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Mortgage

I did a lot of shopping around for mortgages, most of my research was often reading what other people used for their SM mortgages and why they went with that lender.  I ended up going with FirstLine Matrix (FLM) series, which you may find that some people talk down on.  The main drawback on the FLM is that there is no one year fixed rate (which has historically been a good term to go with).  FLM also did not offer a variable rate in the past, however, this is now corrected with their new ARM (adjustable rate mortgage).  There are some details that I will go over (good and bad) that should be taken into consideration when considering this mortgage for a SM.

• ARM is good, historically, variable rate mortgages almost always out perform the 5 year term mortgage.  Plus if it looks like rates are going up you can (almost) always lock in at the current rate.  The same applies for the FLM, although there are some details that aren’t clear at first.  The first is that your variable rate no longer gives you prime minus X%.  This may show up again in a few years, but certainly not any time soon.  My rate is prime + 0.8%, which is pretty much the best any banks are offering for a variable rate these days. The second is that the ARM has a term of 5 years, which can be a little confusing.  What this means is that you will be prime + X% for 5 years (until your term is up, and you have to renegotiate).  The confusion arrives when you convert to a fixed rate from an ARM, you must choose any term greater than or equal to 3 years (or at least this is how I was explained it worked).  That means that when (if) you decide to convert to a fixed rate, the smallest rate you can choose is 3 years (not a good feature at all).
• Portability is good.  Many banks do not offer this feature at all, and this was such a huge deal breaker for me.  With FLM you can sell your house and buy a new house (i.e. move) without having to close out your SM investment account.  This can save a lot of hassle.  Instead, you just renegotiate a new mortgage and the difference is applied to your current mortgage.
• Prepayment is good.  You want to find a lender that will allow you to comfortably put down extra money into your mortgage when you have it available.  While FLM does not allow you to pay off your entire mortgage without penalty, they do have some very relaxed conditions on prepayments.  Basically, you can prepay up to 15% on each regular payment, summing to no more than 20% every year.  Translation is that prepayments can come any time you have money kicking around.  Even though I plan to try and max out the RRSP before i prepay the mortgage, it is still nice to know that the option is there (if I for some reason come into some money).
• Terms are bad.  Historically, shorter terms fair the best, and my ARM term is 5 years with the option to convert to fixed on a 3+ year term.  I also have the option of renegotiating a 2 year fixed term at the end of my current term.  The bad part is that there is no 1 year fixed term.  On the plus side of things, interest rates are likely going to get lower than they have ever been (i.e. even lower than now), so locking in at a good rate for a longer term is actually beneficial at this point.  Because of this, I will be monitoring FirstLine’s 5 and 10 year fixed rates for the next year or two, as locking in a good rate for a long time will be VERY helpful in the financial department.

My timing to start a SM isn’t the most ideal, but there are some aspects that work to my advantage.  Because I am a new home owner and have no real previous equity, coming up with the 20% down payment was a challenge.  What this means for the SM is that I will begin with an empty LOC portion.  What this translates into is that my mortgage’s tax deductibility will be very ineffective for the first few years (since I won’t have any equity to borrow against).  However, with situation with the markets these days, I end up with a little bit of a buffer zone of time to get things as automated as possible.  I will have to wait until there is sufficient equity in my home before starting to invest (no point buying single shares right?), so this lets me watch the market carefully so that I can begin investing when the time is right.

As you can probably tell, timing is everything, and my goal throughout this entire process has been to be prepared ahead of time so that I can take advantage of good timing.  Of course, with all my equity tied up in the house right now, I am left relatively unprepared for the new few months.  But if my research has taught me anything so far, it’s that the recession will likely last throughout 2009 (and in my opinion, Edmonton to remain relatively stagnant through 2009).  If my prediction (and research) is correct, this gives me ample time to prepare for 2010, the year I begin my journey to financial freedom.

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Not going to say much about this game because i haven’t the time to research it at all.  All I know is that horc is said to be ready to play tonight.

Links:

• Yahoo Sports: not sure if this one will work (Proxy Required)
• ATDHE.net (Flash Stream)
• ATDHE.net (WMP Stream)

For the yahoo sports stream you need to watch through a proxy, the best proxy i have found is called hotspot shield (it works and it’s easy to use).  Find more info on using proxies here.

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After a lot of stressful days, I am finally over the hump of getting the SM off the ground.  I am a little surprised at the level of difficulty involved in just getting a readvanceable mortgage.  However, I understand that the banks are taking extra risk so they have to be extra careful during the application process.

In my case I have a pretty stellar credit rating, so that helps me get around a lot of the uncertainty.  Most of the stress involved in this mortgage was just due to shortened time lines.  I basically had 7 days (minus 2 for the weekend) to do EVERYTHING.  And by everything, i mean liquidating assets, HBP withdrawal, insurance, lawyer, appraisal, inspection, and probably a few more that i have now forgotten.  It was troubling, we’ll say it was a very tight time line with little room left to sit back and relax.

I was fortunate enough to have my request to extend the dates (most notably the condition date) extended a little to remove any doubt that I would be prepared in time for the deadline.  Now I find myself on the cusp of owning a house, with very few tasks still remaining.  It is a nice warm feeling to realize that not only have I moved on from the renting stage of life, but skipped past the condo and townhouse phase all the way to the detached home phase.  Some fortunate timing has allowed me to do this, and although 4 years earlier would have been even better timing, I was simply not in a position to buy anything at that stage.

Enough of these personal reflections, I do want to cover what has happened, what is happening, and what is going to happen (each list in order of occurance).

Happened (Past)

• acquired mortgage pre-approval (note that this did not help much as the pre-approval doesn’t help with a readvanceable mortgage, other than giving you an idea of how much you can borrow)
• put an offer on a house
• received a counter offer (+10k)
• re-countered with a new offer (counter – 5k, this was an obvious choice)
• offer was accepted (yay)
• start gathering paper work (brutal, proof of everything financial, and then some)
• inspect the house (about $460 for a thorough job, nothing was terribly wrong, so keep moving forward)
• appraise the house (required by the lender, house appraises slightly higher than my purchase price, yay)
• receive lender approval (the funds are available, now onto the closing stages)

Happening (Now)

• I have a copy of the mortgage contract, I am about to read through it and then sign it all
• I also have been working on several excel spreadsheets that will help plan and forecast budgets and finances (more on this in a future post)

Going to Happen (Future)

• I have to come up with a market strategy, I have a rough idea of the geographic, sector, and type distributions that i want to follow (and have created a nice spreadsheet to keep that in line)
• Make use of the tax credits available this year (no sense wasting them, and investing in the market right now just isn’t profitable)
• Need to set up automated transfers so that the mortgage process is a painless as possible

One last thing, since I am buying a new house and starting the SM, that means i will very likely not have enough personal finances to fund the LOC off the bat (which is the case in my situation).  Simply put, this type of mortgage requires 20% down payment; for a relatively young guy who is buying his first property (solo I might add), I simply don’t have the money to make 20% plus load up the LOC.  I had to liquidate assets just to make the 20% in the first place.  That means that I will be splitting the mortgage at 100%/0% (mortgage/LOC).  this basically means that my LOC will start out empty, and I will have to make payments (or pre-payments) before any credit will be available to borrow.  I will describe the details of my SM mortgage in a future post as well, so stay tuned for many posts filled with useful information.

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