Good reasons to use a mortgage broker

Owning a home is usually on a list of lifetime goals. And new home buyers usually have a lot of questions. Some worry about coming up with the down payment, some aren’t sure about their credit scores, others are self-employed, and already know that it can be challenging to get credit at all.

These concerns and any other questions home buyers have can be answered by mortgage brokers. In fact, mortgage professionals are valuable resources who are often overlooked simply because they are not connected to a bank. In some regions, there is still a perception that brokers are last resort lenders. In fact, mortgage brokers have access to most lenders, including the banks, and are uniquely qualified to assist clients get into the best mortgage products.

Angela West, a first-time home buyer in the North Bay area in Ontario decided to use a mortgage broker with her purchase, initially to get a better rate, but it turned out to be more than she expected.      

“The process was very easy, much easier than dealing with the bank. My self-employment wasn't an issue, where it would have been with the bank. My partner has also made very different amounts of money in the past three years, even though last year was a really good year for him salary-wise, so that may have been an issue with the bank as well.”

West also said it was clear to her that the broker took the time to get the best deal – the best product and the best rate. “I liked the fact that someone was on my side.”

The whole experience was a positive one despite the perception some consumers may have.  “I can see where some people may be concerned that a mortgage broker is less "legit" since they aren't working with established financial institutions, but it wasn’t the case. I would definitely recommend using a mortgage broker.”

Bud Jorgenson, Vice-President, Prairies Region for TMG The Mortgage Group said mortgage brokers have an edge with first time home buyers because of their knowledge about the home buying process.

“We fully understand every aspect of the deal, from Purchase and Sale Agreements, working with lawyers, home inspectors, and lenders, to closing processes and the costs associated with that, “he said. We understand title insurance, default insurance, mortgage protection insurance and we are knowledgeable about legal requirements for a variety of different properties.  And because we fully understand it, we are there to help guide our clients throughout the whole process.”

For Ian Syphus, who refinanced his home in Niagara Falls, Ontario to consolidate debt, the process was surprisingly easy and stress-free.

“The Broker did everything, --she prepared the paper work, found the best rates, clarified any concerns -- I just needed to sign,” he said. Syphus also liked that the broker went to his home.

This is a big plus according to Gord Appel, Vice-President, Alberta Region for TMG. “Using mortgage brokers save valuable time for clients by eliminating the need to visit a variety of lenders and fill out multiple applications. Our hours are generally the client’s hours and we can be mobile, which can certainly benefit busy families.”

Follow up after financing was also an important factor for both West and Syphus. “I like the fact that I am always updated on rates via e-mail newsletters,” Syphus added. “And there is constant contact even after the papers are signed – that’s much more personable than banks.”

This is a key reason clients will benefit from working with mortgage brokers, according to Gerald Krahn, Vice-President, and Ontario Region for TMG. “Brokers take time to listen to a client and do what’s in their best interest, not only for the short term but will look at the whole picture 5, 10 years down the road. For example, when some banks introduce a low fixed rate, it may come with certain restrictive conditions. When brokers quickly counter that with the actual facts, the result is a stronger relationship with clients.”

Mortgage brokers are continually focused on the industry and keep up-to-date on changes. “We are truly experts on all things mortgage-related,” added Dan Pultr, Vice-President, B.C. “However, our expertise is not limited to mortgages. We understand our local real estate markets. We also understand credit issues and ways to improve credit scores, with the end result of helping clients achieve their dream of home ownership.

With the changes in mortgage rules and qualifications over the last two years and the rising interest rates, TMG The Mortgage Group continues to offer its brokers the tools and support that helps them better serve their clients.

Find your local TMG mortgage broker at www.mortgagegroup.com

Here’s what we know about First-Time Homebuyers

In May 2014, the Canada Housing and Mortgage Corporation (CMHC) completed an on-line survey of 860 first-time buyers from across Canada. All who responded had taken a mortgage transaction in the previous 12 months and all were one of the prime decision-makers within their household for matters relating to housing finance and mortgages.

First-Time Buyers and Technology

• The majority of First-time buyers (84%) went online when gathering information about mortgage options and features. Among these, more than half (55%) went to lender sites and one-third went to broker sites. First-time buyers showed a high likelihood of visiting a broker site (33%).

• Overall, First-time buyers were much more active online compared to other mortgage consumers – they engaged in a variety of activities -- 80% used a mortgage calculator, 63% completing a financial self assessment, 42% either got pre-approved or filled an online form and 20% engaged in an online conversation.

• Twenty-three per cent used mobile devices to access mortgage related information, however; desktops are still preferred by almost nine-in-ten.

•  The use of social media as a tool when looking for a mortgage is increasing and was much more prevalent. In 2014, 40% of First-time buyers going online looked to social media when researching their mortgage options. This up from 28% one year ago. Social media used -- 58% used Facebook, and 38% used either online forums or blogs. Overall, online forums and blogs were found to be the most useful social media platforms for mortgage related information. Half of First-Time Buyers using online forums and 44% using blogs rated the information obtained through these platforms as “very useful.”

•  Social media is starting to play a role in how first-time buyers interact online. About one-in-five using social media (21%) posted a review or rating of either a broker or lender and 30% used social media to find a referral to use a specific professional (i.e. broker, lender, real estate agent or other professional).

Homebuying Process

• During the home buying process first-time buyers interacted with a variety of individuals. Seventy-nine per cent were in contact with a family member, 73% with a mortgage lender or a 72% with a real estate agent. Slightly more than half (55%) reported interacting with a mortgage broker.

•  Overall, 60% of first-time buyers mentioned that they had concerns during the home buying process. The nature of the concerns or uncertainty stems mostly from unforeseen costs. Forty per cent reported they actually incurred unexpected expenses during the home buying process. Among those unforeseen costs, the most common were adjustments (40%), lawyer fees (36%) and land transfer taxes (30%).

Experience with Lenders and Brokers

• Approximately four-in-ten (37%) of first-time buyers received a recommendation to use a specific mortgage professional. These recommendations came primarily from family members and real estate agents. Among those receiving a recommendation to use a specific lender, 37% came from a family member and 22% from a real estate agent.

• Almost half (48%) arranged their mortgage through a mortgage broker.

• Among those using a broker, 50% reported obtaining a mortgage with a lender other than the financial institution they were dealing with the most at the time.

•  Seventy per cent were satisfied with their mortgage professional and showed a greater likelihood of using their broker again in the future.

The survey findings are positive indicators that consumers are increasing their knowledge about financial matters. Consumers who educate themselves about their financial options are able to make consistent, informed financial decisions and that will help them to achieve their goals.

The survey also makes clear that mortgage professionals are in a unique position to help educate consumers about their mortgage options and ways to pay off that mortgage sooner. 

Top Six Mortgage Features

Real estate is a still a hot commodity in most parts of the country, and it’s also a competitive market. Prices are rising and listings are in short supply. And everyone wants your business -- from realtors to mortgage lenders. Interest rates are low and competition among lenders to offer favourable rates is high.  However, it’s always a good idea to read the fine print of these” low rates” to see if they are the best rate for your situation.

Steve Nipius, TMG’s Deal Centre Manager has complied his Top Six Strategies to assist home buyers assess their mortgage offers to make sure they’re getting what they need. It’s important for consumers to understand what features are important to them before deciding on a lender based on interest rate alone.

Take a look at some of the features you might consider:

1.  Blend and Extend. The introduction of the Benchmark qualification rate a few years ago has encouraged more lenders to offer this feature, whether on a refinance or a port and increase. 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 extremely 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 dreaded “Interest Rate Differential” (IRD) which might be too large and you can’t move.  Lenders that allow a blend and extend simply blend your current rate with the now current rate. 
2.  Early Payout Penalty Calculation. Some chartered Banks are known for their extremely large IRD penalties. The wording in some other no-frills products refers to the payout penalty as the greater of 3% of the balance or IRD -- this would mean a $15,000 minimum penalty on a $500,000 mortgage. Some lenders also carry large re-investment fees. If you don’t know you’ll keep the mortgage for the entire term then make sure to read the fine print in your mortgage documents, especially as it pertains to 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 almost harder to switch this mortgage out to take advantage of lower rates. 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 is little incentive to offer you best rates at renewal time when a small rate reduction might be enough to keep your business.   
4. Pre-Payment Privileges. Is the lender offering 15/15, or 20/20?  That means allowing prepayments of 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 before the mortgage maturity date. 
6. Online Access. All of the chartered Banks offer online access as do a number of mortgage banks, including First National and Street Capital. 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.

Yes, 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 you needs.

Gen-Yers and home ownership

There are nine million Gen-Yers or “millennials” in Canada, many of whom are financially savvy, have control of their money, take a long-term approach when investing and are keen to own their own homes.  Despite high student loans to repay and fewer job opportunities, millennials are thinking about money in very different ways than their parents.  According to TD’s 2013 Investor Insights Report, this group is saving to invest; they use the Internet to track the stock market through their mobile phones and are skeptical of financial advice, meaning they do their research.

The Index also found that millennials start investing when they are 20, compared to Boomers who started investing, on average, at age 27.  They would like to invest even more of their money, making them a group with serious financial clout. For many, home ownership is a priority.

Here are some facts about millennials; new learning we can all benefit from:

1. Millennials take a conservative approach when investing.  Forty per cent take a long-term, buy-and-hold approach. 
2. They currently invest 18% of their income but would like to invest up to one third of their income. The TD Investor Insights Index found that saving for retirement was a top investment goal followed by saving to buy a house, then travel, then achieving financial independence.
3. Millennials love TFSAA accounts because of the flexibility.
4. They are independent, ask a lot of questions about investments and do their research.

In 2013, the Canada Mortgage and Housing Corp, (CMHC) held seminars identifying this age group as a growing opportunity for the Ontario housing market. While millennials accounted for 15 per cent of home ownership demand in Ontario in 2012, by 2016 they will own about 35 per cent of the province’s homes.

About one-third or 30% of those interviewed online said they expected assistance from parents or family. Nearly two-thirds (61%) said they have made cuts to their lifestyle to save for their first home.

The interest in home ownership is nationwide. A Bank of Montreal report released on March 18, found that first-time home buyers have increased their home purchase budget by six per cent to approximately $316,000. In Vancouver, Calgary and Toronto, those budgets are even higher. Fifty-three per cent of home buyers in the Calgary market will even break their budgets for the right home, compared to the national average of 33%.

In British Columbia, the Gen Yers are redefining the housing market there according to Melanie Reuter, director of research for the Real Estate Investment Network who has written a report about it.
“They are a more urban group, no longer dependent on a car, partly because of cost, and partly because they genuinely care about sustainability.” she said in a Globe and Mail interview. “They didn’t get their driver’s license the day they turned 16, it’s almost a badge of pride they wear, not needing a vehicle.”

They use transit, so will want to be located close to work, and close to transit hubs. Many were likely raised in townhouses or condos, and are familiar with living in smaller spaces. “They also like new spaces, as opposed to old houses they’ll have to spend weekends fixing up,” Reuter added.

For 35% of millennials, finding trustworthy advice is their biggest challenge. Twenty-seven per cent learned about savings and investing from their parents and family, 18% are self-taught and nearly half (48%) manage their own portfolios online.

The latest Market Insights from the Canadian Association of Accredited Mortgage Professionals (CAAMP) found that millennials  are a little nervous and apprehensive about investing in a home; however,  the majority of those who are homeowners are comfortable with their decisions and would make the same decision again. 

Interestingly, the report also found that mortgage brokers are a key channel for millennials looking for mortgage information, advice and arranging their mortgages, and turn to brokers 40% of the time. The broker’s value as an advisor, coupled with a strong customer service approach hits home with this age group. Younger clients see brokers as valuable consultants helping them to understand their options.

It’s a group that can’t be ignored.

Mortgage stats and you

Amortizations are falling, rate discounts are increasing and consumers have flocked to fixed rates. Those are a few of the trends found in the Canadian Association for Accredited Mortgage Broker’s (CAAMP)  Annual State of the Residential Mortgage Market report.

At the same time the Canadian Real Estate Association (CREA) has also revised its outlook to take into account a more buoyant market than expected. National sales activity has been stronger than anticipated. And Canada is staying the course with its prime rate at least until 2015.

CREA’s forecast for national sales activity has been rebalanced with a modest upward revision this year to reflect stronger than expected sales for the year-to-date. Sales are forecast to reach 449,900 units in 2013. In 2014, national activity is forecast to reach to 465,600 units, a rebound of 3.5 per cent, and in line with its 10-year-average. The forecast increase reflects a gradual strengthening of sales activity alongside further economic, job, and income growth combined with only slightly higher mortgage interest rates.

So where do you fit in? The following highlights of CAAMP’s report  were compiled by Canadian Mortgage Trends.

1. 16% of homes purchased in 2013 had amortizations over 25 years
2. 8% of respondents believe the housing bubble will burst within the next five years
3. 82% of new mortgages for homes purchased in 2013 were fixed rate mortgages
4. 2% of buyers with less than 20% down chose a variable rate mortgage 
5. 40% of new mortgages in 2013 were obtained from a mortgage broker.
6. 70% of households with mortgages have 25% or more equity
7. 57% of 2013 homebuyers were first-time buyers
8. 84% of mortgages on homes purchased in 2013 had an original amortization of 25 years or less
9. 16%  of borrowers  increased the amount of their payments in the past year – the average monthly increase was  $400 
10. 17% of borrowers  made a lump sum payment – the average amount was $14,000

Other highlights:

• 43% of current mortgage holders  consulted a mortgage broker about getting a new mortgage
• 68% of respondents agreed their mortgages are "good debt"

Interest Rates

•  3.23% is the average mortgage interest rate for mortgages on homes purchased in 2013
•  3.20% is the average mortgage interest rate for mortgages renewed in 2013, which averaged 0.82 percentage point lower than prior to their renewal

Equity Take-Out

• 11%  of homeowners took equity out of their home in the past year with $57,000 the average amount
• $59 billion is the estimated amount of total equity take-out in the past year
• $16.6 billion was used for debt consolidation and repayment
• $15.1 billion was used for investments
• $12.3 billion was used for home renovations

Real Estate/Mortgage Market

• 9.52 million: The number of homeowners in Canada
• 4.28 million: The number of renters in Canada
• 5.58 million: The number of homeowners with mortgages (who may also have a home equity line of credit (HELOC))
• 3.94 million: The number of homeowners who are mortgage-free
• 2.3 million: Number of total homeowners who have HELOCs

Mortgaging Activity

• 450,000 of households bought homes over the past year
• 400,000 of buyers took on mortgages