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Monday, 16 September 2019
Home and Mortgage eNewsletter - September 2019
Tuesday, 23 July 2019
Mortgage Watch Newsletter - July 2019
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Monday, 9 April 2018
Insured or Insurable?
As if it hasn't been crazy enough for lenders and mortgage brokers alike to understand the mortgage rule changes of the past two years. How are the frontline service people like Realtors supposed to answer questions presented to them from clients who are even more confused with the changes?
In Short:
Mortgages that are insured with "Mortgage Default Insurance" either through CMHC, Genworth or Canada Guaranty typically have one set of qualifying guidelines and competitive mortgage rates;
Mortgages that are not insured with "Mortgage Default Insurance" follow another set of guidelines and have corresponding mortgage rates.
In a nutshell home purchases and previously insured mortgage transfers are insured. Refinances Are Not . . . for the most part.
The Long
Most consumers and Realtors understand that regulated mortgage lenders in Canada can only lend up to 80% of a property's value. Any mortgage loan exceeding the 80% loan-to-value ratio must be insured against default through one of the 3 big insurers. This allows lenders to exceed the 80% threshold up to a maximum loan amount equal to 95% of a property's appraised value. This is also known as a High Ratio Mortgage (or high loan to value ratio).
Now what might not be common knowledge is many lenders insure their own mortgage portfolios against default and pay a required insurance premium for this service. This is true of many monoline, mortgage-only lenders, but even the banks, who use yours and my savings and deposits to securitize their mortgages need to default insure a portion of their mortgage book. What's happening now is these lenders not only have to pay their insurance premiums, they must also have more "Skin in the game" meaning more of their own capital to back (securitize) their mortgage loans according to regulators. Thus, what has evolved from the mortgage rule changes is the terms: Insured or Insurable which reference whether a mortgage is insured, i.e. high ratio mortgage insured against default through a borrower paid premium. Or Insurable, which describes a mortgage that qualifies for mortgage default insurance whether the premium is borrower paid or lender paid.
In either case, you can view both of these types of mortgages as before, High Ratio - Insured and Conventional - Insured. What does change, in addition to whether the insurance premium is lender or borrower paid is the mortgage rate that will be offered to a qualifying borrower. Believe it or not, High Ratio Insured mortgages are offered the best rates. But more so lately, borrowers with loan to value ratios of 65% or less have been offered comparable rates by the same lenders.
The big change has to do with the new term "Uninsurable" mortgage. Basically what this means is that a property that doesn't meet the guidelines as set out in the new mortgage rules does not qualify for mortgage default insurance. What does that mean? First of all, some lenders can't afford to insure and back their own mortgage portfolios so that means they can't take on any new mortgages that can not be insured. It also means a loan to value limitation of 80% of a property's appraised value.
Here's the kicker . . . the following circumstances do not qualify as an Insured or Insurable mortgage: 1) Refinances or Equity Take-out mortgages; 2) Non owner occupied rental units with only one rental; 3) Mortgages for Self Employed with non-traditional income; 4) Mortgages that don't qualify under the new "Stress Test Rate." and for all that, if you do find a lender who will lend in these cases, expect to pay a premium on the interest rate and perhaps even additional rate premiums on top of that for things like rentals, extended amortizations and non conforming income.
So what does this mean for Realtors?
Gone are the days of traditional rate sheets or over-the-phone rate quotes. Now more than ever, Realtors need to enlist the services of a trusted mortgage professional to help them and their clients navigate the mortgage maze and provide information help focus their house hunting efforts.
by Steven Porter, Mortgage Agent - Mortgage Architects
Steven can be reached through his website at www.1800Mortgages.ca
Friday, 19 January 2018
Are you in a Variable Rate Mortgage?
If you're in a fixed rate mortgage, this news does not impact you. Mind you 'impact' is too strong a word to use for the subtle shift in the Bank of Canada rate that occurred this past Wednesday.
In Short
The math is as follows:
A payment increase of ~$13.10 per $100,000.00 of mortgage balance. (unless you are with TD or a specific Credit Union, in which case payments are fixed and change only at your specific request)
i.e. – A mortgage balance of $400,000.00 will see a payment increase of ~$54.40 per month
Personally, we are staying variable, for a variety of reasons...
The Long Version
Qualification for variable rate mortgages has been at 4.64% or higher for some time. This required a household income of greater than $70,000.00 for said $400,000.00 mortgage .
Can 99% of said households handle a payment increase of $54.40 per month? Yes.
Will 99% of households be frustrated with this added expense? Yes.
Ability and annoyance are not the same thing.
Have these households enjoyed monthly payments up to $216.80 lower than those that chose a fixed rate mortgage originally? Yes.
Are 99% still saving money over having locked into a long term fixed from day one? Yes.
Should You lock in?
A more important question is ‘why did you choose variable rate mortgage to start with’? And this may lead to a critical question ‘Is there any chance you will break your mortgage before renewal’?
The penalty to prepay a variable mortgage is ~0.50% of the mortgage balance.
The penalty to prepay a 5-year fixed mortgage can increase by ~900% to ~4.5% of the mortgage balance. A massive increase in risk.
There are many considerations before locking in, many of which your lender is unlikely to discuss with you. It’s to the lenders advantage to have you locked into a fixed rate, rarely is it to your own benefit.
At the moment decisions are being made primarily out of fear. Fear of $13.10 per month per $100,000.00
What about locking into a shorter term?
Not a bad idea, although this depends on two things:
1. Which lender you are with as policies vary.
2. How many years into the mortgage term you are.
If your net rate is now 2.95%, and have the option of a 2-year or 3-year fixed ~3.00% – this may be a better move than full 5-year commitment.
Do not forget the difference in prepayment penalties, this is significant.
Bottom line – Know your numbers, know your product, and stay cool.
These are small and manageable increases.
P.S.
It was a bit disappointing to see logic and fairness fail to enter the picture, after the last two Federal cuts to Prime in 2015 of 0.25% each the public received cuts of only 0.15% each time.
Every single lender moved in unison, not one dropped the full 0.25%.
Amazingly, not a single lender saw fit to increase rates by the exact same 0.15% on the way back up. Every lender has instead increased by 0.25% - a full 100% of the increase passed on to you, the borrower.
Not cool man, not cool at all.
We share all the pain of increases, and get only part of the pleasure of decreases.
-Dustan Woodhouse
Posted by Steven Porter. Steven is a licensed Mortgage Agent with Mortgage Architects, Certified Reverse Mortgage Specialist (CRMS); Seniors Real Estate Specialist (SRES) and Accredited Buyer Representative (ABR) and real estate broker-consultant with 30 years experience in residential real estate. Steven can be reached at 1-905-875-2582; Steven@1800Mortgages.ca or online at 1800Mortgages.ca
In Short
The math is as follows:
A payment increase of ~$13.10 per $100,000.00 of mortgage balance. (unless you are with TD or a specific Credit Union, in which case payments are fixed and change only at your specific request)
i.e. – A mortgage balance of $400,000.00 will see a payment increase of ~$54.40 per month
Personally, we are staying variable, for a variety of reasons...
The Long Version
Qualification for variable rate mortgages has been at 4.64% or higher for some time. This required a household income of greater than $70,000.00 for said $400,000.00 mortgage .
Can 99% of said households handle a payment increase of $54.40 per month? Yes.
Will 99% of households be frustrated with this added expense? Yes.
Ability and annoyance are not the same thing.
Have these households enjoyed monthly payments up to $216.80 lower than those that chose a fixed rate mortgage originally? Yes.
Are 99% still saving money over having locked into a long term fixed from day one? Yes.
Should You lock in?
A more important question is ‘why did you choose variable rate mortgage to start with’? And this may lead to a critical question ‘Is there any chance you will break your mortgage before renewal’?
The penalty to prepay a variable mortgage is ~0.50% of the mortgage balance.
The penalty to prepay a 5-year fixed mortgage can increase by ~900% to ~4.5% of the mortgage balance. A massive increase in risk.
There are many considerations before locking in, many of which your lender is unlikely to discuss with you. It’s to the lenders advantage to have you locked into a fixed rate, rarely is it to your own benefit.
At the moment decisions are being made primarily out of fear. Fear of $13.10 per month per $100,000.00
What about locking into a shorter term?
Not a bad idea, although this depends on two things:
1. Which lender you are with as policies vary.
2. How many years into the mortgage term you are.
If your net rate is now 2.95%, and have the option of a 2-year or 3-year fixed ~3.00% – this may be a better move than full 5-year commitment.
Do not forget the difference in prepayment penalties, this is significant.
Bottom line – Know your numbers, know your product, and stay cool.
These are small and manageable increases.
P.S.
It was a bit disappointing to see logic and fairness fail to enter the picture, after the last two Federal cuts to Prime in 2015 of 0.25% each the public received cuts of only 0.15% each time.
Every single lender moved in unison, not one dropped the full 0.25%.
Amazingly, not a single lender saw fit to increase rates by the exact same 0.15% on the way back up. Every lender has instead increased by 0.25% - a full 100% of the increase passed on to you, the borrower.
Not cool man, not cool at all.
We share all the pain of increases, and get only part of the pleasure of decreases.
-Dustan Woodhouse
Posted by Steven Porter. Steven is a licensed Mortgage Agent with Mortgage Architects, Certified Reverse Mortgage Specialist (CRMS); Seniors Real Estate Specialist (SRES) and Accredited Buyer Representative (ABR) and real estate broker-consultant with 30 years experience in residential real estate. Steven can be reached at 1-905-875-2582; Steven@1800Mortgages.ca or online at 1800Mortgages.ca
Friday, 5 January 2018
To Bond or Not to Bond
For decades, most home mortgage loans made in Canada were made by the big banks and other “A” lenders and guaranteed through mortgage default insurance backed by the government’s housing agency, CMHC. In late 2016, government regulators tightened the requirements for borrowers qualifying for that insurance, resulting in more people doing without it.
Approximately three-quarters of the mortgages made by federally regulated banks last year didn’t have government backed mortgage default Insurance. Nearly half the nation’s $1.5 trillion CDN home loans are now uninsured against default according to Bloomberg News. For lenders, consumers’ growing demand for loans with no government backed insurance creates a problem .... mortgage funding.
“The market has to come up with a solution. Otherwise there will be no financing available for mortgages.” says Moti Jungreis, head of global markets at Toronto-Dominion Bank’s TD Securities
Under the new Canadian mortgage rules, it could make sense for more lenders to package uninsured mortgages into bonds, which over time could become a cheaper and more reliable form of funding while giving a boost to the Mortgage bond market.
Without that backing, banks and other lenders will have to rely on deposits, asset-backed commercial paper, and other forms of funding that can be more expensive and less accessible, particularly for smaller, non-bank lenders. That’s why it could make more sense for lenders to package uninsured mortgages into bonds, which over time could become a cheaper and more reliable form of funding.
Is this an immediate Fix? “NO”. This solution will take time for both lenders and investors to learn and adapt. But there is a light at the end of the tunnel.
Adapted by Steven Porter, Mortgage Agent with Mortgage Architects.
Steven can be reached through his website at www.1800Mortgages.ca
Approximately three-quarters of the mortgages made by federally regulated banks last year didn’t have government backed mortgage default Insurance. Nearly half the nation’s $1.5 trillion CDN home loans are now uninsured against default according to Bloomberg News. For lenders, consumers’ growing demand for loans with no government backed insurance creates a problem .... mortgage funding.
“The market has to come up with a solution. Otherwise there will be no financing available for mortgages.” says Moti Jungreis, head of global markets at Toronto-Dominion Bank’s TD Securities
Under the new Canadian mortgage rules, it could make sense for more lenders to package uninsured mortgages into bonds, which over time could become a cheaper and more reliable form of funding while giving a boost to the Mortgage bond market.
Without that backing, banks and other lenders will have to rely on deposits, asset-backed commercial paper, and other forms of funding that can be more expensive and less accessible, particularly for smaller, non-bank lenders. That’s why it could make more sense for lenders to package uninsured mortgages into bonds, which over time could become a cheaper and more reliable form of funding.
Is this an immediate Fix? “NO”. This solution will take time for both lenders and investors to learn and adapt. But there is a light at the end of the tunnel.
Adapted by Steven Porter, Mortgage Agent with Mortgage Architects.
Steven can be reached through his website at www.1800Mortgages.ca
Friday, 3 November 2017
Real Estate Trends & How to Take Advantage of Them
Over the past few years, the real estate industry has gone through a seismic shift. Agents and brokers are facing pressure to reduce their commissions like never before; brokerages are having to think outside the box to stay profitable; and new technologies are streamlining the buying and selling process. As agents and brokers work smarter, and harder, to maintain their incomes, there’s a growing divide between true professionals and those only in it for the commission.
What’s at the heart of these changes in the industry? The answer is simple: consumers today are relying on the web more than ever to help them buy and sell their homes; often, because they lack a real estate professional they trust.
In response, internet companies have popped up to meet this growing demand, which has left many real estate agents unsure of how to capture the attention of prospective clients.
While many agents rely on online sources for new leads, the reality is the best leads come from existing relationships; that is, current and past clients and their referrals.
Principles don’t change, tactics do.
- Posted by Steven Porter, Mortgage Agent - Mortgage Architects
Steven can be reached through his website at www.1800Mortgages.ca
Thursday, 2 November 2017
Regulatory mortgage changes that will affect you
November 2, 2017
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CHANGE OF SPACE: OSFI
Steven Porter and Mortgage Architects continues to update our customers as new information arises on the regulatory changes announced by the Office of Superintendent of Financial Institutions (OSFI) on October 17, 2017.
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MORTGAGE TERMS YOU NEED TO KNOW:
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Insured Mortgage / High Ratio Mortgage = Less than 20% down payment
Non Insured Mortgage / Conventional Mortgage = 20% or greater down payment / equity
Bank of Canada Rate = the 5 year fixed posted rate (currently 4.99%)
Contract Rate = the actual rate offered by the lender to the consumer
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Benchmark Rate/Qualifying Rate = Stress Test: Bank of Canada Rate OR Contract Rate
+2%, whichever is greater
LTV (Loan To Value) = the size of a mortgage compared to the value of the property securing the loan
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OSFI has implemented 3 new mortgage rule changes starting January 1, 2018:
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CHANGE 1:
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QUALIFYING RATE STRESS TEST TO ALL NON INSURED MORTGAGES
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Non insured mortgage consumers (buyers with a 20% or greater down payment) must now qualify using a new minimum qualifying rate.
The minimum rate will be the greater of the five-year benchmark rate
published by the Bank of Canada OR the lender contractual mortgage
rate +2.0%.
How does this affect the mortgage consumer with a
down payment of 20% or more?
The biggest impact will be on the amount in which the homebuyer will be able to qualify. Previously, the homebuyer qualified at the rate offered by the lender. Now, the homebuyer must qualify at the benchmark rate which is the higher of the Bank of Canada Rate (currently 4.99%) OR the rate from the lender plus 2%. This applies to all terms, fixed and variable rates.
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For example:
*The chart above is based on 35% GDS RATIO (Gross Debt Service Ratio) and a 25 year amortization.
Do I still have the option to refinance my home?
Yes, homebuyers will still have the ability to refinance up to 80% of the value of their property. You will have to pass the same stress test which is the higher of the Bank of Canada Rate (currently 4.99%) OR the rate from the lender plus 2%.
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CHANGE 2:
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LENDERS WILL BE REQUIRED TO ENHANCE THEIR LOAN TO VALUE (LTV) MEASUREMENT AND LIMITS TO ENSURE RISK RESPONSIVENESS
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Mortgage lenders (excluding credit unions and private lenders) must establish and adhere to appropriate LTV ratio limits that are reflective of risk and updated as housing markets and the economic environment evolve. We are awaiting more details on this policy from lenders. As we have new information, we will update this document.
What does this mean?
OSFI directs lenders (excluding credit unions and private lenders) to have internal risk management protocols in higher priced markets (sometimes called “hot real estate markets” like Toronto and Vancouver). This is a continuation of a policy already in place. Many mortgage lenders have been following the principles of the policy for the last 10 to 12 months.
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CHANGE 3:
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RESTRICTIONS WILL BE PLACED ON CERTAIN LENDING ARRANGEMENTS THAT ARE DESIGNED, OR APPEAR DESIGNED TO AVOID LTV LIMITS
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Mortgage lenders (excluding credit unions and private lenders) are prohibited from arranging with another lender: a mortgage, or a combination of a mortgage and other lending products, in any form that circumvents the institution’s maximum LTV ratio or other limits in its residential mortgage underwriting policy, or any requirements established by law. This is often referred to as “bundling” or “bundle partnership”.
What does this mean?
For example: a consumer applies for 80% LTV mortgage and the lender can only approve 65%. The lender then partners with a second lender for the additional 15%. The original lender then “bundles” the 15% LTV mortgage with the original 65% mortgage to form the complete 80% LTV loan. This is no longer permitted as per OSFI.
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HOW CAN STEVEN PORTER AND MORTGAGE ARCHITECTS HELP?
Now, more than ever, new homebuyers and existing homeowners are going to rely on mortgage brokers for their guidance and expertise in navigating through these regulatory changes.
There are differences amongst the many lenders that we have access to and the greatest value a broker can provide is the knowledge of the lending environment and in choosing which lender is best suited for your needs.
Mortgage Architects will continue to educate our mortgage professionals as new data arises. This way you can be kept up to date with all of the latest information. The content in this document is current as of the date at the top of the page.
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Brokerage #12728
14 Martin Street, Milton, ON, L9T 2P9 |
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