Dreyer Group 101 Series Archives - Page 23 of 48 - Bruce Coleman, Senior Vancouver Mortgage Broker Archive - – Bruce Coleman, Senior Vancouver Mortgage Broker

12 Apr

2014

Alycia

Pre-retirement Canadians no longer rushing to repay mortgage debt- Ask a Vancouver Mortgage Broker

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DAVID ISRAELSON- Special to The Globe and Mail

Looking forward to those sunset years when you can put your feet up and burn your mortgage? Peter Veselinovich notices that a lot of people are quietly putting away their matches.

The traditional mortgage market, where younger Canadians scrimp and sacrifice in the expectation that they’ll be paid up when they retire, has been changing, says Mr. Veselinovich, vice-president of banking and mortgage operations for Investors Group in Winnipeg.

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“There has been a trend developing where people appear to be more comfortable in carrying debt into what may have typically been their retirement years,” he says.

Pre-retirement Canadians in their 50s are taking on an alarming amount of debt and are most at risk of bankruptcy, says April Dunn, owner of the Red Door Mortgage Group, a mortgage brokerage in Vancouver, citing a new study that examined some 7,000 insolvency filings.

“More than half of all retired Canadians are carrying debt, with many stuck managing two or more payments a month,” she adds, noting that it’s not unusual to see baby boomers who reach retirement about $400,000 short of their financial goals.

Yet some older people have other reasons for not winding down from the mortgage market. For them it’s a lifestyle choice, Mr Veselinovich says. “They have decided to use their resources for other matters and believe their cash flow is sufficient to service mortgage debt.”

Others are taking advantage of historically low interest rates. Still others are leveraging property that they have paid off or nearly paid off to pass funds to their children so the kids can afford to buy their own places, he adds.

People who downsize from large family homes can often afford to move to smaller places mortgage free. “That being said, there may well be prudent reasons for someone with cash in the bank to take out a mortgage,” says Jawad Rathore, a developer of seniors-focused condo properties.

“It can make better sense for their lifestyles and also for their balance sheets,” says Mr. Rathore, president and chief executive officer of Fortress Real Developments.

A client with sufficient investments to pay cash for a property may choose to mortgage instead, says Mr. Veselinovich. “Why? Because cashing in the investments may trigger income taxes and other fees.”

It may make more sense to use the investments to service the debt, he says, drawing out smaller amounts at a potentially lower marginal tax rate. “There may be opportunities for such an individual to make their mortgage tax efficient.”

It’s critical to have a mortgage plan, Ms. Dunn says. “Your mortgage is the financial tool that’s tied to your largest asset, so whether you decide to pay it off early or keep your other investments liquid, having a strategy and utilizing your mortgage as a financial tool can help you have the retirement you want.”

Age is not the only factor at work here, experts note.

“It is not a question of age. It is a question of suitability,” says Frank Margani, executive vice-president of strategy and development at Fortress Real Developments.

“There could be a healthy 80-year-old who wants to put 40 per cent down on a property and has the income streams to support mortgage payments, and then it’s fine. On the other hand, there could be a healthy 60-year-old, not yet retired but who can’t afford the mortgage payment.”

Age is not a barrier to obtaining mortgage insurance, either. Mortgage holders who put down less than 20 per cent on a property are required to buy insurance from Canada Mortgage and Housing Corp. Others who make higher down payments can buy life insurance, but Ms. Dunn warns that “just like other types of insurances the premiums increase as we get older, and there are some age restrictions by some insurance companies. Premiums can get quite expensive the older we get.”

Some other questions to consider are whether you want an open or closed mortgage and to what extent you want to involve other family members in the purchase. If they’re on the deed they can take over payments; on the other hand, dealing with your later-in-life property can be emotional for them.

Tags: Bruce Coleman, self-employed, Vancouver Mortgage Broker

11 Apr

2014

Alycia

No collapse in Canada’s condo market, but not much growth either – Consult with a Vancouver Mortgage Broker

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The report is sponsored by Canada’s largest private mortgage default insurer but it shows a relatively flat condo market in Canada’s eight largest market for high rises.

Leaving the city (and the big mortgage) behind

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. Read on

Genworth Canada and the Conference Board of Canada forecast prices rising in 2014 in all eight markets surveyed but barely ahead of inflation. Sales will also be positive but even the most robust market, Quebec City, will only see a 4% increase in resale condo activity.

“Although many commentators view the Canadian condominium market as an overvalued bubble about to burst, we think it is only slightly overheated and enjoys sound economic underpinnings,” said Robin Wiebe, senior economist at the Centre for Municipal Studies at The Conference Board of Canada, in the release. “As such, markets are likely to cool gently. To potential homebuyers, monthly mortgage payments, rather than house prices, are what matter and these should remain moderate.”

“With a variety of price points and central locations, condominiums remain an attractive and affordable option for those who want to be close to all that urban life has to offer, ” said Brian Hurley, chief executive of Genworth Canada, in the release. “For first-time buyers, well-maintained buildings with reasonable maintenance fees provide that balance between responsible debt investment and homeownership.”

Prices are forecast to pick up in 2015 but even the strongest market in Victoria will only see 4% price gains. Toronto is forecast to be the weakest market by 2015 with only a 1.7% price gain.

The report says there were price gains in six markets it surveyed in 2013 except Montreal, where condominium values dropped by 1.2%, and Ottawa which saw a 3.6% price decline.

For 2014, Calgary is expected to see the largest gains in price with the forecast for a 3.2% increase.
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Tags: Bruce Coleman, Entrepreneurs, self-employed, Vancouver Mortgage Broker

10 Apr

2014

Alycia

Renovations demand flexible financing choices – Consult with a Vancouver Mortgage Broker

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Fourth in a series.

Whether you are selling your home, buying a new one or simply planning to stay put, renovations will at some point likely become a part of your financial planning.

You may decide to renovate to get your house ready to put on the market and perhaps increase the selling price. You may choose to add renovation costs to a new home purchase to make it more comfortable before you move in. Or your plan may simply be to stay put and invest in creating the home you truly want. Whatever the case, it’s important to understand how to make the most of your renovation budget.

Renovations can be just as important to a seller or a buyer, says Scott McGillivray, television host and Canadian real estate specialist. “If your place needs renovations, chances are [a potential buyer] will feel the same way. That could make a big difference in the selling price.”

If you’re on the fence about whether to stay and renovate or start fresh with another home, McGillivray strongly recommends taking a look at other properties to see if there is something that excites you before coming to any decisions. “Then base your decision on what will give you the best return on investment.”

When it comes to deciding to renovate or sell, there are a lot of personal considerations that come into play, says Todd Lawrence, senior vice president, products and payments for CIBC in Toronto. “You need to decide if you want to go through with the demands of managing a renovation; whether you really love the location and space you’re in; and if your house is capable of being what you want it to be.”

From a purely financial perspective, it’s important to have a clear picture of whether the renovations you invest in will be reflected in the appreciation of the home’s value, he adds. “In other words, what elements will give you the most uplift for your investment?”

That’s why it’s important to ensure your house is well maintained, McGillivray says. It can cost you dearly if you choose to ignore or postpone important renovations such as a new roof or furnace. Generally speaking the appreciated value of a repair will far outweigh costs.

“If you’re spending $2,000 a year to maintain a home, you get double the value in the selling price. If you don’t keep up, the house will go down in value.”

For example, after moisture seepage (especially after a spring thaw), the grading on your property can easily be fixed with some topsoil and sod for about $1,000, he explains. “Not making that investment could mean a $5,000 concession on the selling price. No one knows the extent of the damage behind the walls if they notice seepage problems on inspection.”

Once your needs are sorted out, it’s much easier to manage the financial aspects. A starting point is finding out whether you have the flexibility in your current mortgage to incorporate renovation costs, or you need to negotiate a new one, McGillivray says. “Where the money comes from will determine what you’re capable of doing. A mortgage advisor can help in sorting out what’s best for you.”

With the wide array of mortgage products out there, you need to come up with a plan that allows for easy access to funds when you need them, he adds. “Today mortgages can be a million different things. You can use cash back or all-in-one power plan mortgages so that you don’t need to panic if the roof goes or the furnace breaks down.”

When moving to a new property, he recommends looking at some sort of blended mortgage that includes additional options that allow you to build up a line of credit as you pay down your home.

Timing is also an important discussion point when moving to a new home, Lawrence notes. “Do you buy first or sell first? What do you do if there is a mismatch in the timing? The best thing to do is talk to an advisor about your options around that. A lot of existing mortgages can be ported to a new home for example. Or you may need bridge financing. These are all important things you need to talk about before making a decision.”

Tags: Bruce Coleman, Vancouver Mortgage Broker

09 Apr

2014

Alycia

If you want to have a mortgage in retirement, be prepared to make some big sacrifices – Ask a Vancouver Mortgage Broker

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Maybe we shouldn’t be all that surprised that mortgages based on a 25-year payment schedule are now part of our retirement picture.

Here’s why paying off your mortgage isn’t always the best idea

Pay that mortgage off? Why would you bother, especially if that money could be invested elsewhere at a higher rate? Mortgage broker Calum Ross says there is an opportunity to invest in today’s market using the money you would otherwise earmark for your mortgage. Keep reading.

It could be worse. Amortizations were as high as 40 years before former finance minister Jim Flaherty limited the length of loans with government-backed mortgage insurance. But even at 25 years, that means holding debt in retirement if you take on a new mortgage passed age 40 which is increasingly common in Canada.

Most planners seem to think it is a disaster waiting to happen because seniors don’t usually have the income in retirement to support debt repayment and that means major lifestyle changes.

Will Dunning, chief economist with the Canadian Associated of Accredited Mortgage Professionals, says among homeowners 65 years or older, 35% have a mortgage. Among those with a mortgage, the average loan-to-value ratio is 33%.

“I have a feeling a lot [of cases] of the mortgages in retirement are they’ve refinanced for some purpose, to finance a kid’s wedding or to lend money to a kid to pay for a down payment,” says Mr. Dunning.

I’m totally against it

Lise Andreana, a certified financial planner based in Niagara-on-the-Lake who counts many seniors among her clients, says going into retirement with debt is fraught with challenges.

“I’m totally against it,” says Ms. Andreana about taking a mortgage into your retirement. “You’ve got to make payments that will be coming out of retirement income.”

In situations where people do still have a mortgage going into retirement, it often proves a major problem, she says.

“One of my clients is drawing down registered funds over and above what would normally be required [to live off],” says the CFP. “My advice for the past five years has been ‘you need to downsize, you need to sell that house because you are going to run out of money.’ Getting them to do it? That’s their decision.”

“People are living longer, right of the gate they need more money to live. Many seniors are living on fixed income. But do their spending habits match their income?” says Mr. Schwartz. “The result is seniors are taking mortgages into retirement and, in many cases, it is becoming the new norm. In some cases they are even adding [debt].”

More worrisome is that if interest rates ever raise, many of these seniors will be squeezed further at a point in their lives when they can’t handle larger interest payments. “It could send them into a tailspin,” says Mr. Schwartz.

There is increasing evidence that seniors are getting themselves in more debt trouble.

Equifax Canada Inc. said last year that seniors led the pack among age groups when it came to ramping up their debt. Seniors make up about 8% of all bankruptcies, up from 6% five years ago, the ratings agency said at the time.

It’s not a huge cause for alarm because only 0.05% of all senior debt ends up in bankruptcy.

It’s a little bit scary, they are stretching their standard of living

Still making sure you have enough left over to has to be top priority for seniors, said Fred Vettese, chief actuary for Morneau Shepell and co-author of The Real Retirement, who has bucked the general thinking that you need 70% of your income for your retirement years.

“You don’t need that 70% because you are paying off a mortgage when you are actively employed,” said Mr. Vettese, adding that doesn’t hold true if you still have a mortgage in retirement.

But even if you do have enough money from your RRSP to pay off a mortgage, Mr. Vettese wonders why you would want to do it. Your RRSP is likely going to be invested in conservative instruments like bonds that pay a lower yield than the mortgage you are taking out.

“It just doesn’t make sense,” he says.

About the only way a mortgage might make sense is if you are still working after 65. “If you are still making employment income, that’s how they would justify it,” said Mr. Vettese, adding there is more and more evidence people are working later in life.

Even so, he wonders whether people should really be taking on more debt at such a late stage in life.

“It’s a little bit scary, they are stretching their standard of living, just going for more than they can afford,” says Mr. Vettese.

Tags: Bruce Coleman, self-employed, Vancouver Mortgage Broker

07 Apr

2014

Alycia

Gen Y: Don’t believe the hype on home ownership – Ask a Vancouver Mortgage Broker

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The housing boom of the past decade has given young adults a whole lot of debt and some pitiful gains in net worth.

The twenty- and thirtysomethings of Generation Y who are entering the market today are in for worse treatment. A mindset for those who choose to buy a house: It’s about lifestyle, not making an investment.

Home-ownership boosters base their argument that homes are a good investment on the fact that resale prices have increased more than 6 per cent annually since 2000, triple the inflation rate. This gain helped power a rise in household net worth that has been much talked about lately because it suggests households are financially strong.

Net worth is an overblown measure of financial health, as I argued in a recent column. But it’s especially irrelevant in telling us what’s happening with young people.

Statistics Canada says median net worth for families increased 78 per cent from 1999 to 2012 on an inflation-adjusted basis, or about 4.5 per cent a year. But in households where the age of the highest earner was under 35, net worth grew just 8.6 per cent in total, or about 0.6 per cent a year. Inflation averaged 2.2 per cent over that period, so those young-adult households were actually losing net worth on what economists call a real basis.

It’s quite normal for young adults to have done poorly on net worth. “Gains in net worth have been driven mostly by real estate appreciation and, of course, those under 35 tend to have very little equity in their houses,” said Doug Porter, chief economist at BMO Nesbitt Burns. “They probably didn’t benefit directly in the appreciation of homes in that period.”

What is a bit unusual is that net-worth growth in the under-35 bracket so markedly lagged the broader population, Mr. Porter said. He thinks this discrepancy can be explained as being a result of big home-equity gains by older households. They benefited from the housing boom much more than younger people because they owned more of their homes.

Okay, younger Canadians will catch up when future housing price gains help them build equity, too. Or so housing boosters say in the kind of forecast that is meant to encourage buyers to jump into the market, not help people make a sound financial decision.

A look at market fundamentals suggests prices can’t keep rising indefinitely. Affordability is stretched in some cities, and an aging baby boomer demographic will soon start a downsizing process that could flood the market with homes for sale. There’s also the financial world’s law of gravity to consider: An asset that soars in price must eventually give back some gains.

Mr. Porter’s forecast for housing: “I think prices will struggle to show any real gains in the next five to 10 years. Of course, it depends on the city. Calgary, for example, should do just fine.”

After 13 years of massive real estate price gains, young adults were left with only a token increase in net worth. Debt, sadly, is a different story. Statistics Canada says under-35 households owed $36.44 per $100 in assets in 2012, by far the highest of any age group.

Young adults had the biggest debt loads back in 1999 as well, and it’s easy to see why. Then, as now, they were still in the very early years of their mortgage and they may have had student debts to finish paying off. Carrying debt is normal for young people, you might say.

Problem is, you can’t rationalize or justify that debt today by saying it’s the cost of getting into a housing market with lots of upside. In fact, there’s some downside to consider. A price drop of 5 per cent would be fairly modest, and yet it would wipe out the equity of people making the minimum 5-per-cent down payment.

Gen Y, the investment argument for home buying is always suspect because it so rarely considers the cost of mortgage interest, property taxes, insurance and maintenance. Today, you’ve got to be even more skeptical. If you’re set on buying, make it for lifestyle reasons. Boomers will hit the jackpot with their homes, but you won’t.

Coming Saturday: The case for investing in the markets instead of buying a house, at least in the near term.

Follow me on Twitter: @rcarrick

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07 Apr

2014

Alycia

Could CMHC change its ‘one-size fits all’ mortgage insurance to reflect real risk? – Ask a Vancouver Mortgage Broker

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Buy a house with less than a 20% down payment and you have to get mortgage default insurance. There’s no choice. The rules are dictated by Ottawa and protect the banks, in the event you default.

Why the mortgage rate wars can rage more freely

Why did Bank of Montreal risk a (verbal) slap from Finance Minister Joe Oliver for daring to chop its five-year mortgage rate below 3%?

Because they knew the mortgage war is going to be different this time.
The rate you’ll be charged bears very little relation to your individual risk. You have a fantastic job, a great credit history and live in a part of the country where the housing market is on solid footing? Forget it, you’re paying the same premium as anyone else and it’s mostly based on your downpayment.

“The mortgage insurance product, irrespective of who sells it, is the same product. There is less product differentiation that there is among choices of 89 octane unleaded gasoline,” says Finn Poschmann, vice-president of research of the C.D. Howe Institute. “In gasoline, at least you can choose among ethanol content levels and detergents. Not so with mortgage insurance.”

Starting on May 1 consumers will pay even more for this insurance which provides a backstop to the entire Canadian economy given Ottawa is on the hook for close to the $1-trillion in mortgages it guarantees.

But this type of pricing could all change in the future. Evan Siddall, a former investment banker who was installed as president and chief executive of Canada Mortgage and Housing Corp. in December has been asked about the possibility of a risk-based method of assessing mortgage default insurance.

Sources say the new CEO has told people he doesn’t disagree with the principal of risk-based insurance.

CMHC wouldn’t offer any specific comment. “CMHC’s President has been consulting with a broad range of housing stakeholders across Canada over the past three months in order to gather information and perspectives on several different topics, including mortgage loan insurance,” a spokesperson, said in an email.

Related
Ottawa given ‘heads up’ before BMO mortgage rate cut, says monitoring market closely
Here’s why paying off your mortgage isn’t always the best idea
It would be a monumental change for the Crown corporation and might fit with the more business-like approach the department of finance seems to be demanding from CMHC. Former Finance Minister Jim Flaherty openly talked about privatizing the organization last year.

The new Finance Minister Joe Oliver doesn’t seem to be ruling out anything when it comes to the mortgage market these days. “The government is gradually reducing its involvement in the mortgage market,” he said, in response to the latest rate battle raging among the banks.

Last year, Mr. Flaherty put CMHC under the control of the Office of the Superintendent of Financial Institutions, to keep it more tightly under the thumb of finance.

CMHC has already begun overhauling its board with a more Bay St. flavour with the new chairman Robert Kelly, a former Wall Street CEO. One of the first major acts of new management was to increase the fees, something it said it needed to do to improve capital targets and reduce taxpayer exposure to the market.

With 5% down, the current cost of insurance is 2.75% of the value of your mortgage. That premium rises to 3.15% next month. CMHC controls a majority of the the market and its only two private competitors followed almost immediately with the exact same spike in rates.

“It’s a one-size fits all model,” said Winsor Macdonell, general counsel with Genworth Canada, the largest private competitor in the marketplace.

Changing the model would be a potentially controversial measure that would leave mortgage insurance closer to the more traditional approach to insurance when it comes to assessing risk.

No one in the life insurance industry would ever give the same rate to a non-smoker as a smoker. Car insurers will charge someone in small town Ontario a much lower rate than say someone in Toronto.

It’s not without precedent. Australia no longer has mandatory government mortgage insurance but a market has developed for the product privately anyway, says Mr. Poschmann. In the United States, there are rates based on your state and within that state pricing you pay a premium based on your credit score.

It’s a one-size fits all model
“I think the Canadian model is partly [the way it is] because it’s historic,” says Mr. Macdonell. “We looked at this 10 years ago because finance was considering getting rid of the mandatory requirement for mortgage insurance.”

One of the biggest political problems for risk-adjusted based pricing in Canada would be the difference in pricing for people in rural areas versus urban areas. “It’s harder to sell a home in a rural area and that by itself would drive your price up,” he says, adding the current model makes Genworth’s portfolio stronger because it spreads risk more evenly.

The government has an interest in keeping that portfolio strong, given that in the event Genworth fails Ottawa is on the hook for 90% of the dollar value of the loans the private insurer guarantees for banks. The government backs 100% of loans insured by CMHC.

One of the reasons the banks are said to like the current system is they don’t want an increase in market share by private players because of that 10 percentage point gap. During the financial crisis in 2008, the banks started driving more business to CMHC because of that gap and concerns over credit. The banks want private insurers there for competition but only to a point.

The current system does mean some consumers are subsidizing others by paying a higher rate than they would in a free market. “In a reconfigured marketplace you would likely would have more variation. Credit scores would be one axis, so would the strength of the market and the ability to turn over properties. And the product itself could be different,” says Mr. Poschmann.

Vince Gaetano, a mortgage broker with monstermortgage.ca, says nothing illustrates the absurdity of the market more today than the fact that people with mortgage insurance and low down payments actually get cheaper rates than people with large down payments without insurance.

He can get a consumer with 5% down a mortgage rate of 2.84%, if they lock in that rate on a closed mortgage for five years. Put more than 20% down and the best he can do is 2.99% for the same mortgage because it has no government backing.

Still, he questions what the incentive will be to change the system — not because the banks like the current system but also due to the lack of data to access individual risk.

“Sure [changing the system] make sense. I just don’t think they’ll be able to trust the data,” says Mr. Gaetano, about assessing risk. “There are having a hard time trying to come up with a matrix to assess risk. It’s very difficult.”

For that reason, while many people think a change is coming from CMHC, it could take years to implement.

Tags: Bruce Coleman, Entrepreneurs, self-employed, Vancouver Mortgage Broker

07 Apr

2014

Alycia

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

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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)

Mortgage Example	Bi-weekly accelerated payment	Total Payments Over Five Years
Five-Year Fixed
2.84 per cent (best rate found online)	$922.41	$119,913
2.99 per cent (BMO’s special offer)	$937.60	$121,888
3.39 per cent (another bank’s best special offer)	$978.75	$127,237
Variable rate
2.29 per cent (prime minus 0.71; best rate found online)	$867.87	$112,823
2.40 per cent (prime minus 0.6; a widely available discount)	$878.63	$114,222
2.55 per cent (prime minus 0.45; discounted bank rate)	$893.42	$116,145

Tags: Bruce Coleman, Entrepreneurs, self-employed, Vancouver Mortgage Broker

07 Apr

2014

Alycia

MBRCC’s New Tool for Interprovincial Brokering

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MBRCC’s New Tool for Interprovincial Brokering

For mortgage brokers without face-to-face business models, the Internet makes it easy to close mortgages in another province. And a lot of brokers are doing just that, but not always legally.

That’s partly why the Mortgage Broker Regulator’s Council of Canada (MBRCC) put out this new tool.

They call it the Multijurisdictional Licensing Information Tool. It’s meant to help brokers know when they need to be licensed to work with a borrower in another province. CMT spoke with Martin Boyle, Policy Manager at the MBRCC for more details.

Mr. Boyle provided clarification on four broker FAQs (frequently asked questions) surrounding interprovincial brokering:

1. If a broker has an existing client who moves from the province that broker is licensed in to a province that broker is not licensed in, can that broker and client still work together on a mortgage?

Martin: The short answer is yes, the broker can still work with a client who has moved to another province. Brokers are not prohibited from working with clients when they are not in the same province. The question becomes which licensing rules apply when the broker and client are in different provinces. Depending on the province in which the client is now located and the specifics of the mortgage transaction, the mortgage broker may also need to be licensed in that province as well.

The MBRCC Multijurisdictional Licensing Information Tool was design to help brokers by providing guidance on the licence(s) they would likely need if they are working with a client in another province and/or if the property was in another province.

2. If a broker gets a new client from a province that the broker is not registered in, can that broker “co-broker” the mortgage with a 2^nd broker who is licensed in that province?

Martin: Each province has its own rules regarding when a licence is required. The rules that apply, and whether or not an additional licence would be required for the 1^stbroker in your example, depends on the provinces involved in the transaction. Also, how the 1^st broker “gets” the new client could potentially be a factor for consideration (wherever an individual is “holding out” as a broker is considered the location of the broker).

It is recommended that any brokers involved in a transaction as described in [this] question contact the regulatory authority from each province to determine the licensing rules that apply. The following MBRCC webpage includes links to the provincial regulators: Link

3. The licensing tool says the following about an out-of-province broker working with an Alberta client on an Alberta property: “Alberta licensing rules would apply. A “substantial connection test” would need to be conducted by RECA to determine whether you need to be licensed in Alberta for this transaction.” What does that mean exactly?

Martin: The Real Estate Council of Alberta (RECA) is Alberta’s regulatory authority for mortgage brokering. They have identified a series of factors that they consider when determining whether an Alberta licence is required for transactions with elements outside Alberta’s boundaries. The process for making this determination is called a “substantial connection test.” The following link provides further information on RECA’s substantial connection test: Link

4. Which provinces have reciprocity for mortgage agents? In other words, if you’re licensed in AB, BC, MB, SK, NB, NL, NS, ON or QC, can you apply for an accelerated approval in the other provinces, with no need to take an educational course in that other province?

Martin: Licensing reciprocity arrangements are intended to promote labour mobility by recognizing the occupational standards from other provinces. Reciprocal licensing arrangements apply to those provinces that license individuals (i.e., B.C., Alberta, Saskatchewan, Manitoba, Ontario and Quebec). Through these arrangements applicants are eligible for licensing reciprocity without additional educational requirements provided the provinces have occupational equivalents.

Sidebar: Visit this page on MBRCC’s website for reciprocal licensing information from various provinces (For information on the process in Manitoba, please contact the Manitoba Securities Commission directly).

Rob McLister, CMT (email)

Tags: Bruce Coleman, Entrepreneurs, Vancouver Mortgage Broker

07 Apr

2014

Alycia

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

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Scotiabank Offers Advice on How to Become Mortgage-Free Faster

TORONTO, ON–(Marketwired – April 01, 2014) – The dream of mortgage freedom is less than 10 years away for 37% of Canadian mortgage holders, according to Scotiabank’s Mortgage Landscape Study. More than two-thirds (68%) of mortgage holders have taken steps to pay off their mortgage faster, including increasing the frequency of regular payments (39%), increasing regular payment amounts (25%), and making additional lump sum payments (24%).

Of mortgage holders who agree that being mortgage-free faster is important (80%), the top cited reasons are to have more disposable income (30%), to pay off debt or to pay less interest (both 17%), and to save for retirement (11%).

Additional findings:

Just over one-half of mortgage holders (54%) said they are able to make additional mortgage payments, with 34% of those making payments whenever they can afford it, 19% making additional payments annually and 27% semi-annually or more frequent payments.
Among the 38% of mortgage holders who say they are not able to make additional payments over and above their regular payments, indicate that affordability (64%) and competing priorities (54%) are key challenges to mortgage freedom.
16% of mortgage holders indicated that they cannot afford any increase in their current payments.

Quote:

“For many, the mortgage is their single biggest debt and it may seem overwhelming,” says David Stafford, Managing Director of Real Estate Secured Lending at Scotiabank. “It’s important for mortgage holders to know that small changes can make a big difference in the total cost of borrowing over the life of the mortgage. While periodic lump sums and even switching to bi-weekly payments are great options, increasing your payments by small amounts, like an extra $20 payment per month, can make a big difference without impacting your lifestyle.”

Four ways to become mortgage-free faster:

In addition to the steps below, current mortgage holders can test the Mortgage-Free Faster Calculator to help identify small changes they can make towards paying off their mortgages faster and build savings for other things like travel, education or retirement.

Switch from monthly to weekly or bi-weekly payments. By increasing the frequency of payments, you will make one extra monthly payment per year, which is directed to reducing the principal balance of your mortgage. The faster you pay off your mortgage, the more money you’ll save in interest costs and you will be mortgage free years ahead of schedule.

Increase your payments. Increasing your mortgage payments by small amounts every year, even by 2%, can help you pay off your mortgage sooner and may have a big impact on what you pay in interest over the long term.

Make lump-sum payments. Take advantage of your pre-payment option and use your tax refund or annual bonus to make lump-sum payments. Choose to pre-pay up to 15% of the original principal amount of your mortgage any time during each year of the term.

Diversify your mortgage by mixing short and long term mortgages and/or fixed and variable rates. Base your total mortgage payment on what it would be based on the highest rate of all the mortgage components. You get the advantage of lower interest rates on some portion of your mortgage, while paying it off sooner at the same time.

About the polling data
For this survey, TNS Canada conducted online interviews among 500 mortgage holders and 260 mortgage intenders aged 21 years or older. Mortgage holders were defined as property owners with a mortgage (either on primary or secondary residence or income property), who are not intending to get a new mortgage in next 12 months. Mortgage intenders were defined as consumers in the market for a mortgage in the next 12 months. In tabulation, data was weighted to be reflective of the distribution of mortgage holders and intenders by region, gender, and age, using a combination of results from Statistics Canada and from the 2012 Scotiabank ‘Mega Poll’. The survey was conducted between December 19 and 30, 2013.

About Scotiabank
Scotiabank is a leading financial services provider in over 55 countries and Canada’s most international bank. Through our team of more than 83,000 employees, Scotiabank and its affiliates offer a broad range of products and services, including personal and commercial banking, wealth management, corporate and investment banking to over 21 million customers. With assets of $783 billion (as at January 31, 2014), Scotiabank trades on the Toronto (TSX: BNS) and New York Exchanges (NYSE: BNS). Scotiabank distributes the Bank’s media releases using Marketwired. For more information please visit www.scotiabank.com.

BACKGROUND

REGIONAL BREAKOUTS

Time Horizon to be Mortgage Free

	Total	Atlantic	Quebec	Ontario	West
Less than 1 year	2%	1%	1%	3%	2%
1 to 3 years	6%	2%	5%	6%	6%
4 to 5 years	7%	6%	7%	5%	9%
6 to 10 years	22%	32%	21%	22%	19%
11 to 20 years	39%	33%	41%	42%	36%
21 years or more	24%	26%	25%	21%	28%

Top reasons to be mortgage free faster

	Total	Atlantic	Quebec	Ontario	West
Have more disposable income	30%	34%	24%	33%	31%
To get rid of debt/debt free	17%	9%	22%	13%	19%
Can pay less/low interest	17%	7%	33%	9%	19%
Able to save for retirement	11%	22%	2%	13%	12%
Save money/more money	10%	3%	7%	14%	9%

Ability to make additional mortgage payments

	Total	Atlantic	Quebec	Ontario	West
Yes	54%	53%	57%	54%	52%
No	38%	39%	31%	39%	40%
Don’t know	8%	9%	11%	7%	8%

Steps taken to pay off mortgage sooner
(in additional to regular payments)

	Total	Atlantic	Quebec	Ontario	West
Increased frequency of regular payments	39%	43%	44%	36%	37%
Increased amount of regular payments	25%	13%	26%	27%	24%
Made additional lump sum payment(s)	24%	25%	18%	23%	30%
Renegotiated for a lower mortgage rate	19%	12%	16%	21%	20%
Other	2%	–	4%	–	2%
None of the above	32%	39%	23%	34%	36%

Reasons for not making additional mortgage payments

	Total	Atlantic	Quebec	Ontario	West
Do not have enough money to do so	64%	42%	50%	72%	67%
Have other debts to pay off first	42%	46%	27%	40%	50%
Need the money for other priorities	27%	23%	43%	21%	27%
Current payment is manageable	18%	13%	39%	18%	9%
Haven’t had the mortgage very long	16%	10%	29%	7%	21%
Never thought about it before	6%	22%	8%	4%	4%

Tags: Bruce Coleman, self-employed, Vancouver Mortgage Broker

07 Apr

2014

Alycia

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

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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.

Top economist calls out Ottawa on ‘unhealthy’ lack of information about housing market

Crucial information needed to assess the health of our housing market is not available in Canada, and without it, players are flying blind, says CIBC economist

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.

Original Story Link

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.

Tags: Bruce Coleman, Entrepreneurs, Vancouver Mortgage Broker