A Message from our Mortgage Partner:

This may be the most important ALERT that I have written in the last 2 years, if not since I started in the mortgage industry over 7 years ago. IT IS A MUST READ and I encourage you to share it with anyone who you believe will benefit from it. It is well worth the 3 minutes it will take.

We are definitely living in a period of economic uncertainty with little direction of what tomorrow will bring. When you hear that the Big 3 automakers are on the brink of bankruptcy, that Canada’s deficit will reach $4B next year and may go as high as $14B and that one of the world’s largest banks (Citigroup) lost 25% of its value in just one trading session, you can’t sit back but think, what does this all mean for me and my family?

Will I have a job tomorrow; can I afford to make my monthly credit card and mortgage payments; what will the value of my house be in the dreaded months of January and February?

Will this all pass us by and become a distant memory in a few years? Most definitely; but we need to be prepared for what the next 6 to 12 months brings us.

We are encouraging all our clients, if they haven’t done so yet, to get ‘their house in order’ and to eliminate any kind of credit risk that may put them in a position of financial ruin. One of the top strategies we are recommending at this time is to minimize credit card and unsecured line of credit payments as they carry the highest interest rates and monthly carrying costs. If you are not able to pay out these debt instruments with cash, then there is a strong argument to consider refinancing your home and using the equity to bring down the carrying cost and the monthly obligation and to do it now while the housing market is still relatively stable.

While on the topic of debt consolidation now may be the perfect time for those who have closed fixed rate mortgages to consider switching to a variable rate mortgage or better yet, if you have at least 20% equity in your home, you seriously consider a home equity line of credit. Now this is where a proper analysis is needed. Governor Carney is widely expected to drop the overnight borrowing rate by at least 0.50% on Tuesday and if markets get any worse we may see rates drop further, in the early part of 2009. A variable rate mortgage where prime is approaching the low 3.00% range is very enticing especially when compared to the high cost of carrying balances on your credit cards.

The Final and possibly the most important point that I would like to make is, please, please, please, make sure that you look at securing the equity in your home today via a line of credit product. Remember that if you do not use it, you do not pay for it. It is vital that you set yourself up with the maximum amount you qualify for because as I have said many times before, when you need a line of credit the banks will not give it to you, especially if your property value drops further and credit markets get tighter.

Consider this, if property values drop between now and the spring and to complicate matters more, what if you lose your job in the meantime, ask yourself what are the chances that the bank will give you a mortgage or a line of credit? Pretty much nil!

Can you go to the private market? Possibly, but are you ready to pay a rate as high as 15% with a lender fee of anywhere between 5 and 10% (up front)? I never want to see a client do this, unless they are down to their last straw, and even then I would feel sick to the stomach.

Well as you can see with everything that is going on around us, it is very important to review your personal affairs and make sure that ‘your house’ is in order’.

I will leave you with a real life scenario.

Current scenario:

Current Home Value = $600,000

New Scenario:

Value of Home = $600,000

Universal Borrowing Limit = $480,000 (80% of $600,000)

As you can see, the new scenario has positioned the client not only to immediately reduce their overall annual rate/carrying costs, it has also reduced their minimum monthly obligation and most importantly, $130,000 sits on the side just in case the need for emergency funds is required. For those who are contrarian investors and follow Warren Buffet’s advise of investing when there is fear on the streets you can also dip into the line of credit and take advantage of investments in real estate, stocks, RRSP’s or even their business. Many buying opportunities are starting to present themselves and more will become available.

I hope you found this write up to be informative, and if nothing else can act as a quick checklist to make sure that your ducks are in order.

Our team has been busy assisting many clients with this exact strategy and will be working late over the next few weeks leading up to Christmas, in order to deal with the high volumes.

Keep in mind as a Seneca Alumni, the consultation is free and your appraisal fee is paid for should you fund a mortgage through our office... a $500 value.

As always, we are committed to finding ways to save you money and appreciate the trust you instil in us.

My best regards,

Elisseos

P.S. For current and up to date trends and rates on the mortgage market, please join our blog