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Posted Mortgage News

Fed govt tightens mortgage rules again… 4th time in 4 years.

The Harper govt and the Minister of Finance are making it even harder to qualify for a mortgage..  they are also cutting back on how much you can refinance your mortgage.   With the 4th set of major rule changes in as many years, the govt is acting like a big brother, looking over your shoulder when it comes to borrowing on a mortgage.   Yet, they don’t seem too concerned with Credit Card rules or unsecured lines of credit or other higher interest loans that are very easy to qualify for…

In fact, it’s common knowledge in credit and collections, that most defaults and losses occur on unsecured debts and credit cards.   That’s really easy to understand…  these debts carry 18% and 20% interest rates… they have little or no qualifying rules, and little or no security…. (we get in that in more detail further in this article).

So we must ask why the govt feels is necessary to impose so many changes and restrictions when it comes to borrowing for the roof over our heads?

THESE CHANGES ONLY AFFECT HI-RATIO MORTGAGES, FOR NOW…..OR THOSE MORTGAGES THAT ARE GREATER THAN 80% LOAN TO VALUE AND REQUIRE CMHC INSURANCE.   (Although these changes are specifically for hi-ratio insured mortgages, we know that historically, Banks and other Lenders have followed these rules for all mortgages… even for those that are less than 80% loan to value….  No word yet, if and when, the Banks will embrace these changes and make them standard practice for all mortgages…:

  1. The maximum amortization for insured mortgages or those with less than 20% down payment will be 25 years.
  2. Refinancing your mortgage just got a little tougher… the govt has cut back the maximum loan to value from 85% to 80%.  In other others, the govt is out of the insurance business when it comes to refinances sine you you can get a conventional mortgage up to 80% with no insurance.
  3. Fixed the qualifying Gross Debt Service Ratio (GDSR) to 39% and the Total Debt Service Ratio (TDSR) to 44%… no real changes here since very few lenders allowed anyone to go above 35% on the GDSR…
  4. Limit the maximum home value to $1million.   This one will affect very few of use since most home buyers in this price range have adequate resources to qualify.

Here’s a link to the Department of Finance website which announces the changes in more detail with a little political spin to make you feel good about the changes.

THE GOVT HAS IT WRONG

One of my client’s is also an executive with a Major Cable provider.  He encourages his staff to buy a home and get a mortgage.   His motives are simple.   If you own a house and have a mortgage, you will be motivated to work hard and perform.   You have more to lose.   This philosophy has served his staff well.  He tells me that those with more financial responsibility are also the ones that perform best.

If the govt is really concerned that we are getting in over our heads, because of the low interest rates… and they are truly concerned that we are taking on too much mortgage debt… and they don’t want us to suffer from interest rate shock, if and when interest rates do rise, then why not just make qualifying for a mortgage more difficult?   Why not make the qualifying rate as the Bank Posted rate for a 5 yr fixed rate product?    Today, that rate would be 5.24%… that’s a full 2.00% higher than the contract rate of a 5 yr fixed rate mortgage… If you can qualify for a mortgage that is 2.00% higher, then isn’t your risk of interest rate shock less?   Wouldn’t that solve the problem?  By the way, we already have to qualify at Bank Posted if you take a Variable rate or a Fixed rate if the term is shorter than 5 yrs.

Not high enough?  Make it Bank Posted plus 1.00%… That would resolve all concerns about interest rate shock…   but it would also allow qualified borrowers to leverage and take advantage of these historical low rates….  There are a great number of articles lately, being written by those with huge exposure in the stock market or mutual funds or pension funds, that want to see more money diverted back into the stock markets to protect their investments…

I’m not interested in building a stock portfolio…  I’m interested in building my own pension plan… my own investment and income stream… Real Estate is a proven winner.  It’s where the richest of the rich, make their fortunes… Even today, you will see pro athletes, rock stars, movie stars, or other wealthy individuals buy real estate… That’s because it’s regarded as a safe, long term investment…   We seem to be losing sight of that fact..

THE REAL IMPACT OF THESE CHANGES

The Fed govt wants us to believe they are looking out for our best interests… they have repeatedly said we aren’t managing our finances properly… we need big brother to watch over us….does anyone really believe this?   Their actions aren’t helping us benefit from the lowest interest rates in history… and I have a problem with this… paying less interest is a good thing to me… paying less to own my home is a good thing…

The govt seems to be grouping all of us together…  It’s like throwing out the bath water with baby….. their concerns are with a small percentage of us.. the data doesn’t back up their claims...  the stats show our mortgage arrears are lower than ever.. affordability is as high as it’s ever been (yes, low interest rates are a huge reason why)….we are spending our money wisely, on investments, not just buying TVs or new cars…. and we are paying our mortgages off faster than ever before with a large percentage of us  (we can thank low interest rates)… 23% of us are making more than the minimum payment… 19% of us are making lump sum payments towards our mortgage…. Does this sounds like a nation in trouble?

The govt changes are only doing 2 things here… they are pushing us into higher interest rate products such as unsecured lines of credit or credit cards… and they are making it harder for us to access the capital in our homes..  The HELOC limit from 80% to 65% loan to value was probably the most ridiculous change ever… No data was given to back up this move…  It was already to tough to qualify for a HELOC… this was just unnecessary.

TALK ABOUT BAD TIMING

We need to question the timing of these changes… there really hasn’t been enough time to see what the true impact of all  will be… If you’re one of those people that fully trust our govt’s decision, then I only need point you to 2002 when the govt prematurely raised rates, only to slow the economy and reduce them just months later… it was a huge miscalculation.   We ended up lowering rates for several years to come…

By making it harder to qualify for a mortgage and by reducing how much we can leverage our homes for (HELOC’s to 65% maximum loan to value), we are taking money out of the market… out of the economy… I just don’t get it…

I for one, am fed up with all this negative news coming from the media.. the fear mongering has to end!   I keep seeing prudent and responsible people wanting to enter the housing market.   They want to invest in homes…..they don’t want to ride the stock market roller coaster.    We should support this segment of the population, not punish them.

WATCH HERE FOR MORE DETAILS

We will keep you up to date with how this unfolds… and what options you will have in the future…   My sources tell me that some Lenders are already coming up with some options to assist responsible borrowers with some new products…. stay tuned for more info..

As always, I welcome your inquiries… We’re here to help… Feel free to contact me anytime.

Steve Garganis

Posted Money saving tips

Does this sound like your Bank?

THE PHONE CALL RIGHT AFTER THE OCTOBER 2008 U.S. SUB-PRIME MORTGAGE CRISIS

It’s November 2008.  News of the U.S. Subprime mortgage crisis has just broken out.   Panic sets in around the world.  Stock Markets collapse.  Govt’s are scrambling to avoid an economic recession…. or possible depression.

Your Banker calls with some advice about how this will affect your mortgage. You’re concerned and don’t understand how these world events will affect you…. The Banker recommends you get out of your Variable Rate mortgage and into a Fixed Rate mortgage…. or they recommend an early renewal of your Fixed Rate and lock into a new 5 year term…

Back then, the best discounted Fixed rates were hovering at 5.95%.  You listen to the Banker’s advice… after all, they are supposed to look out for your best interests, right?

WRONG!  Time for a reality check…Your Banker’s advice was dead wrong…. when economic times are tough, interest rates don’t usually go up, they go down….  Anyone that is in the Financial Services industry should know this….  and yet, that’s exactly how this scenario played out for thousands of Canadian homeowners.

Some say it’s easy to look back and be critical… I agree… except I go on the record with my personal opinions…. Had you been one of my client’s, you would have received my warning to watch out for ‘special bank offers’ and not to lock into any lock term product….. here’s a link to my October 13, 2008 Market Trends report.

BUT IT GETS WORSE…..

You want to take advantage of these record low rates that have been around for the past 12 months….. after all, if you had stayed in a Variable rate, (like 80% of my clients did), you would have enjoyed rates as low at 1.35% during that time..  Instead, your Banker hits you the infamous BIG SIX BANK penalty calculation and wants a penalty of $10,000.  OUCH!  How’s that for a double slap in the face?

Does this even sound possible?   Guess what… it’s not only possible but it happened….and it happened to thousands of Canadian borrowers….  In this example, the borrower has paid over $14,000 in extra interest charges, so far… We trusted the BIG BANKS because they are on every street corner.  They are on TV, in the media, and are so highly regarded in global banking communities…  But how does this help you, the individual person?  or the average family with a mortgage that’s trying to get ahead and benefit from these record low rates…

This isn’t about bank bashing… this is about Banker’s given too much respect and offering little or nothing in return…. Far too many borrowers have gone through  the scenarios described above… and it’s really unfortunate.   By the way, the mortgage balance for this client is only $118,000.… imagine what the loss would be if their mortgage balance was $200k or $300k or more!!

THE GOOD NEWS…..

Yes, there is some good news… You don’t have to make the same mistake…  you can benefit from other people’s experiences…  Get yourself a Mortgage Broker working for you…  An independent expert with an unbiased opinion.   If you were a client of mine, you would have received numerous warnings about these so-called ‘special offers’…and to avoid them…doing so would have saved you around $7,500 per year on a $300k mortgage…

It’s never too late…  Getting a great rate is important, but being in the right mortgage product is where you will truly save thousands… We’ve been helping Canadians do it successfully for years…….. Feel free to call me if you need help….

Steve Garganis

416 224 0114

Posted Mortgage News

OSFI announcement: HELOCs cut to 65%, partial re-qualifying for mortgages at renewal time..

The Office of The Superintendent of Financial Institutions (OSFI) announced some interim changes that will affect all mortgage borrowers and also those with Home Equity Lines of Credit (HELOC).    Draft Bill B-20 was introduced March 19, 2012… and somehow, in less than 3 months, the govt has been able to review the short and long term effects of the biggest changes ever put forward before this country.  Did they work efficiently or did they rush through this?

In the end, we saw 2 major changes announced that will affect all mortgage borrowers….  changes that I feel are completely uncalled for… To be blunt, I haven’t been able to find one piece of data or fact from OSFI or the govt to substantiate their call for change….  Let’s take a look at their changes…by the way, you can click here for the full version from OSFI’s website

1- Re-qualification at Renewal – “Current practice regarding residential mortgage renewals has served (Federally-regulated Financial Institutions) FRFIs well.” … “FRFIs, however, will be expected to refresh the borrowers’ credit metrics periodically (not necessarily at renewal) so that FRFIs can effectively evaluate their credit risk.”   as per OSFI text.

Some good news here… I’m glad OSFI isn’t making us fully re-qualify for a mortgage at every renewal period… but obtaining a new credit report at the Lenders discretion should concern you…  If you think it’s all about making your payments on time, guess again… Your overall credit balances, your credit availability, you balances in proportion to your available credit, how recent you obtained credit….. All these things are factored in a mortgage approval decision…. and let’s not forget your credit score… If your credit score goes down or if the Lender changes their policy (we’ve seen that happen many times over the past 4 years), then you could be in jeopardy of not qualifying for a renewal…

Life is never perfect…. we all hit some speed bumps…. the character of a person isn’t measured when times are tough, but rather how they handled that rough patch in their life… If you default on your mortgage, there are existing remedies in place for the Lender to collect their funds…..Do we really need to arm Lenders with a weapon that allows them to cancel or call your mortgage if they think you MIGHT not be able to make future payments??    Are we guilty until proven innocent?  Thumbs down from me on this one…

2- Home Equity Lines of Credit (HELOCs) –  “…the HELOC component of a mortgage be restricted to a maximum loan-to-value ratio of 65 per cent.  HELOCs are inherently riskier products, given their revolving nature, persistence of debt balances and their ineligibility for mortgage insurance.  However, HELOCs at or below an LTV ratio of 65 per cent will not be required to be amortized….”  as per OSFI text.

We aren’t sure what this means… if you have a HELOC greater than 65% loan to value, will you need to amortized part of it?   The wording in OSFI’s announcement shows me just how out of touch with reality they are….  HELOCs are riskier but they are already much harder to qualify for.  Reality is that arrears or defaults are near all time lows….  Reality is that most HELOC borrowers use them for a large number of things… investments, home renos, business, etc….   The govt has not given us any data to back up their statements about higher risk… and industry stats show we are fine…  It was only a few years ago when CMHC was offering insured HELOCs up to 90% loan to value…?   We’ve gone from 90% to 65%…. Has the pendulum swung too far…?

These changes will come into effect soon…we’ll have to watch for the Final announcement on how they will be implemented…  And because the govt is putting the responsiblity back on the Lenders, we will see different interpretations of these new rules…No two Lenders are alike.

So what’s next, we can’t buy investment properties?   Oh yeah, CMHC stopped insuring rental properties last year…. almost forgot… BIG thumbs down from me on this move.

If you have a mortgage coming up for renewal or have a HELOC and aren’t sure how these changes will affect you, feel free to give me a contact me….

Steve

Posted 1 Comment on More dumb Bank ads.. but they won’t fool us. Fun news

More dumb Bank ads.. but they won’t fool us.

Are you watching the Stanley Cup playoffs?  Year of the underdogs…  I’m a huge hockey fan and although my favorite teams are out of it, I’m still watching… and I’m still willing to put up with the commercials… but some of these ads are rubbing me the wrong way.

Like most TV ads, the truth can be exaggerated…  Take the Old Spice commercial…  “I will have big muscles and cool hair”…. have you seen that one?   My son loves it… makes me laugh too….

But when we’re dealing with something more important, like your money and your mortgage, the truth shouldn’t be cryptic….   The ‘BIG SIX BANK’ ads, bother me… I’ll explain. 

A few years ago, during the Olympics, RBC hit us with a commercial that showed a young couple searching for homes.. Their RBC mortgage rep recommended they split their mortgage “part variable and part fixed…  to save money.”  Remember that one?  click here to view it.   I strongly criticized this product and the so-called advice because it didn’t make sense to break up the mortgage…. Fast forward to today…. My criticism was well justified….Anyone that listened to my warnings would have saved money… Anyone that took this RBC product lost out… Clearly, that was NOT the right product to ‘save money’.

This year it’s BMO….We can’t seem to escape these ads.   How does it go again? .. A young couple are shopping for a home, walk through the bedroom and into the closet, when they magically appear in the BMO BLUE ROOM with a BMO Banker…

They want to pay their mortgage faster…   Have no fear, the BMO Banker is here to the rescue with their pearls of wisdom…  The Banker says, “we can help…by restructuring your payments and getting you into a low-rate fixed mortgage, you’ll pay your mortgage off sooner“…  Wow!  That’s GREAT!!   The young couple are excited… Cue the music!!

Now let’s decode this cryptic message…   ‘restructuring your payment’….  What could the Banker possibly mean?   No mystery folks… It means you must increase your payments.  Yes, that’s all it means…There is only one way to pay your mortgage faster…. increase your payments or make at least one lump sum payment annually… click to here to read about the bi-weekly payment myth.

The Banker continues and says ‘…..getting you into a low-rate fixed mortgage, you’ll pay your mortgage off sooner’.   This must be some magical product… it sounds great…!    Uh, no.. guess again.  Let me give you the straight goods…… BMO refers to their NO FRILLS mortgage as their ‘low-rate mortgage’.   That’s quite misleading if you ask me.   So once again I am issuing a STRONG WARNING.    For the record, this is probably the worst mortgage product you could ever take, in my opinion.  It’s just slick marketing…

You can’t pay the mortgage out for 5 years, without selling your home…..meaning you can only refinance with BMO but there is no obligation for BMO to give you the any future discount, let alone the best discount…..you have limited prepayment options…… and let’s not forget, the infamous BIG SIX Bank penalty calculation….we’ve seen how this one has cost borrowers $20k, $30k and even $40k in penalties!.. click here to read more about how BIG SIX Banks calculate penalties.

The Banks have deep pockets and spend hundreds of $$millions on ads…  It’s up to the little guys, like me, to tell it like it is…  Hey, I won’t promise you good looks and cool hair, but I can promise you to tell it like I see it… There are better mortgages available… Better terms, rates, privileges and options and ultimately, these better options will SAVE you money on your mortgage.   That’s our goal… to pay the least amount of money to own our homes.   Don’t get fooled by a flashy low rate… Rate is important but it isn’t everything.   These aren’t opinions, these are facts.  Just do some research or speak with an unbiased professional.  Speak with a Mortgage Broker.

As always, let me know if I can help… and feel free to send this article to someone you think could benefit from it…

Steve Garganis

steve@mortgagenow.ca

416 224 0114

Posted Consumer Debt

Shhh…Interest rates are still at record lows… and Canadians are making huge prepayments.

 IT’S OKAY TO FEEL GOOD ABOUT LOW INTEREST RATES

I’m sure this isn’t what our Federal govt wants you to hear.   But it’s true… Fixed rates are in the low 3.00%s….  So why aren’t we feeling good about this?   Why isn’t everyone happy?   Record low interest rates means less interest cost to you… it means low housing costs…It means you are saving money.

A mortgage is the biggest debt most of us will ever have…  We all talk about mortgage rates with our friends, co-workers and family…. It’s a popular subject… But for some reason, we aren’t feeling good about these low rates…  It’s almost like we should be feeling a little guilty, like the cat that swallowed the canary… do you feel like that?

Could it be that we have been beaten to death with negative messages by the Federal Minister of Finance?   Housing Bubble coming!!!…. personal debt levels rising!!… higher interest rates coming…!!   Maple Leafs win Stanley cup (oops, had to throw that one in)… we’ve been talking about these same things for years… yet they haven’t happened!  I’m not saying these aren’t concerns but I think some of these have been overstated without providing enough proof or evidence.

The govt doesn’t want you to borrow at these rates…   They are afraid you would be too irresponsible and would borrow more than you could afford… (never mind the fact that you must qualify at BANK POSTED rates which are 2.00% higher than these wholesale mortgage rates…)

NEW STATISTICS SHOW WE ARE RESPONSIBLE AND NOT SHOWING ANY SIGNS OF TROUBLE

By the way… the strange part about all this “boy that cried wolf” noise from the govt, is that there really isn’t any proof that we are in trouble….  That’s right..  Mortgage Arrears are low and have been low for over a decade… Affordability is better than it was 20 years ago!   (low rates have helped but increases in income have also factored in)…

And how about this stat that just came out….Around 23% of Canadian mortgage borrowers have increased their regular mortgage payments by $400 to $500 per month.  19% are making lump sum payments of around $12,500 per year.   That works out to over $20billion in extra payments towards their mortgages.  Or put another way, over 1 million mortgage holders out of the estimated 5.85million mortgage holders in Canada are paying far more than the minimum payment.   Does this sound like a country of irresponsible borrowers? … (source Financial Post).

Either the govt’s message has sunk in, or there really wasn’t as big a problem as we were led to believe…. I’ll let you be the judge…

But we could be facing a ‘Made in Canada’ problem as this article states… .  With the govt planning to make the biggest changes in history with  mortgage and HELOC lending, they will be affecting a large segment of new borrowers but even more EXISTING borrowers… they will force a large percentage of Canadians to sell their homes, close their businesses or seek higher interest debt….  And why?  What purpose does it serve?  The stats tell us we are fine…

House prices are hot in Toronto but they are cold in the rest of Canada…  The govt is providing a solution to problem that doesn’t exist.

If you aren’t sure if you could benefit from today’s low rates,  or how these proposed new lending changes will affect you, give me a call or send me an email…  I’d be happy to discuss your options.

Steve Garganis