One on one with BMO economist John Turner

[Source CMP via brokernews.ca]

Some economists are claiming the worst of the recession is behind us. BMO expert John Turner recently spoke with CMP's sister publication, CRE, about what this could mean for the real estate market and interest rates going forward.

There have been whispers that we may be nearing the end of the recession. Can you comment on this?

John Turner: According to BMO's Economics Department, the whispers are turning to shouts. Canadian consumer spending has turned upwards, while the housing market has seen an astonishingly fast recovery. Financial conditions are much improved and confidence is on the mend. BMO Economics estimates that Canada's recession ended in the third quarter, following three consecutive quarterly contractions. Aggressive monetary stimulus and hefty fiscal spending appear to have turned the economy around a little sooner than previously thought.

Do you think the Bank of Canada, by making the announcement on July 23, 2009 that the recession is over, is preparing Canadians for a rate increase (even though it said it wouldn't for 12 months)?

JT: BMO's economists think not. They think the Bank truly believes it won't need to raise rates until mid-2010. The recovery, at least initially, is expected to be soft due to weak U.S. demand. The unemployment rate is expected to climb moderately further, and inflation should remain below target for a couple of years until the slack is absorbed.

It was recently reported that home sales have jumped 40 per cent between January and May 2009. Aside from low interest rates, what other factors could have contributed to buyers getting off the fence and purchasing?

JT: There are a number of contributing factors, including pent-up demand accumulated during last year's downturn, the federal government's tax credit incentive for first-time home buyers, a growing sense that the worst of the global economic crisis is behind us and the government's insured mortgage purchase program which kept the credit taps flowing.

Of course, with interest rates being relatively low, this means lower mortgage payments for both first-time homebuyers as well as others. In some areas, prices have been holding steady and/or decreasing with recent market compression; this has led to better access to homeownership, which is a great investment. Everyone needs a place to live, and buying a home not only fulfils that need but also acts as an important component of a wealth accumulation strategy.

How might the forecasted increase in housing starts affect the real estate market from a buyer's perspective?

JT: BMO's economists expect housing starts to trend higher as the economy recovers, but remain soft for a while as a result of some overbuilding during the previous boom. The rising starts will help to keep the market balanced, since it now risks shifting back to a sellers' market if demand remains strong. The current four-month supply of resale listings is in line with, if somewhat below, historic norms.

The age old debate of fixed vs. variable is alive now more than ever. What should buyers take into consideration when deciding?

JT: It all depends on what the buyer is comfortable with and what they're looking for. Fixed rate mortgages are great for Canadians who are concerned about upward pressure on rates and who are looking for peace mind. With a fixed rate mortgage they get the peace of mind of knowing what their payments are going to be and how much of their mortgage they will have paid down at the end of their term.

On the other hand, variable rate mortgages - when taken over the long-term - have proven to be a winning strategy for Canadians over the last 25 years. Each buyer's circumstances are different and we invite Canadians to speak to a BMO Bank of Montreal mortgage specialist for the best individual advice.

For the rest of the interview, see October's issue of CRE, on newstands now.

Financing a Vacation Property in Ontario

Thinking of buying a vacation home that you can use at your leisure, instead of renting every summer? Before you sign a purchase agreement, remember that making a smart decision involves more than finding a great view at an affordable price. Purchasing a recreational property can affect your finances and your lifestyle, now and down the road. Here are some important factors to consider.

Take stock of your goals

As a start, ask yourself the following questions. Be honest about what you and your family really want.

How often will you use the property?

How much will it cost to get there?

Will you use it year-round?

Are you looking for an investment property, something to pass down to future generations, or a place to just relax?

Will it become your retirement residence?

Would it make more financial sense to continue renting a vacation property as needed and use your savings for travel or other financial goals?

Create a list of your objectives and share it with your financial advisor and real estate agent. Your financial advisor can help ensure your plans fit with your current financial situation, while your realtor can help narrow your property search.

Financing your property

At DLC Perfect Mortgages, our agents can arrange financing for vacation properties and/or second homes. Depending on the type of property you want to buy, you may be eligible to obtain financing for up to 95% of its value, subject to approval by a mortgage default insurer.

Your primary residence is a good place to look for financing. By tapping into your home equity (its current market value less your outstanding mortgage) you may be able to borrow at a lower rate than if you took out a typical loan.

If you won't be using the property year-round, consider renting out the property to help pay for carrying costs and expenses. Be sure to save all receipts associated with maintenance, utilities, and insurance, as you may be able to claim tax deductions if you are drawing income from your property. Bear in mind you'll still be responsible for keeping the property clean and well maintained.

Pooling your funds with family or friends to purchase a recreational property is one way to reduce the financial burden of ownership, as long as you're prepared to work out schedules for share use and maintenance — preferably in writing. A lawyer's advice can be invaluable in helping work out all potential issues that may arise from shared ownership.

Like any important decision, it's a good idea to do your homework if you are considering a recreational property. A Mortgage Broker, local real estate agent, and lawyer are good sources of advice and information.

Draw on local expertise

Local real estate brokers are a valuable resource who can help you in your planning and budgeting. They understand the market and can give you good estimates on property taxes and annual upkeep. Strict local and provincial rules regulate land use and development. Local expertise can help you learn about zoning and other legislation, such as restrictions on renting, construction or landscaping, that might affect your goals and budget. Check with local authorities to get the appropriate permits and to ensure your plans won't damage sensitive habitats
and ecosystems, such as shorelines.

For more information on financing a vacation property in Ontario, please call 416 807 7123 or email gbarrow@dominionlending.ca

[Source: MyVauly - Scotiabank - 2008]

15 Key Points Every Customer Should Know on Why They Should Use a Mortgage Broker

1) Mortgage Brokers in Ontario shop the best rates and products from 90 different Banks, Credit Unions and Trust Companies including: CIBC (First line), Toronto Dominion, Scotia, Bank of Montreal, Royal (Merix), and most of the Canadian Credit Unions, ING, etc.

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3) Isn’t it time the Banks compete for your mortgage business? You wouldn’t get just one opinion from one doctor if your physical condition were in question…why get just one opinion when your financial condition is going through the most significant transaction of its life?

4) Your bank very rarely gives you the best rates and products. Most homeowners renew their mortgage every four or five years automatically, so they rarely receive the best rates and programs. Since our Brokerage sends lenders millions of dollars of new business each month, they always offer us the deepest discounts which the mortgage agent will pass on to you - whether you are purchasing, refinancing or renewing.

5) Our application process is simple and quick. We just take a little info and send it electronically to the lenders that we feel are the best fit for your situation; A mortgage broker should have some feedback later that day or the next!

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8) There’s a mortgage product available for almost everyone now. When a person’s situation isn’t ideal, there’s usually a story about why; maybe they changed jobs, maybe they went through a divorce or another life-altering event and their credit was affected. It is our job to tell your story to the lender that will qualify you.

9) I appreciate your business. I sincerely appreciate your business and want to do a good job for you because I want all your family and friends business in the future! (Has any bank employee ever told you that?)

10) We are a certified Experts. Most bank employees are not certified and only know about their own bank’s products and do not know and cannot advise you to go to another lender where you can get qualified. You wouldn’t go to your G.P. if you needed a specialist. Deal with a mortgage expert specializing in mortgages from all lenders.

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12) Rate Protection. If the rates drop before you close you automatically get the lower rate and if rates go up you have the lower rate locked in. The last time you got pre-approved for a mortgage at a bank, did you get a commitment letter? Did they offer you a rate protection like the one we can secure for you?

13) Commitment Letter Every-time. We provide a commitment letter every time so you can relax and be confident your mortgage financing is in place!

14) 85% of all people in the USA use a mortgage broker and we are catching up quickly here in Canada.

15) A mortgage broker is no longer the “lender of last resort”! Actually we are becoming the first choice of the educated borrower.