6 May

Up to 6% of Homeowners Have Missed a Mortgage Payment During COVID-19 as of April 16

Mortgage Tips

Posted by: Garth Chapman

Note- this was a small random survey of 1,335 Canadians taken April 16th by The Forum Poll™ – but the indicators are large enough to warrant this blog post.

Don’t let this be you!

  • Always find a way to make your mortgage payment. Always.
  • Miss a payment on any other debt or debts before you miss a mortgage payment.

Some Alternative Options:

  • Call the lender and ask for a deferral, or even just to invoke the skip-a-payment privilege that most mortgages allow for.
  • Borrow from family.
  • Ask for an advance on wages.
  • Make the payment with your credit card, or personal credit line, or bank account overdraft.

Why is this so Important?

  • Because it will be very difficult to get your next mortgage, or at least your next mortgage will carry a very high interest rate.
  • In worst cases you won’t get one at all until enough time has passed with good credit management that a lender will be willing to lend to you on a mortgage.
  • Speak with your Mortgage Lender about what options they offer.
  • If you feel you need some coaching on how to handle that conversation talk to your Mortgage Broker first.

From the April 16th The Forum Poll™

“While Canadian lenders stepped forward with unprecedented measures to assist those affected by the COVID-19 pandemic, there were still some homeowners unable to make their mortgage payments over the past month.

One in 20 homeowners (6%) said that due in part, or in full, to the COVID-19 pandemic, they had missed a mortgage payment recently, while a similar proportion preferred not to say (5%).

Amongst those homeowners that said they had already missed a mortgage payment, a high proportion (caution small sample) (76%) said they will miss another mortgage payment before the pandemic ends. One-quarter (23%) said they would not, and few (1%) preferred not to say.

Nine in 10 home owners said they had not (89%) missed a mortgage payment, but of those who said they had not yet missed a payment, about one in twenty (5%) said they think they will miss their next mortgage payment, with a similar proportion preferring not to say (5%).

Nine in 10 (90%) said they wouldn’t.”

Read more at: http://staging-poll.forumresearch.com/post/3057/covid-19-housing-and-employment/
Copyright ©Forum Research Inc.

4 May

Why Home Buyers with Job Security in 2020 Should Get Pre-approved now for a Mortgage

Buying a Home

Posted by: Garth Chapman

A good article here in The Globe and Mail here by Rob Carrick

But first, some required prior reading from my blog:

Is Your Mortgage Pre-Approval Really a Pre-Approval?

And now that you’ve read my blog post above (you did read it, right?) back to the article:

Your personal finance to-do list for this week:

  • Get your financing lined up if you want to buy a house;
  • Learn how to have respectful spousal money discussions that don’t escalate into nastiness;
  • File your taxes, even if you have until June 1.
    • You’ll need that to qualify if you are self-employed and your income is higher in 2019 than in 2018 and 2017. Talk to your Mortgage Broker for more on this.  And here is the link to the full article:

With unemployment rising and incomes plunging, expect to see home prices fall in the months ahead. First-time home buyers with job security, this is your time. Get pre-approved for a mortgage while we wait for physical distancing guidelines to be relaxed enough to allow for more normal real estate market conditions.  Read on below…

Pandemic Personal Finance Update No. 6: First-time home buyers with job security should get preapproved for a mortgage

4 May

Is Your Mortgage Pre-Approval Really a Pre-Approval?

Mortgage Tips

Posted by: Garth Chapman

It is important to understand the difference between a fully underwritten ‘Pre-approval’ and one that is truly only a ‘Rate Hold’.

  • A basic Pre-approval that is not underwritten, and that often does not even include a requirement for all the documents that will be needed to underwrite an actual purchase.
    • What you have is a piece of paper that does nothing much more than hold a rate for you, which is only of any value to the borrower if that borrower actually does end up meeting the qualification criteria for a mortgage on an accepted offer to purchase.
    • If you don’t qualify, you will have wasted much time and effort, and also that of your Realtor and the Sellers Realtor, and…well you get my point.
  • A proper fully underwritten Pre-approval where the borrower submits all the documents that will be later required, and the file is then underwritten by a mortgage lender (not many will do that because such a low percentage (around 15%) of Pre-approvals actually become a purchase.
    • Properly done, this gives the borrower a clear path to making a purchase knowing there will be no surprises on the financing element of the purchase.

At Jencor, we will:

  • Collect from you all the documents that will ultimately be required so there will be no surprises later on.
  • Our  professional Underwriting Team will fully review and underwrite your complete file.
  • We will also submit your file to at least one Mortgage Lender that will also underwrite your file and will issue a Pre-approval.
  • That Pre-approval will also include a rate hold that will protect you from any potential rate increases during the 90 or 120 days that the Pre-approval runs for.
  • All of which means that your Pre-approval will be worth well more than the piece of paper it is written on.

So now when your Banker or Mortgage Broker says you are Pre-approved, you now know what to ask them about to know what you truly have.  And you also will know what to tell your Realtor what you have.

4 May

WONDERING WHAT YOU SHOULD BE DOING WITH YOUR MORTGAGE IN TODAY’S MARKET?

Mortgage Help

Posted by: Garth Chapman

EXISTING VARIABLE RATE BORROWERS

  • Sit tight – your rate likely includes a large discount to the Prime rate.
  • Banks & Mortgage Lenders have dropped their Prime Rate to 2.45%.
  • If you are considering converting to a fixed rate (aka ‘locking in’), enjoy your newfound savings for a while fixed rates settle down, which they have been doing.
  • Contact me to learn how to create some simple rules so you will lock in at the right time.

NEW/RENEWING BORROWERS

  • Ensure flexibility when selecting your mortgage product.
  • Variable rates can be converted (locked in) to Fixed at any time, and the Variable product comes with the smallest penalties for early payout, being 3-months interest as mandated by federal regulations.
  • Conversion rates (from Variable to Fixed are not always the best rates in the market, so expect to pay a bit of a premium when you convert (lock in).
  • Do the Math with your Mortgage Broker: compare costs of shorter-term fixed rates to 5-year fixed rates with penalties included (the results may surprise you).

EXISTING FIXED-RATE BORROWERS

  • The 5-year Government of Canada Bond yield is at an all-time low, currently just under 0.40%. This bond yield is a major factor normally in pricing 5-year mortgage loans for Canadians.
  • Fixed rates moved higher in early April as liquidity tightened up for the banks and began slowly dropping by mid-April.
  • We are now in early May they are still dropping and may have a bit of room to go lower yet, although we are very close now to the very low rates of early March before the world was turned upside down.
  • Rate competition typically intensifies during the spring real estate market, which may well be delayed into summer this year.

STRETCHED BORROWERS

  • Cash-flow may be your most important imperative to get you through this.
  • Refinance if it improves your cash-flow or if it reduces your risks.
  • Don’t wait until it’s really raining hard to reach for your umbrella – it will be harder to borrower as we get further into this economic down-turn than it is now.
30 Mar

Payment Deferrals on your Mortgage & Other Loans – What You Need to Know

Mortgage Help

Posted by: Garth Chapman

The Federal Government announced on March 18, 2020 that it would provide increased flexibility to lenders to defer mortgage payments. Then the big-6 banks announced they would be allowing up to 6 months of mortgage payment deferrals to assist those impacted by COVID-19.  The Monoline lenders followed suit.  Since then they have all been doing as best they can to accommodate the massive volume of calls and emails, while implementing new processes and procedures almost daily to help handle these inquiries.  Lenders are updating us daily/hourly as to what the best course of actions is, and I encourage you to contact your Mortgage Advisor for current advice.

Essential Services –Bankers, Mortgage Brokerages, Realtors and other Financial service providers have been declared essential services in Alberta. So we’re not going anywhere and will continue to be there to help you through this.

Banks are offering COVID-19 Relief on Auto & Personal Loans, Credit Cards, Credit Lines

Student Loans can be also be deferred. They are either Federal or Provincial, so check those programs.

Important note – a payment deferral is not a forgiveness of the amount owed.  It means the payments are deferred to a later time, when we will have to pay them back, with a cost of interest charges on the interest deferred (aka interest on interest).

Credit Union customers – access to a variety of programs and solutions designed to ease difficulties with loan payments and short-term cash flow. Check with your Credit Union.

Here is what we have learned so far:

  • Banks are prioritizing clients based on need and next mortgage payment date.
  • Regardless of how urgent your situation is, it is going to take time to get a response. It can be frustrating to wait on hold, or wait for an email response, but please contact them before you miss a payment, as to not damage your credit.
  • NEVER EVER be late for or miss a mortgage payment.  Do whatever you have to do.  Pay with your credit card.  Borrow from family.  Anything.
  • Effectively the deferred interest is capitalized (added) into the mortgage balance owing.
  • I have heard from clients who have received 6 months of deferred payments with no questions asked.  In fact I am one of those lucky borrowers.
  • Understand this is not always the case.  You may be asked about your employment status and other reasons you have for requesting deferral. Some lenders will ask about your net worth status and liquid assets available. (If you do your regular banking with the same lender that holds your mortgage, they can likely assess this internally).
  • Things like whether or not your mortgage is default insured aka (CMHC), collaterally charged (has a HELOC on it), the loan-to-value ratio, and if you have been set up on accelerated payments or applied any lump sum payments in the past will be considered.
  • Each lender has their own criteria for deciding what criteria they will use in making mortgage deferral decisions.  In my own experience with three lenders so far, and based on many of my clients experiences, the consensus so far seems to be that often the best results are received when speaking directly with a bank representative.  Not always, but most often. So in my opinion it is best to be willing to be on hold for an hour and maybe more, to achieve your desired outcome.
  • Note- if you are a denied a deferral, try again via the same method or the other methods your lender offers (phone, website application or email).  There is still not full consistency within each lender on what is granted and what is denied from day to day and person to person.
  • Some clients are offered a 1-month or a 3-month deferral only and encouraged to re-apply with new status going forward. * PS to Alberta residents * We have had clients in the oil and gas industry report they were asked by the lenders if their layoff was directly due to COVID-19, or other factors. GREAT QUESTION.  I believe the answer may be related to the apparent other challenges within the O&G industry and some lenders being sensitive to this as an area of risk to address.
  • Mortgage distress, like any kind of distress, is relative.  For some people, mortgage distress is due to worry about the coming disastrous economic effects of COVID-19 on their job or business.  For other people, mortgage distress is being suddenly laid off with no income and unable to pay their Mortgage on Tuesday.  All are valid concerns, however, some lenders are prioritizing and only dealing with those not able to pay their mortgage payment due within the next few days.  If you don’t have concern about missing your next payment, consider sending an email or filling out a form for a call back later.  I know waiting can be frustrating.  In these times, exercising a little patience and freeing up the phone lines could help your friends and neighbours keep their home.
  • If you believe you have some equity in your home, you might be able to avoid all of this by speaking to your Mortgage Broker and setting yourself up to access equity for an affordable fallback.  You should do this before there are any negative changes to your income or home value.  I would suggest NOW is the time.  You may be able to refinance to draw out an emergency fund, set up a home equity credit line, a reverse mortgage, or even private financing to bridge the gap at this time.
  • Self employed and commissioned workers: Some lenders will require “proof” that you’ve been laid off or your income has been impacted by COVID-19 in order to defer payments.  For many of you, that is something that you won’t be able to document for months. I encourage you to speak with your Mortgage Broker NOW to explore your financing options outside of or in addition to deferred mortgage payments.
  • Questions to ask your bank when you speak with them about a deferral:
    • Ask your bank about the details of what their bank is offering.
    • Does the deferred pay-down get added into the payments to keep the amortization the same, or is the amortization lengthened to fit?
    • Some banks cap the deferred interest within the remaining term, some within the amortization. If within term then the lower the term the higher the new payment will be after the 6 months is up will be. If within the Amortization then generally the impact is less as the timeline is longer.

See the CMHC webpage on mortgage deferrals here

COVID-19: Understanding Mortgage Payment Deferral

What are the costs to you of a 6-month Mortgage Payment Deferral?

Read my Blog Post on that here

Why You Should Monitor Your Credit Report and Score Once You are on a Mortgage or any other Debt Payment Deferral Program

Read my Blog Post on that here

Here is an article by Money Coaches Canada

Should I Defer my Mortgage Payments?

I hope this information helps you in your decision-making and actions on your mortgage(s).  Do not hesitate to call or email me for further advice.

** And my sincere thanks to my good friend and Jencor Mortgage Advisor Sarah Boudreau for the original idea for this post and for some of the content of this post.**

30 Mar

Mortgage Payment Deferrals: What to do, Who & How to Contact

Mortgage Help

Posted by: Garth Chapman

Many of our clients, their family and friends are looking for information and so we hope you find the following to be helpful.

If you have any questions about the following your Jencor Advisor is available and we will do our best to answer questions, find answers and anything else we can do for you.

Each lender has a separate telephone number and or email address for clients to use to make contact and obtain information regarding payment deferral, skip a payment, miss a payment options.

Please prepare yourself prior to your call or email with the following information:

At this time, due to high call volumes you may want to e-mail your lender, though I personally prefer to speak with a real live human. 

  • Be prepared for the possibility of questions on any loss of income you are experiencing or are about to experience.
  • Have your Mortgage statement handy as it contains your account number and other pertinent information.
  • You may be asked about your current assets and income as well all expenses.

Banks’ Customer Service phone numbers to call if and when you want to explore their mortgage relief programs.

• ATB Financial 1-800-332-8383

• B2B Bank 1-866-684-5637

• BMO 1-877-895-3278

• Bridgewater Bank 1-866-243-4301

• CIBC 1-800-465-2422

• CIBC FirstLine – 1.877.454.9030

• Canadiana 1-877-315-1633

• CFF Bank 1-855-767-3031

• Chinook Financial 403-934-3358

• CMLS Financial 1-888-995-2657

• Connect First 403-736-4000

• Equitable Bank 1-888-334-3313

• First National Financial 1-888-488-0794

• First Calgary Financial CU 403-736-4000

• Haventree Bank 1-855-272-0051

• HSBC 1-888-310-4722

• Home Trust 1-855-270-3630

• HomEquity Bank 1-866-522-2447

• ICICI 1-888-424-2422

• Lendwise 1-866-675-7022

• Manulife 1-855-518-7546

• Marathon Mortgage Corp 1-855-503-6060

• MCAP 1-800-265-2624

• Merix 1-877-637-4911

• National Bank 1-800-361-9522

• Optimum Mortgage 1-866-441-3775

• PC Financial 1-888-723-8881

• Scotiabank 1-866-472-6842

• Servus 1-877-378-8728

• RFA (formerly Street Capital 1-877-416-7873

• Radius Financial 1-866-550-8227

• RMG 1-866-809-5800

• RBC Royal Bank of Canada 1-866-809-5800

• TD Canada Trust 1-866-222-3456

• Tangerine 1-888-826-4374

Lenders with online application options

B2B Bank – 1.866.684.5637 / b2bbank.com/COVID19
Bridgewater Bank – 1.866.243.4301 / Outside of Canada 403.817.7000 / customer.experience@bridgewaterbank.ca
CMLS – 1.888.995.2657 / service@cmls.ca
Equitable Bank – 1.866.407.5859 / customerservice@eqbank.com
First National Financial –  1.888.488.0794 / accounts@firstnational.ca (include name/ mortgage  number / property address and question)
Home Trust – 1.855.270.3630 / 416.777.5820 / homehelps@trust.ca
ICICI  Bank– 1.888.424.2422 / Customercare.ca@icicibank.com
Merix / Lendwise – 1.877.637.49111 / customerservice@merixfinancial.com
Manulife – 1.855.518.7546 / banksales@manulife.com
MCAP – 1.800.265.2624 / MYMCAP Portal
Optimum/CW Bank – 1.866.441.3775 / customer.service@cwbank.com
RMG Mortgages – 1.866.809.5800 / mortgagesupport@rmgmortgages.ca

Scotiabank 1.800.472.6842 https://www.scotiabank.com/ca/en/personal/scotia-support/latest-updates/scotia-support/mortgage-payment-relief.html

TD Canada Trust- 1.866.222.3456 – https://www.td.com/ca/en/personal-banking/covid-19/?fbclid=IwAR1sNUkd8KUISgsRgVtREgfQLaBXj6d-DhXJvOm8r2lAe6JsnUEnO8IpcVQ

Our Personal Experiences and those of some clients:

TD Bank: 

We personally got 6-month payment deferrals on 6 TD mortgages, 2 of which are Flexline re-advanceable mortgages (those have HELOCS attached to them, similar to Scotia Step re-advanceable mortgages).

The bank person was on loan from the branch support dept to their mortgage deferral program. She was fantastic and we told her so. From all the calls she is losing her voice but soldiering on in a very helpful and cheery way.

No questions were asked about qualifying us as to why we needed this.

They are not deferring the interest costs on HELOCS, as one should expect. And even though we have lots of access to capital from those HELOCS there was no suggestion at all about our ability to access those HELOCS to fund our mortgage payments.

The interest deferred is capitalized to the mortgage balance owing, and at the end of the current term they will, upon renewal, re-set the payments to allow for the repayment of that deferred interest and deferred mortgage pay-down over the entire remaining amortization.

This is the most generous way a bank could do this. And, we will have the option of paying off any or all of the deferred amounts to reduce the balance and therefore the payments on the new term.

Scotiabank: 

Non-primary residences, including rentals, vacation/cottage properties, are now eligible for the 6-month mortgage payment deferral program (to a maximum of three non-primary properties per borrower). I have advised clients with more than 3 Scotia mortgages to push back, the argument being that since Scotia originally provided you with ‘x’ number of mortgages, and since Scotia has renewed those mortgages over the intervening years, they have an obligation to offer deferrals on all your Scotia mortgages.  Other banks are not limiting the number of mortgages they will allow payment deferrals on.

First Calgary Financial (Credit Union):

We personally got a 3-month payment deferral on one of our rentals properties.

No questions were asked about qualifying us as to why we needed this – their deferrals are granted without question.

The interest deferred is capitalized to the mortgage balance owing, and at the end of the current term they will, upon renewal, re-set the payments to allow for the repayment of that deferred interest and deferred mortgage pay-down over the entire remaining amortization.

This is the most generous way a bank could do this. And, we will have the option of paying off any or all of the deferred amounts to reduce the balance and therefore the payments on the new term

Royal Bank of Canada: 

RBC commercial mortgages will implement interest only payments for six months. No questions asked. You cannot do it for fewer than 6 months. The principle payment is tacked on to the end of your amortization.

The following information is taken from a Money Coaches Canada article

Should I Defer my Mortgage Payments?

According to Vancouver based mortgage broker Marci Dean, each lender has created a policy around the deferral program. In some cases, the lenders default to a 6-month deferral and it’s up to the borrower to call/email to stop the deferral. For other lenders, it is month to month. In that case, borrowers will login or email their request to skip payment the following month.

Again, depending on the lender, interest will either be added to payments after the deferral or it will be added to the mortgage balance at the end of the term which will result in larger payments later.

Here are a few examples from bank lenders:

TD: Payments will be adjusted automatically at the start of your next term or, if you change anything else before renewal, at that time, to ensure your mortgage is paid off at the end of your original amortization period.

Scotiabank: A mortgage payment deferral means that payments are skipped for up to 6 months, during which interest is accrued to the outstanding balance of the mortgage. The amount is incorporated into the monthly payment when mortgage payments resume at the end of the deferral period.

CIBC: The interest that accrues during the deferral period will be added to the principal balance of your mortgage to provide you with immediate payment relief while experiencing temporary hardships. As a result, once payments resume, you will continue to pay interest on the principal, and your payments may increase after the deferral period.

27 Mar

The Fixed vs Variable Interest Rate Decision

Buying & Refinancing a Home

Posted by: Garth Chapman

Fixed Vs Variable – How to decide…which way to go?

The choice between Fixed and Variable interest rate is one that many borrowers ask about.

This is a very common question and you are not alone. First, let’s help you to understand the differences between the two types of mortgages.   A Variable Rate Mortgage is where the interest rate charged and your monthly payment will normally change when there is any change to prime rate.  The prime rate can change up to 8 times per year.  A Fixed Rate Mortgage is where neither your payment or the interest rate will change at all during the term of your mortgage.

Both fixed and variable mortgages have their own advantages and disadvantages.

Advantages of a Variable Rate Mortgage:

  • When rates go down you benefit from that immediately and will see your payment drop – this means more towards the principal and less interest so your mortgage is paid off faster!
  • Historically variable mortgages have been significantly lower in rate than fixed mortgages
  • Variable rates offer you the freedom to convert at any time to a fixed rate mortgages especially when you see rates rising.

Advantages of a Fixed Rate Mortgage:

  • The fixed rate offers the security of locking in your rate
  • You may prefer peace of mind – the same mortgage payment every month with a guarantee not to change for the term
  • You will know exactly how much principle and interest you are paying with each payment.

There are at least three key elements to be considered when making this decision.

1) The fixed rate premium is the cost of taking the security of a (higher) fixed rate over a (currently lower) Variable rate. The fixed rate is always somewhat higher than the Variable rate.  Think of that rate premium as you would an insurance premium.  You pay the higher rate for the security of that rate not changing during the current term of the mortgage.

The spread does move around, and when it is less than 0.80% it is generally considered to be a ‘good buy’.  In May of 2012 we saw that spread drop to an all-time low, so low that we converted four existing mortgages from Variable to Fixed.  At that time Variable rates were at about Prime – 0.30% which translated to 2.70% and the lowest fixed rates for a 5-year term was 2.79% making the spread under 0.10%.  The spread between Fixed and Variable have remained below the norm from mid-2012 through to mid-2017, when it began increasing along with both Fixed and Variable mortgage rates.  In April of 2017 we converted 4 more mortgages to 5-year fixed rates because we believed fixed rate increases were upon us, and that the Prime Rate would also be increasing.

So on the financial side of this choice you can determine the cost of the rate premium in dollars per month or year, or during the term.  Then decide if the cost of that premium is worth paying.

2) Increased payment risk tolerance is about how well you are able to handle an increase in mortgage payments, which would be created by an interest rate hike following a Prime Rate increase).  I break this risk tolerance down into two components.

Financial risk tolerance is about your financial capacity to absorb an increase in mortgage payments.  This is something you can assess by reviewing your monthly budget. Less tolerance may point you to a Fixed rate mortgage.

Emotional risk tolerance is about how you sleep at night, and by that I mean do you worry about interest rates and your payment going up, and does your level of worry create any stress in your life?  If it does, then you may be more emotionally suited to a Fixed rate mortgage.

3) Qualifying Rate vs Actual rate of the mortgage contemplated.

You must qualify at the much higher Bank of Canada Benchmark rate when taking a Variable Rate mortgage, so that is something to confirm early on that will fit your qualifying criteria.

Understanding what drives Variable rates and Fixed rates

Your Variable Mortgage Rates are driven by your bank’s Prime Rate which is set individually by each Bank.  They normally (but not always) move in sync with changes in the Overnight Rate, which is set by the Bank of Canada (BoC) and is used as a basis for one-day (or “overnight”) borrowing between the major lenders and financial institutions.  The BoC is responsible for monetary policy, the goal of which is to keep inflation near the mid-point of a 1 to 3 per cent target range, ideally 2%.  The BoC is equally concerned with significant movements in the inflation rate, both above the 2% mid-point and below it.  When demand is strong, it can push the economy against the limits of its capacity to produce.  This tends to raise inflation above the midpoint, so the BoC will raise interest rates to cool off the economy.  When demand is weak, inflationary pressures are likely to ease.  The BoC will then lower interest rates to stimulate the economy and absorb economic slack.

So when the economy heats up and there is a threat that inflation could get beyond the 1 to 3 per cent target the BoC may increase the overnight rate, which drives the Prime Rate. The schedule of dates when the BoC reviews and sets the Overnight Rate is found here http://www.bankofcanada.ca/core-functions/monetary-policy/key-interest-rate/

Fixed Mortgage Rates are driven by the Bond markets

Typically, when bond rates (also known as the bond yield) go up, interest rates go up as well. And vice versa. Don’t confuse this with bond prices, which have an inverse relationship with interest rates.

Investors turn to bonds as a safe investment when the economic outlook is poor. When purchases of bonds increase, the associated yield falls, and so do mortgage rates. But when the economy is expected to do well, investors jump into stocks, forcing bond prices lower and pushing the yield (and mortgage rates) higher.

The spread between 5-year Government of Canada Bonds and 5-year mortgage rates varies within a range that has fluctuated in recent years.  You can follow the 5-year Bond Yield in Canada on the BoC website and you will notice that a period of Bond yield increases or drops will almost always be followed by a corresponding change in fixed rates for mortgages.

If I choose a Variable rate and I want to be able to convert that to a Fixed rate, how will I know when it is time to convert to a fixed rate?

Bond Yields and the Prime Rate don’t move in lock-step, so if you choose a Variable rate then you will need a mechanism or methodology to decide when it is time to convert that Variable rate to a Fixed rate. Without one you will more than likely end up making the switch long after you would like to have done so, and you will pay more. that is because we tend to make such financial decisions when laden with emotions such as fear, and we either panic and move too soon or we freeze and don’t act soon enough or at all.

So to manage that decision I strongly recommend that (to use a stock trading term) you set two ‘stop-loss’ orders to act as your trigger points to make the change to Fixed rate. One is your Variable trigger, that being when the Prime Rate reaches ‘x’%. The other is your Fixed trigger, that being when the 5-year (or any other term) reaches ‘y’%. Using those two management mechanisms will ensure you don’t miss the boat.

If you want to be even more sophisticated about this, you could review the Stop-loss rates annually, remembering that as time goes by without significant change in the Prime Rate you will have built up a nice buffer against the cost of an increase during the term of the mortgage.

You can follow what the best market rates are here http://garthchapman.ca/

The schedule of dates when the BoC reviews and sets the Overnight Rate is found here http://www.bankofcanada.ca/core-functions/monetary-policy/key-interest-rate/

For more on the subject read the Fixed or Variable Rate Mortgage? The Decision Checklist post by RateSpy.com

I hope this gives you some clarity on this complex subject, and on how to make and then manage your own interest rate decision.

12 Mar

Are you Stressed by the Mortgage Stress Test? Here are a Few Solutions

Buying & Refinancing a Home

Posted by: Garth Chapman

Alberta’s real estate markets are stressed. Prices are flat or down.  So this is a Buyer’s Market, and yet so many Buyers are finding it difficult to qualify for the mortgage they need, largely due to the new mortgage Stress Test.  Here are a few smart ways that you can use to achieve the mortgage you need to buy the property that suits your family’s needs.

Use the flex down or borrowed down payment programs offered though one of our mortgage lenders.

You must qualify, the payment for the loan must fit in your total debt service ratio.

You must have good credit, meeting minimum beacon score requirements.

The CMHC default insurance premium is higher, but by using this option you can borrow the down-payment.

First time home buyers can obtain a new RRSP loan and 90 days later use the First Time Home Buyers Plan and withdraw up to $25,000 for a home down-payment.  Pro Tip– you are considered a First Time Home Buyer if you have not owned a home in the previous 4 years.

Call your favourite Jencor Mortgage Broker, and we will arrange an RRSP loan and a mortgage pre-approval as per your financial qualifications. Couples can both do this.

90 days later, you withdraw up to $25,000 (per person) from your RRSP plan(s) for down payment.

Then you can get to work with your favourite Realtor to buy a home.

IMPORTANT – The key element of this is that our best mortgage lender for this program does not require the loan to be repaid when funds are withdrawn for the down-payment, whereas most lenders do.

Is a Large Vehicle Loan Payment Reducing the Mortgage You Qualify for?

Whether you are refinancing, buying a new home, or just wanting to improve your cash flow, is a large vehicle loan payment reducing your options!

We have a vehicle finance company that will aggressively extend out an amortization, reducing the vehicle payment. The result, all other things being equal, a bigger mortgage. We had one couple rewrite their vehicle loans, and they got a $70,000 bigger mortgage. Their realtor was able to write an offer in the neighborhood they have always wanted to live in. Got a great deal on the house as well.

Call me today if a lower vehicle loan payment could help you.

Special Programs for Self Employed Buyers

  • The federal government continues to impose restrictive guidelines on all mortgage applicants. One group particularly hard hit are business for self borrowers (aka BFS). Many BFS clients hire good Tax Accountants. Good Tax Accountants are great for a lower tax bill, but low taxable earnings are not so good for obtaining a mortgage.  Most lenders require two years of personal tax returns, notice of assessment, and corporate financial statements.  If your clients are being declined after providing all of that information perhaps one of the special programs that still exist could help.
  • We have lenders who will consider:
    • Using an insured stated proof of income mortgage to 90 % loan to value. We do need to provide information to confirm the reasonableness of the application.
    • Using an insured stated proof of income mortgage to 65% loan to value. Again we need to confirm reasonableness but no insurance premium applicable.
    • Using a series of bank statements to confirm business cash flow to support a mortgage. Maximum 80% loan to value.
    • Using a cash flow analysis of the corporate financial statements to support the income requirements 80% loan to value.
    • We have some other esoteric programs too hard to describe in one line.
    • Your Jencor Agent can often help a BFS client who has been frustrated by their own Bank or by an inexperienced Mortgage Broker.

Some combination of these ideas may just help you, your friends or relatives get the mortgage you need for the home you want.

21 Feb

Bruised Credit And Need A Mortgage?

Credit

Posted by: Garth Chapman

Many people think that their credit score will hold them back from obtaining a mortgage. For some, they may have work to do on their debt beforehand, but sometimes people believe their credit is poor, only to find that it isn’t as bad as they thought. It pays to seek help from a Jencor Mortgage Advisor to find out where you stand.
What is bruised credit and how does it impact your ability to obtain a mortgage?
Mortgage lenders use your credit reports to evaluate risk by looking at your repayment history to see how responsible you are with credit. Although a 790-beacon score and zero late payments in the last three years is ideal for all lenders, bruised credit means something slightly different to some lenders. So, what is bruised credit? It can be a result of many circumstances including, late payments on loans, collections & judgements, bankruptcy, consumer proposal or credit counselling, late payments on your mortgage, foreclosure & even identity theft. Traditional mortgage lenders and insurers will not commonly approve applications with credit histories that show challenges with borrowing in the recent past. The good news is that there are still options with alternative mortgage lenders with a minimum down payment of 20% to 30%. With these mortgages, you will be paying higher interest rates, usually for two years, while you rebuild your credit. We can then transition you into a regular mortgage.
Rebuilding credit takes time.
There are some things you can do which will bring your score up substantially in one swoop, but normally it takes time to rebuild. Here are some of the basics to improve your credit:

1. Have at least two credit accounts reporting to your credit report besides cell phone bills, school loans or mortgages. Use your credit cards every month, even just one purchase monthly and pay it in full before the due date. The credit limits should be at least approximately $2000 each.

2. Always pay all your debts on time – making even the minimum payment on time, is better than making a larger payment late. If need be, reach out to the account holder and make payment arrangements. Never ignore a payment and hope for the best.
No Late mortgage payments – these are extremely detrimental to you obtaining a mortgage.

3. Do not max out your credit. Use less than 50% of your limits and never go over the limit. Going over limit impacts your score immediately and severely, and even when you bring it back in line, it still has a lingering effect on your score.

4. Do not apply for too much credit and do not cancel existing credit – both these actions will negatively impact your score – yes, you would think that cancelling existing credit would help, but by doing so, you are reducing the overall credit available to you and therefore immediately increasing credit usage. Also, by cancelling credit, you might be cancelling a credit card that you have held the longest and longevity of credit has an impact on your rating.

5. New loans, such as car loans will have an immediate negative impact on your score – so do not obtain a new car loan if you are thinking about obtaining a mortgage. Because of the size of the loan, your credit usage increases substantially.

6. Do not let anything go to collections – even though some utilities, rental payments, gym memberships and the like, do not report to your credit bureau, when they go to collections, they will be reported.

7. Ensure that everything on your report is correct. If not, you must take steps with the creditor or the reporting agency (Equifax or TransUnion) to correct them.

8. In some cases, if you already own your home, there may be an opportunity to consolidate debt into your mortgage and improve your credit.

Don’t be defeated; get advice, get back on track!

Ultimately, how each item impacts your score, depends on how it interacts with everything else on your report. One late payment, for some with long-held credit and very little past delinquencies, will have less of an impact than for someone with bruised credit or someone with new credit.

If you have bruised credit, don’t write off your dream of home ownership. Contact your Jencor Mortgage Advisor who can advise you on the necessary steps to obtain the mortgage you need.

Written and originally posted here
by Ayashah Kothawala – Mortgage Advisor Jencor Mortgage

12 Jan

What is a Monoline lender? 

About Mortgage Brokers

Posted by: Garth Chapman

What is a Monoline lender?

A Monoline lender, by definition, is a mortgage lender that focuses on just mortgages.  They do not have any other products that can be cross-sold and most Monolines securitize their mortgages, instead of keeping them on their balance sheet.  Monolines are secure, follow the same rules as all Canadian Banks and they deal exclusively with Mortgage Advisors on their clients’ behalf.

Advantages of a Monoline lender

  • They focus on one thing: mortgages.  For you that also means they do not try to cross-sell you into credit cards, investments or insurance.
  • Monolines have a much lower IRD (Interest Rate Differential) pre-payment penalty calculation, which is important if you are required to get out of your mortgage before the end of your term. In my own personal experience the Monoline penalties are up to 2/3 less than those of the big-six banks.
  • They often have products that specialize in a range of solutions aimed at borrowers with lower credit scores and those with self-employed income sources.
  • No storefronts mean lower overhead which in turn they pass along to you in the form of lower interest rates.
  • Monolines are heavily regulated and follow the same lending guidelines as all the major banks in Canada
  • Pre-payment options are often greater than the big-six banks offer.
  • Online access to your mortgage and customer service departments is excellent – it has to be – they don’t have branches.

This article by financial writer Rob Carrick was published in the Globe and Mail comparing Scotiabank to ING regarding their vast differences in penalty calculations.  As much as we try to explain what a Monoline differs from a bank, an article from a third party drives it home.

Even when the rates are the same between banks and the Monoline borrowers should always factor the potential IRD into their decision making as one never knows what will happen in the future. 

To summarize, Monoline lenders tend to provide better rates over the big banks, have favourable penalty calculations, and foster relationships with brokers to ensure the business comes back to them (including having a renewal model to reduce churn).