Source: Edmonton Sun

What are the benefits of using a mortgage broker?

1. Advice on your financial options.
   Mortgage brokers can make recommendations and draw from available mortgage products that match your needs and help you decide what is right for you.
2. Save time with one-stop shopping.
   It can sometimes take weeks to organize appointments with competing mortgage lenders — homebuyers would rather spend their time house-hunting. Brokers work directly with lenders and can quickly narrow down a list of options that suit you best.
3. Brokers negotiate on your behalf.
   Most people are uncertain about negotiating mortgages directly with their bank. Brokers negotiate mortgages every day on behalf of buyers and have a wealth market knowledge to secure competitive rates.
4. More choice means more competitive rates.
   We have access to a network of major lenders in Canada, so your options are extensive.
   
5. 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!
6. Get access to special deals and add-ons.
   We do the math on which offers might be worth your attention.
7. Things move quickly.
   Our job isn’t done until your closing date goes smoothly. We’ll help ensure your transaction takes place on time and to your satisfaction.
8. Get expert advice.
   When it comes to mortgages, rates and the housing market, we are not limited. We will explain the various mortgage terms, conditions and rates so you can decide confidently.
9. No cost to you.
   There is (in most cases) no charge for our services.
10. Ongoing support and consultation.
    Even once your mortgage is signed and completed, we are here if you need any advice on closing details or even future referral needs.

There are some times in our lives where the unexpected happens and we find ourselves in a financial bind, such as when you fall ill and are unable to work. These are times when anyone can benefit from a financial break. There are now many lenders who recognize this and have in place, a program that provides some flexibility with your mortgage.

Though each lender has its own set of rules and conditions with regards to this, there are good Skip-A-Payment programs available. Typically, these programs give you the option to skip one mortgage payment per year, or up to four mortgage payments during the life of your mortgage. The interest due is capitalized to your mortgage loan. However, if you get back on your financial feet, the best course of action is to catch up on your missed payments as soon as you can so you don’t needlessly pay extra interest, and, with the program that lets you skip four consecutive payments, this will allow for you to have this option again should you find yourself in a similar financial situation down the road.

There are usually conditions in place to allow you to be eligible into this program, and though it varies from lender to lender, usually, these conditions include:

• Your mortgage must not be in arrears and is in good standing.
• Your current mortgage balance, together with the amount of the payments you wish to skip, does not exceed the original amount of your mortgage.
• Usually not available with terms of 10 or 25 years.
• You must show goodwill by having good repayment and good credit.
• You must demonstrate that future payments will be made.
• Your loan to value is not greater than 90%.

This is a great program to look into and inquire about when applying for your mortgage as it will give you a sense of ease and peace of mind that your home is secured should you run into unfortunate financial circumstances and need some time to get back on your feet.

Below is a short FAQ on Canadian NHA Mortgage Backed Securitization to explain how lenders secure financing for you. It also explains the differences in lending guidelines between bank and non-bank lenders.

Source: CMHC

1. What is an NHA Mortgage-Backed Security?

The NHA MBS represents an undivided interest in a pool of NHA-insured residential mortgages. As mortgages, these financial instruments are secured by the value of the underlying real estate.

CMHC provides Mortgage Loan Insurance on all pooled mortgages and an unconditional guarantee under the National Housing Act (NHA) of timely payment to NHA MBS investors.

These securities, as investments, combine the investment qualities inherent in both real estate mortgages and Canadian Government bonds.

2. What is the National Housing Act?

The National Housing Act (NHA) is the federal government legislation that was introduced in 1944 to improve housing and living conditions for Canadians.

3. Who is involved in the NHA MBS program?

CMHC, the administrator of the NHA MBS program and the guarantor of timely payment on behalf of the federal government — This Government of Canada agency approves all NHA MBS issues.

Investors — Individuals and institutions, such as pension funds and corporations — both Canadian and foreign — purchase NHA MBS issues.

MBS Issuers — These include financial institutions that are already operating as Approved Lenders of NHA-insured mortgages: banks, trust companies, insurance companies, loan companies, credit unions and caisses populaires. Other financial institutions that are not originators of the underlying mortgages, such as investment dealers, may become issuers. All issuers must be approved by CMHC.

Investment dealers, stock brokers and financial advisors — Canada`s investment industry and other financial organizations are active participants in the program.

Central Payor and Transfer Agent (CPTA), Computershare.

Custodians — Organizations authorized by CMHC to hold the mortgage assignments (the security for the NHA MBS pools) on behalf of the investors and CMHC.

4. What is the role of the Central Payor and Transfer Agent (CPTA)?

The main tasks of the CPTA are to collect payments of principal and interest monthly from the issuers and forward these on to the registered NHA MBS investors. The CPTA also maintains ownership records, replaces certificates when sold or lost, maintains information to support secondary market pricing and assists CMHC in monitoring issuer performance. The CPTA has offices across Canada.

5. How is an NHA MBS created?

An NHA Mortgage-Backed Security is created by a CMHC Approved Issuer. The Approved Issuer brings together a pool of mortgage loans insured under the National Housing Act, which must meet specific eligibility requirements. Then CMHC obtains an assignment of the residual interest in the mortgages. All mortgage papers and supporting documentation are given to an arm’s length custodian acceptable to CMHC. The investor buys an undivided interest in this pool. The issuer also establishes a CMHC approved P & I trust account for monthly payments from the pooled mortgages. The issuer then carries out its plan to sell and deliver the securities to investors. NHA MBS issues are sold to investors by investment dealers or may be sold directly by the issuer.

6. What makes NHA MBS unique as an investment?

CMHC guarantees, on behalf of the Government of Canada, the timely payment of principal and interest on securities. This is the key innovation in the NHA MBS. Regular monthly payments are made to the NHA MBS investors whether or not payments from mortgagors are actually received by the issuing financial institution.

Principal and interest payable by the mortgagors of houses and apartment buildings on which insured mortgages are issued are passed through to the registered NHA MBS investors by the CPTA (Central Payor and Transfer Agent). The principal is distributed based on an expected actual pass through approach, while interest payments are calculated and credited at the coupon rate of the securities. Similarly, any lump sum prepayments, including any applicable interest bonus payable by the mortgagors in the case of some pool types, pass through to the investors. Since each NHA MBS pool may have different prepayment conditions, a review by the investor of the Information Circular relative to each pool should be standard practice.

This guarantee of timely payment is the essential feature that makes NHA MBS an important part of the range of investments available in Canada for financial planning.

While there are other investments based on a pooling of mortgages, NHA MBS issues are the only such investments that CMHC guarantees on behalf of the Government of Canada.

7. How does it benefit the economy?

NHA MBS provide new sources of funds for residential mortgage financing that have demonstrated lower interest rates. Homebuyers have more mortgage financing available to them. The housing and construction industries will, in turn, benefit. In addition, the NHA MBS add greater stability to the mortgage market by providing longer term mortgages and flexible prepayment privileges.

Also, the securitization of Social Housing mortgages under the NHA Mortgage-Backed Securities Program has been instrumental in reducing the associated financing costs of these projects, which ultimately results in savings for Canadian taxpayers.

Source: Calgary Sun

The Bank of Canada raised its key overnight lending rate by 0.25% last week, no doubt setting off another round of confusion about mortgage rates and regulations.

Most people will think interest rates will rise rapidly, which is not always the case, says Peter Kinch, founder of the Peter Kinch Mortgage Team.

“The last time rates moved, we actually saw the long-term rates fall,” says Kinch. “Long-term rates are governed by the bond market, which often assumes, or ’pricesin,’ a rate increase before it happens.

Last time, they assumed a higher than announced rate increase, which caused long-term rates to fall the following day.”

The Bank’s move, which takes its rate to 0.75% and the prime lending rate to 2.75%, had an immediate effect on the variable rate, rising to 2.15% (prime minus 0.6%) but it doesn’t necessarily mean buyers should rush to lock-in their mortgage, says Kim Gibbons, a mortgage broker with Mortgage Intelligence.

“While mortgage holders may be tempted to lock into a fixed-rate mortgage, a closer look reveals that a variable-rate mortgage could save them a lot more money, even if the Bank continues to raise rates,” says Gibbons.

Going with the current variable rate as opposed to a five-year fixed rate can save more than $15,000 in interest payments in those five years, says Mark Herman, a Calgary-based broker with Mortgage Alliance.

“Doing the numbers for a $250,000 mortgage, using the variable rate of 2.15% and 25-year amortization, the monthly payments are $1,076,” says Herman.

“Using a five-year fixed rate of 4.19%, the monthly payments are $1,340, a difference of $264 a month. Over 60 months, a variable will save you $15,840 in interest payments.”

Gibbons, using a five-year fixed rate of 4.29%, says if the Bank of Canada hiked its prime rate by a full percentage point over the next year, borrowers with a $250,000 mortgage with a 25-year amortization would save $17,478 over five years by going with a variable rate, compared to a five-year fixed rate.

“This assumes a scenario in which the Bank of Canada raises its prime rate four times by 0.25 per cent every three months,” says Gibbons. “When I run the numbers with clients, they’re often surprised by what mortgage strategy will save them the most.”

Herman expects fixed rates to continue to go down, but not for long.

“We know rates are eventually going to go up, but I think there will be a short period of time when fixed rates are going to be going down and the variable going up,” he says. “The Bank of Canada will probably (raise its rate) again in September and I expect prime to go to 3% and stay there until the end of the year or longer.”

Developing a mortgage strategy, rather than just diving in, is essential to saving money, says Herman.

“If fixed rates continue to come down and I think they will go below 4% to 3.9%, I would recommend taking a variable at prime minus 0.6 and then have the option of locking into a fixed rate later on as the rates continue to come down,” he says. “In the meantime you’re saving $264 per month on that $250,000 mortgage.”

I had a recent client, Melissa, who came to me wishing to purhase a condominium. Everything looked good initially – her income, her credit score, and her debt service ratio (ratio used by the banks to measure the percentage of income that goes to paying debts) all looked great.

So it seemed like an approval was a guarantee. However, this is not always the case. Banks always look at the property carefully when handing out approvals. Many people may be aware of this if they’ve ever purchased a home and applied for a mortgage with the condition of an appraisal. However, banks aren’t only looking at the market value, they also look at other factors and for properties under strata (such as condominiums), there can be many things that can hinder an approval.

With the case of Melissa, the decline came as a result of insurers CMHC and Genworth declining the property. (Melissa had a 5% downpayment so she needed to be insured.) The reason for the decline? Melissa wanted to purchase the property to live in (owner-occupied property) but 97% of the building were rentals. CMHC and Genworth have guidelines on the maximum percentage of rental units allowed in a building and this ultimately caused Melissa to get a decline.

In this case, the solution was simple, though it required for some flexibility on Melissa’s part. We knew that what prevented her from getting an approval was that CMHC and Genworth were not willing to insure her so the only choice was for her to increase her downpayment to 20%. With a 20% down payment, lenders will not require for properties to be insured.

Luckily, Melissa was able to be gifted this downpayment and we went ahead and submitted her application to another lender. We chose a new lender so that there were no pre-existing notions or hesitations. With this new submission and the increased down payment, Melissa got an approval and the keys to her new condominium.