Episode 76 Transcript – Mortgage Sense on Chai Time

[Jessi, thank you so much for being with us today.] Thank you for having me. I appreciate it. [Welcome to Chai Time. We all know about the benefits of having a mortgage. Everybody keeps talking about it. Are you going to shed some light for us on the negatives maybe?] Not too much! [OK, enlighten us please. What are some of the negatives?] There are a number of things you definitely need to be aware of. The number one problem I find with clients, people in general, is over leveraging. People not paying attention to their budget and purchasing more than their wallet can handle and you start cutting into daily, weekly luxuries. Simple things like wanting to have a glass of wine at the end of the day, going out for dinner, whatever. You start cutting into these by over leveraging yourself and you can’t make your mortgage payment. Right now we’re experiencing record breaking low rates. What happens when those rates increase? Your payment goes up two or three hundred dollars are you going to be able to make that payment and if you over leverage yourself, you’re not. That’s just talking about your principal residence. When you start dealing with investment properties that’s where it gets worse. People from time to time say I’m going to put 5% down and “apparently” live there. You know, it happens all the time. The issue with that you’re going to have is, is your property won’t cash flow. Cash flow is essentially when then money coming in from your rental income pays your mortgage, property tax, strata and then it becomes a cash flow property which is your ideal situation if you are an investor. When it doesn’t cash flow, not only is your property potentially losing money and that risk, but now it’s cutting into your own personal income already which is a risk. [Right. Of course.] When it comes to refinancing that mortgage, when you try to refinance the property, it’s your investment property but you live in another property, lenders they can tell a lot of the time so they are going to look at you and know that that is a rental property. It will be virtually impossible to get a mortgage on a revenue property with 5% down. [Talking about getting a mortgage, a lot of people go for banks. A lot of people choose Independent Mortgage Brokers.]  They do. [How would you compare the two?] Well myself, Independent Mortgage Broker, and then they have the banks. Not to discredit banks. Banks are great for many reasons. When it comes to a mortgage you ideally you are going to want to go with someone that spends the majority of their time just doing mortgages. Independent brokers are going to do the shopping for you so instead of going to, I’m not going to say any bank names, [Right] Bank X and they are going to give you limited options relevant to that bank. Furthermore they are probably going to sell you the posted rate which I guarantee I’ll never do. Promise. You have my word. Pinkie swear. [We have it on record.] You do. You kind of got me now! Posted rates are significantly higher. They make more money off the posted rate. [What do you think about zero down mortgage?] It’s a difficult subject because it has a time and a place. Zero down technically was abolished back in October. I can still get it but it’s different now. The lender actually gives you 5% down payment and pay for it in a higher interest rate which is about 2% higher. Only take zero down if you are prepared to stay in the property for five years. That’s the kicker. Do not take zero down and rent it out. Just don’t. There’s hefty, hefty penalties trying to cancel a zero down mortgage. People that purchased a zero down mortgage three to five years ago I mean, they’re laughing right now because the property has probably made fifty, hundred, hundred and fifty thousand dollars. That was a good investment. Would I do it right now? It’s difficult. The market’s probably going to have a bit of an adjustment period. It’s going to continue to decline. I’m not going to attempt to predict the future, [Right.] but there’s a time and a place. If you’re going to stay in it for five years, a zero down could still be fine. [Right. You actually do community seminars,] I do. [to get more information out to people. Tell us a little more about those.] On average of about once a month, sometimes we do two a month. I have a website, firsthomeinfo.ca, and it’s got a fair amount of details about that. What they are, they are one hour seminars, they’re actually about 45 minutes long. We save 15 minutes for question. I’ve stayed as long as an hour before. They are 7:00pm to 8:00pm in the evenings. The next one is February 19 and then March 19. They are all in Vancouver in Yaletown and Kitsilano. [And they are free of cost?] Totally free. Even if you’ve bought a home before, this is an outstanding refresher course to refresh you on the overall market. Things change. The Federal budget has made some significant changes. [That's right.] We’ll tell you everything. It’s totally free. [Awesome! Well you'll have to come back and share some more information with us because that was very informative.] Pinkie swear? [Pinkie swear!] Now I’ve got you! [Thank you so much. It was a pleasure talking with you.]