What Was That Lender's Name Again?
Mortgage brokers promote dealing with 20 or more lenders. However, many homeowners only recognize the big 6 banks they have seen on street corners. So who are these other lenders that brokers promote?In Canada, approximately 25% of homeowners use the services of a mortgage broker. These lenders are Canadian owned and operated, but choose to fund their mortgages through the broker channel to cut overhead costs on "brick and mortar". Afterall, having full-time salaried employees with benefits cost money, not to mention the costs of operating a bank branch. Due to the reduction of expenses for the "non-bank" lenders, they tend to pass on the savings to borrowers through lower rates.
What are The Risks of Dealing With Non-Bank Lenders?
There is a mis-conception, especially after the financial credit crunch in late 2008, that borrowers will lose their homes if the mortgage is funded by a non-bank lender. This is absolutely not true. The risk is assumed by the lender since they are the ones giving out their money with the understanding the borrower will repay the mortgage on time. Also, keep in mind these lenders function under the Canadian Government rules and laws.
Why Should I Choose a Non-Bank Lender Over A Bank?
You don't have to. A non-bank lender is an option that is presented by your mortgage professional to consider. Other important factors to consider when choosing a lender are:
- How is the mortgage penalty calculated?
- If I decide to lock in, do I get the posted or discounted rate (typically 1.5% difference)?
- What features are built into the mortgage (pre-payment, increased payment, portable, assumable...)?
- What are the fine print terms that I should be aware of?
- Who & how will my mortgage be managed? Afterall, getting a mortgage is one thing but working with someone who will oversee the mortgage and optimize it to reduce overall interest is another skill (click here for inflation hedge mortgage strategy)
Bottom line, if you pay your mortgage on time no on will take your home away! This is Canada afterall.
To discuss your personal mortgage financing situation, please contact me.
How You Can Buy A Home With $24.95?
A client approached me a few weeks back with interest of getting pre-qualified for a mortgage to buy their first home. During our initial meeting, we discussed their goals, where they see themselves in 5 years and cash flow projections based on mortgage interest rates over the next 5 years. One of the questions I ask, is how the person's credit score is. The client stated they had no outstanding debt with very little credit card balance that is paid off every month. Once all the necessary information was gathered, a credit check was completed and I was shocked to what I saw in their report.There was an outstanding student loan which showed delinquency for over 21 months which literally had destroyed the client's credit score and history. I contacted the client to notify them of the issue and they were surprised to hear there was a balance since they stopped receiving a bill after they moved to their new address. They had thought the loan was paid off. Unfortunately, the outstanding balance was minimal but had accumulated lots of interest over the 21 months.
In this case, the client will have to re-establish their credit and show 2 years of good credit history to qualify for a mortgage at a decent mortgage interest rate. There are other alternatives, but are more costly.
By checking your own credit score annually from Equifax (http://goo.gl/5xqCP) these type of issues would be resolved. Similar to a medical annual check up, an annual credit check is important to verify there aren't any errors or items that need to be addressed immediately. The cost of checking your credit score is $24.95.
To discuss your personal mortgage financing needs, please contact me.
Why Ultra Low Mortgage Rates Are Not Good?
We have experienced low mortgage rates since the financial credit crisis in late 2008. The purpose of the low rates is to stimulate consumer spending which will result in economic growth and recovery out of the recession. In the last few weeks, there have been talks regarding the European debt crisis and how similar it looks like the 2008 credit crisis. It started with Ireland and Greece, which are considered small economies in Europe. The credit crisis talks have shifted to Spain and Italy which are large economies. As Germany and France continue to bailout their Euro zone counterparts, they accumulate more debt. There were talks last week that France is in financial trouble which resulted in a stock market sell off among other bad economic news. The bottom line there is a storm brewing in Europe which will come to fruition sooner or later. This uncertainity has resulted in bond yields dropping to historic lows which will result in lower fixed mortgage rates.
There are now possibilities the Bank of Canada might hold or even consider cutting its benchmark rate (which sets prime rate) to stimulate the Canadian economy just in case Canada gets dragged into a slowdown due to what's happening in US & Europe. This means continued low rates for the foreseeable future.
So What You Might Ask?
The concern with even lower interest rates, is creating more demand in the Canadian real estate market. This is good news for first time home buyers since the affordability requirements will drop, however, more bidding wars might result (I can only comment on Toronto's real estate market since this is where I conduct my business) and some would lose out. Canadian household debt is already at an all time high and taking on further debt could result in an unpleasant consequences for all (http://goo.gl/zzcDH). The lower rates will pull the future demand into the present and leave a void in the future. The other concern is Canadians getting used to these low mortgage rates and not plan for higher interest rate environment when mortgages renew in a few years from now.
Finally, taking on debt with a responsible plan to pay if off can be a good thing. However, taking on debt and not planning for higher interest environment will have dire consequences.
To discuss your personal mortgage financing situation, please contact me.
Are Mortgage Interest Rates Dropping?
My Commentary On What The Bank Of Canada Said Today
What's Your Best Interest Rate?
Typically, one asks for the best mortgage rate when looking for a mortgage. In this video, other questions to be considered are discussed to help one decide since a mortgage is an investment vehicle not a commodity.