There is no question that the Canadian residential mortgage market, similar to the home mortgage markets in other countries can be an extremely lucrative financing market due to its size and importance to the overall economy.
As a result, there are many mortgage lenders out there focusing on a different slice in the market to pry more and more market share away from the big banks and to get their own share of the mortgage pie.
When the market is functioning properly, this competitive diversity in residential mortgage programs provides you the consumer with high competitive offers for “A” credit deals and a wide spectrum of offers and choices for those situations that do not fit the prototypical single family mortgage financing scenario.
When the market is in dysfunction, like we’re seeing in most of the world these days, the smaller niche lenders tend to leave the market and the larger lenders become more constrictive with respect to their offerings and their willingness to issue mortgage commitments on demand.
Fortunately for Canadians, the Canadian mortgage market has held together during turbulent financial times in the global markets. Other than a few changes here and there to lending terms and mortgage insurance programs, the market has not changed a great deal in terms of competition and available programs.
As Canadians, this is something we now largely take for granted. But if you spend any time reading the paper or surfing the financial reports on the web, you’ll quickly discover that other parts of the world can now only wish for the type of system and residential mortgage market options we are all afforded here in Canada.
Mortgage lenders are undoubtedly reading the same stuff and will likely continue to make tweaks and changes that take risk out of the market and maintain a healthy environmental for competition, or at least we all hope they do.
The point here is that regardless of how you may be impacted by subtle changes in the mortgage rules and regulations from time to time, there is greater access to residential home mortgage financing here than anywhere else and that we are blessed with a wealth of choices that are easily taken for granted.
The best way to make sure you are fully utilizing the available mortgage market resources and home mortgage programs to their fullest is to work with a Toronto mortgage broker who can assess your requirements and situation and guide you through the programs most relevant to you in the market at a given point in time.
This week most of the major banks in Canada announced that they are going to be dropping the amortization period on residential property mortgages from 35 years to 30 years during April of 2011 regardless if the mortgage falls into the high ratio or low ratio mortgage categories.
While not all primary mortgage lenders have announced this change, you can expect that the industry, as it typically does, will have all members follow suit, especially after such a significant change in the mortgage lending policy.
This move along with several others this year already announced by CMHC on the insured mortgage lending front, continue to demonstrate that the Canadian market is concerned about the massive fall out in residential property financing all over the world and do not want to fallow suit.
Well established financial markets in the U.S. and U.K. have both recently tanked, clearly demonstrating to all along the way that first world financial economies are not immune to massive fall out in the residential mortgage markets.
From a consumer point of view, this means more cash flow is going to need to be available to qualify for mortgages of any risk level when a long term amortization period is being sought.
In the big scheme of things, this is still going to likely only have a significant impact on small percentage of the market, but taken it collectively with the other changes that have occurred and its now becoming a bit more difficult to get a residential mortgage in Canada.
At the same time, statistics show that borrowers on average are becoming more proactive with their long term debt load and are paying down more principal ahead of schedule than in any previous time in the past, speaking to a change in consumer perception about debt as well.
And even though the Canadian market has been able to weather the global economic storm better than most, you can expect that further tweets and adjustments may still be coming in the future to provide further stability to the overall market.
If you’d like more information on mortgage amortization terms and how they may impact your mortgage or future plans, give me a call and we can discuss your situation in sufficient detail.
Residential property bridge financing loans are most common when the purchase date for a new home is going to occur before the closing date for the sale of the existing home. This is not an unusual series of events when trying to sell property and purchase property at the same time. In fact, most mortgage companies have a bridge financing program for you to utilize, provided that you’ve already committed to accepting a mortgage financing offer from the same company for your new purchase.
Lets take a close look at a bridge loan, why its required, and how it works.
First of all, the situation outlined above is that an individual or individuals is trying to sell their existing house while at the same purchase a new home. In an ideal world, the sale of the existing home would be completed first, allowing any equity freed up from the closing to be applied to the new home purchase. Unfortunately, the timing of the two separate transactions is not always perfect, creating a need to have money available to close the new home purchase before the existing home is sold.
Because the new residential mortgage is going to be based on the financial profile of the applicant or applicants post sale of their home, the new mortgage lender sees providing the bridge loan as a way to complete the purchasing transaction without taking any unnecessary risk in the process.
As long as the bridge financing period is less than 90 days, most mortgage lenders that provide bridge loans won’t even require that a collateral mortgage be registered against the existing property.
From a mechanical point of view, the borrowers will likely have to sign a letter of direction to have the proceeds from the soon to be completed sale of their existing home be directed to the new lender so that the bridge loan can be immediately retired from the available proceeds, as soon as they become available.
The actual proceeds from the bridge loan are advanced directly to the borrower’s solicitor so that they can be used to complete the purchase of the new home.
In the event that the mortgage lender is not in a position to provide a bridge loan, the borrowers could still turn to a private mortgage solution, which would likely require that a collateral mortgage be registered on the existing property.
For more information on residential property bridge financing, give us a call and I’ll make sure you get all your questions answered right away.
One thing about the Christmas season and the financial markets is that not a lot of anything happens after the middle of December. Sure, people are still looking for financing and mortgage applications are being made, but there is little chance that anything is going to get completed before the first or second week of January.
Once the season kicks into gear, there is likely going to be someone key to a mortgage process that is going to go missing for a period of time, which will end up delaying the completion of the residential mortgage process. Either the lawyer is in Florida or the lender is working with a skeleton crew or everyone in general has geared down their efforts due to the many distractions of the season.
Hopefully you won’t have a critical closing date in the next couple of weeks and if you do you would be well advised to get an extension in place as soon as possible. While there is always the chance that everything will somehow get done on time, Christmas miracles in the mortgage business are likely going to be less common than in other parts of everyday life, or at least you would think so.
If at all possible, now is the time to take advantage of the spending time with loved ones and partaking in all the Christmas activities available to you at this time of year. Getting any type of business done between Christmas and New Years or even the first week of January is likely going to be a struggle until the majority of people return to their jobs and get settled back into their daily routes.
To all our clients, lender relationships, and business colleges, we wish you all the best of the season and look forward to working together with all of you in the coming year.
2011 appears to be full of promise on many fronts and the mortgage market is no different. But like I mentioned earlier, not a whole lot is going to get done between now (Christmas Eve) and the second week of January, so try your best to reduce any money related stress and find some time to enjoy the season and those closest to you.
In any event, I wish you all a Very Merry Christmas and a Happy New Year.
When seeking a residential or commercial mortgage over the internet, there are basically three different types of online strategies you’re going to come across.
The most common mortgage related web site strategy is for a lender or mortgage broker to put up a basic brochure site to provide very basic mortgage information, perhaps have a rate quote section, and offer contact information to you to contact the firm or individual. Most of these web sites are template driven and provided on mass volume to the companies or individuals in the business as a way for them to be found. Once built, the sites tend to become static sign posts for the business with very little if any additional information being added for months or even years.
The second type of mortgage web site is the online lead generation type site. These sites are growing in numbers as the technically savvy develop robust and interactive websites that are designed to capture your contact information and as much financial information you’re willing to provide and then selling or brokering the leads to mortgage brokers they work with. These sites tend to be nameless and faceless as the developers are not themselves mortgage brokers or have any type of significant financial expertise. They are predominantly marketers providing lead generation services to mortgage broker. While there is nothing wrong with this type of approach per say, it doesn’t let you select the mortgage broker and instead works off the premise that the mortgage industry is 100% commodity, that all brokers are the same, and there is not going to be any additional information required beyond what they collect from you to get you what you’re looking for.
The third type of site is one that more clearly promotes interactively with its visitors, provides solid educational information, adds new and relevant content on a regular basis, introduces you with the people you would be working with, invites communication in the way you prefer, and gives you the option of taking the conversation or inquiry off line if you so choose.
Needless to say, the last category is the ongoing focus of this website. We recognize that the web is a growing first choice for a lot of people to find information, do research, and conduct business. At the same time, we also know that most mortgages have unique considerations for the applicant and that there can be twists and turns in the process before you achieve the desired result.
We invite our visitors into a conversation about mortgages and their requirements and try to continually figure out the best way to interact with them so that the best result can be achieved. Getting a mortgage IS a big deal for most people and the process should not be over simplified regardless of how badly most people would like it to be.
Biased as we are, the first two approaches do not provide much value to the customer.
One the surface, it sounds great when you hear that a residential mortgage can be amortized for over 30 years, providing you with a means to reduce your monthly cash flow outlay.
But when you break down the numbers, is the decision to take on a longer term amortization a good one?
For instance, if you take any mortgage amount and compare 15, 20, and 25 year amortization periods, you will find that moving from 15 years to 20 years or 25 years will reduce your monthly payment by 20% and 31% respectively, versus what the payment would be for a 15 year amortization. But looking at the numbers further, the total interest cost paid over the life of the mortgage also increases by 36% and 74% respectively versus the 15 year am.
So the question is does the reduced cash flow benefit offset the total increase interest? If you plan to pay the minimum on your mortgage for the full amortization term, the longer amortization period does not make a great deal of economic sense for you if you have the ability to cash flow a higher payment. Obviously if you do not have the cash and that extra couple hundred dollars a month is the difference of making your cash flow work or not, then the longer amortization may become a necessary evil.
The other situation where a longer term amortization makes sense is where you know, or are pretty sure, that you’re going to be able to put incremental lump sum payments against your mortgage over time. Most residential mortgages now a days have some sort of annual prepayment you can make without penalty. Especially in situations of self employment where the income earned can be seasonal or more erratic, the longer amortization provides the least possible monthly payment and prepayment options allow you to pay down the mortgage faster so you aren’t paying all that additional interest associated with a longer amortization period.
Consider longer term amortizations as a tool and use them to maximize your cash flow. At the same time, make sure you understand the cash flow and interest trade offs as well as over time the longer amortization can cost you a significant amount of money.
Over the last several months, the market has speculated about interests rates in general going higher over the foreseeable future. In order to get a better sense of what was going to happen and provide options for securing either fixed or variable interest rates, many Toronto mortgage holders made a mortgage application to lock in the interest rates at the time for 120 days.
After all the initial discussion regarding rate hikes, the market settled down for a while, largely due to the ripple effect from what was going on in other financial markets such as the U.S. and Western Europe to name a few.
But now we’re at a time when many of these 120 day interest rate freezes on residential mortgage rates from the spring are coming due, and this is happening right at the time that interest rates are spiking up and continue to look like they may go higher.
This has narrowed the spread between the current variable rates and the fixed rates that many individuals still have locked in 120 days. So before time runs out on the applications they made, its time for them to once again consider fixed or variable interest rates because once the freeze period is over, longer term rates are likely going to be higher with variable rates creeping up.
As we always say, there is no accurate way to predict exactly where the market will go with respect to interest rate rises so it mostly comes down to your own assessment of risk and how much risk you can afford to be carrying in a variable rate position.
If rates start to continually climb up, many mortgage holders will get trapped in a variable rate in that variable mortgage interest rates could soon rise past the levels long term rates were this spring leaving and now there will be no option to lock into the current level of available fixed rates as they will be gone and adjusted upward as well.
If you have a locked in rate and the time period is about to expire, make sure you review your situation closely and make the best decision possible for your future cash flow. Once these rates lapse, they may not return to the same levels for some time.
It’s an accepted practice to shop around for the best mortgage rages and terms. Lenders are used to having to compete for business and the process can provide benefits that you would not otherwise be able to uncover.
But shopping can easily be taken too far when someone starts to work with several brokers at the same time. The borrower’s theory is that this will likely yield an even better result, but this isn’t necessarily the case.
First, the more applications you have on the go, the more times you credit report is going to be accessed which isn’t going to help your credit score.
Second, the more brokers you’re working with, the more likely the same deal is going to get on the same lender’s desk. If there’s too much confusion as to who you’re dealing with, an otherwise good mortgage opportunity may pass you by when the lender backs away from the deal.
Third, despite what you think, mortgage brokers aren’t completely clueless to this type of maneuver. It can become pretty clear when someone is shopping around a deal excessively, so in order to take you out of the market, you may get promised things that can’t be delivered by the more aggressive brokers, leaving you without the type of house mortgage you’re looking for, in the time its required.
Fourth, unnecessarily taking up the time of several people that you don’t have any intention to work with is frankly bad form and is not something that anyone appreciates.
I have no problem with people spending time with a broker to determine who they want to work with. But at some point, the individual needs to make a decision and choose who will represent them versus having a number of people working on the same deal for nothing and potentially screwing up good potential options in the process.
There are more negatives here than positives. If you want to shop the market, there is a right way and a wrong way to do it.
I welcome the opportunity to help you in any way I can with your home mortgage needs.
But if you plan on getting other brokers to do the same thing without disclosing your true intentions to all those involved, please don’t call as I’m not interested in this sort of run around that frankly isn’t likely going to help you anyway.
If you look over the last 5 years, its hard not to argue why variable mortgage rates should be preferred over fixed mortgage rates. For instance, the variable rates have been lower and because they’re variable, interest rate drops provide an instant benefit. And because they’re open for repayment, you don’t have any penalties associated with early repayment.
But this is also the benefit of hindsight. Yes, people who have stuck to variable rates in recent history have saved themselves some money. But will this trend continue into the future?
Fixed mortgage rates provide cash flow stability for the period of time (1 to 5 years) you lock the rate in for. You’re not going to be able to take advantage of interest rate drops but you’re also protected against the rate spiking up. And even though prepayment penalties tend to exist on all fixed rate mortgages, some programs offer very generous prepayment privileges such as paying up to 20% of the original mortgage amount down each year above and beyond your required mortgage payments.
The financial future speaks to capital market instability and the threat of continuing rate increases. And while we haven’t seen much of this yet, the threat of rising rates that stay up remains.
So choosing variable mortgage rates versus fixed mortgage rates for a residential mortgage has very much to do with your personal preference and personal risk assessment of the future.
From a cash flow point of view, a variable rate right now saves you money versus the longer term fixed rates. But if you’re cash flow depends on the current variable rate to pay your mortgage each month, what happens if rates spike up? Can you afford to be living on the edge with a variable rate?
From a future financial planning point of view, are you expecting to earn significantly more money in the coming years or come into additional funds that could be used to pay down your mortgage? If this is the case, a variable rate likely makes more sense than a fixed rate.
So besides your preferences and financial planning, the other side of the coin is can you afford the risk of the interest rate significantly moving against you? If you can’t pay your mortgage at a higher rate, you could lose your house or fall into higher cost personal debt trying to make the cash flow work.
Right now, you could argue both ways which is better, variable or fixed, and in both cases the argument can be sound.
It comes down to a personal choice as to your own opinion of where you think the market is going and what you’re personal cash flow is going to look like over the next 5 years.
The best way to figure out what is the best fit for you at any point in time is to discuss your current requirements and preferences with a licensed mortgage broker so you can better evaluate the pros and cons of different variable mortgage rate programs and fixed mortgage rate programs.
One of the best ways to make the residential mortgage process go as smoothly as possible is to be prepared for what you’re likely going be asked by various mortgage lenders.
The basic residential mortgage process can be broken down into these three steps:
First, you’re going to be asked to complete a personal profile or application form. Some of the information required will vary from lender to lender, but all will require you to provide at least the following:
The last part of the application form will include an authorization statement that allows the lender to access your personal credit report as part of the application process. By signing and dating the application form you are confirming that the information provided is accurate and that you are providing your consent for the mortgage provider to access your personal credit profile.
The second part of the application process is to confirm your income, down payment, and property value. Here are the most common verification steps:
Once all the documentation has been received and verified, the last step in the residential mortgage application process is the mortgage approval. The mortgage lender will provide a written mortgage approval for you to review and sign. In addition to signing off on the mortgage approval, you will also have to provide a void cheque for setting up a preauthorization payment, and the contact information of your lawyer.
The lawyer will receive all the legal documents and mortgage instructions which he or she will review with you prior to your execution of the legal documents that will complete the mortgage process.