Mortgage Broker Supports Crackdown Policies. Meet One Who Doesn’t.

Jeff Evans

I was reading the Globe website today and saw this article about a mortgage broker in Toronto who thinks that the mortgage changes are a good thing for consumers.

I thought it was quite amusing. It is a great marketing ploy for the mortgage broker referenced in the article. He says something that the newspaper wants to propagate to their readers, they mix up and change around some facts, and he gets some major free publicity. And all he had to do was give the newspaper what they wanted to hear.

“I think it’s fantastic. It’s too bad the Americans didn’t do this three or four years ago, or the mess they’re dealing with wouldn’t be nearly as bad.”

I wonder if this broker even knows what kinds of policies were in place in the US to cause the real estate market there to crash. They were much much more agressive than allowing 90% loan-to-value refinances. One of the ones that I remember offhand was “NINJA” mortgages (no income, no job, no assets). Never in Canada have we had such an agressive policy, and even at their most agressive, the Canadian government was hailed as saviours of the country for keeping their policies conservative. Since then they have tightened up even more significantly.

“The Bank of Canada is worried about how indebted Canadians are, big bank executives have spoken up on the subject and now the federal government has shown how concerned it is as well. Borrowers, as Mr. Cocomile tells it, have been oblivious. As a result, they need to be saved from themselves.”

I never knew that someone who is irresponsible could be saved from themselves. I suppose that forcing someone into bankruptcy sooner by not being able to finance their homes to pay off high interest debt will protect their home equity. Interestingly enough, the government has never said anything about wanting to avoid an increase in personal bankruptcies, so maybe they feel this is in everyone’s best interest.

In my mind, it is very simple. People are buying things they can’t afford, and will continue to do so even if they know they don’t have equity in their homes. In my job, I see it all the time. They don’t buy stuff on credit card thinking “I got my house to back me up.” They buy thinking “Ooh I want that” and then when the debt becomes unmanageable they think “Maybe I can refinance this debt.”

I believe that spending habits is a cultural issue, and it is going to remain regardless of mortgage policies.

“nine of 10 new home buyers have been choosing to pay off their mortgage over 35 years. Starting March 18, 30 years will be the new ceiling for people with down payments of less than 20 per cent.

The extra interest charges resulting from an amortization period of 35 years as compared with 30 years can amount to tens of thousands of dollars.”

Most of my clients go with a 35 year amortization, and I personally encourage it. The reason for this is that it provides financial flexibility and they still have the right to make significant pre-payments without penalty if they can afford to. Pre-payments speed up the amortization process, but in lean times they will want as low of a payment as possible.

“I’ll follow up with them and say, ‘Why don’t we ramp up payments?’ They say, ‘Oh, we have a car loan now, or we spent some money on renovations, or we’re trying to get rid of credit card debt.’ Credit’s so easy – everyone’s using it.”

The interesting thing about this is that, as a mortgage broker, he is not in a position to “ramp up payments.” They have to talk with the lender’s customers support to do that, just the same as me. If I try to ask a client’s lender for something after the mortgage is completed, they refuse to speak with me. I would surmise that while his point may be valid, he is not pushing his clients to speed up their amortization in the follow up.

“Whereas you can get a five-year mortgage at 3.85 per cent, a typical credit card would charge about 19 per cent. But refinancing to the maximum drastically reduces your home equity and leaves your house vulnerable if you can’t keep up with your mortgage when interest rates rise.

This is deceiving as it is stated. A 5 year FIXED rate mortgage is 3.85%. This means that they are not going to have their payments change for 5 years. A variable rate would be more susceptible to rate fluctuations, but right now you can get that for as low as 2.1%.

The one item I agree with is ending HELOC mortgages on properties at 90% loan-to-value. A revolving credit-style mortgage should require 20% equity. However, very few lenders currently offer HELOC mortgages with less than 20% down anyway.

I think that hindsight will justify what I have written above. If you are looking to refinance your mortgage, I would suggest you contact me as soon as possible. After March 18th, you may no longer be eligible.

Author: Jeff Evans

I am a mortgage broker, hair salon owner, squash player, student, and husband, aspiring to do good for people.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Related Articles

home buyer mortgage broker
First Time Home Buyers Mortgage Broker Tips And Tricks
Jeff Evans
No Comments

Among the services I provide to my clients, I consider myself to be a "first-time home buyer mortgage broker".  As a first time home buyer mortgage broker, I know how difficult it is to get into the real estate market, particularly in Vancouver, and it brings me a particular amount of job to help someone get past the challenges if being a first time home buyer.

I have recently completed an e-book and will be launching it soon.  I believe it will be very helpful for not just first-time home buyers, but for anyone who is not as knowledgeable in residential mortgage lending, about how to make your home buyer mortgage broker application appealing to a mortgage lender.

As a sneak preview, here are three tips on improving your mortgage application as a first-time home buyer.

3 Home Buyer Mortgage Broker Tips

  1. Take advantage of the home-buyers plan to fund your down-payment.  This program is not technically ONLY for first-time home buyers, but all first-time home buyers are eligible.  Under the plan, you can borrow up to $25,000 from your RRSP for the purchase of an owner-occupied residence.  If you and your spouse are both applying, then you can withdraw $25,000 each. It is a loan, so it has to be paid back over 15 years (or 1/15th of the loan will be added to income for that year).  However, there is no withholding when you withdraw it, it does not have to all be declared as income on any given year, and you don't even have to use all of it for down-payment!  You can use it for any purpose that you need it for. A good mortgage broker, like myself, can help you with some of the finer details and complex situations that often arise from these situations.
  2. Make sure you pay your bills on time. If you have a high balance on your loan, or you have a lot of debt, those also have a significant negative impact on your credit score, but you can get the bills down and there is no record of your high debt levels.  However, when you miss a bill payment, it stays on your credit bureau for 6-7 YEARS.  This not just negatively impacts your credit score, but lenders look at this when assessing risk, and they have been particularly uncompromising and (unreasonable, paranoid, strict...and other words that I cannot put in print) in the last few years.  While you likely do not have to wait 6-7 years to become bankable if you have had gone through a period of bad credit, the less negative credit on the bureau, the better. At least make the minimum required payments and you will go a long way to making yourself appealing to them.
  3. Having no credit is just as bad as having bad credit. Many people feel that not requiring credit should prove your ability to pay your bills and should be good evidence of credit-worthiness.  This is not how mortgage lenders think.  If you currently do not have any credit, then you do not have any documentation that you are an acceptable credit risk, and no matter how strong your income is, you will have difficulty obtaining a prime mortgage approval.  Make sure you have at least 3 different credit facilities in your name.  (Secondary credit cards in a spouses name are not considered acceptable for establishing your credit).

I am excited to launch my home buyer mortgage broker e-book soon, in which I go into much greater detail and give many different ideas to help home buyers prepare for home ownership, but as a mortgage broker in Vancouver, you are welcome to contact me in the meantime to discuss your circumstances and see if there are any options for you.

mortgage broker Vancouver BC
Good news regarding OSFI rule changes
Jeff Evans
No Comments

This is just a quick note to let viewers know that IF you are one of the people with 20% or more down-payment and are in a position that the new OSFI rule changes affect your pre-qualification, that I can extend the current guidelines into the new year by up to 120 days provided that I have an application and am able to get a pre-approval in place with a lender for you before January 1.Read More

OSFI B20 mortgage guideline changes 2017 – Part 2
Jeff Evans
No Comments

This is a continuation of the article published here about the OSFI B20 morgage guidline changes for 2017.

If you are familiar with mortgage brokers at all (which you probably aren't) you would know that we also have alternative sources of lending for situations where a mortgage borrower will not qualify with a prime institution.  We have what we call "B" lenders, who have higher rates but more flexible lending criteria, and we have private lenders, which are individuals and corporations who can lend money on on anything that suits them.Read More