One in 10 could be behind with their mortgage

The high level of debt carried by Home Owners in Toronto is exceeding their capacity to safe for their rainy day fund.   One singular event, a car accident or if one wage earner is laid off can have serious consequences.

We may qualify at the posted rates and take a mortgage at the variable rates; additional expenses make it harder to save for retirement or that annual vacation.

Who says so?   CD Howe Institute.  December of 2015

 The portion of mortgage indebted households with a primary mortgage debt-to-disposable income ratio in excess of 500 percent has climbed from 3 percent in 1999 to 11 percent in 2012.December 9, 2015 – The federal government should pay close attention to several pockets of risk in the Canadian housing market, according to a new C.D. Howe Institute report. In “Mortgaged to the Hilt: Risks From The Distribution of Household Mortgage Debt,” authors Craig Alexander and Paul Jacobson expose pockets of vulnerability by going beyond national averages and focusing on the distribution of house mortgage debt by income, age and region, all of which matter most when assessing risk.
“Household mortgage debt has risen dramatically and traditional economy-wide averages understate the degree of financial risk for those that carried mortgages because they typically divide the value of mortgages across the income of households with and without mortgages”, remarks Alexander.
Using the data from the Survey of Financial Security, the authors find that the ratio of the value of mortgages on primary dwellings have jumped from 144 percent of after-tax income in 1999 to 204 percent in 2012.  However, this also understates the degree of financial risk for a significant minority of households.
The author’s analysis suggests that a significant minority of Canadians having taken on a high degree of financial risk. The portion of mortgage indebted households with a primary mortgage debt-to-disposable income ratio in excess of 500 percent has climbed from 3 percent in 1999 to 11 percent in 2012. Their analysis of the distribution of mortgage debt is as follows:

1. Income: The increase in highly mortgage-indebted households has been in all income groups, but more so in lower-income quintiles.

1. Age: The increase in financial risk is also evident across all age groups, but more so for younger Canadians who have entered the market most recently.

1. Region: As one might expect, there has been greater concentration of mortgage debt in the provinces with the strongest housing booms.

Additionally, the authors find that roughly 1-in-5 of mortgage indebted households have less than $5,000 in financial assets to draw upon in response to a loss of income or to higher debt service costs. 1-in-10 mortgage-indebted households have less than $1,500 in financial assets to address any shock. This represents an inadequate financial buffer, as average mortgage payments are more than $1,000 a month, before taxes and operating costs.
The federal government may want to consider further policy actions to lean against the shift towards significantly higher mortgage burdens. However, such policy measures should not be unduly heavy handed and should be targeted to address the distributional nature of the risks.
For example, potential targeted measures would be to tighten underwriting requirements by lifting required credit scores, capping total debt-service ratios at lower levels, lifting qualifying interest rates when doing income testing, or varying the minimum downpayment by the size of mortgage to target higher-priced markets. Such measures would build on the regulatory tightening already done to date without posing a material threat to Canadian real estate markets. https://www.cdhowe.org/sites/default/files/attachments/research_papers/mixed/Commentary_441_0.pdf    Click here for the full report. 

Getting the correct Mortgage Advice; living with your means and eliminating HIGH Interest rate credit card debt all count towards securing your long term comfort.  I recommend a debt check up with http://RenewyourMortgage.ca

Because the best mortgage is NO mortgage at all.

David Pylyp

TXT 647 218 2414 or Email

Has our Dream of Home Ownership Died?

Remember when your Dad said "Always buy Real Estate! It never goes down"

Well, This is the second generation in North American that is observing the endless slide of their equity from their homes and potentially retirement funds. I know that in Canada, from the statistics that I have read, most people of retirement age have no addition income nest eggs other than their primary residence.

So what changed? What changed the dynamic about buying a house and living debt free in North America? Have our houses become chequing accounts for revolving Home Equity Lines of Credit [HELOC]?

This post from Seth Godin set me to thinking about how our economies are intertwined and how we have moved from a manufacturing to information technology business models. [Seth calls them Attention Business]

Paying attention to the attention economy

Most of us are happily obsessed with the economy of money. We earn it and we spend it and we generally pay attention to what things cost.

Certainly, salespeople and marketers are truly focused on the price of things, on commissions and shelving allowances and net margin and the cost of goods sold.

With all of these easily measured activity, it's easy to overlook the fast-growing and ever more important economy based around attention.

"If I alert my entire customer base, how much will this cost me in permission?"

"How much time do we save our customers with a better written manual?"

"When we fail to ask for (and reward) the privilege of following up, are we wasting permission?"

"Does launching this product to an audience of stangers waste the attention we're going to have to buy?"

Attention is a bit like real estate, in that they're not making any more of it. Unlike real estate, though, it keeps going up in value.

What did [Seth] say at the end? Unlike real estate, attention keeps going up in value.

This is a dynamic shift in economic thinking. I was always taught; own real estate and you will gain equity. Now we have a model [albeit currently in the United States ] where values have been sliding for the last 5 years.

Economists and Statisticians are on both sides of the real estate bubble and housing crisis. Some say the bubble does not exist. Others are screaming about the cliff we are running towards. Yet Toronto has not had the same double digit annual growth in prices seen in many North American cities; we continue as a [Toronto GTA] destination for immigration, education and employment. We are a safe haven from politics and debt mismanagement compared to other world governments.

But can we be truly immune?

Add your thoughts, Make a comment...

ARGH ~ There be Pirates

Morgan Stanley Just Walks Away From Five San Fran Office Towers

http://www.businessinsider.com/morgan-stanley-just-walks-away-from-five-san-fran-office-towers-2009-12

Cold Cost/Benefit analysis is the ethic we have chosen.

Steve Waldman at Interfluidity has a post on this issue:

http://www.interfluidity.com/v2/364.html

"Businesses walk away from contracts all the time, whenever the benefits of doing so exceed the costs under the terms by which they are bound."

"Individuals must operate in a competitive economic environment dominated by entities constitutionally incapable of overriding self-interest to “do the right thing”. Virtuous individuals can expect no reciprocity from the firms with which they contract. They have two choices: live nobly and get screwed, or adopt the amoral norms of their counterparties. It has taken some time, but we are all coming around to the only supportable view. “It’s just business,” we shrug, even if we never wanted to be businessmen."

David Pylyp; If I buy a home / house /condo and realise some years down the road that I am underwater (over financed) on my Investment or purchase I can merely [GIVE BACK] that asset and walk away from any other financial consequences and personal obligation in Canada.

UMMM... No [They] liquidate all the assets of the borrower to repay all the debts starting with local and municipal taxes, condo management maintenance fees then interest arrears and they will chase you for the balance.

The US markets just paid a horrific price for bailouts and other "LEADER" is continuing in exactly the same vein. Did we miss a lesson?

This sets an incredible example for our children and future generations in that; at any point in time if they do not like the result of their choices, yes choices! they can walk away with impunity. Life without consequences. Is anyone responsible for anything?

What do yo think?

Adding Value to your experience

Since I originated from a Finance and Business background in the mid 80's, yeah that long ago, I have been using what was called Lotus 123. I used lotus for years and then strangely it just became Excell.

For the benefit of my prospects and normal business when buying I will often create this worksheet as an investment summary or answer income to qualify questions. Human nature seems to think in Monthly dollars amounts and not the grand totals.

Scribed


There are a number of variables here.
Interest Rate is calculated by the posted rate weekly, Land Transfer Taxes are variable based on where you purchase. Land Transfer Calculation Link Do you qualify for a Land Transfer Tax exemption or rebate I usually take from here. I can prepare one for you rather easily on my laptop and send it along as an email. We will, during the course of our shopping adventure look at a number of these to clearly understand out monthly long term commitments.

An average Condo purchase in Downtown Toronto will include taxes of $1800 per year plus maintenance number that could be as high as $500 plus per month. The newest trend seems to be montkly parking via valet at $450 per month. Better to have bought the parking when offered at $15,000 a few years ago.

Why are more agents not using this technology? I have handed this out in both printed form and memory stick or email to hundreds of agents, but have yet to see it applied.

Would you as a consumer be interested to understand the cost of your closing, the largest purchase of your lifetime? This worksheet is now under revision for the effects of Harmonized Sales Tax. I welcome your input as to what else can be included.

Trouble Making your Mortgage Payments?

CMHC Launches Campaign to Help Homeowners

Canada Mortgage and Housing Corporation (CMHC) launched a consumer outreach campaign to help borrowers understand the importance of working with lenders to find manageable solutions if they are facing financial difficulties in repaying their mortgage loans.

“CMHC has a long tradition of offering mortgage default management tools to lenders to help them assist homeowners whose financial circumstances have changed. We want to remind people that the best course of action is to speak to their lenders at the first sign of financial difficulty. With early intervention, cooperation and a well executed plan, you can work together with your lender to find a solution.” stated Mark McInnis, CMHC Vice-President of Insurance Underwriting, Servicing and Policy.

The campaign includes consumer information on the options available to homeowners who may be having difficulty meeting their mortgage payments. This information is also being provided to government partners and credit counseling organizations.

CMHC advises homeowners to:

1. Talk to your lender at the first sign of financial difficulty
2. Clarify your financial picture, both for yourself and your lender
3. Stay informed about what options and resources might be available to you

For Approved Lenders with CMHC-insured mortgages, we provide tools and the flexibility to make timely decisions when working with homeowners to find a solution to an individual’s unique financial situation. These tools include:

• Offering a temporary short-term payment deferral. Lenders may be prepared to offer greater payment flexibilities especially if previous lump sum prepayments have been made, or if an accelerated payment schedule has been previously chosen.
• Extending the original repayment period (amortization) in order to lower the monthly mortgage payments.
• Adding any missed payments (arrears) to the mortgage balance and spreading them over the remaining mortgage repayment period.
• Offering a special payment arrangement unique to an individual’s particular financial situation.

More information and resources are available at CMHC’s website at www.cmhc.ca search keywords “mortgage payment difficulties”, or at 1-800-668-2642.

David Pylyp; There is help available to you from professional people that can be consulted regarding potential refinancing options, deferral of payments.  Do not let more mortgage slip past due hoping things will improve.