Dreyer Group Mortgage Brokers

How to avoid borrower remorse when mortgage rates drop

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

Imagine you’ve applied for a five-year fixed-rate mortgage. Then, before you close, the lender drops its best five-year fixed interest rate. You’d expect that new lower rate, right?

Most people in this position would. But with some lenders, that’s not the way it works.

If you’re going mortgage shopping, take a minute to understand your lender’s rate-drop policy before you send in your application. Too many people don’t and it ends up costing them.

MONEY MONITOR Video: How would an interest-rate hike affect your mortgage? How rate drops normally work Typically, if you’ve been approved for a mortgage and the lender drops its rates before your closing date, the lender will lower your rate as well. Every lender has its own policies, though. For instance:

· Some lenders allow you only one rate drop. Others allow multiple. · Some lenders only permit rate reductions up to seven days before you close. Others give you their best rate right up until your closing date. · Some lenders automatically lower your rate. Others require your banker or mortgage broker to manually request the rate adjustment. In this latter case, you better have a reliable mortgage adviser or keep tabs on rates yourself.

The best-case scenarios are those lenders with “look-back” policies. This means they’ll look back and give you their lowest rate from the time you applied until the time you closed. Those lenders are few and far between but any good broker knows who they are.

How other lenders operate More and more lenders are adding “no-float-down” clauses to their fixed mortgage rates. This is particularly true with certain non-bank lenders.

“No float down” means your rate cannot be adjusted lower if that lender comes out with a better deal. Those lenders make those lower rates available for “new business only.”

Now, you may be thinking, “I’m a good client, why should a new customer get a better rate than me?” The answer, lenders say, is profitability. When you get a fixed mortgage, the company funding your mortgage generally “hedges” that rate, meaning it pays for an expensive form of rate insurance. This ensures the lender doesn’t lose big if rates jump and it has to honour the lower rate it promised you.

If rates fell and the lender didn’t have a “no float-down” clause, it would incur the cost of that rate hedge and have to give all of that rate savings back to you, the customer. But with mortgage competition so fierce and margins so tight, some lenders can’t afford to do that anymore.

When rate drops matter If fixed rates are rising or going sideways, “no-float-down” policies shouldn’t hurt you. If fixed rates are in a downtrend, however, it pays to have that rate-drop option, other things being equal.

I say “other things being equal” because float-down privileges are rarely the deciding factor when choosing a mortgage. A lower upfront rate or better mortgage features can often negate the disadvantage of no-float-down restrictions.

Moreover, the odds of rates dropping decline the closer you are to your closing date.

In case you’re curious, fixed mortgage rates drop from one month to the next about 38 per cent of the time. That’s been the case since 1951 at least, according to Bank of Canada data.

Historically when rates have dropped – versus the prior month – the average decrease has been 0.23 percentage points. Even if you ignore 1973 to 1993, a volatile period of surging and plunging rates, the average decrease was still 0.17 percentage points. On a $200,000 five-year mortgage, a 0.17 percentage point rate drop would save you about $2,500 in interest.

If your mortgage does come with a rate-drop feature, contact your mortgage adviser about 10 days before you’re scheduled to close. Don’t take it for granted that someone will notify you automatically if rates are lowered. Ask if your lender has offered cheaper rates since you applied for your specific term and rate hold period. (Those last three words are important because lenders generally don’t let you have their lowest 30-day “quick close” rate if you originally applied for a 60, 90 or 120-day rate.)

Make it a point to understand your lender’s rate-drop policy. Every tenth of a per cent matters and you never know when interest costs will dip.

There are 300-plus lenders to choose from in this country. If you pick one with a “no-float-down” policy, be sure the rest of the mortgage terms make up for it.

Robert McLister is a mortgage planner at intelliMortgage Inc. and founder of RateSpy.com. You can follow him on Twitter at @RateSpy and @CdnMortgageNews.

Follow Robert McLister on Twitter: @CdnMortgageNews

MORE RELATED TO THIS STORY

DECODING THE MORTGAGE MARKET Are shorter mortgage amortizations always better? No HOME OWNERSHIP STRATEGIES How much mortgage should you and your spouse carry? DECODING THE MORTGAGE MARKET A cheaper, under-the-radar mortgage option: credit unions ROB CARRICK Can you afford a home in these cities?

CMHC could force banks to pay deductibles on mortgage insurance

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

The Canada Mortgage and Housing Corp. is looking at a new formula to push some of its losses on to financial institutions, essentially forcing them to pay a deductible on mortgages insured with the Crown corporation before claims are paid, according to sources.

Thinking about a move-up buy? Forget it, new study says you can’t afford it

You’re likely stuck in your current home because of new tougher mortgage regulations and ever-rising prices in the Canadian real estate market The Financial Post has learned the Office of the Superintendent of Financial Institutions is involved in discussions with CMHC, which it oversees, while the Canadian Bankers Association is said to be against the measure.

“The CBA has ongoing discussions with CMHC about a variety of issues in the mortgage and housing markets,” said Maura Drew-Lytle, a spokesperson for the CBA, in an emailed statement. “The International Monetary Fund made a really vague reference to the notion of a mortgage insurance deductible in its Financial Sector Assessment report on Canada, but you would have to speak to CMHC about whether or not it is an idea that they are considering,”

A spokesman for CMHC would not comment. OSFI could not be reached.

“The idea is being floated around right now,” said a senior industry source, who asked not to be identified. “What they are trying to do is make sure lenders have some skin in the game.”

Any implementation might not happen for at least a couple of years while the amount of the deductible is still open to consideration. It’s likely to be in a range of 5% to 10% of a mortgage.

Canadians with less than a 20% down payment on a home must get mortgage default insurance when borrowing from a financial institution regulated by Ottawa. Those consumer loans, which are insured and ultimately backed by the federal government, are often securitized and then sold to investors.

The insurers guarantee the full and timely payment of principle and interest. If say a $100,000 loan in a securitized pool goes bad and, ultimately the bank can only recoup $70,000 of that loan, the insurer is responsible for the remaining $30,000.

Related CMHC sees amount of mortgages it insures shrinking this year amid tighter housing market rules CMHC cutting back on what it covers with mortgage default insurance How to invest in real estate — no matter what the market does “They are structured so the lender is compensated for missed principle and interest and any legal and settlement costs,” says Finn Poschmann, director of research of with C.D. Howe Institute, about the current situation. He says the average recovery rate on defaults is usually about 70% of the mortgage.

“The idea is you could design a mortgage insurance product that has a deductible in it,” said Mr. Poschmann.

CMHC, which controls a majority of the market, has been reviewing its operations since new chief executive Evan Siddall, a former investment banker, took over last year. The Crown corporation has been scaling back its in-force insurance while it no longer insures second homes.

Mr. Poschmann says like any other sort of insurance, a higher deductible could mean a lower premium. But mortgage insurance premiums on high-ratio loans in Canada are paid by the consumer.

“There is nothing in principle wrong with having a range of mortgage insurance options in the marketplace. We should be clear if a deductible were a standard feature of residential mortgage insurance, the terms will tighten from a lender’s point of view but there would be downward pressure on premiums,” he said.

Peter Routledge, an analyst with National Bank Financial, said any move to charge a mortgage deductible would fit in with the overall tone CMHC has taken in recent months.

What they are trying to do is make sure lenders have some skin in the game “It would be consistent with reducing the CMHC’s tail risk,” said Mr. Routledge, noting it would only be possible to implement with future policies.

He questioned whether consumers would see any reductions in premiums even though the banks would be paying a deductible.

All of the mortgage insurers, including private entities Canada Guaranty and Genworth Canada, raised fees May 1. For those consumers with a 95% loan to equity, the fee jumped from 2.75% to 3.15% of the value of a mortgage. CMHC said the increase reflected the need for it to reach higher capital targets.

Mr. Routledge said the changes would drive up the costs for the banks because they would have to keep more capital on hand and that could mean higher mortgage rates for consumers to cover the shortfall. “But it’s a very competitive marketplace, so it’s plausible the market could absorb that,” he says.

Rob McLister, editor of Canadian Mortgage Trends, wondered whether investors buying securitized paper with a deductible would demand higher rates.

“You have the risk of the lender going bad versus the government of Canada,” said Mr. McLister, noting CMHC is backed 100% by Ottawa while the deductible would have to be covered by a private bank.

Find FP Personal Finance on Facebook

Twitter Google+ LinkedIn Email Comments More Most Popular PrevNext

Apple Inc’s bungled iOS 8 update linked to same manager…

BlackBerry Ltd earnings beat expectations in…

Bombardier Inc snags largest single order for CSeries yet in boost…

60-year-old woman with budget already in red must raise cash… Topics: Mortgages & Real Estate, Canada Mortgage And Housing Corporation

Find a Story Stock Search

Tools

Mortgage Calculator Mortgage Comparison Mortgage Qualifier Savings Calculator Investment Calculator Home Budget Calculator Currency Converter How to be a Millionaire FP Picks

Nasty ‘Bash Bug’ needs immediate attention: Here’s what you need to know

If you use any systems that run Unix, Linux, or Mac OS X, there is bad news. A rather nasty bug has reared its head, and exploits are already in the wild BlackBerry Passport may grab headlines, but this lower-profile product is winning the most praise

Blend lets users seamlessly bridge messaging and content between devices irrespective of operating systems, which could be key to BlackBerry’s enterprise strategy Making salaries public: The financial equivalent of leaking nude selfies, or a way to build trust?

In our imaginations, nobody is paid what they’re worth, and that might make it tough to get revved up for work CRTC should let market decide because TV pick-and-pay proposal is ‘deeply misguided,’ warns CD Howe

Major Canadian think tank says given the technological revolution, proposals to mandate channel choices are an exercise in futility Think your property taxes are high? Try being a commercial landlord

Toronto, Vancouver, and Montreal continue to post the highest commercial to residential tax ratios, all in excess of 4:1, according to the Real

CMHC chief says housing agency considering passing on mortgage risk to banks

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

Original Story Link

The Canada Mortgage and Housing Corp. is looking at changes to mortgage default insurance that would include sharing risk with banks, the Crown corporation’s chief executive told a Montreal audience Friday.

Thinking about a move-up buy? Forget it, new study says you can’t afford it

You’re likely stuck in your current home because of new tougher mortgage regulations and ever-rising prices in the Canadian real estate market “In our role as an adviser to government, we are evaluating a range of ideas on future improvements to our housing finance system, including risk-sharing with lenders to further confront moral hazard, future sandbox changes if housing markets are to become less stable, and increased capital requirements,” Evan Siddall told the Saint James Club, according to notes posted on CMHC’s website.

The Financial Post reported this month CMHC was looking at a new formula to push some of its losses on to financial institutions, essentially forcing them to pay a deductible on mortgages insured with the Crown corporation before claims are paid.

Sources have said the Office of the Superintendent of Financial Institutions has been involved in discussions with CMHC, which it oversees, while the Canadian Bankers Association is said to be against the measure. The CBA said it has had a variety of discussions with CMHC about mortgage and housing issues.

Mr. Siddall said in his speech that while Canada weathered the 2008 financial crisis it needed to think about “the next economic storm” to ensure the housing finance system can adapt to it.

Related CMHC could force banks to pay deductibles on mortgage insurance CMHC sees amount of mortgages it insures shrinking this year amid tighter housing market rules CMHC cutting back on what it covers with mortgage default insurance “We are re-examining our role in the Canadian housing and financial markets and looking to be part of an even more resilient system,” he said. “As much as we never want to use taxpayer money to bail out banks, governments consistently want to help homeowners in the event of a generalized housing crisis.”

Since his appointment, CMHC has raised fees for mortgage insurance to boost capital requirements while reducing some housing that it covers, including second homes. It has also tightened the rules for insuring self-employed Canadians.

“As a government entity, we need to have a different approach to risk management. Implicitly, we are in the bail-out avoidance business. Lenders pay us a premium to back them up if things go wrong,” said Mr. Siddall. “So we have an explicit responsibility to manage tail risk and survive, since insolvency is a less obvious option for us.”

He noted the government has been compensated for its risk to the tune of $18-billion in profits from CMHC over the last decade.

As a government entity, we need to have a different approach to risk management CMHC is backing about $550-billion in mortgages while another $160-billion in mortgages, covered by private insurers, is ultimately also backed by Ottawa. The federal government backs 90% of mortgage loan insurance issued by private entities Genworth Canada and Canada Guaranty.

“Earlier this year, we measured our mortgage loan insurance programs against the yard stick of attending to Canadians’ housing needs – as opposed to wants, desires well-served by the private sector,” said Mr. Siddall. “As a result of these and other changes, our insurance-in-force has begun to decline.”

The chief executive also addressed the issue of a possible bubble in the housing sector.

“As a risk manager, let me tell you why we aren’t overly worried about a housing bubble at this point in time, based on what we know,” he said. “Our educated opinion is that growth in house prices in Canada will moderate. If we are wrong, and price growth remains strong or accelerates, we may need to look to macro-prudential counter-weights to avoid excesses. As I said, we are currently evaluating them.”

Joe Oliver says Canada won’t make major changes to CMHC, housing finance

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

Canada won’t make any sudden changes to the country’s system of housing finance, even as the government looks at ways to reduce its role in the market, Finance Minister Joe Oliver said.

Canada’s finance minister is urging European countries to consider taking quick action to repair their flagging economies by following stimulus programs similar to the one that pulled this country out of recession. Read on Oliver said that while he’s studying proposals, such as the idea of the government passing on more risk to lenders, these are longer-term issues that don’t require immediate action. The government guarantees about $710 billion worth of Canadian mortgages through state-run Canada Mortgage & Housing Corp. and private mortgage insurers.

“We’re looking at things, but we’re not going to be doing anything dramatic,” Oliver said in an interview in Cairns, Australia, where he was attending a meeting of finance ministers and central bankers from the Group of 20 countries. “We don’t see the need for it.”

Related CMHC chief says housing agency considering passing on mortgage risk to banks CMHC could force banks to pay deductibles on mortgage insurance Canada’s housing market on course for soft landing, says CMHC Evan Siddall, chief executive of CMHC, said in a Sept. 19 speech his organization is looking at ways to better manage the government’s exposure to the housing market.

In the speech, Siddall outlined how his organization is “re-examining” its role to ensure the government isn’t distorting the housing market by assuming too much risk. Possible steps could include risk-sharing with banks, higher capital requirements or smaller regulatory measures to curb over-borrowing by some households, Siddall said.

Nothing Precipitous

“We certainly aren’t going to do anything precipitous,” Oliver said. “You don’t want to cause the very thing you are trying to prevent.”

On the risk-sharing proposal, Oliver said the government hasn’t made any decisions.

“Obviously it’s one of the things one looks at, but I don’t want to signal we’re doing anything,” he said.

Canadian housing has so far defied predictions of a correction with recent data showing an acceleration in resales, starts and prices. Policy makers have downplayed worries the market is at risk of a collapse, forecasting instead a soft landing. Oliver reiterated he doesn’t see a housing bubble.

In his speech, Siddall said that his organization’s research shows that even with some overvaluation, “there are no immediate problematic housing market conditions at the national level.” If prices don’t moderate as predicted though, Siddall said, it will strengthen the case for additional measures to cool the market.

Additional Measures

“Our educated opinion is that growth in house prices in Canada will moderate,” Siddall said. “If we are wrong, and price growth remains strong or accelerates, we may need to look to macro-prudential counter-weights to avoid excesses.”

Until now, the agency has been taking smaller measures to remove some of excesses from the market and reduce the amount of insurance it has in force, which is capped at C$600 billion. In June, it announced it would no longer insure financing for condominiums. In February, the agency said it will increase premiums on mortgage insurance by an average of 15 percent. In 2012, the government gave the country’s banking regulator new to oversee CMHC.

CMHC also is planning to increase its capital holdings to protect from insurance losses and has done stress testing that shows it would have survived a U.S.-style downturn in the housing market, Siddall said in the speech.

CMHC insures mortgages against default, and its insurance is fully backed by the federal government. By law, Canadian mortgages with less than a 20 percent downpayment must be insured.

Housing Vulnerability

Bank of Canada Governor Stephen Poloz said Sunday that while housing remains a “vulnerability” for Canada, “we don’t see the housing market as particularly hazardous and we certainly don’t consider it to be a bubble.”

‘We’re not overly concerned but monitoring it very carefully,’’ Poloz told reporters in Cairns. “Over the course of the summer there was no perceptible reduction in household imbalances, while during the first half of the year we had seen a modest constructive trend.”

While no major policy changes are planned, Oliver said there could be similar smaller steps that can be taken if warranted. “That doesn’t mean we’re not going to take further steps,” Oliver said. “A lot of things as you know that have happened, they call it the sandbox policies, we believe moderated the growth.”

In a conference call with reporters from Sydney Sunday, Oliver reiterated the government wants to gradually reduce its involvement in the mortgage market. “Anything that we might consider would be of a marginal nature, like some of the steps that have been taken,” he said.

Dramatic Exit

There have been calls for a more dramatic exit from the market by the government. In a June report, the Organization for Economic Cooperation and Development said Canada should consider lowering the amount of mortgage insurance CMHC can write, and eventually get out of the business completely to limit taxpayer risk.

“Right now, government takes practically all the risk,” OECD Secretary-General Angel Gurria said in a June 11 interview. “This is a contingent liability of the taxpayers of Canada. There has to be some risk borne by the intermediary institutions and the borrowers themselves.”

Tax Inversions

Oliver also told reporters on the conference call he spoke to U.S. Treasury Secretary Jacob J. Lew at the Cairns meeting about U.S. companies that seek to reduce taxes by relocating abroad, a practice known as inversion.

Lew said Saturday his department is finishing work on measures that would limit inversions.

Oliver said it’s not clear whether the changes will be retroactive, a move that might affect Burger King Worldwide Inc.’s takeover of Canadian coffee and doughnut retailer Tim Hortons Inc. “We don’t know just how far that might go, whether there would be an attempt at retroactivity,” Oliver said.

He said Canada hasn’t been targeting companies for potential inversions. “The reason that we have pursued a low- tax policy on the corporate side is to attract and retain capital, which results in economic growth and employment.”

Bloomberg.com

Find FP Personal Finance on Facebook

Twitter Google+ LinkedIn Email Comments More Most Popular PrevNext

Apple Inc’s bungled iOS 8 update linked to same manager…

BlackBerry Ltd earnings beat expectations in…

Bombardier Inc snags largest single order for CSeries yet in boost…

60-year-old woman with budget already in red must raise cash… Topics: Economy, Mortgages & Real Estate, Canada Mortgage & Housing Corp., G20

Find a Story Stock Search

Tools

Mortgage Calculator Mortgage Comparison Mortgage Qualifier Savings Calculator Investment Calculator Home Budget Calculator Currency Converter How to be a Millionaire FP Picks

Nasty ‘Bash Bug’ needs immediate attention: Here’s what you need to know

If you use any systems that run Unix, Linux, or Mac OS X, there is bad news. A rather nasty bug has reared its head, and exploits are already in the wild BlackBerry Passport may grab headlines, but this lower-profile product is winning the most praise

Blend lets users seamlessly bridge messaging and content between devices irrespective of operating systems, which could be key to BlackBerry’s enterprise strategy Making salaries public: The financial equivalent of leaking nude selfies, or a way to build trust?

In our imaginations, nobody is paid what they’re worth, and that might make it tough to get revved up for work CRTC should let market decide because TV pick-and-pay proposal is ‘deeply misguided,’ warns CD Howe

Major Canadian think tank says given the technological revolution, proposals to mandate channel choices are an exercise in futility Think your property taxes are high? Try being a commercial landlord

Toronto, Vancouver, and Montreal continue to post the highest commercial to residential tax ratios, all in excess of 4:1, according to the Real Property…

Our Partners

Infomart The Province Vancouver Sun Edmonton Journal Calgary Herald Regina Leader-Post Saskatoon StarPhoenix Windsor Star Ottawa Citizen The Gazette Classifieds

Remembering Celebrating Classifieds Marketplace Workopolis FlyerCity Classifieds Self-Service Services

Advertise with us Subscribe Subscriber Services ePaper Newsletters Site map Legal

Privacy Terms Contact us Copyright & permissions Connect with Us

Twitter Facebook LinkedIn © 2014 National Post, a division of Postmedia Network Inc. All rights reserved. Unauthorized distribution, transmission or republication strictly prohibited. Follow Follow “Financial Post | Business”

Get every new post delivered to your Inbox.

Join 2,754 other followers

Powered by WordPress.com

POST POINTSEarn rewards for being a loyal National Post Reader

Breaking Down Debt: How 4 Different Loans Affect Your Mortgage-Worthiness

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

Want to get a new mortgage? Then, your credit score is a really big deal — it can make or break your mortgage payments, and ultimately determine whether or not you get the house you want.

But before we talk about credit scores, let’s talk about the debt that affects them. There are two types of debt: secured and unsecured. When you borrow money to buy a house, the bank can take back the house to recoup their money if you don’t pay the debt. That means the debt is secured — it’s being balanced against something that you want to keep, and gives the bank some measure of security that they’re going to be able to recover the money they’ve loaned you.

Unsecured debt, on the other hand, means the bank can’t reclaim the thing you’re buying with the borrowed money. (Credit card debt is unsecured, and so are student loans.)

Let’s look at the impact of four key consumer loans, a mix of secure and unsecured debt, on your credit score—and ultimately your mortgage worthiness:

1. Student loans

Student loans are unsecured debt, but they’re not necessarily bad for your credit score — if you pay your bills on time. Because they often take decades to pay off, student loans can actually help your score. Loans held (and paid consistently) over a long period of time raise your score. Student loans will figure into your overall debt-to-income ratio, though, so they might affect your ability to afford a mortgage.

2. Auto loans

Auto loans are secured debt, because the lender can repossess the car if you don’t pay up. In some cases, auto loans raise your credit score by diversifying the types of debt you carry. And because auto loans are harder to get than credit cards, some mortgage lenders may look favorably on you because you’ve already been approved for a loan that wasn’t a slam dunk.

3. Payday loans

Payday loans don’t usually show up on your credit report. But if you default on the loan, it might ding your credit. Payday loans are unsecured — the lender doesn’t have any collateral — and the interest rates are often exorbitant, costing way more than people expect.

4. Existing mortgage loans

Mortgages are the classic example of a secured debt because the bank has the ultimate collateral — a piece of property. Mortgages, when paid on time, are great for your credit score. Missed payments on previous mortgages will make your new lender very nervous, however. If you already have a mortgage and are applying for another one, the new lender will want to know that you can afford to pay both bills every month, so they’ll be looking closely at your debt-to-income ratio.

If your second mortgage is for a rental property, you may be expecting the rental income to count towards the income side of the equation. But most lenders won’t count rental income until you’ve been a landlord for two years. Until that time, you have to qualify for any mortgages using documented income from other sources.

In general, having different types of debt can boost your credit score. So it’s not necessarily a bad thing to have a student loan and an auto loan when you’re applying for a mortgage. But be careful — over-borrowing can hurt you. Most mortgage companies, in addition to looking at your overall credit score, will look for a debt-to-income ratio below 43 percent. They’ll look at all the money you owe, and the monthly payments on all of that debt. They want to see that your income is enough to cover all your debts, including the mortgage you’re applying for.

Mortgage Broker Practices Score Well on Regulator Suitability Report

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

TORONTO, Sept. 8, 2014 /CNW/ – A report from the Mortgage Broker Regulators’ Council of Canada (MBRCC) should help bolster the confidence borrowers have in the services being provided by mortgage brokers in Canada. The report indicates that most mortgage brokers work to direct their residential clients toward suitable mortgages. However, the report also notes that there is still room for improvement in a number of areas.

Canada’s mortgage broker regulators have identified mortgage suitability as a priority and a concern that is shared across the provinces. “Unsuitable mortgages can have a devastating financial impact on borrowers and their families,” MBRCC Chair Kirk Bacon said. “We’ve also seen national economies around the world suffer when too many households are stuck with unsuitable mortgages.” The report confirms that mortgage brokers have an important role in ensuring that the mortgages Canadians receive are suitable.

The MBRCC met with a number of industry associations to map out the role and activities of mortgage brokers in new residential mortgage transactions. They gathered information to develop a benchmark understanding of the processes and practices mortgage brokers ought to employ to ensure the mortgage advice and options they provide are suitable for their clients.

The MBRCC then conducted a survey of mortgage brokers with regulators in Alberta, Newfoundland & Labrador andOntario reaching out to select brokers to participate. The survey was designed to determine how closely current practices align with the benchmark. Participants were questioned on a variety of topics, including assessing a client’s need and circumstances, developing product option(s) and disclosures. According to the report, the vast majority of the 1,113 brokers surveyed have adopted practices that are integral to providing suitable options and advice to mortgage consumers.

“We now have a much clearer picture of what mortgage brokers are doing to help ensure the suitability of new residential mortgages,” Bacon stated, noting that the report was viewed as the foundation for future collaborative efforts among the regulators. “The MBRCC plans to build out from it to further our work in protecting Canada’smortgage consumers and improving the marketplace.”

The report is one of a series of successful collaborative efforts for the country’s provincial mortgage broker regulators. Since its establishment in 2012, MBRCC members have worked together to identify common concerns, develop shared solutions and harmonize the regulatory landscape. Included in the efforts already completed by the MBRCC are standardized risk disclosure materials for consumers in all provinces, competency and curriculum requirements for all mortgage broker licensing courses and an online tool to assist brokers in identifying the possible licensing and registration rules for transactions that cross provincial borders. MBRCC members are also currently working together to develop national licensing education standards and a harmonized course accreditation process.

About MBRCC

The MBRCC is an inter-jurisdictional association of mortgage broker regulators that seeks to improve and promote harmonization of mortgage broker regulatory practices to serve the public interest. Its members work together and with stakeholders to identify trends and address common regulatory issues through national solutions that support consumer protection and an open and fair marketplace.

MBRCC members represent the nine provinces that currently have legislative and regulatory frameworks governing mortgage brokers or have an interest in developing one; British Columbia, Alberta, Saskatchewan, Manitoba, Ontario,Quebec, New Brunswick, Nova Scotia and Newfoundland & Labrador.

Learn More

Mortgage Brokering Product Suitability Review: Link

MBRCC Homepage: www.mbrcc.ca

MBRCC Newsletter: Link

SOURCE Mortgage Broker Regulators’ Council of Canada

For further information: English Contact: Martin Boyle, Mortgage Broker Regulators’ Council of Canada,Martin.Boyle@fsco.gov.on.ca, 416-590-7031; French Contact: Stéphanie Fournier, L’Organisme d’autoréglementation du courtage immobilier du Québec, sfournier@oaciq.com, 1-800-440-7170 ext. 8693

Here’s Why Mortgage Credit Growth In Canada Has Been Slowing

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

The latest reading from Statistics Canada shows that Canadian household indebtedness increased in the second quarter, with the ratio of household credit market debt to disposable income rising from 163.1 to 163.6 percent.

This increase was primarily attributable to weak income gains over the course of the quarter, as mortgage debt – which makes up nearly two thirds of total household credit – grew at its slowest annual clip since Q3 2001.

In a new note, TD economist Diana Petramala explains why mortgage credit growth has been on the decline.

“Simply speaking, outstanding mortgages are calculated as total outstanding mortgages, plus new mortgages less principal repayment,” she writes. “As long as new mortgages are higher than principal repayments, outstanding mortgage balances will grow.”

Canadians, according to Petramala, are taking advantage of ultra-low interest rates to make substantial progress on paying down their principals:

via TD Economics“Evidence suggests that households are taking an active approach to debt management by paying down their principal more aggressively and drawing less equity from their homes for consumption purposes,” Petramala writes. “Canadian households are paying roughly $4 billion dollars less in interest on an annual basis than they were heading into the recession, but on the flip side they are paying that much more in principal.”

The second half of this development has to do with changes in the average size of the down payment made when purchasing a home, which determines whether a mortgage is conventional (down payment of at least 20 percent) or insured (down payment of less than 20 percent).

The data signal that homebuyers aren’t maximizing the amount they could borrow from a bank, but rather, are choosing to have a higher amount of equity in their property at the time they move in:

via TD Economics“We see that insured mortgages are falling off a cliff while uninsured mortgages are rising,” Petramala told us. “This suggest that a larger share of homebuyers are taking on less debt when purchasing a property.”

Update: North Cove’s Ben Rabidoux points out that the drop-off in insured mortgages can be largely attributed to the decrease in bulk insurance origination from the Canada Mortgage and Housing Corporation, and less so to larger down payments.

The perpetual strength of Canada’s housing market, with the MLS Home Price Index showing that home prices have been rising by 5 percent year-over-year throughout 2014 (compared to an average of 2.8 percent in 2013), is hard to square with a decline in mortgage credit growth. But this report provides a rather compelling explanation for how this has been able to occur:

1) Homebuyers (both first-time and those downsizing or upgrading) continue to fuel credit mortgage growth, and in turn, home price appreciation. However, their average loan-to-value ratio has decreased, in other words, these borrowers are behaving more prudently, and that has kept a lid on mortgage credit growth.

2) Existing homeowners electing to aggressively pay down their principal has offset the growth in new mortgages (and total mortgage credit) more than it did during the period immediately preceding and following the financial crisis.

Petramala’s note implies that this time really is different; that the current situation in Canada is not an apples-to-apples comparison to that of the United States prior to the massive housing bust that brought the global economy to its knees.

Despite this encouraging trend of slowing mortgage credit growth, the economist warns that “the lure of low interest rates may prove to be too strong for Canadian consumers, and the potential for a reacceleration in debt growth remains high.”

READ MORE: How Is Canada’s Housing Market Getting Stronger While The Labour Market Deteriorates?

SEE ALSO: Should Canadian Households Get The Gold For Debt Management?

DON’T MISS: Here’s Why Canadian Consumer Spending Remains Buoyant, But Won’t Stay That Way For Long

Tags:Canada household debt, Canada housing bubble, Canada housing market, Canada mortgages, Diana Petramala

From $99,999 to $1-million plus: Here’s what Canadians can buy in Florida real estate

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

Lured by bargain prices, Canadians spent $2.2-billion on Florida property last year, making them the state’s No. 1 foreign buyer of real estate.

Half of all Canadian buyers, most of them paying cash, spent less than US$200,000 — about half the average sale price of a home here last month. Only 16% of Canadians paid more than $400,000 for their Florida homes.

Canadians were behind 31.6% of all international transactions, according to a report Tuesday by the National Association of Realtors for Florida. And so far the lower Canadian dollar hasn’t affected sales.

Here’s a look at what the price range of just under $100,000 to over $1-million will buy in the Sunshine State:

$99,999 or less: A townhouse in Ft. Myers, Fla., selling for $99,999.

 

$100,000 to $199,999: A two-bedroom house in Ft. Myers selling for $150,000.

 

$200,000 to $299,000: House for sale in North Ft. Myers for $250,000.

 

$300,000 to $399,999: House in Ft. Myers selling for $395,000.

 

$400,000 to $499,999:: Three-bedroom, two-bathroom house in Ft. Myers selling for $475,000.

 

$500,000 to $749,999: House in Naples selling for $749,000.

 

$750,000 to $999,999:: Five-bedroom, four-bathroom house in Fort Myers selling for $850,000.

 

$1,000,000 or more:: House for sale in Naples for $5,700,000.

Renewing your mortgage? Here’s why you should pick up the phone

Financial FYI Series

First Time Buyers

Home Buying 101

Home Insurance

Latest News

Mortgage Rates

Refinancing

Retirement Planning

Self Employed

Twitter Google+ LinkedIn Email Comments More It is mortgage renewal time in my house.

Freedom 58? How Canadians are shaving thousands off the cost of their mortgage

More than half of Canadians in a new survey are putting extra effort into repaying their mortgages — saving tens of thousands in interest payments. Find out more I am one of those debt loving people who believe I can do more with my money by carrying a big debt at 3%, than by paying off my house and using up all that cheap capital – but that financial idea is a story for another column.

So, even though my mortgage comes due in October, I decided to lock in a rate four months earlier at a different institution at 2.79% for 5 years fixed. I was thrilled to have another five years of cheap money.

Even though I had already locked in elsewhere, I was interested in what my current mortgage lender would provide. I waited and I waited. Just four weeks before it was due for renewal they sent me a mortgage renewal notice. They could have sent it to me two or three months before my mortgage came due, but they may prefer to leave consumers less time to shop around and more inclined to just renew.

Related CMHC could force banks to pay deductibles on mortgage insurance Thinking about a move-up buy? Forget it, new study says you can’t afford it ‘I felt really trapped’: Tiny houses big with U.S. consumers seeking economic freedom Here is where it gets interesting. “Please indicate which option you are accepting by signing your initials in the appropriate area indicated and return your signed agreement,” the letter stated.

I could just initial the 5-year fixed rate — for the princely rate of 4.79%.

Further on in the letter under a section called “Get the best rate,” it offered to extend to you our special interest rate hold guarantee provided if I signed by my renewal date. But all this says is that if the rate went down between now and about three weeks from now, I would get the lower rate.

This is a full 2% higher than what I am actually going to get somewhere else. If I had a $500,000 mortgage, this would cost me $47,600 more over 5 years by ‘just signing here’ vs. going to a mortgage broker three months in advance.

Just to be sure that I wasn’t missing something I called to make sure that I had the correct instructions and rate on my renewal. An interesting thing happened when I called. In about 30 seconds they said “I can actually get you a rate of 2.99% for 5 years.” I asked why my rate was 4.79%, and they said that this is the standard rate, but I can get this better special rate.

Doing the math, that phone call, using the same $500,000 example, would have saved me $42,800 over 5 years. That was a pretty valuable phone call.

I asked the kind sir on the phone how often people just sign the renewal form, and he said ‘quite a few.’

If a bank gets 5,000 people in the same $500,000 example to sign the renewal, that adds $42.8-million in profit to their bottom line each year.

Please do not automatically sign the friendly mortgage renewal form. At a minimum call to negotiate or call a mortgage broker to get the best deal for you. If you feel some sort of loyalty to your current mortgage provider, then be sure to see someone in person and ask for the very best rate that they give their very best customer. Your future net worth will be glad that you did.

Ted Rechtshaffen is president and wealth advisor at TriDelta Financial, a boutique wealth management firm focusing on investment counselling and estate planning. tedr@tridelta.ca

Chinese developer Greenland makes its first purchase in Canada — a Toronto condo project

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

Greenland Holding Group Co., a Shanghai-based developer owned by the Chinese government, said it bought King Blue, a two-tower condominium project in Toronto, its first purchase in Canada.

Greenland Holding bought the planned development, which includes 44 and 48-story towers, from closely held Easton’s Group of Hotels Inc. and The Remington Group Inc. for at least $100 million, according to Easton’s Chief Executive Officer Steve Gupta.

Immigration is a main factor driving demand, Gupta, the India-born founder of Toronto-based Easton’s, said by phone today. Greenland Holding, which has invested in London’s Canary Wharf and New York’s Pacific Park, said it bought the site as an entry-point to Canada’s housing market where existing home sales reached a four-year high in August. Average Toronto condominium prices rose 5.5% to $367,010 in the second quarter over a year ago and sales advanced 10%.

“We believe this city will continue to grow and thrive creating other investment opportunities for Greenland Group (Canada) in the Greater Toronto Area and beyond,” Greenland Holding Chairman Yuliang Zhang said in the statement.

The King Blue project, which includes a former Westinghouse factory built in 1927, is located on King Street West, amid newly-opened bars and the TIFF Bell Lightbox Theatre which hosts the annual film festival. The 44-storey tower is 85% sold, according to Gupta. The second tower, hasn’t been pre-leased yet.

Bloomberg.com