Saturday, January 26, 2008

A notice from Accredited Home Lenders

I know we said last time that my next post would be a list of "don't do's" but this news release just came across my desk and I thought I'd post it. This illustrates what is happening to some of the "alternate" lenders in Canada due to the problems experienced in the "sub prime" market worldwide. Other lenders have ceased operating or seriously cut back on lending and administrative operations here since the middle of August 2007 but in no means does it apply to all lenders. - Marshall

"Valued Broker,
As you are aware, current difficult conditions in the secondary markets have resulted in the inability to sell or securitize loans in Canada. At Accredited, we have worked hard over these past few months to continue funding loans. Unfortunately, the secondary market head-winds have become too strong - so we are no longer accepting new loan applications at our production offices in Toronto and Vancouver.

We are downsizing the size of the Canadian workforce appropriately to reduce our costs in Canada while we monitor the market in the future. In addition, we will continue all Canadian servicing and administrative functions in order to maintain the highest level of loan servicing.
Here's what this means to you:

* Effective January 25, 2008, we will no longer be accepting new loan submissions for approval.

* We will honor all outstanding funding commitments, and expect that the last funding commitments will expire in early February.

* The True Blue Rewards program has been discontinued effective immediately. If you are a True Blue Rewards member with an existing point balance, you will have ample opportunity to redeem your points for rewards. Details and instructions for redemption will be sent to members separately.

If you have any questions, please contact our Vancouver office at (866) 862-7610.

Thank you for your support and patronage. This decision is not a reflection of our valued relationship with you, but rather necessitated by deteriorating secondary market conditions that cannot currently sustain a viable origination platform in Canada.


Joseph J. Lydon
President and Chief Operating Officer
Accredited Home Lenders"

Friday, January 25, 2008

Changing rates and lots of uncertainty

Following up on our post earlier this week prior to the Bank of Canada's (BOC)announcement ... not much happened!
The "Fed" in the USA dropped it's rate by .75% in an effort to spur their ecomony and faltering housing market. At least we don't have to worry about the housing market in Canada! We continue to enjoy strong sales of both single family and condominium units and we don't have the same rising default rate as our neighbours do either.
Our rate reduction was a little less - .25% - however we aren't in as bad a condition as our south of the border friends. There is noise already being made that on the next meeting and announcement by the BOC (March 4/08) there will be another .25% reduction.
The effect on institutional mortgage lending rates was minimal. Some lowered their "prime" interest rates by the same .25% so if you are currently in or investigating a variable rate mortgage, that is good news to you. Generally you can obtain a variable rate mortgage at "prime minus .50%" which means that is equal to 5.25%. For all the details on a variable rate mortgage see Spencer Group Mortgages or email me at Unfortunately all lenders did not follow with rate drops in the prime category however we'll give them the benefit of the doubt and hope they catch up right away.
Fixed rate mortgages also dropped at some lenders but again not all followed suit. For example, posted 5 year mortgage rates are currently 7.49% which remains largely unchanged from pre announcement days. Using the services of a mortgage professional will get you access to 5 year mortgage rates of approximately 5.89% (on approved credit). For a more complete review of rates please click here. We did notice some slight rate reductions of .10% so it looks like some of those analysts were correct in their predictions that the banks would cushion some of their losses through increased lending rates. This time they didn't have the optics of raising their rates ... but accomplished the same results by not lowering them as much as they could have done.
Check back with us next time when we suggest a list of "don'ts" when applying for financing.

Monday, January 21, 2008

What's happening with interest rates ?

The easy answer is ... who knows ? This summer I was lucky enough to hear an economist from one of the big banks who gave some interesting opinions. At the time, in Ontario and Eastern Canada the manufacturing sector was preparing for a rough ride. The loonie was strong - it wasn't yet near or over parity as we saw in the fall of 2007 - which seemed to be a result of the overall strong economy and oil sector in Western Canada. So the predicament facing the Bank of Canada (B.O.C.) was: raise interest rates and maintain the strong/rising dollar (hurt the East in other words) OR lower rates to take momentum away from the increasing Canadian dollar and hurt the west. A no-win situation to be sure. We all remember what happened and the eastern part of the country has been feeling the hit ever since.
The B.O.C. will again be setting rates tomorrow and this time around we have a new puzzle to decipher. Added to the ever present question of what they will do (raise, maintain or lower) to rates, we have a new twist in the mix. Some analysts and people in the know are hinting that the "normal set of rules" may not apply this time in how the country's banks and lenders react to the B.O.C.'s decision.What are the normal rules ? If the B.O.C. lowers it's rate the banks follow and reduce theirs too and if the B.O.C. raises then they follow suit. Now for the twist. Perception is that with all the trouble in the U.S. mortgage lending industry and the big Canadian banks' exposure - writedowns/layoffs etc due to non-performing or just plain poor investments - the lenders here may not lower their rates EVEN IF THE B.O.C. DOES SO. The plan if it turns out to be true would mean that the banks are going to try to recoup their U.S. losses on our shoulders.
Whatever happens in the next couple of days it will be interesting. Check back with us and see what the fall out is - see you then !

Tuesday, January 15, 2008

Think about a home inspection when buying

A popular conversation topic these days is the value of a home inspection and particularly the services of a professional home inspector. We feel that home inspections are valuable since they can identify structural issues that may require repair or replacement expenditures and provide you with back up to ensure you don't overpay for the home in question. As with most things, the key to a home inspection is to start by hiring the right professionals. You may want to start with the Canadian Association of Home and Property Inspectors, founded in 1982. It is the national body that all provincial organizations are members of. The Ontario member is the Ontario Association of Home Inspectors which formed in 1987. According to their website, "The OAHI is dedicated to enhancing the technical skills and professional practice of home inspectors, and maintaining high professional standards through education and discipline."

As tired as this sounds, for most Canadians buying a home is the single largest investment they'll ever make so they want to get good value for their money. Not just as in a bargain price or something which will appreciate over time but the knowledge that they are making the right choice and that the asset has no underlying problems. Today's homebuyers are relying on the experts before they firm up their offers. What was once a rarely used service in residential real estate has become commonplace especially with the rapid increase of prices in recent years.

The inspector takes a close look, starting beneath the surface and then reports in detail their findings in written form for the potential purchaser. Covering things like the condition of the foundation, electrical/plumbing/heating services, roof (shingles and underneath), insulation, termites and other pests plus other factors as well. If repair work is to be done either now or in the future, the report indicates what may be required and gives an idea as to when the homeowner will have to incur the expense.

The OAHI website has links for both consumers and realtors as well as information on becoming a home inspector.

Wednesday, January 9, 2008

Should you cash in your RSP to help buy a home - Part II

For the investor in you, this is not such a great deal. Zero percent growth on that withdrawn portion of your RRSP until you pay it back and can reinvest. The whole idea behind an RRSP is tax sheltered growth of funds for retirement. The benefit is of course that you avoid paying interest to the bank on that portion you would have had to borrow along with your mortgage. AND you also got a reduction of your income in the year of contribution. You’ll need to decide for yourself if this is compensating you adequately for having a poor investment inside your RRSP.

Generally, the answer is "no", it does not compensate you adequately. There is of course, one situation where this doesn't matter, and that's when you otherwise simply wouldn't have the funds to purchase the home. When you make less than a 20% downpayment on the purchase of a home you get dinged with a "mortgage insurance" premium. This can increase the effective interest rate on your mortgage by a couple of percent, depending on your credit history. Ask your mortgage broker to calculate for you what the effective yield on your mortgage will be. If it's significantly higher than the interest rate that you could earn by holding a bond in your RRSP then taking advantage of the Home Buyer Plan may be a good idea.

Lots to think about we know ... that's why you should sit down with a mortgage professional and your investment counsellor to have the numbers worked out for you before making a decision. Check out our recommended mortgage broker website Spencer Group Mortgages for more mortgage information and a simple application form. While you're there, sign up for the helpful newsletter for information on this and many more interesting and important topics whether you're a first time home buyer or a veteran looking for the latest information.

Sunday, January 6, 2008

Should you cash in your RRSP to help buy a home? Part I

In Canada, you are eligible to borrow up to $20,000 from your RRSP under the "Home Buyer Plan" if you haven’t owned the home you live in over the last five years. If your spouse also has an RRSP, they can do the same, so you come up with up to $40,000 for down payment. To withdraw funds, just fill out a form T1036 and submit it to your financial institution.
IMPORTANT: by using this form you avoid it being a regular withdrawal with tax deducted from the proceeds.
Once you've made the withdrawal you have until September 30 of the following year to purchase a home. A further one-year period is allowed to move into it and make it your primary residence. This is very important too: that it be your primary residence. The money you withdraw from your RRSP is now a zero-interest loan to yourself. Repayment commences with 1/14th of the amount every year for 14 years, beginning two years after you withdrew the funds. If you don't buy a home, don't make it your primary residence, or don't pay the money back to your RRSP, then the money you withdrew will be treated as income and you will have to pay income tax on it.
Two more unique situations that you should be aware of: you cannot make a contribution to your RRSP and then immediately withdraw that same contribution under the Home Buyer's Plan. You must wait at least 90 days. This does not mean you cannot contribute to your RRSP during those 90 days, just that there must have already been enough money in the RRSP to cover your withdrawal. Finally, if you become a non-resident of Canada you will have to repay all of the money still owing to your RRSP within 60 days of leaving the country.
Next time we look at the investment implications and ask "is this really such a good deal"?

Wednesday, January 2, 2008

Happy 2008 from Your Mortgage Matters

All the best to our readers for a fantastic New Year. Make sure to keep tuned this year for more exciting articles and new web links. Hope to see you again soon !