Many Canadian homeowners are putting compound interest in its place by accelerating their mortgage payments, potentially knocking years off their repayment schedules.
A report issued in November by the Canadian Association of Ac-credited Mortgage Professionals (CAAMP) indicates that about 36 per cent of 5.8 million mortgage holders accelerated their mort-gage payments during the previous year. That includes 16 per cent who increased their monthly payments, 17 per cent who made lump sum payments and five per cent who increased the frequency of their payments.
About six per cent of mortgage holders used more than one of these approaches to whittle their mortgages down.
"It's the most recent buyers - those who purchased from 2006 and 2011 - who are making the most additional efforts to speed up the repayment of their mort-gages," says Jim Murphy, president and CEO of CAAMP.
Reduction efforts made early in the history of the mortgage will have far greater effect than those made closer to the end.
A case in point: a property owner with a $200,000 mortgage amortized over 30 years at four per cent interest can pay off that mortgage four years sooner simply by switching from monthly to bi-weekly payments.
Murphy notes, however, that not all mortgages are created equal.
"Most mortgages will let you pay down 20 per cent of the principal on an annual basis without a penalty, which is great if you expect a windfall of cash that can be applied to the mortgage," he says.
"Some of the newer mortgage packages offer a low interest rate, but also limit lump sum payments to 10 per cent of the principal. Be careful of the mortgage features you choose and make sure they offer the best features for your circumstances."
With the days of double-digit interest rates relegated to the past, the focus of many mortgage holders has been on faster repayment and mortgage flexibility, says David Stafford, managing director, real estate secured lending, at Scotiabank.
"Canadians are really creative at paying down their mortgages, and with the advent of online mortgage calculator tools, it's be-come easy to see how even small efforts can accelerate mortgage freedom," he says.
While some property owners are simply using bonuses or tax refunds to pay down mortgage principal, or keeping their payments the same if interest rates drop, others are attacking their mortgages with death by a thou-sand cuts.
"You can lop 10 years off your mortgage without breaking a sweat," says Stafford.
"Some people are going on-line and rounding off the pocket change they see after the decimal place every chance they get, or rounding their mortgages down to the nearest $10 or $100 increments. Others are increasing their monthly payments by $10 for each year of the mortgage. It's all part of chipping away at the base of that mountain."
Why would a bank want borrowers to be mortgage-free faster?
"When you pay down your mortgage faster, you're building up equity," says Stafford. "If you've paid down that mortgage in 15 years instead of 29 we can move you to the next stage sooner, where you're examining your balance sheet and making it work for you by looking at the investment side."
Showing posts with label houses for sale in oakville ontario. Show all posts
Showing posts with label houses for sale in oakville ontario. Show all posts
Wednesday, 28 March 2012
Monday, 26 March 2012
Canada’s real estate market to cool, not crash
The banks have two pieces of good news for Canadian homeowners — real estate prices are expected to cool, not crash, and home ownership is becoming slightly more affordable.
Canada’s housing market is losing some of its “exuberance,” but fears of a bubble are over inflated, unless there is the unlikely situation where jobless rates suddenly soar along with interest rates, Scotiabank Senior Economist and Real Estate Specialist Adrienne Warren told a Toronto audience Wednesday.
In fact, a softening of house prices in the final half of 2011, along with income gains, helped offset record high debt levels, making home ownership slightly more affordable even in the notoriously expensive Vancouver market, according to new research from the Royal Bank.
“The improvement in affordability was a welcome reprieve for Ontario homebuyers as it helped reverse some of the notable deterioration that gripped the province in the first half of last year,” said RBC senior economist Robert Hogue in a release Wednesday.
But affordability remains “slightly strained” in the Toronto market where demand continues to outstrip supply.
“Conditions in the Toronto area still slightly favour sellers, which will make further improvements in affordability difficult in the near-term,” said Hogue.
The benchmark detached bungalow ate up about 52.2 per cent of pre-tax household income in Toronto in the fourth quarter of 2011, down 0.1 percentage points from the previous quarter. In Vancouver, where the same house accounts for a whopping 86 per cent of pre-tax income, the drop was 4.6 per centage points, RBC says.
Scotiabank noted Wednesday that high prices, tighter lending controls and slowing job growth contributed to a levelling off of Canada’s hot housing market in the second half of last year.
“We expect sales and prices will be relatively flat in the year ahead,” Scotiabank’s Warren told the meeting of investors, housing experts and city planners.
The two reports come just days after Finance Minister Jim Flaherty once again expressed alarm about historic levels of household debt, now at a record high 153 per cent of disposable income.
“I again encourage Canadians to be careful in the amount of debt they take on in terms of residential mortgages because (interest) rates will go up someday,” he said, expressing particular concern about the condo booms in Toronto and Vancouver.
Warren acknowledged that the Canadian housing market may be 10 or 15 per cent overvalued and that the condo market may be due for a slowdown, partly because units are getting so expensive, they may no longer make sound economic sense for the investors who have been helping fuel the condo boom.
But condo construction will continue to far outstrip the construction of single family homes, she noted, largely because they cost an average of $200,000 less than a house, making them desirable for new immigrants, young professionals and first-time buyers.
Toronto is moving toward a buyers market, just like Vancouver where bidding wars are largely a thing of the past, Warren noted.
In fact, the really hot housing story is now in the western provinces of British Columbia, Alberta and Saskatchewan where strong job growth in the resource sectors has driven up employment, wages and, with them, higher demand and house prices.
Canada’s housing market remains “in fundamentally better shape” than most other international markets where economic and political uncertainty, high unemployment and worried consumers have deflated demand and prices.
Canada’s housing market is losing some of its “exuberance,” but fears of a bubble are over inflated, unless there is the unlikely situation where jobless rates suddenly soar along with interest rates, Scotiabank Senior Economist and Real Estate Specialist Adrienne Warren told a Toronto audience Wednesday.
In fact, a softening of house prices in the final half of 2011, along with income gains, helped offset record high debt levels, making home ownership slightly more affordable even in the notoriously expensive Vancouver market, according to new research from the Royal Bank.
“The improvement in affordability was a welcome reprieve for Ontario homebuyers as it helped reverse some of the notable deterioration that gripped the province in the first half of last year,” said RBC senior economist Robert Hogue in a release Wednesday.
But affordability remains “slightly strained” in the Toronto market where demand continues to outstrip supply.
“Conditions in the Toronto area still slightly favour sellers, which will make further improvements in affordability difficult in the near-term,” said Hogue.
The benchmark detached bungalow ate up about 52.2 per cent of pre-tax household income in Toronto in the fourth quarter of 2011, down 0.1 percentage points from the previous quarter. In Vancouver, where the same house accounts for a whopping 86 per cent of pre-tax income, the drop was 4.6 per centage points, RBC says.
Scotiabank noted Wednesday that high prices, tighter lending controls and slowing job growth contributed to a levelling off of Canada’s hot housing market in the second half of last year.
“We expect sales and prices will be relatively flat in the year ahead,” Scotiabank’s Warren told the meeting of investors, housing experts and city planners.
The two reports come just days after Finance Minister Jim Flaherty once again expressed alarm about historic levels of household debt, now at a record high 153 per cent of disposable income.
“I again encourage Canadians to be careful in the amount of debt they take on in terms of residential mortgages because (interest) rates will go up someday,” he said, expressing particular concern about the condo booms in Toronto and Vancouver.
Warren acknowledged that the Canadian housing market may be 10 or 15 per cent overvalued and that the condo market may be due for a slowdown, partly because units are getting so expensive, they may no longer make sound economic sense for the investors who have been helping fuel the condo boom.
But condo construction will continue to far outstrip the construction of single family homes, she noted, largely because they cost an average of $200,000 less than a house, making them desirable for new immigrants, young professionals and first-time buyers.
Toronto is moving toward a buyers market, just like Vancouver where bidding wars are largely a thing of the past, Warren noted.
In fact, the really hot housing story is now in the western provinces of British Columbia, Alberta and Saskatchewan where strong job growth in the resource sectors has driven up employment, wages and, with them, higher demand and house prices.
Canada’s housing market remains “in fundamentally better shape” than most other international markets where economic and political uncertainty, high unemployment and worried consumers have deflated demand and prices.
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