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Posted 5 Comments on Beware of your Bank’s ‘special’ renewal offer…. it could cost you dearly. Mortgage Rates

Beware of your Bank’s ‘special’ renewal offer…. it could cost you dearly.

Spring is the home buying season.   Summer is the mortgage renewal season.    It’s been that way for as long as I can remember.   Most of us want to move in the summer months when it’s warmer and when kids are out of school.

Once again we’re seeing the BANKs calling borrowers ahead of their actual renewal date.    And once again, they’re counting on you believing they have your best interest at heart.   And once again, I’m here to warn you against signing those offers without having a discussion with your Mortgage Broker.   In most cases, if not all, those offers aren’t that ‘special’.

Here’s just one example of that trust costing this Scotiabank client $3,000.

Just this week, Scotiabank offered one of my clients a renewal at  3.49% for a 5 year fixed rate…Does sound familiar to anyone?  It sounded great to him.   But for some reason, the client didn’t return my calls, my emails or letters about their upcoming renewal.   And I can understand, sometimes life just gets in the way.   Besides, it’s Scotiabank…surely, they’ll have this repeat client’s best interest in mind?   Surely, they will offer him the absolute best rate?

Guess again…  By signing that renewal, and not calling me to verify how competitive the interest rate really was, the client will end up paying around $3,000 more in interest charges over the next 5 years… on a $200,000 mortgage balance.   Today’s best 5 yr fixed rates are hovering around 3.19%.   The real cost could actually end up being more than $3,000 if the client needs to refinance or pay the mortgage off before the 5 years is up.   That’s because Scotiabank, like the rest of the BIG SIX BANKs, uses a prepayment penalty calculation that has the client paying for the original discount given at the time of mortgage funding.    This method of calculating penalties is NOT used by all Lenders but it IS used by all of the BIG SIX BANKs.

But we need to also be aware of other Lenders that are offering those too good to be true deals… If you see lower rates, beware.. there’s probably a catch.   It could be a NO FRILLS mortgage or some sort of hidden exit fee or penalty.

Don’t take any chances….  Call your Mortgage Broker.  One phone call could have saved this client $3,000.   If you don’t have a broker, feel free to call me.  We’re here to help.

Steve Garganis

1 866 812 0516

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

Posted 4 Comments on Real Estate Investments outperform stock market Real Estate news

Real Estate Investments outperform stock market

Saw this article in the Financial Post over the weekend…  great stats about timing real estate investment…  There is a growing fear that interest rates will rise causing affordability to decline… Okay, for now, let’s say that we do except that the global and US economies will suddenly improve  and govts can then raise rates…. Should this stop you from buying real estate?   Is this a bad time to invest?

According to the stats in this article, the answer is NO.   From 1992 to 2011, the average house in GTA increased from $214k to $465k.  That’s 116% increase or a compounded annual return of 3.94%   But if you factor in just enough rental income to cover your costs, then your return jumps to 11.40%…. compared with the TSX index return of 8.69%.   And hey, we didn’t factor in any rent increases…rents have also climbed dramatically over the past 20 yrs…

But what if you bought during the peak of 1990, just before prices dropped….  well, your return would still outperform the TSX index with a 8.94% annualized return.    And now let’s really think about this for one second…. How many people out there have actually invested in the TSX index?   I mean, come on…  No stock broker or Investment Advisor I know has ever recommended that.. they never do.. they pick mutual funds, stocks, etc…  and guess what?  I’ve yet to hear from anyone out there that has made a good return in the last 20 yrs…  In fact, most people I hear from tell me they have lost or just broken even…

Now, combine this info with the fact that we are still enjoying RECORD LOW interest rates and it’s very easy for me to say, I’d rather buy property than ride the stock market roller coaster…

There are some things to consider before buying that rental property…  how long should you plan to buy and hold?  What are the possible negatives?  Can you deal with tenants?   etc… but this is just some fact-finding… the knowledge is out there… it really isn’t that hard to do… you just need to ask questions and get informed.. it is possible..   If you need some advice on buying rental properties, send me a note and I’ll be happy to share my advice and strategies.

EVEN AMANDA LANG……?

One more thought… I was watching Amanda Lang on CBC a few weeks ago… she’s well spoken and very bright… but I have to take exception with one of her comments….  It was during a round table discussion… I only caught a bit of it but she made reference to real estate not matching inflation over the long-term… she was advocating other options for us to invest….  Come on Amanda, really?   Do you want to take  poll and see how many people have lost money in stocks and mutual funds??    And then let’s compare with how many have made or lost with real estate?

I don’t know about you, but my stock and mutual fund performance has been an on-going roller coaster ride with my Financial Advisors giving me the same speech for 24 years.. you know the speech… it’s from the movie, the Boiler Room with Ben Affleck, Vin Diesel and Giovanni Ribisi…   “don’t sell when it’s low…buy more, this stock is gonna come back….”  Last I checked, the most wealthiest people made their fortunes in real estate….   Sorry Amanda, I can’t agree with you on this one…