Canadian Mortgage News & Canada's Mortgage Trends

Rate Sites

You may have noticed the many websites out there that list mortgage rates.  Cannex.com, Canoe.ca, and RateSupermarket are a few examples.

Sites like these can be handy for cross-checking mortgage rates.  If nothing else, they keep your broker on their toes.

Rate pages have limits however.  Below are some things to remember when perusing these kinds of sites.

• The information is not always up to date.

Lenders and brokers on these sites do not always update their rates promptly.  In comparison, a good mortgage planner is often current with their rates to the hour.

• The information is not always what it seems.

Some lenders and brokers advertise amazingly low rates. Then, when you call, you find out they're quoting:

• Teaser rates (ultra-low rates that expire)
• No-frills products (i.e.  mortgages without pre-payment privileges and other perks)
• Quick-close rates (rates that apply only if you're closing in 30 days for example)
• Jumbo rates (rates that apply only to mortgages over $250,000 to $500,000)

By contrast, a good mortgage broker always quotes rates that apply specifically to your wishes and your circumstances.

• The information is not complete.

How can you tell from a rate page if a mortgage has good payment flexibility, pre-payment privileges, portability, assumability, readvancing credit, free home warranties, good conversion rates, favourable interest compounding, self-employed programs, or other important features?  You can't, but mortgage planners can tell you.

Mortgage planners also have unpublished rates that rarely make it to most major rate sites.

• Once you find a rate, there's no hand holding.

Unless you're working with a mortgage planner, you have no one objective to:

• advise you of better alternatives
• handle all your paperwork
• advise on how to properly structure an application to maximize chances for approval
• give you advice throughout the process on qualifying, handling credit issues, paying down your mortgage quicker, preparing your documents for submission, etc.
• advise on avoiding fees
• give you the truth about a lender's service quality and turnaround times

Low rates are great.  Lower the better we say.  But there's more to the puzzle, and more to lose, if you put your trust in a rate page.

Broker Business - Simple Rate Sheets

Mortgage planners get bombarded with rate sheets and other lender emails each and every day.  It's interesting (if you think about mortgages a lot) to compare these emails and observe how different lenders present their data. 

Readability and convenience should mean everything you would think.  After all, we brokers are forever time conscious. 

Some lenders, however, don't seem to stress themselves out over presentation. 

So when it comes to user friendly rate sheets, we thought we'd speculate on what separates the good from the not-so-good...

Generally speaking, our favourite rate sheets:

• Summarize all major changes since the last update in bullet format at the top of the email (minor changes should lie below or in a PDF)
• Have simple tables with columns for term, rate, rate hold period, finders, and exclusions (the major "fine" print).
• Use color to highlight important guidelines and changes
• Have the BDM's phone, cell, and email at the bottom
• Use UPPER CASE sparingly
• Include a link to the lender's broker site

The rate sheets that aren't so hot tend to:

• Use plain text with no formatting (They're like reading a newspaper with no headlines and a continuous sea of text.)
• Use improper text wrapping, justification, or line breaks (so text appears inconsistently formatted)
• Have minimal white space
• Are font-happy (Some BDM's make it a mission to use as many different font styles as possible per email--eye clutter supreme!)
• Force you to open a PDF to see the rates (emails are so much faster)
• Force you to log into their website to see their rates (Even worse!  And no, "security/confidentiality" are weak excuses when it comes to rates.)
• Show both "posted" and "discount" rates (Posted rates are superfluous to most these days, and qualifying rates can be indicated elsewhere.)
• Are repetitive (Some lenders will happily add to your email load by sending rate sheets with no changes!)

If you're a broker that likes your rate sheets formatted different than above, let us know in the comments section.  Maybe your BDM will be watching.

AIG's New Upgrade Advantage

When you buy a brand new house or condo, the builder will often sell you upgrades--pot lights, kitchen counters, nicer taps, etc.  Sometimes, however, it's tricky to roll them into a mortgage.

If the upgrades are included in your purchase agreement it's pretty simple.  The lender/insurer is usually okay with lending on the property and upgrades (assuming the upgrades add reasonable value to the home).

If your builder makes you pick your upgrades and pay for them after you sign the purchase agreement--and many do--then it's a little different.  Up until last Thursday, Canada's three insurers didn't have a formal program for insuring such mortgages.  (What is "mortgage insurance?")

Insurers did have "purchase plus improvements" programs, but these were designed more for improvements that are done after closing. 

Alternatively, borrowers would typically need to get an amendment to the purchase agreement to add in the upgrades after the fact.  Not all builders will do this, however.

As of this week, things have changed for the better.  AIG's new Upgrade Advantage program now explicitly insures upgrades not included in the original purchase price.  What a great idea!

Here are some things to keep in mind about the program:

• Upgrade Advantage is only intended for new construction purchases (houses or condominiums)
• AIG allows up to $75,000 in upgrades, subject to a maximum of 15% of the purchase price.  (10% was the previous rule of thumb for allowable improvements.)
• AIG permits a loan-to-value up to 95%
• Minimum credit score is 650 (with 35% GDS ratio; 42% TDS ratio) or 680 (with no GDS; 44% TDS ratio)
• Allowable upgrades include bathroom, kitchen, lighting, fireplace, HVAC, sound proofing/insulation, shingles, windows/doors, decks, and energy efficiency upgrades.
• Kitchen appliances are excluded
• The program is not available when progress construction draws are used.

AIG United Guaranty Canada is Canada's third largest mortgage default insurer.  It insures mortgages for over 30 lenders across the country.

Mortgage Bytes

Commentary

• 40-year amortizations keep getting bad press.  Canwest's Jim Yih says, "There's no question Ottawa is doing the right thing in preventing people from extending the amortization periods too far." As we've said before, however, there are situations where 40-year ams are desirable and appropriate.  Yes, it makes intuitive sense that borrowers should be made to qualify at a lower amortization (to prevent over-extension of credit).  Banning 40-year ams altogether, however, penalizes responsible homeowners in the process. It prevents borrowers from exercising payment flexibility in cases that may well warrant it (income property purchases and self-employed borrowers for example).
• The Canadian Bankers Association's CEO, Nancy Anthony, has rebutted the Ottawa Citizen's Mark Sutcliffe. Sutcliffe had drawn questionable parallels between the U.S. and Canadian mortgage markets in an article last month.
• "Too many Canadians believe that home prices cannot go down." -- Seeking Alpha

Mortgage News

• Dreyer Group's Jared Dryer on 10-year mortgages versus variables:  "At this point in time to take a 10 year term at 5.80% will be a lot extra for security. You will be paying the bank a surcharge of 1.65% for that security vs. paying yourself. The choice is yours." (Link)
• High ratio, interest-only mortgages and home equity lines of credit (HELOC) will no longer be insurable come October 15.  That means you'll probably have to put down 20% to get them. CMHC will, however, continue insuring conventional interest-only mortgages and HELOCs.
• 45% of Canadians agree with the government's abolition of 40-year amortizations a $0-downpayments on insured mortgages.  23% disagree and say it limits consumer choice. This is according to a July 25, 2008 ResMor study.

Interest Rates

• Fixed rates at the non-bank lenders have now started to come down.  Bond yields, upon which fixed rates are based, started drifting lower over two weeks ago.  Posted bank rates fell more than a week ago.  You can now get quick close 5-year fixed specials in the mid-to-low 5% range.
• BMO economist, Michael Gregory says, "We are seeing the tide turn on inflation. You look around, and suddenly growth is an issue."  If that's true, rate-hike talk will die down to a whisper in the next few months...IF that's true.

Real Estate Markets

• The average price of home in major Canadian cities fell 3.6% in July from a year ago, to $327,020. Toronto was up 1.5% while Vancouver dropped 1%.  Financial Post
• "Last year was probably a once-in-40-years kind of market." -- Bosley Real Estate's Michael O'Brien on Toronto's hot 2007 housing market.  Sales are down 12% annually as of July according to the Globe.
• MP Garth Turner enjoys walking out on a limb.  He's predicting "Armageddon" in Regina, Winnepeg, and Saskatoon--with 50% drops in home values over the next year or two. He predicts a 30% fall in Vancouver and a 15% dip in "Torontopolis." 
• Downtown Vancouver commercial vacancy is just 2.5%.  Rents are now averaging over $50 a sq. ft.
• Residential property sales in Greater Vancouver declined 43.9% in July 2008 versus a year ago.
• Housing starts fell 13.6% in July--much more than expected. TD called the drop "massive" but warns against making a "knee-jerk reaction."  Some economists are largely attributing the weak numbers to wet weather in Ontario.
• Demand for homes in St. John's, NF has reached "reached an exceptional level" according to CMHC.  They say sales are "limited only by builder capacity constraints, due to a very tight labour market for skilled trades."

Mortgage Broker News

• CAAMP is "providing input to the Department of Finance relating to...the proposed [620 minimum] credit score especially as it affects new Canadians."  There is a big question regarding how the governments new rules will affect programs aimed at new immigrants, who don't have a credit score.
• Check out this week's jobs in CMT's Mortgage Jobs database, or post a job on CMT's homepage!
• In July, PMI Canada singled out CMHC and said, "Fostering increased mortgage insurance competition will allow PMI Canada to bring innovative risk solutions to lenders." PMI was seemingly unaware of their impending fate (closure).
• Wells Fargo has a new email address where brokers can send a deal for a quick review before submission. It's meant to help determine if a deal meets Wells' criteria. Log into their broker site for more info.
• Mortgage brokers have funded 1.04% less mortgage volume this year versus the same time last year.  They funded 46.41% less subprime business. Source: Filogix
• First Foundation Residential Mortgages is now offering reverse mortgages through Canadian Home Income Plan (CHIP).
• "I want to get us back to our roots - make the company more familial as opposed to corporate." - Mortgage Intelligence President, Mark Moreau (via CMP)
• Colleen Adams is the new VP, Marketing & Sales at Xceed.  Collen formerly worked at BMO in 2007.
• Quest Capital, Canada's leading mortgage investment company, posted $7.5 million in profit.  It's average outstanding loans grew 38% year-over-year.

Miscellaneous

• We got a question today about where to buy Canadian Mortgage Bonds.  The answer is, you can buy them at most major securities dealers, like Investors Group, TD Waterhouse, E*Trade, etc.  Commissions differ by broker.  E*Trade, for example, charges $6.95 to $19.95 per trade depending on your assets and trading frequency.
• The BC Real Estate Association has a handy checklist and guide for buying pre-sale properties.
• Canada ranks number one in adoption of online banking, with 67.1% of Canadian Internet users banking online in April 2008. Of Canada's 24 million Internet users, 15.5 million visited a banking site in April--the month the survey was conducted. Other English-speaking countries had significantly less participation:
• U.K.:  49.5%
• U.S.:  44.4%
• Australia:  41.7%
• "There's 1,000 people a day turning 65 [in Canada], and there's an incredible shortfall of suitable housing." -- Vancouver Sun.
• Interested in finding out about BC foreclosures and scooping up a cheap property?  That's the idea behind ForeclosureList.ca foreclosure notification service.  It costs $99 a month (there's a $1 seven day trial)  We haven't tried it so we can't comment on its value, but Straight.com has this story about it.
• 11% of foreign home buyers in the U.S. last year were Canadian.  53% got a mortgage while 47% paid cash, according to Canoe.com.

Manulife One Sales. Wow.

Apparently all their new ("what's your number") advertisements are paying off.  Manulife sold over $1 billion in Manulife One mortgages last quarter, a new quarterly record.

This translated into a 33% gain in overall loan volumes at Manulife.  Impressive stuff!

Manulife does have competition in the "all-in-one" HELOC space.  The thing is, their competitors barely advertise.  They include:

• National Bank (All in One)
• Canadian Tire (One and Only)
• Envision (Redfrog)
• Investors Group (All in One)

All in one mortgages are a type of readvanceable mortgage where the positive balances in your bank accounts can offset the interest you owe on your mortgage--theoretically saving you money.  In practice, however, (depending on the case) there may be better ways to achieve the same goal. Talk to a mortgage planner that knows these products for details.

Here's a comparison of all readvanceable mortgages.

Bottom fishing in U.S. Real Estate

Prices in America's top twenty cities dropped for the 22nd month in a row in May.  In parts of Florida, prices are down 35-40% from their 2005 highs.

For Canadians who want to bottom pick properties in the U.S., there's financing available in much of the sunbelt if you have a 30% downpayment.  You'll have to prove income but there is no credit check.

We're hearing of variable rates near 4.8% for 30-year terms, with no prepayment penalties.  Closing costs range widely depending on the state, but can be anywhere from $1500 to $3000 or more. Plus you can expect up to 2-3% in broker and lender fees.

Other details may apply as well (like minimum loan amounts). Moreover, don't forget that currency risk and tax-related issues can arise with cross-border home shopping.  If you're interested in buying down there, find a good mortgage planner to explain the whole financing process in detail.

Globe & Mail Coverage

Rob Carrick at The Globe and Mail wrote a story today on real estate sites.  In it he very kindly mentioned Canadian Mortgage Trends.

A big congrats to the other great blogs mentioned as well.  These folks put an unfathomable amount of time in their publications and deserve the credit...

• Real Estate Intelligence
• YatterMatters
• Canadian Capitalist
• Million Dollar Journey
• Quest for Four Pillars
• Greater Fool

Credit Facts From TransUnion

Credit is a mainstay of mortgage lending.  If you want to learn more about credit, TransUnion has a good website with Q&A's.  Here's a sampling of its many facts and tips...

• If you co-sign a loan and the primary borrower doesn't pay on time, it will show up negatively on your report as well.  (Keep that in mind if you get divorced!)
• Closing older accounts generally makes your credit history shorter and often hurts your credit score.
• Missing a payment is no joke.  Even if you pay off an account that's over 30-days past due, it will stay on your credit report for six years from the date you missed the payment.
• Debts reported as included in a debt repayment (or credit counseling) program will be removed from your file two years after the date the program was satisfied.
• Consumer proposals and all accounts reported as satisfied through the proposal will be removed from your report three years after the date you satisfied the proposal.
• Bankruptcies remain on your credit file for 6-7 years after discharge, depending on which province you live in.
• Collections remain on your file for 6 years after the date of default.
• Judgements remain for 6-7 years, except in PEI where it's 10 years.

Beacon Scores - Toronto Star Article

We did a short piece about Beacon scores on the Toronto Star's "New in Homes" site this weekend.  (Don't mind the picture!) 

If you have a mortgage question you'd like answered on New in Homes, email amy@newinhomes.com.

U.S. Mortgage Exchange Risk

If you're a Canadian buying a 2nd home in the U.S. there's a chance you'll need a U.S. mortgage.  If so, you'll be paying that mortgage in American dollars. 

That's fine...unless the Canadian dollar takes a nose dive, like its been doing lately.

Last week the Canadian dollar plunged 4% versus the U.S. dollar.  It was the biggest weekly drop since 1971 according to foreign exchange provider, HiFX.  That means a $250,000 house in the U.S. just got $10,000 more expensive for Canadians.

If you have a U.S. mortgage, exchange rates also come into play when you make your monthly payments.  One way to avoid this risk is to refinance your Canadian home and use that money for your purchase.  That way you can buy in the States and have your debt in Canadian dollars.

Another way is to lock in your exchange rate in advance.  HiFX, for example, lets you lock in mortgage payment exchange rates for up to two years. 

If it's a big one-time amount you're transferring to U.S. dollars (like a down payment), then a foreign exchange specialist might save you some money.  HiFX and Custom House are two such providers. 

Banks generally charge much higher spreads.  Sometimes the difference is more than 1/2 to 3/4%, which is $500 to $750 on $100,000.

(Chart from Barchart.com)