Friday, April 11, 2014

5 year closed mortgage or 5 year open, what's best?

Question and answer from an avid blog reader of mine.
Hi Mark,
I have been researching real estate and mortgages. Found your site and its is very informative.
In your professional opinion is 5 yr. closed mortgage better over 5 yr closed variable ?
It seems that banks are pushing for closed variable, why is that. I was offered a 2.7% 5 yr closed variables, after I requested a closed at 3.49%.
After some persuading I took closed variables, did I make mistake? My renewal is in June.
Your input an help will be appreciated
Best regards,
Hi S.,
Thanks for your kind comments, glad you have found it helpful.
There is no simple or quick answer to your question.  It's completely up to your personal risk tolerance.  If you took closed variable at 2.7 this rate will likely stay about where it is for many months and possibly a year or more.  What bank are you with?
If you chose the 5 year variable rate, doesn't that mean you are locked in with lender and your rate will fluctuate based upon the prime rate?  If this is the case and prime stays at 3% for at least another year or possibly longer, your rate will remain fixed at 2.7%  You are .3% less than prime, so this is a reasonable discount.  When you say renewal in June, do you mean that's when you can lock in at a fixed mortgage rate?  2.7% is a reasonable rate for a 5 year variable.
Mortgage rates are very competitive these days and the banks are slashing rates to get your business. 
BMO announced today that the 5yr fixed rates just dropped to 2.99%
I too agonized over a renewal for our mortgage last month and was pushing for an additional .1% off the rate.  After TD agreed to the final discount, I did the calculation and it made a difference of less than $2 per month on our payments, so it was minimal.  Depending upon the size of your mortgage, small discounts in the rate have little effect on your payment.
The most important aspect of mortgage payments, in my opinion, is to make sure your payments are accelerated bi-weekly.  This is most critical and will allow you to pay off a 25year mortgage in less than 18 years, you save huge on interest and can start saving for retirement 7+ years sooner than you otherwise would have been able to.
I hope this helps.
Please let me know if you have more questions.
Thank you,

Thursday, April 10, 2014

Investment property purchase and rental considerations

It is great to hear that you have decided to become active in the rental investment market.

First you need to decide if you want a single family residential or a multi-residential.

In a single family residential you are likely to break even on monthly cash flow (all your expenses - mortgage, property tax etc) paid but you will not make cash flow. The money here is made on resale value and equity that the tenant pays into your home.

I would consider the best investment for this type a townhouse - they are low maintenance and easy to rent. If this is your decision, let me know and I will narrow down some good options to send.

In a multi-residential, resale value increase is not as high (depending on area) unless you somehow increase the profit of the operation (renovate to create higher rents, add in coin-op washer and dryers, implement paid parking, etc). These are great to create monthly cash flow and can often be fully paid off within ten years if you put 100% of the rents into your mortgage payments; which would leave you with net incomes ranging from $30,000-$100,000, depending what and where you invest.

The value of these are based on CAP rates. Places like Toronto and Port Credit in Mississauga will have a lower cap rate, around 3-6% max; as the resale is higher. Places like Hamilton and Brampton have lower resales, but are very hot rental markets with cap rates ranging into the 8-11% range.

Hamilton is a good area right now for investment property for a multi-res. It is the number one investment spot in Ontario for multi-family and due to low income, renters are very active.

If you want 20% or less down, we would need to stick with 5 units or under ( I believe most banks are 4 and under, but either RBC or CIBC is 5 and under

Once you review the above information to help you decide which investment strategy you would like to pursue and then we can go from there into more detailed info.

All the best!

Tuesday, April 08, 2014

TREB reported March 2014 single family residential home sales in Toronto and the GTA Sales and Average Price Up in March

TREB reported March 2014 single family residential home sales in Toronto and the GTA
last months highlights were:
  • average prices up 8.5% to $557,684
  • sales volumes were up 7.2% to 8,081
See graphs and information at this link:
See the full report below,
Sales and Average Price Up in March
TORONTO, April 3, 2014 – Toronto Real Estate Board President Dianne Usher announced that Greater Toronto Area REALTORS® reported strong year-over-year increases in TorontoMLS home sales and the average selling price in March 2014. Home ownership affordability, backstopped by low borrowing costs, continued to be a key factor underlying this growth.
A total of 8,081 sales were reported in March 2014 – up by 7.2 per cent in comparison to March 2013. Sales growth was much stronger in March compared to the first two months of the first quarter. Sales for Q1 as a whole were up by three per cent compared to the first three months of 2013.
“Sales activity in the GTA accelerated last month. Compared to last year, a greater number of buyers found affordable home ownership options, as evidenced by sales growth for all major home types. Against this backdrop, however, overall inventory at the end of March remained lower than last year. This means competition between buyers increased, which is why the average selling price continued to climb,” said Ms. Usher.
The average selling price for March 2014 sales was $557,684 – an increase of almost eight per cent compared to the average reported for March 2013. The average price for the first quarter of 2014 was up by 8.5 per cent year-over-year.
“With borrowing costs remaining low, and in fact declining, strong home ownership demand will continue to butt up against a constrained supply of listings. Strong price growth will be the result for the remainder of 2014. If the pace of price growth experienced in the first quarter is sustained, TREB may revise its outlook for the average selling price,” said Jason Mercer, TREB’s Senior Manager of Market Analysis.
I hope this finds you Happy and Healthy!
All the Best!
A. Mark Argentino

P. Eng. Broker
Specializing in Residential & Investment Real Estate



RE/MAX Realty Specialists Inc.

Providing Full-Time Professional Real Estate Services since 1987



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