18 Mar

Homeowners, realtors should take steps to protect against title fraud: experts

Latest News

Posted by: Dean Kimoto

It’s been years since you finished paying off your mortgage, so the letter in the mail from a bank saying you’re in default and now owe money comes as a shock.

Not only did you not take out another mortgage on your property, you’ve never even dealt with that bank before. Yet the documents you’re presented with say otherwise.

At this point, you realize you may have been the victim of fraud.

The chances of that scenario playing out may seem far-fetched, but experts say title and mortgage fraud are fast growing in Canada and homeowners should take steps to protect their properties — and their identities.

Title fraud refers to when the ownership or title of a property is fraudulently changed or documents are forged to allow a fraudster to illegally sell or refinance the property.

The issue gained prominence last year amid two Toronto police investigations in which homes were allegedly listed for sale without the owners’ knowledge, including one where the home was sold.

While those were “extreme” cases, more common is mortgage fraud, where fraudsters obtain a mortgage from a lender under false pretenses, said Daniel La Gamba, a real estate lawyer and partner at LD Law LLP.

La Gamba said a typical case of such fraud involves the perpetrator stealing the identity of a legitimate homeowner — using a fake ID, job letter, credit report or references — to obtain a mortgage through a bank.

If the bank is convinced of the person’s identity, it will advance them the funds for the mortgage, only to find the false owner hasn’t made any payments on it months later.

“Even with all the safeguards in place … fraudsters are getting quite sophisticated in their ability to replicate ID, steal identity,” said La Gamba.

“Sometimes, we’re really left with only our gut feeling. If something doesn’t smell right, then we start digging and asking a few more questions.”

When the true owner receives the bank’s letter demanding that payment, setting off alarms they’ve been defrauded, it can be a “stressful and very costly burden” of proving they’ve been the victim of fraud and shouldn’t be required to pay that mortgage, La Gamba said.

He said the most cost-effective defence for the homeowner is if they already have title insurance — the premium for which typically costs around $900 for a $1 million property, and which covers the entire period of ownership.

“If you have title insurance, they basically step into your shoes and take whatever steps are required to rectify the matter,” he said.

“If you don’t have title insurance, that’s when you’re on your own … and it will be a very costly and time-intensive endeavour.”

Newcomers, seniors most vulnerable

Title insurance companyFCT estimates at least one attempted title or mortgage fraud takes place every four business days. In the past two to three years, the company has refused to insure $539 million worth of mortgages and transfers “on the basis that they were too suspicious for us,” said John Tracy, senior legal counsel at FCT Canada.

He said the reason the real estate sector is such a growing area of focus for fraudsters is simple: “The payoff is huge.”

“Compared to getting a credit card in my name — you might get $10,000 worth of stereo stuff or gift cards. But if you can steal my ID and mortgage my house, the payoff is a magnitude of times bigger.”

Experts say the most common targets of title or mortgage fraud attempts include newcomers to Canada, who are particularly vulnerable if they face language barriers, as well as seniors.

“Generally speaking, fraudsters really like to target homes that are mortgage-free,” said La Gamba.

“The elderly tend to be targeted quite frequently in this scenario. They’ve had the home for 20, 30-plus years, their mortgages are paid off in full.”

Daniela DeTommaso, president at FCT Canada, said the company began tracking attempts at title fraud in 2010, seeing a 70 per cent increase in the first 10 years. She said that rate likely accelerated during the pandemic as reliance on remote technology and digital verifications increased.

“Technology is a fabulous thing, but it’s also created the ability for fraudsters to duplicate identity in a way that, to even a trained eye, is almost impossible to catch,” she said.

“For $5,000, you can buy a printer that can pretty much replicate a piece of identification.”

DeTommaso said FCT monitors “a moving target” of potential red flags. The organization employs a certified fraud examiner and teams of underwriters “whose sole job it is to really look for some of these red flags,” she said.

“As good as our underwriters are, there are schemes that are always one step ahead, so we are now partnering with a company where we’re leveraging digital identity verification that actually goes beyond a physical review of a document,” she said.

Ontario brokers required to monitor for red flags

Last fall, the Financial Services Regulatory Authority of Ontario released guidance aimed at combating mortgage fraud, which set out requirements for brokers “to conduct business in a manner that does not facilitate dishonesty, fraud or any other illegal conduct.”

The guidance included obligations such as monitoring for increased warning signs of potential fraud. It also recommended the use of multi-factor authentication as the best practice for identity verification.

“From our perspective, what a broker needs to be able to demonstrate is that they have taken reasonable steps to identify fraud and that would include … to verify the identity of a client, verify the client actually has the authority to mortgage a property,” said Antoinette Leung, FSRA’s head of financial institutions and mortgage brokerage conduct.

“Anyone who notices these red flags should be following up and looking into them.”

She said red flags could include a person’s name linked to the title of a property looking slightly different from what’s listed on their ID or utility bill. The guidance also highlighted employment letters, which should be cross-referenced to ensure the mortgage applicant’s employer does actually exist and that they work there.

FSRA, which has authority to regulate and sanction licensed mortgage brokerages, brokers, agents and administrators, warns it may take enforcement action if it receives credible information about potential fraud or failure to comply with the law and its regulations.

“If you’re facilitating fraud, and there is no way for you to see evidence that suggests otherwise, then (brokers) will have to step away from that transaction,” Leung said.

 

This article was written for Canadian Mortgage Trends by Sammy Hudes

27 Oct

OSFI report reveals largely unknown mortgage exemption: no stress test on insured switches

Latest News

Posted by: Dean Kimoto

Many in the mortgage industry reacted with surprise after learning about a little but very important nugget buried in an OSFI report released earlier this week.

In its report on industry feedback concerning its proposed underwriting changes to B-20, Canada’s banking regulator said this:

“Insured borrowers…are exempt from the re-application of the MQR (Minimum Qualifying Rate) when switching lenders at renewal. This is because the borrower’s credit risk has been transferred for the life of the loan to the mortgage insurer.”

The revelation caught many mortgage professionals off guard. Based on current lending practices, it had been widely presumed that the mortgage stress test on transactionally insured mortgages (borrower-paid), which falls under the purview of the Department of Finance, was federally mandated for both purchases and mortgage switches.

In a statement to CMT, default-mortgage insurer CMHC confirmed the practice.

“It has been a long-standing policy to allow the transfer of a CMHC-insured loan from one Approved Lender to another subject to certain terms and conditions, which include the requirement that the loan is not increased and continues to amortize in accordance with the amortization period approved by CMHC,” the agency said.

It’s important to note that even though the Department of Finance doesn’t require insured switches to be re-qualified under its mortgage stress test, lenders may still choose to do so at their own discretion.

“It is expected that an Approved Lender complete due diligence reviews when accepting the transfer of CMHC-insured loans, as in so doing they assume all responsibilities of the original Approved Lender,” CMHC added.

  • What is the mortgage stress test? The mortgage stress test for default-insured mortgages (those with a down payment of less than 20%), was introduced by the Department of Finance in 2016. Similar to the stress test for uninsured mortgages, which is overseen by OSFI, borrowers must qualify at the higher of the MQR (currently 5.25%), or two percentage points above their contract rate, whichever is higher. In today’s high rate environment, practically all mortgages are being qualified at the latter.
  • What is a mortgage switch? A mortgage switch is the process of a borrower taking their existing mortgage from one lender to another, either at or prior to renewal.

“We recognize that this may be new information to some brokers and lenders,” Lauren van den Berg, President and CEO of Mortgage Professionals Canada, told CMT. “However, this does not mean that lenders will not conduct their own prudential risk assessment, such as employment or income verification, to mitigate against any fraud or misrepresentation.”

Tyler Hildebrand, a mortgage broker with Saskatchewan-based oneSt. Mortgage, said he was excited to learn about the exemption, particularly since he believes it will lead to more choice for borrowers and should “open up the competitive landscape” for the vast majority of his high-ratio clients.

“There’s no question that a certain percentage of borrowers had the impression that they had no choice but to accept a less-than-attractive offer from their existing lender,” he said.

For OSFI’s part, while uninsured mortgage switches still face re-qualification under its own stress test, the regulator says it will “continue to monitor for evidence of uncompetitive rates for borrowers who may be unable to switch lenders, and we will take action if warranted.”

More insured switches are likely to take place, some say

Now that this exemption is becoming widely known, expect to see more lenders stepping in to offer these kinds of deals and brokers offering switches as an option to their insured mortgage clients, some say.

“Small lenders are likely to step up and offer it,” Ron Butler of Butler Mortgage told CMT.

Hildebrand agrees that they’re about to become more prevalent.

“I imagine in short order the entire landscape will adopt the policy pretty quickly,” he said, adding that will be a good thing for borrowers.

“Increased consumer choice, especially in a rising rate environment, will protect a lot of borrowers from a ‘take it or leave it’ type scenario,” he noted. “That said, I don’t believe this will have a material, or really any impact on market rates.”

Sources told CMT that just two lenders, Radius Financial and THINK Financial, were aware of the exemption prior to this week and had already been doing insured mortgage switch deals.

Dan Eisner, founder of THINK Financial, told CMT the news that insured switches aren’t federally mandated to be re-qualified under the stress-test is a bit of a “red herring.”

“Just because the insurer doesn’t require a new stress test doesn’t mean the lender doesn’t,” he said.

Asked when he first became aware of the exemption in the federal regulation, Eisner said “it was always a fact.”

“These were always the rules. The government didn’t hide anything here,” he said. Eisner added that the volume for these kind of deals is “very small,” and that he doesn’t expect many lenders will rush to offer them.

Switches still require thorough underwriting

While many in the industry are learning that insured switches don’t need to be qualified under the mortgage stress test, Canada’s national association representing mortgage professionals made clear that default-insured mortgage switches still face rigorous underwriting standards.

“As is well known, lenders are required to immediately report to the mortgage insurers if false or misleading information has been provided or is suspected in an insured mortgage application,” MPC’s van den Berg noted. “If a lender does not do an appropriate risk assessment and misrepresentation is found, any insurance claim may be null and void leaving them responsible.”

Hildebrand echoed the stringent due diligence that takes place for such deals.

“On a switch to a new lender, the file receives full underwriting, including an evaluation of LTV and verification of income,” he said. “There is no situation where a lender or investor would onboard risk without properly assessing said risk.

 

This article was written for Canadian Mortgage Trends by:

25 Sep

Home appraisals: Buyers bear the cost, but who owns the report?

Mortgage Tips

Posted by: Dean Kimoto

Even though prospective homeowners usually pay for their home appraisal, many remain unaware that they typically won’t receive a copy of it.

That’s because the professional appraiser sent to calculate the value of a home—which can cost anywhere from a few hundred to several thousand dollars—doesn’t actually work for the prospective homeowner.

“Most brokers know the golden rule in lending is ‘he or she who holds the gold, makes the rules,’” explains Christopher Bisson, founder of appraisal tech company Value Connect. In other words: whichever party is responsible for commissioning the six- (or, in some markets, seven-) figure loan to fund a mortgage gets to call the shots. That includes who pays for the appraisal.

This can seem like a strange system to homeowners, especially when compared to similar financial processes in other parts of their lives. Financial institutions are required to provide copies of credit score assessments to clients, for example, even if a third party requests it. This is to ensure everyone is on the same page in regards to someone’s creditworthiness.

But the same standard doesn’t apply for home appraisals. To make matters even more confusing for homeowners, there are two professional appraiser associations in Canada operating under differing guidelines on who “the customer” is, and who actually gets custody of the appraisal report.

Who owns the appraisal?

According to the Appraisal Institute of Canada, which represents most of the profession, an appraisal report belongs to whoever it is commissioned for. That’s the lender, when it’s done for financing purposes.

“A homeowner, even though they’re paying for it, is not the appraiser’s client,” says Keith Lancastle, interim CEO at the Appraisal Institute of Canada. “The appraiser has an obligation, first and foremost, to their clients not to provide copies of the report to anyone other than the client who has contracted with the appraiser to prepare it.”

In fact, according to the AIC’s website, the question of who gets a copy of the appraisal report is a business decision by the lender or mortgage broker retained by the homeowner. It goes on to say an AIC member “would not be aware” of whether the homeowner paid for the report, or whether the homeowner would even get a copy of the report regardless of the loan application’s outcome.

Conversely, the Canadian National Association of Real Estate Appraisers’ guidelines state the person paying for the appraisal, be they a homebuyer or a lender, should get a copy of the report. The payer would then determine whether or not to release it to anyone else involved in the mortgage application process.

Staying competitive

Bisson says the reason for having such strict guidelines over who gets an appraisal report is to ensure lenders get the information they need out of it. A triple-A bank, for example, might have different lending criteria compared to a private lender, so an appraisal prepared for one may not be terribly suitable for another.

“From an appraiser’s point of view, you do not want to have an appraisal report floating out there for everybody to rely on,” Bisson says. “It may seem counterintuitive, but they want to know who the report is going to.”

Regardless of which professional association an appraiser belongs to, they can still choose to release the results of an appraisal with their client’s permission. But Bisson says that doesn’t happen very often. However, clients may be able to get their hands on an appraisal report in its early stages. Bisson knows some mortgage representatives who are sent draft copies and make them available to borrowers.

He recommends this strategy if it isn’t clear which lender will handle a mortgage application: tell the appraiser what “type” of lender the report will likely go to. Appraisers will build the report with criteria those lenders typically request, so it won’t deliver any of the surprises that can often happen when going from a AAA lender to a B (or Private) lender.

Meanwhile, Lancastle says, lenders may be reluctant to release appraisal reporters to keep a competitive edge. “I certainly can’t speak to the motivation that a lender has for not wanting to turn it over,” Lancastle says. “But one can assume that if I’m a lender, I don’t want someone to have a copy of the appraisal report and then be in a position to go and, essentially, look for alternatives.”

The practice of having a homeowner pay for an appraisal, he adds, is also one that’s just become a standard of the mortgage industry. “That appraisal fee is one of a number of features that a borrower makes,” Lancastle explains. “That’s the business model that the lending community has established in the marketplace.

 

This article was written for Canadian Mortgage Trends by:

24 Aug

Why work with a broker when I can just go to my bank?

Latest News

Posted by: Dean Kimoto

Maybe I work with your bank already.  Except… I might have a better option.  It’s worth asking!  I just did a quick scan and from what I just saw The Dominion Lending Centres network has access to at least 76 lenders (and some local credit unions we work with I noticed weren’t on this list, so there’s even more!).

The following article was just published on Canadian Mortgage Trends:

First National comments on underwriting partnership with BMO, says move is an “endorsement of the channel”

BMO’s decision to work with First National as its underwriting partner for its return to the broker channel served as an endorsement of both FN’s services and the channel as a whole.

Those were the comments First National President and CEO Jason Ellis delivered as part of the lender’s second-quarter earnings call.

As part of BMO’s announced re-entry to the broker channel starting in early 2024, the bank confirmed it would be partnering with First National to provide its underwriting and funding services.

In comments made to CMT at the time, Justin Scully, Head, BMO BrokerEdge, said they chose First National based on its “discipline” and 30-year track record of broker underwriting and servicing.

Ellis was asked about the partnership during First National’s latest earnings call.

“To the extent that BMO made the decision to outsource the activity of adjudication and fulfillment of the mortgage applications, I can’t speak to definitively,” he said. “But I imagine having been absent from the channel for a period of time and perhaps viewing the success of TD by outsourcing that activity, may have turned their mind to the idea.”

He added that First National is “thrilled” to have earned the mandate, which he called a “great endorsement for the channel, and we think it’s a great endorsement for the service we provide here at First National.”

And while Ellis said the underwriting and servicing deal will be a “2024 event,” he noted that “very, very heavy lifting has now been done.” He also confirmed that the underwriting partnership with BMO will be “very similar” to the work it provides to its two other counter-parties, TD and Manulife.

The future of big banks in the broker channel

Asked if he thinks it’s just a matter of time before the other big banks make their own moves into the broker channel, Ellis said there’s no indication of that right now.

“I guess there’s always a risk of having one share diluted as more and more participants enter the market, but I right now don’t have any clear indication that the other [big banks] are on the verge of making any significant changes with respect to their view of how they access the market,” he said.

For now, he said First National’s opportunity to work alongside the big banks as a service provider is “a great diversification opportunity for revenue streams in a way to leverage our core competencies of underwriting and both servicing, which we continue to provide as a third-party service as well.”

No outsized risk among FN’s variable-rate portfolio

In his prepared comments on First National’s lending portfolio, Ellis confirmed that there are currently no heightened challenges being posed by the lender’s variable-rate clients.

“The arrears rate on the adjustable rate portfolio continues to track that of the broader portfolio, with no signs of stress from higher payments presenting itself yet,” he said.

Part of the reason is because First National offers a true variable-rate mortgage, also known as an adjustable-rate, where payments automatically adjust based on changes to the prime rate, which keeps clients on their contracted amortization schedule.

He added that clients are now overwhelmingly choosing fixed-rate products, a trend being seen industry wide among new originations. First National reported that just 8% of its borrowers chose an adjustable-rate mortgage in the second quarter, down from 62% a year earlier.

“Also through the quarter, there was an unusually large number of borrowers selecting 3-year terms,” Ellis added. “I think some borrowers, perhaps advised by their brokers or on their own terms, viewed a shorter term, albeit at a higher rate, as the better strategy as they looked ahead to an earlier renewal and an opportunity to access what they viewed perhaps lower rates in the near future.”

Q2 earnings overview

  • Net income: $89.2 million (+61%)
  • Single-family originations (incl. renewals): $7.4 billion (-12%)
  • Mortgages under administration: $137.8 billion (+8%)
  • 90+ day arrears rate: 0.6%

Source: Q2 2023 earnings release

Notables from its call:

First National President and CEO Jason Ellis commented on the following topics during the company’s earnings call:

  • On stable earnings despite lower originations: “Despite lower originations overall, our business model proved its resiliency. Recurring revenue from servicing and net interest earned on our portfolio of securitized mortgages delivered expected stability to our financial results. Key to maintaining these predictable and recurring revenues is the continued growth of mortgages under administration even during periods of reduced originations.”
  • On the importance of the broker channel to the big banks: “The banks recognize the scale and continued growth of the broker channel as a source of distribution for residential mortgages. I think it continues to be an increasingly relevant place to originate. And I think demographically, younger and newer borrowers are using the Internet and nontraditional channels to access financial services generally, including mortgages…
  • On the financial impact of borrowers’ preference shifting back to fixed rates: “…there is a hedging aspect to committing on a fixed rate, which doesn’t exist on a commitment for an adjustable rate. Otherwise, our math to determine the appropriate rates on both products is similar and should result in similar outcomes for us.”
  • On lower mortgage prepayments: “Our return to more traditional prepayment speeds has been an important factor in facilitating [mortgages under administration] growth. Higher mortgage rates have reduced the incentive to refinance midterm and more mortgages are reaching maturity, resulting in more renewal opportunities.”
  • On First National’s Alt-A portfolio: “New Excalibur originations were down consistent with the overall residential experience. Arrears in the Alt-A book are flat compared to last quarter, and there has been no meaningful change in any of the average portfolio metrics, like loan-to-value, credit scores or debt service ratios.”
  • On origination forecasts: “In light of the last two rate hikes by the Bank of Canada and the marginal impact to affordability, we are reviewing our expectations for residential originations in the second half. We no longer anticipate that originations in the second half will exceed those from the same half last year. We still believe, however, that on a relative basis, the second half will compare to last year more favourably than the first half did.”

First National Q2 conference call

This article was written by:

22 Aug

Latest News

Posted by: Dean Kimoto

Just read a great article on Real Estate Invesment Properties vs other options, CLICK HERE to read in full.

The quick review: in terms of cashflow, purchasing an investment property right should be compared against other investments.  For the long term, in terms of asset appreciation, well that may be another story!

As always, best to speak with your team of professionals to see what makes sense for your situation and comfort level.  If you don’t know where to start, call me and lets come up with a plan.

31 Jul

Renting vs. buying in today’s market: how monthly payments compare

General

Posted by: Dean Kimoto

In addition to the stats on renting vs buying there’s some great economic data following!

This article was written by Steve Huebl for Canadian Mortgage Trends: Renting vs. buying in today’s market: how monthly payments compare

A new study has found the cost of renting vs. buying comparable housing in select Canadian markets is nearly on par.

In fact, the difference between renting and buying was less than $500 per month in 11 different markets, according to the report from Zoocasa.

“Though no market is more affordable to buy in than rent, there are several markets where the rental and mortgage payments are similar, though these are all outside of Ontario and British Columbia,” the report notes.

For example, in Winnipeg the average monthly rent is $1,475, while the average mortgage payment was calculated at $1,493, for a difference of just $18. Similarly in Quebec City and Regina, the Zoocasa report found average rents were just slightly more affordable, by $54 and $148, respectively, per month.

It’s important to note that the study didn’t factor in other costs such as utilities, maintenance or property taxes.

In other markets, the monthly cost between renting and owning was more drastic. The largest payment difference was found in Surrey, B.C., where the average mortgage payment was calculated at $2,639 more than the cost of renting. Similar large gaps were seen in the Ontario cities of Burlington and Brampton.

The results were in contrast to a 2021 Royal LePage survey that found, on average, the cost of homeownership was actually less than the cost of renting a comparable housing unit. At that time, of course, homeowners were benefiting from record-low interest rates.

Zoocasa said the average rental rates were sourced from Rentals.ca, while mortgage payments were based on average house price data from the Canadian Real Estate Association and calculated assuming a 20% down payment, and a 5.04% rate amortized over 30 years.

Courtesy: Zoocasa

Other mortgage and real estate stories…


Bank of Canada expected to keep benchmark rate at 5%

The Bank of Canada’s benchmark interest rate is expected to spend the remainder of the year at its current 22-year high of 5.00%, according to a median of responses from market participants.

The findings were released in the Bank of Canada’s second-quarter Market Participants Survey, which surveyed 30 financial market participants between June 8 and 19, 2023.

Asked for their forecast for the Bank of Canada’s policy interest rate, respondents were near-unanimous in believing the policy rate will remain at 5% through the end of the year.

That’s contrary to current bond market pricing, which currently sees a near 80% chance of one more quarter-point rate hike at the Bank’s September meeting.

Most survey respondents expect rates to fall to 4.75% by March 2024, and believe the benchmark rate will end 2024 at 3.50%. By the third quarter of 2025, a median of responses from participants see the Bank of Canada cutting rates further to 2.50%.

The respondents pointed to higher interest rates as the top risk facing economic growth in Canada, followed by tighter financial conditions and a decrease in purchasing power.

A majority of respondents also now believe Canada will skirt a recession and see annual gross domestic product growth remaining positive throughout both 2023 (+0.7%) and 2024 (+1.2%). In the first-quarter survey, the median forecast was for slightly negative growth in 2023.

On inflation, the participants expect total CPI inflation to slow to 3% by the end of 2023 (up from 2.7% in the previous survey), easing further to 2.2% by the end of 2024 (unchanged from the Q1 survey).

Canadian job vacancy rate drops to two-year low

Canada’s job vacancy rate continued to trend down in May, reaching a two-year low.

Statistics Canada reported on Thursday that the number of unfilled positions fell to 759,000 in May, a decline of 26,000 from April. The declines were concentrated in Quebec (-10,800), Manitoba (-3,700) and Saskatchewan (-2,400).

This resulted in the job vacancy rate falling to 4.3%, down by 0.1% from the previous month. Compared to last year, the job vacancy rate is down by 1.5 percentage points.

The StatCan report shows the number of payroll employees rose by 129,900 in the month, led by gains in public administration (106,200) and healthcare and social assistance (+7,000).

Average weekly earnings were up 3.6% on an annual basis to $1,200.75. That’s up from the 2.9% pace reported in April.

U.S. Fed hikes interest rates

On Wednesday, the U.S. Federal Reserve raised its benchmark borrowing costs to the highest level seen in more than 22 years. The Federal Open Market Committee (FOMC) raised the fed funds rate to a target range of 5.25% to 5.5%. The midpoint of this range represents the highest benchmark rate level since early 2001.

Financial markets had largely expected this rate hike.

Fed Chairman Jerome Powell noted during a news conference that inflation has shown some moderation since the middle of the previous year, but still has a way to go to reach the Fed’s 2% target. Powell left open the possibility of maintaining rates at the next meeting in September, stating that future decisions would depend on carefully assessing incoming data and its impact on economic activity and inflation.

“It’s certainly possible we would raise (rates) again at the September meeting, and it’s also possible we would hold steady,” he said.

14 Nov

Lock in your Variable Rate Mortgage?

General

Posted by: Dean Kimoto

There’s been a lot of articles lately about rising mortgage rates causing hardship for home owners with mortgages.  I had several conversations last week on this topic with people who know (or found out) I’m a mortgage broker.

There’s a simple answer.  If you’re in an adjustable or variable rate mortgage and the rising rates are keeping you up at night… locking in may be right for you.  Should you do it?  I can’t say because I don’t know your personal situation, but even if I did, this is a decision you must make.  But let’s see if I can help with some background info.

First things first, remember why you chose your variable or fixed to begin with.  If you chose variable/adjustable was it just the rate or did you factor in the possibility of a changing personal situation?  Many mortgages don’t go beyond 3 years in a term despite best intentions due to babies being born, relocating for work, refinancing to renovate or consolidate higher interest debt, separations, etc.  And those IRD (Interest Rate Differential) penalties to break a term can be high!  But–if your general situation hasn’t changed, perhaps locking in now isn’t the right move–just like it wasn’t before.

I find the simplest way to view a fixed rate mortgage is you’re paying insurance to make sure your rate and monthly repayments don’t change over the term.  You’re usually paying extra compared to a variable rate.  If rates go up, well done, you may have saved money.  If rates go down, too bad, but at least you had your peace of mind with your consistent repayments.

Over time variable rates consistently save money vs fixed rates.  Check out this graph I just made on Ratehub (https://www.ratehub.ca/historical-mortgage-rates-widget) which compares 5-year fixed rates (blue) vs 5-year variable rates (red) since 2006 (seems as far back as their data goes):

Is the peace of mind worth paying extra?  One of the most important things for your health is a good night’s sleep–so maybe.  Will you sleep just as well if you lock into a 5-year fixed now and rates come down next year or 2024?  That’s where the decision is up to you!

If you’d like a chat to see where we think things are going or how it applies specifically to you just let me know.

By Dean Kimoto, Mortgage Broker

29 Sep

Second Mortgages: What You Need to Know

Mortgage Tips

Posted by: Dean Kimoto

One of the biggest benefits to purchasing your own home is the ability to build equity in your property. This equity can come in handy down the line for refinancing, renovations, or taking out additional loans – such as a second mortgage.

What is a second mortgage?

First things first, a second mortgage refers to an additional or secondary loan taken out on a property for which you already have a mortgage. This is not the same as purchasing a second home or property and taking out a separate mortgage for that. A second mortgage is a very different product from a traditional mortgage as you are using your existing home equity to qualify for the loan and put up in case of default. Similar to a traditional mortgage, a second mortgage will also come with its own interest rate, monthly payments, set terms, closing costs and more.

Second mortgages versus refinancing

As both refinancing your existing mortgage and taking out a second mortgage can take advantage of existing home equity, it is a good idea to look at the differences between them. Firstly, a refinance is typically only done when you’re at the end of your current mortgage term so as to avoid any penalties with refinancing the mortgage.

The purpose of refinancing is often to take advantage of a lower interest rate, change your mortgage terms or, in some cases, borrow against your home equity.

When you get a second mortgage, you are able to borrow a lump sum against the equity in your current home and can use that money for whatever purpose you see fit. You can even choose to borrow in installments through a credit line and refinance your second mortgage in the future.

What are the advantages of a second mortgage?

There are several advantages when it comes to taking out a second mortgage, including:

  • The ability to access a large loan sum (in some cases, up to 90% of your home equity) which is more than you can typically borrow on other traditional loans.
  • Better interest rate than a credit card as they are a ‘secured’ form of debt.
  • You can use the money however you see fit without any caveats.

What are the disadvantages of a second mortgage?

As always, when it comes to taking out an additional loan, there are a few things to consider:

  • Interest rates tend to be higher on a second mortgage than refinancing your mortgage.
  • Additional financial pressure from carrying a second loan and another set of monthly bills.

Before looking into any additional loans, such as a secondary mortgage (or even refinancing), be sure to speak to your DLC Mortgage Expert! Regardless of why you are considering a second mortgage, it is a good idea to get a review of your current financial situation and determine if this is the best solution before proceeding.

Published by the DLC Marketing Team – September 27, 2022

15 Sep

Mortgage Tips

Posted by: Dean Kimoto

Published by the DLC Marketing Team, September 13, 2022

The Real Deal about Transfers and Switches.

Most people who are thinking about a transfer or switch want to take advantage of a lower interest rate or to get a new mortgage product with terms that better suits their needs.

Up for Renewal?

If your mortgage is approaching renewal and you are considering a transfer or switch – great news! You won’t be charged a penalty. BUT you are still required to qualify at the current qualifying rate and need to consider potential costs around legal charges, appraisal fees and penalty fees (if applicable). In some cases, the lender will offer you the option to include these fees in your mortgage or even cover the costs for you.

Currently have a Collateral Charge Mortgage?

If you have a collateral charge mortgage (which secures your loan against collateral such as the property), these loans cannot be switched; they can only be registered or discharged. This means you would need to discharge the mortgage from your current lender (and pay any fees associated) before registering it with a new lender (and pay any fees associated).

Still locked into your Mortgage?

If you’re considering a transfer or switch in the middle of your mortgage term, you will likely incur a penalty for breaking that mortgage. Typically, transfers and switches are done to take advantage of a lower interest rate (and lower monthly payments), but you want to be confident that the penalty doesn’t outweigh the potential savings before moving ahead.

Things to consider for a transfer or switch:

  1. You may be required to pay fees associated with the transfer or switch, including possible admin and legal fees.
  2. You will need to requalify under the qualifying rate to show that you can carry the mortgage with the new lender.
  3. You will be required to submit documents that may include, but are not limited to, the following (depending on the lender):
  • Application and credit bureau
  • Verification of income and employment
  • Renewal or annual statement indicating mortgage number
  • Pre-Authorized Payment form accompanied by VOID cheque
  • Signed commitment
  • Confirmation of fire insurance is required
  • If LTV is above 80%, confirmation of valid CMHC, Sagen or Canada Guaranty insurance is required
  • Appraisal
  • Payout authorization form
  • Property tax bill

If your mortgage is currently up for renewal, consider reaching out to your DLC Mortgage Expert. Not only can they advise you of any penalties or fees that may be associated with your desired transfer or switch, but they also have the knowledge and ability to shop the market for you to find the best options to meet your needs. This extensive network of lender options allows brokers to ensure that you are not only getting the sharpest rate, but that the mortgage product and terms are suitable for you now – and in the future.

8 Aug

Mortgage Tips

Posted by: Dean Kimoto

3 Things You May Not Know About Cash-Back Mortgages.

It can get pretty exciting to see campaigns around “cash-back mortgages” but, before you get too far along, here are three things you might not know about these types of mortgages:

  1. Occasionally you will see campaigns on cash-back mortgages, so don’t jump at the first one you see! These types of mortgages are available through a few major lenders so it can be helpful to shop around to see what different terms and conditions are available, as this will affect the overall loan.
  2. When it comes to cash-back mortgages, you’re really getting a loan on top of your mortgage. The interest rates are calculated to ensure that, by the end of your term, you will have paid the lender back the money they gave you (and perhaps a bit extra!). Be mindful that these loans can come with higher interest rates and, in some cases, the extra is more than you got in cash-back.
  3. The average cash-back mortgage operates on a 5-year term. While you may not be planning to move before your term is up, sometimes things happen and it is important to be aware that if you break a cash-back mortgage, you have to pay the standard penalty but you will also have to pay back a portion of the loan you were given. For example, if you are 3 years into a 5-year term, you would have to pay back 2 years or 40% worth of the cash-back. Combined with the standard mortgage penalties for breaking your term, this can add up if you’re not careful!

Before signing for a cash-back mortgage it’s better to discuss your needs with your local Dominion Lending Centres mortgage expert. They can advise regarding all cash-back mortgage availability, lines of credit, purchase plus improvement loans or also flex down mortgages that may be better for your situation.

Published by DLC Marketing Team

August 2, 2022