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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.

These Eggs do belong in one basket

Our parents taught us to pay our mortgage off quickly… Great advice, but they forgot to tell us to not incur other debt while we were paying that mortgage off….

A few years back, there was a study done about Debt Diversification by Moshe Milvesky, Associate Professor of Finance at Schulich School of Business Milevsky debt review.   The study showed that we were using the old rule of ‘Don’t put all your Eggs in One Basket’ and applying that to our debts.   And this is exactly what you should NOT be doing…

Investment diversification is GOOD, Debt diversification is BAD.   The study used $95,000 as a typical amount of diversified debt and $2,700 in idle cash…. the conclusion is that this combination results in a $1,000 loss per year by not managing debts properly.

If you have equity in your home and you carry a balance on your credit card, line of credit, or have a car loan or student loan, then you should consider utilizing the equity to borrow at the lowest rates possible… Residential Mortgages are always the cheapest form of financing…

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.

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