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FEBRUARY 2013                                                                                             REAL ESTATE UPDA...
PERSONALFINANCE  PROS AND CONS OF REVERSE MORTGAGESIf you are considering taking out a reverse mortgage, it is            ...
CONDO                                                                             CORNER                                  ...
One interesting change in the mortgage market of late is the                                                           Hav...
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  1. 1. FEBRUARY 2013 REAL ESTATE UPDATE The average price of a resale home in the GTA in January From a volume perspective, the month of January was $482,648 - a 4.3% increase versus the January 2012 witnessed a 1.3% decline in sales (4,375 transactions average price of $462,655. Price growth varied by market versus 4,432 in January 2012). While slightly down versus segment, as follows: single-detached homes (+4.7%), last year, the actual rate of decline was much less than semi-detached homes (+6.5%), townhomes (+4.0%) and what was experienced in the back half of 2012. This condo apartments (-1.2%). The MLS® Home Price Index suggests that some buyers, who put their decision to (HPI) Composite Benchmark Price was up by 3.8% over the purchase on hold last year due to stricter mortgage same period. These results support the thesis that there lending guidelines, are once again becoming active in the will be enough competition between buyers to support market. Volume growth varied by market segment, as continued growth in home prices in 2013. Expectations follows: single-detached homes (+0.7%), semi-detached are for average price growth to be in the 3-5% range this homes (-1.1%), townhomes (-2.3%) and condo apartments year. (-5.1%). GTA AVERAGE RESALE PRICE GTA RESALE HOME SALES 8 $540,000 9 10 11 12 8 9 10 11 12 12,000 2011 2012 2013 2011 2012 2013 $520,000 10,500 $480,000 GTA Resale Home Salessale Home Sales $500,000 9,000 7,500 $460,000 6,000 $440,000 4,500 $420,000 3,000 $400,000 1,500 JAN MAR MAY JUL SEP NOV JAN MAR MAY JUL SEP NOV for more detailed GTA statistics: REALTYSTATS.CA/5A2X James Metcalfe BROKER 416-931-4161 Royal LePage Real Estate Services Ltd. Johnston & Daniel Division, Brokerage 477 Mount Pleasant Rd., Toronto, ON M4S 2L9 www.OurHomeToronto.com | Service@OurHomeToronto.com 1
  2. 2. PERSONALFINANCE PROS AND CONS OF REVERSE MORTGAGESIf you are considering taking out a reverse mortgage, it is • The money received under a reverse mortgage does not affectimportant to ensure that you understand fully how they work and Old Age Security (OAS) or Guaranteed Income Supplementthat you carefully weigh the advantages and risks. (GIS) benefits. • You can determine the manner in which you receive yourHow they work reverse mortgage funds. For example, you may receive a lump-A reverse mortgage is a loan that is available to homeowners sum of cash, regular advances or a combination of both.60 years of age or older. If you have a spouse or other co-owner,the age requirement applies to both of you. A reverse mortgage The disadvantages associated with taking out a reverse mortgageis an advance of money provided by a lender that is secured by include:the existing debt-free equity that you have in your home. • Reverse mortgages are subject to higher interest rates thanThe amount of the loan provided under a reverse mortgage is other types of mortgages and loans.usually up to 40 per cent of the current value of your home. The • The equity in your home will decrease over the years as theamount you can borrow depends on your age, the current interest interest on your reverse mortgage accumulates.rate and the value of your home. Generally, the older you are, • There are significant fees associated with initiating a reversethe larger the loan you will be able to receive. If there are mortgage, including an application fee, a home appraisalexisting outstanding loans secured by your home at the time fee and legal fees. Homeowners may also be required to takeyour reverse mortgage funds are advanced, you may first be out mortgage insurance.required to use these funds to pay off those existing debts. • You may be charged a repayment penalty for selling yourTraditional mortgage vs. reverse mortgage home or moving out within three years of obtaining a reverseWith a traditional mortgage or secured line of credit, you must mortgage.have an adequate income verses debt ratio in order to qualify • Upon your death, your estate will be required to repay thefor the loan. Traditional mortgages also require that the borrower accumulated debt within a certain period of time. However,make regular bi-weekly or monthly payments. A reverse mortgage the time required to deal with the estate may exceed the timeis different in that it pays you and is available to you regardless permitted to repay the debt, which could cause problems forof your current income. With a reverse mortgage, the interest your estate.on your loan accumulates and the equity that you have in • Since the loan and interest will need to be repaid upon youryour home decreases over time. The accumulated debt is not death, there will be less money in your estate to leave to yourrequired to be paid off until such time as you die, sell your home children or other beneficiaries. In many cases, repayment isor it is no longer your principal residence. However, you are made by selling the home and then turning over the proceedsstill required to continue paying your property taxes, insurance, (or a portion of them) to the bank.utilities and other costs associated with maintaining your home.Advantages vs. pitfallsReverse mortgages have the following advantages: • You are not required to make regular payments; • You can receive cash for the value of your home without having to sell it. • The money is a tax-free source of income (unless the money is used to invest and produce income, in which case some or all of that income would be taxable). 2 Adapted from an article contributed by June Wright. June is a lawyer with the law firm Nelligan O’Brien Payne. Please visit them at nelligan.ca.
  3. 3. CONDO CORNER SELLING A CONDO? BEWARE THE TAXMANWhen you sell a property that isn’t your principal residenceand make a profit, half of the amount is taxable. This is the so-called capital gains tax and it’s pretty straight forward, but everysituation is different. It all depends on how the Canada RevenueAgency views the transaction.Real estate agent Romano Giusti bought a condo on RichardsStreet in Vancouver in November 2006 and re-sold it in June 2007for a profit of $30,831. When he filed his tax return, he paid no taxon the profit, saying it was his personal residence.The CRA re-assessed this return and discovered that Giusti hadbought and sold seven condos in seven years. He argued thathe intended to make the Richards Street condo his personalresidence, but changed his mind because of the street noise,irresponsible renters and pets in the building. So, he moved.Giusti appealed and lost. In a case heard on January 25, 2011,Judge G.A. Sheridan found that Giusti was flipping houses andso was not entitled to the principal residence exception. Healso penalized Giusti. Here are some things the court and CRA will look at in deciding whether a profit is a capital gain or income:For most people, if you make a $30,000 profit, you only wouldpay tax on $15,000. In this case, the court found that because 1. The nature of the property sold;Romano was in the business of buying and selling homes, he had 2. The length of the period of ownership of the property;to pay tax on the entire profit. 3. The frequency or number of other similar transactions by the taxpayer; 4. Any work done to make the property more marketable or to attract purchasers; 5. The taxpayer’s motive or intention at the time he acquired the property. The fact that Romano was also a real estate agent did not help him, since most of his business income related to commissions on real estate contacts. The key factor in most court cases is the number of deals that you have done over the last few years. If there are not many deals, it is unlikely that it will be called a capital gain so the profit will be tax free. Still, if you are not sure, it is better to obtain tax or legal advice before you sell any property, to make sure that you are filing properly. 3 This article was contributed by Mark Weisleder, a Toronto-based real estate lawyer. Please visit him at markweisleder.com.
  4. 4. One interesting change in the mortgage market of late is the Having said that, the consumer is also becoming awarefact that the major banks are becoming much more honest that absolute rate is not the sole thing they shouldand upfront about their advertised rates. In the past, they be searching for. Many are prepared (and rightly so)were notorious for advertising “special offers” that were, in to pay a rate premium for increased flexibility (e.g.,reality, far above their best rates. This approach was essentially liberal prepayment privileges, portability privileges,playing people for fools. etc.). How much of a premium is really the question. In most cases, a premium of 10-20 basis points is what theIt is in the bank’s best interest to end the practice of artificially market will bear for increased prepayment flexibility.high advertised rates. At the heart of the issue is thecredibility of the banks and the fact that the consumer is now Given the trend of major banks to be more reasonable in theirmore educated than ever. Institutions that engage in suspect upfront pricing, it will definitely become a different market.advertising and business practices will be ferreted out by the Major bank displayed rates will be closer to brokers andconsumer and will be penalized in the long run. discount lenders and consumer negotiations will begin at a lower rate.Of course one of the major reasons behind the increasedmarket knowledge of the consumer has been the advent of As usual, your client referrals are both highly valued and muchonline rate comparison sites. It is now easier than ever to appreciated. Until next time, take care!compare the mortgage offerings of major institutions with afew quick keystrokes. James Metcalfe BROKER “YOUR REFERRALS ARE SINCERELY APPRECIATED! THANK YOU!” 416-931-4161 www.OurHomeToronto.com | Service@OurHomeToronto.com Royal LePage Real Estate Services Ltd. GTA Res Johnston & Daniel Division, Brokerage 477 Mount Pleasant Rd., Toronto, ON M4S 2L9 “A bank is a place that will lend you money if you can prove that you don’t need it. – Bob Hope ” “Have you ever noticed that anybody driving slower than you is an idiot, and anyone going faster than you is a maniac?” – George Carlin “The secret of staying young is to live honestly, eat slowly, and lie about your age. – Lucille Ball ” “What’s another word for Thesaurus?” – Steven Wright In accordance with PIPEDA, to be removed from this mailing list please e-mail or phone this request to the REALTOR ® Not intended to solicit buyers or sellers currently under contract with a broker. The information and opinions contained in this newsletter are obtained from sources believed to be reliable, but their accuracy cannot be guaranteed. The publishers assume no responsibility for errors and omissions or for damages resulting from 4 using the published information. This newsletter is provided with the understanding that it does not render legal, accounting or other professional advice. Statistics are courtesy of the Toronto Real Estate Board. Copyright © 2013 Mission Response Inc. 416.236.0543 All Rights Reserved. K0191