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The Star article on private lenders

Some comments I made about the changing lending landscape.  Click on the link below.

Private lenders step into Mortgage void left by banks.

The article was good and shed some light on just how much the federal government has tightened the Mortgage rules in Canada.  But the article excluded one very important fact.

loan sharkYes, I agree that the govt has gone overboard with their rule changes, and has forced qualified mortgage borrowers to pay higher rates and fees by having to go to alternative lenders.  But, consumers don’t necessarily have to go from an “A” lender with the best rates (currently at around 3.00%),  to a “C” lender with rates of around 12% to 15%.

There are “B” lenders that offer mortgages with only slightly higher rates. Usually 1% to 2% higher than “A” lenders.   I think it’s important to point this out.

A recent example is where one client was self employed, had a slightly bruised credit score of 602 (a good score is between 680 and 720), and his net income was not high enough to qualify (remember, self employed show a lower net income because they can write off more expenses). We found this client an 80% loan to value mortgage at 4.00% with some fees.   His net annual rate was 4.25%.  

So the message is, ‘There are ‘B’ lenders to fill the void left by the BANKS’…. and their rates are only slightly higher..  There are also ‘C’ lenders that fill a need for even harder to place mortgages…. These products come with much higher rates and fees.. But most consumers will either fit into an ‘A’ or ‘B’ product.   Only a small handful of applicants need to go to a ‘C’ Lender..

Your best interest is my only interest.   I reply to all questions and I welcome your comments.  Like this article?  Share with a friend.

Steve Garganis 416 224 0114 steve@mortgagenow.ca

Happy Holidays! We are taking some time off.

happyholidays (1) I want to extend my warmest wishes for a safe and Happy Holiday Season to you, your family and loved ones.  Remember those in need during this festive season.  May all your dreams become reality in 2014.   Happy Holidays!   Merry Christmas! and Happy New Year!   We’ll be back in January!

Your best interest is my only interest.

As always, I welcome your comments, calls and questions.

Steve Garganis 416 224 0114 steve@mortgagenow.ca

Economic and Real Estate Outlook from Annual Mortgage Broker’s conference.

On April 14, I attended the annual Independent Mortgage Brokers Association (IMBA) annual conference.   We were fortunate to have Canada Mortgage and Housing Corporation’s (CMHC) Regional Economist, Ted Tsiakopoulos, share his outlook on the economy, real estate and interest rates.

Click here for the entire presentation.    This is a summary of CMHC’s outlook:

  • No evidence of housing bubble.
  • housing market is stabilizing in Ontario.
  • we won’t see the growth in prices as in years past.
  • this outlook is still uncertain given all the global events, both political and economic.
  • credit growth is slowing.
  • Interest rates will rise as economy improves.

The good news is that there doesn’t seem to be a housing bubble.  Interest rates will gradually return to normal.  And we don’t seem to be taking on as much personal debt as the government and media has led up to believe in the recent months.

Bank of Canada dates for 2011

Happy New Year!  Wishing you all the best in 2011….

Here’s the Bank of Canada’s schedule for key interest rate announcements in 2011.

January 18, March 1, April 12, May 31, July 19, September 7, October 25, December 6.

The Bank meets eight times a year to set the Target Interest rate.   This rate directly affects the Bank Prime rate and Variable rate mortgages.  It also affects Fixed rate mortgage indirectly.

Historically, the Bank adjusts this rate up and down between 2 and 3 times a year.   In 2010, we had 3 rate increases of 0.25% each after a full 12 months of no changes.  And most experts were forecasting for even greater rate hikes…   This all changed when the economic recovery stumbled in many parts of the world, raising fears of a double dip recession.

Even today, there is still uncertainty about the economy in many parts of Europe and the U.S.   At home, in Canada, we seem to be doing well….not great, but okay.

This uncertainty is delaying the expected interest rate hikes that so many experts were calling for in 2010….  Best guess now is for rates to remain stable until April or even July.

Enjoy the low rates…!

Everyone deserves a break

Yes, everyone needs some time off, including me.  I am taking a little break.   Back in January 2011.

But before I go, I want to say thank you for making our first full year at CanadaMortgageNews.ca a great one!   My personal goal was to write 2 posts a week  and get the word out to as many Canadians as possible…  122 posts later, we had tens of thousands of hits… the site has really taken off in the past 3 months… all thanks to you…  no advertising, no sponsors… all word of mouth…it’s all you…  Thank you.  I hope you have found the info and opinions helpful.

Let me take this opportunity to wish you and your loved ones a safe and happy holiday at this festive time of the year.

Steve Garganis

Editor, CanadaMortgageNews.ca

PS.  Watch for more breaking news in the coming year.. including possible changes to mortgage rules (yes, more), the long-awaited standardized prepayment penalty calculations (sounds like it’s coming) and a real estate market that is expected to be flat, but that’s not everyone’s opinion.  Oh, and of course, mortgage rates…where are they going?   We’ll bring you the latest… but right now, rates are expected to remain flat for the next little while…

Bank of Canada doesn’t raise the rate

Today was the last of eight regularly scheduled meetings by the Bank of Canada (BOC).  The BOC didn’t raise their Target rate.. no surprise here.   With uncertain economic data in the U.S., Ireland and even a little shaky news in Canada, there was no chance of a rate hike.

It’s widely believed that Governor Mark Carney will not raise the rate until March 2011 at the earliest, or maybe even May 2011… possibly later…  read more here.

One thing is for certain, the longer things remain uncertain, the longer we will be enjoying these record low rates… Variable rate mortgages can be had at 2.25% and a 5 year fixed is around 3.69%.   Borrow wisely…

Hot summer, cooling economy and low mortgage rates..

It’s been a slow week for mortgage news.. but that’s okay.. when it comes to interest rates, boring is good!

Mortgage rates are remaining low as the Economic data around the world is still not great.

Fixed rate mortgages are hovering at just over 4.00% for  a 5 year term… still in historical low territory and well below the 25 year average of 8.25% for posted rates (discounted rates are approximately 6.75%).

Variable rate mortgage continue to be a favorite.. and why wouldn’t it be… under 2.00% rates, fixed prepayment penalties of 3 months interest  compared with Fixed rate penalties of 3 months interest or Interest Rate Differential which have been as higher 8, 9, 10, 13 months interest or more… Yes, from your major Banks…

Hybrid mortgages are the hot product lately..l saw some stats stating they have become more popular… but be careful.. these products tend to have limitations and restrictions that can cost you dearly in the future….

Remember, a Mortgage is more than just the rate… Rate is the single biggest factor that affects your overall cost,  but it’s not the only thing…

One more tip… any long-term contract has a price.. and the price is usually more expensive than we think.

How do lenders measure your credit worthiness?

Most of us understand that establishing and maintaining good credit is important.  Beacon scores or Fico scores, as they are sometimes referred to, are generated based on many factors but the main things that influence your score are:

-number of years you have had credit (the longer the better).

-your repayment history (missing payments will hurt your score).

-the type of credit you have opened (term loan, revolving line of credit, credit card or finance company purchases).

-your balance in proportion to your available limit (don’t go over 70% of your limit).

-credit utilization overall (how much of your available credit have you used up).

-number of recent inquiries on your credit (make sure you don’t apply for too much credit).

-inquiries by finance companies (hard and soft inquiries….there is a difference).

-change in address (if you move frequently, this can affect your score negatively).

All these things affect your credit score.  Wondering what a good credit score is?  A great score is anything above 700.  Most mortgage lenders would agree and this would qualify you for any mortgage product   (recently, one lender came out with a 720 minimum score for a certain product).   Some mortgage products require a 680 minimum score and generally speaking, 650 and above is good…  620 and below is weak…and 580 and below is poor.

You can obtain your own personal credit report from Equifax to find out what your score is and it does not count against you… it will not show up as an inquiry on your report…there is a small cost for this….  let me know if you need more info…

HST reference sheet

July 1st is Canada Day.. but for the residents of Ontario in 2010, it will be the launch of the much talked about Harmonized Sales Tax or HST…(let’s call it HST Day).

We took a closer look at how this will affect the average citizen and found an interesting reference guide from the Ontario Government.  HST- Ontario reference guide It  lists what is and isn’t affected…

Surprisingly, a great many things will not be affected, including Resale homes and new homes under $400,000.   Still, this new tax (and I do call it a new tax since I, personally, will be affected negatively) will affect us all one way or another…. Real estate commissions, lawyer fees, death (yes, funerals are now subject to retails sales tax), hockey arenas, gym memberships, karate classes, ballet classes, soccer, hockey (yes, our national sport),  haircuts and many other services….

New home purchases over $400,000 are eligible for a $24,000 new housing rebate (must be your principal residence).

This new tax may not be popular and I question the timing of it’s introduction (coming out of a recession), but I don’t think this will have a huge impact on the majority of us.  HST Day is coming….take a look at the reference sheet and see how it will affect you…  What do you think?

Are our Personal Debts too high?

2 reports came out recently that received  much air time on TV, Radio and Internet.   Let’s look at these reports from the CBC

1-The Certified General Accountants Association stated that the average Canadian’s debt is $41,740 per person….Apparently, it’s among the worst of the 20 most advanced countries in the world…

Well, let’s think about that for a moment ask some questions….

  • I wonder how many people have borrowed to invest lately?
  • $44k per person… is this a high number?  I mean, what does a basket of goods cost in some of these other top 20 countries like, Greece, Hungary, Poland or the U.S.?  Aren’t things more expensive in Canada?
  • Canadians have a reputation of being conservative….are we borrowing wisely?  Could it be that Canadians are taking advantage of these record low rates to borrow for rrsps, resp, stocks, real estate or other good investments?

2- The Canadian Association of Accredited Mortgage Professionals reported that 475,000 Canadians would be challenged if their mortgage rate went above 5.25% and 375,000 were already facing pressure to pay their bills.

  • I spoke with a contact at Canada Mortgage and Housing Corporation (CMHC) and Genworth Financial, the mortgage insurance companies that insured hi-ratio mortgages.   There was no indication that Mortgage defaults were a problem.
  • I have not seen any reports that show our Mortgage defaults are in trouble.
  • Canada is near or  has the lowest mortgage defaults among the top 20 countries.
  • why would you take a 5 year fixed rate at 4.59% (today’s rate) when you could get 1.70% with a variable rate?  How long will it take before variable rate reaches 5.25%?   2, 3, 4 years or more or never?  Where will our debt load be at that time?

I think the confidence level in Canada is strong…  let’s keep it that way…    Spend and borrow wisely…

Toronto Real Estate Board reports a 13% increase in sale prices

The Toronto Real Estate Board reported that sale prices are up 13%….The average sale price was $437,600 in April 2010 compared with $385,641 in April 2009.    Resales jumped 34% from last year April… and new listings jumped by 59%… Source National Post.

These figures could be viewed many different ways…. if listings are up, will the supply outpace the demand?  Or are homeowners just doing some profit taking?   Good topic for discussion….  We need to add in affordability to this mix… We’ll cover this further in the coming months.

Major Mortgage Fraud charges from BMO

Yesterday, the CBC reported that the Bank of Montreal was suing several hundred people in an alleged mortgage fraud scam that might well be the largest of its kind ever reported in Canada….

Here are the highlights or lowlights…

  • $140 million involved in this scheme.
  • $70 million of which was phony mortgage money.
  • BMO may lose $30 million.
  • it is alleged that lawyers, mortgage brokers and even some BMO employees took part in this massive fraud.

LOOK AT THE APPRAISAL PROCESS

What’s interesting is that they mention the ‘desktop appraisal services’ in the article… this stood out for me… an appraisal has always been part of the credit underwriting process.. Lenders want to know their security or collateral is of good, marketable quality in case of default….  But with the goal of trying to do more with less, several Banks started offering clients so-called FREE APPRAISALS… that wasn’t entirely true…

Banks must demonstrate to their shareholders that they perform proper due diligence before granting credit.  Rather than pay the $250 or $300 for a standard appraisal, we saw the introduction of a desktop appraisal…  Imagine trying to look at a computer screen and try to determine the value of a property in downtown Toronto, Vancouver, Calgary, Edmonton or any other city where house prices vary from block to block… it’s almost impossible without visiting the property personally…

Hopefully, the senior management at the Banks and other mortgage lending institutions will review their credit adjudication process and realize that it’s worth paying $300 to get that peace of mind…

Playing devil’s advocate, the crooks can employ the services of a corrupt appraiser but most Lenders have an ‘Approved Appraiser’ list…. it’s more difficult to get a bad appraisal this way… ..

MORTGAGE FRAUD IS NOTHING NEW

Mortgage Fraud occurs regularly…  it just doesn’t get reported often…that’s because the banks don’t want the bad publicity.   It would be helpful to know if fraud is growing or slowing….  This latest report doesn’t sound like it’s slowing…

Bank hikes are questioned by the media

Just can’t leave this one alone…

The Globe and Mail ran a great article about the recent mortgage rate hikes by the Big Banks…..Seems like more of us are questioning the latest round of fixed rate increases….

The article gave some great stats that I wanted to share… First, we should point out that Fixed rates are affected by the Bond Market for the most part but Banks also raise money through GICs… Variable rates are affected by the Bank of Canada Key Lending Rate…. with that in mind…. here are the stats from the article….

10 YEAR AVERAGE…

  • 5 yr Bond 4.05%
  • Big Bank 5 yr posted fixed rate 6.75%
  • Big Bank 5 yr GIC 3.31%

THIS WEEK’S NUMBERS…

  • 5 yr Bond 3.02%
  • Big Bank 5 yr posted fixed rate 6.25%
  • Big Bank 5 yr GIC 2% to 2.1%

Has to make you wonder…?

Bond Market down but RBC increases rates again?

Yes, it’s true….yesterday, RBC lead the way with another interest rate hike on their 5 year  fixed mortgage… followed by TD and Laurentian Bank….  It was a 0.15% increase for a new 5 year Bank Posted rate of 6.25%.   This marks the 3rd increase in a month.

This latest rate increase is leaving many puzzled as the Bond Market has remained somewhat flat… the 5 yr Bond yield is currently 3.07%.   A fully discounted 5 year fixed rate at TD can be had for around 4.79%.. that’s giving a huge spread of 1.72%… well above the 1.20% to 1.30% that Banks normally seek….

Okay, so why would the Banks increase the fixed rates?   Sometimes Banks price themselves out of the market when they achieve their market share… and sometimes it’s just profit taking…. But don’t settle for these rates if you are looking for a Fixed rate.. the Broker Market is still offering much lower rates and the Variable rate mortgage can be had for around 1.70%….

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