Welcome friends, today were will try to unravel the financial implications of condo vs freehold ownership. There is always confusion when we meet clients,  which is better and what it takes for owning these two diverse style of assets. Lets begin.

Condo Ownership: Long-Term Financial Implications

Maintenance Fees:

Condo owners pay monthly maintenance fees to cover shared amenities, building upkeep, and contributions to the reserve fund. These fees can increase over time due to inflation or unexpected repairs, as seen in the GTA where fees rose by 5.51% in 2023. Special assessments may also arise, requiring additional payments for major repairs or budget shortfalls.

Lower Upfront Costs:

Condos are often more affordable upfront compared to freehold properties, making them attractive for first-time buyers 14.

Predictable Expenses:

Maintenance fees provide predictability for shared expenses like utilities, landscaping, and building repairs, reducing the need for individual planning. However, these fees can offset the lower property taxes typically associated with condos.

Appreciation Potential:

While condos appreciate over time, their growth may be slower than freehold properties due to additional costs like maintenance fees and potential buyer hesitations about rising fees. This filters the buyers when we decide to dispense a condo, and it finally reflects in the appreciation. 

Freehold Ownership: Long-Term Financial Implications

No Maintenance Fees:

Freehold owners avoid monthly maintenance fees but are fully responsible for all property upkeep, including repairs and landscaping. This can lead to higher out-of-pocket costs over time. Maintenance costs for freehold homes can average $6,500–$10,000 annually for major repairs spread across decades (e.g., roof, windows, heating and cooling equipment etc).

Higher Upfront Costs:

Freehold properties generally require a larger initial investment but offer greater long-term value due to full ownership of both the land and the property.

Greater Appreciation Potential:

Freehold properties tend to appreciate more significantly over time because land value typically increases faster than building value. This makes freehold ownership a stronger option for long-term wealth accumulation.

Flexibility and Control:

Freehold owners have full control over their property without restrictions from condo boards or shared governance. This autonomy allows for renovations or upgrades that can further enhance property value.

Key Takeaways

Condos: Offer lower upfront costs and predictable shared expenses but come with rising maintenance fees and occasional special assessments that can impact long-term affordability.

Freeholds: Require higher initial investment and ongoing maintenance costs but provide greater appreciation potential, flexibility, and financial independence.

Which Is Right for You?

The choice between condo and freehold ownership depends on your financial goals, lifestyle preferences, and ability to manage ongoing costs. If you value convenience and shared amenities, a condo might suit you better. If long-term growth and full control are priorities, you have budget, a freehold property is likely the better option.

For personalized advice tailored to your situation, feel free to reach out and we will be happy to help. 

Wish you all the very best! Reach out to our dedicated team at Elixir with any queries you have about real estate, and we will do our best to help.

Mudit Mehta 

Broker of Record

ELIXIR REAL ESTATE INC.

Hello everyone, Today, we're diving into some exciting news that’s probable to shake up the real estate market here in the Greater Toronto Area. The Bank of Canada has just cut interest rates by 50 basis points. But what does this mean for you as a buyer, seller, or investor? Let's break it down!"

On October 23, 2024, the Bank of Canada lowered its key interest rate to 3.75%, marking the fourth consecutive cut since June. This move is aimed at boosting economic growth and easing inflation, which recently fell to 1.6%—back in line with the central bank's target.

Impact on Buyers

So, what does this mean for homebuyers? Well, lower interest rates generally translate to reduced borrowing costs. This could be a golden opportunity for those with variable-rate mortgages, as their payments might decrease in the coming months. Plus, if you're considering a fixed-rate mortgage, keep an eye out—rates might drop further if market conditions continue to improve.

For first-time buyers, this rate cut combined with new mortgage rules—like increased price caps for insured mortgages and extended amortization periods—could make homeownership more accessible. It's a promising time to explore your options!

Impact on Sellers

Now, let's talk about sellers. With lower interest rates potentially increasing buyer demand, we might see more activity in the market. However, it's important to note that while demand may rise, the prices would need to be within reason to generate traction as the market has lot of inventory already.

If you're thinking about selling and have urgency, this could be a strategic time to list your property as more buyers enter the market looking for opportunities with this cut. If your situation allows you to wait, then 3-4 months wait for the Spring time could be well worth it, with couple of more cuts impending and busier Spring market. If you are in a move-up situation, it would be better to list it at the earliest, to make more benefit on the higher priced buy side due to the slow market.

Market Dynamics

The GTA housing market is currently experiencing a surge in new listings—up 35% from last year—which has pushed inventory levels to their highest since November 2008. This means buyers have more options and negotiating power, making it crucial for sellers to price competitively. Despite this influx, prices have seen moderate declines when you consider yearly numbers. The average home price in September was down just 1.1% from last year. This stability indicates a balanced market where both buyers and sellers can find opportunities.

In September alone, home sales in the GTA rose by 8.5% year-over-year, indicating that buyers are already beginning to take advantage of more favorable market conditions.

In summary, this rate cut is likely to stimulate more activity in the GTA real estate market. Whether you're buying or selling, staying informed and prepared is key. As always, consult with your real estate professional to navigate these changes effectively.

Wish you all the very best! Reach out to our dedicated team at Elixir with any queries you have about real estate, and we will do our best to help.

Mudit Mehta 

Broker of Record

ELIXIR REAL ESTATE INC.

Welcome, today we will discuss information that simplifies Real Estate and enables you to achieve your goals better. Today, we're diving into a topic that's reshaping the Greater Toronto Area's real estate landscape: the impact of remote work on real estate trends. The shift to remote work, accelerated by recent global events, has significantly altered how we view our living spaces and where we choose to call home. Let's explore the key ways this change is influencing real estate in the GTA.

Remote work has redefined what many people look for in a home:

Home Office Space: There's an increased demand for properties with dedicated office spaces or extra rooms that can be converted into workstations. Homes with this feature are seeing higher interest and potentially commanding premium prices. A working couple who 5 years back was happy with a 1 bed plus den setup, now looks for a larger condo footprint to ensure two work desks can be set up without conflict.

Larger Living Areas: With more time spent at home, buyers are prioritizing spacious living areas. Open-concept layouts and larger square footage have become more desirable. Condos or homes with a cozy living room is not that preferred with the changing trend.

Outdoor Spaces: Access to private outdoor areas like balconies, patios, or backyards has become a must-have for many buyers, as people seek spaces for relaxation and a change of scenery during work breaks. The young first time home buyers get more attracted towards condo townhomes where they get that additional backyard open space to spend some time in open nature. The high-rise condos due to absence of a private backyard, are less preferred.

Suburban and Rural Migration

The GTA is experiencing a notable trend of people moving away from the downtown core. With daily commutes no longer a concern for many, suburbs are seeing increased interest. Areas like Brantford, Woodstock, Courtice, Barrie and Hamilton etc are benefiting from this shift. Even areas further from GTA, such as Caledonia, Georgina, Collingwood, Grimsby, Welland, St Catherines are seeing increased demand as buyers seek more space at a lesser price point and a connection to nature.

Impact on Downtown Condos

The condo market, particularly in Toronto core, has faced some challenges. With less need to be close to offices, some buyers are opting out of the downtown condo lifestyle. Rental Market is shifting with many condos available to lease and this increased supply and reduced demand is putting downward pressure on the rental prices. Currently we are in Sep 2024, and we have 5,000 plus active lease listings available across City of Toronto, and from these 1,800 plus are just from downtown Toronto.

Long-Term Implications

While some of these trends may moderate as we move forward, it's likely that the impact of remote work on real estate will have lasting effects. Many companies are adopting hybrid work models, which may sustain the demand for homes that can accommodate both in-office and remote work. Cities and developers may need to rethink urban planning, potentially leading to more mixed-use developments and decentralized business districts.

As we wrap up, it's clear that remote work has become a significant factor in shaping real estate trends in the GTA. Whether you're a buyer, seller, or investor, understanding these shifts is crucial for making informed decisions in today's market.

Thanks for tuning in to this episode of Elixir Talks. If you found this information helpful, please like, share, and subscribe for more insights into the GTA real estate market. Until next time, stay informed and make your real estate decisions with confidence!

Wish you all the very best! Reach out to our dedicated team at Elixir with any queries you have about real estate, and we will do our best to help.

Mudit Mehta 

Broker of Record

ELIXIR REAL ESTATE INC.

Today I want to share some big news that could affect many Canadian homeowners. The Office of the Superintendent of Financial Institutions, or OSFI, has just announced a significant change to mortgage stress test requirements. Let's break down what this means and why it matters.

The Big Announcement

On September 25, 2024, OSFI revealed that it will no longer require borrowers with uninsured mortgages to undergo a stress test when switching providers at renewal. This is a major shift in policy that could have far-reaching implications for the Canadian housing market.

What is the Mortgage Stress Test?

Before we dive into the changes, let's quickly recap what the mortgage stress test is:

Introduced in 2018, the stress test requires borrowers to qualify for a mortgage at a higher interest rate than their actual rate.

The qualifying rate is the higher of 5.25% or the contract rate plus 2%.

This test aims to ensure borrowers can handle their mortgage payments if interest rates rise significantly. Stress guidelines introduced in 2012, initially only for those with less than 20% down payment. In 2018 Stress test was expanded to all mortgages, insured as well as uninsured.

Under the existing rules:

Borrowers with uninsured mortgages (those with a down payment of 20% or more) must pass the stress test when switching lenders at renewal. This has often made it challenging for homeowners to shop around for better rates, potentially trapping them with their current lender.

The Change:

Now, here's what's changing:

OSFI will eliminate the stress test requirement for "straight switches" of uninsured mortgages. A straight switch means renewing with a different lender but keeping the same loan amount and amortization schedule. This change will take effect on November 21, 2024.

Why the Change?

OSFI cites two main reasons for this policy shift:

Addressing the imbalance between insured and uninsured mortgages at renewal. The uninsured mortgages are allowed to switch lenders upon renewal, whereas consumers with uninsured mortgages where they have in fact have 20% or more as their contribution towards the property had to go through the stress test on switches.

The second reason is the data showing that the risks this policy was meant to address haven't significantly materialized.

Impact on Homeowners: A Practical Example

Let's consider a practical example to illustrate the impact of this change:

Imagine a homeowner, Jane, who bought a house in 2019 with a $500,000 uninsured mortgage at 3% interest. Her monthly payments were about $2,366.

Fast forward to 2024, and Jane’s mortgage is up for renewal. Current rates have risen to 5.5%.

Under the old rules: If Jane stayed with her current lender, she wouldn't need to pass the stress test. If she wanted to switch lenders, she'd need to qualify at 7.5% (5.5% + 2%). This made it difficult for Jane to shop around, even if other lenders offered better rates.

With the new rules:

Jane can now switch lenders without the stress test, as long as she maintains her original loan amount and amortization. This gives her the freedom to find the best rate available, potentially saving thousands over her mortgage term.

Broader Implications

This change could have several effects on the Canadian mortgage market and would see increased competition among lenders. There would be more options for borrowers at renewal time. Potential for lower mortgage rates as lenders compete for business. There could be a possible increase in refinancing activity as homeowners take advantage of the new rules.

While this is a significant change, it's important to remember that the overall goal of financial stability remains. OSFI has stated they'll continue to monitor the market and make adjustments as needed.

This change represents a major shift in Canadian mortgage policy, potentially offering more flexibility and better options for many homeowners. As always, it's crucial to stay informed and consider your individual financial situation when making decisions about your mortgage.

Wish you all the very best! Reach out to our dedicated team at Elixir with any queries you have about real estate, and we will do our best to help.

Mudit Mehta 

Broker of Record

ELIXIR REAL ESTATE INC.

Today, let us explore a crucial concept in real estate investing: the Capitalization Rate, or Cap Rate. Whether you're a seasoned investor or just starting, understanding Cap Rate is essential for evaluating property investments. This episode will definitely help you understand this concept very well and will try to make it simple.

So, what exactly is Cap Rate, and why is it important?

Cap Rate helps investors assess the potential return on an income-generating property. It's a quick way to compare the profitability of different real estate investments. Cap Rate is a ratio that measures the annual return on investment, based on the property's net operating income (NOI) and its current market value.=

The formula is simple: Cap Rate equals to NOI divided by the property's value. In other words, Cap Rate shows what percentage of your investment you can expect to earn back in a year, excluding financing costs. It's expressed as a percentage, making it easy to compare different properties. For understanding NOI better you can review our last episode here.

To calculate the Cap Rate, you need two key numbers: the property's Net Operating Income and its current market value.

Suppose you have a property valued at $500,000, and its annual net operating income is $50,000. To find the Cap Rate, divide the NOI by the property value.

In this example, the Cap Rate is 10%. This means you're earning a 10% return on your investment annually, based on the property's income and value.

Now, how do you interpret the Cap Rate? Generally, a higher Cap Rate indicates a higher return and risk. Conversely, a lower Cap Rate suggests a lower return with less risk. It's essential to balance these factors based on your investment strategy.

For instance, a property with a Cap Rate of 10% might be in a less desirable area, implying higher vacancy rates or maintenance costs. On the other hand, a 5% Cap Rate property in a prime location might offer more stability and consistent income. For example, properties in emerging suburban markets might offer higher Cap Rates due to the increased risk, while properties in stable, high-demand areas might have lower Cap Rates due to lower risk.

In downtown Toronto, you might find properties with Cap Rates around 3-5%. These lower Cap Rates reflect the high demand and stable market conditions. On the other hand, properties in developing areas like Hamilton or Oshawa might offer higher Cap Rates, say around 6-8%, reflecting the potential for higher returns but also higher risk.

These examples highlight the importance of understanding the local market conditions when evaluating Cap Rates.

Several factors can affect a property's Cap Rate. These include the property's condition, location, market demand, and overall economic conditions. Improvements and renovations can also impact the NOI, thus affecting the Cap Rate. For instance, upgrading a property's amenities can increase its NOI, leading to a higher Cap Rate.

Cap Rate is a valuable tool for comparing investment opportunities. It helps you assess whether a property aligns with your investment goals. However, it's crucial to consider it alongside other metrics like cash flow, appreciation potential, and financing costs.

Now let us look at some scenarios from the Greater Toronto Area to see how Cap Rates play out.

A multi-family property in Mississauga is valued at $1,500,000 with an annual NOI of $105,000.

This property has a Cap Rate of 7%. It's a solid investment with a good balance between return and risk, considering Mississauga's growing population and job market.

A retail space in downtown Toronto is valued at $3,000,000 with an NOI of $180,000.

This gives us a Cap Rate of 6%. While the return is lower, the prime location in downtown Toronto offers excellent stability and potential for long-term appreciation.

An industrial property in Brampton is valued at $2,200,000 with an NOI of $198,000.

This property has a Cap Rate of 9%, indicating a higher return. However, industrial properties can have higher vacancy rates, so it's essential to consider all factors.

Several factors can influence Cap Rate, including location, property condition, and market conditions. Let's take a closer look.

1. Location: Prime locations generally have lower Cap Rates due to higher demand, higher value and lower risk.

2. Property Condition: Well-maintained properties attract better tenants and higher rents. This directly impacts the NOI and Cap Rates.

3. Market Conditions: Economic factors, interest rates, and local market trends impact Cap Rates.

4. Lease Terms: Long-term leases with stable tenants can lower risk, affecting the Cap Rate.

5. Vacancy Rates: Higher vacancy rates increase risk and can result in higher Cap Rates.

Let us also consider some ballpark estimates for various commercial real estate categories,

Office Buildings: Typically range from 4% to 8%, with higher cap rates for properties in secondary markets or with lower-quality tenants.

Retail Properties: Can vary widely from 4% to 12%, depending on location, tenant mix, and lease terms. High-street retail in prime locations often has lower cap rates.

Industrial Properties: Generally range from 5% to 9%, but can be higher for properties in less desirable locations or with older buildings.

Multifamily Residential: Typically between 4% and 8%, with lower cap rates for properties in desirable urban areas and higher cap rates for properties in suburban or rural areas.

Single-Family Homes: Cap rates can vary significantly based on location and market conditions. As an investment property, they typically range from 4% to 8%.

Understanding Cap Rate is crucial for making informed real estate investment decisions. It helps you evaluate the potential return and compare different properties effectively. Remember to consider all factors and use Cap Rate as a guide, not the sole determinant.

Wish you all the very best! Reach out to our dedicated team at Elixir with any queries you have about real estate, and we will do our best to help.

Mudit Mehta 

Broker of Record

ELIXIR REAL ESTATE INC.

Today, we're diving into an essential topic for real estate investors: Understanding Net Operating Income, or NOI. Whether you're a seasoned investor or just starting, grasping the concept of NOI is crucial for making informed decisions. So, let's break it down and I will try to make it simple for you to understand!

What is NOI and Why Does it Matter?

Net Operating Income is a key metric used to evaluate the profitability of an income-generating property. It helps investors determine the potential return on investment and make comparisons between different properties. But what exactly is NOI, and how do you calculate it?

First, let's define Net Operating Income. NOI is the total income generated from a property, minus the operating expenses required to maintain it. It excludes costs like taxes, mortgage payments, and depreciation. In other words, NOI focuses on the property's operational efficiency.

The formula for NOI is straightforward: Gross Operating Income minus Operating Expenses. Let's break this down further.

Gross Operating Income, or GOI, includes all the revenue generated from the property. This typically comes from rental income but can also include other sources like parking fees, laundry machines, advertising signs, or vending machines.

For example, if a property generates $80,000 in rental income, $2,500 from parking fees, $1,500 from laundry machines, and $1,000 from vending machines, the Gross Operating Income would be $85,000.

Next, we have Operating Expenses. These are the costs required to keep the property running efficiently. Common operating expenses include property management fees, maintenance and repairs, legal fees, utilities, property insurance, and marketing costs etc.

For instance, if in our example the property incurs $8,000 in management fees, $4,000 in maintenance, $3,000 in utilities, and $1,500 in insurance, the total operating expenses would be $16,500.

With a Gross Operating Income of $85,000 and operating expenses of $16,500, the NOI would be $68,500. So, the Net Operating Income for this property is $68,500. This figure gives us a clear picture of the property's profitability, excluding financing and tax expenses.

But why is NOI so important? For investors, NOI provides a snapshot of a property's financial health. It helps in comparing different properties, assessing potential returns, and making informed investment decisions. It's a measure of a property's ability to generate income from its operations. Understanding NOI is essential for:

Property Valuation: NOI is a key component in determining a property's value using capitalization rates or cap rates.

Investment Analysis: Comparing NOI from different properties helps investors assess potential returns.

Cash Flow Estimation: While not identical, NOI is closely related to cash flow, which is the ultimate goal for most real estate investors. To calculate cash flow, you subtract debt service (mortgage payments) and income taxes from NOI. Positive cash flow is essential for most real estate investors.

NOI and Capitalization Rates

The capitalization rate (cap rate) is a key metric in real estate investment. It's calculated by dividing the NOI by the property's value. A higher cap rate generally indicates a higher potential return, but it's essential to consider other factors like property location and market conditions.

Let's consider another example from the Greater Toronto Area. Suppose you own a multi-family rental property in downtown Toronto. The property generates $250,000 in rental income annually, with additional revenue from parking and storage fees totalling $25,000. Your total Gross Operating Income is $275,000. After accounting for operating expenses like property management, maintenance, and utilities amounting to $85,000, your NOI would be $190,000.

In this case, the NOI of $190,000 indicates the property's profitability, which you can use to compare with other investment opportunities in the GTA.

Understanding Net Operating Income is essential for anyone serious about real estate investing. It helps you evaluate properties, make informed decisions, and ultimately achieve your financial goals. If you have any questions about NOI or need help with your real estate investments, feel free to reach out.

Wish you all the very best! Reach out to our dedicated team at Elixir with any queries you have about real estate, and we will do our best to help.

Mudit Mehta 

Broker of Record

ELIXIR REAL ESTATE INC.

Welcome back, Elixir Family! Today, we’re going to look into some ground-breaking changes in Canadian mortgage rules that are set to reshape the home-buying landscape. These updates are not just minor tweaks; they're the most significant reforms we've seen in over a decade. So, let's break it down and see what this means for you, especially if you're a first-time homebuyer.

Historical Context

Before we jump into the exciting changes, let’s rewind back to understand the impact of these new regulations. Back in 2006, you could get an insured mortgage with a 40-year amortization period. Imagine that! But things changed and in 2008 we saw it drop to 35 years. 2011 brought it down to 30 years. And in July 2012, we hit the 25-year mark, which has been the standard until now, i.e. 2024.

Also in 2012, the government capped insured mortgages at $1 million. Despite skyrocketing home prices specially since 2015, this cap hasn’t changed... until now.

Now, let's talk about what are the new big changes and when it's happening:

Extended Amortization Periods

As of August 1, 2024, first-time homebuyers can already access 30-year amortizations for newly built homes. This is huge for those eyeing fresh developments!
Mark your calendars for December 15, 2024. That's when 30-year amortizations expand to all first-time buyers, whether you're looking at a new build or a amazing resale opportunity.

Let us try to understand with an example: if you take a mortgage for principal of $800,000 from financial institution, say with a fixed term of 3 years at 4% rate and amortization of 25 years, the mortgage amount will come at $4,208 per month. With the new rules and for same figures, if we just alter the amortization to 30 years, the mortgage commitment per month would reduce to $3,804.

Increased Insured Mortgage Cap

Effective December 15, 2024, the insured mortgage cap jumps from $1 million to $1.5 million. Or in other words we have reduced minimum down payment requirement for homes priced between $1M and $1.5M. This is a significant change, especially in our pricier markets. Buyers can now look at homes between $1 million and $1.5 million with less than a 20% down payment. This opens up a whole new segment of the market for many buyers. Significantly reduces the upfront cost of buying a home in these price ranges. Right now the buyers were just limited to sub-million purchases due to this restriction on insured mortgages.

Overall, these changes are expected to benefit first-time homebuyers in several ways:

Lower monthly payments: The extended amortization periods can reduce monthly mortgage payments, making it easier to afford a home.  

Increased affordability: The increased insured mortgage cap and reduced minimum down payment requirements can make homeownership more accessible in high-cost housing markets.  

Greater flexibility: The changes provide more flexibility for first-time homebuyers in terms of the size of the home they can afford and the down payment they need to save.

Potential Market Impact

    1    Increase Competition While these changes are exciting, they could have broader effects on the market: Increased Demand: We might see more buyers entering the market, potentially increasing competition. 

    2    Price Pressure: This could put upward pressure on home prices, especially for in-demand metro markets like Toronto, Vancouver, Montreal, Calgary, Ottawa etc. 

    3    Market Stimulation: These changes could energize the market which was developing lot of fatigue in terms of buyers sentiments for good 2 years plus now, possibly leading to more construction and development. 

It's important to approach these changes with a balanced perspective: Longer amortization periods mean more interest paid over time. The potential for increased demand could offset some affordability gains as it might lead to increase in property prices.

As we wrap up, I want to say that these reforms represent the most significant changes to Canadian mortgage rules in over a decade. They're designed to make homeownership more accessible, but they also come with considerations that need careful thought. At Elixir Real Estate, we're here to help you navigate these changes. Whether you're ready to jump into the market or just starting to consider homeownership, we can guide you through the process and help you make informed decisions.

Wish you all the very best! Reach out to our dedicated team at Elixir with any queries you have about real estate, and we will do our best to help.

Mudit Mehta 

Broker of Record

ELIXIR REAL ESTATE INC.

Welcome, Today, we're talking about something that could be very helpful in your homeownership journey: the First Home Savings Account, or FHSA. If you're looking to buy a home in Ontario, this might be the financial tool you've been waiting for.

So, what exactly is the FHSA? The First Home Savings Account is a new savings program introduced to help first-time homebuyers save up for their dream home. Think of it as a hybrid between an RRSP and a TFSA, combining the best features of both. It's a government-registered savings account designed specifically to help you save for your first home. Think of it as a supercharged savings account with extra benefits.

Key Features of FHSA

Tax-Deductible Contributions: Just like an RRSP, the contributions you make to your FHSA are tax-deductible for that year where contributions are made. This means you can reduce your taxable income, which can be a big bonus at tax time.

Tax-Free Withdrawals:

Similar to a TFSA, when you withdraw funds from your FHSA to buy your first home, those withdrawals are completely tax-free.

Annual Contribution Limit: You can contribute up to $8,000 per year, with a lifetime maximum of $40,000. This can significantly boost your savings over a few years. You are able to carry forward your unused contributions to the next year. For example, if you contributed only $4,000 in one year, you’d be able to carry forward your remaining $4,000 contribution to the next year, in addition to your new annual limit of $8,000. This would mean you will be able to do a tax-deductible contribution of $12,000 ($8,000 + $4000 = $12,000) in the following year.

After opening an FHSA account within 15 years you can utilize it for your first home purchase, or until you turn age 70.

Opening an FHSA is simple. You can open an account at most major banks and financial institutions in Ontario. You'll need to provide proof that you're a first-time homebuyer, and then you can start making contributions right away. Also, I want to mention that if you open an FHSA account and didn't decide to buy a home, it can still be converted to a RRSP, this flexibility makes it even more appealing.

And to top it all FHSAs allow to hold similar type of investments as we have in RRSPs or TFSAs, you can buy GICs, Mutual Funds, Stocks and government bonds etc.

FHSA is an individual savings plan, so you and your spouse can open your own FHSAs and maximize the reduction in taxable income and leveraging the funds towards your first home purchase.

FHSA vs. RRSP Home Buyers' Plan

You might be wondering, how does the FHSA compare to the RRSP Home Buyers' Plan? While both are great options, there are some differences:

Repayment

With the RRSP Home Buyers' Plan, you can withdraw up to maximum of $35,000 to buy your first home, but you have to pay it back over 15 years, beginning in second year following withdrawal. You can review more information on RRSP Home Buyer Plan in this blog here: RRSP Home Buyer Plan .

The FHSA, on the other hand, does not require repayment, making it a simpler and potentially more attractive option for many buyers.

Holding Period

In FHSA there is no minimum holding period or lock-in period before the money can be withdrawn for purchase, in RRSP Home Buyers Plan there is a 90 days hold and funds need to be in the account before any withdrawals are made.

Maximum Annual Contribution

In FHSA the limit is $8,000 per year, upto a life time maximum of $40,000. For RRSP its lesser of 18% of your income or annual limit set by the government for that year.

In summary, while both FHSA and RRSP offer tax advantages, the FHSA is specifically tailored to help first-time homebuyers, while the RRSP is focused on retirement savings. And yes you can combine both of these programs, and if both spouses are contributing they can maximize their withdrawals to fund contributions for their first home purchase.

The FHSA is a fantastic tool to help you save for your first home. By taking advantage of the tax benefits and the ability to withdraw money tax-free for your down payment, you can get a head start on your homeownership journey.

Wish you all the very best! Reach out to our dedicated team at Elixir with any queries you have about real estate, and we will do our best to help.

Mudit Mehta 

Broker of Record

ELIXIR REAL ESTATE INC.

Welcome back, friends! Today, we will start a two-part series exploring the basic forms of appreciation in real estate. We'll start with a market appreciation or natural appreciation, using real-life examples from the Greater Toronto Area to enrich our understanding of this topic.

Market appreciation refers to the organic growth a real estate asset undergoes over time, influenced purely by market forces. Let's examine the factors that impact the growth of an asset:

Inflation

Inflation is a primary driver of market appreciation in real estate. As the cost of services, goods, materials, and labour rises, so does the value of real estate assets. They become costlier to rebuild over time. This natural hedge against inflation makes real estate an excellent investment vehicle. As the perceived value of the asset is bound to rise with inflation dynamics. This reason alone make Real Estate a great investment vehicle as it provides an inbuilt inflation hedge.

Rental Rates

With the advent of time and inflation, the purchasing power of money decreases with time. The Rental rates increase and they are a second big reason which drives up the value of a Real Estate Asset. For an investor along with the monthly appreciation which happens in the asset due to inflation, they get to benefit from the rental payments to pay up their mortgage commitments. The principal repayment part in the mortgage increases their equity in the asset month over month. The increase in the rental prices, definitely helps the property appreciate.

Economic Growth

In good and progressing economies with the rise in inflation, there is also movement in terms of economic growth. New jobs and industry sectors are established pushing the economies which indirectly makes the Real Estate assets appreciate with the economic stimulus. More jobs mean higher income levels, which bolsters consumer confidence and ultimately leads to growth in the Real Estate sector.

Infrastructure Development

Properties in metro areas or regions anticipating significant infrastructure investment typically see greater market appreciation. Easy access to highways and public transit can significantly influence an area's growth compared to regions with less developed infrastructure. After spending almost a decade in real estate, I can confirm that 'location' is indeed critical to natural growth.

Population Growth

In a place like the Greater Toronto Area, there is a lot of population growth in the form of immigration which takes place in Canada. And GTA being the biggest job market in Canada, which makes a lot of net new people choose to live in such regions. This population growth is very simply put directly proportional to market appreciation. Another reason Location plays a key role is that population growth will be centred around in-demand locations where job opportunities and chances of growth for a newcomer are abundant.

Supply Constraints

Supply constraints are another reason price growth happens in Real Estate. If you observe major municipalities like Mississauga, Burlington, Richmond Hill and Brampton, their landscape doesn’t allow for more sub-divisions as already they are saturated with constructions to the boundary of these towns. When the land is saturated, and the market forces keep the area in demand. The progression of time makes the prices increase due to this saturation in the land development; as there is limited supply of new development. 

Government Policies and Interest Rates

Any government or municipality should be instrumental to make it easier for first-time home buyers and investors in form of tax breaks and incentives. These policies help sustain the buy/sell of the assets and increase their demand, which pushes the appreciation. Schemes like First-time home buyer RRSP Advantage allow prospective homeowners to leverage interest-free money from their RRSP savings. There are couple of other policies like the Land Transfer Tax Credit on the first home for $4,000, or the First time home buyer tax credit. All of these policies help flourish and promote home ownership. 

Federal bank's interest rate policy changes are another major factor. They can go either way, as you would have noticed the historically lower interest rates in the Covid-times pushed the prices way above, and then the tightening of borrowing rates in 2022/2023 also brought them down. The fine balance of interest rate policy changes and the market prices continue. In the short term, they are inversely proportional. However, in the longer term with the above other reasons we laid down, the inflationary pressures, drive up the asset prices in a growing economy.

Real World Case-Study

Let us now consider an example where we can understand how natural appreciation can come into play. For this case study, I have chosen detached 2-storey single garage dwellings in couple of municipalities across GTA that got sold in June of 2010. The next step is to determine their median sold price and then look at the median sold price for similar categories of properties in June of 2023.  I have chosen this 13-year duration as it covers the highs/lows we observed in the 2017 market and similar occurrences we observed in the first quarter of 2022. 

This tabulation highlights the power of Market Appreciation in the Greater Toronto Area, just by virtue of the growing population base here in the GTA, booming economic considerations in the last 13 years overall, and sustained employment opportunities, all these have a combined reflection on the market prices. 

Based on the data we can safely say that GTA had almost ~200% of natural appreciation due to these factors and after surviving two market downturns, and this is all organic growth and ‘market appreciation’ in action. In the next episode I will continue our discussion to the second type of appreciation which is ‘Forced Appreciation’ the factors involved there and how it takes place in Real Estate. It would be an interesting one and will completion our discussion on the topic of appreciation. 

Wish you all the very best! Reach out to our dedicated team at Elixir for any queries you have in Real Estate, and we will do our best to help.

Mudit Mehta 

Broker of Record

ELIXIR REAL ESTATE INC.

Embarking on the journey to buy your dream home is super exciting, yet it’s filled with important decisions. Think of it like getting ready for a big vacation. Before setting off, you want to know what you can spend on this trip. That’s where Pre-Qualification and Pre-Approval come into the picture, two key steps that might sound the same but are quite different.

Warm-Up: Pre-Qualification

Let’s say you’re just warming up, thinking about jumping into the home-buying pool but not ready to dive deep just yet. Pre-qualification is like dipping your toes in the water. It is a basic due diligence based on the information you provide to the lender on your income support and credit worthiness, any loans you already have etc. You also advise them on all of your assets and debts. The bank does a preliminary analysis of your supporting docs to advise how much you would be able to borrow as a ballpark. Generally, the credit check is not done at the pre-qualification stage, it is just based on the information you provided to the lender. And that's the reason pre-qualification is not a guarantee that you will be given a mortgage of the same amount. However, it is very helpful to give you a solid guideline on what target range you can consider to start your property searches.

Getting Serious: Pre-Approval

This is a more detailed process where a formal mortgage application is written for your eligibility. The lender would require a line-up of documents like - proof of employment, latest salary stubs, Notice of Assessments, assets and debt details, loan and lines of credit details identification docs etc. In the process of doing a pre-approval for you, the lenders will do a credit check as well with your consent. Once they have done their formal approval due diligence, the lender will generally provide you with the amount they can extend and the rate at which they can offer. The pre-approvals so provided are further valid for 90-120 days and differ from bank to bank, the lender provides a locked fixed rate for this duration. This gives you a stronger hold on your finances, and you can be much more confident when placing an offer for a property. 

The Right Move

Now the question comes whether it should be pre-approval or pre-qualification. The definite answer is pre-approval, especially when you are intent in making the Real Estate purchase in the next 3-4 months. This will give you a strong handle on the whole process with peace of mind and a negotiation edge with the Seller. The pre-qualification one should do when they are in a very primitive stage and they just want to tread waters and understand whether the Real Estate investment is possible or not in the first place. 

Both have their role in setting you up for success in the Real Estate journey and should not be overlooked. For any Real Estate advice you require, reach out to us and we will be happy to help. Take good care and talk to you soon!

Wish you all the very best! Reach out to our dedicated team at Elixir for any queries you have in Real Estate, and we will do our best to help.

Mudit Mehta 

Broker of Record

ELIXIR REAL ESTATE INC.

Today we will understand how co-buying works in real estate. There are situations where unrelated individuals team up to purchase real estate assets. Let's dive deep and enhance our understanding of this topic.

The property market in the Greater Toronto Area has appreciated significantly, especially in the last 12–15 years. With the continuous influx of immigrants and new permanent residents, real estate is likely to become more valuable and continue to hold interest and become prime. With these rising prices, you might wonder what it takes for friends, or non-spousal family members, to come together to purchase a property. This is essentially co-buying, where a single individual's income is not sufficient to afford ownership, and they resort to combining forces to co-buy.

Co-buying is where two or more individuals pool their resources to purchase a property. When looking at such ownership, it predominantly falls into two types:

Joint Tenancy

Joint tenancy is a type of ownership where all owners on the title have equal rights and obligations regarding the property. It includes the right of survivorship, meaning if one owner passes away, their interest in the property is directly passed to the surviving members of the title, bypassing the probate process. This arrangement can include married or unmarried couples, friends, relatives, or business partners, etc. They are equally responsible for any revenues generated through the property, like rental income, and also liable for mortgage payments, property taxes, maintenance, etc.

It's important to note that all co-owners in a joint tenancy arrangement have a similar percentage of entitlement. So, if there are two joint tenants, both will have a 50% share. A 50-40 arrangement is not possible. And if a joint tenancy involves four individuals, each will have a 25% share. I hope this is clear. All of them have equal rights to possess and use the entire property.

Tenants in Common

Tenancy in Common is a property-sharing arrangement where each party can potentially control a different percentage of the asset. For example,  a father and son can buy real estate property with a 70-30 share between them, with 70% belonging to the father and 30% to the son. Tenancy in common offers flexibility in deciding the percentage share between various parties involved. These agreements can be created at any time, even for the addition of a new member. Conversely, one member of the tenancy in common can potentially buy out the other party, if they agree to do so. The ownership applies to the whole property, similar to joint tenancy, meaning no partner can claim exclusive rights to any portion of the property.

In tenancy in common, the tenants can designate their heir in their will. In the event a person passes away, the other partners will have to deal with the heirs. This might result in a situation where they might need to sell or divide the property.

Now that we have discussed how co-ownership can be materialized via Tenants in Common legal arrangement, let's discuss the benefits of co-buying:

Mortgage Qualification

Co-buying ensures that financial institutions are now able to qualify for higher lending due to the combined income of the purchasers. The credit score of the purchasers plays a pivotal role in earning this qualification.

Holding Capacity

It helps to carry the costs like property tax, mortgage payments, regular maintenance, major repairs, etc., with the co-owners. This shields them well from carrying the property. In real estate, the time horizon for which a property is kept has a direct relation to how much your equity will grow. In the case of a co-buying arrangement, since the pressure of liabilities is less on each party involved, they are more likely to sustain it for a longer duration.

Better Asset

Multiple buyers joining forces directly impacts their budget and the quality of the asset. Since they are joining hands, they can opt for a better location for the asset. This will directly help in more equity build-up and future growth opportunities, as the asset was bought in a more promising location, with a better property type.

Natural Market Hedge

Since the mortgage commitments and liabilities are shared between the co-buyers, it becomes an organic hedge against market downturns. An individual who is a single owner is more likely to feel distress if the market takes a downturn. A group of like-minded people jointly sharing would have an edge and are more likely to survive the downturn. Since real estate markets are cyclical, they would be able to brave time, and when the market is back up again, they would be able to dispense and avoid any losses.

Let's discuss a couple of challenges as well as when you want to team up for co-buying and how you can make it a smooth experience:

Complete Trust & Ownership

When you want to get into co-buying, the most important thing you want to ensure is that all partners involved confide completely in each other and share common goals and aspirations. There should not be any difference in their approach and mindset towards the asset. As long as they are similar in their vision and clear about their goals, it will be a mutually beneficial undertaking. They should have a common vision for the exit strategy and the time horizon they are looking for in the investment.

Constant Communication

During co-ownership, they should have constant communication and dialogue with each other for any decision-making, new lease takeovers, and maintenance work. They should be responsible and equally proactive in coming forward and doing what it takes to maintain the asset.

Borrowing Challenges

In the case of co-ownership, when you are shopping for a good borrowing rate, it generally depends on the credit scores of the applicant and their liabilities. In the case of co-ownership, if one of the partners doesn't have a great credit score, it affects the other partners negatively as the financial institution generally would try to average the credit score of all applicants. So, if two have good scores and the third one is below average, it will be blended. 

I hope this was helpful, and do share with your friends and colleagues who might benefit from this. Our team here at Elixir is available to answer any of your questions about real estate. For the best real estate experiences in the Greater Toronto Area, reach out, and we will be happy to assist.

Wish you all the very best! Reach out to our dedicated team at Elixir for any queries you have in Real Estate, and we will do our best to help.

Mudit Mehta 

Broker of Record

ELIXIR REAL ESTATE INC.

Welcome friends to a fresh episode of Elixir Talks. In this episode, we’re uncovering the layers on a topic at the heart of condo living—‘Reserve Funds.’ We will discuss how Reserve funds impact us as a both as a Buyer and Seller in dealing with our Real Estate transactions.

Imagine you’re about to start on the journey of condo ownership. One critical factor that can make or break your decision is the financial pulse of the condo corporation. It’s the cornerstone for a buyer eyeing a valuable investment and for a seller aiming for a hassle-free sale. The reserve fund is a clear indicator of a condo's fiscal fitness.

What is a Reserve Fund?

Picture a savings account for your home on a larger scale. Just as we stash away funds for rainy-day home repairs, a condo complex pools resources for its maintenance needs. Whether it’s the repair of common walkways or the overhaul of essential systems, this fund is the backbone that ensures smooth operation without imposing unexpected expenses on the residents.

To give you some more examples it could be maintenance and upkeep of shared parking lots, rooftop terraces, roof shingles, HVAC equipment, building foundation, balcony maintenance, swimming pools, tennis or squash courts, repaving of the parking lots, repairing or replacement of elevators, windows and doors, electrical and mechanical systems, hallway maintenance, light fixtures replacement etc. This essentially is a pool of money which is set assist for contingency and future major repairs. It avoids the incoming residents to pay for the usage and wear and tear by the previous residents, it ensures all residents to contribute for this throughout the existence of condo.

Here in province of Ontario all of the condo corporations are required to maintain at least one reserve fund as part of their collection of monthly fees from the unit holders. 

How Condo Reserves are Accumulated?

As part of a condo living, the unit holder pays a common expense fees, which is typically paid monthly to the condo corporation. This fees has multiple components like Operational expenses, management fees, concierge services, taxes, security personnel payroll etc  and a portion of this fees is attributed to generate a corpus of Reserve Funds. 

Every months this reserve fund grows and comes handy in case the condo management needs budget to do any major repairs or replacements of the common elements or any assets of the corporation. I should highlight here that this reserve fund can strictly be used only for repairs of existing common elements and maintain their state and is not a tool to improve or do addition to the common elements.

What happens if Reserve Fund is Low?

In the absence or underfunding of Reserve Fund pool, the corporation would need to rely on the special assessment and increase the monthly contributions of the residents to generate the necessary funds or look to borrow money in order to generate the funds which indirectly raises the fee as well. And if the maintenance projects which require Reserve Funds are postponed, they can become even costlier to fix at a later date and increase the overall cost for the owners. It might cause a safety risk also for the owners and residents. 

There is another indirect impact to the owners as if the long-term maintenance is not commissioned at due time, it would deteriorate the conditions of the building which has an impact on the value and saleability of units. The resale value as you see can be directly impacted if the conditions of proper maintenance of the complex don't happen due to a poorly funded Reserve Fund.

It's a common misconception to think that a hefty reserve fund negates the need for further contributions. However, regular input to the reserve is crucial. It acts as a financial shield for unexpected, often expensive, repairs that can emerge, particularly in older buildings and complexes.

Reserve Fund Study

A Reserve Fund Study is an activity which is done periodically by the condo corporation to assess their needs and determine if the reserve fund is adequate for the sustenance of the complex. For a newly formed condo corporation, it is done within a year of the creation of a condo declaration and description. There are three different types of reserve fund studies, Class 1 is the most comprehensive one and the first one to be completed where the study service provider does an in-person visit of the site to examine common elements, reviews documents and conducts in-person meetings with the stakeholders of the condo corporation. The legislated minimum for a Reserve Fund projection is 30 years. It depends upon the corporation if they want to do an even longer duration study with the service provider.

The updates to the Reserve Fund Study are in turn of two types: Class 2 is a study with a site inspection and Class 3 is a study without a site inspection. In the study, they build the entire inventory of all of the equipment and items of the condo corporation which might require an update and major repair or replacement within the next 30 years of the reserve fund study and where the replacement cost is at least $500.

In closing, I hope this talk sheds light on the significance of reserve funds in condominium ownership. Remember, it's not just about now; it's also about securing the future of your home and investment. If you have any topics in mind and would like us to discuss, drop in the comments and will certainly do. For any Real Estate matters reach out to our dedicated team here at Elixir and we will provide the best consultancy. Take good care and will talk to you soon!

Wish you all the very best! Reach out to our dedicated team at Elixir for any queries you have in Real Estate, and we will do our best to help.

Mudit Mehta 

Broker of Record

ELIXIR REAL ESTATE INC.

The idea of buying a new home can be incredibly exhilarating, and it's natural to want to jump right in and start checking out properties. However, I want to tell you that this may not be the best way to start your real estate journey.

The first and foremost thing that every buyer should do is work with a credible lending institution or bank and get pre-qualified for the principal that they can borrow. This is essential because it will help you determine your budget for purchasing a property. It's important to note that your pre-qualification and your budget may be two different numbers, and that's okay.For example, there could be a family which is okay and pre-qualified for a purchase price of $950k, however, based on their comfort and other commitments they don't want to go beyond 850k as their purchase price. So, their budget ceiling in this case becomes $850k. 

Once you've determined your budget ceiling, the next step is to work with a skilled realtor who can advise you based on your family aspirations and goals for the home. They can help you find areas that work well for your property aspirations within your budget ceiling. This approach takes away any surprises from the process and makes it a pleasant experience, putting you in the driver's seat. A good Real Estate broker is like a consultant and it is our job to ensure the clients money is well spent and invested in a credible asset. An asset which gives pride of ownership and at the same time helps built the equity in the asset with growth. 

We understand that it can be tempting to look at properties first and then adjust your budget, but that's not the ideal way to go about it. Freezing your budget first and then reviewing what best can be bought within your budget gives you tremendous control over the cash outflow and takes away any pressure situations in buying a home. This way, when you're shopping for a home, it becomes a pleasant experience and not a stressful one. 

Think of it this way; if you're trying on shirts without checking the size tag, you'll get stressed and frustrated when they don't fit. But if you determine your size first and then pick out shirts in that size, you'll have a better chance of finding something that fits well and feels comfortable. At end of the day this is your biggest asset and you would want to ensure it is a smooth and pleasurable experience start to finish. 

In conclusion, the ideal way to start your real estate journey is to get your financing in order first and then focus on the review process. This will ensure that you have a successful real estate journey without any pressure. So, if you're looking to buy real estate, take that first step and get in touch with a good lender to get your qualification done. If we by pass on the pre-qualification piece, and find a property which we like very much, only to later find out that our qualification is not able to get us that property; or it stretches our affordable limit, it doesn't help us. 

Wish you all the very best! Reach out to our dedicated team at Elixir for any queries you have in Real Estate and we will do our best to help.


Mudit Mehta 
Broker of Record
ELIXIR REAL ESTATE INC.
Off: 416-816-6001 | [email protected]

What exactly is Mortgage Default Insurance, and when and why it is required to secure a mortgage here in Canada? How the premium is calculated and what happens on default. 

As per law, Canadian banks can only provide mortgage ability to consumers with at least a 20% down payment unless the mortgage is insured against default. So for high-ratio mortgages where your downpayment is less than 20%, you would certainly need mortgage default insurance. In some instances, if the home or property is in a remote location, the bank might require mortgage default insurance even though your downpayment is beyond 20%. 

This insurance also helps a buyer to get into building home equity sooner if they have less than 20% to contribute towards the purchase of the property. It is offered by multiple insurers; primarily by Canada Mortgage Housing Corporation (CMHC), Sagen (formerly called Genworth Financial) and Canada Guaranty Mortgage Insurance Company. 

Some finer points to understand this mortgage default insurance better, 
It protects the lending institution and not really the borrower 
Only available for homes which are priced under a million 
Premium is calculated based on the percentage of the amount borrowed 
The mortgage amortization cannot be longer than 25 years 
The premium is generally back-end loaded, meaning that it is added to your mortgage principal and paid monthly over the amortization term, so it is not to be paid at once at the time of purchase. BTW, here, you do have the option to pay the premium as a lump sum when your mortgage begins. 

Now let us also look at how the mortgage default insurance premiums are calculated,  this table gives you insight into the tiered rates on various Loan to Value Ratios.

The main thing which I want to highlight is that the premium calculation is at a tiered level, so a buyer who is doing 10% down Payment will pay the same amount of premium as a buyer who is doing 14.5% as the down Payment. This means that it is in our best interest to reach the maximum slab, which we can within our means at the time of securing the borrowing terms with the bank. 
Let us go through a couple of premium calculation samples: 

Scenario 1

Purchase Price: $600,000 
Down Payment: $60,000 
Mortgage Loan Amount $540,000 
Loan to Value Ratio: 90% 
Premium on the total loan amount: 2.40% of $540,000 = $12,960 

Scenario 2

Purchase Price: $600,000 
Down Payment: $30,000 
Mortgage Loan Amount $570,000 
Loan to Value Ratio: 95% 
?Premium on the total loan amount: 3.60% of $570,000 = $20,520 

It is seen that insured mortgages generally tend to have better rates for consumers than uninsured mortgages. 
Let us review on how it works when a consumer defaults on a mortgage with an example scenario. Suppose, Rita and Trevor bought a home for $900,000, and their outstanding mortgage is $800,000. With a change in their job situations, they cannot keep up with the mortgage payments and have defaulted on their payment terms. 
The market is going through saturation, and the bank can sell the property only at $750,000 as a power of sale. Since the outstanding mortgage is $800k, the insurance provider pays out the remaining balance of $50k to the financial institution. 

Wish you all the very best! Reach out to our dedicated team at Elixir for any queries you have in Real Estate and we will do our best to help.


Mudit Mehta 
Broker of Record
ELIXIR REAL ESTATE INC.
Off: 416-816-6001 | [email protected]

In this write-up, we will discuss everything about bridge loan and how it works for the smooth coordination of purchase/sales in Real Estate.

Bridge Loan is an excellent tool to smoothen the process of completing your home purchase when you are still waiting to close the sale of your existing home.

As the name suggests, it gives us a bridge to funds which we need to close our new purchase. It would become very more straightforward with an example.
Let us consider your existing home is 421 Best St, and you are moving to 124 Excel St.

You have purchased 124 Excel St for $800,000 and have secured a loan for 20% down; you have so far paid $40,000 as an initial deposit towards the purchase; the closing date is scheduled for Oct 28th. There is a balance of $120,000, which you would need to provide to the bank in order to close.

The sale of your existing home is also agreed upon. You have sold the same at $600,000. The closing is scheduled for Nov 25th; you have 480,000 of your equity in this home, as the outstanding mortgage is $120,000.

In this classic scenario, we have our purchase closing almost a month earlier than the sale of our home; the banks can provide the Bridge loan in this case to fund the closing of our new home.

Here we would require $120,000, which going by our equity developed in the home the bank would be able to provide as a bridge loan.

Let us quickly look at what banks need to extend the bridge loan,

They need the completed and firm sale agreement for your existing home. This would ensure they can extend you this short-term bridge loan

They require the outstanding mortgage statement for your current property

They would do a credit check to confirm your creditworthiness

The amount the bank would be able to provide as a bridge would be to a maximum of your equity in the home minus the closing costs.

The benefit of bridge financing is that we need not wait to purchase the property we like because our current home sale hasn't closed yet. Another advantage is that we can be relaxed to coordinate the move from the existing property to the new property. Once the sale of the property is completed, the bridge financing is paid off.

This ease of moving and ability to close before the sale comes with a cost, in terms of higher interest rates for bridge loans. The financial institution will charge legal costs, lender fees and a higher interest rate, typically prime plus 2% or prime plus 3%. However, since this bridge is for the short term, it would normally work out very well.
And the peace of mind it provides regarding aligning the dates is worth the cost here.

There is another scenario where you would typically need a bridge. For example, when you are buying a property that needs some updates before you move in, you would want to finish them.

Wish you all the very best! Reach out to our dedicated team at Elixir for any queries you have in Real Estate and we will do our best to help.


Mudit Mehta
Broker of Record
ELIXIR REAL ESTATE INC.
Off: 416-816-6001 | [email protected]

In this writeup,  we will discuss what are the most important things we should keep in mind when we have received a mortgage approval however the mortgage is not closed as yet.

Delay Job Switches - Till the time you have secured the financed and closed on the property its advisable to not do a job switch or become an independent contractor. The lending institutions and banks like a stable permanent employment. Specially if the new employment is probationary, it is a red flag for the lender. Some lenders might not have an appetite on change of job roles, for example if you went from a technical role such as IT Architect to a pure managerial role or vice versa. The lenders are looking for a stable stream of income in the foreseeable future and are comfortable that way.

The basic theme of all of these points we discussed is that lender has the right to say that the conditions and terms have changed since you got it originally approved due to change in your job situation, credit worthiness, and borrowing ability etc.  And we want to avoid those situations till the time mortgage is closed successfully.

Wish you all the very best! Reach out to our dedicated team at Elixir for any queries you have in Real Estate and we will do our best to help.


Mudit Mehta
Broker of Record
ELIXIR REAL ESTATE INC.
Off: 416-816-6001 | [email protected]

A secured line of credit is essentially a low-interest loan that a financial institution offers you against your investments as collateral, generally your own Real Estate property or Guaranteed Investment certificates, etc. Since your owned asset backs the line of credit, it has a relatively lower interest rate and higher credit limit. The lender has a safety net that they can acquire and freeze the asset if the borrower does not pay the debt on agreedterms. They can go for power of sale of the property to recover their funds.

The terms are generally better on Secured lines of Credit than unsecured ones by much lower interest rates, and the payments can be interest-only payments. This readvancing or refinancing of funds backed by Real Estate or GIC type of security is also called the Equity Line of Credit or HELOC (Home Equity Line of Credit).

The lenders would assess how much can be provided to you as a Secured Line of Credit by evaluation of the following:

1) Your credit-worthiness – This is primary for a lender to see if your credit rating is not fractured, and you indeed have a good loan repayment history.

2) Your Equity – How much of your own equity do you have in the asset you are trying to utilize as collateral in getting the Secured Line of Credit. You should have at least 20% equity in your home.

3) Source of Income – This is another essential factor to know whether you would be able to survive the interest payments if you decide to utilize the funds in a secured line of Credit by considering your existing liabilities like mortgage, car loans, personal loans, etc.

4) Property Appraisal – Process to ascertain the market valuation of the property which is backed as the security for the Line of Credit.

These factors would determine how large or small HELOC a financial institution will offer you.

Benefits of Secured Line of Credit:

1) Flexible Access to funds – You can utilize the amount of approved funds as and when you require it; it is immediately accessible, and interest only applies to the portion utilized by you.

2) Interest-only payments

3) You can pay back any utilized amount at any time without any penalty charges.

4) It is a revolving credit; when you pay back the borrowed funds, the amount of remaining credit increases to the maximum amount of line approved.

Payment could be only on the interest on the amount you borrowed as a minimum monthly payment. You can pay back the principal amount borrowed in one shot or part payments as you desire. HELOC’s are generally utilized for making larger purchases, and home renovations due to their lower costs in terms of moderate interest rates and re-payment terms.

Now the final question remains How much HELOC I can get? There are two considerations for the determination of this amount. The home equity line of credit funds cannot exceed 65% of the home’s value in order to safeguard the lender. Also, your mortgage loan balance plus your approved line of Credit cannot be more than 80% of home value.

Let’s understand this and make it clear with an example. Let us assume the market valuation of a home is $800,000. 65% of the Market Value $520,000.

Your outstanding loan balance is $325,000

?Maximum loan-to-value based on 80% = $640,000

Outstanding Balance on the Current Mortgage = $325,000

Allowable HELOC Amount = Maximum LTV Amount – Outstanding Balance = $315,000

To ensure how much HELOC Amount is to value, it is 39% in our case; which is less than 65% of the market value of the line. Here in our example, 65% of the Market Value is $520,000, so our HELOC cannot exceed this value, and in our case, it is $315,000, which is well within.

Maximum loan-to-value based on 80% = $640,000

Outstanding Balance on the Current Mortgage = $25,000

Allowable HELOC Amount = Maximum LTV Amount – Outstanding Balance = $615,000

However, $615,000 is higher than $520,000; so here maximum allowable HELOC amount will be $520,000. Another important thing here you should remember is that for HELOC, various banks have different minimum amount requirements, which you can take as a secured line. The maximum loan amount theoretically can be 65% of the market value.

Wish you all the very best! Reach out to our dedicated team at Elixir for any queries you have in Real Estate and we will do our best to help.

Mudit Mehta 

Broker of Record

ELIXIR REAL ESTATE INC.

Off: 416-816-6001 | [email protected]

When we decide to own a home or purchase a property, the first step is to get the qualification done from a financial institution. In this article, we will determine what happens in the background and how a lender determines our qualification. This will help you to better understand the process and be well prepared for the eligibility even before reaching out to the lender.

Lenders across rely on two measures of ability for a borrower to pay back the mortgage payments, these are GDS (Gross Debt Service) and TDS (Total Debt Service), let’s understand these.

Gross Debt Service Ratio – GDS Ratio is the percentage of the Gross Annual Income of the household which is used for payments related to housing (PITH – principal, interest, house tax, heating costs). The lenders use GDS Ratio to qualify and determine the affordability of a household for mortgage purposes. If the qualification is being done for buying condo property, 50% amount of condo fees is also taken into account.

Total Debt Service Ratio – TDS Ration is similar to GDS, however, along with house-related payments it also includes any other debts which household has. So, any credit card payments, car loan payments, personal loans, alimony etc are to be taken into consideration. The industry standard guidelines used for GDS is 32% and for TDS is 40%.



Note: If the borrower is taking an insured mortgage (one with less than 20% downpayment), the principal and interest must be based on total insured loan amount including the CMHC premium for mortgage insurance.

We understood about the numerator for calculating these ratios – Principal, Interest, House Taxes, Heat Cost, and Debt Payments. Let’s go slightly more in detail to understand what can be included in the Gross Annual Income.

Employment Income – it is considered when it is a full-time position and the borrower is not on a probation. This is verified through recent pay stubs and an employment letter. Sometimes the financial institution will call your employer to verify the employment.

Variable Income – like Bonuses, commissions, seasonal jobs, investment incomes must have been sustained over a minimum of 2 years.

Self Employed Income – Determined by the lender using the NOA for past years, they average the income for last two years to account for fluctuation; or if the income is increasing for last 4 years in a row, they consider the most recent year income.

Let’s take an example to make this clear, Smith household has a gross family income of $85,000 ($7,083 per month). Their monthly house payment including the house tax and heating cost is coming at $2,200. They have car loan monthly payment of $400 and a personal loan monthly payment of $300. They are going for an insured mortgage with less than 20% down payment.

GDS = 2,200/7,083 = 31%

TDS = 2,900/7,083 = 41%

So, here in the above example with see that GDS is alright, however, TDS is higher, but can be improved by repaying the car loan to qualify for the mortgage. So, if the purchases pay the outstanding car loan their ratio is improved.

TDS = 2,500/7,083 = 35%

It would be important to note that the GDS and TDS ratio ceilings would vary based on lender to lender; also for applications, they might be lenient based on other strong aspects of the application.

The next question is that what one can do when the ratios are high to improve and lower them and increase the chances of getting a clean qualification.

1) Reduce your debt where possible to reduce your monthly commitments.
2) Lower your range for selecting a property.
3) Increase your down payment towards the purchase.
4) Extend the mortgage term (if possible).
5) Ensure to reflect your correct family income.

There is another aspect which is completely out of your hand, banks sometimes would go in for an appraisal of the subject property, if they come up with an appraisal less than your purchase price, you might have to come up with an additional down payment to complete the deficit. This can be avoided by making sure when you purchase a property, you are not overpaying and are buying based on the similar spec homes sold in last 30-45 days in the immediate neighborhood.

When a financial institution qualifies you for a certain amount, at your end do a simple calculation of your cash flow and try to avoid buying a home which your family income cannot afford. With time the financial situation changes for everyone and there would be enough opportunities to upgrade, you are buying a home for enjoying and not getting any undue stress.

Hope this article helped you to understand the intricacies of the qualification criteria for the lenders.

Wish you all the very best! Reach out to our dedicated team at Elixir for any queries you have in Real Estate and we will do our best to help.


Mudit Mehta
Broker of Record
ELIXIR REAL ESTATE INC.
Off: 416-816-6001 | [email protected]

In this article we will try to understand the Closing Costs associated with a Real Estate Transaction, often buyers especially the first time home buyers have questions around how these work and what they can put aside to ensure they are prepared.