What would happen if the real estate market suddenly shifted in favor of sellers, and you priced your home off comparable properties in your area that were now outdated (pricing it too low)? Well… in this case, you would likely have an offer on your home within a couple days and within 98-100% of your list price. You may even get competing offers and receive more than the original asking price. Your sale is now done and you can forget about it. You may have gotten $5,000 – $10,000 more in 30-60 days, but that is only a “may”.

What if you decide to speculate a bit and you list for a modest $10,000-$15,000 over the determined market value (assuming an average price of $400,000 for the sake of scale)? Either the stars will align and the perfect person, who is looking for a house like yours, will completely ignore the rest of the homes on the market and decide to pay more for your property out of pure bliss and emotion. Or it will sit for a while. No one knows how long for sure, but you will likely consider a price reduction before 30-45 days. If the market is moving up, then your home may sell in a few months when the market catches it, but what if it doesn’t….

When considering a home to purchase, buyers don’t look at price alone. They always want to know how long a property has been on the market. If it has been sitting, they want to know why, and automatically assume that something is wrong. Furthermore, when they first view a home and decide it is not for them (could be price, layout, etc) even a price reduction rarely entices them to take a second look if they already feel that they don’t like the home. Finally, if you are forced to price reduce, this can be a slippery slope. After waiting for 30 days in a slower market, you will not be the only person who has reduced their price. You will still likely be overpriced, as everyone who was priced ok originally, but is also now the victim of the slow market, is now lower priced than they were before (chasing the market down). You may now actually get less than you would have if it was originally priced lower, due to the stigma of your home and potential market fluctuations. It is now 90 days or more later. If you already bought another home, this can be a very stressful experience (two mortgage payments).

In the example of pricing too low, you sold very quick, got on with your goals and if the market went up, you hopefully bought again to take advantage of the increase. Yes, you may have left a few thousand dollars on the table. If you priced your house too high, you had to price reduce, you may have extra carrying costs (two mortgages), your home now has a stigma and if the market went up, you probably missed out buying again to take advantage of the increase. In fact, if the market went down (in the first example you had already sold), then you will have to keep reducing until it becomes more appealing than the other homes in the community.

The key to pricing a home is to look at your goals and assess how soon you would like it to sell. If you would like to sell quickly, then price your home 1-2% below market value to cushion yourself from fluctuations and to get on with your goals. At market value, you should expect to sell in the average selling time (depends on your market). But when you are overpriced, no one wins. It is like passing up a guaranteed cash pay out in a lottery to go for the big prize. You just might get it…. but at what cost, if you don’t?

This blog article is powered by CIR Realty, adding value to you and your business by bringing you innovation and experience. To find out more about us, visit www.cirrealty.ca.

PLEASE NOTE: These items are only red flags. They are not necessarily problems in themselves, but should trigger a little more research.

Current Owner Assumed Their Mortgage – Assumable mortgages have been an easy way for unscrupulous people to purchase homes without using a bank.

Low Down Assumable Offered – The terms of the mortgage may be horrible, or the house may be over priced.

Stained Basement Items – Water stains on any item in the basement should be questioned.

Newly Finished Basement – This is a common way to hide past problems.

Odd Smell – Could be mould, mildew or caused by water or a past drug operation.

Exterior Cracking – Any unsealed opening on the exterior can cause water entry.

Slope Toward the House – The yard should move water away and not toward the house.

Attached Homes Without Condo Fees – If something happens to the roof or another shared item, who is responsible for the cost? Does your neighbor even have the money for half the expense? Can they paint their half pink?

Hot Water Tank Damage – Any sign of wear and tear on a hot water tank should be addressed very quickly.

Dirty Furnace Filter – The furnace is likely working overtime, and what else haven’t they fixed?

Cold Spots – This can be poor insulation or improper construction.

Swellings Around Windows and Wall Seams – Possible water entry.

Water Staining – Uhhhh… probably water.

Restrictive Covenants on Title – This could restrict the ways you can use the property, or what you can build in the future.

No RPR or Survey – This is the only protection you have to ensure that the house is built in the proper location on the lot and that you are getting the amount of useable land you paid for.

Newly Built Deck or Fence – Is it in a legal location and does it have a permit?

Soft Shower Walls – Could be rotten from long term water leaks

House Feels Small – The square footage listed may not be accurate.

One Agent Represents the Seller and the Buyer – It is impossible for a single agent to get the seller the highest price possible, and the buyer the lowest price possible. This is a conflict of interest. (Dual Agency)

Ask lots of questions and be sure to get accurate information from trusted professionals. Your team of pros is the best protection here.

This blog article is powered by CIR Realty, adding value to you and your business by bringing you innovation and experience. To find out more about us, visit www.cirrealty.ca.

The Joint Venture is by far the most powerful business concept ever conceived. The ability for two or more people to pool their resources together (money, time, skills, etc) to achieve a greater goal, has been the hallmark of the world’s most successful companies and business ventures.

The joint venture’s application to real estate is absolutely natural and has allowed hundreds of thousands (if not millions) of people to accelerate and multiply their results.

Two or more people with a common goal (typically financial) get together and offer each other their resources. One partner may offer their time and services, whereas the other may front the money for the transaction. Since the active partner (time and service) may not have the money, and the investing partner (the source of financing) may not have the time or expertise, both parties are required to successfully bring a transaction together.

An agreement between the two partners is formed. The nature of this agreement is truly mutually beneficial to both parties and huge rewards can be realized.

The Benefits

Investing Partners

•    Higher ROI
•    Increased Investment Possibilities
•    Passive Income
•    No Time Commitment
•    Opportunity to Diversify Portfolio
•    Increased Net Worth
•    Minimized Risk Due to Investment Nature
•    Proven Systems and Clear Cut Agreements
•    Opens the Door to Otherwise Unavailable Investments

Active Partners

•    No Money Required
•    Infinitely Repeatable
•    Increased Net Worth
•    Minimized Risk Due to Investment Nature
•    Unlimited Purchase Power
•    Monthly Cash Flow
•    Leverage Your Time
•    Proven Systems and Clear Cut Agreements
•    Opens the Door to Otherwise Unavailable Investments

How It Works

Once the partners agree to work together, it is time to figure out how the details of the arrangement will unfold. It is important to note that there are no concrete laws involved in determining how the terms of this agreement will look, however we recommend looking at past successful models for guidance. This is what will be discussed here.

A common joint venture agreement is between two parties. One person has some money to invest, however maybe not the time or desire to properly manage a real estate investment, and usually also lacks the specific skills necessary to acquire, maintain and properly assess such a venture. The second partner may not wish to front any money, however has the time, wherewithal and commitment to appropriately acquire, maintain and assess the value of a property.

In this arrangement, the investor typically fronts all the money and the active partner contributes all their time, effort and skills respectively. The investor will cut a cheque, and the active partner will find the property and take care of everything else. Since both parties are equally important, the ownership is divided up 50/50.

Each party will split the income from the property equally after the investor receives their initial investment back. This means that there will be a return of the investment and a return on the investment.

There are three ways you will make money. First, is through the equity that comes from the mortgage being paid down. This has nothing to do with the investor’s down payment, but is the amount that is paid down after possession is taken. Second, is through the cashflow that occurs if the property is rented and the amount of rent collected each month exceeds the monthly expenses (typically paid out quarterly). Finally, the appreciation that is gained as the property increases in value.

A Quick Example:

A property is purchased for $250,000 and the investor fronts $65,000 for the down payment and initial costs. Rents are collected and there is $200.00 per month positive cashflow. Meanwhile the mortgage is paid down $4000 per year. After 3 years, the property is now valued at $330,000 dollars and you decide to sell. Here is the break down:

The investor would get back their $65,000 initial investment
Income from Cashflow: $7,200
Amount of Equity Paid Down: $12,000
Income from Appreciation:  $80,000

Total Income: $92,200
50% share to each partner: $46,100
ROI for the investor: 24% annually or 71% overall

This blog article is powered by CIR Realty, adding value to you and your business by bringing you innovation and experience. To find out more about us, visit www.cirrealty.ca.

The exciting news is that it could be time to make your
move. There are a few reasons why. To begin, it’s pretty
simple math: if you can afford to rent, chances are that
you can afford to buy your own home. Your monthly
mortgage payments may be similar to your rent! That
monthly rent cheque doesn’t need to be money out the
window; it could be money that’s building you equity in
your very own home.

Let’s take a look at how rent and mortgage payments
might compare. If you’re paying $1250 in rent each
month, for example, you could be carrying a mortgage
of $211,794. If you’re paying $1500, that’s potentially a
mortgage of $266,663. Forking over $1750 each month?
You could be paying off a mortgage of $321,532!
How are the mortgage payments so affordable?

Firstly, right now you’re benefiting from historically
low mortgage rates. Secondly, you now have access
to longer-amortization mortgages that lower your
monthly mortgage payment. (The examples above were
based on that combination: a 4.1% rate and 35-year
amortization, 5% downpayment
and 3.15% insurance premium, property taxes and heat of $285 per month).

Many first-time buyers opt for the longer 35-year
amortization mortgage to start, but then down the road,
when cash flow and incomes increase, they know they can
ramp up their payments to pay off their mortgages faster!
Think you can’t buy a house because you haven’t saved
up a downpayment? You can buy a home with 5%
down and use some of the flexible options to obtain the
downpayment, for example from gifts, through borrowing,
or cash back incentives. Mortgage insurers and innovative
lenders believe that Canadians benefit from homeownership
– and they’re helping to make it more accessible.

Even if you’ve had past credit problems, new credit repair
mortgages can help transition you to a brighter future.
That’s more good news for renters!

One more hurdle that some renters worry about is
showing enough income to qualify for a mortgage. If
you’re self-employed, for example, there are mortgage
options available that don’t require you to verify your
income. If you have a good credit history and reliable
income-earning capacity, then you may qualify for a
no-income verification mortgage loan.

Still sitting on the fence? Think about this: every time
you sign a rental or lease agreement, you are signing
a long- lasting contract that has no profit potential
whatever – at least, not for you. When you sign a
mortgage loan agreement, not only do you sign onto
homeownership, but you also sign up for a great equity making
opportunity too.

Buying a home makes both financial and emotional sense.
There are the intangible pleasures that homeownership
offers: increased freedom, privacy, and a sense of
community, for example. Then there are the more tangible
rewards: for decades, Canadian homeowners have been
able to leverage their property purchase into a large
financial return. You’re at a moment of real opportunity
right now: this may be the perfect time for you to get on
the right side of that picket fence!

This article was provided by Jen Mikla, AMP. You can contact her for more information at www.mortgagewithjen.com

This blog article is powered by CIR Realty, adding value to you and your business by bringing you innovation and experience. To find out more about us, visit www.cirrealty.ca.

Cash vs. Credit: The Concept of Leverage

In order to understand real estate financing, it is important that you understand the time value of money. Because of inflation, a dollar today is generally worth less in the future. Thus, while real estate values may increase, an all-cash purchase may not be economically feasible, since the investor’s cash may be utilized in more effective ways. Leverage is the concept of using borrowed money to make a return on an investment. Let’s say you bought a house using all of your cash for $100,000. If the property were to increase in value 10% over 12 months, it would now be worth $110,000. Your return on investment would 10% annually (of course, you would actually net less, since you would incur costs in selling the property).

If you purchased a property using $10,000 of your own cash and $90,000 in borrowed money, a 10% increase in value would still result in $10,000 of increased equity, but your return on cash is 100% ($10,000 investment yielding $20,000 in equity). Of course, the borrowed money isn’t free; you would have to incur loan costs and interest payments in borrowing money. However, you could also rent the property in the meantime, which would offset the interest expense of the loan.

Taking leverage a step further, you could purchase ten properties with 10% down and 90% financing. If you could rent these properties for breakeven cash flow, you would have a very large nest egg in 20 years when the properties are paid off. Balance that with what you could make by investing the cash flow on one free and clear property for 20 years. And, of course, look at the potential risk of negative cash flow from repairs and vacancies on ten properties. Finally, consider the tax implications – if you have cash flow, you have taxable income; if you have increase in equity, there’s no tax until you sell.

Cash Flow vs. Cash Reserve

On a similar note, the size of your down payment will affect your cash flow on rental properties. Let’s consider two examples.

Example 1: $100,000 property with $20,000 down. $80,000 loan @ 6% interest, including taxes and insurance is about $600/month. Assuming you could rent the property for $800/month, you have $200/month cash flow or $2,400/year. Not bad.

Example 2: $100,000 with no money down. $100,000 loan @ 8% (higher rate is generally common for zero-down loans) would make your payments closer to $900/month. With zero down, you have $100/month negative cash flow.

Which is better? Well, it depends on what your goals are and what the rest of your financial picture looks like. Let’s say your goal was to hold the property for 10 years. In the first example, you have $200/month cash flow, but no cash reserve. In the second example, you would have $100/month negative cash flow, but you have $20,000 in reserve. The knee-jerk reaction of some people is that example #1 is safer. But is it really?

Think about it… in the first example, if your property becomes vacant for one month, you’d be out of pocket $600. It would take three months to make that up. In the second example, you have $20,000 in cash cushion to make up the deficit. With $20,000 in the bank, you could handle $1200/year negative cash flow for 16 years. If the property were in an appreciating market, you’d come out fine, even with negative cash flow. Another factor is the choice of loan. You could buy a property with nothing down and an interest-only loan fixed at 5% for three years. If your exit strategy is a lease/option that should cash you out within 36 months, why do a fixed-rate loan?

The point here is that you should not automatically go with a fixed-rate loan. Nor should you seek positive cash flow as the only goal. Likewise, you should not buy properties with nothing down and negative cash flow and assume that short-term market appreciation will be the only source of your profit.

Paying Down Debt

For years, our parent’s generation discouraged debt as a “bad” thing. For some investors, the goal is to own properties “free and clear,” that is, with no mortgage debt. While this is a worthy goal, it does not always make financial sense. If you have free and clear properties, you will make certain amount of cash flow and pay a certain amount of income tax. If you need more cash, you are forced to sell the asset, creating a taxable gain.

If you refinance a property, there’s no taxable event. And, since mortgage interest is a deductible expense, the investor does better tax wise by saving his cash. Think about it… the higher the monthly mortgage payment, the less cash flow, the less taxable income each year. While positive cash flow is desirable, it does not necessarily mean that a property is more profitable because it has more cash flow. More equity will obviously increase monthly cash flow, but it is not always the best use of your money. On the other hand, paying down debt may make sense if you can’t get a higher return elsewhere in the market. Also, if paying down debt can have other rewards, such as bringing a loan below 80% LTV, you may be able to cancel private mortgage insurance and save additional money.

In Short, Don’t Rely on Assumptions… Do the Math!

This blog article is powered by CIR Realty, adding value to you and your business by bringing you innovation and experience. To find out more about us, visit www.cirrealty.ca.

There are hundreds of critical mistakes you can make when selling your home, however there is a universal cure for them all . . . qualifying and choosing the right agent. Ask your agent lots of questions to ensure their motives are in the right place and they have the ability to properly represent you. Furthermore, you need to find out if you are comfortable with this person’s style of business.

In addition to an interview with an agent, have them look at your house and give you an idea of value. The agent will then assess the other homes in the area that are comparable to yours, make financial adjustments for the differences and give you an approximate value. This process is called a CMA.

Step 2 – Document & Material Preparation

In order to sell, there are certain documents and materials that you should obtain. These include an updated survey of your property called a Real Property Report (you likely have one from when you bought the home), any relevant repair receipts (such as a new roof or furnace), any home warranty documents, a spare set of keys, relevant rental or lease agreements, etc. If you live in a condo, pull all the documents you have received from the board or management company. Your Realtor should help you with the rest.

Step 3 – Home Preparation

If there are major repairs that need to be made, consider fixing them before you sell, or offering a credit to a buyer for the repair. If you try to hide it or don’t address the issue, then in the buyer’s mind it will drastically reduce the quality and price of the property . . . “If this is wrong, then what else is wrong”. In terms of a simple cleaning, the key is to de-clutter rooms (knick-knacks and excess furniture), and make sure the house looks clean and well maintained.

Step 4 – The Listing Documents

When you sign the listing documents, be sure that you understand you are signing a legal contract. Your Realtor should clearly explain each clause and the implications. When does the contract begin and how does the contract end? What are my rights and responsibilities within the agreement? Most standard contracts are written to protect you (the seller) and the brokerage as well.

Step 5 – Marketing

Be sure your agent mentions all the features of the house that convinced you to initially make your purchase, because other buyers will likely feel the same way. Look over the marketing materials and if you have any suggestions for additional information, feel free to let us know. Any house will sell if the value exists or is perceived in the mind of the buyer . . . this is the key.

Step 6 – Showings

No one likes to be forced out of their home, but it is extremely uncomfortable for a buyer if you are present during a showing. If possible, make arrangements with a friend, neighbor or relative to escape during showings. The more flexible you can be the better, however if there are specific times that will not work, or if you want a break, simply tell your Realtor. We are all human and buyers will understand that the home will not be accessible 24/7.

Step 7 – Strategy Assessment

After a couple of weeks on the market, we should have enough feedback to assess the current marketing strategy, and it may be time to make some adjustments. This may include changing the marketing medium (newspaper vs websites, etc), the features that are focused on, price, agent incentives, etc. Your agent should remain proactive so the listing doesn’t go stale.

Step 8 – Offer & Negotiation

When someone decides to write an offer, you will be contacted by your Realtor and a time will be set to present it to you. The agent bringing the offer may want to present in person, however you ultimately have the choice. After some negotiations, signatures and initials will be required to finalize the agreement. The goal in a successful negotiation is to come to a win-win solution. Remember, people will pay your price if they feel they are getting the value somewhere else.

Step 9 – Conditions

It is most common for an offer to have some sort of condition on it. This might be that the buyers agree to purchase your house as long as they can get a home inspection first, or subject to their financing being approved. A due date is usually between 7 – 10 days and your house will be considered “conditionally sold” during this time. The shorter the condition dates the better, but it is important to give the buyers a realistic amount of time to save the headache of extensions on dates.

Step 10 – Preparation for Possession

Once the conditions are removed, the deal is considered “firm” and you can prepare for possession. You will need to book an appointment with the lawyer (usually a date about a week before possession), and fulfill any part of the contract that you agreed to. If you said you would paint, clean, or something else, then this must be done before possession to avoid a contract breach.

Step 11 – Closing and Possession

Possession typically happens at 12:00pm unless otherwise agreed to in writing. It is best to have your furniture moved on the previous day as some people like to get in a couple hours early to do a walk through (this is not a requirement and is simply a show of good faith). Keys do not get released to the new owners until noon and only if the money has been transferred to your lawyer (they will notify the Realtors). Typically your cheque will be ready a couple days after, and if you are buying a new home, the lawyers will handle any money transfers that need to happen.

This blog article is powered by CIR Realty, adding value to you and your business by bringing you innovation and experience. To find out more about us, visit www.cirrealty.ca.

Timing is a critical factor in determining the amount of money you can expect to get for your home. It is important to note that we are discussing a free, “no labour required” way to add thousands to the price of your home. Before figuring out when we should sell, we need to understand the two primary factors that will determine how effectively you can maximize your return in regards to timing; Supply & Demand and Motivation.

Supply & Demand

There are certain laws in life that are always right and never wrong. The principle of supply & demand is one of them.

When there are more properties for sale than there are buyers (too much supply and not enough demand), then prices will decrease until the demand equals the supply and the market levels out. Conversely, if there are more buyers than homes (limited supply and high demand) then prices will rise until the demand begins to fall and level off. This law governs the entire real estate industry.

Motivation

This concept is very simple to understand. When your motivation to sell is high, you will be willing to accept a lower price in order to close a transaction more quickly. However, when your motivation is low, people will have to pay a premium to buy because you “don’t have to sell”. For Example: If you are about to be foreclosed on by a bank, then you will likely take less for your home, just to get yourself out of the debt.

Now that we understand these two factors, let’s discuss exactly when you should sell your home.

Competition

A buyer that does their homework will look at all the similar homes in a neighborhood and choose the home that best fits their needs and also provides the most value for their dollar. If you have two similar homes, one is $360,000 and one is $370,000 . . . which one would you buy (all else being the same)? The competition in your neighborhood will dictate how much you can reasonably ask for your home. If there are lots of homes similar to your own (1,700sq ft 2-storey) then you will have to price your home competitively to ensure that it sells in a reasonable amount of time.

Money Making Tip – If possible, wait until your home is one of the only ones like it on the market. If a buyer doesn’t have any options, they will have to pay your price to own your home.

Changing Seasons

Who wants to move or be in transition during Christmas? Would you like hauling furniture when it is 40 degrees below zero? Well, not many people like moving or buying during fall and winter. Conversely, when spring arrives, everyone thinks it is time to make a change in their living arrangements. Also, people with kids need to be settled before September 1 for the start of school. So what does this all mean?? There are a lot more buyers on the market in the spring and early summer. You want to sell when people are buying and buy when people are selling.

If you want to sell quickly, the spring and early summer are by far the best times to have your home on the market (lots of buyers). However, if you shoot for the moon on your price, you will find your home among the thousands of over-priced listings that go stale in the fall as the buyers disappear.
Money Making Tip – Sell your home in the spring, and ask for a very long possession date into the late summer or fall. Then take advantage of the increased motivation of sellers when the buying activity decreases to get a lower price (when you buy).

Sell First or Buy First

There is a standard rule, common throughout the real estate, that says you should sell first and for good reason. Here’s a scenario: You find a home that you would like to purchase, and you write the contract subject to selling your home in the next 30 days. The seller doesn’t like accepting this special clause in the offer, but agrees to it if you pay $5,000 more. For the peace of mind of not being stuck with two homes, you agree. Now you are selling, however you are two weeks into the listing and starting to get nervous. Finally, a low ball offer comes in and you negotiate price, but settle for less than you wanted because you really want the other house and have to sell your current home to pay for it (you are very motivated). On both sides of the transaction, you may have lost a total of $15,000 because of your motivation ($5,000 on the buying end & $10,000 on the selling end).

If you sell your home first, you will always be in a power position, as you don’t “have to” sell (less motivated). This way you can wait as long as you need for an offer to come in that is acceptable to you. In addition, when you decide to buy you can write an offer with fewer conditions, and have the ability to match possession dates for your convenience.

Money Making Tip – In normal market places, selling first will give you the negotiating edge to save thousands.

If you are looking for an uncommon home or if the market is very low on listings, you may want to consider buying first. Give yourself enough time on the possession date to sell your home without too much pressure. In addition, speak with your bank about bridge-financing in case you need to temporarily carry two mortgages.

This blog article is powered by CIR Realty, adding value to you and your business by bringing you innovation and experience. To find out more about us, visit www.cirrealty.ca.

Pre-Approval

Knowing how much you can afford to spend on a home, and finding the right way to finance it, are two of the easiest ways to increase the comfort of home ownership. Before falling in love with a potential new home, you may want to obtain a pre-approval. This will help you stay within your price range and spend your time wisely looking at homes you can reasonably afford. The pre-approval meeting is the time to find out about different mortgage products that are available to suit your particular needs.

Making an Offer to Purchase

Once you’ve found your new home, it’s time to finalize the deal. This can be one of the most emotional times within the home buying process, as you will make an Offer to Purchase or Agreement of Purchase and Sale which will bring you closer to owning a home. The Offer to Purchase is the official document that outlines the agreement between the seller and buyer of a property. It contains the particulars of the transaction such as: the purchase price, deposit, conditions, date of closing, etc.

What the Agreement Will Typically Include

1. The purchase price;
2. A list of items included in the sale – ie. appliance, light fixtures, bookcases and draperies might be negotiated in the purchase price;
3. Any conditions you may need to protect yourself, such as “subject-to-financing” and/or “home inspection” clauses. In addition, including a condition to revisit the property prior to closing for measurements and final preparations as you will most likely need to be accompanied by your real estate representative;
4. Important dates such as the closing dates for the sale of property.Note: It’s always a good idea to have your lawyer/notary review the offer and the Agreement before they are signed by you.

Mortgage Approval

What you need to get approved:

1. Confirmation of income — a signed letter from an employer or pay stub for salaried employees, or two years of tax assessments for commissioned or self-employed individuals;
2. Current banking information;
3. Evidence of your downpament amount;
4. A list of assets, including property and vehicles;
5. A list of liabilities, including items such as credit card balances;
6. Addresses and contact information for your lawyer or notary;
7. A copy of the purchase agreement;
8. A copy of the MLS® listing, which contains property details and photo, if applicable;
9. Contract and building plans, if you are having a home built.

This article was provided by Micheal Piper, TD Canada Trust. To get more information, contact him at: michael.piper@td.com, or phone him at: 403-470-7617.

This blog article is powered by CIR Realty, adding value to you and your business by bringing you innovation and experience. To find out more about us, visit www.cirrealty.ca.

If you plan on selling your home and buying a new one, your first move should be to look into your mortgage options.  You need to consider your current mortgage of course, and the mortgage that you’ll need on your new house.  If you are downsizing then there is no additional financing needed.  But if you are “trading up” and planning on having a bigger mortgage, you need to examine your options, which include:

Bringing your mortgage with you
Most mortgages today are portable, which means you can take your current interest rate and mortgage contract to your new home, subject of course to certain conditions like the amount of your mortgage. If you need a bigger mortgage, you can often “blend” your current mortgage rate with the mortgage rate on the additional funds you need

Getting a new mortgage
With interest rates today still low, you might want to consider breaking your current mortgage and getting a new one for the total amount you need. To break your mortgage, your lender typically has the right to charge a penalty based on the greater of three months’ interest or the interest rate differential (IRD), which is essentially the difference between your old rate and current rates for your remaining term. Lately, the IRD is often the larger penalty and the amount is surprising some people.

To determine your approximate penalty, you need to know your existing rate, time remaining on your term and the current rate for the remaining term.  The three month interest calculation is the outstanding balance of the mortgage multiplied by the existing rate and then divided by four. The IRD is a bit more complicated at the balance of the mortgage multiplied by the rate differential and then multiplied by the remaining term, which may be rounded up or down. The actual number from your lender may be lower if they use a present value calculation.  And since lenders can calculate IRD differently, you should always get the actual penalty from your lender.

Obviously you’ll want to compare your new blend/extend rate with the rate you’d get with a new mortgage.  Remember your principal balance will be higher with the new mortgage if you roll in your penalty, or you could pay the penalty upfront. If you are in a term longer than 5 years and you have passed the fifth year, the three month penalty applies and not  the IRD so this may make breaking your mortgage more appealing.  Of course, the exact terms and conditions of your current mortgage need to be examined closely to determine if there are other factors to consider.

Keep in mind, too, that some mortgages are assumable, which means the buyer of your home assumes its mortgage, subject to meeting the financial requirements of your mortgage lender. If you have an attractive mortgage rate, offering an assumable mortgage to prospective buyers can help increase your home’s marketability.

Sound confusing?  It absolutely is.  That’s why you need to speak with an experienced mortgage planner who can help you make a realistic assessment of your situation. It’s worth a professional mortgage analysis to determine which option is the most beneficial to you.  There’s no cost or obligation. We’re up-to-date on current rates and all of the new opportunities available – from a wide range of lenders – so we can help you with all of your mortgage details when you sell your home.

This article was provided by Jen Mikla, AMP. You can contact her for more information at www.mortgagewithjen.com

This blog article is powered by CIR Realty, adding value to you and your business by bringing you innovation and experience. To find out more about us, visit www.cirrealty.ca.

Personally, we feel it is in your best interest to hire a Registered Home Inspector from the Canadian Association of Home and Property Inspectors Alberta. All members of the association require following minimum standards of practice; thus, bringing very good service. The purpose of the standards of practice is to establish uniform standards for home inspectors that are intended to provide prospective home buyers with critical information regarding the condition of the systems and components of the home.

To become a full member of CAHPI requires extensive training and experience.

Members begin as “Applicants”, and when they have completed the education and exams they become “Associate Inspectors”.  A “Registered Home Inspector” has completed all of these requirements plus has conducted at least 250 professional Home Inspections. All Members are required to keep their knowledge current through ongoing education and attendance at seminars.

Arranging a home inspection as soon possible is the best way to go in order to have time to address any problems with your prospective home without facing undue pressure. It is always good to accompany the home inspector during their inspection and take your own notes during the process.  Be sure to ask questions and ensure that any concerns you may have are addressed.  And don’t forget to do a second walk-though of your new home, before you close the deal, to ensure that it appears to be in the same condition as it was when you visited with your inspector.

This blog article is powered by CIR Realty, adding value to you and your business by bringing you innovation and experience. To find out more about us, visit www.cirrealty.ca.