Time is very valuable asset and when choosing a mortgage selecting an acceptable mortgage term could save you thousands.
Typically, lenders offer terms from anywhere from 6 Months all the way to 25 Years.
Essentially, the mortgage term serves as the time that you are locked into the mortgage agreement. The most important part of the agreement of the term is the mortgage rate. This is why you should choose the best possible term to meet your needs, as you may pay a major penalty for breaking it.
The following things should be considered:
1. Economic Conditions
Lenders set lower rates for smaller terms if they believe that at the end of your term mortgage rates will be higher. Avoid the short-term low rate, and opt for the longer term of five years if this is the situation. Alternatively, if interest rates are believed to decrease, consider a shorter term.
2. Think about how long your mortgage is required for.
Consider how long you will need your current mortgage for, are you planning on selling in two years? Plan on having only a two year term. It is also a good idea to think about when you will need to refinance, as you will avoid a heavy penalty by locking into a term that coincides with this.
Most clients lock in for terms of about five years. There are terms that are longer, but the luxury of having them is not likely to yield more savings than depending on the ebb and flow of the market.
Saturday, July 24, 2010
Monday, July 12, 2010
The Trouble with Open Mortgages
Many clients also ask me about getting an open mortgage when purchasing or refinancing their properties. The concept is sound, an open mortgage enables you to pay off your mortgage at any time with no penalty fees. This is pretty appealing because many people who attempt to refinance before their term is up can be hit with an average penalty of $15,000 to $30,000. So, why would I think open mortgages are bogus? Open mortgages are priced at a high premium, so if you (and most don't) do decide to end your term early, the bank is sure to still make a profit. This doesn't mean that every home buyer should jump into a long five year fixed rate. There are some other creative options, to pay less and still have the flexibility of not being locked into an unbreakable mortgage.
1. Consider a variable rate
Yes, there is still a penalty, but a variable rate has a penalty of only three months interest, which is likely to be way less than the typical fixed rate penalty. A fixed rate mortgage is subject to an interest rate differential penalty, which basically means that you will have to pay the interest that a bank is missing out on.
2. Add a Line of Credit
Although more expensive than a variable rate, a credit line can be payed to zero at any time with no penalty. Having advanceable credit is only an advantage if your expect to need different portions of your equity at different times. An example being a home renovation.
3. Plan Ahead
The best way to avoid penalties and have the cheapest rate. Plan. Are you going to sell your home in two years? Get a Two Year Term Will you need to remodel in three years? Get a three year term, or add a line of credit. The more you can anticipate upfront the less penalties you will pay. Additionally, if you are required to pay a penalty this will be less the closer you are to the end of your term.
Typically, banks will advertise the money saving advantage of an open mortgage, without letting you know that with a little bit of creative planning (and the help of a mortgage broker), you can expect to pay less money.
Remember, I will happily evaluate your mortgage for free call me at 1.250.814.1627 or visit my website at www.joelolson.ca
1. Consider a variable rate
Yes, there is still a penalty, but a variable rate has a penalty of only three months interest, which is likely to be way less than the typical fixed rate penalty. A fixed rate mortgage is subject to an interest rate differential penalty, which basically means that you will have to pay the interest that a bank is missing out on.
2. Add a Line of Credit
Although more expensive than a variable rate, a credit line can be payed to zero at any time with no penalty. Having advanceable credit is only an advantage if your expect to need different portions of your equity at different times. An example being a home renovation.
3. Plan Ahead
The best way to avoid penalties and have the cheapest rate. Plan. Are you going to sell your home in two years? Get a Two Year Term Will you need to remodel in three years? Get a three year term, or add a line of credit. The more you can anticipate upfront the less penalties you will pay. Additionally, if you are required to pay a penalty this will be less the closer you are to the end of your term.
Typically, banks will advertise the money saving advantage of an open mortgage, without letting you know that with a little bit of creative planning (and the help of a mortgage broker), you can expect to pay less money.
Remember, I will happily evaluate your mortgage for free call me at 1.250.814.1627 or visit my website at www.joelolson.ca
Tuesday, July 6, 2010
Realtor or For Sale By Owner
It's a pretty common occurrence, people call me looking to get qualified for a mortgage only for me to discover that the house they're looking at is a FSBO, or for sale by owner. Now, don't get me wrong, I have looked at and even considered buying For Sale By Owner properties for my portfolio, but it seems every time I have a client looking at one it turns into a bogus deal. Wait, I'm getting ahead of myself. What is a For Sale By Owner property? It's a property that the owners sells themselves without the use of a professional realtor. On the surface, it seems like a great idea. Avoid a realtor's commissions and you'll be able to save money on the purchase price and the seller will be able to keep more of their hard-earned equity in their pocket. You can't lose! Wrong!
Here are some things you should know about For Sale By Owner properties that will have you running for a realtor.
1. The seller doesn't make more money and the buyer doesn't save money.
Hey, wait a minute! I thought you said...Yes, its a theory that a homeowner will lower the price, because they don't have to pay a realtor commission and then they will pass those savings onto a buyer. It rarely happens though. Most sellers are emotional attached to their properties and see way more value than an objective realtor would. It's not uncommon to see "FSBO" properties listed for more than market value. Additionally, a lot of sellers don't know their local market. They are not aware of factors that affect value like location, and house condition. But, hey my neighbour's house sold for this price! Yes, but your neighbour has a full basement suite and a new jacuzzi tube in the master bedroom. Add to this that Real Estate is always local and factors that may improve value in one place will decrease it in another make determining your house's realistic selling price a tougher job than just skimming the classifieds.
2. A real estate offer is a legal contract, have you ever written one before?
Sure, you can take your real estate offer down to your lawyer or your notary, but even these professionals are not trained in writing real estate offers every day. Many people who sell their homes on their own, leave out important clauses or assume things that become a problem later. A realtor writes offers every day. Their job is to make sure your interests are protected and to put you in the best situation possible. Their "hefty" commission will seem pretty small when you realize that you could've avoided losing your deposit and getting sued by using them.
3. A owner has one property, but a realtor can show you many properties
One of a realtor's most important job is to monitor the market, and see what properties are listed, for what price, and to what client they will fit. A realtor only makes a commission when you buy a house, but it doesn't matter what house it is. A owner only makes money if you buy their house, there not going to recommend the house down the street that has a bigger playroom for your growing family.
4. You will have to get dirty!
At the end of the day, your making a business transaction and a house is a very big "guilt" purchase. Let' say that you think that the bathroom needs an update, so you need $5000 off the purchase price. If your buying a "FSBO", the bathroom could've been the owner's latest and proudest fix-it project, and it might be a tad bit daunting to mention you think he should apply to be on "Holmes on Homes". If you use a realtor, they will do the talking for you, and make sure that you don't get into a situation where your house will become your most hated purchase.
5. Professional Advice?
Sure, a seller will say he knows the best lawyer, the best home inspector, and the best mortgage broker, but a realtor will actually know the best. Remember, a seller sells one house in his lifetime, and a realtor sells a house a week. Who is going to know more about the process?
6. Banks hate Private Sales
There are some banks and lenders that will finance a private sale, but a lot of lenders will stay away from transactions that have no realtor involved, as it is too likely to have something go wrong due to the inexperience of the parties involved. The banks that do finance them are rarely the most aggressively priced, so be prepared to pay a premium for this "money-saving" opportunity.
So, stop driving around looking for a homemade sign in the laws. Call you local real estate office today, and start moving towards a house buying experience that is smoother, cheaper, and guaranteed to give you peace of mind.
Don't forget, when you have a house you want to buy I would love to help you get a mortgage. Call Joel Olson at 1.250.814.1627 or visit my website at www.joelolson.ca
Here are some things you should know about For Sale By Owner properties that will have you running for a realtor.
1. The seller doesn't make more money and the buyer doesn't save money.
Hey, wait a minute! I thought you said...Yes, its a theory that a homeowner will lower the price, because they don't have to pay a realtor commission and then they will pass those savings onto a buyer. It rarely happens though. Most sellers are emotional attached to their properties and see way more value than an objective realtor would. It's not uncommon to see "FSBO" properties listed for more than market value. Additionally, a lot of sellers don't know their local market. They are not aware of factors that affect value like location, and house condition. But, hey my neighbour's house sold for this price! Yes, but your neighbour has a full basement suite and a new jacuzzi tube in the master bedroom. Add to this that Real Estate is always local and factors that may improve value in one place will decrease it in another make determining your house's realistic selling price a tougher job than just skimming the classifieds.
2. A real estate offer is a legal contract, have you ever written one before?
Sure, you can take your real estate offer down to your lawyer or your notary, but even these professionals are not trained in writing real estate offers every day. Many people who sell their homes on their own, leave out important clauses or assume things that become a problem later. A realtor writes offers every day. Their job is to make sure your interests are protected and to put you in the best situation possible. Their "hefty" commission will seem pretty small when you realize that you could've avoided losing your deposit and getting sued by using them.
3. A owner has one property, but a realtor can show you many properties
One of a realtor's most important job is to monitor the market, and see what properties are listed, for what price, and to what client they will fit. A realtor only makes a commission when you buy a house, but it doesn't matter what house it is. A owner only makes money if you buy their house, there not going to recommend the house down the street that has a bigger playroom for your growing family.
4. You will have to get dirty!
At the end of the day, your making a business transaction and a house is a very big "guilt" purchase. Let' say that you think that the bathroom needs an update, so you need $5000 off the purchase price. If your buying a "FSBO", the bathroom could've been the owner's latest and proudest fix-it project, and it might be a tad bit daunting to mention you think he should apply to be on "Holmes on Homes". If you use a realtor, they will do the talking for you, and make sure that you don't get into a situation where your house will become your most hated purchase.
5. Professional Advice?
Sure, a seller will say he knows the best lawyer, the best home inspector, and the best mortgage broker, but a realtor will actually know the best. Remember, a seller sells one house in his lifetime, and a realtor sells a house a week. Who is going to know more about the process?
6. Banks hate Private Sales
There are some banks and lenders that will finance a private sale, but a lot of lenders will stay away from transactions that have no realtor involved, as it is too likely to have something go wrong due to the inexperience of the parties involved. The banks that do finance them are rarely the most aggressively priced, so be prepared to pay a premium for this "money-saving" opportunity.
So, stop driving around looking for a homemade sign in the laws. Call you local real estate office today, and start moving towards a house buying experience that is smoother, cheaper, and guaranteed to give you peace of mind.
Don't forget, when you have a house you want to buy I would love to help you get a mortgage. Call Joel Olson at 1.250.814.1627 or visit my website at www.joelolson.ca
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