1M+ Buyers; When to Use a Broker
For the high-end buyers, we find most people have Private Wealth banks that can pretty much do anything … and we don’t win lots of deals for more than $1M+ unless it is a complicated deal.
If it is complicated, you have a private “general banker” trying to either “figure it out for the first time,” or remember how it works. Not the data a high-end buyer wants to rely on when structuring complicated trades in real estate.
SLIDING SCALE DOWN PAYMENT:
The 1 thing that does make a difference for high end buyers is the sliding scale – where their bank does 20% down on the first $750k and then 50% down on the balance. This 50% on the balance is the deal breaker.
We have Broker-lenders (totally secure, including 1st National, Canada’s largest lender with $110 Billion on the books) that will do 20% down on the entire purchase.
That could be a difference of 200k – 400k of down payment in the end. That often means selling more assets, in turn triggering more tax consequences longer term. A high price to pay for a nice home via your “private wealth” bank.
Summary:
Our big advantages for high-end buyers are:
- the Sliding Scale where the bank’s “Risk Dept” will not bend on the LTV/ down payment %.
- This can save 200k in lower down payment and lower medium-term, tax consequences.
- Payout Penalties are 500% – 800% – yes 5x to 8x higher at the Big-6 banks over Broker lenders who use the “old way” to calculate the payout penalties.
- The very, very detailed math is here: http://markherman.ca/fixed-rate-mortgage-penalties-larger-than-ever/ (you have been warned… this is math city.)
Always call a mortgage broker before buying a home. Especially if you are using a Private Wealth Banker. … Mark Herman, Top Calgary Mortgage Broker near me.
Moving to YYC: How to buy ASAP
Moving to Calgary and Buying a Homes As Soon As Possible
This is a common question, and as usual, the way the banks / lenders want things done is exactly the opposite of what works in real life, for real people, like you.
You Want: To buy a home in Calgary, move the family in, get settled and then start the new job – RIGHT! That makes the most sense.
The Lenders want:
- You to have 1 full-cycle payslip BEFORE then will fund your mortgage and
- You to be completed the 90 day probation if you have a probationary clause in your new employment
Why?
PAYSLIP: The first full-cycle pay-slip – meaning 2 full weeks of pay – critically needs to match your employment letter / job offer at 40.00 hours; or whatever it is that you are guaranteed for pay. If it does not match, then your income is not guaranteed, and the lenders want to see guaranteed pay.
39.97 hours is not 40.00 hours; it means the 40 hours is not guaranteed and the lenders often decline to fund your mortgage.
PROBATION: In Alberta, you can be let go for no reason in the first 90 days of employment – even if you are NOT on probation. It does not matter if there is/not a reason, it is the law.
Obviously, if you just moved here, bought a home and are let go, the odds of you moving back are high. And the bank is left in the risky position of losing money on the home or making an early CMHC claim. Which is why they want to see either: NO probation, or a shortened & completed probation period, or a completed probation period.
Work-Arounds:
- Workaround 1: We recommend and often see new employees specifically asking for no or short probation periods. You are taking the risk moving here, the employer is often willing to waive the probation – which can be the key to speeding a home purchase.
- Workaround 2: Depending on how your math works out, you may be able to carry 2 mortgages at 1 time. There are 2nd Home Programs that can work for situations like this, but again, the math is different for everyone.
How to make the move as smooth as possible
The smoothest way to buy a home when relocating is to start the job first. Ask for the employer to waive or shorten the probation period. Then rent, stay with friends, or anything that works for the first 2 or 3 weeks. Then when you have a full-cycle pay slip you can buy a home that works for you and take possession as soon as possible is a much smoother transaction. Otherwise you are “trying to push a rope up a hill” and the bank’s don’t like that at all.
We see issues with people buying too soon all the time. Forcing the system often backfires on new home owners. The resulting brain damage is not worth trying to do the transaction backwards in the eyes of the banks.
Mark Herman; top Calgary Alberta Mortgage Broker, with best rates
Wisdom from Kevin O’Leary, interst rates increases and housing demand
Kevin O’Leary – AKA Mr. Wonderful and self-proclaimed star of Dragon’s Den and Shark Tank – was speaking at our real estate conference yesterday. Surprisingly, he also used to be a professor at Ryerson’s School of Business so he does know more about what he is talking about then you would expect he does.
The short version of his talk – which was way better than expected.
The good news is hiding
- Corporate earnings for the last ¼ of 2014 are being reported this week and they are all good or great, coming off of one of their best years ever! Companies have increased sales and have lots of cash; unless you are an oil company.
- Overall the S&P should be up 7% for 2015 – with lots of volatility – so hold on tight.
Housing
- Even if demand reduces due to less people buying because of the drop in oil prices OR from an increase in interest rates, pricing should stay stable. Alberta will still have in-bound migration and those people still need places to live.
- Demand should stay stable as long as any interest rate increases are less than 1.2% from today’s rates. That is not expected to happen for another 2 – 3 years.
- Big banks are buying solid real estate and less bonds now. An example is a billion dollar building in New York selling at a cap rate of about 1%. That means that the return on the investment is expected to about 1% on a billion dollars. This is much lower than almost any bond and shows the reasoning that real estate is a great investment in today’s changing markets.
Interest Rates
- Today the US 30-year bond fell to a record low, surpassing the previous record low of set in July, 2012.
- The US 10-year bond is almost at record lows as well.
- The problems in the market are not real estate but for long term bonds – like the 30-year bond above – lost about 30% of its expected return.
- 6 of the big banks expectations are for interest rates to begin to rise in October by about 1/4% – the same as what the Bank of Canada said 2 months ago. See previous Blog post from October 22 here: http://blog.markherman.ca/2014/10/22/1138/
- The interest rate increase prediction was before oil fell so interest rates may not increase and stay the same for longer than expected above.
BONUS – 3 Keys to Business Success on the Dragon’s Den
He also shared a few studies on the companies in the Dragon’s Den. They all showed all the companies that boomed all had this in common:
- Their business model could be fully explained in 90 seconds or less
- The owners were able to explain why they were the ones to be able to execute the business model better than anyone else and
- They knew the numbers to their business cold – pricing, costs, revenue, economics, IRR, etc.
All this from the top Calgary, Alberta mortgage broker, Mark Herman at Mortgage Alliance.
YYZ & YVR homes: more expensive than Rome, closing in on Paris!
This is some interesting data on the housing market in Vancouver and Toronto from one of the banks we deal with.
Mark Herman; Calgary, Alberta mortgage broker
—
Canadian home prices really are “world class”, at least in the country’s two hottest markets.
A survey shows the price for prime residential property Toronto and Vancouver has surpassed Rome and is closing in on Paris. Vancouver is at nearly $1,400 a square foot and Toronto is a little above $1,200. (Top spot is London at more than $3,600/sq. ft.)
The survey says growing foreign investment as a key reason for the rising prices because international investors consider Canadian real estate as a safe haven.
That’s backed up by high-profile Canadian economist Sal Gautieri. He also points to domestic factors: population growth in Toronto and Vancouver (and Calgary) has outpaced the national average by about 2 to 1 over the past decade; economic prospects remain good in both cities; and low financing continues to be a key factor in pricey markets.
Worried about oil prices and the Calgary housing prices?
Have a look at this TD report about the price of oil and the Canadian economy.
Highlight: TD expects the Bank of Canada to keep rates the same until mid-2015.
Link to the TD report, outlining the various outcomes of the recent fall in the price of oil.
Calgary – 5th BEST place to live in the world! – the Economist
This is why Calgary housing prices are supported by about 20,000 new arrivals a year. The in-migration will continue for a while yet … and that will support housing prices.
Three Canadian cities — Vancouver, Toronto and Calgary — have been named as some of the best places to live in the world, according to a report by The Economist.
In the annual poll ranked Vancouver as 3rd most livable city in the world; followed by Toronto at No. 4, and Calgary tied for fifth place with Adelaide, Australia.
… The Economist ranks the cities on 30 factors across various categories, including stability, health care, culture, environment, education and infrastructure.
the article is here: http://www.thestar.com/business/2014/08/19/melbourne_wins_tops_most_liveable_city_ranking_three_canadian_cities_in_top_10_list.html
CMHC Rate Increase & More…
This is the blog version of the Winter Update 2014:
Insurer Rate Increase – Technical Details – and the B20 Rules Phase In.
1. Much to do about nothing: CMHC increases mortgage insurance.
- May 1st the new CMHC fee increase goes into effect.
- Genworth quickly followed, matching the effective date and premium increases. Canada Guaranty has not yet but is expected to increase their rates by the same amount – so rates for all will be the same but are not right now.
- To AVOID the increase:
- The purchase must be underwritten and submitted to the insurer by the bank BEFORE end of day April 30. We will still be in the Spring rush so banks may be backed up; it is important to avoid last minute rushes during this time.
- The fee is inconsequential. A $400,000 mortgage has a monthly payment increase of less than $10.
|
Down Payment |
OLD: One-time CMHC fee added to mortgage |
New fee May 1, 2014 |
|
5%(borrowed) |
2.90% |
3.35% |
|
5% |
2.75% |
3.15% |
|
10% |
2.00% |
2.40% |
|
15% |
1.75% |
1.80% |
Nowhere in the news: Very little is being discussed on self-employed borrowers without traditional proof of income. Their premiums are going up as well.
|
Down Payment |
OLD: One-time CMHC fee added to mortgage |
New fee May 1, 2014 |
|
10% |
4.75% |
5.45% |
|
15% |
2.90% |
3.35% |
|
20% |
1.64% |
1.9% |
|
25% |
1.00% |
1.15% |
|
35% |
0.80% |
0.90% |
Bottom line: for those qualifying on their tax paid income- much to do about nothing. For those needing to use self-employed “declared” income, there is a much greater premium increase.
2. More Importantly – Full Implementation of the B20 (and soon the B21) Rules
- Some of the banks are already underwriting with the new rules causing unexpected declines and delays.
- Banks are about to start using 3% of the balance for unsecured loans and credit cards as the monthly payment. Right now some are and some are not.
- Clients that have multiple properties or want to keep their existing home as a rental, to purchase another property are increasingly having a difficult time for various different qualification reasons. (rental offsets or rent added to income, secured lines used for down payment etc.)
Bottom line: Buyers that are close to the limits of the lending guidelines may no longer qualify. Many of them are self employed buyers but even the first time home buyer with a little bit of credit debt are having trouble. It is important that a buyer’s application is presented properly to the right lender and the right insurer the first time.
The Mortgages are Marvellous Advantage
Why not take advantage of the skills, years of experience, and non-biased advice of a professional, dedicated, top- broker with top-tier access to a variety of lending institutions for your buyers?
We fully pre-qualify your buyers before you go shopping: Your pre-approval is fully underwritten by a past senior bank employee. Income, down payment and credit information are in the file upfront and any wrinkles are ironed out before putting in an offer.
Mark Herman; AMP, B. Comm., CAM, MBA- Finance www.MarkHerman.ca
Katie McDowell ; Broker of Record
WINNER: #1 Franchise for Funded $ Mortgage Volume at Mortgage Alliance Canada, 2013
Mortgage Alliance w Mobile: 403-681-4376 w Secure e-Fax: 1-866-823-1279
Has the US housing market hit bottom?
This is a copy of the blog from Boris – the president of MERIX bank – a broker bank we love and deal with often. It is worth pasting all of it here AND it is good news!
Article written by Boris Bozic on the 17 Jul 2012 in Current Events
I’m referring to the real estate market in the U.S. There have been some signs that real estate market may have reached the point where you can actually see the bottom. Interesting to note that new home construction is up in many regions of the U.S. Drive through parts of Florida and you’ll be surprised by the number of new homes being built. Another sign is the number of pending sales just recently reported. On a year over year basis, pending sales were up 14.5% in the West, 22.1% in the Midwest, 19.8% in the Northeast and 11.9% in the south. Another sign that real estate market is getting better is due to increased foreclosures.
As odd as that made sound, a real recovery of the real estate market in the U.S. will only happen when financial institutions finally deal with the backlog of foreclosures. Recent reports indicate the U.S. financial institutions are taking action against more delinquent home owners. Statistics indicated that foreclosure proceedings increased by 6% in the second quarter as compared to the precious year. That’s the first increase since 2009. How is that possible? Simple, banks chose to do nothing. If the borrower didn’t approach the bank and request a loan modification or approval of a short sale, the banks were free to act at their own pace. I suspect their motivation to deal with these issues had nothing to do with any kind of empathy for the home owner. It was more to do with flooding the market with more distressed properties which ultimately would drive the prices down even further. The shadow inventory is a subject that all stakeholders wanted to set aside and deal with it in a mushroom growing fashion. Clearly something has changed, and the banks now feel that the market can absorb the additional foreclosures. This could have further impact on home prices in the short term but many analysts are predicting the drop could be as little as 1%. Here’s another stat I found to be both encouraging and staggering. At of the end of the 2012 first quarter, approximately 11.4 million homes or 23.7% of all homes with a mortgage in the U.S. were under water, negative equity. On a quarter over quarter comparison it was 12.1 million homes or 25.2%.
There’s no doubt that U.S. real estate market has a long way to go before anyone would suggest that it’s a “normal” market. Until they (the politicians, Federal Reserve, regulators etc.,) deal with the real estate issue there will be no full economic recovery. Put aside the markets and consumer spending because the real estate market is the 800 pound gorilla. The real unemployment rate in the U.S is just over 14%, the 8.2% reported unemployment rate is manipulated data and reported by Obama sycophants, and will not come down until there’s marked improvement in the real estate market. As soon as that has happened, the better it is for us. We love it when Americans are working because they love to spend, and we have stuff we would love to sell them. Recently, given the value of the Canadian dollar, we been purchasing more in the U.S., like their homes. If you’re thinking of buying a second home in the U.S., this might be the bottom.
Until next time,
Cheers.
More problems with collateral mortgages
Here is more bad news on collateral mortgages.
People refuse to sign a 3 year cell phone contract but then for some reason have no problem in losing every single thing you have ever made and be sued into bankruptcy by your bank for taking one of these mortgages. Again, we do not offer them but TD, Scotia, ING, and RBC have them as STANDARD. I would rather take a new 3 year cell phone contract!
Beware the pitfals of collateral mortgages
By Mark Weisleder | Sat Jul 30 2011
When you apply for a mortgage, you usually just ask about the term, amount, interest rate and monthly payment. Not many people understand the difference between a conventional mortgage and a collateral mortgage. Yet many banks are now asking borrowers to sign collateral mortgages — and it could result in them being tied to this bank, for life.
With a normal conventional mortgage you bargain for a set amount, rate and amortization. Say the property is worth $250,000 — you bargain for a $200,000 loan, at 3.5 per cent, a five-year term/25-year amortization, payments of $998.54 per month.
A conventional mortgage is registered against the property for $200,000. If all the payments are made on time, the mortgage is renewed on the same terms every five years and no prepayments are made, the balance is zero after 25 years.
Should another lender decide to lend you money as a second mortgage, there is nothing stopping them from doing so, subject to their own guidelines. Under normal circumstances the principal balance on a conventional mortgage goes only one way, down. In addition, banks will accept “transfers” of conventional mortgages from other banks, at little or no cost to the consumer.
A collateral mortgage has as its primary security a promissory note or loan agreement and as “backup,” a collateral security, being a mortgage against your property. The difference is that, in most cases, the mortgage will be for 125 per cent of the value of the property. In our example, the mortgage registered will be for $312,500. But you will only receive $200,000. The loan agreement will indicate the actual amount of the loan, interest rate and monthly payments.
The collateral mortgage may indicate an interest rate of prime plus 5-10 per cent. This will permit you to go back to this same bank and borrow more money from time to time, without having to register new security. The lender will offer you a closing service, to register the mortgage against your property, at fees that will be cheaper than what a lawyer would charge you. Sounds good so far, doesn’t it?
However, this collateral loan agreement has different consequences, which are usually not explained to the borrower.
• Most banks will not accept “transfers” of collateral mortgages from other banks, so the consumer is forced to pay discharge fees to get out of one mortgage and additional fees to register a new mortgage if they move to a new lender. Thus the bank is able to tie you to them for all your lending needs indefinitely because it will cost you too much to move.
• Lenders may be able to use the collateral mortgage to offset any other unpaid debts you have. Offset is a right under Canadian law that says a lender may be able to seize equity you have in your home, over and above the mortgage balance, to pay, for example, a credit-card balance, a car loan, or any loan you may have co-signed that is in default with the same lender. In essence any loans you may have with that lender may be secured by the collateral mortgage. Nobody goes into a mortgage thinking about default, but “stuff” happens in people’s lives and 25 years is a long time.
• Let’s say your house value is $200,000. A collateral first mortgage registered on the property is $250,000. The amount owing on the mortgage is $150,000. If you were to need an additional $20,000, but the lender declines to lend it for any reason, then practically speaking you won’t be able to approach any other lender. They will not go behind a $250,000 mortgage. Your only way out would be to pay any prepayment penalty to get out of the first mortgage and pay any additional costs to get a new mortgage.
• Let’s say your mortgage is in good standing but you default under a credit line with the same bank. The bank could in most cases still start default proceedings under your mortgage, meaning you could lose the house.
• Some lenders are offering collateral mortgages in a “negative option billing” manner. Unless you are informed enough to say you want a conventional mortgage, you will be asked to sign documents for a collateral mortgage.
I spoke with David O’Gorman, the president and principal mortgage broker with MortgageLand Inc. He tells me it is his duty under the law to ensure the “suitability” of any mortgage he arranges for a consumer.
He would be hard pressed to justify the recommendation of this type of collateral first mortgage to any consumer, without disclosing both verbally and in writing the points listed above, and he believes the consumer should have their own lawyer review everything before they sign.
Lending money to people without proper explanation of the consequences is wrong. The banking regulators need to look into this practice and stop it. In the meantime, do not sign any mortgage document without discussing it first with your own lawyer.
ING now has the evil & dirty collateral mortgage – like TD and RBC
Also see the article from earlier this year about TD and RBC offering the collateral mortgage – which is an “IOU” for every single $ you have. (http://blog.markherman.ca/2011/05/09/why-you-do-not-want-a-collateral-mortgage-from-td-or-rbc/ ) Essentially YOU give them the right to sue YOU into bankruptcy if they need to repo your house. All other standard mortgages in Alberta only allow the bank to take the house back. Another reason to use a broker that knows what they are doing. Do you really want to put it all on the line for no reason?
ING Direct goes collateral charge
ING Direct will move this month to register all new mortgages as collateral charge, following on the heels of TD and other lenders.
The change is set to take effect on Dec. 10, 2011, with the bank to make a formal announcement to the broker channel later this week.