Tips, Advice, and Explanations from a Vancouver Mortgage Broker  

Posts Tagged ‘vancouver’

Should We Worry About a US-Style Housing Meltdown?

Wednesday, December 5th, 2012

This is an article by Benjamin Tal, one of CIBC’s top economists who answers this question. I found it to be a great write up that expresses the differences between the US and Canadian housing economies.

“House prices in Canada will probably fall in the coming year or two, but any comparison  of the American market of 2006 reflects a deep misunderstanding of the credit landscapes of the pre-crash environment in the US and today’s Canadian market.

The Canadian housing market has more distinguishing attributes that separate it from the pre-crash US market. Yes, the debt-to-income ratio in Canada just broke the American record set in 2006, but comparing the three years heading into the US crash to the past three years in Canada reveals that the debt-to-income ratio in Canada has been rising at half the speed seen in the pre-crash US market. Even more important than the amount of debt is its quality. The distribution of the credit score in Canada has not changed dramatically in the past four years. That is very different than the experience seen in the US in the four years heading into the recession.

In the US an astonishing one-third of mortgages taken out in 2005 and 2006 were in negative equity position, and more than half had less than 5% equity. In Canada, the negative equity position is nil, and only 15-20% of new originations have an equity position of less than 15%.

In a final analysis, not all is well in the Canadian housing market. Home prices are overshooting their fundamentals, mainly in large cities such as Toronto and Vancouver. The recent slowing in sales activity will probably be followed by price adjustments in many cities across the country. But the Canada of today is very different than a pre-recession US. Therefore, when it comes to jitters regarding a US-type meltdown here at home, the only thing we have to fear is fear itself.”

No Reporting Credit on the Bureau – How to Fix it – By Vancouver Mortgage Broker Rowan Smith

Monday, April 30th, 2012

Transcript of Video Blog:

Hi everybody. Rowan Smith from the Mortgage Centre. I want to talk today about credit, specifically someone that doesn’t have a reporting credit score. I had a client call me this week who has tons of assets. They ran two different companies. The companies, the companies not her, have fantastic credit. The companies themselves have several hundred thousand dollars in clear assets cash. Now, she came into her bank before she spoke to me and the bank looked at her and said, “I’m sorry, we can’t help you. You don’t have a credit score.” She said, “Why not? I’ve got all these assets.”

Well, assets don’t report on your credit bureau. It doesn’t matter if you have $10 million in the bank. The credit bureau is about just that: credit. They want to specifically see that you know how to manage monthly payments without missing them, without falling into arrears or getting write-offs. If you’ve been paying cash your whole life for something I applaud that and think that that’s fantastic.

You haven’t had to borrow to live most of your life, certainly not the trend in Canada. Unfortunately, it’s not great for borrowing because you have no proof that you have a capacity to make payments or to manage a debt at all even though you’ve managed your savings fantastically. How do you get out of this trap?

First off, go and get a credit card. If you’ve got good assets and you’ve been paying everything with cash then your credit score will be nil for the most part. Apply to get a Visa. Start with that. Do you have to use it all the time? Not necessarily. Use it from time to time, make sure you pay it off. Try to keep that limit over $1,000, though. Ideally you want to get up over $5,000 because when the credit lenders look at you, especially if you’re applying for a mortgage, they want to make sure you can handle a payment that’s more than $50 a month.

If you’re looking to build and establish credit start with one card. You might want to get a couple. Don’t go crazy. 10 of them is not better than three or four and it just has more chances that one of those payments will get forgotten. Establish that score, get going on it, and then after a couple of years, or realistically even just one year of on time payments and reporting history, we should be able to get you into something.

That will establish that much needed credit history for vehicle loans, vehicle leases, commercial loans, all that type of thing.

If you need any help with this or if your bank is telling you you can’t get a Visa even though you’re offering to put your own money up as security I have a solution for you so please give me a call. It’s Rowan Smith from the Mortgage Centre.

Bank of Montreal BMO 2.99% Rate Special – Explained by Vancouver Mortgage Broker Rowan Smith

Monday, March 19th, 2012

Transcript of Video Blog:

Hi everybody. It’s Rowan Smith with the Mortgage Centre. I want to address Bank Montreal’s 2.99 percent offer that’s on the market and to explain some of the restrictions that people need to be aware of, some of the fine print. First off, yes, it’s one of the lowest rates historically ever offered, but it comes with some restrictions such as you can only have a 25 year amortization. Now, many people don’t think that this is a problem because they think I only want a 25 year amortization anyway and across a lot of Canada that is still absolutely the practice. Read the rest of this entry »

Line of Credit At Renewal – As Explained by Vancouver Mortgage Broker Rowan Smith

Thursday, October 13th, 2011

Transcript of Video Blog:

Hi, everybody. It’s Rowan Smith from the Mortgage Center. I want to talk today specifically about lines of credit. More importantly I want to talk about lines of credit that you want to keep but you maybe want to renegotiate maybe the mortgage in front of it. This is something that comes up from time to time. Read the rest of this entry »

Renovation Financing Explained by Vancouver Mortgage Broker Rowan Smith

Tuesday, October 11th, 2011

Transcript of Video Blog:

Hi, everyone. Rowan Smith from the Mortgage Center. I got a call today about a client who wanted to do some renovations on the home when they bought it. And they said to me, “But I don’t have the money for doing the renovations I’d like it built into mortgage. Is that possible?” Yes, there’s a few different ways to do it. One of the most common programs is “Purchase plus Improvements”. And under that program, the way it works is, you borrow money. Read the rest of this entry »

Do Extra Payments Help Your Credit Score?

Friday, March 11th, 2011

Transcript of Video:
Hey everyone, Rowan Smith with the Mortgage Centre. I want to address a question a client came up with me on with the credit bureau. And that is, he wanted to know why his extra payments weren’t reflected.

The credit bureau is just a recording of debt payment history and how much your minimum payments are on a particular line of credit, and how your credit history is in terms of your repayment over the long last five years. Read the rest of this entry »

Mortgage Changes – March 18 Deadline – Amortization Changes

Tuesday, February 22nd, 2011

Transcript of Video:
Coming soon!

Down Payment Rules and Guidelines

Wednesday, January 5th, 2011

Transcript of Video Blog:

Hi everybody, it’s Rowan Smith with the Mortgage Centre. I want to talk today about down payment confirmation. I get a lot of questions about this. People concerned with why we’re asking for so much detail, why we’re asking for so much paperwork, so I’m going to address that today.

Read the rest of this entry »

Tips For Realtors – Help Make Client Financing Easier

Monday, July 5th, 2010

Transcript of the video:

Hi everybody, it’s Rowan Smith with The Mortgage Centre. It’s been a little while since I did a post, and I’m busy cleaning up a lot of problems. I figured that this would be a great to do a blog specifically targeted toward realtors for things to do during the offer process regarding contracts that will make life infinitely easier for me if I’m trying to do financing for you, or for any of the banks that are trying to do financing with you.

So, the first thing has to do with contracts and signatures. There’s a number of financial institutions that insist that the contract signatures be witnessed. Now, I know that the real estate board doesn’t require that every single contract signature be witnessed. They’ll allow it to be unwitnessed, but the banks want it witnessed in many, many cases. The CIBC is particularly strict on this matter, so you must have all witnessed lines filled out and signed.

The next thing is the property condition disclosure statement. Oftentimes, if the person has never seen the property, the seller has never seen the property, maybe because it’s been an investment property. Or they bought a rental five years ago, and they haven’t been inside of it, and they can’t answer a lot of the questions. We still need something to show that there has, in fact, been… A property condition disclosure statement has, in fact, been issued.

If I go to them and say, “Oh, no. There isn’t one,” but there has to be, oftentimes the contract will specifically make mention of the fact that a PCDS makes up a component of this contract, so you have to provide it. If there is no way they can answer those questions, have them just throw a line through it. Put, “Never lived in,” and sign it. That’s better than me not having anything, because I go to the bank, and the bank says, “What are we hiding? Is it a grow-op?” And they just don’t want to put that down, a past grow-op, a meth lab, or anything of that nature.”

So, property condition disclosure statements, even if they’re going to be blank, you still need them.

Subject to removal deadlines. Try to line them up, not on a Saturday or Sunday. I get this constantly, where we get a contract. The subject to removal date is set to a Saturday, which is no better than the Friday. So, getting the extra day on the weekend doesn’t really help us for financing anyway. It doesn’t really help us, because the banks aren’t going to be open to work with us.

If you’re going to go for Saturday, you might as well go for Monday, and on that note, be cognizant of when holidays are. We’ve been having a lot of contracts come in lately, especially during the May long weekend with the subject to removal date on the actually holiday, which, again, I can’t have a bank look at anything, so it might as well have been the Friday before, which doesn’t help anybody.

Be particularly cognizant during the negotiation time, and during the excitement, and the back and forth on the prices. You have the subject to removal deadline, and we set it for, say, June 14th. And as the dates progress, and the negotiation takes a few days, no one ever bumps that out. And then once we’ve finally got it accepted, we have one day or two business days to get an approval done, which might be possible, but it might not, depending on which bank the client has to go with.

So, just make sure that as the negotiation proceeds, and as it get further and further along in the contract negotiation process, that the subject to removal dates are being bumped up correspondingly, so we still have a number of good days in there.

Lastly, when it comes to strata documents, if you have a listing and you’ve… Typically, the protocol in this market, being such as it is, realtors usually don’t order the strata form B, and all the strata documentation when they take the listing. In a perfect world, that would be the case, but I understand there’s some cost to do that, so it’s not always in your best interest, especially if you feel that the owner has listed it too high, and would not list lower, and you don’t think it’s actually going to go through.

That said, if it’s a competitively priced property, either A: Order the form B and all of the strata documentation up front, or you have to be willing to pay for it on a rush basis. I had three deals in that last month were my buyers were buying a property. The listing agent did not order up the strata documents, and then, of course, it was part of our contract. Once that buyer requested them, it then took seven days, because the realtor didn’t want to pay the extra $100 or $50, or whatever it is for a rush.

Now had they ordered them initially, there wouldn’t have been that fee. Of course, that’s a separate issue. But had they ordered them on a rush basis, we would have had them in 24 to 28 hours, and there would have been no problem.

Instead, we had to extend, extend, extend and it really annoyed the sellers and the buyers involved, and it could have easily been taken care of by just getting those documents on a rush basis.

So, those are the thing that I consistently see, I think, that realtors can do a lot better of. The realtors that I work with on a regular basis all are very good at this. But as I meet new people who are agents coming into the field, this is something that will come back and make your life a lot easier, if you can follow these tenets.

For The Mortgage Centre, I’m Rowan Smith.

How Are Mortgage Penalties Calculated?

Sunday, April 25th, 2010

I’m getting lots of questions about why bank penalties have fallen in the last three weeks. This blog explains the calculation methodology behind it:

Transcript of Video Blog:

Hi, everybody. It’s Rowan Smith from the Mortgage Centre. I wanted to address penalties, and interest rate differentials, and three month interest penalties and how it all works today in this blog.
I’m getting a lot of inquiries about it. There’s some confusion as to why rates have gone up and penalties have gone down. Well, let’s look at the standard mortgage terms.

For variable rates mortgages, most institutions, the way that it’s going to work is if you break the term at some point during any time; now most variables are five year terms, but some of them are three years.

That means that during that period of time, your discount or your premium on your rate will not change. For example, if your rate was prime rate plus a quarter, for five years you would always be prime plus a quarter regardless of where prime went. Up or down, you would follow it with a quarter percent.

You’re guaranteed that, so should banks go with prime plus a half or prime plus one, you’re still guaranteed to retain the prime plus a quarter throughout that five year term.

In exchange for that security, if you break that term, that five-year term, to sell your house, or you need to refinance, take equity out and end up doing it with a different lender, you’re going to pay a three month interest penalty.

That said, it’s a non negotiable. It’s going to happen at every single institution. However, the three-month interest penalty is the only one that will apply to a variable rate mortgage. In the event that you’ve got a fixed rate mortgage, it will be the greater of three months’ interest or the interest-rate differential.

Interest rate differential is a complicated formula that essentially looks at how much time is left in your term, what rate you’re paying now, what rate the bank could get on money now, and they charge you that difference. That’s a simplification, or perhaps an oversimplification of it.

But if you visualize being at six percent, and let’s say rates went down to the 3.69 they were at and you wanted to get that rate, that bank would be giving up on six percent for the remainder of your five year term and letting you out into the lower term.

So they’re going to look at their loss/profit and are basically going to charge you that amount or three months’ interest, whichever is greater.

You can guarantee that in cases where rates have gone down, your penalty is going to be dramatically larger under the interest-rate differential. Now how far down? It depends. It’s a complicated formula.

How much time is left in your term? If you’re within the last year, it’s generally only ever three months’ interest. There are a lot of different variations in how these penalties can be calculated from bank to bank to bank.

So if you’re looking at your penalty, not quite sure if the penalty is worth paying it to get the new lower rates, give me a call and I can walk through the math with you on it and make sure that you’re making a correct decision.

Also, if you’re looking at that penalty and wondering why did the penalty go down from last month when I had a quote, it’s because rates came up. That means that the bank could get a greater rate from money loaned at the same point at time.

So if you were three years into a five year term, there are two years left. The bank will compare their profit and loss of what they would get on a two-year mortgage.

Imagine, for example, that rates have gone in two years from, let me grab a number here, 2.25 to 2.9. If you were previously paying five percent, that spread, the difference between what they could be getting and what they are getting, got smaller, thus your interest-rate differential penalty will be smaller.

As you can see, there’s quite a bit to penalty calculation. If you have any questions, give me a call. For the Mortgage Centre, I’m Rowan Smith.