Monday, April 30, 2012

Why brokers are better than banks

Recently, my wife was reminiscing about our first house. We had been married for about a year and decided it was time to buy a home. This was in 1986 but she has vivid memories of the experience. What she remembered about the home buying process was going to the bank to arrange the mortgage. She said that she felt like a criminal. The way they asked questions and would not assure her. The thing I remember was the computer screen. If a question came up and you tried to look at the bank employee's computer screen they would turn it away from you. Why? this is my information, what's the big secret? Years later when we had equity in our home, we applied for a home equity line of credit (HELOC) Although we had had a mortgage for over 20 years , and my wife had banked for longer with this bank, we were once again encouraged to apply but then treated like criminals. Were we worthy enough to get a line of credit? After making faces and without saying anything about what she was doing, the bank employee announced that we had qualified for the line of credit. Little did I know at the time, the rate she quoted me of 1 1/2% over prime, was high. If we were such good clients why were we being hosed? It was only after I did some homework that i was about to find out that we were paying more than if we had our line of credit with another financial institution. I called and asked for the lower rate and was told that I did not qualify because I did not have enough business with the bank. This is tied selling or relationship pricing and is illegal in Canada under section 459.1 of the Bank Act. As you can see, getting a mortgage and a line of credit took a lot of work, research and I had to put up with being treated like a kid. My revenge has been to become a mortgage broker. When I fill out an application with a client I tell them exactly what questions I will be asking and why. I then allow them to view the screen with me. Some people are so surprised. I 'm sure that they have had similar experiences at the bank. I also shop over 50 lenders to find the best rate for a product. I will offer the client a choice and explain the pros and cons of each product and let them make the decision. Most consumers ahve never had this experience before. They are used to a bank employee telling them what they need and sign here. Finally, financial documents can be difficult to read. I go over the documents line by line to help people understand what they are signing. Does this take a long time? Yes, but my clients are empowered and know what they are making a decision on. This is how I get my revenge on the banks for years of bad service. If you are tired of being treated like this contact me and I will assist you to gain control of your finances. My website
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Thursday, April 19, 2012

Overbidding on a house can backfire for the buyer.

We've all seen this before. A buyer is in a competitive situation with multiple bids on a house they overbid to get the property. The problem arrises when the offer to purchase is presented to the lender and the mortgage insurer, either CMHC, Genworth or Canada Guaranty. They review past home sales for the area and say that the house is worth ,say, $40,000 less. This means the buyer has to come up with their 5% down payment AND $40,000 to cover the shortfall. If the deal falls through, the buyer could lose their deposit which in many cases is $5000. This is a bitter lesson to learn. Here's an article on the subject. If you want to protect yourself, contact me for a preapproval.
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Friday, April 13, 2012

Are 10 year Mortgage terms worth looking at?

Recently I have seen discussion on mortgage broker websites on the advantages of 10 year mortgages. This has not been a popular option over the years. I know that i have only done one 10 year mortgage deal in 7 years in the business.
Checking with CAAMP , the Canadian Association of Accredited Mortgage Professionals it turns out that nation-wide, only 1% of people go for this option.
What's changed? Well the 10 year rate has dropped below 4% and now sits at 3.89%. This used to considered a good 3 year rate a couple of years ago! What are the advantages of taking a longer term like 10 years? We know that rates are at historically low rates now. The only way for rates to go now is up. I recall getting my best clients into mortgages 2 years ago at 4.39%. This is now the interest rate some private mortgages are charging for people with bad credit.
We know that rates will go back up to 5-6% sometime in the next 2-3 years and stay there for a while. The advantage with taking a 10 year term at 3.89% is that you avoid all the rate hikes for the next 10 years. You get a really great rate under 4% which will beat rates over the next decade to be sure.
What are the disadvantages?
10 years is a long term. What if you want to get out of the mortgage or move? First - if you move, most lenders will let you port the mortgage. In addition, you can increase and blend the mortgage to account for any additional costs in the new home. The penalty is the tricky part. On a traditional mortgage you are charged 3 months interest or IRD, which stands for Interest Rate Differential. This is a tricky calculation that is in effect, pay us the interest you were going to pay us over the balance of the term. This can amount to $20,000 or more in penalties. This has prevented many people from renewing early over the past 18 months.
The new 10 year mortgages come with this feature; after 5 years you can break the mortgage with a simple 3 month penalty which figures out to about 1% of your mortgage. In a $200,000 mortgage this would be $2000. The savings will often pay off the penalty in a very short time.
So, is a 10 year mortgage good for you? It all depends on your situation and where you are in life.. It's best to talk to a mortgage professional like myself to see if this is a good option for you. Contact me today to discuss 5 and 10 year mortgages.
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