So lets start this article by defining what a condo is. A condo refers to a form of legal ownership, as opposed to a style of construction. Although they are commonly thought of as units in high-rise residential buildings, they can also include low-rise residential buildings (fewer than four stories), townhouse or row house complexes, stacked townhouses, duplexes, triplexes, single-detached houses, or vacant land upon which owners may build.
Owning a condominium is different in a number or ways from owning a traditional single-family home. For example:
- Condo owners own both their own private unit as well as a portion of all shared common elements, such as lobbies, hallways, elevators, recreational facilities, walkways, gardens, structural elements, and mechanical and electrical systems.
- In addition to the purchase price, you will also need to pay a monthly fee to cover the upkeep and replacement of the common elements.
When you become a condo owner, you are also becoming part of a community. Ask yourself if you are willing to take on the responsibility of being a member of a condo corporation, and whether you are comfortable living within the rules and bylaws set by your Condo Board. It's always a good idea to obtain an up-to-date copy of the rules from the seller, the property manager or the board of directors.
The Pro's and Cons of Condominium Ownership
Condo living can be an affordable and relatively carefree housing option. For example, owning a condo can mean fewer maintenance and repair responsibilities, more predictable monthly maintenance costs, and access to a wider range of on-site amenities that you otherwise might not be able to afford. However, condo living can also mean less privacy, having to pay for amenities you rarely use, having less of a say in deciding when repairs get done, as well as possible restrictions on things like parking and pets.
Buying a condo
If you have made the decision to purchase a condo, be sure to ask the following questions when looking at your potential new home:
- How much can you afford to comfortably spend? How large of a down payment will you have? What will you need to pay each month in mortgage payments, condo fees, utilities, insurance premiums, property taxes and other expenses?
- Is the condo protected by a new home warranty program? If you are buying a new condo, what does the warranty cover? If you are purchasing a resale condo, is their any warranty coverage remaining on the unit?
- If you are buying a new condo before construction is complete, what are your unit's exact specifications, and when will it be ready to move into?
- If you are buying a resale condo, can you get a copy of the corporation's annual operating budget, financial statements and estoppel (or status) certificate? How large is the condo's reserve fund?
Checklists, more tips and Frequently asked questions
Feel free to contact me for a handy tip sheet and checklist on topics such as new or resale condominiums, purchase and recurring costs, physical evaluations for resale units, questions to ask advisors and condo experts and other frequently asked condo questions.
City Wide Mortgage Services
MPP, Is it for me?
During the mortgage process, by FICOM regulations a Broker must offer you MPP, but I suggest that you weigh your options and speak with a Life Insurance representative. This way you have a greater understanding of what’s out there, and what works best for you.
MPP and Life Insurance work 2 different ways, but all you have to know is that MPP will pay off the “remaining” amount left on your mortgage, whereas life insurance will cover you for the purchase price of the home. For example, if you were to buy a home for $1,00,000, sign up for MPP, and 20 years later you died owing $20,000 left on your mortgage, MPP would cut a cheque for $20,000 and give it to the mortgage lender. Done and done. I don’t know about you, but I’d want a cheque for $1,000,000 to be given to my partner, they could pay off the $20,000 left on the mortgage, and use the other $980,000 to take care of whatever’s necessary. Also, MPP is also not transferrable, which means as soon as you move properties the premium is lost and you will have to re-qualify.
The only circumstance where life insurance may not be your best option is if for some reason you cannot be approved for life insurance or the rate is too high because of your current physical status.
I suggest weighing the options and speaking with a life insurance agent before signing up for MPP. I’ve got one of the best in the business on my team, and I’d be more than happy to pass along his name.
Have a great week,
Let’s prepare you for a mortgage
Whether your purchasing your first home, or refinancing your existing mortgage there will be certain document that you will need to collect to complete the mortgage application process. The more prepared you are, the quicker the approval process will be. So lets go over what documentation is necessary when completing the mortgage application process.
Confirmation of down payment
- 90 days worth of bank statements
- If the down payment coming from the sale of an existing property, you will need a copy of the sale agreement.
- Is Mom or Dad helping you out? Then you will need a completed gift letter. Ask your Broker for one, as they will have these on file.
- Using RRSP’s? You’ll need withdrawal confirmation and a bank statement showing that the money has been deposited into the account
Paperwork from the Real Estate Agent
- Purchase and sale Agreement
- MLS listing
- Property disclosure statement
- Strata Form B, if purchasing a condo
Employment and Income Verification
- Current Job letter and pay stub
- Past 2 years Notice of Assessments
- T1 general, if self employed
- Legal agreements to support other income such as spousal or child support payments
- Any other compensation (disability, rental income, etc.)
If you own a home
- Current mortgage document
- Most recent tax an utilities bill
- Legal description of your property, which is found on your property tax statement or original purchase agreement.
If you have any questions in regard to this post, please feel free to call or email me.
Have a great week!
WATCH OUT FOR COLLATERAL CHARGES
Lets say that your mortgage is coming up for renewal. You speak with a mortgage professional and find out that you can secure a lower rate than your current lender is offering. Therefore, you decide to switch lenders in order to secure a lower interest rate and monthly payments. Great choice! Why? Because its likely that your new lender will cover any transfer fees when moving your mortgage at the end of a three year or five year term.
But, what if during the term of your mortgage, you find out that rates have been reduced, and your current rate is much higher than what is being offered by other lenders. You try to “switch” lenders, only to find out that their is a collateral charge on your mortgage, and you must hire a lawyer to pay $1,000+ to discharge your mortgage before switching. Plus, you’ll have to pay a penalty for breaking your mortgage early. Therefore, its likely you’ll stay put with your current mortgage and be left paying a much higher interest rate than others.
First off let me explain the difference between a collateral mortgage and a mortgage charge because banks do a horrible job at explaining it during the mortgage process and hide it within the fine print of contracts.
A collateral charge is registered under the personal property security act of Canada, and can only be discharged by the lender. A mortgage charge is registered through the land title or registry office and can be discharged by a 3rd party.
So what’s the point of collateral charges? Banks will register your mortgage at a larger amount than the actual mortgage loan, so if down the road the borrower needs to withdraw extra funds they can do so without refinancing. However the client will have to re-qualify for that loan amount and pretty much go through the whole mortgage process again. For example, if you borrow $5000,000, the lender can choose to register it up to 125% of the original amount. Therefore 1.25*$500,000 = $625,000.
Let me give you an example.
Dan Faubert, a mortgage broker in Ottawa, wrote a blog post titled the pitfalls of a collateral mortgage. He uses the example of John Smith (not his real name), who was denied a loan to fix up his home.
The man owned a home worth $375,000. He had $25,000 left on his mortgage and a $250,000 balance on his home equity line of credit — a total debt of $275,000.
Unfortunately, he didn’t know the bank had registered a $375,000 mortgage against his home. Most collateral mortgages are registered at 100 per cent of the property’s value and some go up to 125 per cent, depending on the lender.
Smith wanted $25,000 to renovate. He was planning to sell his house. But since he was retired and had a lower income than when he borrowed the money, he didn’t qualify for a bank loan.
Faubert couldn’t get him any more money, nor could any other mortgage broker, since the collateral mortgage was registered for 100 per cent of the property’s value.
Smith had borrowed $275,000 and his home was worth $375,000, but there was no equity against which to register a mortgage. It is a dilemma that could face other Canadians who carry a mortgage with them into retirement.
“Any mortgage with any bank that has multiple products in one mortgage is also registered as a collateral mortgage,” says Faubert, who recommends asking lenders for an explanation before agreeing to new financing.
Therefore watch out. Collateral charges make “switching” your mortgage much more difficult, and will stop you from benefiting from lowered interest rates.
Feel free to contact me if you have any questions. Have a great day!
Bank of Canada maintains overnight rate target at 3/4 per cent
The Bank of Canada today announced that it is maintaining its target for the overnight rate at 3/4 per cent. The Bank Rate is correspondingly 1 per cent and the deposit rate is 1/2 per cent.
Total CPI inflation is at 1 per cent, reflecting the drop in consumer energy prices. Core inflation has remained close to 2 per cent in recent months, as the temporary effects of sector-specific factors and pass-through of the lower Canadian dollar have offset the disinflationary forces from slack in the economy.
The Bank expects global growth to strengthen and average 3 1/2 per cent per year over 2015-17, in line with the projection in the January Monetary Policy Report (MPR). This is in part because many central banks have eased monetary policies in recent months to counter persistent slack and low inflation, as well as the effect of lower commodity prices in some cases. At the same time, economies continue to adjust to lower oil prices, which have fluctuated at or below levels assumed in the January MPR. Strong growth in the United States is expected to resume in the second quarter of 2015 after a weak first quarter.
The Canadian economy is estimated to have stalled in the first quarter of 2015. The Bank’s assessment is that the impact of the oil price shock on growth will be more front-loaded than predicted in January, but not larger. The ultimate size of this impact will need to be monitored closely. Underneath the effects of the oil price shock, the natural sequence of stronger non-energy exports, increasing investment, and improving labour markets is progressing. This sequence will be bolstered by the considerable easing in financial conditions that has occurred and by improving U.S. demand. As the impact of the oil shock on growth starts to dissipate, this natural sequence is expected to re-emerge as the dominant trend around mid-year. Real GDP growth is projected to rebound in the second quarter and subsequently strengthen to average about 2 1/2 per cent on a quarterly basis until the middle of 2016. The Bank expects real GDP growth of 1.9 per cent in 2015, 2.5 per cent in 2016, and 2.0 per cent in 2017.
The very weak first quarter has led to a widening of Canada’s output gap and additional downward pressure on projected inflation. However, the anticipated recovery in growth means that the output gap will be back in line with its previous trajectory later this year. Consequently, the effects on core inflation of the lower dollar and the output gap will continue to offset each other. As the economy reaches and remains at full capacity around the end of 2016, both total and core inflation are projected to be close to 2 per cent on a sustained basis.
Risks to the outlook for inflation are now roughly balanced and risks to financial stability appear to be evolving as expected. The Bank judges that the current degree of monetary policy stimulus remains appropriate and therefore is maintaining the target for the overnight rate at 3/4 per cent.
The next scheduled date for announcing the overnight rate target is 27 May 2015. The next full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in the MPR on 15 July 2015.
"Bank of Canada Maintains Overnight Rate Target at 3/4 per Cent." - Bank of Canada. Bank of Canada, 15 Apr. 2015. Web. 16 Apr. 2015.
For First-time Home Buyers eyes only
First-Time Home Buyers (FTHB) Tax Credit
The costs associated with purchasing a home, such as legal fees, disbursements and land transfer taxes, can be a particular burden for first-time homebuyers who must pay these costs, as well as save money for a down payment. To assist first-time homebuyers with the costs associated with the purchase of a home, the Government of Canada
introduced a FTHB Tax Credit in 2009 - a $5,000 non-refundable income tax credit amount on a qualifying home acquired after January 27th, 2009. For an eligible individual* the credit will provide up to $750 in federal tax relief starting in 2009.
*An eligible individual is someone that acquired a qualifying home; and did not live in another home owned by them or their spouse or common-law partner in the year of acquisition or in any of the four preceding years.
If you are a person with a disability or are buying a house for a related person with a disability, you do not have to be a first-time homebuyer. However, the home must be acquired to enable the person with the disability to live in a more accessible dwelling or in an environment better suited to the personal needs and care of that person.
Expansion of the Home Buyers Plan
To provide first-time homebuyers with greater access to their RRSP savings to purchase or build a home, the Government of Canada has increased the Home Buyers Plan withdrawal limit to $25,000 from $20,000 per person for withdrawals made after January 27th, 2009. What this means is that each first time homebuyer can withdrawal up to $25,000 from their RRSP without being taxed.
The power of $475,000
As a FTHB, purchasing something less than or equal to a purchase price of $475,000 will allow you avoid paying for property transfer tax*. This is a one time offer for FTHB's and cannot be used when purchasing a second home. By purchasing your first home for less than, or equal to $475,000 could save you thousands.
*Property Transfer Tax equals 1% of the first $100,000 and 2% of the rest. For ex. Home price = $600,000. Therefore property Transfer Tax would be (1% of $100,000) + (2% of $500,000) = $11,000
Looking for more home buying Information?
Feel free to contact me and I'd be more than happy to provide you with more information in regard to the first-time home buying process.