Should You Rent or Buy?

General Tim Hill, MBA 2 Jun

At some point in their lives, most Canadians have probably asked themselves whether it is better to buy or rent a home. And purchasing a home is one of the biggest decisions most people ever make.
 

Ultimately, the decision is a personal choice, but it helps to look at the pros and cons of buying to determine whether home ownership is right for you.

 
Some advantages of buying a home
 
Owning a home is generally considered to be a sound, long-term investment that can provide satisfaction and security for you and your family.
 
Each month when you make your mortgage payment, you are building equity in your home.
Equity is the portion of the property that you actually build through your monthly payment versus the portion that you still owe the lender.
 
At the beginning of your mortgage, more of your payments go toward paying off the interest and less toward paying off the principal. But the longer you stay in your home and the more mortgage payments you make, the more principal you pay off and the more equity you accumulate.
 
Most mortgages also offer you the option of making additional monthly or annual payments to reduce your principal faster. Some prepayment privileges, for instance, enable you to pay up to 20% of the principal per calendar year. This will also help reduce your amortization period (the length of your mortgage), which, in turn, saves you money.
 
There is also a tax advantage. If your home is your principal residence, any profit you make when you sell it is tax-free. A home can appreciate – or increase in value – as time passes, building more equity. As you build up equity, it’s usually easier to upgrade to a more expensive home in the future thanks to the profit you’ll make when selling your current home.
 
As an owner, you can also decorate and improve your home any way you like. Ownership tends to give you a sense of pride and can offer you and your family stronger ties to the community.
 
If you do decide that home ownership is right for you, it’s important to choose a home you can afford. If you can’t afford to buy your dream home, purchasing a more modest home can be a great place to start building equity that one day may allow you to buy the home of your dreams.
 
Since we’re currently in a buyer’s real estate market and interest rates have been dropping, now may be an ideal time to enter into home ownership for the first time.
 
Some disadvantages of buying a home
 
Since it’s easy to get caught up in the excitement of buying a home, it’s important to remember that home ownership has some additional responsibilities as well.
 
For one thing, a home can be expensive. Chances are, your monthly payments will be more than what you are currently paying in rent when you factor in such things as your mortgage, property taxes, repairs and general maintenance.
 
Owning a home ties up some of your cash flow and is likely to reduce your flexibility to move to a new location or change jobs.
 
While your home might increase in value as time goes by, don’t expect to get a big return quickly. There are no guarantees that your home will increase in value, particularly during the first few years. In the beginning, you could actually lose money if you sell because your home may not have appreciated enough to cover the real estate fees, and moving, renovation and other selling costs.
 
Real estate is, however, usually considered a good investment over the long term.
 
When making the decision about whether to buy or rent, it’s important to carefully choose a home you can afford, and then weigh the pros and cons. Millions of people enjoy the rewards of home ownership but, ultimately, it’s a personal decision based on your own priorities.
 
If you’re thinking of buying your first home, Dominion Lending Centres mortgage professionals can answer all of your mortgage-related questions.

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General Tim Hill, MBA 4 Mar

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Decoding mortgages

General Tim Hill, MBA 5 Sep

When shopping for a mortgage, it’s easy to get lost in the fine print. And not all mortgages are created equal. There’s a major distinction that you should be aware of: collateral mortgages vs. conventional mortgages.

With a conventional mortgage, the amount registered is the amount you need to borrow, so, for example, the value of your house minus the amount of your down payment. However, with collateral mortgages, the amount that’s registered is the full value of the house, and can, in some cases be up to 125% of the value of your property.

Collateral mortgages are becoming more popular. In 2010, TD made a major shift: the bank was no longer offering conventional mortgages; all its mortgages would be collateral. ING made a similar move in 2011.

According to TD, collateral mortgages allow homeowners to more easily access credit, allowing them to borrow more without additional charges. In an e-mail, TD wrote:

“A collateral charge registration will allow a customer to borrow in the future without requiring a new registration. In contrast, a conventional mortgage would require a new registration if there are changes or increases in the amount of the mortgage.”

However, many experts are concerned that collateral mortgages mean less choice and flexibility for consumers.

One concern is that while it can be relatively easy to transfer your conventional mortgage at the end of your term to another lender, a collateral mortgage can be more complicated, and expensive, to move, says mortgage broker Steve Garganis.

Shopping your mortgage around at the end of your term, experts advise, can save you a lot of money. While most homeowners renew their mortgages with their current lender, shopping around can save you 0.5% to 1% on your interest rate – which can mean a huge difference in how much you have to pay.

Source

Class-action lawsuit targets CIBC mortgage penalties

General Tim Hill, MBA 1 Sep

‘Vague’ wording and ‘inappropriate’ calculations alleged in mortgage contracts

By Glen Korstrom Tue Aug 5, 2014 12:01am PST

At least 52,200 British Columbians will be entitled to refund cheques from the Canadian Imperial Bank of Commerce (CIBC) if a recently certified class-action lawsuit succeeds, according to one of the lawyers involved in the case.

The representative plaintiff in the case is Victoria resident Erin Sherry, who wanted out of a CIBC (TSX:CM) mortgage when her marriage dissolved.

The bank hit her with $47,869 in fees because she was only two years into a 10-year mortgage and interest rates had fallen between the time Sherry had committed to the mortgage and when she wanted to break it.

Her argument to get out of paying those fees is twofold, her lawyer, Kieran Bridge, told Business in Vancouver.

Her first argument is that the language in the mortgage document from CIBC’s CIBC Mortgage Inc. subsidiary was so vague that it rendered the contract legally unenforceable.

Bridge, principal at Kieran A.G. Bridge Law Corp., pointed out that CIBC has since changed wording in its mortgages, possibly indicating that even the bank realized that the wording was too vague.

If Justice Jeanne Watchuk, who certified Sherry’s class action on June 30, disagrees and rules that CIBC’s mortgage contracts are valid, Sherry has another argument.

“The mathematical formula that the bank used is improper,” Bridge said. “If an appropriate formula was used then the penalty would have been less.”

CIBC’s lawyer, McCarthy Tétrault LLP partner Herman Van Ommen, declined to comment, and calls to CIBC were not returned.

Other lawyers with whom BIV spoke, however, agree that the mathematical formula that banks use to calculate penalties when customers prepay mortgages is extremely complicated.

The calculation uses the difference between the posted interest rate when someone takes out a mortgage and the interest rate when the customer prepays the mortgage. That percentage is applied to the outstanding balance of the mortgage. The amount of time remaining on the mortgage also affects the final tally as fees are much higher when longer time frames remain on the mortgage, explained Jeremy Bohbot Law Corp. principal Jeremy Bohbot, who specializes in real estate mortgage law.

Bohbot said that the calculation could be viewed as unfair given that the initial rate used in the calculation is the posted interest rate at the time of the mortgage and not the actual rate that the mortgage holder obtained.

“Nobody ever gets the posted rate,” he said. “It’s a bit like the posted price of a car at a used car lot.”

Still, “complicated” is a better word than “vague” to describe language in mortgage contracts, he said.

Fasken Martineau LLP partner Andrew Borrell, who specializes in class-action lawsuits, agreed.

Borrell, who has seen plenty of mortgage-related litigation, said mortgage contracts vary between banks significantly, so just because the class-action lawsuit against CIBC was certified, it should not be presumed that other similar litigation will target other banks.

All those who obtained mortgages with CIBC Mortgage Inc., through its FirstLine Mortgages and President’s Choice brands, after mid-2005 are automatically part of the class action unless they choose to opt out.

CIBC estimates that between 18% and 36% of mortgage holders prepay their mortgages in any given year. But even a far lower percentage would still amount to tens of thousands of people.

Watchuk relied on data from Bridge in her judgment, which noted that there are between 58,000 and 116,000 CIBC mortgages in B.C. each year. Watchuk noted that if there were a 10% prepayment rate, “there would be between 5,800 and 11,600 prepayments made in B.C. each year.” Over the past nine years, that would translate into between 52,200 and 104,400 mortgage prepayments in B.C.

Source

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