and Condo Sales figures.
Sales transactions were UP by 21.1% year-over-year compared to February 2015!
While Average Selling Prices were UP 14.9% compared to the average for the same time in 2015!
Check out the detailed report here...