Bruce Coleman Mortgage Brokers

Five mortgage market truths, like you can do better than 2.99% – Ask a Vancouver Mortgage Broker

Canadian Mortgage News

CMI 101 Series

Dreyer Group 101 Series

Financial FYI Series

First Time Buyers

Home Buying 101

Home Insurance

Latest News

Mortgage Rates

Refinancing

Retirement Planning

Self Employed

ROB CARRICK- THE GLOBE AND MAIL

Here are five things you need to know about the mortgage market as the spring home-buying season gets going:

1. That 2.99 per cent Bank of Montreal five-year mortgage isn’t quite as good as it sounds.

BMO’s recent move to bring its rate below the psychologically significant 3-per-cent mark for fixed-rate five-year mortgages is being treated as a big deal because a similar move a year ago provoked then-finance minister Jim Flaherty to admonish the bank. Joe Oliver, Mr. Flaherty’s successor, is taking a more laissez-faire attitude.

What BMO is offering until April 17 is a competitive rate in a mortgage with uncompetitive terms. Most importantly, you can’t break this mortgage before it comes up for renewal in five years unless you sell the property, refinance with BMO or do an early renewal into another BMO product. All the usual prepayment penalties would apply in these situations. Veteran mortgage broker Vince Gaetano’s summary: “You’re handcuffed.”

Other issues:

-BMO will hold the rate for 90 days, compared with 120 days at some other lenders.

-You can prepay 10 per cent of the mortgage annually without penalty and increase your payment by 10 per cent a year; 20 per cent is the usual standard for both types of payment increase.

-The skip-a-payment option – a bad idea, admittedly – is not available.

-The maximum amortization period is 25 years; you can typically go up to 30 years if you have a down payment of 20 per cent or more.

2. You can do better than 2.99 per cent.

Mr. Gaetano said late last week that he had a 2.84-per-cent rate on five-year fixed mortgages, but it only applied to clients who had down payments of less than 20 per cent and thus required mortgage default insurance.

The RateSpy.com website confirmed this rate from Mr. Gaetano’s firm, Monster Mortgage, while also showing competing brokers and credit unions with rates in the range of 2.83 per cent to 2.94 per cent. Some other rate comparison sites to try includeRateSupermarket.ca, RateHub.ca and LowestRates.ca.

3. We will see wide open rate competition this spring.

“I think there will be a full-scale rate war with some mortgage brokers,” said Bruce Joseph, a broker with Anthem Mortgage Group in Barrie, Ont. “We’ve got a huge amount of competition in the market. The market is quite saturated with realtors and brokers.”

Mr. Joseph wonders whether we’ll see more of a practice called “mortgage rate buydowns,” where brokers sacrifice some of their compensation from selling a mortgage in order to get a lower rate for the client. He said some brokerage firms have been aggressive users of buydowns to build sales volume.

Borrowers, there’s nothing to stop you from asking for a rate buydown. You just have to recognize that less compensation for a broker may mean less advice and hand-holding.

4. Variable-rate mortgages are looking good.

Rates on variable-rate mortgages are based on the major banks’ prime lending rate, which has been stuck at 3 per cent since September, 2010, minus a discount. Mr. Gaetano said discounts have widened out to 0.6 percentage points or more from roughly half that level about eight months ago, and that means a variable rate around 2.4 per cent.

His preference for variable-rate mortgages over the fixed-rate alternative right now is based both on the discounts being offered, and his interest rate outlook. “I don’t think rates are going anywhere soon, and getting a variable in the prime minus 0.60 range give you a considerable advantage in hammering down a mortgage.”

That said, many of Mr. Gaetano’s first-time home buyer clients are going with five-year fixed-rate mortgages, which is smart. In today’s expensive housing market, it makes good sense to buy yourself a five-year period to find your financial equilibrium as a homeowner without the risk that your payments will rise.

5. The banks will crush you if you want to break your mortgage.

The penalties that the big banks charge to break a mortgage before it comes up for renewal are abusive. They’re a far more deserving target for the federal finance minister than lenders aggressively undercutting each other on mortgage rates.

Get the lowdown on bank mortgage penalties in this column I wrote not too long ago. If there’s any chance you might have to break your mortgage – brokers say this is by no means unusual – then consider using a non-big bank lender with a lighter touch on penalties. These same lenders are often good on rates, too.

Follow me on Twitter: @rcarrick

——

Why low mortgage rates matter

Even small differences in payments can add up.

Assumptions

-you’re buying a house at the average national price in February of $406,372

-you have a 5 per cent down payment

-CMHC mortgage insurance costs are added to your principal

(table source: RateSpy.com, Canequity.com)

MBRCC’s New Tool for Interprovincial Brokering

Canadian Mortgage News

CMI 101 Series

Dreyer Group 101 Series

Financial FYI Series

First Time Buyers

Home Buying 101

Home Insurance

Latest News

Mortgage Rates

Refinancing

Retirement Planning

Self Employed

MBRCC’s New Tool for Interprovincial Brokering

Mortgage Freedom on the Horizon for Some Canadians: Scotiabank Study – Ask a Vancouver Mortgage Broker

Canadian Mortgage News

CMI 101 Series

Dreyer Group 101 Series

Financial FYI Series

First Time Buyers

Home Buying 101

Home Insurance

Latest News

Mortgage Rates

Refinancing

Retirement Planning

Self Employed

Scotiabank Offers Advice on How to Become Mortgage-Free Faster

Ed Clark ‘supportive’ of Finance Minister Joe Oliver’s hands-off approach in mortgage wars

Canadian Mortgage News

CMI 101 Series

Dreyer Group 101 Series

Financial FYI Series

First Time Buyers

Home Buying 101

Home Insurance

Latest News

Mortgage Rates

Refinancing

Retirement Planning

Self Employed

Image Copyright- THE CANADIAN PRESS/Larry MacDougal; Arlen Redekop/Postmedia News
Toronto-Dominion Bank chief executive Ed Clark is throwing his support behind Finance Minister Joe Oliver’s decision not tell banks how to price their mortgages.

Dictating to lenders what to charge for home loans is “treacherous territory,” Mr. Clark told reporters on Thursday, following TD’s annual meeting in Calgary.

Mr. Clark said he is “supportive of” Mr. Oliver’s strategy — disclosed in comments to reporters last week — of letting the banks make their own decisions on how much to charge customers.

Economists and policymakers have been warning for the last several years about soaring household debt in Canada, especially when it comes to mortgages, by far the biggest chunk of that debt.

If the government is worried, “there are other ways” than dictating mortgage rates,  Mr. Clark said, referring to rule changes around things like the availability of Canada Mortgage and Housing Corp. default insurance and the kinds of loans that qualify for it.

“I think the focus has to be, are there other macro-prudencial things that you could do?” he said. “You know, [the government] changed the amortization rate, there’s lots of rules you could do that would slow down, take the pressure off the housing market but don’t change the price. I just think you come to the conclusion that governments fixing [mortgage rates] hasn’t been a success.”

This latest flare-up of the mortgage wars kicked off after Bank of Montreal announced late last month it was cutting its five-year mortgage rate to 2.99%, despite being reprimanded by then Finance Minister Jim Flaherty when it tried the same tactic last year.

Critics worry that the high personal debt levels have left the economy vulnerable and argue banks are partly to blame. For their part, the banks insist they are lending money only to customers who can afford to pay it back. And if they’re offering good rates, that’s because their own cost of funding is low as well.

There’s “healthy competition” among Canadian banks, Mr. Clark said. “You got a competitive industry so no one’s going to not match the other guy’s prices.”

Asked if he was concerned about the financial health of consumers, Bank of Montreal chief executive Bill Downe said earlier this week that his customers can meet their obligations. BMO is lowering its risk by focusing on “shorter amortizations,” in other words, loans that get paid down faster.

“I think the trick is to make sure that the underwriting standards are sufficiently conservative that the borrowers can pay the money back, and that’s really the issue,” he added.

Industry executives reject comparisons between Canada and the U.S. real estate meltdown that began in 2006, noting that standards in this country are much higher than they were south of the border, where players doled out tens of billions to people who were unable to make their payments when their mortgage rates jumped a few years later.

What happened in the U.S. was “colossal stupidity, but the regulator said it was okay,” so lenders just kept on lending, Mr. Clark said. In Canada, by contrast, there’s a different regulatory culture that focuses on principles rather than just meeting the requirements of complex rules.

The comments come the same day as Canadian Imperial Bank of Commerce economistBenjamin Tal warned there is a “mind-boggling” gap between the size and importance of Canada’s real estate market and the amount of good information about it.

Mr. Tal said in a report called “Flying Blind” that the lack of public data makes it difficult to judge whether Canada is experiencing a housing bubble.

A key unknown is the proportion of foreign buyers. Banks may know how many of their customers are from abroad, but they’re reluctant to share the information for competitive reasons.

Other missing data points include the distribution of home loans by credit score and the value of new mortgages in the most recent three-month period.

Leaving the city (and the big mortgage) behind – Ask a Vancouver Mortgage Broker

Canadian Mortgage News

CMI 101 Series

Dreyer Group 101 Series

Financial FYI Series

First Time Buyers

Home Buying 101

Home Insurance

Latest News

Mortgage Rates

Refinancing

Retirement Planning

Self Employed

Many couples, stunned by the value of their homes in Canadian urban centers like Toronto, Calgary and Vancouver, are pondering trading city life for opportunities to cut costs in the suburbs or beyond.

Slightly more than three years ago, I sat down with my wife after a lousy commute and discussed why we were still in Toronto.

Sure, she had a good job in the city, but I was freelance, and with two young children in elementary school, we pondered whether there were other options.

The positives were clear — if we left the city it would change our financial position dramatically. We could trade our Scarborough rebuild in an up-and-coming part of the city for a house in the best area of a city like London, Ont., where we both went to school.

And the best part? We could buy that house in London, with more room in a better area for about 60% of the value of our Scarborough home, which saw its price skyrocket in the seven years we owned it.

It wasn’t that tough a decision; in 2012 we sold our house, packed a moving truck and rolled down the 401 to London.

It is a scenario that is becoming increasingly common — couples, stunned by the value of their homes in Canadian urban centers like Toronto, Calgary and Vancouver, are pondering trading city life for opportunities to cut costs in the suburbs or beyond.

Freelance writer Peter Robinson and his wife Jody, an elementary teacher, faced this scenario in 2010. The couple, who owned a small house on Toronto’s west side, started considering how they’d move forward. With an expanding family, a bigger house was a necessity. But the price of a larger home was daunting and they started considering their options.

“I could work from anywhere and Jody was willing to make a commute to her school in Brampton,” says Mr. Robinson. “She decided she’d bite the bullet and spend an extra five hours a week commuting if we moved.”

Robinson says the couple wasn’t enjoying the benefits of Toronto in the way they were prior to having children, a common theme among young families considering a move from the city.

“Some people leave the city because they hate it,” says Mr. Robinson. “That wasn’t our case, though the traffic is always bad.”

The couple listed their 1,300 square foot home for $500,000, up $140,000 from when they purchased it a few years previous, and started looking in Barrie, about an hour’s drive north of Toronto. They were able to buy a house in Barrie for $385,000 and double their square footage within walking distance to a nearby school.

“We moved to the quintessential upper middle-class neighborhood,” says Mr. Robinson, who grew up in Barrie. “It takes a mental leap to move if you grew up here. But people in the city don’t realize how good life can be in the suburbs.”

Many moves are driven by the equity couples have in their homes. Anne Carbert, a career counselor, moved to Toronto in 1996. Ms. Carbert, along with her partner, Don, a radio broadcaster and writer, started considering leaving their Riverdale home largely based on the appreciation of its value.

“The goal was ‘let’s get out from under the city mortgage when we have the opportunity,’” she says. The couple moved to Stratford, Ont., and are currently renting while they consider real estate opportunities.

One thing is clear, they expect to be able to find exactly what they want for less than half the price of their $800,000 Toronto home.

Ryan Tracy, who taught at Durham College while living in Whitby, saw real estate prices as an opportunity to make a change in his career. Along with his wife and two small children, Mr. Tracy, 31, decided to pursue a job in Miramichi, N.B., as the general manager of a semi-private golf club.

“We were really sick of the rat race,” says Mr. Tracy, whose wife, Amanda-Lee Cassidy, has a job with Scotiabank. “We wanted to follow the opportunity and the notion of having a house outside of a city really appealed to us.”

The couple has been searching for property near Miramichi, a location in stark contrast to their current situation in the Toronto suburb of Whitby, where they have a 1,800 square foot home on a small lot.

“We can use our house as an asset, which you can’t always say,” says Mr. Tracy. “The notion of selling our home and buying a home and having no mortgage, that’s quite something. They say the majority of people in the city will still have a mortgage well past 60.”

Mr. Tracy and his family will spend some time in housing supplied by his workplace while they look to purchase their home.
“It is such a big difference than living in the GTA,” he says. “Most lots [in Miramichi] are an acre and you can get them for $200,000.”

Like many who have made the move out of one of Canada’s big cities, I don’t regret it. Yes, property taxes are higher here, something that shocks my Toronto friends. And I certainly make the drive into the city more frequently than I’d like, though I can try to find off-peak times to battle traffic.

But we also traded up in many ways, moving from a mid-price area of old Scarborough, full of post-WWII bungalows, to a cul-de-sac near a private golf course.

And many young families who leave large urban areas find cost savings in areas like daycare, which, for two children, cost more than our mortgage when we were in Toronto.

The biggest concern many have when leaving is how they’d ever afford to return if work necessitated it.

“I don’t know how we’d do it,” says Mr. Robinson.

Neither do I. And thankfully, for the foreseeable future at least, it isn’t something I need to consider.

More self-employed hitting mortgage wall because of recent rule changes – Ask a Vancouver Mortgage Broker

Canadian Mortgage News

CMI 101 Series

Dreyer Group 101 Series

Financial FYI Series

First Time Buyers

Home Buying 101

Home Insurance

Latest News

Mortgage Rates

Refinancing

Retirement Planning

Self Employed

For years, most of Marg Green’s self-employed clients could count on getting a mortgage on the strength of their credit score, and on their word that they were earning enough from their business to repay the loan.

These days, because of rules brought in almost two years ago by the regulator of the country’s chartered banks, borrowing money to buy a home has become harder for many of the country’s 2.75 million self-employed workers – a group that, according to Statistics Canada, has a higher median net worth than paid employees.

What bubble? Canadians have their mortgage covered, study shows – Consult with a Vancouver Mortgage Broker

Canadian Mortgage News

CMI 101 Series

Dreyer Group 101 Series

Financial FYI Series

First Time Buyers

Home Buying 101

Home Insurance

Latest News

Mortgage Rates

Refinancing

Retirement Planning

Self Employed

A new Conference Board of Canada study says there’s no housing bubble about to burst and maintains Canadian are having no trouble handling their debt even as it sits close to record levels.

The Ottawa-based group points out that mortgage arrears are actually going down in just about every market across the country — making a U.S.-style meltdown unlikely. The percentage of mortgages in arrears is well under 1% in Canada.

“A relatively low proportion of arrears is likely to persist, since national employment is growing, albeit slowly, and interest rates are not forecast to spike,” says the Conference Board in its report titled Bubble Fears Overblown.

The report says the market will cool but it will happen “gently” and cites mortgage costs, not just home prices, as the principal determining factor for the market for future buyers.

“We believe that the more prudent mortgage underwriting in Canada than in the United States, headlined by the very small number of subprime loans here, has prevented the stockpiling of high-risk mortgages by lenders,” states the report.

Others argue the Canadian market bears striking similarity to the U.S. market.

“It’s a lagging indicator,” says David Madani, an economist with Capital Economics, about mortgage arrears. He says the arrears come when the market starts to fail. “The first sign of trouble in the U.S. was declining home sales, then a year later prices fell and then people started missing payments.”

Much has been made of Canada’s tighter loan standards with none of the NINJA loans — no income, no job, no appraisal — that were found in the U.S.

Still, Canadians are holding onto records amount of debt. Statistics Canada said debt to disposal income went down slightly during the fourth quarter of 2013 but at 164% it remains very close to an all-time high.

“It’s an extraordinary level next to household income and interest rates don’t have to spike,” said Mr. Madani. “Even if they go up moderately, it can have big impact on affordability.”

With little demand from new buyers, prices would ultimately sink and leave people vulnerable as they try to renew mortgages.

The Conference Board notes that many U.S. states have non-recourse home loans, meaning banks cannot go after other assets from consumers who walk away from homes. That protection doesn’t exist in most Canadian markets.

Mr. Madani said that would be a non-factor for recent buyers who have few other assets and no reason to stay with a mortgage that is under water. “That’s what is called a strategic default,” says the economist, noting many consumers in that scenario would be willing to face the credit challenges that come post-bankruptcy if their home price collapses.

Vince Gaetano, a mortgage broker with monstermortgage.ca, says all the mortgage rule changes that have come from Ottawa for anyone buying a home with mortgage default insurance have made it tougher to buy in this market.

“There are not as many straight forward mortgage approvals,” says Mr. Gaetano, adding he can’t see arrears reaching U.S. levels because “we never had NINJA loans.”

Still, the tougher mortgage rules, which have included shrinking amortization lengths from as long as 40 years down to a maximum of 25 years, have had an impact on the consumer.

Benjamin Tal, deputy chief economist with Canadian Imperial Bank of Commerce, said all the mortgage changes amount to a 125 basis point increase in rates for first-time buyers. A shorter amortization payment means a higher monthly payment while decreasing size of a loan for consumers.

“The market will slow, the only question is how quickly,” says Mr. Tal, who expects prices to fall nationally 10% to 15%. But in his view that’s not a bubble bursting. “The debate about overshooting is over, the question is the magnitude. At 10% to 15% that’s a market finding its footing.”