The Virus & Deferring: Another reason not to have your mortgage at your bank
Another reason not to have your mortgage at your main bank…
Many home owners have all their banking in one place for convenience but this is another “trap.” If everything is at your favorite bank, they can see:
- from your pay deposits if you are still working, or are receiving EI payments.
- what your debts and minimum payments are,
- your savings & checking balances, what your Line-of-credit is, and your credit score.
- they know the value of your home and the mortgage amount.
With all of this data on hand, the bank can decline your deferral and suggest that you use more funds from savings or line-of-credit to make the payments.
Mortgage Mark Herman, Top Calgary Mortgage Broker
Someone who has lost their job, or has reduced pay, due to the virus, is not going to react well to having their bank tell them to continue to make payments from savings or LOCs.
The Deferral Trap
If you have the ability to not defer and can continue to make the payments it will keep you out of the “Deferral Trap.” The “Trap” is when all the payments that were deferred, and the interest not yet paid, needs to be repaid or the lender could renew you at any rate they want; like posted rates. The only way you could change banks and/or still get a competitive rate would be to catch up all the owed funds.
Up to the Banks to allow you to defer … or not.
The mortgage insurers are leaving it to the lenders to decide if they will defer payments or not and the banks have not published any guidelines on how they are going to deal with this. Reviews so far range from, “super-easy, no questions asked, deferred for 6 months” to the other end of the spectrum with “your mortgage is too new” or if you have not been laid off, have not tested positive for Covid-19, or your credit is not good enough, or they want to redo the entire mortgage application, then it is their choice to allow the deferral. The way around this would be to contact your mortgage insurer directly to see if you can work through them if your bank is not cooperating.
UPDATE: NHBI Canada
Here is an UPDATE to the Canadian New First Time Home Buyer Incentive Program
A Calgary lawyer recently had an opportunity to review the program and attend a basic seminar. He said he would not recommend the “down payment equity share” program to a first time home buyer for the following reasons – BUT here are our replies … and the Program DOES make sense to do.
NEGATIVE POINTS and the reasons FOR the program are below:
- It will take much longer to be approved for this program than for a normal mortgage loan and sellers may not accommodate the longer condition time.
- We normally pre-approve buyers with these files and this program in advance so there is no extra time needed at the lenders for conditions.
- The math for this program is complicated and buyers that use this program need to be pre-approved as they need the mortgage to match the affordability guidelines and to shop in the right price range.
- The extra time is at closing when 2 sets of documents are needed by the lawyer. As long as this is known in advance, the closing date can be long enough to allow for the extra paperwork to be requested and completed.
- Higher legal and appraisal costs will result as two separate mortgages have to be prepared and registered (one for the lender and one for the equity share) and an extra appraisal will have to be obtained and paid for by the owner if paying out the incentive mortgage prior to the ultimate sale of the property.
- A 1st and 2nd mortgages go on title at the same time as closing.
- Appraisal on purchase is not involved as it has to be a CMHC approved mortgage (CMHC is responsible for the appraisal in this case) and the program is based on the purchase price.
- If the owner wants to pay it off / back sooner, then an appraisal is needed at buyer cost ~$350.
- This would happen if the owner wanted to do extensive renovations to the home.
- An appraisal should not be needed on a bonafide sale, to a 3rd party, via a realtor, and when listed on MLS.
- An appraisal MAY be needed – as the owners cost – if the sale if it is a “private sale” and/ or believed to be below market value.
- (This is to stop the owner from selling the home to a family member for $1.00 and then attempt to repay the loan with $0.05.)
- The buyer has already saved many times the extra costs, savings are about $100 – $150/ month, from day 1. Paying-out at 10, 15, 20 years later … they have already saved $100 x 12 x 10 years = $12,000, in the bank, already.
- A disincentive to improve/renovate the property will exist as any appreciated value is shared with the government notwithstanding that they don’t contribute to the renovation costs.
- True.
- Upon repayment, improvements will be included when determining the market value, therefore the Homebuyer will have to consider the cost and benefit of the planned renovations, and decide whether to repay the Incentive prior to making any home improvements.
- IMPORTANT: It may be beneficial to the Homebuyer to repay the Incentive prior to conducting any major renovations to the home.
- A potential trap is being created for non-permanent residents who are legally authorized to work in Canada who can qualify to buy under this program but will have extreme difficulty in selling when their work permit expires as they will not have sufficient equity to satisfy the required withholding requirements under the Income Tax Act
- We have been the largest Mortgage Alliance brokerage in Canada for 6 years in a row, and we do about 20 deals a year for 9xx SIN buyers; 99% of our customers are unaffected by this.
- Again, this program is surgical in for who it works for. The program is not for everyone.
- It may be more difficult to refinance the property (it is not clear whether the Government will permit refinancing of the first mortgage and postpone their security to the new financing)
Updated rules have been released:
- The home CAN be refinanced without triggering repayment of the incentive, however, the shared equity mortgage will only be postponed to the outstanding balance that would otherwise be owing under the first ranking mortgage (i.e. no equity take-out will be permitted ahead of the shared equity mortgage).
Note:
- The combination of all charges on a refinance must not exceed 80%.
- This program DOES allow Assumption of the mortgage. Standard rules apply: full requalification by the parties assuming the mortgage directly with the lender. The standard on-going ramifications to the seller still apply.
- This program does NOT allow a PORT of the mortgage to another property. It would have to be paid out at that time.
- If refinancing of the first mortgage will not be possible without paying out the government’s equity share, then the first mortgage lender will have a captive borrower. The lender will have no incentive to reduce posted mortgage rates on renewal resulting in substantially higher interest rates in the second and subsequent mortgage terms for the homeowner.
- As above, the rules do allow the home to be refinanced without triggering repayment of the incentive.
- The renewal rate offered by the lender is independent of the 2nd charge on title.
Side note: We see that lenders are already applying the “Stress Test” under-the-covers on renewals when calculating the renewal rates. More on my blog here: http://markherman.ca/2019/06/
We love this New Home Buyer Incentive Program – NHBI
Mortgage Mark Herman; Best, Top Calgary Mortgage Broker
Updates to CMHC First Time Buyer Incentive Program
In March the federal government unveiled changes to the budget that included an interesting opportunity for prospective first time home buyers through an enticing program that they called a “shared equity mortgage”. This program could see Canada’s housing agency (CMHC) kicking in up to 10% of the purchase price of a home if certain conditions are met, therefore bringing down the mortgage load and monthly payment for first time home buyers.
In June, the federal government released further details for the new CMHC program. Under the fine print for the First Time Home Buyer Incentive Program, which will officially launch in September, the program is limited to first time buyers who earn under $120,000 annually. The CMHC would kick in up to 10% of the purchase price of the home, as long as the borrower comes up with the minimum down payment for an insured mortgage, which is currently 5%.
An additional stipulation is that the total value of the mortgage, plus the kick in from CMHC don’t exceed $480,000. According to government officials, this means the program will really only aid those shopping for properties worth a maximum of about $565,000, regardless of whether or not they have met the other requirements.
The “loan” from CMHC would be interest free, meaning no compounding costs to pay down, like a mortgage does. In exchange for its stake, the government says CMHC would get to participate “in the upside and downside of the change in the property value” – meaning they would be entitled to any corresponding increase in the value of a home when the buyer sells. On the other hand, CMHC would also be responsible for any share of the loss if the property depreciates.
This means on a home costing $500,000, if the buyer contributes $25,000 (5% down payment) and CMHC kicks in the same amount, CMHC would own 5% of the home. If the home were to appreciate to $600,000 when the home owner wants to sell, they would have to pay 5% of the sale price – in this case, $30,000 – not the original $25,000 CMHC contributed to begin with. Therefore, there will always be a bill to pay down the line. With that said, the kick in from CMHC would reduce the mortgage load and monthly payments, therefore making it easier for first time buyers to save over the life of the loan.
This table from CBC News shows the impact of a borrower of CMHC’s program. On the left is the cost if they went it alone. On the right shows how qualifying for CMHC program makes the same house more affordable:
Savings Over Time
While many are in support of the new program because it will help first time buyers and families across Canada, some financial advisers are not so sure. Rajiv Bissessur says “the program will likely help some people, but ultimately it amounts to just another form of debt for over leveraged borrowers.” It is an interest free loan, but a loan that will need to be paid back nonetheless.
Bissessur also said the cap of $480,000 won’t do much to help people who are shopping in more expensive markets, who are ultimately the people who need it the most.
The program must be paid back within 25 years, or whenever the buyer decides to sell. There is no financial penalty for buying CMHC out of its stake at any time, however homeowners will have to pay CMHC the fair share of the value of the home at the time.
We have yet to see if this program will prove to be “worth it” or if it is election promises.Mark Herman, top Calgary Alberta mortgage broker
Why you don’t want your mortgage at your main bank
The Big-5 banks do not love you, they love your money, and now they can “trap” you in their mortgages if you fail the Stress Test.
Highlights of the last post are below. The post from January is here: http://markherman.ca/how-the-big-5-banks-trap-you-in-their-mortgages/
The new mortgage rules – called the B20 – allow the banks to renew you at almost any rate they want – or at least not a competitive one – if your credit, income, or debts should mean you can’t change banks.
If your mortgage is at your main bank they can see:
- your pay and income going into your accounts
- debt balances on your credit report
- what your credit score is
- your debt payments
- your home/ rental addresses so they can accurately guess at your home value.
ALL THIS MEANS they can calculate if you can pass the new “Stress Test.”
If you can’t pass it then they know you can’t change banks, are you are now totally locked into them for your renewal. They can renew you at POSTED RATES … 5.34%, not actual discounted rates they offer everyone, today (June 2019) about 2.99%.
The GOOD NEWS is broker banks do not do any of this … so having your mortgage at your main bank only helps them “grind you” later on. …. so how convenient is having your mortgage at your bank now?
Highlights of the article link below are:
Canada’s biggest banks are tightening their grip … as new rules designed to cut out risky lending make it harder for borrowers to switch lenders … the country’s biggest five banks … are reporting higher rates of renewals by existing customers concerned they will not qualify for a mortgage with another bank.
“B-20 has created higher renewal rates for the big banks, driving volumes and goosing their growth rates,” said an analyst. “It’s had the unintended consequence of reducing competition.”
Royal Bank of Canada (RBC), said last month that mortgage renewal rates [are up …] due in part to the B-20 regulations.
Ron Butler said, “Even if they are up-to-date with their repayments, borrowers may find they don’t qualify with other lenders so they’re stuck with their bank at whatever rate it offers,” he said.
Senior Canadian bankers such as RBC … and TD … voiced their support for the new rules prior to their introduction, saying rising prices were a threat to Canada’s economy.
While analysts say RBC and TD are expected to benefit from higher-than-normal retention rates in 2019, not everyone is sure borrowers will benefit.
“The banks are becoming more sophisticated in targeting borrowers who would fail the stress test and they can charge them higher rates at renewal knowing they can’t move elsewhere,” Butler said.
How the Big-5 Banks Trap You in Their Mortgages
- what your credit score is
- your pay and income going into your accounts
- your debt payments
- other debt balances on your credit report
- your home/ rental addresses so they can accurately guess at your home value.
Highlights of the article link below are:
Canada’s biggest banks are tightening their grip … as new rules designed to cut out risky lending make it harder for borrowers to switch lenders … the country’s biggest five banks … are reporting higher rates of renewals by existing customers concerned they will not qualify for a mortgage with another bank.
“B-20 has created higher renewal rates for the big banks, driving volumes and goosing their growth rates,” said Eight Capital analyst Steve Theriault. “It’s had the unintended consequence of reducing competition.”
Royal Bank of Canada (RBC), the country’s biggest lender, said last month that mortgage renewal rates [are up …] due in part to the B-20 regulations and also to improvements it has made to make it easier for customers to renew.
Ron Butler, owner of Toronto-based brokerage Butler Mortgage, said the changes leave borrowers with less choice.
“Even if they are up-to-date with their repayments, borrowers may find they don’t qualify with other lenders so they’re stuck with their bank at whatever rate it offers,” he said.
Senior Canadian bankers such as RBC … and TD … voiced their support for the new rules prior to their introduction, saying rising prices were a threat to Canada’s economy.
While analysts say RBC and TD are expected to benefit from higher-than-normal retention rates in 2019, not everyone is sure borrowers will benefit.
“The banks are becoming more sophisticated in targeting borrowers who would fail the stress test and they can charge them higher rates at renewal knowing they can’t move elsewhere,” Butler said.
Link to the full article is here: https://business.financialpost.com/news/fp-street/canadas-big-banks-tighten-grip-on-mortgage-market-after-rule-changes
We saw the “Mortgage Renewal Trap” coming long ago when the Stress Test was announced. It is more important than ever to consider Mortgage Broker Lenders for your mortgage now.
Mark Herman, Top Calgary Alberta Mortgage Broker.
Schedule of Increased Alberta Real Estate Fees
Here is a schedule of the actual increase in fees.
For my comments on what this all means see my last post here
Please contact me by phone at 403-681-4376 or my email at mark.herman@shaw.ca
Data:
- Increases are only for 5% down payment buyers.
- Clients who get submissions in prior to June 1st will be eligible for old premiums.
- Effective June 1st, (owner occupied 1 – 4 unit) mortgage loan insurance premiums will be:
| Loan-to-Value Ratio | Standard Premium (Current) |
Standard Premium (Effective June 1st, 2015 |
| Up to and including 65% | 0.60% | 0.60% |
| Up to and including 75% | 0.75% | 0.75% |
| Up to and including 80% | 1.25% | 1.25% |
| Up to and including 85% | 1.80% | 1.80% |
| Up to and including 90% | 2.40% | 2.40% |
| Up to and including 95% | 3.15% | 3.60% |
| 90.01% to 95% — Non-Traditional Down Payment | 3.35% | 3.85% |
All this from Mortgage Mark Herman, top Calgary Alberta mortgage broker for home purchases and mortgage renewals.
Newly increased fees for home buyers – comments
The new fees are not that big a deal. It will add a bit but not much. All the news is just noise by the press looking to turn out an easy article. Below are my comments that will be in the Calgary Sun this week.
Mark Herman, top Calgary Alberta mortgage broker for home purchase mortgage and renewal mortgages.
The additional $1,925 added to mortgage costs ends up costing an extra $8.81 a month for a $450k purchase – the average home price in Calgary – with 5 per-cent down on the maximum 25 year amortization.
“This really should not be that big a deal in the overall picture. We’re talking about the most expensive purchase most people make. An extra $2450 should not be a deal breaker. If it is, the buyers should really second think their continued ability to afford a home, especially if you consider that interest rates are at all-time 115-year lows. A rate increase, even back to what is considered the theoretical minimum of 4 pre-cent for the 5-year fixed, closed mortgage, should be considered more than this minor cost increase.”
For an average home at $450,000, the new increases with the budget for land title registration cost AND the new CMHC insurance premium for 5% down – from 3.15% to 3.6%:
The increase in the CMHC fee goes to $15,390 from $13,466 or an increase of $1,925.
The increase in the land title registration cost – attached – is an extra $525.
Total increase is $2,450 or 0.5% total increase in the costs to buy a home with 5% down payment.
Really not a big deal when you consider:
- Alberta does not have a 1% property transfer tax like B.C. and Ontario
- The cost for registration and land titles was cut by Ralph Klein years ago and has not increased since
- Buying a home for almost half a million dollars has only increased by 0.5% and
- Mortgage rates are at, and continue to hold at, now record lows; most mortgage broker rates are 2.69% for a full featured, 5 year mortgage with all the bells and whistles.
Fee increases may cause sticker shock for potential Calgary homebuyers
Fee hikes in Thursday’s provincial budget will add more than $1,000 to the cost of buying an average home in Alberta …
… The province said several real estate-related fees will increase effective July 1. Among the announced changes, the transfer/title creation flat fee rises from $50 to $75, while the variable fee will jump from $1 to $6 for each $5,000 in home value. Mortgage registration fees are to increase the same amount.
On a $450,000 mortgage, that would mean an increase from $140 to $540 for each.
“Unfortunately, these fees are assessed at the end of the real estate transaction and so are not included in the purchase price of the house, nor can they be rolled into the mortgage, so homebuyers will need to come up with that extra cost,” Copeland said.
Corinne Lyall, president of the Calgary Real Estate Board, said the government has kept fees low for some time. This is the first time since 2011 that the flat fee for property and mortgage registrations has increased.
Medical Doctor Mortgage Program – mortgage financing on your projected income!!
UPDATED!
ATTENTION soon-to-be-Doctors – FINALLY a program that acknowledges that you will be earing lots of money – soon, but not just yet.
Medical Doctors still in school or residency can qualify for financing with 20% down payment (up to 80% LTV) using projected income.
More details:
- “Projected income” is based on what a medical doctor is expected to earn in their specialization of practice.
- existing student loans, or student line of credit are fine
- the 20% down CAN BE borrowed funds from a Line of Credit, or other source
- part or all of the 20% down CAN BE gifted from a family member
- there is NO sliding scale – which means if you want a 1,200,000 home and you have the 20% down ($240,000) then it can still work!
Call for details and a quick chat on the phone: 403- 681-4376
Mark Herman, Top Calgary, Alberta Mortgage broker for doctors and renewals.
How the new math on LOC’s is calculated.
Below are how the banks now have to take your debts into account for doing the qualifying math for your purchase. A bit complicated and not intuitive at all!
Mark Herman, Top Calgary, Alberta mortgage broker for renewals.
Secured LOC – Calculate the monthly payment on the balance amortized over 25 years using the contract rate. **Must have the statement showing the contract rate otherwise the current BoC rate will be used.
Unsecured LOC – or a Personal Line of Credit = 3% of the outstanding balance a month for the payment – so 20,000 owing @ 3% ends up as a $600 a monthy payment. YES, it is unfair.
Student Loans –
- If it’s a true student loan it should be reporting as an installment with CDA. If there is no payment, the bank will use 1%.
- If the debt is reporting to the bureau as a revolving LOC, and the client is paying interest only payments, the bank must use 3%;
- if we can provide proof that the LOC has a fixed payment and the loc has been re-written as a loan and is no longer revolving the bank can use this payment vs. 3%. In some cases, this may already be the case but it still reporting to the bureau as revolving.
Divorce and Mortgages
We do lots of mortgages for divorces – because they are complicated. Both people want to buy after or one buys out the other. BUT, you have to set the seperation agreement up correctly so this can happen.
Banks mess this up EVEY time as the math is complicated and people at banks are not licenced mortgage brokers 99% of the time.
Why not use the #1 mortgge brokerage in all of Canada for 2 years in a row to ensure your seperateion agreement is set up to work for both of you?
Mark Herman, Calgary Alberta mortgage broker and divorce mortgage specialist.
Below are some interesting numbers for Divorces:
If the Calgary- Red Deer – Edmonton Corridor was an actual country it would have:
- a growth rate only 2nd to China – in all the world and
- the highest divorce rate in all the world.
Other Key Findings
•Annual average of divorces in Canada: 71,000
•Marriages that won’t reach their 50th anniversary: 43%
Divorce Rates around the World
Sweden 55%
US, Australia 46%
United Kingdom 43%
Canada 40%
Israel 26%
Switzerland 25%
Greece 18%
Singapore, Poland 17%
Spain 15%
Italy 12%
Marriage rate in Newfoundland and Labrador 54.3% (highest in Canada)
Marriage rate in Quebec 37.5% (lowest in Canada)
Month with the highest Separation applications? January
Mortgage Rules for Divorces, updated for MArch, 2015:
In situations where two parties are on title to a property in the process of a legal separation where one party will keep the existing property, the following guidelines will now apply:
•Applications may be submitted as a purchase loan up to 95% LTV – or 5% down
•Both parties must be on title to the property prior to the legal separation
•Since this purchase transaction is non-arms length, a full internal appraisal is required
•The following documents confirming the sale price and transfer of title must be on file:
- Finalized separation agreement
- Offer to purchase