Canada gets high score on quality of life index
Les Bazso/Postmedia News
Canada scored at or near the top in such areas as housing, education, health and life satisfaction, among 34 major industrialized countries.
By Peter O’Neil, Postmedia News Europe Correspondent
PARIS — Canadians have a “better life” than anyone in the western world except — by a narrow margin — Australians, according to a new analysis released Tuesday.
Canada scored at or near the top in such areas as housing, education, health and life satisfaction, among 34 major industrialized countries.
Sweden ranked third among the members of the Organization for Economic Cooperation and Development; the U.S. was seventh; and Turkey was a distant last.
The Better Life Initiative survey marked a major attempt by the Paris-based OECD, an economic and social policy think-tank funded by its members, to provide a broader measure of a country’s success than gross domestic product figures.
“People around the world have wanted to go beyond GDP for some time,” OECD Secretary General Angel Gurria said in a statement.
“This index is designed for them. It has extraordinary potential to help us deliver better policies for better lives.”
The index compares the 34 countries in 11 areas — housing, income, jobs, community, education, environment, governance, health, life satisfaction, safety and work-life balance.
Canada ranked first in terms of access to affordable housing, second on “life satisfaction,” and third on three categories — safety, health and education.
Canada’s worst score was in the area of governance, where it was near the middle of the pack.
While 67% of Canadians trust their political institutions, well above the OECD average of 56%, voter turnout in national elections was around 60% — well below the 72% average.
The report, in a commentary on government transparency, noted that Canadians can’t use the Internet or telephone to get information under Canada’s access-to-information laws.
“In addition, there are no provisions for anonymity or protection from retaliation.”
In its breakout analysis for Canada, the OECD tossed in a poll result from 2008 that wasn’t considered in Canada’s overall ranking but may, according to an official, help explain why many in the country have “better lives.”
Roughly two-thirds of Canadians, or 66%, “reported having helped a stranger in the last month, the highest figure in the OECD” and well above the average of 46%.
Posted in: Canada, Posted Tags: Canada quality of life, OECD, OECD quality of life index, Quality of life
Five steps to scoring a mortgage
This is a great general article on how to get ready to qualify for a mortgage. There are also great reports on the economy and why buying now is a good idea
by: Amy Fontinelle Investopedia.com
A variety of factors can keep you from qualifying for a mortgage. The big ones include a low credit score, insufficient income for the size of the loan you want, insufficient down payment and excessive debt. All of these factors are within your control, however. Let’s take a look at your options for overcoming any liabilities you may have as a borrower
1. Repair Your Credit and Increase Your Score
To lenders, your credit score represents the likelihood that you will make your mortgage payments in full and on time every month. Therefore, with most loans, the lower your credit score, the higher your interest rate will be to compensate for the increased risk of lending you money. If your credit score is below 620, you will be considered subprime and will have difficulty getting a loan at all, let alone one with favourable terms. On the other hand, if you have a credit score above 800, you’ll easily be able to get the best interest rate available (also known as the par rate). (Find out how your borrowing activities affect your credit rating in The Importance Of Your Credit Rating.)
Measures you can take to improve your credit score relatively quickly include paying down revolving consumer debts, such as credit cards or auto loans, using your debit card instead of your credit cards for future purchases, paying your bills on time every month and correcting any errors on your credit report. However, some flaws, like seriously late payments, collections, charge-offs, bankruptcy and foreclosure, will only be healed with time. (Read How To Dispute Errors On Your Credit Report to find out how to address reporting mistakes.)
In addition to managing your existing credit responsibly, don’t open any new credit accounts. Applying for new credit temporarily lowers your credit score, and having too much available credit is also considered a warning sign. Lenders may be afraid that if you have a lot of available credit, you’ll take advantage of it one day and adversely affect your ability to make your mortgage payments. (For more tips and techniques to help you rebuild your ruined credit rating, read Five Keys To Unlocking A Better Credit Score.)
2. Get a Higher-Paying Job
If lenders say your income isn’t high enough, ask them (or your mortgage broker) how much more you need to earn to qualify for the loan amount you want. Then try to find a new job in your existing line of work where you’ll be able to earn that much money.
Because lenders like to see a steady employment history, you’ll have to stay in the same line of work for this strategy to be successful. This can be disappointing news for borrowers, as switching professions entirely might offer the best chances for a salary increase. However, switching companies can also be a good way to get a significant boost in income. Significant raises from existing employers aren’t that common, but a new employer knows he’ll have to offer something special to get you to make the switch. (Read Negotiating For Employment Perks for tips on reaching an agreement with your boss.)
If switching companies right now won’t be enough to get the raise you need, think about things you can do relatively quickly to make yourself more valuable to employers. Is there a continuing education program that you could complete? If you’re a legal secretary, could you become a paralegal? If you’re a receptionist, could you become a secretary? A career counselor or headhunter might be able to give you some guidance specific to your situation about how to improve your marketability and how to reach your income goals. (Read Six Steps To Successfully Switching Financial Careers to learn how to make adjustments without starting over.)
Unfortunately, getting a part-time job on top of your full-time job may not provide what lenders consider qualifying income. The part-time job may be viewed as temporary, and since it will probably take you at least 15 years to pay off your mortgage, lenders are looking for you to have long-term income stability. (Increase Your Disposable Income gives you ideas on how to make more money now, which can make a big difference down the line.)
3. Save Like Crazy
The larger your down payment, the smaller the loan you’ll need. In addition, the lower your loan-to-value ratio (LTV ratio), the less risky lenders will consider you. Both of these factors will make you more likely to qualify for a loan. Be aware that you may have to reach a certain down payment threshold, like 10 per cent or 20 per cent (with 20 per cent being the most conventional), before a larger down payment will help you qualify for a loan. (Learn more in Mortgages: How Much Can You Afford?)
4. Don’t Pay More Than the Bank’s Appraised Value
The bank will not want to lend more than the house is worth because they could be on the losing end of the deal, should you foreclose and owe more than the bank could get for it. A 20 per cent down payment also becomes much less valuable if the house is worth 20 per cent less than the purchase price. Collateral value is important to lenders, so it should be kept in mind when making an offer to purchase a property. (Read 10 Tips For Getting A Fair Price On A Home and learn how to make sure your house is worth the price you pay.)
5. Reduce Your Debt
To a lender, what constitutes excessive debt is not a set number – it’s a total monthly debt payment that is too high for you to be able to afford the monthly mortgage payment you’re asking for. When deciding how much loan you qualify for, lenders will look at what’s called the front-end ratio, or the percentage of your gross monthly income that will be taken up by your house payment (principal, interest, property tax and homeowners insurance), and the back-end ratio, or the percentage of your gross monthly income that will be taken up by the house payment plus your other monthly obligations, such as student loans, credit cards and car payments.
The more debt you’re required to pay off each month, whether it’s “good debt” like a student loan or “bad debt” like a high-interest credit card, the lower the monthly housing payment lenders will decide you can afford, and the lower the purchase price you’ll be able to afford. Decreasing your debt is one of the fastest and most effective ways to increase the size of loan you’re eligible for. (Learn what to watch for before you find yourself drowning in debt in Five Signs That You’re Living Beyond Your Means.)
Playing to Win
Qualifying for a mortgage isn’t always easy. Lenders require all applicants to meet certain financial tests and guidelines and allow a limited amount of flexibility within those rules. If you want to score a mortgage, you’ll have to learn how to play the game, and you’re likely to win if you take the steps outlined here http://www.theglobeandmail.com/globe-investor/personal-finance/mortgages/five-steps-to-scoring-a-mortgage/article1925218/page2/
Why you do not want a collateral mortgage from TD or RBC
Broker: Clients now suffering collateral damage from collateral mortgages
I have had to say “sorry, we can not help you” to clients with collateral mortgages more than ever in the last year. TD and RBC offer them and here is the bad news about what they mean below.
Short version is: they are not normal mortgages as you promise everything you have to pay them back so they could force you into bankruptcy AND other banks will not let you move into one of their mortgages from one of these so you have to pay legal and possibly appraisal fees again. These added costs usually make it uneconomic to get out of one of these mortgages and move to a different bank for better rates.
Broker fears that growth in collateral mortgages could darken their business horizons have come true, said one broker, pointing to his own impaired capacity to service clients.
“We’re saying ‘no’ more often now than we did in the past, and I can think of no less than six people since last year that we’ve simply had to turn away because there was nothing we could do for them,” David O’Gorman, broker/owner of MortgageLand Inc. in Markham, Ont., told MortgageBrokerNews.ca. “It’s because they’ve signed up for a collateral mortgage with the banks, and have pledged all their equity to that bank. It makes it all but impossible for a second lender to come behind and provide a second mortgage or refinancing or even for a homeowner to switch lenders at renewal.”
Last fall, O’Gorman and other brokers raised the specter of a loss of business stemming from collateral mortgages when one of the major banks announced all new home loans would be secured by promissory note and backed by collateral – usually a first or second lien on the property. That supporting charge can be for as much as 125 per cent of the value, although, doesn’t, in fact, mean the borrower will have access to all those funds.
The collateral charges allow lenders to switch up the interest rate on a loan and lend more money to qualified borrowers after closing, without the client incurring additional legal costs. There is, however, a downside: they also limit the borrower’s ability to shop around for a new lender at renewal or to win refinance or to take out a second mortgage at another institution.
Most mono-lines and banks – as well as the private lenders O’Gorman deals with – refuse to accept the transfer of collateral mortgages, forcing homeowners to pay additional fees to register a new conventional or collateral mortgage in order to move the loan from the lending institution.
The consequences for homeowners are tremendous, said O’Gorman, who wrote to Federal Finance Minister Jim Flaherty last November, outlining his concerns. He also challenged the motives of the bank industry, now prepared to extend its collateral mortgage portfolio.
“Lending money to people, with ‘different to the norm’ conditions and increasing the borrower’s exposure to significant loss, all the while flogging a cheap closing service, enticing the borrower to go without the opportunity of having an independent legal opinion of the documents they are signing, just plain stinks,” he wrote in the two-page letter. “We will have to wait awhile for a decision by a judge crushing the ‘one-sidedness’ of these contracts. In the meantime a significant number of consumers will make ill-informed decisions, unless consumers and/or bank regulators take action.”
A policy advisor for Flaherty did contact O’Gorman for a brief discussion, although the broker doubts the matter will move beyond that initial outreach. He’s more certain about potential negatives for the broker channel as banks continue to shift to collateral mortgages, used to help them retain clients for the full life of the mortgage and not just the first five-year term.
“This is all going to end when mortgage brokers are all working for the banks and they’ve eaten up all the business,” he told MortgageBrokerNews.ca, echoing the sentiments of more than 30 comments posted on the site last fall. “I’ll still make a living, but I’m also concerned about making sure that people are treated fairly.”
Why I paid $10,000 to break my mortgage
Below is a great article about why paying the payout penalty can be worth it for you. We always do the math for you to ensure that it is a better deal AND we also include any other costs in that math – like an appraisal and legal costs – lots of other brokers do not. Ensure ALL the costs are included in the math before making the change.
Want to ensure it is worth it – give us a call for a free 5-minute mortgage checkup at 403-681-4376.
Tara Walton/Toronto Star By Bryan Borzykowski |
Last September, my wife and I started scouring the city for a new house. We were living in a cozy bungalow, but with a growing kid and another on the way, we decided it was time to move.
Buying a new house is, of course, expensive, so I wanted to do whatever it took to reduce my costs. Most of the fees couldn’t be avoided, but there was one costly payment I desperately wanted to steer clear from: The mortgage penalty charge.
I had just over 12 months left on my five-year mortgage term, which meant that I either had to break my mortgage or stay with my current lender by transferring my mortgage to my new house. The latter option would have allowed me to avoid the fee. However, my lender couldn’t give me the best interest rate.
The new lender, a bank, was offering a variable rate of 2.25 per cent, a much lower rate than my old lender was willing to offer. I calculated that over the term I’d be better off paying the fee and taking the lower rate.
It was going to cost me $10,000 to break my contract. It felt like an unnecessary cost — I paid my lender so much in interest over the four years, why would I have to cough up so much cash?
I asked my broker to see if the lender would waive the fee, even though I was using a new lender for my next house, but they didn’t. Peter Veselinovich, vice-president of banking and mortgage operations at Investors Group, isn’t surprised. “The charge isn’t negotiable,” he says.
While the penalty may seem like an arbitrary sum, it’s not a cash-grab, he says.
The lender takes mortgage funds from money invested in GICs and other products and then it pays investors interest on those investments.
The idea is to match a five-year mortgage with a five-year GIC, so investors can get paid back at the same time as the mortgage comes due.
If a mortgage is broken, the lender needs to come up with money to fill the gap between the investment coming due and the mortgage ending. Hence the fee. The lender then takes that lump sum and invests it, so it can pay investors back when its GIC comes due.
The penalty is calculated two ways: you either pay 90 days of interest or what’s called an interest-rate differential, which is a penalty based on your old rate and a new rate based on a shorter term.
For example, let’s say you wanted to exit your 5 per cent five-year term with three years left to go. The lender would look at the current three-year term rate, which, say, is 3 per cent, and then charge you interest on the difference, 2 per cent, for 36 months. The sum also depends on how much money you still owe the bank.
However it’s calculated, the payment can be huge.
Darick Battaglia, a mortgage broker and owner of Dominion Lending Centres’ Barrie location, says that while it may seem as though people have to empty their bank account to pay the penalty, ultimately, by paying the lower rate, they’re getting that money back in mortgage savings.
Whether you’re moving houses, or just want to break a mortgage to take advantage of a lower interest rate, people often pay the penalty so they can free up more disposable income.
“It can help people get into a better financial position, because they have more disposable income,” says Battaglia. “They may find that it’s better to invest that money in an RRSP.”
If you’re moving, there are strategies to help reduce the penalty or even not pay it at all.
Almost all mortgages allow people to put a certain percentage of money down on a house every year; I was allowed to pay 20 per cent of my balance every 12 months.
In some cases, lenders will allow you to designate the first 20 per cent — it could be less or more depending on your lender — of the proceeds of a sale of a house towards the prepayment in order to pay down the outstanding balance and so reduce the mortgage penalty.
Battaglia has dealt with many lenders who refuse to honor this type of arrangement. They want two checks: one for the prepayment and one to pay off the mortgage.
My own lender refused to let me make one payment; I had to borrow money from my broker, who paid my prepayment three days before closing. I had to pay him back with some of the proceeds of the sale. It was a major hassle. But I did save about $1,500.
Porting a mortgage to a new house is another way to avoid the fee.
Let’s say you have $100,000 left on a mortgage with a 4 per cent rate, but you need $200,000 more for the new house. The bank will give you the additional money at the new rate, which could be 3 per cent. You’d keep the same term or extend it and now you’d pay a blended rate, in this case 3.5 per cent on $300,000.
“There are no penalty costs, because you’re still honouring the original contract,” says Veselinovich.
Most people will have to open their wallet when they break a mortgage.
While I did get my penalty reduced by making a prepayment before closing, I still had to write a cheque for about $8,000. It was painful at the time, but now that I’m in my new house, paying a new mortgage at a much lower rate, I don’t think about the penalty anymore.
Coming soon: higher interest rates
- refinance – or re-do your mortgage – and get today’s rates for another 5 years,
- roll in some higher interest payments – like LOC -Line of Credit or credit cards or,
- buy your first home before rates go up or,
- finally get that summer/ ski vacation cabin.
Call for a free 5-minute mortgage check-up while there is still time. (That may be 2 or 3 weeks from now as the bond market will smell this coming inflation pretty quickly.)
Let’s start with a little tutorial (no, please keep reading, it will be brief) and then we’ll talk about why this week’s economic data changes everything, more or less.
The Bank of Canada sets the benchmark overnight rate (the rate at which banks lend to each other). That in turn affects market interest rates on everything from mortgages through to business loans. At present, the overnight rate is at 1 percent, following three hikes of 25 basis points each last year.
The tutorial is on the ‘output gap’ which is one of the major tools that the Bank of Canada looks at to set monetary policy. Here goes.
The ‘output gap’ refers to the difference between the actual output of the economy and the potential output. Potential output basically refers to the maximum that could be produced if all inputs (like the labour force, technology, capital, factory space and all that) were used to the fullest extent that they can be without triggering inflation. That last little bit is key: when the bank says ‘potential’ they don’t mean full potential, they mean ‘potential without forcing prices higher’. It is a similar concept to what economists mean when they say ‘full employment’. In that case it does not mean everyone working, it means everyone working that can be working without wages being forced higher.
The Bank of Canada monitors the output gap as best they can, first by estimating what potential output is in any period of time, then estimating how close to potential the economy looks to be. A positive output gap means the economy is operating above potential, and that inflation is a risk. A negative gap means there is excess supply (for example, too many unemployed workers) and that inflation is not a risk, or at the extreme, that deflation is possible.
The Bank of Canada adjusts policy to try to get keep things in balance and the output gap closed – sort of a ‘not too hot, not too cold’ thing. Based on their most recent calculations, their latest estimate (which was contained in last week’s Monetary Policy Review) was that the output gap would close by the middle of 2012.
Everybody still with me? Good. Here’s the thing: as well as looking at the output gap itself, the Bank also looks at a bunch of economic indicators to see how close to capacity the Canadian economy is running. Things like industrial production, the unemployment rate, unfilled manufacturing orders – and inflation.
That last one is probably the most important, and it is the one that seems to be running most out of sync with where the Bank of Canada thought it would be. In the Monetary Policy Report, the Bank said that the overall inflation rate (which they target to be 1 to 3 percent) would peak at 3 percent in the second quarter. This week, we got the March inflation report, and we find out that the inflation rate was 3.3 percent as of March – which is decisively in the first quarter. Ouch.
So what does this mean? It means something has to change to keep the Canadian economy from overheating. That something is likely to be Canadian interest rates, and when I say ‘change’ I mean ‘go higher’.
If rates do not go higher, then the output gap is at risk of going into positive territory, which means inflation takes off even more. No way is the Bank of Canada going to let that happen.
There are other things to take into account too – the spiky Canadian dollar is an important one – but it does not take away from the big picture.
Big picture? A rate hike by July, and maybe more to come after that. And yes, watch the loonie soar in the meantime.
Bank “mortgage specialist” tells lies about mortgage brokers
Below is the short version of a mortgage broker insider tsunami. A RBC mortgage specialist wrote and handed out a sheet of complete lies about how mortgage brokers work and what we do. She, and RBC, are in a very tight spot as we all knew that non-brokers spread lies as their only way to compete.
The best way to sum up what we really think is this reply taken from the internal comment board of the Canadian Mortgage Broker website:
ExRBC Mortgage Specialist on 19 Apr 2011 11:41 PM
Most so called RBC mortgage specialists have little in the way of any credit training, if any. They usually come from the ranks of side counter staff who are well known for their lack of knowledge. RBC Mortgage specialists have no ongoing training requirements unlike the AMP’s, and they certainly have no Ethical training.
There is an old saying in sales:”Only show what you know”. In this case (she) shows that she knows next to nothing about credit, her market or her competition.
She might as well have said: “If you want the best rate , go to a broker.”
I see this a great platform for mortgage professionals to have excellent conversations with clients and referral sources about the difference between us and the bank! There is no doubt about the advantages of using a broker, and I welcome this opportunity to talk about it!
RBC to brokers: We apologize
By Vernon Clement Jones | 19/04/2011 9:36:00 AM | 31 comments
With multiple statements, RBC moved to distance itself from the controversial flyer of one of its mobile mortgage specialists – apologizing for its unflattering and inaccurate depiction of brokers.
Occupied downtown Calgary office space at 2008 level
This is great news for the housing market as all those workers are moving into Calgary and will need places to live. There are details of the increasing need for housing in my free reports and most of these people will need a Calgary mortgage broker.
Large blocks of space short in supply
CALGARY — Occupied office space in downtown Calgary has surpassed the level reached during the height of the real estate market in the second quarter of 2008.
A report by Colliers International says that occupied space has reached 33.7 million square feet in the first quarter of this year.
The overall vacancy rate declined one percentage point to 10.92 per cent which equated to about 393,000 square feet of positive absorption in the first three months of 2011.
“Much like in the latter half of 2010, oilsands companies continued to grow, with numerous new projects on the horizon creating additional office space requirements,” said the report. “Most of the activity can be attributed to the strong oil prices and resultant higher levels of activity in the sector.”
The recently-completed Eighth Avenue Place office tower absorbed 50,000 square feet last quarter. It is currently 88 per cent leased.
Development of the 49-storey, 1.1 million-square-foot EAP began totally on speculation with no leasing deals in place.
“With oil trading above $100 a barrel, leasing activity in the Calgary downtown office market is expected to remain strong throughout 2011,” said Colliers. “As more companies take on additional projects, the highly active oil sector will continue to recapture most of the jobs lost during the recessionary period.
“As employment increases, vacancy numbers will continue to decline. Good quality space is leasing quickly in the current market, as shown by the strong absorption numbers for the upper classes of office buildings … Large contiguous blocks of vacancy in all classes of buildings have become short in supply.”
Meanwhile, the Calgary Board of Education has officially put the downtown Education Centre building up for sale. The building at 515 Macleod Trail S.E. has been put for sale by public tender with a minimum bid price of $40 million.
The five-storey building is close to 91,000 square feet on 1.08 hectares of land.
“The final bid and sale price will ultimately be determined by prevailing market conditions,” said the CBE.
The board said the Armengol sculptures, commonly known as the Family of Man statues, are not within the scope of the sale. The future of the sculptures will be determined by the City of Calgary, the sculpture’s owners.
The offer for sale by tender will expire May 4.
The CBE said the building will be vacant by June this year as staff moves into the new Education Centre at 1221 8th St. S.W.
© Copyright (c) The Calgary Herald
The ‘thrill’ of buying a house
You walk into the open house, take one look and say to yourself: This is it. It’s the house I have to live in. Where do I pay? A bidding war? I’m in.
Over my years of buying houses, I never bought one that did not have that frisson moment, that thrill of finding a place so suited to my wants. Indeed, I have in the past decided that I wanted to buy a house in what seems, in retrospect, to be nanoseconds. (By contrast, I’ve taken weeks to decide on the right pair of shoes.)
It is no way to make an “investment,” to be sure. But, as I’ve previously discussed in this space, buying a house is perhaps the most uninvestment-like of investments.
Just about anyone who’s purchased a property or thought about purchasing knows that it is much about gut-feel, in which the senses can conspire to trump sense.
Now, as the major real estate selling season gets under way, along comes a survey commissioned by BMO Bank of Montreal to give statistical weight to the notion that intuition carries a particularly heavy weight in the house-buying process.
The survey by Leger Marketing found that more than two-thirds of Canadians cited a “good feeling” toward the property as a reason to buy. Meantime, though, good sense is not thrown out of that gorgeous bay window and into those manicured flower beds. More than 90% of house-hunters value affordability and location over resale value.
So, the axiom that there are three important things in real estate – location, location and location – might reasonably be replaced by the Three Ps: Price, place and personality.
Nevertheless, that resale value is not a big concern to these surveyed house-hunters – people between 25 and 45 who plan to buy a home within two years – is a telling sign of the real estate times.
With some dips here and there, Canadian house prices have been rising strongly for more than a decade. Indeed, even the recession created just a downward blip in the chart of ever-growing values, with the average national price rising 8.9% last month from the previous March (but just 4.3% excluding Vancouver).
As a result, most of the house-hunters surveyed might never have been aware of a housing market that was not rising. I suspect many in this 25-to-45 demographic believe house prices basically keep going up forever, that though they downplay resale value in the survey, the expectation for solid gains is, well, a given. (Any significant drop in prices would surely shake that belief.)
In recent times, investors have been asked if they are stocks or bonds. If you’re a stock, you are prepared to take on more investment risk. If you’re a bond, you are not.
Perhaps, though, many people are probably houses when it comes to investing. A home is both partly a stock and a bond – and somehow neither.
It is a bond because over the long term it will likely produce modest returns through the enforced savings required by paying down the mortgage. It is a stock because the gains could be outsized if the investor were to buy and sell at propitious entry and exit points for market-timing gains.
And it is neither because it is an “investment” with many moving parts and frictional costs. You don’t live in a stock or a bond, but when the house leaks, it costs money and cuts into the investment. Meantime, the costs associated with buying and selling a property are becoming more daunting in many jurisdictions, with some observers reckoning that a house is often a mediocre investment at best.
But most young first-time buyers and mover-uppers are not fazed by such commentary. Home ownership is a cornerstone of our culture, with 70% of the population owning properties and many of the other 30% looking to join the majority.
And the real estate industry has become far more adept at marketing and selling than in the days decades ago when I was in the market. Today, houses are often professionally “staged” to produce that frisson moment. Prices are sometimes set artificially low to produce that exciting bidding war and that extra frisson of “winning.”
A house, it is said, is not a home. And a home is not strictly an investment. But does a stock have granite counters? Does a bond have stainless steel appliances?
Financial Post
Experts best at brokering mortgage
Denise Deveau, Postmedia News · Mar. 30, 2011 | Last Updated: Mar. 30, 2011 4:04 AM ET
Cheryl Hutton and Aaron Coates always thought getting a mortgage would be a challenge. But within 18 days of visiting a mortgage broker, they were able to close a deal on a new townhouse in Calgary without a hitch.
Now in their early thirties, both have careers in the theatre, something Ms. Hutton says has been a bit of a sticking point with banks. “In our industry we never fit the paperwork guidelines ‘for the banks.’ For some reason, people don’t think we pay our bills.”
Although it was their first home purchase, Ms. Hutton says it was surprising how easy the whole process was once they had someone who could walk them through it. “He sat us down, told us what our options were, showed us that it was possible and explained all the steps we needed to take. If it wasn’t for him, we may not have made the leap.”
Sorting through a mortgage process and negotiating rates can be overwhelming for firsttime and seasoned home buyers alike. That’s why people such as Ms. Hutton and Mr. Coates turn to brokers to do the legwork for them.
Yet mortgage brokers will tell you that a good portion of home buyers out there don’t really understand what they do. “Part of the challenge we have in our world is that people aren’t really sure what a mortgage broker is,” says Gary Siegle, regional manager for Invis Inc., a mortgage brokerage firm in Calgary.
Brokers should not be confused with “rovers,” mortgage specialists attached to a specific financial institution who visit customers outside of banking hours, Mr. Siegle explains.
“They only deal with that bank’s product. A broker, however, is an intermediary whose job is to make a match between a lender and a borrower. We represent the individual, not the bank.”
About 30% of mortgages in Canada are done through a broker, according to Perry Quinton, vicepresident, marketing, for Investor Education Fund, a Toronto-based non-profit financial information service.
“The reason more people don’t know about them is because the banks are so visible. It’s easy to gravitate to them when you have your savings accounts, credit cards and investments there already,” Ms. Quinton says.
Going for the comfort factor could cost you however, she adds. “A broker has access to different lenders including banks, and can shop rates and features. A halfper-cent may not sound like much but that could make a difference of about $20,000 for a $250,000 mortgage amortized over 25 years. Any little bit helps.”
Mr. Siegle confirms that shopping around can deliver significant savings.
“Let’s take today’s average posted rate of 5.44%, and you get a point off that at your bank. So you think you just got a really great deal. But the vast majority of rates we deal with as brokers would be another 30 basis points lower -around 4.14%. And if you look at preferred deals that don’t offer features such as prepayment privileges, it can get as low as 3.89%. That’s another 25 basis points below what’s generally available.”
The reason for that is simple, he says. “We offer wholesale rates, banks offer retail.”
For anyone considering a broker, Ms. Quinton advises people to do a bit of groundwork first if they have the time.
“It helps to educate yourself about options and what you can afford. Look at all your living expenses, including student loans and credit card debt. Chances are you are understating those.”
Another thing to look into is the different types of available mortgages and features, including interest rates, payment frequency, amortization, cash-back programs and the ability to make lump sum payments.
“Knowing these things before you go in can save you a lot of money,” she adds.
Any mortgage broker you choose should always meet the right licensing and education requirements, so be sure to check their registration.
If you’re not completely prepared, however, that shouldn’t be a concern when working with a good mortgage broker, Mr. Siegle says.
“After all, mortgages are pretty much all we do. So even if you come in cold, good brokers will walk you through the process and ask all sorts of questions,” Mr. Siegle notes.
“You just need to be prepared to answer them openly and honestly so they can get you the best deal possible.
Beware sales pitch behind banks’ advice
Remember that banks are not your friends, they want you money.
Thursday, April 07, 2011
Whatever your branch recommends, do your homework. Remember that banks are essentially sales operationsROB CARRICK
Friendly faces in a depersonalized, online world – that’s your local bank branch for you.
Branch staff are glad to talk about your financial situation, be it debt, saving or investing. They’re also eager to sell you stuff, so it’s important to know how to talk to bankers before you go in.
Online banking is flourishing in Canada, as well it should because it’s cheap and convenient. But there’s a back-to-the-branches theme to a lot of what the big banks are doing today. There are now 300 TD Canada Trust branches open Sunday. Bank of Montreal is installing free coin-counting machines in its branches to draw people in. Canadian Imperial Bank of Commerce has just begun a marketing campaign that talks up CIBC as the place to go for financial advice.
Bank branches today are much less places to cash cheques and pay bills than they are sales centres for mutual funds, mortgages and lines of credit. Just recently, CIBC said consumer lending is the main driver of its growth plans.
One way to lend more is to attract new clients, something CIBC is trying to do through its Switch campaign. The basic idea is for people who deal with other banks to come over to CIBC for what it described in a news release as “expertise, advice and innovation.”
This represents a new phase in bank strategy. It’s no longer “come into our branches for advice,” but “our branches give better advice than their branches.”
I asked people in my Facebook community (http://on.fb.me/fvo80W) how much they rely on banks for advice and the response was on the whole quite anti-bank. But there’s a point here that may have been missed. People are becoming increasingly aware that they need to cut debt and save more, but lots don’t know how to do it. Banks can help.
Go get that help if you need it, but don’t go in uninformed.
First, you have to understand that banks are essentially sales operations. We have lifelong relationships with our banks, we share private details with them and we sometimes depend on them in moments of stress or hardship. But banks place service to clients in the context of generating revenue and profit for shareholders.
You may hear the word adviser used in the branch, but that’s just a euphemism for salesperson in most cases. Some branches now include people with serious financial planning credentials such as Certified Financial Planner (CFP) or Personal Financial Planner (PFP), but even they’re subject to work rules that suggest it’s all about the sale, not the advice.
Beware of bank products that are highly packaged rather than straightforward. Wrap products are a great example. The banks are selling these prefab bundles of mutual funds like crazy today and it’s not because they’re better than building your own portfolio by selecting individual funds. Rather, it’s because wraps often result in a higher-fee mix of funds than having a customer choose funds individually.
Bank mutual fund families include some top-notch products, so don’t dismiss them. But be wary if you notice a conversation with your banker turning into a sales pitch to buy in-house funds. Be aware that you can open up an account with your bank’s online brokerage division and buy any company’s mutual funds, as well as lower-cost exchange-traded funds, stocks, bonds and term deposits with higher rates from other banks.
Whatever your bank recommends you buy or do, ask for hard numbers to document any advantage to you. Then, ask to have the same analysis applied to alternative approaches. When you’re done talking, go home and do your own research. Be sure the rates your bank is offering for both savings and borrowing are competitive.
Why see a bank at all for help with financial matters? One reason, frankly, is that going to a bank for advice is better than living in a state of uncertainty and inaction. Yes, it would be ideal if everyone who wanted advice used an independent financial planner or investment adviser, but that’s just not happening. If the familiarity of a bank branch makes someone comfortable enough to ask for help, so be it.
It’s also worth noting that the best way for banks to sell products is to keep customers and build relationships. Self-interested sales pitches disguised as advice are relationship killers.
***
TALKING TO BANKS
Tips for those seeking financial help from their bank:
1. Receiving advice of any sort does not mean you have to settle for less than ideal rates on borrowing and saving products.
2. Use the vast resources of the Internet to double-check the rates and advice your bank offers.
3. If it’s all about buying the bank’s mutual funds, flee (unless you specifically came in to buy funds).
4. Get in writing whatever your bank is offering you.
5. Be open-minded enough to recognize that you can get good advice from a banker.