Buying a home in BC – A guide for Albertans

It will be no surprise to the average Albertan that we contribute a lot to BC’s tourism industry each year. In fact Albertans are third in spending in BC, only behind people from BC themselves and Americans. I am sure many of you have spent time in BC and thought that it would be nice to own real estate here. I recently purchased a 2nd home in Kelowna and while the process of engaging a Realtor, getting preapproved for a mortgage and searching for a property is the same, it was the process afterwards that differed as follows:

1) Property Disclosure Statement (PDS) – this is a very informative document draw up by the seller which has several pages of questions about the property in question. The seller has to be truthful in his responses and covers many items such as any issues with the land, the building, the strata etc. This document is required in BC and I have no idea why not required in Alberta. A very useful document

2) Real Estate Deposit – In Alberta, when buying a property, you put down an initial deposit as a sign of good faith a few days after the signing of the purchase agreement. In BC, you only put down this initial deposit after all conditions have been met.

3) Completion date and date of possession – On the BC purchase agreement there are two dates – the Completion Date and the Date of Possession. The completion date is the date that title and ownership is transferred to the new buyer as well as the funds are transferred from the buyer’s lawyer to the seller’s lawyer. The date of possession date is the date the buyer is allowed to take physical possession and is typically at 12 noon on the day following the completion date. In Alberta, there is just a date of possession. So, when you are planning on reserving that moving van, may sure it is on the possession date

4) Taxes – Property Transfer Tax – BC has what is called a property transfer tax. This is a tax that all buyers in BC pay and is calculated as 1% on the first $200,000.00 of the property’s fair market value, 2% on the amount between $200,000.00 and $2,000,000.00 and 3% on the amount between $2,000,000.00 and $3,000,000.00 and 5% of the rest. Lenders will not allow you to finance this cost as it is a tax and adds no value of any kind to the property. Alberta doesn’t have such a tax.

5) Taxes – Speculation and Vacancy Tax – The speculation and vacancy tax is an annual tax paid by some owners of residential properties in designated taxable regions of B.C. The tax is designed to discourage housing speculation and people from leaving homes vacant in B.C.’s major urban centres. This tax is .05% of the property’s fair market value each year. This tax doesn’t exist in Alberta.

6) Mortgage foreclosure – In Alberta if you stop making your mortgage payments, the lender and/or CMHC can only go after the sale proceeds of the property in default. In BC, they go after the property and your other personal assets

7) Review of Condo Documents – In Alberta, it is a common practice to have an outside third party review the condo documents to determine if there are any potential issues. In BC, this isn’t a common practice and I had to search around to find a company that would. This company was started by an Albertan who recognized a need.

I am always surprised when a similar process in one province (buying a home) is so different in another. Having said that, I am able to provide mortgage financing on properties anywhere in Canada that lenders will fund, including BC.

If you have any questions or would like to inquire about buying a house in BC please let me know!

Buying a home in BC – A guide for Albertans2021-08-20T12:44:20-06:00

Is Your Variable Rate Mortgage Adjustable?

For the past several years both fixed and variable rates have done nothing but fall. With such historically low fixed interest rates (and the spread between fixed and variable being close) I have, until recently, been recommending to my clients that they select the fixed rate option. This changed with the Bank of Canada reducing the Prime lending rate again (two rate reductions in eight months). This indicates to me that the Bank is still concerned about how poorly the Canadian economy is performing. As a result, I feel that the variable rate option will save the most amount of interest and have been recommending it to my clients. However, please understand not all variable rate mortgages are the same!

There are actually two kinds of “variable rate mortgages” – Variable and Adjustable.

1. Variable Rate Mortgage – these are typically offered by the big 5 banks. Here the monthly mortgage payment is set to be a certain amount and never changes even when interest rates move. So if interest rates go up, less of the monthly payment goes to principal and more to interest. If rates go high enough and the required monthly mortgage payment is now entirely interest only, no principal reduction takes place. If rates go even higher, the monthly mortgage payment no longer covers the interest portion. The portion not covered is added back to the mortgage balance – this is known as reverse amortization. This is what happened in the US in 2008. The client was making his mortgage payment but his mortgage balance kept increasing. Eventually the mortgage was worth more than the value of the house with the result the client walked away from the house. Some lenders in Canada even have a “trigger point” which they will trigger if they feel that the house value is not as high as they like compared to the mortgage balance. If this trigger point is reached, the lender then can call the mortgage unless the client can supply an appraisal to confirm the house has a certain value.

2. Adjustable Rate Mortgage – The monthly mortgage payment is set initially based on the rate but if interest rates climb, the portion paid to principal always stays the same. Since the interest component has now increased (with the rate increase) the monthly mortgage payment is also increased. This way the portion going to principal is maintained and the needed interest is paid. No risk of reverse amortization or reaching a trigger point.

Conversion Rates – Both variable and adjustable rate mortgages allow you to convert to a fixed rate mortgage at any time without cost. The key here is to ask what fixed rates the lender will offer you upon conversion. The big 5 have both posted and discounted rates. They will usually offer you something like one percent below posted rate. If you take the time to do the math, you will usually find that this reduced rate is still higher than their discounted rate offered to new clients – nice game. Monoline lenders (non big 5 banks) only have discounted rates and therefore only offer you the same rates they offer their new clients.

So, if you are now considering something other than a fixed rate mortgage, you need to consider the points above and determine which is best for you. Eight times a year I send out a Variable Rate Mortgage Watch to help you decide when the time has come to convert from a variable rate to a fixed rate mortgage. If you have any questions on this discussion or any other mortgage related matters, please feel free contact me and any time!

Is Your Variable Rate Mortgage Adjustable?2021-07-15T14:56:12-06:00

How to Win in Today’s Low Interest Market

A number of years ago lenders were offering 2.99% for a five year fixed rate mortgage and we thought “ Wow what a low interest rate!” Rates couldn’t possibly get lower. Well, they did with many lenders now offering 2.64%. These are the lowest rates in history and while I believe they will remain low for a while longer, they must eventually go up. Here are a few strategies to keep these low rates even longer.

1) Refinance early to preserve low fixed rate for five more years

With this strategy, you would payout your existing fixed rate mortgage, incur a payout penalty and renew into a new five year mortgage at a lower rate. This is partly a numerical exercise as we compare the interest savings with a new lower rate to the payout penalty incurred. Even in cases where the savings do not offset the penalty, you need to consider the possible future interest savings as a result of extending your term and possible higher interest rates in the future. I can calculate all this for you as well as let you know what interest rates would need to be in the future just to break even.

2) Refinance early for increased cash flow

This strategy is not as concerned with the interest savings by refinancing into a lower rate as it is in reducing the monthly mortgage payment. A lower monthly mortgage payment could free up cash flow which can then be used to invest in products that earn a higher rate of return than the current low mortgage interest rate. So you use the extra cash to invest, earn a higher rate of return and use this extra profit to offset the payout penalty as well as pay off your mortgage faster. This strategy typically works best when consulting with your financial planner.

3) Refinance your variable rate to a lower one.

At one time, lenders were offering Prime less .90% and that went away as lenders were not making any money with such a low Prime lending rate. Lenders started offering Prime plus 1 and over many years have now come back to offering Prime less .70%. It may be time to refinance your higher variable rate mortgage into a lower one. The nice thing with Variable rate mortgages (versus fixed) is the payout penalty is only three months interest. There is no Interest Rate Differential payout penalty for variable rate mortgages. You get a lower payout and better interest rate!

Please feel free to call me to further discuss and determine which of these strategies work best for you. As I mentioned previously, I can do all of the calculations for you.

How to Win in Today’s Low Interest Market2017-01-30T22:09:25-07:00

A Real Estate Strategy

We have all heard the doom and gloom reports from the media about how the drop in the price of oil and the possible negative impact of the NDP government will affect the Calgary real estate market.

Is this in fact the case?

The answer depends on what price range of home you are looking for. The Calgary Real Estate Board (CREB) released its sales numbers for May showing t