Three Big Mortgage Complaints

When it comes to complaints about banking products, mortgages are second only to credit cards.

That’s according to the banking Ombudsman’s (OBSI’s) recently-released annual report, which lists three of the most common grievances from mortgage customers.

“We are seeing a lot of complaints related to mortgages…” Brigitte Boutin, Deputy Ombudsman, Banking Services said in the report. Those complaints revolve mainly around mortgages prepayment penalties and pre-approvals, but it seems that mortgage portability has also “become a bigger issue.”

The Big One: Penalties

The Ombudsman sees a constant stream of borrowers protesting their bank’s prepayment charges. Those complaints are usually dismissed after an appropriate investigation, with a finding that the bank did nothing wrong.

OBSI says:

“When investigating mortgage prepayment penalty cases, we examine the signed agreements between the client and the bank and review the accuracy of the penalty calculation.

We also look at the manner in which the client was informed of the penalty before they proceeded with the mortgage transfer.”

A common claim by customers is that they were not told how the bank calculates its mortgage prepayment charges. Frequently the problem stems from the comparison rate changing before the borrower can pay off the mortgage.

The comparison rate is the rate the bank compares to your rate, to judge the interest rate differential, or IRD (i.e., determine the difference between your rate and the rate the bank can supposedly lend at today, for your remaining term).

Timing is key. If you’re 2.5 years from maturity, for example, the comparison rate might be the three-year fixed rate (say 3.04%). If you’re 2.49 years from maturity—one day closer—the comparison rate might be the two-year fixed rate (say 2.59%). The actual comparison rate used can increase the IRD and lead to unexpectedly high penalties.

In any case, with all the prepayment regulations nowadays, lack of disclosure is getting harder to argue. In one case on its website, OBSI found that: “The fact that the client was not told all the specifics of the calculation did not change the fact that he had the necessary information to make an informed decision.” OBSI ruled in favour of the bank in that instance.

Portability Caveats

“People sometimes take for granted that their mortgage is portable before selling their home,” Boutin said in the report. “It’s interesting – we’ve seen cases where the bank refused portability because the borrower’s financial situation no longer met the bank’s lending criteria. However, the client was able to get approved somewhere else right away.”

She raises a key point that all borrowers should be aware of. Given that the property is the lender’s security, you can’t move your mortgage to a different home without the lender’s consent.

Porting requires a whole new application process, documentation and approval. Failing that approval, people with closed mortgages have little choice. They can either not move or they can pay the lender’s penalty (potentially thousands of dollars) to discharge the mortgage and find other financing.

Boutin adds: “A bank can refuse to transfer a mortgage from one property to another because the client’s situation has changed and we can’t force a bank to lend money when its lending criteria is not met.”

She advises: “…Read the terms in your mortgage agreement carefully. Check if there are certain criteria related to portability and check if you meet your lender’s criteria before deciding what to do.”

Common portability considerations include:

• the amount of time the lender gives you to port
• the rate the lender gives you if you “port and increase” (add more money to the mortgage)
• the lender’s policy on bridge loans (commonly needed when your new purchase closes before your sale)
• the type and location of property the lender will lend on, and
• the types of income the lender allows (e.g., key, for example, if you become self-employed and can’t prove income in the traditional manner).

Pre-Approvals

“…We’ve seen an increased number of files relating to mortgage pre-approval,” Boutin notes. “Banks may not verify everything in detail when they pre-approve a mortgage. Then, when people go to finalize a mortgage, the bank will ask for more information and for supporting evidence of what was previously disclosed.”

“Sometimes that new information will lead the bank to change financing terms or refuse financing altogether. People can then get caught, especially if they removed the condition for financing on their offer to purchase a home.”

I’ve written about pre-approvals many times and continually hear cases where people thought they were unconditionally approved, but hadn’t even provided income and down payment documentation. Often it’s a matter of the mortgage adviser not clearly explaining that pre-approvals are rarely fully underwritten (including by the default insurer, when the down payment is less than 20%).

“A pre-approval document indicates certain conditions that need to be met,” adds Boutin. “Be careful that you’ve given the right information to your bank and that your documents match (emphasis ours) what you provided at the beginning of the mortgage process.”
 -Robert McLister

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Federal Regulator Tightens Up

On how borrowers may fare:

Mortgage applicants, particularly foreign borrowers and self-employed applicants who don’t earn a traditional T4’d salary, should expect to be asked for more income documentation (e.g., tax documents, pay statements, bank account statements, etc.)
Some homeowners who can’t prove income in the traditional manner will be pushed into the arms of non-federally regulated lenders (credit unions, mortgage investment corporations and private lenders).

In turn, more of those borrowers will be forced to pay interest rate premiums, as federally regulated lenders have traditionally provided the lowest cost of borrowing in this market.

Lenders will make fewer debt-ratio exceptions. As a result, a small percentage of borrowers will see their requested loan sizes cut back.

In certain cases, homeowners with rental income will not be able to use as much of that income to qualify for their mortgage.

Lenders may no longer be able to rely on the 5-year posted qualifying rate (currently 4.74%) when measuring a borrower’s debt ratios. If this qualifying rate is raised, it will further restrict credit (maximum loan amounts) for borrowers with above-average debt loads.

Some lenders may start calculating and relying on more conservative lending values, as opposed to normal appraised values. This could slightly reduce the equity available to homeowners, a key consideration for those who want to refinance up to 80% of their property’s value (the current refi limit for prime mortgages).

Allow yourself choice. Contact a Mortgage Broker. We work for you. 


- Posted by Steven Porter, Mortgage Agent - Mortgage Architects
Steven can be reached through his website at www.1800Mortgages.ca

Renovation spending expected to rise in 2016 as people just can’t afford to move

Housing gridlock — that’s what realtors call it. Affordability issues leave you stuck in your existing home, but looking for a better living space.

About the only move left for Canadians demanding a better home has been to renovate the one they have, which has led to record levels of spending on home improvement. A new survey from Canadian Imperial Bank of Commerce out Wednesday suggests that Canadians are now turning their attention to landscaping — a renovation that doesn’t do much for the appreciation of home values.

The findings from the bank might be another clear sign that Canadians are settling into their current houses because of the state of the market, which is increasingly being choked by a lack of affordability.

“The shift in focus from indoors to outdoors is surprising,” said Barry Gollom, vice-president, mortgages and lending, with CIBC.

Between May 19 and 25, 2016, Angus Reid surveyed 2,129 people online about their renovation plans. The top project was basic maintenance, cited by 54 per cent of respondents, down slightly from 55 per cent in 2015. The big jump was in landscaping, with 42 per cent of respondents planning some type of project, up from 25 per cent a year ago.



Gollom said “landscaping, patio and deck,” is a growing phenomenon and might indicate that people have spent so much money inside their house, that they are now turning their attention to the outside.

Separately, Altus Group has noted that renovation spending in 2014 was $20 billion more than was spent on new homes that year. In 2015, Canadians spent $70.1 billion on renos and Altus forecasts that figure to climb to $71.4 billion this year.

The CIBC survey backs that up, with the average renovation project coming in at $13,017, up from the $12,293 average in 2015, although the bank says only 37 per cent of Canadian homeowners plan to renovate this year versus 40 per cent in 2015.

Bathroom renovations were cited by 33 per cent of respondents, down from 40 per cent in 2015. Only 26 per cent plan to update a kitchen in 2016 versus 31 per cent who said they would in 2015.

“I think the shift has gone from seeing renovation as an investment — the return you see from a bathroom or a kitchen tends to be much higher than on landscaping,” said Gollom. “I think there is focus on quality of life versus the return.”

Interestingly enough, renovation spending is highest in struggling Alberta, with the average homeowner planning a project worth an average $22,951, up from $13,520 a year earlier. In British Columbia the average project is expected to drop to $15,522 from $16,639, while in Ontario panelists said their spending would drop to $13,878 from $15,487 a year earlier.

Benjamin Tal, the deputy chief economist with CIBC, says renovation spending has “mostly stabilized” at this point but at a “very high level” he doesn’t expect to decline very soon.

“At first you had a lot of pent up demand from the recession in 2000 and that was behind much of the activity in the first half of the last decade, but in the second half after 2008-2009 you had the beginning of a new trajectory,’ said Tal, adding that the current renovation market is driven by housing prices. “Basically, people are unable to buy what they want.”

The lack of available product has been cited by real estate boards in both Toronto and Vancouver, which have been the driving forces of the housing boom in Canada. In May, detached home prices rose 36.9 per cent from a year earlier in Metro Vancouver to $1,513,800 and in the Greater Toronto Area detached home prices rose 18.9 per cent during the same period to $986,691.

Brad Henderson, chief executive of Sotheby’s International Realty Canada, said he can’t say exactly how directly this housing gridlock is leading to renovation, but it’s part of what is driving home repairs.

“Whilst people are fascinated by the price of homes, more and more people are not selling because, by the time I sell, pay commissions, pay land transfer tax, and go through the hassle of moving I may not be any better off than I am. So, what I’ll do is renovate and just stay where I am,” he says. “As more and more people choose not to put homes on the market it just encourages upward pressure on prices.”
- Financial Post

Find out how to easily finance your home renovation project here

- Repost by Steven Porter, Mortgage Agent - Mortgage Architects
Steven can be reached through his website at www.1800Mortgages.ca