25 Jun

Ultra Low Rate websites – What’s The Story?

About Mortgage Brokers

Posted by: Garth Chapman

Ultra low mortgage rates, offered through various internet sites, are often restricted mortgages.  You may have higher prepayment penalties than generally available in the marketplace, as high as 3% of your mortgage balance.  Low rate mortgages often do not allow an in-term transfer, which is generally referred to as porting the mortgage with you to a new home.  Many do not allow blend and increases (refinances), you must pay the penalty to do a refinance (get equity out of your home).

Low rate sites are looking for no hassle, no muss, no fuss mortgage applications.  So if you happen to be an hourly worker, does your 2 year average and your YTD income substantiate the required income to qualify?  Does your source of down payment meet new government requirements?  When will you be told if they do or do not?  Self-employed, contract worker, income from a couple of sources, you can spend a week thinking you have sent in the correct paperwork only to find out you have not been approved.  Unfortunately, it may mean your file is just a little too time consuming for the low rate site.

Low rate sites use salaried staff who need to meet production quotas.  They do not have time for problems or complex scenarios.  They are looking for the 20% to 30% of the market who have the perfectly simple scenario.

Low rate sites are not able to work through other issues, a unique property size or type, square footage issues, condo by-laws or financial statement problems, post tension cable or special assessment requirement.  Will the low rate site take the time to find the most suitable lender or insurer?  Lenders will have sliding scales, can you get an exception, can you find a new lender before condition day?

Low rate sites often entice you with the initial promise of an attractive rate and then after you have completed the application and have sent them all your documents will tell you that you don’t qualify for that rate, but that you do qualify for some other higher rate.

Low rate sites do not have the staff to help ensure the rest of the home buyer process gets completed on time.  For example, meet the financing condition date, ensure the lender instructs money to lawyer on time, and insure you get possession on time to avoid late interest charges.

Low rates sites will ask you to sign a non-compete agreement that if they present you with a commitment, you will not obtain your mortgage from another bank, lender, or broker, and if you choose to do so, you will be charged a fee.

Your Mortgage Broker has access to many of these low-rate restricted mortgage products.  So call and ask your Broker what you qualify for, and if a low-rate mortgage is a good fit for you.

25 Jun

First-Time Buyer Incentive – What do we have so far? Mostly Gossip

Buying & Refinancing a Home

Posted by: Garth Chapman

The rumor mills are buzzing.  Global News and other media outlets are reporting some new details on the new First-Time Buyer Incentive, also referred to as an Equity Participation Mortgage.  What is being discussed by the media is mostly the same information as was disclosed in the budget.

CMHC has just released some details found here.  The program is expected to be ready to receive Incentive applications starting September 2, 2019. If approved for the Incentive, the purchase transaction must close on or after November 1, 2019.

The First-Time Buyer Incentive (what we know so far)

  • The government will provide an equity participating mortgage of up to 5 % for an existing house and up to 10 % for a new construction home.
  • No interest or principal reduction payments required on the participating mortgage portion.
  • Can be repaid early, no details on the mechanics.
  • Must be repaid within 25 years.
  • When the house is sold the government will participate in the increase in value, or decrease,  proportionately with the initial participating mortgage granted.
  • Maximum purchase price is $480,000.
  • Maximum family income is $120,000.

The Good

  • First time buyers will have slightly lower mortgage payments, with likely interest savings of up to $60 to $120 per month ( depends upon the amount, new or used house, and interest rates.)

The Bad

  • The Home Buyer will have the Federal Government as a partner in the ownership of their property through a participating mortgage.  Read that twice.
  • The total home purchase price the borrower qualifies for under this program is less than if the borrower does not use it, because there are different qualifying guidelines.
  • The Government will, if the home eventually goes up in value, recoup an equity dividend, the repayment could turn out to be more than what mortgage interest would work out to be, especially if we eventually see a strong rebound in our depressed Alberta markets.

The Unknown (Possible Risks to the Borrower)

  • The program has been announced and promoted without any details on how it will be managed whenever life offers changing circumstances for the homeowners.
  • Perhaps the participating mortgage will have no rights except passive acceptance of whatever 5 % is paid to the government.
  • What about a private deal with a family member or friend or investor over a “gifted or provided down payment”?  Is that allowed, what documentation will be accepted.
  • Who will determine what are allowable capital expenses? What documentation does the homeowner have to provide for maintenance and upgrades and renovations? What bureaucracy is going to administer any dispute over costs? What costs are legitimate?
  • Does the government want 5% of the gross lift or will maintenance, operating or capital expenses factor?  What about real estate fees, legal fees, closing costs? What if the homeowner operates an illegal suite? What if the homeowner has an encroachment argument with a neighbor or with the city?  Will the government as mortgage holder have for a voice in any dispute before a court?

The Editorial 

  • Since the government became convinced that the bureaucrats know how to underwrite mortgages, hundreds of thousands of deserving Canadians are being denied access to mortgage liquidity.
  • Let bankers be bankers, and let the government bureaucrats provide high level oversight.  Mortgage underwriting should be an industry derived process, not a government dictated and controlled approval.
  • Every month at Jencor we see hundreds of people denied access to a mortgage.  Most of whom would have qualified for that requested mortgage before the Stress Test was implemented.
  • If the government wants to incentivize first time home purchase activity, they could simply make mortgage access reasonable.  Instead we get an intrusive program costing taxpayers $1.3 Billion dollars over the next 3 years.

Watch for our updates on this when the government announces program details.