Wednesday, July 28, 2010

Papers are signed!

Well I am writing from beautiful Nova Scotia, where I am staying for 11 days to stand in one friend's wedding, and to attend another.  I went to university out here, and so many of my friends are still here.  I have to admit, travelling out here for ELEVEN days seemed like an insane idea to me before we left - knowing that we had so much still outstanding with the new house purchase, getting the condo rented, the mortgages, packing, etc.

But now that I am out here with so many great friends, and having already participated in one beautiful wedding, I can't imagine missing this for anything.  Everything will get done when we get home!  We have four days between our arrival back home and our big move.... that's enough, right?!

The day before we flew out East, we met with the bank to sign the mortgage papers., and I can now happily report that that aspect of this mayhem is complete!!!  We realized that in order to do a refinance on the condo, we would have had to get a lawyer's assistance, an appraisal, lots of paperwork, etc. - and all within about 4 business days (while also packing for and organizing the details of our trip).  And having run the numbers multiple times, we decided in the end that going with the BMO mortgages was the best option for a number of reasons, but namely the interest rate, and our sanity.  We have gone with 5-year fixed rates of 3.99% on both the house and the condo, and amortization periods of 25 years and 20 years, respectively.  That will keep us on track to paying off the condo, keeps the payments fairly reasonable for both, and minimizes the interest paid over time.  We are able to make additional payments of up to 10% of each mortgage each year.  So the plan is that any additional funds we find ourself with will be put towards the house, since that is the one that is not tax-deductible, and should be our priority as far as paying off.

Another bonus to signing with BMO was that we will be getting some bonus Air Miles, free bank accounts for 5 years, and the chequing accounts are also tied to Air Miles.  Maybe we will get a free flight to Nova Scotia for the next set of weddings!

It was quite the morning we spent at the bank.  I had told my boss I would be a "little late" for work, since our appointment was at 9:00 am.  Little did I know I would still be sitting in the bank at 11:30 am, having never even had my morning caffeine jolt!  Nevertheless, it was a HUGE relief when we walked away from there with all the papers signed, knowing that we could come away to Nova Scotia and enjoy ourselves.  I haven't had a single email about mortgages the entire time I've been here, and my inbox looks almost ghostly because of it.  Things are falling into place!!!!

Thursday, July 15, 2010

The search continues!

So the search is still on for a tenant, and the crunch is on now too.  I've had a couple of people ask me if I'm getting nervous yet, but I'm not.  Yet.

Every few days I re-post the condo to craigslist, and generally remove any prior postings so that it doesn't appear too stale.  Usually, within a day of posting it, I will get about 1-3 emails enquiring about more details and requesting to see it.  That is when I send my list of questions (mentioned here).  And from there, it tends to be completely random whether I hear back or not.  I'm not taking it personally if I don't hear back - it just proves that the person was probably just testing the waters and was not completely serious.  I can relate - after spending the past 4 months trying to choose a wedding venue, I know what it's like to send a million inquiry emails, and after reading the responses, feel the need to respond to far less than half of them.

I've shown the condo twice now.  The first potential tenant was a great match, and she really loved the condo.  The poor girl had moved twice in the past few years though - her landlord is selling the condo she lives in now - and she really didn't want to leave the building she was in.  Her furniture had been carefully chosen for that specific floorplan, and a move elsewhere would be a pain.  After leaving here, her building manager found out about another condo unit that was available in her building, and that just made everything easier for her, so she made the obvious choice.

Then I showed this condo to a couple, but I could tell as soon as they got here that they were not interested.  It was just written all over their faces.  They are in a significantly larger condo now, but wanted to save some money.  I think they were surprised what a sacrifice  they would be making on space if they want to pay lower rent!  I have had a few other emails from couples, and I try to always gently mention that the condo is ideal for 1 person but might be a bit cozy for two.  It really all depends on their situation though.  If they are looking for a place to rest their heads while they are on a one-year work transfer, or while one of them goes to school, then I think anyone can make a sacrifice for that long.  But if this is meant to be a long-term home, they might find themselves getting cabin fever here.  There is a bedroom and a living room, and they are a few steps from each other.  Literally.  So if you want to get some "alone time" away  from your significant other... well, you are just plain out of luck!

I've heard from a few other young, single men and women - those are really the target market for this neighbourhood - and so I just have to hope that one of these works out!  I've had a good look at craigslist, and I'm competing fairly - there are a few similar units to mine, but without parking, so there is a slight premium on mine over those - but in general the competition is priced comparably.

I had a walk through the neighbourhood on Sunday, and I have to say - now is a great time to be entering the neighbourhood.  There are three brand new condo towers, each only a few months from completion, that will bring a surge of new energy to the area.  Along with the new condos, the neighbourhood's landscape is also really taking shape.  A little playground just appeared in the park across the street from my condo, which I'm sure will be a huge hit with families and dog owners alike.  A few new restaurants have only just recently opened, and I have seen their patios bursting with activity each time I've gone by.  And a new retail development is due for groundbreaking any day now.

This is all a huge change from the construction-zone-meets-dirt-pile that the neigbourhood was when I first moved in.  What changes I've seen!  Hopefully some lucky guy or gal will move in soon and enjoy the next wave of changes!

Check out some of the before and afters from my time in this neighbourhood.  The "befores" are from March 2006 and 2007.  The "afters" are this week!







 




Tuesday, July 13, 2010

More on the mortgage front

So it seems in all my calculations yesterday, I failed to notice that Invis was actually suggesting a 35-year amortization, instead of my preferred choice of 25 years.   Before I even got a chance to run some more numbers, Invis also let me know that the rate had dropped to 4.29% for our rental property.  Despite that rate drop, the additional 10 years amortization really makes a huge impact on the numbers, and the differences between our two options are quite a bit more obvious.

Now it seems we would be paying more than $4,000 extra in interest over the next 5 years if we go with Invis, due to the double-whammy of the higher interest rate and the longer amortization.  Another conversation leads me to believe this may not be such a bad thing though.  In fact, it may be beneficial for tax purposes - ideally, the expenses for the condo will come close to the income, so that we are not reaping a huge profit.  So dragging out the payment of the rental property makes a bit of sense in that case.  But if both properties are amortized over 35 years (which doesn't make sense to me), we are looking at an additional $160,000 in interest over the course of the mortgage, compared with the BMO option.  I think there is a very fine line between an amount of interest that is actually helpful to have and the amount that would make me feel like a complete idiot for just continually giving the bank/lender money.  But I gather the question is really would I rather give it to the bank via interest, or the government via taxes?!

Even if we got the rental property amortized over 35 years, and our home over 25 years, we are still looking at more than $60,000 in additional interest over the life of the mortgage compared to the BMO scenario.  I just wish I really had a handle on which was truly the better option for tax purposes.

In any case, I put in a call to BMO to see if it's worth one last try to see whether we can get a refinance through the bank, and so Caroline has kindly agreed to try one more time.  You just never know!  I can only hope.

7 days until we go away now, and apparently if we DO end up getting a refinance, we've got to get an assessment and a lawyer's review all between now and then.

I feel like I need time off from my day job just to sort out the mortgage!!!

Monday, July 12, 2010

To renew or to refinance? Bank or broker?


Crazy 9 days ahead!  We are headed to the East Coast next week for two weddings.  This adds a bit of a wrench to our already chaotic plans, since the condo's mortgage is up for renewal during the 11 days we're away, and the new house closes 4 days after we return.  So lots to sort out before we go next week!


After Friday's phone call from BMO, you would  think our mortgage decision should now be an easy one.  Not so!  I actually spent a good portion of Friday evening on the phone with the Invis Mortgage Broker (yes, this is what my Fridays have become lately) going through all kinds of numbers (Math and Stats was my major after all!).  Here is where we are at:

BMO

  • Can get us a 3.99% 5-year fixed rate on both the renewal and the purchase.

  • Can't refinance the condo, so that means we are only putting 10% down on the new home, and will be paying CMHC.

  • Offers free banking (and I think Air Miles too!  Definitely have to double-check on that!)


Invis

  • Can get us 4.34% 5-year fixed rate on the renewal, and can refinance that one, getting us an extra 10% to put down on the purchase, and saving us the CMHC premium on the new house.

  • He feels that a rate of 3.99% is not really attainable for the new home, but is willing to take a cut of his own commission to match that rate.   (From what I understand, BMO is on a huge customer service kick right now, and has unbeatable low rates!)


So where does that put us?  Well, I put together some pretty involved spreadsheets today (honestly, I LOVE Excel), and compared all the different scenarios.  The differences appear to be pretty negligible.  The higher interest rate, despite saving us the CMHC premium altogether, would cost us about $1,600 extra in interest over the first 5 years.   What is more notable, is the distribution of interest - with Invis, more interest would be paid on the income property, where we can claim it on taxes.

So the answer to where that leaves us?  Optimistically waiting for even more rates drops?  But also... caught in a huge moral dilemma.  Caroline, who I've been dealing with at BMO, and Bill at Invis, have both been exceptionally helpful.  Both have spent endless hours talking with me on the phone - evenings and weekends included.  And both, in my opinion, deserve the business.  The catch, is that I really don't think there's anything in it for Caroline if I go with BMO, whereas Bill's income hinges on commissions.  My fiance and I have both been debating whether there is a benefit to going with a big bank rather than the more obscure/less-known lenders that the mortgage brokers find.  Anyone have any thoughts for/against either side?  I'm getting pretty stuck here, and like I said, the rush is on!  I've got  to have the renewal finalized by next week, and everything really hinges on which option we go with.

You know, my parents have bought me a variety of "decision makers" over the years, and go figure they are the one thing that I've actually packed into boxes already!

Friday, July 9, 2010

Good news!

Had a very bad morning today - got caught in the monsoon of a downpour as soon as I left my condo, and was drenched before I even got to the streetcar stop.  Then, the streetcar moved at a snail's pace the entire way to work, so not only was I wet, but I was extra late!

But I quickly cheered up when BMO called to tell me their rate for the 5-year fixed mortgage is down to 3.99%  Yahoo!!  Even sitting there in my soggy dress, I was feeling pretty good about that news!

Having a long closing date has really paid off, because we've really been able to play the mortgage rate game... with a few weeks still remaining before closing, there is still a fraction of a chance that it could drop again!

Wednesday, July 7, 2010

Mortgage Mayhem

We are in mortgage mayhem!

It just worked out by pure coincidence that the mortgage on my condo came up for renewal at the exact same time that we decided to purchase the new house.  Matt’s condo, which we have now sold, had about 8 months remaining on the term, and so we are discharging that one early and are stuck paying the associated penalty.

So we have been shopping around for rates for the house and the condo, in what seems like the endless task.  We’re trying two different routes for this challenge: the big bank (BMO), and a mortgage broker (Bill Dietrich from Invis).  Both have been extremely helpful, and are constantly in touch with rate updates, news, requests for additional information, etc.  Expect a further update on both soon!

There are a few things I have learned in this process:

  • I wasn't aware that on the rental property, we can claim the interest portion of the mortgage payments on our income taxes.  Since the rent itself also has to be claimed on our taxes (as income), it is to our benefit to have a higher interest portion on the mortgage, to lessen the profit at tax time.

  • One option we have faced is the possibility of boosting the mortgage on the condo (through a refinance), and taking the difference (between the new loan value and the balance remaining), and putting that towards our downpayment at the new house.  Since the condo mortgage interest can be claimed for taxes it is beneficial to have the mortgage higher there and lower at the house we live in.  Here is where the catches are:

  • a new rule was passed this year that says that CMHC will not insure a loan on an investment property unless a minimum of 20% has been put down.  No problem - I already owe less than 80% of the purchase price of the condo.  And if a new assessment was to be done on the condo, I think we would find that I'm already down to about 50% - the value of my condo has skyrocketed over the past few years, as it is in a hugely "in-demand" area with lots of new development, gentrification, and just overall coolness taking place.

  • Despite the now very low ratio mortgage on the condo, it seems that the size (400 square feet) and the fact that it will not be owner-occupied are a deterrent for the lenders, and is enough for the bank to decline me a refinance?!  I know that similar units are selling for more than 35% more than what I paid 5 years ago... but the bank doesn't feel good about giving me a few more thousand dollars on the mortgage?



  • The bank and the mortgage broker seem to come up with entirely different options and ideas from each other!

  • We have been advised that if we are going to put 10% down on the house, we pay less CMHC fees than if we put down 5%.  If we put down 20% we pay no fees.  But if we put down 15% we are fools?  Basically, the thinking is that 15% is so close to the 20% threshold and no fees, but yet so far.  Apparently many homebuyers, if they end up with 15% downpayment, will only put 10% down and keep the other 5% as cash on hand... very handy if you are furnishing/decorating the new home.  I don't know though... i'd rather have less cash on hand if it also means less for CMHC.... what do you all think?


I have learned quite a bit more in the process, and like I said - both the bank and the mortgage broker have been very helpful and have been really great at explaining everything to me.

I will share more from them soon!

In the meantime, I feel like I have spent a great majority of the past few weeks sending emails and speaking on the phone with both, and I have found it excruciatingly difficult to keep track of all the details.  Realistically, we could sign the papers on the renewal any day now, but I find myself constantly juggling out the options, the rates, the downpayments, etc.   I cannot wait until all this is finalized!  Come on banks, show me the money!