Archive Monthly Archives: April 2011
What Housing Bubble?
“Canadian Housing Bubble Fears Perhaps Lessened With Small Growth In Prices”
The housing pricing numbers in February, according to the Teranet–National Bank National Composite House Price Index, where up 0.1% with the increase representing the third monthly increase in a row following three consecutive months of decline.
The modest 0.1% pricing increase is a weighted average of all major Canadian centers, with a mixed bag of results across the board. Toronto showed a decline of 0.1% for the month.
Here is the rest of the numbers … http://www.mortgagebrokernews.ca/news/teranet-index-shows-small-increase-in-housing-prices/10662
While the collective numbers don’t light my world on fire with excitement, they do show a certain amount of near term stability in housing prices compared to what we are seeing in the U.S. and in other parts of the world.
When you read about the housing market failure in the states and consider all the sub prime mortgage financing that exists in this country through insured mortgage programs, it has been making everyone a little bit nervous as to how the Canadian housing market would respond in 2011.
Apparently, so far so good.
And while some of the recent changes to the mortgage lending rules may put a damper on housing prices somewhat in the coming months as everyone settles into the new lending rules, overall these changes more likely to strengthen the market than weaken it in the long run.
Pricing stability helps maintain lender activity in the market which provides consumers with access to capital and mortgage program choices.
Hopefully the outcome of the Federal election will be a positive influence on the house market, interest rates, and economic growth as well.
With respect to the election, make sure you get out and vote next week as its the only way we as individuals can influence the outcome.
Click Here To Speak To Toronto Mortgage Broker Joe Walsh
Secondary Mortgage Lenders More In Vogue
“Recent Changes To Canadian Mortgage Regulations Have Started To Moved Borrowers Down Market”
With all the changes coming into effect for mortgage lending from institutional lenders, more and more borrowers are considering alternative lending options from “B” lenders and private lenders.
More specifically, the changes to mortgage regulations cutting back insured mortgages to 85% of the property value for insured mortgages and the discontinuance of mortgage insurance on home equity lines of credit, have started moving lenders from “A” lending products to alternatives down market.
For instance, most private mortgage lending for second mortgages to provide incremental capital, primarily for debt consolidation of some sort.
Traditionally, an “A” profile lender would go to the bank and get an insured mortgage product to provide the additional capital required either in the form of a new first mortgage, a standard term second mortgage, or a home equity line of credit.
With the rule changes, individuals are not going to be able to secure the same level of financing and may turn to private mortgages instead to get funds in place faster, even at a slightly higher cost.
The same can be true to some of the lending products now being offered by secondary institutional lenders who are still governed by the recent rule changes, but are providing different lending products to generate greater overall leverage, which is the key issue for people looking for additional mortgage financing.
While most private lenders are reluctant to go beyond 75% to 80% loan to value on a first, there are those that will go as high as 90% on a smaller second, especially when the borrower has “A” credit and good cash flow.
Add to this the speed in which a private mortgage can be completed, and a case can easily be made to now consider these forms of “alternative mortgage financing” if you can’t otherwise qualify for enough financing from your bank or primary institutional lender.
Once again, this is not going to generate any type of mass shift in the market, but for those individuals who 1) what maximum leverage against their home equity, and/or 2) don’t have the time to go through the bank process which may see they qualify at a lower amount anyway, alternative financing options or the down market has now become more attractive to lower risk lenders.
If you would like to explore alternative financing options to maximize your home equity mortgage financing, I suggest that you give me a call so I can quickly assess your requirement and provide relevant mortgage options for your consideration.
Commercial Mortgage Keys
“Here Are Some Of The Key Factors For Getting A Commercial Mortgage In Place”
Commercial mortgage financing as well as other forms of business financing remain the most perplexing to business owners since the start of the 2008 recession.
The process for locating and securing a commercial mortgage has become more difficult in a lot of ways, which is catching business owners and property owners off guard as they try to adjust to the new order to things in the market.
Unfortunately, most of the changes in commercial property financing are only understood or internalized when someone is in the middle of trying to get a mortgage in place which may be too late if they are dealing with some sort of time line.
The new order of things in commercial mortgage financing has fewer lenders in the market, lenders in general taking on a more cautious approach, and the costs of completing all the mortgage requirements on the rise.
That all being said, the commercial property market is an enormous market that will always have available sources of financing.
The key is to understand how to approach the market to get the results you’re looking for.
To that end, I would like to provide some keys to commercial mortgage financing in 2011 and beyond.
First, regardless of how many times you have arranged or secured commercial mortgage financing in the past, accept that the world has changed since 2008 and that you’re going to have to up grade your knowledge a bit to properly navigate the market. I find this is a significant issue for many business owners I speak to. And because the commercial market has been so accessible for literally decades, individuals have a hard time believing that things have changed significantly. Unfortunately its not very comforting when I get a call months later saying, “you were right, I should have listened to what you were telling me.
Second, outside of market knowledge, the most important key to business property financing is time. You need to start the process earlier and basically assume it will take longer and be harder than you think. This is not to paint a gloom and doom view of the market. Its more about setting yourself up for success and acknowledging that most things in the commercial mortgage lending space are moving slower than what you likely have become accustom to from past experiences.
Third, get professional help to assist you with the process. An experienced mortgage broker who understands the commercial financing market can potentially save you considerable time and money versus trying to figure out the shifting sands yourself.
Lenders are in and out of the market.
Lenders requirements can add considerable time that you may not have which should be built into lender selection.
Coordination of the lender’s third party requirements can be considerable, costly, and time consuming.
Too often in the last 12 months I have had someone call me, explaining that they are 6 to 9 months into the commercial property financing process and are running out of time because of their lack of understanding of the market and the options they chose to pursue.
If you need a commercial mortgage for property acquisition, mortgage refinance, construction, bridge financing, or debt consolidation, give me a call and we’ll go through your requirements together and review potential financing strategies.
Click Here To Speak With Commercial Mortgage Broker Joe Walsh
Collateral Mortgage Versus Conventional Mortgage
What Is The Difference Between A Collateral Mortgage And A Conventional Mortgage?
There is a growing trend with the major banks and some credit unions to now register a collateral mortgage charge instead of a conventional mortgage charge when you enter into a new mortgage agreement with them.
Traditionally, a collateral mortgage charge was primarily used with line of credit accounts where there can be a considerable difference between the amount advanced and the amount outstanding at any point in time.
The basic workings of a collateral mortgage is that the mortgage lender actually has a promissory note and secondary security in the form of a first or second lien against the property for the total amount registered, which can be as high as 125% of the property value even though the borrower did not receive the amount registered.
A collateral mortgage allows the borrower to provide additional principal or re issue principal that has already been paid back similar to how a line of credit works.
With a conventional mortgage, the amount being borrowed, interest rate, and repayment schedule are all basically fixed and the lien registration reflects the amount advanced.
With a collateral mortgage, the big difference is in the terms and conditions.
In addition to the higher loan registration amount lenders also have the right to write in a higher interest rate that what is initially being offered and charged to the customer. For instance, the collateral mortgage may have a stated interest rate of 10%, but the customer is only being charged prime plus 1% initially.
What Is The Reason For Mortgage Lenders To Now Move To Collateral Mortgages?
From the lender’s point of view, they promote this as providing more options and convenience to the borrower. Because of the amount of security being pledged to the lender, the borrower can more easily qualify for additional borrowings with the bank. This could include any non mortgage form of borrowing as well.
The banks also explain that a borrower can more easily move from one lending product to another without incurring any new mortgage registration charges.
And while the consumer can receive value from signing off on a collateral charge, there are some things you should be aware of before accepting this type of mortgage option.
Things To Be Aware Of With Collateral Mortgages
First, by registering a collateral mortgage at 100% or high of the fair value of your property against your property, any future borrowings that you may want to leverage from your home will likely have to come from the collateral mortgage holder. For instance, if you wanted to secure a second mortgage where the total loans outstanding would be less than 80% of the value of the property, no second mortgage could be arranged from a different lender because they would have to register behind the collateral mortgage which may be listed at 125% of the property value, even though only a fraction of that amount may be outstanding.
This could also impact your ability to qualify for any type of lending program outside of what your primary mortgage lender is offering due to the fact that other lenders will likely consider the full amount of the mortgage registered in their debt service calculations. So even though you have good income and credit, you could still be viewed to have an excessive debt load, causing otherwise straight forward credit applications to be declined.
Second, the nature of the way the collateral mortgage will likely be written, will allow the lender to utilize it as security for any other loans, credit cards, and lines of credit you may have with them. Effectively, they may be able to become fully secured by real estate for any and all borrowings made to you once the collateral mortgage is put into place.
Third, if you do fall behind on your mortgage payments, the collateral mortgage provides the right for the lender to potentially start charging a higher rate of interest if a higher rate is written in compared to what you are initially paying. Because the lender has such a strong securing position, they can justify the increase to cover a higher risk of repayment default while not really having any real risk of potential loss. The end result is even if you get back on track, you now have a higher interest rate to pay, which can lead to higher prepayment penalties if you try to move your mortgage to another lender.
Should I Consider A Collateral Mortgage Or Just Stick To A Conventional Mortgage?
This is one of those depends answers.
Currently in the market place, some lenders are providing the customer with an option of taking a conventional mortgage or a collateral mortgage.
However, this is not true with all lenders and this fall, some mortgage providers are talking about only offering a collateral mortgage option.
Because banks offer a fast closing process which tends to be cheaper than going through your own lawyer, many borrowers are going to sign off on a collateral mortgage without really understanding the pros and cons.
So the key here is understanding what you’re signing up for.
If the benefits of a collateral mortgage fit your needs, then there is certainly nothing wrong with accepting this type of mortgage offer.
But if the terms and conditions are going to be too restrictive for your future financial planning and cash flow management requirements, then a conventional mortgage may make more sense.
Before signing off on any mortgage offering, make sure you are getting independent legal advise if you’re not completely sure as to how all the terms and conditions of mortgage work.
That way you can make an informed decision and have less chance of regretting it at some future date.
Click Here To Speak Directly To Toronto Mortgage Broker Joe Walsh
Moving With Your Mortgage
“More And More Canadians Are Moving Their Mortgage With Them When They Buy A New Home, But Does This Make Sense?”
According to a report from TD Canada Trust, about a third of buyers are transferring their old mortgage to their new home.
See details of report here http://www.montrealgazette.com/life/Pack+mortgage+when+move/3621053/story.html
I was surprised that the number of people doing this was this high, but not that transferring the mortgage wasn’t a fairly common practice.
I think this speak more to people paying more attention to the terms and conditions of their mortgage as well as where interest rates are likely headed.
The reason to transfer your mortgage is strictly economical. That is, are you going to be better off financially by doing this that it you don’t.
This type of strategy is going to be most effective and advantageous in a market where interest rates are rising or have risen since the time you entered into your mortgage.
Under these conditions, you would likely have a lower interest rate penalty compared to a time period when interest rates were falling, and you would be able to retain the interest rate remaining on your existing term which could be lower than what’s available to you in a rising rate market.
And depending on the terms and condition of your mortgage and the flexibility provided by the lender to keep your business, there can be other options as well.
For instance, say you are buying a more expensive house for $500,000, your old mortgage is $300,000, and you require a further $50,000 in financing to complete the transaction.
Some programs will allow you to increase the mortgage amount, but have the incremental borrowing amount based on the current rates, which are likely going to be higher if it’s making economic sense to transfer your mortgage. So say your old mortgage is at 4% and the new rates are 5%, some programs will blend the interest rates together and come up with a new payment.
Under this example, there is no prepayment penalty and you’re only paying a higher interest rate on the additional funds being borrowed.
In the end, this whole exercise comes down to what you plan to do in the future (for example, will you see the term on your old mortgage through to its completion?) and how the math works out. If there is a real financial benefit to transferring the old mortgage, then its something that should be considered. If it doesn’t make financial sense, pay off the old mortgage and get a new mortgage for the new property you are acquiring.
The best way to approach this decision making process is to work with an experienced mortgage broker who can work through all the relevant terms and conditions of your old mortgage with you and then help you do the math properly so you have the basis for making an informed decision.
Click Here To Speak With Toronto Mortgage Broker Joe Walsh
Mortgage Broker Put Down
“RBC Report From Internal Mortgage Specialist Throws Rocks At Mortgage Brokers”
As a Toronto mortgage broker, I am very proud of my profession and all the value I can add to my clients seeking assistance locating, securing, and administering mortgages for their residential, commercial, or industrial property.
I’m always quick to point out the many different ways mortgage brokers can add value to our customers in a manner in which they are financially better off or are put in a position to be able to make better financial decisions.
All that being said, while 35% to 40% of the annual mortgage applications are processed through a mortgage broker, the balance are completed directly by the mortgage lender.
Nothing wrong with that. There is competition and choice in the market, which is ultimately good for the customer.
It would be nice, although unrealistic, for mortgage brokers and the lender’s mortgage specialists to just get along and play nice.
Last week there was an example of what likely doesn’t help anyone in the market when an RBC mortgage specialist created a marketing piece to explain the differences between mortgage specialists and mortgage brokers.
In keeping with the rhetoric of the season provided daily by the federal election campaigns, this marketing piece basically says that mortgage specialists are superior to mortgage brokers and that customers should be aware of certain risks that come with working with a mortgage broker.
Here’s an article that gets into more detail as well as links that lead to the actual marketing piece I’m referencing to.
http://www.mortgagebrokernews.ca/news/controversial-document-infuriates-brokers/106537
Needless to say, I don’t agree with many of the comments made by this individual. And there are plenty of mortgage brokers weighing in online with their displeasure to provide the counter arguements.
My purpose in bringing this up today is more about providing some basic perspective to anyone that’s interested.
Like any industry, there are lots of slices to this market and there are individuals on both sides of the fence that are really good at what they do because of their acquired expertise and dedication to their craft.
As a property owner seeking a mortgage, depending on the specific nature of your situation, there may also be times when a mortgage broker is more relevant to you than a mortgage specialist and vise versa.
The best thing of all for consumers is that there is a lot of excellent help out there for you, regardless of what you’re potential needs may be. And with a little bit of work on your part qualifying those who can provide service, I’m pretty confident you will be able to find a mortgage expert that can give you the assistance you require.
Hopefully, all of us in this great industry can conduct ourselves as professionals and continue to make things better for all involved. Not sure how confusing the customer with stuff like this is good for anyone.
Competition is good. We just need to keep it clean.
Another Argument to Fixed Versus Variable
“For Residential Mortgage Interest Rates, Here’s Another Potential Plus To The Variable Side Of The Argument”
I don’t have the exact original source for the following statistic I’m going to lay on you, but the source that provided it to me is pretty reliable, so I still think its work putting forward.
Anyway, here it is.
73% of Canadians will not finish a 5 year Term
Whether if this is true for the whole population or not is basically irrelevant. The question is, does this relate to you?
If so, then it’s something that you need to build into your decision making process when looking at fixed or variable interest rates on your mortgage.
The reality of the statistic is that if you do fall into this category, then there’s a good chance that’s you’re paying significantly more in interest for your residential home mortgage.
The reason you’re more likely to be paying more over a period of time is 1) you are not going to the end of the mortgage term and thus will be paying some amount of prepayment penalty (this can be considerable if the interest rates in general have gone up at the time of prepayment compared to when the mortgage was issued), and 2) the variable interest rate has a high probability of averaging out at a lower rate than the 5 year rate over a period of time.
This is not to say you shouldn’t be signing up for a 5 year rate, because there are excellent rates available in this range. But if you are someone who is required to move a lot due to your job, or have a growing family that is going to need a larger home in the short term, then you may want to stick to the variable interest rate options.
The key here is that, on average, based on this statistic and the track record of interest rate trends in Canada over the last 10 years, there is greater opportunity to save money on your mortgage through a variable interest rate unless you know you are going to stay with a 5 year fixed rate to the end of the 5 year period. Then the decision making process may be different.
If you have any questions or concerns about variable versus fixed interest rates, please give me a call and I will be happy to make sure all your questions get answered.
Private Mortgage A Better Option?
“Is It Possible That Sometimes A Private Mortgage Is A Better Option Than A Bank or Institutional Mortgage?”
A private mortgage can most certainly be a better option in some situations.
One of the most common scenarios is with a commercial or industrial property that requires mortgage financing.
While a bank or institutional mortgage will certainly provide you with a lower interest rate, there can be considerable other costs that can be required by the lender before any commitment or funding is provided.
These days its a given that any commercial or industrial property will require a third party phase I environmental report from a recognized environmental consulting firm as well as a recently completed property appraisal from an AACI appraiser.
Depending on the property and its prior use or its location, a phase II environmental audit may be required right off the hop.
Then, if the borrower is self occupying the building, operating financial statements may need to be prepared by the accountant, perhaps to the level of review engagement.
All these things cost money, and in many cases quite a bit of money in addition to the time it takes to get everything completed and back to the lender for review.
While a private mortgage lender could also ask for all these things as well, in many cases there can be substantially less cost incurred to third party verifiers, making the private mortgage option less expensive if you calculate an effective interest cost for the transaction with all costs included.
At the same time, a private mortgage may also not be a long term commercial mortgage financing solution as most private lender do not provide funds for more than one year with the maximum time available no greater than 5 years. That being said, if you’re tight on cash flow right now, its going to be more cost effective and cash flow friendly to get all the bank or institutional requirements done over a period of time, when it makes sense to get everything done, versus being buried under all the costs at the outset of acquiring a property.
The other situation where a private mortgage is going to be a better option is when time is short for closing. While the bank may be able to provide a cheaper option, it doesn’t do you any good if its going to take longer than you have to close the deal.
And depending on the circumstances, not closing can be very expensive and significantly more expensive that getting a private mortgage in place quickly and getting the deal closed.
If you’d like to discuss private mortgage options for a residential or commercial property you need to finance, give me a call and I’ll quickly assess your requirements and provide relevant private mortgage funding options for your consideration.