Something missing from that new house you just looked at? Let me show you a way to have your perfect home.

This week there has been bidding wars, homes have been sold in a day with multiple offers.  We are looking like another Calgary boom in my humble CIBC Mortgage advisor opinion.  

The question then becomes, do you want to go to war and try to outbid someone for the perfect home?   Or would you consider a fixer upper if you knew I could find a way to renovate it and put that cost into your mortgage?   Why not try for that home that might have been overlooked?  Instead of buying someone else’s dream home you can turn that home that needs a little bit of extra love and make it your dream home.  

I understand the let’s fix it up mentality, as this was one thing my father, and my grandpa had in common.   They loved to fix things up, take things apart and put it back to together in a new an often better way.   This in its own right, is worthy of its own post.   I will get into that one day.

Why buy a house that needs upgrades?  Why buy a place with a less than perfect kitchen, or bathroom?  Why buy a place that is missing a certain type of marble counter top, or did not have two sinks in the bathroom.

Well, often it’s priced knowing that it’s less than perfect.  Did you know that 80% of people walk away from a home because of one small detail?  That leaves just 20% with the imagination, the cash reserves or the knowledge that they can fix up this property and finance it into their mortgage.   You don’t have to keep on shopping for a perfect house which might be far more expensive.

 

It’s called the purchase plus improvement program and it available with 5% down through CMHC, Genworth, and Canada Guarantee.   Each have different guidelines which we will go over below.

How does the purchase plus improvement program work when buying a home?

1.   You can finance on top of your mortgage up to 20% of the “as is” purchase price of your property for improvements after closing so long as it does not exceed $40,000.  You can have more more under one of the programs.

2.   The allowable improvements are vast: Anything that you can’t remove from the property like a dishwasher, or fridge, UNLESS IT’S A BUILT IN.  Complete remodel of kitchens, roof, bathrooms, flooring plumbing, and electrical are often the goal of these projects.  Not allowed is fixing something like a furnace that should have been working in the first place!

3.   The property must be appraised based on current value and then on value after improvements.

4.   We get a couple of bids from contractors, and the lenders approves one.  The funds are held with the solicitor until the work is completed, which means that unless you have the cash upfront we have to make sure we use one that will take payment from the lawyer when it’s complete.  Left overs go back to the lender and applied back on the principle.

What are the benefits and strategies to using the Purchase plus improvements program?

Perfect for that one little issue you might not like, or needs to be improved.

Ideal for first time home buyers that do not have the additional funds for improvements after closing and cannot afford the upgrades they desire to modernize or improve their new property. Not to mention, you are immediately increasing the value and equity in your property and spreading the cost over a 25 year amortization in your mortgage.

These three improvements programs give you the ability to look at homes that need a little more love.  You can actually build up several thousands of dollars in equity using this process.  This was instead of buying a home that has already been renovated the way someone else loved and for their ideals it’s then all about you. Why pay more for something that you don’t think is perfect? Just include the renovation costs in your mortgage loan and renovate to make it yours!

What is the fine print in the purchase plus improvements for each insurer?

Each insurer is different when it comes to premiums, Loan to Value, Amortization, and eligible properties, and they are very competitive in most cases.

There are difference when it comes to how much money you can get from them as well.

• CMHC Improvement: 

  10% cap on the as improved market value they will put into the mortgage.  Currently they don’t have a cap for dollar amount but will not insure over 1 million, with a 2.75% premium, and if you have a non standard down payment its 2.90%

• Canada Guarantee Purchase Advantage Plus: 

  Full Appraisal required for improvement exceeding 20% "as is" value of $40,000.  This premium is 2.9% for 5%

• Genworth Purchase Plus Improvements: 

  20% of initial value not exceeding $40,000.   Government grants will be considered if pre-approved. With a 2.75% fee with 5% down.

Just remember that you will have to tell your realtor to add a condition in your Agreement to Purchase that says you want a contractor to inspect the home before closing. Then the contractor will provide a quote that breaks down the work and the costs.

Tell your realtor that you want to do purchase plus improvements and get them a Mortgage Advisor who knows how to structure the deal and who to call to get things done.  Yes, I am always more than willing to help clients through the process, all for the very low fee of nothing at all.

Dependably yours,

Michael

Being fair, privileges, and how I almost died from dehydration.

I grew up with an overdeveloped sense of fairness, mostly stemming from my little brother and I competing on almost everything.  As a result, many things seemed unfair but only a couple things raced my engine compared to my friends.  Yes, I was frustrated having to sit at the front of the bus so the driver could keep an eye on me.   Nothing more than a smile, and she suspected I was up to no good at all.  It must have been the gleam in my eye! 

In those years, after recess the teacher would be guarding the water fountain.  We called her the water Nazi, as you could not mess with her system.  You stand there in line waiting patiently till it was your turn and even before the water hit your mouth she was counting to five and heaven help you if you did not walk away when she said FIVE!  How much can you drink from a little stream of hardly pressurized water in that time frame?   What is my issue you ask?  This is the only fair way to ensure everyone gets the same and everyone gets a turn.  I am not a fan of communism!

Why did I think this was a load of bull?  Some boys were sitting reading comic books or trading cards, and some girls were playing with their dolls or playing marbles.   ME?  I was running, playing football, soccer, wrestling, and being chased by much older girls who sometimes wanted to beat me up, and other times just wanted to kiss me.   I was so very easy on the eyes back then.   Toot, Toot!  Yes this was me blowing my own horn.  I often say that if you don't blow your own horn there will be no music.

Now I ask you, why would we all get the same amount of water, if we were not all doing the same activities?  How is that fair?   I wanted things to be fair, and I had sweat dripping down my forehead, should I not at least get an 8-second count for water? 

I still hold that philosophy dear to my heart, and it encompasses my clients as I expect they should be treated fairly and have all that is available to them.

How do I really define fair for my clients?   Not just ensuring they have options from all the lenders, but making sure they understand the fine print associated with that rate and product.

If the mortgage rate is five seconds, then the fine print is the rest of the equation.  Yes, it's the job of a mortgage broker to help you watch the fine print!  If you are focused just on the 5 seconds all else falls away.  A mortgage broker can help you focus on mouth placement, suction, angle, approach velocity, stopping power, the pull away, and angel and trajectory of the water flow with the mutual goal of getting your fill of as much water as possible.

It's true that securing a low interest rate can take years off your mortgage, but equally important are the terms of your contract. If you are just looking at the rate, what is in the fine print?  Can you transfer the mortgage?  Can you port the mortgage?  Can you pay it down any faster?  

This is where an experienced mortgage broker can make a difference.  The review of any restrictions or potential penalties on the mortgage that often end up costing you far more than a small rate difference.

Should you care about transferring and porting your mortgage?

If you read a post or two ago, we talked about how porting as an option is fundamental in making sure you can take your rate with you.  Yes, this is all the more important if the rates on the market currently are higher than what your mortgage rate is.

Why would you care about Prepayment privileges?

Mortgage Prepayment privileges go a long way toward paying off your mortgage faster, but you cannot pay off as much as you like whenever you want.  Yes I know it seems so unfair, however most mortgages limit how much you can pay off early because it decreases how much money the bank can make, or thought they were going to make.

In the fine print are mortgage payout penalties.

Mortgage payout penalties for a no-frills basic mortgage can be a percentage of the outstanding mortgage.  3% to break the mortgage early should not be taken lightly as this can be very expensive.  They could be based on the bond rates, or interest rate differentials from posted to what you have.  It could be a collateral charge mortgage, and all these factors can change how much you pay out by large amounts.

Every lender is different with their own take on the rules, and each with different investors to answer to.  If the average mortgage planner deals with over 50 lenders, you should know that each one has a product lineup of mortgage products that range in short-term, long-term, variable, cash back, open and closed. Having over 300 mortgage products at your disposal allows you to put every unique client into a product that is best suited to their needs. Knowing it's easy and dependable will have you back doing what you love as soon as possible.

This way, when you hear about the 5-second rule you know it's more than just how long food can be on the floor, or how long a child that feels like he is stuck in the middle of the Sahara, can drink from a fountain.  The rules put forward are the same for everyone, but how we structure, where we submit, and how we use those five seconds are so very important.

Get it touch with me at 403-807-8779 if you want to make the most of your 5 seconds.

Have you ever won at Monopoly with all your properties mortgaged?

How is a game of chance going to help you understand mortgages, debts, or what life’s priorities should be? Well, stick with me, and I’ll walk you through it. We’ll start small and simple, like the first roll in a game of Monopoly, and work our way up to financial graduation.

You might be here because I asked you to check out my blog, or maybe you’re searching for the secrets of life (or at least how to save money). If you’re after secrets, I’ve got a big one for you: I’ve never lost a game of Monopoly. Ever. Monopoly is my game because it mirrors real-life financial strategies—except, of course, with fewer consequences if you land in jail! The goal is simple: get as rich as possible, acquire properties, and avoid mortgaging them. Pouting, guilt-tripping, and making clever trades are all part of the fun.

Here’s where it gets interesting: in Monopoly, if you’ve got Boardwalk mortgaged and someone lands on it, the rent doesn’t go into your pocket. In the real world, if your property is mortgaged, that rent isn’t padding your wallet either—it’s paying off interest! My biggest beef with Monopoly? That rent should go to the bank. Let’s debate that all day if you’d like (comments are open!).

For now, let’s focus on the basics. In both the game and real life, you want your mortgage paid off as soon as possible, so when someone “lands” on your property, that money is yours. In the game, I spend whatever I can to un-mortgage my property as soon as I have enough cash. Why? Because there’s only so long you can skate by with everything mortgaged before bankruptcy or foreclosure catches up with you. Who wants to sell their property to pay the bills?

This Week’s Mortgage Tip: Budget Like It’s a Game

Take this lesson and apply it to your own life. If you budget everything carefully and allocate any windfall—tax returns, that $200 you collect when you pass "GO," or even that small prize from placing second in a beauty contest—to your mortgage, you’ll pay it off sooner and free yourself from years of interest payments. Also, reduce flexible expenses to a level you can live with. I can help you with that through my mortgage management workshop.

Now, I’m no banker in Monopoly, but as an Independent Mortgage Broker in Calgary, I know a thing or two about interest. In fact, it’s often what gets clients calling me in the first place. They want to know, “What’s your best rate?” If I were the Monopoly banker, my answer would be easy: 10%! That rate wouldn’t compound every trip around the board, it wouldn’t come with prepayment privileges, and you definitely couldn’t port it to Marvin Gardens or anywhere else in Alberta. Sounds great, right? Well, in reality, even a rock-bottom rate like 3.25% comes with important questions:

• Can you port your mortgage if you move?
• What are the costs to close it early?
• How much extra can you pay on it each year?
• Will the bank call you if the rates change?

The smartest move isn’t just about the rate. It’s about understanding the product and how it fits into your life. I start by understanding the needs of my clients, then make product suggestions that fit those needs. Quoting a rate and pulling it away because the client didn’t tell me their full story? That’s a nightmare for everyone.

Prioritize Your Mortgage Payoff

By now, paying off your mortgage should be high on your priority list. The faster you pay it off, the less interest you’ll end up paying over the years. If you need advice—whether it’s on choosing the best mortgage or even deciding whether to pick the dog, thimble, battleship, or top hat in Monopoly—I’m here to help.

Dependably yours,

Michael Richmond

• The First Place Winner of the Beauty Contest

P.S. If we ever play Monopoly together, I call dibs on the top hat!

Want to know why my favorite time of year is RSP time, and the trick I used to increase my down payment for my first home?

When I was starting out in the banking world I opened accounts, credit lines, MasterCards, investments, and wrote mortgages.  During these interactions you have the pleasure and opportunity to meet every personality type imaginable.  To this day, some are my friends, some are Facebook friends, and others are just distant memories.
Some of the vivid memories come to me so easy. 

• A client who opened her purse to show me a "toy", then dropped a condom outside my office.
• A client who urinated in the chair.
• I stopped a potential "client" from stealing a car, and put him in a arm lock till the police showed up
• I sat motionless as a gun was pointed at me and money was demanded.
• I stayed late trying to find missing money.
• We had to fire a girl who came into work high on ecstasy.   

These are all great stories to fill an awkward moment of silence and all are worthy of further explanation, but you should know that my absolute favorite memories are the ones where people I helped obtained their dreams and goals.  Getting one of those hugs from a client who you took the weight of the world off his shoulders is a great feeling.
Figuring out ways to help people was solving a puzzle, and I have always loved a challenge.

HERE IS HOW I USED AN INVESTMENT LOAN TO GET MY FIRST MORTGAGE AND MY VERY FIRST HOME.    

Before you say this is just an RSP redemption under the home buyers plan, keep on reading there is more to it I promise!

Back in those days, I learned a little strategy for finding a mortgage down payment and taught it to many.  To this day I don't hear of it being used as often and it seems rare because it's just for first time home buyers, it's just for bringing those down payment numbers up, and it's just during a certain time of year that it works best.

Here is how it works in its simple form for the first time home buyer:

1. Approach the bank for an investment loan.    
2. Take the investment loan funds and invest in an RSP that is redeemable and not locked in for any set term.
3. Do your taxes, and theoretically in most cases you should also get a refund from CRA for the RSP contribution. *
4. Redeem your RSP of no more than $25,000 after 90 days using the First time Home Buyers Plan
5. Use the refund and the TAX Free RSP redemption to boost your down payment.

Now you have that RSP money to use as a down payment, and the money from the refund to use as a down payment.

WAIT WAIT WAIT!!!  Stop running!   There are other things to consider before you run out and do this to try and get your mortgage!

• Does the investment loan put you over your max debt service ratios for the mortgage?
• Would the tax refund be better suited applied to the investment loan itself?
• You will have to repay the loan you took from yourself, but I never did!  I just let my accountant add a little extra income to my year instead of putting money back into the RSP.
• You need to meet certain conditions before you withdraw the funds.
• You will still have to pay it back if you declare bankruptcy.

* Making a RSP contribution lowers the amount of taxable income you had for the year, and might even drop you into a lower tax bracket. Increasing your refund even more.  However if you usually pay taxes this just might offset it.

Personally I don't think RSP's are right for everyone.  Currently only one in three who are eligible for them have them.  You do know they just defer the income to a point in your life when you should be making less income, like your retirement, or if you take a year off and travel Eastern Europe.   You still have to pay taxes on the money.   To the seniors in low income housing taking money out might evict them if they take too much as now they are making too much money!   To those who have hundreds of thousands in other investments they might be making more money than when they put it away and thus pay more tax.

The fact is the government will get their cut of your income.   No if's, and's, or but's.  It's just when they get it.  The only thing in question is how much will they take.

The Advantage of an RSP? 

You don't have to pay taxes on money made in the registered savings plan until you take it out.  Which means that it can compound and grow and you will not have to pay capital gains, or any other taxes on that money till you take it out.

 

 

The disadvantage of an RSP?

You don't know where you will be in 20 years.  If your marginal tax rate is lower you will be taxed less.
You have to ask yourself, would you rather have your money in equity in your home when you retire, or in a registered savings plan that when you take money out, you are taxed?

In summary, RSP season was an opportunity to ask the question, "Do you think you will ever retire with the plan you have right now?"   You know by now that there are many tricks out there that unless you have a personal trainer, nobody will ever tell you.  Yes, you are doing the exercise, but if its possible to do it better and get better results would you not want to double check?   My advice is complimentary after all.


Speaking of personal trainers, last night I was listening to this charismatic one talk about how her busiest time of the year was March.  It was then that people realized they get more results from the help of an expert and coach.   It was fascinating to listen to another person from a completely different industry deal with the challenges that I face as well.  Realizing how we are similar regardless of industry reinforces the simple truth that if you have help, mentor-ship, or someone in your corner you can get better results.

To play devil's advocate, I guess you could say that the opposite is true for absolutely everything you need in life.  You could plant your grain and vegetables, and buy a cow for milk and cheese.  Build your own house, dig your own well, work out by yourself, or even build your own car!
It's possible to do everything yourself!  You don't need anybody! 


I think you can already see the issue and the largest problem.  You might run out of time and money making all the above perfect to meet your expectations.   Finding an expert that does it every day, with the experience will save you time, and more than likely money.   From my humble opinion, time is our most precious commodity.   We can buy more cars, milk, homes, but the time we can't have back. 

If I am still learning something every day and I have been in the world of finance since 1998 I would just recommend finding an expert who can make sure you are looked after.   Which makes me ask myself, "When did I become a journeyman Banker? or a Alberta mortgage professional, or a Calgary mortgage broker?   Maybe I just wear a black belt with the word Mortgage on it and ask people to do battle for the title?"

Thanks for reading, the shares, likes, and +1's!   I really do appreciate the positive reinforcement that my time and energy is not being flushed down the "cyber toilet" and that people found value in what I had to offer.

Dependably yours,

Michael Richmond