Edmonton Real Estate Blog

Metropolitan Life Insurance (6) (Photo credit: Wikipedia)

Going into the home buying process without the right tools, professionals, and information, can be a real disaster for many people. They easily fall prey to greedy local governments, issuance solicitors, and even a rough housing market. It doesn’t have to be that way, however, especially if homeowners follow a few simple pieces of advice from Elliman CEO Dottie Herman and real estate expert Eric Tyson. The pair recently shared some time on Herman’s “Eye on Real Estate with Dottie Herman” radio show, and discussed the best things to do and know, both before and after buying a home and closing the deal.

Before Committing to a Purchase

It’s no secret that homes are generally the single most expensive investment that a consumer will ever make. For this reason, Tyson urges consumers to “look at [their] overall financial situation to figure out how much house [they] can truly afford.” That’s a pretty good point: Picking a large home is great, and it might even be possible to make a sizable down payment on it, but the home’s monthly payments can quickly become a burden, especially when considered in the context of utility payments, property tax assessments, and overall maintenance costs.

Consumers need to know how much they can afford both in the near-term and in the long-term, considering things like the expense of having children when weighing a mortgage payment amount. Those plans will directly impact finances, and they should be examined before the potential buyer assumes a large payment. If the recent economy has taught consumers no other lesson, it has taught them that foreclosure is a very real possibility and they should make a pragmatic and common sense decision to avoid it.

Living Stress-Free After the Purchase

While many homebuyers might think that actually buying the home and closing a deal is the hardest part of home ownership, the truth is that this is really just the beginning. From that day forward, homeowners will need to pay for insurance, fend off solicitations, work with local governments when paying taxes, and ensure that their savings account is robust enough to save them from the brink in the case of an emergency. Indeed, buying a home is a long-term commitment to proactive ownership and financial responsibility. Tyson and Herman have a few general suggestions for homeowners that will help them avoid the stresses and headaches of home ownership quite easily.

Be Wary of Insurance and Financial Solicitations, and Know Which Ones to Choose

New homeowners will notice that their mailbox is stuffed with offers from banks and other companies offering mortgage insurance, financial products, and all kinds of things that require home ownership and a bit of equity. Most of these should simply be avoided. In fact, even though it has a nice ring to it, even mortgage insurance should be avoided. Instead, Tyson urges homeowners to pursue a classic life insurance policy instead. That’s because the life insurance policy covers actual income and net worth of a person, rather than the cost of a home or an individual’s contribution to paying down those costs.

As he says in his radio conversation, “the life insurance decision comes down to ‘how many years’ worth of your income are you trying to replace?'” Life insurance has many more real and tangible benefits than the more specialized mortgage insurance offering, and it’s a far better investment for homeowners to make with their money.

Make Smart Financial Decisions for Payments and Savings

Owning a home is, whether consumers like it or not, all about money. To that end, electronic debit should be setup when making mortgage payments. This is a great way to make sure that every payment is on time, which will spare homeowners the frustration of paying a late fee or getting a negative mark on their consumer credit report. Because a mortgage is often considered the highest-value debt a person can have, it’s important not to do anything that could place heavily weighted negative remarks on a credit file at all.

Part of ensuring a mortgage’s integrity over the long-term is developing a reserve fund of money that can be used in the event of a financial emergency. Sometimes referred to as an “emergency fund” or “rainy day fund,” consumers should commit to having between three and eight months’ worth of expenses placed into a savings account that they do not touch unless an emergency situation happens. That situation might be a medical emergency, unemployment, or another issue, but these funds should be used for nothing more than paying down debt, making mortgage payments, paying utility bills, and meeting basic expenses.

Remember to Relax and Enjoy the Privilege of Home Ownership

Finally, both Dottie Herman and Eric Tyson recommend that homeowners take a little time each week to sit back, relax, and enjoy the view. There’s really nothing better than owning a home and maintaining a piece of the “American dream” and, despite all of the associated stresses, homeowners need to remember that it’s all worth it. They need to remind themselves that they made a sound investment. And they need to remember that they’re doing all the right things to pay down that mortgage, maintain their investment, and get the best return on every aspect of their financial portfolio.

Want more tips on increasing the value, and enjoyment, of your property?

Call today.

Sincerely,

Kevin Grenier REALTOR®, ABR® SRS® (Accredited Buyer’s Realtor, Seller’s Representative Specialist)

780-893-0269

P.S. make sure you download your real estate app here.

This e-mail is not intended to solicit anyone who is contractually represented by another REALTOR®

The following is one of the better explanations I’ve seen regarding what that changes are and how they may affect you. This was sent to me by Sheri Mitchell a trusted mortgage rep with RBC. It has been reproduced here with permission from RBC.

Bottom line? If you are looking to buy, talk to someone like Sheri, whom I trust, to give you the advice that is right for you regarding your mortgage needs.

Kevin Grenier

Canada’s mortgage rules tightening

Effective July 9, 2012, the rules for government-backed insured mortgages will tighten in Canada.

Canada’s Finance Minister Jim Flaherty has announced that:

  The maximum amortization period for government-backed insured mortgages will be reduced to 25 years from 30 years.

  The maximum amount that an individual can borrow when refinancing will be  The federal government will set a maximum for gross debt-service ratio (GDS) at 39% and lower the maximum for total debt-service ratio (TDS) to 44% from 45%.

  Government-backed insured mortgages will no longer be available for homes with a purchase price of $1 million or more.

This latest move by the federal government — its fourth since 2008 — effectively turns back the clock to the pre-2004 state of affairs, resetting mortgage lending rules to more prudent, if conservative, standards.

What this means to you

As is often the case when rules are changed, the new rules are likely to encourage purchasers looking to take advantage of the current terms to do so prior to the deadline. Past July 9, however, the new rules are likely to restrain homebuyer demand, particularly from first-time buyers.

The reduction of the maximum amortization period to 25 years will have the most direct impact on Canadian homebuyers.

Based on a typical mortgage size ($288,000 for a bungalow) and posted mortgage rate (5.24%),

the reduction in the amortization period from 30 years to 25 years would raise a homeowner’s monthly mortgage bill by $136, representing a material increase of 8.6%. Such an increase would be the equivalent of a 75 basis point hike in interest rates.

Viewed another way, the shorter amortization period would require the qualifying income needed to purchase a home — i.e., the income threshold under which homeownership costs (mortgage payments, property taxes and utilities) exceed a ratio of 39%, as per the new GDS rule — to rise by 6.7%

The new caps on GDS (39%) and TDS (44%) should have little impact. CMHC already applies more stringent maximums for riskier borrowers and has the TDS ceiling of 44% in place for lower risk borrowers. The only change for CMHC will be the application of a 39% GDS maximum for the lower risk borrowers.

The new limit of government-backed insurance coverage to properties valued at less than $1 million could cool demand for the high-end market segment; however, the proportion of high-ratio mortgages in that segment tends to be small.

What does this mean to you and your clients or those you know buying a home

For clients who have purchased a home already and were approved for financing before June 22^nd, the new rules will not apply. For clients who are approved before July 9^th but closing after December 31, 2012, the new default insured rules will apply. For clients who are still shopping and have do not have a firm mortgage approval, it is important that they get the right advice about the impact of these new changes to their plans. Note that mortgage pre-approval without an agreement of purchase and sale is not sufficient to qualify for a 30-year amortization after July 9^th.

Talk to your RBC Mortgage Specialist today. They can help you make sense of these recent changes and also provide the right solution for your clients to balance lifestyle needs and housing affordability. 

Your new home doesn’t come with mortgage advice. I do.

Contact me today:
SHERI MITCHELL

 Mobile Mortgage Specialist
RBC Royal Bank
780-760-5364

sheri.mitchell@rbc.com

Personal lending products and residential mortgages are provided by Royal Bank of Canada and are subject to its standard lending criteria.

® / ™ Trademark(s) of Royal Bank of Canada. RBC and Royal Bank are registered trademarks of Royal Bank of Canada.

City Hall’s main pyramid and fountain. To the left is a cenotaph; in the background is the CN Tower. (Photo credit: Wikipedia)

The following is the monthly press release from the Realtor’s Association of Edmonton in its entirety. If you have any questions on this or would like further detailed statistics, information or analysis, contact me at www.kevingrenier.com

Housing most affordable in Edmonton

Edmonton, June 4, 2012: Home buyers in Edmonton are facing one of the most affordable markets in Canada according to a recent RBC market survey. That is confirmed by month end figures released by the REALTORS® Association of Edmonton for residential property sold in May through the Multiple Listing Service® System. RBC reported that the housing affordability index for Edmonton was just 32.4% of a typical household income. Increases in the affordability index in other parts of the country are influenced by higher real estate prices.

“While housing prices are higher in Edmonton than last month, they are inching up in manageable increments,” said REALTORS® Association of Edmonton President Doug Singleton. “The total amount a home buyer has available for a home purchase is based on the amount they can afford to pay each month. When affordability ratios are low, as they are in Edmonton, the buyer has more confidence in their ability to meet all of their living expenses.” The strong economy with resilient consumer confidence has resulted in strong housing sales in this market and relative price stability.

In May, the average1 residential price was up 3.2% from last month at $348,196. The average price of a single family detached home was $388,762, up 1.7% from the previous month. The average price of a condominium in May was $248,846, up 5.9% from April. Duplex and rowhouse properties sold on average for $310,991; a 5.5% drop from the previous month.

The median3 price for a single family detached home was the highest it has been in five years. Half of the homes sold last month were under $370,000 while an equal number of sales were priced over that figure. In 2008 the median price was $365,000. The median price for condominiums last month was $232,000 which is lower than the 2008 median ($250,000) reflecting a market change that results in higher sales of smaller (and therefore cheaper) condominium properties.

The average days-on-market in May was down one at 49 days and the sales-to-listing ratio was stable at 53%. REALTORS® participated in the sale of over $811 million worth of residential property last month and total MLS® activity for the year is $3.1 billion.

“Many financial planners advise that homeowners should spend a third of their income on housing (mortgage, utilities and property taxes),” said Singleton. “Edmonton is bucking a national trend and making housing more affordable than other cities.” According to RBC the affordability index for Toronto was 53.4% of income and Vancouver was 88.9%.

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Activity (for all residential sales on Edmonton MLS® System)

2 Residential includes SFD, condos and duplex/row houses
3 Single Family Dwelling
4 The middle figure in a list of all sales prices
5 Includes residential, rural and commercial sales

1 Average prices indicate market trends only. They do not reflect actual changes for a particular property, which may vary from house to house and area to area. Prior period figures have been adjusted to include late reported sales and cancellations and therefore reflect a more accurate view of the period than previously reported at month end.

Sincerely,

Kevin Grenier REALTOR®, ABR® SRS® (Accredited Buyer’s Realtor, Seller’s Representative Specialist)

780-893-0269

P.S. make sure you download your real estate app here.

This e-mail is not intended to solicit anyone who is contractually represented by another REALTOR®