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Archive for the ‘Fees and Closing Costs’ Category

High Fees on Bank Mortgages? Talk to Me!

Tuesday, September 14th, 2010

Transcript of Video Blog:

Hi, everybody. It’s Rowan Smith from the Mortgage Centre. I want to talk today about rates and fees. I heard something that was very disturbing to me again. I heard a broker that was charging a very large fee to arrange a mortgage for a borrower through a bank. Now I’m going to explain how our industry works, and perhaps to the dismay of some agents out there.

We are compensated when we sell a mortgage by the bank. Now this is assuming that this is a bank mortgage. If this is a private mortgage or something arranged through a mortgage investment corporation or subprime lender, we may not be getting paid anything. In those cases, you will pay a fee.

But if you’re looking at an institution that is charging cut rates, like rock bottom rates, has the names like TD, CIBC, Scottish bank if you’re seeing those names on the mortgage commitment, and the broker’s charging you a fee, they are also going to be getting paid on the back end by the lender.

Now why am I telling you this? Because I’m tired of seeing it. I’m tired of seeing borrowers in perfectly good situations paying these extra fees to pad the wallets of these guys who are making way too much money doing no more work than I do.

I don’t charge fees on any bank mortgages. That’s a promise to anybody that’s listening. If you get a mortgage through me, there will never be a fee to deal with a specific tier one bank. I would never be charging those fees.

The lender may charge a fee if I’m doing a bankruptcy discharge, or there may be individual fees associated with applications and stuff, but that has nothing to do with the brokerage fee. I as the broker will never charge my clients a fee if I’m putting them with a bank.

Now there are a lot of extenuating circumstances: commercial mortgages, private mortgages, all that type of stuff where there might indeed be fees. I’ll very upfront and tell you when that’s going to apply. I’m not going to spring it on you at the closing date.

You’re going to know long in advance, as soon as you get an approval, if a fee is going to apply. You’re probably going to know it before that, because I’m going to tell you if that’s the situation.
Again, if you’re dealing with a bank, there shouldn’t be any fees, and for you brokers out there that are changing fees on bank deals, I’m here to eat your lunch.

For the Mortgage Centre, I’m Rowan Smith.

Private Lender Fees Too High? Talk to me!

Thursday, July 8th, 2010

Transcript of Video:

Hi everybody. It’s Rowan Smith with The Mortgage Centre. I heard something today that made me angry enough I had to come and do a blog post on it, and it has to do with lender fees.

Many times when we’re doing a mortgage for residential purchase or refinance or something like that, there are no fees. Most times, I would say most transactions there are never broker fees.

The only time that broker fees apply tends to be when either there’s an extraordinary amount of work that has to go into it-far and above what would be normally asked. I’ve never levied that in my career. Alternatively, it can be when you’re doing some private lending. The reason is private lenders do not pay the brokers.

Now, what’s making me upset was that we’ve sort of gone back to the old days of cowboy financing. What I typically will see in a private mortgage if someone doesn’t qualify under bank guidelines but they’d still like to raise some financing, they’d get a first mortgage. Maybe they have a big down payment. It’s called 25 percent.

They go to a lender. They get a rate of… I’m just grabbing numbers here. Nine percent, let’s say, and they were going to pay a three percent fee. Well, that fee typically will be divided up between the lender and the broker. So the broker would be getting some of the three percent, and the lender will be getting the balance.

Now, what’s sort of happening is we’ve started to see a trend where brokers are calling the lenders and saying, “Listen, will you charge the client a slightly higher rate and take one percent fee, and I’ll take four?”

Now, on a small mortgage where it’s maybe $50,000, it’s not a tremendous amount of money. But a lot of times these large first mortgages are being done on properties that someone’s going to buy and flip. Maybe they don’t qualify under normal guidelines. But they have good income. Or maybe they’ve got money offshore or what not.

Four percent on some of these mortgages is outrageous. And brokers who are charging these fees shouldn’t be allowed to get away with it. I don’t know how they get their clients. I certainly don’t know how they keep their clients. But I know that I’m out there looking to eat their lunch.

If you know anybody that’s being told they have to pay a five percent fee on their mortgage, and as long as the mortgage is excess of what, $100,000. That becomes a very large chunk of change, a very big piece of money that someone’s making on one transaction. Those transactions are no more difficult than a straightforward bank transaction that they’re doing. In fact, they’re oftentimes less difficult because the broker doesn’t have to document the file the way they would with a bank.

Anybody paying those types of fees please call me. It’s Rowan Smith from The Mortgage Centre.

CMHC Fees – How to Avoid Them on a 2nd Purchase

Saturday, May 8th, 2010

In this post I look at CMHC fees:

What are they?
How are they calculated?
If you paid them once, do you pay them again?
Is there a way to avoid them or pay a reduced amount on your next home purchase?

Enjoy!

Video Transcription:

Hi, everyone. Rowan Smith at the Mortgage Centre. I want to talk today about CMHC fees. Specifically, when they apply, what they are, and if there are ways to avoid them on the next purchase.

First off, what is it? CMHC: Canada Mortgage Housing Corporation. It’s a government organization that’s set up, and it governs the lending to Canadians for mortgages in excess of 80 percent financing.

So if you have less than 20 percent down, you will face CMHC fees. These fees are a sliding scale. They can range from 1.5 percent up to 3.5 percent of the mortgage amount, depending on how much you’re putting down. So the more you put down, the less your fee is going to be.

Now these fees are nonnegotiable. They’re at every single institution. There’s no way to go around them. It doesn’t matter if you’ve had a 30-year banking relationship with your institution or not, they will be charged. The government’s mandated that way.

If you’re going to buy one property, let’s say it’s a $400,000 home, and you put five percent down. You’re a first-time home buyer. You want to take the maximum amortization. That’s going to have a 3.15 percent CMHC premium. On that amount, you’re looking at $11,000 or $12,000 added to the mortgage.

You don’t have to write that check up front. You don’t have to be able to write a $12,000 check. It gets added into the mortgage, and you pay it back over the life of the mortgage. However, you still pay it. You pay it one way, when you sell the house or whatever.

Now if you move from one house and decide to move to another one and upgrade in five years’ time — if you don’t need any additional dollars — you can port your mortgage over to that home and not pay any additional CMHC fees.

However, if you have already paid CMHC fees and you need more money, it’s going to be the lesser of. There’s a calculation, but you only pay CMHC fees on the new dollars that you borrow.

If you’re going from a $400,000 home with five percent down to a $550,000 home with five percent down, you would be borrowing that difference between your old mortgage and what you need on the new one. You’re going to get CMHC premiums on that amount added again to the mortgage.

Now, if you go sell that home and then subsequently six months later go and buy another one, you can apply for some sort of a rebate through CMHC. How they calculate that rebate is not really precise.

It’s something where I’ve had to send it in to them, and they’ve come to an agreement. But if you’ve already paid CMHCs before, you should be able to get either a rebate or a reduction.

I’ve got a client right now who’s in a situation where they’re selling a place, moving to a new home, and they’re requiring a significant increase in the funds. But the bank would not let them port that mortgage over there.

It had to do with the type of product they had, the internal policies. It upset the client, so they came to me and said, “Can you do our mortgage instead?” I showed them. They said, “Well, wait. We’ve already paid CMHC fees. Why do we have to pay it again?”

Now if you’re going to port your mortgage from house one to house two, you can do that. The problem is that you have to retain the original amortization of that mortgage. If you had a 35-year mortgage, and you’re four years into it, and you decide to go to the new property, you’re going to have to retain that 31 years of amortization.

Now if you’re like many people in Vancouver, you need a full 35 years to qualify in order to get approved. If that’s the case, you’ll have to pay it off, pay the CMHC premiums all over again.

If, however, you can get qualified and approved without adjusting your amortization, then you can move it over there and not suffer the CMHC premiums.

Clear as mud. I’m sure it’s a complicated topic, but if you have a situation where you’re worried about paying CMHCs twice, please give me a call. I can run through your options. Rowan Smith for the Mortgage Centre.

CMHC Rule Changes in Effect TODAY

Monday, April 19th, 2010

April 19th, 2010 is the date, and the new mortgage rule changes go into effect today.

Our office did a presentation to 50 realtors and clients last week, and below are the three videos that came from it where the changes are discussed at much, much greater length than previously.

Enjoy!

Transcription of Video Blogs (All 3)

PART 1

Wayne: I want to take this opportunity to welcome all of you to this presentation. As you are all aware, there have been multiple changes that have taken place in the mortgage financing business over the last couple of weeks and most of it is taking place this Monday. Thus, the reason for this seminar. From my point of view, these are probably the most changes in a very short period of time since I’ve been brokering, which is over 15 years now. We hope that this presentation will give you a better understanding of the changes so that you can modify your business plans accordingly, if necessary.
We are doing this presentation in three segments, but we encourage you, if you have any questions during the presentation to just raise your hand. I’ll bring the microphone over and you can ask your questions, rather than waiting until the end of the presentation.

At this time, I would like, if you haven’t, maybe to turn your cell phones to silent mode so that we don’t get interrupted. We’re ready to get started, and first up will be Maury. So Maury, take it away.

Maury: OK. Can everybody hear me without this? That sounds all right. Yeah. OK, so what the hell’s going on? Well, hopefully today we’ll try and address these questions. Today, what we’re going to cover is a quick into and just making sure we understand the difference between high ratio and conventional because that is going to kind of set up explaining the changes and making sure when you know the changes apply and don’t.

There is a set of government mandated changes that we’re going to be going over. That will be followed by the insurers that have some changes that they will be setting up for some of their programs, specifically, self employed and rental programs. That’s pretty much going to wrap it up.

We’re going to have questions at the end, but also, as we’re going through to try and make sure that we’re covering each topic and it’s clear. If you have a question, please ask it when you have it.
So starting out here. The high ratio conventional, by definition, when a deal is defined as high ratio, whenever there is less than 20 percent down payment going into the deal.
This is the same definition at all banks.

When there is less than 20 percent, the deal has to be insured. It can be insured by any one of the three insurance companies we have in Canada. CMHC is by far the largest one used, but Genworth is second, and there is also AIG.

The bank typically decides. The bank usually develops a relationship with one or two of the insurance companies. They typically choose where the deal will best fit at the insurance company. They are all pretty much the same. The fees are the same. It’s pretty much lying to the client, for all intents and purposes, but there are three in Canada.

Then, conventional is when there is more than 20 percent in the deal. So just to do a broad category of high ratio and conventional.

We wanted to set that up because, the government mandated changes, these apply to all deals, at all banks, at all insurance companies when there is less than 20 percent down.

The first change is there is a new maximum amount someone can refinance their property to. So we’ll go over that more in a second here.

The second change is to help the banks. Insurance companies are going to determine the amount someone can qualify for, the amount of the mortgage, so this is changing.

The third change is there is a new minimum down payment requirement for a non owner occupied rental property.

There is one common misconception that is commonly asked about the changes is the new minimum down payment. If somebody is going to live on the property, there is no change to this. So if someone is going to buy a house and they’re going to live in it, there is no change. They can still buy with as little as five percent down.

The first change, the maximum refinance amount, it is, the limit now is 90 percent. So if someone has had a house, they’ve had it for a while. Maybe they’ve done rentals, they want to take equity out. They can now only go to 90 percent of the property’s value at the time that they want to do it. Before, it was 95 percent they could go up to.

This was more put in place to address some problems we’ve seen in the States, more than in Canada, where the market took property values up. People just refinancing every year and they weren’t really doing anything with the property, but kind of treating that house like a bank account. So it is to discourage this.

But in Canada, this product was not really used, they were never really taking, they might have been refinancing, but they were never taking it out to the max, for the most part, 95 percent. A change, but probably something that won’t affect most people.

This is a more significant change. This is the rate that is going to be used to determine how much people can qualify for a mortgage. There’s a couple of situations, so this is the first one.
If someone is going to be taking, or would like to take, a fixed rate mortgage of less than five years, a term of less than five years, or if they wanted any variable rate mortgage, this is what they have to do.

They have to qualify for the amount that they want using the Government of Canada benchmark posted rate.
Right now, it’s 5.85.? So I put “versus 3.85″ there because before today, someone could qualify for a variable rate mortgage using a much lower rate than they’re going to be forced to now.

If they want to qualify for a $500,000 loan and they want a variable rate mortgage, they’re going to have to try to qualify for the mortgage using that higher rate.

We’ll go into an example in a second, and you can see some numbers. So that’s the second case.

If someone says “Well, just forget it, I’m just happy with a five year fixed term, ” or “I’m going to take any term longer than five years with a fixed rate.” Guess what? You can use the rate, that’s the contract rate, the discounted rate, the rate that they’re actually going to get for their mortgage.

So clearly, you can see here, the point of using this higher rate, even though someone might be using a product that gives a lower rate, the government really wants to make sure that someone is going to be able to afford their payment over a significant amount of time.

Everybody knows we had record low rates, variable rates, like bottom basement, right? They’re only going to go up and there kind of wants to be some assurances in place that people are going to be able to afford their mortgage if it goes up two percent on a variable or if they have to renew in a year and rates have gone up. That they have comfort that they know that they are going to be able to make their payments at time of renewal.

I’ll give you an example. In this example, what we’re going to use is that we’re going to use someone that has a gross annual income of $60,000 per year. I used average property taxes amount, and I’m assuming they have no other debts, car loans, student loans, stuff like that.

The old max, meaning that 3.85 rate, so if someone was taking a very low rate mortgage or something, yesterday this person, or these two people or whatever it is could have qualified for a mortgage amount, not just a purchase price, but a mortgage amount of $439,000.

So if this person today says, “I still want a variable rate mortgage but I have to qualify for this thing under the new guidelines of 5.85.” They’re only going to be able to qualify for a mortgage for $342,000.
They can still have a variable rate mortgage, but the amount that they can get if they want a variable or a term less than five years is much lower. But then, there is some saving grace there. That if you say, “Forget it, I’ll take a five year fixed because then I qualify for it at the rate I am going to get.” They can qualify for a mortgage of $396,000.

So clearly, especially in Vancouver, there’s going to be a pressure, a funnel, I would say, to more people maybe taking a five year fixed. In order to qualify for the amount they need. It may not be a huge deal for a lot of people, there is a clear preference in Canada for five year fixed, but we all know that everybody doesn’t take a five year fixed.
This has just been how the numbers line up with the qualifications, so any questions on this one? [pause] No?

OK, so the last…

PART 2:

Maury: So the last change is the minimum down payment for rental properties. The new minimum down payment is 20 percent, and it was previously five percent.

So someone, if they qualified, had enough income, had enough rental income coming from the property, they could buy it. There were programs available for as little as five percent down. They did have a hefty, hefty insurance premium because the deal, of course, was insured, but it could be done.

So if that property was $500,000 before, obviously $25,000 minimum, and there will be the insurance but now, obviously, 20 percent of 500 is 100, so if they’re going to rent it out, they are going to need a much larger down payment.

This does not apply to second homes. There is a category of non owner occupied properties which are deemed as second homes. So a true second home, meaning you cannot count any rental income coming from it, in order to qualify for the mortgage.

This is not affected by this, you can still buy those. You don’t need to put 20 percent down. But if you need the rental income generated to qualify then you will need 20 percent down.

That is it. So the next section here, I will just turn over to Rowan.

Rowan: All right, so Maury covered what a conventional mortgage is and all of these changes that apply, as we have been talking about high ratio so the government mandated changes apply to things, there are three different changes; the investments, refinance, and the amount of down payment that is required.

However, just because that only applies to 80 percent financing or more, that less than 20 percent down, there’s actually more banks that are going to follow that all the way down the road. It doesn’t matter if you have 35 or 40 or 50 percent down, a lot of banks are still going to follow these new guidelines.

The reason is kind of complicated and involves how the banks raise their money in the markets and whatnot. But if they’re going to be doing that, you can see that these changes and there’s a lot of lenders that are going to be following that. I would say half or more.

It’s going to have a lot of impact for any loans of value, even though the mandated change only applies to 20 percent down or less.

So rental income changes, in Vancouver, this is huge. As we’ve heard, the percentage of properties, especially the condo market, is rentals. It’s definitely the most dramatic change, and ironically, this one isn’t even mandated. This is simply something that come down through CMHC and then all the other insurers have jumped on board with similar policies, not identical.

We have three different insurers we talked about. We’re not going to get into the specifics of who does exactly what type of product. But I can say that the rental industry is treated far less valuably than it was in the past.

Now this includes rental income from multiple different sources. You’ve seen on purchases, you see mortgage helper, you see in-law suites, you see nanny suites, it doesn’t matter what you call it.

If it’s a secondary suite within the property, if there is a second kitchen and as a rate they are bringing in revenue for this property, than that income is going to be treated far less favorably than it was.

It used to be that you could take a certain percentage of that income, say 80 percent is the number. OK, and we would go “You have got $1,000 in rent, you’ve got $800 we’re allowed to use. How much mortgage does that support?” The answer was like $180,000 or something. So right away the person qualified for $180,000 more just by virtue of having that suite in the property.

Well in Vancouver, we’ve got the whole authorized/unauthorized suite issue, right? And if something is authorized, can we use it? If it is unauthorized, can we use it? And the answers vary from insurer to insurer, so that’s something where the brokers have to know every one of the guidelines and rules for the different institutions.

Let me give you an example of how the new rules are going to take effect. We’re going to take the same example, say $60,000 average cost, clean credit, et cetera. So this is assuming a $1,000 basement suite. 680 to 515, so the old approval amount. In Vancouver, if you can picture East Vancouver, almost every home has a basement suite.

Picture Surrey, all these different areas. All these basement suites that we were previously able to bring into the mix. We can, but at a much lesser and more constricted treatment. That’s a 24 percent decline or reduction in how much somebody can qualify for based on that income. 24 percent is going to translate into an effect on how many buyers can afford properties in a particular price.

Now rental income, I was just talking about suites there, but it comes from multiple sources including three different ways, the basement suite, then you’ve got your rental property.

You’re living in your home, maybe you have a rental condo and it’s rented out. This third one is really where the rules are murky. That is going to be interesting to see how that plays out. When someone owns a home, especially a first time home buyer, they own their property, they want to upgrade to a new property, but they don’t want to sell the first one.

Maybe they’ve been there five years, they’ve built up significant equity, maybe the property can rent for a specific amount. So they want to get out of that property and move into a home. In that circumstance, that is where the treatment of that income for the old property is not really clear, the reason being is that they don’t have it at this point in time.

So if somebody has a rental property and they’ve had it for an extended period of time, the new rules actually favor those, that treatment of that income over all else, as long as the people are declaring it to pay tax on it. Going forward it will be far, far harder to qualify.

So you should declare it anyway because then you can offset your interest with a possible mortgage, so it makes sense to declare it but a lot of people still aren’t doing it. Is there any questions on the rental income or how this affects suites being authorized or unauthorized? That’s the rental income section.

I’m going to pass it over to Leah who is going to cover self employed.

Leah: All right, so pretty much all of us in this room are self employed so you can probably relate to this section as to how this is going to affect you specifically. Definitely clients who I encounter in Vancouver, a lot of self employed people.

Up until now, there has been a program called the Stated Income Program. Now, it’s exactly that, you are stating your income. And the reason that they have this is because in businesses, if you are a mechanic, you’re getting a lot of cash jobs.

Like us, we write off our cars, our cell phones, even part of our homes, and our rents, and our mortgage amounts. So because of this, banks and lenders, the insurers, even they understand that there is bit of a grey area. What exactly are you making at the end of the day because you have all these write offs?

So what they’ve done is they invented a program called the Stated Income Program. They’ve had this for quite some time and with this, traditional income verification is not necessary. You don’t have to show your D4s, what you’re simply doing is “I make $60,000 a year,” or whatever sounds reasonable.

Now with this, it isn’t that good to be true because you are going to have higher premiums with this which of course is more costs. You can’t just say that you sell coins or you collect bottle caps and you make over $100,000 a year. It does have to be reasonable.

How do they deem reasonable? Well, there are various amounts of things that leads me into where the changes are. Before they were a lot more lenient on what was deemed reasonable. Now they’re really focusing on different websites and economic studies and they’re going to ask you first, “What do you think you make?”

And then they’re going to look at what their stats tell them. If that seems to fall within their realm, they will deem it reasonable and they will accept it. Now the other change, and again, this is only for the Stated Income Program, the down payment has changed.

It used to be you only have to put down five percent, but it is now going to be a minimum of 10 percent down payment. That’s not to say that if you are self employed that you automatically have to pay 10 percent. It’s only if you decide to use the Stated Income Program.

With that being said, proving your income is always going to obviously stand up stronger with the lenders. So if you are able to, if you are properly declaring how much you make, and you’re paying taxes on that, you might if you are self employed, whatever it shows on line 150 on your tax returns, you actually get to add 15 percent of that back, to account for write offs. So if you’re able to, use proven income rather than stated income. You’ll save on your premiums and you’ll be able to put down a lower down payment down if you like.

As well, like Rowan mentioned, each insurer is a little bit different and so their internal policies are varying based on the amount of years you’ve been in the industry and the amount of years that you’ve actually been in your own business.

So that again is where…

PART 3:

Leah: …two years and maybe they’ve done it in their own business for 25 years. That is going to depend, or we’re going to have to then look at different insurers and we can send it to one insurer, but we can’t send it to another. So they do have differences of opinions on that.

So, this is actually a really short and sweet presentation. So, again, at this point, I will actually stop. Does anyone have questions on the self-employed program or anything that we’ve covered up until now? Yes.

Audience Member: Can we get a list of incomes which they will use for assessment?

Leah: Oh, of what they’re going to use? I don’t know. Are there websites that they can go to?

Maury: You mean when they’re looking at the reasonability test? They don’t really disclose that info to us. They have their own internal guidelines.

Leah: Yeah, because they’re really just going to state something in that, right?

Man 1: Isn’t it public knowledge?

Maury: Not really. No, they use a number of different sites that they look at. Let’s say somebody is a contractor, there’s a “range of most contractors in Canada” file. They can look at that information.

If someone says $250,000, they can look at that site and go, “Well, you know, by this they only made $60,000 or $70,000″ and that’s the number they’ll use. But I don’t believe that we have access to this.

Leah: Yeah.

Guest 1: For the States, it’s available free.

[crosstalk]

Leah: Yeah here it’s not so much.

Guest 1: If you guys want to know what a lot of business are making, we use labor market information. So you have an LMI or BC or for your province and you’ll find it probably, LMI.

Leah: LMI. It’s also important to know as well, one of the — which is on [inaudible 01:36] here — having a mortgage broker that you can go to and using as a resource. Because we deal with these, we can literally call up any one of our lenders right now and have a one-on-one conversation with them.

There is grey area. If you do have a contractor and maybe he really does make a crazy amount of income because he has so many people working for him or so many projects on the go, we’re able to have that relationship to somewhat tell the real truth of the situation.

If there is a good argument for it, there is always that possibility of things happening as well. So that’s really important to have a good relationship with your broker. Because you do speak to the lenders one-on-one every single day. So, leaving that into the to-do list-is there any other questions before we get on?

All right. So, first thing on your to-do list is definitely knowing your mortgage broker, especially for the Realtors in the room. You’re spending all of this time with your clients and to just say, “Go to your bank and take care of it on your own.” Not what I would encourage because with the banks, they have very tight regulations.

They also are out to make as much of an interest rate as possible. So, maybe your client won’t qualify for as much, or whatever the case may be. We’re actually able to handhold your client and insure that it’s getting done. Plus, we’re able to call you and we can tag team with you on the client to make sure that they’re getting us the paperwork that we need in the certain amount of time. Make sure that you get your approval deadlines on time.

Now, full disclosure of income and sources, this is more for clients. For those of you who are getting a mortgage yourself, you have to fully disclose not just what you make, but where the sources are coming from. There is, again, a lot of grey area in terms of income.

So, if you think you make $80,000 a year, because that’s what you made last year, it might not be. You may only make $60,000 because of a two-year average or based on your commissions and bonuses that aren’t going to qualify, or things of that nature. So, you need to not only disclose your income, but always your sources.

Prepare your documents early. If you go into the bank and ask for a pre-approval — which is actually the next point on here — if you’re approved, you’ll go into your bank and they’ll say, “Well, how much do you make? Do you have any payments?” So they’re taking things for face value and they’re basically saying, “Well, based on what you tell us, if all that is true, then you qualify for X amount.”

You go to a mortgage broker, then they’re not only going to ask you those question and take you for face value, but then they’re going to follow up on you and say, “OK, let’s start doing that paperwork together.”

And essentially what they’re doing is they’re going through the full approval process for you so that when you as a Realtor take your client or as a client you find that home of your dreams, and then you go to get approved and you realize, “Well, I thought I made this much.”

Or, “Oh, I thought I could get my paperwork together.” Or, “I thought I had this down payment. You mean I can’t use my credit card for my down payment?” Or whatever the case may be, you’re not going to have that disappointment of losing the property. So, get your documents before even looking at properties, get everything in order.

Then, again, confirming the pre-approval of the appropriate paperwork, a mortgage broker should go through all that for you. If you’re unsure what paperwork you are going to need, ask, and they will definitely let you know.

So, with that being said, are there any questions? Because we’re pretty much — we’re there. We’ve gone through all the requirements. Yes.

Woman 1: Are you still giving 120 days guarantee on the rate?

Leah: It depends on the lender. Some of them are 60, some are 90, some are 120; it’s all internal policy. So, yeah, depending on what the rate is, your broker can let you know at that time what the rate hold will be.

That’s something to note as well. If you want to get pre-approved, a lot of us brokers in the room here, we can do that on the phone for you, we can give you pre-approval of an amount. If you want to get an actual rate hold, you need to let us know because that actually takes a bit more of a process to go through.

We have to start actually choosing which lender you’re going to go with, and pre-approve you and give you that rate hold of 90 or 120 days. But, in general, for your pre-approval, we can tell you a number and to get going, but it’s different than a rate block.

Any other questions? You guys are all awesome! You know what you’re talking about now? All right. I guess we can — do you want to go ahead and close this up?

Wayne: Sure. The final thing I wanted to say, I guess, is for the Realtors out here or people who are sending their clients to the bank. I plug the mortgage brokerage industry with these new financing rules and things like that.

You really should have a broker as a first choice, but definitely a broker as a second choice. Just as a second opinion. The reason is, we didn’t want to make this too technical, but as we showed in an earlier slide, there were three insurance companies.

Realistically, not all the banks use all three. For example, very few lending institutions use AIG. They’re probably going to be disappearing off the map. So, when you need, say, a basement suite income or a self-employed program, there are variances from not only the institutional internal guidelines, but also with the insurance company.

I’ll give you a classic example — Scotiabank does use Genworth and Genworth does do illegal basement suites, which is great for Vancouver, but Scotiabank does not. So if you send your client to Scotiabank and that’s their home bank, and they want to purchase something — they’re going to qualify, basically, only on their income without any rental income.

If they want to buy something a little bit more expensive, you want a second opinion. And, as a broker, that’s where we come in and we can mix and match between the insurers and the lenders, we know what each one does.

We could, in a sense, get them a little bit more money to get into that dream home in Vancouver rather than, say, moving out to Burnaby — which is not a bad thing.

[laughter]

Wayne: So, I think that I would encourage you to use brokers to begin with because there’s 40, 50 different lenders and there’s all mix and match. But more importantly, if the client says, “Oh, I’ve been to see my bank, this is what they qualified me for,” but it doesn’t line up with what their expectations are, at least give one of the brokers in this room a call. Get a second opinion. We may be able to get them that little bit extra to get them into the home that they want. OK?

Other than that, we will be around if you have any further questions. Thank you all for coming and best of luck in the spring market.

Fixed Rate Mortgage with No Penalty? Does it Exist?

Monday, February 22nd, 2010

Do mortgages exist that have no penalty but a guaranteed rate. The short answer is yes, but the reality is that they are not a product you want.

This video blog goes into this type of mortgage and answers the question for Canadians: “Can you have your cake and eat it too in the mortgage world?”

Enjoy!

Transcript of Video Blog:

So you’re wondering, can you have your cake and eat it, too? Can you have a fixed rate mortgage that has no penalty to pay it out? The answer, in Canada, not if you are going to be getting fully-discounted rates.

Some institutions do offer one-year or six-month fixed rates, but they are rates in the 6.45% and 6.55% range, and they are generally not something anybody opts for. The product does exist, but in Canada you really don’t get to take advantage of it.

Down with our neighbors to the south, the Americans are quite used to taking the long-term mortgages, 30-year amortizations and 30-year terms and having no penalties to get out of their mortgage. They can break it at any time they want.

This is a substantial advantage they enjoy, that their banking system allows. Now having said that, many Americans actually end up paying a fee just to set up a standard mortgage. While we in Canada, generally, don’t have to pay a fee unless there are some quirks or other things to do with your mortgage that don’t fit the bank “box.”

I, as a broker, don’t charge any lender fees, any lender or broker fees. I, as a mortgage broker, do not charge any broker fees on a standard residential bank mortgage.

There are times when we do have to charge fees, and a lot of it has to do with foreclosure bailouts and bankruptcies and whatnot like that, but that is not for the standard mortgage you are getting renewal or purchase or whatnot, and you qualify for it.

If you’re looking at those rate sheets and you’re wondering “Wow, the variable rate is great but I’ve still got to pay a penalty. I would really like a fixed rate, but I don’t want to be stuck for five years.” Unfortunately, you can’t have your cake and eat it too in this industry. I’m sorry. For the Mortgage Centre, I’m Rowan Smith.

Will Your Bank Waive Your Mortgage Penalties?

Wednesday, February 10th, 2010

I get a call from an angry home owner at least once a week that is disgusted with the penalty their bank is trying to charge them. They always ask me, “there must be some way around this, isn’t there? What if I stay with them and give them my business, will they waive the penalty then?”

For the answer, you’ll have to watch the video blog below. Enjoy!

Hi everyone, Rowan Smith at the Mortgage Centre. I want to answer one of the most common questions that we get, “Will the bank absorb some of my penalty if I give them my business?” The answer, absolutely not.

The bank has a legal right to that penalty in exchange for granting you a fixed rate for whatever length of time they gave you — whether it was a five-year, or a three-year, or a one-year — if you’re attempting to break that term, they can’t break the term on you and suddenly jack the rates if interest rates have gone up. They have to just absorb it.

On the opposite end of that pendulum, is the fact that you have to pay a penalty if you break the term. Now if you’re with a bank — and I’m just grabbing “hypotheticals” here. If you’re with Vancity, and you’ve been with them for three years; there’s two years left in your term, maybe you got in when mortgage rates were 5.7%, something like that.

At the time it was a great rate. Now looking back, it doesn’t look like such a great move. There is no way for you to have known that. Now that said, you made the best decision you could at the point in time.

You’re now getting an offer from Scotiabank to go over there at 3.89 for a five-year. Vancity is offering you 4.14, but they’re giving you a big penalty, somewhere to the tune of $20,000. And you’re thinking “This can’t be right. This has to be wrong.”

It probably isn’t if your rates have come down dramatically. Your penalties are calculated on the greater of three months interest or the interest rate differential at most institutions.

The interest rate differential is kind of a complex formula, but it basically looks at how much time is left in your mortgage, what rate would the bank be charging on money for the remainder of your term today, and looking at, therefore, how much they are losing and what they are going to charge you for it.

If rates have moved considerably, a percentage point or more, maybe not even quite that high in some cases and depending on the length of time left in your term, your penalty could be the equivalent of 10 months of interest. It could be very, very high.

If you are getting a quote of $15,000 or $30,000, you may want to double check with them. Don’t expect the next institution who’s coming along to try to pick up that penalty. They just won’t do it.

In the 10 years I’ve been in banking and finance, I have never seen one institution pay another’s penalty to bring the business over. I’ve never seen it. It just has never happened. I have seen institutions, when you stay with them, reduce the penalty, but I can count the number of times on one hand. And all of it has occurred with one financial institution.

So if you are thinking your penalty is exorbitant, it probably is, but we can still determine whether or not it’s a fair penalty. We can push back and make sure that their calculation that they are doing for the penalty is in line with what they are doing for their standard mortgage terms.

Now what does that mean? You’ve got to get those standard mortgage terms. You were given them when you signed the mortgage at the notary or lawyer’s office, if you are in BC. It should be a very thick booklet.

It could be 45 to 110 pages, depending on your institution. In there is a very detailed breakdown of how to calculate the interest rate differential. Now you are going to have to go to their website and pull up some of their rates. Find out what rate they are using and it’s not going to be very simple. I can help you with that.

If you want to know if you’re getting a fair shake with your penalties, what options you have, maybe I can get a bank to kick you some cash back as part of the deal to help offset some of those costs. Give me a call. From the Mortgage Centre, I’m Rowan Smith.

PROPERTY TRANSFER TAX – WHAT IS IT AND WHEN DOES IT APPLY?

Saturday, February 7th, 2009

Many purchasers gasp when I tell them what their property transfer tax bill is going to be on the purchase of their new home. The amount is often staggering, and all for the pleasure of owning property in our fine province of British Columbia. In fact, people have been so surprised by it, that I have decided to write up an article on how to calculate what your tax will be, if it will apply, and if there is any way around it.

Note, this article is not intended to be legal advice, nor should you rely solely upon it when calculating your transfer tax on a purchase (especially when transferring amongst family members). However, it will provide the guidelines and a structure to guide your decision making process. Please consult with your solicitor or tax professional if you require a to-the-penny calculation or judgment as to your eligibility for tax avoidance.

HOW MUCH IS THE PROPERTY TRANSFER TAX?

The guidelines for calculating transfer tax is as follows:

1% of the first $200,000 of purchase price (before GST, if applicable)
2% of the balance of purchase price

So, for a $450,000 home purchase, the tax would be:
$2,000 1% of first $200,000
$5,000 2% of the Balance
$7,000 TOTAL TRANSFER TAX

WHEN DOES PROPERTY TRANSFER TAX APPLY?

Property transfer tax is applicable on all property transfers within BC. The only way to avoid it is to be a first time home buyer or be transferring to and from a parent (siblings do not apply). In order to qualify for the First Time Homebuyer Exemption, you must meet the following criteria:

1. The purchaser must be a Canadian Citizen, Landed Immigrant, or Permanent Resident

2. The purchaser must have resided within BC for 1 year prior to the purchase

3. The purchaser must not have owned an interest in a principal residence at any time, anywhere in the world

4. Purchase must be up to, but not more, than $425,000 (amounts up to $450,000 face a sliding scale – reduced amount – but still pay some of the tax)

5. The purchaser must occupy the property within 92 days of title registration (you always pay the tax on rentals)

So, if you meet these criteria, you can avoid the transfer tax.

CAN THIS BE ADDED TO MY MORTGAGE?

The short answer is “No,” but let me explain. The minimum amount you can put down is 5%, and if you are only putting 5% down, and do not qualify for the exemption, then no, you cannot add it to your mortgage. Why? Because this would be the same as putting less than 5% down.

For example, if you are buying a $300,000 condo and are not a first time home buyer, and are putting 5% down, this would be $15,000 of down payment. The tax would be $4,000. You cannot “add it to the mortgage” because you are already putting only 5% down. The $4,000 tax would have to be paid out of pocket. O,therwise you would be putting only $11,000 down. So you would need to have $19,000 available at the closing date. This would be the 5% down payment ($15,000) plus the tax ($4,000).

However, if you are putting 10% down ($30,000) then yes, you can “add it to the mortgage” but this is the same as keeping the $4,000 out of the down payment and only putting $26,000 down (with $4,000 kept aside for the tax). In other words, you need cash or equity. You cannot do a 0% down mortgage, and also finance the tax (unless you meet the criteria above).

Where this is tricky is if you are putting 20% down to avoid any CMHC fees. Sure, you can put less than 20% down if you want to “add it to the mortgage,” but then you will trigger the payment of CMHC fees. So again, you will have to come up with it out of pocket.

Bottom line: this is a cost that is not addable to the mortgage unless you reduce the down payment, and you cannot reduce it below 5% (and still get best discounted rates). If you are putting 20% down, and need to finance the tax, be aware that this will also result in staggering CMHC fees.

If this doesn’t many any sense, or if you want clarification of your unique financial situation, please give me a call at 604-657-6775 for a personal and direct response.

TD Bank To Impose New Services Charges on Lines of Credit NOT IN USE!!!

Thursday, January 29th, 2009

<Sigh>

Banks and service charges. Never was a more larcenous crew allowed to publically ply their trade until the banks got into the mix. With credit increasingly hard to get, TD has taken the step of now charging a $35 annual “inactivity” fee. Also, for those people that ARE using their lines of credit, the rate is rising from 3.9% to 4.4% above TD Prime Rate. BMO has also stepped up and increased interest on their lines of credit. Some people within the banks are saying that there is a cost to keep lines of credit open, even if you don’t use them. While this is true, it was never an issue before, but mounting loses in the financial sector, and tough lending costs to banks, has them passing the cost along to us.

WHEN PRIME RATE FALLS, OUR RATES DON’T ALWAYS FALL AS WELL

Every time there is the announcement that the Bank of Canada is lowering rates, my phones light up with calls with people wondering why their rate hasn’t fallen on their lines of credit, or mortgage, or what have you. The reality is that the banks must earn a profit on their business, or they won’t offer the product. With prime rate falling to record lows (currently 3% at most banks) the cost to borrow has never been cheaper. However, in an effort to make up some flagging profit margins, the banks are raising the discount from below prime to prime plus some amount. For example, lines of credit (secured) were typically prime rate for the past several years. With prime rate now soooo low, banks aren’t making enough money on the lines of credit to warrant servicing them. They are increasing rates anywhere from 1% to 2$. Sure, it’s still tied to prime rate, but now it is prime plus 1% up to prime plus 2% depending on your institution.

Bottom line: we can’t expect rates to fall forever. Eventually, the profit initiative will kick in. I’ve been shaking my head every time prime rate falls and the banks all scurry to follow the Bank of Canada. I’ve been calling for a while now that discounts will be eroded on lines of credit, and given that they are an OPEN credit facility, the bank can change the rates on you at any time, just like you can pay it out at any time and walk away. In the eyes of the bank, what is good for the goose, really is good for the gander.

I am re-publishing below, the article written by Sarah Schmidt in the Vancouver Sun:

____________________ Begin Article____________________

OTTAWA — Despite interest relief from the Bank of Canada, at least two of the country’s big banks are
increasing the borrowing cost for customers who tap into their lines of credit, and one is charging a new fee for those who don’t use it.

TD Canada is introducing a new $ 35 “ inactivity” fee in April for customers who don’t use their unsecured line of credit over the course of a year.

For those wo do, the interest rate is rising from 3.9 to 4.4 per cent above TD Prime, beginning March 1. The Bank of Montreal is also raising the borrowing cost for its unsecured line of credit by one per cent, from two to three per cent above BMO Prime, beginning March 4. The bank is not introducing any penalty fee for customers who don’t use their line of credit.

The changes were revealed in private correspondence to customers in recent days, just as the Bank of
Canada on Tuesday chopped its key lending rate by 0.5, to 1 per cent.

The banks, along with the rest of Canada’s big banks, immediately announced they were passing on the full measure of the latest interest-rate relief by cutting their prime lending rates by a half-point to a record low of three per cent.

The banks also announced reductions in some fixed and floating-rate mortgages. In a statement, a TD spokeswoman defended the decision to raise the cost of borrowing on its unsecured line of credit, saying it reflects “ the continued rise in the cost of lending.” Kelly Hechler added, “ We are working to balance our customers’ goals with prudent business practices, which is especially important during the current economic downturn.”

She also said the new penalty for inactive files is fair because there is a cost associated with maintaining them.

BMO spokesman Paul Gammal said despite the increase, the bank’s unsecured line of credit remains an attractive product for consumers. “ From our survey of the market, our personal-line-of-credit offering is competitive and, in fact, favourable, compared to some of our major competitors.”

Glenn Thibeault, consumer affairs critic for the New Democrats, wasn’t moved by that defence.
Thibeault singled out TD’s new inactivity fee as egregious. “ That one to me is just mind-boggling. You finally pay off your debt, and you get penalized for it.” A spokesman for Scotiabank said the company does not currently charge nonactivity fees on its lines of credit. He also said he would not speculate on any possible future interest rate changes. RBC and CIBC could not be reached for comment about whether their borrowing costs on unsecured lines of credit will be rising alongside TD’s and BMO’s.

_____________________ End Article____________________

So what do you think? Banks win again. Common theme to this blog lately…