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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.