24 Feb

Helping your clients choose a mortgage


Posted by: Brad Lockey

While banks and mortgage lenders reluctantly cut lending rates after the Bank of Canada dropped its interest rate, buyers of real estate have much more to consider than the lending rates when they choose a mortgage.

Lenders that allow frequent lump sum payments, flexible portability and “blend and extend” options, in which terms are extended by blending old interest rates with new rates, are cases in point. Those lenders are not always the banks. It’s often mortgage brokers who find the best options, largely because they can choose from a host of different lenders to tailor mortgages to specific clients, says Rob McLister.

McLister is editor of CanadianMortgageTrends.com and founder of RateSpy.com, the latter of which provides rates and options from more than 350 lenders, including all the major banks, credit unions, trust companies and most top brokers.

“Having more than one lender choice benefits the borrower,” he says, noting that major banks don’t necessarily have the most flexible mortgage features. “No one lender has the best product for every client.”

Penalty clauses for breaking the mortgage contract early are a prime example. They should be reviewed with clients before signing on the dotted line because some lending institutions – particularly the Big Six banks – have more onerous clauses than others.

Still, says McLister, many experienced real estate agents have established relationships with banks that have provided reasonable rates and service.

Since the Bank of Canada dropped lending rates in January, mortgage brokers were quick to make the deepest rate cuts.

McLister calls it the widest rate differential between the two groups in years. “With the lowest broker rates, you’re sometimes talking about different products – a low-frills mortgage versus a bank mortgage – but nevertheless the interest cost gap is extremely wide.”

That might change in the spring when property sales traditionally pick up and banks lower rates to stay competitive, he says.

Why the hesitation to drop rates now? Banks are likely trying to maintain profit margins for as long as they can. Unlike the banking world, however, the broker world has access to varied funding sources. “There are always a few lenders at any given time with exceptional pricing, and the (business) volume tends to shift to them, which benefits broker customers.”

One credit union, for example, DUCA Financial, has a pricing program for a select number of high-producing brokers that is “significantly below the market.”

McLister cautions that due diligence is required before selecting a broker. “You want to make sure that they are established and that they have access to the best lenders and lender status programs”, which ensures that they will get the best rates and options.

Experienced mortgage brokers best foresee potential problems. That helps the client avoid unpleasant surprises on closing day “because things can and do go wrong during the mortgage process.”

Jim Murphy, CEO of the Canadian Association of Accredited Mortgage Professionals (CAAMP), says many real estate salespeople have developed relationships with specific mortgage brokers, which can assist consumers “perhaps better than banks.”

Tougher lending rules and underwriting guidelines have sent more people through broker channels, he says. Typically, mortgage brokers appeal to three groups: self-employed, many of whom have solid credit ratings but less stellar incomes; new Canadians who may have solid income but no credit history; and first-time buyers, says Murphy, adding brokers can “shop the market” to find lenders for clients who are rejected by the banks.

Founded in 1994, CAAMP has about 11,500 members across Canada – 80 per cent of which are mortgage brokers and 20 per cent are lenders, insurers and other service providers. There are a lot of mortgage brokers who were real estate agents and some who are jointly licensed.

The CEO says first-time buyers have a history of turning to mortgage brokers in part because they do online research and are savvy shoppers. “Mortgage brokers have done very well at reaching out on social media.”

There are banks that go through the mortgage broker channel to find the best product for their customers.

The market is much more competitive than it was a decade ago – and not just for lower prices, McLister says. While mortgage companies can offer more competitive lending packages than banks today, there was a time when the reverse was true, he adds.

McLister anticipates a better spring market than original forecasts but how active the market is may depend on how far rates fall. He notes that a quarter-point rate cut on an average mortgage rate means someone making $50,000 a year with no debt and five per cent down can only qualify for a 2.3 per cent more expensive home.

Mortgage brokers have about 30 per cent market share in mortgages – much of that share coming in the last decade, says Murphy. According to research, says Murphy, mortgage brokers are also gaining market share on renewals, a traditionally weak area for them.

Growth in mortgage credit has dropped to four to five per cent from about eight to 10 per cent growth in 2006-2009, says Murphy. He believes mortgage brokers can continue to grow, although not likely as prominently as brokers did in the U.S. prior to the mortgage meltdown, when broker share was well over 60 per cent. To continue to hike their market share in Canada, mortgage brokers have to continue to broaden awareness among the general public.


19 Feb

The major advantage for brokers following rate cuts?


Posted by: Brad Lockey

Brokers have reported an increase in inquiries from clients since the Bank of Canada rate change, which has provided an opportunity for industry players to extoll the benefits of working with a mortgage broker – and explain the fine print on mortgage documents that many bankers may overlook.

 “It’s great time because you get that opportunity to have the conversation about pre-payment penalties – how they work,” Dustan Woodhouse, a BC-based broker with Dominion Lending Centres told MortgageBrokerNews.ca. “And they often say their bank never explained it to them and how cool is it to have that conversation? You’re telling them something their banker never told them when they signed up for a mortgage.”

 Clients are increasingly more educated about the state of mortgage rates and the various offerings from the big banks and brokers. What they may require education on is in the area of pre-payment penalties, which opens up the opportunity for brokers.

 “The advantage for brokers isn’t rates – we all have access to the same rates and, yeah, we can get prime minus 70 from a monoline but so what?” Woodhouse said. “The bank rep can access prime minus 70 from any of the major chartered banks, so it’s never about rates, even though it’s always about rates in that initial first sixty seconds of conversation with the client. You’ve got to redirect the conversation to policies, guidelines, pre-payment privileges, pre-payment penalties.”

 But rate-focused clients may not be swayed. However, brokers are well equipped to compete with the banks, according to Woodhouse. Especially after the initial client consultation about how penalties work.

 “For clients looking at a five-year fixed, unquestionably is a monoline lender nine times out of 10. Not for every single client, but for the overwhelming majority of clients, if they want a five-year fixed they will have a significantly better advantage in pre-payment penalties by going with monolines,” Woodhouse said. “Six out of 10 Canadians are breaking their mortgages early. 10 out of 10 Canadians say ‘that won’t be me.’”


10 Feb

Major cuts to come from the Bank of Canada?


Posted by: Brad Lockey


The voices predicting a further Bank of Canada rate cut have become a chorus, with another bank stating it believes the central bank still has additional basis points to slash.

HSBC Bank PLC has predicted the BoC will lower its benchmark to 0.5 in March and again in Q2 to a mere 0.25 per cent, according to Michael Babad of the Globe and Mail.

Of course, two of Canada’s major banks have already made their own rate cut predictions for the coming months.

“The Bank of Canada assumed upcoming weakness in the economy when it cut rates last week. Although its focus is on 2015, with growth in Q4 now set to come under its 2.5 per cent forecast, the BoC has all the more reason to cut again in March,” CIBC states in its Economic Flash report published Friday. “The downdraft from oil will indeed be significant, but overall output’s response to cheaper fuel, lower rates, and a significantly weaker Canadian dollar means that our full-year growth target for 2015 is still around the economy’s potential.”

That report followed on the heels of a similar prediction made by TD Bank, who also predicts a further rate cut to come from the Bank of Canada at its next rate announcement.

“The Bank of Canada unexpectedly cut the overnight rate by 25 basis points in mid-January, on the negative impact of lower oil prices on inflation and the real economy. At that time, it also signaled that it saw most of the risks to inflation to be tilted to the downside,” TD’s economic update, published in late January states. “Given our weaker oil price, inflation, and output forecast relative to the Bank, it therefore holds that we expect some of those downside risks to be realized.

“As such, we forecast that the Bank of Canada will cut the overnight rate by an additional 25 basis points at its next fixed announcement date in March.”




3 Feb

Did you know …


Posted by: Brad Lockey

Lenders make a lot more money when they renew your mortgage than on your initial term. That’s partly because they don’t have to compensate anyone for referring your business (or compensate them as much).  But it’s also because many clients fail to contact their Mortgage Broker. According to a recent Maritz survey, only 56% of borrowers negotiated their mortgage rate at renewal. A remarkable four in 10 took the first rate their bank offered. That’s a scary statistic considering banks rarely, if ever, offer their lowest rate upfront regardless of how long you’ve been a customer! That’s why it’s so important to contact your me at renewal as well.