FROM FINANCIAL MESS TO FINANCIAL FREEDOM Dan had by all appearances made it. He had a big income as an executive earning in excess of $120K per year and his wife earns $34K as a bookkeeper. They also had over $200K in RRSP’s. But at the end of the day after paying all his credit cards, lines of credit and his mortgage, Dad had no money. After reading us in the Welly he called to ask for our help. We went to work re-organizing his debt and were able to pay nearly $70K off in high interest debt and eliminate$2,800 in monthly payments. The best part is, even with all the debt gone his new mortgage payment is only $1,200 over $240 less than he was paying before. Now with his finances under control with cash flow and money left over from the refinance, Dan was able to buy a $300,000 duplex in Guelph. He couldn’t come up with the full down payment so we arranged a small 2nd mortgage. Bottom line, he is clearing $700+ a month from the two rental units. A month later when Dan mentioned to us that his RRSP portfolio with the bank was losing money, we suggested he consider moving his RRSP’s into in self directed  RRSP’s so he could invest in another income property or in private mortgages where we can get him a return of 8 – 14%. With our professional advice and guidance Dan is now well on his way to creating the financial wealth and security he has been dreaming of for years.

If you have ever bought and sold a house and closed both on the same day you will understand why it makes a lot of sense to bridge your mortgage.  You are packing up the same day, your buyer is waiting to move in.  Getting a bridge means less stress for sure.

A bridge simply means the lender will forward the down payment or the equity in your property to enable you to close the purchase of your new  property ahead of the closing of the sale of your property.

But it does not come without cost.  Costs to set up a bridge vary from lender to lender and come with a daily rate of interest until your sale closes.  For instance, with a set up fee of $250 and a month delay in closing for a $100K bridge you are looking at about $300. Not bad considering you can take your time to move in, paint or renovate.

You need equity in your home in order to bridge a firm sale.  Most bridges go without a hitch but there are always the exceptions.  With major banks taking collateral mortgages on properties, securing 2nds and visa cards unfortunately problems can arise.

Take for example our latest call for help.  Moving van filled day of closing on their purchase, a local businessman called panicking that his bank didn’t not forward the money for the bridge.  Joseph was mortified.  The bank had told him the bridge was no problem.  We got involved immediately and the problem was pretty evident.  There was no equity in the home they had sold because the bank had secured a line of credit in 2^{nd position after their 1st mortgage.  Yikes.  No equity…no bridge and the bank did not tell him this and just left him high and dry.  We found a solution rather quickly.  We refinanced their free and clear cottage in order to get the down payment for their new home and the mortgage closed three days later.   In our experience, do not take anything for granted when it comes to bridges.  People believe their homes are free and clear when they are not since the banks often take much more collateral than the amount of the mortgage and even blanket multiple properties.  Far too often the client is not told these things either by the bank and believe it or not the lawyer too. When you deal with The Price Team we ensure you completely understand what is going down. You’ll have far less hassle since we are professionals who take great care in what we do.}

As an aside, if you are thinking of getting your next mortgage from a bank, ask them about their Collateral Mortgage product. If you are not satisfied with their answers, then do yourself a favour and come see us.

　

 It has been over 30 years since (the early 80’s out of control inflation) mortgage rates were the highest in history at 20 plus per cent. Monetary policy at the time was to wrestle inflation by increasing interest rates. The idea was to restrict consumption with high interest and tight credit. There was no such thing as a ‘Line of Credit’ back then. Since then the floodgates (cheaper money and easy credit) were opened wide and we went from highest to lowest rates in history. It took almost 20 years for rates to return to single digits. Then the dot.com stock crash in 2000 followed by the September 11, 2001 attack on the World Trade Centre led federal governments around the globe to lower rates faster than before due to avert economic collapse.  We were told to consume to help the economy, and expansion was a good thing. The prime rate which dropped to a low of 2 per cent, along with the new ‘line of credit’ product, allowed consumers to access home equity with like never before. This led us to an unprecedented spending frenzy. Lower rates fuelled the housing market to a boil. Prices doubled in less than 12 years. Everyone had equity. Today everyone has debt. The pendulum has swung hard to the other extreme. Everything has changed, with the exception of high interest rate credit cards. The federal government (who caused it all) is now telling us we have too much debt and to pay down our debt at a time when property taxes, provincial and federal income taxes topped up by a 13% HST are at all-time highs. At the same time wages, house prices and the economy flattened. Now experts say rates have been so low for so long that it is extremely difficult to wean us off ‘the cheap-money drug’ without causing an economic collapse. Most people became spending with credit, addicts and addictions are hard to break. Most people cannot save, let alone pay off high interest debt anymore because the feds eliminated the ability to refinance above 80% of value. So there is the ‘trap’. Too many people have lines of credit making interest only or minimum payments and excessive credit card debt exploded. Governments around the world are also trapped with unprecedented debt. In fact many countries are now bankrupt. The majority of us have new cars, new houses, flat screen tv’s, new appliances, fancy computers and mobile devices, and on and on, because we were effectively ‘brainwashed’ into living beyond our means. Are we better off than before? In many ways, ‘Yes’. We are better of with modern conveniences and luxuries than the rich were one hundred years ago. We have flush toilets don’t we? In the biggest way, financially speaking, the answer is an emphatic ‘No’ given the inability to pay off debt together. Way too many people are playing ‘Rob Peter to Pay Paul’.  This does not bode well with the prospect of higher interest rates and even higher payments in the future. Interesting to note that the average mortgage payment today is virtually the same as it was in the high interest rate environment some 30 years ago. That’s because house prices and mortgages have almost tripled.  Do your children have cell phones and computers and have manicures and pedicures? Time to cut back ya think? As for adult children moving back home? Well we will leave that one for another day. Answers are few, we can only think of two (it would appear) to pay down debt is to ‘Make More Money Honey!  Mom & Dad, get part time jobs and put your teenage kids to work too! Put every loonie, quarter, dime, nickel, (forget about pennies, they don’t count any more) towards debt repayment. Secondly put together a budget and find savings to put towards debt. Better yet  and since old fashion budgets rarely work, give Ron a call to consider SMART EQUITY cash flow management/debt reduction system. It’s amazing! And it will change your life!

CELL PHONES & MORTGAGES, NOW ‘CONNECTED’ Historically credit reports never reported cell phone, rent, and utilities repayment history. Recently a new client of ours came to us after being declined by their bank as they were told that they had unsatisfactory credit. No further explanation was given. This is what the banks do. They leave you in the dark wondering what went wrong. Well, as it turned out John’s cell phone account had been reported on his credit report. It’s a sign of the times folk, where qualification guidelines continue to tighten further. Not only are cell phones now included on credit reports now but lenders are now taking into account (the average payment) into debt service calculations as they view cells as a form of credit. We are all well aware that billing mistakes commonly occur with cell carriers some which can go unnoticed for months at a time. Worse, this new move includes showing cell phone repayment history for the past 7 years. So someone who missed payments many years ago, perhaps for a good, legitimate reason, can be declined for a new mortgage today. Highly unfair we say. Typically monthly payments can be as low as $35. Not much credit is it? The cell used to be the one thing people could dispute when one got unfairly charged and refused to pay. Well we can’t do this anymore or our overall credit will suffer. Parents tell your kids; in fact everyone you know to make sure their cell account is paid on time. Spread the word. Same thing with student loans. They can hurt credit, not just students but parents and family who have co-signed. Co-signing is now more dangerous than ever because while your child may be the one making monthly payments, if they screw up and you are unaware, your credit will suffer as well because you are considered equally responsible for repayment. If one’s credit history is ‘soft’, in other words you have had some issues but are still approvable by some lenders; the cell has become the tipping point. We did manage to get our aforementioned new clients approved with one of our non-bank institutional lenders. This is but one of many examples of instances where the Bank may say ‘NO’, but we say ‘YES’.  

                                              Bank business practices are coming under scrutiny like never before. Mortgage penalties, collateral mortgages, high interest credit cards and lack of disclosure have become constant issues according to experts that have taken bank business practices to a whole new level; a ‘low’ level that is. A proliferation of articles give example after example of how consumers are being hurt, in most instances resulting from inept and at times ‘complete’ lack of disclosure and understanding of what they are signing at the bank.

The Feds have chosen to ignore, or at best, pay lip service to these issues. In fact, they chose to tighten up mortgage qualification guidelines with abandon and unduly so, to such an extent that most experts agree that the end result was ‘overkill’. The economy, the housing market are now suffering and tens of thousands of ‘housing related’ jobs may be in jeopardy. And the consumer is hurting. Yet the banks continue to amass unprecedented and ever growing profits at our expense. Greed appears to have taken precedence over integrity and ethics, many say. And the area they make the majority of profit is in mortgages.                                                                                                                                                                               As we write this on the eve of Canada Day weekend, it seems like our once ‘beloved’ banks have gone too far and that they need to be ‘checked’. Will the government do it? Not likely. Can the level of ‘greed’ be stopped? We say yes! Folks we still live in a democracy, and despite the fact that the virtues and ethics we once could count on from our big banks have significantly eroded, we still have the power to make positive change together.                                                                                                                              Democracy and our system of governing, albeit grossly outdated (since it was created centuries ago) can still work for the benefit of its citizens, simply because ‘together’ we all have the power to change the way things are. Just look around the world today. There is a movement for positive change and the people of many nations are protesting en masse, thanks to the power of the internet. Knowledge is power. Will it take a global revolution to revamp government, making it much more transparent, accountable and less corrupt? Who knows?  Hopefully not at the expense of massive bloodshed. Some governments may however, have no choice but to give in without force when the masses do revolt.

Here at home, we believe that free market forces have the potential to cause change for the better. With the help of the internet and the new social media wave, individuals can protest bad policies, practices and make their personal experiences, well, public to become the catalyst for change. Look at the recent RBC offshore PR nightmare. RBC was forced to change its’ outsourcing policy.  The same needs to
happen with regard to the new bank ‘collateral’ mortgage product, the unfair lack of disclosure, to unconscionably high credit card interest rates (with prime at all-time lows) and more.

Canadians can fight for change one at a time by ‘going public’ using social media like Facebook etc., about the negative experiences and results they have had with bank mortgages, credit cards, lines of credit etc. New internet sites are appearing that provide new platforms for people to voice their complaints by making them public. Canadians can also avoid bank mortgages altogether by choosing independent mortgage professionals to ensure they are not taken advantage of. Once the banks start losing major share they will have no choice but to reverse bad policies and practices.                                                                         Thank God we continue to be one of the best countries in the world to live in. Oh Canada!

Imagine your home is not your castle, you can’t invite people over and it’s absolutely depressing. Lee-Ann and Darin from Cambridge came to us after their lawyer put a halt to a private mortgage they had arranged. The client’s house was under construction with major renovations so when their bank turned them down for a mortgage they turned to a mortgage broker. But when their lawyer reviewed the mortgage broker deal he recommended that they shouldn’t proceed because the new private mortgage also encumbered their mother’s home. The lawyer called us to help. After reviewing we were able to agree with the lawyer that the mother’s house shouldn’t be part of the collateral because even in a state of disrepair the Cambridge couple had enough equity. So we went on and arranged a private 1st mortgage with one of our top private lenders and they were able to get enough funds to complete the house over the past year. We also advised Lee-Ann who had no credit to establish credit with a credit card and a small loan. She was a self-employed landscaper who like a lot of self employeds was writing her income down too low. With the recent federal government regulations, it is even more citical for homeowners who want new mortgages to tell their accountants not to write their income to ridiculously low levels just to avoid paying tax. This can mean the difference between getting a prime mortgage at the best rate and find yourself paying mortgage insurance fees or worse yet getting higher rates.

Lee-Ann heeded our advice and had her bottom line on her tax return increased. This year when we put together her new application she had a good credit score and a decent income we could use. With her house now mostly finished(what a difference 50,000 can make) her home appraised for almost double what it did a year ago. The Cambridge couple are now saying good-bye and thank-you to the private lender who gave them the much needed funds to complete their home and hello to a great 5 year fixed rate at 3.09% we have now arranged for them.

Lee-Ann said for 15 years she would come home dreading seeing the walls down to the studs, no flooring, not a proper bathroom. Now she finally has a stress free life with a beautifu home she is proud of to invite friends and family to come in and see.

Most people know it is wise to get preapproved before buying a home. Then you are good to go, right? What could go wrong?

A preapproval means you find out in advance the maximum amount a lender will give you at a guaranteed rate based on your income. However, the lender can change their mind or even cancel the deal in the following circumstances: employment or income turns out to be unacceptable, meaning the client says one thing and it turns out to be different; down payment is borrowed and not saved as client initially said; client misses payments before closing, credit suffers and lender backs out; client buys a car/truck, furniture etc., which shows up on credit just prior to closing and debt service ratios are then excessive… lender backs out, purchase if firm, conditions have been waived. We warn our clients about these pitfalls, and from what we are told, the banks do not.

Folks, in our business, we see it all. Fortunately most of the bad stuff comes from new clients who have gone to their bank for preapproval, only to be ‘ultimately’ declined.  A big part of the problem is that bank preapprovals are not worth the paper they are printed on. In fact, they are usually ‘verbal’ only. The bank has not verified employment, income and yes, even credit. Thus the client, without knowing it could be in peril. We always verify employment, income and credit, so with The Price Team you can count on your preapproval.

Except for one thing that no one has control over, and that is ‘overpaying’ for a property, which we are seeing happen more often than in the past. Here’s an example. You are preapproved for a $400,000 purchase price with 5% down. You buy at $400K but the appraisal comes in low. Your deal is firm. You must close or fear being sued. The appraisal came in at $380,000. So the maximum loan amount available becomes $361,000 versus $380,000. To close, you must come up with an additional $19,000. In fact, if the appraisal is correct, you are overpaying for the home and will have a ‘negative equity’ position until market value increases in future.  

Also please beware of homes for ‘private’ sale because the asking price is often inflated. This is one reason it is safer to buy with the assistance of a professional realtor. We can recommend some very good ones!

What’s the bottom line here? Don’t go to the bank for a preapproval. Come to us. And don’t buy private, buy through an MLS Realtor. A good Realtor who is acting in your best interests, exclusively for you, will advise you if the price is inflated, and point out the pitfalls.