Financial Jungle

How many times have you been reminded of this adage? Presumably, the cheaper homes will somehow drag down the higher priced home. Or, cheaper homes have more room to catch up. When you think about it, expensive homes are expensive with good reasons. Perhaps they are situated on more desirable lots or constructed with marble stones. Maybe they have more square footages, more bedrooms, tiled roofs or double garages. Since homeowners relish these extra features, shouldn’t these homes command a premium price over the inferior ones?

Let’s go ahead and test this myth with a numeric example. Suppose we have two houses. The smaller one is worth $350k, while the bigger one is $400k, and they appreciate 6% and 3% per year respectively for the next five years.

As you can clearly see, this isn’t an optimal pricing between these two houses, because the smaller home now costs more than the bigger home. The market will soon realize the mispricing, and new buyers will automatically re-adjust the market value accordingly.

Another myth is to buy the least expensive home in the best neighbourhood rather than the most expensive home in a lesser neighbourhood. It is incredibly difficult to judge which neighbourhood will appreciate faster, unless you have a crystal ball. Both homes are already priced in relation to the net of all collective features. To assume that one will appreciate faster is a form of double counting. We can also create another table as above, and it’ll demonstrate that a consistent higher appreciation of one neighbourhood over a long period will put the price ratio out of whack between the two houses.

I believe individual buyers must decide based on personal tradeoffs instead of following these real estate myths. If you like a home for your own reasons, the impact is felt right away, but nobody knows which neighbourhood will appreciate faster comparatively.

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I just learned homebuyers are finally getting some relief in the overheated real estate market. Effectively immediately, buyers with at least 20% down will not longer pay a dime for the CMHC insurance premium.

“We believe that a great number of home buyers will benefit from this change and we are delighted to be able to take a leadership position in making this new option available immediately,” said Cid Palacio, Vice President, BMO Bank of Montreal.

Ms. Palacio noted that based on an average home price of $300,000, a home buyer with only a 20 per cent down payment can now save an average of $2500 in insurance premiums.

To the best of my knowledge, the new fee structure will look as follow. Since the news is so recent, I can’t find official confirmations of these numbers. Not even CMHC’s own website is updated as of this writing. I’ll update this post as I learn more.
[Edit: Just gotten words from my mortgage broker that the only change is the elimination of 20-25% bracket. Everything else stays the same.]

The intention is obviously to alleviate the burden to come up with 25% down, but I’m not convinced that it will be the buyers who reap the benefit. The market has a way of offsetting any money left on the table. I believe the cheaper premiums will drive up demand, causing buyers to bid up prices in the mist of an already tired real estate boom. Consequently, what you gain on the insurance savings, you give back in higher prices. I guess we will have to wait and see.

On a related note, existing home owners can now access up to 80% of their home equity instead of 75%. This is good news for owners looking to tap into their equities for such things as the Smith Manoeuvre or renovations.

“Now, with refinancing at 80 per cent, we’re making an extra five per cent equity available to our clients for their financing needs,” said Catherine Adams, RBC Royal Bank’s vice-president, Home Equity Financing.

Resources

• Down payment rule change won’t alter much
• Banks applaud lowering of mortgage threshold
• BMO Takes Lead
• Mortgage insurance change makes home buying easier: bankers
• 20% down to buy home has just gotten cheaper

If you want to get overview of banking system you can consult many journals or websites relating to banks. The bank charges on the credit card vary from bank to bank. The bank closing information is normally provided on the banks website you can also get other bank related information from there. Now online credit card application forms are available and you can apply for the travel credit card through the websites.

It has been four months since my wife and I moved to downtown Vancouver from Port Coquitlam. Currently, we are renting a small condo for $1,450 per month, but we are also contemplating purchasing a unit in the future. We had always wanted to experience the downtown life, since Vancouver is such a vibrant city and we both work there.

Admittedly $1,450 a month is more than mortgage payments for most folks, however there are benefits that come with renting in downtown. Every morning, it takes me literally 5 minutes to stroll to the office, and I have my skinny legs to prove it. Our four- legged friend, Odie, loves roaming around Yaletown, Kitsilano beach and SeaWall chatting with new friends, especially his Pomeranian cousins. The 17 hours we save each week on commuting enables my wife and I to hit the gym more often, spend quality time together, and pick up new hobbies, such as writing this personal financial blog. Monetary-wise, each month we save $300 on the Westcoast Express train commute, $200 on utilities, $10 on parking tickets, $220 on property tax, $40 on water & sewer tax, $80 on home insurance and various repair costs.

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