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"Free" Down Payment, Help or Hindrance?
Last week Premier Christy Clark made an announcement stating the BC government was going to help First Time Home Buyers by matching their down payment, contributing up to $37,500 towards the purchase of their first home. My initial thought was this is great! In light of the recent changes made by the Federal Government any opportunity or program that keeps the real estate market buzzing seems like a good idea. But we are talking about the government so reading the fine print is always important and the more I read the less impressed I became. We all know the recent spike in real estate values is making it more and more difficult for First Time Home Buyers to get into the market. The current benchmark value of a home in Victoria according to the VERB November stats is $753,800 nearly a 24% increase from one year ago. To understand this program a little more lets have a look at the numbers. But rather than looking at the benchmark value lets look at a more reasonable starter home. Purchase Price $550,000 Minimum Down Payment $30,000.00 1st Mortgage (Your Lender) $540,020.00 Base Mortgage Request $520,000.00 2nd Mortgage (BC Gov) $15,000.00 Default Mtg Insurance Premium $20,020.00 Total Amount Owing $555,020.00 Monthly Payments 1st Mortgage - Year 1 to 5 $2,500.00 1st Mortgage - Year 6 to 10 $2,614.00 2nd Mortgage Year 1 to 5 $- 2nd Mortgage - Year 6 to 10 $89.00 *Rates on years 1 to 5 based on 2.8%. Years 6 to 10 based on 3.3%, 2nd mtg has 0.50% rate surplus While I do appreciate the BC Government helping homebuyers get into the market if they have not been able to save enough of a down payment just yet, otherwise they have to sit on the sidelines while they save more and possibly watch the values continue to climb faster than they can save. It is a little scary to see a First Time Buyer that has borrowed 101% of the value of their new home. With all the recent changes made by the Federal Government to reduce so called risky lending this move seems like a step in the opposite direction. One of the comments that caught my attention was how this could save a new homeowner interest costs as they would be able to put a bigger down payment on their new purchase. Of course, I was curious to see if that was true. To save you the headache of reading over dozens of numbers lets just look at the mortgage balance and interest costs over the first 10 years of the mortgage based on the same rates and purchase price as above. But lets assume Borrower #1 has the 5% and doesnt apply for the grant while Borrower #2 with the same cash savings does. Borrower #1 Total Amount Borrowed (no grant) $538,720 Interst Paid Years 1 to 10 $137,619 Balance Remaining After 10 Years $370,458 Borrower #2 Total Amount Borrowed (no grant) $531,760 Interst Paid Years 1 to 10 $133,591 Balance Remaining After 10 Years $369,510 Yes, it looks like you can save some interest over the first 10 years of your mortgage by taking advantage of this grant from the BC Government. But wait, what if Borrower #1 took the same amount money from the proposed payments Borrower #2 has to make for the 2nd mortgage and made a principal payment of $178 per month for years 6 to 10? Well the answer is Borrower #1 would save an additional $907 in interest costs, still not more than Borrower #2. However, the big difference in Borrower #1s favor would be the mortgage balance after making the extra payments, only owing $358,871 after 10 years. While I applaud the thought behind stimulating the market for First Time Home Buyers this program may not be suitable for everyone. All the more reason you need to come talk to your local Mortgage Broker.
Top five home renovations that increase property value
Looking to increase your homes property value? Here are five of the best renovations you can do to your home to increase property value. These five renovations can sometimes have a return on investment 5-6x what they cost. #5 Flooring Flooring is one of the most important aspects of your house. You will see an immediate rise in property valuation with the installation of hardwood floors. Existing hardwood floors that you can refinish are ideal as they are less costly to restore and in higher demand than new flooring materials. For the bathroom, tile will always be in demand and retain value exceptionally well. #4 Fixtures Kitchens often look tired and dated, in large part due to old fixtures. Replacing or updating cabinet hardware, light fixtures, countertops and faucets will result in an immediate increase in your homes value. This small, but effective upgrade will also revitalize the entire home. Pot lights are in high demand in open concept style homes. #3 Bathroom Thebathroomis the second most important room in the home in terms of valuation. If you can add a three-piece bathroom to a home with only one full bathroom, you will see a dramatic rise in the market value of your home. While you should never compromise bedroom space for a bathroom, try sneaking one in dead space in the home. Scott managed to fit in a 3-piece bathroom under a staircase the width of the room measured just 44 inches. As an added tip, use glass for the shower to make the bathroom feel more spacious. #2 Kitchen Kitchens are the single most important room in the home relating to valuation. The kitchen can make a significant difference in the value of your home. As such, it is crucial that you invest in having a modern, fresh anddesirable kitchen. Modern cabinetry, under cabinet lighting and new appliances will all significantly increase the value of your home on the market. To save on cost without compromising construction and desirability, look at options like Ikea cabinets as opposed to custom cabinetry. #1 An Income Suite No surprise, but the single biggest way to increase the value of your home is to build an income suite within the property. Whether this is converting yourbasement into a rental, or another floor in the home, an income property will increase your homes worth. The main reason for this is that it covers a portion, or sometimes all of your mortgage payments, and results in your home being cash flow positive which creates real wealth that can supplement your income. sources:www.homeownership.ca; www.genworth.ca
Valuable Fraud Prevention Tips for Homebuyers and Homeowners: Part 1
March is Fraud Prevention Month. Canada Mortgage and Housing Corporation (CMHC) has consistently been a leader in the fight against mortgage fraud and offers the following tips to protect yourself against becoming a victim of mortgage fraud. Misrepresentation of Information Mortgage fraudoccurs when someone deliberately misrepresents information in order to obtain mortgage financing that would not have been granted if the truth had been known. This can include: Misstating ones position or inflating ones income or length of service at their job; Misstating employment status (ie. salaried/full time versus contract, part time, hourly or commission-based or self-employed); Misrepresenting the amount and/or source of the down payment; Purchasing a rental property and misrepresenting it as owner-occupied; Not disclosing existing mortgage and/or debt obligations; Misrepresenting property details or omitting information in order to Inflate the property value; Adding co-borrowers who will not be residing in the home and do not intend to take responsibility for the mortgage. Another common form of fraud is when a con artist convinces someone with good credit to act as astraw buyer.A straw buyer is someone who agrees to put his or her name on a mortgage application on behalf of another person. In return for their participation, straw buyers may be offered cash or promised high returns when the property is sold. Often, straw buyers are deceived into believing that they will not be responsible for the mortgage payments. Consequences of Misrepresentation Borrowers who misrepresent information and straw buyers who allow a property to be purchased in their name are committing mortgage fraud and will be responsible for any financial shortfall in the event of default. They may also be held criminally responsible for their misrepresentation. Reporting Fraud If you suspect that you or someone you know has been the victim of mortgage fraud, please contact your local police department or The Canadian Anti-Fraud Centre. On-line:www.antifraudcentre-centreantifraude.ca Toll Free: 1-888-495-8501 Toll Free Fax: 1-888-654-9426 Email:firstname.lastname@example.org To find out more about mortgage fraud, visit the fraud prevention section of the Canadian Association of Accredited Mortgage Professionals (CAAMP) website athttp://mortgageconsumer.org/protect-yourself-from-real-estate-fraud. For over 65 years, Canada Mortgage and Housing Corporation (CMHC) has been Canadas national housing agency, and a source of objective, reliable housing information. Source: CMHC