The Truth About Mortgage Math

General Peter Paley 26 May

Are you tired of the mass media paranoia?  The Housing Bubble! Debt-to-income Ratios! Canada Is On The Verge Of Economic Collapse!  Foreign Investors!  The Stress Test!  The Liberals, The Conservatives, The NDP are destroying our country or province or something or other virtually every day.  It would seem that the sky is falling.

Take a deep breath.

Now, take another deep breath.

When I became a mortgage professional,  we were taught the basics and taught some simple facts.

  • The mortgage default rate in Canada is less than .3% (at the time of writing).
  • If mortgage interest rates double, your mortgage payments will increase by only 32-38% depending upon your amortization.
  • Every .25% increase or decrease to oyour mortgage rate will change your mortgage payment by only $0.13 /$1000 of mortgage/month.
  • The difference between a 25 year amortization and 30 year amortization is about $.054/$1000 of mortgage/month.

In my almost 20 years of the financial services industry, I have never seen as much negative press around our industry.  The clients that are coming into my office are very well prepared.  They have saved their down payments, have positive net worth, and EXCELLENT credit!

Do not be deterred by the negative media.  Contact your friendly neighborhood mortgage professional today!

Peter Paley

 

The New Frontier – Get involved and contact your MP.

General Peter Paley 21 May

Mortgages are simple.  They should be easy to acquire and should have a common-sense based application process.   However, over the last decade, there have been numerous changes.   The regulators have decreased our amortizations from 40 years to 35 to 30 and now 25 (for insured mortgages).  They have curtailed and obstructed small business owners, entrepreneurs, commissioned sales people and even part-time employees.  They have limited and restricted investors and landlords.  They have even obstructed first time home buyers by reducing the amounts of approved mortgages by adding a stress test.  They have even limited people from refinancing their houses to pay off debt or get out of tight financial situations by reducing refinance amounts from 95% to 90% and further to 80%.   They did all of this in the spirit of protecting the Canadian Tax Payer from a US style crash.  There has been over 10 years of fearmongering from national and local media outlets, politicians who have been elected seem to be clueless when it comes to matters of housing and mortgages.  The banks are greedier than ever when it comes to protecting profits and slamming the little guy with high penalties and rates.  The housing bubble, the foreign investors, debt to income ratios and all of the other blah, blah blah, seem to have been nothing but media hype.

Were all of the changes bad? No.  Did these changes eliminate most of the common sense from the mortgage adjudication process?  Yes.  The best part of my job as a Mortgage Professional is that I get to help people.   I help them buy their first home, repair bruised credit, help them a budget, downsize, improve cash flow, and introduce them to an amazing team of financial professionals.  However, it is getting harder and harder to help when the common sense is disappearing.

Our professional association is working with lenders and government to ensure that the first time home buyer and entrepreneur are protected and that mortgage approval criterion are fair and just for everyone.  Owning a home is the backbone of the Canadian dream and should be put within sights of every Canadian and not the most privileged.

We recommend contacting you MP and urge them to revisit mortgage qualification rules.   Please encourage them to reach out to our industry and let them know the importance that home ownership has for Canadian’s financial health.

The sky hasn’t fallen, the mass paranoia isn’t warranted in my opinion and it should be the job of our government to ensure there are plenty of jobs and growth and not to limit the average Canadian and over-regulate industry.

Peter Paley