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.

It was only a matter of time before the casual conversation turned to Canadian real estate. Along the way he shared some insights with me about housing prices and the dreaded “B” word. Bubble.  There are two things Avery explained to me that have put my mind at ease regarding the over heated real estate market.

A Balanced Real Estate Market

Anybody who has recently braved the real estate market especially here in Toronto is probably well aware that the market has been slightly favoring sellers. That trend will likely change in 2012. Over the last two months the sales to new listings ratio, an important metric used by economist to determine whether we are in a buyer’s market or seller’s market, has started to ease off and the expectation is that the market will continue to balance itself in 2012.  There are a number of reasons including the possible tightening of mortgage rules (more to come on that topic on this blog), concerns about purchasers affordability being maxed out and over supply in the market. If you look at the graph below you will see that the sales to new listings ratio is hovering around the 50% mark, a good indicator of a healthy real estate market.

Housing Inflation

Avery also explained to me that housing inflation, another indicator used to check the health of a real estate market, was trending back towards zero. House inflation is a measure used to determine year over year (y/y) how rapidly housing prices are increasing. The current y/y % change is around 4.8% as of the 3rd quarter of 2011. Globally Canada has some of the hottest real estate however economists are expecting prices to level off spring 2012. Ultra-low interest rates are still attracting buyers, but increased economic uncertainty combined with job loss and unemployment could effect the numbers in 2012.

By the time Avery and I made it back to our resort his message was clear regarding Canadian real estate in 2012. Things could be better and they could be worse. 2012 appears as if it’s going to be a flat year.

Personally I think this is great news because the numbers are showing that Canada is not experiencing a real estate bubble and that things look like they are easing softly in what has been a somewhat over heated market over the past 24 months.  A sentiment that is starting to be shared in the media most recently Canada Housing Is Pricey But Far From A Bubble: BMO

What do you think? Do you have an opinion about Canada’s real estate market? I’d love to hear your comments. Feel free to drop me a line below.

Any of Tridac – The Mortgage Centre’s clients know exactly what my connection to piggy banks is. If you’ve done business with us then you no doubt have received one of our cute little piggy banks as a ‘thank you’ gift after closing your mortgage.  The significance of the piggy bank runs deep in our family business as a metaphor for savings and the building of equity in your home. My Dad has been using piggy banks for years and the apple hasn’t fallen far from the tree as evidenced in our most recent company portrait below.

Piggy banks and cute closing gifts aside, the glue that binds together any successful relationship business like our mortgage brokerage, is a solid client relationship management system or CRM in industry terms. I rely on British Colombia based CRM provider GoMax Solutions for the tools and systems that allow me to provide the personalized service that my clients have come to expect and enjoy from me.  Earlier this month GoMax ran a Facebook contest asking mortgage agents and brokers to share their best marketing ideas. I shared our Piggy Bank idea below and won the $100 prize!

Upon successfully closing a mortgage with any of our clients, we send them a very attractive looking piggy bank and message along the lines of “like a constantly dripping faucet will eventually fill any vessel, the accumulation of small amounts of money will amount to significant savings over time.” The piggy bank and savings then become a topic of conversation throughout our various touch points throughout the year. GoMax has made the management of these touch points so easy. On our client’s birthday we send them a card with a brand new shiny loonie. We use the piggy bank as a metaphor for equity in a client’s home and use it to show how small changes to payment habits can result in major savings over the life of the mortgage.

Whether you are a first time home buyer shopping around for a mortgage or you already have a mortgage and are looking to see what else is out there, I invite you to give me a call 416.461.0204 or fill out the contact form below. Not only will you get  personalized attention from experienced brokers (checkout our client testimonials) but you’ll also receive great rates, unbiased advice and your own little piggy bank and all of this for free! Why for free? Because as a mortgage broker I get compensated through the bank by a finder’s fee so our service doesn’t cost you. I look forward to hearing from you.

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1) BMO has been losing mortgage market share over the past couple of years. Mortgage market share is important to the bank because inevitably their mortgage borrowers will open investment, savings & chequing accounts which drive profits.

2) The move to give money away is very intentional this time of the year because it is the beginning of RRSP season. The more people to visit a BMO branch the more opportunity they will have to cross sell RRSPs and other products.

Son of a broker’s pick: You can’t go wrong with the fixed 5 year at 3.15% and if you are feeling particularily rate sensitive the fixed 4 year at 2.99% is the answer. You get all the bells and whistles with out the restrictions of BMO’s offer.

Click here to view the embedded video.

CURRENT RATES

1 Year Fixed – 2.99%

3 Year Fixed – 3.09%

4 Year Fixed – 2.99%

5 Year Fixed – 3.15%

5 Year Variable P-.10 (2.90%)

10 Year Fixed – 3.99%

Prime Rate is currently 3.00%

Rates are subject to change and subject to the lender’s approval.

If you’d like more information connect with me below or call me directly at: 416.461.0204.

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Click here to view the embedded video.

A cashback means that the lender will give you 5% of your mortgage amount back as cash. So, if you borrow $100,000 they will also lend you an additional $5,000. The cash can be used for anything however, it is really designed to help buyers who can’t come up with a full 5% down payment, the minimum down payment required to buy a home. If you are buying a home and don’t have the required 5% down payment through a cashback mortgage the lender would provide you with 99.75% of the financing (wondering why 99.75? It’s 5% of 95% financing giving you that 99.75% number). In exchange for the cashback a borrower is expected to pay a higher interest rate. Currently that rate is 4.99% as offered by the National Bank who are running a promotion.

If you’re stretching to buy a home and can’t come up with the required 5% down payment it’s tempting to think that 4.99% isn’t too bad. But once you break down the cashback offer you’ll find that it isn’t that sweet of a deal… at least not for you, the borrower.

Consider the following example (if the numbers below make you dizzy, just skip to the summary section):

Borrower A has her 5% down payment and requires a $250,000 mortgage to buy. Her mortgage is arranged with a fixed 5-year rate of 3.39% amortized over 25 years.

Borrower B couldn’t come up with 5% down payment so he opted to take $250,000 with a 5% cashback. This cashback gave him $12,500. In total borrower B receives $262,500. The cashback mortgage costs borrower B 4.99% for a 5-year term amortized over 25 years. Keep in mind that only $250,000 is registered as a mortgage for a cashback.

The following graph shows how much interest is paid by Borrower A vs. Borrower B each year given their different interest rates.

The graph shows that by the end of the 5 year mortgage term Borrower B pays $19,103 more in interest to the lender. Of course out of that $19,103 Borrower B is getting the benefit of $12,500 therefore, the cost is $6,603 ($19,103-$12,500). So the actual interest paid on a 5% cashback of $12,500 is close to 10.6% (($6,603/$12,500)/5 years).

It’s also important to note that after 5 years Borrower A‘s outstanding mortgage balance is $215,264 mean while Borrower B‘s outstanding balance is $221,233 (note: all figures are approximate).

The skinny

• The cashback in a 5% cackback mortgage costing approximately 10.6% per year to borrow over a 5 year period
• When a cashback mortgage comes up for renewal 5 years into the mortgage the outstanding balance is significantly higher
• If a borrower breaks their cashback mortgage during the 5 year term there is a clawback on the cash
• Over the entire life of the a cashback mortgage a borrower will pay more interest to the lender

For some first time home buyers the allure of stepping into your first home without needing a significant down payment can be very tempting. There maybe extreme circumstances where the 5% cashback mortgage should be considered to purchase but I wouldn’t advise anyone to step into a cashback mortgage. The premium for the extra funds is too high and if you can’t afford to save the 5% down payment then you are likely not financially ready to own a home.

If you have any further questions about cashback mortgages or any other mortgage product call me at 416.461.0204 or fill in the form below. I’m always available.

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I’m happy to announce the Son Of A Broker Facebook Friday the 13th contest! Lets change your luck this coming Friday the 13th and give the traditionally unlucky day a new meaning.  I’m running a contest giving away a $50 gift card to Oliver & Bonacini which can be used at any of their fine establishments across the city.  The contest is so easy to participate in that even my Dad figured out how to join. All you have to do is “like” my facebook page.

Step #1 – Visit Facebook.com/sonofabroker

Step #2 – “LIKE”

Step #3 – Cross your fingers, put on your lucky shoes and don’t wash your lucky shirt for a week.

On Friday, January 13th,  I’ll draw one lucky winner from my “like” list using www.random.org. The lucky winner gets the $50 gift card towards any O&B restaurant including my favourite, Canadiana inspired, Bannock. Good luck.

There’s seldom an occasion during which we can sit back and contemplate time gone by and time to come. Thank goodness we mark each calendar year with a definite beginning and end. This gives us a formal opportunity to reflect, reset and plan ahead.

2011 was another fantastic year at our brokerage Tridac Corporation Ltd – The Mortgage Centre. It was also another year of learning and evolving. After 34 years in business, there’s still so much to work on and improve. When my dad started our brokerage there wasn’t a computer in sight, whiteout was always in stock and the typewriter was a modern piece of equipment. This past year, technology was again at the forefront of our growth as we evolved our brokerage into a fully social business.  With the help of my brother Mark we took another serious look at social media. Actions included revamping our website, again, adding a Son Of A Broker – Facebook page (please become a fan we only have 28 likes – Mark thinks that’s pretty weak), joining the conversation on Twitter, and learned that Linkdin really isn’t that social. I’m not too sure why we are on Google+ but I figure it’s good karma or something like that (I know you’re reading this Google). We have a Google Places page and even have legit reviews about our business! I also redesigned this very blog in mid 2011 as the previous version was so 2010.

Our clients will be happy to know that in late 2011 we integrated new customer relations software which will improve your experience with us. Features include an annual phone call from yours truly and enhanced communication to notify you of any changes that would affect your mortgage.  We’re also in the process of setting up an online debt management system designed as an easy to use budget tracker. This system will not only help you determine where your money is being spent but more importantly assist you to get out of debt and pay down your mortgage as quickly as possible.

To our new and old clients who have made 2011 a great year thank you for your business and support. My dad and I truly appreciate the opportunity to help you with your mortgage financing. At risk of making this sound like a post scribbled in a year book I’d also like to use this opportunity to shout out to a few colleagues, partners, and friends who have made this year fun and taught me a lot: Mark Savel, savelblogs.com; Kerri-Lynn, Brennan & Alyssa  Ratehub.ca; Kevin Tuttle, ChrisClarketeam.com; Joy Paterson, condochicks.com; The Bhandari brothers, talkcondo.com; Matt & Cliff, BuzzBuzzHome.com; Geoff Charkow, MerixFinancial; Tony Olivera, Remax; and Brian Persaud, urbantoronto.com.

Best wishes for continued success in 2012.

Christopher Molder – Son Of A Broker

Apply below for your 3.25% fixed 5 year rate and I’ll follow up with you right away or give me a call at 416.461.0204ext2 to discuss over the phone. Keep in mind that my services are free of charge to you as I get compensated by the mortgage lender through a standard finders fee.

Not sure if you’d like to work with me? Read what my clients have to say.

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When it comes to shopping online, I’m not alone. Statistics Canada reports that in 2010, 51% of Canadian internet users ordered goods or services online. Not surprising considering the number of people buying concert tickets, airline tickets, booking hotels, or buying electronics like iphones and cameras. But how good is the internet when it comes to shopping for more personalized and “technical” goods and services like skis or mortgages? Well, shopping for skis online obviously works, so what about shopping online for a mortgage?

The experience of a mortgage borrower shopping online can’t be much different than my experience shopping for skis. Just like skis, mortgages are technical and come in different shapes, sizes and brands each designed for a specific purpose. Narrowing down your search can be a challenge with every broker, bank and specialty website vying to grab your attention. The noise can be overwhelming. So should you feel confident shopping for a mortgage online?

Lets face it, mortgages remain the single largest expense a typical household will incur. I think few people feel confident making a decision based solely on information gathered from a website without consulting a professional. But, with better and better mortgage sites appearing, the ability to shop completely online for a mortgage may one day become a reality. Mortgage websites have evolved into reliable resources helping you, the borrower, find relevant information to help choose the right mortgage.

Take the popular mortgage site ratehub.ca a one of kind website that not only serves as a search engine to find Canada’s best rates but serves as a platform to educate and empower borrowers to make informed mortgage decisions. A great feature of the site is that neither a financial institution nor a mortgage broker runs it so the information and advice are neutral.

If you’re shopping online for a mortgage it’s tough to know what sites are current and offer reliable information. A few things to look out for when browsing a mortgage site include:

1. Sites that engage visitors through social media like Twitter and Facebook. A site that engages their audience is likely to be careful about the quality of content they’re sharing online.
2. If the broker is blogging, check to see how recent their posts are.  It’s a great way of determining whether someone is “home” and actively working the site. It also helps you to determine if the content is relevant and current.
3. Check for testimonials on a brokers website. As brokers we crave affirmation that we’re doing a good job and we love to share our success with the world. It’s also surprisingly obvious when someone is faking testimonials on their own site.

I’ve written enough mortgages in my career to know that there isn’t a one size fits all mortgage solution. We live in a dynamic and ever changing world and the needs of each borrower are unique. Having said that you shouldn’t shy away from educating yourself online and engaging mortgage websites. They provide a wealth of relevant information that can help you level the playing field so that when you do engage a mortgage professional you are doing so well informed.

Now, if only it would snow I could use those skis that I bought online!