Tuesday, January 13, 2009

Jingle Mail

"Jingle mail"

My top favorite, and a nightmare to mortgage holders. Jingle mail refers to envelopes that banks are getting containing the keys to houses which flat-broke borrowers are walking away from, and to all of the people who are abandoning homes where it no longer makes sense to pay a mortgage where the financing is in excess of the value of the home.


Why there's so much jingle mail. Falling house prices means that more and more people owe more on their mortgage than they could realize if they sold their house. A lot of people are underwater. A recent Moody's report estimates that 8.8 million homeowners today have zero or negative equity.our money into. These are US numbers that are not apparent in Canada.

Jingle Mail was a topic of conversation in the 80's when the interest rates moved upwards of 20 and 24 % on mortgage renewals and people just could not justify the costs of renewing and walked away from their houses. They would walk into the bank after they had moved out and just tossed the keyes to their home onto the Bank Managers Desk.

In a conversation with Senior Accounts Manager Robert McIntosh of Royal Bank said "The Royal Bank has not changed it's lending practices or qualifying criteria. Mr. McIntosh continued... If the bank felt that values of homes would not hold, they would change their lending practices.

To draw from that; People are still buying and are being prudent with their choices.

Financing is readily available both for refinancing and new business.

Since it is a Buyers Market; AND you were hesitant to buy until you found a deal, what makes it the right time for you? You are waiting till the prices come down. PSST....They have!

Timing the market is tricky. By the time I see a change in direction, it is already 6 to 9 months post the change occuring.

Lets look at a few examples;

If you wait to buy, say at 300K, and the price drops another $30 thousand, people who are heavily financed are scared. But If the rates are 3% higher when you buy a year from now, and you already paid 1500 per month x twelve months ( 18,000 ) rent, YOU are in exactly the same place financially per month.

Take a small apartment building; with a Purchase plus Improvements Mortgage, you could buy and remodel the entire building, add this capital improvement cost to you your mortgage and have a long term investment property with eager tenants who would appreciate (and pay) for the newness of the remodel and the convenience of a south Etobicoke location.

Diversification of Mortgage Products; What? If you are rate sensitive and have an aversion for Variable rates you could structure half of your mortgage amount on the variable rate and the balance of fixed rate financing. Avoid Mistakes made by First Time Buyers.

Why not rent your current property? If you are downsizing, and have a strong equity position, rent the house and buy something different that suits your lifestyle now. Maybe a townhouse or a condo. Refinance your property to provide enough of the Purchase Proceeds you require. There are many in the tenant market that will pay and it does makes sound financial sense in the long term to have more than one house.

Get creative and informed people on your team. If you are considering stepping into the real estate market this may be the time for you.

What do you think?

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