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DECODING THE MORTGAGE MARKET Mortgage rates today are way below normal. Or are they?
Finance Minister Jim Flaherty called Canada’s low interest rates an “anomaly” last week, echoing warnings that other government officials have been making since 2009. But one of the country’s best-known economists believes today’s rates are closer to normal than many think.Benjamin Tal, deputy chief economist at CIBC, caught viewers off guard in a recent webcast with a mortgage company TMG The Mortgage Group. Whereas most economists have been calling for the Bank of Canada to lift its 1 per cent key lending rate back to a more normal 3 per cent, Mr. Tal thinks that these days, “normal” is significantly less.“The speed limit of the economy has been permanently reduced,” Tal said. Inflation, the key rate threat, is extraordinarily low at 1.1 per cent. And the pace of economic growth is in a long-run downtrend, with few signs of bucking that trend.Consequently, “The new normal is much lower interest rates than there used to be…The new normal would be maybe another 100-125 basis points (above today), not more than that.”If true, this would suggest that prime rate - the basis for variable mortgage rates – will average just 4 to 4.25 per cent over the long term, a big departure from the roughly 5 per cent prime rate that most economists forecast as “normal.”Saving ¾ of a percentage point, over the long-term, would have enormous impact on the finances of regular Canadians. Over five years alone, it would put $11,000 of interest back in people’s pockets on the average home purchase, with 20 per cent down. If you’re financially secure, that makes shorter-term and variable-rate mortgages worth a close look.In an email with Mr. Tal about his call, he was careful to point out that “the new normal is a theoretical rate.”“There is a big difference between the actual and theoretical rate,” he said. “In practice, rates tend to overshoot or undershoot. So it is possible that rates will rise by more than that, possibly to 3 per cent.”Presumably, if his model is correct, rates would then revert back down to the mean and cycle around that 4.25 per cent prime rate number.Regardless of how accurate Mr. Tal’s forecast proves to be, the odds are decent that the prime rate will remain almost two percentage points below its 6.89 per cent 30-year average. That’s in keeping with the Bay Street consensus. But more importantly, it’s reflective of Canada’s new realities: contained inflation and modest economic growth.“Variable will probably do better in this environment...if you have a five-year time horizon.” But long-term interest rates will be “permanently higher” five years from now, Tal predicts.If Mr. Tal’s estimate of a 4 to 4.25 per cent prime rate does pan out, variable rates could save people more than fixed rates over the long-run, as they have for decades. And even if “normal” turns out to be a 5 per cent prime rate (which is closer to most economic forecasts), variables should still come out on top over the long term.The question is, what happens between now and the time that rates “normalize.”Today you can find variable rates at prime – 0.5 per cent (i.e., 2.5 per cent) and five-year fixed rates at 3.49 per cent. Let’s assume that rates shoot up in 2015 as economists expect (an expectation that changes with the wind) and that they increase two percentage points over the two years that follow.In the hypothetical scenario laid out above, those of you shopping for a mortgage may find extra value in two particular terms:A three-year fixed mortgage: If you can find one in the 2.75 per cent range or better, it’s a compelling option. It gives you meaningful savings for three years (when compared to terms of four years or more). It also provides insulation from rate increases for three years. Compared to a five-year fixed mortgage, rates would have to be 2.25 percentage points higher at renewal for you to lose on this strategy. That assumes you make equal payments in all cases and renew into a two-year fixed (which adds up to five years total). Betting against a 225 basis point hike in three years is a wager that most strong borrowers should make.A hybrid (50/50) mortgage: Despite our personal beliefs, rates are impossible to foretell with accuracy. A hybrid mortgage removes the guesswork, cuts your risk of rising rates in half and lets you participate in today’s low variable rates. This strategy involves putting 50 per cent of your mortgage in a five-year variable and 50 per cent in a five-year fixed, netting you a starting rate under 3 per cent. It also gives you more flexibility than a five-year fixed by letting you refinance early with a lower potential penalty, and letting you lock in the variable rate at any time.Keep in mind, these strategies are primarily based on hypothetical interest cost. They’re also suited mainly to well-qualified borrowers with sound finances, stable employment and a five-year time horizon. Your situation may be different so as always, make sure to do your own research on what works best for you.Robert McLister is the editor of CanadianMortgageTrends.com and a mortgage planner at VERICO intelliMortgage, a mortgage brokerage. You can also follow him on twitter at @CdnMortgageNews.Source:ROBERT MCLISTERSpecial to The Globe and MailPublished Sunday, Nov. 10 2013, 10:47 PM ESTLast updated Monday, Nov. 11 2013, 10:32 AM EST
Canadian home sales activity strengthens in July
Statistics released today by The Canadian Real Estate Association (CREA) show national home sales were up from June to July 2018.
National home sales rose 1.9% from June to July.
Actual (not seasonally adjusted) activity was down 1.3% from July 2017.
The number of newly listed homes edged down 1.2% from June to July.
The MLS Home Price Index (HPI) in July was up 2.1% year-over-year (y-o-y).
The national average sale price edged up 1% y-o-y.
National home sales via Canadian MLS Systems rose 1.9% in July 2018, building on increases in each of the two previous months but still running below levels recorded from mid-2013 to the end of last year. Led by the Greater Toronto Area (GTA), more than half of all local housing markets reported an increase sales activity from June to July.
Actual (not seasonally adjusted) activity was down 1.3% y-o-y. The result reflects fewer sales in major urban centres in British Columbia and an offsetting improvement in activity in the GTA.
This years new stress-test on mortgage applicants continues to weigh on home sales but its effect may be starting to fade slightly in Toronto and nearby markets, said CREA President Barb Sukkau. The degree to which the stress-test continues to sideline home buyers varies depending on location, housing type and price range. All real estate is local, and REALTORSremain your best source for information about sales and listings where you live or might like to in the future, said Sukkau.
Improving national home sales activity in recent months obscures significant differences in regional trends for home sales and prices, said Gregory Klump, CREAs Chief Economist. Regardless, rising interest rates and this years stress test on mortgage applicants will likely prove to be difficult hurdles to overcome for many would-be first time and move-up homebuyers, heading into the second half of the year and beyond.
Hacks to slash your car expenses
(NC) When you consider the rising costs of gas and insurance, owning a vehicle can get pricey. Fortunately, these easy tips can help lower how much you spend on your car so theres more room in your budget for other expenses, like groceries and recreation.
Increase your fuel economy. Did you know that a small spark plug problem can lead to a big expense? A dirty spark plug can cause a misfire, which wastes fuel and can ultimately harm your engine. To combat this, look for a spark plug thats designed for improved fuel economy, like the those from Fram. Try the Autolite Iridium XP Enhanced Alloy Technology line, which is precisely engineered with a focused ignition point for maximum power, efficiency and life.
Get regular tune-ups. When a vehicle is properly tuned, all systems work in harmony, including the fuel, ignition, emission and computer systems. While it can be a hassle getting to regular appointments at your mechanic or dealer, remember that you are investing in the long-term performance of your car, saving you time and money. Regular engine tune-ups bring power and efficiency back to your car, ensuring that its reliable, safe and road-ready.
Change your filters. There are many ways to keep your engine in good shape, helping it to last longer. One is checking the air filter every time you have the oil changed, because engine life and durability are directly related to keeping incoming air clean. Its an air filters job to remove contaminants from the air before it goes into the engine, and neglecting this component results in reduced performance. Fram extra guard filters provide premium engine protection and are proven to let in two times less dirt than the average leading standard retail brands.