This week there are two headlines grabbing the attention of mortgage brokers, bankers and borrowers in Canada. Both have far reaching implications in the mortgage industry and it may not be a fluke that both are making headlines in Canada at the same time. On the one side we have the government of Canada expressing concerns about debt levels and the ease for borrowers to attain credit. The other news maker this week is an announcement by mortgage insurer CMHC, a Canadian crown corporation, that they are reaching their insurance limit of $600 Billion as set by the Canadian government. The resulting effect of this news is that insured mortgages in Canada could be harder to qualify for.

As a consumer it may be very confusing to understand what the concerns and implications are. In this post I’ll address Ottawa’s concern for tightened mortgage rules.

As Canadians we are proud of hockey, our multiculturalism, Celine Dion and our remarkable resilience in the face of global economic decline. Okay, maybe we aren’t so proud of Celine but it’s true, if you have an opportunity to travel abroad and talk business with anyone from outside of Canada there is a tremendous amount of reverence from all corners of the globe for our economic policy and strength. And that is due in large part to our prudent banking system. So if we have such a prudent banking system what is all this fuss about tightened mortgage rules and tightened credit?

Ottawa is becoming more and more uncomfortable with debt levels. Record-low mortgage rates being offered by Canadian banks and the ease with which some institutions are advancing lines of credit seems to be keeping finance minister Jim Flaherty up at night (by the way, the fact the Government is concerned about low rates is a clear indication of where they believe rates are going to be for the short to medium term).

So are Canadians really in that much more debt? The following graph sourced from a presentation by CIBC chief economist, Avery Shenfeld, show some interesting and revealing information about Canadians and their debt. The graph shows that since 2007 borrowers who are considered heavy debtors (see * definition) have piled 101.4% more debt over the last 5 years. Translation: if you owed $10,000 in 2007 you now owe $20,140.  While borrowers who are considered light to medium debtors have actually lowered their dependence on credit. Perhaps the more troubling statistic is that of those people who are heavy debtors 44% are 45+. These are the wrong kind of debtors, if the majority were in their 20s and 30s this wouldn’t be so bad as they are leveraging to start out their lives but its never good to have an aging population in debt.

And yet despite the increased number of Canadians who shouldn’t be in debt, I’m not convinced tightened rules is a good idea. It’s one thing for politicians to sit in Ottawa and make statements about credit but the reality on the street is that it has never been harder to qualify for a mortgage. I’m working with mortgage lenders and insurers every day and I can assure you that nothing and I mean nothing gets by them. The number of mortgages that went into default in Canada last year were only 0.38%.  Borrowers are required to dot every “i” and cross every “t” and credit is not easily given out like these reports would have you believe. In my experience credit needs to be earned these days.

The conspiracy theorist inside of me (or at least the political one) sees this as a political play to justify the tightening of CMHC rules or some other major change in the mortgage industry effecting borrowers and lenders alike. In the face of what might be an already slowing Canadian real estate market I’m worried about what these changes will mean. Stay tuned for my follow up commentary on CMHC reaching its limit and the implications to the mortgage borrower.

Do you have something add? I’d love to hear about your experience qualifying for a mortgage? Do you think it’s as easy as Ottawa would have us believe?

Christopher Molder – Toronto Mortgage Broker. Have a question about your mortgage or want to qualify, call me at 416.461.0204.

I love questions and I answer them all.

Kevin refuses to buy a home. Why?

If you watch the Lang & O’Leary exchange frequently, you will know that Mr. Kevin O’Leary in all of his financial wisdom refuses to own a home and prefers to rent. This may be surprising to some, as generally it is considered that purchasing a home is a good investment. This past week the staff at MoneySense Magazine posted an article What You (Really) Made On Your Home which examines the profit earned by selling real estate after all expenses are covered.

In their example, they calculate the real profit – after expenses- if you bought a typical home in the Greater Toronto Area 10 years ago, and sold it this year. They assume that it was purchased with a 10 per cent down payment and a five per cent fixed-rate mortgage. The home would have cost $248,601 to buy in 2001 and today it would sell for a hefty $456,147.

So does that mean you made $200,000? Not even close.

2011 sale price: $456,147

Subtract:
• $168,434 for the amount still owing on the mortgage;
• $4,000 for legal fees to buy and sell;
• $22,807 in realtor fees for the sale;
• $159,265 for 10 years of mortgage payments ($1,327 per month for 10 years);
• $42,000 for 10 years of property taxes;
• $19,000 for 10 years of home maintenance;
• $2,211 for the land transfer tax when the home was bought;
• $24,860 for the original down payment; and
• $358 in provincial sales tax on the mortgage insurance.

Actual profit: $13,212

Surprising isn’t it? Now be careful when interpreting this number….This calculation isn’t meant as an analysis of rent vs. purchasing. This is purely an analysis of profit vs. expense. For all the money spent over 10 years your net profit works out to only $13,212. Of course when you sell you would receive a cheque much larger than $13,212 because you are receiving your built up equity in the home but this number shows that the return on all the money spent is laughable from a pure investment point of view.  Luckily our human need for shelter and other “irrational” needs supersedes profit as our sole motivation for owning a home.

Which brings me back around to Kevin O’Leary. He will gladly tell anybody who listens that he is motivated by money and profit (watch any episode of Dragon’s Den) but if you think its just fluff for polemic T.V consider that it even supersedes that very capricious yet basic human desire to own a home to call your own. Then again I am sure Mr. O’Leary can eek out a return greater than the one in the example above with his money.

A second mortgage is a loan secured against real estate, that is subordinate or subsequent to a first mortgage on the same property.

If you own a home there can be multiple mortgages secured against it. The order of the mortgages is determined by who registers the mortgage first with the land registry office.  It is possible to secure third or even fourth mortgages against your property however they are rare as most lenders won’t lend you money unless there is sufficient equity in your home.

The reason a second mortgage is called subordinate is because if the mortgage goes into default, the first mortgage gets paid off before the second mortgage. It follows that the second would get paid off before the third. Because of this subordinate position second mortgage lenders require higher interest rates due to the increased risk.

Assuming a borrower stops paying or defaults on a second mortgage, the second mortgage lender can initiate a power of sale even if the first mortgage is still in good standing. The opposite is also true. A first mortgage lender can initiate a power of sale action even if the second mortgage is in good standing. Each lender has the option of purchasing or assuming the position of the other lender to bring the mortgage back into good standing.

Having sufficient equity (difference between market value and outstanding first mortgage) in your home is crucial if you are considering a second mortgage. It can be quite difficult to secure a second mortgage through a financial institution because they reserve second mortgages for individuals who have good credit and income to support the loan. The reality is that most borrowers require second mortgages to consolidate consumer debt or alleviate financial stress. For these individuals private mortgage lenders are the primary source of funds.

Looking for a second mortgage? We can help. Call Arnold Molder 416.461.0204 to speak directly with a second mortgage lender.

Artscape Triangle Lofts is a very unique condominium development. It has been created with the specific purpose of preserving important artist work/live space in the Queen West Triangle. Artscape Triangle Lofts includes a mix of affordable rental units for professional artists as well as below-market ownership units for artists and non-profit arts professionals.

I have been working with one such “qualifying artist” to try and find a lender who would finance this unique project. Aside from the Artists Credit Union, it was very challenging to find a lender who was willing to finance my client’s unit in this building. I approached all the institutional and private lenders I work with and the application was rejected for one of two reasons, unique to this project:

1- The city is subsidizing part of the purchase price for qualified low income purchasers through a loan (2nd mortgage) in the amount of 20% of the purchase price. This loan bares no interest and doesn’t need to be repaid until the unit is sold. This allows purchasers to buy without CMHC insurance premiums and of course lowers their mortgage cost. Most institutional lenders don’t like having a second mortgage registered behind their first and therefore won’t approve purchasers who are relying on this subsidy as part of their downpayment.

2- When the existing owner wishes to sell the unit, they have to give Artscape an opportunity to find another ‘qualifying artist’ to sell to so as to maintain the building as a live/work space for artists. Artscape is maintaining a waiting list and if no seller is found within 90 days the unit may be listed on MLS. From a lender’s perspective this is a messy arrangement and limits the marketability of the property greatly.

In the end I was able to find one progressive lender who was willing to lend my client the money and at excellent market rates.

Whether you are looking at Artscape Triangle Lofts or another unique project like a condo/hotel arrangement like at the Thompson Hotel or 1 King W., it’s important to be aware of the effects that limited marketability have on your ability to finance your purchase.

If you are buying at Artscape Triangle Lofts please don’t hesitate to give me a call to discuss the challenges of financing. I’d love to help!

My colleague Mark Savel is an interesting guy. Ask him what he does and he will say “real estate”. Ask him who he is and he’ll respond “Toronto’s own”. Mark loves our fair city of Toronto. His blog is not only an original source of freshly released information about Toronto’s newest and hottest real estate developments, it’s also a place where he shares his passion for the urban. Recently he covered the Banksy phenomenon in Toronto. In other posts he helps promote local community events and fundraisers.  Mark also shows us the city through his eyes with the posting of a daily photo on his Posterous.com site.

Aside from all the contributions he makes to the online community through his participation in blogs, twitter, daily photos and event listings he is a value providing real estate agent who knows the city and puts the same amount of passion and detail into working with his clients. If you are thinking down town condo. Think “Toronto’s Own” Mark Savel.

Click here to view the embedded video.

Although bond yields rose last Friday as of Monday March 8th Toronto Mortgage Interest rates remain unchanged. Over the weekend some lenders have warned of the possibility of fixed rate mortgages increasing. This weekend I decided to deliver my Monday Mortgage Minute from the slopes of Mont Tremblant Quebec, however I am back in the office this week refreshed and recharged after a nice little ski vacation. If you would like to contact me please write or call 416.461.0204 ext 2.

Chris Molder – Son of A Broker

1 year fixed – 2.65%

3 year fixed – 3.35%

5 year fixed – 3.79%

3 year variable – Prime-.40% (1.85% effective rate)

5 year variable – Prime-.30% (1.95% effective rate)

RATE SPECIALS

5 year fixed – 3.69% (must close by April 26th 2010, purchase & refinance only)

NOTE: Rates are subject to change without warning at the lender’s discretion.

Click here to view the embedded video.

I have joined a group of Toronto volunteers who have committed themselves to offering their professional services in exchange for donations to the Haiti relief effort. www.TorontoWorksForHaiti.com Our group includes professionals and entrepreneurs offering a wide range of services all the way from Artists, to Japanese translation services, to Style Consultants and Social Media services.

Click here to view the embedded video.

I personal am committed to donating $200 from every mortgage that I arrange under this initiative to our goal of raising $5,000 by March 18th, 2010. Irrespective of the size or type of mortgage. Although a month has almost passed since the devastating earth quake in Haiti, and the main stream media has moved on to other stories, Haitians are still with out food and water and much needed assistance.

If you are in need of mortgage financing over the next 60 days, please consider our cause and help me help those in Haiti. As a Toronto mortgage broker my service will not cost you, I don’t serve the interest of any bank, I only serve the interest of my clients and of course I will be able to offer you the most competitive rates in the market today.

Please e-mail me or fill out a secure online mortgage application to get started.

Thank you for your consideration.

Chris Molder – Son Of A Broker

You don’t need me to tell you that Toronto is currently experiencing an incredible real estate boom spurred on primarily by low mortgage interest rates and first time home buyers entering the market. If you are looking at buying in the near future, what you do need to hear from me is who can help you understand the mayhem that is the Toronto condo market? Enter The Condo Chicks!

With such a hot market, changes develop very quickly and you need a real estate agent who is current with information and market trends. I have had the pleasure of working with the CondoChicks, Joy & Erica, and I can assure you that these chicks have “large talons” (insert Napoleon Dynamite voiceover). They are extremely knowledgeable of their market, and have the skills to guide you through the jungle that is the Toronto Condo market.

They are also great bloggers! Check out their blog Condochicks.com. Of particular interest they profile specific buildings. My favorite is in there… TipTopLofts. Is yours?

There is no such thing as a silly question. Especially when it comes to your mortgage and money! As a mortgage broker I sit down and work with a lot of borrowers, some have a very high level of financial literacy and others never had the opportunity or need to learn.  Arranging a mortgage on your home along with being a necessity should also be an educational experience.

When you arrange a mortgage on your home with a lender you are entering into a contract with the lender. Term refers to the length of time that the mortgage contract is effective for. For the term of the mortgage both you and the mortgage lender are obligated to honor the conditions and terms as set out by the mortgage contract. Most mortgages in Canada are arranged for 5 years at a time, however there are mortgages with terms from 6 months all the way up to 10 or 15 years and beyond.

During the term you are making 4 promises to the lender, otherwise known as covenants:

1- You promise to keep up with the mortgage payments

2- You promise to keep the property taxes up to date

3- You promise to keep the property in good repair

4-You promise to keep sufficient insurance coverage on your home

This is not a one way street though, during the mortgage term the lender is also making promises to you:

1- They give you ‘quiet and uninterrupted possession’ of your home

2- They cannot change the agreed upon interest rate during the term

3- They cannot demand that you repay your mortgage before the term expires (unless you break one of your promises)

Most mortgage lenders will allow you to break the mortgage contract before the term is up. This is where the penalty comes in. The majority of mortgage contracts are written so that the penalty is the greater of 3 months interest or the Interest Rate Differential (IRD). I could write a whole post on what to look out for when it comes to IRD. NOTE: Be wary if you are offered a low interest rate that is too good to be true because that is a sign that your mortgage may not be ‘breakable’ and you will be handcuffed to the lender until the term expires or you will have to pay them all the interest that you would have paid them over the term of the mortgage.

What happens at the end of your term you may ask? If you are a good client to the mortgage lender and pay them consistently over the life of the mortgage they will be happy to extend a mortgage renewal to you to enter into another term with them. This is an important juncture in the life of your mortgage because it represents an opportunity for you to refinance, move or paydown or off your mortgage with no interest penalty. It also represents a good opportunity for you to negotiate a lower rate or switch lender. Amazingly 90% of Canadian homeowners take the posted rate renewal offers their banks send them and pay more then necessary in interest.

If you are frustrated or confused about mortgage financing and looking for a guide with patience and who really understands the ins and outs of the business contact…

Chris Molder – Son Of A Broker

Licensed by the Financial Services Commission of Ontario under Lic#M08010066

Most mortgage borrowers don’t realize that their mortgage lender options are much broader than the Big 5 Banks.  There is an entire market of lenders who are, in many cases, more competitive than the banks when it comes to mortgage interest rates, have a wider selection of products and have excellent costumer service.

One of my favorite lenders to work with is Merix Financial. You have probably never heard of Merix Financial but their extensive product line (including the Merix HELOC, and 50/50 Mortgage), competitive no hassle interest rates and commitment to serving their customers have made them one of Canada’s leading mortgage lenders.

As a borrower you will find that they are very easy to work with especially when it comes time to renew your mortgage or lock in your variable rate mortgage. They don’t have posted rates and only offer discounted rates which are always among the lowest in the market so you never have to worry about whether you are being offered an unfair market rate.

The goal of Merix Financial is to stay ahead of the curve in the evolving mortgage industry, listen to the needs of their customers, and continue to build and innovate to support the long term loyalty of the customer and broker.

To date they have managed to achieve that goal very well and continue to improve.

If you would like to learn more about Merix Financial‘s mortgage options, please contact me.

Christopher Molder – Son Of A Broker

Licensed by the Financial Services Commission of Ontario under Lic#M08010066