I have been reading Garth Turners blog for quite some time and today I actually got a brief glimpse at what it is like to monitor comments from rude, ignorant, people who largely are so far in the extreme of their ideas they are not prepared to listen to others views.  Garth, seriously dude, hats off.

Anyway although I may not agree with many of Garth Turners views, or his motives, which I am actually not sure what they are beyond selling books, I try to keep my rebuttals respectful, so here we go again.

The most recurring cheap shot was that I was lieing when I discussed the base of our Inflation Hedge Mortgage Strategy which is to protect people from future payment shock of certain higher interest rates in the future.

In the video here are the

ASSUMPTIONS:

Purchase Price: $450,000

Down payment: $45,000 (10%)

Mortgage Insurance: $8,100 (2%)

Amortization: 25 Years

Term: Five Years

Starting Interest Rate Today: 4.39%

Here are the FACTS:

Mortgage Payment Today = $2,261.20

Balance at the end of the term = $362,885.07

THEREFORE to calculate the payments at the END of five years you would take the NEW balance of $362,885.07 and do a new schedule based on 20 years remaining.

New payment at the start of YEAR 6 = $3,366.26

Difference in payments between the Year 6 payment and the year one payment (payment shock) = $920.89

By the way if the client takes our Inflation Hedge Mortgage Strategy they would owe $288,892.47 after five years and have ZERO payment shock. That is a saving of $73,992.60 over five years.

Please Note: This is corrected math from what was presented in the video. I said in the video that it was approximately $600 and that was incorrect.

Our philosophy is to ensure that people who are going to buy a home do it responsibly and understand all the financial repercussions they are facing.  We design a mortgage strategy that will fit into their overall financial wellness, particularly ensuring that they can truly afford the house they are contemplating and to protect them against inflation, which will lead to higher interest rates in the future and the dreaded payment shock. Garth Turner’s job is to tell people not to buy homes, my job is to ensure those that are going to, do it carefully and with a well thought out plan.

This morning I had my first Live broadcast for the Mortgage and Real Estate Show for my good friends at Royal Lepage Foothills Real Estate here in Calgary.

Today’s topics include a discussion around all this negative talk on the blogosphere, particularly led by the likes of Garth Turner about an impending housing shock, when people buying homes today have to renew their mortgages in five years time, you will be shocked at the results.

As well we have a discussion about the effect the recovery will have on Calgary Real Estate and the Calgary mortgage market.

Easily the most consistent question I get is “should I buy a home now”.  I understand that in uncertain times like we have had it can be unsettling to consider buying a home right now. If you are going to, what do you need to know before you get started.

1. Carefully interview your mortgage professional. This one is really important but often overlooked.  Understand that today all mortgage originators including the banks branches ultimately have the same rates available to them.  Certainly one challenge is that they don’t all offer you their best rate.  This does unfortunately shift the focus often to you thinking the most important thing is to negotiate the rate.  Honestly it is not.  The most important thing is to interview the mortgage originator that you will plan to work with.  With something as important as your largest debt and monthly financial commitment you should buy the mortgage from a PERSON not an institution.  Sadly, if you buy a mortgage from a bank you will not have a relationship with that person.  Your subsequent inquiries and requests for information and/or advice will be handled by a call centre or the person who did your mortgage will have been moved to another branch.  If you buy from a trusted and PROVEN mortgage broker, then you will have someone who will know you and advise you through various market turns for the life of your mortgage.   This is incredibly valuable.
2. Allow your Mortgage Broker to advise you on who the other players of your Real Estate team should be. I have seen that when buying real estate the transaction goes much smoother when all players involved have experience working together.  It makes sense when problems arise and they often do, the players can work together to resolve it, most often without stressing you along the way.
3. Allow your mortgage broker to advise you on your strategy. You may buy/sell a home four or five times in your lifetime.  Today’s top Mortgage Brokers will do it over 500 times per year, and some, like me, have been at it for over 15 years or more.  Mortgage brokers have a vested interest in making sure their advice is more then; “you should take a five year, because at our morning meeting my branch manager told me that we were having a rate sale on five year”.  Many Mortgage originators don’t have a strategy and could not explain to you articulately why you should take a certain mortgage product or term.  If they can’t, why would you gamble a $400,000 plus debt in their hands?
4. Get pre-approved. This is a no brainer I know, but be careful.  many pre-approvals today are nothing more then a rate hold.  If your mortgage originator does not ask you for paperwork to support your claims on your application at the pre-approval stage you should really be careful, unless you are absolutely certain you will qualify.  If you are any of these; (self-employed, recently changed jobs, have a relatively high debt load, missed or had any late payments in the last year, in a sector that has some risk of job losses or has already had many job losses, your down payment is not coming from you) then you need to have a full analysis of all your supporting paperwork BEFORE you buy.  The mortgage market is incredibly tight right now and we have wound the clock back 7 years or more in terms of the paperwork required and the due dilegence performed on loans.  Don’t assume anything.
5. Understand we are in EMERGENCY interest rate times. The interest rates we see today are as a result of monetary response from our central bank to battle the nasty recession we have been in since mid 2008.  These rates will go away, and maybe forever.  Take advantage now.  Recently I did a real world analysis on an average priced home in Calgary that was bought and sold within one year, from March 2008 to March 2009.  The price dropped 15% but when you combine how much the interest rates had dropped, mortgage payments had decreased 48% in one year.  Everyone is focused on how much prices have dropped and are waiting for more drops (in Calgary, Median prices have been stable since January) but are missing the real opportunity to capture these unbelievably low interest rates.