Mortgage Broker Value

Not surprisingly, borrowers often default to their own Banker. And why not? It’s
an established and comfortable relationship. Perhaps it’s viewed as the path of
least resistance. But is it the right lender for the borrower’s current specific
needs? Perhaps not.

More sophisticated borrowers may be of a size or scale that they have their own
internal resources in finance, quite capable of securing the required financing.
They are likely only in the market infrequently however, and almost certainly
not fully knowledgeable as to all of the financing sources available.

Aren’t all Lenders pretty much the same?
Borrower’s may think that all institutional lenders are pretty much the same.
Offering comparable rates, and standardized borrowing terms. This is rarely the
case. Lender’s often prefer one asset class over another. They may have a
particular need for one type of loan. A specific length of loan term may be
desirable, for funds matching purposes. Real Estate risk is a fact for real
estate lenders. How they mitigate this risk differs however. It may be stress
testing interest rates during the approval process. Sophisticated risk pricing
models may be used, having regard to previous loss experiences. The lender may
rely significantly on collateral value, or guarantees. The conditions precedent
to funding will often differ from lender to lender.

A real world example
I had the pleasure last year in advising a client who had 3 sizable real estate
assets, in 3 quite distinct asset classes. The borrower’s loan amount
requirements were significant, however they were flexible on loan structure.
Accordingly, I sought out competitive, but differing deal structures. My goal
was to provide a competitive array of options. A number of “A” class lenders
were approached, several/most of whom this particular borrower had no previous
experience with. I shortened the list to 5 lenders, and received Term Sheets
from each.

Each Offer was competitive on a stand alone basis, but they differed quite
substantially, in the following ways:
Loans were either stand alone, or blanket loans, or some combination.
Length of terms offered, differed by asset class.
There was as much as a 75 bps rate difference, from highest to lowest Offer.
The amortization period depending upon asset class, ranged from 15 to 25
years.
Loan amounts on individual assets differed as much as 20%.
Third party reporting requirements differed between lenders.
There were a combination of fixed vs. floating rate loan structures.
Recourse was limited by some lenders, on select assets, or waived entirely,
upon a higher rate structure.

Leverage Your Knowledge
These variances are striking, yet each of the 5 lenders were considering the
precise same asset, at the same time, with common supporting information from
which to base their analysis. How was the borrower to know which Offer to
exercise? As a Broker, I can add value by helping the borrower to consider both
their immediate and longer term strategic requirements, in the context of their
overall real estate portfolio needs. This was precisely how this borrower landed
on the most appropriate Offer for their particular circumstances. In this
particular case we presented different, yet competitive, and uniquely structured
options for the borrower’s consideration.

Allan Jensen

Consider Shoren Konstantin – Mortgage Broker when next in the market for
financing. Leveraging a Broker’s knowledge is a tremendous value proposition.

Breaking a mortgage – can you do it?

Do you have a mortgage? So do I! Looks like we have something in common. Did you
know that 6 out of 10 consumers break their mortgage 38 months into a 5-year
term? That means that 60% of consumers break a 5-year term mortgage well before
it’s due…but do you also know what the implications are of this? Let’s take a
look!

People need to break a mortgage for a variety of reasons. Some of the most
common include:

· Sale and purchase of a new home *without a portable mortgage
· To take equity out/refinance
· Relationship changes (ex. Divorce)
· Health challenges or life circumstances are altered

And a whole other variety of reasons. So what happens if you have one of the
above reasons, or one of your own occur and you have to break your mortgage?
Here is an example of what would happen:

Jane and John Smith have lived in their home for 2 years now. When they bought
the home, they recognized that it would need some major renovations down the
road, but they loved the location and the layout of the home. They purchased it
for $300,000 and have 3 years left but would like to access some of the equity
in their home and refinance the mortgage to afford some of the bigger home
renovations. This refinancing would be with 3 years left on their current
mortgage. So, what are Jane and John looking at for cost? There are two methods
that are used to calculate the penalty:

POSTED RATE METHOD (used by major banks and some credit unions)
With this method, the Bank of Canada 5 year posted rate is used to calculate
the penalty for Jane and John. Under this method, let’s assume that they were
given a 2% discount at their bank thus giving us these numbers:

Bank of Canada Posted Rate for 5-year term: 5.14%
Bank Discount given: 2% (estimated amount given*)
Contract Rate: 3.14%

Exiting at the 2-year mark leaves 3 years left. For a 3-year term, the lenders
posted rate. 3 year posted rate=3.44% less your discount of 2% gives you 1.44%
From there, the interest rate differential is calculated.

Contract Rate: 3.14%
LESS 3-year term rate MINUS discount given: 1.45%
IRD Difference = 1.7%
MULTIPLE that by 3 years (term remaining)
5.07% of your mortgage balance remaining. = 5.1%

For the Smith’s $300,000 mortgage, that gives them a penalty of $15,300. YIKES!

Now, Jane and John were smart though and used their Dominion Lending Centres
broker to get their mortgage. Because of this, a different method is used.

PUBLISHED RATE METHOD (used by broker lenders and most credit unions)

This method uses the lender published rates, which are generally much more in
tune with what you will see on lender websites (and are generally much more
reasonable). Here is the breakdown using this method:

Rate when you initially signed: 3.24%
Published Rate: 3.54%
Time left on contract: 3 years

To calculate the IRD on the remaining term left in the mortgage, the broker
would do as follows:

Rate when you initially signed: 3.24%
LESS Published Rate: 3.54%
=0.30% IRD
MULTIPLE that by 3 years (term remaining)
0.90% of your mortgage balance

That would mean that the Smith’s would have a penalty of $2,700 on their
$300,000 mortgage

A much more favourable and workable outcome! Keep in mind that with the above
example is one that works only if the borrower has:
· Good credit
· Documented income
· Normal residential type property
· Fixed rate mortgage

For Variable rates mortgages, generally the penalty will be 3 months interest
(no IRD applies).

If you find yourself in one of the scenarios that we listed at the start of this
blog, or if you just need to get out of your mortgage early, be smart like Jane
and John—review your options with a DLC Broker! In the example above, it saved
them $12,600 to work with a broker! It really does pay to have a Mortgage Broker
working for you.

Geoff Lee

We know going through any financing approval process can be stressful. While it will never be stress free, there are some steps you and your mortgage broker can take to make it less of a nail-biter.

You should never assume you’re going to get financing because you make a lot of money, or if you’ve had numerous mortgages over the years.

A good broker will ask for all the necessary documents up front, like your T4s and recent pay stub. The reason why you want to provide your mortgage broker with all the necessary documents in the pre-approval stage is so there won’t be any surprises once your application hits the lender. This will also provide a game plan for what you’ll need to do if there are any speedbumps in the application, while also utilizing your time and the realtor’s and broker’s time so they know what they’re working with and are able to finance. Getting all the documents early also indicates to the broker and realtor you’re serious and makes the pre-approval more firm.

Where most brokers and lenders go wrong is they do a pre-approval but fail to collect documents. All of the sudden, a live offer comes in, but it doesn’t work.

If you get “pre-approved” without a request for documents, it’s basically worthless. It’s also good to note, no lender will give you a firm approval until you get an offer that is accepted.

So, you’ve now found the home you want and have an accepted offer. You’re moving from pre-approval to actual approval of financing but you’re not out of the clear yet. Any final approval is pending the lender confirming the details. Just because you’re pre-approved, doesn’t mean you’ll eventually be approved for any property you want. In some cases, you could have all the right income and credit on your side, but the property is a mess and you get declined. There’s a lot more that goes into to being approved than just income. Items like strata documents and property details are all part of the ingredients in your final approval sauce.

Even with all the documents, you’ll likely be advised by your mortgage broker, they’re only good for 30 days and you could be asked to update them for final approval when the time comes. But unless you’ve lost your job, bought a new expensive boat or run into some type of financial difficulty, updating should be a lot less stressful.

And it’s better to be stressed out about financing at the beginning of the home-buying process, rather then once you’ve got your heart set on a home you might not be approved to buy.

Angela Calla

DISCLAIMER: This post is written for buyers, in other words people who do not currently own a tenanted property.
This post is not suggesting in any way that the rights of an existing tenant be infringed upon

Purchasing a residential property?

Two words that matter this Spring; Vacant Possession

Your contract had best contain a ‘Vacant Possession’ clause.

Why?

Mortgage lenders will not concern themselves with your best intentions; it is not about what will be – it is purely about what is.

And if the property is tenanted at the time of possession, then you are effectively applying for a rental mortgage. This means a minimum 20% down payment, higher interest rates, and far more stringent qualifying criteria.

‘But wait, we only have 5% down and we plan to give notice and move in 60 days after we take possession’

There is virtually no lender that will approve this under any circumstances, and this has to do with the recent changes made by our federal government. The lenders want to trust you, the lender wants to help you, the lender wants to approve you, but the new government guidelines eliminate lenders’ ability to be flexible. Lenders must answer to Big Brother, and Big Brother is very rigid.

Vacant Possession – demand it.

‘But wait, we’re buying the property as a rental anyways, so it’s a good thing that it already has a tenant… right?’

No, an existing tenant is rarely a good thing.

How is their lease written?
Does it protect you?
Are rents reflective of current market rents?
Is there a provision for annual rent increases?
Your costs will be increasing every year, cover yourself.
What is your duty for notice to evict the tenant?
Why is the seller refusing to give simple notice?

Don’t risk inheriting the seller’s errors and/or headaches.

Whether your new purchase is meant to be owner occupied, or an investment property, demand vacant possession or walk away.

It’s been quite the year for the Canadian real estate market, with industry observers worrying about a housing bubble one day, and excess regulation the next.

But according to one poll, Canadians are getting optimistic about real estate heading into the new year.

The Bloomberg and Nanos Research Canadian Confidence Index has found that optimism in the national real estate market has surged in the last month.

The index — a weekly pool of Canadian consumer confidence — saw a jump of 59.46 from 58.83 this week, after a month of strong numbers well above the 2017 average of 58.41.

“Over the past four weeks positive views on the future value of real estate have increased,” Nanos Research Group Chairman Nik Nanos said in a statement.

The news doesn’t come as a surprise to Toronto-based real estate broker Roy Bhandari.

“When you look at the preconstruction condo market, in particular, it’s been a strong year,” Bhandari, who operates the site TalkCondo, tells BuzzBuzzNews. “Even after the introduction of Ontario’s Fair Housing Plan in April, there was still solid investment in that space.”

While the Canada Mortgage and Housing Corporation’s Fall 2017 Housing Market Outlook Report found that low-rise starts will decline in 2018 from 75,900 to between 66,200 to 68,400, condo starts are expected to surge to between 124,400 and 136,200 units.

Bhandari says that, when it comes to investment in the real estate market, Canadians are likely thinking long term, and that the fundamentals of markets like Toronto and Vancouver are strong.

“When you look at markets like Toronto, there’s still a shortage of supply relative to the demand,” Bhandari says. “So I think you’ll continue to see confidence in that market from Canadians heading into the new year.”

What about the impact of new mortgage rules? As of January 1, a stress test will require all uninsured mortgage borrowers to qualify against the Bank of Canada’s five-year benchmark rate, or at their contract mortgage rate plus an additional 2 per cent.

The revisions are intended to ensure that uninsured borrowers can withstand higher interest rates. The overnight rate — which influences mortgage and sat at a historically low 0.5 per cent earlier this year — has been raised 50 basis points by the Bank of Canada since July, with a third hike predicted in 2018.

Bhandari says that, in a market as in demand as Toronto, the new rules won’t slow sales. Instead, buyers will look at the more affordable options in the market.

Already, condo prices have spiked in the GTA. According to the Toronto Real Estate Board’s Q3 market figures, the average price of a Toronto condo sits at $510,206, up 22.7 per cent from $415,894 a year earlier.

“I think you’re going to be seeing a lot of condo sales in the new year,” says Bhandari. “As people are priced out of low rise, they’ll still be looking to buy. So confidence in the condo market should be very high heading into 2018.”

Canada’s largest housing market showed signs of life in October after months of cooling demand and declining prices, the Toronto Real Estate Board said.

Home sales in Toronto rose about 12 per cent from September, an above average move and one that points to “stronger fall market conditions,” the realtor group said Thursday. Transactions were still down 27 per cent from a year earlier.

Average prices climbed 2.3 per cent to $780,104 in October from a year earlier, and were up almost 1 per cent from September, the second straight monthly gain. That follows a summer where they fell more than 15 per cent between May and August after the provincial government introduced new rules to cool things down.

“It appears that the psychological impact of the Fair Housing Plan, including the tax on foreign buyers, is starting to unwind,” said Jason Mercer, the board’s director of market analysis. The organization said it’s polling consumers about the impact of the regulations, and is speaking with various levels of government to address long-term supply issues.

Benchmark prices, which are weighted to account for differences in home type, fell 0.4 per cent from September, the fifth straight monthly decline. Prices in Greater Toronto are down 8.4 per cent since May.

The frenzy that drove the average price of a home in Canada’s largest city to almost $1 million dissipated in May, the month after the provincial government announced policies that included a tax on foreign buyers. Other regulations introduced recently include stress testing for borrowers and tightening access to mortgage insurance for commercial banks.

Sales have dropped on an annual basis every month since May, and price growth slowed from its 2016 double-digit pace, prompting economists and brokers to say the Toronto market was in a correction.

Forecasters at mortgage lenders and the government housing agency expect prices to rebound nationwide in 2018, led by a recovery in Toronto. Canada Mortgage & Housing Corp. said in October it expects “balanced conditions” to enter the market as land constraints drive prices up for the next two years.

The heat in the detached market has shifted to condominiums. In October, average prices for high rise units jumped 22 per cent from the prior year to $523,041, more than any other housing type.

Bloomberg.com