Canadians losing Money on their mortgages.

Canadians Losing Money on their Mortgages

For most Canadians when shopping for a mortgage the simple solution is to walk through the doors of your local bank or credit union branch.  It seems to be that old saying "better the devil you know" is true.  We believe that the bank, trust company or credit union that we have been dealing with for years is the best place to be.

In fact in 2012 a whopping 72% of people did just that when they were looking for a mortgage.  The result?

Canadians lost over 41 Million Dollars by simply not shopping around for the best mortgage product for their needs.

As consumers people typically believe that if they get the lowest rate they will save the most money, and that is largely true, but you will notice that we did not mention rate in the above statement.  Why?  Well contrary to what most people might believe, rate is not the single all important item to consider when looking at getting financing for your home.  Things like term, prepayment options, amortization, and payment schedule (to name just a few things) can have a dramatic impact on the true cost of the mortgage you are obtaining.

Canadians are very web savvy consumers when it come to getting a mortgage, in fact 2 in 3 of us will research our mortgage online before we make a decision.  What is not talked about typically is what we are researching and there are two very key items, rate and mortgage calculators.

Rate is pretty self explanatory - we want to find the lowest possible.  Mortgage calculators help us to figure out what we qualify for, what our payment will be, etc.  What we do not do is research what different product options are available, and how those options can impact us - for good or bad.  If you try to find that information you soon discover that it is not so easy, and when you do find some it is very complicated to understand.  It is because of the complexity of mortgages that the majority of people simply put their faith in the banks and are resigned to the fact that taking 25 years and at the end paying almost twice the value of the home is normal.

Mortgage brokers offer Canadians a solution to the stress of shopping around, and they typically do it at no charge.  Their role is to do the work for you and find the right mortgage to suit your financial and home ownership goals. 

At CENTUM we believe that all Canadians should have the opportunity to achieve their financial goals and dreams.  It why we do not just offer mortgages, rather we offer Home Ownership Solutions.

If you want to discover how you can stop losing money on your mortgage, contact a CENTUM mortgage professional today.

Posted by CENTUM Canada on July 18, 2013
http://www.centum.ca/Blog/Canadians_Losing_Money_on_their_Mortgages

When should you refinance your mortgage?

When should you refinance your mortgage loan?

By Dr. Don Taylor, Ph.D., CFA, CFP, CASL | Bankrate.com – Tue, 12 Mar, 2013 11:24 AM EDT

Refinancing a mortgage at a lower interest rate isn't always the right decision. Having bragging rights at the neighborhood picnic isn't a reason for refinancing a mortgage. Instead, it's good to put some thought behind the timing of your decision.

Refinancing a mortgage multiple times can reduce your overall financial benefit. Refinancing junkies who always migrate to the next low mortgage rate pay a hefty price by leaving a trail of closing costs in their wake.

In some cases, refinancing a mortgage makes sense. In other cases, it may be more prudent to stick with your current loan.

What's your goal?

Before deciding whether to refinance, you need to determine what you want to accomplish. Remember, refinancing a mortgage doesn't pay off the debt; it just restructures it, often at a lower interest rate and a different loan term than the current mortgage.

• Reducing the interest expense is the most common goal of a refinance. But some homeowners also appreciate the ability to extend the loan back out to 30 years, reducing the monthly payment.
• Debt consolidation is another goal of refinancing. If you have both a first mortgage and a home equity loan, combining the two mortgages into one fixed-rate mortgage levels out the payment over the loan term.

Refinancing tip: Do it once

Ideally, you only want to refinance once on your current mortgage. While no one can tell you with certainty where interest rates are going, Bankrate's weekly Rate Trend Index and Mortgage Analysis will keep your finger on the pulse of where interest rates are headed. You can have them delivered as a weekly e-mail so you don't have to remember to look for the columns.

Many homeowners refinance because they want to get out of (or into) an adjustable-rate mortgage. In high interest rate environments, homeowners are attracted to ARMs because they typically are at a much lower interest rate than a 30-year fixed-rate mortgage.

On the other hand, in low interest rate environments, the differential between the fixed-rate and the ARM isn't as great, and homeowners like the security of locking in a fixed rate over the mortgage term.

When to refinance

After clarifying your reasons for refinancing a mortgage, you need to consider whether the timing and circumstances make this the right time to get a new loan.

Usually, you have to plan to be in the house for a while for refinancing to make sense. According to Bankrate's 2012 closing cost survey, the national average for closing costs on a $200,000 loan was $3,754. The fees in the survey don't include taxes, insurance or prepaid items such as prorated interest or homeowner association dues.

When weighing whether to refinance, homeowners typically are urged to consider how many months of lower payments it will take to recoup the closing costs of the new mortgage.

Refinancing tip: Know where you stand

Before you refinance, know where you stand with your current mortgage -- including the loan terms and interest rate, as well as relevant factors such as your credit score and whether or not the loan has a prepayment penalty.

For example, if your monthly payment goes down by $157, it would take 24 months of lower payments to recoup the average closing costs. Bankrate's refinancing calculator lets you input your costs and the loan terms to calculate the months it will take to recoup your costs.

Refinancing costs

$157 lower monthly payment x 24 months = $3,700+ closing costs

While this is not a bad rule of thumb, it doesn't really measure your savings. Savings come from a lower interest expense, not lower monthly mortgage payments. Bankrate's refinancing calculator shows the change in total interest expense, too.

You'll see that if you get a lower interest rate but extend the mortgage term, you can wind up spending more in interest. For example, replacing a mortgage that has 20 years remaining with a 30-year mortgage will result in higher interest expense over the life of the new loan.

To figure out whether refinancing with a loan term extension will help you save, do two calculations: one where the new loan has the same term as the old loan, and one where the new loan is the length of your planned refinance. Compare the interest savings to see if refinancing accomplishes your financial goal.

Some people refinance simply to make the monthly mortgage payment more affordable. A lower interest rate and/or a longer loan term both work toward lowering the monthly payment. As long as the homeowners understand they may not be minimizing total interest expense, affordability can be a motivation for extending the loan term.

While short-term savings are important, they are not the only factor to weigh when considering a refinance. Refinancing to get out of an ARM, piggyback mortgage, interest-only mortgage or other onerous mortgage provisions may be reason enough to take on a refinancing.

However, in some cases, homeowners with ARMs would be fine sticking with their loan, especially if they don't plan on being in the loan long term and the reset rate on their mortgage isn't financially threatening.

When not to refinance

On the other hand, a little number crunching may indicate that refinancing a mortgage is not right for you at this time.

If you don't plan to be in the house for very long, you should probably stay in your current mortgage. Here, the number of months it takes to recoup closing costs becomes the more important calculation done by the refinancing calculator.

Refinancing tip: Consider a mortgage broker

A mortgage broker is truly needed if you have a "story loan" -- in other words, you have to sell your story to the lender in order to get approved for the loan.

If you owe more on the house than it's currently worth -- you're underwater, in the lingo of the mortgage business -- you might be able to refinance under the Home Affordable Refinance Program, or HARP. This refi program is for homeowners who are current on their mortgages.

Type of refinancing

The two major types of refinances are cash-out refinancing and standard "plain vanilla" refinancing, where you are just refinancing the existing mortgage balance.

In a cash-out refinancing, you take out a new mortgage on the same property in which the amount borrowed is greater than the amount of the previous mortgage. The difference is taken out in cash.

A cash-out refinance will typically have a slightly higher interest rate than a plain vanilla refinancing because the lender has more money at risk. Cash-out refinances often are used to pay down debt, but this type of mortgage has both pros and cons.

For example, imagine that you use a cash-out refinance to pay off credit card debt. On the pro side, you're reducing the interest rate on the credit card debt and freeing up lines of credit on your credit cards.

On the con side, you may pay thousands more in interest expense because you're taking 30 years to pay off the balance you transferred from your credit card to your mortgage. You also run the risk of running the balances back up on your credit cards and not being able to make the payments.

Refinancing tip: Tidy up credit

Getting your credit history and credit score in the best possible shape will help you get a better mortgage rate. Review your credit reports and get copies of your credit scores as well. You're entitled to at least one free credit report each year from the credit bureaus, but you'll have to pay to get a copy of your credit scores.

However, the biggest risk in this scenario is in converting an unsecured debt into a secured debt. If you can't afford your credit card payments, you get nasty calls from debt collectors, a black mark on your credit report and a lower credit score.

Miss a few mortgage payments and you can lose your home to foreclosure.

On the other hand, a plain vanilla refinancing is intended to replace your existing mortgage with a new one at a lower rate. There's no cash out, unless it's to cover closing costs.

One advantage of a plain-vanilla refinancing is that it usually offers a slightly lower interest rate than a cash-out refinancing. Another major plus of this type of refinancing is that you aren't significantly increasing your outstanding mortgage debt.

That said, cash-out refinancing a mortgage can be more appropriate to accomplishing certain goals, such as paying off debt.

Managing costs

While a refinance can help you harvest more cash, it's important to watch out for costs that eat into those savings.

First, recognize that there's no such thing as a free lunch, and there's no such thing as a "no closing cost" mortgage. The originating lender will get paid for its efforts; it's just a matter of how they get paid. Closing costs can be paid in origination points, a higher interest rate or a higher loan amount.

Points come in two flavors, discount and origination. Discount points allow the borrower to prepay interest expense upfront and buy down the nominal or stated rate on the mortgage loan. The points paid are, however, considered in calculating the annual percentage rate, or APR, on the loan.

Don't forget about other expenses, such as private mortgage insurance. If your loan-to-value ratio is more than 80 percent of the appraised value of the home, the first mortgage lender will want you to pay for PMI. That adds to the cost of the refinancing.

Keep in mind that avoiding junk fees can keep down your closing costs and improve the return when refinancing a mortgage.

http://ca.finance.yahoo.com/news/refinance-mortgage-loan-080028229.html

 

Interest Rate Outlook for the Future

The Rate Outlook Changes Little With Poloz & Co.

Stephen Poloz’s first interest rate meeting as Bank of Canada governor is now in the books. The result: The Bank left the country’s core lending rate at 1%, which means prime rate will stick at 3%.

What the market really wanted to know, however, was what Poloz would say about the BoC’s rate hike bias.

As it turns out, there now appears to be slightly less urgency to raise rates down the road. The Bank’s key message was:

“Over time, as the normalization of…conditions unfold, a gradual normalization of policy interest rates can also be expected, consistent with achieving the 2% inflation target.”

(“Normalization” of conditions refers to inflation back above 2% and growth back to potential, says Action Economics.)

That said, Poloz clarified during his press conference that the BoC’s forward-looking language is not an attempt to signal a rate hike. It’s more of an explanation of how things may unfold if the economy performs as expected.

The Bank added:

• “Total CPI inflation has [partly] been restrained by declining mortgage interest costs.” (But this factor will be reversed somewhat due to the recent jump in rates.)
• “…Both core and total CPI inflation are expected to return to 2% around mid-2015.” (Rate increases will likely be moderate so long as inflation stays near or below 2%.)
  
  [Comments in italics are CMT’s.]

Prior to today’s meeting, the market expected 1/4 point of rate tightening by September 2014. Today’s announcement may push that back a bit.

The 5-year bond yield, which guides fixed mortgage rates, moved very little after the Bank’s announcement. It was at 1.66% at the time of publication.

The next BoC rate meeting is seven weeks away on September 4, 2013. That meeting will mark three years since the BoC last lifted rates.

Rob McLister, CMT

Mortgage Tips: Purchasing and covering your payments

http://www.bestgtarealestatedeal.com/Mortgage-Tips-copy

Mortgage Tips

Since no two mortgages are exactly the same, there are a virtually endless number of variables which can significantly affect the overall cost of your mortgage. A very tiny change in one variable can save you tens of thousands of dollars on the total cost of your mortgage loan and allow you to own your house outright years earlier.
The single most important factor in any mortgage is the amount of down payment. In Canada any buyer who cannot pay a minimum of 20% of the value of the residential property in cash on closing requires Canada Mortgage and Housing (CMHC) insurance program, although GE Mortgage Insurance is also acceptable. These companies charge a premium based on the amount of money you are able to place as a down payment. The premiums vary, but the less that you are able to place as a down payment, the more the premium will be. The premiums are also higher for self-employed individuals. Naturally the best way to avoid these premiums is to avoid having to get mortgage insurance in the first place, but many families are simply not able to save a total of 20% when they buy a home. No matter what your financing situation, you should always consult a professional financial advisor prior to making any home mortgage decisions.
There are endless types of variable rate mortgages and they should all be approached with a level of caution. Most variable rate mortgages fluctuate in harmony with the prime lending rate. At a time of very low interest rates like right now, variable rate mortgages can be very advantageous. Although most financial experts believe that these rates will stay low for the foreseeable future, there have been times in the past when they have spiked way up. The prime rate is now about 2% but it was over 20% in 1980!
Adding an amount to a monthly mortgage payment can lead to disproportionate savings over the longterm. Selecting a mortgage which is set up to provide you "privilege payments" of 15%, for example, will allow you to pay off up to $15,000 per $100,000 of mortgage each year.
Many homeowners still pay monthly as they are not aware of the advantages of paying on a weekly or bi-weekly basis. Just changing the frequency of your payments while essentially not changing the total amount you pay every month at all, can shorten your mortgage by up to four years.
Nothing will damage your credit rating and put your home in jeopardy more than making payments late or skipping them altogether. Experts agree that you should always have three months of mortgage payments in your savings for unexpected emergencies. If you are unable to make a payment the worst thing you can do is avoid contact with your lender. Take the initiative to discuss your financial situation with your lending institution and in many cases arrangements can be made to safeguard your property from foreclosure.

Lessons From The Past: Stronger Real Estate Market Today

http://www.thestar.com/life/homes/2012/12/21/why_gta_housing_market_will_stay_strong_in_2013.html

Why GTA housing market will stay strong in 2013

Many economists predicted a local real estate crash this year, with prices falling by up to 25 per cent. It didn't happen and won't in 2013, says our real estate columnist.

By: Mark Weisleder Published on Fri Dec 21 2012

Many economists predicted a local real estate crash this year, with prices falling by up to 25 per cent. I didn’t see that prediction coming true and it didn’t. Nor will do I believe it will happen in 2013. Here’s why:
1. Homes are more affordable
In 1990, the average GTA home cost half of what it does today. But interest rates were 12 per cent for a five-year term at the time. So if a two- bedroom condo cost $250,000 in 1990 and you had a 20-per-cent down payment, your monthly carrying costs, including interest, taxes and common expenses, were about $2,500. The average rental for a two-bedroom condo at the time was $1,100, according to the Housing New Canadians research group. So the economics of ownership made no sense.
Today, even with a price of $500,000, if you have a 20-per-cent down payment, with current interest rates at 3 per cent, the total monthly payment is what it was in 1990. It is still $2,500 per month, including common expenses and taxes. But in downtown Toronto, the average rent paid for a two-bedroom unit is now close to $2,500 per month.
Most tenants who can afford $2,500 a month or more in rent can probably afford to buy a home now, if they have 10 per cent down payment or more.
2. The lesson from 2012
Toronto Real Estate Board statistics up until Nov. 30 show 82,200 units had sold in the GTA so far this year. In 2011, it was 84,900, and in 2010 it was 81,900. The average price on Nov. 30 was 2 per cent higher than a year ago. If anything, the market has remained very stable for the past three years.
3. Impact of mortgage rule changes is minor
The mortgage rule changes imposed in early July lowered the amortization period to 25 years if you were putting less than 20 per cent down and lowered the percentage of your income that could be used for borrowing from 44 per cent to 39 per cent. The result was that buyers who would have purchased in late summer or fall moved up their purchasing decision to the spring. By fall, this meant many would-be first-time buyers were looking to rent instead of buy. This contributed to low vacancy rates.
4. 2013 will be fine
Despite the doom and gloom, Toronto condo rental vacancy rates are 1.7 per cent. This means that for those people who cannot sell their condos, there are plenty of renters who can cover the monthly costs.
5. Debt-to-income ratio not relevant
As our American friends like to say, “that dog won’t hunt.” Every month we are told that because the ratio of household debt to household income continues to rise — and is now at 164 per cent — there is a danger of a real estate collapse.
What this really means is that the average Canadian household has an income of $100,000 and total debt of $164,000 (of which their real estate debt constitutes-two thirds). Again, as stated earlier, with interest rates at 3 per cent, this is not a dangerous problem.
If interest rates were 12 per cent, as they were in 1990, or if all your debt was on your credit cards (with interest rates averaging 18 per cent), then this would be a serious problem.
Note to readers: pay down or eliminate your credit card debt in 2013.
Note to government: with mortgage interest rates at 3 per cent, it is almost criminal for lenders to be able to charge 18 per cent on consumer credit cards.
6. Interest rates may not rise until 2015
The U.S. Federal Reserve is now saying it won’t raise rates until 2015. Our rates can’t differ much from theirs without harming our economy with a strong dollar and slower growth.
These are all things to keep in mind in the coming year. Somebody has been predicting a Canadian real estate market collapse for the past 12 years. It hasn’t happened yet and won’t happen in 2013.

 

GTA property developments charges increase: How it effects the home buyer.

http://www.mortgagebrokernews.ca/news/gta-clients-need-to-be-aware-of-dev-fees-say-brokers-174377.aspx

GTA clients need to be aware of dev fees, say brokers 

A new Toronto report recommending  hefty increases in property development charges is underlining the need to have a lawyer review pre-construction agreements prior to signing, says one Toronto broker.

“I strongly recommend each of my clients who are purchasing pre-con to have their real estate lawyer review the purchase and sale agreement prior to signing,” says Sandra Levy, principal broker with Always A Mortgage. “Some developers will allow an insertion of a ‘cap’ clause, while others will expect the buyers to assume all costs, including increases to development charges.”

For example, the fee to build a large apartment with two or more bedrooms would increase by 86 per cent, or anywhere from $23,036 to $12,412 by July 2014.

That sort of unexpected hit can be devastating to a client, says Levy.

“It is critical to a smooth closing that the purchaser is fully aware of what they are expected to pay out of pocket at closing,” she told MortgageBrokerNews.ca. “Between land transfer tax, legal fees, down payment and builder adjustments, the final bill can be a shocker if you don't know what you signed.”

According to city staff, the fee increases are designed to offset the some $12 billion worth of development-related infrastructure projects planned for Toronto over the next decade.

Andrew Galea, a mortgage agent with Calum Ross Mortgage, says he tries to limit builder charges, but also instructs clients that there is that inherent risk of higher costs when buying yet-to-be-built units.

“We always advise our client to try to cap their builder charges to about 2,500-5,000 if possible,” says Galea. “We always make our clients aware of potential changes that may happen when buying pre-construction.”

Toronto currently has the lowest development charges in the area, with most surrounding municipalities charging double that of the city. For 2012, Toronto collected $150 million in development charges.

With the extra market pressures – especially for condo buyers – brokers need to impress upon the client the need to have extra cash available prior to signing.

“With lenders cutting back on loan to values, and the ever-tightening mortgage market, having access to additional funds prior to closing is becoming more and more important for our Toronto condo purchasers,” says Levy.

http://www.mortgagebrokernews.ca/news/canadian-first-financial-gains-bank-status-174432.aspx

Canadian First Financial gains bank status 

First Financial's announcement of bank status lays the groundwork for the introduction of another broker lender.
Founder and Chief Commercial Officer Karl Straky says the Canadian First announcement means the lender will play an even greater role in the mortgage channel.
"Our bank envisions becoming a major player in the mortgage banking space over the next few years." says Straky. "We will differentiate ourselves by also offering our mortgage broker partners the ability to provide additional retail banking products to their clients and thereby expand their value proposition and deepen their existing customer relationships. They will also have the opportunity to own their own local Canadian First Financial Centre and build a different, more valuable and sustainable business compared to their mortgage business alone."
Canadian First Financial’s Chairman of the Board Peter Wallace today announced that it had been issued bank status to incorporate as a Schedule 1 bank, with the goal of commencing full bank operations later this year.
“We’re pleased to announce that the Minister of Finance has issued letters patent to incorporate a Schedule I bank under the Bank Act as an indirect wholly owned subsidiary of Canadian First,” Wallace said in an embargoed release issued to MortgageBrokerNews.ca Thursday.
President and CEO Peter Vukanovich said that bank status will provide customers with more options and better service.
“Our unique business model enables independent financial professionals to do more for their customers,” said Vukanovich. “The approval of the license is a landmark step towards creating a new and different banking service for Canadians.”
Straky adds that Canadian First will provide one-stop shopping convenience through its locally-owned financial centres providing customers with banking services, mortgages, wealth management and insurance products.
“We’re attracting high quality experienced professionals in the financial services industry to join our team,” said Straky. “These leaders have deep customer relationships and are interested in doing more for their clients through product and service excellence.”
Straky started the company as a way of bolstering the utility of mortgage professionals, helping deepen relationships with clients to better compete with banks and insurance companies. His strategy for First Canadian Financial was to provide a one-stop-shop model so each retail broker-partner could have a dedicated insurance/financial planner.
One of the more popular innovations by Straky was the Referral Partner program, put into place in 2011.
Straky said the Referral Partner program offered smaller retail brokerages the same opportunity to increase their usefulness to clients through the provision of other complementary services, but was sensitive to the fact they didn’t produce the kind of funded volume needed for a dedicated in-house insurance and financial advisor. The Referral Program allowed them access to financial and insurance advisors acting as mobile specialists.

 

New Challenges for Borrowers and Brokers

http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2013/06/new-challenges-for-borrowers-and-brokers-alike.html

June 18, 2013

New Challenges for Borrowers and Brokers Alike

Special to CMT, By Karen Beattie, NEXSYS Financial 

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I have a favourite saying, which is “the only constant in life is change.” This certainly applies to the mortgage industry over the past few years.
For almost a year, we've been adapting to two major sets of mortgage changes, the insured mortgage rules imposed by Finance Minister Jim Flaherty and OSFI's B-20 residential underwriting guidelines. The latter has been causing lenders to churn out new policies seemingly every week.
These continual changes have made it increasingly difficult to qualify AAA clients. Applications that were approved a few months ago are now being declined or approved with more conditions.
What follows is a quick recap of some recent guideline changes (keep in mind that each lender is putting their own twist on every rule):

• Some lenders now factor in a monthly payment for secured credit lines with zero balance. This means that even if a borrower isn’t using their secured credit facilities, a payment will be factored into their Total Debt Service (TDS) ratio. First National's guidelines, for example, say that even if a client owes nothing on a $100,000 secured HELOC, a payment of $383/month will be included in debt servicing. (Their calculation is:  (4.6% x the line of credit limit)/12 = the payment per month). That adds almost $400/month to the TDS! For a qualified borrower with $50,000 of income and a typical 2.99% mortgage, this could reduce their maximum mortgage amount by roughly $60,000 - $70,000.

• On revolving unsecured credit, monthly payments are being set at 3% of the outstanding balance. At all but a handful of lenders, interest-only or minimum payments can no longer be used when qualifying clients. That has quite an impact. Consider that a $15,000 unsecured line of credit has interest-only payments of $75/month. Despite that, lenders routinely want a $450/month payment to be included in TDS.

• Many lenders now calculate heating costs using a specific formula based on property size. In days gone by you could input $75-85/month for heat and no one questioned it. Now, homes over 3,500 square feet have a "heat factor" of $115-$220 at some lenders. While this may be prudent, it again reduces a borrower’s potential mortgage size.

• Conventional variable-rate mortgages and fixed terms less than 5 years are now qualified using the Benchmark Rate. When implemented last year, this change had a significant impact on how much mortgage a person qualified for.

To put this last guideline into perspective, take the example of Mr. & Mrs. Smith. Both have been employed full time in salaried jobs for 3 years. Each earns $60k/year. They have credit scores over 800, a car loan with a $500/month payment and a $15k unsecured credit line with $75/month interest-only payments. Add to that RSPs worth $150k. Dream clients, right?
In 2012, the Smiths easily qualified for a $640k mortgage when they purchased their $800k family home in the suburbs. Their mortgage agent got them a great rate of 2.89% for a 5-yr fixed with Lender ABC. And it was amortized over 35 years to improve cash flow while their daughter was in university.
The Smiths recently approached their mortgage agent to inquire about refinancing. Their application was strong, with a loan-to-value of only 75%.
In 2012, the Smith’s GDS/TDS was 29/35, so their mortgage agent never expected any approval challenges. The agent prepared the refinance application for $680k and requested a new rate to be blended with the Smith’s existing rate of 2.89%. Then today’s new reality hit everyone.
Under the new rules, these applicants will no longer be approved. Here’s why:

1. Lender ABC must now qualify the Smiths at the Benchmark rate of 5.14% because they’re taking a “blended” 4-year term (i.e., a term less than five years). The new qualifying rate of 5.14% is almost double their previous rate of 2.89%. That pushes the Smith’s TDS ratio well over lender guidelines
2. Lender ABC can no longer offer 35 year amortizations. As a result, the Smiths are now qualified at a 30 year amortization, again raising their TDS ratio.
3. The payment on the unsecured LOC has gone from interest-only at $75/month to $450/month, thanks to the mandatory 3%-of-limit minimum payment (used for approval purposes).

These changes have pushed the Smith’s ratios from 29/35 GDS/TDS (under former guidelines) to 41/50 under today’s guidelines. That’s despite no increase in their risk as borrowers.
Clearly this deal could be restructured, but it provides a very real example of the challenges now facing mortgage professionals. Guideline tightening over the past 12 months has made it significantly harder to qualify clients, and I doubt we have seen the last of the changes.

---

Karen Beattie is Business Development Manager at NEXSYS Financial Inc. Karen has been involved in the Canadian Mortgage Industry for 20 years, starting at the lender level and then working as a mortgage agent. She now specializes in underwriting and document validation.

Latest Statistics on Mortgage Consumers

http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2013/07/2013-cmhc-mortgage-consumer-survey-.html

July 01, 2013

2013 CMHC Mortgage Consumer Survey

In 2013, mortgage consumers are smarter than ever, but they still value good advice. That's an important takeaway from CMHC's latest Mortgage Consumer Survey, which breaks down their behaviour and tendencies in detail.
We've gone through the report and pulled out all the good stuff. If you're pressed for time, check out the "must-read" data that's highlighted. (The comments in italics are ours.)

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Mortgage Research

• 66%: of mortgage consumers use online resources to research mortgage options and features
  • Last year it was 71%, with the same wording in the survey question. There is no way consumers are using the Internet less in their mortgage research. A spokesman at CMHC was unable to explain this result.
• 84%: of consumers searched online for interest rates.
  • Is it any wonder that so much is being invested in rate comparison sites?
• 63%: of consumers searched online for information about mortgage options.
• 56%: of mortgage consumers who went online were searching for a mortgage calculator.
• 4.6: The average number of visits to sites of different lenders.
• 3.4: The average number of visits to sites of different brokers.
• 2.9: The average number of lenders that were contacted to learn about mortgage options.
• 2.1: The average number of brokers that were contacted to learn about mortgage options.
  • As rate comparison sites evolve, we'll see this number rise.
• 88%: of consumers found the information obtained from lender sites useful.
• 84%: of consumers found the information obtained from broker sites useful.
• 63%: of those who researched terms and conditions and compared interest rate costs of different financing scenarios, “totally agreed” that they obtained the best mortgage deal for their needs.
  • 47%: of those who did not engage in this research “totally agreed” they received the best mortgage deal for their needs.

Mortgage Calculators

• 63%: of mortgage consumers who went online for mortgage information used a mortgage calculator.
• 47%: used a calculator from a lender website.
• 13%: used a calculator from a broker site.
  • With a few exceptions, lenders generally have more developed and unique mortgage calculators. Moreover, lender calculators rank better in Google.
• 66%: of consumers used the calculators to determine the amount of their mortgage payments.
• 39%: used a calculator that compared two or more mortgage offerings.
• 36%: used a calculator to determine how much mortgage they could afford.

Broker share

• 23%: of all consumers used a broker in 2013.
  • 27%: of all consumers used a broker in 2012.
  • 23%: of all consumers used a broker in 2011.
• 49%: of mortgage originations among first-time buyers are handled by mortgage brokers.
• 34%: of mortgage originations among repeat buyers are handled by mortgage brokers.
• 17%: of those renewing used the services of a mortgage broker.
  • Last year it was ~20%. With lenders getting aggressive on renewal pricing and contacting people four to six months before maturity, this number won't get much higher.

Loyalty to lenders

• 88%: of consumers remain loyal to their lender.
• 44%: of those who switched lenders said they did it to obtain a better interest rate.
• 68%: of repeat buyers said they would remain loyal to their lender.
• 68%: of refi consumers said they would remain loyal to their lender.
• 54%: of first-time buyers said they would remain loyal to their lender.
  • In a commoditizing market, loyalty is becoming harder to earn.

Consumer satisfaction

• 84%: of consumers arranging their mortgage directly with their lender were satisfied with the experience.
• 81%: of consumers using a mortgage broker agreed they were satisfied
  • vs. 77% in 2012
• 82%: of consumers agreed they were confident they got the best mortgage deal for their needs.
• 25%: of mortgage consumers felt the mortgage process was not easy and straightforward

Referrals

• 75%: of mortgage consumers agreed they were likely to recommend their broker to a family or friend.
  • Only 70% would recommend their lender

Value-added advice

• 50%: of consumers said their lender or broker provided recommendations to accelerate their mortgage payments.
• 63%: of consumers said who received value-added advice from their mortgage professional regarding specific mortgage terms and conditions “totally agreed” that they would likely use this mortgage professional to arrange their next mortgage transaction.
  • 33%: of those who did not receive this kind of advice “totally agree” that they'd use the same mortgage professional again.
    • In an online world, advice and relationships still matter, and this proves it. But we'll see advice and relationships delivered differently as the Internet mortgage market evolves.
• 60%: of consumers who received value-added advice from their mortgage professional “totally agreed” they are confident about knowing where to go in case of financial trouble in the future.
  • 34% of consumers who did not receive value-added advice from their mortgage professional “totally agreed” they are confident about knowing where to go in case of financial trouble in the future.

Customer follow-up

• 49%: of consumers who used a broker were contacted following their mortgage transaction.
  • What a shockingly low number. Follow-ups after closing should be standard procedure to answer client questions, put a client's mind at ease (that they're not alone), thank them for their business and ask for referrals.
• 33%: who used a lender were contacted following their mortgage transaction.
  • Ditto. It's even more surprising that lenders don't "get it."
• 70%: of those who used a broker and who had follow-up contact from their broker “totally agreed” they were satisfied.
• 42%: of those who used a broker but received no follow-up contact from their broker “totally agreed” they were satisfied.

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Survey background: CMHC’s survey was conducted online and polled 2,951 recent mortgage consumers who were the prime decision makers. The survey took place in March and April 2013. The survey was limited to those who have had a mortgage transaction in the preceding 12 months. CMHC has conducted this survey since 1999. Here is last year's survey: 2012 CMHC Mortgage Consumer Survey

Fidelity National News July 2013 Newsletter

Market Outlook
When Finance Mister Flaherty implemented the last set of changes to government-backed insured mortgages he made it crystal clear that he considered it ‘desirable’ to make home buying more difficult. So now that it has been almost twelve months since these changes came into effect, what developments have emerged?

The changes not only had an immediate impact on first-time home buyers, but they indirectly impacted the rental market especially in the large cities. Since 80% of first-time buyers require mortgage insurance, many have been completely shut out from the housing market. Tens of thousands of potential purchasers have been forced to turn to rental properties ultimately driving up the demand for rental units. Now these future buyers not only have to contend with saving larger down payments, to offset shorter amortization periods, but they are facing higher rental costs due to the increase in rental demand.

Despite the changes introduced last July,
the real estate market has been more resilient than many expected. Recent data shows that even though sales and mortgage volumes are down, compared to the same period last year, prices continue to rise persistently higher. The mortgage industry has been working against attempts to cool the market by offering rock-bottom interest rates and many lenders have been turning to uninsured mortgages, with longer amortization periods, to get people to buy homes.

There is still much concern that Canada’s housing market is not slowing fast enough and that prices are rising too high in turn causing borrowers to take on too much debt. The Office of the Superintendent of Financial Institutions (OSFI), the Department of Finance and the Bank of Canada are working closely to further stabilize the housing market, moderate debt levels and reduce economic exposure to rising rates. Although no official decisions have been announced OSFI is currently conducting preliminary consultation with financial institutions on rule changes for conventional mortgages, and may limit the amortization to 25 years (down from 35) for uninsured mortgages. Any changes introduced will ultimately price people out of the market. With this being said, perhaps lenders could review various mortgage options with their clients and show them how a small adjustment to their mortgage amount can make the difference between continued renting versus getting them into a home. As rents are steadily increasing, this may be a viable option.
 
Industry News
Mortgage rates have been the hot topic of discussion for the past few years,especially considering the historical lows witnessed in the market. However, it is prudent to remember another aspect to the overall mortgage calculation – mortgage term – which is an important factor in determining how much interest a borrower will ultimately pay to the lender. Finding the best mortgage rate is an easy exercise to conduct – the internet has an unlimited number of resources and comparison sites to draw upon. Selecting the best mortgage term however is not so cut and dry. The conversation regarding mortgage terms once centered around whether to go fixed or variable, but these days the discussion is taking on a new theme: it’s not whether to lock in a rate, but for how long. The choice is ultimately a personal decision - different people have different needs and different risk tolerances, all of which can change over time.Determining which mortgage term options would best suit your clients, would ultimately benefit all parties involved. By educating
your clients of their options, this will solidify you as a trusted advisor and source.

Why you should use a mortgage broker.

http://www.bc-mortgage-brokers.ca/getting-your-mortgage-from-a-mortgage-broker-vs-the-bank/

Getting Your Mortgage From A Mortgage Broker vs. The Bank

Why should I Get My Mortgage from a Mortgage Broker?

There is a question that I am often asked when I meet a new client for the first time.  It is often something like this: what advantages do I have in dealing with a mortgage broker instead of my bank?  I then tell them many reasons that it is advantageous to work with a mortgage broker instead of the bank, and I have at many times thought “There must be many different people wondering this question, maybe I should write something about it.”
In commemoration of my shiny new mortgage website, I decided to stop procrastinating and put all my thoughts to paper in a very real way.  So, this will get to the heart of my thoughts unlike some fancy marketing material that most brokerages will provide (yes…that is my company website).
Before I do, I must also state that I also have banks and credit union lenders available to me, and there are certain situations where it is best for me to place them with those institutions.  It is not my intent to slam those institutions, and really they will do what they are allowed to get away with, and the onus is on people to be aware and prepared.

Mortgage Brokers Will Save You Money

Most often, mortgage brokers will have the lowest rates available for fixed rate and variable rate mortgages. It is not quite how it appears on mortgage broker websites though, with the broker claiming that the banks offer posted rates when they do in fact offer discounted rates. The reality is that the banks are competitive with rates, even if they are not the best in the market.
However, the REAL advantages of saving money come from other aspects of arranging a mortgage.  I am of the opinion that these tactics that many of the banks often pull are “dirty”.  Make no mistake, they are not there for the client’s benefit.  Here are some of the tactics I have seen or heard about:
For example, when someone gets a mortgage from a bank to buy a home and they are a new customer, they will often be enticed by a good interest rate, very competitive with what my lenders will offer.  It is a commonly known fact that in the mortgage industry that, when the mortgage comes due for renewal, about 70% of people will just sign and send the form back in to renew without comparing rates.  Often out of just the convenience of renewing easily, they do not bother to see if they can do better for themselves.  This is one situation where the banks will use the posted rates that are usually listed on mortgage rate sheets!
In contrast, most of my “A” mortgage lenders do not have posted rates at all…the rates they offer are usually equal to or lower than banks “discounted rates”.  When one of my lenders sends you a renewal, the rate they offer you is almost always what they are offering to the public at that time via mortgage brokers like myself.  If you wish to renew at that time, you are receiving a rate based on a transparent, open and honest policy.  You are a valuable customer to them even after they have your business.

Be Careful with Variable Rate Mortgages!

Related to the first point, if you obtain a variable rate mortgage from a lender, one of the privilages you are allowed within the mortgage contract is to lock into a fixed rate at a time of your choosing.  If you are with a bank lender and decide to do this, however, they will offer you a posted rate to convert to a fixed rate mortgage.  Posted rates are typically 1%-1.4% higher than discounted rates that are always offered by most of my lenders.
In contrast, my mortgage lenders again offer my clients an open, transparent policy of providing the same fully discounted mortgage rates that are offered to the public via mortgage brokers.  This will save you a lot of money in the long term, and is often not a consideration thought about when seeking an approval.

Save Time on Searching For An “A” Mortgage rate

Despite the growth in the mortgage broker industry in recent years, many people still don’t understand the role of a mortgage broker.
Here is an analogy: you decide you want to go to Hong Kong to do some shopping, but you have never been there before and you have no idea how to get around or the best places to go.  You can go place to place yourself and take a guess at what place offers the best deal and what lender offers the best quality and value, or you can have a local to help you.  Someone who knows the area, knows the shops, and can help you find what you are looking for quickly and easily.  Further, you do not have to pay for their help, as they receive a commission from the shop for bringing you there.
This is a good analogy to explain what a mortgage broker does, except that the mortgage broker industry is tightly regulated.  There will be examples of dishonest mortgage brokers out there, however it is no different than the banks, for example here and here.
When working with a mortgage broker, you have an expert on your side at knowing who is most likely to approve your application and who will do their best to give you the best rates. Best of all is that it for most mortgages we receive compensation from the mortgage lender, and you do not have to pay any fees, just like when you get a mortgage from a bank.

Your Credit Rating and HELOC Mortgages

You have spent a lot of time developing a good reputation for being able to borrow money.  You make your payments on time, you earn an honest living and you are careful with money.  You have some equity in your home and you make the decision you want to be able to access some of the equity in your home.
Many financial institutions offer Home Equity Line of Credit (HELOC) mortgages, whether they are called a “Homeline Plan”, “Scotia Total Equity Plan (STEP)” mortgage, etc.  In Canada, normal mortgages are not reported on the credit bureau. However, HELOC mortgages are.  Try and imagine the impact that a maxed out loan for the amount of your mortgage will have on your credit.  Approximately 30% of your credit score is attributed to how much you have owing on your credit bureau and the proportion of your credit balance to your credit limit.
Let us pretend for a second you have $15,000 of unsecured debt normally reporting on your bureau and total limits of $30,000.  That is 50% credit utilization on a total debt of $15,000.  That is a reasonable number and will be reflected in your beacon score.  However, if you add on a $300,000 mortgage including a HELOC mortgage it will show a maximum limit of $300,000 and a balance of $300,000.  Added to the above you are showing total debts of $315,000 on a total credit availability of $330,000. This can very much effect your score.
Why does this matter?  I myself, if I was an outsider would believe that the low score is quite explainable under these circumstances and that when applying for credit in the future that the financial institution would understand…
This assumption is WRONG…unfortunately for myself who has had many mortgage applications that “make sense” only to get a decline.  Most financial institutions including the banks and mortgage companies have investors that invest in these mortgages after they are funded.  These investors oblige all the mortgages in a portfolio they are invested in to meet certain criteria.  Essentially, mortgage criteria has to fit in a box for it to be a qualifying investment.  Most of the time, I do not get an exception for these kinds of mortgages.
All the banks report any mortgage with a HELOC attached to the credit bureau agency. However, I have lenders available who DO NOT report HELOC mortgages on the credit bureau.  This is a much more desirable situation to be in.

Creative Mortgages That Help You!

I am often making suggestions to clients to help them finance or improve their finances that are at least somewhat “out of the box thinking” solutions that clients virtually never will receive from the bank.  One example of a solution that I offer that is not available from the banks is a program to make your mortgage tax deductible called TDMP.  This solutions is capable of allowing you to be able to pay off your mortgage over 10 years faster than traditional payment without you spending any more money on mortgage payments!
This is just one example of the many ways in which I as a mortgage broker provide value to my clients.

Mortgage Life and Disability Insurance

Many people choose the optional life and disability insurance that is offered to them with their mortgage.  Banks and mortgage brokers both provide this service.  However, the coverage provided by a bank is only good for mortgages provided by the bank.  In other words, it is not portable if you wish to change institutions.
This can prove to be a real challenge to some people, particularly if they have had health issues since obtaining their policy.  It often means they cannot leave their current mortgage lender even if that lender does not offer them a good mortgage rate because it would mean having to re-qualify for a different mortgage insurance plan and being subject to either higher premiums, or being refused coverage completely.
With a mortgage broker, this does not happen because our mortgage life and disability insurance is portable.  This allows someone who has this mortgage insurance coverage to change lenders and obtain the best rate available and still keep their mortgage insurance coverage.  This flexibility to have your mortgage where it is best for you is just another transparent aspect of financing your home with a mortgage broker.

Don’t Wait, It’s Easy To Work With A Mortgage Broker

I am very accessible to my clients, and can meet you at a time and place convenient for you.  You do not have to come to a branch to meet with me.  I am responsive in returning telephone calls and am available on evenings and weekends.  Please take one minute to complete some basic information below and I will be in touch with you very shortly.

For more information or to get started with your next  or first real estate investment contact:

Anne Brill
Centum Metrocapp
(416) 289-2224

1969-today why do houses seem less affordable?

Flashback to 1969... Is housing really more unaffordable today?

We keep hearing it on the news, from government, economists and banks... housing is more unaffordable today than it was for previous generations.  Is it really as much as people claim?

We thought we would take a look and see at what the differences are.

In 1969 the average household income was hovering at around $8000.00 per year.  Most were single income and if you made $10,000.00 a year, you were considered to be well paid.  A new car would cost you anywhere from $600.00 to as much as $25,000.00 depending on the make and model.  A quart of milk was about 10 cents, a loaf of bread the same.

If you wanted to buy a single family home in Toronto, you would be paying anywhere from $25,000.00 to as much as $100,000.00 (if you wanted a mansion).  Today that seems like a steal of a deal, but let's take a look at some of the differences between then and now...

In 2001 the average size of a home was about 1700 square feet, 58% had 3 or more bedrooms, 57% have one and a half or more bathrooms.  In 2001, 76 percent of homes had a washing machine, 73 percent had a dryer, 56 percent had a dishwasher, and 44 percent had a kitchen sink garbage disposal; 58 percent of homes had a garage, and 80 percent had an outdoor deck or patio. In 2001, 82 percent of homes had some form of air-conditioning and 55 percent had central air

Compare that to 1969... the average size of the home was LESS than 1200 square feet.  Fewer than half of homes had three or more bedrooms and only 30 percent had 1.5 or more bathrooms, in fact not even all homes built in 1969 had central heat (only 38%) or air conditioning (11%).  Can you imagine not having plumbing?  Only 93% of new homes came complete with Sinks, toilets and bathtubs!

In 1969 a starter home was just that, a starter home - there were very few of the amenities that we enjoy today.  Granite counter tops, stainless steel appliances, etc.  were not even options that were available.  The cost to build a home... around $21.00 per square foot compared to over $150.00 today.

We also need to take a look at what it took to qualify for a mortgage.  In 1969 you need a minimum of 25% down payment, and you could not have a GDS higher than 30% and TDS of 40%.  That meant that to buy a basic small starter home you needed to come up with $6250.00 - on an income of only $8000.00 before tax, it took families years to save to buy the home.

With interest rates at 12.5% and the need to save $6250.00 it would appear that homeownership was unattainable, however rates of homeownership in Canada have remained fairly steady since 1969, and in fact have been increasing for the younger generations.

Home ownership is expensive, and as the cost of housing has gone up it has been more challenging.  No longer is it easy for a single income family to buy a home, but it can still be done.  There are options for mortgage financing that can assist you in achieving your dream, the best person for you to speak to is a licensed mortgage professional. 

At CENTUM we are always looking out for your best interest.  http://www.centum.ca

http://www.centum.ca/Blog/Flashback_to_1969_Is_housing_really_more_unaffordable_today

Tips on how to use your home to have a positive impact on your life.

3 Impactful 2013 Resolutions for Your Home

Whether it's most important for you and your family to shrink your bills or reduce your carbon footprint, these resolutions are commendable. Here are some useful tips that can benefit ecological conservation, make more time for family, and lead to home harmonization.
Use these simple strategies to reduce your carbon footprint and also save on energy costs for your family:

• Update lamps with high efficiency light bulbs and place them in corners as the light will then reflect off of the walls.
• Your ice dispenser increases your fridge's energy consumption by as much as 20% whereas using old fashioned ice cube trays won't.
• Have you ever considered using a faster spin cycle on your washing machine? The clothes will be drier at the end of the wash cycle and, therefore, take less time in the dryer: using less energy.
• These statements would imply that not using your appliances is more energy efficient, but this is not the case with dishwashers. One would think that hand washing would be better but, in fact, dishwashers use about 30% less water than hand washing. Just make sure you only run full loads!

Do an inventory of your family’s material possessions, coordinate your family, and de-clutter your home.
Take the time needed to go through each room of your house with some diligence and clear out items that you don’t use.

• Pay it forward by recycling and donating unwanted and unused items to charity. The task of putting your home in order may seem daunting but will have long reaching impact, as the sense of harmonization is deeper than material possessions.
• When your life possessions are in order you tend to be more focused and you can direct your energy to more important matters such as finances, career, or family.
• Invest in some great storage baskets to assist in the organization of the usual clutter monsters like tax receipts, bills, and incoming mail. Having items that are used frequently at hand, but tidy, improves your home's functionality and makes life less stressful.

Whether or not you are planning on selling your home or staying put, basic maintenance and upkeep goes a long way to protect one of your largest investments.

• For example, if you deal with a minor roof leak now it may save you thousands of dollars down the road by not having to replace the entire roof prematurely.
• Furnaces require, at the very least, annual filter cleaning (bi-annual is preferred). The time spent now could save you thousands on replacing the furnace.
• Give some thought to replacing old appliances. If your fridge is more than 15 years old it can consume 20-25% of your family’s energy bill.
  
  Contact your local Centum Mortgage Professional for a full financial tune up