TagFederal Government

Posted January 2, 20131 Comment Interest rates

Personal Debt levels and Mortgage Debt levels

Unless you’ve been living under a rock for the past 4 years, it’s impossible to not know the Federal govt’s concern about Canada’s Personal Debt level. The media has covered this topic extensively. After all, bad news sells more than good news…..

Here’s some current stats from Statistics Canada that really gets my blood boiling!…. We now carry a total debt load equal to around 164% of our annual household income. That’s at an all-time high…. The govt is convinced that we are spending too much or our income towards real estate… They have made numerous changes to mortgage lending rules that make it much tougher to qualify for a mortgage. If there really is a problem, why is the govt focusing on low-interest rate products like mortgages?

Current mortgage rates are at around 3.00%. Current credit card rates range from 9.99% to 19.99%….personal loan and car loan rates range from 6.00% to 9.00% and up. Aren’t low-interest rate products better than high-interest rate products? We have not seen any changes to these non-mortgage debt products…. Who benefits from higher rates? Yup, your banker!… Continue reading “Personal Debt levels and Mortgage Debt levels”

Posted December 18, 20122 Comments Case study

Fed govt, BIG SIX BANK’s pushed us into Fixed rates!…part 2 of 2.

IT’S NO COINCIDENCE THAT THE BIG SIX BANKS CONTINUE TO REPORT RECORD PROFITS.

The Bankers were onto something. Now if they could only keep Variable rate pricing higher or make it tougher to get a Variable rate mortgage…. In 2010, the Fed govt would help increase those Bank profits…All new Variable rate mortgage borrowers would need to qualify at the Bank posted 5 year fixed rate. The Feds said they had to tighten Mortgage Lending Rules… They had to make it tougher to qualify for a mortgage with fluctuating interest rates to ensure we would not have a ‘housing bubble’ and a ‘mortgage default problem’… This pushed out 5% more borrowers from qualifying for, and benefiting from Variable rates. And by the way, at that time, Variable rates ranged anywhere from 1.50% to 1.95% compared with the best discounted 5 yr fixed rate of 3.89%…..! Anyone seeing a pattern here? (Some stats to remember…Mortgage defaults have been under 0.50% for over 15 years are currently at around 0.33%… this is at or near record lows!!… so where’s the problem??)

This is also when the BIG SIX BANK’S inflated, and unfair mortgage penalty calculation came to light. The lower rates became, the higher mortgage penalties climbed… $10,000, $20,000, $30,000 in mortgage prepayment penalty charges were popping up in mortgage blogs and news sites. Even the media had to jump in and cover some of this… And when Canadians needed a break in their mortgage payments, they were left out in the cold. These inflated penalties made it impossible to get out of their higher Fixed rate mortgages without paying an enormous penalty. Continue reading “Fed govt, BIG SIX BANK’s pushed us into Fixed rates!…part 2 of 2.”

Posted December 17, 2012 Case study

Fed govt, BIG SIX BANK’s pushed us into Fixed rates!…part 1 of 2.

VARIABLE RATE MORTGAGES WERE THE BEST OPTION

For years, I’ve promoted the merits of Variable rate mortgages vs Fixed rates. To me, it was a no-brainer. Historical stats showed that you would save over 1.00% on your mortgage, per year, every year (some years had savings of over 3.00%!). Do the math… That works out to $1,000 to $3,000 per year for every $100,000 of mortgage.

And for years, the BIG SIX BANKS, the Bank of Canada, the Federal govt and other fear-mongers pointed out that Variable rates fluctuated and your rates would change and possibly go up…

If you were able to block out these warnings, do a little research, then you may have been lucky enough to enjoy the huge savings that Variable rates gave us over the last 15 years… Fortunately, over 80% of my clients listened to my advice and chose Variable rate. But even at the height of Variable rate popularity, just 45% of Canadians were ever in a Variable rate product at any one time. Today, it’s less than 15%.

In 2008, the U.S. sub-prime mortgage crisis hit. Financial markets were in turmoil. New Variable rate mortgages were either pulled from the shelf or were priced so high as to make them an unattractive option (prime plus 1.00% with some Banks).

BEGINNING OF THE BANKS HIGHER PROFITS

The Banks actually liked this. After all, the most profitable mortgage product is the 5 year Fixed rate. Not hard to figure out. The lower the interest rate, the less the Bank’s make. This became a great opportunity for the Banks to reduce their Variable rate exposure… And so began the great campaign to force us into 5 year fixed rate mortgages. (by the way, these inflated Variable rate prices only lasted around 6 months…we’re not back to the good old days of Prime less 0.90% but anything at Prime less 0.50% or better is worth a look….it’s worth noting for the record that I still didn’t recommend 5 year fixed rates to my clients during this time… I recommended shorter term fixed rates ranging from 6 months to 3 years and then went back to Variable rate… history has shown that this was the right strategy).

Starting in late 2008, and continuing today, Bankers would call, email or write letters to their Variable rate mortgage clients to warn against higher rates coming… and they should consider locking into a 5 year fixed rate mortgage. There were many reasons given… a bad economy… uncertainty in the financial markets… or my favorite, a special rate offer (it was special alright! Lol!!)… And the media jumped in too. TV, radio, newspapers, major news websites…how many times have you have heard the warnings about rising mortgage rates??…or record personal debt levels?? This created an even higher level of uncertainty and fear… Mr. Potter would be proud!

Think about it… The Banks were strongly recommending that Variable rate clients go from a rate of 3.25% or better, and into a 5 year fixed rate of 5.50%!!? (November 2008). And the worst part about all this is that hundreds of borrowers listened and did it… and have regretted it ever since!!! Where’s your Banker now?…

watch for part 2 of 2… FED GOVT, BIG SIX BANK’S pushed us into Fixed rates!… tomorrow!

Getting a mortgage today? Speak with a Mortgage Broker…and think twice about sticking with your BANK…. you could just save yourself $thousands.

As always, I welcome your comments and questions. Let me know if I can help.

Steve Garganis 416 224 0114 steve@mortgagenow.ca

Posted June 21, 2012 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…:

The maximum amortization for insured mortgages or those with less than 20% down payment will be 25 years.
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.
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…
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 May 31, 2012 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