Business

I am not an economist, but having been in the industry a while, I am an “observationist” and I do like to plan ahead for changing market conditions. The so called “Trump Factor” is no different and if you are in the real estate market or plan to be, you should be considering the impact as well.

Now that he has been sworn in as president, it does not matter if you excited about the new president or totally upset, the fact is there will be many changes in many areas, and the real estate industry is no different.

What’s Happened So Far?

Well, mortgage rates are primarily affected by up and down movements in the bond market. Why? Because most mortgages are packaged as some type of bond transaction and sold to investors. Bottom line is that most expected Hillary to win the election. The upset victory by Trump resulted in an initial drop in the markets and then the stocks rebounded and kept going. As stocks climb, bonds usually dip due to a bond sell off.

So, we have seen a substantial change after the election. Mortgage rates did rise slightly but have since tapered off.  The bond market sold off when the stock market popped up because of optimism that the economy would get better.

Also, if Trump’s platform holds true, he is going to increase fiscal spending and invest in infrastructure. If this happens in conjunction with interest rates and monetary policy, this will lead to growth, new jobs, more money circulating, etc. Higher growth means rising prices (inflation). Inflation means higher interest rates to curb inflation and the viscous circle will begin.

Where will the economy be in 3, 5, 10, 15 years from now. It’s an educated guess at best. But if growth is in fact higher, rates will be as well.

Still, we must keep in mind that even if the prime rate does start to rise, there is no guarantee that longer term mortgage rates will rise as the prime is affected by the Bank of Canada and mortgage rates are affected by bond rates.

Ok, so what does this mean?

Bottom line, is it’s not clear or predictable yet. A lot still depends on if rates go up and by how much. Slight increases won’t change consumer or lender mentalities that much. However, a substantial increase would have a real impact.

In addition, I have not discussed the impact of the mortgage rule changes late last year, and although that is not the purpose of this writing, it cannot be discounted and these rule changes can affect interest rates and the market as a whole.

So, what to do is be prudent as always. If Trump succeeds, the US economy should do better and that would result in higher wages, inflation, etc. Likely, higher rates south of the border. If there is spill over and our economy mirrors some of the impact, then you can expect the same here.

The markets, real estate included, are largely driven by consumer sentiment and emotions. Right now, real estate is the “thing to do” and in our market at least, expect things to remain positive with very attractive interest rates in the near future. Long-term, who knows. Regardless, real estate has had its ups and downs over the years. Land, brick and mortar always seem to be a good bet in the long run.

Have any questions, need any advice? Visit us at www.thefinancialforum.ca. Email us at mortgages@thefinancialforum.ca. Call us at (905) 265-0246.

VERICO The Financial Forum Ltd.

“Your Connection To A Better Mortgage”

Together, We Make Mortgages Easy!

So, on October 3, the Department of Finance introduced some major changes to how you get qualified for a mortgage.

Why? Apparently, they want to protect Canadians from taking on bigger mortgages than they can afford while we are in this period of historically low interest rates. Good intentions.

But – Still no intervention relating to credit card debt, unsecured lines of credit and loans. Essentially, you can have as much unsecured debt as you desire and that you can get your hands on, but secured debt is being curbed to “protect you”. You can form your own opinion on this. From my perspective, I cannot recall the last time I met with a client that was highly leveraged on his home with little and manageable unsecured debt that was having financial issues. Yet, I regularly meet with clients with lots of equity in their home, but have allowed unsecured debt to get out of control. Just saying!

What is the change all about?

As of Oct. 17, a revised “stress test” will be used for qualifying high-ratio mortgages. This will apply to all insured mortgages, even if the down payment exceeds 20 percent. The stress test is designed to comfort the lender that you could still afford the mortgage if interest rates were to increase.

Currently, those choosing a term less than a 5 year fixed, or those choosing a variable rate mortgage, have been subject to the same stress test. However, after October 17th, the qualification rate will apply to all insured mortgages. Currently, the qualification rate is at 4.64%.

So, financing that extra amount by going to a five year fixed term or greater is off the table. You must now qualify at the qualification rate regardless. Last time I checked, 5 year fixed terms were over 50 percent of the market, so this is impactful. Think about it – qualifying at 2.39% vs. 4.64%.

The stress test also dictates that no more than 39 per cent of income can be made available to home-carrying such as mortgage payments, heat and taxes. Also that 44% of income is the maximum when all other debt payments are included.

Approved applications will be grandfathered from the change, excluding pre-approvals.

What is the impact?

Simply, lower buying power for potential purchasers. On the average, 15% to 20% less buying power. So a purchaser who qualified for a $700,000 purchase price would likely now qualify for about $550,000 or so.

For high ratio mortgages, this is more or less a level playing field for all lenders. However, for non-bank lenders who insure all (or most) of their transactions, they will not be able to entertain many of the applications presented to them. That business now must go to a bank or deposit taking institution that can fund the transaction on their own (not insured). This results in much less competition, which usually means higher rates.

Further, if banks cannot insure any part of their portfolio with down payments greater than 20 percent, the cost of funds will be higher as they are not able to sell to the secondary market (Mortgage Backed Securities). Guess what? You will have to pay more for a mortgage when your down payment is more than 20 percent.

Renewals will be affected. If your equity is more than 20 percent at time of renewal and you don’t meet the criteria, your mortgage may not be able to remain insured, meaning the lender may not renew or your rate may be higher.

Mortgage Insurance for rental properties no longer an option.

Amortization is reduced from 30 to 25 years maximum if your down payment is 20 percent or greater. Further reducing buying power. If you want a 30-year amortization, banks or credit unions only please.

Maximum purchase price of $1 million. Anything greater, banks or credit unions only.

Possible Results

Taking away this much potential business from non-bank lenders will not protect you should rates rise. It simply eliminates your choices and reduces competition in the market place. This can only result in higher costs, to you.

Final Thoughts

I am not an economist, a politician, a prime minister or a finance minister. Nor am I suggesting that I can confirm the changes are bad or good for Canadians and the economy. What I am suggesting is that these changes seem to have been introduced and implemented without regard to the potential impacts. In fact, of all the major lender representatives I have spoken with, non of them knew of the changes, or if they did expect something, not to this degree.

The government spends millions of dollars on called studies. However, I have seen nothing to suggest that the potential impact of these changes was methodically thought out and that they were introduced for the greater good of Canadians, the economy, the lenders and all of the industries that this could impact. Perhaps they were, but again, I have seen no evidence of this.

Optically, it appears that on a whim, the policy makers made these changes and forced it down our throats to “protect us”. However, broker lenders have already started to hike rates (forced to do so). Broker lenders have had to eliminate many of their product offerings. Canadians will be forced to pay higher interest rates because the home they easily afforded yesterday can no longer be afforded at renewal, with the solution (believe it or not) to send them to another lender with a higher rate.

The magic wand of the policy makers has also given even more power to the banks. For example, you want a 30-year amortization? Go to the bank. You want to refinance your home, bank. The choice and competitiveness is now gone.

All of this because the government is trying to protect us. If the market should crash, they are on the hook for insured mortgages that go in default. Now, that is a different topic for a different day all together. But, surely, the insurers should have, or ought to have a sufficient buffer built into their business model to withstand a major market fall and then some. And then some more. There is no excuse that I can see for this buffer not to be in place. Remember, the insurers are for the most part, insuring mortgages that are greater than 80 percent of value. Yet, the insurance premiums they charge are not based on the amount exceeding 80 percent, but rather on the entire amount of the mortgage. With the exception of some bumps in the economy, delinquency rates are almost entirely off the radar. So, if the insurers are running a model that allows for major delinquency should it happen, where is the buffer? I find it difficult to understand that with delinquency having been so low for many years, why the insurers would not have a contingency fund in place to support a major market collapse, if it were to happen.

I think in the end, the qualifications rules are not a bad idea, although they need some tweaking. However, taking the non-bank lenders out of the market while doing so is going to cause undo harm not only to potential purchasers and home owners, but to the entire industry and economy. Let’s wait and see how this goes.

Have any questions, need any advice? Visit us at www.thefinancialforum.ca. Email us at mortgages@thefinancialforum.ca. Call us at (905) 265-0246.

VERICO The Financial Forum Ltd.

“Your Connection To A Better Mortgage”

Together, We Make Mortgages Easy!

 

The number 1 question customers ask when shopping for a mortgage is and likely always will be “what is the lowest rate I can get?”. While obviously an important aspect of your mortgage, getting the lowest rate isn’t always the be all and end all and we are going to give you some examples of that.Business & Finance

One of the most glaring examples of why you need to look past the allure of the low interest rate is the penalty. Countless times we have had customers come in to refinance or sell their home only to have the efforts crushed by an astronomical penalty associated with breaking their mortgage. When the clients are appalled as to why their penalty is so high above the norm, the answer is often simple; at the time when they were given their mortgage, they were coaxed into signing with a sexy low interest rate, much lower than everything else on the market. What they weren’t told or chose to ignore was that this “special” offer was what is referred to as a “no frills” mortgage. Meaning, that in exchange for a super-discounted rate, the lender does not offer any pre-payment privileges or flexibility and when it comes time to break the mortgage, the penalty is through the proverbial roof!

When shopping for your mortgage, you need to weigh out all of your future plans, goals and of course leave some wiggle room for the unplanned events that life invariably brings our way. If you are planning to sell or renovate in a couple of Business & Financeyears, this should be accounted for. Even if you aren’t, to save 10 bps (0.10%) on your mortgage may not be worth the “no frills” trade off. Make sure you have your bank or broker explain these things to you. A good broker will always go over these things with you anyways.

Another item you may want to consider are costs associated with the mortgage closing as well as services throughout the term. One lender may be offering 2.49% instead of 2.59%, however they require you to pay more upfront on closing and those costs may outweigh any interest savings over your term. Some lenders may not offer online access which may be an important item for you.

The bottom line is you need to look at your mortgage as a whole when choosing the right product for you. It isn’t always about going with the lowest rate or the biggest brand name bank. Have your broker explain your options to you and discuss in detail what your future plans and goals are. Their job is to find you the best possible product for your wants and needs and to ensure you get the best mortgage available to you, and that certainly is not defined solely by rate.

Have an idea for an article or something you would like to see posted? Post it in the comments below or on Facebook and we will do our best to produce it for you. Or sign up for our email reports to stay up to date with market news and special rate promotions.

Have any questions, need any advice? Visit us at www.thefinancialforum.ca. Email us at mortgages@thefinancialforum.ca. Call us at (877) 335-4486.

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VERICO The Financial Forum Ltd.

“Your Connection To A Better Mortgage”

Together, We Make Mortgages Easy!

Have Small Businesses Returned to Prominence?

They never really left, but they did take a notable leave of absence from the forefront of consumer intake. But now, in 2015 they seem to be back making some noise and gaining steam moving forward. Although still very difficult to compete with the Mega Stores such as Walmart, Best Buy, Lowes, Etc., small business are taking back some buying power and are once again able to offer consumers competitive pricing, competitive enough to go toe to toe with these industry giants!

Small Business Vs Mega Corporation

So what happened to these Small Businesses? Where did they go? The answer has been in front of us for many years now and has been discussed to death. We’re here to talk about the other side of this, the upswing. With the growth of mega stores, places like Walmart were able to offer basically everything under one roof and at a lower price. Consumers loved the idea of going to one place and potentially saving a few bucks. But what was sacrificed in the process? The main loss suffered by the public was the personable service you receive from the small business experience; it is non-existent in the super stores. Small businesses (most of them), care more about just the sale and actually want to help you as best they can. So how is it with all these mega stores still thriving that the small business is slowly making its return? In not so many words; the internet happened.

There are literally hundreds and hundreds of different tools available to small businesses for a cost of next to nothing, it has become easier than ever for a small business to not only advertise but to connect with their clientele and potential customers. For a fraction of the cost of traditional advertising (Television, Radio, Billboards and other print) a business can now set up a functional and snazzy website, place ads on other sites and social platforms and ultimately create an online presence that they could never establish offline. An entrepreneur can not only create a buzz and educate the public on their products and services, but they can now connect with them in ways they were never able to do. With social platforms such as Twitter, Facebook, Instagram and an effective Blog, business owners now have a voice and it is louder than ever. Being able to connect and talk to customers should never be overlooked. The personal experience that customers get when dealing with a smaller business just cannot be matched by the industry giants, and that gives the little guy an edge. With infinite options and convenience, coupled with consumers who are more educated than ever before – people have questions and people want answers. Being able to address these needs has drawn more and more people away from the Superstores and back to the locals.

Small Business Vs Mega Corporations

When you consider the fact that a huge percentage of business in 2015 was originated to some degree from an online platform, think about the power that this personal connection gives the “little guy”. Almost every customer will google a company or check out their social feeds before contacting them. If they have a question or want actual reviews it is as easy as clicking like on their Facebook page.
Granted the big guys have people dedicated to handling Twitter and Facebook, which further confirms the importance of this power. If these big corporations have placed enough stock on the importance of connecting with the consumer base that they dedicate an employee, a salary and in some cases even whole teams to deal with this; this is proof that they are feeling the heat from underneath. As a small business, if you want to keep up pace and survive through the coming years; then you better recognize the vital importance of these tools and learn how to use them effectively. Fast. As consumers continue to shop this way and small business continue to grow, taking advantage of these platforms; then maybe, just maybe we can start to take back some of the market share and put some money back into each others pocket, into community businesses and force the giants to come back down to reality. Take back your community and take back your industry. We would love to hear your thoughts and input on this topic, please join the discussion below.

Have an idea for an article or something you would like to see posted? Post it in the comments below or on Facebook and we will do our best to produce it for you.

Have any questions, need any advice? Visit us at www.thefinancialforum.ca. Email us at mortgages@thefinancialforum.ca. Call us at (877) 335-4486.

Best Home Loans & Financing - The Financial Forum

 

VERICO The Financial Forum Ltd.

“Your Connection To A Better Mortgage”

Together, We Make Mortgages Easy!