23 Aug

When Your Mortgage Term Matures, First Get a Second Opinion

General

Posted by: Garth Chapman

In 2018 the mortgages of 47% of Canadians will mature. Roughly 70% of them will simply sign the mailed renewal offer from their bank. Without even attempting to negotiate the rate. On average those borrowers will pay 0.25% above the then-current market rate. That’s an extra $52 per month on a $400,000 mortgage. But it doesn’t have to be this way…

Calling your Mortgage Broker when your mortgage is about to mature is akin to getting a second opinion on a medical diagnosis.  So when your mortgage is soon to mature, for the sake of your financial health,  please do make that second opinion call to your Mortgage Broker.  He or she might advise you that your existing bank is making you the best offer you are likely to get and recommend that you take that offer.  Or they may simply help guide you in negotiating a better offer from your existing bank.  Or they may advise that they believe they can find you a mortgage better suited to your needs and objectives.  Often a good Mortgage Broker can make that assessment on the first phone call.  In those cases think of us as providing a sound professional second opinion.

When should you start thinking about this?

Most of us will find that much has changed in our life, career and financial position during the 3, 4 or 5 years since we took out or last renewed our mortgage.  That means that a proper review of that mortgage against those new realities is in order, and the good news is that process is really a pretty easy one.

Virtually all banks and mortgage lenders will hold an interest rate for you to protect against possible rate increases for up to 120 days (4 months).  So a little before 4 months in advance of the maturation date of your mortgage is when you should begin the process.  If you’re a Jencor Client then you will receive in the mail 4 months ahead a letter advising you of your upcoming renewal.  In this way we ensure that our clients are properly prepared in advance to ensure they make the best decision.

What are your rights and opportunities when your mortgage matures?

First a quick description of what the words mean.  The mortgage ‘term’ is the time period of the current mortgage contract.  This is distinct from the ‘amortization’ period, which is the number of years to go until your mortgage is totally paid off.  So with that in mind, mortgage term maturity in Canada means that the term you signed with the bank for your mortgage is up, and you can then in most cases either renew with that bank or you can transfer (aka Switch) your mortgage to any of a few dozen other mortgage lenders, generally without cost.

So in effect, on the mortgage maturity date you will be a ‘free agent’.   Let’s take this sports analogy a little further.  When you are a free agent, assuming you are a good player (ie good credit, income etc) the other teams (ie banks) will want you to change teams and play for them (ie take over your mortgage from your existing bank).  So this means you can move your mortgage to any other team (ie bank) to get the best deal for your needs, and usually without any costs as the new bank will pick up the Appraisal and legal costs for the mortgage transfer since they are growing their market share by talking some business away from a competitor.

An important thing to know is that the single biggest motivator or goal for banks in the mortgage business is growing their share  of the overall mortgage market. That’s a key reason they put money on sale (by lowering interest rates) when the real estate markets are busier in spring and summer.

A sports Agent knows all the teams in the league, and they know their athlete client’s capabilities and needs and goals.  The Agent then negotiates with the teams that fit their athlete client best to find the best fit, and then negotiates with the team(s) selected to get the best contract for their client.

Just like an athlete, you too have an ‘Agent’, your Mortgage Broker, whose role in this process is to assess your needs and objectives, to gather your information, and then to present you in your best light to the banks who have the mortgage products that will best fit you, and then to negotiate with those other banks to get you the mortgage that best fits your needs.  And finally to shepherd the mortgage completion through to the end to ensure everything goes according to plan, so you don’t have to.

So what are the details of how your Mortgage Broker will act for you in this process?

Your Mortgage Broker will work with you to understand what your needs, objectives and preferences are.  These will include things like Pre-payment Penalties, Portability, Bridge financing, Variable or Fixed rate selections, Term length, Pre-payment Privileges, Increase Payment privileges, Payment holidays, and more.

If you are an existing Client of your Mortgage Broker then this will mean a simple update of your previous Application and gathering the documents required, less of course the ones they have from your earlier file.  If you a new Client then it’s a fresh Application and gathering your documents.  Expect to spend 15-20 minutes to get acquainted and allow the Broker to learn what they need to know to allow them to minimize the documents and time needed from you going forward, then again about 15-20 minutes on the Application, and usually that much again providing the required documents.

So it can be from less than an hour, to perhaps a couple of hours in complex scenarios.  It really isn’t much of a time commitment on your part, especially when you consider the value that comes to you as a result, and with how significant your mortgage is in your overall financial picture, we think it’s time well spent.

And then they will review what your bank and the other banks are offering on rate and on terms and the above and present you with your best options based on the needs and objectives you determined together.  That will allow you to make an informed decision on which mortgage is best for you going forward.

As I wrote above, your Mortgage Broker may advise you that your existing bank is making the best offer and their best advice is to take that offer, or they may help you to negotiate a better offer from your existing bank.  In the event your current mortgage lender is not making a competitive offer or their terms are not appropriate for your needs, or if you simply want to move to another lender, then your Mortgage Broker will recommend the best alternative(s) for you.

If you decide to Transfer (aka Switch) your mortgage to another lender your Mortgage Broker will complete the Application process as I described above and ‘book’ your file, and within as little as 2-3 days, will present you with a Mortgage Commitment from the lender best fit for you, and then guide you through signing those via a thorough review of the documents.

And here is a National Post article on the subject. This piece makes the point about how banks use our fears to get a surprisingly large percentage of people to sign their mortgage renewal notice, and usually at higher than market rates. And all without even the tiniest sliver of the review of their Client’s needs and objectives that you now know is so important.

13 Jul

Productivity via technology for entrepreneurs and small businesses

General

Posted by: Garth Chapman

I have had a couple of conversations with one of the business owners who I do some business coaching for on productivity and on how teams can share information and schedules to be more effective. So since then I have done some research, and this piece is one of the best I found. In fact I already use a some of what the author Paul Minors writes about, and I am going to take a good look at incorporating the pieces I am not already using.

So in hopes this might be of interest to you here it is How to be productive an in-depth guide

Part of the technology Paul uses is something called Asana, which looks interesting as it can help manage projects and it will integrate with your calendars (something I think is very important). Find it here https://asana.com

11 Jul

Housing Affordability in Alberta is better than you might think

General

Posted by: Garth Chapman

Housing affordability in Alberta’s cities is better than it has been since the 1980’s in most areas. In measuring housing affordability there are 3 major components: Incomes, Housing Prices, and Mortgage Interest Rates.  So let’s briefly look at those 3 key factors.  Alberta incomes, though down, are still leading the nation.  Housing Prices are down marginally, and mortgage interest rates are as low as they have ever been.  And that make this an excellent time for buyers.

The Canadian Centre for Economic Analysis (CCEA) published a report on Shelter Affordability Across Canada’s Provinces which measures the proportion of income that households devote to their shelter-related needs (including transportation, utilities, and maintenance).

A sub-set of that report, CCEA’s bulletin of April 29, 2016 shows that Alberta and Newfoundland are the only provinces in Canada that feature a Shelter Consumption Affordability Ratio (SCAR ratio) of 35% or less, implying that shelter affordability is relatively less of a problem on average in these provinces than in the rest of Canada.

On the same subject, RBC Economics Research publishes a quarterly report looking at home ownership affordability in Canada entitled Housing Trends and Affordability.  The report attempts to balance out differences in incomes and in housing process by province and by city in order to show the ‘relative’ affordability from region to region.

Unfortunately the report does not also take into account different taxation levels, which would make the report much more accurate.  Having said that, it is an excellent review of housing costs around the country, and shows us that sometimes the lowest price is not actually the lowest cost for families when the regional variance in incomes is accounted for.

In descending order, here are Q1 2016 ratios for the 6 major cities, showing the percentage of average pre-tax income required for housing costs (mortgage payments, utilities and property taxes):

  • Vancouver 87.6% aggregate.  Single family homes 119.5%.
  • Toronto 60.6% aggregate.  Single family homes 71.7%.
  • Montreal 42.9% aggregate.  Single family homes 42.4% (as SF homes in Montreal are less expensive than multi-family).
  • Calgary 35.1% aggregate. Single family homes 37.9%.
  • Ottawa 33.0% aggregate.  Single family homes 36.8%.
  • Edmonton 31.2% aggregate.  Single family homes 33.5%.