By Sarah A. Colucci, Oct. 24, 2017 1:00p.m.
A home has a lot of significance. In a sense, it's a safe haven. It's a place that offers stability for all who inhabit it. A place that houses memories. The value of real estate in today's world is little disputed.
Some people claim renting is better than owning. Alex Avery, a financial analyst for CIBC, says renting is better. In his book, "Rent, Don't Buy," he argues it's possible for renters to gain wealth. His method? Paying yourself fixed savings. Similar to other "renter advocates", he owns his home.
Is a mortgage a bad thing? A mortgage is a debt. It's related to the thought of working hard to pay off. Our parents told us how hard having a mortgage is. We don't want to be slaves to our homes, do we?
By contrast, however, most people who rent, work to pay off their landlord's mortgage. It's like having an interest-only loan that doesn't mature. I say this because nothing you pay in rent ever goes towards principal. At the end of your lease, you don't own any shares in the property you lived in. Unless you've managed to save a significant amount of money, renting hardly seems like the better option (if you have the choice).
Owning a home has its liabilities. As a renter, you don't have to pay property taxes or fix the roof. If the washer breaks, you don't have to pay to repair it. Statistics show, however, most people renting don't have forced savings.
Owning with a mortgage? Benefits of paying your mortgage include payments towards principal. Your share of home ownership increases as time goes on through equity.
Equity can increase in two ways:
1. Paying your mortgage.
2. Market's inflation
Your home can be a financial tool. You can take part in other investments as your equity increases. You can use equity to purchase other property. You can buy a cottage. You can refinance to put your children through school. Your home provides increased opportunities to accomplish other milestones.
It is better to have a piece of a pie, than to not to even have a crumb.
By: Sarah A. Colucci, M.A. Mortgage Edge
Yesterday, OFSI published its dreadful mortgage changes. A new "Stress Test" for all purchasers. Home buyers will have to qualify 2% higher than the contract rate. It doesn't matter if you have 20% or more. You will be stress-tested.
What does this mean? You won't be able to qualify for as much mortgage as you want. Heck, you may not qualify at all. When the original stress test came out, 30% of buyers became extinct.
Let's think this through since OFSI hasn't. Can you qualify for a mortgage in January? If real estate prices drop 25% after January and interest rates rise, can you get financing? The Government is on a destructive path. Take the next couple of months to sort through your finances. Ask yourself the following:
1. Can I pass the stress-test for the home I want to buy?
2. Do I need to move or consolidate any debt right? Would I qualify for a mortgage at 2% higher?
OSFI SETS NEW RULES FOR MORTGAGE LENDING - ARTICLE - BNN
Other changes include restrictions on co-lending, or bundled mortgages -- in which federally regulated lenders pair up with unregulated providers to finance a property -- aimed at ensuring financial institutions do not circumvent rules that limit how much they can lend. Federally regulated financial institutions must also establish and adhere to loan-to-value ratio limits that are updated as housing markets and economic dynamics evolve. The broad thrust of the final guidelines are similar to what OSFI had proposed in July, when the regulator put out a draft for public consultation. The proposed changes were criticized for potentially increasing costs and limiting access to mortgages for some buyers. The Fraser Institute, an independent, non-partisan think tank which tends to prefer free-market policies, said last week that a stress test for uninsured mortgages was unnecessary and could do more harm than good.
In-text: (BNN, 2017)
BNN. (2017). OSFI sets new rules for mortgage lending - Article - BNN. [online] Available at: http://www.bnn.ca/osfi-sets-new-rules-for-mortgage-lending-1.887025 [Accessed 18 Oct. 2017].
I think everyone agrees that the idea of being mortgage free feels wonderful. No mortgage obligations and you own your home out right. Pretty good, right?
To pay off your mortgage faster, you should have useful tools built into your mortgage. These 'tools' aren't provided by every lender because lenders want to make money. Their main priority isn't finding a way for you to pay off their loan faster and pay less interest.
As the articles states, here are some tools to look for:
- Lower interest
- Prepayment privileges
- Increased payment frequency
As we have learned through the years, mortgage terms can be vague. It's important to work with someone that reads mortgage contracts for a living. This way, you can do what you need to do to become mortgage-free sooner.
Contact my office today if you have any specific questions about your mortgage term. I'd be happy to help!
Click on the article to read about how a young man became mortgage free.
By: Sarah Colucci
Senior Mortgage Agent, Lic. M14000929