Last week, CBC’s Kathy Tomlinson made national headlines with her breaking story about TD charging car loan interest rates of 25%. Wow! Are you kidding me? The reaction was incredible and went viral. Over 4000 comments in just a few days.
Now, this doesn’t have anything to do directly with mortgages, but it’s relevant news given that TD is one of the largest BANKs in Canada. It also shows our Federal Govt’s lack of focus when it comes to different types of consumer debt. This should serve as a reminder that a BANK is a business. They aren’t your best friend. They want to maximize profits and are accountable to its shareholders.
The article reports that TD has approximately $14.3billion of indirect loans on its books brokered by dealers. With an estimated 25% of these loans being priced at subprime rates (subprime means higher rates for riskier borrowers), that would work out to around $500million in interest costs being collected by TD each and every year!
WHY WOULD ANYONE TAKE A LOAN @ 25%? AND FOR 7 YEARS!
Anyone that has been through a bankruptcy understands the first thing you must do is reestablish your credit. And the fastest and easiest way to do that is by getting a car loan. This isn’t anything new. But writing loans at rates of 25% for a 7 year term is outrageous and completely unnecessary.
It takes 2 years to reestablish your credit. No late or bounced cheques. I’ve helped clients before and after bankruptcy. I will advise them to get a secured credit card and a personal loan to reestablish their credit. Interest rates on for these borrowers can be as high as 15%. There is absolutely no reason to be in one of these higher rate loans for more than 2 yrs. What is the auto dealer gets paid more for longer term loans…? We found this chart on TD’s US Auto Dealer loan website showing the dealer gets paid more for longer term loans. Could this be the reason to put them in a 7 year term?
WHERE’S THE GOVT ON ALL THIS?
Well, not surprisingly, the federal govt isn’t doing anything. They seem more focused on tightening mortgage rules that will make it even harder to get a mortgage. Yet, there is very little, to almost no regulation on credit cards, car loans and brokered car loans. Given a choice, isn’t a mortgage a better debt than a car loan or a credit credit? After all, a house is an appreciating asset. It’s an investment in ourselves and our community.
Over the past 5 years, our govt has made it much tougher to get a mortgage. And while some might think that’s a good way to slow the housing market, these changes are affecting the wrong segment of borrowers. Self employed borrowers, first time home buyers and repeat buyers are finding it much tougher to qualify for a mortgage. Product choice is also limited with Secured Lines of Credit now capped at 65% of the value of your home. Variable rate mortgages must be qualified at the Posted 5 yr fixed rate. Unsecured lines of credit will now have a minimum payment attached to them based on the LIMIT, not the balance, and used to qualify for a mortgage. The list goes on….. (and it looks like the rule tightening isn’t over… stay tuned for more changes coming this year).
Here’s some words of wisdom form one of my clients and an Executive at a major Canadian corporation. “I want my employees to buy a home. I want them to get the biggest home and the largest mortgage they can afford. And I stress afford. This has always motivated my employees to work better and harder. It has always made them more effective and productive employees. And they have always profited by building equity in their homes.”
CBC’S FOLLOW UP STORY
A few days later, CBC’s Kathy Tomlinson did a follow-up to this story. Clearly, this wasn’t an isolated case. The car buyers say they were given false promises of higher rates today and lower rates in a year or two. Only to find out that no better rate offer would be coming. Who wins? The dealer that got paid a referral fee, the Bank making that high interest rate and Bank shareholders. Who loses? The consumer.
There is a lesson here. Getting unbiased advice is always better than getting biased advice. An obvious statement. But why is it we repeatedly expect BANK employees to give us unbiased advice? We ask them which mortgage product is best. It’s like going into Tim Horton’s and asking them who makes the best coffee. Gee, I wonder what they’ll say…? When it comes to your home, the single biggest investment for most of us, don’t rely on your local financial institution. Talk to an experienced, unbiased Mortgage Broker. They will listen to your needs, shop the market and explore multiple options. Ask how many different Lenders and Financial Institutions they deal with.
Your best interest is my only interest. Buying, refinancing or renewing your mortgage? Contact me for the best rates and terms.
As always, I welcome your comments, calls and questions.
Steve Garganis 416 224 0114 firstname.lastname@example.org