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Guest Column: Sobering Thoughts for the Holidays

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Today we present another guest post from Dean Macaskill, Senior Vice President at Lennard Commercial Realty. Dean has worked as a commercial realtor since 1980 and has years of industry insight into the Toronto real estate market. Having been through three cycles in the business, he has seen the highs and lows. He shares some of his insider information and insights with UrbanToronto on a semi-regular basis.

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As the cold and snow have been threatening us since the end of the 3rd quarter, I thought it a good time to reflect on where we sit in the 4th quarter with respect to high rise land sector sales before we batten down the hatches for the year.

As a bit of a refresher, in my 3rd quarter report, I sounded the alarm bells as only 19 properties traded hands in the high rise land sector between July 1 and September 30. This was a record low level of transactions in a sector that normally posts between 45 and 55 sales over $1 million. In as much as a recession is calculated by 3 to 6 months of negative economic results, this same metric could be used in assessing the health of the commercial real estate market or at least a subset within that set.

 Sobering Thoughts for the HolidaysDevelopment in Toronto, image by Forum contributor skycandy

So where do we sit today with three weeks left to go in the quarter? To date, there have been 28 high rise land sales since October 1, a great improvement over Q3. Three of those trades have been substantial, over $50 million each compared to a high in Q3 of just over $40 million. So that’s the good news and maybe you wipe the sweat off your brow and say we dodged a bullet. Yet 28 sales are still down on the norm, almost by half if you use 50 trades per quarter as your marker. Before we run for cover, there are a few weeks left and the number of trades that tend to occur in the last week of the year can be substantial. So it might be best to have some concern but maybe not enough to put off holiday purchases.

What is troublesome is the decline in high rise unit sales. New unit condominium sales were just over 4,000 units last quarter while year to date sales were around 14,000. Compared to 2017, unit sales by the end of the third quarter were an astounding 25,839, based upon Urbanation’s 3rd Quarter report. The Bank of Canada held firm on interest rates this week but a ¼ point rise the last time around didn’t add to buyer confidence. I’m also following insolvency stats and noting that some developers are going down, suffocating from too much debt while some less scrupulous mortgage funds are going under and taking your parent’s retirement funds with them.

Counter to these concerns, the Ford government lifted rent controls on new-build apartment buildings, so that should put the wind back in the sails of developers that may have been sitting on the fence with whether to continue with apartment development or sell the units.  I’m on the side of the ledger that believes in lifting controls so that you encourage development. I was taught basic economics in high school that preached the gospel of supply and demand and I still believe in it. For those hoping for rent relief, if the rules of economics apply and knowing how many developers flock to build the new “thing”, we should see an oversupply of units that will work toward equilibrium and maybe an oversupply that could reduce rents. At the moment, we are in catch up mode. A seminar put on by Urbanation a week ago outlined where we stood in keeping pace with the market for rental product. They indicated that the market needs, approximately, 20,000 new units a year to meet demand. Currently, we are falling short of that but a rather large margin. They estimated that, approximately, 3,000 units were being added to the yearly inventory by condo unit investors and about 10,000 units were purpose built. One can hope that supply will, at the very least, eventually catch up to demand and potentially exceed it.

So good news on the rental front but now let’s temper that with the ever-changing world of city planning. I just read a recent report on Midtown, specifically Yonge and Eglinton, which might be a template for other, rapidly developing nodes. King West comes to mind as I write this. One line that I read in the report indicated a required setback between buildings of 30 metres. So when you have a market that is running out of development options and you’re assembling postage stamp sites, you might have to stand back and question if that’s such a good move as that little, 10,000 square foot site may not allow you to develop the property if you must maintain a 30 metre distance from your neighbour. That piece of dirt will likely remain a single family home or become a park dedication for a larger development nearby.

So, if you’re still not dissuaded from buying, despite all of the arrows being flung at you, let’s add mom and pop owners to the mix. If you’re in the know, then you likely have a good idea as to what you can pay for a site after reviewing recent approvals in the area, shadow effects of the site within the neighbourhood, the time to gain approvals and, most importantly, a guess on how LPAT will view your proposal since the OMB isn’t around anymore to settle the matter. Armed with this information, you approach the owners at their kitchen table and they kick you to the curb because you’re insulting them with your offer. Such offer is not really an insult, it’s based upon a factual calculation of what the site can yield but this owner likely has no knowledge of the planning process, senses you’re a slick developer or is using a slick agent, to rob them of their retirement funds. I have lived this brain damage that you go through trying to educate some owners as to the worth of their property. With ever-increasing barriers being erected to make it even harder to develop a site, values likely should be trending down as opposed to up.

So, I truly sense we are hitting that imaginary “wall” where unapproved sites will tend to sit while there will always be strong demand for shovel-ready developments. Construction costs continue to escalate, affordable units are to be included in virtually every new development and taxes have reached close to 25% of the cost of a unit. Yet we have a housing shortage despite the number of construction cranes in every corner of this city and we still can’t keep up with the demand for new housing.

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UrbanToronto has a new way you can track projects through the planning process on a daily basis. Sign up for a free trial of our New Development Insider here.


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5 ways to reduce your mortgage amortization

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Since the pandemic hit, a lot of Canadians have been affected financially and if you’re on a mortgage, reducing your amortization period can be of great help.

A mortgage amortization period is the amount of time it would take a homeowner to completely pay off their mortgage. The amortization is typically an estimate based on what the interest rate for your current term is. Calculating your amortization is done easily using a loan amortization calculator which shows you the different payment schedules within your amortization period.

 In Canada, if you made a down payment that is less than the recommended 20 per cent of the total cost of your home, then the longest amortization period you’re allowed to have is 25 years. The mortgage amortization period not only affects the length of time it would take to completely repay the loan, but also the amount of interest paid over the lifecycle of the mortgage.

Typically, longer amortization periods involve making smaller monthly payments and having a much higher total interest cost over the duration of the mortgage. While on the other hand, shorter amortization periods entails making larger monthly payments and having lower total interest costs.

It’s the dream of every homeowner to become mortgage-free. A general rule of thumb would be to try and keep your monthly mortgage costs as low as possible—preferably below 30 per cent of your monthly income. Over time, you may become more financially stable by either getting a tax return, a bonus or an additional source of income and want to channel that towards your principal.

There are several ways to keep your monthly mortgage payments low and reduce your amortization. Here are a few ways to achieve that goal:

1. Make a larger down payment

Once you’ve decided to buy a home, always consider putting asides some significant amount of money that would act as a down payment to reduce your monthly mortgage. While the recommended amount to put aside as a down payment is 20 per cent,  if you aren’t in a hurry to purchase the property or are more financial buoyant, you can even pay more.

Essentially, the larger your down payment, the lower your mortgage would be as it means you’re borrowing less money from your lender. However, if you pay at least 20 per cent upfront, there would be no need for you to cover the additional cost of private mortgage insurance which would save you some money.

2. Make bi-weekly payments

Most homeowners make monthly payments which amount to 12 payments every year. But if your bank or lender offers the option of accelerated bi-weekly payment, you will be making an equivalent of one more payment annually. Doing this will further reduce your amortization period by allowing you to pay off your mortgage much faster.

3. Have a fixed renewal payment

It is normal for lenders to offer discounts on interest rate during your amortization period. However, as you continuously renew your mortgage at a lower rate, always keep a fixed repayment sum.

Rather than just making lower payments, you can keep your payments static, since the more money applied to your principal, the faster you can clear your mortgage.

4. Increase your payment amount

Many mortgages give homeowners the option to increase their payment amount at least once a year. Now, this is very ideal for those who have the financial capacity to do so because the extra money would be added to your principal.

Irrespective of how small the increase might be, in the long run, it would make a huge difference. For example, if your monthly mortgage payment is about $2,752 per month. It would be in your best interest to round it up to $2,800 every month. That way, you are much closer to reducing your mortgage amortization period.

5. Leverage on prepayment privileges

The ability for homeowners to make any form of prepayment solely depends on what mortgage features are provided by their lender.

With an open mortgage, you can easily make additional payments at any given time. However, if you have a closed mortgage—which makes up the larger percentage of existing mortgages—you will need to check if you have the option of prepayments which would allow you to make extra lump sum payments.

Additionally, there may also be the option to make extra lump sum payments at the end of your existing mortgage term before its time for renewal.

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Mortgage insurance vs. life insurance: What you need to know

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Your home is likely the biggest asset you’ll ever own. So how can you protect it in case something were to happen to you? To start, homeowners have a few options to choose from. You can either:

  • ensure you have mortgage protection with a life insurance policy from an insurance company or
  • get mortgage insurance from a bank or mortgage lender.

Mortgage insurance vs. life insurance: How do they each work?  

The first thing to know is that life insurance can be a great way to make sure you and your family have mortgage protection.

The money from a life insurance policy usually goes right into the hands of your beneficiaries – not the bank or mortgage lender. Your beneficiaries are whoever you choose to receive the benefit or money from your policy after you die.

Life insurance policies, like term life insurance, come with a death benefit. A death benefit is the amount of money given to your beneficiaries after you die. The exact amount they’ll receive depends on the policy you buy.

With term life insurance, you’re covered for a set period, such as 10, 15, 20 or 30 years. The premium – that’s the monthly or annual fee you pay for insurance – is usually low for the first term.

If you die while you’re coved by your life insurance policy, your beneficiaries will receive a tax-free death benefit. They can then use this money to help pay off the mortgage or for any other reason. So not only is your mortgage protected, but your family will also have funds to cover other expenses that they relied on you to pay.

Mortgage insurance works by paying off the outstanding principal balance of your mortgage, up to a certain amount, if you die.

With mortgage insurance, the money goes directly to the bank or lender to pay off the mortgage – and that’s it. There’s no extra money to cover other expenses, and you don’t get to leave any cash behind to your beneficiaries.

What’s the difference between mortgage insurance and life insurance?

The main difference is that mortgage insurance covers only your outstanding mortgage balance. And, that money goes directly to the bank or mortgage lender, not your beneficiary. This means that there’s no cash, payout or benefit given to your beneficiary. 

With life insurance, however, you get mortgage protection and more. Here’s how it works: every life insurance policy provides a tax-free amount of money (the death benefit) to the beneficiary. The payment can cover more than just the mortgage. The beneficiary may then use the money for any purpose. For example, apart from paying off the mortgage, they can also use the funds from the death benefit to cover:

  • any of your remaining debts,
  • the cost of child care,
  • funeral costs,
  • the cost of child care, and
  • any other living expenses. 

But before you decide between life insurance and mortgage insurance, here are some other important differences to keep in mind:

Who gets the money?

With life insurance, the money goes to whomever you name as your beneficiary.

With mortgage insurance, the money goes entirely to the bank.

Can you move your policy?

With life insurance, your policy stays with you even if you transfer your mortgage to another company. There’s no need to re-apply or prove your health is good enough to be insured.

With mortgage insurance, however, your policy doesn’t automatically move with you if you change mortgage providers. If you move your mortgage to another bank, you’ll have to prove that your health is still good.

Which offers more flexibility, life insurance or mortgage insurance?

With life insurance, your beneficiaries have the flexibility to cover the mortgage balance and more after you die. As the policy owner, you can choose how much insurance coverage you want and how long you need it. And, the coverage doesn’t decline unless you want it to.

With mortgage insurance through a bank, you don’t have the flexibility to change your coverage. In this case, you’re only protecting the outstanding balance on your mortgage.

Do you need a medical exam to qualify? 

With a term life insurance policy from Sun Life, you may have to answer some medical questions or take a medical exam before you’re approved for coverage. Once you’re approved, Sun Life won’t ask for any additional medical information later on.

With mortgage insurance, a bank or mortgage lender may ask some medical questions when you apply. However, if you make a claim after you’re approved, your bank may ask for additional medical information.* At that point, they may discover some conditions that disqualify you from receiving payment on a claim.

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5 common mistakes Canadians make with their mortgages

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This article was created by MoneyWise. Postmedia and MoneyWise may earn an affiliate commission through links on this page.

Since COVID-19 dragged interest rates to historic lows last year, Canadians have been diving into the real estate market with unprecedented verve.

During a time of extraordinary financial disruption, more than 551,000 properties sold last year — a new annual record, according to the Canadian Real Estate Association. Those sales provided a desperately needed dose of oxygen for the country’s gasping economy.

Given the slew of new mortgages taken out in 2020, there were bound to be slip-ups. So, MoneyWise asked four of the country’s sharpest mortgage minds to share what they feel are the mistakes Canadians most frequently make when securing a home loan.

Mistake 1: Not having your documents ready

One of your mortgage broker’s primary functions is to provide lenders with paperwork confirming your income, assets, source of down payment and overall reliability as a borrower. Without complete and accurate documentation, no reputable lender will be able to process your loan.

But “borrowers often don’t have these documents on hand,” says John Vo of Spicer Vo Mortgages in Halifax, Nova Scotia. “And even when they do provide these documents, they may not be the correct documentation required.”

Some of the most frequent mistakes Vo sees when borrowers send in their paperwork include:

  • Not including a name or other relevant details on key pieces of information.
  • Providing old bank or pay statements instead of those dated within the last 30 days.
  • Sending only a partial document package. If a lender asks for six pages to support your loan, don’t send two. If you’re asked for four months’ worth of bank statements, don’t provide only one.
  • Thinking low-quality or blurry files sent by email or text will be good enough. Lenders need to be able to read what you send them.

If you send your broker an incomplete documents package, the result is inevitable: Your mortgage application will be delayed as long as it takes for you to find the required materials, and your house shopping could be sidetracked for months.

Mistake 2: Blinded by the rate

Ask any mortgage broker and they’ll tell you that the question they’re asked most frequently is: “What’s your lowest rate?”

The interest rate you’ll pay on your mortgage is a massive consideration, so comparing the rates lenders are offering is a good habit once you’ve slipped on your house-hunter hat.

Rates have been on the rise lately given government actions to stimulate the Canadian economy. You may want to lock a low rate now, so you can hold onto it for up to 120 days.

But Chris Kolinski, broker at Saskatoon, Saskatchewan-based iSask Mortgages, says too many borrowers get obsessed with finding the lowest rate and ignore the other aspects of a mortgage that can greatly impact its overall cost.

“I always ask my clients ‘Do you want to get the best rate, or do you want to save the most money?’ because those two things are not always synonymous,” Kolinski says. “That opens a conversation about needs and wants.”

Many of the rock-bottom interest rates on offer from Canadian lenders can be hard to qualify for, come with limited features, or cost borrowers “a ton” of money if they break their terms, Kolinski points out.

Mistake 3: Not reading the fine print

Dalia Barsoum of Streetwise Mortgages in Woodbridge, Ontario, shares a universal message: “Read the fine print. Understand what you’re signing up for.”

Most borrowers don’t expect they’ll ever break their mortgages, but data collected by TD Bank shows that 7 in 10 homeowners move on from their properties earlier than they expect.

It’s critical to understand your loan’s prepayment privileges and the rules around an early departure. “If you exit the mortgage, how much are you going to pay? It’s really, really important,” Barsoum says.

She has seen too borrowers come to her hoping to refinance a mortgage they received from a private or specialty lender, only to find that what they were attempting was impossible.

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