Don't be a dollar short and a day late again. This is starting to be like an old record that plays and plays and plays - then one day we wake up and there are CD's.
Neil "Mortgage Man" McJannet
ROB CARRICK | Columnist profile | E-mail
From Wednesday's Globe and Mail
Published Tuesday, Apr. 17, 2012 7:53PM EDT
Last updated Tuesday, Apr. 17, 2012 7:55PM EDT
The decade’s most ignorable piece of financial advice: Pay down your debts before interest rates rise.
You’ve heard this warning a hundred times, you ignored it and rates held steady at historic lows. Now, the Bank of Canada is signalling that borrowing costs could rise if economic conditions keeps improving. Here are 10 reasons not to tune out this time around:
1. Rates will eventually rise – it’s inevitable
Financial stress now seems a permanent feature of the global economy. Will China’s economy stall? Will Europe’s debt problems worsen? Can the United States address its debt problems and get its economy going again? These are all open-ended questions that suggest there’s a chance interest rates will need to stay low for longer. Not forever, though. It could be years until stability rules, but it could also be months.
2. Borrowing means you can’t afford the stuff you’re buying
Borrowing is okay when buying houses and cars because few of us can pay cash for such large expenses. But using a line of credit to finance your lifestyle is like living on other people’s money. Exception: If you use your credit line strategically to acquire things that are paid off quickly without immediately running up your debt again. Question for you: How often are you using your line of credit? If it’s more than a few times a year, you’re likely overspending.
3. Cutting debt gives you a buzz
I paid off a five-year car loan three years early in 2011. What a high. Better than buying the car.
4. Less stress
I can tell from reader e-mails that people are stressed about debt and wondering what to do. Try taking your tax refund and using it to pay down your credit card or line of credit balance. Stop contributing to your registered retirement savings plan or tax-free savings account for one year and use the money to lower your debt. Get rid of that second-car loan.
5. Your next mortgage renewal could be scary
People who bought homes in the past couple of years have benefited from historically low mortgage rates. As recently as last month, you could get a fully discounted, five-year, fixed-rate mortgage for about 3 per cent. That compares with an average of roughly 4.5 per cent over the past decade and a high of about 5.5 per cent.
Use this Globeinvestor.com calculator to look at scenarios showing how much more your mortgage will cost if you renew at higher rates: http://tgam.ca/DKA7 (you’ll need to find out what your balance on renewal is).
And don’t tell me that future pay increases will help you afford larger mortgage payments. Big raises are scarce these days and, when you get one, you’re not going to want to see it eaten up by your mortgage.
6. Your kids need help affording university
One of my pet peeves is that parents are not saving enough in registered education savings plans. Cut debt and you have some free cash flow you can put into a regular monthly RESP contribution plan.
7. You get more control over when you retire
Reduce your debts and you can also increase your retirement savings. The more you save for retirement, the less likely it is that you’ll have to continue working in some capacity after you turn 65 to generate income.
8. You won’t retire with debt
People over the age of 45 are among the biggest debt fiends in the country. What are they thinking? That it would be fun to be on a fixed income while trying to cope with rising borrowing costs on lines of credit or mortgages? It’s hard to believe this even needs to be said, but a financially secure retirement starts with zero debt.
9. You’re covered for emergencies
People without debts are better able to afford a health or dental emergency, a basement flood, a leaky roof or a major car-repair bill. If you don’t have an emergency fund, pay off a debt and use the monthly payments you were making to build up your savings.
10. There’s no down side
No one has ever told me: “I really regret paying off my debts.” There’s always a use for the money you save, even if it’s to rack up more debt.
For more personal finance coverage, follow me on Twitter (rcarrick) and Facebook (Rob Carrick).
Thursday, April 19, 2012
Wednesday, April 18, 2012
Once again: Pay down your debts before rates rise
ROB CARRICK | Columnist profile | E-mail
From Wednesday's Globe and Mail
Published Tuesday, Apr. 17, 2012 7:53PM EDT
Last updated Tuesday, Apr. 17, 2012 7:55PM EDT
The decade’s most ignorable piece of financial advice: Pay down your debts before interest rates rise.
You’ve heard this warning a hundred times, you ignored it and rates held steady at historic lows. Now, the Bank of Canada is signalling that borrowing costs could rise if economic conditions keeps improving. Here are 10 reasons not to tune out this time around:
1. Rates will eventually rise – it’s inevitable
Financial stress now seems a permanent feature of the global economy. Will China’s economy stall? Will Europe’s debt problems worsen? Can the United States address its debt problems and get its economy going again? These are all open-ended questions that suggest there’s a chance interest rates will need to stay low for longer. Not forever, though. It could be years until stability rules, but it could also be months.
2. Borrowing means you can’t afford the stuff you’re buying
Borrowing is okay when buying houses and cars because few of us can pay cash for such large expenses. But using a line of credit to finance your lifestyle is like living on other people’s money. Exception: If you use your credit line strategically to acquire things that are paid off quickly without immediately running up your debt again. Question for you: How often are you using your line of credit? If it’s more than a few times a year, you’re likely overspending.
3. Cutting debt gives you a buzz
I paid off a five-year car loan three years early in 2011. What a high. Better than buying the car.
4. Less stress
I can tell from reader e-mails that people are stressed about debt and wondering what to do. Try taking your tax refund and using it to pay down your credit card or line of credit balance. Stop contributing to your registered retirement savings plan or tax-free savings account for one year and use the money to lower your debt. Get rid of that second-car loan.
5. Your next mortgage renewal could be scary
People who bought homes in the past couple of years have benefited from historically low mortgage rates. As recently as last month, you could get a fully discounted, five-year, fixed-rate mortgage for about 3 per cent. That compares with an average of roughly 4.5 per cent over the past decade and a high of about 5.5 per cent.
Use this Globeinvestor.com calculator to look at scenarios showing how much more your mortgage will cost if you renew at higher rates: http://tgam.ca/DKA7 (you’ll need to find out what your balance on renewal is).
And don’t tell me that future pay increases will help you afford larger mortgage payments. Big raises are scarce these days and, when you get one, you’re not going to want to see it eaten up by your mortgage.
6. Your kids need help affording university
One of my pet peeves is that parents are not saving enough in registered education savings plans. Cut debt and you have some free cash flow you can put into a regular monthly RESP contribution plan.
7. You get more control over when you retire
Reduce your debts and you can also increase your retirement savings. The more you save for retirement, the less likely it is that you’ll have to continue working in some capacity after you turn 65 to generate income.
8. You won’t retire with debt
People over the age of 45 are among the biggest debt fiends in the country. What are they thinking? That it would be fun to be on a fixed income while trying to cope with rising borrowing costs on lines of credit or mortgages? It’s hard to believe this even needs to be said, but a financially secure retirement starts with zero debt.
9. You’re covered for emergencies
People without debts are better able to afford a health or dental emergency, a basement flood, a leaky roof or a major car-repair bill. If you don’t have an emergency fund, pay off a debt and use the monthly payments you were making to build up your savings.
10. There’s no down side
No one has ever told me: “I really regret paying off my debts.” There’s always a use for the money you save, even if it’s to rack up more debt.
From Wednesday's Globe and Mail
Published Tuesday, Apr. 17, 2012 7:53PM EDT
Last updated Tuesday, Apr. 17, 2012 7:55PM EDT
The decade’s most ignorable piece of financial advice: Pay down your debts before interest rates rise.
You’ve heard this warning a hundred times, you ignored it and rates held steady at historic lows. Now, the Bank of Canada is signalling that borrowing costs could rise if economic conditions keeps improving. Here are 10 reasons not to tune out this time around:
1. Rates will eventually rise – it’s inevitable
Financial stress now seems a permanent feature of the global economy. Will China’s economy stall? Will Europe’s debt problems worsen? Can the United States address its debt problems and get its economy going again? These are all open-ended questions that suggest there’s a chance interest rates will need to stay low for longer. Not forever, though. It could be years until stability rules, but it could also be months.
2. Borrowing means you can’t afford the stuff you’re buying
Borrowing is okay when buying houses and cars because few of us can pay cash for such large expenses. But using a line of credit to finance your lifestyle is like living on other people’s money. Exception: If you use your credit line strategically to acquire things that are paid off quickly without immediately running up your debt again. Question for you: How often are you using your line of credit? If it’s more than a few times a year, you’re likely overspending.
3. Cutting debt gives you a buzz
I paid off a five-year car loan three years early in 2011. What a high. Better than buying the car.
4. Less stress
I can tell from reader e-mails that people are stressed about debt and wondering what to do. Try taking your tax refund and using it to pay down your credit card or line of credit balance. Stop contributing to your registered retirement savings plan or tax-free savings account for one year and use the money to lower your debt. Get rid of that second-car loan.
5. Your next mortgage renewal could be scary
People who bought homes in the past couple of years have benefited from historically low mortgage rates. As recently as last month, you could get a fully discounted, five-year, fixed-rate mortgage for about 3 per cent. That compares with an average of roughly 4.5 per cent over the past decade and a high of about 5.5 per cent.
Use this Globeinvestor.com calculator to look at scenarios showing how much more your mortgage will cost if you renew at higher rates: http://tgam.ca/DKA7 (you’ll need to find out what your balance on renewal is).
And don’t tell me that future pay increases will help you afford larger mortgage payments. Big raises are scarce these days and, when you get one, you’re not going to want to see it eaten up by your mortgage.
6. Your kids need help affording university
One of my pet peeves is that parents are not saving enough in registered education savings plans. Cut debt and you have some free cash flow you can put into a regular monthly RESP contribution plan.
7. You get more control over when you retire
Reduce your debts and you can also increase your retirement savings. The more you save for retirement, the less likely it is that you’ll have to continue working in some capacity after you turn 65 to generate income.
8. You won’t retire with debt
People over the age of 45 are among the biggest debt fiends in the country. What are they thinking? That it would be fun to be on a fixed income while trying to cope with rising borrowing costs on lines of credit or mortgages? It’s hard to believe this even needs to be said, but a financially secure retirement starts with zero debt.
9. You’re covered for emergencies
People without debts are better able to afford a health or dental emergency, a basement flood, a leaky roof or a major car-repair bill. If you don’t have an emergency fund, pay off a debt and use the monthly payments you were making to build up your savings.
10. There’s no down side
No one has ever told me: “I really regret paying off my debts.” There’s always a use for the money you save, even if it’s to rack up more debt.
Monday, April 9, 2012
Canadians confused over real estate market
By Liam Lahey
Despite highly-competitive interest rates, Canadians are backing away from the real estate market. And it's no wonder. Consumers are bombarded with contradictory economic reports about the fragility of the housing market in the U.S., the blistering-hot Canadian real estate bubble -- is it even a bubble? -- and varying interest rates that seem to change on a dime according to the whims of the big-six Canadian banks.
These conflicting messages are playing out in housing market sentiment, suggests an annual Royal Bank of Canada survey.
According to the "19th Annual RBC Homeownership Poll", an increasing majority of Canadians believe that now is the time to get into the housing market (59 per cent, up four percentage points from last year), instead of waiting until next year (41 per cent).
And yet, more Canadians say they are unlikely to buy within the next two years (73 per cent, up two percentage points), even as confidence in homeownership is on the rise.
"What we're seeing here is consumers are taking a smart approach to buying a home. Canadians are recognizing housing is a good investment (88 per cent of respondents say so) and with the low interest rate environment and affordability at reasonable levels, they're telling us that now's a good time to buy," says Claude DeMone, director, Strategy and Portfolio, Home Equity Financing at RBC in Toronto.
"However, they're unlikely to do so within the next two years. I think that's people taking a smart approach, looking at their budget, and ensuring they have the resources to buy a home they can afford and that they can keep their mortgage payments are kept in line going forward."
The RBC poll also finds that after four years of sentiment favouring a buyer's market, the tide appears to be turning. More Canadians surveyed this year feel the current housing market is a seller's market, in which sellers have the advantage because the number of buyers exceeds the number of homes available (27 per cent, up from 20 per cent in 2011).
Nearly four-in-10 Canadians say it is a buyer's market (38 per cent, down two percentage points from a year ago). Fewer believe that the housing market is balanced (36 per cent, down from 40 per cent a year ago).
"With the low interest rates we've been seeing recently, it's a great story for consumers," he says. "If you're buying a home, this is a great time to get into the market but the right thing to do is to consider your budget and determine if you're ready. That's where some of the conflicting opinions on the market is: it's the difference between desire and ability."
Canadian economists have fretted about rising housing prices as household debt levels have soared. The ratio of debt to personal disposable income hit a record 151.9 per cent last year.
A Royal LePage House Price Survey shows strong year-over-year price gains for all housing types.
In Toronto, the numbers show it is most definitely a seller's market with prices steaduly on the climb in the first quarter of 2012:
Standard two-storey homes posted the largest price increases rising 7.5 per cent year-over-year to $645,467
Detached bungalows rose 5.5 per cent year-over-year to $544,450
Standard condominiums witnessed an increase of 3.5 per cent to $353,355 compared to the same period last year
The same holds true for Vancouver's hot housing market:
Standard two-storey homes saw the largest year-over-year price increases, rising 9.1 per cent to $1,182,250
Detached bungalows posted a similar 9.0 per cent year-over-year increase rising to $1,068,500
Standard condominiums rose a modest 0.5 per cent year-over-year to $510,000.
"Our housing market is being pulled in opposite directions by opposing economic forces," Phil Soper, president and chief executive of Royal LePage Real Estate Services, said in a statement.
"On one hand, there is the rapidly strengthening U.S. economy, increasing Canadian consumer confidence and what can only be called a national mortgage sale encouraging activity and bidding up home prices. On the other, we have signs of over-shooting values and strained affordability in our largest cities. We are likely to see much more modest price appreciation as the year unfolds."
Despite highly-competitive interest rates, Canadians are backing away from the real estate market. And it's no wonder. Consumers are bombarded with contradictory economic reports about the fragility of the housing market in the U.S., the blistering-hot Canadian real estate bubble -- is it even a bubble? -- and varying interest rates that seem to change on a dime according to the whims of the big-six Canadian banks.
These conflicting messages are playing out in housing market sentiment, suggests an annual Royal Bank of Canada survey.
According to the "19th Annual RBC Homeownership Poll", an increasing majority of Canadians believe that now is the time to get into the housing market (59 per cent, up four percentage points from last year), instead of waiting until next year (41 per cent).
And yet, more Canadians say they are unlikely to buy within the next two years (73 per cent, up two percentage points), even as confidence in homeownership is on the rise.
"What we're seeing here is consumers are taking a smart approach to buying a home. Canadians are recognizing housing is a good investment (88 per cent of respondents say so) and with the low interest rate environment and affordability at reasonable levels, they're telling us that now's a good time to buy," says Claude DeMone, director, Strategy and Portfolio, Home Equity Financing at RBC in Toronto.
"However, they're unlikely to do so within the next two years. I think that's people taking a smart approach, looking at their budget, and ensuring they have the resources to buy a home they can afford and that they can keep their mortgage payments are kept in line going forward."
The RBC poll also finds that after four years of sentiment favouring a buyer's market, the tide appears to be turning. More Canadians surveyed this year feel the current housing market is a seller's market, in which sellers have the advantage because the number of buyers exceeds the number of homes available (27 per cent, up from 20 per cent in 2011).
Nearly four-in-10 Canadians say it is a buyer's market (38 per cent, down two percentage points from a year ago). Fewer believe that the housing market is balanced (36 per cent, down from 40 per cent a year ago).
"With the low interest rates we've been seeing recently, it's a great story for consumers," he says. "If you're buying a home, this is a great time to get into the market but the right thing to do is to consider your budget and determine if you're ready. That's where some of the conflicting opinions on the market is: it's the difference between desire and ability."
Canadian economists have fretted about rising housing prices as household debt levels have soared. The ratio of debt to personal disposable income hit a record 151.9 per cent last year.
A Royal LePage House Price Survey shows strong year-over-year price gains for all housing types.
In Toronto, the numbers show it is most definitely a seller's market with prices steaduly on the climb in the first quarter of 2012:
Standard two-storey homes posted the largest price increases rising 7.5 per cent year-over-year to $645,467
Detached bungalows rose 5.5 per cent year-over-year to $544,450
Standard condominiums witnessed an increase of 3.5 per cent to $353,355 compared to the same period last year
The same holds true for Vancouver's hot housing market:
Standard two-storey homes saw the largest year-over-year price increases, rising 9.1 per cent to $1,182,250
Detached bungalows posted a similar 9.0 per cent year-over-year increase rising to $1,068,500
Standard condominiums rose a modest 0.5 per cent year-over-year to $510,000.
"Our housing market is being pulled in opposite directions by opposing economic forces," Phil Soper, president and chief executive of Royal LePage Real Estate Services, said in a statement.
"On one hand, there is the rapidly strengthening U.S. economy, increasing Canadian consumer confidence and what can only be called a national mortgage sale encouraging activity and bidding up home prices. On the other, we have signs of over-shooting values and strained affordability in our largest cities. We are likely to see much more modest price appreciation as the year unfolds."
Monday, March 26, 2012
Govt in no rush to tighten mortgage rules
Well isn't that a turn of events. The banks are asking for the government to impose rules rather than them making proper changes to their own lending policy. Well now that they see their own weakness maybe they will ask the government to lower the rates allowed to be charged on their charge cards. Ha Ha That one is far too profitable so they will keep it under wraps for a long time I am sure. Too bad the government watch dogs don't bite the banks in retaliation!
Neil "Mortgage Man" McJannet
The government seems prepared to sit pat with the current set of mortgage rules -- the Finance minister viewing, with some irony, banker calls for tighter ones.
“I find it a bit off that some of the bank executives are taking the position that the Minister of Finance or the government somehow should tell them how to run their business,” Jim Flaherty told reporters just outside Ottawa Thursday. “It’s their market. It’s not my market.
“They decide what they want to charge in interest rates.”
While analysts are still parsing through those comments, a consensus is emerging that the government will hold off on further tightening of the country’s mortgage rules, at least for now.
TD’s chief economist, among others, had urged Flaherty to use his budget address next week to announce one of three moves meant to slow down demand for housing.
On Thursday, the Minister hinted at none of those – a shorter amortization, a higher minimum down payment or new stress tests for borrowers.
“With respect to tightening up the mortgage insurance market we’ve done it three times,” he said. “If we have to tighten it some more we will. The new housing market produces a lot of jobs in Canada so there’s a balance that needs to be addressed. I’d like the market to correct itself, quite frankly, if it can.”
That may not please some property investors, quietly hoping for tighter mortgage rules and any uptick in demand for rental units that might result from tougher qualifying terms.
Neil "Mortgage Man" McJannet
The government seems prepared to sit pat with the current set of mortgage rules -- the Finance minister viewing, with some irony, banker calls for tighter ones.
“I find it a bit off that some of the bank executives are taking the position that the Minister of Finance or the government somehow should tell them how to run their business,” Jim Flaherty told reporters just outside Ottawa Thursday. “It’s their market. It’s not my market.
“They decide what they want to charge in interest rates.”
While analysts are still parsing through those comments, a consensus is emerging that the government will hold off on further tightening of the country’s mortgage rules, at least for now.
TD’s chief economist, among others, had urged Flaherty to use his budget address next week to announce one of three moves meant to slow down demand for housing.
On Thursday, the Minister hinted at none of those – a shorter amortization, a higher minimum down payment or new stress tests for borrowers.
“With respect to tightening up the mortgage insurance market we’ve done it three times,” he said. “If we have to tighten it some more we will. The new housing market produces a lot of jobs in Canada so there’s a balance that needs to be addressed. I’d like the market to correct itself, quite frankly, if it can.”
That may not please some property investors, quietly hoping for tighter mortgage rules and any uptick in demand for rental units that might result from tougher qualifying terms.
Wednesday, March 21, 2012
How Canadians can boost home value through renovation
By Gail Johnson http://ca.finance.yahoo.com/blogs/insight/canadians-boost-home-value-renovation-132555909.html
With the popularity of home-decorating shows like Trading Places soaring, suddenly everyone's an interior designer. But from a real expert's point of view, where are home-owners' renovation dollars best spent?
"Kitchens and bathrooms are the best place to start," says Toronto's Howie Track, owner of Traxel Construction, which specializes in high-end residential and commercial renovation and construction. "Kitchens and bathrooms are the first places people look, and if a new buyer sees that the kitchens and bathrooms have been done, then there's less for them to do."
Figures from the Appraisal Institute of Canada support Track's claim. According to the Ottawa-based property-valuation association, bathroom and kitchen renovations continue to be the most popular on the list of perennial home improvements, with a recovery rate of between 75 and 100 percent.
The organization defines "recovery rate" as the likely increase in a home's resale value that could be attributed to a renovation. If a $10,000 renovation increases a home value by $6,000, for example, the recovery rate is 60 percent.
Landscaping vies for top spot too, according to Track. "If you can wow potential buyers with some curb appeal and the kitchen or bathrooms have also been done, then selling will be that much easier," he says.
When it comes to renovating older homes, Track suggests updating wiring and plumbing. "Most knowledgeable home buyers will see this as a definite bonus. That said, many first-time homebuyers may not appreciate the work that has been done."
Approximately 1.9 million households in 10 major Canadian centres did renovations in 2010, totalling almost $23 billion. The average cost of renos was nearly $13,000.
According to the AIC's most recent data, energy-efficient upgrades are another popular focus for renovations, with an average recovery rate of 61 percent.
Other renovations that have higher recovery rates include the use of non-neutral interior paint colours (67 percent), the addition of a cooking island in the kitchen (65 percent), and the installation of a Jacuzzi-type bath separate from the shower stall (64 percent).
The biggest mistake people make when it comes to renovating is expecting Champagne-style results on a beer budget.
"Clients will say to me, 'Get a few prices and we will go with the cheapest,'" Track explains. "In construction, you get what you pay for, and if you only consider price, then you are asking for trouble. It's important not to overpay, but quality trades come at a cost. I always tell my subtrades that I want good work at a fair price."
Above all, planning is crucial. It takes at least two to three months to plan for a simple kitchen renovation, Track notes, urging people to read magazines and clip pictures of everything from layouts to paint colours.
"People who don't plan always run into problems," Track says. "People need to hire a good architect and a good designer to help them make informed decisions on materials and design. So many times I have clients who don't want to spend money on a good architect or designer, and inevitably this leads to problems. The better you plan, the less the chance of making mistakes and the better the chance of coming in on time and on budget.
"Try to make as many decisions as possible before you start," he adds. "By planning, you'll have a better idea of how long the job will take and how much it will cost. Also, make informed decisions about materials and do some research."
Budgeting is another basic, as is asking contractors for references and asking for examples of past projects.
"If you set a realistic budget for a job, you have a better chance of not exceeding it," Track says. "It's common for contractors to low-bid a job so that they get it. Once the job is underway, the client has no alternative but to pay all additional costs that arise in order to get the job done. There's a square-footage or unit price for almost everything in construction, so the only real difference between contractors should be the fee they charge."
Renovations that add features to a home that others in the neighbourhood already have, such as a second bathroom, have higher recovery rates than features not shared by adjacent properties, according to the AIC.
Poorly done renovations may have no positive impact or could actually reduce the value of a home.
Recovery rates and resale value aside, the AIC can't put a cost on professionally done renovations when it comes to home owners' sense of satisfaction and enjoyment. That's priceless.
With the popularity of home-decorating shows like Trading Places soaring, suddenly everyone's an interior designer. But from a real expert's point of view, where are home-owners' renovation dollars best spent?
"Kitchens and bathrooms are the best place to start," says Toronto's Howie Track, owner of Traxel Construction, which specializes in high-end residential and commercial renovation and construction. "Kitchens and bathrooms are the first places people look, and if a new buyer sees that the kitchens and bathrooms have been done, then there's less for them to do."
Figures from the Appraisal Institute of Canada support Track's claim. According to the Ottawa-based property-valuation association, bathroom and kitchen renovations continue to be the most popular on the list of perennial home improvements, with a recovery rate of between 75 and 100 percent.
The organization defines "recovery rate" as the likely increase in a home's resale value that could be attributed to a renovation. If a $10,000 renovation increases a home value by $6,000, for example, the recovery rate is 60 percent.
Landscaping vies for top spot too, according to Track. "If you can wow potential buyers with some curb appeal and the kitchen or bathrooms have also been done, then selling will be that much easier," he says.
When it comes to renovating older homes, Track suggests updating wiring and plumbing. "Most knowledgeable home buyers will see this as a definite bonus. That said, many first-time homebuyers may not appreciate the work that has been done."
Approximately 1.9 million households in 10 major Canadian centres did renovations in 2010, totalling almost $23 billion. The average cost of renos was nearly $13,000.
According to the AIC's most recent data, energy-efficient upgrades are another popular focus for renovations, with an average recovery rate of 61 percent.
Other renovations that have higher recovery rates include the use of non-neutral interior paint colours (67 percent), the addition of a cooking island in the kitchen (65 percent), and the installation of a Jacuzzi-type bath separate from the shower stall (64 percent).
The biggest mistake people make when it comes to renovating is expecting Champagne-style results on a beer budget.
"Clients will say to me, 'Get a few prices and we will go with the cheapest,'" Track explains. "In construction, you get what you pay for, and if you only consider price, then you are asking for trouble. It's important not to overpay, but quality trades come at a cost. I always tell my subtrades that I want good work at a fair price."
Above all, planning is crucial. It takes at least two to three months to plan for a simple kitchen renovation, Track notes, urging people to read magazines and clip pictures of everything from layouts to paint colours.
"People who don't plan always run into problems," Track says. "People need to hire a good architect and a good designer to help them make informed decisions on materials and design. So many times I have clients who don't want to spend money on a good architect or designer, and inevitably this leads to problems. The better you plan, the less the chance of making mistakes and the better the chance of coming in on time and on budget.
"Try to make as many decisions as possible before you start," he adds. "By planning, you'll have a better idea of how long the job will take and how much it will cost. Also, make informed decisions about materials and do some research."
Budgeting is another basic, as is asking contractors for references and asking for examples of past projects.
"If you set a realistic budget for a job, you have a better chance of not exceeding it," Track says. "It's common for contractors to low-bid a job so that they get it. Once the job is underway, the client has no alternative but to pay all additional costs that arise in order to get the job done. There's a square-footage or unit price for almost everything in construction, so the only real difference between contractors should be the fee they charge."
Renovations that add features to a home that others in the neighbourhood already have, such as a second bathroom, have higher recovery rates than features not shared by adjacent properties, according to the AIC.
Poorly done renovations may have no positive impact or could actually reduce the value of a home.
Recovery rates and resale value aside, the AIC can't put a cost on professionally done renovations when it comes to home owners' sense of satisfaction and enjoyment. That's priceless.
Tuesday, February 21, 2012
Mortgage fraud on the rise
Nicolas Van Praet Feb 21, 2012 – 7:19 AM ET
MONTREAL — Consumer credit company Equifax uncovered roughly $400-million worth of mortgage fraud in Canada last year, an “eyeopening” number industry experts estimate represents only a fraction of the cheating taking place in the country’s real estate market.
Atlanta-based Equifax says many financial institutions are tightening lending and, as a result, deceit in the property market is rising. A report the company released Tuesday says two-thirds of all the fraud it sniffed out last year was related to real estate.
“Mortgages are the biggest bang for the buck,” said John Russo, vice-president and legal counsel for Equifax Canada Inc. “So when credit gets tougher to get, that leads to more people falsifying documents, giving false pay stubs, inflating their income, kind of fudging things to get a home.”
The $400-million in mortgage fraud represents only a sliver of the roughly $1-trillion in total residential mortgage credit outstanding at the moment in Canada. But it rose sharply in 2011 from 2010 in dollar terms, increasing 150%, Equifax data suggest.
The figure is “eye-opening,” Mr. Russo says, because that’s just the amount Equifax flushed out on its own for its clients. “There’s a lot more out there that just goes under the radar and is not seen and not caught.”
Often tracking strong housing markets, mortgage fraud occurs nationally but is more concentrated in large urban areas in Quebec, Ontario, Albert and B.C., says the Criminal Intelligence Service Canada, a federal agency that shares intelligence between police forces. Numerous criminal groups across Canada are involved in a wide range of mortgage frauds at varying levels, the CISC says, sometimes with the help of industry insiders such as property agents, mortgage brokers and lawyers.
One growing trend is people setting up fictitious identities, building up credit for those fake people and then using the credit to borrow. Equifax says five years ago it had identified 300 such fictitious identities in its national database. Now there are more than 2,500.
Using mortgage fraud to further other criminal activity is also common. Criminals are buying properties to open marijuana growing operations, to trade drugs and to launder money.
An increasing number are getting caught and there’s been a dramatic increase in criminal and civil forfeiture cases as a result, said Andrew Bury, a lawyer specializing in loan security enforcement at Gowling Lafleur Henderson LLP in Vancouver.
“They’re grabbing these properties left, right and centre. And over and over again they’re crashing into the mortgage companies, the banks, [which are saying] ‘Wait a second, we have a mortgage on that property.’ “
Lenders are losing big sums while governments reap the re-wards of the seizures, Mr. Bury said.
But the bulk of mortgage swindling still involves ordinary people lying to obtain mortgages larger than their income can support, Equifax said. They’re living in homes that are simply too rich for them. Says Mr. Russo: “No matter how small or big the lie, it’s still mortgage fraud.”
It sometimes takes years for fraud to come to light, notes Toronto forensic accountant Al Rosen. He believes controls in the banking system remain inadequate.
“I see all sorts of situations where the appraised value of [properties] is just laughable. And some of these are not checked out very well,” he says. “Because the only thing that really counts is: What can you sell that property for?”
Canada’s highest-profile mortgage fraud to date is perhaps the case of Martin Wirick, a Vancouver lawyer sentenced to seven years in prison in 2009 for fraud and forgery in an elaborate scheme covering 107 separate real estate transactions conducted on behalf of his client, real estate developer Tarsem Singh Gill.
The scheme was so huge that the Law Society of B.C. raised special contributions from its lawyer members to compensate the victims. As of 2009, it had paid out $38.4-million for the Wirick fraud alone. Over a 40-year period before that, the society’s compensation fund disbursed a total of $52-million for all cases of lawyer misappropriation.
MONTREAL — Consumer credit company Equifax uncovered roughly $400-million worth of mortgage fraud in Canada last year, an “eyeopening” number industry experts estimate represents only a fraction of the cheating taking place in the country’s real estate market.
Atlanta-based Equifax says many financial institutions are tightening lending and, as a result, deceit in the property market is rising. A report the company released Tuesday says two-thirds of all the fraud it sniffed out last year was related to real estate.
“Mortgages are the biggest bang for the buck,” said John Russo, vice-president and legal counsel for Equifax Canada Inc. “So when credit gets tougher to get, that leads to more people falsifying documents, giving false pay stubs, inflating their income, kind of fudging things to get a home.”
The $400-million in mortgage fraud represents only a sliver of the roughly $1-trillion in total residential mortgage credit outstanding at the moment in Canada. But it rose sharply in 2011 from 2010 in dollar terms, increasing 150%, Equifax data suggest.
The figure is “eye-opening,” Mr. Russo says, because that’s just the amount Equifax flushed out on its own for its clients. “There’s a lot more out there that just goes under the radar and is not seen and not caught.”
Often tracking strong housing markets, mortgage fraud occurs nationally but is more concentrated in large urban areas in Quebec, Ontario, Albert and B.C., says the Criminal Intelligence Service Canada, a federal agency that shares intelligence between police forces. Numerous criminal groups across Canada are involved in a wide range of mortgage frauds at varying levels, the CISC says, sometimes with the help of industry insiders such as property agents, mortgage brokers and lawyers.
One growing trend is people setting up fictitious identities, building up credit for those fake people and then using the credit to borrow. Equifax says five years ago it had identified 300 such fictitious identities in its national database. Now there are more than 2,500.
Using mortgage fraud to further other criminal activity is also common. Criminals are buying properties to open marijuana growing operations, to trade drugs and to launder money.
An increasing number are getting caught and there’s been a dramatic increase in criminal and civil forfeiture cases as a result, said Andrew Bury, a lawyer specializing in loan security enforcement at Gowling Lafleur Henderson LLP in Vancouver.
“They’re grabbing these properties left, right and centre. And over and over again they’re crashing into the mortgage companies, the banks, [which are saying] ‘Wait a second, we have a mortgage on that property.’ “
Lenders are losing big sums while governments reap the re-wards of the seizures, Mr. Bury said.
But the bulk of mortgage swindling still involves ordinary people lying to obtain mortgages larger than their income can support, Equifax said. They’re living in homes that are simply too rich for them. Says Mr. Russo: “No matter how small or big the lie, it’s still mortgage fraud.”
It sometimes takes years for fraud to come to light, notes Toronto forensic accountant Al Rosen. He believes controls in the banking system remain inadequate.
“I see all sorts of situations where the appraised value of [properties] is just laughable. And some of these are not checked out very well,” he says. “Because the only thing that really counts is: What can you sell that property for?”
Canada’s highest-profile mortgage fraud to date is perhaps the case of Martin Wirick, a Vancouver lawyer sentenced to seven years in prison in 2009 for fraud and forgery in an elaborate scheme covering 107 separate real estate transactions conducted on behalf of his client, real estate developer Tarsem Singh Gill.
The scheme was so huge that the Law Society of B.C. raised special contributions from its lawyer members to compensate the victims. As of 2009, it had paid out $38.4-million for the Wirick fraud alone. Over a 40-year period before that, the society’s compensation fund disbursed a total of $52-million for all cases of lawyer misappropriation.
Friday, February 3, 2012
Looser mortgage lending raises worries
Garry Marr Feb 2, 2012 – 2:25 PM ET | Last Updated: Feb 2, 2012 6:21 PM ET
Financial institutions appear to be cracking down on rules for borrowers with self-declared income, a move that comes as Finance Minister Jim Flaherty said he’s concerned about a lack standards in the sector.
Responding to a question about whether the Office of the Superintendent of Financial Institutions was looking into the practice of banks loosening their standards for so-called stated income mortgages, Mr. Flaherty confirmed it is an issue.
“OSFI’s concern arises out of some work that OSFI has done as part of it – the ordinary course of its business to look at some of the — some of the loans being made by financial institutions. I was informed of what their assessment showed with respect to a few financial institutions which is a matter of concern and that is — that is being corrected,” he said.
The Financial Post first reported last month that the government was looking at another round of tough new mortgage rules, among the considerations being a crackdown on how the self-employed qualify.
Stated-income products have become very popular during this housing boom, allowing more banks to get involved in loaning to the self-employed. A source indicated many financial institutions have looked more at the financial behaviour of the self-employed — about 13% of the market — because income is hard to verify.
Vince Gaetano, principal of Monster Mortgage confirmed that CIBC’s wholesale arm FirstLine Mortgages Inc. is pulling out of the stated-income business. Mr. Gaetano said Street Capital Financial Corporation has followed the CIBC lead and he expects other financial institutions to follow very soon.
“We are hearing rumblings that everybody is going to be tightening up in the next week,” he said. “What’s happening is one person leads and everybody follows.”
What it ultimately means for the self-employed is they will end up back in the arms of non–traditional lenders and that means higher rates for them — something they faced in the housing market about five years ago.
“It’s bit like we are going back in history,” said one economist, who didn’t want to be named. “This is the way it used to be before the market took off.”
For his part, Mr. Gaetano said the federal government should blame itself for loosening standards on the minimum down payment required before consumers have to get mortgage default insurance. The government required 25% down last decade but it has since been lowered to 20%.
“The reason it changed is the banks were pushing their line of credit products. They could only lend up to 75% and they wanted the extra 5% to go to 80% without insurance under the Bank Act,” said Mr. Gaetano.
That drop in the minimum down payment could also be attributed to the banks being forced to buy more portfolio insurance for loans that have more than 20% down.
The banks have been seeking insurance on loans with even high down payments — something not required by law — so they can securitize those bulk lending loans, thereby getting them off their balance sheets and reducing their capital requirements. In those cases in which the loans to value is less than 80%, the bank pays the insurance charge instead of the consumer.
Canada Mortgage and Housing Corp. acknowledged to the Financial Post this week it had talked to lenders about reducing its bulk or portfolio insurance as it tries to allocate its resources. The Crown corporation, which guarantees mortgages held by financial institutions, is ultimately backed by the federal government, but it is getting close to its $600-billion limit. Third quarter results showed it was backstopping $541-billion of loans.
Banks have been scrambling to deal with the CMHC change and are said to have contacted private insurance Genworth Financial Canada and Canada Guaranty Mortgage Insurance which together have a $300-billion limit guaranteed by Ottawa for loans they insure.
Financial institutions appear to be cracking down on rules for borrowers with self-declared income, a move that comes as Finance Minister Jim Flaherty said he’s concerned about a lack standards in the sector.
Responding to a question about whether the Office of the Superintendent of Financial Institutions was looking into the practice of banks loosening their standards for so-called stated income mortgages, Mr. Flaherty confirmed it is an issue.
“OSFI’s concern arises out of some work that OSFI has done as part of it – the ordinary course of its business to look at some of the — some of the loans being made by financial institutions. I was informed of what their assessment showed with respect to a few financial institutions which is a matter of concern and that is — that is being corrected,” he said.
The Financial Post first reported last month that the government was looking at another round of tough new mortgage rules, among the considerations being a crackdown on how the self-employed qualify.
Stated-income products have become very popular during this housing boom, allowing more banks to get involved in loaning to the self-employed. A source indicated many financial institutions have looked more at the financial behaviour of the self-employed — about 13% of the market — because income is hard to verify.
Vince Gaetano, principal of Monster Mortgage confirmed that CIBC’s wholesale arm FirstLine Mortgages Inc. is pulling out of the stated-income business. Mr. Gaetano said Street Capital Financial Corporation has followed the CIBC lead and he expects other financial institutions to follow very soon.
“We are hearing rumblings that everybody is going to be tightening up in the next week,” he said. “What’s happening is one person leads and everybody follows.”
What it ultimately means for the self-employed is they will end up back in the arms of non–traditional lenders and that means higher rates for them — something they faced in the housing market about five years ago.
“It’s bit like we are going back in history,” said one economist, who didn’t want to be named. “This is the way it used to be before the market took off.”
For his part, Mr. Gaetano said the federal government should blame itself for loosening standards on the minimum down payment required before consumers have to get mortgage default insurance. The government required 25% down last decade but it has since been lowered to 20%.
“The reason it changed is the banks were pushing their line of credit products. They could only lend up to 75% and they wanted the extra 5% to go to 80% without insurance under the Bank Act,” said Mr. Gaetano.
That drop in the minimum down payment could also be attributed to the banks being forced to buy more portfolio insurance for loans that have more than 20% down.
The banks have been seeking insurance on loans with even high down payments — something not required by law — so they can securitize those bulk lending loans, thereby getting them off their balance sheets and reducing their capital requirements. In those cases in which the loans to value is less than 80%, the bank pays the insurance charge instead of the consumer.
Canada Mortgage and Housing Corp. acknowledged to the Financial Post this week it had talked to lenders about reducing its bulk or portfolio insurance as it tries to allocate its resources. The Crown corporation, which guarantees mortgages held by financial institutions, is ultimately backed by the federal government, but it is getting close to its $600-billion limit. Third quarter results showed it was backstopping $541-billion of loans.
Banks have been scrambling to deal with the CMHC change and are said to have contacted private insurance Genworth Financial Canada and Canada Guaranty Mortgage Insurance which together have a $300-billion limit guaranteed by Ottawa for loans they insure.
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