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Saturday, October 6, 2012

What a mortgage agent does

Many times we hear the question: what is the difference between a mortgage agent and a bank employee taking an application? I would like to suggest what I see is the major difference between a bank and a mortgage agent. Anyone can help an excellent credit worthy client get a great mortgage and it is done quickly. We obtain mortgages from the big banks also. On the other hand some people have seen their credit rating slip usually through no fault of their own. Perhaps a husband or wife lost their job or a construction guy was injured on the job and money is stretched thin and maybe credit card payments are late or missed. EI helps but it is capped and temporary.There are many reasons. Banks don't want to deal with these clients. First Line had a "B" lender side as to Bank of Nova Scotia. They withdrew from this type of lending. This is where we play a critical role. We look for the companies that deal with these types. Many times it is a difficult process but if we get them a mortgage they save their home and can start to rebuild their credit. Certainly they will not get a 2.69% or 2.99% rate offered to them. Perhaps they have to pay a broker's fee also depending on how the lender compensates the agent. But the client keeps their home and most are quite happy. Most people say that it could never happen to them to be turned down by a bank. But it has happened to many over these past couple of years due to the economic turmoil. Self employed people trying to get a mortgage are sometimes put through hoops by banks. We know the lenders that will welcome self-employed applications, we usually know the documentation that will be required and we can get the job done quickly.

Monday, June 4, 2012

Key Findings from the Canadian Mortgage and Housing Corporation 2012 Mortgage Consumer survey Consumers are looking more to the Internet for mortgage information and use of social media is also growing Recent buyers continue to rely heavily on mortgage professionals and others for advice and information on a range of mortgage related topics terms of share and loyalty mortgage sooner improvement consumers and have some unique needs Recent buyers are exploring their mortgage options and are actively engaged in the mortgage process Mortgage brokers and lenders both continue to do well in Post transaction follow-up continues to be an important factor driving client satisfaction and potential future business Recent buyers report taking actions to pay down their While there are positive indicators regarding the financial literacy of recent buyers, there is room for First-time buyers differ from other mortgage To read the entire survey, please visit

Friday, April 13, 2012


Gary Marr of the National Post has written a great article regarding those deal mortgages banks want to offer you. It’s almost a chicken-and-egg argument, deciding whether the government comes first in the crackdown on consumer borrowing or if the banks should be responsible for reining in Canadian debt. This month, Finance Minister Jim Flaherty sounded like he’d had enough of banks posturing for the federal government to get tougher on borrowers and called on financial institutions to clamp down on their own customers. “I’ve tightened up the mortgage insurance market three times … I really don’t want to do it again,” he told reporters while commenting on the condominium sector. While some bank chief executives have put it on themselves to tighten their own lending rules, others continue to look to Ottawa to take the lead. In the interim, all you have to do is walk into a branch, grab some pamphlets and you will see an array of offers that could get you into even more debt trouble. Related Canadians expect banks to set debt limits, survey shows Why you need to pay off your debt NOW One of my favourites is the cash-back mortgage. It is offered to a varying degree by most of the major banks, so there is no point in picking on any one institution. Here’s the offer: Take out a mortgage for more than five years and get 5% of the value of the mortgage up front to a maximum of $25,000. In other words, get a $500,000 loan and immediately get $25,000 back. “It’s great for first-time buyers,” we’re told. Really? If the loan is at the posted rate of 5.44%, which it usually is for these types of mortgages, you could easily land into more debt trouble long term. Another deal tries to lure me over to a new bank with an offer of 2% cash up front, or up to $4,000 on $200,000 if I switch to the financial institution. But what about the costs to break my existing mortgage, and is there really any point in switching products to get that cash right away if I’m going to end up with a higher rate and a less-flexible mortgage? “Somebody is going to pay for it,” says Kelvin Mangaroo, president of, about the cost of the promises. “Sometimes there is more fine print than the actual offer.” “Somebody is going to pay for it. Sometimes there is more fine print than the actual offer” There are other deals out there. One mortgage will offer you travel points, another will let you take “payment holidays,” but the details are scarce on both as to whether they’ll cost you more and ultimately make it even harder to pay down your debt. And let’s not forget the home-equity line of credit. You finally pay off your mortgage and there’s the bank ready to offer you more debt. “You tap into your home equity,” reads a headline from one bank about solving some issues like a home renovation or your child’s education. It sounds so simple. Advertisement Jeffrey Schwartz, executive director of Consolidated Credit Counseling Services of Canada Inc., says the banks and government will continue to battle over the issue of how to control debt levels, but the consumer has to take some responsibility. “These are all fantastic marketing tools,” says Mr. Schwartz, about some of the offers available to consumers. “Any product can be dangerous if people are living beyond their means.” Mr. Schwartz wonders whether enough has been done to change the behaviour of consumers and get them to pay down debt. Based on a survey from PwC, consumers seem to want to be babied. The firm found 82% of Canadians want banks to help them manage their debt problems. Scott Hannah, president and chief executive of the Vancouver-based Credit Counselling Society, says consumers have to have their eyes a little more open. He sees the worst of the worst debt offenders, like people who have racked up bills on their credit cards so they could claim travel rewards and are completely oblivious to their massive debt. So who is responsible for reining these people in? Is it the banks? Is it the government? “It’s the consumer,” says Mr. Hannah, about where the ultimate responsibility for handling debt lies. He adds that competition among financial institutions has created more financial products but also produced less customer loyalty, putting more onus on the consumer to understand what they are buying. “Consumers look at the bells and whistles. They also just go with the company that will help them and they don’t listen as to why they are getting the money,” Mr. Hannah says. “Think about it. Why would anybody use a payday loan when they know the annualized rate of interest is in excess of 600%?” Good question. The bigger one seems to be whether these people need to be protected from themselves. Posted in: Refinancing Tags: Consolidated Credit Counseling Services of Canada Inc., Credit Counselling Society, household debt, mortgage, Garry Marr

Tuesday, April 3, 2012


As the deadline for banks to disclose their penalty calculations draws closer, this topic of penalties will be more prevalent. As clients become more aware, will it be a new area of competition forcing lenders to change standard charge terms and all play on the same level field? Breaking your mortgage: Understanding the rules You can pay a high price to refinance a mortgage before maturity. Lenders will soon have to give more information on what to expect. By Ellen Roseman Mortgage rates are falling. You want to break your closed mortgage and get a new five-year loan at 2.99 per cent. Hold on. Take a deep breath. Talk to your lender first. Find out how much you will have to pay to get out of your mortgage early. The penalty could wipe out all your profit on the deal. Mortgage penalties come as a big surprise to borrowers who aren’t prepared for them. Banks are often unprepared as well, since the information is buried in the fine print of a mortgage contract. As a result, bank employees don’t give accurate quotes to customers who want to leave a closed mortgage before the term expires. Vanessa had four years left on a $300,000 mortgage when she sold her home last year. She went with another bank to get a better rate, rather than porting the existing mortgage to her new property. “When I called to find what the penalty would be to end my contract,” she says, “I was told it would be three months’ interest (equivalent to $2,600). Nothing was said about the IRD.” Most closed fixed-rate mortgages have a prepayment penalty that is the higher of three months’ interest or the IRD or interest rate differential. Most variable-rate mortgages do not have IRD penalties. Only after the sale did Vanessa learn she’d paid an IRD penalty of $15,000. It was based on the bank’s posted rate when she took out the mortgage — and not the discounted rate she had actually received. I’m not against the IRD. I believe lenders should be compensated when borrowers make an early exit at a time of falling rates. However, I’m against the inconsistent way that lenders calculate the IRD. They can plug in their own numbers to decide how much money is at stake when a closed mortgage is opened up. Luckily, banks will have to give more disclosure under a new federal code of conduct that comes into effect by November of this year. They’ll have to tell you how prepayment charges are calculated and how you can pay off a mortgage more quickly without incurring penalties. The IRD is based on (1) the amount you are prepaying and (2) An interest rate that equals the difference between your original mortgage rate and the rate that the lender can charge today when relending the funds for the remaining term of the mortgage. Robert McLister, a mortgage planner, has a mortgage penalty calculator at his website that gives you a rough estimate of what you may be charged. “Some lenders don’t use the discount you received in your calculation, which decreases the IRD and can lower your penalty considerably,” he says. “Some lenders round up your remaining months to the next longest term. Some round down.” Suppose you have 18 months left on your mortgage term. Lenders can use the posted rate of their two-year term as the comparison rate. But they can also use the one-year posted rate. Lenders may not advise you to use your existing prepayment privileges. Most mortgages let you prepay 10 to 20 per cent of the balance each year without incurring a penalty. By making a prepayment, you can reduce the outstanding balance subject to the IRD when you’re refinancing. Vanessa wasn’t offered a chance to make a lump-sum payment before discharging her mortgage. She was reimbursed for $2,500 of the penalty when she appealed to the bank’s ombudsman. Here’s another case of a borrower not being given the right information. Sarah Rigley MacDonald decided to break her existing mortgage, which had a 10-year term, when buying a new property. Her mortgage broker said her prepayment penalty would be $10,000 — but didn’t say the penalty would go down to $1,600 after the five-year point of her 10-year term. The federal Interest Act prohibits IRD penalties on terms over five years, after five years have elapsed. In such cases, a maximum three months’ interest penalty may apply. “Now we’ll sit tight until our five-year anniversary, just 16 months away, and look at our options,” she said. (The Interest Act information, which she found at my blog, saved her thousands of dollars.) In a previous federal budget, Finance Minister Jim Flaherty promised to give more clarity about mortgage penalties. He also suggested the calculations would be standardized. Standardization was not part of the reform package that Ted Menzies, minister of state for finance, unveiled last month. Instead, the focus was on providing more information to borrowers. “Disclosure must be made in language, and presented in a manner, that is clear, simple and not misleading,” the code of conduct specifies. Federally regulated financial institutions must start to address the guidelines by May 7. They must be in full compliance by Nov. 5 of this year. Lenders will provide prepayment advice on annual mortgage statements. They’ll supply website calculators to help you estimate the mortgage penalty you may be charged. They’ll set up toll-free lines to reach staff members who can give you a written statement of prepayment charges if you ask for it. Finally, lenders won’t take steps to pay out your mortgage until you assent to the penalty that will be charged. I still wish there were guidelines on how penalties are calculated. But I know the Harper government believes in letting market forces prevail and giving consumers an informed choice. Now it’s up to borrowers to manage their prepayments in a way that reduces the penalty shocks that can arise when refinancing. (factbox) Tips on reducing the mortgage penalty sting: Use your line of credit to pay down your mortgage before discharge, thus lowering the balance on which the penalty is calculated. Ask the lender to apply your unused prepayment privileges to reducing the penalty. Transfer (or port) the mortgage to a new property if you’re moving. Ask your lender about “blend and extend,” a strategy in which you add more money without breaking the mortgage and paying a penalty.

Wednesday, March 21, 2012


TORONTO - Canada's economy grew at a moderate pace in the final quarter of 2011 and is expected to pick up steam in the year ahead, according to the latest economic forecast from the Royal Bank. The RBC Economic Outlook issued early today predicts Canada's real gross domestic product to increase by 2.6 per cent in both 2012 and 2013. It says burgeoning signs of strength in the U.S. economy, low interest rates, solid corporate balance sheets and elevated commodity prices are setting the stage for continued expansion. The pace of consumer spending eased to 2.2 per cent in 2011, from 2010's rapid 3.3 per cent rise. RBC predicts consumer spending this year and next will grow at a rate comparable to 2011, with durable goods accounting for about a quarter of the increase. Regionally, RBC expects western Canada to top the growth rankings in 2012, with Saskatchewan and Alberta leading the way and Manitoba close behind. Newfoundland and Labrador, British Columbia and Ontario are expected to grow at rates close to the national average. Quebec continues to experience some challenges and, along with the remaining Atlantic provinces, is positioned to grow below the national average. "Canada's economic growth clocked in at 2.5 per cent in 2011, shaking off a few speed bumps in the middle of the year and ending the fourth quarter with only moderate real GDP growth of 1.8 per cent," said RBC senior vice-president and chief economist Craig Wright. "The country's main engines of economic activity from the early days of the recovery — consumer spending and residential investment — are likely to play supplementary roles as the economy shifts into slightly higher gear on the road ahead." High commodity prices and strong balance sheets are expected to boost business investment's overall contribution to growth by just under one percentage point this year and next. As the U.S. economy grows, Canada will also benefit from improving demand for exports such as autos, machinery, and lumber. RBC forecasts real exports will return to the pre-recession peak level in 2013, but adds that an anticipated tightening in fiscal policy will likely have a restraining effect on economic growth.

Friday, March 9, 2012


A good explainatory article by Robert McLister of Canadian Mortgage Trends explaining the pros and cons of Bank of Montreal's just announced 5 year 2.99% rate: BMO Cranks Up the Heat Again BMO is dead-set on winning mind share among consumers. It's coming back to the market with two new deep-discount rate promos: A 5-year fixed at 2.99% (which starts Thursday, March 8, 2012) A 10-year fixed at 3.99% (which starts Sunday, March 11, 2012) Both of these specials are low-frills, meaning: A Lower Maximum Amortization: 25 years versus 30-40 years elsewhere Less Lump-sum Pre-payment Ability: 10% maximum per year (i.e., 1/2 of the 20% that BMO normally allows) A Smaller Payment Increase Option: Up to 10%, once per year (again, 1/2 of the 20% that BMO normally allows) A Locked Term: The Low-rate Mortgage is fully closed unless you sell the property, refinance (with BMO only), or early renew into another BMO mortgage. In other words, unless you sell, you're not leaving BMO for 5 years, like it or not. Both the 5-year and 10-year promos run for 3 weeks, until March 28, 2012. We've heard talk that TD and RBC will not match BMO's pricing on the 5-year term. We'll see. The last time BMO ran this special, its competitors quickly responded with 4-year rates of 2.99%. Despite the one less year, those competing offers came with all the normal bells and whistles. Unfortunately for competitors, a 2.99% five-year rate makes more headlines than a four-year promo at the same price, and BMO knows it. This deal has garnered almost a dozen major media stories already, and the press release only came out four hours ago. As for BMO's 10-year deal, it is 146 basis points below the nearest Big 6 bank competitors' advertised rates. It is BMO's lowest 10-year rate ever, and it matches ING's current 3.99% offer. (ING was the first bank in Canada to advertise 10-year rates below 4.00%.) With these rates, BMO is starting to make other big banks look increasingly silly. CIBC, National Bank, RBC, and TD are currently promoting 5-year "special offer" rates of 4.04%. That's 105 basis points above BMO (albeit with more flexibility). Those rates border on ridiculous, and they insult the intelligence of increasingly savvy consumers who know that well-qualified borrowers rarely pay anything close to those rates. Yes, we say that knowing that BMO's Low-rate mortgage is highly restrictive and not suitable for most. It is, however, suitable for some. The target market includes many: First-time buyers Rental property owners Owners of 2nd homes The customer should have no foreseeable need to break, increase or aggressively prepay his/her mortgage for five years. In posting more transparent rates than its peers, BMO is taking a page from brokers and smaller rivals. In doing so, it's building credibility with consumers at its competitors' expense. Frank Techar, BMO's Canadian banking head, tells Bloomberg: "The reaction to our January offer was fantastic." With a mortgage market that BMO CEO William Downe admits is "slowing," 2.99% is a big fat worm on a hook. It is bait that gets BMO's phones ringing. It also gives BMO's sales force a chance to upsell people into higher margin mortgages without all the restrictions of BMO's Low-rate product. (There's a lot of that going on, according to the BMO mortgage specialists we've talked to.) With this rate sale, BMO is certain to take flak for fuelling consumer borrowing at a time when high debt levels are worrying policymakers. To that end, Techar maintains that BMO is not fuelling the fire. He tells the Financial Post that these rates "are consistent with the debate around the need to reduce consumer debt levels." In an interview with Reuters, he said: "People are not going to stretch to get the largest mortgage they can with a 25-year amortization product. Because the monthly payments are higher, they...will go to a 30-year amortization product." (He's right.) Downe recently said this to analysts about BMO's Low-rate Mortgage: "We think that's a product that is good for Canadians; it's good for Canada; it's good for our customers, and we intend to continue to promote it in this environment. It's a product that we believe addresses all of the risks that are currently being debated, whether or not the consumer debt levels that are too high in Canada and a possible fallout from economic slowdown and rising interest rates. It helps our customers pay less interest. It mitigates their interest rate risk for five years. It helps them retire debt free by paying off their balance faster, and it works against market price appreciation. In fact, it helps price appreciation, because the shorter amortization reduces the maximum purchase price people can afford." Being a 5-year fixed, this product does mitigate some risk. A 200 basis point rate increase by 2017 would only lift payments $133/month on the average Canadian mortgage of $151,000. As for rumours that policymakers are ticked off by BMO's pricing, the last time anyone looked, it's still a free market. BMO can price as it sees fit within regulations. As long as underwriting standards remain high, God bless it for bringing down rates industry-wide. Even if rates like 2.99% do spur more interest in mortgages, it doesn't mean lenders will approve high-risk borrowers. BMO's average loan-to-value (LTV) is just 60%. More notably, BMO's residential mortgage portfolio has a long-run loss rate of less than 2 basis points (i.e., exceptionally low). Barring a run-up in bond yields, we could now start seeing competitors (like mortgage brokers) respond with full-frills 5-year offers that are just a pittance above BMO's rate. Some might even match or beat it. We'd strongly encourage most folks to consider paying a bit more to avoid the low-rate mortgage restrictions—especially if the premium is small (0.05%-0.10%) and especially if you can benefit from the service and extras that come with a standard mortgage. Side Note: Here are a few more details about BMO's Low-rate Mortgage: Rate Hold: Up to 90 days Pre-Approvals?: Yes BMO Mortgage Cash Account: Not available with the Low-Rate mortgage BMO Skip-a-Payment: Not available with the Low-Rate mortgage BMO ReadiLine: Not available with the Low-Rate mortgage Rentals Allowed? Yes 2nd Homes Allowed? Yes

Tuesday, March 6, 2012


Code of Conduct for Federally Regulated Financial Institutions Mortgage Prepayment Information Purpose The purpose of the Code is to ensure that federally regulated financial institutions ("lenders") provide enhanced information in respect of credit agreements secured by mortgages where a prepayment charge could apply ("mortgages") to assist borrowers in making decisions about prepayment of their mortgage. Lenders currently provide substantial amounts of information relevant to mortgage prepayments to consumers in accordance with the requirements in the applicable federal regulations, including but not limited to federal cost of borrowing disclosure regulations and credit business practices regulations. The information that will be provided under this Code is in addition to existing information provided by lenders to borrowers. Application and Implementation Lenders will implement the policy elements of the Code with respect to new mortgages no later than six (6) months from date of adoption of the Code for Element 3 and Element 4; and no later than twelve (12) months from adoption of the Code for Element 1, Element 2 and Element 5. Lenders will apply the Code to existing mortgages where it is feasible to do so. The Code does not apply to mortgages that are entered into for business purposes or to mortgages entered into by borrowers who are not natural persons. Compliance with the Code The Financial Consumer Agency of Canada will monitor and report on compliance with the Code. Manner of Presenting Information Lenders will provide the information in language, and present it in a manner, that is clear, simple and not misleading. Policy Elements 1. Information Provided Annually Lenders will provide the following mortgage prepayment information to borrowers annually: Prepayment privileges that the borrower can use to pay off their mortgage faster without having to pay a prepayment charge. Examples include making lump-sum prepayments, increasing the regular payment amount, and increasing the frequency of the payment to weekly or bi-weekly. The dollar amount of the prepayment that the borrower can make on a yearly basis under the terms of their mortgage without having to pay a prepayment charge. Explanation of how the lender calculates the prepayment charge for the borrower's mortgage (for example, a certain number of months' interest or the Interest Rate Differential (IRD). Description of the factors that could cause prepayment charges to change over time. Customized information about the mortgage, valid as of the date the information is produced, for the purposes of the borrower estimating the prepayment charge. The customized information will include, depending on the type of mortgage product held by the borrower: The amount of the loan that the borrower has not yet repaid The interest rate of the mortgage and other factors (for example, rate discount or posted interest rate) that the lender uses to calculate the prepayment charge The remaining term or maturity date of the borrower's mortgage For mortgages where the prepayment charge may be based on the IRD: How the lender determines the comparison rate to use to calculate the IRD Where the borrower can find the comparison rate (for example, on the lender's website) Where the borrower can find the lender's financial calculators that the borrower can use, along with the information above, to estimate the prepayment charge. Any other amounts the borrower must pay to the lender if the borrower prepays their mortgage and how the amounts are calculated. How the borrower can speak with a staff member of their lender who is knowledgeable about mortgage prepayments. For example, borrowers may contact a staff member through a toll-free number as described in section 5. 2. Information Provided When the Borrower Is Paying a Prepayment Charge If a prepayment charge applies and the borrower confirms to the lender that the borrower is prepaying the full or a specified partial amount owing on their mortgage, the lender will provide the following information in a written statement to the borrower: The applicable prepayment charge. Description of how the lender calculated the prepayment charge (for example, whether the lender used a certain number of months' interest or the IRD). If the lender used the IRD to calculate the prepayment charge, the lender will inform the borrower of : the outstanding amount on the mortgage the annual interest rate on the mortgage the comparison rate that was used for the calculation the term remaining on the mortgage that was used for the calculation The period of time, if any, for which the prepayment charge is valid. Description of the factors that could cause the prepayment charge to change over time. Any other amounts the borrower must pay to the lender when they prepay their mortgage and how the amounts are calculated. 3. Enhancing Borrower Awareness To assist borrowers in better understanding the consequences of prepaying a mortgage, lenders will make available to consumers information on the following topics: Differences between: Fixed-rate mortgages and variable-rate mortgages Open mortgages and closed mortgages Long-term mortgages and short-term mortgages Ways in which a borrower can pay off a mortgage faster without having to pay a prepayment charge. Examples include making lump-sum prepayments, increasing the regular payment amount, and increasing the frequency of the payment to weekly or bi-weekly. Ways to avoid prepayment charges (for example, by porting a mortgage). How prepayment charges are calculated, with examples of the prepayment charges that would apply in specific circumstances. Actions by a borrower that may result in the borrower having to pay a prepayment charge, such as the following actions: partially prepaying amounts higher than allowed by the borrower's mortgage refinancing their mortgage transferring their mortgage to another lender Lenders may make this information available on their publicly accessible Canadian website where products or services are offered and upon request by consumers at the lender's places of business in Canada, including when consumers are pre-approved for a mortgage. Â In addition, each lender will provide on its publicly accessible Canadian website links to information on mortgages provided on the website of the Financial Consumer Agency of Canada. 4. Financial Calculators Each lender will post calculators on its publicly accessible website for borrowers, and provide guidance to borrowers on how to use the calculators to obtain the mortgage prepayment information they want. Borrowers will be able to enter information about their mortgage into the calculator to get an estimate of the current prepayment charge. Borrowers will also be able to change the information they enter, such as the amount of the mortgage that has not yet been repaid or the remaining term, so that they can see how the payment choices they make affect the prepayment charge. 5. Borrower Access to Actual Prepayment Charge Each lender will make available a toll-free telephone line through which borrowers can access staff members who are knowledgeable about mortgage prepayments. These staff members will be able to orally provide a borrower with the actual prepayment charge that would apply to the borrower's mortgage at that point in time. These staff members will also be able to provide to a borrower, on request, a written statement of their prepayment charge, accurate as at the time the statement is produced. A lender will not proceed to take steps to pay out a mortgage until the borrower has confirmed that the borrower's intention is to pay out the mortgage.

Monday, February 27, 2012


Not all debt is created equal – and not all debt is bad. In fact, you need some debt to establish a good credit rating. Being a responsible borrower means knowing which types of debt can help you reach your financial goals and which types leave you further behind. Good debt includes any investment or purchase that helps improve your overall financial position. Mortgage loans are considered good debt because they offer low rates on property that appreciates in value over the long term. You also build equity as you pay down your mortgage. Borrowing to invest is also considered good debt. Often, the interest expense on money borrowed for investments is tax deductible. And when borrowing to maximize your RRSP, you're investing in your future and benefiting from tax sheltered investment growth. Bad debt involves purchases where the value becomes lower than the original cost, and which can carry a high rate of interest, making them harder to pay off. Types of bad debt include high-interest credit card debt, car loans, deferred purchases, and cash advances. If you're unsure about your debt situation, set up a meeting with your mortgage broker. He or she can take you through your finances and advise how you can use your home equity to trade bad debt for smart debt, and give you some financial breathing room. The right refinancing package can help put an end to the monthly squeeze of too much credit card debt or too many loans, and help you get back into your financial comfort zone.

Friday, February 24, 2012


The Bank of Canada is warning of an impending housing price correction, putting Canadian mortgage holders at risk. In a four-part series of papers, economists at the bank said a drop in home prices could also impact overall consumption and the Canadian economy. In one of the reports, authored by Brian Peterson and Yi Zheng, the bank cautioned that the risk for fluctuations in house prices has “increased markedly.” The authors noted that house prices have risen sharply in most parts of the country over the past decade, with house prices reaching a historically high level in relation to income. The percentage of household debt to income has risen from 110% in 1999 to 153% currently. “These facts (rising debt and house prices) are interrelated, since rising house prices can facilitate the accumulation of debt,” said guest editor Graydon Paulin, introducing the four papers. “Households could therefore experience a significant shock if house prices were to reverse.” The bank also suggested at 10% drop in home prices in the near future could result in a 1% drop in consumption, negatively impacting the overall economy. A “significant” share of borrowed funds from home-equity extraction in the past decade was used to finance consumption and home renovation, notes the report. “Such indebtedness constitutes an important source of risk to household spending, since it makes households more vulnerable to a potential decline in housing prices,” one paper states. While rising population and income gains over the past 30 years have mostly related to the rising house prices, other factors were taking more prominence in the past decade, such as lowered interest rates, higher expectations for house prices and the liquidity of the housing market.

Thursday, February 16, 2012

Good article from the Globe and Mail: Canada’s housing market has two good years ahead of it yet, Canada Mortgage and Housing Corp. said Monday, with low interest rates and a “moderately” expanding economy keeping price corrections at bay. The Crown corporation – which insures Canadian mortgages – has had a consistently rosier view of the market than many private sector forecasters. Canadian banks have recently issued reports probing the consequences of cheap money, and trying to predict whether there is a bubble in prices that will eventually pop and cause prices to crash. They are particularly concerned about Vancouver and Toronto, where some have predicted price corrections of up to 10 per cent because of overbuilding in the condo market. But CMHC said Monday Canadian markets would “remain steady in 2012 and 2013. “With the Canadian economy set to expand at a moderate pace and mortgage rates expected to remain low, activity levels in 2012 in both new home construction and sales of existing homes will stay close to levels seen in 2011,” said Mathieu Laberge, deputy chief economist. Also in the forecast: “Housing starts will be in the range of 164,000 to 212,700 units in 2012, with a point forecast of 190,000 units. In 2013, housing starts will be in the range of 168,900 to 219,300 units, with a point forecast of 193,800 units. Existing home sales will be in the range of 406,000 to 504,500 units in 2012, with a point forecast of 457,300 units. In 2013, MLS sales are expected to move up in the range of 417,600 to 517,400 units, with a point forecast of 468,200 units. The average MLS price is forecast to be between $330,000 and $410,000 in 2012 and between $335,000 and $430,000 in 2013. CMHC’s point forecast for the average MLS price is $368,900 for 2012 and $379,000 for 2013. The moderate increases in the average MLS price are consistent with the balanced market conditions that occurred in 2011, and that are expected to continue in 2012 and 2013.”

Friday, February 10, 2012


BASED ON OUR RESEARCH AND KNOWLEDGE OF THE SECTOR, WE SEE NO REASON TO TIGHTEN OR RESTRICT ACCESS TO RESIDENTIAL MORTGAGES AT THIS TIME 1. CURRENT ENVIRONMENT Canada has a well-earned reputation for exercising economic prudence. As a result, we have managed to avoid a mortgage or housing market meltdown. Our banks are stable and our economy, while impacted by the general global economic slowdown, remains healthier than most. CAAMP’s extensive industry research indicates that the Canadian mortgage industry is healthy. We must continue to “stress test” our own financial sector to determine how it would withstand potential weakening of the economy. The more educated we are about the debt we incur (mortgages, credit cards, lines of credit), the better off we will be 2. FEDERAL GOVERNMENT ACTIONS TAKEN The federal government responded promptly when it was determined changes were needed in the mortgage market. There have been three significant sets of changes in the past 36 months: - Amortization periods shortened to 30 years from 35 and 40 years - Minimum down payment increased to 5 per cent of purchase price. No 100% LTV mortgages - Homeowners refinancing their mortgage may borrow up to 85 per cent of the equity in their home; down from 90% and 95% - These changes have impacted the mortgage market; re-financings have decreased dramatically and mortgage credit growth has slowed Based on our extensive research and knowledge of the sector, we see no reason to further tighten or restrict access to mortgages at this time 3. REASONS FOR CURRENT CONCERN 1) Housing Market Prolonged low interest rates are making it more attractive to purchase a home Research shows that the vast majority of homeowners can accommodate rate increases (84 per cent surveyed in CAAMP’s fall 2011 research said they could handle a $200/month increase) CAAMP’s fall 2011 survey indicates mortgage borrowers are prudent, increasing their lump sum payments and paying down their mortgage faster than required Supply and demand drive housing prices – provinces and municipalities should be more aware of their land-use policies and how they impact housing supply 2) Media Focus on Insurance Ceiling - Changes in Some Banks’ Lending Practices It is a fact that CMHC is approaching its $600 billion government-imposed limit on mortgage default insurance. Private insurers have a $300 billion limit. This has nothing to do with mortgage insurers being responsible for an increasing number of higher risk mortgages Lenders are buying portfolio insurance against defaults on low risk mortgages - cases where homeowners have more than 20 per cent equity in their homes. These are not high risk mortgages. CMHC is approaching its limit because the number of mortgage holders has grown, the population and housing units have increased and lenders have been insuring low risk mortgages, leveraging the government’s triple A credit rating for other bank business Residential mortgage credit in Canada continues to expand. During the past five years, outstanding residential mortgage credit has expanded by 53%, or an average rate of 8.9% per year. The growth rate is slowing The volume of outstanding residential mortgage credit passed the $1 trillion threshold in July 2010, and as of August 2011, it reached $1.079 trillion Increased homeownership results in an increase in mortgage default insurance However, mortgage defaults are rare. CMHC reported it paid out $454 million in the first nine months of 2011 which represents a 0.42 per cent default rate Overall mortgage arrears rates in Canada are declining and never approached the level of the early 1990s. The housing market in Canada is growing organically and safely There is no parallel in Canada to the subprime default problems that plagued the US market 3. FURTHER RESTRICTIONS ON ACCESS TO MORTGAGES Who will be affected? Self-employed borrowers who represent a growing portion of our labour force (currently 2.67 million people, or 15% of employment in Canada) New Canadians who can afford a down payment but have yet to build credit and employment history First time homebuyers who want to enter the homeownership market and build equity These are not the people who fall in to a sub-prime loan category like we saw in the US; yet these changes will impact them The housing industry is an engine of growth in Canada. If we impede its growth, we will add to unemployment and depress the economy If fewer mortgage lenders are able to insure their loans simply because the insurance program has not kept pace with the growth in the mortgage market, then consumers will have less choice when it comes to negotiating a mortgage. Less choice, or less competition, will inevitably lead to higher borrowing costs for the Canadian consumer Likewise, if mortgage brokers are restricted in the mortgage products they can offer, consumer choice will be diminished and costs will increase This reduced access to capital will make it more difficult for people who can legitimately afford to buy a home 4)What are the Risks of Further Restricting Access to Mortgages? CAAMP has one of the most comprehensive collections of research on the mortgage industry. It includes original data on borrowers and the characteristics of mortgage loans. This research has revealed repeatedly that borrowers and lenders in Canada have been prudent, and only a very small share of borrowers would have trouble affording future rises in mortgage rates. There are risks, but most are related to the broader economy through two channels: Unemployment The broader economic data suggests that the Canadian economy is slowing. If that results in job losses, the housing market would be negatively affected, and there would be impacts on mortgages held by people who lose jobs and then struggle to make payments. Declining Housing Prices Housing prices could decline in a weaker market. In a recession, there is the threat of a downward spiral: a weak economy harming the housing market which negatively affects the broader economy. We believe and trust that the federal government will act to mitigate such a negative scenario. These risks have nothing to do with mortgage products themselves. Risks to the Canadian mortgage market are dependent on the performance of the broader economy. In that light, the best means to control mortgage market risk is through strong economic management. In particular, care must be taken not to take any measures in the mortgage market that unnecessarily reduce housing activity that would be damaging to the economy.

Wednesday, February 8, 2012

More Down Payment May Cost You More Money

The search for conventional mortgage financing just got tougher -- and may get tougher still -- with several Canadian lenders moving to cut their rental programs because of tighter access to bulk insurance.
FirstLine, the CIBC-owned broker channel lender, kicked off the latest round of downsizing, last week announcing it would impose a $750,000 cap on rental property loans up to an 80 per cent loan-to-value. That’s $250K less than what owner-occupieds can qualify for.

Street Capital announced a similar decision last week, axing its rental program altogether. And while it will consider exceptions on a case-by-case basis, that’s only where clients are willing to pay default insurance they technically do not need.

Under Canadian mortgage rules, borrowers opting to go conventional by putting down a minimum 20 per cent are exempt from that requirement.

But increasingly lenders have opted to insure those loans themselves through bulk insurance offered by the CMHC. The practice allows them to then securitize those mortgages for sale on equities markets. It also clears up space on their balance sheets to write more loans.

Last week, CMHC warned that lender access to its $600 billion insurance fund would likely be rationed as the Crown corp. approaches the limit of that funding. Government hasn’t yet agreed to raise that ceiling.

Lenders are now taking a look at their books and deciding where to cut their conventional lending business rather than keep some loans uninsured and, therefore, on their books.

Rental programs – along with business-for-self lending – is most vulnerable to that downsizing, say analysts, suggesting property investors will find it increasingly difficult to win financing for acquisitions.

That has already begun to happen, with another high-profile lender -- Merix Financial -- deciding to pass on mortgage insurance costs to conventional mortgage borrowers asking for LTVs between 65% and 80%.

“It was important to Merix to continue to offer those products – BFS and Rental -- so originators can continue to offer them to their clients,” said Jason Kay, VP of sales. “While some clients are having to pay more, from a cash flow perspective, it is relatively neutral compared to costs before the changes.”:

(from Canadian Real Estate Wealth)

Tuesday, January 31, 2012


(From the Financial Post)

Canada Mortgage and Housing Corp. is cutting back on mortgages it insures as the Crown corporation edges closer to a $600-billion cap imposed on it by the federal government, the Financial Post has learned.

A CMHC spokesman confirmed that it had approached a number of lenders at the end of 2011 about reducing its “bulk or portfolio insurance” after third-quarter results showed the agency had committed to back $541-billion in mortgages. CMHC, which guarantees mortgages held by financial institutions, is ultimately backed by the federal government and needs approval to go over the $600-billion limit — something that would create greater risk for taxpayers should the housing market collapse.

“CMHC has recently received an unexpected level of requests for large amounts of CMHC portfolio insurance.” said Charles Sauriol, a spokesman for the Crown corporation, in an email.

“To ensure equitable access to portfolio insurance within CMHC’s annual limits, an allocation process is being established which has caused some delays. Portfolio insurance provides lenders with the ability to purchase insurance on pools of previously uninsured low ratio mortgages and does not impact CMHC’s transactional business.”

Financial institutions are required to have mortgage-default insurance when a consumer has less than 20% equity. However, the banks have been seeking insurance on loans with even high downpayments — something not required by law — so they can securitize those bulk lending loans, thereby getting them off their balance sheets and reducing their capital requirements. In those cases in which the loans to value is less than 80%, the bank pays the insurance charge instead of the consumer.

“One of the things that has got them [to the limit] faster than expected is they are doing a lot of conventional insurance for lenders,” said one source. Just three years ago, CMHC had $450-billion in loans it was backstopping and had to go to the government to get that increased to $600-billion.

“I think as a taxpayer you should care. The policy question is why should the Canadian taxpayer take that type of meltdown risk within CMHC,” the source said.

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The risk to the taxpayer would be a collapse in the market leading to a defaults like the U.S. saw. If CMHC couldn’t cover those defaults, Ottawa is on the hook for 100% of any shortfall.

On the surface, insuring conventional loans may not appear as risky as traditional mortgage default insurance because it comes with more equity. The banks have been demanding ultra low fees on the conventional mortgages, arguing the equity position makes them a lower risk. However, lenders are skimming their portfolio to load up mortgages that are 70% to 80% debt to equity and may also have other problems, said a source.

With mortgage defaults well below 1%, some might argue the risk to CMHC is negligible. “If you look at what is backing [CMHC’s] guarantee, it should be more than enough to cover any downturn in the market,” said one banking source, who asked not to be identified, about CMHC’s cash reserves. “Besides, what will the government do, not increase their limit? This could kill the entire housing market.”

CMHC gave no indication it would seek an increase in its limit.

“CMHC’s mortgage loan insurance limit in force is $600-billion. CMHC manages its mortgage loan insurance business in accordance with this limit,” said Mr. Sauriol.

The Crown corporation would be going to the government looking for an increase in its limit at a time when both Bank of Canada Governor Mark Carney and Finance Minister Jim Flaherty have been casting a wary eye at the housing market.

“We watch the housing market carefully and we are prepared to intervene if necessary. Having said that, we’re not about to intervene in the housing market now,” said Mr. Flaherty this month. For his part, Mr. Carney said “we see that in a number of real estate markets in Canada, valuations are at a minimum, firm; in others, they’re probably overvalued. So there are risks there.”

Sources have indicated the government is already considering tough new measures for calculating how the self-employed qualify for loans and tightening regulations for condominium buyers, so there is probably little appetite for backstopping even more debt from CMHC. In addition to CMHC, the government has a $300-billion limit for private mortgage default insurers.

Thursday, January 26, 2012


A Home of Their Own – New Immigrants Face Hurdles

New Canadians are making their numbers felt in the housing market, as they get settled and make the transition from renter to owner, purchasing their first homes in this country.

Over 280,000 new immigrants arrived in Canada in 2010, the highest amount in
50 years according to the Department of Citizenship and Immigration. Immigrants
are expected to play a large role in the housing market in the coming decades.
Between now and 2031, the foreign-born population of Canada could increase approximately four times faster than the rest of the population. For these new Canadians, first-time home ownership may prove harder than anticipated, as they face some unforeseen obstacles, but there are definite opportunities.

Lack of Credit History The biggest challenge for new immigrants is establishing credit because they do not have a financial history in Canada.
Without a credit history, it can be a struggle to get mortgage financing. It is important to start establishing credit soon after arrival in Canada. New
immigrants are encouraged to bring credit and bank references (preferably in
English) with them from their home country to help with developing a Canadian
credit profile.

Large Down Payments Another home ownership hurdle
immigrants have faced is that many financial institutions traditionally have
insisted that new immigrants provide a down payment of at least 25 to 35 per
cent. A large down payment may be difficult for some because they are self-employed and working to establish their own business or unable to access funds from their home country.The good news is that things are changing. More and more lenders in Canada are offering mortgages tailored to the needs of new immigrants, including those with non-landed status. In many cases,immigrants can get a mortgage with a down payment of as little as five per cent of the value of the property, as long as it comes from their own resources.

To start preparing to apply for a mortgage, the following materials should be
assembled: • Copies of your work permit/landed status papers or passport
• Social insurance number
• Employment letter(s)
• Credit reference(s)
• Documentation of the down payment money source
• Bank statements showing 90 days of account activity

The great news is that mortgage brokers can streamline the mortgage process
for new immigrants, from counseling on credit in Canada, to obtaining credit
references from foreign banks, to confirming foreign income; a broker can work
with new immigrant clients to present their financial history to the satisfaction of the lender.

Monday, January 23, 2012


A peek behind deeply discounted 5-year rates.

A major bank has offered a record low 5 year interest rate. However it is a 2 week special only.

Is it as good as it appears to be on first glance. Let’s look a little deeper.

When considering a deeply discounted 5-year rate, keep in mind that cheapest isn’t always best.
Strangely, we know that’s true when we’re shopping for anything else - but we still tend to believe that lowest rate is the one and only factor in choosing a mortgage. But, that low-rate mortgage could actually cost you more in the long run.

An amazing cut-rate mortgage could have you locked in to a very rigid contract filled with financial “trip lines” that could work against you down the road. That’s why it’s important to
check the fine print. For instance, is the mortgage fully closed? That means you’re not leaving the lender unless you sell your house, so your options are limited and you have no negotiating power if your needs change in the next 5 years. Low or no prepayments: means you have no or limited ability to chip away at your principal to reduce your overall cost. Maximum 25-year amortization can take away flexibility you may need later. Many prudent homeowners take a 30-year amortization but set their payments higher using a 25-year or lower amortization. This gives them the option to reduce their payments should an emergency arise or a special need like maternity leave. For first-time buyers too, a 25-year amortization means higher payments
than a 30-year amortization and could limit their entry into the market.

Spot a deeply discounted 5-year rate? Talk to me first. I’ll always help you find the right combination of low rate with the options you need to achieve your goals for homeownership and the financial future you want.