How the Big-5 Banks Trap You in Their Mortgages

Yes, the Big-5 banks do not love you, they love your money.
Now they can “trap” you in their mortgages with the Stress Test to get more of your money that they love!
Highlights of the article below show how 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:
  • 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.
AND 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 … 5.39%, not actual discounted rates they offer everyone, today about 3.69%.
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 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:

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.

My bank REALLY REALLY REALLY wants my mortgage! Really?

Does your bank really, really, really want your mortgage that badly?

Do you know why?

NOT because they make lots of money on mortgages.

NOT because the bank rep needs to fill their mortgage quota this month (this happens too.)

BECAUSE the banks have studies that if they can get you to have 3 or more products with them, your odds of leaving to go to another bank fall by 75%.

This means 2 things:

  1. If they can get you to have the mortgage in addition to your existing checking and savings accounts and or credit card then you will probably not leave for another bank and their cost of customer acquisition is very high.
  1. Then they can cross-sell you the products they really, really make money on:
  • LOCs – line of credits – and more credit cards both with overdraft protection and insurance for the minimum payments if you are injured or laid-off.
  • mortgage insurance – a huge profit for them as they try very hard later not to pay claims in their post-claim underwriting process
  • mutual funds
  • long distance phone plans
  • travel insurance
  • all the rest.

And 1 more VERY important thing:

Banks know that 86% of people will stay with their existing bank at mortgage renewal time. AND if you have the magic 3 products will you move your mortgage somewhere else then?

Banks expect you to chisel them down now, and when you renew they renew you at rates that are typically .25% to .75% higher than they should be. And 86% of people just sign the renewal docs and send them back. (More data from studies.)

This does NOT happen with mortgages via mortgage brokers as the banks know they have to renew you at the best possible rates or the very same broker that took the customer to that bank will be the very same broker that moves the customer to a new bank if for a better rate on renewal.

Do you want to play this game with the banks or just skip it all together?

All this advice from the top mortgage broker in Calgary Alberta, Mark Herman.

Spring Real Estate Market Underway in Edmonton

This is a GREAT article on how to look at things. Edmonton, just like Calgary, is seeing lots of in-migration which is also supporting their home prices.

Spring Real Estate Market Underway in Edmonton

Low inventory is causing rapid growth in the average price of real estate in Edmonton. The interesting thing is that the inventory is low because there are fewer new listings than we typically see at this time of year, not because of increased sales.

As you can see below, the inventory of properties for sale is significantly lower than we typically see in March. There were 4,741 properties available on the MLS® system at the end of March – down 15.4% from the same time last year.

Edmonton Real Estate Inventory

Alberta’s population expanded by 3.04% in 2012, nearly three times the national average. 46,000 Canadians move to Alberta from other provinces last year, just beneath the record levels seen in 2006, leaving many people wondering – where is our boom?

“The great mystery here is that we’ve had phenomenal employment growth, very strong income growth, very strong net in-migration, and yet it hasn’t poured over into the housing market yet,” says John Rose, chief economist for the City of Edmonton.

“These are unprecedented levels of in-migration into the province, so this (the relative stability in house prices) has kind of mystified us,” says Richard Goatcher, economic analyst with the Canadian Home Builders’ Association-Alberta.

From my perspective, there are a number reasons we are (thankfully) not seeing a repeat of 2007:

  • It’s harder to get financing than it was in 2007. Back then it seemed like the banks approved just about anything, today they are being much stingier.
  • Lack of speculation: in ’07 everyone and their brother wanted a piece of the action, and a lot of people bought properties (especially new homes) to flip… a lot of those people still own those properties 5 years later.
  • Low vacancy rate: this situation typically leads to higher sale prices, but in this case I believe it is leading to low inventory. For years now we’ve heard “if I can’t sell it for the price I want I’ll just rent it out” and I think a lot of people have their investment properties rented out to good tenants. Why sell when you’re finally making money by renting?
  • Lower consumer confidence – no matter what is happening locally, the news from Toronto, Vancouver and around the world does not encourage people to jump into the market.

Of course, as Don Campbell recently reminded us, real estate is local:

“At no other time in history has the real estate market in Canada been so regional… Alberta’s population is growing substantially, especially with that younger age cohort. They come out here to get a job and make $80,000 instead of $30,000 back home. And once they’re here, they discover Alberta is a pretty cool place to live, but it takes awhile for that to kick in, often about two years. So I’m very bullish on the direction that the market is going to be taking over the next portion of the cycle, say the next three, five or seven years.”

With all that said, we did see a significant jump in the average sale price of residential real estate in Edmonton in March. The residential average was $354,759 in March, up 4.3% from $340k last year and $343k last month. The median price did not jump as much and was $329,700 in March, up from $323k last year and $320k last month.

Edmonton Average Real Estate Price

Sales are up, but they would be up higher if there were more homes on the market. There were 1497 sales in March, up from 1480 last year and 1068 last month.

When first time buyers cannot find a house that meets their needs or are forced into a multiple offer situation, they often remain on the sidelines,” said REALTORS® Association of Edmonton President Darrell Cook. “Low interest rates and rising rental rates create the interest and desire but lack of suitable properties means they are not able to make the transition to home ownership at this time.”

Edmonton MLS® Sales

The number of new listings were significantly down from previous years – there were 2422 new listings in March compared to 2847 last year and 1995 last month.

New Listings

Calgary ranked top Canadian city in which to live

Thanks to this kind of press Calgary has a high in-migration rate. All those people moving here need to live somewhere. Rents are high and that causes people to buy, supporting home prices. High quality jobs and high employment will keep this trend going.

 City comes out on top in MoneySense magazine rating of 200 places across Canada
By Mario Toneguzzi, Calgary HeraldM

Calgary is ranked as the top city in Canada to live.

CALGARY — Calgary has overtaken Ottawa as the best place to live in Canada, according to an annual survey by MoneySense magazine in a ranking based on hard data such as employment, housing prices, crime, weather and household income.

In releasing its results of 200 Canadian cities on Wednesday, the magazine said “high incomes and an abundance of jobs fuelled by the boom in the energy sector are among the reasons it jumped from No. 14 last year to No. 1 this year.”

In addition to being the top city, it was also named the top city in which to raise kids.

Alberta has five places listed in the top 10 this year.

St. Albert is second with Strathcona County fourth, Lacombe eighth, and Lethbridge ninth.

Other top 10 places are Burlington third, Oakville fifth, Ottawa sixth, Saanich seventh, and Newmarket 10th.

In a list of the top large cities in Canada, Calgary is first followed by Ottawa and Edmonton.

In a list of top small cities in Canada, St. Albert was first followed by Strathcona County as second and Lacombe third.

How the Bank of Canada just affected your Mortgage.

This is a great article by broker in Toronto.

Wednesday, 06 March 2013 20:42

With a movement towards lower rates for a longer period of time what should you do?

This Newsletter will explain what the Bank of Canada said at this morning’s meetings and aid you in your mortgage decision making process.

The Bank of Canada and most economic indicators suggest that our economy is struggling and we need low rates and economic stimulus to support it well into the future. Whether you have a Fixed or Variable Rate Mortgage right now, or have an impending mortgage decision to make in the next 6 to 8 months reading this newsletter could really help.

There are few lines from the Bank of Canada’s meeting today that strike us as important enough to quote for you.
First off: “considerable” monetary stimulus “will likely remain appropriate for a period of time.”

This is a change from the previous Bank of Canada message, and to us signals that low rates will be the norm for a while. The Bank of Canada had been indicating that the low rates we are experiencing were to be removed in 2013. However, now there is no expected removal date.

Secondly: “With continued slack in the Canadian economy, the muted outlook for inflation, and the more constructive evolution of imbalances in the household sector, the considerable monetary policy stimulus currently in place will likely remain appropriate for a period of time, after which some modest withdrawal will likely be required,”

The outlined comments signal to us that the Bank of Canada remains comfortable with rates being as low as they are and keeping them there for some time. It should also be noted that the Bank of Canada is now less concerned with the amount of our consumer debt.
We agree that the economy is on shaky ground, and as mentioned in last month’s newsletter, Banks are looking for ways to profit from consumers in the current market. Our sound, unbiased mortgage advice based on this information:

1. Be wary of the low fixed rate mortgage offers coming from the Banks, they come with horrible penalties!
Consumers should be paying attention to the message from the Central Bank and avoiding the messages coming from the Economists writing reports from Canada’s Big Banks. The flurry of Banks rushing to offer low 5 year fixed rate mortgages can be blinding, but one must look carefully at what is being offered. Today the CBC news quoted us for an article explaining some of these low rate mortgages. We would caution prospective mortgage shoppers on some of the strategies employed by these Banks. Most importantly the penalties to break these mortgages will be enormous. Our strong distaste for such practices is a matter of record. I strongly feel that the increase of these low rates mortgage offers will only serve to trap more consumers with high penalty mortgages offered by The Big Banks. There are plenty of mortgages available that are not from the Big Banks, they have low penalties and great interest rates. Consumers must be careful when they are shopping, it is too bad that only one third of all Canadians use a Mortgage Broker. A good Mortgage Broker can really help you navigate through the various pitfalls and traps that arise when you deal directly with a Bank, and can help you secure a Mortgage that saves you money.


more on the B20!

THE B20!

More on what the B20 is doing:

  • According to simulation, 17% of high ratio mortgages funded in 2010 could not have been funded today.
  • This includes 11% of prospective high ratio homebuyers who can’t qualify for a mortgage under the new 25 year amortization rule.
  • Source: CAAMP Annual State of the Residential Mortgage Market, November 2012.

What Does This Mean for You?

Consumers’ buying power in the housing market has been affected. In order to adapt and continue to meet your clients’ needs, you need to work with a mortgage broker who knows how to get real estate purchases done.  

We specialize in the most competitive solutions for borrowers who do not fit inside the traditional “A” Lending guidelines. This includes buyers who:

  • Are self-employed or commissioned individuals with stated income
  • Are salaried individuals with a GDS/TDS that does not meet traditional bank requirements
  • Earn additional “soft income” on the side that may not be reported on taxes – like auto mechanics and computer programmers
  • Have imperfect credit due to extenuating circumstances
  • Are new immigrants to Canada – we love New-to-Canada buyers!
  • And sophisticated residential real estate investors

If you know someone who does not meet the traditional “A” guidelines, call me today to for a discussion on what is possible for you.

Mark Herman, 403-681-4376

Calgary listed as one of the more affordable housing markets in Canada

Great headline for sure. 1 RBC report has 2 articles written about it below.


Calgary listed as one of the more affordable housing markets in Canada

RBC report says city market experiencing a ‘renaissance’

CALGARY — Calgary experienced a housing market renaissance in 2012, reaping the benefits of strong provincial GDP and in-migration, which propelled home resales in the area, says a report released Monday by RBC Economics Research.

The latest Housing Trends and Affordability Report listed Calgary as one of the more affordable housing markets in Canada.

“Calgary-area buyers enjoyed significantly lower home ownership costs as a share of income than they faced at the market peak in early 2007 and the bar fell even further in 2012,” said Craig Wright, senior vice-president and chief economist of RBC. “In fact, it is the only major city in Canada where RBC measures are lower than their historical averages, suggesting that Calgary is one of the more affordable markets in the country.”

Thanks to improvements in previous quarters, all RBC measures stood below their previous-year levels in the fourth quarter. There was some minor deterioration in the latest period, however, with the measure for detached bungalows rising by 0.2 percentage points. But the measure for two-storey homes remained flat, and that for condominium apartments fell by 0.1 percentage points.

The RBC housing affordability measures capture the pre-tax household income needed to service the costs of owning a home at market values.

In Calgary, the average price of a detached bungalow in the fourth quarter of 2012 was $440,600 and the affordability measure was 38.1 per cent. The average price for a standard two-storey home was $434,700 with a measure of 38.6 per cent and for a standard condominium the average price was $250,100 with a measure of 22.2 per cent.

“It’s an exciting time for buyers, borrowing is very affordable right now. I’m seeing this affect the first-time homebuyer and investor market the most lately,” said Shayna Nackoney-Skauge, realtor with RE/MAX Rocky View Real Estate.

“Last week we listed a house that is in relatively original condition in the Varsity area. Within the first eight hours we had 15 showings and two offers. Buyers are flocking to scoop up new competitively-priced listings and investors are quick to pick up well-priced homes for their lot value in high-demand inner-city areas. It’s definitely keeping us on our toes to keep up with what is coming on and off the market on a daily basis.”

RBC said Alberta’s housing market remained vibrant in the final quarter of last year, buoyed by attractive affordability levels, accelerating population growth, a healthy labour market and a strong provincial economy. Although the pace of home resales slowed in the closing months of 2012, the housing market tightened up as fewer properties were listed for sale, it said.

“While homes are not particularly cheap in the province, Albertans boast the highest household incomes in Canada, which helps ensure that the share of their budget taken up by home ownership costs is easily manageable,” said Wright. “Barring an unexpected shock to the economy, housing market conditions in Alberta should remain positive in 2013.”

The RBC housing affordability measures for the province fell across all three housing types tracked by RBC. RBC’s measures for the benchmark detached bungalow and the standard two-storey fell by 0.2 percentage points to 32.1 per cent and 34.7 per cent, respectively. The measure for condominium apartments fell by 0.1 percentage points to 19.7 per cent. Average prices were: bungalow, $357,900; two-storey, $378,800; and condo, $213,300.

Nationally, affordability measures dropped by 0.2 percentage points for both bungalows (42.1 per cent) and condos (28.0 per cent) and by 0.3 percentage points for two-storey homes (47.8 per cent). Average prices in Canada in the fourth quarter of 2012 were: bungalow, $363,400; two-storey, $410,600; and condos, $237,600.

Twitter: MTone123

© Copyright (c) The Calgary Herald


Low mortgage rates muster slight boost in housing market affordability


PublishedMonday, Feb. 25 2013, 5:00 AM EST

Owning a house became slightly more affordable in Canada during the second half of 2012, but that’s mostly due to rock-bottom mortgage rates, RBC Economics says in a report to be released Monday.

The sharp drop in house sales that occurred during the final six months of the year led to some small month-over-month declines in house prices in many cities. And, as sales fell, banks made further small cuts to their already-low mortgage rates. Those two factors helped to take a tiny bite out of the cost of home ownership during the final three months of the year, for the second quarter in a row, RBC says.

The report comes as economists debate the health of the housing market and whether the moves that Ottawa made to tighten the market last summer will continue to have an impact this year.

On Friday, BMO Economics said that the latest data suggests falling mortgage rates and rising incomes are offsetting the effects of high house prices in most markets. That report said that affordability is not a “major problem” in most of the country, including Toronto’s much-watched condo market, and that it should not become one even when rates hit more normal levels.

“If interest rates remain low, income continues to rise, and prices stabilize this year – as we anticipate – fears of a deep housing correction should recede,” BMO senior economist Sal Guatieri wrote in that report. But he urged policy makers to “remain vigilant,” pointing to a number of major exceptions, namely the markets for detached homes in Vancouver, Toronto and Victoria, each of which are vulnerable to a significant correction if incomes fall or rates rise.

Finance Minister Jim Flaherty made changes to the mortgage insurance rules in July, after growing concerned that house prices and household debt levels were rising too fast. Those changes, which made it somewhat harder to obtain a mortgage, included cutting the maximum length of an insured mortgage to 25 years from 30 years.

“We expect overall housing market activity to remain subdued this year,” says RBC chief economist Craig Wright. “That said, we believe that there is scope for some mild strengthening from recent activity levels, as the negative effects of the mortgage insurance rule changes, implemented in July, 2012, gradually dissipate.”

While affordability is improving, RBC is warning that many families could be priced out of the market if interest rates were to jump.

“Exceptionally low interest rates have been the key factor keeping home affordability from reaching dangerous levels in recent years,” says Mr. Wright. “Residential property values are elevated in Canada and, for many households, ownership remains accessible only because of rock-bottom mortgage rates.”

BMO’s report suggests that, nationwide, Canada’s housing market is overvalued by about 10 per cent.

RBC’s housing affordability measure calculates the proportion of pre-tax household income that is required to service the costs of a house at current market prices. Both detached bungalows and condos saw the measure fall by 0.2 percentage points (to 42.1 per cent and 28 per cent respectively), while the measure for a two-storey home fell by 0.3 percentage points to 47.8 per cent.

All of the measures remain slightly higher than their historical averages, but the national figures are being propped up by “extremely poor affordability conditions” in the Vancouver area, RBC says.

Roughly 82.2 per cent of pre-tax income was required to service the cost of a detached bungalow in Vancouver during the final quarter of 2012, down 2.6 percentage points from the prior quarter, RBC says. Toronto’s measure was 52.8 per cent, down 0.4 percentage points; Montreal was 39.3 per cent, down 0.9 percentage points; Ottawa 38.8 per cent, down 0.5 percentage points; and Edmonton 30.7 per cent, down 0.1 percentage points. In Calgary, where the market is on an upswing, the measure was 38.1 per cent, up 0.2 percentage points.