Tuesday, January 26, 2010

To Refinance or Not to Refinance…That is the Question!

There are a lot of misconceptions about refinancing your mortgage…that it’s only for people who get into financial problems, that you’ll pay a BIG penalty to break your existing mortgage, that it will end up taking longer to pay it off and these are just a few examples.

The reality is that refinancing your mortgage is part of an overall financial plan to manage your debt in the smartest way possible in an effort to minimize the interest you pay and increase your wealth. I like to refer to it as actively managing your mortgage. Interest rates are at historic lows, if you’re locked into even a moderately higher rate, it might make sense to consider breaking your existing mortgage in favour of a lower rate. If you’re carrying high interest debt through unsecured lines of credit or credit cards, it might also make sense. We all have the best of intentions when we buy things on credit, “I’ll just make payments every month for the next year and it will be paid off”. Unfortunately, those good intentions are often not exercised and in most cases the debt continues to grow instead of shrink. Instead of losing the battle with those good intentions, it would make sense to consolidate that debt into your mortgage so that you do begin to pay it down and slash your interest charges. If you’ve been thinking about renovating a kitchen or finishing your basement, why not take advantage of today’s low rates to access some of your home’s equity to finance those renovations and increase its value.

Yes, in most cases there will be a penalty to break your mortgage, sometimes even a few thousand dollars and you will incur legal costs. However, if the savings is greater than the penalty, doesn’t it make sense to refinance? I have a client right now who is considering refinancing and although the penalty is a few thousand dollars, I’ve estimated the savings at five times that much. The penalty and legal costs are incorporated into your new mortgage so there is no immediate cash coming out of your pocket. I know what you’re thinking, “but if I’m just refinancing to take advantage of lower rates, I now have a bigger mortgage that will take me longer to pay off”. Wrong. Even though your monthly payments will be lower, so is your interest rate, therefore more of your monthly payment will be going towards your principal effectively negating the amount that was added to your mortgage. Also, a prudent move would be to take the amount you’re saving in mortgage payments and make lump payments to your principal further cutting the amount of interest you’ll pay over time and the length of your mortgage.

I don’t think managing your mortgage should be any different than your investment portfolio. I don’t know anybody who invests their money and then just sits back and checks up on it every five years or so. If you’re invested in a mutual fund or a stock that is not performing, you sell it and buy something that is. Constantly churning your portfolio in search of higher returns. Your mortgage should be handled the same way…constantly looking for ways to pay less in interest charges in order to increase your wealth and decrease your debt load.

You may not think you can benefit from refinancing, but maybe you can…greatly. Isn’t worth getting a professional to look at it with no obligation or cost to let you know if indeed you can be saving thousands of dollars? Take a look at your current mortgage rate or your high interest credit card rates with balances you’ve carried for more than a year. I have access to variable rates starting at 1.85% and a 5-Yr fixed rate of 3.64% just to give you a few examples. Likely the gap between the rates you’re paying and the above rates could be staggering and you could be saving a bundle.

If you’re interested in a free, no obligation evaluation, let me know. I’d love to help you save some money. It’s time to start actively managing your mortgage rather than sitting back and paying too much in interest.


Tuesday, January 19, 2010

Mortgage Brokers and My Mother....

When I started this blog, my intention was to create a place where friends, family, clients, etc. can go to get educational information regarding the world of mortgages along with my opinion thrown in a few spots. It is a blog after all. Never did I think I’d be mentioning my mother in a post, let alone in the title.

For those of you who don’t know my mother, she is a very conservative, very old-school...make that very, very old-school Scottish woman. To give you an idea, this is a woman who when she retired three years ago, swore to never touch a computer again because she doesn’t see the need for one. Now, even my Father-in-Law who refers to the computer as “the machine” sees its benefits even though he gets his wife to do all the dirty work for him. This is also a woman who said to me not too long ago, “they’re just getting so ridiculous with all these child-seat laws for cars”. Although she may reluctantly agree that sitting kids on your lap in the front seat the way she used to do it may not be the best way, surely they can just sit in the back seat with their seatbelts on.

You may be wondering where I’m going with this. I’m getting there. I’ve found when I explain my role as a Mortgage Broker to people of my mother’s generation, their response is varied but usually wrought with confusion. “That’s what the bank does”. Well, not really, the bank only has access to their own products with rates you need to negotiate whereas I have access to the products of over 60 lenders with discounted rates below what banks are willing to offer. “You deal with people that can’t get financing from a bank”. No, in fact most of the clients I deal with have stellar credit histories and could easily get financing from a bank. “How much do you charge people”? Nothing, my services are free to my clients. Some people I’ve spoken to look at me like they don’t understand that such a role exists. Reality is Canadians are very traditional when it comes to their banking and our approach just gets passed down from generation to generation. People of my mother’s generation were of the opinion that you go to the bank with your money and when you need money. This is evident in my mother taking me to the bank when I was six years old to open my first bank account and that ended my guidance on personal finances...you go to the bank. Things are different now and consumers have options. “Go to the bank” doesn’t need to be the way anymore. Over the last number of years Canadians have started to see they have more options than the bank as is evident by the growing number of people using Mortgage Professionals such as myself.

This past weekend I made a breakthrough that just about floored me. Every time I see my mom she asks me how things are going, still not fully understanding what it is I do. With each conversation she seems to get it a little bit more. So, while we were chatting she said, “why doesn’t everybody use a mortgage broker, it seems like such a better option than just going to the bank”. Answer...I don’t know. She might be a little biased right now but the point is, if someone as traditional in their thinking as my mother can have such a ground-breaking revelation, then there is growing hope that more Canadians can see the light too and start saving themselves time and money.

Here is a list of excellent reasons of why consumers could benefit from using a Mortgage Broker:

My services are free as the lender pays me a finder’s fee.

Access to interest rates that banks don’t tell you are available saving you thousands of $$$$. Since Dominion Lending Centres sends lenders millions of dollars of new business each month, they always offer us the deepest discounts, which I pass that on to you IMMEDIATELY - whether you are purchasing, refinancing or renewing.

I shop the market saving you time Calling me is like calling over 50 different lenders, including Banks, Credit Unions and Trust Companies – I have access to all of them so I can find you the best deal possible.

I don’t work for any one lender, I work for you!

Isn’t it time the Banks compete for your mortgage business? I’ll provide you with some options so you can compare the two – what your bank is offering you and what I am able to offer you, then ultimately you decide which you feel most comfortable with. It never hurts to get a second opinion on the biggest financial obligation you will probably ever have.

Our application process is simple and quick I’ll take some information and then send it electronically to the lenders that I feel are the best fit for your situation; 24 hr turnaround is usual!

Step By Step I’ll walk you thru the process of getting a mortgage step by step, especially if you are a first time homebuyer – it can be daunting.

I’m available on your terms Day, evening and weekends...and I’ll come to you.

Large range of products Such as self-employed, credit-challenged, no down payment, cottage/investment properties, line of credit, 2nd mortgages and more.

I appreciate your business I will go the extra mile to provide outstanding customer service so you have the best possible financing experience!

I am a Licensed Expert Deal with a mortgage expert specializing in mortgages from all lenders not just one.

Follow Up including Annual Mortgage Check-Ups and Variable Rate Updates. I’ll make sure your mortgage continues to meet your financial goals.


Tuesday, January 12, 2010

Reassurance for Anyone Fearful of a Housing Bubble in Canada

For the last few years there has been significant concern over whether or not Canada could experience the same real estate crash the US had, as a result of a housing bubble. Concern has grown recently as our overall real estate market has continued to grow along with housing starts. One of the ways the Bank of Canada can protect our economy from a housing bubble is to increase interest rates, curbing the demand for real estate. The Bank of Canada just commented on the potential of a Canadian Housing Bubble and using interest rates to control it. As you'll see after reading the article below, the B of C's intention to keep interest rates where they are is great for anyone with a mortgage renewing in the upcoming months or who has a variable mortgage....

A Bank of Canada official called talks of a Canadian housing bubble premature in a speech in Edmonton Monday, adding higher interest rates are not the solution to cooling the current surge in housing demand and prices.

"If the bank were to raise interest rates to cool the housing market now - when inflation is expected to remain below target for the next year and a half - we would, in essence, be dousing the entire Canadian economy with cold water, just as it emerges from recession," said David Wolf, an advisor to Bank of Canada governor Mark Carney. "As a result, it would take longer for economic growth to return to potential and for inflation to get back to target."

The central bank's comments came on the heels of the CMHC's latest report on housing starts, which showed a 6.6 per cent jump in urban starts across Canada compared to November. They also follow federal finance minister Jim Flaherty's recent comments about introducing new rules to cool the housing market.

In his speech, Wolf said housing bubbles are usually caused by credit expansion as opposed to temporary factors like low interest rates and pent-up demand, and these factors cannot continue to sustain the high numbers of sales and prices seen in Canada over the past few months. Wolf also said the central bank is monitoring the housing market closely, adding it required "vigilance, not alarm."

If anyone would like a second opinion about a mortgage that's renewing or if you're thinking about taking advantage of the hot real estate market, feel free to give me a call.


Sunday, January 10, 2010

Canadian Mortgage Debt – A Closer Look

Newspaper editorials have been overflowing lately with speculation on how rising rates may lead to a surge in mortgage defaults. In response to this issue, CIBC Economist Benjamin Tal released a report that took a closer look at the facts and determined history doesn’t support this premise. Below is a summary of Tal’s report.

House Prices – Some Overshooting

Over the past two years, the degree of volatility observed in the Canadian housing market has been unprecedented. Within this short timeframe, house prices fell by almost 13%, only to rebound by an impressive 21%.

Meanwhile, resale activity is now rising by close to 67% on a year-over-year basis after falling by close to 40% in 2008. Housing starts are presently 33% higher than in April 2009 despite dropping by more than 50% earlier in the recession.
In fact, no other segment of the economy has rebounded as fast as the housing market, making it one of the real surprises of this recession. This rapid uptick in housing activity, in the face of recessionary conditions elsewhere in the economy, raises concerns about its sustainability, and is causing some to wonder whether house prices are, in fact, rising too quickly given current economic fundamentals.
Tal estimates that the Canadian housing market as a whole is indeed beginning to overshoot its “fair value”. At just under $350,000, the current average price of a home is estimated to be roughly 7% over what would be consistent with current housing market fundamentals such as interest rates, income growth, rents and demographics.

But this modest overshooting is far from uniform across the country. Those figures are skewed to western Canada, which has seen the most dramatic swings in house prices over the past 24 months. That market now appears to be overvalued by roughly 10-15%, suggesting that the imbalance in the rest of the country is much more modest.
Note, however, that overvaluation does not necessarily mean a bubble or a dramatic price correction. Given that the current overvaluation is occurring in a context of historically low interest rates, what we are most likely witnessing is a temporary period of exuberance that is “borrowing” activity from the future, as households take advantage of lower rates and accelerate their borrowing and home purchasing activities.

To the extent that current activity is simply a redistribution of sales from the future to the present, the housing market of tomorrow may be in store for a more muted level of activity. Housing starts will also catch up with the sudden spurt in demand, with the increase in supply helping to moderate price trends. Rather than plunging, house prices are more likely to stagnate in coming years (or fall modestly in the most overheated markets) as fundamentals catch up with a market that has gotten ahead of itself. What Worries the Bank of Canada?

Rather than house prices, it is the accelerated pace of borrowing at very low rates that is beginning to raise some concerns at the Bank of Canada. For the first time in the post-war era, real household credit continued to expand through a recession. In fact, mortgage credit is now rising at a year-over-year rate of more than 7%.
This strong performance is a clear reflection of an extremely effective monetary policy in Canada. With Canadian consumer confidence only 10 points below its pre-recession level (versus a 50% decline in the US), Canada is benefiting not only from properly functioning credit channels, but also from a household sector that is willing and able to take on new credit.

Remember that low rates only work as an economic stimulus if Canadians take advantage of them. The wave of borrowing does, however, have consequences in terms of consumer debt levels. The household debt-to-income ratio is now at a new all-time high of more than 140%.

Despite a record low 4.4% effective mortgage rate, overall mortgage interest payments as a share of after-tax income are now at levels that in the past were consistent with a 6% effective mortgage rate. Since rates will no doubt at some point return to those higher levels, the Bank of Canada is worried that Canadians are making themselves increasingly more vulnerable in terms of their ability to continue to service these new, higher debt loads.

How Big is the Problem?

The relevant question, however, is just how serious a problem it is becoming, and here we have to dig a bit deeper to get the answers. Aside from an unlikely scenario of a 1970s-type stagflation, any future increase in interest rates will be in response to an improving economy. As such, any analysis of the potential impact of higher rates on the household sector in general, and the housing market in particular, should be done with tomorrow’s healthier economy in mind.

After all, the reality is that, in the past, interest rates have played only a minor role in driving mortgage default rates. Historically, it’s clear that mortgage arrear rates are highly correlated with the unemployment rate, with little or no correlation with changes in interest rates. The same goes for the economy in general. Over the past three decades, personal bankruptcies have risen twice as fast in an environment of falling interest rates than in an environment of rising rates.
And the logic here is obvious – interest rates rise when the economy recovers, and the benefits to employment and incomes of an improving economy easily offset the sting of higher interest rates on debt service costs.

Click here to read the full Benjamin Tal report.

As always, if you have any questions or concerns about mortgage affordability, I’m here to help!

- Peter

Friday, January 1, 2010

Happy New Year!

I just wanted to take the opportunity to wish you and your families a very safe and happy holiday season. All the best for 2010!!

I saw an interesting segment on the CBC News a few nights ago and have now seen the story from a few other news outlets regarding minimum mortgage down payments. Jim Flaherty has announced that the CMHC is reviewing the 35-year amortization along with the minimum down payment of 5%, hoping to avoid the real estate bubble where buyers get in over their heads like what we've seen happen south of the border.

I was struck by the story because Canadian Lenders' risk tolerances are far more conservative than those of our neighbours in the US. We don't have 50-year amortizations or 125% mortgages and never will because Canadians are far more averse to debt (believe it or not) than Americans. Paying off our mortgages and doing it quickly is something that actually means something to us.

Of the 45 million homes that have a mortgage in Canada, which is only 60% of the population, only 12% have a longer than 25-year amortization. Of those mortgage holders, only 5% of them have what CMHC would define as high ratio mortgages (where the mortgage is more than 80% of the value of the home), which may be at risk if interest rates changed too much in the next 3-5 years when these borrowers have to re-negotiate their mortgage terms. It was stated by the economist quoted in the story that this is not a huge concern, so I wonder why the "shock and awe" news outlets feel it necessary to highlight these types of stories as doom and gloom.

Reality is our economy is strong and the real estate market has almost single-handedly driven our economy for the last 12 months. Consumer confidence is returning and we are likely looking at a stronger and more prosperous year in 2010.

If the goverment is concerned about consumer debt, they should be taking a longer look at the predatory practices of credit card companies. We wouldn't be seeing the numbers of borrowers we are, who are having to refinance their mortgages and end up in high ratio situations to consolidate credit card debt if credit card company's practices were more consumer friendly. It's not mortgage lenders who send you a letter every 6 months telling you "congratulations, we've increased your limit", it's the credit card companies. That was happening to me and before I knew it, I had a credit card with a $35,000 limit. Who needs a credit card with a $35,000 limit?! If I need a revolving credit facility with that kind of limit, I'm going to get a Line of Credit at a rate of 3-6% instead of a credit card at 19-29%. If the government would look deeper at this problem, they would actually see that it's the flexibilty of the mortgage industry that is saving some consumers by allowing them to consolidate their debts into a low rate mortgage and slash their monthly payments rather than get gouged by double-digit credit card rates. Unfortunately, I don't think Mr. Flaherty is going to ask my wha I think anytime soon.

Once again, all the best for the season to you and your families!

Here is a snapshot of my best rates as of today

Quick Close Specials (Possession/Funding within 30 days, no pre-approvals)

2.00% = 3-yr Variable closed (Prime MINUS 0.25%)
3.64% = 5-yr Fixed No Frills/Value Mortgage (up to 5% pre-payment privileges)
3.69% = 5-yr Fixed (up to 15% pre-payment privileges)

Standard Fixed Rate Mortgages (Four Month rate holds)

1 Year = 2.35%
2 Year = 2.90%
3 Year = 3.25%
4 Year = 3.79%
5 Year = 3.89%

Variable Rate Mortgages and Lines of Credit

Closed (3 months interest to pay out early in full)

3 Year = 2.10% (Prime MINUS 0.15%)
5 Year = 2.05% (Prime MINUS 0.20%)

Open (no penalty to pay out in full)

Secured Line of Credit = 2.85% (Prime PLUS 0.60%)
5 Year = 3.10% (Prime PLUS 0.85%)

"Special" Mortgages

2.15%/4.09% = 5 Year Balanced Mortgage where half as Variable at Prime MINUS 0.10% and half as Fixed at 4.09%
5.49% = 5 Year with 5% Cash-back

Please do share this with your friends and family as they too should be aware of the rates that are available to them.

If you would like to stop receiving my rate updates, please let me know.

All the best,


Experience Counts

As a licensed Mortgage Agent, I provide clients with the service of seeking out the real estate financing that best meets their unique needs and at the best interest rates available – doing the “shopping” for them. I have access to over 50 lenders whose wide range of products ensure I’ll be able to obtain financing for virtually any client, regardless of their situation, unlike the banks who have a very limited product offering. Self-employed, great credit, bruised credit, investors, vacation properties…I can access funds for all of them. Best of all, my services are free to clients as it is the lenders I place their business with that pay me. That’s not to say I work for a lender, I work 100% for clients who entrust me with their business and work entirely with their best interest in mind. Working as part of a national brokerage, I’m able to take advantage of volume discounts and have access to rates that the banks will not tell you are available.

With almost 20 years experience in the Financial Services industry, I have learned extensively about the inner workings of Financial Institutions as well as the key drivers that are most important to consumers. I pride myself on providing customer service, which is second to none. Part of that is educating clients and keeping them well-informed rather than pushing them through the financing assembly the way the banks do.

Buying a new home is stressful enough, homebuyers shouldn’t have to worry about what lender to go to, are they getting the best rates, are they going to qualify, how much will they qualify for, what do they have to do next in terms of financing, etc. I take all that stress off my clients and ensure the financing of their purchase is something they don’t need to worry about.