Canadians Deeper In Debt Than Ever: Average Non-Mortgage Debt Hits $27,355

TORONTO – A new study shows that non-mortgage debt is continuing to rise in Canada, but at a relatively modest pace, and that low delinquency rates indicate Canadians have so far been able to handle the increase.

The study by credit reporting agency TransUnion says that the average consumer debt load, excluding mortgages, increased $225 to $27,355 in the third quarter.

It says the quarterly increase of 0.83 per cent was in line with the rise observed in second quarter, after a significant decline of two per cent in the first. On a year-over-year basis, total debt increased 2.19 per cent from $26,770 at the end of the third quarter in 2012.

Despite the increase, two of the country’s largest cities —Toronto and Vancouver — both experienced quarterly and yearly declines in average consumer total debt.

Montreal, the country’s second-largest city by population, saw minimal rises on both a quarterly and yearly basis, while the only major city to experience a rise in debt greater than the national average was Edmonton, with total debt rising 4.6 per over the past year.

Meanwhile, TransUnion says delinquency rates, or failure to make good on debt repayment, remains low across all credit products, from credit cards to auto loans.

“The relatively low delinquency levels observed in the third quarter are a positive sign that Canadian consumers are managing their greater debt loads,” said Thomas Higgins, TransUnion’s vice-president of analytics and decision services.

“Credit card delinquencies saw the biggest decline on a percentage basis in the last year, which is a positive as we embark on the final three months of the year when credit card usage tends to pick up.”

Meanwhile, the study showed that the increase in average debt varied throughout Canada, with provinces experiencing year-over-year changes from a low of minus 0.4 per cent in British Columbia to a high of 15.49 per cent in Saskatchewan.

Elsewhere, consumer debt levels fell 0.03 per cent in Ontario, while rising 2.72 per cent in Quebec and 7.46 per cent in Alberta. The report did not give figures for other provinces.

Visit Dominion Lending Centres Mortgage Village to consult a mortgage professional.

What is the “Best Mortgage Rate” ?

It’s not synonymous with the “lowest mortgage rate.”

The best mortgage rate corresponds to the mortgage and advice that saves (and in some cases makes) you the most amount of money long-term.

Mortgage professionals routinely advise, “It’s not all about the rate.” To some, that sounds like evil sales-speak meant to boost commissions. The reality is that mortgage flexibility, contract restrictions and advice all have a definitive impact on borrowing costs. And most people don’t discover how much impact until after their mortgage closes.

That said, consumers are obliged to negotiate the very best deal they can. Three years ago, we asked ourselves, what kind of mortgage comparison website would we want if we were shopping for a mortgage ourselves? We thought up RateSpy.com.

RateSpy’s edge is data, lots and lots of rate data — more so than most other Canadian rate comparison sites combined.

Now, why on earth would someone need access to 3,000 mortgage rates and 300+ lenders, you ask? It boils down to probability.

At any given time, different mortgage providers are motivated to offer more heavily discounted rates. They may have:

Surplus liquidity (e.g., a credit union with excess deposits),
A need to replace assets in securitization programs (which is why we see big discounts on mortgages with odd terms, like 3.4 years), or
Internal volume targets that haven’t been met, thus encouraging more competitive pricing.
By definition, the more lenders and brokers one has to compare, the higher the probability of finding a lender motivated to discount below the market.

Of course, once you find a low-rate provider, that doesn’t mean its rate entails the lowest borrowing costs. Asking the right questions is mandatory to ensure the mortgage balances renewal risk with interest savings, and lets you make changes down the road—penalty free. This mortgage rate & features checklist can serve as a guide in that respect.

For these reasons, the interest rate alone can be a misleading number. If your lender or mortgage broker is quoting you a rate 10-15 basis points higher than what you’ve found online, it means nothing until you compare the features, restrictions and speed/quality of service from both providers

Our responsibility
Mortgage shoppers are, and will continue, flocking to rate comparison websites. But the information on these sites is vastly inadequate at the moment. Why, for example, don’t rate comparison sites speak to the penalty facing consumers if they break the mortgage early? Variations in penalty calculations can, and do, cost borrowers thousands more than small rate differences.

We have a responsibility to help consumers find the best overall deal, not just the best rate. The best deal factors in things like term selection, penalty cost, refinance restrictions, porting flexibility, advice on properly structuring an application, advice on building equity and so on.

Every Canadian rate comparison site I’ve seen underperforms in these areas. Even ours…for now. Our mission is to address these information deficiencies so consumers can identify the right combination of rate savings, flexibility and advice in an objective forum with no sales pressure.

Thereafter, we have to make it easier for folks to find competent mortgage professionals for a second opinion. Think about it. If you don’t have a trusted referral, where do you look to find a great broker or banker? How do you know the person you’re calling has the tenure, experience, qualifications and competitiveness to serve you best? Most existing advisor directories help you screen by little more than company, province or city.

Expect mortgage comparison sites to significantly evolve along these lines in 2014.

Sidebar: Rate comparison sites, in their present form, cater only to AAA fully-qualifying clients. Subprime,business-for-self and investor clients are a whole different conversation. There is currently no good mortgage comparison site for these customers, making knowledgeable mortgage advisors even more essential.

Visit Dominion Lending Centres Mortgage Village to consult a mortgage professional.

3 Ways To Use A Mortgage Calculator

1. Planning to pay off your mortgage early.

By the time a 30-year fixed-rate mortgage is paid off, the typical mortgage holder will have made total interest payments significantly larger than the original principal on the loan.

Use the “Extra payments” functionality of Bankrate’s mortgage calculator to find out how you can shorten your term and net big savings by paying extra money toward your loan’s principal each month, every year or even just one time.

To calculate the savings, enter a hypothetical amount into one of the payment categories (monthly, yearly or one-time) and then click “Show/Recalculate Amortization Table” to see how much interest you’ll end up paying and your new payoff date.

2. Decide if an ARM is worth the risk.

The lower initial interest rate of an adjustable-rate mortgage, or ARM, can be tempting. But while an ARM may be appropriate for some borrowers, others may find that the lower initial interest rate won’t cut their monthly payments as much as they think.

To get an idea of how much you’ll really save initially, try entering the ARM interest rate into the mortgage calculator, leaving the term as 30 years. Then, compare those payments to the payments you get when you enter the rate for a conventional 30-year fixed mortgage. Doing so may confirm your initial hopes about the benefits of an ARM — or give you a reality check about whether the potential plusses of an ARM really outweigh the risks.

3. Find out when to get rid of private mortgage insurance.

You can use the mortgage calculator to determine when you’ll have 20 percent equity in your home. This percentage is the magic number for requesting that a lender wave private mortgage insurance requirement.

Simply enter in the original amount of your mortgage and the date you closed, and click “Show/Recalculate Amortization Table.” Then, multiply your original mortgage amount by 0.8 and match the result to the closest number on the far-right column of the amortization table to find out when you’ll reach 20 percent equity.

Visit Dominion Lending Centres Mortgage Village to consult a mortgage professional.

Apply With More Than One Mortgage Lender?

Unlike applying for a credit card or auto loan, there is little benefit in applying to more than one lender for a mortgage loan. You might believe you are increasing your chances of getting the best available deal or giving yourself “insurance” that you will receive an approval. But, there are reasons that it is usually not in your best interest to do this.

• In addition to filling out lots of paperwork, it will cost you money to apply (credit report, property appraisal, and, possibly, an application fee).
• A full credit report, usually a “tri-merge” (reports from all three major credit reporting agencies) is required. This will cost you money (around $15) and also bring down your credit score, as each inquiry takes some points off.
• You will end up paying for more than one property appraisal (from $200 to $450).
• You may be required to pay one or more application fees (around $200 each).
• If you want to lock (guarantee) a rate at application and a fee is involved, more than one application will involve multiple fees, only one of which will benefit you.

If you locate an experienced, honest mortgage professional and provide him/her with the correct information, he/she will advise you of the best available terms for which you qualify. Therefore it is usually unnecessary and always costly to make more than one application with multiple mortgage lenders.

Information You Need to Apply for a Mortgage
Since the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) purchase the majority of home loans in the U.S., their standards are followed by most mortgage loan buyers. 

This means most lenders will require the same information from you. The differences relate to either the type of property being financed or the specific type of loan being used. The most common information all lenders require:

• Credit report : The mortgage source will get your report, but you should get one of your own BEFORE you apply so you know your current status in advance.
• Income verification : Keep your pay stubs for at least two months prior to making application. Also have copies of your last two years’ personal income tax returns in the event you need them, including W-2’s. If you earn overtime or other additional compensation, be prepared to prove that it is regular and consistent over time. To verify this, you will need more pay stubs, as many as you can collect. The same rules apply if you earn a significant portion of your income from commissions and fees. You must justify the level of income you wish to get credit for.
• Liquidity (Cash) : Regardless of the type of mortgage you receive or the property you’re financing, there will be costs to close your new loan. In all cases, you will need third party verification of the cash you claim to have. Have your bank or credit union statements for the past twelve months handy. Also gather up all information on investments, mutual funds, and other “cash equivalents”. If some of your cash is coming in the form of a gift, have the giver sign a “gift letter”. You can find appropriate wording from the Internet or you can probably get a demo letter from your mortgage source. Be aware that most lenders will allow a gift letter ONLY from an immediate family member (mother, father, sister, brother, son, or daughter).
• If you’re buying a property, you will need a Purchase & Sale Agreement : Once you make an offer that is accepted, your real estate broker will prepare a formal agreement to purchase the property. Most lenders will require this agreement before they will accept a formal application, since there is no deal without it.
• If you’re refinancing a property, have your current tax bill, hazard insurance information or policy, a copy of your deed and/or legal description of your home: This will greatly facilitate the processing of your application and result in a faster approval.
• If you’re purchasing or refinancing a condominium : Have your condominium documents (e.g., bylaws, budget, master insurance policy declaration page, homeowner’s dues information, etc.) ready.

There may be some other information you need to provide for different lenders but your mortgage source will make you aware of anything further they want.

Visit Dominion Lending Centres Mortgage Village to consult a mortgage professional.

Clients Less Willing To Renew Early… For Now

Following historically low lending rates, clients are less likely to opt to renew early, leaving few opportunities for independent brokers to try to entice clients to switch lenders… for now, at least.

“Clients (were) getting 2.79- 2.89 five year mortgages and there is no incentive for clients to jump ship earlier and opt to renew early,” Lee Welbanks of Verico Welbanks Mortgage Group told MortgageBrokerNews.ca. “The banks certainly have the advantage because they can renew four months out and they aren’t charging clients a penalty to renew.”

Nevertheless, clients who signed up for five-year fixed rates five years ago – and whose mortgages are now maturing — will likely look to renew, as rates are lower today than they were when they signed up for the current term.

“The variables rates are in vogue right now and we have high rate fixed rates coming out of maturity and so they’re happy to get in on an early renewal,” Welbanks said.

In many of these cases, clients are usually satisfied to stay with the original lender; leaving few opportunities to entice clients to leave. Though that shouldn’t sway brokers from trying.

“We’re trying to find the deals where the clients need more funds. I have some who like my services but, at the end of the day, clients often opt for the path of least resistance – so they choose to renew with the banks or their current lender even if they have to pay a little more,” Welbanks said. “I think the idea is that we need better incentives in order to switch clients; that may be a cash incentive for the hassle they go through, that may be other products you offer.

“It could be a myriad of things but at the end of the day, we can never stop trying, as long as we are not doing something that acts against the client’s better interests.”

And even if that fails, there is always the knowledge that the future will bring with it a leveler playing field.

“The playing field will be more level in 4.5 years because we won’t see as many early renewals. It’s a brand new deal and they have to play with whatever rates are available,” Welbanks concluded.

How To Beat Banks At Renewal Time

The challenges of the traditionally slow winter season is now being compounded by banks contacting past clients 120 days ahead of renewal – and just out of reach of the brokers’ 90 day rate hold.

“I’m relatively new so I still don’t get those return clients with renewals (and) this time of year in Ottawa it’s slow because people don’t want to move in in December and January,” Nick Bachusky told MortgageBrokerNews.ca. “The banks are getting to the clients first – 120 days out, the managers get an automatic message saying whose renewals are up and then the specialists contact the clients with the best rates. It’s tough for brokers to compete because we can only offer at 90 days out.”

The banks tend to have the rate advantage and it can be difficult to sway a previous bank client to move the mortgage to the brokerage side.

“The banks go on floors: they don’t make revenue on it, they make more on volume (and) if it’s a war on rates, the banks will usually win it,” Bachusky said. “They can go to upper management and get rate matches and clients are more willing to stick with the bank because no new paperwork has to be done and no new rules need to be discussed.”

However, one way to get a leg-up on the competition is to focus on other areas of wealth management and providing customers a more holistic financial services approach.

“For renewals, what we’re finding, is that with our client base we offer more than just mortgage services,” Patrick Briscoe of Mortgage Alliance told MortgageBrokerNews.ca. “We have a little bit more client dedication in the fact that they come to us first to get an opinion on what they should do.”

Briscoe believes it can be difficult to compete on rate but it’s this other services that help keep the client, in many cases.

“We have seen competition from the banks for sure as they compete for rates, but at the same time by offering other services we have been able to maintain the client,” Briscoe said. “We do investment services, life insurance and income tax preparation.”

Perhaps this approach is the best way to stay competitive during this important time of the year.

“It’s nice to have a niche in what we’re doing but we think it’s necessary for brokers to have the same sort of model if they want to remain competitive,” Briscoe said.

Visit Dominion Lending Centres Mortgage Village to consult a mortgage professional.

Flaherty: House Prices A Worry, But No Mortgage Crackdown For Now

OTTAWA - Finance Minister Jim Flaherty is taking on the responsibility of averting a housing bubble in Canada that could destabilize the economy, adding he will speak to those in the business to try and keep a lid on rising home prices.

With the Bank of Canada essentially taking itself out of the game by signalling interest rates won’t be raised for some time, Flaherty said Monday after meeting with about a dozen economists that it falls on his department to ensure the market is stabilized.

"It does fall to the Department of Finance to do anything if we’re going to do anything because there’s basically no room for the Bank of Canada to move," he said.

"Some of the economists suggested I have some conversations with people in the building industry because what we’re seeing in certain parts of the country (is) a re-acceleration of housing prices. I do speak regularly to people in the business and I’m going to do more of it now."

Flaherty said he has no intention of acting at the moment, but said he was keeping an eye on the market to see if the current uptick in sales and prices is temporary or the beginning of another hot run.

Most economists see the market slowing after the recent resurgence, including the Bank of Canada. But the central bank also cited the “renewed momentum” as one of three domestic risks to the economy in its October monetary policy report.

"This (the resurgence) would provide a temporary boost to economic activity, but could exacerbate existing imbalances and therefore increase the probability of a correction later on," the bank said. "Such a correction could have sizable spillover effects to other parts of the economy and to inflation."

The minister has been active in the housing market throughout his tenure, at first easing rules but more recently clamping down as Canadians took on ever-increasing debt levels to buy real estate.

The latest measure, which came in July 2012, was followed by a slump in sales and a slowdown in price gains. But the market began picking up again during the summer, particularly in Toronto and Vancouver, with the average home price hitting a new record high of almost $386,000.

Home prices are not Flaherty’s only worry.

The minister told reporters he remains focused on trying to eliminate as much as possible the price gap between the United States and Canada that one recent report pegged at about 10 per cent.

Flaherty said he has been meeting with CEOs of the country’s major retailers to ask for explanations as to why prices for the same items remain elevated in Canada, adding that he is not altogether persuaded by the answers he has been given.

"There are some companies that look at Canada as a relatively small market that is relative well off, (with a) large middle class, and, ‘Let them pay a little more, and they’ll pay it.’," he said of merchant attitudes.

However, Flaherty said he will wait until the results of a study being conducted by the market research firm Nielsen before deciding if anything needs to be done.

"It becomes an interesting question of what the government can do about that … there are always persuasive techniques that can be used to nudge people in the right direction," he said.

The minister has deployed the approach before.

Earlier this year he personally phoned the Bank of Montreal to “persuade” it to raise its five-year fixed mortgage rate after BMO cut it to 2.99 per cent. Flaherty said he was concerned about a race to the bottom on rates that would trigger unsustainable borrowing.