Recent Mortgage Articles - How to get Best Mortgage Rates

OSFI Toughens Mortgage Underwriting

OSFI's final mortgage underwriting guidelines are out, sooner than expected.

There are significant changes on the way for a variety of borrowers. TD's Chief Economist, Craig Alexander, told BNN that the impact of these guidelines is equivalent to "well over a percentage point (increase) in mortgage rates."

However, these guidelines are less concerning than OSFI's original draft (which proposed things like requalification on renewal). Moreover, in many ways this news isn't as market-shaking as today's Department of Finance announcement.

That said, here is what's changing (Note: this applies to federally regulated lenders only):

HELOCs: The maximum loan-to-value on a HELOC will drop from 80% to 65%. That will sting borrowers who leverage HELOCs for productive purposes (e.g., as substitutes for open mortgages, or as a low-cost borrowing source for income-generating investments or small business). However, lenders can still provide a 15% amortizing mortgage on top of a HELOC, for 80% loan-to-value total. OSFI tells us: "Existing HELOCs are not affected, but future offerings are subject to the limits."
Qualifying Rates: The qualifying rate is being toughened for conventional mortgages For variable rates and fixed terms less than five years, it will be "the greater of the contractual mortgage rate or the five-year benchmark rate published by the Bank of Canada." This will push a small number of borrowers into 5-year fixed mortgages because they won't qualify for shorter terms.
Stated Income: Going forward, all self-employed borrowers must provide "reasonable" income verification (e.g., a Notice of Assessment). Most lenders already have such policies. It appears that true "no-income documentation" stated income mortgages are officially a thing of the past at mainstream lenders.
Down Payments: "Cash back should not be considered part of the down payment," says OSFI. This effectively eliminates 100% financing, and is one of the most common sense guidelines of them all.

There are also other changes that may affect non-prime mortgages. We're awaiting clarification on those before commenting further.

Federally regulated lenders have until "no later than fiscal year-end 2012" to comply with these guidelines. That ranges from October 31, 2012 for major banks to March 31, 2013 for other institutions). However, OSFI expects them to comply sooner if possible, so we may see some of these changes within a few months, if not weeks.

There's no telling yet if provincial regulators will impose the same guidelines on the lenders they regulate (like credit unions).

Watch Out For the Tack Hiding in TD's Big Green Easy Chair

TD has recently launched a new mortgage program that will be sold to their clients as being comfortable, supportive and really good for them, a lot like that over stuff green leather chair we're all familiar with. But there's a bit of a nasty surprise waiting for mortgage customers who will decide to take a seat at TD; an insidious little prick that could result in a hemorrhaging of cash.

With your standard mortgage, when your term is up, you may take your mortgage to another lender with a more competitive rate and your new lender will typically pay for the legal fees incurred. As of October 18, 2010, this is no longer a privilege offered to new TD mortgage clients.

TD has announced that they will now be registering their mortgages as "collateral charge", meaning the terms of the mortgage can be changed at anytime, without having to re-register it on title. What this really means is that if you want to tap into the equity in your home, you will visit your TD rep, they will put you through the paces of approval for the increase of the mortgage, they will assess your property for it's current value and if approved, you will either have to take a blended rate on the new mortgage amount or pay a penalty to get a new rate. So no real change in the "ease" factor of refinancing your mortgage, but registering the loan in this manner will save you about $1000 in legal fees and a half hour visit with your solicitor.

How much will this little perk cost you? About a $1000 in legal fees and potentially thousands of dollars in interest. What???

You see, if you refinance your TD mortgage, their new method of registration will save you the legal fees usually incurred by increasing your mortgage. The key word, however, being IF. Many people will never choose to refinance their mortgage, so some TD customers may never actually see the benefit of their collateral charge mortgage.

However everybody renews their mortgage and it's usually the point at which customers look around for a better deal, sometimes with another lender. This process is referred to as a "switch" and other lenders usually pick up the cost of the legal fees on switch mortgages, making it as easy and attractive as possible for the customer to make the change. Think of a switch as "transferring" the mortgage from one lender to another; as long as no major changes are made to the mortgage like adding a name or changing the mortgage amount, the legal work is pretty simple and not very costly to the new lender.

However, TD's "collateral charge" mortgages WON'T be able to be "transferred" because they will be like oranges to everybody else's apples. A TD mortgage would now have to be discharged in order for you to change to a new lender at renewal, so that your new "apple" mortgage can be registered in it's place. This is a much bigger legal deal so other lenders will most likely NOT be covering the legal costs for "switch" customers with TD mortgages.

In short, if ever you should refinance, this change will SAVE you about $1000 but if you should want to switch your mortgage at renewal, it will COST you about $1000.00. In many cases the cost of legal services for A STANDARD mortgage refinance is as low as $400-$500 and some of our lenders now offer "no-fee refinancing" in which they cover the legal and appraisal fees.

So that was that the annoying, senseless little tack.here's the internal bleeding.. What will motivate TD to be competitive at renewal when they know it will cost you money to go somewhere else? Prior to this change, after they made you shop around with mortgage brokers and the like, they would probably decide to be competitive and offer you a decent rate. Now, TD will most likely point to the cost involved in making a switch rather than be competitive rate wise and many customers will choose to simply sign their renewal without question. This could be a mistake that will cost TD clients thousands and thousands of dollars in interest payment over the lifetime of the mortgage.

Why are they doing this? Well, they'll tell you that it's for your ease and comfort but really it's for theirs. In a financial market downturn, when not there's not alot of new mortgages being obtained, TD is trying to ensure they're clients don't renew with any one else thereby creating a steady stream of business for TD in the near and distant future. Not with competitive rates and stellar service, mind you, but by a shameful play to lure clients into trading their freedom of choice for a minor, POTENTIAL, convenience.

I recommend taking a seat somewhere else.

Beacon Scores

Beacon scores are a single number that summarizes your credit situation and shows lenders what kind of risk you're likely to be as a borrower. The article below is a basic overview of their importance. We hope you enjoy it.

Beacon Score Basics for Mortgage Hunters

Your Equifax Beacon Score tells lenders how much of a risk you are, and hence it determines how much you'll pay for your next mortgage. So it's important to know what affects it.

Beacon scores range from 300 to 900 (a perfect score). The average Canadian adult has a Beacon near 700.

Many people think you need to be in the 800's to get great mortgage rates. That isn't the case. Only 11% of Canadians rank above 800, and it's virtually unheard of to see a Beacon near 900. All you really need is 680-700 to get the best mortgage rates. Even 600 can get you a decent enough deal if you can prove income and haven't had any delinquencies for at least a last year.

As of October 15, 2008, 600 is the minimum credit score for insured mortgages. That means you'll need at least a 600 score to qualify for good rates on mortgages with less than a 20% down payment.

If your score is below 600, you're what lenders call a "B" client (i.e. there's issues with your credit that banks won't like). 1 out of 5 Canadians are in this boat, but don't despair!. Your credit can be fixed and there are still lenders willing to give mortgages to the credit challenged if you have a big enough down payment. We've seen deals get done with Beacons as low as 450!

Also keep in mind, the exact score needed depends on the type of mortgage you require. For example, mortgages for the self-employed, or for rental properties, often require higher scores.

Here's a table showing the approximate effect of different Beacon scores on mortgage interest rates. This is based on our own anecdotal experience and not empirical data. But it gives you a rough sense for how rates go up as your Beacon score goes down.

Beacon Score	Interest Rate
700+	The best rate
680-699	+0.00 - 0.20%
650-679	+0.30%
620-649	+0.40%
600-619	+0.50%
580-599	+1.50%
540-579	+2.00%
500-539	+3.50%

While no one knows the exact formula (except the inventor, Fair Isaac Corporation), Beacon scores are roughly based on:

Component	Weighting	Notes
Payment History	35%	Factors in the recency of, and number of, payments over 30 days late, collections, judgments, and bankruptcies. A single 30-day late payment can drop your score 15-20 points.
Current Debts	30%	Considers how much you currently owe (in absolute terms and compared with your credit limits), how many creditors you owe money to, and how much you could owe if you maxed all your available credit.
Age of Accounts	15%	The longer your accounts have been opened the better. You generally need at least three accounts over one year old.
Type of Credit	10%	Bank loans, credit cards, and revolving credit accounts all impact you differently.
Credit Enquiries	10%	Numerous credit applications in the past 12 months is a no no. This is a big benefit of mortgage brokers, who pull your credit only once for multiple lenders.

Besides the obvious (bankruptcies, judgments, etc.) the top Beacon killers are:

Payments over 30-days late
Maxing out credit cards (i.e. using over 70% of a high credit limit)
Seeking too much credit in a short period of time (e.g. applying for 4 credit cards in one month)

If you have a lot of maxed out cards, bring them at least below 70% of their limit (Below 50% is better. Below 30% is best). Your credit score can jump considerably in as little as a month.

The moral is, know your credit score and manage it carefully. Over 70-80% of Canadians have mistakes on their credit report. Don't be afraid to check yours!

October 12, 2010

Canadian Interest Rate Forecast

After bursting out of the gates earlier this year, the economy is hobbling to the 2010 finish line. With inflation well-contained, interest rate expectations are down across the board since the last rate forecast in August.

Rate Forecasting In Perspective

Major economists are paid well to tell us where interest rates are headed. They have access to every data source, academic study, historical backtest, and analysis tool imaginable. While far from infallible, these forecasts serve as a point of reference when creating amortization models based on future rate assumptions.

Below you'll find a summary of the latest year-end interest rate projections from each of Canada's Big 5 banks. Use them only as a rough guide because rate outlooks have considerable margins of error.

Latest Overnight Rate Forecast

The Bank of Canada's overnight target has a direct impact on variable mortgage rates.

Bank	2010	2011
BMO	1.00	2.25
CIBC	1.00	1.75
RBC	1.00	2.25
Scotia	1.00	1.75
TD	1.00	2.00
Year-end Avg	1.00	2.00
Chg vs Today	0.00	+1.00

(All figures rounded to the nearest 1/4 point increment.) Latest 5-Year Government Bond Yield Forecast Government bond yields drive 5-year fixed mortgage rates.

Bank	2010	2011
BMO	2.03	3.05
RBC	2.45	3.50
Scotia	1.85	2.50
TD	2.30	3.10
Year-end Avg	2.16	3.04
Chg vs Today	+0.29	+1.17

(CIBC's 5-year bond forecast was not available.)

Variable-Rate Mortgage Forecast Most analysts now expect the Bank of Canada to remain on the sidelines until 2nd quarter 2011. On average, major economists now predict a 100 basis point increase in the overnight rate over the next 15 months. Their outlooks, if accurate, imply a 4.00% prime rate by December 31, 2011. Prime rate is currently 3.00% and the 10-year average of prime is 4.50%.

Based on a 75-basis-point discount from prime, these forecasts suggests 5-year variable rates in the 3.25% range by year-end 2011.

Fixed-Rate Mortgage Forecast

Banks foresee 5-year bond yields climbing 117 basis points in the same 15-month timeframe. That would put the 5-year yield at 3.41% by the end of next year. The 10-year average of the five-year yield is 3.93%.

Assuming a typical 120 basis point spread above yields, these forecasts suggest deep-discounted 5-year fixed rates could rise to roughly 4.24% by year-end 2011.

Things to Note: These forecasts are made by the banks and are subject to frequent change. This data is provided only for general interest. Always discuss your needs and risk tolerance with a mortgage professional before acting on any information you read online.

History has shown that it's near impossible to accurately predict interest rates long-term so use these figures at your own risk. That said, while economist projections are often wrong, they are still one of the better sources of educated opinion on interest rates.

"Chg" = the expected change in rates from today. In other words, Chg is the average forecast minus today's rates. All forecasts are based on the respective year-end.

Not all contributors have published updates since CMT's last rate forecast review. For banks providing mean quarterly overnight rate forecasts, we have averaged their Q4 and Q1 forecasts to estimate year-end figures for 2010 and 2011. Results are rounded to the nearest 1/4 point, in keeping with the Bank of Canada's standard rate setting increments.

Data Sources: BMO, CIBC, RBC, Scotiabank, TD

10 Great Reasons to use a Mortgage Broker

Get independent advice on your financial options. As independent mortgage brokers and mortgage agents, we're not tied to any one lender or range of products. Our goal is to help you successfully finance your home or property. We'll start by getting to know you and your homeownership goals. We'll make a recommendation, drawing from available mortgage products that match your needs, and we will decide together on what's right for you.
Save time with one-stop shopping. It could take weeks for you to organize appointments with competing mortgage lenders - and we know you'd probably rather spend your time house-hunting! We work directly with dozens of lenders, and can quickly narrow down a list of those that suit you best. It makes comparison-shopping fast, easy, and convenient.
We negotiate on your behalf. Many people are uncertain or uncomfortable negotiating mortgages directly with their bank. Brokers negotiate mortgages each and every day on behalf of Canadian homebuyers. You can count on our market knowledge to secure competitive rates and terms that benefit you.
More choice means more competitive rates. We have access to a network of major lenders in Canada, so your options are extensive. In addition to traditional lenders, we also know what's being offered by credit unions, trust companies, and other sources. And we can help you take care of other requirements before your closing date, such as sourcing mortgage default insurance if your down payment is less than 20% of the purchase price.

Ensure that you're getting the best rates and terms. Even if you've already been pre-approved for a mortgage by your bank or another financial institution, you're not obliged to stop shopping! Let us investigate to see if there is an alternative to better suit your needs.
Get access to special deals and add-ons. Many financial institutions would love to have you as a client, which is why they often offer incentives to attract creditworthy customers. These can include retail points programs, discounts on appliances, shopping clubs, and more. We do the math on which offers might be worth your attention when it comes to financing or mortgage insurance - so you get the perks you deserve.

Things move quickly! Our job isn't done until your closing date goes smoothly. We'll help ensure your mortgage transaction takes place on time and to your satisfaction.
Get expert advice. When it comes to mortgages, rates, and the housing market, we'll speak to you in plain language. We can explain the various mortgage terms and conditions so you can choose confidently.
No cost to you. There's absolutely no charge for our services on typical residential mortgage transactions. How can we afford to do that? Like many other professional services, such as insurance, mortgage brokers are generally paid a finder's fee when we introduce trustworthy, dependable customers to a financial institution. These fees are quite standard and nearly industry-wide so that the focus remains on you, the customer.
Ongoing support and consultation. Even once your mortgage is signed and paperwork is complete, we are here if you need any advice on closing details or even future referral needs. We are happy to be of assistance when you need it.