14 Apr

Mortgage Advice – Covid – 19

General

Posted by: Peter Paley

As the world pandemic continues, Canada and especially Manitoba are leading in flattening the curve.  However, the slowing of the economy has been felt in the number of businesses closed and people filing for employment insurance.

This is leaving many mortgage holders and first time homebuyers in the lurch.  Should they defer payments, refinance, sell their home, buy a new home, or continue with their pre-approvals.

The devil is in the details.  Every person and family are going to have a very unique set of circumstances and knowing their numbers is the key.   Not only do they need to know their numbers, but we need to formulate back up plans as some banks and credit unions are being very cruel when it comes to offering assistance.

As an advisory based mortgage brokerage team we are happy to speak to your clients and see what the best course of action may be for them.  Please watch our video below and subscribe to our YouTube Channel.

 

 

6 Apr

WHY ARE MORTGAGE RATES RISING?

General

Posted by: Peter Paley

Why Are Mortgage Rates Rising?

Over the past month, the Bank of Canada has lowered its overnight rate by a whopping 1.5 percentage points to a mere 0.25%. Many people expected mortgage rates to fall equivalently. The banks have reduced prime rates by the full 150 basis points (bps). But, since the second Bank of Canada rate cut on March 13, banks and other lenders have hiked mortgage rates for fixed- and variable-rate loans. That’s not what happens typically when the Bank cuts its overnight rate. But these are extraordinary times.

The Covid-19 pandemic has disrupted everything, shutting down the entire global economy and damaging business and consumer confidence. No one knows when it will end. This degree of uncertainty and the risk to our health is profoundly unnerving.

Most businesses have ground to a halt, so unemployment has surged. Hourly workers and many of the self-employed have found themselves with no income for an indeterminate period. All but essential workers are staying at home, including vast numbers of students and pre-school children. Nothing like this has happened in the past century. The societal and emotional toll is enormous, and governments at all levels are introducing income support programs for individuals and businesses, but so far, no cheques are in the mail.

In consequence, the economy hasn’t just slowed; it has frozen in place and is rapidly contracting. Travel has stopped. Trade and transport have stopped. Manufacturing and commerce have stopped. And this is happening all over the world.

What’s more, the Saudis and Russians took advantage of the disruption to escalate oil production and drive down prices in a thinly veiled attempt to drive marginal producers in the US and Canada out of business. This has compounded the negative impact on our economy and dramatically intensified the plunge in our stock market.

Many Canadians are now forced to live off their savings or go into debt until employment insurance and other government assistance kicks in, and even when it does, it will not cover 100% of the income loss. The majority of the population has very little savings, so people are resort to drawing on their home equity lines of credit (HELOCs), other credit lines or adding to credit card debt. Businesses are doing the same.

The good news is that people and businesses that already have loans tied to the prime rate are enjoying a significant reduction in their monthly payments. All of the major banks have reduced their prime rates from 3.95% to 2.45%. So people or businesses with floating-rate loans, be they mortgages or HELOCs or commercial lines of credit, have seen their monthly borrowing costs fall by 1.5 percentage points. That helps to reduce the burden of dipping into this source of funds to replace income.

So Why Are Mortgage Rates For New Loans Rising?

These disruptive forces of Covid-19 have markedly reduced the earnings of banks and other lenders and dramatically increased their risk. That is why the stock prices of banks and other publically-traded lenders have fallen very sharply, causing their dividend yields to rise to levels well above government bond yields. As an example, Royal Bank’s stock price has fallen 22% year-to-date (ytd), increasing its annual dividend yield to 5.31%. For CIBC, it has been even worse. Its stock price has fallen 30%, driving its dividend yield to 7.66%. To put this into perspective, the 10-year Government of Canada bond yield is only 0.64%. The gap is a reflection of the investor perception of the risk confronting Canadian banks.

Thus, the cost of funds for banks and other lenders has risen sharply despite the cut in the Bank of Canada’s overnight rate. The cheapest source of funding is short-term deposits–especially savings and chequing accounts. Still, unemployed consumers and shut-down businesses are withdrawing these deposits to pay the rent and put food on the table.

Longer-term deposits called GICs, which stands for Guaranteed Investment Certificates, are a more expensive source of funds. Still, owing to their hefty penalties for early withdrawal, they become a more reliable funding source at a time like this. As noted by Rob Carrick, consumer finance reporter for the Globe and Mail, “GIC rates should be in the toilet right now because that’s what rates broadly do in times of economic stress. But GIC rates follow a similar path to mortgage rates, which have risen lately as lenders price rising default risk into borrowing costs.”

To attract funds, some of the smaller banks have increased their savings and GIC rates. For example, EQ Bank is paying 2.45% on its High-Interest Savings Account and 2.55% on its 5-year GIC. Other small banks are also hiking GIC rates, raising their cost of funds. Rob McLister noted that “The likes of Home Capital, Equitable Bank and Canadian Western Bank have lifted their 1-year GIC rates over 65 bps in the last few weeks, according to data from noted housing analyst Ben Rabidoux.”

The banks are having to set aside funds to cover rising loan loss reserves, which exacerbates their earnings decline. An unusually large component of Canadian bank loan losses is coming from the oil sector. Still, default risk is rising sharply for almost every business, small and large–think airlines, shipping companies, manufacturers, auto dealers, department stores, etc.

Lenders have also been swamped by thousands of applications to defer mortgage payments.

Hence, confronted with rising costs and falling revenues, the banks are tightening their belts. They slashed their prime rates but eliminated the discounts to prime for new variable-rate mortgage loans. Some lenders will no doubt start charging prime plus a premium for such mortgage loans. Banks have also raised fixed-rate mortgage rates as these myriad pressures reducing bank earnings are causing investors to insist banks pay more for the funds they need to remain liquid.

An additional concern is that financial markets have become less and less liquid–sellers cannot find buyers at reasonable prices. The ‘bid-ask’ spreads are widening. That’s why the central bank and CMHC are buying mortgage-backed securities in enormous volumes. That is also why the Bank of Canada has started large-scale weekly buying of government securities and commercial paper. These government entities have become the buyer of last resort, providing liquidity to the mortgage and bond markets.

These markets are crucial to the financial stability of Canada. Large-scale purchases of securities are called “quantitative easing” and have never been used before by the Bank of Canada. It was used extensively by the Fed and other central banks during the 2008-10 financial crisis. When business and consumer confidence is so low that nothing the central bank can do will spur investment and spending, they resort to quantitative easing to keep financial markets functioning. In today’s world, businesses and consumers are locked down, and no one knows when it will end. With so much uncertainty, confidence about the future diminishes. The natural tendency is for people to cancel major expenditures and hunker down.

We are living through an unprecedented period. When the health emergency has passed, we will celebrate a return to a new normal. In the meantime, seemingly odd things will continue to happen in financial markets.

Dr. Sherry Cooper

DR. SHERRY COOPER

Chief Economist, Dominion Lending Centres
Sherry is an award-winning authority on finance and economics with over 30 years of bringing economic insights and clarity to Canadians.

6 Apr

WHAT TO DO IN TODAY’S MORTGAGE MARKET

General

Posted by: Peter Paley

What To Do In Today’s Mortgage Market

For the past few weeks we have been trying to give tips and advice to navigate the global pandemic.
The most important thing is safety. Please stay home, please wash your hands, please wear a mask when going out of your house. Designate one grocery shopper. Call the Mainstream Team for any mortgage advice or potential deals.
We have had our head office help us with the graphic included in this message and offer it as general advice.
Many of our clients are switching their mortgages, paying their penalties for lower rates. However, many clients are facing more difficult challenges including employment layoffs, reduced income or worse.

For clients who need to sell their homes. Please contact us. We will need to get a new credit application, find out what your mortgage penalty would be should you need to change lenders and what your future income/employment status will be.

For first time buyers. Your employment status has become the most important factor for lenders. Please note that if you become layed-off between the time you release your financing condition and your possession date, your mortgage MAY NOT FUND! We need to figure out back up plans or include extra precautions in your offer to purchase.

Lenders are now under a lot of stress and application queues are forming. Please allow 5 days for financing and allow an additional 4 weeks for closing.

For existing mortgage holders. Contact us directly for advice. If you have equity in your house you may want to tap into it. A full mortgage and financial review is always complimentary and we are happy to do so free of charge.
We apologize there is no video this week as we had a few technical difficulties.

29 Mar

MANULIFE ONE THE ULTIMATE MORTGAGE PRODUCT

General

Posted by: Peter Paley

All-in-one mortgages are an amazing tools for people who like to pay their mortgage down fast and save tens of $1,000s of dollars in interest.

  1. Manulife One lets you consolidate your debts to reduce your borrowing costs.

Your Manulife One account allows you to consolidate all of your debts (loans, credit cards, etc. – up to your borrowing limit) at a competitive, low interest rate. By repaying your higher-cost debt from your Manulife One account, you could reduce your interest costs and become debt-free sooner.

  1. Manulife One uses your income and savings to reduce your borrowing costs even further.

The best way to lower your borrowing costs is to pay down the principal that you borrowed. When you transfer your savings and/or short term investments into your Manulife One account, they go immediately towards paying down your borrowings. The same applies to your income. Every deposit that you make into the account reduces your debt, saving you interest costs until you need to withdraw funds again to pay for your monthly living expenses. Over time, what you save in interest will likely be more than what you would have earned.

  1. Manulife One simplifies your banking by bringing your income and debt together.

With a Manulife One account, your income and your debt are all together. So you don’t need to write cheques or transfer funds from one account to another. This way you never need to worry about missing a mortgage payment. Plus, your Manulife One account lets you:

  • Pay bills by cheque or online (including pre-authorized bill payments)
  • Pay for store purchases with a debit card (including getting cash back)
  • Withdraw or deposit funds at ABMs
  • Plus much more.

There’s just one difference – whatever is left over in your Manulife One account at the end of the day goes directly towards reducing your borrowing costs. So all your money is working for you as hard as it can – 24/7/365.

  1. Manulife One lets you enjoy financial flexibility.

Some traditional mortgages make it difficult or inconvenient to repay your debt more quickly. But with Manulife One, the debt in your Main Account is automatically reduced any time you make a deposit to your account. And, when you have extra money to deposit, such as a gift, bonus, tax refund, etc. your debt is automatically reduced. This gives you the financial flexibility to pay down your debt on your terms, not on your bank’s terms.

Manulife One also gives you the financial flexibility you need to deal with unexpected expenses or take advantage of great buying opportunities when they come up; and you don’t have to jump through hoops to do it. You can access the equity you’ve built up in your home (up to your borrowing limit) at any time just by writing a cheque, making a debit purchase or transferring money electronically.

With Manulife One, you’ve got the flexibility to repay your debt more quickly when you have extra money available and also to conveniently access that money when a spending need arises.

Watch our video and like it on YouTube and refer to our BLOG Post to Download more information.  for more information.  Please feel free to share with your clients or anyone you know looking for a mortgage.

Click the link below for our YouTube video!

If you have any clients looking for a mortgage pre-approval or mortgage advice please have them visit our website or call Peter at 204.227.2744.

22 Mar

COVID-19 UPDATE

General

Posted by: Peter Paley

 

COVID-19 UPDATE:

While we are all in disbelief, the world must go on.  Last week we fielded over 200 inquiries regarding mortgage options and deferred payments.  As usual,  everyone has jumped the gun.

The government, the banks, our lenders have all announced up to 6 month mortgage deferrals.   How does one qualify?  How many months is each lender allowing?  What are the criteria?….  At this point?  Nobody knows.

Lenders are being inundated with telephone calls up to 5000 calls per lender per day.  Wait time are up to 4 hours if the phone call even gets answered.  From what we have gathered so far, one must be directly affected by the Covid-19 crisis due to illness and/or employment layoff.   Each lender is looking at the borrowers individual situation on a case by case basis.

New purchasers need to be somewhat certain that their employment will continue beyond the crisis.  A layoff before possession could cause a lender not to fund your mortgage.  Realtors, you need to be aware of this fact when writing up offers to purchase.   How is Covid-19 going to affect sales contract?  That will be an ongoing question to be determined.

Existing mortgage holders.  Now is the time where you may want to refinance and pull out equity if you are able to and qualify.   We are recommending having access to 6-12 months of household income in had as we navigate through this global crisis.  Should there be enough equity to borrow against, we recommend trying to get a Home Equity Line Of Credit or simply refinancing your existing mortgage.

Finding updates or any information in the financial industry has been very frustrating.  Dominion Lending Centres has created an website dedicated to Covid-19 updates and information.  You can access the website through our website by clicking on the “Learn More” on the blue Covid-19 bar.

Please watch our YouTube video and stay safe.

Click the link below for our YouTube video!

 

15 Mar

Virtual Mortgage Appointments/Covid-19/Refinancing & Deferred Payments

General

Posted by: Peter Paley

Wow! What a couple of weeks. As covid-19 continues to spread throughout the world and the markets and economy are facing impending turmoil everyone is left wondering what’s going to happen and what is the best thing to do?
Unfortunately, we don’t have all of the answers. However, in an attempt to do our very best for our clients and business partners, we have started Virtual Mortgage Appointments where clients can book an appointment on our website and we can process their mortgage application through video conferencing.

Interest rates are dropping. You may want to consider a refinance or to get pre-approved for your next home.

As a result of Covid-19 Canadian Mortgage Insurers are rolling out a payment deferral program for up to 6mos to help ease any financial burdens. Health concerns are weighing heavily on the markets. We don’t have many details at this early juncture but will post updates as we learn more.

Watch our video and like it on YouTube and watch out for breaking updates. Please feel free to share and follow.

Click the link below for our YouTube video.

We wish everyone good health and should you have any questions please contact The Mainstream Mortgage Team.

8 Mar

INTEREST RATES – 101

General

Posted by: Peter Paley

Getting the best interest rate is the most important aspect of getting a mortgage, right?

If you answered YES, this article was written just for you.

The rate is very important and this article is going to illustrate the math and savings one can achieve with using a mortgage professional.

Before we get into the math, we wanted to let you know that in our opinion that mortgage terms are just as, if not more important that the rate.   Pre-payment privileges, penalty calculations, portability and assumability to name a few.  Some low rate mortgages are not portable and have HUGE penalties.

So when comparing rates, please compare the features and terms.

Lets get into the math!!!  #MortgageNerdsLoveMath

The best part of our job is when we are able to save a client 0.50% on their mortgage rate or more.  It doesn’t happen all the time but there are time throughout the year when it does happen.  AND IT FEELS GREAT.

The first calculation I would like to give you is the month payment per $1000.00 of mortgage.   At the time of writing, our best 5 year fixed rate mortgage is 2.34%.  The cost per $1000 of mortgage is $4.40/$1000.  So if you wanted to quickly approximate the month mortgage payment of a $300,000 mortgage, all you have to do is multiply $4.40 x 300 = $1320/month.

Wow 2.34%? That’s amazing.  What if the rate was 0.50% higher or 2.84%?  The cost per $1000 would be $4.65/$1000 per month.  So 300 x 4.65 = $1395/month.

$75 may not seem like a lot of money but it sure adds up.  The interest savings alone is over $6900 over a 60 month or 5 year term.   Not only do you save on interest, but there is more principle paid with a lower rate.  In the above example your mortgage balance will be more than $2,500 less with a lower rate.

So what’s the best thing to do?

Watch our video and like it on YouTube and refer to our “Interest Rates – 101” handout by CLICKING HERE TO DOWNLOAD .  Please feel free to share with your clients or anyone you know looking for a mortgage.

Click the link below for our YouTube video!

If you have any clients looking for a mortgage pre-approval or mortgage advice please have them visit our website or call Peter at 204.227.2744.

4 Mar

INTEREST RATES NOSEDIVE AS BANK OF CANADA CUTS RATES 50 BPS

General

Posted by: Peter Paley

The Bank of Canada Brings Out The Big Guns

Following yesterday’s surprise emergency 50 basis point (bp) rate cut by the Fed, the Bank of Canada followed suit today and signalled it is poised to do more if necessary. The BoC lowered its target for the overnight rate by 50 bps to 1.25%, suggesting that “the COVID-19 virus is a material negative shock to the Canadian and global outlooks.” This is the first time the Bank has eased monetary policy in four years.

According to the BoC’s press release, “COVID-19 represents a significant health threat to people in a growing number of countries. In consequence, business activity in some regions has fallen sharply, and supply chains have been disrupted. This has pulled down commodity prices, and the Canadian dollar has depreciated. Global markets are reacting to the spread of the virus by repricing risk across a broad set of assets, making financial conditions less accommodative. It is likely that as the virus spreads, business and consumer confidence will deteriorate, further depressing activity.” The press release went on to promise that “as the situation evolves, the Governing Council stands ready to adjust monetary policy further if required to support economic growth and keep inflation on target.”

Moving the full 50 basis points is a powerful message from the Bank of Canada. Particularly given that Governor Poloz has long been bucking the tide of monetary easing by more than 30 central banks around the world, concerned about adding fuel to a red hot housing market, especially in Toronto. Other central banks will no doubt follow, although already-negative interest rates hamper the euro-area and Japan.

Canadian interest rates, which have been falling rapidly since mid-February, nosedived in response to the Bank’s announcement. The 5-yield Government of Canada bond yield plunged to a mere 0.82% (see chart below), about half its level at the start of the year.

Fixed-rate mortgage rates have fallen as well, although not as much as government bond yields. The prime rate, which has been stuck at 3.95% since October 2018 when the Bank of Canada last changed (hiked) its overnight rate, is going to fall, but not by the full 50 bps as the cost of funds for banks has risen with the surge in credit spreads. A cut in the prime rate will lower variable-rate mortgage rates.

Many expect the Fed to cut rates again when it meets later this month at its regularly scheduled policy meeting, and the Canadian central bank is now expected to cut interest rates again in April. Of course, monetary easing does not address supply-chain disruptions or travel cancellations. Easing is meant to flood the system with liquidity and improve consumer and business confidence–just as happened in response to the financial crisis. Expect fiscal stimulus as well in the upcoming federal budget.

All of this will boost housing demand even though reduced travel from China might crimp sales in Vancouver. A potential recession is not good for housing, but lower interest rates certainly fuel what was already a hot spring sales market. Data released today by the Toronto Real Estate Board show that Toronto home prices soared in February, and sales jumped despite low inventories. The number of transactions jumped 46% from February 2019, which was a 10-year sales low as the market struggled with tougher mortgage rules and higher interest rates. February sales were up by about 15% compared to January.

Dr. Sherry Cooper

DR. SHERRY COOPER

Chief Economist, Dominion Lending Centres
Sherry is an award-winning authority on finance and economics with over 30 years of bringing economic insights and clarity to Canadians.

2 Mar

CLOSING COSTS EXPLAINED

General

Posted by: Peter Paley

 

Closing Costs Explained.

Closing costs are one of the largest variables for new home buyers, especially first time home buyers.

All three mortgage insurers require that the clients have their down payment saved + an additional 1.5% of the purchase price for closing costs.   The problem with this is, that closing costs are usually closing to 2.5% to 3%.   This is really problematic when a client finds out that they are a few thousand dollars short to close.

Closing costs include, Land Transfer Tax, Legal Fees and Disbursements, Title Insurance, Interest Adjustment, Property Tax Adjustment as well as any PST on insurer premiums.

Please ask us for our very own closing costs calculator to help calculate your closing costs or down loan our app by visiting our website.

Please watch our video and like it on YouTube and refer to our “Closing Costs Example” for more information.  Please feel free to share with your clients.

Click the link below for our YouTube video!

https://www.youtube.com/watch?v=afCGOxdR5fg&t=9s

 

22 Feb

CREDIT SCORES & CREDIT REPORTS & HOW THEY AFFECT YOUR MORTGAGE APPLICATION

General

Posted by: Peter Paley

 

Credit Scores & Credit Reports & How They Affect Your Mortgage Application.

A good credit score is one of the most important pieces of a successful mortgage application.   As Mortgage Professionals, we always request a full credit report at the time of application.  This allows us to:

  1. Check the credit score.
  2. Identify any potential challenges.
  3. Fix any errors.
  4. Make any recommendation for improvement.

For an insured mortgage the minimum credit score is now 620, for a conventional “A” deal 600 and for conventional “B” deals 500.   Insured mortgages are usually less than 20% down and convention deals will have 20% or more down payment.

Negative Impacts:

  • High Limits and Balances
  • Missed payments
  • Unpaid judgements and collections
  • Revolving credit facility that are over limit.

For a credit score to be considered very good, it needs to be 680 or higher out of a possible 900.   Tips to keep your credit score high:

  1. On-time payments
  2. Different types of credit (installment and revolving).
  3. Keep balances below 50% of the limit.

The Mainstream Team are experts in repairing credit.  If you or anyone you know is having credit issues, we would be happy to give them an opinion on how to fix their credit and what steps to take.

Please watch our video and like it on YouTube and refer to our “Credit Scores & How They Affect Your Mortgage Application” for more information.  Please feel free to share with your clients.

Click the link below for our YouTube video!

https://www.youtube.com/watch?v=WFqSQC3S3_U

 

If you have any clients looking for a mortgage pre-approval or mortgage advice please have them visit our website or call Peter at 204.227.2744.