Cash-back mortgages

The next guy at the OREIO roundtable was discussing some of the various financing options that exist for people. In some cases, these are very interesting options. They are very creative. I admire how financing companies have adapted to provide different forms of money for investors.

Generally, this speaker spoke on many different forms of financing and tried to enlighten investors on the different options that are available to them. I appreciated this. There are certain rules and procedures that exist that are designed to protect the Canadian credit market, but the presenter was hinting at ways to circumvent these methods. He, to me, seemed sneaky and snake-like. Again, I will not mention any names, but I was very weary of what benefits this guy could provide. It may all have been legal, but the tone I got was different. I'd want more information before I started to deal with this guy.

Business is not about lying, cheating or stealing. It's about relationships between customers, suppliers and employees. In some cases, certain relationships are more pre-dominant than others, but ultimately, you cannot run a business without developing trust along the way. You may get ahead in the short-run, but in the long-run, the costs catch up to you. I think it's critical that you continuously look at ways to make those relationships stronger to be successful.

I guess my point is this for this post. You need to do your homework. You need to be able to trust someone, so you need to know the background information. As a chartered accountant, our profession is built on a strong code of ethics that has greatly enhanced our reputation in the business world. I feel very strongly about upholding this reputation, and refuse to be involved in get rich quick schemes.

Ottawa Real Estate Market

I'm sorry to those government workers that read my blog on a nearly daily basis. I know that you are constently busy looking at stuff on the internet, and you stop by my blog to kill a little time by reading what I have to write. I said that I would post my opinions about the Ottawa Real Estate Market, and since I've said that I was going to post, my opinions have changed somewhat. I wanted to digest some of the recent economic news before I decided to make an opinion. I'm sorry for waiting a few days between posts.

Now, Ottawa is a unique town. We are a government town. We are somewhat protected from economic boom and bust cycles. We are not immune, but protected. What does this mean for real estate? Well, first, it means that you are not going to double your money on your real estate investment in one or two years. We never have such a hiring spree that we have excess amounts of workers in our city looking for houses. We also do not have the mass exodus of workers when times have taken a turn for the worse. Ottawa doesn't suffer the ups and downs of gold-rush-like town, so our growth is usually modest and steadily increasing.

That being said, the Ottawa job scene has deteriorated somewhat in recent months. Nortel, a former darling of the pageant, continues to cut jobs. In addition, the City of Ottawa is facing a budget crisis and are thinking about cutting jobs. These seem like troubling times for our city, but the news isn't as bad as it looks. Although, housing prices will cool a little bit as a result of these job cuts, this presents a good opportunity for those that continue to work.

Housing prices do not fall instantly. They take time because home-owners want to maximize what they pay for a house. They can always start high and come down later. Therefore, I think you will see the prices coming down in the next few months. It will be a chilly winter for real estate sales, but things should warm up in the spring again. With mortgage rates at near all-time lows, it seems ludicrous to me as to why you wouldn't want to lock in a mortgage at these rates. I think, from an investment point of view, you have to like the current conditions to buy. As the old saying goes, "buy low, sell high".

If you've already bought a house, don't feel bad. You've likely locked in a great mortgage, so over the long-term, you have made a great investment decision. I'm just outlining when the housing prices will reach its bottom. It's pure speculation, but I think it's an interesting concept to discuss.

Budgeting

When you are going to go and buy your home, there are a few extra costs that you might not consider. For example, I've mentioned lawyer fees and home inspections in previous posts. All of these costs can add up quickly. They can eat into your downpayment, and although you may be approved for a larger amount, you likely want to keep your mortgage to a minimum.

I would say that you should plan to spend between 4-5 thousand in cash, outside of your downpayment. Why is this important? Well, if you are planning to take advantage of the Home Buyer's plan, you will need cash to pay for your deposit (usually about $2000), plus things like home inspections and lawyer fees. These items add up quickly and you may not be able to get the cash out of your RRSP's quickly enough to close a deal. The last thing you would want is a house of your dreams slipping through your fingers because you have your money "tied-up".

This is also important when it comes to mortgage insurance. Canada's mortgage system requires that you purchase insurance on a mortgage where you do not have a minimum of 25% deposit. 25% deposit is a very large sum and if you are near that amount, you'll want to ensure that you will have enough cash to pay for any extra costs that might incur. You don't want to buy the insurance because it gets expensive in the long-run.

Now, I'm being conservative by estimating $4-5K. You will likely not need this much cash for everything, but it will be good that you have an extra buffer of cash. Not only can things come up during the buying process, there is a good likelihood that things will occur after you purchase a house. I'm not saying that these items will be house related, but you need to ensure that you can pay for that car repair, plane ticket, or anything else that comes at you unexpectedly.

Buying a home will likely be your largest commitment in your life. With marriage's getting shorter, a 25-year mortgage is a hefty burden and it becomes a larger burden than most marriages, financially and in terms of length.