Tuesday, October 23, 2012

Bank of Canada holds steady, again

The Bank of Canada is keeping its trendsetting policy interest rate at one per cent for a while longer, and likely a whole lot longer.

The central bank said the Canadian economy continues to expand, but that housing activity is starting to decline and exports remain weak.

Still, the bank said growth will average 2.2 per cent this year, one-tenth more than it had projected in July.

Analysts had been expecting bank governor Mark Carney to soften his hawkish tone about future interest rate hikes and he obliged, saying modest withdrawal of stimulus will be required over time.

That suggests the time may be a long way off.

The bank also notes it will consider the health of the household sector in setting monetary policy, something it hasn't done in previous interest rates announcements.

Source: The Canadian Press

Monday, October 22, 2012

Flaherty: No more room for rule changes

 Brokers have heard it before, but the Finance minister is saying it again – this time with more conviction – arguing the government simply has no more room to play with the mortgage rules in order to curb household debt.

“We’ve done enough,” Flaherty said during a weekend interview. “I do not intend to do anymore.”

If true, that's good news, say most mortgage brokers.

Many of them complained that the guidelines and rule changes introduced by the Conservative government this summer in order to slam the brakes on an overheated housing market were too harsh. Flaherty himself had earlier conceded that the economy could take a beating with the changes, but called the tighter mortgage rules around amortization and LTV for refinances necessary to prevent a housing bubble.

During Saturday’s interview, the minister said he was pleased by signs of a slowdown in vital segments such as condo markets in white-hot centres Toronto and Vancouver.

One broker, who operates in one of the regions where the rule changes has paved the way for a broker cull, said the revamp has effectively slowed down the market.

While he welcomed Flaherty’s remarks, Michael Marini, Toronto-based broker for Dominion Lending Centres Funds, said it could also be that the newly introduced rules are here to stay.

“I take it to mean that he (Flaherty) is satisfied with what the rule changes have accomplished,” he said. “We may not see any more tightening, but it’s also unlikely that the rules will be reversed.”
Source: http://www.mortgagebrokernews.ca

Wednesday, October 17, 2012

Title searches explained

This video was made by http://www.bcrealestatelawyers.com 

Very good information for everyone!




Interest penalties

Interest penalties between a big bank and a mortgage only lender. There is a huge difference as the calculations are much different.

Remember, it's not always about rate. That number you see is not the deciding factor. It should be what's behind that rate and what commitment your broker will give you to manage your mortgage for the foreseeable future.

Here's an email conversation used for one client comparing the penalty between RBC and MCAP, a lender we use.



RBC takes your “discount” off their original posted rate and compares it to the term remaining to calculate a penalty.  Therefore, if you got 3.09% with RBC today, that would be a 2.15% discount off their posted 5 year rate.  If we assume rates are the same as today in 3 years when you pay your mortgage off, they take the 2 year posted rate and deduct your 2.15% discount.  Today’s 2 year posted rate is 3.35%.   Leaving you a  1.20% comparison rate to your 3.09% contract rate.  That’s a difference of 1.89% to calculate an IRD.  The bigger this number (or spread) the bigger your penalty.  That’s a bad thing.

What MCAP does is take your contract rate, and compare it to their current contract best rate for a comparable term.  In the same scenario as above, they’d compare your 3.09% contract rate to their 2 year rate of 2.79%.  That’s only a spread of .30%, meaning IRD wouldn’t apply.  Only a 3 month interest penalty would occur.

For real numbers on your mortgage, assuming you owed $230,000 it could end out like this using the above scenario:
RBC penalty: almost $7,871
MCAP penalty: $1,776
That’s a $6,095 difference.  I’m not saying you will ever need to pay your mortgage off, but it’s nice knowing that if you did, the numbers would be reflective to your benefit if the situation did occur. 

What I’m saying – isn’t it great to get a great interest rate, but also a great mortgage!?

Here’s some calculators.  Info on how each institution calculates their IRD penalties are available on these sites as well. Of course the RBC one is a bit harder to plug in the right numbers as you'd need to know what your discounted rate was.

Monday, October 1, 2012

Renewing with First Line now CIBC and in general


I've been a First Line mortgage holder for the last five years and am coming up to renewal.

First Line is owned by CIBC and as of a few months ago have made the decision to stop all mortgage dealings through this channel. It still stumps me as to why, as it was the largest mortgage broker channel for a long time!

One quote, (not exact words but you can get the idea) from a head at CIBC, we want to start building a stronger relationship, in house, with our clients so we don't have to discount rates so much. BMO did this a few years ago and it has done nothing to their share of mortgages in Canada.

I have included a picture of my renewal from CIBC, which comes with about 3 weeks to renewal. If you're not pro-active you can definitely feel stranded not knowing what to do. Which in turn can make you easily sign on the dotted line. You can see from this that they try and offer rates that aren't even close to market rates that we can get as mortgage brokers.






The transition from First Line to CIBC comes with a few changes as well.
Quotes from my 20 page renewal agreement:

-For a new variable product 'The interest rate will change every time there is a change in the CIBC Prime Rate. Even though the interest rate will change from time to time, your regular payments stay the same unless you change them"  "These changes will occur without you being notified"
           This poses the threat of negative amortization, which when prime is at it's lowest today, will happen later on. This will make your amortization increase and in some cases, by a lot. The fact that they do not notify you is a tactic as you will in the end pay them much more than needed. I do not allow any of my clients to get involved in such a mortgage as I've seen the bad happen, a number of times. If anything changes, you are notified that day by me and we can strategize about the future.

-Annual lump sum payment changes to a measly 10% from 25% which is significant.
           At least you can still do it as many times a year as you wish. Minimum $100 a time. I believe you'll have to go to a branch to do this. First Line allowed you to do this by phone and on the web which most other lenders I deal with do as well.

-IRD calculations are much more in favour for CIBC.
          In a recent study done by a very respected individual in the business and a huge sampling of lenders, (banks and broker only lenders) the IRD calculations were all much higher at the banks.

-Converting your mortgage (from variable to fixed): "You must apply in person. You must pay any admin and processing fees. You must pay all legal expenses related to a conversion"
           Honestly, I'm not too sure about this, however, it's written in the agreement. In the past all we would do is call in, get a piece of paper faxed, sign it and the next payment is converted. There was no costs to this at all

The reason for going to the branch all the time is so they can cross sell you in to as many other products as they can.


In the end what we must all do is not simply agree with what's there. There are SO MANY options and features that you should know about. Both good and bad.

The best way I can sum it up is this: You may do 4 maybe 5 mortgages in your lifetime. I do them day in and day out, it's my passion. I've seen people take what they believe is good from this guy over here, however, down the road it's the worst thing they could've done. Even after the advise I give them in some cases. Unfortunately, I hear stories later on. I'm completely unbiased and work for you. I'm not pushing one product as that's all that I have. There are options out there and let someone who knows them work for you! Support your mortgage brokers as if we weren't around we'd all be paying much higher rates!!!