Scott Peckford

Wanted: Your Best Employment Advice

admin — Thu, 08 Jul 2010 00:36:47 +0000

I just met with a client who moved to Canada 3 years ago. He came here to work in the construction industry. He was promised a nice contract with a decent salary.

Unfortunately when he got here the construction industry slowed. (Remember 2008)

He is now finding it hard to keep busy. He has a young family and I really felt bad for him.

I started to imagine how hard it would be to move to a new country, learn a new language and attempt to raise a family. I sometimes forget how good we have it.

I really didn’t know what sort of advice to give him. I finally made 1 suggestion and 2 phone calls for him.

First I told him to consider looking outside the area for work. Like Fort MacMurray or possibly Saskatchewan. I have other clients who work in those areas and they make a lot more money.

Second, I contacted two other clients in the construction industry to see if they were hiring.(I told him no guarantees, but I would certainly ask.)

Here is what I would like to know:

What is your best employment advice for someone in my friends situation?

Alternately if you are between jobs or work is slowing down contact me and I’ll see if I know someone in my network who could possibly help you out. (Again no promises, but I’ll certainly try)

Cheers

Scott

Walmart -The Newest Canadian Bank?

speckford — Thu, 24 Jun 2010 00:11:39 +0000

Walmart is entering the Banking business. I am not surprised really; other retail giants like Presidents Choice and Canadian Tire have tried with limited success.

The truth is the Walmart executives will have their work cut out for them.

What does this mean for traditional banking? And does Walmart have any hope of challenging the Canadian Banking industry? -God I hope so. (but I’ll get to that in a later post)

Last I heard there were over 40 applications for Canadian banks in Canada. It seems everyone wants a shot at the Canadian consumer. This will be good news for fee sensitive Canadians but will Walmart’s foray in the financial business end poorly like Canadian Tires’ did?

Of all the retail and grocery store giants attempting to enter the financial space Walmart may actually has a decent chance of succeeding, provided they don’t muck it up.

When Canadian Tire entered the mortgage business a few years ago it just seemed weird to me. I couldn’t imagine sitting around a dinner party and telling my friends about my Canadian Tire mortgage. The brand didn’t seem to make sense to me.

To be fair Canadian Tire had a really good mortgage product for while. It was a strong competitor to the Manulife One and the National Bank All-in-One product, but it just didn’t have any sex appeal and it never really got any legs. (pun intended)

Now granted having a Walmart mortgage is probably not going to be considered sexy, but when I think of Walmart I immediately think -low prices. I can envision a Walmart Bank running on razor thin margins and passing the savings on to their customers.

I think if the Walmart bankers are smart they will enter the market gradually. Much like ING direct did when they came to Canada. ING established a strong foothold by offering a really great high interest saving account. It got them noticed and built brand loyalty.

I think Walmart’s chances for success are much higher if they can build a flagship product and build some momentum.

If they come out with every service imaginable I suspect even if the prices are low the service will probably suck. It takes time to build a quality service team.

I for one am excited the retail giant it treading into the banking industry. Whether they survive or not the increased competition will rollback rates on mortgages and lower the cost of other financial products.

What do you think?

Life Insurance on your Mortgage – Why it Sucks

speckford — Wed, 23 Jun 2010 23:58:12 +0000

Life insurance is the type of thing you buy and hope you never need. Unfortunately not all types of life insurance are created equal.

One type of insurance I do not like is “Creditor Insurance” it is when you have life insurance on a loan or mortgage. Basically, it will pay off the loan in the event of a claim. This sounds wonderful, but can actually be a huge problem for young families.

CBC did a review on some of the problems a couple years ago.. To be fair not all types of Creditor Insurance are the same, but as a general rule it is better to get life insurance separate from your mortgages and loans.

In this video I talk about the problem a young family could face if they choose Creditor Insurance instead of getting a separate life policy.

In 5 years of mortgage brokering I have never sold a single policy. When I first got into the industry I did my homework and realized there were cheaper and better alternatives. I recommend borrowers speak to a licensed life insurance agent. Don’t ever buy it from your banker or broker unless it is just for temporary coverage.

Disclaimer: If you currently have Creditor Insurance and want out -do not cancel it until you talk to a qualified life insurance person.

Rental Income Gets Hammered Under New Rules

speckford — Mon, 07 Jun 2010 17:54:53 +0000

Jim Flaherty changed the mortgage rules on April 19. The changes were designed to prevent Canadians from piling on too much debt.

Most of the changes will have a minor impact on the overall housing market.

In Kelowna the change is going to impact first time buyers who have been relying heavily on rental income to qualify for our expensive homes.

I believe these changes will force more first time buyers into affordable condos and townhouses because rental income will not work as well.

What do you think?

Buying a Home with a Suite is About to Get a Lot Harder

speckford — Tue, 23 Mar 2010 22:43:50 +0000

Rent is going to have to increase by 400% once the new rules take effect April 19. At least that is how it looks when you do the math. Flaherty announced changes to Mortgage Rules February 16 and one of the rule changes has to do with rental income.

Rental Income is being recalculated. Under the old system we could deduct $800 of rent for every $1000 of rental income. Under the new system we can only deduct approximately $200 per $1000 dollars of rent.

For a buyer to qualify for the same amount of mortgage after the changes the rent has to increase to $4000 a month or the purchase price has to lower by almost 20%.

Bob & Cindy

Example: Bob and Cindy have good credit, monthly debt $300 of a month and $50,000 of family income. They are buying house with $1000 of suite rental income.

Current System
Maximum Mortgage Amount	$400,000.00
Maximum Mortgage Payment	$2050.00

New System – April 19
Maximum Mortgage Amount	$325,000.00
Maximum Mortgage Payment	$1450.00

When does this take effect?
April 19, 2010 is the official day of the changes. However, anyone who has entered into a contract prior to April 19^th will be qualified under the old rules.

Does this apply to in-law suites too?
Yes. This will apply to legal and illegal suite rent. The only possible exception is if a borrower has 20% down.

What if a borrower has 20% down?
If a borrower has 20% down there may be some exceptions. Exactly how this is going to play out will be more clear once the changes take effect. (I will keep you posted)

What does this mean?
If you have first time buyers who are considering buying and will be relying on rental income get them out house hunting now.

Oh, and get them pre-approved with someone who knows how all this stuff works while you are at it.

The “funny” Business of Banks

speckford — Thu, 11 Mar 2010 23:48:18 +0000

Banks have a funny way of treating their preferred customers. A client of mine recently had the following situation occur:

A local professional with all of his personal and business accounts phoned his bank about his mortgage renewal. He is a very busy and reasoned since he has all of his business with his bank it should be easy to get a preferred rate.

He was quoted a rate of 4.00% for a 5 year term. He seemed happy about this until he found out his neighbour, a first time buyer, got a rate of 3.69% from the very same institution!

Unfortunately this happens all the time. Banks routinely offer better discounts to new customers. In this video I share my opinion of this practise and offer a suggestion.

Selling the Potential Value of Real Estate

speckford — Thu, 04 Mar 2010 01:27:18 +0000

Scott’s latest video demonstrates the difficulty in selling potential value. Sellers occasionally attempt to list their home for more than market value because of a perceived notion of potential value. Unfortunately it is often difficult to convince a buyer of this potential value.

For instance a home in the Agricultural Land Reserve (ALR)may have the potential to be changed to multi-family use, but there are rarely any guarantees until you will have the zoning approved. Of course once the zoning has been changed it is no longer potential value, but real value.

Let us know your thoughts, comments or feedback.

Flaherty Performs Micro-Surgery on the Real Estate market

speckford — Wed, 24 Feb 2010 02:01:56 +0000

Jim Flaherty announced major changes to Mortgage rules. Changes that are scheduled to be implemented April 19, 2010.

Three of the major changes are:

1. Increase down payment on rental properties from 5% to 20%
2. Decrease maximum Loan to Value on refinance from 95% to 90%
3. Increase the rate used to qualify for a variable rate mortgage

This video is my take on the changes.

Why Schools Impact Your Home Buying Decision

speckford — Mon, 22 Feb 2010 12:20:30 +0000

Where to buy a home can be influenced by many factors. One I have heard about, but never really believed was schools. I have been told by numerous people and read in Real Estate training books, but never believed it until I had to stand in line to get my first 2 children into school.

This video talks about my experience waiting in line in the wee hours of the morning.

Interest Rates are Going Up, -No Down…You better Just Read this

speckford — Thu, 28 Jan 2010 22:30:17 +0000

If you follow the financial news you may notice an alarming trend. One week the headlines will read,” Interest Rates Poised to Rise!” in a different paper the following week you may notice, “Bank of Canada Holds Key Lending Rate.” What is going on here? Are interest rates really that volatile? Or do journalists get some perverse pleasure in torturing people with variable rate debt?

The answer, it appears, is actually much less sinister. It is possible to have two Newspapers make contradictory interest rate claims and yet both be accurate. The trouble is when the term ‘interest rate’ is used you must ask an important question. Is the writer referring to fixed rates, variable rates, or both?
The reality is fixed rates and variable rates, although loosely linked, are about as similar as apples are to oranges. The reason for this is simple. Fixed rates are tied to bond yields while the variable rate is tied to the Bank of Canada overnight rate.

Where does the fixed rate come from?

Fixed rates are tied to the bond market and are actually more volatile in the short term. Bond markets trade daily and if a borrower wants a fixed rate mortgage the lender will go to the bond market and grab some money, mark it up and lend it to the borrower. If the 5 year bond was at 2.50% a lender may charge 3.85% to 4.55% or more on a 5 year mortgage. The profit comes from the spread between their cost and their lending rate.
Clearly if the bond market goes up the lender is going to pass on the higher cost to the borrower. (Incidentally a reasonable spread between bonds and fixed rates is 1.35% -1.55%. Be aware however, many lenders will try and charge 2.00% or more if they can get away with it.)

Where does the variable rate come from?

Variable rates, on the other hand, are tied to the Bank of Canada overnight rate. The Bank of Canada has not adjusted the overnight rate since April 21, 2009 –it has remained completely flat. However, fixed rates have swung widely back and forth by more than 1.00% over the same span.

The Bank of Canada (BoC) manipulates the overnight rate to influence the economy. They use it like the brake on a truck. If the economy is going too fast they will raise the rates, apply the brake, in order to slow the economy down. Alternately, like the past year, the BoC will take off the brake, lower rates, to get the economy moving again.

This brings me back to the point of this article. The BoC has reaffirmed their commitment to keep the overnight rate unchanged until June 2010. As you are now aware this does not mean the fixed rates mortgages cannot change. In fact there is a very real possibility fixed rates will actually begin climbing before the BoC adjusts the interest rate.

Like most things in life, the devil is in the details. If you would like some advice on where rates are going and what it means for your specific situation talk to your Mortgage Planner or banker today.

Scott Peckford is a Mortgage Planner and owner of Mortgage Architects and can be reached at scott@scottpeckford.ca

What is a Credit Score

speckford — Wed, 09 Dec 2009 05:08:50 +0000

If you are considering buying a home don’t forget about the importance of your credit score. This video explains what a credit score is and where it comes from.

Why You Should Never Marry Your Bank

speckford — Wed, 02 Dec 2009 22:24:01 +0000

Have you ever noticed the longer a relationship is, the more likely those in the relationship will take advantage of each other? Often true in dating, marriage, and even banking.

Yes banks, like them or not, they have been known to take advantage of long-time loyal customers. Banks are keenly aware that a long-time loyal customer is less likely to shop around and get a second opinion. Yet shopping around is a simple way to ensure you are always getting a good deal.

Now I am not suggesting all banks are bad, but I have seen many loyal customers who have had the wool pulled over their eyes because their bank has become too comfortable with the relationship.

When you have been married for a long time, the indiscretions are usually minor and amount to dirty socks being left on the bedroom floor, or failing to put the lid back on the toothpaste. Incidentally, both are criminal offences in my home. However, in your case, when your bank begins to treat you like Zsa Zsa Gabor treated her 8^th husband, you know you have a problem.

Mortgage renewals are a perfect example. When a client has an existing mortgage they are typically mailed a notice with various rate options. The idea is for the borrower to choose an option, sign it, and send it back in. However, the rates quoted on the renewal notices are typically 0.50% -1.00% higher than the best available rates at any given time!

If you have a 30 year $200,000 mortgage, an increase of 0.50% over the life of the mortgage amounts to over $21,000 in interest! Not a small sum of money.

The crazy thing is that new customers who have no pre-existing relationship will typically be offered lower, more attractive rates in order to convince them to become a customer. Then, unfortunately, once you are a customer, the onus is on you to make sure you always get a good deal.

My suggestion is as follows – begin dating your bank, but do not get married. Commitment is sound advice for most relationships, but it can be very costly when it comes to your finances. The best way to ensure your bank treats you like a first date instead of a 3^rd marriage is to get educated. Understand your options and for heaven sakes, always shop around before you sign on the dotted line. Make a few calls to make sure you and your business are courted, not taken advantage of!

Scott Peckford is the owner of Mortgage Architects in Kelowna check out his videos and other rants at www.scottpeckford.com