Buying a house doesn’t have to be stressful

Buying a house should be an exciting time but it can get pretty stressful, not only for first time home buyers, but for move-up buyers as well.

The number one worry is finding problems after moving in. The next worry is that prices will drop and the house won’t be worth the original purchase price.

You can reduce some of that stress and worry by putting together a team of experts who will guide you through the entire process. 

It starts with a mortgage professional who will take a look at your finances, including your credit score, to qualify you for a mortgage. A lot of information about you and your credit management abilities come up during this process. For example, derogatory items may be on your report, but that doesn’t necessarily deny your ability to qualify for a mortgage. Everyone’s situation is different and a mortgage agent is familiar with most situations, and can offer options.

Once you know the amount of house you qualify for, you can confidently work with a Realtor to find the right home for you. On average, home buyers spend five months house-hunting and visit 10 locations before deciding to buy. It’s certainly a good idea to take your time to make sure to get the house that’s right for you. 

Interestingly, a 2013 BMO Psychology of House Hunting report found that 33% of home buyers felt rushed into making a purchase – that increased to 39% for first timers. Sixty-eight per cent were prepared to settle for a home that was less than perfect. Four-fifths of prospective buyers said they know a home is right for them as soon as they step inside. So, you may not be alone.

Once you’ve put together the Offer to Purchase with a Realtor, working with a trusted lawyer is the best way to make sure there are no surprises at closing. The bottom line is to take your time, work with professionals and do some research. 

Here are the suggested steps to make sure you get on the right track and into your new home:

• Determine the location and the type of home to suit your  needs. Most people will have an idea of where they want to purchase their new home based largely on familiarity and convenience. For example, living close to work or schools might be a priority, or selecting a certain area of town with parks and amenities, and/or walkability scores. This is also a good time to think about how much you want to spend and what you can afford.
•  Get your finances in order. During the pre-approval process is a good time to make sure you have the finances to cover your down payment and disbursements on your anticipated purchase.
•  Start your home search. How you find the perfect property is entirely up to you. Many home buyers enlist the services of a Realtor. It’s important to only look at homes within your budget.
• Hire professional services. You will need a lawyer to complete a real estate transaction. A real estate lawyer ensures your paperwork is correct and that the transaction is complete. They will review the contract and mortgage documents, conduct a title search, purchase title insurance on your behalf, register the property in your name, get signatures, prepare a Statement of Adjustments that shows the amount you will pay in closing costs, and collect and disburse fees.
•  Hire a  home inspector. Home inspections have become part of the homebuying process for both new home purchases or resales. It might seem like a waste of money to pay for a home inspection for a newly-constructed home, but you might consider getting an inspection a few months before the expiration of the New Home Warranty.  Better safe than sorry.
• Insurance Agent. Lenders also require you to have fire insurance so an insurance agent will help you find the best coverage and the best price.
• Make an offer. This is done by presenting the seller with an Offer to Purchase. Sellers have the right to accept, reject or put in a counter offer. Remember to include all necessary details in your purchase offer. The deposit will be paid, in trust, to the Realtor.

If you’re planning on purchasing a first home or a new home, then get started with a mortgage professional.

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.

Consider getting pre-approved before January 1, 2018

There is not a lot of time left. New home buyers may want to consider getting a pre-approval before the new rules come into effect on January 1, 2018. Some lenders have already implemented the new rules, which includes a stress test,  that will affect homebuyers with down payments of 20% or more.

Armed with a pre-approval, you may be able to purchase a home before the expiry date – usually 120 days –  and won’t be affected by the new rules. Many buyers are getting ahead of the new year.

According to statistics released on December 14 by The Canadian Real Estate Association (CREA), national home sales rose strongly in November 2017.

Highlights:

•  National home sales rose 3.9% from October to November.
• The number of newly listed homes climbed 3.5% from October to November.
• The MLS^® Home Price Index (HPI) was up 9.3% year-over-year (year-over-year) in November 2017.
•  The national average sale price edged up 2.9% year-over-year in November.

Home sales via Canadian MLS^® Systems rose for the fourth month in a row in November 2017, up 3.9% from October. Led by a 16% jump in sales in the Greater Toronto Area (GTA), the surge in sales there accounted for more than two-thirds of the national increase. The continuing rebound put November sales activity a little over halfway between the peak recorded in March 2017 and the low reached in July.

 “Some home buyers with more than a twenty percent down payment may be fast-tracking their purchase decision in order to beat the tougher mortgage qualifications test coming into effect next year,” said CREA President Andrew Peck.

“National sales momentum remains positive heading toward year-end,” said Gregory Klump, CREA’s Chief Economist. “It remains to be seen whether stronger momentum now will mean weaker activity early next year once new mortgage regulations take effect beginning on New Year’s day.”

Let’s Review

The new rules apply to federally regulated financial institutions, not credit unions or private lenders. Yet.

Insured Mortgages

This is a mortgage transaction where the default insurance premium is paid by the client, as is typical in a high-ratio mortgage, meaning with less than 20% down.

Insurable

This type of mortgage can now be considered the new “insured mortgage”. These are still eligible for default insurance but is portfolio-insured at the lender’s expense or high-ratio insured at the client’s expense. There are tougher rules as well – the maximum amortization is 25 years, applicants must qualify at the Benchmark rate and property must be valued at less than $1M. Property must also be owner-occupied.

Un-Insurable

These mortgages are not eligible for default insurance and apply to refinances, rental properties, stated income, and on purchases greater than $1M.

All uninsured mortgages are subject to a new qualifying rate, as of January 1, 2018, or stress test. This rate is the Bank of Canada’s five-year rate, currently at 4.99%, or the lender’s contract rate plus 2% --whichever is greater. Your mortgage payment will still be based on the contractual mortgage rate but the higher rate will be used for qualifying purposes.

Which mortgage is best for me?

That depends. Every situation is unique. There are pros and cons for each of the three types of mortgages, depending on your financial goals.  For example, sometimes the spread between the insurable and un-insurable rate is significantly large enough to justify the borrower paying high-ratio mortgage insurance to obtain the lower rate.

A mortgage professional can explain the differences and give you the best advice and get you best interest rate.

So, start with a pre-approval.  Call your TMG mortgage professional today.

You’re self-employed and need a mortgage

It’s becoming more challenging for self-employed workers or those who earn commission to get a mortgage to purchase a home. Nearly 20 per cent of all income earners in Canada are self-employed; and the category is growing.  They are individuals operating their own businesses and those who work on 100% commission such as Realtors, insurance brokers, and even mortgage brokers. This group has the most difficulty getting a mortgage because a good tax accountant will identify write-offs to reduce income to pay the least amount of tax, which may not reflect traditional earnings.

Mathieu McCaie, a mortgage agent with TMG The Mortgage Group in Moncton New Brunswick who works with self-employed clients doesn’t necessarily see you as ‘higher risk’ due to the source of your income. “I understand the value of self-employed clients and what they’re trying to accomplish and can provide lending solutions to help them with their personal home as well as investment properties,” he said. “However, there are guidelines that may seem more stringent then for self-employed borrowers.”

By offering expert advice, agents like McCaie can alleviate the time and frustration that most self-employed individuals experience when looking for a mortgage. Even with an excellent credit score, most lenders will ask for financials and personal tax assessments for up to three years. Those documents may not be available, depending on your situation. For example, if you are new in business, you may have only one year of tax returns.

Recently,  lending criteria for self-employed individuals has changed making it even more challenging to get a mortgage loan. However, some lenders are now offering the Stated Income program for clients who don’t have a lot of documentation. “A few months ago, this program seemed to be on hold but is now gaining some ground again as some insurers have opened it up again,” McCaie said.

Financing your home

There are a number of ways to finance a home when you are self-employed. You can opt for a conventional mortgage if you have a down payment of at least 20% of the appraised value of the property. Since you are making a larger down payment and have equity in the property,  it mitigates the risk the risk to the lender. In addition, conventional mortgages often do not require mortgage insurance.

Also, the self-employed come under stricter scrutiny to get approved for either a conventional or a high ratio mortgage and an approval will depend on a number of factors. If you have provable income, there is much more available to you. Provable income requires you produce, but is not limited to, the following:

1.  Tax returns showing income
2.  Recent Notice of Assessment showing no tax arrears
3.  Documentation showing self-employment for two years
4. No delinquencies in the past 12 months
5. No previous bankruptcy or out of bankruptcy for at least a year with reestablished credit

Self-employed borrowers who are unable to provide traditional income verification but have a proven two-year history of managing their credit and finances responsibly may be able to qualify under the Stated Income program. Here are the guidelines:

1. The income reported by the borrower must be reasonable based on the industry, length of operation and type of business
2. Strong credit profile with a minimum of  two trade lines with at least two (2) years history 
3. Minimum 5% down payment from the borrowers own savings. The remainder may be gifted from an immediate family member. Borrowed down payments are not allowed from m,nay lenders 
4. No tax arrears
5. Property must be owner-occupied

Scenario 1

Perhaps you are a 40-something carpenter who has been operating your own business for just two years. You have one year of tax returns. You have worked in the industry for 10 plus years. Your credit score is high, -- 700 plus –and have at least two trade lines that show a history of good credit management.  You have a business license, a website and have saved 10% for the down payment.  To complicate matters, the house you’re buying is a private sale.

Working with a mortgage broker, you may be able to access the Stated Income program – an ideal product for those with low documentation –and get low rates. 

Scenario 2

You’re a 20-something entrepreneur operating a painting company for one year.  You’re looking for a fixer-upper in a good neighbourhood. However, you’ve had some credit issues and your score is in the low-600s. You don’t qualify for “A” lending with best rates but you may be able to qualify through an alternative lender. If you have your NOA, a business license, a website, bank statements for the six months showing an income stream and 10% as a down payment, which can be gifted, a mortgage broker can help.

The mortgage interest rate will likely start at 4.5% and go up from there and there is usually a lender fee; and there might be a broker fee as well. However, the fees are not necessarily high – it depends on the situation.

While being self-employed does not mean you won’t qualify for a mortgage – it means there are different rules and different products available to you – a mortgage broker can help you navigate the landscape with you.

Did the mortgage market do what we thought it was going to do in 2014?

By Susan Ashton, BComm, AMP, TMG The Mortgage Group

As we all know, predictions and forecasts are all well and good but sometimes they fall short of what actually happens. While I might be able to predict, with some level of certainty, what is going to happen tomorrow, the longer the time frame, the harder it is to “hit the nail on the head”.

So let’s start with last December’s Globe and Mail article – Five Canadian Mortgage Market Predictions for 2014. I thought it would be fun and interesting to revisit this article and see how accurate it really was.

Keep in mind that Rob McLister of Canadian Mortgage Trends, the author of The Globe and Mail article, is one of the thought leaders when it comes to shooting straight from the hip about the mortgage industry and where’s it’s going. Here’s what he said would happen in 2014:

1. Prediction: New mortgage rules – Expect more rule tightening in 2014 designed to reduce mortgage risk for lenders, mortgage default insurers and the government. By definition, those rules will make it slightly harder to get approved for some mortgages and further slow the housing market.

What actually happened: Well, when it comes to new mortgage rules, we certainly saw lots of changes in 2012 and 2013, but fewer in 2014. We had CMHC cut their Self-Employed/Stated Income and Second Home products but there were no changes to the Genworth and Canada Guaranty (the two private insurers) products, so this hasn’t had a significant impact on approvals. We have seen lenders starting to change the way they view payments for debt servicing purposes on personal lines of credit. Where once we could use the actual interest–only payment, as long as it was proven, most lenders want us to use 3% of the outstanding balance. We still had a couple of lenders who would use the lower payment amount, but these last remaining lenders will discontinue this practice at the end of this year so I predict more restrictions in 2015 than we saw in 2014.

2. Prediction: Credit unions will steal market share – Since they’re provincially regulated, credit unions have more flexible lending guidelines than federally regulated banks. They’ll use that to their advantage in addition to marketing more heavily, both online and to mortgage brokers. We’ll also see some big mergers this year as credit unions seek out economies of scale.

What actually happened: Credit Unions are definitely increasing their market share. While I can’t say that I am using them more, they can do things that OSFI regulated lenders just can’t.  I expect it will take more time than one year to see Credit Unions really make a noticeable dent in market share.

3. Prediction: Stronger online player – A new online model is sacrificing commissions for volume. This trend will heat up competition industry wide, delivering greater mortgage discounts to all consumers.

What actually happened: Some online brokers do compete on rate though the full service brokerage model remains alive and well. Your mortgage is more than just rate – it’s about getting the best product for your situation; it’s about getting the right advice for your situation and it’s about protecting your future.

4. Prediction: Hybrid mortgages will grow more popular – Economists and government officials have been warning us of higher rates for four years. So far they’ve been wrong, and now many consumers aren’t sure what to believe. More Canadians will hedge their rate bets with hybrid mortgages (part fixed and part variable).

What actually happened:  Hybrid mortgages are definitely talked about more, but I’ve found that clients want the stability of a fixed rate payment, or the advantage of the lower payment/rate that a variable offers. Mainly it’s the savvy, yet risk adverse, investors who talk hybrid mortgages. These products represent a great opportunity to speak with your mortgage associate about what is right for you.

5. Prediction: Consumer IQs will increase – For those in the mortgage industry who prefer an uninformed consumer, your days are numbered. Canadians will spend more time researching rate comparison websites, online mortgage forums, news portals, blogs, calculators and other online mortgage tools. They’ll become increasingly savvy about fine print like penalty calculations, rate blend policies and refinance restrictions.

What actually happened: Consumer IQs are most certainly getting higher. The Internet has brought about change and transparency in the industry, which has benefited consumers. The younger generation also educates themselves online prior to making any sort of purchase – another great thing for the industry. I love to work with clients who come into my office, armed with great questions with a goal of learning even more. The perfect client! This will only continue as the amount of available information grows.

So there it is. Rob McLister just released his predictions for 2015 in the Globe and Mail. Let’s see how well he predicts the market next year.

Stay tuned!

Hello Friends and Colleagues

Although post-Labour Day symbolizes an end to summer and the start of a new school year for millions of Canadian students and their families, there is also a sense of renewal and excitement as a new year settles in.

As my wife and I helped prepare our three kids for school last week, I was reminded of just how quickly time passes, as well as the sense of anxiousness with what lies ahead.

For me, this “new year” is even more significant than the one we typically welcome in the cold of winter on January 1st. 

New beginnings allow us to review and reaffirm our current path while, at the same time, they encourage us to adapt and adjust our habits as we add and pursue new goals.

During the past few weeks I have spent some time thinking and reminiscing about the state of our industry – and more specifically – the state of our national association. I have always felt very much connected to the mortgage brokerage industry in Canada, working as an executive with our lenders and as president of a national mortgage brokerage. I now feel compelled to seek your support to become a Director (ONTARIO) of CAAMP.

I remember the first CIMBL (predecessor of CAAMP) conference I attended nearly 15 years ago. As a newly-minted mortgage executive I recall the excitement, the enthusiasm and that sense that we were all learning and growing as an industry. I knew at that moment that this was a very special industry and it was an association I would admire.  It was a place where seasoned mortgage professionals would come together, share best practices and chart a course for the future.

It seems there has been considerable chatter lately about the role of CAAMP, the regional associations, and the overlap between them. Questions around the need for a national association coupled with discussions about a broker’s only association have also been on the table. This is healthy dialogue and I am pleased to see the level of engagement about our representation in our industry.

I would like to take this opportunity to tell you the three key reasons why I continue to advocate for CAAMP:

1. I welcome the fact that our association is inclusive of brokers, lenders and suppliers alike. I feel that mix actually makes our voice stronger with the folks we are lobbying in Ottawa.
2. The fact that we share a board of directors to oversee this national association helps unify our day-to-day business interests. 
3. The majority of members are aligned in seeking a very strong and growing broker channel in Canada. 

CAAMP has been very effective in many respects but is not perfect.  A few areas where I see that CAAMP must improve are:

Co-ordination with all industry associations:events, sponsorship opportunities, research, government relations, etc. Doing so will benefit not just members of the various associations, but the strength and voice of our industry as a whole

In addition, CAAMP has to be more responsive and approachable. It has to advocate the broker channel while improving its events and symposiums. CAAMP has to remain the best source for government and the media with respect to all-things-mortgages.

Over the years I have asked my teams, “What is the solution? Don’t just tell me your challenges; tell me the recommendations to fix them.”

At this point in my career, I feel I must get more involved. I want to be part of the solution.

I have been a member of our national association since 2001 and an AMP since 2007. On a personal level, I feel that CAAMP has provided me with an opportunity to connect with a large number of people across our industry over the years. The way I see it, ours is a very small, close industry and the opportunities to interact with our colleagues, suppliers, and competitors have proved priceless.

I appreciate your support and welcome your feedback, comments and questions.

Cheers to a “new year” and a new perspective.

Mark

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.

Creating a competitive lending environment

The ongoing government policies that have intended to slow the housing market have certainly shown their desired effects over the past few years.  We have seen changes to amortizations, debt service ratios; reduction in the maximum amount Canadians can borrow to refinance their current homes from 85% to 80% loan-to-value, and limits on the maximum loan-to-value on HELOCs to 65%. The hardest hit was first-time homebuyers. And the most recent changes affected investors, those who purchase second homes, and the self-employed.

However, recent economic conditions suggest that mortgage activity will trend upwards for the near future as a modest rise in employment -- 1.2% in 2014 and 1.9% in 2015 according to CMHC’s most recent Housing Market Outlook -- and disposable income is projected to support housing activity.

House prices in many markets are still increasing and sales are healthy in most parts of the country. This is causing concern for Canada’s top banking regulator. Mark Zelmer, deputy superintendent of the Office of the Superintendent of Financial Institutions (OSFI), in a speech last week, focused on the continuing growth in household debt relative to income.

“I would not presume to claim that borrowers are acting irrationally or do not know what they are doing. But, by the same token, it is clear that the ability of the household sector as a whole to absorb major shocks is less now than it was a decade ago,” Zelmer said in a prepared speech.

Zelmer also said stress tests that show Canadian banks are prepared for a downturn, should not be viewed as overarching “safe harbours” because they are based on models and arbitrary assumptions. “Boards and senior management of financial institutions need to apply judgment in a forward-looking manner and not become too complacent in their capital planning exercises,” he said.

While the mortgage rule changes have created a tighter lending environment among the Big Banks, smaller institutional lenders are developing mortgage products to fill the void. Banks do carry a slight competitive edge in the market because they can cross sell to customers. However, smaller lenders are becoming more innovative with their product offerings, which is good news for consumers.

According to Paul Grewal, president of Street Capital Corporation, smaller lenders are continuously looking at different ways to provide a broader product line in order to differentiate itself from the competition.

“Market competition is always fierce and a healthy component of any industry. Although recent mortgage regulation changes have not reduced market competition as a whole, the industry is definitely changing.”
It’s not surprising that OFSI is speaking out now. The spring mortgage market is always a time of high competition and as a result, lower mortgage rates are being offered across the industry. “Competition is always beneficial to consumers -- more choice, more competitive pricing and more product selection are being offered,” Grewal said.

Street Capital is currently in the process of restructuring to become a bank, which will enable the lender to offer new products and services like credit cards and GICs through the mortgage broker channel. This, in turn, will help create a competitive environment for mortgage brokers who will be able to diversify their offerings to consumers.

Hassan Shaikh, Assistant Vice President, Investments, for MCAN Mortgage Corporation, agrees that innovation is key to ensuring a competitive environment that will benefit consumers.
“We, as lenders, have to bring something to the table; one factor might be competitive interest rates,” he said. “However, there are many factors.”

Some of the other factors are those that a consumer won’t see directly but will feel the effects. For example, Shaikh mentions turnaround times and relationship management as two important factors. A smaller lender is better able to move on mortgage transaction quickly, which has a distinct advantage for a certain type of client.

Also, by having built a strong relationship with an underwriter, a broker will have the added benefit of working with a processing team who will try to get an approval on the more difficult deals. This makes the broker invaluable to his client.

Overall, consumers are the beneficiaries of a competitive environment. The introduction of new mortgage rules was the genesis for change, and for a time, it looked as if the competitive environment had been eroded. The industry lost lenders; lenders eliminated many of their product offerings; and the pool of potential home buyers was reduced.

However, smaller lenders and new specialized lenders have stepped up to the plate and the industry is, once again, competitive. 

Rent vs. buy revisited

As house prices increase and affordability for first time home buyers looks as if it’s diminishing, the question of whether to rent or buy inevitably comes up. It’s a good question, especially in the current economy, but with no clear answer. 

Just ten years ago, the answer was simple – buy!  It had been the answer for much of the past twenty-five years.  Mortgage payments were relatively low; in many cases less expensive than renting, and a house was a solid long-term investment. But those were different times – for the most part, jobs were relatively stable, incomes rose steadily, unemployment rates were manageable,  home prices were not crazy and the real estate market was balanced, with the exception of a few corrections here and there.

Today, in many parts of Canada, house prices continue to rise. For one, housing starts are decreasing across the country, yet demand is still there – the result is higher resale pricing. A few months ago, affordability may have been an issue; however, we are now sitting at sub-3% fixed mortgages and variable rate mortgages as low as 2.4%.

If you’re considering buying, take a look at your current situation.  If you’re single – living in a high-priced market like Toronto or Vancouver and have a job with an average salary, it might make more sense to rent.  The basic rule is when a house costs more than 200 times the monthly rent it generates, it makes more financial sense to rent rather than own. In Toronto or Vancouver, for example, the prices of houses are 300 times the rent they would generate. If you rent a condo in Toronto for $1000, you’d be paying $1700 a month to buy it – that doesn’t include condo fees and taxes.  Not all markets are pricey but not all markets offer employment opportunities, so there’s the big trade.

 Families with children usually prefer owning a home even though it might cost them more. The stability of ownership and providing a good home for the kids becomes the deciding factor. Having two income-earners can make mortgage payments and housing costs more manageable. If commuting is not an issue, house prices just outside a major centre offer value – bigger houses for lower prices.

Aside from financial concerns owning a home is certainly an emotional issue. Most millennials grew up in families where home ownership was the cornerstone of every investment portfolio. But the economic realities today are far different.

But life is change and we are seeing those changes in the housing market and in the economy. Inflation hit 2% last week.  This is the benchmark the Bank of Canada uses to make its interest rate decision. Clearly, rate cuts are not likely. But a fixed-rate mortgage under 3% is something to consider.

Talk to your mortgage broker to help you decide if homeownership is right for you right now. If not, then, put a plan in place to get that home when you’re ready. 

10 Ways to Improve Your Credit Score

So you got behind on that credit card payment. Or you were laid off for awhile and couldn’t keep up your car payments. Or that student loan is in arrears because it took you a while to get a job. Now your credit score is lower and you want to move on with your life – maybe buy a house or get a new car. Don’t underestimate the power of your credit score. It not only reveals to a lender if you’re a good credit risk, it’s also the basis for the interest rate you’ll pay. In today’s credit world, if your score is low you can still get a loan for a car or a home, but it will cost you. Lenders may charge extra fees and will certainly charge you a higher interest rate.  This is a costly proposition. However if you’re patient and persistent, you can improve your credit score in six to eight months. Here’s how:

1. Pay bills on time: Pretty obvious, right? Late payments are the most common piece of negative information that appears on a credit report. Since payment history accounts for 35% of your total score, getting behind has a big impact. If nothing else, pay the minimum by the due date. By the way, any late payment will affect a credit score –cell phone bills, child support payments, etc.
2. Keep balances low: If balances on your accounts equal more than 35% of the total credit available to you, it will actually hurt you. I know, it doesn’t seem right -- why have a credit limit of $1,000, let’s say, and only spend $350 of it? It’s all about proportion-- thirty per cent of your credit score is based on it.  A good credit risk is someone who doesn’t need credit. Go figure! TIP: For disciplined credit users: Call your credit card company and ask to increase the limit – this will decrease the proportion you’re using.
3. Don't close unused accounts: The longer your credit history, the better. The length of time you’ve had credit is worth 15% of your total score. You get a star for each creditor you’ve had a positive history with –it’s proof that you’ve consistently paid on time. So don’t close older and unused accounts. Just put the cards away and forget about them.
4. Only apply for credit when you need it:  It’s pretty common to walk into a store and get asked to apply for the store’s card to pay for your new purchase – the retailer will even offer you a special deal.  Think twice.  Opening new credit accounts or having your credit checked frequently will hurt your credit score temporarily. The reason? It looks like you’re going credit crazy. New credit determines 10% of your score. So try using an existing card for that purchase unless you know you won’t be applying for a mortgage or a car loan in the next few months.  
5. Vary the credit used: Believe it or not, the types of credit you have accounts for 10% of your credit score. That means that having a car loan, a major credit card, a retail card and a mortgage can help your score.  But it’s not necessary to run out and apply for all that credit. (See item 4)
6.  Correct mistakes in your credit report: Get a copy of your credit report from Equifax and Trans Union and make sure all the information is updated and correct. As you can imagine, these two agencies deal with millions of pieces of information on a monthly basis. Sometimes mistakes can happen, which can result in false credit scores, which can lead to you getting denied a loan or paying more in interest.  
7. Separate accounts after divorce. Joint accounts are common in a marriage and once wed the info on each spouse’s credit report and their score will impact the other spouse.  If a couple divorces however, this creates a whole new set of challenges. A legal divorce does not absolve one or both from their financial obligations to their joint accounts. If both names are on the debt, it belongs to both spouses, married or divorced. 
8. Avoid bankruptcy, if possible: This is bad news for your credit score, but it may be the only option. If you’re at this point, then your score has probably tanked anyway—some debts may have gone into collection. Bankruptcy is not a death sentence – there is life after one. It’s just going to take time to rebuild your credit. This will take a few years – there’s no quick fix – but it does give you a fresh start. Talk to a bankruptcy trustee. 
9. Negotiate with creditors:  Your creditors are in the business of making a profit. If you’re not paying your bills, it impacts their bottom line.  Many of them can understand when financial challenges arise and you may be able to negotiate with them and come up with a solution that is mutually beneficial. Do this before you start missing payments.
10. Be patient: No credit score calculation here. It takes time to repair a credit score and/or to build it up. Follow the steps outlined here and you’ll be on your way to a Triple AAA credit rating.

Why BMOs rate cut is good news for everyone

By Mark Kerzner, President of TMG The Mortgage Group

Last week BMO announced a cut to its 5-year fixed mortgage rate to 2.99%. This really isn’t a surprise since this is the third Spring in a row that the banks have been cutting fixed rates as a way to kick start the lending season. In both 2012 and 2013, then Minster of Finance quickly spoke against the move. This time, however, we have a new Minister of Finance who has stated that he will stay out of the mortgage market.

And like the last couple of times, the rate cut has given the broker industry a higher profile among consumers.

The first time we saw this offer we might have thought it was a blip, the second year we may have thought it a coincidence. Now that’s it’s happened again, we can safely call it a trend – during the Spring market, pricing seems to get hyper competitive. This is good news for both the mortgage industry and for consumers.

When BMO first introduced a 2.99% fixed rate more than two years ago, we posted a blog titled, BMOs Slap in the Face. Dan Pultr, Vice President of B.C. wrote, “brokers are silently cheering because this additional publicity will bring a renewed focus to the mortgage market; and the more noise generated by the banks, the more questions and more phone calls we get from clients.  As mortgage professionals, one of our goals is to educate the consumer to ensure they make the very best decision when it comes to their mortgage." 

In March 2013, we again wrote an article about the competitive mortgage market in the wake of BMO lowering its rate, albeit briefly, to 2.99%.

Let’s take a closer look at BMO’s recent 5-year, low-frill special:

•  It comes with a lower maximum amortization: 25 years max
• There is less lump-sum pre-payment ability: 10% maximum per year
• There’s a smaller payment increase option:  Up to 10%, once per year
• It’s a locked term:  The low-rate mortgage is fully closed unless you sell the property, refinance (with BMO only), or early renew into another BMO mortgage. In other words, unless you sell, you're not leaving BMO for 5 years.

Combine that with the fact that BMO's interest rate differential (IRD) for early payout is one of the worst out there; consumers may not want to risk being caught should they sell or have to pay out early.

There is, however, one big difference with this year’s rate offer -- the market was already at or near the 2.99% level. In some respects the banks have lagged instead of led.

Once again, the positive aspect is that it raises awareness for the mortgage industry and helps brokers reinforce their value proposition.

The other positive, is that other lenders will likely follow suit and match BMO’s rate or even go lower, which is good news for  consumers. So, whichever way you look at it – BMO’s rate-cutting trend is a win-win situation.

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.

Renegotiating your mortgage agreement

It’s a familiar story. You buy a house and lock into an interest rate for a five-year mortgage term. Then something changes in your life midway through the term and the current mortgage doesn’t meet your needs. Or mortgage rates have gone down substantially and you would like some interest rate relief, so you consider renegotiating the mortgage agreement. However, there will be a cost and that cost will most likely determine whether you renegotiate or not.

The first step is to decide what your new needs are. Do you have to move because you’ve been transferred? Do you simply want to renegotiate to get a lower interest rate to ease your monthly payment? Do you need to make some significant home improvements? Have you accumulated debt and would like to consolidate? 

If you opted for a variable rate mortgage, the prepayment penalty may be the least costly. If, however, you opted for a fixed rate, the calculation is a bit more complicated. And different lenders offer different terms and conditions.

Here’s how it works. There are two types of mortgages – fixed and variable-rate mortgages.  For the most part, variable-rate mortgage charges are three months interest. Fixed-rate mortgages have different rules. They use the interest rate differential. Different lenders have different ways of making this calculation but basically it’s the lost interes,t calculated at the current contract rate, minus the market rate at the time the penalty is calculated, for the remaining term.

If at the time of the calculation, the market rate is higher than your contracted rate, then the lender will only charge three months interest penalty. After all, the lender stands to make more money at the higher rate.  However, if the rate is lower, then you get hit with the rate difference.

Some lenders are pretty clear with their calculations, others however are not.  You’ve no doubt heard about penalty fees in the thousands of dollars. Here’s how that happens. Let’s say you have a contracted five-year rate at 2.99% but you want to break it in the second year.  Some lenders won’t use that rate to calculate the differential but will use their posted rate, which is substantially higher.  A posted rate of 5.14 per cent, for example, would create an interest differential of 2.15 per cent. If your mortgage is in the $300,000 range, then the penalty will be in the $10,000 range. That’s a hefty sum.

There are also options to help reduce those prepayment charges. Many mortgage agreements allow you to prepay a certain amount without triggering a charge. You might consider prepaying a portion of the mortgage before renegotiating so your charge is calculated on the balance. But beware; some lenders have rules on how close to the date of renegotiation you can make those prepayments.

If you’re renegotiating because you’re moving, you can avoid prepayment charges by porting the mortgage, which means you take your existing interest rate, terms and conditions to your new home.

If you’re renegotiating to take advantage of lower interest rates, some lenders will allow you to blend- and-extend the mortgage until the end of the term. Your old interest rate gets blended with the new term’s rate. You will probably get charged an administration fee.

There may be benefits over the long term to renegotiating your existing mortgage if it fits with your overall financial goals. It’s always a good idea to get advice from a mortgage broker who can offer options and solutions.