Don't Eat The Marshmallow Yet! The Secret to Sweet Success in Work and Life

All of us have thousands of wishes. To be thinner, to be bigger, have more money, have a cool car, a day off, a new phone, to date the person of your dreams. Sometimes we even know a way to reach these wishes. Often it requires self-discipline and persistence. We recently learned about following and though you might find it not only interesting, but also applicable to you.

Many years ago there was a study at Stanford University. Four years olds were left in a room, each with a marshmallow, and given a choice of eating it then or fifteen minutes later, when they were promised a marshmallow as an extra reward for waiting. When you are 4 years old, 15 mins is like entirety! Some ate theirs right away. Others waited. But the study's real significance came a decade later when the researchers discovered that the children who held out for the reward had become more successful adults than the children who had gobbled their marshmallows immediately.

The "marshmallow theory" answered a thirty-year quest to find a compelling explanation for why some people succeed and others fail. The key difference between success and failure is not merely hard work or superior intelligence, but the ability to delay gratification. "Marshmallow resisters" achieve high levels of success while the rest of us eat all our marshmallows at once, so to speak--accumulating debt and dissatisfaction no matter what our occupations or incomes. But it doesn't have to be that way.

New mortgage rules in Canada. What is changing?

As you probably heard, new rules to government-backed insured mortgages came into effect as of last Friday. Here is an overview of what is changing:

• Reduce the maximum amortization period  from 35 years to 30 for new government-backed insured mortgages with loan-to-value ratios of more than 80 per cent. 
• Lower the maximum amount Canadians can borrow in refinancing their mortgages to 85 per cent from 90 per cent of the value of their homes. 
• Withdraw government insurance backing on lines of credit secured by homes, such as home equity lines of credit, or HELOCs. 

What this means is as of March 18, 2011 Canadians who purchase their homes with less than 20% down payment will have to pay around $30-35 more per month for each $100 000 of mortgage loan. The following table illustrates the difference in monthly payments for amortization period of 35 years vs. 30 years for a mortgage loan of $300,000.

Interest Rate	35-Year Amortization-Monthly Payment	30-Year Amortization-Monthly Payment	Difference in Monthly Payment- 30-Year vs. 35-Year Amortization
4 per cent	$1,322	$1,427	$105
5 per cent	$1,504	$1,601	$97
6 per cent	$1,696	$1,784	$88

As of April 18th, 2011 it will be harder to get secured line of credit and take advantage of lower interest rates if you keep less than 20% in equity. This particular change affects non-amortizing loans, which means that borrowers are not required to make regular payments on the principal amount of the loan

No more re-financing for more than 85% (used to be 90%)

Keep in mind that all these rules apply only to government-backed insured mortgages. Private lander can still follow own rules in lending

Housing Market Outlook Q1 2011

Last week CMHC issued its latest Housing Market Outlook and the next 2 years look very promising. In 2011 CMHC is expecting housing market to be stable and in 2012 growth is expected to pick up and prices are expected to continue rising all across Canada

In the last quarter of 2010 MLS listings of resale homes regained traction. In 2011 MLS sales will experience a minor decline before increasing in 2012. The average MLS price edged higher in the fourth quarter of 2010 and is expected to grow modestly moving forward as market conditions will remain balanced. For 2011 average MLS price is forecast to be $348,900 while 2012 will see a further increase to $358,200

In Ontario a recovering economy and improving employment situation will push Ontario starts up, but not until 2012. As is the case for most other provinces, new construction growth is expected to slow in 2011

Mortgage rates

On January 18th, the Bank of Canada announced that it was leaving the Target for the Overnight Rate unchanged at 1.0 per cent. The last increase in the overnight rate occurred on September 8 when the Bank of Canada raised it by 25 basis points. With the overnight rate expected to remain flat in 2011, mortgage rates, particularly short term mortgage rates and variable mortgage rates, are also expected to remain at historically low levels.

According to CMHC’s base case scenario, posted mortgage rates will remain flat in 2011 before increasing moderately in 2012. Rates could, however, increase at a faster pace if the economy ends up recovering more quickly than presently anticipated.

Vacancy rates

Increased competition from the condo market and modest rental construction will be partly offset by strong rental demand due to high immigration. As a result, vacancy rates across Canada’s metropolitan centers will remain relatively stable this year and next.

In Ontario low rental apartment vacancy rates will boost investor demand for apartment units.