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When you purchase a new home, there are many additional costs beyond the purchase price for which you will be responsible before you are handed the keys. In this Home Trust Mortgages Blog article, we will look at some of these additional expenses and provide a rough idea of the cost you can expect for each item.
While total closing costs will vary by region, you can expect them to equal somewhere between 2 – 4% of the purchase price. In fact, most lenders will require proof that you have sufficient resources beyond your down payment in order to manage these expenses.
To help you understand not only the costs you will incur during the purchase process, but also when you are required to pay, we’ve broken this discussion into the following phases:
- Costs when making the offer
- Costs prior to closing
- Costs due at closing
Costs When Making the Offer
The main cost you face when presenting your offer is the deposit. The purpose of the deposit is to demonstrate the sincerity of your offer and to show that you have the means to purchase the property.
The rules regarding deposits vary by jurisdiction; in Ontario, for instance, you can include your deposit with the offer or within 24 hours after your offer is accepted by the seller. Also, there are no specific rules as to how much is required for a deposit but for in-demand markets where sellers typically receive multiple offers, a higher deposit may help swing the deal in your favour.
For this reason, it is not uncommon to see deposits of up to 5% of the selling price in these markets. In less active markets, smaller deposits are more common.
Keep in mind that the deposit is considered part of your down payment so providing a higher deposit does not mean you are paying more for the house. However, be very clear on the rules around deposits. If your offer is accepted but the deal then falls apart later, depending on the cause for the collapse, you could be forced to forfeit your deposit.
Costs Prior to Closing
In some situations, in order to secure a mortgage your lender will require you to arrange for an appraisal of the property as well as a home inspection. An appraisal provides a third-party, expert assessment of the true market value of the property you are considering and this will likely cost between $300 and $500.
A home inspection, even if not required by your lender, is still something to consider to provide peace of mind that the property has no major issues waiting to surface after you take possession. If possible, consider making your offer conditional to a satisfactory inspection result. However, be aware that if a competing offer is presented at the same time as yours that does not include this condition, the seller may exclude your offer to go with one that does not contain additional conditions.
The Canadian Association of Home & Property Inspectors website estimates the price of an inspection for a typical single family home to be around $500.
Costs Due at Closing
Land Transfer Tax
Land transfer taxes vary by location but all Canadian provinces have some form of tax that must be paid by the buyer to transfer the property’s title. Some municipalities including the City of Toronto impose an additional land transfer tax on all property transactions and these taxes are due on closing.
In some cases, utility bills, taxes, or other expenses associated with the home may have been prepaid by the previous owner. In this situation, you will be required to reimburse the seller for any portion that may extend into the time when you officially take possession of the home. These expenses will be listed in the Statement of Adjustments.
Property Insurance and Title Insurance
Your lender will insist that you have sufficient property insurance to cover the cost of replacing your home in the event of a fire or other incident. The cost for property insurance varies by location and property value.
In addition, many lenders now also require you to have title insurance. As noted on the Financial Services Commission of Ontario (FSCO) website, title insurance protects you from potential problems that could prevent you from having clear ownership of the property including the existence of previous liens against the property as well as the possibility of land survey or public record errors.
Title insurance typically costs the average homeowner between $200 – $300.
New home buyers are advised to hire a lawyer that specializes in real estate to ensure that all official documents are completed and filed as required. Budget at least $500 for even the most straight-forward of transactions.
Provincial Sales Tax on Mortgage Insurance
If you have less than 20% of the selling price available as a down payment, your lender will require you to obtain mortgage default insurance through an agency such as the Canada Mortgage and Housing Corporation (CMHC). Your lender will include the cost of this insurance in your mortgage, but at the time of closing, you will be required to pay any provincial sales tax owing on the purchase of the insurance.
While we can’t anticipate every extra cost you could possibly face in the purchase of your new home, this discussion should give you a good idea of the most common expenses. Ultimately, what you need to take away from this is that there are many additional expenses beyond just the purchase price which you will face when buying a new property.
EVP Residential Mortgage Lending
Home Trust Company
Written by: HOME TRUST
One of the dilemmas many people face when applying for credit for the first time is that lenders want to see that you have a good track record handling credit. The problem is, how you can you demonstrate that you can effectively manage credit if you’ve never had credit extended to you before?
In a similar manner, those with past credit issues but who have been working hard to resolve previous difficulties, also find being approved for credit to be a challenge. Even though these past issues may have resulted from things out of the borrower’s control such as a prolonged illness or job loss, past credit problems can prevent many individuals from being approved.
In fact, even a less-than-stellar credit history can have a tremendous impact on your financial well-being. Common credit situations such as car loans or mortgages that many take for granted, can be out of reach if your credit history is a bit rocky. Even if your credit score is just average, you may be approved for additional credit, but you could very well be forced to pay a higher interest rate to account for the perceived increase in risk. Over the life of a mortgage, for instance, this could result in tens of thousands of dollars in extra costs.
Clearly, having a good credit history has tremendous advantages but how do you go about mending past credit issues when you no longer qualify for credit? One of the most common ways is to use a secured credit card. Here’s how it works.
Unsecured Versus Secured Credit Cards
Before we get into the mechanics of how a secured credit card can help repair your credit history, let’s first explain what we mean by a “secured” credit card. While there are a multitude of credit cards out there all offering various incentives and benefits, all credit cards fall into one of two major categories – secured and unsecured. Unsecured credit cards are the most common type of credit card and this is what most people tend to think of when referring to a credit card.
An unsecured credit card is not tied to any form of collateral and by charging goods or services to the credit card, you are essentially borrowing money from the card issuer. Amounts charged to the credit card must be paid back based on the terms you agreed to when you accepted the credit card.
However, a secured credit card is backed by collateral – typically in the form of a cash deposit – that you provide to the secured credit card issuer. If you fail to make the required payments, the card issuer will deduct from these funds to recover their costs.
The Home Trust Secured Visa
The Home Trust Secured Visa credit card is available with credit limits equivalent to the amounts of the security deposit provided; from a minimum of $500 up to a maximum of $10,000. Applicants can select from two interest rate options – the Low-Rate Option carries an interest rate of 14.9% on all unpaid balances and has a $5 monthly ($59 annual) fee. The No Annual Fee Option, as the name suggests, does not have an annual fee but it carries a higher interest rate of 19.99% on unpaid balances.*
Not only can you make purchases with your Home Trust Secured Visa card anywhere Visa is accepted, you can also access cash from over one million ATMs around the world. Simply look for the Visa or Visa Plus logo and you can quickly and easily withdraw cash from your account. Note that additional fees apply for these services – please refer to the Home Trust Secured Visa webpage for full details.
Rebuilding Your Credit History
The Home Trust Secured Visa credit card is a highly effective way to repair past credit history. Because it is secured by a deposit, virtually all applications can be approved, so even if you’re recovering from a bankruptcy or a consumer proposal, you can still enjoy the convenience and benefits of a Visa credit card.
Home Trust reports the monthly status of your account to both Equifax and TransUnion, and providing these credit bureaus with updated credit activity is key to repairing your credit. With a Home Trust Secured Visa card, and by paying monthly balances in full and on time, you will accelerate the process of rehabilitating your credit score.
* Fees are subject to change at any time. All fees quoted are accurate as of the time of writing.
By Andy Blatchford
OTTAWA – The Bank of Canada is holding its trend-setting interest rate at 0.5 per cent but it’s keeping a watchful eye on “significant uncertainties” that it warns could alter the economy’s improving trajectory.
The central bank’s scheduled rate announcement Wednesday arrived as Canada tries to assess the direction of U.S. economic policy under President Donald Trump and the potential fallout from any changes he may bring.
The bank has said some U.S. proposals, which include tax cuts, a border tax and protectionist policies, would have “material consequences” for Canadian investment and exports.
In an unusually short statement Wednesday, the Bank of Canada used slightly stronger language when referring to U.S. uncertainties than it did in the news release that accompanied its last rate announcement on Jan. 18.
At that time, two days before Trump’s inauguration, the bank indicated that “uncertainty about the global outlook is undiminished, particularly with respect to policies in the United States.”
On Wednesday, the statement did not specifically mention the U.S. uncertainty.
“The bank’s governing council remains attentive to the impact of significant uncertainties weighing on the outlook,” the release said.
In explaining the decision by governor Stephen Poloz’s council to stick with the current interest rate, the bank said that improvements seen in recent data releases have been consistent with its projections.
The central bank also expects growth in the fourth quarter of 2016 _ as measured by real gross domestic product _ might come in slightly stronger than predicted because of recent consumption and housing data releases. Statistics Canada is scheduled to release those GDP figures Thursday.
On the downside, however, the bank said Canadian exports continue to face competitiveness challenges while the job market has seen weaker growth in wages and hours worked.
For inflation, the bank said it’s looking past January’s surprisingly robust headline figure of 2.1 per cent. It said the number was a result of a temporary jump caused by higher energy prices that were largely tied to the implementation of carbon-pricing policies in Ontario and Alberta.
The Bank of Canada was widely expected to leave its benchmark interest rate untouched Wednesday, particularly with so much uncertainty surrounding the policy direction of the country’s largest trading partner.
Analysts were hoping to learn more about the bank’s thinking when it comes to potential U.S. policy changes, but the brief statement offered few details.
The Bank of Canada has yet to factor in the full range of economic policies expected under Trump.
In January, the bank cautioned that its outlook only accounted for the possible effects of the expected U.S. fiscal boost.
On the positive side, it said at the time that fiscal expansion in the U.S. would be a positive for Canada through increased foreign demand. But it added that Trump’s vow to cut corporate taxes would threaten Canadian competitiveness.
Trump has also pushed for the renegotiation of the North American Free Trade Agreement, though he has said the changes to the deal would only involve “tweaking.”
The U.S. proposals have created significant concerns within Corporate Canada and for the federal government.
On Wednesday, Finance Minister Bill Morneau will meet his new U.S. counterpart, Treasury Secretary Steven Mnuchin, for the first time. Morneau and the federal government have been trying to figure out Trump’s plans and how they may affect Canada.
CMHC announced early Tuesday it is increasing its loan insurance premiums effective March 17.
“We do not expect the higher premiums to have a significant impact on the ability of Canadians to buy a home,” said Steven Mennill, Senior Vice-President, Insurance. “Overall, the changes will preserve competition in the mortgage loan insurance industry and contribute to financial stability.”
According to the Crown Corporation, the average homebuyer will see a $5 increase to their monthly mortgage payment as a result. That $5 certainly adds up, however, to a total of $1,500 over the course of a 25 year mortgage.
The increase is the result of last year’s mortgage rule changes, CMHC claims.
“Capital requirements are an important factor in determining mortgage insurance premiums. The changes reflect OSFI’s new capital requirements that came into effect on January 1st of this year that require mortgage insurers to hold additional capital,” it said in a release.
“Capital holdings create a buffer against potential losses, helping to ensure the long term stability of the financial system.”
This latest hike comes less than two years after the most previous one, which was announced in April 2015.
See below for standard premium changes.
Article by:Home Trust Mortgages Blog
One of the primary responsibilities of the Bank of Canada is to determine the country’s interest rate policy. Naturally, the topic of interest rates always fuels considerable debate and with the economy still under-performing despite rates being close to an all-time low, some analysts suggest the Bank of Canada may have little choice but to consider implementing a negative interest rate. In this Home Trust Mortgages Blog entry, we’ll look at how the Bank of Canada influences retail interest rates and some of the possible outcomes should the Bank of Canada adopt this controversial interest rate strategy.
The Bank of Canada Overnight Lending Rate
When the economy is expanding to the point of inflation, the Bank of Canada can increase interest rates making it more expensive for consumers to borrow. This tends to reduce overall spending and slow growth to a more manageable rate. The opposite holds true when the economy is weakening; in this case, the Bank of Canada will reduce rates in an attempt to encourage borrowing and boost consumer spending.
The primary mechanism the Bank of Canada has to manage interest rates is through the Overnight Lending Rate. This is the interest rate the retail banks earn on the funds they hold on overnight deposit with the Bank of Canada.
By manipulating the Overnight Lending Rate, the Bank of Canada can influence retail interest rates. When the Overnight Lending Rate increases, the banks will typically increase deposits; when the Bank of Canada lowers the rate, the banks will reduce deposits and make more funds available for lending. The banks will often introduce lower lending rates and special deals to attract more business and it is this relationship between the Overnight Lending Rates and the retail and commercial lending rates that enables the Bank of Canada to manage the country’s interest rate policy.
Some economists have proposed that the Bank of Canada would have to slash the current rate of just 0.5% well into negative territory in order to have a meaningful impact. Should this happen, the banks, in exchange for keeping their funds with the Bank of Canada, would then be required to pay interest on their deposits. To avoid this reality, it is very likely that the banks would drastically reduce their deposits thereby making more money available for lending to their customers.
Negative Interest Rates and the Housing Market
Let’s make one thing clear– the introduction of a negative Overnight Lending Rate by the Bank of Canada will not result in your financial institution paying you to take out a loan. Lenders may well lower their rates if the Bank of Canada slashes the Overnight Lending Rate, but don’t expect to borrow for free.
Ultimately, whether or not the Bank of Canada takes the unprecedented action of implementing a negative interest rate, there are very few market watchers who expect that interest rates are going to increase appreciably any time soon. For those looking to borrow for a new home or other large purchase, it appears that rates will remain near the current levels for some time.
Continued low interest rates should help boost, or at least maintain, activity in most real estate markets. There are exceptions, of course; markets in those areas directly impacted by weak energy prices may not share this outlook, but in many other parts of the country including hot spots like Toronto, the prospect of low interest rates should help to support these very active markets.
Despite the warnings that properties in these two cities in particular are over-valued, so long as demand continues to outstrip supply, and interest rates remain at or near the current historical lows, it seems likely home sales will continue to expand.
EVP Residential Mortgage Lending
Home Trust Company
Interest Rates Likely to Rise In The Near Future!
TD Bank reports that the new mortgage rules will likely result in rate increases over the next coming months. The anticipated increase is anywhere from .25% to .40% at this time. How fast we’ll start to see rate increases across all lenders is unknown. Some lenders have already increased rates a bit. So what action should you take if you are thinking about purchasing or refinancing a property?
GET A RATE HOLD!
You can protect yourself at no cost from any short term rate increases by “reserving” a mortgage rate. Rate holds are valid for up to 120 days. So over the next year, while the lenders are absorbing the new changes, it is definitely in your interest to get a rate hold.
Need a rate hold? Need more information? Please contact me by phone: 780-431-2786 (toll free: 1-866-431-2786) or by email: firstname.lastname@example.org