A place where ‘all people, rich and poor, can live’

Susan Lazaruk
Province

Dignitaries tour the nearly completed redevelopment of the former Woodward’s department store building in downtown Vancouver Thursday, April 2, 2009. Photograph by: Arlen Redekop, The Province

It still looks like more of a construction site than a condominium development, but the first subsidized tenants and owners of swanky suites will start moving into the Woodward’s buildings in about two months.

The development includes 200 social-housing units along with 536 market-priced units.

“It’s more than I ever dreamed of and city planners from around the world will come to see how this works,” said former Vancouver city councillor Jim Green, who had the vision for the development when the city bought the former iconic retail store and land from the province for half its cost in 2003.

The two residential towers — at 42 and 35 storeys exempted from Gastown’s 15-storey height limit — will be surrounded by SFU’s School for the Contemporary Arts, London Drugs, the “Woodward’s Food Floor” operated by Nestor’s Market, other retail space, a TD bank, non-profit groups, a child daycare centre, office buildings and an indoor atrium, among other amenities.

Architect Gregory Henriquez said the development was driven by “social concern” for the homeless and hard-to-house. He called it “one of the most complex, mixed-use developments in all of North America” and predicted it will change the neighbourhood.

“It’s a place where all people rich and poor, can live together,” he said.

The 125 units of non-market housing for singles is in a separate building from the W Tower. And the 75 units for family non-market units are located in the lower floors of the Abbott Tower and all will have their own entrances and elevators.

“Everyone wanted control over their own domains,” said Henriquez.

The site also includes a number of environmentally friendly features, such as a “green wall,” in which ivy will grow up metal trellises to provide shade in the summer, and a heating system that draws on a hot-water steam plant.

The 536 market suites, priced from $350,000 to $1.4 million, sold out immediately when they went on sale three years ago.

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Ray Turchansky
Sun

One of the least-known secrets among new homebuyers in particular is the huge effect the amortization period of your mortgage has on the interest you will pay during its lifetime.

Decades ago, a young Edmontonian bought his first home, and after paying $21,492 in monthly mortgage payments over three years, was shocked to find out the principal had been reduced by only $1,485.

I learned to my horror that at the start of a 25-year amortization — the period over which the mortgage was to be paid off — that 93 per cent of the mortgage payments went toward interest. When only eight years remained in the amortization period, more than half the payments would go toward the principal.

“The key is still to pay it off as soon as you can, within reason,” says Adrian Mastracci, president and portfolio manager with KCM Wealth Management in Vancouver. “Get the monkey off your back in 10 or 15 years, then focus the rest of the time on getting your retirement nest egg up and running. I would do my darndest to keep it within 15 if I could. You just put so much money in your pocket.”

Mastracci uses the example of a $240,000, five-year closed mortgage charging 5.75 per cent interest. Paying it off at $1,268 a month over 35 years costs $313,410 in interest, while paying it off at $2,626 a month over 10 years incurs $65,165 in interest. That’s a whopping saving of $248,245.

And because more of your money goes toward interest than principal the longer the amortization period that is left, you save the most in interest with the least increase in payments when you start a mortgage.

In Mastracci’s example, reducing the amortization period from 35 to 30 years saves you $52,910 in interest while increasing monthly payments only $72. But going from 15 to 10 years in amortization saves only $42,005 while monthly payments go up by $640.

The federal government offers a handful of ways to reduce your amortization period in the article The ABCs of Mortgages, on the Financial Consumer Agency of Canada’s website.

THESE INCLUDE:

– Increasing the amount of your payments if you can afford it.

– Making payments bi-weekly over 52 weeks is essentially like making 13 instead of 12 monthly payments a year.

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Fixed vs. flexible

Ray Turchansky
Sun

Traditionally, the most important consideration in choosing a fixed or variable mortgage has traditionally been which strategy would save the most money.

But that might no longer be the case: Choosing a type of mortgage and term today may come down to what makes sense for the individual home owner rather than what saves cents.

“If you were buying a house 10 years ago, fixed versus variable was the biggest decision you made,” said Moshe Milevsky, finance professor at York University and executive director of the Individual Finance and Insurance Decisions Centre. “But now there are more important things in place. Equity prices are falling, housing prices are falling. I think there are three or four things more important than fixed versus variable now.”

In 2001, Milevsky’s study of five-year rolling interest rates between 1950 and 1999 showed that 88.6 per cent of the time homeowners would have been better off with floating or short-term mortgages rather than five-year, fixed-rate mortgages, saving an average of $22,000 on a $100,000 mortgage amortized over 15 years.

“The last time I looked at it, a year ago, the same strategy was holding up. Roughly … 85 per cent of the time, you were better off going with variable rates, rather than fixed rates.”

Another, lesser consideration was peace of mind: New homebuyers might sleep better when essentially paying an insurance premium as part of locking-in payments for five years.

But saving a few dollars should no longer be the determining factor in the fixed-variable dilemma. “Too much emphasis has been based on this study,” said Milevsky. “It’s the most-downloaded item on our website. But if you look at interest rates right now, you’re debating over a [percentage point]. When fixed rates were nine per cent and variable rates were five, that’s a big difference.”

The flattening of the bond yield curve in recent years meant you might pay only one or 11/2 per cent more to lock in a long-term rate, and that made the stability of fixed rates much more attractive than it was five years earlier.

Under current conditions, only after you think about what house prices, your credit rating and your employment status will be down the line should you worry about where interest rates will be in one, three or five years.

Economists expect rates to remain low for a year or so, then rise two to three per cent.

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Denise Deveau
Sun

There’s nothing like the excitement you feel when signing your first mortgage — until you start discovering all those extra costs you hadn’t counted on.

Taxes, lawyers’ fees, inspections and surveys are all part of the mortgage picture; and each one carries a price tag that has to be factored into your plans.

Sarah White and her husband Peter Turnbull definitely did their homework before they purchased their first home in Toronto. “We made sure we asked a lot of questions and sat down with a mortgage specialist regularly,” she says.

Even at that, they still discovered that some things cost more than they estimated — like the real cost of repairs to the electrical system and roofing. “We knew they needed to be done — we just didn’t realize how expensive it would actually be,” she says. “We didn’t know about mortgage insurance either.”

One big surprise she discovered was the added expense of a 10-per-cent versus a 20-per-cent down payment. “There’s a huge amount of costs associated with that, so we did all we could to get that 20 per cent.”

Sarah and Peter played it smart when it came down to taking on their first mortgage. Yet according to Anne Marie Froud, a mortgage agent with Invis in Oakville, Ont., “First-time homebuyers usually don’t know a heck of a lot. They often go in before they understand the process and end up getting in way over their heads.”

Legal fees and transfer tax for example are big factors in the equation, since they can run into the thousands of dollars. That’s despite the fact that first-time home buyers may qualify for a rebate on a portion of their land-transfer tax.

“Legal fees are usually between $1,200 and $1,500,” Froud estimates. “And if you don’t have 20 per cent down, you have to pay a 2.75 per cent premium or more through CMHC (Canada Mortgage and Housing Corporation) or Genworth.”

© Copyright (c) The Vancouver Sun

No longer the lender of last resort

Derek Sankey
Sun

More than a decade ago, Bob Alexander was working as a professional accountant when he walked into a bank to get a mortgage. When he got turned down, he was completely baffled.

“My friend told me I should go see a broker,” says Alexander. It was a perception that was prevalent at the time: Mortgage brokers were seen as the place you went when the banks turned you down.

Alexander went to see a broker, secured a mortgage and bought a home. He was so intrigued by this often misunderstood field that he decided to switch careers and become a broker himself.

“Ten or 15 years ago, mortgage brokers used to be the lenders of last resort,” says Jim Murphy, president and chief executive of the Canadian Association of Accredited Mortgage Professionals (CAAMP), the organization that certifies the AMP designation. “The mortgage broker channel has grown enormously,” says Murphy. “I think the consumer sees it in a much more positive light.”

In fact, about 30 per cent of all mortgages in Canada today are secured through mortgage brokers, according to a study from CAAMP. There are 3,800 certified professionals with the AMP designation working across Canada.

When CAAMP introduced the certification four years ago, Alexander — whose been a broker for eight years now — decided to earn his designation.

Banks used to compete directly with brokers, using their own sales forces to go out and source new leads. The brokers, meanwhile, would charge their own clients a fee to find them a mortgage. Now, most banks have chopped those sales forces and instead enjoy a more mutually beneficial deal with brokers, who no longer charge the client a fee. Alexander, like other AMP brokers, provides his services free to the client. The lending institution pays him a finder’s fee based on the size and type of the mortgage he secures for his clients.

Since brokers like Alexander have access to 40 lenders offering upward of 400 different products, the field has evolved in recent years to become a viable option for anybody seeking a competitive mortgage. While he works with the big five banks in Canada, he also taps into other lending institutions such as First National Financial LP and Australian-based lending giant Macquarie Financial (Canada) Ltd.

When anybody walks into Alexander’s office, his job is to match your credit level — A, B, C, or D — with an appropriate lender that caters to the same type or types of customers.

What has changed in recent months, due to the economic recession, is there are fewer D-level lenders around, especially the American banks that ventured north prior to the subprime market collapse last year.

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Affordability is a necessity for first-time homebuyers regardless of their financial situation

Derek Sankey
Sun

Sue and Paul Anderson, pictured with son Trystan, are happy to be moving into their first new home, in Calgary. The family, troubled with credit problems for years, was approved for a $ 400,000 mortgage. CHRISTINA RYAN/ CNS

Paul Anderson and his wife, Sue, felt like they could only dream of home ownership. After having some credit problems, the effects of which lingered on for several years, they got their financial house in order and got up the courage to apply for a mortgage a few weeks ago.

Much to their surprise, and after some negotiating, the couple were approved. “I looked at my wife with a tear in my eye and realized … I might get a house,” says Paul, 42.

The couple have three children.

“There’s good people out there with good jobs that really don’t have a lot to bring to the party, but they’re already paying $1,600, $1,800 a month [in rent] anyway,” he says.

“At the end of the day, I’m a proud owner of a new home.”

It’s one of the best buyers’ real estate markets in years, with interest rates at historic lows, falling house prices and new incentive programs available. But many consumers — including many first-time homebuyers — lack the knowledge and preparation to determine how much they can afford.

Banking experts say this is the first crucial step toward making any successful real estate transaction. Yet many consumers are missing out on opportunities to determine how much they can afford and they are overlooking tools available to help them get into home ownership.

The Andersons, for example, had no idea what to expect before they were approved for a $400,000 mortgage for a new Calgary home.

“It should start with getting pre-approved and not being intimidated by the process,” says Laura Parsons, area manager in specialized sales with Bank of Montreal (BMO).

Many people think home ownership is out of reach because they haven’t done the calculations or sought expert advice about their options.

“We look at university professionals or trades people coming out of school with all this student-loan debt, but it doesn’t mean you cannot get into home ownership,” says Parsons. She notes banks can consolidate debt to reduce monthly payments.

A pre-approved mortgage establishes realistic expectations about what you can afford based on your gross debt service ratio — your gross annual income relative to the principal and interest of the mortgage plus typical heating costs and property taxes.

Canadian guidelines state those costs cannot exceed 32 per cent of your gross annual income.

“Pre-approval … really demonstrates that a buyer is serious and that can help you with negotiating with sellers and agents,” says Bernice Dunsby, senior manager of home equity financing with Royal Bank of Canada (RBC).

It also allows buyers to lock in their interest rates for 90 days in the event that rates go up, or they can take a lower rate during that time frame if rates go down further.

You must now have at least five per cent of the cost of the mortgage as a down payment.

If it’s less than 20 per cent, it gets classified as a “high ratio” mortgage and will require insurance.

Despite gloomy public perception, banks are working with all types of people to develop home ownership plans and doing everything they can to get you a mortgage that works for you.

It’s not just young couples with children who are buying these days, either.

“It’s not your traditional buyers,” says Parsons. “There are options for everybody.”

While it’s one of the best markets right now to buy, be realistic and work with an expert since each individual’s affordability is different.

“Don’t get caught up in the hype of the opportunity, but sit down with a specialist and determine what’s right for you,” says Dunsby. “You don’t want to stretch yourself too thin.”

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