Life Insurance versus Mortgage Insurance

Life Insurance versus Mortgage Insurance, is what some of my clients ask me when they are purchasing a house. A financial advisor I know in Ottawa shared with me a practical chart to explain the difference between life insurance and mortgage insurance:

PERSONAL LIFE INSURANCE MORTGAGE INSURANCE
  • Insures you
  • You decide who to name as your beneficiary
  • Renewable, convertible term insurance
  • Underwriting is done at the time of application
  • You determine the amount of the coverage; your coverage remains same
  • You own the policy
  • It is yours, you keep it
  • Your beneficiary decides how to use the money
    • Insures your mortgage
    • Lender is the beneficiary
    • Non-renewable, non-convertible term insurance
    • Underwriting is done at the time of the death
    • Covers the exact amount of mortgage balance; as you pay down your mortgage your coverage decreases but your premiums remain same; cost per $1000 of coverage increases
    • Lender owns the policy
    • When you change your lender you cannot transfer your insurance
    • Lender automatically pays remaining mortgage balance
    • Shared by Nilay Erisoglu, Financial Security Advisor, Freedom 55 Financial Nilay.erisoglu@f55f.com

Let me go through some more details of Life Insurance versus Mortgage Insurance

Life Insurance

Mainly life insurance is used for insuring yourself, you decide who you name as the beneficiary (your spouse, family member, etc) and they decide on how to use the money, the amount of money paid out to the beneficiary never changes.

Life insurance is also renewable, and convertible term insurance. In Life insurance you have protection for the duration of the policy. The duration usually is around 10 to 30 years or sometimes to an age like 70 or 80. It all depends on the term you purchase and the underwriting is done at the time of the application.

In life Insurance you determine the amount of the coverage; your coverage remains same during the policy. When you plan to sell or change lender for you mortgage, your life insurance remains the same and does not get affected, it stays with you.

Life insurance is usually less expensive than mortgage insurance. Although a note of caution that if you intend to get for another term, you could potentially be paying a higher premium depending on the age and your health. Typical the enrollment process for term life insurance is more complex than applying for mortgage insurance, since life insurance policies require a medical exam in order to secure coverage.

Mortgage Insurance

Mortgage Insurance insures your mortgage, and the lender is the beneficiary (not someone whom you have named). It is non-renewable, and it is non-convertible term insurance. Typically the underwriting is done at the time of the death. Mortgage insurance covers the exact amount of mortgage balance; as you pay down your mortgage, your coverage decreases but your premiums remain same…

In Mortgage Insurance the lender owns the policy and if you change your lender you cannot transfer your insurance to the new property. The lender automatically pays remaining mortgage balance in the case of death.

Some advantages of mortgage insurance are that they are very convenient, they often do not require any medical exam. You typically will purchase the insurance through your bank or the financial institute that lend the money for your mortgage. Mortgage insurance is usually added to the lender’s monthly mortgage payments.

The downside of mortgage insurance is they are usually more expensive than life insurance although more easy to attain from a bank. CBC Marketplace also did a series of mortgage insurance.

I hope this blog post helps explain the difference between Life insurance versus Mortgage insurance and last but not least I hope your winter is going well with a lot of fresh air experiences and you are getting ready for a wonderful spring coming up with high energy.,..Whether your plans to relocate, to downsize, to aim for a change or investment, give me a shout and lets get the ball rolling for your next chapter…

Cheers!

Written by Nilay Ertemur

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Getting financing approved for home buyers has become more and more challenging under all the new government imposed rules. For self employed home buyers, it becomes even more interesting.

That said, there are ways to get mortgage approved for these hard working individuals. The key to approvals for self employed buyer lies in asking the right questions and getting the proper documentation to support the claims regarding their type of work and the income being generated by the business.

Most self employed businesses have different ways of reporting their income, reducing all their taxes as much as possible. For these individuals their notice of assessment income is low due to write offs against their income. In order to qualify for mortgages, they need to demonstrate that their gross business income is reasonable enough to support the income level stated for them in order to have the deal approved.

One way for self employed individuals who are in sole proprietors and unincorporated business is by incorporating their business, since most banks do prefer salary. Once incorporated, the self employed individuals can pay themselves a salary, the other advantage of incorporating is it could also reduce tax rates and allow the business owner to collect a higher salary or dividend payout.

Most mortgage brokers have more ways to secure a loan for self employed individuals, they use alternate lenders that allow for more flexibility in getting the approvals in place without charging too high of a rate.

I certainly know couple of great mortgage brokers who can assist in helping self employed individuals obtain a mortgage here in Ottawa, please feel free to contact me for a referral and for your further investment or living arrangements.

Cheers!

Nilay

ref : www.BestMortgageInOttawa.com

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Forecasting 2015 Housing Market in Ottawa

As we all know predictions are not easy, especially for the future, but we can certainly go through some stats to find out how the market has been doing in the near past, to figure out how this year might turn out for Ottawa.

Mortgage and interest rate cut

Let’s look at the mortgage picture first, the average five-year mortgage rate in Canada is at a record-low 4.79%, according to central-bank data (Source: Financial Post ). Lower rates can be obtained from banks and other private lenders, such as Mortgage Brokers Ottawa, the mortgage rate on their site states 2.89 for a 5 year fixed (26 Jan 2015).
On 21 Jan 2015, Bank of Canada has lowered its interest rate to 0.75, it dropped the lending rate by a quarter of a percentage point. What that means is the cut will result in lower interest rates for variable rate mortgages, lines of credit and other loans that float with prime rates. They have called that fixed rates would be lowered also, and Royal Bank offered a five-year fixed rate of 2.84% on Jan. 24. (Source: Financial Post)

Prices of Houses and Comparisons

If we compare 2013 to 2014 market prices, we see some increases.

Month Average Home Sale Price Result
January 2014 $346,744 increase of 1.0% over January 2013
February 2014 $353,407 ncrease of 2.0% over February 2013
March 2014 $359,051 increase of 0.3% over March 2013
April 2014 $374,015 increase of 0.8% over April 2013
May 2014 $381,172 increase of 3.2% over May 2013

Ottawa is a healthy market that prices don’t go up and down like they do in some other Canadian cities, where there could be a very large influx of price ups and downs such as in Alberta… Prices of houses are still slowly going up here in Ottawa, with some minor adjustments in various neighbourhoods. 2014 was a year that average days on the market for a property increased significantly from the previous years and that was certainly not usual. Properties considered as luxurious in remote areas and the ones far from Ottawa core got hit first when it came to price reductions, however many city properties still held their value and on average saw a price increase by around 1 % in 2014.

And last but not least, this chart is key for us to understand what the economy has been doing in the near past and what the expected figures are for the coming years.

2012 2013 2014 2015 2016
Total Employment (000s) 697.6 687.4 696.5 706.0 715.5
% change 2.4 -1.5 1.3 1.4 1.3
Unemployment Rate 6.4 6.3 6.5 6.0 5.9
MLS® Res. Sales 17,184 16,539 16,472 16,750 17,400
% change 0.2 -3.8 -0.4 1.7 3.9
MLS® Res. Avg. Price 327,656 334,320 339,785 344,000 350,000
% change 2.4 2.0 1.6 1.2 1.7
Residential Permits (Units) 8,211 6,643 8,950 7,800 8,000
% change 2.7 -19.1 34.7 -12.8 2.6

Source (Ontario Chamber Commerce)

Conclusion

As we can see the prediction of 2015 would be business might proceed as usual, some adjustments are in effect but there are still increases in price for some areas in Ottawa. If you are planning for your new purchase or selling your existing house, or investment contact me and I will be able to provide you a FREE CMA (Comparative Market Analysis) report of your house value, or for the area you are looking for.

Here are some stats you can tweet:

ottawa2015

Ottawa 2015 prediction

Disclaimer: As this article has been published by the author, mortgage rates might have been changed again in the last couple of days, therefore it is recommended to talk to a mortgage broker about the latest rates and mortgage rules and regulations.

Sources:
Financial Post
CBC News

Author: Nilay Ertemur

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To Buy or Rent in Ottawa?

Here is a common question that people may think of when deciding on purchasing a condo/house in Ottawa, whether it would be better to rent or to purchase a place since it is a big financial decision in either case.

I will tell ahead that the winner is TO BUY rather than TO RENT in Ottawa, it strongly depends on number of years one would stay in either property. Below is an example of a condo property that one would live for 5 years.

I will use an example of a rental property/condo here in Ottawa, somewhere close to Carleton University.
The rent for the place is Canadian: $1800 dollars + utilities
The purchase price for the condo around that area would be around $300, 000 to $400, 000, so lets take the median and say its $350,000 for the purchase.

Costs after 5 years

Buy Rent
Initial costs $20,518(5% down+CMHC+legal+inspection) $3600 (1 month rent as deposit. Some places charge 2 months rent as deposit.)
Recurring costs $136,680 (5 Year mortgage, tax and condo fees) $114,000 (5 year estimate cost of rent, with yearly increase)
Total Profit Estimate $100,000 $55,000

Detail Purchase Price

Purchase Price $350000
Monthly Condo Fee are around $350
For down payment minimum 5% $17500

As of today a low rate for 5 years closed is 2.96% mortgage offered.

Inspection, CMHC PST

Home Inspection with Tax $339
PST on CMHC Insurance $838

Legal Fees

Legal Lawyer Fees $1,225
Registrations $144
Disbursements $260
Tax (HST) $212
Total Legal Fees $1841

Total Cash & Spending

Your total mortgage borrowed $342,974

Total cash cost for purchase $20518
Your monthly payment to mortgage is estimate around $1618
Your estimated property tax per year $3,725
Total condo fees and property tax per month $2278
5 years, your mortgage amount left $292,986

The average increase of a property here in Ottawa can be around 4% per year over 5 years (depends on market value goes up and down but it averages out to be around 4%), thus over the 5 year period your property would have gained an estimated value of $70,000.

Assuming that you did not do any major renovations or maintenance, you lived at the place just like you were renting, and after 5 years you were selling, and just for simplicity you sold the condo for $420,000 at the 5 year mark.

Your amount after mortgage payout ($420000 – $292986) $127 014
Sum 5 Year mortgage, tax and condo fees $136 680

If you have rented for 5 years and with an increase of rent, the estimate cost is around $114, 000

Difference between rent and owning the condo/house in Ottawa is $22, 680
left over investment money for mutual funds at 6% per year $4568

Let’s say over 5 years you have around $25000 in investments, and adding your down payment that you did not have to pay since you were renting would have been estimated around $55,000.

As one can see the amount that you end up saving by investment isn’t as large as purchasing and selling of your place, where the payout is estimated close to $100,000.

Additional things to consider

There are certainly circumstances that one has to decide upon, like maintenance of the house, appliances if you own etc., market value going up and down. It is harder to predict the housing market, the amount of time you will be staying at one place also affects all the calculations. The taxes may increase over each year. Take those into consideration when you plan to rent or purchase, and if you get a roommate and rent out one of your rooms to a student while living in the property, then you would have more of a profit.

The New York Times has a great article on rent versus buy with a calculator to help you to find out which one suites better.

If you do plan to purchase, feel free to contact me and I will be able to find the right home and right price for you here in Ottawa.

Author: Nilay Ertemur

References: http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html

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CMHC has announced two changes that would  take effect on May 30, 2014

1. Cancel of the CMHC Second Home Program

Starting June 1st, 2014, investors/buyers would need a minimum of 20% down payment for their second home, they will not be able to take advantage of the 5%+ down payment that CMHC used to provide to purchase the second home for kids, parents, or yourself.  Officially after May 30, 2014 a 20% down payment will be required to purchase the cottage or  lake side condo second home and CMHC will limit the availability of homeowner mortgage loan insurance to only one property (1-4 units) per borrower/co-borrower at any given time.

What the limit means is if you currently have a property that is CMHC insured mortgage and wish to co-sign for a borrower that is planning on buying a new property and s/he requires mortgage insurance as well, you would not be allowed to co-sign as you already have a CMHC insured mortgage. Although this does not stop gifted downpayment from a potential co-signer (e.g parents), which would allow the mortgager to qualify for the mortgage on their own.

2. Cancel of Self-Employed Without 3rd Party Income Validation

Self-employed Individuals will still be able to access and quality for CMHC mortgage insurance loans when the loan is below 20% down payment, but they will need to validate and prove their past 2 year income, provided by copies of tax notice of assessment, audited or unaudited financial statements, which would still need to be approved by CMHC.

There are definitely alternatives for self-employed individuals, if they cannot provide 2 year income paper work. I would strongly advice to speak to a professional mortgage broker who will be able to help with finding subprime lenders. Contact me for some references.

If you wish to avoid CMHC product changes, you will need to have to accept offer of purchase on a specific property and your application must be submitted to CMHC for approval prior to May 30th 2014. Contact me and I will be able to help you find you the right property.

Author: Nilay Ertemur

Reference: http://www.cmhc-schl.gc.ca/en/corp/nero/nere/2014/2014-04-25-1600.cfm

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Disclaimer: The information provided here does not hold any legal binding or as legal advice, for legal advice please use a professional lawyer who would be able to advice on legal proceedings.

Divorce and separations

Divorces and separations are quite stressful and are emotional times in ones life. Dealing with finances and mortgage adds another level of anxieties. Most of us are very confused about our finances during the times of emotional roller coaster and there are certainly many questions that one may have regarding mortgage and house.

Here are some things you may wish to do and it may answer some of your questions.

Things to consider:

1. Separate your finances

This will allow you to establish and to build your own credit rating, example would be opening your own bank and credit card account.

2. Obtain a credit report

By doing so, you will know where you stand financially for your next home.

3. Look for an independent mortgage broker

An independent mortgage broker will be able to help you to find out what your finances can afford if you wish to purchase a new house, or to buy out your partner with equity. There are certain restrictions that apply when you use equity, and I will be able to refer you to some good mortgage brokers in the Ottawa area, if you have any questions regarding taking equity from home.

4. Get an agent to provide you with a CMA (Competitive Market Analysis)

An agent will be able to provide with a Competitive Market Analysis of your house, most lawyers and mortgage brokers require an analysis to know how much a property is worth, in case you wish to buy out your partner and stay in the same home.

5. Getting ready to sell or buy

If you wish to sell the house and divide up the proceedings, contact me if you are in Ottawa area or another professional real estate agent, since we will be able to maximize the returns by selling your house and be able to help you in your next house hunting experience. Do note that both parties need to agree with the listing contract and also in the process of accepting the purchase agreement, when there are offers to the property.

Author : Nilay Ertemur

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The house that you like is nearly perfect, except that perhaps it needs a little TLC; new bathroom, kitchen or basement finished.

But you only have 5% down payment and not the extra to do the renovations.

What can you do and what are your options?

Did you know that the Purchase Plus Improvement Plan lets you add the cost of upgrades to your mortgage before you move in?

It allows individuals to purchase the property and include improvements such as bathroom, roof, kitchen, hardwood floors, windows, etc, generally anything that will improve the value of the home is acceptable!

The way it works is first you must obtain written quotes from licensed contractors for the repairs and or the improvements to be done to the home before the mortgage financing and when the application for mortgage is made. The application would be  submitted to both the mortgage lender and CMHC for approval and the request is made for 95% of the purchase price PLUS 95% of the cost to complete the improvements.

Here is an example:

Purchase price: $250,000 X 95% = $237,500
The quote for the renovations: $ 15,000 X 95% = $ 14,250
Total Mortgage: $265,000 X 95% = $251,750

An important thing to note is there is no advancement until the work is completed, the funds are held back by the lawyer. The Lenders typically require work to be completed within 120 days of closing, and an appraiser is sent out to confirm the completion and usually there is a cost associated with the appraisal.

Other things to note is appliances, furnace are usually not considered as home improvements.

Nilay Ertemur

Sources:

http://www.cmhc-schl.gc.ca/en/hoficlincl/moloin/hopr/upload/CMHC_Improvement.pdf

http://www.leomaiorino.com/

http://www.theglobeandmail.com/globe-investor/personal-finance/home-cents/this-mortgage-can-make-your-reno-happen/article618795/

http://www.durhammortgagesolutions.ca/mortgage-resources-mainmenu/faqs-mainmenu-25/176-what-is-the-purchase-plus-plan

Author: Nilay Ertemur

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The cost of mortgage default insurance is about to go up for most consumers, effective May 1st, 2014  CMHC Purchase (owner occupied 1 – 4 unit) mortgage insurance premiums will increase by approximately 15%, on average, for all loan-to-value ranges.

The change does not impact existing homeowners and is expected to raise up to $175-million for CMHC.

For the average Canadian home buyer requiring CMHC insured financing, the higher premium will result in an increase of approximately $5 to their monthly mortgage payment. This is not expected to have a material impact on the housing market.

The table below shows the loan to value ratio for the 15% increase.

Loan-to-Value Ratio Standard Premium (Current) Standard Premium (Effective May 1st, 2014)
Up to and including 65% 0.50% 0.60%
Up to and including 75% 0.65% 0.75%
Up to and including 80% 1.00% 1.25%
Up to and including 85% 1.75% 1.80%
Up to and including 90% 2.00% 2.40%
Up to and including 95% 2.75% 3.15%
90.01% to 95% – Non-Traditional Down Payment 2.90% 3.35%

CMHC’s new premium rates will be effective for new mortgage loan insurance requests submitted on or after May 1, 2014. In order to be eligible for the current mortgage loan insurance premiums, lenders must submit a request for mortgage loan insurance to CMHC prior to May 1, 2014, regardless of the closing date of the home purchase. As is normal practice, complete borrower and property details must be submitted to CMHC when requesting mortgage loan insurance.

Examples:

In 2013, the average CMHC insured loan at 95% loan-to-value was $248,000.

95% Loan-to-Value
Loan Amount $150,000 $250,000 $350,000 $450,000
Current Premium $4,125 $6,875 $9,625 $12,375
New Premium $4,725 $7,875 $11,025 $14,175
Additional Premium $600 $1,000 $1,400 $1,800
Increase to Monthly Mortgage Payment $3.00 $4.98 $6.99 $8.98

Based on a 5 year term @ 3.49% and a 25 year amortization

*Premiums in Manitoba, Ontario and Quebec are subject to provincial sales tax — the sales tax cannot be added to the loan amount.

85% Loan-to-Value
Loan Amount $150,000 $250,000 $350,000 $450,000
Current Premium $2,625 $4,375 $6,125 $7,875
New Premium $2,700 $4,500 $6,300 $8,100
Additional Premium $75 $125 $175 $225
Increase to Monthly Mortgage Payment $0.37 $0.62 $0.87 $1.12

Based on a 5 year term @ 3.49% and a 25 year amortization

*Premiums in Manitoba, Ontario and Quebec are subject to provincial sales tax — the sales tax cannot be added to the loan amount.

FAQ
Q: I recently have signed for a mortgage and my closing is before May 1 2014 would this affect me?
A: No, it is only if your application was submitted is after May 1st, 2014

Q: I am planning to refinance my home on or after May 1, 2014. Will the increase in premiums and surcharges affect me?
A: If the request for mortgage loan insurance is submitted to CMHC on or after May 1, 2014, the new (higher) mortgage loan insurance premiums and surcharges will apply.

Q: I am planning to buy a home in the coming months and will require a CMHC-insured mortgage.
A: If the request for mortgage loan insurance is submitted to CMHC on or after May 1, 2014, the new (higher) mortgage loan insurance premiums and surcharges will apply.

Sources:
http://www.cmhc-schl.gc.ca/en/corp/nero/nere/2014/2014-02-28-1100.cfm?WT.cg_n=TWT_MLI

http://www.cmhc.ca/en/hoficlincl/moloin/moloin_013.cfm

Author: Nilay Ertemur

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