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CategoryMortgage News

Bank Complaints on the rise and Mortgage penalties are a big reason

A report just came out from the Ombudsman for Banking Services and Investments that shows complaints are on the rise…

The report shows Bank complaints were up 21%.  Many of the complaints had to do with Mortgage Prepayment Penalties and rates on Lines of Credit….. This shouldn’t come as any surprise to anyone with a Bank Mortgage.

Last year was the start of record low interest rates… Mortgage rates were down below 4.00% for a 5 yr fixed and Variable rates were below 2.00%…  If you bought a new house or renewed your mortgage, it was great….you couldn’t have timed it better….

But what if you wanted to refinance your existing mortgage?  Could you do it?  If you were in a Variable rate mortgage, your penalty was probably 3 months interest or less…. That’s quite reasonable and manageable for most.. but if you were in a Fixed Rate Mortgage, then you were in for a surprise from the Big Banks… Enormous prepayment penalties….  Here are some real life examples… a $250k mortgage had a $13,000 penalty… a $275k mortgage had a $18,000 penalty

These penalties equaled 8 and 10 months of interest.…How can this be?  Well, the Banks changed how they calculate prepayment penalties about 10 years ago… To sum it up, you have to pay for any ‘discount’ off the posted rate.  And you have to pay for that discount in full.. for the entire duration of the mortgage….Not fair?  I agree.. extremely unfair…

Is there a connection with $billion Bank profits and these prepayment penalties?

If you are unsatisfied with a prepayment penalty then make some noise.. I encourage you to contact me or the Ombudsman for Banking Services and Investments .

Expecting a June 1st rate hike

It seems like a rate hike is almost certain for tomorrow’s Bank of Canada meeting.. but we need to put this in perspective… The Bank of Canada has not raised rates since July 2007… and Mr. Carney has never raised the Target rate since he took his place as Governor…. (he should be a popular person among Canadian borrowers).

But let’s put it in perspective…even if the Variable rate doubles to 4.50% from it’s current 2.25%, we would still be in historically low interest rate territory when it comes to variable mortgage rates…

A 25bps or 50bps or even a 100bps increase should only slow the housing market and not kill it….. Remember, these are EMERGENCY RATES…. The Emergency is over.. and we should want it be over…  We should be happy that we’ve been able to enjoy these record low rates for so long…..  the sky isn’t falling…  we won’t be seeing rates of 9% or 10% or anything near that level…

Ben Tal, Senior Economist, CIBC shares his thoughts

Last week, we had the privilege of listening to Ben Tal, Senior Economist with CIBC.   He said we can expect rate hikes of between 1.00% to 3.00% over the next 2 years… but he also said that there is no straight line when it comes to interest rate hikes… so we will see staggered rate movement…  Mr. Tal said that he does not see the need for anything above this given that the motivation for any rate hikes by the Bank of Canada is slow the economy and keep inflation in check.

There were 4 charts in particular that caught my eye..

1-The Gap between Consumer Confidence and Consumer Capability.. this chart shows why the Government is concerned about our personal debt levels… The chart shows our confidence is higher than our capabilities…

2-Share of Household with Mortgages has fallen…this chart shows that more Canadians own their homes without mortgages… and that’s great news.. it means more Canadians are paying their mortgage debt down…

3-Size of Average Mortgage on the rise… this chart shows that while more Canadian own their homes without mortgages, the mortgage size has increased and this should be monitored and reviewed…

4-Hosing Affordability…. saving my favorite for last… I’m a big believer in tailoring the mortgage around your affordability.. and this chart shows us that on average, we have a lot of capacity when it comes to absorbing interest rate hikes… this is a chart that should make all Canadians feel good..

Didn’t I say to stay away from these Hybrid Mortgages?

Is it just me or are the Banks pushing these Hybrid Mortgages more these days…?  RBC recently reported that 40% of Consumers buying a home in the next 2 years would consider a Hybrid Mortgage…

Wow!  That’s much higher than any figure I’ve seen…  And it doesn’t reflect the current level of Consumers that currently have a Hybrid mortgage. (current figures are at 6% according the Canadian Association of Accredited Mortgage Professionals).

Globe and Mail’s, Chaya Cooperberg, took a closer look at this product…..Oh, and by the way, a Hybrid mortgage simply splits your mortgage ….. part fixed rate and part variable rate.  The theory is that you can benefit from today’s lower Variable rate but also secure a fixed rate to protect yourself from future rate increases….  Sounds great but these products are flawed and DO NOT work in the Consumer’s favor.

Here’s what you need to know:

-studies point to Variable rate mortgages as having the lowest rate of interest over the life of your mortgage.. they just save you money….(your rate fluctuates with Bank Prime…up and down)

-fixed rate mortgages buy you the security of knowing what your rate and payment will be…but the key word here is BUY. Your paying for this insurance with a higher average rate over the life of your mortgage…  (plenty of studies out there to show this).

-combining these 2 products in one mortgage will limit your options… there is a portability feature but it’s not straight forward and we’ve received different explanations on how this actually works….. these mortgages are not transferable to other financial institutions….

-many borrowers that are currently in these products have staggered maturity dates meaning they can never get out without paying some sort of penalty…….

A better alternative to getting part fixed and part floating, is to go with a Secured Line of Credit.. the Floating portion is Open to repayment without penalty…   Keep in mind these products are not portable to a new home and they are not transferable…At least you won’t get stuck with a penalty…

Why did these lenders stop dealing with Mortgage Brokers?

Great article today in The Globe and Mail… Ok, so why am I promoting an article that talks about NOT dealing with Brokers?   The article says, RBC, BMO and now HSBC are not dealing with Mortgage Brokers (RBC never dealt directly but they do put money out through RBC Securities…BMO stopped a few years ago and HSBC just stopped).

The article quoted Marcia Moffat, VP Home Equity Financing, RBC.  I have my opinion but what do you think about what she said?…. “The mortgage market is extremely competitive, so the reality is that there is little to no difference between bank rates and broker rates.”

Well, that statement sparked a flurry of comments… read the comments section of the article.. including some words from CanadaMortgageNews.ca.  As recent as a few weeks ago, I had client asked if I could give them a letter stating what my rate was so they could take it to their RBC branch and the branch could match my rate… and  this happens all the time…

The Banks are a business and want to make a profit…. you heard me say this before?  I must repeat it again…far too many don’t believe it…  The Banks want you to take the 5 year fixed rate mortgage… it’s the most profitable product for them…

Remember, a few months ago, I wrote about the government introducing new mortgage rules that make it harder to qualify for variable rate and shorter term mortgages (1 to 4 years)….  you must now qualify using the Bank Posted 5 year fixed rate…  that’s 6.10% today!!   Or you can qualify at the contract rate (fully discounted rate) of the 5 year fixed rate mortgage product….. today, that’s around 4.49%… . Which product do you think borrowers will need to take if they are on a tight budget? yes, the 5 year fixed rate mortgage.

So, why do these lenders not want to deal with Mortgage Brokers? For me the answer is very clear…they want to put you into their most profitable product…. Mortgage Brokers have a duty to recommend and advise the MOST APPROPRIATE PRODUCT.

I’ll be speaking more about Bank mortgage products soon… in particular, the split mortgage products… please don’t get into these products without knowing all the details and reading the fine print….speak with a qualified Mortgage Broker.

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