Overpaying for a house?

[Shazam]

Originally Posted by MaDMaN_26

A Realtor once told me that there has never been a 5 year period in the last 50 some years (he said I could pick any start and stop date as long as it was five year spread) where fixed mortgages out performed open or floating mortgage rates... so as long as you are ok with the interest moving and your payments fluctuating a little, that is maybe the way to go as well. In the end though you have to do what your most comfortable with... no sense being stressed or worried about it.

First off, variable rate mortgages in Canada do not have fluctuating payments. Rather, changes in interest rates changes the term length.

Second, although what the rest you have said is mostly true, if you're a first time homebuyer, you can usually find smoking great mortgage deals, fixed rate mortgages included.

[Russic]

^^ The set-up I currently have seen is a 4.99% fixed or a 4.05% variable. That seems like a pretty smokin' deal, but I know nothing about all this. Would I be correct in assuming that is a deal worth having?

Very sorry Maverickstruth if you see this as derailing your thread.

[maverickstruth]

Originally Posted by Russic

Very sorry Maverickstruth if you see this as derailing your thread.

Haha, wasn't my thread! I derailed it from Rathji first but am loving all the various questions that I wouldn't have thought to ask myself.

[Mike Oxlong]

Originally Posted by MaDMaN_26

My experience is Brokers get a better commission with one lender and so tend to favor that lender, if its a .1% difference to you yet a $200.00+ commission difference to the broker... I'm betting they go with the bigger paycheck... I say this because brokers always seem to go with a first national or the like and I have found the big banks can offer a similar deal or in my latest case a better one... but I don't know that just seems to be that way.. and I assume because first national pays them better.

Maybe you would know this Moneyguy, could a person not request their own credit report and shop around with it in hand. When the lender asks to check your credit you hand them it and say assume this is correct, if I use you of course you will be able to check it in your system and if they don't match your under no obligation to honor any verbal deal we have...

I would think they should be able to quote you based on that...

There is more to a persons application that just their credit report. That does play a major role in what type of rates they can get but there are other factors involved with the application.

There are different commisions on different products that the banks offer. Most of the differences aren't that significant for the most part. For myself I try to find out what the needs of the borrower are rather than just the interest rates. Many programs have better pre payment plans, some penalize the borrower less if they need to get out of the mortgage etc... each borrower has his or her own needs and a good mortgage broker should try to match the borrower to the appropriate program, as well as getting them the best rate.

If I put a client in a program that makes me an extra $200 and then he finds out 2 weeks later he could have saved 1/2% he is going to be pissed with me and not want to use me when it is time for his renewal, and he certainly won't want to be referring me to his friends and family which a huge source of my business. A good mortgage broker should be looking out for all of a clients needs. It is better for himself and the client long term. (Not saying all mortgage brokers share this mentality)

As far as having a lot of inquiries on your credit bureau damaging your credit goes, it's not the banks or lenders that determine your credit score. Equifax or Trans Union determine your score based on payment history, type of credit, and number of inquiries amoung other things. If there are a bunch of Inquiries on your bureau it does damage your score. I don't agree with it but that's the way it is so you do need to be careful about too many inquiries. As Money guy mentioned, a mortgage broker can pull your credit once and shop your deal around to get you the best rate and program for you.

[Winsor_Pilates]

Originally Posted by fotze

Tips

- It may be advantageous to look yourself and use the realtor that is selling. i.e. he may cut you a deal since he would now get twice the commission, may also be favorable nogotiating wise. Also some drawbacks to that, but there are a trillion houses on the market so the value of someone finding a home the second it comes on the market may not be as high as it once was. The realtor for buying is free to you so definately use one.

I'd be carefull with that. Double dippers will often not give you the most honest advice, because they want you to buy that home instead of other potentials. Only do that if you're really into that particular property.

Getting your own selling agent will help you get an honest opinion on all availible homes, because they don't have a personal stake in any of them.

[Winsor_Pilates]

Originally Posted by maverickstruth

Also a prospective first-time home buyer here -- we're basically in a not very good rental situation right now (concerns about major mould problems, among other things) which has us looking to move. Figured that since we can afford it, and so as to not just have to pick up and move again in a year or two anyway, we'd start looking at getting ourselves into some condos, especially with the prices having dropped as much as they have. Unfortunately, our lease is up at the end of August, which doesn't give us a lot of time to watch the market to see if it will bottom out further. But it's better than living in an unhealthy environment

I would suggest looking at assignment of projects that are near completion. Many investors don't want to close on their presales and try to flip them via assignments close to closing. You can sometimes get a great deal there because someone is desperate to assign, and not have to get a mortgage.

Look into condo projects completing around August and see if you like any of them. The prices of assignments just before closigns are almost always less then the price just after completion.

Let me know if you have any more condo questions. I work for one of the biggest pre-sale companies and deal with assignments, completions etc. daily. Would be glad to help if needed.

And if you're afraid or the horror stories about pre-sales, feel free to ask me about those too.

[MaDMaN_26]

Originally Posted by Shazam

First off, variable rate mortgages in Canada do not have fluctuating payments. Rather, changes in interest rates changes the term length.

Second, although what the rest you have said is mostly true, if you're a first time home buyer, you can usually find smoking great mortgage deals, fixed rate mortgages included.

Well the 5 year thing was just what I was told, I can't back it up so fair enough.

My previous mortgage was with First National and was a floating rate and every time the prime rate changed I'd get a letter from them and my payment amount changed, so that *can* happen, but you are correct my CIBC payment even though its open will not change, I expected it to and just phoned and asked so that is interesting... but I do know for a fact you can get one that changes as prime does.

[Shazam]

Originally Posted by MaDMaN_26

Well the 5 year thing was just what I was told, I can't back it up so fair enough.

I'm just referring to first time home buyers. What you said is generally true for "normal" mortgages.

My previous mortgage was with First National and was a floating rate and every time the prime rate changed I'd get a letter from them and my payment amount changed, so that *can* happen, but you are correct my CIBC payment even though its open will not change, I expected it to and just phoned and asked so that is interesting... but I do know for a fact you can get one that changes as prime does.

Interesting. First National is simply a mortgage broker. Do you know who actually underwrote your mortgage?

[MaDMaN_26]

Originally Posted by Shazam

I'm just referring to first time home buyers. What you said is generally true for "normal" mortgages.

Interesting. First National is simply a mortgage broker. Do you know who actually underwrote your mortgage?

No I thought they were the lender... so the mortgage broker I used probably worked for 1st national... hmmm... I did not know that. That answers a few questions though.

**Edit** just got off phone with my lawyer that did the last refinance, he says First National was 100% the lender...

[Mike Oxlong]

First National is a lender. They also own Excalibur Mortgages.
Mortgage brokers do bring clients to them but they are a lender not a mortgage broker.

Many of the lenders are owned by the bigger banks. Maple Trust is part of Scotia bank, MCAP is part of BMO, Firstline is a division of CIBC.

As far as Variable rates go they do fluctuate with Prime. I have 2 variable rate mortgages right now and my payments have been dropping over the last few months while the Bank of Canada has been dropping the key overnight rate.

For anyone who is interested. Many people expected the Bank of Canada to continue dropping rates. June 10h was the latest announcement and they have decided to keep rates where they are for now. Apparently a fear of inflation has caused them to keep the status quo.

On a related note I just got an email today that many banks are raising their fixed rates by 50bps tomorrow. If you are shopping for a mortgage Variables are WAY lower than fixed right now.

[Shazam]

Originally Posted by MaDMaN_26

No I thought they were the lender... so the mortgage broker I used probably worked for 1st national... hmmm... I did not know that. That answers a few questions though.

**Edit** just got off phone with my lawyer that did the last refinance, he says First National was 100% the lender...

Yup, they are a lender. My bad.

Very interesting that they go with the american style method of variable rate handling.

[Claeren]

I would be very careful buying right now, the market is not going to recover for a while (outside of perhaps a false bottom, and then further sustained softness). We tend to be 18 months-24 months behind the States and they were at this same point in the market that long ago and bullish types STILL kept saying to buy-buy-buy - and we all know what is happening down there since then. It largely depends on how much you are currently spending on living arrangements though....


I would also be VERY selective in picking your realtor:

1) They do not get paid by you yes, but they do get paid by the seller AND it is based on what they sell the home for! This creates a conflict of interest (the more you pay the more YOUR realtor makes). So most will say "oh i would never worry about a couple dollars if it meant my client paid more" but i only trust a friend to mean it...

2) Most realtors own property, often being some of the biggest speculators in the market. So they will oftne have a further conflict of interest when you insist you should bid lower than they want you to. If the property you are interested in is listed $40,000 too high then that means all of the realtors listings are also too highly priced AND they themselves may be looking at major losses on their own property. You need to again be forceful about where you believe the market is at and recognize why they have a resistance to it.



Claeren.

[maverickstruth]

Originally Posted by Claeren

I would be very careful buying right now, the market is not going to recover for a while (outside of perhaps a false bottom, and then further sustained softness). We tend to be 18 months-24 months behind the States and they were at this same point in the market that long ago and bullish types STILL kept saying to buy-buy-buy - and we all know what is happening down there since then. It largely depends on how much you are currently spending on living arrangements though....

That's always the trick -- I wish I had a crystal ball (don't we all!). To be honest, I don't know if we'd be as eager to leave our current rental situation if not for the major upkeep problems -- only one of which is the rampant mould. We had been putting off purchasing because we *know* that things probably haven't bottomed out yet, but ultimately, we can't stay where we're at, and after playing with the worst-case scenario numbers (have we considered all the 'hidden costs' of ownership? what would happen if we kept renting and invested the difference instead of purchasing? what about moving fees? job security? are we sure we'll stay 5+ years? etc, etc.) it seems like this is our best short- and long-term choice. At the very least, we know that if there's mould, we can take make sure it gets taken care of.

Doesn't mean it's not scary, though, especially since we're taking the plunge for the first time. Having never been in debt -- even for school, we both completed multiple degrees without student loans or assistance from anyone -- those big numbers seem like an awful lot of debt to take on all at once. Thus the much appreciation for all the cautions and advice given thusfar

[MoneyGuy]

Originally Posted by maverickstruth

Thanks for all the advice and comments everyone -- keep them coming!

A follow-up question about mortgage insurance. I was under the impression that if you're purchasing with less than 20% down, you're basically required to have it. Accurate? Inaccurate?

You're confusing insurance products. Mortgage insurance is not a legal requirement. Small down payments require you to have CMHC insurance, which is NOT the same thing as crappy mortgage insurance.

[MoneyGuy]

Someone asked if you can get your own credit check and shop around yourself. I know you can get a credit check done on yourself (I have mine, BTW). You can take it with you to lenders, I suppose, and show them. They should accept it but I don't know for sure if they will. Some might have policies that it has to come from the broker or their own institution. I would think it should be okay but I can'gt say for sure. I can find out quite easily as I have a broker in Calgary I refer clients to and he will tell me how this works. Bottom line: Avoid lots of credit checks. As has been said, three or four probably won't matter, but if you have lots of checks on your file it will hurt you financially, and you can have multiple checks in a year and not even know it. For example, apply for one of those credit cards to get a free Flames t-shirt and, zap, you have a credit check. Apply for a cell phone, there's another one. Line of credit, there's another one. Apply for a job and you might get another one (not sure of this one). They add up and it can become a problem.

[Rathji]

This thread is awesome, I expected CP to bring gold but this is beyond my expectations.

A coupe questions:

Are those credit check things you can buy online worth much? do they count against you as multiple checks? Would it be worth checking it out since I have no idea what our credit really is?

[Claeren]

Originally Posted by maverickstruth

That's always the trick -- I wish I had a crystal ball (don't we all!). To be honest, I don't know if we'd be as eager to leave our current rental situation if not for the major upkeep problems -- only one of which is the rampant mould. We had been putting off purchasing because we *know* that things probably haven't bottomed out yet, but ultimately, we can't stay where we're at, and after playing with the worst-case scenario numbers (have we considered all the 'hidden costs' of ownership? what would happen if we kept renting and invested the difference instead of purchasing? what about moving fees? job security? are we sure we'll stay 5+ years? etc, etc.) it seems like this is our best short- and long-term choice. At the very least, we know that if there's mould, we can take make sure it gets taken care of.

Doesn't mean it's not scary, though, especially since we're taking the plunge for the first time. Having never been in debt -- even for school, we both completed multiple degrees without student loans or assistance from anyone -- those big numbers seem like an awful lot of debt to take on all at once. Thus the much appreciation for all the cautions and advice given thusfar

Well you are right, at current prices v. supply it IS a lot of debt!

Without going on about it i would certianly say that if you are buying with at least a modest downpayment and on a 25 year (or less) term it is probably fine to buy.

But if you are buying with zero down and/or over more than 25 years (not to mention 40 years) you are better off renting. (Better than paying even more per month just to rent from the bank!)


In fact the only reason prices have not imploded in Alberta already are 40 year mortgages. 70% of current buyers need more than 25 years and 35% are needing 40 year mortgages. That is scary, and people are just buying more than they should out of desperation not realizing that when this wave is done there is no one left and prices have to fall (or at least stagnate indefinitely).



Claeren.

[Shazam]

Originally Posted by Claeren

In fact the only reason prices have not imploded in Alberta already are 40 year mortgages. 70% of current buyers need more than 25 years and 35% are needing 40 year mortgages. That is scary, and people are just buying more than they should out of desperation not realizing that when this wave is done there is no one left and prices have to fall (or at least stagnate indefinitely).

Holy mother of mercy. If that's true and house prices fall, there's going to be some MASSIVE pain.

[Claeren]

Originally Posted by Shazam

Holy mother of mercy. If that's true and house prices fall, there's going to be some MASSIVE pain.

LINK:
http://www.financialpost.com/most_po...html?id=552167

Economists estimate amortizations longer than 25 years now constitute about 70% of all insured mortgage applications and about half of that amount is for the 40-year product.

So i guess you have to subrtract all purchasers who put down more than 30% (20% to 30% IIRC still pay a tiny insurance rate) downpayment, but that can't change the numbers too much.

The figures do show a noticeable retreat in the Canadian housing market this year.

Nationally, resales fell 6.1% year-over-year in April, while price gains have slowed to 4% from around 10% in each of the prior five years. Calgary saw sales drop 31.2% over the year, Edmonton, 25.4% and Victoria 14.2%. Calgary and Edmonton also saw prices dips.

They should have kept it at 25 years (maybe 30 years, but not 40 years) and let the market retreat a little bit last year, but instead they are prolonging the drop but making it that much more painful for an entire generation of buyer.

Rapid house price growth/speculation it NOT a good thing. It is sick how the much of the local press gets away making it sound like it is.... there is no such thing as free money!



Oh, and if you are really wanting to get moving on buying you can visit Greenboro Homes new '24 hour sales centre'! Open 24/7/365!!

Sounds like a bull market to me! lol




Claeren.

[ken0042]

Originally Posted by Rathji

Are those credit check things you can buy online worth much? do they count against you as multiple checks? Would it be worth checking it out since I have no idea what our credit really is?

I say it's good to check it periodically. However there is no need to pay; both Equifax and Transunion are required to let you check once per year for free.

It's usually burried on their site (because they would rather you pay $20 instead of $0), but the link is here and then click on "credit report."