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Applying for a fixed-rate mortgage? Why you need to do your homework

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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.

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BOOK EXCERPT When it comes to home buying, smaller is better DECODING THE MORTGAGE MARKET Should you get pre-approved for a mortgage? Ten things to know Five-year mortgages holding firm, but just wait The government-backed Canada Mortgage and Housing Corp. is raising its prices for home mortgage insurance. CARRICK TALKS MONEY Video: Carrick Talks Money: Don’t get stuck in the mortgage penalty box Your Personal Investor Dale Jackson looks at the cost of longer amortization periods. VIDEO Video: If you choose lower mortgage payments now, you may regret it later Homeowners may be feeling nervous after the Bank of Canada’s recent talk of changes to interest rates. Canadian Press business reporter Romina Maurino looks at what this could mean for your mortgage. 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.

Follow Robert McLister on Twitter: @RateSpy.com

First-time homebuyers are feeling the weight of Canada’s housing boom

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Many times over the last few years, John Norquay has been stricken with pangs of anxiety over not being a homeowner.

Should you rent or own your home?

Bank of CanadaPeople say that when you grow up, you buy a home. But owning doesn’t make sense for everyone and in some cases, it might be more financially beneficial to rent. Find out more They strike when he attends housewarming parties for friends. They hit when he hears that friends bought in the condo building where he is renting and the value of the unit has already shot up.

But the 35-year-old Toronto immigration and refugee lawyer graduated in 2005 with $75,000 in student debt and while he tackled his loans ahead of saving for a down payment, home prices have only climbed. “I decided to wait but I don’t know if I’ll end up regretting that,” he says. “It seems like every other month there’s an article about the condo market bubble bursting; I kind of gambled there and I think I lost.”

It used to be a rite of passage for young people, a way to announce your adulthood to the world by buying your first home. But fewer young people today are able to achieve this dream. A recent CIBC report showed that the home ownership rate among first-time homebuyers (25 to 35) fell from 55% in 2012 to the current 50%.

With the rise in housing costs, many first-timers are locked out of the market, unable to save the gargantuan down payment or qualify for a mortgage.

Related From $99,999 to $1-million plus: Here’s what Canadians can buy in Florida real estate Renewing your mortgage? Here’s why you should pick up the phone Outside of Toronto, Vancouver and Calgary, Canada’s housing market is ‘mediocre at best’ According to a BMO report released in March, first-time homebuyers plan to spend an average of $316,000 on their first home, up from $300,000 in 2013. (Those in Vancouver expect to spend $506,500 while those in Montreal plan to pay $237,900.) Respondents to the study expect to put an average down payment of 16% or $50,576.

Now, considering that the average home price in Canada was more than $416,000 in May, if you wanted to put 20% down, you’d need $83,200. That’s a daunting figure for anyone.

Six in 10 hopeful homeowners say their home-buying timeline has been delayed, with 39% citing rising real estate prices as the main reason for delay.

“You’ve been in the workforce for a few years and you don’t have a lot of assets; it can take several years to break into the financial market,” says Penelope Graham, an editor at Ratesupermarket.ca.

As tuition fees rise and students graduate with more debt, many find that they’re devoting funds to debt repayment versus saving for a down payment. (Mr. Norquay’s debt payments amount to $750 a month.)

And if graduates don’t find steady employment right away, accumulating a lump sum is even harder; more young people today compared to previous generations opt to return to school when they have trouble breaking into their fields.

The youth unemployment rate in 2012 was 2.4 times that of adults — marking the biggest gap since 1977, a Statistics Canada report said.

“If you look at youth unemployment and underemployment, that’s definitely another factor. The ability of young people to earn has been compromised,” says Benjamin Tal, deputy chief economist with Canadian Imperial Bank of Commerce.

He calls today’s young adults “the lost generation” — a group that is falling behind economically.

A new report by the Conference Board of Canada echoes his findings: the average disposable income of Canadians between the ages of 50 and 54 is now 64% higher than that of 25- to 29-year-olds. That’s up from 47% in the mid-1980s.

With young workers facing lower wages, rising home prices and tighter mortgage restrictions (reducing total amortization to 25 years, capping maximum debt ratios for households to qualify for a mortgage loan), the goal of home ownership moves further away for many.

So what are people doing instead? They’re spending more time living with mom and dad. They’re renting. Renting often suits a younger demographic who might appreciate mobility and fewer responsibilities. Plus, home buying comes with maintenance costs and upkeep and each time you buy a home, extra funds are needed to cover things such as lawyer fees, land-transfer taxes, and other transaction expenses that typically add 10% to the purchase price.

Some experts argue that investing one’s savings in assets with higher potential returns is a better option than sinking everything into the housing basket, especially if you might be planning to move anytime soon.

“The one compelling argument I have seen in support of renting is that if someone is wisely investing, it can be a bigger payout in the end,” Mr. Norquay says. “I am not at all the saver type, and those articles have only increased my desire to want to own. Basically it would be a way of forcing myself to invest.”

Why is he a bad saver? “I like to go out and have fun and I like to travel.” More than two-thirds of Gen X Canadians told a TD survey that they wanted enough flexibility to be able to afford things like travel after paying their monthly mortgage.

Mr. Norquay now rents a $1,950 two-bedroom condo unit with a roommate near his downtown legal aid clinic. Three years ago, he hoped to buy a home with a friend and got pre-approved for a joint mortgage; but they couldn’t find the right property.

Though some say people should take advantage of the record low mortgage rates and get into the housing market as soon as possible, Sadiq Adatia, chief investment officer at Sun Life Global Investments, suggests first-timers should continue to wait.

“First-time home buyers should wait to buy as the market is quite frothy at the moment and it is only a matter of time before we see a pullback,” Mr. Adatia says.

“Though rates will also go up at some point, our belief is that housing values will decline prior to that, giving buyers a great opportunity to take advantage of lower prices, but also lower rates. Those opportunities do not come often.”

As it stands today, houses are becoming less affordable, according to RBC’s most recent affordability index which measures the percentage of pre-tax household income that is needed to service the cost of owning a home (including mortgage payments, utilities and property taxes). In Vancouver, 82.4% of household median pre-tax income is needed to service the cost of owning a bungalow at current prices. That compares with 56.1% in Toronto and 34.5% in Calgary.

In places like Toronto and Vancouver, competition is steep so first-timers could face bidding wars which ratchet up prices and prompt some buyers to drop important conditions such as a home inspection.

“Without having a bit of help from friends and family or being able to sell something, it’s very difficult for a first-time homebuyer even on two incomes,” says Mike Bone, a 31-year-old account manager at a marketing consulting firm. He and his wife are looking to buy a home in Toronto for $550,000 to $700,000 but have found that bidding wars inflate all of the prices.

“We’re trying to balance getting in there and not making a stupid decision. It’s frustrating but we understand the high demand and the low supply of single-family homes. Lately, we’ve been looking at new builds and low-rise condos.”

Mr. Bone says he hopes that they’ll have some luck as the weather cools and in the interim, they’ll continue to build up their savings.

But how do you even start saving up that big chunk of money, especially if you’re doing it alone?

The majority (61%) of first-timers told a BMO survey that they’ve made cutbacks to their lifestyle in order to save for their first home. Meanwhile, 30% expect parents or family to assist in their purchase; this percentage rises to 40% in Montreal and Vancouver.

The minimum down payment for a home is usually 5%, says Jeff Cody, managing partner of Mortgage Brokers City Inc. in Ottawa. “But if you put less than 20% down, the mortgage has to be insured against default,” he adds. The more you put down, the lower your insurance premium, which start as high as 3.15%.

You need a strategy.

Mr. Norquay will finish paying off his student loans in October; then, he’ll start accumulating more for his future home. He also has savings in an registered retirement savings plan and wants to take advantage of the home buyers’ plan. Under the home buyers’ plan, Canadians can take $25,000 out of their RRSP and pay it back over the next 15 years without incurring any penalty.

Save as much as you can before taking the plunge, Ms. Graham says. “Aim to pay more than a 5% down payment,” she says. “No one wants to hear this but if you go into your first home purchase with more capital up front, it means you’re going to take out less of a mortgage and over the long run, you’re going to pay less interest and you’re going to build your equity faster.” • Email: mleong@nationalpost.com

CMHC could force banks to pay deductibles on mortgage insurance

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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.

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

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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

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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

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Mortgage Broker Practices Score Well on Regulator Suitability Report

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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

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

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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

How Brokers Operate – some stats -ask a Vancouver mortgage broker

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How Brokers Operate: Some Stats

POSTED IN: MORTGAGE INDUSTRY REPORTS SEPTEMBER 13, 2014 ROBERT MCLISTER 3 COMMENTS The vast majority of mortgage brokers recommend suitable mortgages, according to a new report from the Mortgage Broker Regulators’ Council of Canada (MBRCC). That’s vital because, as MBRCC Chair Kirk Bacon states, “Unsuitable mortgages can have a devastating financial impact on borrowers and their families.” To find out how brokers operate, regulators surveyed 1,113 of them in Ontario, Alberta and Newfoundland. They discovered practices that were mostly reassuring, with a few stats you may find surprising.

These were some key findings:

55% of Ontario brokers said brokering wasn’t their primary source of income Note: The number was only 11% in Alberta and 25% in Newfoundland It would be interesting to know how many consumers are willing to entrust their biggest debt to a part-timer 53% of brokers maintain records of why they make the recommendations they do That’s a problem, regulators say. “…There should be written records” of how the broker’s recommendation corresponds to his/her needs assessment of the borrower, notes the MBRCC 34% of brokers have been licensed for at least five years In other words, only about 1 in 3 brokers have had clients renew a 5-year mortgage This stat primarily includes Ontario brokers (Alberta was excluded from this question) Out of active Ontario brokers, only 1 in 3 do more than 25 mortgages per year 81% of brokers say they “always” search for suitable mortgages from the lenders available to them 69% of Ontario brokers use more than three lenders “on a regular basis” (76% in Alberta) 7% of Ontario brokers use only one lender on a regular basis (and they call themselves brokers?) 40% of brokers do independent research on mortgage products “daily” 2 in 3 Ontario brokers say they represent “both” the lender and borrower 30% say they represent only the borrower 4% say they represent only the lender (if only these brokers admitted that to clients) The MBRCC outlines three factors in recommending a suitable mortgage:

Appropriateness of the mortgage, given the borrower’s needs/circumstances Affordability of the mortgage, given the person’s ability to repay it Alternatives available to the broker Some consumers are under the misconception that brokers recommend mortgages from all lenders. Very few do. In fact, the majority (53%) of brokers say their role is only to educate clients on the mortgages they, the broker, can directly sell While regulators don’t expect brokers to know all products, they do, however, expect brokers to recommend the most appropriate mortgage that they have access to One other key takeaway from the report involves setting expectations. The MBRCC says it’s vital for brokers and customers to have “a common understanding” about the type of product(s) or advice being provided by the broker. You don’t want a situation where clients think they’re getting objective advice but the broker does 80% of his/her business with one lender. Disclosure is everything.

So, what can consumers draw from all this? Well, there are always exceptions and other criteria apply, but if you’re looking for the best possible service and advice, odds are you’ll get it from a broker who:

Makes brokering their full-time income source Has been in the business for at least five years (or is under the direction of a broker who has) Compares all of their lenders to see which offers the most suitable mortgage (or knows which do, without needing to compare) Documents why they make the recommendations they do Regularly uses more than 3 lenders Follows the rate and mortgage market daily Does a comprehensive assessment of the borrower’s needs and mortgage affordability Believes they represent the borrower, but recognizes their obligation for full disclosure to the lender

Sidebar: Here’s more on the report if you’re interested: Link

The MBRCC says it is also “currently working together to develop national licensing education standards and a harmonized course accreditation process.” That’s a sensible move that should eliminate untold overlap in the licensing process, as well as inefficiencies that prevent brokers from operating across the country.

Canada housing market shows no sign of slowing as prices rise for 9th month: Teranet

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TORONTO — Canadian home prices rose in August and the pace of 12-month home price appreciation accelerated, a report showed on Friday, suggesting robust demand for housing is carrying through to the second half of the year.

Foreign buyers are fuelling a seismic spike in Vancouver’s luxury housing market

The downside of this latest wave of Chinese cash is it’s also driving up costs elsewhere in a city which already ranks as North America’s least affordable markets. Read on The Teranet-National Bank Composite House Price Index, which measures price changes for repeat sales of single-family homes, showed national home prices rose 0.8% last month, exceeding the historical average for August.

Prices were up 5.0% from a year earlier, a pickup from July’s 4.9% price gain.

August was the ninth month in a row in which the composite index did not fall. The price increases, on top of robust housing starts data in the spring and summer, have surprised economists who have been calling for a slowdown in Canada’s long housing boom.

Related Bank of Montreal lowers five-year fixed mortgage to 2.99% Canada building permits soar to record on Toronto, Vancouver condos Thinking about a move-up buy? Forget it, new study says you can’t afford it David Tulk, chief Canada macro strategist at TD Securities, said the report suggests the momentum in the housing market has continued into the second half of the year.

“While a gradual drift higher in interest rates should limit the degree to which housing can continue to increase, a persistent low rate environment will prevent a more pronounced correction,” Tulk said in a research note.

“The housing market will also remain on the Bank of Canada’s radar and the strength we have seen buttresses the case to resume the withdrawal of stimulus once the improved international backdrop has provided a sufficient lift to net exports,” he added.

Canada’s central bank is not expected to raise rates until the second half of 2015.

Canada escaped the U.S. housing crash that accompanied the 2008-09 financial crisis, and home prices have risen sharply, if not steadily, over the past five years despite moves by the federal government to tighten mortgage lending rules.

The Teranet data showed prices rose in August from the month before in 10 out of 11 cities, led by a 1.8% gain in Winnipeg, a 1.5% gain in Ottawa and a 1.2% rise in Toronto.

Prices were down 0.7% in Montreal.

Year-over-year price gains were also seen in 10 of the 11 cities surveyed.

Compared with a year earlier, prices were up 7.9% in Calgary, 4.5% in Edmonton, 0.9% in Halifax, 6.7% in Hamilton, 1.1% in Montreal, 1.2% in Ottawa, 6.7% in Toronto, 6.1% in Vancouver, 2.1% in Victoria and 1.9% in Winnipeg.

Prices compared with a year earlier were down 0.1% in Quebec City.

© Thomson Reuters 2014

Home prices up, blame it on Toronto, Vancouver and Calgary

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Three of the country’s most expensive housing markets continue to drive the national average price for a home, according to a new report.

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. Read on The Canadian Real Estate Association said Monday the average sale price of a home in August reached $398,618, a 5.3% increase from a year ago.

“Although activity rose in fewer than half of local housing markets in August, the national tally was fuelled by monthly increases in Greater Vancouver, Calgary and Greater Toronto,” the Ottawa based group said in a release.

The big three continue to see prices rise while their sales continue to increase, both factors helping to drive national numbers. Year-to-date, Vancouver sales are up 18% year over year while Toronto and Calgary are up 4.2% and 13.% respectively.

Related Canada housing market shows no sign of slowing as prices rise for 9th month: Teranet Foreign buyers are fuelling a seismic spike in Vancouver’s luxury housing market, realtors say Added together, the three cities are responsible for 33% of all sales in the country this year. However, the dollar value of the trades year-to-date have so far been worth about 48% of all activity.

“Sales picked up in some of Canada’s most active and expensive real estate markets which fuelled another national increase,” said Beth Crosbie, president of CREA, in the release. “Even so, the national increase in sales does not reflect local trends in many markets across the country.”

Prices were down in August from a year ago in six of the markets surveyed. Another eight markets were near the rate of inflation, in terms of price increases.

For August, national sales were up 1.8% from July and 2.1% from a year ago. It was the seventh consecutive month sales have grown and the highest level for sale since January, 2010.

“Sale activity in recent months has remained stronger than was anticipated earlier this year,” said Gregory Klump, chief economist with CREA, in a statement. “Listings and sales this spring were deferred due to unseasonably harsh weather which subsequently supported activity once the delayed spring home buying season got into gear. This trend was reinforced by a decline in mortgage interest rates.”

Mr. Klump said the boost from deferred sales will not continue and noted sales were down from the previous month in a majority of Canadian markets.

Supply continues to be constrained led by Toronto where new listed homes were down 1.2% in August from July. New listings were down from a month ago in about 60% of the markets surveyed by CREA.

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