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Posted by: K.C. Scherpenberg
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Posted by: K.C. Scherpenberg
And when it comes to such charges – the penalties you pay come when you back out of your mortgage early – some lenders take a greater toll on your bank balance than others.
Big banks are usually the worst. Mortgage finance companies are often the best.
And these bank competitors want you to know it. More and more, smaller lenders are using their preferential penalty calculations as a selling point, as well they should.
This year I’ve seen lenders such as Equitable Bank, Manulife Bank of Canada, XMC Mortgage Corp., Merix Financial, CMLS Financial Ltd., RFA Mortgage Corp., First National Financial LP, and MCAP all go out of their way to step up marketing and educate consumers on how bad penalties from major banks can be. (Mind you, a few of these lenders also have “no-frills” mortgages with high penalties – for example, 3 per cent of principal. So watch out for those.)
A fair-penalty lender calculates its standard prepayment charges, for lack of a better word, “fairly.”
It does so by comparing your actual mortgage rate to a rate equal to (or close to) what it charges new customers for a time frame similar to your remaining term.
Unlike Big Six banks, fair-penalty lenders don’t use arbitrarily inflated rates (“posted rates”) in their calculations. That only serves to drive up penalties.
So why doesn’t everyone get a mortgage with a fair penalty lender?
Well, because most people are conditioned to pay more for big bank financing. Among other things, they trust the brand, like the convenience or like knowing they can walk into a branch to talk to someone if there’s ever a problem (although, for most people, mortgage problems after closing aren’t too common). And the cost of that convenience is steep.
Suppose you’re a major bank customer with a regular 3.19 per cent $300,000 five-year fixed mortgage that you got one year ago.
Now imagine you:
In these scenarios, one popular bank would charge you an interest rate differential (IRD) penalty of roughly $16,800 to exit your existing mortgage.
Compare that with just three months’ interest (about $2,400) at a “fair penalty lender.”
To put that another way, the extra $14,400 you’d fork over to the “less fair” lender would be like paying an 8.19-per-cent interest rate versus the 3.19 per cent. That’s astronomical. These days, determined mortgage shoppers do backflips to save even a 10th of a percentage point off their rate, let alone five whole points.
Some big banks are kinder than others when it comes to helping you avoid prepayment pain. The better ones let you add money to your mortgage without penalty, offer early renewal options and have flexible portability rules.
But more often than not, you can find a similar mortgage from a fair-penalty lender for a comparable price or better – without the penalty shackles.
If you’re dead-set on a big-bank mortgage and want to lower your exposure to heinous fixed-rate penalties, consider a short-term fixed or variable rate instead – if it’s suitable for you. By suitable, I mean you have a tolerance for potentially higher rates sooner than five years and you have no problems getting approved for a mortgage.
These days, with so many people taking fixed rates because they’re cheaper than variable rates, banks stand to make a killing on prepayment charges. That’ll be especially true if recession hits and rates fall further. We come across people almost every week who’d love to refinance at today’s lower rates, but they can’t because their bank penalty is too harsh.
The time has come to heed this lesson as borrowers. Big-bank IRD penalties clearly overcompensate banks for the legitimate expenses they incur when a customer backs out of a mortgage early. The more that people demand fair penalties, the more pressure it’ll put on Canada’s six biggest lenders to change their methods.
Posted by: K.C. Scherpenberg
Housing prices are ticking up again, with the national average price for homes sold in September reaching $515,500, according to the Canadian Real Estate Association’s latest report.
Rising prices puts prospective home buyers into a dilemma when it comes to saving for a down payment. Putting down the minimum five percent on a $500,000 home gets you into the housing market for a reasonable $25,000. Saving up a 20 percent down payment, on the other hand, avoids costly mortgage default insurance premiums (mortgage loan insurance from Canada Mortgage and Housing Corporation).
Note that the minimum amount required for a house down payment depends on the purchase price of your home. Homes valued at $500,000 or less need a down payment of five percent, while homes valued between $500,000 and $999,999 require five percent on the first $500,000 and 10 percent for the portion above $500,000. Home buyers need to put down 20 percent on homes valued at $1 million or more.
There are pros and cons putting down more or less on your home purchase. I reached out to Robert McLister, mortgage expert, to discuss house down payment options.
Pros and Cons of a 5% House Down Payment
Pros: The obvious advantage to making the minimum five percent down payment is there’s less capital required to become a homeowner and reaching that threshold requires less time to save.
“So many young buyers stay on the sidelines scrimping for a bigger down payment only to see home prices run away from them,” says McLister.
He points to the past two decades of price growth as evidence that getting into the market quicker can pay off, “provided home buyers don’t overextend themselves.”
Putting down less than 20 percent requires the buyer to purchase mortgage loan insurance to protect the lender against default. While the borrower must pay those insurance premiums, McLister says an advantage to having an insured mortgage will give you access to the lowest interest rates available.
A five percent down payment is also compatible with the First Time Home Buyers’ Incentive – the shared equity mortgage with the Government of Canada – and other governmental home subsidies.
A deliberately smaller house down payment can leave a borrower with a larger cash cushion, saving for more immediate closing costs and furnishings, or simply retaining more money for emergencies and other needs.
Another advantage is that automatic monthly mortgage payments create a forced savings plan for those who might otherwise squander that money away as a renter.
Cons: The financial impact of putting the minimum amount down on your home is that it comes with a 4 percent default insurance premium. While this amount can be rolled into the mortgage, it creates a highly leveraged situation with risk of negative equity should home prices fall.
“On day one you’re almost 99 percent financed. It doesn’t take much of a home price selloff to trap you in your home, preventing a sale,” says McLister.
A five percent down payment also means more interest expense over the life of your mortgage, compared to a larger down payment.
Note that the amortization for buyers with 5 percent down is limited to 25 years. The property also cannot be a non-owner-occupied rental property.
Another caveat to consider: Prospective home buyers can borrow the 5 percent down payment (even from a credit card) so long as they meet the lender’s debt limit ratio. This means, “they can essentially owe more than their home price on day one,” says McLister.
Pros and Cons of a 10% House Down Payment
Pros: A down payment of 10 percent gets you all the benefits of a 5 percent down payment, plus saves you money on insurance premiums (borrowers pay 3.1 percent instead of 4 percent).
An increased down payment also allows you buy a more expensive home. For instance, a 7.5 percent down payment makes it possible to purchase a $999,999 home.
Finally, a 10 percent down payment increases the chance you’ll be able to refinance at the end of a 5-year fixed term. That’s because refinancing typically requires a loan-to-value (LTV) ratio of 80 percent or less.
Cons: A 10 percent house down payment still means the borrower must pay mortgage default insurance premiums of 3.1 percent.
Your purchase price is also capped at $1 million, while your amortization is limited to 25 years. The property cannot be a non-owner-occupied rental property.
Also consider that 10 percent is the minimum down payment if
*** from Rob McLister at Ratespy***
Posted by: K.C. Scherpenberg
THE BLOG
Big-Bank Mortgages Are Comfortable, Popular And The Worst Deal Around
Why do we stay with them??? Complacency is a big reason. A lack of knowledge is another.
02/07/2019 11:43 EST | Updated 22 hours ago
Justin Thouin Co-Founder and CEO of Lowest Rates
RBC. TD. BMO. Scotiabank. CIBC. National Bank of Canada…. The Big Six.
Whenever one of these major Canadian banks tweak their mortgage rates, it makes headlines. Like last month, when RBC dropped its five-year fixed-term mortgage rate by 0.15 percentage points (or 15 basis points) to 3.74 per cent. Every major news outlet in Canada picked it up.
But here’s the thing about the bank’s posted mortgage rates — they shouldn’t matter. The big banks never offer the lowest mortgage rates in the market and those are the ones you want to pay attention to.
Canadians pay attention to the big guys, however, because they’re either too comfortable to make a change or simply not aware they’re being taken for a ride. The banks have a 90-per-cent stranglehold on the Canadian mortgage market and we’ve been slow to start paying attention to the alternative — often cheaper — options out there.
Complacency is a big reason. A lack of knowledge is another.
See, there’s a whole industry of smaller, more competitive mortgage lenders and brokers who never make headlines. They’re often just as established, they’re absolutely just as reliable, and they’re significantly more affordable. So why do we stay with the big banks? Complacency is a big reason. A lack of knowledge is another.
In every unhealthy relationship, there comes a time to say “enough.” And unless you enjoy funding the mega-profitable Big Six, there’s no better time to say it than now.
Here are the two reasons you should ditch your big bank and try out the plethora of smaller lenders out there.
Brokers and smaller lenders often drop their rates first
In a nutshell, here’s how mortgage rates work: lenders (whether big banks or small lenders) lend money to homebuyers in the form of mortgages. Even big banks have to borrow money at times to ensure they can lend money out to meet demand, and they always borrow at a lower rate than they lend it out at. That’s how they make a profit.
Beginning this past fall, the rates that lenders were borrowing at began to fall. For example, in November 2018, a five-year government of Canada bond was costing lenders 2.5 per cent in interest — it’s now costing them around 1.75 per cent. That reflects the cost of lending in the bond market, which helps influence fixed-rate mortgages. But the big banks are only recently starting to pass these savings onto Canadian consumers.
Smaller lenders and brokers began lowering their mortgage rates ahead of the big banks in January — when they should have. But you didn’t hear about those rate change, because small lenders don’t make headlines.
Brokers and smaller lenders had lower rates to begin with
Even if we put aside the fact that the big banks were inexcusably late with the recent rate drop, it still doesn’t make sense to stay with them. That’s because smaller lenders and brokers consistently offer mortgage rates that are way better than those posted by the banks.
Case in point: RBC’s news-making five-year fixed rate of 3.74 per cent would mean a monthly payment of $2,560 on a $500,000 mortgage (assuming a down payment of at least 20 per cent to avoid CMHC insurance, and a 25-year amortization period).
If you took that same buying scenario ($500,000 mortgage, no CMHC insurance, 25-year amortization period) and mapped it onto rate available in the market — which happens to be 3.23 per cent, at time of publication — you’d be looking at monthly payments of $2,426.
That’s monthly savings of $134. Might not seem like much, but over the course of the 25-year mortgage? You’re looking at saving $40,200 by ditching your bank.
So here’s the headline that you should see, but you never will: Canadians are overpaying by staying with their big bank.
Posted by: K.C. Scherpenberg
Daniel Tencer – Huffington post.
With house prices rising sharply in some Canadian cities, the pressure on homebuyers to get into the market has grown intense. We are a homeowner society, after all, and for many people, a house or condominium is the ultimate status symbol.
But with housing moving out of affordability range in Toronto, Vancouver and nearby cities, some buyers are taking dubious shortcuts.
A 2017 survey from credit rating agency Equifax found 13 per cent of Canadians say it’s OK to tell a little lie on your mortgage application. Fully 16 per cent believed mortgage fraud is a “victimless crime.” (Just to be clear: Lying on a mortgage application is, in fact, a crime.)
Watch: Surprising number of Canadians lie on mortgage applications (story continues below)
And plenty of people are acting on this ethos. Equifax found a 52-per-cent spike in what they term “suspicious mortgages” between 2013 and 2016. The vast majority of the increase happened in the provinces with the priciest markets — Ontario, with two-thirds of all suspicious mortgages, and British Columbia, with 12 per cent.
To get a sense of just how big this problem is, researchers at Canada Mortgage and Housing Corp. compared incomes reported on mortgage applications to incomes reported with Canada Revenue Agency, and found that mortgage incomes are systematically higher than incomes reported to CRA, according to a report at the Financial Post.
The researchers found that increases in house prices were linked to an increase in the incidence of “possible income misstatement.” They also found a correlation between this sort of fraud and higher default rates on mortgages.
And that’s the rub: Mortgage fraud is dangerous to our economy, especially in our current era when so much of Canada’s economy is dependent on the long-running housing boom.
If something happens to slow the economy and many households stop paying mortgages, banks will suffer losses and will cut back on lending. That will reduce the amount of money available with which to buy homes, and the whole thing collapses like a house of cards (see: U.S. housing bubble, circa 2008).
Well, now the CMHC wants to do something about it. According to documents obtained by Reuters, the federal housing agency has asked the CRA to take a “more direct and formal role” in verifying incomes.
Unlike in the U.S. and U.K., Reuters noted, Canada’s tax agency doesn’t confirm incomes of mortgage applicants, even if applicants agree to it. The CRA told the news agency it’s now “exploring different avenues” for securely sharing income data with lenders.
If these government agencies come through, lying on your mortgage could become a bit more difficult. Which is a very good thing.
For years in Canada, we patted ourselves on the back for avoiding the U.S.’s housing bust of the last decade. We reminded ourselves constantly that our lending is more responsible than U.S. lending.
But in the wake of the U.S. housing bust, lenders there pulled back and tightened their standards. In Canada, in the intervening years, we’ve done the opposite. Subprime loans — the riskiest kind — have seen an explosion on this side of the border.
No wonder the Bank for International Settlements has repeatedly named our country as a top candidate for a banking crisis. No wonder CMHC wants tighter verification of incomes on mortgages.
If this overpriced housing market comes crashing down one day because too many borrowers couldn’t make their payments, mortgage fraud will prove to be far from a victimless crime. We will all feel that pain.
Posted by: K.C. Scherpenberg
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By Craig Wong
OTTAWA _ The Bank of Canada kept its key interest rate target on hold Wednesday, but hinted that rate hikes could be coming as it noted the Canadian economy was a little stronger than expected in the first quarter.
The central bank held its target for the overnight rate _ a key financial benchmark that influences the prime lending rates at the country’s big banks _ steady at 1.25 per cent.
“Exports of goods were more robust than forecast and data on imports of machinery and equipment suggest continued recovery in investment,” the Bank of Canada said in a statement.
“Housing resale activity has remained soft into the second quarter, as the housing market continues to adjust to new mortgage guidelines and higher borrowing rates. Going forward, solid labour income growth supports the expectation that housing activity will pick up and consumption will continue to contribute importantly to growth in 2018.”
The central bank also said global economic activity remains broadly on track, but added that ongoing uncertainty about trade policies is dampening global business investment and stresses are developing in some emerging market economies.
It noted that recent developments have reinforced its view that higher rates will be warranted to keep inflation near its target, but added that it will take a gradual approach and be guided by the economic data.
“In particular, the bank will continue to assess the economy’s sensitivity to interest rate movements and the evolution of economic capacity,” it said.
Economists had predicted the Bank of Canada would keep its key rate on hold Wednesday, but many have suggested the rate may be headed higher later this year.
The central bank’s decision to keep its trend-setting rate on hold came as inflation sits above the two per cent midpoint of its target range of one to three per cent and core inflation has crept past the two per cent mark for the first time since 2012.
It noted that inflation will likely be a bit higher in the near term than was forecast in its April monetary policy report due to recent increases in gasoline prices, but that it will look through the transitory impact of the fluctuations at the pump.
The central bank has raised its key rate three times since last summer, increases that have prompted the big Canadian banks to raise their prime rates which are used to set the rates charged for variable-rate mortgages and other variable-rate loans.
Its next scheduled interest rate decision is set for July 11 when it will also update its outlook for the economy and inflation in its monetary policy report
Posted by: K.C. Scherpenberg
Getting a mortgage is often the largest financial commitment Ontarians make and many homebuyers find that there are several benefits to using a mortgage broker or mortgage agent. Mortgage brokers/agents provide options and information to guide consumers through the mortgage application process. Some lenders will only work through brokers or agents.
Mortgage brokers and agents are licensed professionals who work for a licensed mortgage brokerage and it is with the brokerage that you enter into a legal relationship. Mortgage brokers/agents can identify a large number of lenders and options for you, although many work directly with just one or two lenders.
Licensed mortgage brokerages and their agents and brokers can act on behalf of the lender, borrower or both. A borrower shopping for the best mortgage should first confirm with their prospective broker or agent that their role will be to act on their behalf. A licensed broker or agent is required by law to provide written disclosure to you about their relationship so that you can decide.
Depending on the type of license, the licensed professional you deal with may be a mortgage broker, or mortgage agent. Here, “mortgage broker” is used broadly to refer to either of these individuals.
Mortgage brokers:
From your initial meeting with a mortgage broker to the closing of the transaction, mortgage brokers are subject to a series of regulatory requirements as well as industry accepted practice standards.
Mortgage brokers are expected to ensure that you, the borrower, understand the relationship you are entering into with the mortgage broker and the services to be provided to you. Mortgage brokers should provide you with information about their role as well as other key aspects of the transaction. The Financial Services Commission of Ontario (FSCO) recommends that you get this information up front so you have a good understanding of the mortgage broker’s/agent’s role, the fees that he or she will charge, the services that will be provided and the information that the mortgage broker/agent will need from you.
When entering into a relationship with a licensed mortgage agent or broker, this is the kind of information you should be asking of them:
It is important to note that if your mortgage is for $400,000 or less, mortgage brokerages in Ontario cannot accept or require you to make an advance payment for any expenses or services that will be offered by the mortgage brokerage or one of its employees, until you sign your mortgage agreement or enter into a new mortgage renewal agreement.
Your mortgage broker may ask you to sign a written service agreement, which is the same as a borrower disclosure. Written service agreements are not mandatory in Ontario but if your broker provides one it will make clear the roles and obligations of the mortgage broker and client.
Mortgage brokers need to obtain information from you in order to advise you of your mortgage option(s) and obtain approvals from lenders.
Mortgage brokers are expected to provide you with option(s) that are appropriate and suitable to your circumstances based on an assessment of the lender, the mortgage, its structure, its features and its risks in light of the information you have provided on your needs and circumstances.
The mortgage broker will also explain his or her rationale for the option(s) that have been identified, provide you with information that will assist you in determining whether you can afford the mortgage and give you material information on the nature, costs and the particular risks of the mortgage option(s) identified for you. This information will help you decide if the mortgage is right for you.
You may be asked to sign a written acknowledgement of the risks associated with the mortgage.
For further information on the risks related to obtaining a mortgage, please read Understand the Risks of Getting a Mortgage.
Mortgage brokers will assess and submit your information to the lender you select from their options for approval. For further information on the application process, please read The Mortgage Application.
The information your mortgage broker provides to the lender must reflect the decision you have made. It must be truthful and consistent with the information you have provided and must not leave out any required information.
Your mortgage broker must submit all the information to the lender in a timely manner. Providing the lender with this information at the proper time ensures they can make the appropriate decision regarding the mortgage.
Mortgage brokers must provide you with certain information to help you make an informed decision about your mortgage. Your mortgage broker will be required to provide you with disclosures that include information on the role of the mortgage broker, the risks of the mortgage, and any potential conflicts of interests.
For further information on what licensed mortgage professionals are required to disclose, or what they cannot require you to do, please read Checklist – Working With a Mortgage Broker/Agent.
Mortgage brokerages, brokers and agents must ensure that actual or potential conflicts of interest in connection with the mortgage are disclosed in writing.
A conflict of interest occurs when the mortgage broker has an actual or perceived personal interest in the transaction. That personal interest could influence the broker to provide advice to you that is in their interests, not yours.
Many things can lead to a conflict of interest, including receiving fees or incentives from other parties in the transaction, being related to another party in the transaction, and acting as a lender or realtor in the transaction.
Mortgage brokers must disclose conflicts of interest and should not place their own interests above the interests of their clients. If the mortgage broker is only representing you in the transaction, he or she has to place your interests first. If you feel that any advice, options or recommendations provided by your broker are not based on your interests, for example that the broker has received an incentive, call the Financial Services Commission of Ontario (FSCO) at (416) 250-7250 or toll free at 1-800-668-0128 and ask for the Contact Centre.
The Financial Services Commission of Ontario (FSCO) licenses mortgage brokers, agents, brokerages and administrators in Ontario. Licensed mortgage professionals have met specific education, experience and suitability requirements.
FSCO maintains a list of all licensed mortgage professionals who have been approved for Licensing under the Mortgage Brokerages, Lenders and Administrators Act (MBLAA). Further verification can be obtained by faxing 416-226-7838, Attention: Licensing & Market Conduct Division. Or, you may write to: Licensing & Market Conduct Division, Financial Services Commission of Ontario, 5160 Yonge Street, Box 85, Toronto, ON, M2N 6L9.
Before agreeing to work with a mortgage broker, you should ask these questions:
If your mortgage broker has a service agreement (not mandatory in Ontario) be sure to read it and discuss the terms and conditions with him or her. It will help you understand the services the mortgage broker will provide and well as any fees, payments or possible reimbursements.
Posted by: K.C. Scherpenberg
From our friends at Mortgage Brokernews,
Costly repairs could be awaiting homebuyers as a new survey shows that owners may be missing some important factors when renovating or carrying out maintenance.
Allstate Canada found that 58 per cent of homeowners are planning to do renovation work but 32 per cent of those are looking at cosmetic projects. The insurance firm says they could be ignoring risks.
“Picking out a wallpaper pattern is much more fun than having to remove it after-the-fact, so taking a step back to see if there are risks brewing under the surface and taking care of those first may help avoid a lot of headache and heartache,” says André Parra, Regional Claims Director at Allstate Canada
For buyers, missed damage such as water leaks, roof infiltration and electrical wiring hazards can mean costs and inconvenience for homebuyers.
A quarter of buyers surveyed said they had problems after buying a home with over half facing costs of at least $1,500. Almost a third said they would have gone about their homebuying experience differently if they could do it again.
Posted by: K.C. Scherpenberg
Bank of Canada maintains overnight rate target at 1/2 per cent
FOR IMMEDIATE RELEASE
Media Relations
613-782-8782
Ottawa, Ontario
24 May 2017
Available as: PDF
The Bank of Canada is maintaining its target for the overnight rate at 1/2 per cent. The Bank Rate is correspondingly 3/4 per cent and the deposit rate is 1/4 per cent.
Inflation is broadly in line with the Bank’s projection in its April Monetary Policy Report (MPR). Food prices continue to decline, mainly because of intense retail competition, pushing inflation temporarily lower. The Bank’s three measures of core inflation remain below two per cent and wage growth is still subdued, consistent with ongoing excess capacity in the economy.
The global economy continues to gain traction and recent developments reinforce the Bank’s view that growth will gradually strengthen and broaden over the projection horizon. As anticipated, growth in the United States during the first quarter was weak, reflecting mostly temporary factors. Recent data point to a rebound in the second quarter. The uncertainties outlined in the April MPR continue to cloud the global and Canadian outlooks.
The Canadian economy’s adjustment to lower oil prices is largely complete and recent economic data have been encouraging, including indicators of business investment. Consumer spending and the housing sector continue to be robust on the back of an improving labour market, and these are becoming more broadly based across regions. Macroprudential and other policy measures, while contributing to more sustainable debt profiles, have yet to have a substantial cooling effect on housing markets. Meanwhile, export growth remains subdued, as anticipated in the April MPR, in the face of ongoing competitiveness challenges. The Bank’s monitoring of the economic data suggests that very strong growth in the first quarter will be followed by some moderation in the second quarter.
All things considered, Governing Council judges that the current degree of monetary stimulus is appropriate at present, and maintains the target for the overnight rate at 1/2 per cent.
Information note:
The next scheduled date for announcing the overnight rate target is 12 July 2017. The next full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in the MPR at the same time.
Posted by: K.C. Scherpenberg
Regulatory changes that would require home buyers in Ontario to provide comprehensive information regarding their citizenship and place of residence are poised to take effect this Monday (April 24), as the province inaugurates the Prescribed Information for Purposes of Section 5.0.1 Form.
The form will accompany the documents involved in land-transfer tax payment. The provincial government said that it launched the form as part of its drive “to support evidence‑based policy development with respect to Ontario's real estate market,” CBC News reported.
The rules, which were announced along with the economic statement last fall, will be applicable to anyone who purchases either agricultural land or a parcel that hosts between one and six single-family properties.
Information required by the new form will include:
- whether the home is intended to be a principal residence or an investment property
- residency, citizenship, and permanent resident status of the individual buying the property
- for purchases involving a numbered company, information on the identity of the corporation’s owner
To facilitate easier transition, the provincial government said that it will be providing a two-week grace period (April 24 to May 5), in which no penalties will be applied to those who fill out the new form incorrectly.
Feel free to contact us at any time if you have any questions or concerns... 705 646 2777 or 705 333 2222 or kscherpenberg@dominionlending.ca We can give you expert professional advice right away for approvals, preapprovals, purchases, refinances, etc...
