On July 9th, the Department of Finance moved to tighten Canada’s mortgages markets by announcing changes to the requirements for federally-backed mortgage insurance. The changes set minimum credit scores that home purchasers must meet to qualify for mortgage insurance on so-called ‘high-ratio mortgages” while restricting amortization terms to 35 years and requiring a minimum 5% down payment on mortgages insured through the Canadian Mortgage and Housing Corporation (CMHC) or other government-backed private mortgage insurers.

The tightening of Canada’s mortgage insurance rules, which will take effect on October 15th, is widely seen as a measure to further tighten Canadian mortgages market and forestall the credit problems that have crippled the U.S housing market. In announcing the changes, the Department of Finance characterized them as “a responsible and measured approach by the government to ensure Canada’s housing market remains strong and to reduce the risk of a U. S.-style housing bubble developing in Canada.”

Under the Bank Act, mortgages from federally-regulated lenders, including banks, credit unions, and caisses depots, must be insured where the value of the mortgage exceeds 80% of the value of the property or home being purchased or financed. Such high-ratio mortgages are insured primarily through the Canadian Mortgage and Housing Corporation, a federal Crown Corporation, but also through a handful of private mortgage insurers – Genworth Financial Canada, AIG and PMI Mortgage Insurance. The federal government guarantees the obligations of these mortgage insurers to lenders in the event of their not covering the costs of defaulted mortgages.

Effective October 15th, new federal rules will require that the loan-to-value ratios for federally-backed mortgages not exceed 95%, that amortization periods not exceed 35 years and that prospective borrowers have a minimum credit score of 620 and a debt service ratio (the percentage of income that goes to servicing existing debts and housing costs) of no more than 45%. The new rules will also require evidence of the reasonableness of the mortgaged property’s value and of the borrower’s source and level of income.

The new rule changes come at a time when Canadian real estate markets are already cooling off. Growth in housing prices showed a very moderate 1.1% year-over-year gain in May, according to the latest numbers from the Canadian Real Estate Association, as Canadian markets and consumer expectations have adjusted in response to the constant barrage of bad news about the worst U.S. housing market slump since the Great Depression and sobering forecasts about the state of a Canadian economy that is coming to grips with escalating energy and commodity prices.

The tightening of amortization periods and loan-to-value ratios will likely have a further dampening effect on Canadian housing markets, which already have sharply increased levels of resale and new home listings. However, this dampening effect may not be felt until after October 15th when the new rules come into effect. In the short term, the move to tighten mortgage lending standards could have the opposite effect – providing an impetus for Canadians to take the plunge into highly leveraged, no-money-down mortgages before the October 15th deadline.

(An October 15th implementation date was chosen to give home purchasers with mortgage pre-approvals the opportunity to exercise their options before the pre-approvals expire at the end of their usual 90-day term. Note, also, that the mortgages of existing home owners with high-ratio mortgages, amortization periods in excess of 35 years and substandard credit scores will be grandfathered under the new rules so that they will not be precluded from obtaining mortgage insurance when it comes time to refinance their homes.)

Industry feelings have been mixed about this latest move to ensure the solidity of Canada’s mortgages and housing markets. Most industry analysts applaud the move to ensure that Canadian home purchasers do not get sucked into the same speculative frenzy that fueled the meltdown of U.S housing prices when the sub-prime mortgage market unraveled. Other analysts seem to be expressing the view that this is a case of too-little-too-late or mere window dressing.

Derek Holt, Scotiabank’s vice president of economics, acknowledged that mortgage lending rules had been “modestly tightened” but noted that, “The changes are more about optics.” Meanwhile, a more pessimistic analysis came from BMO Nesbitt Burn’s deputy chief economist, who observed that the rule change is “a bit like closing the barn door after the horse has already run down the road.”

Canada’s mortgages and housing markets have not experienced the wild speculative bubble that erupted and burst south of our border, largely due to much more conservative lending practices here at home. Canadians were not privy to such innovative and speculative mortgage products as the so-called NINJA mortgages (“no income, no job, no assets), where borrowers could qualify for mortgages without adequate proof of income or employment that would enable then to afford the requisite mortgage payments, and only a small percentage of Canadians took out the sub-prime mortgages that scuppered U.S. markets. As a result, the percentage of Canadian mortgages in arrears are at the lowest levels – 0.27 per cent – they have been at since 1990, whereas Americans are facing mortgage foreclosures at a rate not seen since the Great Depression. This tightening of Canada’s mortgage insurance rules seem to be largely a pre-emptive move to reassure Canadian markets and ensure that Canadian home buyers do not go down the same path trodden by snake-bitten home buyers south of the border.

The Bahamas is perfectly located less than 100 miles of the coast of Florida, a few hours by ship or twenty minutes by plane. Only a few hours by ship or twenty minutes by plane, the Bahamas serves as the perfect location to build your second home, and under new legislation it is easy for foreigners to become permanent Bahamian residents.

Finding your own share of paradise isn’t as hard as you may think. Whether you are new to the Bahamas real estate market or an experienced investor, Graham Real Estate has the expertise, proven track record and resources to assist you in discovering the lifestyle that is just right for you. Our portfolio of listings boasts a wide variety of exceptional properties throughout The Islands of The Bahamas, including Nassau luxury homes, Bahamas vacation homes, and real estate in Marsh Harbour, Abaco; Hope Town, Abaco; Gregory Town, Eleuthera; Freeport, Grand Bahamas; Long Island, Exuma and the Berry Islands.

Since its inception in 1994, Graham Real Estate has distinguished itself as the premier Bahamas Real Estate and Rental Firm for exclusive and luxurious properties in The Bahamas. We have earned a reputation for providing exceptional customer service and for having an intimate understanding of the local real estate industry. Our team of highly qualified agents, brokers, appraisers, property managers and support staff has more than 30 years experience in the Bahamian real estate field. We pride ourselves in providing smooth, stress-free transactions for our clients so they can relax and enjoy island life. Our services include Property Search, Buyers Guide, Seller’s Guide, Appraisal Services and much more.

We are firmly committed to providing you with the very best results and service in the industry. We listen carefully to understand your real estate goals and create solutions that make sense for you. Whether you are new to the market or an experienced investor, we have the expertise, proven track record and resources to help you achieve your objectives.

Whether you are new to the market or an experienced investor, we have the expertise, proven track record and resources to help you achieve your objectives.

<br>For more information please visit us at: <a onClick=”javascript:pageTracker._trackPageview(‘/outgoing/article_exit_link’);” href=http://www.grahamrealestate.com>www.grahamrealestate.com</a> or you can call us at: (242).356.5030.</br>

Understanding what mortgages are and how they work can be mystifying for first-time homebuyers faced with the need to get financing to purchase their first home. Technically, the type of mortgage that home buyers use to get a loan to purchase a home is a contractual instrument that gives the lender, known as the “mortgagee”, an interest and certain rights in the property purchased by the borrower, or “mortgagor” (When it comes time for you to read and review the documents setting out your mortgage, the easy way to keep the terms straight is to remember that the “e” that ends “mortgagee” is the same “e” at the beginning of “lender”, while the “or” at the end of “mortgagor” is the same “or” at the beginning of “borrower”.)

Like many legal terms, such as lien or trespass, the word “mortgage” has its origins in the Law French that heralds back to the beginning of British (and American) common law. A “mortgage” – from the French “morte”, meaning death – was known as a “death pledge”. That is, when the debt was repaid the interest and rights of the mortgagee or lender in the borrower’s land or property expires, or dies. The mortgagor then has clear title without any rights, interests or “encumberances” remaining with the mortgagee.

Amortization, Interest Rate and Term

There are three main terms that will apply to all mortgages – the amortization period, the interest rate, and the term of the mortgage. The “amortization period” is the total amount of time (usually expressed in years) which it will take for the mortgagor to pay off his or her mortgage given the terms of the mortgage. The most typical amortization period when an individual is purchasing a home is 25 years, although longer amortization periods of up to 40 years have become more common and commercially available.

The “amortization period” is not to be confused with the “term” of a mortgage. Most usually a mortgage agreement will be for a specific number of years, but for less than the full amortization period. Formerly, the longest term available for mortgage financing was five years, However, some longer term mortgages of up to ten or even twenty-five years have now become available from some commercial lenders.

The difficulty with longer term mortgages, for both mortgagor and mortgagee (borrower and lender), is determining what is a fair and reasonable interest rate to be charged on the mortgage over the duration of such a long period of time. Interest rates fluctuate over time, and forecasting interest costs over an extended period is exceedingly difficult.

The interest rate is the percentage of interest that a lender will charge on an annual basis for the mortgage loan. On a $100,000 mortgage loan, a 5% interest rate would mean that the borrower is paying $5,000 per year in interest.

Mortgages payments are most often made in equal installments paid on a monthly basis over the term of the mortgage. Each monthly payment will go first towards paying the interest on the mortgage loan, and then towards paying off the principal, or outstanding balance, of the loan according to a fixed formula. As the principal of the loan is reduced, less money is owed in interest and consequently more of each payment goes towards paying off the interest.

Each mortgage payment is thus a blended payment, consisting of both an interest payment and a payment towards the mortgage principal. Because the principal amount (and thus the money owing under the mortgage) is reduced over time. the first payments during the term of the mortgage will go mostly towards paying interest, while a greater proportion of principal will be paid off in payments made at the end of the mortgage term.

Fixed-Rate and Variable-Rate Mortgages

Mortgages are also distinguished on the basis of how the interest rate is set. There are two main types of mortgages a fixed-rate mortgage and an open-rate or variable rate mortgage. Under a fixed-rate mortgage, the interest rate is specified for the entire term of the mortgage. Under an open-rate or variable mortgage, the interest rate will vary based on market conditions, usually specified in terms of the mortgagor bank or trust company’s prime lending rate.

Whether to choose a fixed-rate or variable rate mortgage is one of the biggest decisions facing the first-time homebuyer, and anyone seeking mortgage financing. If interest rates are relatively low historically speaking, the interest rates that fixed-rate mortgages are offered at will be higher than the rate offered for a variable rate mortgage. Here the bank or other lender assumes that rates are likely to go up, and charges a higher interest rate for a fixed-rate mortgage to assume that risk.

When interest rates are relatively high – say 9% to 10% – fixed-rate mortgages are typically offered at a lower rate than is being offered for variable rate mortgages. Here, the borrower is assuming the risk that interest rates will not go down from historically high levels. Consequently he or she can usually borrow money at a better fixed-rate than variable rate.

Open Mortgages versus Closed Mortgages

The other significant differentiation between mortgage types that will be of great interest to first time homebuyers is whether their mortgage is an open mortgage or a closed mortgage. An open mortgage can typically be paid off without penalty at any time durng the term of the mortgage without penalty. Under a closed mortgage, on the other hand, there will be a sometimes quite significant monetary penalty for paying off the mortgage before the term of the mortgage expires (although, a closed mortgage may allow for periodic lump sum payments that will go directly towards paying off the principal of the mortgage).

Open mortgages are most often preferable where the homebuyer wants to avoid being locked into his or her mortgage arrangements, thinks interest rates may decrease during the mortgage term or thinks he or she may be selling the mortgaged property before the expiration of the mortgage’s term. Closed mortgages are usually preferable where the homebuyer is operating on a tight budget and needs the security of knowing that mortgage payments will be unaffected by rising interest rates.

Refinancing

Following the expiration of the initial mortgage term, the remaining principal that is outstanding on the mortgage will have to be paid to the lender. This will usually entail refinancing a mortgage for a new term with the same or a different lender. Again, on refinancing the principle variables will be the amortization period, the interest rate and the term of the refinancing. The same considerations will also apply: fixed-rate versus variable rate, open mortgage versus closed mortgage.

Importantly, refinancing may also be available during the term of your mortgage. As your home’s principal is paid off your home equity – or the difference between what is owed on a home and its market value – increases. Mortgage refinancing is also generally available that will enable you to access that home equity through a second mortgage or line of credit secured against the equity in your home, even during the term of your first mortgage.

Your realtor, financial advisor or an independent mortgage broker should be able and willing to walk you through the different mortgages that are available to you, so that you can determine the mortgage product that is right for your circumstances – whether you are purchasing your first home or refinancing.

Buying a home involves more than just the down payment. There are also closing costs to pay for items such as title policies, recording fees, inspections, courier charges, reserves to set up an impound account and fees that a lender charges. It is the fees a lender charges to make a loan that typically cost the most.

Closing costs are on top of the purchase price.

How Much Are Closing Costs?

Closing costs to buy a home about 2 to 4 percent of the purchase price as per the rule of thumb.  Much depends on the points and origination fees a lender charges to make the loan, which are disclosed on the buyer’s Good Faith Estimate.

The total closing costs to purchase a $300,000 home could cost anywhere from approximately $3,000 to $12,000 or more.

Non-Recurring Closing Costs

Fees that are paid once and never again are called non-recurring. These fees are one-time charges for such items as:

Title Policies Escrow or closing Notary Wire fees Courier / Delivery Attorney fees Endorsements Recording State, County or City Transfer Taxes Home Protection Plans Natural Hazard Disclosures Home Inspection Lender fees paid in conjunction with the loan on the HUD-1, line 800.

Recurring Closings Costs – The Prepaid’s

Recurring fees are those charges that you will pay again and again. They include such fees as:

Fire Insurance Premium Flood Insurance (if required in your area) Property Taxes Mutual or Private Mortgage Insurance Premiums Prepaid Interest

The time of the year that you close will dictate how many prorate months of premiums the lender will collect to hold against future payments of taxes and insurance. Not every loan has an impound or escrow account, but typically loans totaling more than 80% of your purchase price will require an impound / escrow account.

Can a Seller Credit the Buyer for Closing Costs?

Always check with your lender before you negotiate an offer that involves a seller credit because the lender might not allow it.

If you are financing 100% of the purchase price, the lender might limit your credit to 3% of the purchase price. Depending on your FICO score and the amount of your down payment, the lender might allow a seller to credit you as much as 6% of the purchase price. Lenders will not let a borrower receive cash from a seller at closing, regardless of what you may hear at those no-money-down seminars.

The fear begins to creep in right after the purchase offer is accepted and builds. By the time full-blown panic has set in, it’s typically a day or two before closing.

Sellers Who Walk Away From Closing

It’s rare that a seller walks away from closing. If sellers are going to feel seller’s remorse that typically happens upon offer presentation when the reality of actually selling sets in.

Why Home Buyers Walk Away From Closing

Well-written purchase offers generally contain contract contingencies that must be removed within a certain period of time. The time to walk away from closing or cancel a contract for most home buyers is during the contingency stage. Buyers who walk away at the last minute often do so for the following reasons:

1. Foundation cracks that are beyond normal. Small hair line cracks are considered normal and are caused by the shrinking and settlement of the concrete itself. Larger cracks are sometimes caused by large tree roots or poor compaction of the surrounding soil. Even poor soil conditions.

2. Mold. At times mold will come up on the report. Mold In large amounts can be caused by long term roof leaks, plumbing and irrigation damage. The health effects attributed to mold exposure may be Respiratory failure/asthma, Flu symptoms/headaches; Nose bleeds/bleeding lungs, Dizziness, Learning disabilities. The more serious health effects attributed to mold are more commonly found in people who already have compromised systems. Most people are not noticeably affected by small levels of mold.

3. Asbestos. Any home built before 1978 will contain asbestos of some type, unless it’s been removed. In older homes where the new owner wants to renovate the entire home, it is best to know where the asbestos laden products are and call a professional to remove them. This can impact the renovation budget heavily.

4. Lead. For young families with small children a home with lead paint can be a big issue. Many times I find paint peeling or flaking off. Small bits of paint can then be ingested by children. The lead paint removal process is a timely and costly.

5. Roofing system replacement. The roof system is one of the most important parts of the house. Replacing a roof can cost thousands and in some case even over ten thousand. Wood damage under the roof will cause the replacement price to escalate quickly.

6. Wood destroying insects and organisms. Subterranean termites are the most common termite in the United States. A mature colony has from 80K to 400K workers. The average colony can consume a one foot length of 2×4 in 118 days. The Powder post beetle. The most common evidence of a powder post beetle infestation is a talcum powder-like substance known as frass. This frass falls from exit holes made by the beetles. The Carpenter bee. The carpenter bee will bore into the wood six to ten inches and nest in weathered or unpainted wood. They lay their eggs in the nest and seal them with a chewed wood pulp plug. The bees then emerge from the hole in the spring. The carpenter ant. This ant hollows out wood to create nests called galleries. Though they do not eat the wood, the boring activity can lead to structural damage in wood components. The by-product of the boring is called frass and looks similar to sawdust or pencil shavings. Frass is the most common evidence of carpenter ants infestation. Wood-Decay Fungi. White rot leaves wood with a bleached appearance and a spongy and stringy texture. Brown rot leaves wood with a dark brown, checkered appearance and a brittle texture. Note: wood that exhibits brown rot has lost its structural integrity and is easily crumbled. Water-conducing fungus or “dry rot” produces decay similar to brown rot, but may vary in color. Fungus (fungi, plural) is a plant that lacks chlorophyll. Unable to synthesize their own food, they feed off of cells in the wood. The fungi secrete enzymes that break down to wood (into usable food) and can significantly reduce the strength of the wood. Long term infestation by any of these WDI can lead to the loss of structural integrity.

7. Household pests. This includes a variety of crawling insects, arachnids and rodents that enter the home to feed, nest or breed. Rats and mice are the most common finds in Southern California homes. This is especially true in homes that have a verity of fruit trees and date palms. Rodents can cause thousands of dollars in damage to the homes systems and equipment. They can eat the insulation off electrical and control wires. They can nest and destroy HVAC ducts as well. Rat and mice can nest in the wall and ceiling cavities. The damage may not always be seen. A lot of time the wires and insulation damage will be concealed in the walls.

8. Missing or damaged systems and equipment, such as plumbing, electrical and heating and air condition equipment. Many homes are being sold as is. Many are Bank Owned. When homes are left unattended they are subject to thieves removing HVAC equipment appliances, copper wire and plumbing. Damage to masonry fireplace or chimney from earth quakes or differed maintenance can be costly repairs.

9. Signs of past fire damage. Even after repairs have been made many people can’t get past the feeling of bad luck that comes with a home that’s been involved in a house fire.

10. Death or Murder in Home. We saved the worst for last. Everyone has seen Amityville Horrors. I have never met anyone who went thru with the purchase of a home after this kind of disclosure.

Repercussion After Walking Away From Closing

Unfortunately, once buyers have released contingencies from the contract, their earnest money deposit is at risk. Some contracts call for liquidated damages in the event of default. Without liquidated damages, a seller may be free to sue for actual damages, which could exceed the deposit.

For more advice, please consult a real estate lawyer.