Friday, August 30, 2019

Home Ownership, yes!

OOPS, what happened? I moved in and I didn’t consider all that needed to get done.

Most homeowners admit to making at least one mistake when they purchased their home, according to a homeownership poll conducted by RBC a few years ago. 

While owning a home is a dream come true for many, it can also be stressful if you find you’ve made an error. 



Below are the top three mistakes the poll found, along with a few more you might want to think about before taking the leap.

  1.  Property needed work – a lot of it. Even with a home inspection, new homebuyers may get into a home and find it’s become a money pit. Don’t rush in, sit down and plan.
  2. Not having a bigger down payment. Once in a house, many homeowners are overwhelmed with the costs. Once again, don’t rush in, sit down and plan.
  3. No Home Inspection. If you skip this step you might find the cost of repairs needed may be astronomical, especially if you purchase an older home. An inspector will look at the overall foundation and structural features of the house, the plumbing system, will look for the presence of mould or pest infestations, check the heating and air conditioning, as well as the electrical system.
  4. Not budgeting for the increased costs. When considering the extra costs, remember there are mortgage payments, property taxes, and usually higher utility bills. On top of that you’ll may want to redecorate, perhaps buy new furniture and/or appliances. There may be some landscaping work to be done and you may want to renovate. 
  5. Not knowing the closing costs. Closing day is coming and you get the call from the lawyer to come in and sign the papers and, bring a certified cheque or bank draft for X amount of dollars. WHAT? Yes, fees and disbursements. There’s the land transfer fee, the title fee, the lawyer’s fee, etc. Don’t get caught short.
  6. Forgetting about future needs. If you’re planning on having kids, you may want to consider the type and size of home you’re purchasing. 
  7. Not getting a pre-approved for a mortgage. You won’t know what price range you can afford and what a lender will give you without a pre-approval. It’s easy; it’s free and absolutely necessary. If something turns up that may prevent you from purchasing, a mortgage professional can offer you solutions. 
  8. Falling in love with a house. Fall in love with each other but not with a house because you may not listen to some good advice. You will ignore the obvious cracks in the foundation because it has 18ft. ceilings and has that great stone fireplace you’ve always wanted. Beware of buyer’s remorse.
  9. Not checking market value of neighbourhood. This can cause some purchasers to pay too much; especially a home that has been upgraded to the max in an area that won’t keep its value – unless you plan to live there the rest of your life.
  10. Focusing too much on interest rates. Don’t rush in to a market because the rates are low. And don’t focus on getting the lowest rate. Focus on the mortgage loan that works best for you and your financial situation. 

Having said all that, the most recent RBC poll (April 2019) found that Canadians are confident and know what they want.

  • Eight-in-10 Canadians say a home or condominium purchase is still a good investment
  • Canadians feel it makes more sense to buy than rent 
  • Canadians are well positioned to weather a potential downturn in housing prices or an increase in interest rates 
  • Affordability and being in a safe neighbourhood top the list of what Canadians must have, while buying in ‘the right‘ neighbourhood is less of a concern 
  • Canadians are most willing to sacrifice the conveniences of being close to a major highway (16%), dining and entertainment (13%), good schools (11%) and public transit (10%).

So, bottom line is: Don’t rush in, sit down and plan. A mortgage professional can help you get that home by walking you through every step of the home buying process, with fewer mistakes, and fewer regrets.


Monday, August 12, 2019

Important Mortgage Features to Consider

Real estate continues to be a hot commodity in most parts of the country, despite the many changes we’ve gone through over the last few years. Prices in some areas are up and listings are in short supply in other areas, but the housing market overall has been moderating over the last year, and analysts are forecasting a balanced market for the rest of 2019 and into 2020.

Interest rates are comparatively low and competition among lenders to offer favourable rates is high.  It’s always a good idea to read the fine print to make sure you’re getting the best mortgage product, at the best rate, for your particular need.

Because lenders do differ, it’s important to know what features are important to you before deciding on a lender. Here are six characteristics of mortgages to assist home buyers assess their offers:


  1. Blend and Extend. The “increase and blend” option has been around for almost 20 years and may be an option in some situations. For example, if your current lender doesn’t allow a change in the maturity date, then you’re locked into the remaining time left on the term.  While that’s not the end of the world, in a rising rate environment this can be inconvenient. If you’re moving up, and buying at your maximum loan-to-value, you probably don’t want just a 1 to 2-year term, and with the new benchmark rule, you may not even qualify.  If rates have dropped since the original mortgage you could run into the “Interest Rate Differential” (IRD), which might be too large and you can’t move.  
  2. Early Payout Penalty Calculation. Some chartered Banks are known for their extremely large IRD penalties.  If you don’t know whether you’ll keep the mortgage for the entire term then make sure you understand the payout penalty. 
  3. Mortgage Registration. Is the mortgage registered as a non-standard charge, either a running account, or a collateral charge? If so, then it becomes challenging to switch this mortgage out to take advantage of lower rates, although collateral switches are becoming more widely available. Consider this scenario: If the lending institution knows you will have to incur $1,000 or more in possible costs, as well as put in the time and effort to complete a refinance with another lender, then there might be little incentive to offer you best rates at renewal time when a small rate reduction might be enough to keep your business. On the other hand, there are advantages such as making it easier to qualify with fewer expenses down the road if you need to access additional funds.
  4. Pre-Payment Privileges. Is the lender offering 10/10, 15/15, or 20/20?  That means allowing prepayments of 10%, 15 % or 20% annually on the outstanding balance of the mortgage.  Also, can these lump sum payments be made anytime per year or only at the mortgage anniversary? And how easy is it to make lump sum payments? Do you have to go into the branch, call a 1-800 number? Or can you simply go online and do it.  These are important factors to consider.
  5. Porting Features. This feature can vary from lender to lender. Read the fine print, especially if you know you might need to move before the mortgage maturity date. Some lenders require a sale and purchase to occur on the same day in a port, which can be inconvenient. A more flexible, and available program allows typically up to 60 days gap or 60 days overlap; and then there can be exceptions allowing longer periods beyond that.
  6. Online Access. All of the chartered Banks offer online access as do a number of monoline lenders. Generally online access allows you to see your balance, make additional lump sum payments, or make a payment increase. This can be a time-saving feature for tech-savvy consumers. 


There is more to getting a mortgage than just rate. Talk to a mortgage broker first who can help you navigate the mortgage terms and who can help you find the best product for your needs.

Wednesday, July 17, 2019

Mortgage Fraud – Don’t Let It Happen to You

There has been a growing concern about fraud in the industry for a number of years.  According to Equifax, suspected fraudulent mortgage applications have increased by 52% in Canada since 2013.

Because the mortgage industry’s rules and guidelines have become more complex, there is increased diligence among lenders and brokers.

The mortgage stress test has made it more difficult for some consumers to qualify for a mortgage. And in today’s high-tech world, it’s not always the case that lenders and borrowers meet face-to-face.

There is also pressure for some files to close quickly, from consumers who expect their real estate transactions to be fast, with minimal paperwork, which could lead to potential fraud.

Categories of Fraud

These are the general categories of fraud:

  1. Fraud to get shelter. An individual commits fraud in order to get a mortgage on a home they could not otherwise obtain or afford.
  2.  Title Fraud. The identity of a homeowner is assumed and a new mortgage is taken out assuming the homeowner’s name and credit history but with loan proceeds going to the fraudster. The fraudster will use forged documents to transfer ownership and will use fake identification to get the mortgage on the property.
  3. As part of other criminal activities. A mortgage may be fraudulently obtained to get access to a home for illegal purposes.

These are the general types of fraud that occur:


  1. Fraud Involving Property.  Overvaluation of property; misrepresentation of property characteristics; builder bail-out scheme using a “straw” buyer.
  2. Fraud Involving Employment Status.  Forged employment letter; forged or altered pay stub; inflated income; misrepresentation regarding self-employment
  3. Identification Fraud.  Forged or altered ID, nonexistent individual
  4. Equity Fraud (Down Payment). Bogus gift letter; bank account statements not the borrower’s
  5. Title Fraud. Fraudulent title transfer when mortgage has not been paid in full; property not in name of seller; identity theft relating to title fraud

Fighting Fraud

It’s in the best interest of the real estate and mortgage industry to work together, along with consumers, to reduce fraud. To further protect yourself and to help avoid the situation:


  • Always store personal information, including birth certificate, SIN, bank account numbers and credit card details, in a secure place
  • Shred documents, such as credit card statements
  • Never reply to spam or e-mails that ask for banking information, credit card details, passwords or other sensitive information
  • Safeguard your personal financial information.
  • Contact your mortgage lender or broker first if you are having difficulty making your mortgage payments.
  • Consult your lawyer before giving another person a right to deal with your home or other assets.
  • Do a land title search with your provincial or territorial land registry office. This search will show the name of the property owner and any mortgages or liens registered on the title.

You can also help to protect yourself by inspecting your credit report at least annually by contacting Canada’s two credit-reporting agencies: Equifax Canada and TransUnion Canada.

Fraud is serious business in Canada and has a negative impact on the entire industry. Fraud hurts people, not just companies or the government. When lenders are defrauded, consumers pay the price.  Losses from fraud could ultimately result in higher interest rates and fees for borrowers.

TMG mortgage professionals stay up-to-date about mortgage fraud through internal training sessions, and through industry educational sessions. They understand the concept of fraud, recognize fraudulent schemes and understand their consequences. This knowledge helps brokers protect themselves, their clients, their business relationships, and the industry as a whole.



Thursday, June 27, 2019

There’s real estate life outside of Toronto and Vancouver

If you read the headlines about the housing industry, you’re bound to think that affordability is out of reach, and if you’re a first-time home buyer, you may think you will never be able to own a home. You’d be forgiven to think that. It’s likely you’re reading about the two major centres – Vancouver and Toronto. What’s happening in these two cities seems to dominate the news, but it’s not the whole story.  

There is affordability and life outside these two biggies and your dreams of home ownership are very much alive. 

In a recent news article, Phil Soper, CEO of Royal LePage said the move to towns near secondary municipalities has been gaining in popularity. He went on to say that eight of the 10 fastest appreciating Canadian areas are in Ontario, led by areas surrounding Windsor, London, Kitchener-Waterloo-Cambridge, Kingston, Niagara/St. Catharines, Hamilton, Belleville/Trenton and Guelph, he said.

In Ontario, Brad Knight, a mortgage broker with OMAC powered by TMG, is seeing the (Spring) market coming to life, finally. 

“For the longest time, we had no inventory but now we’re seeing more listings and slightly higher prices.”

Knight works in the St. Thomas/London area and is seeing lots of families coming from Toronto. “Because there is more flex-time in the workplace and many who can now work from home, the market here is attractive with the average price of a single-detached home selling for approximately $365,000.”

The average days on market is 15-22; but with the additional listings, some are selling much faster, if the property is priced right, Knight said.

He also credits the better weather for some of the boom, but still finds the mortgage stress test coming into play for first time homebuyers. He’s not sure how the new government incentive, slated to roll out in September, will affect buyers.

“Right now, the weather has improved, mortgage business is up and it’s turned out to be a good June.”

 In Corner Brook, Newfoundland, the mortgage business is not bad. According to TMG broker Brian Patey, the year started slowly but now the market has caught up to where it was last year. 

“We don’t get the big swings here like they did in St John’s, where the market was hot, due to the oil industry in Alberta, but now that’s dried up and the market there has calmed down. But here, we’re pretty steady”, he said.

The market in Corner Brook is small and homes can be bought for under $200,000, which according to Patey are selling pretty fast now – the $300,000 and higher sit a bit on the market.

It’s still tough for first time home buyers because of a lack of jobs. “There’s not a lot of industry coming into this area,” Patey said. 

Despite the challenges, he is optimistic and so are the Realtors in the area. The biggest change for Patey has been the time of year when the market gets busy. “It’s not a typical Spring market anymore. Now I can be very busy in January and February.”

The real estate market in Saskatoon is starting to rebound according to Corinne Lokinger, a real estate agent with Coldwell Banker. “We have seen a 16% increase in sales this year over least and a 21% increase in condo sales.”

Although still considered a down market, condo sales are doing well and consumer confidence has risen, which is stabilizing the market she said. “First time home buyers are buying the lower-priced houses and condos.”

For a while in Saskatoon, listings were down and days on market were longer – upwards to 77 days. But as the prices stabilize and the listings pick up, Lokinger is seeing that the houses that are priced right, are selling.

Lokinger also said the market there certainly felt the slowdown after the stress test was introduced, but it’s turning around now.

“I’m feeling pretty good about what’s happening now. I’ve been talking to mortgage brokers and to other Realtors -- call it intuition, but it seems like something big is coming to Saskatoon,” she added.
Back in Northern Ontario, another smaller market TMG mortgage broker Taya Weiszhaar saw a slow start to the year but business has now picked up. She services areas around Kirkland Lake, North Bay, and Sudbury.

“We had a lack of inventory and high prices,” she said. “Now, we have good, quality listings that are priced right. Some are on market for only three days.”

Interestingly, the largest part of her business comes from first time home buyers who are keen to own a home and are interested in knowing their options. 

“I’m not seeing a problem with these buyers getting their down payment but our prices are low compared to major centres – you can buy a house for under $280,000 and I saw a couple listed at $89,000 and $108,000. I also advise them to buy the house first, the vehicle second.”

Weiszhaar also finds that first time home buyers are in some ways easier to finance because they haven’t accumulated the debt that her repeat buyers have. 

As for the new government incentive Taya is not impressed and says it really won’t change qualifying in her market. “The first-time buyers in my market are motivated and will work hard to save the down payment,” she said. “If the government really wanted to help, they would lower the benchmark rate so that more people can qualify.”

She feels good about the future and says, “People buy houses when they’re ready, no matter the rate. They are looking for the right house at the right price and that’s it.”





 

Monday, June 10, 2019

The Ongoing Stress Test Debate

By Mark Kerzner,
President, TMG The Mortgage Group

The controversy over the mortgage stress test continues. Banks, economists, mortgage lenders, Realtors, mortgage brokers, and its association Mortgage Professionals Canada (MPC) are urging government to make some changes, not to get rid of the stress test altogether, but to consider some variables, such as income growth and mortgage repayment which may not have been factored in.

So it was curious to hear Evan Siddall, CEO of Canada Mortgage and Housing Corporation (CMHC), imploring the Standing Committee on Finance to “..look past the plain self-interest of [mortgage brokers]… Apparently, the MPC [Mortgage Professionals Canada] is content to see home builders, real estate agents and mortgage brokers receive short term benefits while Canadians bear the long-term costs.” 

I am not sure where this personal attack is coming from or how this advances his agenda. As an industry we have provided a valuable sounding board and meaningful suggestions for tweaking rule changes to ensure a healthy and stable housing market today, and for the future.

When many industry experts support the position that a stress test could consider other factors such as principal repayment and income growth, for example – and such support also coming from very credible bank economists -- some of whose employers choose not to deal with brokers directly-, then it's uncertain why Siddall would personally attack an Association  representing the broker channel.
In addition, the Chief Economist of MPC, Will Dunning, just published a report further detailing reasons why the stress test should to be tweaked, along with market commentary by various economists and their positions on the subject.

The stress test was introduced without consultation from industry insiders and stakeholders and now the Government has a locked-in position they seem unwilling to change. The stress test is having a negative impact on the housing market and could very well affect the economy in the long term.
However, the story is not one side advocating for the all-out removal of stress tests against the other side locking into an unchangeable position.

Let’s look at the entire story. When the February 2010 stress test was introduced on mortgage terms less than 5 years, and on variable-rate products, it was done seemingly to protect a consumer’s ability to handle payments in an increasing rate environment at the time of renewal.

This time around it appeared as though the stress test was introduced for different reasons. The overall amount of sovereign debt was considered too high as it approached $700 billion.  There was concern about runaway prices in Toronto and Vancouver.

However, the stress tests introduced in October of 2016 by CMHC and then extended to conventional mortgages by the Office of the Superintendent of Financial Institutions (OSFI) in January 2018, was ostensibly to reduce future debt burdens. 

The result has kept an estimated 40,000 would-be homebuyers on the outside looking in, according to an April TD Report.  According to the Globe and Mail “The government [was] responding to concerns that sharp rises in house prices in cities like Toronto and Vancouver could increase the risk of defaults in the future should mortgage rates rise.”

From my perspective, if we are going to be heavily relying on a Benchmark rate in qualifying applicants, then the way the Benchmark rate is determined should also be changed.

It is currently set from the mode of the big banks’ posted rates. It should be determined either by a market-driven rate (perhaps as a delta to bond yields), have an established floor (say 4.25% for example) or relate specifically to the contract rate itself.

We have seen interest rates drop over the first two quarters of 2019, yet bank posted rates and the stress test have not. As interest rates were rising last year the banks chose to increase their posted rates, and the Benchmark rate was correspondingly increased. 

When the 2016 stress tests were introduced, the Benchmark rate on which it was calculated was 4.64%.  At the same time the discounted 5-year fixed rates were in the 3.69% to 3.99% range. Today, 5-year fixed rates can be found in the 2.89 to 3.19% range and the Benchmark rate is 5.34%.
For clients renewing their mortgages AND who have made their contractual payments as agreed, to qualify them at a rate higher than their contract rate if they want to transfer their mortgage is simply anti-competitive.

The mortgage industry supports high underwriting standards to ensure a buffer exists in our collective ability to withstand higher interest rates.

Instead of creating animosity and adversity, let’s work together to create an environment that encourages qualified and responsible First Time Homebuyers in accessing the market.

If you are a mortgage customer looking to access the market make sure to use the services of a mortgage broker who can help you navigate the rules, options and opportunities to align with your long term goals and objectives.

Monday, June 03, 2019

Canadian Housing Affordability Improves – Really! Here’s Why

Housing affordability has been big talk in the country for a few years now. We’ve had rising interest rates and rising house prices, to a point where government felt it had to intervene to mitigate any negative impacts on household debt. To guard against that, and to perhaps force house prices to come down, the mortgage stress test was introduced, whereby borrowers needed to qualify at a higher rate than the actual contact rate.

Conventional wisdom is that falling prices should improve housing affordability but the stress test resulted in a percentage of the population, mostly first-time home buyers, getting priced out of the market.

Over the past six months we have heard anecdotal evidence that the situation is improving, and now we have some hard numbers that explains why. National Bank’s latest study of 10 major Canadian housing markets found that income growth was the reason, and that it had outpaced home prices -- and it looks as if that trend will continue. Rising incomes along with lower home prices, and relatively low interest rates, are a good start on the road to affordability.

National Bank measures affordability by looking at how much household income is spent on mortgage payments. Experts suggest that households should spend no more than a third of their income on housing costs. In the first quarter of 2019, the amount needed to pay mortgage payments on a average Canadian home was lower than the last quarter in 2018.

This is the case even in Vancouver, in both condo and non-condo markets. For example, in the condo market, a typical Vancouver household in the first quarter of 2019 the income needed to service a mortgage was down half a percentage point, quarter-over-quarter. And, it’s the first improvement in 15 quarters in the condo market.  The improvement was even better for a house at 2.5% lower.

In Toronto that measure dropped a full percentage point but consumers still need a substantial chunk of their income to cover housing costs on an average Toronto home. However, more buyers are looking outside these larger areas where homes are more affordable. These include Calgary, Edmonton, Saskatoon, Regina Winnipeg, Saint John, Halifax and St John’s.

The National Bank’s two economists, Matthieu Arseneau and Kyle Dams, were quoted as saying, “…mortgage rates were not a drag on affordability for the first time in seven quarters.” They remain confident that more relief is on the way.

Even the Bank of Canada expressed growing confidence that the country’s economy is rebounding. Interest rates remained unchanged for a fifth straight time and said recent data has “reinforced” their view a slowdown at the end of 2018 and early 2019 was temporary.

However, we’re still not out of the woods yet --there remains the issue of the stress test. There has been a concerted effort among lenders and the real estate and mortgage broker channels to lobby government to consider making changes. The mortgage brokers channel’s association, Mortgage Professionals Canada, (MPC) has been campaigning aggressively to modify the mortgage stress test.

Many economists have added their voices to the campaign against the current stress test, pointing to the negative impact it’s had and/or will have on the housing market and on the economy – reduced housing activity can have long term impacts.

 One of the core issues in their arguments is that the government didn’t take into account rising incomes.  MPC chief economist Will Dunning makes a good case in his recent report titled, “The False Binary” that to take into account the future growth of borrowers’ incomes, the stress tests should be set at 0.75 percentage points above the actual contracted interest rates – they are currently at a minimum 2 percentage points above contracted rate.

The economy may be gaining strength; incomes are rising and affordability is easing in many areas. What home buyers and the housing market needs now is a little help from government. No one is advocating to remove the stress test, but perhaps they might consider lowering it.






Monday, May 06, 2019

Buy a House Now or Wait?


There are a lot of questions surrounding affordability in the housing market. There is some uncertainly as to whether the housing market will continue to slow down, with prices starting to decline in some regions, which may make buying a house a reality for first-time home buyers. A common question is: Should I buy now or wait until later. Let’s take a look at a few factors.


Market Slowdown and the decision to buy

There is no doubt the market has slowed down compared to what it was doing two years ago, prior to the introduction of the B-20 rules and the mortgage stress test. It appears that the dire warnings from industry insiders about the impact the stress test would have on the housing market has played out as predicted. While some welcomed the stress test, it may have worked too well, to the point of inertia.
When housing prices and sales steadily rise, buyers and sellers feel confident about their decisions, but confidence in markets takes a dip when prices or sales fall or rise rapidly. Buyers and sellers want to know if the market has hit bottom or if it will decline further. Prospective buyers’ question when they should jump in.

Also, buyers can have different motivations: They may be transitioning from renting, switching homes, or looking for an investment property. Family make-up is another factor – some will have school-aged children, others may have extended family arrangements, still others may be downsizing. The right decision for a buyer or a seller depends on their circumstances and motivations.
A buyer may want to hold on to see whether prices will drop further over the summer, which may or may not be an effective strategy.  For others, especially parents of young children, a move during the school year can be challenging.

Sellers usually want to wait for prices to rise, or at least stop falling, before they list their properties.

Spring Market

The Spring buying market is late due to weather conditions across the country but there are some signs of improvement. The most recent data shows slow but steady activity in home sales across the country, with prices dropping in some regions – it’s all very fluid.

The Economic Big Picture

The Bank of Canada (BoC) has taken a new position on interest rates and is leaving them comparatively low. In fact, there are rumblings that rates could go down in the near future. Our economy is closely tied to the US economy where the Fed has stopped raising rates – Canada’s interest rates can’t really deviate too far from US rates.

At its latest interest rate announcement, the BoC left its rate unchanged, at 1.75%. More importantly, the Bank removed any reference to future rate hikes and instead acknowledged that “monetary policy needs to maintain a degree of accommodation … until the economic outlook improves.”

The Bank acknowledged that the slowdown in global economic growth in the latter part of 2018 was “greater than expected” and it attributed this in large part to uncertainty arising from “trade policy conflicts”. And once again, it predicted “that the economy will pick up in the second half of the year”.

There was no mention when rates would rise again, but did say, “it will closely monitor “developments in household spending, oil markets, and global trade policy to gauge the extent to which the factors weighing on growth and the inflation outlook are dissipating.”

What to do about the stress test?

The consensus seems to be to modify it. CIBC economist Benjamin Tal said in an interview recently that the stress test has had a broad impact on slowing down the housing market, affecting 50% of new mortgage originations. Because interest rates are not rising any time soon, Tal says the stress test may be too severe. The test also doesn’t take into account that over a 5-year mortgage term, incomes are rising while, at the same time, mortgage principal is getting paid down. By modifying it, more first-time home buyers may be able to get into the market.

There is a lot of pressure on the government from banks, mortgage broker and Realtor associations, as well as economists to consider modifying the stress test – we’ll see what happens as we head into the latter part of an election year.

So, do you buy now or wait and see?

The future is always uncertain. The best way forward is to get the facts about what’s happening, review your personal goals and work with real estate and mortgage brokers who can help you decide.