guardianmortgages

Patrick Gill on "The Brian Crombie Hour", An honest talk on Canadian Financial Literacy

Mon, 04 Dec 2023 19:00:37 GMT

Guardian Mortgage's CEO Patrick Gill featured NewsTalk 960AM

On Monday November 27th at 6pm, Our CEO Patrick Gill shared his industry expertise and knowledge on "The Brian Crombie Hour", where he discussed with Brian Crombie the state of the Canadian economy as it pertains to debt. He addresses concerns that Brian Crombie's viewers have regarding rising inflation and interest rates. Patrick Gill talks about how our AYME mortgage strategy can help Canadians turn the tide on their debt.

A Friend in Debt with Patrick Gill at TEDx Waterloo University

accounting@shaneserra.com (Shane Serra) — Mon, 30 Oct 2023 17:40:43 GMT

Are you struggling under the weight of debt? Maybe its student loans from your education or overdue credit card payments? Whatever debt you find yourself fighting?

Patrick Gill shares time tested strategies that will help you pay it off faster and save money. Strategies that if you implement, will help you make debt a friend again.

After honing his skills as a Financial Adviser, Patrick helped to pioneer the role of a Banking Consultant to one of Canada’s largest, financial institutions. He spent the next decade giving expert advice to countless industry professionals and institutions such as the Toronto Police Services and the Canadian Armed Forces.

Companies like Sony Canada, Edward Jones, and Adidas Canada have benefited from his strategies in cash flow management. His radio interviews on TALK 640 have helped him to spread his message to many seeking financial advice. But his greatest and most rewarding contributions have been in changing the lives of thousands of Canadian families that he has helped in restructuring their debt, savings and day-to-day banking more efficiently. Now, as a Regional Vice-President, Patrick spends his time coaching and mentoring others to do the same.

This talk was given at a TEDx event using the TED conference format but independently organized by a local community. Learn more at http://ted.com/tedx

Navigating Financial Challenges After Sending Kids to University

patrickgill@guardianmortgages.ca (Patrick Gill) — Thu, 28 Sep 2023 18:23:37 GMT

Sending your children off to university is a significant milestone, but it often comes with a set of financial challenges that can impact family cash flow. As tuition fees continue to rise, coupled with the effects of high-interest rates and inflation, many families find themselves grappling with newfound financial concerns.

1. Rising Tuition Costs: The cost of higher education has been steadily increasing over the years, sometimes outpacing inflation rates. For many families, this can result in a substantial financial burden, particularly if they have multiple children pursuing higher education simultaneously.

2. Student Loan Debts: As students take on loans to cover their tuition fees and living expenses, both parents and students can be left with substantial debt after graduation. Managing these debts while also addressing daily financial needs can be a daunting task.

3. Impact of Inflation: The rising cost of living due to inflation further complicates the financial picture. Families may find that their income struggles to keep pace with increased expenses, making it challenging to maintain their pre-university standard of living.

4. Cash Flow Concerns: All these factors can lead to cash flow concerns for families. The strain on finances may manifest in delayed retirement plans, reduced savings, or the need to cut back on essential expenses.

However, there are strategies to help navigate these challenges:

1. Scholarships and Grants: Encourage your children to actively seek scholarships and grants to reduce the burden of student loans. Every bit of financial assistance can make a difference.

2. Budgeting and Cutting Costs: Implement budgeting strategies to monitor expenses and identify areas where you can cut back temporarily to ease financial pressure.

3. Long-Term Perspective: Keep in mind that the investment in higher education is often a long-term one. Over time, the earning potential of a degree can provide a return on investment that eases financial concerns.

4. Communication: Open and honest communication within the family is crucial. Discuss financial goals, priorities, and any necessary adjustments to ensure everyone is on the same page.

5. Planning with Professionals: Consider seeking guidance from a financial advisor and mortgage professional who can help create a comprehensive plan to manage existing debts, prioritize savings, and adjust spending patterns.

How can a Mortgage Agent help?

One viable option for families experiencing cash flow concerns due to high tuition fees, interest rates, and inflation is tapping into the equity in their home. Here's how this can be a potential solution:

1. Home Equity Loan (HEL) or Home Equity Line of Credit (HELOC): These financial products allow homeowners to borrow against the equity they've built up in their property. Home equity loans provide a lump sum, while a HELOC functions like a credit card with a revolving credit line.

Advantages:

Lower Interest Rates: Home equity loans and HELOCs often come with lower interest rates compared to other forms of borrowing, such as credit cards or personal loans.
Tax Benefits: In some regions, the interest paid on home equity loans may be tax-deductible, further reducing the overall cost.
Access to Substantial Funds: Depending on the equity in your home, you may be able to access a significant amount of money to cover tuition fees and other financial needs.

2. Refinancing Your Mortgage: Another option is to refinance your existing mortgage, which allows you to access a portion of your home's equity while potentially securing a lower interest rate on your mortgage.

Advantages:

Cash Access: Refinancing can provide you with a lump sum of cash, which can be used to pay off high-interest debt, including student loans or credit card balances.
Lower Monthly Payments: Refinancing might result in lower monthly mortgage payments, which can help alleviate cash flow concerns.
Streamlined Finances: Consolidating various debts into your mortgage can simplify your financial management.

However, it's crucial to approach home equity solutions with caution:

Risks:

Potential Loss of Home: When using your home as collateral, failure to repay the loan could result in the loss of your property.
Increased Debt: Accessing home equity increases your overall debt, which must be managed responsibly.

Before tapping into home equity, it's essential to consult with a financial advisor or mortgage specialist who can assess your unique situation and guide you through the process. They can help you determine if leveraging home equity is the right solution for your family's cash flow concerns and ensure that you fully understand the associated risks and responsibilities.

Bank of Canada: Indicators of Financial Vulnerabilities

Fri, 30 Jun 2023 17:03:28 GMT

First Time Home Buyers and Short Term Flippers Hit Hardest in Latest Rounds of Interest Hikes

Original Article Source Credits: bankofcanada.ca
Article Written By: Bank of Canada
Link to Original Article(s):

- https://www.bankofcanada.ca/rates/indicators/indicators-of-financial-vulnerabilities/

It continues to be a whirlwind of activity when it comes to the Canadian real estate industry. With multiple back-to-back interest rate hikes on our prime lending rate, borrowers are facing headstrong into a perfect storm. However, with inflation still creeping upwards our Governor Tiff Macklem and his Bank of Canada officials are holding strong to the plan and after a five month pause began raising borrowing costs to 4.75 with a July hike on the table. Watching the media interplay on this topic has us believe that the reasons behind these raises is to reign in inflation and slow down economic growth. However, as economic data begins to flow in, the preliminary stats show that the Canadian economy (seemingly defying expectations) is seeing steady growth, and in fact seem to be expanding at a 1.4 per cent annualized rate. That’s faster than the 0.8 economists expected, and certainly off the mark with the Bank of Canada’s forecast of 1 per cent.

On the ground level, how does this monetary policy affect us on the day to day? Well, if you’re a first-time home buyer or in the business of short-term house flipping it affects you a lot. Monetary policy is often cited to take ‘some time’ to play out its affect in the economy, which really means it has an inequitable distributed affect on localized demographics. The Bank of Canada has recently released its quarterly report key indicators of financial vulnerabilities. The data, taken straight from the source tells us the type of affects these raises have so far caused. Unfortunately, it tells a story that is the current blight of most of our younger generation, the ones that these policies are suppose to protect are the ones ironically directly being affected.

Percentage of First time Home buyers drop for the first time:

The most telling sign of this is the level of first-time home buyers has dropped, while repeat home buyers and investors began to make up more of the ratio of all buyers.

In fact, the # of first-time homebuyers has dropped to its lowest point in the last 7 years and may take several more to recover.

Interest rate affects affordability and ability to carry debt:

The biggest challenge for most first-time home buyers is coming up with a down payment large enough to help them reduce the overall borrowing costs on a home.

The combination of high real estate prices paired with high borrowing costs has limited the ability of those who are dependent on a mortgage to buy a home. This double squeeze has pushed mainly first-time homebuyers out of the market into a “wait and see” dilemma, with many opting to wait for the rate to drop while trying to save more of a down payment that will be needed.

With lower interest rates, most borrowers were able to borrow up to five times their income. The rate hikes have lowered this ratio quite a bit, with current borrowers being limited to approximately four and a half times their income or lower. It is important to note that the lower levels of LTI in the earlier years was due to Canadian behavior of keeping a lower mortgage balance relative to income. It some sense, it was a matter of choice and not out of necessity. The buying sentiment today is very different and this lower level seems to be out of necessity and not of choice.

First-Time Homebuyers that were able to buy, are the ones carrying the most debt:

With all of these factors stacked against First-Time Homebuyers, it doesn’t get easier after the purchase. Data shows that out of all of the buyer segments, First-Time Homebuyers are the ones most exposed and carrying the most amount of debt relative to income.

A whopping 82.07% of all First-Time Homebuyers are carrying a mortgage that has a higher loan to value of 65% or more. More critically, 43% of these buyers are carrying a mortgage that is 80% or higher loan to value. Comparing this to repeat home buyers or investors, the debt load is significantly lower.

Repeat home buyers have the added advantage of using their equity in their homes as a downpayment for their next home. With advantageous tax benefits to first time home buyers and capital gains tax, a lot of that downpayment is passed through to help reduce future borrowing costs in the next home.

Investors generally hold the lowest mortgage debt among all of the segmented buyers, mainly mortgage products on the investor level do require a larger down payment. Most investors are looking for a long-term investment when it comes to real estate and therefore are looking for a specific debt to income ratio that makes viable sense.

Short Term Flippers see reduced activity:

House-flipping makes a lot of sense when prices are going up, but with the recent downtrend, there is a sharp decline since the beginning of 2022. The levels are still significantly higher than pre 2017 levels, and with some certain expectations that some of this may turn around. This is due to real estate prices expectations in the upcoming year.

While there are some expectations of some rebound (which we are currently seeing) pricing is not expected to reach the height as we have seen in the pandemic years. Expectations are set due to immigration policy and number of housing units to come online, making this a very dynamic chart.

In summary:

Rate hikes have caused an all-time slow down in the real estate market, both in number of sales and mortgage originations.

The number of mortgage originations from all types have dropped to its lowest point in the last 7 year
The most interesting piece of data to come out of this is that arrears level has not yet peaked.

What’s odd about this is that household debt of all other forms have seen an increase in arrears where mortgage defaults have actually gone down with the lowest default to occur is on HELOC’s (Home equity lines of credit). Meaning the bulk of cost of the interest rate hikes despite affecting First-Time Home owners and short term flippers the most, has been ‘absorbed’. It is as almost if the Canadian economy is being tested to the verge of the ‘breaking point’

From a Mortgage Brokerage point of view, a lot of this speaks to the actions that first time home buyers or short-term flippers can take to avoid the upcoming pitfalls and put into action plans that will help them mitigate ongoing risks. It also speaks to the repeat home buyers and long-term investors of the actions you can take to ensure that you stay on track of your financial goals.

**If you like this article or have any questions in regards to the content, please feel free to reach out and we would be happy to discuss!

BRRRR Method or BRRRR Strategy ( Buy, Rehab, Rent, Refinance, Repeat)

Mon, 08 May 2023 20:24:06 GMT

Popularity of the BRRR method skyrocketed in 2021 as Canadian home prices soared. I argue it was always a strategy with real estate investors.

Original Article Source Credits: https://www.canadianrealestatemagazine.ca/
Article Written By: Heather McDowell
Link to Original Article(s): https://www.canadianrealestatemagazine.ca/news/investor-101-making-brrrr-strategy-work-for-you-335328.aspx

The BRRRR strategy involves buying a property that is undervalued or distressed, rehabilitating it to increase its value, renting it out to tenants, refinancing the property to access the equity and use the funds to purchase another investment property, and then repeating the process with the newly acquired property.

This strategy allows investors to recycle their initial investment capital and build a portfolio of cash-flowing properties that generate passive income and increase in value over time. However, it requires careful analysis and execution, as well as access to financing and the ability to identify and acquire suitable properties.

There is something called the 70% rule that states that “an investor should not pay more than 70% of the property's after-repair value (ARV) minus the cost of the repairs needed to bring the property up to market standards.” In other words, the investor should aim to purchase the property at 70% of its expected value after repairs are completed, minus the cost of repairs.

The 70% rule is a conservative guideline that helps investors ensure that they can make a profit on the property after factoring in the cost of repairs and other expenses. However, it is important to note that the rule should be used as a starting point and not as a hard and fast rule.

Some of the biggest risks to the BRRRR strategy include:

Overestimating the After-Repair Value (ARV): If an investor overestimates the ARV, they may end up overpaying for the property, which can eat into their profits and make it difficult to refinance the property.

Underestimating the Cost of Repairs: If an investor underestimates the cost of repairs, they may end up spending more money than they anticipated, which can cut into their profits.

Focusing rehabilitation costs on ARV to force appreciation rather than a focus on increasing rental income: When an investor focuses on appreciation to figure how much refinance they can get, they are doing a lot of speculation. Instead, they should take into account how the renovations can help increase rental income, which is a safer measure to refinance your home.

Difficulty Finding Qualified Tenants: If an investor is unable to find qualified tenants to rent out the property, they may experience extended vacancies and cash flow problems.

Market Downturn: If the real estate market experiences a downturn, property values may decline, making it difficult for investors to refinance their properties or sell them for a profit.

Financing Issues: If an investor is unable to secure financing for the property or the refinancing process, it can hinder their ability to execute the BRRRR strategy.

Unexpected Costs: Unforeseen expenses such as property taxes, insurance, maintenance costs, and repairs can cut into an investor's profits.

Last year in 2022, investors who bought at the beginning of the year and wanted to implement the BRRRR strategy, took a bit of a hit. When interest rates started rising and property prices started dropping, people who utilized the BRRRR strategy had a hard time refinancing. The estimated ARV no longer held its value. Selling below the ARV means they would have lost money. Instead, the only thing they could do was rent the property out and wait till the market comes back up.

How to Become Your Own Bank

allen@guardianmortgages.ca (Allen Chin) — Fri, 28 Apr 2023 22:29:40 GMT

Patrick Gill's guest appearance on "Informed with Randy Taylor". Watch the interview here!

Some of you may have recognized the CEO of Guardian Mortgages, Patrick Gill as a guest on "Informed with Randy Taylor". We are deeply grateful for the opportunity to speak on the importance of financial literacy in today's environment. In this interview, Patrick reveals the steps necessary to help you turn yourself into a bank. Check out the video below! Please like and share!

Excerpt from Informed with Randy Taylor:

"With rising inflation and soaring interest rates, Canadians have had to deal with dramatic changes in their family budgets. Groceries are more expensive, mortgage payments and car loans are climbing and with these challenges, debt for most becomes the elephant in the room. Too many days left at the end of the money.

The money a family earns each week determines cash flow, now made more difficult against the backdrop of rising costs. With only so much money coming in each week, the challenge Canadians are facing is how to manage debt and cash flow.

It was a pleasure to welcome debt and financial literacy expert, Patrick Gill"

Debt Does Not Define You

Tue, 25 Apr 2023 04:23:52 GMT

Let's talk about debt

I recently came across a news article that spoke of a family that was tragically affected by the stress of their financial situation. In this specific case, it wasn’t just mental stress, it was anguish that manifested itself into a terrible tragedy ending with the cost of an innocent life. Through the unfortunate numbness of the skin we grow to protect ourselves from the grim of every day news, this one cut through. It’s not right. Finances isn’t just a number, sometimes it’s some one’s life. Money, for nearly all of us is a primary ingredient of the mortar that shapes and cements our sense of identity. But I’m here to tell you, Debt does not define you. It is, however built into the way you bank and how you think when you ‘save’ is sometimes the very same debt you might be taking on. Financial literacy as a subject was only added to the school curriculum a few years ago, a recognition in an area that we are all desperately trying to play catch up on.

Having spent a large portion of my career helping families pay down their mortgage (which some consider to be the ‘largest debt’ to take on). I wanted to share a few personal realizations about how to successfully ‘tackle’ debt, and ultimately change the relationship you have with money.

Be open – If the word “finances” invokes a sense of dread or climbing up an impossible mountain; then you need to be open to the idea that you actually do not know everything, and that is okay . A large portion of the fear we hold about our finances is simply because we don’t look into our finances actively. In fact, the most common reaction is to almost ignore our finances until we have to do something about it, like paying a bill. Be open to the idea that maybe you should be thinking and doing something a bit differently about your finances. Be open to the idea that maybe it should be a part of your ‘daily routine’. If you’re open to that idea, then perhaps you would be open to speak to someone about how you feel and more importantly being open to seeking professional help .

Being Transparent – Being transparent about your finances involves being completely honest with all money matters, but also being honest with the reasons that led to the circumstance. This also includes life surprises that often catches us off guard, this is okay . This means being prepared to be transparent to anyone else who may be involved, this could mean a family member or a significant other so that you can let them in. Please understand that you are not alone in this . Lastly, if you are working with a professional, being transparent with all of your finances will help them understand the full picture and being able to take everything into account.

Be Patient, Be Ready – Do not make long term decisions based on short term circumstances, or in other words, be slow to think but critical to act. Understand that the path to financial literacy leading to financial security is not a short-term journey, but the results cannot be enjoyed if you do not commit and take the first steps to follow through.

Be okay with change – It is very possible that there might be some fundamental changes in your perspectives as you uncover more truths of your financial position. This is okay . It is expected that your very definition of what money ‘is’, can be challenged and as a result change the way you would treat and behave with money.

The most important message that I want anyone reading this to take away is that you are not alone . Do not ever think that this is a burden that you have to carry on yourself. This does not define you in anyway as a person, as a human being. If you find yourself in a position where you feel that the stress of your finances is too much, I urge you to reach out, talk to someone, be open. There is always Hope . There is always Light.

Toronto 2023 Housing Plan announcement and How it Impacts You

Fri, 17 Mar 2023 20:18:54 GMT

HousingTO 2020-2030 Action plan Empower Homeowners to Help Solve the Housing

Supply Crisis

Original Article Source Credits: Toronto.ca
Article Written By: Toronto.ca
Link to Original Article(s):

- https://www.toronto.ca/city-government/planning-development/planning-studies-initiatives/secondary-suites/

- https://www.toronto.ca/city-government/planning-development/planning-studies-initiatives/changing-lanes-the-city-of-torontos-review-of-laneway-suites/

- https://www.toronto.ca/community-people/community-partners/affordable-housing-partners/laneway-suites-program/

- https://www.toronto.ca/city-government/planning-development/planning-studies-initiatives/garden-suites/

- https://www.toronto.ca/community-people/community-partners/affordable-housing-partners/housingto-2020-2030-action-plan/

The topic of 'Housing supply' has always been a crucial issue in our country, especially if you reside in Toronto, the largest populous city in Canada. Leading the way, the City of Toronto has taken bold actions outlined in the HousingTO 2020-2030 initiatives. In it, you will find a multi-prong approach to help to not just increase the housing supply, but the type of housing and the promotion of items such as walkability, accessibility and inclusivity within a community. Programs such as the Development Charges Deferral Program are examples of initiatives and resources that homeowners can expect to benefit from.

Given the current rise in interest rates and inflation, it's essential to focus on functional renovations and improvements that can create additional cash flow instead of depending solely on capital appreciation. This is exactly the initiative currently outlined by the City that will help shape a path to sustainable housing growth.

If you're a homeowner in the Greater Toronto area and would like to learn more about how you can make your property eligible for creating more residential units through secondary suites, laneway, and/or garden suites, we'd be delighted to hear from you! Feel free to book a consultation with us today.

The Rate Conundrum – Fixed or Variable?

Fri, 17 Feb 2023 23:39:41 GMT

With prime rates rising, those facing mortgage renewals or buying a home this year are asking "Do I fix or do I go with a variable rate?"

As the Canadian economy continues to navigate the uncertainty of the post-pandemic landscape, many are considering the benefits of investing in a home. While there are many factors to consider when taking out a mortgage, one of the most pressing questions on people's minds is whether to fix their rate or opt for a variable rate.

Recent changes to the overnight rate have led to a .25 bps increase, and many are wondering what this means for their mortgages. As a mortgage broker, I can tell you that this will lead to a change in the base prime rate, but as an economist, I see many different implications of this change.

One thing that is worth noting is that fixed rates are currently lower than variable rates, which is a rare occurrence in Canada's history. When we look back at the few times this has happened in the past (1979, 1989, 1990, and 2006), we see that they coincided with times of economic recession or near the pivot points of recovery. While we cannot predict the future based on past events, these signals suggest that we may be nearing peak rates. This means that locking in now could mean locking in at a high 'peak' interest rate.

It's important to note that these reversals, where variable rates are higher than fixed rates, are generally short-lived phenomena that occur over a three-year period or less. Therefore, the question of whether to fix in your rate is best answered by examining the entire structure of your mortgage.

One important factor to consider is that variable rates are now so close to Open HELOC (home equity line of credit) rates, which makes it logical to switch over on a comparable basis. By doing so, you eliminate all the risks associated with an amortized mortgage that come with the variable term. Traditional mortgages have fixed payment schedules that assume the borrower's income and family situation will remain stable, but life is unpredictable, and unexpected events can make it difficult to keep up with payments. This can lead to high-cost credit-card debt, a halt in retirement savings, and added stress. If a borrower's circumstances change, they cannot easily change their payment plan or access the payments already made, making traditional mortgages risky. Instead, you gain all the benefits of an open HELOC, including flexibility, access to unused equity, and the ability to aggressively pay down your principal balance and not just interest.

Beyond these considerations, there are many benefits to investing in a home. With the pandemic ushering in the acceleration of remote work, those who can work from home now can earn revenue from their home, as well as cut expenditures related to travel, commuting, and office rent. Furthermore, policies such as garden suites and in-law suites are opening more housing for the growing population, providing opportunities to include a secondary suite in your home that can act as an income generator to help with cash flow.

Ultimately, the decision of whether to fix your mortgage rate or opt for a variable rate depends on your individual circumstances and goals. Keep in mind that by examining the larger economic context and the structure of your mortgage, you can make an informed decision that supports your financial well-being.

Top 4 things to keep your mortgage in check during a time of rising interest rates

allen@guardianmortgages.ca (Allen Chin) — Sat, 31 Dec 2022 04:06:45 GMT

Worried about the rise in interest rates affecting your mortgage? Here are the Top 4 things you can do right now.

As we begin to count the days and the hours to end of 2022, many Canadians are looking forward to closing this year off and looking forward to a brand new year. While there are many things that we can be grateful for, many are eager to leave 2022 behind. One of the major contributors, is the aggressive reactionary decision to raise the prime rate in Canada in order to curb the run-away housing prices. Seven, back to back prime interest rate hikes, has brought mortgage prime rates from a record low of 2.45% to an eye watering 6.45% that was recently passed earlier this December.

This article is not here to criticize or attempt to try to analyze what may happen to the housing market; as an entire paper could be written on the subject. This article is going to focus on the here and now, specifically, what can we all do in the interim to manage our household finances, as our housing costs creep higher. In certain circumstances, we have seen news articles claiming that for some households, these costs have risen to nearly encompass up to 70% of a household’s income.

In times of uncertainty, returning to fundamentals is just as important (perhaps more) than attempting to innovate new solutions to the crisis. All mortgages that were issued in the last 6 years have undergone the b20 guidelines. Meaning all of them have been stressed tested and scrutinized based on the applicant’s income to debt ratios. While it’s true that the accelerated increase in interest rates have and will increase mortgage payments, but it’s important to recognize that not everyone will be impacted equally. Those who will be hit harder unfortunately are the new buyers that have had to really stretch their budget and rely on CMHC programs to complete their purchases. While there is nothing inherently wrong with the CMHC programs as they are in place to help individuals get into the housing market, the fact remains that the CMHC programs allow up to a minimum of a 5 percent down payment. Pair this with the fact that the amount of mortgage that you qualify for was typically 5x your reported income, it helped many Canadians step into home ownership. However, it also acts as a double-edged sword during times of increasing interest rates, due to the fact that an increase in interest rates will decrease the amount of mortgage you qualify based on your income. Specifically, while a few months ago, your income can ‘afford’ you roughly 5x the mortgage amount, now it’s down to around 4x, meaning that the income you had a few months ago is not able to sustain the same level of debt today. With mounting interest rates, and potential for a few more hikes, we put together a list of things you can consider in order to help protect your financial bottom line.

1. Adjust your cash flow and budget: The Bank of Canada has set that all household expenditures cannot exceed more than 44% of total debt servicing. Meaning out of a household income, if the housing expenditure is kept to 44% of income, than a household has the remaining 56% to allocate towards other household needs. In other words, our housing policy suggests that families can spend a little more than half of their income and still remain within the 44% debt servicing ratio. This however is not the case anymore due to the interest rate increases; this ratio is now starting to creep up. As such, based on the interest rise, the recommendation is to prepare oneself for a budget cap of 50/50. Meaning households should prepare themselves to put away at least 50% of their income in order to meet their housing expenditures should it also reach that level.

2. Prepayment Privileges: It may seem like a tall order to suggest prepayments when interest rates are on the rise, but remember that interest payments are calculated by multiplying the interest rate by principal. It is the principal now that we want to focus on, and the truth is that approximately 15% of Canadians with a mortgage have indeed followed the b20 guidelines and have had to save up for a 20% down payment for a home purchase. As such, if you have followed the above guideline and prepared for 50% of your income to go towards your mortgage, this is the time to utilize your prepayment privileges. If you have a traditional principal and interest mortgage, typically you have some prepayment privileges of paying between 10% up to 20% of your monthly frequency payments. If this payment is made, 100% of the payment is deducted from the principal balance of the mortgage. The lower your principal, the lower your overall payment will be, reducing your overall interest cost.

3. Segregate/Restructure your debt: Once again, this one seems counterintuitive, as the common advice is to either consolidate your debt, or target the debt with the highest interest rate. However, understanding how your debt is structured in many ways is more important, as it will reveal what is the most efficient way of paying down debt. The flaw with just paying down the highest interest rate first is that it assumes that the highest interest rate debt will cost you more right? Not exactly, the amount of the debt also plays a significant factor. For example, a $100 dollar credit card debt at 18% is still going to cost you less than a $10,000 loan at 5%. While this may be obvious, what is less obvious is how those debt instruments are structured. Another example is your typical average mortgage. Most mortgage are what we call front loaded interest products. So let’s say you have a mortgage of $300k, and your interest rate is 5%. Your payment will roughly come up to $1744 a month (assuming a 25 year am). However, not all of that $1744 is going to be offset against your principal balance. In fact, near the beginning of the debt, over $1200 is allocated towards interest, whereas the remaining $544 will than be applied to the principal debt. Most banks offer some sort of Equity line of credit option that can be tied to your mortgage. While an equity line of credit does have a higher interest rate, it is not a ‘front loaded’ interest product, so if you were to apply the same payment as above, the entire payment will be deducted off the principal amount with the interest cost being calculated on the new lower balance. As such, restructuring your mortgage to have one portion to be an equity line, can give you much more flexibility and control in paying down your mortgage, or likewise, controlling the ‘cost’ of the mortgage as well.

4. Increase your amortization schedule: Most people have stuck to their original mortgage terms when they first purchased their home. If you find that after instituting all of the above strategies and cashflow is still tight, than it is time to speak to your lender. Being honest with your lender may give you options that may help you hold through until the environment eases. A few common options are increasing your amortization to 30 years (in some cases lenders can go above this given certain exceptions) will generally help keep the payments at a more tolerable level. Lenders can also hold back on a portion of your payments so that it relieves the pressure of the increase payments, or even defer payments or sometimes add the missing payments to the balance of the mortgage. Speaking to your lender will give you an idea of the options you may have to help you sustain and carry on with your mortgage.

While Canada is still facing some uncertainty in the upcoming New Year, there have been several ‘silver linings’ that have presented themselves. Buying a home has always been a long term investment from our perspective, as such the opportunities to generate revenue from your own home has never been so promising. With the onset of the pandemic ushered the acceleration of remote work or at least the tolerance for more of this occurring and growing to be more common place. As such, those who can work remotely from home have the ability to not just earn revenue being at home, but also cut certain expenditures related to travel, commuting, and in some cases even save on office rent. In addition to this, Canada is really trying different policies such as garden suites, in-law suites to help open up more housing for the growing population. As such, many have found ways to include a secondary suite in their home that can act as an income generator helping with cash flow. If any of these strategies speak to you or you would like to learn more, we encourage anyone who feels that they need support during this time to reach out. It is important to understand we all stand together and no one is alone.

Life Insurance Vs. Mortgage Protection

Tue, 03 May 2022 00:16:59 GMT

Key Similarities and Differences

Most MPI policies work the same way as traditional life insurance policies. Every month, you pay the insurer a monthly premium. This premium keeps your coverage current and ensures your protection. If you die during the term of the policy, your policy provider pays out a death benefit that covers a set number of mortgage payments. The limitations of your policy and the number of monthly payments your policy will cover come with the policy’s terms. Many policies agree to cover the remaining term of the mortgage, but this can vary by insurer. Like any other type of insurance, you can shop around for policies and compare lenders before you buy a plan.

However, MPI differs from traditional life insurance in a few important ways.

Policy Beneficiaries

First, the beneficiary of an MPI policy typically isn’t your family – it’s your mortgage company. If you die, your family doesn’t see a lump sum of cash like they would with a typical term life insurance policy. Instead, the money goes directly to your lender. When you receive a lump sum payment from a term life insurance policy, your family is the beneficiary and can spend the money however they please.

Some homeowners think this is a good thing. It can be hard to budget for a massive payout, and MPI guarantees that the money will go toward keeping your family in your home. However, this also means that your family can’t depend on your insurance to cover other bills. You can’t use an MPI policy to fund things like funeral expenses and property taxes.

If you’re looking for insurance to cover other expenses beyond your mortgage, you’ll want to get quotes on additional coverage.

Acceptance Rates And Insurance Premiums

Secondly, MPI policies have guaranteed acceptance. When you buy a term life insurance policy, the cost you pay each month depends on factors like your health and occupation. You get to skip the underwriting process with an MPI policy, as most policies typically don't require policyholders to submit a medical exam. This can be very beneficial if you’re sick or work in a dangerous or high-risk job. However, it also means that the average MPI premium is higher than a life insurance policy for the same balance. For adults in good health who work in low-risk jobs, this can mean paying more money for less coverage.

Rules And Regulations

The last difference between MPI and traditional life insurance lies in the regulations involved. MPI policies have several strings attached that can change your benefits. For example, most MPI policies include a clause that states that the balance of your death benefit follows the balance of your mortgage. The longer you make payments on your loan, the lower your outstanding balance. The longer you hold your policy, the less valuable your policy is. This is different from life insurance policies, which typically hold the same balance for the entire term.

Many MPI companies also have strict limits on when you can buy a policy. Most companies require you to buy your insurance policy within 24 months after closing. However, some companies might allow you to buy a policy up to 5 years after you close on your loan. Your MPI company may also deny you coverage based on your age, as older home buyers are more likely to receive a payout than younger ones.

The Curious Case of Euclidean Zoning

Sat, 23 Apr 2022 17:12:45 GMT

Is raising the interest rate enough to cool the housing market?

“So…what do you think is going to happen to the real estate market?” Of all of the questions I get as a mortgage broker working in Toronto, this is the one that I am increasingly hearing more and more. After each appointment discussing mortgage situations, clients would often end with this simple question. It’s the same question that I also see dominating news segments. I see it on the forums as people express their frustrations with housing and living conditions. As a mortgage broker, I also see what’s happening from the rental side to first time home buyers to investors and back again. It’s very difficult to ignore what’s going on as ‘normal business’ when we have seen home prices accelerate in appreciation at an alarming pace while the cost of living and inflation continue to rise. I have also seen the rhetoric’s used as ‘solutions’ to the ‘housing crisis’, such as the increase in interest rates to looking at penalizing foreign buyers. While increasing interest rates will help, I’m sure all of you are familiar with the term “band aid” solution, it does nothing to solve the underlying issue. Supply and demand. While supply and demand is more of an economic term, but when applied to the housing market, the tools that affect supply and demand are beyond just interest rates (monetary policy), and needs to account for the actual policies that govern how, what and where we build our cities.

Euclidean Zoning – Describes essentially how our entire “North American” cities are built and planned. It is a method of urban planning which divides land uses into each of their respective zones. This was done during the industrial period as to prevent houses to be built right next to industrial plants. For the most part this worked, and it helped build and develop communities. All of this changed during the introduction of the National Highway acts throughout the 1920’s, which lead to a new development phenomenon known as the “Urban Sprawl”. (Partially formed by the “American Dream” of being able to own a home with a white picket fence, with a car in every garage.)

Fast forward to today, and we have two very distinct type of cities. Ones that were built prior to the 1920’s which still allowed for dynamic zoning laws that have been “grandfathered” to allow for mixed use and higher density exceptions, vs cities and towns after 1920’s that adhered to the urban planning methods of focused zoning. More specifically single family homes. The detached single family home became an icon, that it dominates the zoning allowances for all ‘modern’ cities. However, doing this forces a few issues,

Single family home zoning forces other types of zoning away and are determined to be set at a certain distance. Sometimes knows as setbacks. (Ironic isn’t?) As such, if you have a commercial development, it would be situated outside of the single family zoned areas. This type of design is very typical of cities like Mississauga, London (Ontario) where you have many “strodes” (think of streets, but are actually roads for cars and not pedestrian friendly with wide intersections) Typical design cues will involve large parking lots that are typically bigger than the buildings themselves and a lot of 1 to 2 story buildings with higher density buildings around the core.

The fundamental problem with this urban design is that the plan is designed around the automobile and not the person. It assumes that each person will have a car that they can travel to the designated zoned areas for your amenities like groceries, shopping, entertainment, even where you work. However, doing this causes another major fundamental issue; congestion. Since the amenities are all grouped in areas, everyone needs to go to the same place, which exacerbates the problem of paving our lands into parking lots.

In fact, the case for Suburban design planning is currently being revised to address these issues as they are readily becoming apparent as the city begins to age, and the large amounts of asphalt infrastructure now needs to be maintained by taxes generated by a low density area. It is not a surprise that the budgets of these cities are largely skewed towards maintenance, leaving very little funds for anything else.

What does this all mean? It means that we really need to assess the way we build our cities and to what scale. Focusing on density does not have to mean 30+ story condominium buildings. Now termed the "missing middle" properties like duplexes, triplexes, to small to mid rise apartments and mixed used (live/work) buildings are great answers to gentle intensification, increased walk ability while decreasing vehicular congestion. One doesn't have to look far to see great examples of these. Toronto is already made up multiple 'villages' and Montreal already was largely built this way to accommodate the density during it's intensification phase. Now expanding it even further, giving Montreal the title of the "most European Canadian city". We have the knowledge, the tools to make this happen, but change is never easy, and often requires communities to come together in solidarity for this to occur.

“We expect too much of new buildings, and too little of ourselves.”

- Jane Jacobs, The Death and Life of Great American Cities

A Beginner’s Guide To Real Estate Investing

Wed, 29 Sep 2021 17:29:07 GMT

If you are looking out for a prime piece of real estate to add to your property portfolio, it’s exciting to check out the luxury houses on the market. However, when purchasing a house, it can be challenging to manage cash flow if you’re juggling multiple mortgages.

So, to help you understand how to invest in property, Guardian Mortgages has put together a beginner’s guide to real estate investing. By following this guide, you as a home seeker can achieve peace of mind that you are making the right purchase decisions.

Getting Started

Remove emotional stressors: Investing in more than one property at a time requires a big appetite for risk, which makes it essential to show grit when putting pen to paper, and remain disciplined when paying off loans. Also, be honest with yourself and identify bad habits that could hinder you later on.

Educate yourself: It’s vital that you understand the mortgage process inside out to avoid feeling overwhelmed when faced with various interest rates from different lenders. So, remember to stay humble and always ready to learn.

Next Steps

Determine your investment time horizon: Everyone has different financial goals in life. To establish your purpose, consider if you are buying a property to flip and recover your money quickly, or you are planning to rent and achieve more significant profits in the long term.

Conduct thorough due diligence: Your goal should be to achieve a state of financial sustainability for your real estate portfolio. With this mind, It’s imperative to study paperwork meticulously and not rush into a transaction that is cheap but will be harder to sell later on.

Hire a professional: A licensed mortgage professional will not only consider your current situation but will also examine your entire financial and real estate portfolio. They also reduce the time it takes to discharge a mortgage, which would lead to substantial savings in total interest payments.

Advice From The Pros

Always be prepared: Be slow and cautious when planning, but be swift and decisive when it is time to act. In other words, take your time to do your due diligence, but if an excellent investment opportunity arises, be ready to execute.

At Guardian Mortgages, our goal is to exceed your expectations. As the go-to experts in Ontario, for all your mortgage needs, you can feel confident about securing the right mortgage with us. We specialize in purchase mortgage, mortgage renewal, mortgage refinance, home equity loans, debt consolidation, new to Canada mortgage, self-employed mortgage, and first-time home buyer mortgage.

Visit our website to learn more or contact Guardian Mortgages today.

A Pre-Approval Does Not Guarantee A Mortgage Approval

accounting@shaneserra.com (Shane Serra) — Sun, 20 Jun 2021 12:46:04 GMT

Many Canadians are under the assumption their mortgage is as good as done once they have a mortgage pre-approval.

But the truth is a buyer cannot expect a mortgage pre-approval will automatically translate into a mortgage. The lender now needs to consider the property itself, approve all the terms and review the documentation before you transition from pre-approved to approved.

Buyers often do not appreciate there is still some uncertainty when it comes to their mortgage. Unfortunately, once in a while this uncertainty bites back – with calamitous consequences.

Going in Without Conditions in a Hot Market

Not that long ago, when housing supply equalled or exceeded demand, the buyer would insert a clause requesting five business days (usually) to arrange mortgage financing – this is called a “condition of financing.” Even one or two days can make a world of difference.

These days across much of Canada, residential real estate is such a hot commodity it’s more likely offers to purchase will be firm and without a condition of financing.

The process is very skewed in favour of sellers at the moment, and it’s really not a comfortable or fair situation for the buyer. The fact of the matter is homebuyers, especially first-time buyers, are taking this risk every day. In many markets, it’s the only way you will win in a multiple-offer situation.

It is clearly in the buyers’ best interests to know in advance how much mortgage they might qualify for. This is achieved by providing complete information and documents to your bank or mortgage broker and allowing them a deep-dive into your personal finances and credit. They can then underwrite your application upfront.

Even when a thorough review has been conducted, and you are clutching a pre-approval certificate, there are many things that could happen to compromise your home purchase.

Insured Mortgage Approval

Suppose you are in line for an insured mortgage, which is always the case with less than a 20% down payment. Your mortgage approval is technically approved twice – first by the lender and then by the insurer. And please understand that no mortgage insurer has seen your pre-approval request.

The pre-approval considers your personal creditworthiness and borrowing capacity. The actual amount you qualify for also depends on the property itself: that plus the lender and insurer’s assessment of your application. Please remember, pre-approvals do not consider the specific properties.

Reasons Why the Property Can Hurt Your Mortgage Approval

To secure a mortgage, the borrowers and the property have to pass muster. No one knows the exact property you are going to buy when you are pre-approved. When it comes time for the lender to approve your mortgage, there are many ways the specific property can impede the approval.

There are several reasons why a specific property can cause concern. For more information, we defer to Dustan Woodhouse, whose passionate concern for this topic inspired this article and who lists many more here.

Value of The Home: When multiple buyers are competing on the offer presentation day, there can only be one winner. In this market, the winner often has to bid much more than the market value. When this happens, the appraisal may come back with a value less than you paid. That will not necessarily kill your mortgage approval, as long as you have additional financial resources to cover the shortfall, if necessary. Note: This market does not favour buyers who go in subject-free (firm) with no wiggle room. If you are using all your financial resources to come up with the down payment and closing costs, what can you do if the value comes back lower?
Property Condition: Have you ever seen an MLS listing that says “as-is” or “handyman special?” Those are red flags to a lender, and a mortgage may not be forthcoming at all. The appraisal may further report poor conditions, mold or even structural issues.
Property Specifics: There are many reasons a property may prove challenging. Here are some examples of property types that will seem problematic to a lender:

Log homes
Homes on leased land, First Nations, government or private
Rural properties with a hint of hobby farming
Properties containing asbestos, underground oil tanks, aluminum wiring
The remaining economic life of the property
Suppose the property was a one-time grow-op or drug lab. Good luck with that – no matter the price you pay, even if the property has been remediated.
One property earlier this year had an MLS listing that proudly mentioned a 15-foot fish pond in the backyard – with a fish farm permit. That mortgage was VERY hard to place.

Location: If a lender feels the property you picked is simply too far from your workplace, they may assume you need to keep a second home or place to stay, and in such cases they impute a “shelter cost” for you. This might also skewer your approval.
Condos: Mortgage insurers keep lists of condo buildings they do not want to lend against. Maybe the maintenance fees seem extraordinarily high or the condo status certificate reveals significant assessments; for example, something like Kitec Plumbing .

The smaller the condo is means fewer interested lenders. Many lenders simply do not like to lend against micro-condos. Condos under 500 square feet are often a cut-off, but in recent years that number has shrunk to 400 SF or less with some lenders. It might depend if the unit has a separate bedroom. In some of these suites, the bedroom is a wall bed/Murphy bed.