Mortgage Brokers are helping more and more people!

When it comes to mortgage financing, more and more Canadians are choosing to work with a professional mortgage broker. According to a study conducted by CMHC, over 25% of mortgages  were originated by mortgage brokers.

Canadians are just catching up with our American neighbors, who are far less likely to just walk into their neighborhood bank for a mortgage. Over 70% off all American mortgages were originated by a mortgage broker.

If we follow the U.S. model and that seems most likely, then Canadian are in for changes in the way that they manage their most significant personal asset. It all makes sense, investment returns are not as lucrative as they were just 5 years ago and investors are looking for ways to make gains through avenues that they may have overlooked.

There are some significant benefits to working with an independent mortgage broker. Firstly, let’s compare mortgage expertise: Most banks have one or more representatives who are specifically assigned to assist with mortgages. Their role is to develop mortgage business for the banks. An independent mortgage broker on the other hand is a trained mortgage professional who has met standards for education. The comprehensive training of an independent mortgage broker may exceed the training of their counterpart at the banks. Most importantly the mortgage broker is independent. They are not employee’s of a lending institution, however they have access to terms and conditions for a full spectrum of charted banks, and other lending institutions. Their role is the find the best possible terms and conditions that meet your needs.

Let’s also look at choice: An independent mortgage broker offers you access to many competitive lenders, each with a range of mortgage options. It would take weeks of research, telephoning and personal visits to recreate the range of terms and conditions that a mortgage broker has at their finger tips. Rate information, mortgage options, and payment schedules are up to the minute, so you and your broker can make valid comparisons of the options available. The result of all this choice is a mortgage witch is customized to meet your needs and to save you money.

Also consider accessibility. Your mortgage does not sleep, just kidding, but we are available to you both before and after your mortgage closes. However if you prefer you can be put on hold or get put in an endless voicemail answering loop at your local bank.

Over all clients have turned to mortgage brokers for better terms and conditions. Access to a broad range of lending institutions is also a critical advantage to mortgage shoppers. If we can just save you a quarter point, that can save you thousands of dollars over the life of your mortgage. Many mortgage brokers work with large brokerage firms with sufficient mortgage volumes and that can help get you the best possible rates and terms for your mortgage. Canadian who have used a broker, are more likely to continue using one than to ever return to a world where they have to accept the best posted rate at their local bank.

Add a mortgage broker to your team!

For most Canadians, buying a home is the largest financial decision they will make in their lifetime. Yet, consumers across the country are more likely to painstakingly review dozens of investment possibilities for their portfolios than to scrutinize their mortgage choices. 

The mortgage world like the investment world can sometimes be confusing. There is a vast array of choices, open, closed, fixed, variable or floating, long or short amortization, prepayment options, portability and of course the rate itself. Making the right mortgage decision can have a huge impact over the long term.

Many Canadians have an investment advisor to help them sort through all their investment choices. Now Canadians are also beginning to turn to Mortgage Brokers to help them make better mortgage decisions. We are just starting to catch up with our counterparts south of the border, ( American’s rather than Mexican’s for those with less then stellar geography skills) where mortgage brokers currently originate about 70% of the mortgages.

So what is a mortgage broker? ( See my last post or read on for a summary) The role of a mortgage broker is to understand your mortgage needs, seek out the best terms and conditions for your situation, and guide you through the lending process. A mortgage broker does not work for any individual institution or lender, but is independent, and has up to the minute terms for a wide variety of banks and other lending institutions. 

  There was a time when the banks exercised the view that they “ owned “ their customers, and mortgage brokers were perceived only as a last resort for consumers with less than perfect credit history. However times have changed, and consumers of every type are learning that they can benefit from the professional advice of a mortgage broker.

Just as a good investment advisor can make you thousands of dollars, a good mortgage broker will save you thousands of dollars. Whether you are buying for 1st home or your 5th, renewing your mortgage, or just looking for sound mortgage advice, then you should consider adding a mortgage broker to financial team this year!
 

Why should you use a Mortgage Broker anyway?

For most of us, our ideas about mortgages have been installed by years of past experience with traditional products in traditional institutions. Long held beliefs sometimes include the idea that mortgage brokers are only for people who have less than perfect credit or have been turned down by a bank. Unfortunately, anyone with this kind of outdated thinking could be loosing thousands of dollars! All home buyers and home owners can save time and money by enlisting the services of a professional mortgage broker.

A mortgage broker has access to many competing lending institutions, including banks, pension funds, trust companies, and even private mortgage lenders. Since mortgage brokers do not have to sell the products of any one lender, they can be completely unbiased in recommending a mortgage that has the most attractive terms and conditions for their clients. While you may arrange a mortgage every five years or so, a mortgage broker and their firm, are completing thousands every year. This enables them to negotiate a better rate based on that volume, which is then passed on to their clients.

There are other potential cost savings. On any given day, a particular lender may have a special rate offer for a specific mortgage term. If you are rate shopping on your own and don’t know who is sponsoring the offer, you can’t take advantage of the special pricing.

At renewal, many homeowners take the renewal quote and choose a term and rate  offered by the lender without realizing that a mortgage broker may be able to save them up to one percentage point off the posted rate. This can translate in thousands of dollars in savings over a five year term. To insure that you get the best rates and terms, it’s best to contact me at least four months prior to your renewal or your new home purchase. Starting early can be a money saver because I have lenders who will hold a rate for you for anywhere up to 90-120 days. Should rates drop prior to closing, or renewal, then you will get the lower rate. 

If your credit rating is important to you, then you also need to consider that when you shop from lender to lender, there is an accumulation of inquiries on your credit bureau report, affecting your credit rating and ultimately the rate and terms of your mortgage. This is not the case with a mortgage broker who only does one inquiry yet can still get many competing lenders to quote your business. 

Finally, an important misconception that should be discussed is fee’s. Some people think that using a broker will be costly, and that there will be upfront fee’s. In most cases there is not fee because the lender that provides the mortgage pays the mortgage broker a fee for originating and negotiating the mortgage. As your would expect, fee’s are required for client’s with impaired credit, for commercial mortgages or when private mortgage money is used. This fee compensates for the additional time and effort that is required to negotiate these mortgages. 

As always please contact me if you have any questions.

Cheers,

Pat

Topping up your RRSP with cheap money!

Right now, your house is the best piggy bank you’ll ever own. Even in our current market conditions. If you’ve got some money in that piggy bank, you may want to take some out for your RRSP. Get it before the RSP season is upon us and you are pulling your hair out wondering how to maximize your contribution room or even catch up on all the unused room that you have left over. Markets are due for a comeback, home values are still pretty steady in most Canadian markets and mortgages are your lowest borrowing costs, “Carpe Diem”, as they say, seize the day!

Top off your RSP with the lowest borrowing costs available today, a mortgage. Even if your mortgage isn’t scheduled for renewal any time soon, it may be worth your while to call me to see if can work our in your best interest, no pun intended! With today’s great rates, a mortgage restructure may be just what the doctor ordered.

Canadians are a cautious lot when it comes to finances and we typically do not like to borrow money. However special consideration should be given to doing it for sake of your financial future. Remember you could be looking at a good tax refund almost immediately. If possible you can turn around and put that money back against the loan as soon as it arrives.

So borrowing for your RSP can make good financial sense. But if you are a homeowner, the special RSP loan option offered by some of the banks may not be your best option. The cheapest money you can get is the money under your own roof. Why you may ask is because a house is considered sound security and lenders assume lower risk lending money secured against your house.

Here are two possible scenario’s:

1) You need money to take advantage of all your unused contribution room. Call a mortgage professional like myself and I can show you how to use a mortgage refinance or a second mortgage to reach your retirement goals. Make your new money really work for you, and heck while you are at it get all your debt cleared up too. Combine your high interest loans and credit cards into one low interest payment. 

2) Want to boost your RSP and leverage your non registered assets to do it? While the interest on an RSP loan is not tax deductible, you could discuss the following strategy with your financial advisor: First, if you sell your non registered investments and you contribute the proceeds to your RSP. Then, arrange a mortgage and repurchase your non registered investments. The interest should now be tax deductible because the money is used to purchase the investments. 

Both strategies depend on your own personal situation, so be sure to consult both your mortgage professional and your financial planner before proceeding. Call me today, this could be in your best interest!

 

Cheers,

Pat

Fixed or Variable Rate Mortgage?

“Wow”! You say to your wife as you hit the bakes on the car. “Did you see the mortage rates those guys are advertising”? Your worries are over you’re thinking. Just lock in a rate like that for the next 10 years and you’ve got it made!

 

Not so fast. That rate may not be the one for you. Typically, the lowest available rate – and the one that makes the rate sign look great from the street – will be for a variable or adjustable rate mortgage. That rate has the potential to be like a roller coaster. The posted variable or adjustable rate is the rate that you’re getting today. Unless you have an economic ouija board, you will not be able to predict what kind of ups and downs are ahead of you.

 

Let’s take a closer look. A lender will offer different rates for different types of mortgages. The rates are determined based on financial risk to the institution and to you. When a customer is willing to take on the risk, they are rewarded with a lower rate. If the lender is taking on the risk ( by that I mean that the customer is promised a particular rate for a set period of time regardless what happens in the market) then the rate is higher. The loner the term then the higher the risk for the financial institution. 

 

So how do you decide? Fixed rate mortgages, because they require a low risk tolerance are usually better suited to first time home owners or those who do not keep an eye on the financial markets. 

Ask your self these questions:  

Do you like or need to know exactly what your payment is going to be over a long period of time?

Do you want to avoid the need to constantly watch rates?

Do you prefer the piece of mind of set it and forget it?

If you answered “yes” to all or most of these questions, then a more fiscally conservative fixed rate may be best option for you.

 

A variable or adjustable rate mortgage is best suited for people who have a flexible budget and can tolerate higher risk. Ask yourself these questions:

Do you watch market conditions?

Could you handle any sudden rate increases that would increase your payments?

Would you take a lower rate if it meant the possibility of your payment changing several times over the life of your term?

If you answered “yes” to all or most of these questions then a variable or adjustable rate may be the best option for you.

 

Some lenders offer a special promotional or teaser rate for the first few months of a variable rate’s term. Ask your mortgage professional how this could be good for you in the long term. Also discuss what your rate will be based on, will it be prime, prime minus   .3, .5 or .8%. Also you should know that most lenders will offer you an option to lock in your variable rate to a fixed rate at any time for the remaining portion of your term or for a longer term. 

If the uncertainty  of going with a floating rate will cause you to have sleepless nights, then that is not the option for you. In fact many Canadians choose the security of a fixed rate mortgage. They know exactly how much they will pay over the term of their mortgage, and they can plain accordingly with not financial surprises. However if rates do drop, then you committed to the promise that you have already made. You should know this that during the past 10 years 5 year fixed rates have averaged 5.5% while variable rates have averaged 5%. As a mortgage professional I can help you make the best choice, call me so I can find out what works for you.

 

Cheers,

 

Pat

Appeal court ruled that ABCP restructuring is legal!

Investors are left out in the cold while the banks and credit union’s receive protection form possible lawsuits regarding the securitization of Asset Backed Commercial Paper or ABCP. The good news is the the plan to restructure the ABCP market can now go ahead. For the complete news story from the source click here other wise this is what this means to you, the mortgage holder or potential mortgage holder. 

Once this is all behind us lenders should be able to securitize their ABCP and as a result offer us the options that we want for our financing needs. This is what I would like to see happen but only time will tell.

Cheers,

Pat

 

It's not me, it's the economy!

According to an article in the Globe and Mail this morning it says we are carrying too much debt in comparison to our assets. However don’t worry CIBC conomist Benjamin Tal said that it is because of the economy! So let me get this straight, we are spending more than we make, putting ourselves deeper in debt and it is not really our fault it is the economy. He is right about one thing, the economy is not as rosy as it was just few short years ago. That should not be an excuse to over do it! What people fail to realize is that we make this economy go round, and if we are forced to cut back our spending to keep up with our debt service needs, what will happen then?

The point that I am trying to make is this, we are responsible for our own situation. We are where we are because of the choices that we have made, good or bad. Some thing that I have just read recently sums this all up ” We are not our circumstances, our circumstances are us! When we change, then our circumstances change”. If we want things to change, then we must first change!

Cheers,

Pat

 

Houses still selling, but for less!

In a report today from the Canadian Real Estate Association, it says that homes in Canada are still selling. In fact sales increased .1% from April to May of this year. However the downside is that the average price of these homes have dropped 3.6%. Even with the drop in values, the association does not sees us experiencing the same declines that our American friends are suffering through right now. 

So what does this all mean? It is a better time to buy, in certain markets the house that you like is now worth less, allowing you to get it at a discount. However for the homeowner, if you really have to sell, you have to be open to getting less for your home that you originally had expected. 

Cheers,

Pat

Many Canadians oppose tougher mortgage rules!

The great National Post had an article today that said about 25% of Canadian’s polled do not agree with the federal goverment steping in and changing the mortgage rules. In case you have forgotten click here to see an earlier post. 

I have to mention that the poll was conducted by Angus Reid for ResMor Trust Company. Surprisingly 45% agree with the new rules, and when you factor in current renters, the support falls to 25%. This is the group that is affected the most by the new changes. As it takes away a lot of options for them when it comes time for them to look at get out of renting and buy a home.

Our fantastic government apparently thinks that we were too close to acting like our neighbors to the south. It is true we had a lot of sub prime players in our market the past few years. However we did not have the no doc, qualify on teaser rate no down payment mortgages some of our southern neighbors had available.  

I am sure you have an opinion. You should voice it too. Send your comments to Finance Minister Jim Flaherty by clicking on this link. 

 

Cheers,

Pat

Debt outpaces home value for one-third of new owners!

BOB IVRY

Bloomberg News

August 13, 2008

Almost one-third of U.S. homeowners who bought in the last five years now owe more on their mortgages than their properties are worth, according to Zillow.com, an Internet provider of home valuations.

Home prices fell 9.9 per cent in the second quarter from a year earlier, giving 29 per cent of owners negative equity, said Zillow, the Seattle-based service that offers values for more than 80 million homes. For those who bought at the 2006 peak of the housing market, 45 per cent are now under water, Zillow said.

Negative equity and declining prices contribute to the foreclosure rate because some homeowners don’t have the cash to pay off the mortgage and end up surrendering their homes to the bank that holds the loan, said Stan Humphries, Zillow’s vice-president of data and analytics.

“For homeowners who need to sell, this is a gravely serious situation,” Mr. Humphries said. “It can also be harmful to communities where the number of unsold homes adds more to inventory and puts downward pressure on prices.”

Almost one-quarter of U.S. homes sold in the past year were for a loss, Zillow said.

In a regulatory filing late Monday, Countrywide Financial Corp. said thousands of borrowers with $25.4-billion in adjustable-rate mortgages (ARMs) owe almost as much as their homes are worth.

As of June 30, the typical Countrywide borrower owed 95 per cent of the value of his home, up from 76 per cent when the loan was made, the company said.

Seventy-two per cent of its borrowers were making less than full interest payments, and 12.4 per cent were at least 90 days delinquent.

According to Zillow, the highest percentages of homeowners with negative equity were located in California. In four of the state’s metropolitan areas – Stockton, Modesto, Merced and Vallejo-Fairfield – the number of homeowners whose mortgage debts exceeded the values of their properties topped 90 per cent, Zillow said.

In five more California areas – the Inland Empire (Riverside-San Bernardino), Bakersfield, Yuba City, El Centro and Madera – more than 80 per cent of mortgages topped values.

In Stockton and Modesto, more than half the sales in the second quarter were of foreclosed homes, Zillow said. Almost 15 per cent of sales nationwide were foreclosures, the company said.

Prices fell on a year-over-year basis in 140 out of 165 markets, Zillow said.

The 9.9-per-cent decline in home values was the largest on a year-over-year basis in at least 12 years, Zillow said. The median home price of $206,919 (U.S.) was the lowest since the fourth quarter of 2004, the company said.

“Sellers are starting to adjust their expectations,” said Zillow chief financial officer Spencer Rascoff. “More sellers accepting a loss is actually a sign of optimism. It means that the transactions might start happening. There are so many sales contingent upon the buyer selling their home.”

 

Even though this article is about the US market, it just goes to show the state of the over all market. I have sold many 100% loans to clients in the past. Now our market is more stable in most places and still increasing in all but a few locations, but this does not mean that Canadian consumers do more owe more than the value of their principal residence. Many do when you take in to consideration their mortgage, line of credit, credit cards, car loans and other debts. We have morphed into a live for today spending society. We need to realize that there are consequences. For the economies to improve we must first improve our own finances. How can we expect the government to balance the books if we can not balance our own. 

Cheers,

Pat