January 1 is fast approaching, do you know how the new changes may affect you?

In October, OSFI implemented 3 new mortgage rule changes starting January 1, 2018.  Here are the changes and what it means for buyers and homeowners.

1) Qualifying Rate Stress Test for all uninsured mortgages

Uninsured mortgage consumers must now qualify using a new minimum qualifying rate. The rate will be the greater of the five-year benchmark rate published by the Bank of Canada OR the lender contractual mortgage rate +2.0%.

How does this affect the mortgage consumer?  The biggest impact will be on the amount for which the home buyer/owner will be able to qualify. Previously, the home buyer/owner qualified at the contract rate offered by the lender. While the actual mortgage payment will still be paid at the contract rate, a higher calculation will be used for qualification purposes.  This means approximately 20% less purchasing power.  It will also affects current mortgage holders looking to refinance or transfer who will now need to qualify at the higher rate.

2) Lenders will be required to enhance their loan-to-value (LTV) measurement in certain areas

Mortgage lenders (excluding credit unions and private lenders) must establish and adhere to appropriate LTV ratio limits that are reflective of risk and updated as housing markets and the economic environment evolve.

How does this affect the mortgage consumer?  OSFI directs lenders (excluding credit unions and private lenders) to have internal risk management protocols in higher priced markets like Toronto and Vancouver. This is a continuation of a policy already in place. Many mortgage lenders have been following the principles of the policy already and it affects regional markets differently.  Currently this policy does not have an affect on our local market.

3) Restrictions will be placed on certain lending arrangements that are designed to avoid LTV limits

Mortgage lenders (excluding credit unions and private lenders) are prohibited from arranging with another lender: a mortgage, or a combination of a mortgage and other lending products, in any form that circumvents the lenders maximum LTV ratio.

How does this affect the mortgage consumer?  Right now many Alternative lenders policy will only allow them to lender to certain LTV maximums.  They bundle the remaining amount with secondary lenders to get clients to a desired LTV which is no longer allowed.  This will mean less options for non-prime borrowers moving forward.

 

There is no longer one solution/rate for everyone.   These changes made in the last 2 years can affect each borrower differently.  Now, more than ever clients will need to rely on their mortgage brokers for guidance as we navigate through this ever changing mortgage lending space.

More changes to come as Mortgage rates are about to increase?

With mortgage rates appearing to be on the rise this week borrowers may be faced with more challenges than just higher interest costs in the future.

It seems the new Government is not done with their changes nor are they looking to get any input from industry experts.  After Mortgage Professionals Canada lobbying in Ottawa this Spring the Canadian Mortgage Brokers Association is also trying to get the Liberals to listen to reason. http://www.mortgagebrokernews.ca/news/industry-association-pens-letter-to-osfi-230336.aspx

The CMBA hope is for the Government to wait and see how the changes last fall have fully impacted Canadians before they make any further changes.   And also address some of the issues they have caused, mainly rate increases to good borrowers who have 20% equity or more in their Home.  This type of borrower has seen their interest rates to be .25% higher than CMHC insured borrowers all while the Big Banks have recently posted record profits thanks in part to these new rules.  There are also suggestions on the new ‘stress test’ and how it could be applied to certain uninsured borrowers.

With the recent proposed Tax changes to small businesses and the mortgage changes to average Canadian borrowers one wonders who this new Government is actually looking out for?

 

Your Mortgage Broker Is the Specialist You Need

Your mortgage broker is the specialist in the mortgage industry.  Unlike banks, mortgages are the only thing a mortgage broker sells.  There are no other products that need to be learned.  It’s mortgages.

Banks typically offer higher mortgage rates than the rates that are available. You need to negotiate with a bank to try and obtain a better loan rate.

A mortgage broker, like Vertuity Mortgage, has access to a large network of lenders to find the specialized mortgage to meet a customer’s needs. The mortgage broker can get the better mortgage rates from more than one lender. The mortgage broker does the homework and shops on behalf of the client.  Unlike the bank, the mortgage broker isn’t limited.

Vertuity Mortgage, for example, has access to over 40 different lenders. They will typically work with 5 to 10 lenders that have the products to meet their client’s needs.  Vertuity Mortgage provides an impartial opinion about the different products and isn’t obligated to a particular lender. Vertuity Mortgage works for the client’s benefit.

Bank loan officers have in-house mortgage products they need to sell. The in-house products often have strict conditions around the mortgage that need to be met.  A bank can only offer the limited range of products they offer.  Unlike the banks, the mortgage broker has access to many different lenders with many different products. Options aren’t limited. The mortgage broker is the specialist.

As a specialist, the mortgage broker also makes the time to understand the mortgage process and its governmental rule changes. Housing markets are dynamic and processes and procedures for obtaining mortgages change.  Rules passed by the government in the fall of 2016 are greatly affecting the housing market in 2017.  The mortgage broker learns the rules changes and understands how the changes affect the customer.  It’s not just a matter of securing a mortgage initially.  It’s also a matter of securing a mortgage that’s affordable in the long term.

The best part about working with a specialist like a mortgage broker is the fee.  There isn’t one. Mortgage brokers work on 100% commission and are paid by the lender when a mortgage is completed. A lender’s payment to a mortgage broker could be a flat finder’s fee or a percentage of the mortgage value paid as a commission. The commission may be based on the size of the loan that includes the term of the loan. The mortgage broker is the specialist and works on commission from the lender.

Home buyers are best served by the specialist who can put the time into finding the right mortgage. It’s not just about the mortgage rate.  The right mortgage makes all the difference. Mortgage brokers are the specialists who deliver the right mortgage at the best rate.

Do First-Time Home Buyers Work with a Bank or a Mortgage Broker?

A dilemma first-time home buyers when trying to secure a mortgage is whether to work with a bank or a mortgage broker.

Today, the issue is compounded by overheated housing markets with skyrocketing prices and government rule changes designed to dampen the housing market.

In the fall of 2016, the government pass new laws requiring home buyers to show they can afford to make payments if interest payments rise.  The mortgage stress test uses the Bank of Canada’s mortgage rate as a barometer. Some home buyers that would qualify for a particular mortgage before the stringent stress test now have to settle for a lower mortgage.

Other rules changes in previous years have tightened lending and made qualifying for a mortgage more difficult. First-time home buyers face significant challenges with down payment amounts, income requirements and affordability.

Who’s better suited to help the first-time home buyer in today’s market?

First-time home buyers may initially feel more comfortable going to a bank.  Banks are where people go to get loans after all.  Canada’s big banks push hard to win over new mortgage customers.  However, this year the big banks have come under heavy scrutiny for the way they sell new customers.

In March of 2017, the CBC News program Go Public published a story about employees from all five big banks in Canada saying they feel pressured to meet unrealistic sales targets. To meet sales targets, many employees use sales pressure, tricks and even lies to close new deals.  Go Public said it has received nearly 1,000 emails from employees from RBC, BMO, CIBC, TD, and Scotiabank locations across Canada describing high pressure sales tactics used on customers.

Go Public also sited a report by the Small Investor Protection Association that 96% of the 121,000 people registered as financial professionals in Canada are registered as dealing representatives.  Dealing representatives are sales people licensed to sell financial investments. They don’t have a legal obligation to act in a client’s best interest.  They are paid to sell.

Banks sell lots of different products in addition to mortgages.  They don’t specialize in mortgages. High sales quotas require bankers to sell lots of products.

A mortgage broker, like Vertuity Mortgage, specializes in mortgages.  It’s all mortgage brokers do.  The first-time home buyer is better served by a specialist in mortgages.  The specialist can take the time to really understand the housing market.

The government rule changes require a significant investment of time and effort to understand and put into affect.  Even more taxing is understanding the effect the government rules have on buyers. The mortgage broker learns the rules inside and out and understand how it affects the home buyer.  The mortgage broker can shift and adjust mortgage strategies to not only secure a mortgage for the client but make it the right mortgage at the best rate.

Contact Vertuity Mortgage to talk to a mortgage specialist about your home purchase.

The Mortgage Stress Test Is Changing First-Time Home Buyer Strategies

First-time home buyer strategies in Winnipeg need to change because of the mortgage stress test and rising home prices.

In the fall of 2016, Ottawa implemented the mortgage stress test to ensure home buyers can meet mortgage payment obligations if interest rates rise. If you require an insured mortgage, you must qualify for payments based on the Bank of Canada qualifying rate for a five-year fixed-rate mortgage. The rate currently stands at 4.64%.

There can be a considerable gap between what you must qualify for and what you actually pay.  The Bank of Canada rate is currently 4.64% and a competitive mortgage rate is approximately 2.28%.

Potential home buyers need a strategy to work with the new guidelines imposed by the government. Vertuity Mortgage works with clients to understand the mortgage stress test. “As a mortgage broker, we’re able to help people understand the mortgage stress test and how it affects the purchase price of a new home,” said Brent Parnell, owner of Vertuity Mortgage.

Determine What You Can Afford Ahead of Time

Parnell said potential home buyers need to determine how much home they can afford. He said the average home price is around $300,000 in Winnipeg. First-time home buyer strategies need to be different when home prices climb.

“If you put ten percent down with a good interest rate your payment is going to be around $1,500 a month,” said Parnell.  “You need to look at where you’re buying and how much home you’re buying for that monthly payment.” Parnell said some of the contributors to the price of a home are the location, when the home was built, the size of the home and the size of the lot.

“We prequalify our clients for a mortgage and help set their expectations about the home they can buy.  The mortgage stress test puts pressure on the purchase price of a home and potential buyers need to understand it. First-time home buyer strategies need to change,” he said.

Parnell said first-time home buyers need to spend more time early in the home buying process to learn what affects the price of a home. First-time home buyers need to find a balance between the home they want and how much they can afford.

Some of the options are:

  1. Find an affordable neighborhood that meets your needs.
  2. Decide how many bedrooms and bathrooms you really need.
  3. Be realistic about the age of home you want to buy. How new does your new home need to be?
  4. How much yard do you need? Can you get away with a smaller lot?
  5. How much is your down payment? Can you save more and come to the table with a larger down payment?
  6. How do you earn more money to afford more home?

Vertuity Mortgage will walk you through the home buying process and help you understand all the variables affecting home prices.  Vertuity Mortgage will work with you to understand how much home you can afford.

 

Soft First-time Winnipeg Home Buyer Sales in April 2017

Soft first-time Winnipeg home buyer sales in April 2017 are the reason Winnipeg home sales were down 5% from April 2016, according to the WinnipegREALTORS® Association.

Unit sales in April 2017 of 1,300 were down 5% from a record April in 2016. For residential-detached properties under $300,000 there was a 15% decrease in sales activity in comparison to last April. WinnipegREALTORS® identified the new stress test on insured mortgages and its impact on buyer qualification as the primary concern.

The Canada Mortgage and Housing Corp. says the annual pace of new housing starts fell 15 per cent in April 2017 compared with March 2017. The seasonally adjusted annual rate of housing starts was 214,098 units in April, down from 252,305 in March.

In the fall of 2016, new housing regulations expanded stress tests making it harder for nearly 20% of new home buyers to qualify for mortgages. A more stringent mortgage stress test was put in place to ensure Winnipeg home buyers can afford mortgage payments should the interest rates rise.

Vertuity Mortgage quickly adjusted to the new qualification requirements and prepares buyers for the new stress tests. Winnipeg home buyers are having to change their expectations on a case-by-case basis. Some home buyers still qualify for the homes they want while others have to lower their goals for a new home due to the new affordability guidelines.

The first-time Winnipeg home buyer has expectations on what he or she wants to buy.  But when they find out how much they can afford, they may be forced to make some difficult decisions. Other payments and expenses may have to be reduced or eliminated to afford a new home. New car purchases and vacations will be put off in favor of the new mortgage.

Vertuity Mortgage reviews the qualifying requirements with each potential Winnipeg home buyer. Each client has a unique situation and the new affordability guidelines affect each client differently. The mortgage rule changes affect nearly every potential borrower.

Vertuity Mortgage works with a broad base of lenders to find the right mortgage based on each customer’s needs. Vertuity Mortgage assesses each Winnipeg home buyer on a case-by-case need to make sure qualifications are met. Rules changes mean the process is more complicated and harder to understand. Vertuity Mortgage takes care of the hard work so the client can focus on finding the right home.

WinnipegREALTORS® is a professional association representing over 1,875 real estate brokers, salespeople, appraisers, and financial members active in the Greater Winnipeg Area real estate market.

The Mortgage Stress Test Is Affecting Winnipeg Home Buyers

The mortgage stress test is having a powerful effect on new home buyers in Winnipeg.

The mortgage stress test is a required mortgage calculation ensuring you can afford your mortgage payments should interest rates rise. If you require an insured mortgage, you must qualify for payments based on the Bank of Canada qualifying rate for a five-year fixed-rate mortgage. The rate currently stands at 4.64%.

There can be a considerable gap between what you must qualify for and what you actually pay.  The Bank of Canada rate is currently 4.64% and a competitive mortgage rate is 2.28% according to ratespy.com.

Unknowing buyers see the actual competitive rates and go out and buy a home.  Unfortunately, a lot of them won’t qualify for financing based on the mortgage stress test.

It’s not easy to buy the right home today.  The average house price in Canada as of February 2017 is $551,400 according to the Canadian Real Estate Association. Some markets, such as Vancouver and Toronto, are fiercely hot.  Inventories are low and competition is very high.  Bidding wars break out over the smallest of lots.

Of course, not all markets are as hot as Vancouver and Toronto. However, markets are still competitive.  When you actually hit the pavement to shop for a new home you need to be prepared.  You need to understand what you qualify for and what you really want to purchase.

In Winnipeg, the value of an average home is $298,329. The mortgage stress test still has to be applied.  It’s a matter of being prepared and knowing the mortgage you qualify for and what you want to buy.

Your mortgage gap could be significant. According to the Financial Post, for a federally backed loan on a house worth $551,400, your actual monthly payment based on a 25-year amortization at 2.28 percent would be $2,278.35.  However, you have to qualify for a mortgage payment of $2,925.74. The nearly $700 a month difference is what’s causing a lot of problems.

When Vertuity Mortgage prequalifies clients for a mortgage, we explain the mortgage stress test.  We look at the amount you want to spend on a home and we determine ahead of time if you can pass the mortgage stress test implemented by Ottawa.  We discuss the payment amounts of what the mortgage stress test says you have to qualify for and your payment amounts at a competitive mortgage rate.

Vertuity Mortgage has a No Hassle process to walk you through the steps of buying a new home.  We work through the rigors of the mortgage stress test so you understand today’s mortgage process.

Most Financial Professionals in Canada Are Licensed Salespeople

Go Public continues its expose of Canada’s big banks with its latest charge that most financial professionals in Canada are licensed as salespeople with no fiduciary duty to clients.

Go Public, a CBC News publication, sites a report by the Small Investor Protection Association that nearly 121,000 people registered as financial professionals in Canada, and 96% are registered as dealing representatives.  Dealing representatives are sales people licensed to sell financial investments. They don’t have a legal obligation to act in a client’s best interest.  According to Go Public, only about 4,000 registered financial professionals have a legal obligation to act in the client’s best interest.

This is an astonishing revelation.  Across Canada thousands of people are trusting their life savings with “financial advisors” who are nothing more than salespeople in disguise.  According to the article the term “financial advisor” with a “o” is an unregulated title anyone can use.  However, a financial “adviser” with a “e” is a regulated title.

The financial advisor is not obligated to act in your best interest. Anyone can call himself an advisor, but not everyone upholds a fiduciary standard.

The bank representative, who is essentially a salesperson,  sells the bank’s mortgages to the customer. The bank offers a prepackaged mortgage and the consumer can take it or leave it.

Mortgage brokers, on the other hand, are independent from the financial institutions. The job of the mortgage broker is to shop for mortgages at different financial institutions and find the right mortgage to suit their borrower’s needs.  This role makes them an agent for the client. As an agent, the mortgage broker has fiduciary responsibilities. The mortgage broker must put forth his or her best effort on behalf of the client and put the client’s interests above his or her own.

As a leading mortgage broker in Winnipeg for more than 15 years, Vertuity Mortgage has helped hundreds of families secure the best mortgage for their needs.

Vertuity Mortgage is a licensed mortgage broker who works on your behalf with multiple lenders including local credit unions as well as major banks and other financial institutions. Vertuity Mortgage acts as your agent and offers transparency in all aspects of a transaction.

Just as Go Public has discovered, the big banks force customers into their limited products and most people don’t know there are better options available.

Unlike most large financial institutions, we will give you honest advice and recommend the best product to fit your needs. We cannot stress enough how valuable it is to have access to many different lenders and a real variety of mortgage solutions.

Don’t allow yourself to be forced into something that is not the best fit for you. At Vertuity we deal with every client equally — regardless of income and wealth. We can assure you that we will not save our best products and rates for our most elite clients.

We disclose our processes and procedures up front so a client knows what to expect.  Our “Hassle Free Process” is a process-driven program that guides the client through the mortgage process.  Total disclosure is the norm and not the exception.  We want to find the right mortgage to fit your needs.

Big Bank Employees Speaking Out About High Pressure Sales

On March 15, 2017, the CBC News program Go Public published a story about employees from all five big banks in Canada saying they feel pressured to meet unrealistic sales targets and will upsell, trick and even lie to customers.

Go Public said it has received nearly 1,000 emails from employees from RBC, BMO, CIBC, TD, and Scotiabank locations across Canada describing high pressure sales tactics used on customers. Go Public has said “the deluge is fueling multiple calls for a parliamentary inquiry.”  It says NDP finance critic Alexandre Boulerice is calling for a parliamentary inquiry into the sales practices of Canada’s banks.

In early March, 2017, CBC News published a story about TD Bank Group employees discussing the “incredible pressure” to sell unnecessary products to customer to increase profits.

Speaking to the CBC news segment Go Public, the employees say their jobs are like a used car salesman who upsells to reach sales targets.

Go Public said it has been told by TD tellers in other cities they have quit their jobs because the pressure to push products has become so extreme.

The high-pressure sales tactics employed by TD Bank are obviously working.  On March 2, 2017, TD Bank Group announced first quarter reported earnings were $2.5 billion, up 14% compared with the same quarter last year. Revenue rose six per cent to $9.1 billion. TD Bank is now the largest bank in Canada based on assets.

Go Public said it has documents that show tellers who fail to reach their sales goals are called “underperformers” and placed on a “Performance Improvement Plan.” The plan involves daily coaching and monitoring by managers. Sales improve or the employee is terminated.

Vertuity Mortgage openly discusses it customer service process and talks about the big banks and the kind of service a customer can expect.

A mortgage broker is a licensed mortgage specialist who works on your behalf with multiple lenders including major banks, local credit unions and other financial institutions. The broker is paid a commission by the lender providing the mortgage.

The mortgage broker can’t use high pressure sales techniques and stay in business very long.  The local mortgage broker, like Vertuity Mortgage, relies on referrals, word-of-mouth, and relationships within the local community to grow.  If mortgage brokers used the high-pressure sales techniques of the big banks described by Go Public, they would be out of business.

TD Bank has 1,150 offices across Canada.  It can afford to use high pressure sales techniques on customers. TD Bank doesn’t rely on close relationships with customers.

Vertuity Mortgage, on the other hand, needs close, intimate relationships with customers earned by providing excellent customer service.

Vertuity Mortgage has a program called “The Hassle Free Process.”  It’s a step-by-step process that guides the customer through the mortgage process.  Vertuity Mortgage works with the customer each step of the way to reach a successful conclusion – the right mortgage at the best rate.

High pressure sales is one place Vertuity Mortgage knows it can’t keep up with the big banks.

Millennials Could Drive the First-Time Home Buyer Market – If They Save

According to a new consumer study, 8 of 10 millennials in Canada expect to buy their first home in the next five years.  HSBC’s study Beyond the Bricks: the Meaning of Home was conducted in 9 countries including Canada, Australia, UK, the US and China.

Millennials could be the primary drivers of the first-time home buyer market.

While just over a third of millennials in Canada own their own home the study found 82% of millennials (Canadians born in the 80s and 90s) plan to buy a home in the next five years. However, the study reveals that 69 per cent of respondents say they are finding it hard to save a down payment while a third could not afford the type of home they wanted.

Millennials are going to have to save more money for a down payment to get into the first-time home buyer market.

New housing regulations implemented in the fall of 2016 creating tougher borrowing policies has already put pressure on Winnipeg home buyers. The government expanded stress tests making it harder for nearly 20% of new home buyers to qualify for mortgages. It’s estimated 20% of home buyers aren’t qualifying for less purchasing power as before the new regulations.

The HSBC study found that 21% of millennial home owners moved back in with their parents to save for a deposit. More than a third (37%) of millennial home owners used Mom and Dad as a source of funding.

The millennials are going to have some work to do if they are going to drive the first-time home buyer market.

The average price of a home in Winnipeg is $272,553. A 5% down payment would require $13,627 be saved.  According to Statistics Canada, the median after-tax income for the average household in Manitoba is $61,800.  The household saving rate in Canada is 5.8% a year. It would take the average person in Winnipeg approximately 4 years to save for a 5% deposit on a house.

Vertuity Mortgage’s First-Time Home Buyer Guide has a section dedicated to saving for a down payment. Click here to visit the guide:  First-Time Home Buyer Guide

From the First-Time Home Buyer Guide here’s  7 steps for saving for your down payment.

  1. Have A Clear Goal
  2. Open A Dedicated Savings Account/TFSA
  3. Pay Off Any Other Debts
  4. Tighten Your Belt and Spend Less
  5. Plan and Budget
  6. Downgrade Your Current Vehicle
  7. Check and Negotiate Interest Rates