Final Mortgage Insurance Guarantee Parameters.

On Friday, September 19, 2008 the Department of Finance issued its final mortgage insurance guarantee parameters and accompanying explanatory notes. The final guidelines follow the initial announcement on the financial guarantee for mortgage insurance providers issued July 9, 2008 by the Department of Finance. 

There are two noteworthy changes from the draft parameters:

1. Elimination of reference to a Total Debt Servicing (TDS) number, replaced by a principles based approach;
2. Reduction in minimum credit score to 600 from 620. Three percent “basket” for flexibility remains;

These modifications follow discussions with stakeholders, including CAAMP. CAAMP through its submission focused its comments on the minimum credit score and welcomes the decision by the Department of Finance to adjust the credit score.

Court turns down ABCP appeal!

The Supreme Court of Canada has denied an appeal of the plan to rescue $32-billion of stranded asset-backed commercial paper, clearing the way for thousands of individuals and companies to start reclaiming investments that have been frozen for 13 months.

A group of Canadian companies holding about $600-million of notes had challenged the ABCP bailout on the grounds that it was legally flawed. The businesses, which include Domtar Inc., Ivanhoe Mines Ltd. and Jean Coutu Group (PJC) Inc., opposed the plan because it includes a sweeping legal immunity that shields financial players from potential lawsuits relating to their controversial role in the ABCP meltdown.

By refusing to consider the appeal, the Supreme Court has endorsed a precedent that some legal experts say will allow other troubled entities to seek similar shields that deny investors and other parties the right to seek damages for alleged improprieties.

Holders of the ABCP have been unable to cash in or trade the paper since August, 2007, when a global panic about shaky U.S. mortgages shut down a large segment of Canada’s ABCP market. Canadian notes issued by non-banks proved to be more vulnerable than ABCP issued in other countries because they were backed with unreliable emergency lines of credit.

The ABCP collapse has left scores of individual investors stranded without savings that had been earmarked for home purchases, retirement plans and other expenditures. Under a plan approved by the Ontario Superior Court, most of the estimated 2,000 individual investors saddled with ABCP are entitled to receive cash for their notes.

Those investors each holding more than $1-million of notes will be entitled to receive a new class of long-term notes that can either be sold or held until maturities that extend up to nine years.

According to sources, the committee of financial players overseeing the restructuring hopes to start paying cash or other longer term notes in exchange for ABCP by October.

By denying the appeal, the Supreme Court has effectively eliminated the last major hurdle standing in the way of a massive restructuring that many critics said couldn’t be done.

Ever since veteran Toronto lawyer Purdy Crawford agreed a year ago to chair a committee of pension funds, banks and other players seeking to salvage the notes, critics said the bailout would never work.

The restructuring attempt was the largest in Canadian history and it was brought to the brink many times by market and credit panics in the past year.

Canaccord Capital Inc., a Vancouver brokerage that sold ABCP to many of its clients, said the Supreme Court’s ruling paves the way for it to proceed with its plan to reimburse much of its customers’ losses.

“We commend the Supreme Court’s decision,” said Paul Reynolds, president and chief executive officer. “We are eager to complete our relief program and restore funds to our clients, who have been negatively impacted by this market disruption.”

In conference call, Mr. Crawford said he was pleased by the court’s decision, particularly during such a tumultuous week in global markets.

“We think it is a major, significant step forward to getting this deal done. We think Canada is a land of tranquility in a sea of storm.”

Howard Shapray, a Vancouver lawyer who represented Ivanhoe Mines, said he is disappointed that the Supreme Court allowed “a plan that is so flawed from a legal point of view.” Despite his disappointment, he said he is pleased that investors will soon be able to start recovering their savings.

“I have tremendous respect for Purdy Crawford, for his industry and determination. They pulled a rabbit out of a hat,” he said.

James Woods, a Montreal lawyer who represented a group of Quebec-based companies, said that the Supreme Court has left a “very confusing legal landscape” in the insolvency practice because Ontario court rulings that approved the ABCP plan are in conflict with decisions from Quebec courts. He also said he hopes the federal government and market regulators continue with ongoing investigations into the market collapse that left so many Canadians stranded.

“There has to be a very close look at what took place,” he said.

Another one bites the dust!

If you enjoy a good train wreck, then watching the financial markets of the past few days should have given you plenty to watch. For those of you who have not kept a roll call then here is a brief summary, Lehman Brothers the large brokerage house has filed for Bankruptcy protection, Merrill Lynch brokerage house was bought out by Bank of America, and it was just in time or they might have suffered the same fate as Lehman. Now it seems that the straw that will break the camel’s back is what is currently happening to AIG ( American International Group). CNBC announced last night that they need to raise 75 BILLION by the end of Sept 16th to stave off bankruptcy, and now it seems like that may not happen.

Now the question that you may be asking your self is how does all this matter to me, the individual investor. Well you think that because you did not have direct investment in AIG, Lehaman’s or Merrill that it does not effect you. Guess again, it probably does. These companies raised capital for investors and sold it off in the form of debt which many of our local financial institutions bought and packaged and sold back to us in the form of bond and other investments. Normally bonds are one of the safest places to put your hard earned cash and get a return.  However, bonds are basically debt instruments, where by we are given an income until the debt is paid. Now what do you think happens to your returns when they can not make their debt payments? Here is another great resource for you to check out.

If you are also wondering how this all relates to mortgages, well remember the sub prime crisis? AIG over valued their mortgage backed securities 1.7 to 2 times what Lehman did, and look what happened to them. In plain english, they bought ABCP ( asset backed commercial paper) or pools of mortgages and they issued securities on them ( claims of the principal and interest payments) and valued them higher than what they were actually worth. Now it needs to cover up the shortfall in the valuation and it can not seem to come up with the cash.

This effects us all. If our banks and mortgage lenders can not sell their pools of mortgages to investors then we are left with limited options. Not everyone has squeaky clean credit, can prove their income and has loads of cash to make their purchase. Thankfully we still have lenders who have their finances in order. Call me so we can put them to work for you.

Cheers,

Pat

p.s Maybe the example we should all follow is that of Warren Buffet, click here to get his biography.

Who owns your ass(ets)?

If you are like the average family, you probably have 2.5 kids, a house, a car or two and maybe even a cottage. You are most likely both working and counting down the years till you can kiss your nine to fiver good bye. You may even have a company pension and contribute to the Canada Pension Plan as well. Living the life of Riley right?

However when it all comes down to it, you also have a mortgage, a car loan, credit card bills, probably a line of credit as well. You’re thinking that’s nothing, you have plenty of assets! You have your house, your car, your cottage, and your investments. Hold on there, you may be mistaken on what is an asset and what is not.

Let’s take a quick look, you have a nice house, but it is not your asset if you have a mortgage, it’s the bank’s. Same with your car and your cottage. You’re thinking that this can not be right, and if this is your definition of asset, then you may need to upgrade to the modern version. 

Don’t get me wrong, I use to think like that too. It all changed when I heard this version from Robert Kiyosaki’s series “Rich Dad Poor Dad“. He says ” that an asset is something that makes you money”. Think about it, if you have a house with a mortgage, then it is the bank’s asset because you are making regular payments to them. Well you say that it is worth 250K and that you only owe 100K. If that other 150K in equity is not making you money then it is not an asset, unfortunately the same goes for your car(s), your cottage and possibly even your investments. 

How can you change all of this? Put your self on the debt elimination fast track. If you owe someone else money then they are in control. Once this is done, see about using the money you once used to service your debts to invest in an area that produces you an income. Cut the chains to the bank and take back the reins to your life. 

Please contact my office for a free no obligation debt analysis to see if that is the best solution for you. I was inspired by the actions of the CEO of Royal Bank of Canada Gordon Nixon in regards to his view toward rescuing Lehman Brothers in the States. 

Cheers,

Pat

Housing market continues to cool.

I just read this article in the Globe and Mail, you can read it here. If not here is my take. Current stats seem to indicate that we are slowly changing from a seller’s market to a buyer’s market. The change is sweeping us from West to East. As the market was at it’s hottest in the oil rich Alberta. This is nothing out of the ordinary in the cycle nature of real estate.

Cheers,

Pat

 

Give yourself some credit!

It can reach the point where you don’t want to pick up the mail or answer the phone. There isn’t anything to look forward to anyway, who writes letter’s anyway? The daily mail invariably consists of a few pieces of colorful junk mail and yet another pesky bill to pay.

Believe it or not, those pesky bills are the ticket to your financial well being. The way you handle those bills can make a difference that you can measure on the bottom line of your family finances. 

A good credit score ( and the higher the better) is rewarded with good loan rates and access to money when you need it. A low credit score can cost you extra, even on your home mortgage, where the debt is secured against your home. You may find your self refused credit, and just when you need it the most.

You should check your own credit score at least once a year, to insure that all the information in your life is accurate. You have a right to access your own credit record through services like Equifax or Transunion. There may be charges for mailing or downloading your file, but it can pay to know your own credit score.

It is helpful to understand what is behind that credit score: what impacts your score and what lenders are looking for when they check your credit.

When those pesky bills come in, ( even if it is a $15 department store credit card charge!) do you pay them on time? Your payment history is a significant factor in your credit score. If you have paid your bills late, had an account that has gone to collections, or heavens forbid declared bankruptcy, then your credit score will drop accordingly.    

How much money do you owe? Lenders will look for a nice comfortable buffer between your debt and your credit limits. If your credit card or your line of credit are always teetering at the top of their limits, that is also likely to have a negative effect on your credit score.

How long is your credit history?  Lenders will be interested to know how long you have been a borrower. If you have a long credit history with a good repayment record, you will score high in this component. A short credit history makes it difficult for lenders to assess your risk , however if you pay your bills in a timely manner and maintain low credit balances, these good habits can off set a short credit history.

Have you applied for new credit lately? A lender will be able to see if there have been other “inquiries” on your credit report. If you have requested new credit several times in a recent period, your score may be affected. Don’t worry about routine checks or inquiries from your existing lenders. These should not impact your credit score.

How much credit do you have and what types of credit do you use? Both too much and too little can lower your credit score. Lenders will be looking for a record of established credit accounts with good payment histories. Too many credit cards, or accounts with high interest finance companies can also affect your credit score.

So what does not affect your credit score? Personal information such as your race, religion, sex or marital status are neither recorded or scored in your credit history. Perhaps surprisingly, your salary, occupation and employment history are not relevant to your credit history.

This year, whether or not you intend to take out a mortgage, or borrow money, you should check your credit history and ensure that all the information contained there is accurate. You want to know what any future lender can see. Secondly make those pesky bills in your mail box you new best friend. Be systematic about your bill paying routine and reap the financial rewards! 

Lastly if you require assistance in making heads or tails out of your newly received credit report, just let me know and I will be happy to translate it for you so you can understand it properly.

 

Cheers,

Pat

Lesson's from the US housing crisis!

I just read this article here. The Americans have got them selves in a pretty sticky situation. As with every challenge there is a learning experience. So what can we learn from this?

1) Don’t bite off more than you can chew. If you can not afford it with out the use of “creative” financing then do not buy it.

2) Stop living off credit of any kind. If you are a home owner take advantage of our debt elimination program, other wise start rapidly eliminating your debt.

3) Make cash king. Save for your large purchases, most people really do not pay off those ” don’t pay a cent, no interest for 5 years” sales at the big box stores, before their terms start to kick in.

4) Improve your credit rating. It is easier than you think. Start by paying your bills on time, keep your balances well below your limits. However once paid off, keep them open, as your self control you show by keeping zero balances will help prop up your credit.

5) Start your own business. Get paid for something that you are good at. It is also a good tax deduction. See you accountant for full details.

6) Last but certainly not least.  Learn to invest. Face it you are not going to work forever. Some day you are going to want to leave the working world behind. Make sure you are ready for it. Be a good student, read books like “The Wealthy Barber”  or “Rich Dad Poor Dad“.

If you would like us to help you eliminate your debt, just let us know.

Cheers,

Pat

p.s  I also just discovered this great book on Amazon, “The Subprime Solution” Let me know what you think.

Are you sitting on a “Gold Mine”?

“A penny saved is a penny earned”, or so the old proverb goes. Of course, the value of a penny has changed somewhat from the time when your mother offered her wisdom on the value of keeping what you earn. Today, you could save thousands of dollars by simply making the right mortgage decision. If you are like most Canadian homeowners, your mortgage could be a gold mine of potential savings.

In the past few articles, we have talked about the importance of your mortgage as one of your most significant financial decisions. We have explored the value of seeking the advice of a mortgage professional whether you are buying, or renewing your current mortgage. Today, let us take a look at the bottom line, the savings that you can enjoy by making the right mortgage decisions.

It is the primary goal of a mortgage professional to find you the right mortgage product for your personal situation. A good mortgage professional is a financial professional and like your investment advisor, they want to understand your personal situation. Your mortgage professional has access to a wide variety of lenders, from institutional, trust to private, so they can help you to do some valuable comparison shopping for the right combination of terms and conditions to suit your needs.

All these choices offer you substantial opportunities to save money over the life of your mortgage. 

If you are like most homeowners, you are focused and for good reason on finding the best possible terms for your mortgage. ( Notice I did not say rate!). A good mortgage professional will find you the best possible rates and terms to suit your needs. If we can talk about rate for a second, if I can save you 1% on your rate, that would translate to more thank 13K in interest per 100K borrowed over 25 years. 

As I said there is more to it than just rate. There are other ways to find savings in your mortgage. A good mortgage professional is up to date with the latest terms and conditions, and we can custom fit a mortgage for your requirements. 

As I covered in previous postings there are many ways to mine your mortgage for gold. If you are interested in how your mortgage may be used to help you live a debt free lifestyle, then ask us about a no obligation debt analysis. So we can show you how much sooner you can be living a debt free lifestyle.

 

Cheers,

Pat

How to use your home equity to feather your nest!

More than a decade ago, trendsetters began to tell us about the future trend of “cocooning”.  They predicted that decoration magazines, home renovation businesses and luxury home fashions and furnishings would see a big boom. However recently we continued to look outside our home for entertainment, and the idea of nesting at  home seemed unlikely. 

But the the futurists were right, and Canadians have come home en masse: to work ( as I am doing right now) to play, to socialize, and the retreat. Not surprisingly, they are reshaping their homes to accommodate their new passion for home life. Canada has become the renovation nation, with more than one third of Canadian homeowners planning a significant renovation in their near future ( just ask my wife) and  according to CMHC. Even with our simmering economy sales for home improvements remain strong, just try to find a parking spot at your local Kent, Home Depot or Rona on a Saturday Morning. That “Honey Do List” needs to be tackled.

So where are people spending the money? People are still renovating their kitchens, but they have been overtaken by exterior renovations ( like landscaping, roofing, decks and fences) bathroom renovations ( anyone need a bidet?) and carpeting and flooring. Kitchens are now the 4th most popular. Do it your self renovations are most likely to tackle rec-room renovations or paining and wallpaper. 

Before you embark on a renovation project, you should consider whether you are improving your home for your own comfort, or to increase the value of your home. Renovations are not created equal, and some will perform better than others when it comes to adding value to your home.

Most renovations will improve the value of your home, but you should not expect to fully recover your renovation costs. There are some exceptions and they often vary from one region to another. Go to the CMHC website as they provide a general cost vs value guideline. For example, you can expect to recoup up to 73% of a kitchen renovation, making it the smartest renovation investment. Followed by bathroom  up to 71% then exterior work like landscaping or painting up to 62% and re doing the family room up to 56% of your investment. 

But there is more to the renovation fever than a desire to practice trading spaces at home. The passion for home life is coinciding with the availability of attractive financing. A mortgage is one of the lowest cost of borrowing loans that you can get, and Canadians are taking advantage of this to do the upgrades that they have been dreaming of, rather than putting it on the credit card!

If you are thinking of doing a major renovation, then you owe it to your self to give us a call to find out about some of the financing options that are available. I look forward to hearing from you.

 

Cheers,

Pat

 

Fast Tracking to “mortgage free”!

Just imagine as you are going through your favorite coffee drive through this week, that a well dressed gentleman stops and offers you $12K for your grande non fat no whip extra hot chi latte. Would you do it? I would take it even if it was the last coffee on earth! It’s a no brainer. Well what about this, what if you take that daily coffee budget and apply it to  your monthly mortgage payment. Depending on your coffee taste’s you could be saving anywhere between $30-$85 per month, and that small amount could save you anywhere between $12K and $34K over the life of your mortgage.

Most of us can accept the idea that we must borrow money to purchase a home. We look for the best possible rates and terms, and then we are stuck just handing out our hard earned cash for as long as it takes to pay it off. With current amortization’s of 25,30 or even 35 years, that is a long time to be chained to your lender. If you don’t pay attention it will cost you over double the cost of your home to pay it off. However with a good strategy you should be able to burn your mortgage papers significantly earlier.

Here are a few tactics that you can put to use right now:

1)Pay more than your mortgage amount. Here is an example, say you take out a 250K mortgage over 25 years, at 5.35% paying $1,504 monthly. You find that you have an extra $250 that you can put toward the mortgage every month. By doing this you will save $42,950.88 in interest, and have your self 5.58 years closer to being mortgage free.

2)Take advantage of lower rates. By doing this you are reducing your overall interest costs and therefore paying down your principal faster. On easy way to do this is to take a variable rate. I know it is riskier but 9 times out of 10 you will pay less over the life of your mortgage. 

3)Accelerate your payments. Most people are paid bi-weekly. If that is the case with you then pay your mortgage bi-weekly. This works out to an extra mortgage payment a year. If you combine this with example from tactic #1 and put $125 extra ever 2 weeks, you will save $104,174.95 in interest and now be 8.12 years closer to being mortgage free.

4)Use your lucky money, and by that I mean your bonus, tax refund, lottery winnings to pay down your principal. This will really help in the early years of your mortgage. Let’s still use the example above, say this works out to $1,500 worth of lucky money a year. Now you are saving $119,321.13 in interest and will now be mortgage free 9.77 years sooner.

5)Lower your over all cost of borrowing by consolidating all your loans. By combining your car loan, line of credit, credit cards, student loans etc into one low monthly payment and apply the savings to your mortgage. This will result in large savings in over all interest cost and becoming debt free a heck of a lot sooner.     

If you want a idea of how this could help you personally, then contact my office and request a free no obligation debt analysis. We will show you how these strategies combined with a proper plan will have you well on the way to becoming debt free. 

Cheers,

Pat