Chris Grimes

As we previously stated there will be help if you are having financial difficulty. CMHC has launched an awareness campaign today to help those that have hit some financial stress in their lives. Be it through loss of job or loss of net worth due to the slumping economy. CMHC has been working with lenders to give as many flexible options to their clients to ensure that Canadians can keep their homes. However, it is up to you to contact your lender as soon as you feel you may fall behind in your mortgage payments. Here are four options available by most lenders that can assist you in keeping your mortgage payments up-to-date.

1. Skip a payment - Most mortgages will already offer this privilege. It allows you to skip a payment once a year

2. Extend amortization – Extending the length of repayment term can reduce your mortgage payment

3. Current missed payment – Any currently missed payments could be added to the mortgage balance and which will allow you to pay them off over the life of the mortgage and get you back on track

4. Special mortgage arrangement –If you speak to your lender they may be able to reduce your current mortgage payment on a temporary basis. In a situation where you have been recently laid-off your lender may allow you to make partial payments until you find a new employment

The important information to remember is that as soon as you think that you are hitting some financial trouble that you contact your lender immediately. They will do what they can to work with you and help you get back on track.

If you wonder why they would be willing to do help you – for them it’s good business – nobody wants people to lose their homes.

Inevitably with our current economic recession there has been an increase in personal bankruptcies and an increase in the request for employment insurance. Statscan reported that in January 200 employment insurance benefits was up 22.8% in January from February 2008. They also stated personal bankruptcies was up 14.9 percent. Most of these numbers were felt in Ontario, British Columbia and Alberta. The unemployment rate is currently 7.2% which is the highest it has been since 2004.

The risk to banks and lending institutions in times like these are the increase in defaults on personal mortgages. In effort to ease the pressure on the banks, the government and the consumer, CMHC is working with the 5 major banks to modify its current loans. CMHC is set to release these measures later this week. Stay tuned to various media outlets and their website www.chmc.ca.

What we hear is that CMHC is trying to curb a potential fallout similar to the United States. I am sure over the few months you have heard the common phrase – we’re not as bad as the U.S. – but is that true or are we just a few months behind. CMHC and the banks are being very proactive in this situation and will attempt to work with lenders to manipulate mortgages to keep the customers solvent during these tough times.

· converting a variable interest rate mortgage to a fixed rate to protect the borrower from a sudden interest rate increase

· offering a temporary short-term deferral of payments

· offering payment flexibilities

· extending the term, or amortization, to lower the monthly required payment

· negotiating a special, unique, payment arrangement, or adding already missed payments to the mortgage balance

The Globe and Mail reports that some banks are already seeing an uptick in the number of homeowners seeking more flexible mortgage arrangements. “There are more people talking to us about how we can help, and in some cases it may be because they are facing difficulties,” said Wendy Hannam, executive vice-president of personal banking and distribution at Bank of Nova Scotia.

The good news is that the industry is acting to prevent a fallout. They seem to understand the pressure that consumers are under and are willing to work to keep owners in their homes.

Speak to your Mortgage Agent about different options that may be available to you.

Buyers are out there, but they’re nervous about making an offer because of the confusion surrounding the real estate market. With all the differing opinions and viewpoints on the economy, it’s a little difficult to know which news is the right news. Saying things are better here than south of the border doesn’t necessarily make people feel any better; things are so bad there that there’s really no comparison!

What Buyers need to be aware of is that the spring Real Estate market is traditionally the strongest for activity in Ottawa and this year won’t be any different, in fact, it may be very strong! When you factor in unbelievably low interest rates, strong immigration, realistic housing prices, home buyers credits galore and a strong job market, we’re already seeing the effects of the government stimulus. It’s still a balanced market and perhaps it’s swung towards a little more of a Buyer’s market; but that can change as the First Time Home Buyers start flooding the market, as they’re expected to.

There are many benefits to this balanced Real Estate market but it’s still essential that you do your research and gather knowledge. Working with a local REALTOR®, whose expertise and experience can interpret and guide you through the information, can be essential to your success in buying a home that is right for you in this changed market.

Planning is one of the keys to making the home buying process easier and more understandable. With research and planning, you’ll be able to anticipate requests from lenders, lawyers and other professionals, and you’ll move more easily through the home buying process. You want to also be working with a REALTOR® who will provide you with valuable contacts in the Ottawa real estate market.

Whether or not you are one of those First Time Home Buyers or a person moving up or down the property ladder, you need to ask why you want to buy. Do you need to move, or is buying an option and not a requirement? What property features do you want that you do not have now? Do you have a purchasing time frame? Do you want to live in Kanata or Orleans? With all the tax breaks available, is a property in need of a bit of fixing up a better bargain?

Whatever your answers, the more you know about the real estate marketplace, the more likely you are to effectively define and achieve your real estate goals.

Once you get an idea of what you want in a home, it is very helpful and practical to talk to an experienced REALTOR® who knows the local markets, current market conditions and the many facets of the complex business of real estate. A representative can answer your questions, give you a realistic picture of the market and help you clarify your real estate goals.

Have those home reno tax credits got you thinking? The eco-audits are another bonus; you can get up to $10,000 back in rebates for the large items. In addition to those credits, how about the historically low interest rates you can get for a home equity line or refinance to pay for them? It’s a win-win situation for all of us!

However, before you start, make sure you have the right contractor for the job! The industry is full of fly-by-night “contractors”, those that want the money up front for the work before they’re finished, offer you a “deal” if you pay in cash (avoiding GST is one excuse they use) or who seem to want to talk you into goods or services you don’t need. Here are some tips to finding the “right” contractor:

• Make sure you get quotes from at least three contractors; make sure they have permanent addresses in your area
• The lowest bid is not always the best; you need to compare materials, quantity, brand, size and colour
• Make sure the contractor has insurance (personal liability and WSIB coverage for anyone working for them), licensing and only sub-contracts to qualified people if subs are required
• Ask for references and be sure you check them out
• Contact the Better Business Bureau and ask what their rating is
• If there are sub-trades being used, who will be responsible for the overall job?
• Make sure all warranties are in writing
• Do not allow yourself to be pressured into signing a contract; take your time, review the document and familiarize yourself with Ontario’s cooling off period
• Never pay the full amount of a job up-front; a deposit is normally all that is needed to start work with a reputable contractor
• Don’t pay for the job in cash; use cheques or money orders (credit cards where applicable)

If you’d like more information about the Home Renovation Tax Credit, go to www.cra-arc.gc.ca or give them a call at 1-800-622-6232.

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Quite often we are asked to calculate payments or we are asked why the payment is different from the one I calculated online? Or have you ever wondered why the cost of borrowing rate is higher than the rate you thought you were locked-in at. Well normally there is a simple answer. In Canada, interest charged on mortgages is determined using a semi-annual interest calculation. Click here for an Excel based Canadian mortgage calculator, or to learn how to do these calculations by hand see below. I will write a two part article this week on how to calculate your mortgage payment by hand. Here is how to calculate the effective interest rate:-

The first thing to realize is that there are three types of interest calculations:- simple interest, compound interest and effective interest.

Simple Interest – The cost of borrowing money, calculated by applying the interest rate to the original principal amount only. In contrast to compound interest, interest is not charged on interest.

(Simple Interest = P x i x n)

Compound Interest – Interest charged not only on the principal sum but also on interest amounts charged, but not paid, in preceding periods that accumulate as new principal.

Effective Interest – The actual rate that the borrower must pay on a loan after the effects of compounding are considered. It is also known as the true rate. It differs from the nominal interest rate.

(Efffective Interst = (1+(i/m)^m- 1)

Mortgage interest is always compounded semi-annually in Canada. In the US this is not the case, mortgage interest is compounded annually.

To Calculate Mortgage Payments and Interest Rates you will need the following information:

1. Nominal or Annual Interest Rate (I)

2. Compounding Periods per Year

3. Effective Annual Rate

4. Mortgage Amount (Present Value)

5. Future Value of the Mortgage

6. Total Number of Compounding Periods (# of years x # of periods per year)

7. Payment per compounding period

Calculating the Effective Interest Rate

Annual Interest Rate = 7%

Mortgage Amount = $150,000

Since mortgage interest is calculated on a semi-annual basis there are 2 compounding periods:

1. Calculate the Semi-Annual Interest Rate

Semi-Annual Interest Rate = Annual Interest Rate/2

Semi-Annual Interest Rate = 3.5% (7%/2)

2. Calculate the Interest for the First Period

Interest = Mortgage Amount * Semi-Annual Rate

Interest = $150,000*3.5%

Interest = $5,250

Add interest to the original total mortgage amount

$150,000+$5,250=$155,250 (New Mortgage Amount)

3. Calculate the Interest for the Second Period

Interest=New Mortgage Amount*Semi-Annual Rate

Interest=$155,250*3.5%

Interest=$5,433.75

4. Calculate the Total Interest

Add interest from the first period to the second period

Total Interest = $5,250+$5,433.75

Total Interest = $10,683.75

5. Calculate the Effective Interest Rate

Effective Interest Rate = Total Interest/Original Mortgage Amount

Effective Interest Rate = $10,683.75/$150,000

Effective Interest Rate = 7.12%

Stayed tuned for how to calculate your Mortgage Payment and future blogs on determining mortgage affordability.