Category Archives: mortgage

Mortgage brokers warn about new rules

Canadian mortgage brokers are freaking out about new refinancing rules proposed by the OSFI which has taken over responsibility for the CMHC. Reasonably enough, they’re asking for clarification about proposals to require banks to check income and current house value before refinancing.

Currently, when mortgages come up for renewal, banks tend to focus on the borrower’s payment history. They rarely appraise the property again and not all banks will check the borrower’s updated income level, Mr. Murphy said.

“CAAMP strongly recommends that this concept be clarified so that mortgages continue to be renewed at maturity without requalification,” the industry association said in a submission to the Office of the Superintendent of Financial Institutions (OSFI).

“If not, homeowners who have been in compliance may no longer qualify. This would result in a number of properties hitting the market at the same time and thereby driving down prices.”

Such a phenomenon could add further fuel to a real estate downturn if lower house prices and higher unemployment caused more people to lose their homes upon renewal, Mr. Murphy suggested.

Read the full article in the Globe and Mail.

Bank offers you should not accept

Many Franks pointed out this article in the Financial Post, which offers a flipside view to yesterdays “do whatever it takes to scrape up 5%” article.

It has a real simple message: Banks exist to make money.  That includes making offers that sound good but may not be in your best interest.

While many people want to blame the banks or the government for Canadas alarming consumer debt problem, theres only one person who is truly to blame: the consumer.  Sign yourself up for a suckers deal and you have only yourself to blame.

While some bank chief executives have put it on themselves to tighten their own lending rules, others continue to look to Ottawa to take the lead.

In the interim, all you have to do is walk into a branch, grab some pamphlets and you will see an array of offers that could get you into even more debt trouble.

One of my favourites is the cash-back mortgage. It is offered to a varying degree by most of the major banks, so there is no point in picking on any one institution.

Here’s the offer: Take out a mortgage for more than five years and get 5% of the value of the mortgage up front to a maximum of $25,000. In other words, get a $500,000 loan and immediately get $25,000 back. “It’s great for first-time buyers,” we’re told.

Really? If the loan is at the posted rate of 5.44%, which it usually is for these types of mortgages, you could easily land into more debt trouble long term.

Another deal tries to lure me over to a new bank with an offer of 2% cash up front, or up to $4,000 on $200,000 if I switch to the financial institution. But what about the costs to break my existing mortgage, and is there really any point in switching products to get that cash right away if I’m going to end up with a higher rate and a less-flexible mortgage?

“Somebody is going to pay for it,” says Kelvin Mangaroo, president of RateSupermarket.ca, about the cost of the promises. “Sometimes there is more fine print than the actual offer.”

Check out full article here.

What do you think, do we need more consumer protection to protect consumers from themselves?

Can’t save a dime?

The Vancouver Sun has some good tips for people who are completely unable to save up for the largest purchase of their life.  People who either spend too much on entertainment and shopping or simply don’t earn enough to save.  Buy a house.

Yes. Because the people that should be buying real estate are people who are unable to save up a few thousand dollars.

Their advice ranges from the ridiculous (reign in spending habits) to the sublime (ask mommy and daddy for a down payment).

Saving money for a down payment, especially in British Columbia’s high-priced housing markets, is one of the biggest challenges that homeowners face, but mortgage experts say, it’s not impossible.

The minimum down payment new homeowners need is five per cent of a home’s purchase price, which can be particularly difficult to accumulate for those in the most need: young people, often with student debt and lifestyles that involve a lot of restaurant meals and going to movies once or twice a week.

Yeah, that’s 5 percent goal is super-tough, but it just might be achievable according to ‘mortgage experts’.  You can always tap into your RRSPs, and don’t forget that you can get yourself a zero-down loan (we call them ‘cash-back’ mortgages).

…some lenders have a cashback option that can be used against a down payment. “The clients have to take posted rates [not discounted] and some lenders will give you five per cent of the mortgage amount as cash back. On $400,000 that would be $20,000, the five-per-cent down payment that is required.”