Tuesday, May 28, 2013

So-called “Best Rate sites” are put to the test with shocking results.

which mortgageThere’s been a surge of ‘Best Rate’ sites popping up… Chances are, you’ve probably seen one or more of their online ads…   You know the ones…‘shopping’ for the Best mortgage rates in Canada’ and ‘comparing Canada’s mortgage brokers for the best rate”.   It does sound great… and it seems to be getting lots of attention… Even the media are covering and quoting these sites…  And although I like that these sites promote how Mortgage Brokers can offer great rates, I’ve noticed some disturbing trends that you need to watch out for.
You say you want the ‘best rate’?  Really?  Or do you want to pay the least amount of money on your mortgage?   I’ll bet it’s the latter.  Make no mistake, these two things are very different and I’ll prove it.  But let’s face it, the rate gets everyone’s attention.. Most people don’t want to hear anything beyond that.. until they get burned for $$thousands on the mortgage later on.
Now what if I told you that 80% of my clients were paying a rate of 1.35% during 2009 and 2010, would that get your attention?   Of course.  And it’s true.  80% of my clients were in a Variable Rate mortgage based on my recommendations….and almost all of them didn’t panic and lock into a fixed rate (like the BIG SIX BANKS wanted them to)…they stayed in those products based on my specific advice recommending they not lock into a Fixed rate….    That’s called being in the right product at the right time.  My average client saved $6,000 during that time.
Today, Fixed rates have our attention due to the rates being at all-time record lows.   So once again, I’m seeing consumers flock to the the internet to see who’s got the ‘Best Rate’.  Hey, the strategy hasn’t changed… We still want to be in the right product at the right time… But the products have become more complicated..   and we are seeing some poor product recommendations..   It’s time put these sites to the test… After 2 months of research, here’s the results followed by some recommendations…..
  • How do these sites work?     These sites advertise all over the internet using adwords and other SEO forms of paid advertising.   Consumers click their ads and get directed to their sites….the consumer then notices the ‘so-called’ lowest broker rate for various terms.  If you want more info, just send your contact info and that broker will call you.
  • Do these sites really compare all mortgage broker rates?  NO, not even close!  This is the part that surprised me! After a month of reviewing the sites daily and checking to see which brokers were promoted,   we could only find 4 different brokers on one site and 6 on another.   That’s it!   That got me even more curious… Considering there are over 15,000 brokers in Canada… 15,000!!… and only 4 to 6 brokers are being advertised?   That doesn’t sound like a rate comparison site.
  • Are new brokers being added and compared?   Here again, I was extremely surprised and disappointed…  I inquired about signing on as a participating broker… only to be told the territories I was interested in were all full… By the way, I inquired about several locations… they were all ‘full’.    So if I, or any other broker, had a great product to promote, we can’t.  These sites only allow a very small number of PAYING broker access in each Province.   That’s right…PAYING brokers.  Bet you didn’t know that? (more details on this later).  This explains why the same brokers keep popping up day after day, week after week… It’s almost like they were selling franchises??    This was starting to sound less of rate shopping sites and more like a businesses with limited partners.
  • What’s it cost to get on these sites..?    Well, assuming you were a broker that signed on a few years ago and you did get access to the sites… You must agree to pay a fee for each and every lead or inquiry.  Cost varies from site to site but it’s around $50 to $70 per lead.. A lead is anyone that filled out that ‘contact info section’ looking for more info on the advertised rate.
  • But are these rates legit?   Yes and no.   Yes, the rates are available for qualified applicants that fit very specific circumstances…. Does that make them legit?  Well, technically, yes, but just barely in my mind…. Is it a bait and switch?     In some cases, probably.. but I’m not sure how widespread this is yet… I’ll be watching.. but I have my suspicions.
  • Who are these products really for?  Some products are only for hi-ratio mortgages (less than 20% down payment.. that’s right you must have LESS than 20% down)…some are for quick closings…30, 45 or 60 days…some have limited prepayment privileges or exit options or no exit options… some aren’t available for mortgage transfers or switches or refinances….And then we get into product features that can and do cost you big money…..some have inflated penalty calculations (that can work out to $10k, $15k $20k, $30k or higher) with inflated discharge statement fees ($350, $500 or higher) or the new reinvestment fee as high as $1,000 and more… let’s continue.. most ‘best rate quotes’ weren’t available for rentals, some products aren’t available for preapprovals, just real purchases,  etc, etc… The list goes on and on….
  • Would I recommend these products?  No.  I don’t and I never will.   Too many restrictions and limitations.  Too much buried in the fine print.   A $300k mortgage with a 0.10% rate difference saves you $15/mth.   But the exit costs down the road, will FAR EXCEED any savings..   Stick to the AAA products in the market.. A broker can get you a great rate today… Rates as good but usually better than your Bank but with BETTER terms and conditions…You’ll thank me later or you’ll wish you had listened to my warnings.
  • Don’t forget the spam emails… Almost forgot this one… You can expect an endless trail of spam marketing emails…  I counted 16 emails in 30 days offering various other products and services… it really did become quite annoying…  Yes, you can unsubscribe, but if you’re like most people that read emails on their phones, it’s not so easy to unsubscribe…  so they keep coming over and over again…
Two sayings come to mind… ‘if it sounds too good to be true, it probably is.” and “you get what you pay for”.
Can a site be impartial and claim to shop Canada’s brokers when they only allow a limited number of brokers access and will only quote broker’s rates that agree to pay a fee for leads generated?   I’ll let you answer that question…
As you can tell, I have a problem with these rate-quote sites…  Mortgage Brokers represent a large number of competing Lenders… My firm now deals with 50.  That means when a client comes to me, they have immediate access to 50 Lenders…   That’s what I call shopping…   But now we have these new sites that give the perception they are just there to compare rates, but in reality they are making a hefty income from comparing a small number of PAYING brokers…  Dealing with more than one broker at a time is redundant and adds no value.  Remember, a broker already does the shopping… These sites don’t offer anything new or extra.
My advice to anyone that is dealing with a broker is this…  stick with your broker.. if they ever stop satisfying your needs or can’t answer your questions, then move one.. But there is no reason to have more than one broker working on your application at one time… I for one, will not take on a client that is currently dealing with another broker…  A challenge to all brokers… raise the bar… raise the standards… raise your ethics…
The difference is in our advice…  Just like 80% of my clients that enjoyed a 1.35% rate in 2009 and 2010, they benefited from my advice and recommendations.   This hasn’t changed.  Listen to an experienced broker that is willing and able to provide you with a personalized strategy.   This is when you will truly save on your mortgage and pay the least to own your home.
Hey, we all want the best rate..  well actually, we want to pay the least amount of money to own our homes…Choosing a mortgage based on rate alone, is dangerous.   There’s more to a mortgage than just rate… I’ve shared dozens of examples on this site where borrowers were caught off-guard with inflated penalties or high exit fees or restrictions that didn’t allow them to leave…  I have dozens of emails from my readers asking for help… sometimes I can help… but in most cases, the mortgage contracts are ironclad.
They say you should avoid making forecasts…   Well, I’m gonna make one anyway… I’m gonna go on record and say that since BMO announced their NO FRILLS mortgage last year, and with several other Lenders following in their footsteps,  I think we’ll be reading about numerous borrowers that got caught with inflated mortgage penalties, or the inability to exit their mortgages during a time of need… all because they took the so-called ‘best rate’… and not the ‘best mortgage’.
Please make sure you don’t get directed into an inferior mortgage….. if you’re not sure, call me for verification.  I’ll be going over some more of these product differences in a future report.

Tuesday, May 21, 2013

6 Things You Think Add Value To Your Home - But Really Don't

6 Things You Think Add Value To Your Home - But Really Don't
Jean Folger | Investopedia – Sun, 12 May, 2013
Every homeowner must pay for routine home maintenance, such as replacing worn-out plumbing components or staining the deck, but some choose to make improvements with the intention of increasing the home's value. Certain projects, such as adding a well thought-out family room - or other functional space - can be a wise investment, as they do add to the value of the home. Other projects, however, allow little opportunity to recover the costs when it's time to sell.
Even though the current homeowner may greatly appreciate the improvement, a buyer could be unimpressed and unwilling to factor the upgrade into the purchase price. Homeowners, therefore, need to be careful with how they choose to spend their money if they are expecting the investment to pay off. Here are six things you think add value to your home, but really don't.
1. Swimming Pools
Swimming pools are one of those things that may be nice to enjoy at your friend's or neighbor's house, but that can be a hassle to have at your own home. Many potential homebuyers view swimming pools as dangerous, expensive to maintain and a lawsuit waiting to happen. Families with young children in particular may turn down an otherwise perfect house because of the pool (and the fear of a child going in the pool unsupervised). In fact, a would-be buyer's offer may be contingent on the home seller dismantling an aboveground pool or filling in an in-ground pool.
An in-ground pool costs anywhere from $10,000 to more than $100,000, and additional yearly maintenance expenses need to be considered. That's a significant amount of money that might never be recouped if and when the house is sold.

2. Overbuilding for the Neighborhood
Homeowners may, in an attempt to increase the value of a home, make improvements to the property that unintentionally make the home fall outside of the norm for the neighborhood. While a large, expensive remodel, such as adding a second story with two bedrooms and a full bath, might make the home more appealing, it will not add significantly to the resale value if the house is in the midst of a neighborhood of small, one-story homes.
In general, homebuyers do not want to pay $250,000 for a house that sits in a neighborhood with an average sales price of $150,000; the house will seem overpriced even if it is more desirable than the surrounding properties. The buyer will instead look to spend the $250,000 in a $250,000 neighborhood. The house might be beautiful, but any money spent on overbuilding might be difficult to recover unless the other homes in the neighborhood follow suit.

3. Extensive Landscaping
Homebuyers may appreciate well-maintained or mature landscaping, but don't expect the home's value to increase because of it. A beautiful yard may encourage potential buyers to take a closer look at the property, but will probably not add to the selling price. If a buyer is unable or unwilling to put in the effort to maintain a garden, it will quickly become an eyesore, or the new homeowner might need to pay a qualified gardener to take charge. Either way, many buyers view elaborate landscaping as a burden (even though it might be attractive) and, as a result, are not likely to consider it when placing value on the home.
4. High-End Upgrades
Putting stainless steel appliances in your kitchen or imported tiles in your entryway may do little to increase the value of your home if the bathrooms are still vinyl-floored and the shag carpeting in the bedrooms is leftover from the '60s. Upgrades should be consistent to maintain a similar style and quality throughout the home. A home that has a beautifully remodeled and modern kitchen can be viewed as a work in project if the bathrooms remain functionally obsolete. The remodel, therefore, might not fetch as high a return as if the rest of the home were brought up to the same level. High-quality upgrades generally increase the value of high-end homes, but not necessarily mid-range houses where the upgrade may be inconsistent with the rest of the home.
In addition, specific high-end features such as media rooms with specialized audio, visual or gaming equipment may be appealing to a few prospective buyers, but many potential homebuyers would not consider paying more for the home simply because of this additional feature. Chances are that the room would be re-tasked to a more generic living space.

5. Wall-to-Wall Carpeting
While real estate listings may still boast "new carpeting throughout" as a selling point, potential homebuyers today may cringe at the idea of having wall-to-wall carpeting. Carpeting is expensive to purchase and install. In addition, there is growing concern over the healthfulness of carpeting due to the amount of chemicals used in its processing and the potential for allergens (a serious concern for families with children). Add to that the probability that the carpet style and color that you thought was absolutely perfect might not be what someone else had in mind.
Because of these hurdles, wall-to-wall carpet is something on which it's difficult to recoup the costs. Removing carpeting and restoring wood floors is usually a more profitable investment.
6. Invisible Improvements
Invisible improvements are those costly projects that you know make your house a better place to live in, but that nobody else would notice - or likely care about. A new plumbing system or HVAC unit (heating, venting and air conditioning) might be necessary, but don't expect it to recover these costs when it comes time to sell. Many homebuyers simply expect these systems to be in good working order and will not pay extra just because you recently installed a new heater. It may be better to think of these improvements in terms of regular maintenance, and not an investment in your home's value.
The Bottom Line
It is difficult to imagine spending thousands of dollars on a home-improvement project that will not be reflected in the home's value when it comes time to sell. There is no simple equation for determining which projects will garner the highest return, or the most bang for your buck. Some of this depends on the local market and even the age and style of the house. Homeowners frequently must choose between an improvement that they would really love to have (the in-ground swimming pool) and one that would prove to be a better investment. A bit of research, or the advice of a qualified real estate professional, can help homeowners avoid costly projects that don't really add value to a home.


Wednesday, May 1, 2013

Homebuyers say they expect to spend $300,000 on first property: poll

As at close of markets Tuesday
TSX +143.83 to 12,456.50 (CP)   amid some strong reports from oil producer Suncor Energy. Traders also took in news that the Canadian economy performed better than expected earlier in the year
DOW +21.05 to 14,839.80    amid data showing a deterioration in a widely watched gauge of manufacturing in the Midwest. The Chicago Purchasing Managers Index moved into contraction territory in April, coming in at 49, its lowest reading since September 2009, and down from 52.4 in March. The U.S. S&P Case-Shiller 20-city house price index rose by 0.3 per cent in February, which marked a 13th consecutive increase. The index was up 9.3 per cent year over year, the highest since the housing crash began in mid-2006
Dollar +.41c to 99.26cUS    as Statistics Canada reported that gross domestic product grew by 0.3 per cent in February compared with January
Oil -$1.04 to $93.46US     
Gold +$4.70 to $1,472.10    

Canadian 5 year bond yields markets -.01 to 1.16
The spread (obtained by subtracting the bond yield above from the NEW industry average 5 yr rate published mortgage rate of 3.19)  is centred within the desired profit range at 2.03 .  If the increase in bond yield continues upward, the spread shrinks, which could prompt interest rates to rise. The range for investor desired profitability is currently in the region of 1.90 and 2.10

Homebuyers say they expect to spend $300,000 on first property: poll
By Linda Nguyen, The Canadian Press
TORONTO - The average first-time homebuyer in Canada is 29 years old and expects to be able to put down a down payment of $48,000 on $300,000 home, according to a recent poll by the Bank of Montreal.
But the study, released Tuesday, also found that price expectations vary widely, depending on where the homebuyer lives.
Buyers in Atlantic Canada say they expect to spend the lowest in the country with an average of $202,000 on a first home, followed by Quebec with $224,000, Ontario with $326,000, British Columbia with $384,000 and Alberta with $406,000. The sample size used in the Prairies was too low to be included in the survey.
Meanwhile, the data also found Vancouver to be the most expensive city, with first-time homebuyers there saying they plan to shell out an average of $443,000 for a home, followed by Toronto at $347,000.
BMO mortgage expert Laura Parsons says like with any major purchase, it's important for people be realistic and prepared.
"What we tend to do is jump in the market when we're ready, instead of starting a plan now," she said from Calgary.
"Let's start getting ready for it so we can start giving you good advice all along the way. Don't be afraid to get things going."
And while a large down payment is impressive, it does not necessarily mean that young people are diligently saving for their first home. Instead, many may be getting help from their Baby Boomer parents or friends, said Parsons.
Forty-six per cent of those surveyed also they'll choose a fixed mortgage rate when they buy, versus 20 per cent who will choose a variable rate.
The study also found that the average first-time homebuyer plans on paying off the mortgage on their home within two decades, with 20 per cent anticipating they'll be mortgage-free even earlier than that.
Twenty-three per cent of those surveyed say they will still have a mortgage within 25 years; 16 per cent say within 20 to 24 years and 20 per cent say within 10 to 19 years.
On the opposite end of the spectrum, seven per cent say it'll take them more than 25 years to fully own their home, while three per cent say it'll take them between 1 year to 9 years to pay it off.
The survey also found that 31 per cent admit they really don't know when they'll be able to stop making mortgage payments.
The Bank of Montreal (TSX:BMO.TO - News) report surveyed a random online sample of 2,000 Canadians between Feb. 25 to March 5.