Seeing through home sellers' camouflage

by Stephanie Farrington, Bankrate.com


Mortgage rates have started to climb again. While that's probably a good sign for the economy, it may also be a wake-up call for people who have been hitting the snooze button on the time in which they hoped to buy a house.

If you're one of the many Canadians just entering the buyer's market, it's easy to get caught up in the critical aspects of home buying and forget some of the details. The clock is ticking, rates are rising and what matters in a house is location, location, location, right?

Yes and no. Location matters, but if you're not careful and observant when making your choice, you could get a great location and still end up with a money pit.

In some cases, people anxious to sell their home have been known to make a few cosmetic adjustments to hide the areas where their house might need a little extra care or even some serious repairs. Here's what to watch out for.

A fresh coat of paint in the basement

Dean Langner, a Canadian Residential Appraiser, or CRA, with Kors & Associates, in Victoria, has worked for 15 years as an appraiser and home inspector. During that time, he's seen a lot.

"One thing I find suspicious is a recently painted concrete floor and two or three feet of foundation in an unfinished basement," he says. "A lot of times, basements will leak, and they'll get that mineral stain around the concrete. Before they sell, some owners will cover it up with a coat of paint."
Langner says if you suspect a problem, go back for a second visit. "The only way to tell is to wait for a good heavy rain and visit again to check for moisture. If you're still uncertain, you can hire a plumber with a camera, and they can look down the pipes."

Checking pipes like this is not done in the course of a usual inspection, but Langner says it's worth making it a condition of the sale if you're really worried, because drainage problems can be very difficult to fix.

New sewage or drainage pipes

Around the foundation of every house is a permanent, porous piping system, called weeping tile, that acts as a drain and keeps water from entering your basement. "Over time, this pipe can fail. It can fill with debris and mud and stuff, and it is not easily fixed," says Langner.

In older houses, weeping tile isn't even made of pipes -- it's a series of half-round, clay tiles placed next to each other. So, if the house or the land shifts, you could be in for trouble.

The money you spend to have a plumber look at your drains could end up saving you thousands of dollars, to say nothing of the time and inconvenience of digging a trench around the perimeter of your house to replace the draining system.

A recently pumped septic tank

Jeffrey D. Leiser, author of "The Home Buying Inspection Guide" and "You Can Sell Your House: For Sale By Owner," has his own cautionary tales about plumbing. "The worst is when a home owner is hiding problems with a septic or sewer system. Having the septic tank pumped out prior to an inspection can give the appearance of a well working system," he says. "A failed septic system can cost well over $20,000 in replacement costs."

He says sewer systems can also be bladed -- which involves using a long tube with a rotating blade at one end to clean pipes and cut out blockages -- so that they appear to be working without backups. But, again, this is a short-term solution to an expensive, long-term problem.

Unusual smells

Your senses are your first and one of your best methods of avoiding deception. Mould smells like mould. It's easy to hide the visual signs of mould with paint, but it's a hard smell to mask. Don't be afraid to sniff around any area that makes you feel uneasy.


Suspicious piles and large plants

If something looks out of place, ask about it. A pile of bricks stacked against the side of the house could just be a pile of bricks, but it could also be a way of hiding a cracked foundation.

That newly planted yet mature tree in the back yard, the one in front of the retaining wall? Look behind it. Just as people will paint over stains, they sometimes landscape over cracked retaining walls or other problem areas.

Protect yourself

Follow your gut. If you think someone is lying to you, ask more questions and use your written offer as a means to get the truth. Contracts are there to protect you, and conditions of sale are a good way to ensure you're covered. If you're unsure about how to do this, ask your real estate agent or your lawyer, but do not go in unprotected. It's usually easier to avoid buying a problem than it is to fix it.

If, in the end, you find yourself left holding the bag despite your best efforts, where can you turn?

Danny Berehula, director of the Saskatchewan branch of the Better Business Bureau, or BBB, says the BBB will try to help, but the help they can offer is limited because the transaction does not typically take place between a business and an individual but rather between two individuals.

"We're another resource for them, but most people, when this happens, would probably want to call their lawyer," he says. "There are laws in place, and if it's a serious matter, then it will become a legal matter. They can use us as a mediation service, but once it becomes a legal issue, we stand out of it."

So, take your time and think through your purchase carefully. All of the experts agree on one point -- sometimes you have to accept a few problems to get your dream house, but it's best to understand how much the trouble your home might cost you before you sign on the bottom line.

http://ca.finance.yahoo.com/personal-finance/article/bankratecanada/1597/seeing-through-home-sellers-camouflage

lawlessbrown.com

Managing debt while rates grow

Terry McBride , For Canwest News Service SASKATOON -- Canadians have taken advantage of extremely low interest rates to overextend themselves. The Bank of Canada wants to try to prevent inflation by raising interest rates to slow the economy down. How will debtors manage?

Inflation vs. deflation

Actually, debtors generally prefer inflation (when prices go up) because that can make it easier to repay a debt, which is a fixed dollar amount owing. Loan payments become more affordable when wages keep up with inflation.

Debtors usually fear deflation (when prices go down) because it becomes more difficult to repay an obligation when the fixed number of dollars can buy more. Deflation is already a major concern these days in Europe where some governments are raising taxes and cutting back on spending to tackle mushrooming public debts. Businesses there may be forced to cut prices and workers’ wages to cope with the economic slowdown.

Debtors fear deflation. How can they handle debt payments after their wages are cut or they lose their jobs? Serious household debt management issues arise.

Mortgage term

If your mortgage is coming up for renewal, how do you choose the best mortgage term? If you have had a variable or floating rate of interest tied to the prime rate, should you take the safe route and lock in a fixed, usually considerably higher, interest rate for five years?

If your mortgage payments rise, then you will have to look at various ways to manage other debts.

Consolidate

One popular debt management strategy is to combine various loans into your mortgage or a line of credit. Consolidation can eliminate high-interest credit card debt. Free up some cash flow by reducing your interest costs.

Talk to a professional debt counsellor. Can you have a single monthly payment? You could continue to make the same level of payments on your consolidated loan as you did before consolidation. Aim to reduce your principal owing and cut interest costs.

Amortization

Knowing how amortization works will help you to understand how to properly manage your debts. Amortization is how long you are scheduled to repay an instalment loan.

If interest rates rise, consider stretching the repayment period on an instalment loan to reduce the size of your monthly payments. Making your payments smaller seems very attractive at first. However, by making payments over a longer time period you will eventually pay much more interest in the long run.

Debt snowball

Here is a strategy for cutting down your overall debt level:

Make a list of your debts. Add up how much you pay on each loan.

Pick the smallest debt to tackle first. Pay the minimum on all debts except for your target debt. Pay whatever is left on your target debt until it is paid off. Then, continue with the debt snowball strategy by choosing the next debt on the list as your target debt. Pay it off.

Borrow wisely

The next time you have to borrow, avoid buying something that drops in value. The only time you should buy something using debt is if it is something that will appreciate in value or generate additional cash flow for you.

As a general rule, if you are buying something with borrowed money, make sure that what you buy lasts longer than the debt. Don’t add to your debt burden by going on a vacation financed by credit cards.

Emergency fund

Do you have to borrow when you have an emergency? Instead you should build an emergency fund with cash held in reserve. You could use a Tax-Free Savings Account, the cash surrender value of a whole life policy or a Canada Savings Bond payroll savings plan, for example. Having cash available to pay for an emergency will give you greater financial security than an untapped line of credit.

Terry McBride is a member of Advocis (The Financial Advisors Association of Canada)

lawlessbrown.com

Its Still Growth but a bit Slower

Reuters

The Canadian Real Estate Association cut its 2010 forecast for resale house prices and sales, saying sales in British Columbia were not as strong as expected at the start of the year.

The industry group said it now expects the average price to climb 1.6% to $325,400 nationally in 2010, a big drop from its previous forecast of a 5.4% gain.

Sales are seen rising 5.5% to 490,600 units in 2010. In February, CREA forecast sales of 527,300 units in 2010, up 13.3% from 2009.

The group said a decline in affordability in British Columbia hurt sales in the province during the first quarter, although sales in Ontario were much as expected.

“Lower expected activity in British Columbia accounts for more than half of the downward revision in national sales activity,” the group said.

CREA said it now expects sales in B.C. to fall 5.9% this year to 80,000 units from 85,028 in 2009, while prices there are seen up 2.3% at $476,400.

It expects Ontario sales to rise 10% to 215,400 units, a record but a smaller gain than previously thought. Prices are seen to increase 3.9% to $330,900.

The association had expected to see stronger sales in the first half of the year, ahead of the introduction of new mortgage rules, rising interest rates and new sales tax regimes in Ontario and British Columbia.

Month-to-month home resales have been cooling from the beginning of the year, while listings have been rising, quieting a feisty debate that a bubble was forming.

The real estate association repeated Wednesday it did not see a U.S.-style housing price correction, mostly because of solid mortgage market trends.

The Bank of Canada raised interest rates for the first time in three years this week, bringing its benchmark overnight rate up a quarter point to 0.5%.

For 2011, CREA forecasts an 8.5% slide in sales to 448,700 units, with every province except Newfoundland and Labrador to post declines from this year. An earlier forecast pegged the slide at 7.1%.

The average national price is seen slipping 2.2% to $318,300, compared with an earlier view of a 1.5% decline.

lawlessbrown.com

Variable or Fixed? What type of client are you?

Conservative, Balanced, or Risk Tolerant. Which type are do you fit into?

Conservative

• Prefer certainty on mortgage
• Meet new qualifying rules
• First Time Home Buyer
• Limited budget for payment increase
• Minimal equity in property
• Need to know exact monthly payment, interest rate & interest cost & principal balance outstanding at maturity
• Concerned with rate increase
• Will pay higher rate for long term mortgage stability
• No plans to sell in next 5 years

** a candidate for 4 - 7 years fixed rate

Balanced

• Prefer best of both worlds: variable and fixed rates
• Some equity in property
• Monthly budget not stressed
• Could tolerate fluctuation on some portion of mortgage: monthly payment, interest rate, & interest costs
• May sell within 3 years
• Short term plans with property

***Candidate for short term fixed rates, variable rate with fixed rate conversion option, Hybrid/split mortgage, Fixed rates of 1 - 3 years

Risk Tolerant

• Prefer lowest market rate
• Could tolerate interest rate fluctuation
• Monthly budget not stressed
• Prepared for potential monthly payment increase
• Understands long term savings with variable over fixed rate
• May sell within 1 year - Short term plans require mortgage flexibility
• Rate instability for potential higher interest cost savings

***Candidate for variable closed or open, could convert to fixed rate anytime
*** Variable rate mortgage or short term fixed rate 6 mos - 1 year

. Lawlessbrown.com

Unemployment Improving in Canada

Janet Whitman, Financial Post

Canada, which remains on much sounder economic footing than the United States, had a better-than-expected increase of 24,700 workers added to payrolls in May, with most of the gain in full-time and private-sector positions, Statistics Canada reported. Bay Street had been forecasting a 15,000 gain.

The U.S. rate isn't likely to head much lower this year or next because the expected U.S. economic growth of around 3% or 4% won't be enough to create sufficient jobs for the roughly 15 million Americans out of work and new entrants in the labour market.

Canada's strong jobs report, meanwhile, shows the Bank of Canada was on the right track by raising interest rates earlier this week despite the financial turmoil in Europe, said Benjamin Reitzes, an economist with BMO Capital Markets. "Canadian employment is now only 108,000 from the peak hit in October 2008, and is up 1.7% from a year ago, much better than the still-negative yearly change in the U.S.," he said.

The strong report indicates more interest-rate increases are coming, perhaps as soon as July, some analysts said. http://www.financialpost.com/Jobs+stall/3115343/story.html

lawlessbrown.com

Bank of Canada rate bump not necessarily a harbinger of hikes to come. Uncertainty over global economy might ease pressure for future increases.

On the same day the Bank of Canada bumped its key lending rate up, a major chartered bank edged a key mortgage rate down, moves that reflected the continuing uncertainty in world financial markets.

The Bank of Canada on Tuesday became the first G7 central bank to raise interest rates since July 2008, hiking its key overnight lending rate one-quarter of a percentage point to 0.5 per cent in a long-anticipated move aimed at keeping Canada's recovering economy from overheating.

However, with uncertainty over the global economy mounting due to turmoil in the European Union, the pressure for future short-term rate increases might be easing.

The turmoil has caused interest rates for longer-term bonds to fall, allowing the Bank of Montreal to trim its five-year discount mortgage rate one-tenth of a percentage point to 4.25 per cent.

Having short-term rates rising while long-term rates are falling, "is a very unique situation we haven't seen in a very long time," said Benjamin Tal, a senior economist with CIBC World Markets.

He said it was "a bold move by the Bank of Canada realizing there is a real risk it will have to [pull back interest rates] after this move."

Commenting on his decision, Bank of Canada governor Mark Carney said "any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments," given the uncertainty around the global recovery.

Carney said the decision "still leaves considerable monetary stimulus in place, consistent with achieving the two-per-cent inflation target in light of the significant excess supply in Canada."

The decision came a day after Statistics Canada reported the domestic economy had its strongest quarterly performance in over a decade, as GDP expanded by 6.1 per cent in the three-month period ended March 31.

Tal said one of the reasons Canadian bond interest rates have fallen after increasing in April is because the market had priced in a more aggressive move by the Bank of Canada.

Tal added that it is becoming uncertain whether the central bank will need to continue raising rates at its next meeting in July.

"Even the Bank of Canada isn't convinced they will move again," Tal said.

Doug Porter, deputy chief economist for BMO Capital Markets, said Carney's statement "was unambiguously on the dovish side of expectations with the bank almost bending over backwards to indicate this is not necessarily the start of a relentless campaign to crank rates higher."

In the meantime, Tal said home buyers in the mortgage market also face a unique situation with first-time buyers getting a second opportunity to take advantage of relatively low fixed-term interest rates on longer-term loans, which are tied to the bond market.

Those who already have variable mortgages, which are tied to the bank's prime borrowing rate and influenced by the Bank of Canada's key rate, can expect higher loan payments.

"Ultimately, the [variable-rate] increases will not be significant," Tal predicted.

With variable mortgage rates one-quarter to half a percentage point below the major banks' prime rate of 2.25 per cent, Tuesday's rate change won't add a lot to most monthly mortgage payments.

"A quarter-point increase [does not have] a huge impact," Joanne Vickery, president of the Mortgage Brokers of B.C., said in an interview.

On a $250,000 mortgage amortized over 25 years, for instance, the bump would increase a borrower's mortgage payment by almost $30 to $1,058.

But in future, Vickery said, borrowers should pay more attention to rates and how increases could pinch their budgets.

The Canadian Association of Mortgage Professionals estimates three out of every 10 Canadian mortgage holders have opted for variable-rate loans, which are still a good deal given five-year fixed rates range from BMO's 4.25 per cent to 4.59 per cent.

However, Carolyn Heaney, BMO's area manager of business development in Metro Vancouver, said the bump in rates should be an incentive for borrowers to "stress test" their budgets to determine where their "sleep-at-night factor is, and how comfortable they are with changing interest rates."

depenner@vancouversun.com

Read more: http://www.vancouversun.com/sports/Bank+Canada+rate+bump+necessarily+harbinger+hikes+come/3100753/story.html#ixzz0pp7fmdWG

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