Blog.ByTheOwner.com

1. Predict Your Future

The type of mortgage you receive should compliment your life and your lifestyle. For example, if you are 28 years old, just married, and planning on buying a “starter condo” with your wife, you should be able to predict your future. Chances are that you will be having a child in 2-3 years and you will need to move. If this is the case, you need to have a mortgage that you can transfer or break when you sell. If you are in this situation and you received a 10-year fixed mortgage, you might have to pay thousands of dollars in fees when you sell your condo.

Other considerations include the stability of your job, and whether you like to save or spend your money. For example, if you are a saver, your mortgage should allow for an increase in payments or frequent “lump-sum” mortgage payments opportunities.

2. Shop around

According to RateSupermarket.ca, The Canadian Association of Accredited Mortgage Professionals (CAAMP) the national association for mortgage brokers, did a study and found that “when obtaining their mortgages, Canadians received an average of 1.94 mortgage quotes. Only 3% received more than 4 quotes”. This shows that buyers are not doing enough “shopping around”. A $300,000 mortgage amortized at 25 years could end up costing the buyer more than $200,000 in interest over the life of the mortgage. Even getting a 1% reduction in your mortgage rate can save you thousands of dollars (enough for a new car!). So make sure to shop around and get the lowest rate!

3. Use a Mortgage Broker

Why not? Mortgage brokers do not cost buyers any money. Mortgage brokers only make money off the mortgage that they get you. If you want to see the true value in using a mortgage broker, then try this: First you can go find the best mortgage that you can receive, and before you sign, call a mortgage broker and see if they can find a better rate. You have nothing to lose and only money to save. You could also ask your mortgage broker to explain the fine print…

4. Read The Fine Print

Some of the key points that are hidden in the fine print would include: extra fees for lump-sum payments, extra fees for breaking the mortgage early (ie if you sell), fees if you want to transfer your mortgage to your next home or not (if you move). Take the time to read your mortgage document and take the time to ask questions or negotiate. If you try to negotiate with your bank, they will most likely tell you “that’s the way it is” and if you don’t know better, then you might accept it. But if you had a mortgage broker, they might know that “you can get them to remove that” (that’s another reason why a mortgage broker is a good idea).

5. Know All The Costs

The average mortgage will earn the bank more than $200,000 in interest and a few thousand dollars more in fees. Before you accept that mortgage, you should take the time to outline all the costs to make sure you understand all the costs. You should be know :

- CMHC costs (plus interest)
- Interest costs
- Set up fees
- Amortization costs (compare the interest costs on 25, 30, 35 year mortgages)

Most people are ecstatic that they can even receive a mortgage. They are so happy to be moving into their new home, that they could care less about the costs. It’s usually after you move in and you look at all the costs of your mortgage that you begin to have “mortgage remorse”. That “remorse” gets even worse when you talk to your friends and find out they received a mortgage with better terms and at a lower rate than you. A new car costs $25,000 and most people spend a few days researching their new car. If this is the case, then how much time should you spend researching your new mortgage, which cost you $200,000?

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We recently received some feedback from buyers who talked about the joys of visiting private sale open houses.

The buyers described their experience as “relaxed”, “no pressure”, and “it was refreshing to deal directly with the seller. They were able to give us great information about the home and the area”.

When you visit a private sale open house you will not be asked for your information by an agent (who is looking for a new client). You will be able to talk with the owner and ask them why they liked the home, why they are moving, There are many differences between private sales and agent sales when it comes to open houses:

Why do private sellers have open houses

Private sellers have open houses in order to boost their exposure and also to make it easier to manage their sale.

Having an open house is a terrific way for a private seller to manage their sale. Private sellers can allow all the buyers to look at their online listing during the week and then scheduling all view appointments for the weekend during set hours when they are having an open house. This limits the amount of time it takes to manage the private sale.

Sellers can also put open house signs up in their nieghbourhood during open house hours, which will increase their exposure in the neighbourhood. If an agent is doing an open house around the corner and the private seller has their open house signs out, then the private seller will attract the same buyers as the agent’s property (and pay 5% less commission!).

Thanks for our buyers for providing feedback. You can see all the ByTheOwner.com open houses here: OPEN HOUSES

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Our elected officials are currently debating the new HST tax in Ottawa. Apparently the discussions are quite animated as the debate turns “nasty“.

The new HST tax is scheduled to be introduced on July 1st, 2010. The tax will combine the GST and PST (In Ontario and BC) into one tax at 13%. This will have a large impact on real estate service such as commssions, legal fees and “new home” taxes when you buy a new home from a builder. Currently only 5% tax is paid on these services. This will increase by 8% next June.

An article today mentions that the new home sales in the GTA are experiencing “robust numbers”. In Toronto, the average price for a new home in October was $451,455. Lets look at how the HST will affect an average new home purchase.

Currently a buyer would pay 5% GST on a new home. This would equal:

$451,455 x 5% = $22,572.75 in taxes.

That’s a lot of tax!

However the proposed 13% HST tax would cost the buyer:

$451,455 x 13% = $58,689.15

Wow! That’s even more tax! That’s actually $36,116.40 more tax.

Currently being debated is the threshold for the new HST tax. An original threshold of $400,000 was established (Ie. homes under that price would be exempt from the new tax). However, recently it has been discussed that a higher threshold might be needed.

Imagine if you purchase a new home for $451,455 and also pay $58,689 in tax (plus approximately $5,000 in land transfer tax). You would need to sell the home privately for $515,144 in order to make your money back. If you used a real estate agent at 5%, you would need to sell the home for approximately $542,256 to make your money back. The home would need to appreciate by 20% in order for you to breakeven.

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Here are some great blog posts written by a personal finance blogger about real estate agents and for sale by owners:

BLOG: For Sale By Owner The Wrong Way
The author talks about how some for sale by owners do not invest in professional signs when selling their home.

BLOG: Why you can’t trust real estate agents when selling a house
The author talks about an agent’s motivation when trying to sell their client’s home. He also talks about the gap between the seller’s unrealistic asking price and the agent’s price.

BLOG: Why you can’t trust real estate agents when buying a house
The author talks about negotiation and why buyers should be educating themselves and not relying on the agent’s advice (The agent gets paid if you buy the home!)

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ByTheOwner.com had more than 700 sold homes in October. Ontario’s sold homes increased by 35% and Quebec’s sold homes increased by 62%.

The increase in sold homes is the largest increase that ByTheOwner.com has ever experienced. The increase is a combined result of

- Improved ByTheOwner.com services
- A hot real estate market compared to October 2008 (during the financial crisis)
- More people buying and selling privately

The approximate commission on a $300,000 home is $15,000 + $750 (GST). With more than 700 sales in October, ByTheOwner.com’s customers saved a combined total of $11 million dollars in one month!

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Mortgage rates are at all time lows. This is one of the main reasons for the hot real estate market that we are experiencing as we head toward the end of 2009 (High demand and low inventory are also driving prices higher).

Low mortgage rates make homes more affordable: The lower the mortgage rate, the higher the mortgage you can qualify for. Today, the 5 year variable rate is approximately 2.25%. Lets look at how much money you are allowed to borrow based on different income levels.

Using the ING Direct’s “How much can I afford” calculator, we inputted the amount of a family that earns a total of $65,000 a year and we assumed a $500 car payment and a $3,500 property tax payment. $65,000 can be achieved by 2 people who earn $16/hr and $15.25/hr for a combined wage of $31.25/hr.

If your family makes that much money, you are able to obtain a mortgage of $370,977. If you have a down payment of $22,077 then you can buy a home worth $393,054.

If your family makes $100,000 a year and you have a $32,925 down payment, you could be able to obtain a mortgage for $625,569 and this means you could buy a home worth $658,494.

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We received 3 particularly fantastic testimonials this week:

Here is what Jet Black from London, Ontario had to say about selling his home with ByTheOwner.com:

“Effortless. ByTheOwner.com provided EVERYTHING I needed to advertise and market my home as well as any agent could have. This is my first time selling a house and the provided paperwork made a potentially complicated transaction very simple. Any questions I had were answered immediately by both Shawn, as well as Randall Weese who spent a considerable amount of time explaining some of the more confusing aspects of selling privately. Would DEFINITELY recommend this to anyone who doesn’t want to needlessly give 6% of their sale price to an agent(s). GREAT experience and thank you again.”

Here is what Paula Harris from Port Bruce, Ontario had to say about selling her home with ByTheOwner.com:

“A realtor had our cottage for 7 months, including all summer. We sold with By the Owner in less than one!”

Here is what Kevin Veenstra from Markham, Ontario had to say about selling his home with ByTheOwner.com:

“Selling privately was no problem. I had two offers within two weeks. The only hassle was the number of agents interested in pocketing 5% commission for minimal effort. Would definitely use bytheowner.com services again.”

Congratulations to all our customers who have sold and saved!

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1. Basing your price on another home’s asking price

Basing your home’s asking price on what the neighbour around the corner is asking can be a big mistake. Homeowners are able to ask whatever amount they want for their home. Your neighbour might be asking $100,000 more than they should. If you are basing your price on that amount, your chances to sell will be slim. You should be basing your price on what a similar home has recently SOLD for.

2. Basing your price on your recent renovations

If you bought your home 2 years ago and installed a new kitchen worth $50,000, that does not mean that you can ask $75,000 more for your home. Renovations do not return 100% of their value when you sell, especially if the renovation was specific to your taste.

3. Basing your price on how much money you need

This is a very common mistake. Many sellers have already bought a new home and they think “I need to sell my home for X in order to pay for my new home” or perhaps a seller might not have a lot of equity in their home and they think “I need to sell for X in order to make a profit on my home”. However, buyers are not concerned with the seller’s personal situation. Buyers only want to buy a home that is priced fairly, based on what other homes have sold for in the neighbourhood.

4. Basing your price on a different type of home or a home in a different location

If you own a semi-detached, you should not be comparing your home with a detached that sold around the corner. The expression is “comparing apples with apples”. The same goes for the neighbourhood that you live in: You can’t compare your detached home with a detached home in a better neighbourhood.

5. Starting with a “Let’s Try This” price

By far the most common mistake when homeowners already know what the fair market value is for their home, but they insist on starting at a higher price. Saying “lets ask $25,000 more and see what happens” can be a big mistake. If you know the value of your home and you know how much money that you should realistically receive from the sale of your home, then you should price your home close to that price and expect to sell your home close to that price. By over pricing your home at the start of your sale, you eliminate many buyers who will see that your “inflated price” is out of their budget, and they move on to another home.

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Real Estate Agents provide the same service for a $300,000 home as they do for a $800,000 home, yet the standard commission is still 5% for both. That means for the same amount of effort and service, the agents receive $15,000 for the $300,000 home and $40,000 for the $800,000 home.

The same applies whether your home takes 1 day to sell or 60 days. If you sell a $500,000 home, and it sells in a day, you will pay $25,000 (5%). One day of work and the agents make $25,000. However, the agents receive the same amount of compensation if it takes 60 days with many offers and many showings.

This type of compensation does not make sense and does not seem fair to the seller. If this type of compensation could be related to other professions you might see:

Accountant: An accountant could receive more money for doing the tax return of someone who made $200,000 vs someone that made $50,000. They would do the same job for both clients, except receive more money simply because the client made more money.

Mechanic: Perhaps when you get your oil changed at MR. LUBE, they could charge you based on the worth of your car. To change the oil on a Dodge Neon would cost $20, but to change the oil on a Land Rover would cost $100.

Cable TV: If you called Rogers and asked them to install HD cable so that you could watch the Stanley Cup finals, perhaps they could ask you the size of your TV. A 56″ TV? That will cost you more than someone with a 40″ TV. “But you are providing the same service, aren’t you?”.

ByTheOwner.com charges a flat fee based on the services we provide. We provide the same great service for all our customers, regardless of the value of their home.

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A recent Toronto Star article quotes the CEO of ING Direct in saying that in 2009, more than 50% of Canadian Mortgages are amortized for longer than 25 years.

The rise in house prices has forced a lot of Canadians to take out a 35 year amortization in order for them to be able to afford a home. Here is some information on 35 year amortizations:

Interest Paid:

On a $300,000 mortgage:

25 year amortization: $223,443 in interest will be paid

35 year amortization: $331,789 in interest will be paid

If you choose a 35 year amortization and only pay your regular payments, you will have paid an additional $108,346 in interest over the course of your mortgage compared with a 25 year amortization. With a 35 year mortgage and 5% down, you actually pay more in interest than the original cost of the home. If you include CMHC fees, you will pay $345,060 in interest.

Are 35 year amortizations risky for banks?

If the bank provides a mortgage and the owner puts down less than 20%, then the CMHC will insure the mortgage. This means that the bank will still receive their money back if the homeowner can’t pay their mortgage. There is very little risk for the bank. Assuming that a bank can earn 5% interest on their money, the bank will actually receive their money back after 12 years: The other 23 years of interest and payments is gravy for the bank!

Is it risky for the homeowner?

35 year mortgages can be a great way to purchase a home if you are young and are beginning your career. As your salary rises, you can use that extra money to pay off your mortgage quicker in lump-sum payments or by making accelerated payments. If you can do that, then that’s great. However, if you are barely able to afford your mortgage payments and do not have extra money to save for retirement, then you might be in trouble. Imagine if you are 60 years old and you still have a mortgage and no savings.

One area of risk that comes with 35 year amortizations is if the homeowner needs to sell their home after 5 years. If you obtained a $300,000, 35 year mortgage and paid 5% down, and then you needed to sell after 5 years, you would still have a mortgage of $293,134. If your home had appreciated in value, then you will not lose money. However, if your home decreased in value, you could stand to lose a lot of money. The CEO of ING warns against this as well, and he recommends to accelerate your payments.

ING’s CEO Comments

The honestly and candor of the remarks by the CEO of ING was truly exceptional. ING is in the business of selling mortgages, and they make more money if buyers choose a 35 year amortization. So to see a CEO of a bank warn consumers about long mortgages and say “if our customers make the right financial decisions, then we will have a healthy and happy consumer and economy”, was refreshing.

ING has a great mortgage calculator on their website. However, an even better one is located at Canequity.com. The Canequity.com calculator allows you to include the cost of the CMHC.

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