Castle Mortgage Group Steinbach

IRD Finally to Be Disclosed Correctly to Consumers

admin — Tue, 06 Mar 2012 13:54:22 +0000

Finally the Ugly Penalty Calculation of IRD is going to be closed correctly to consumers within the next 12 months. Below is the new Federal regulations coming into effect:

1. Information Provided Annually

Lenders will provide the following mortgage prepayment information to borrowers annually:

Prepayment privileges that the borrower can use to pay off their mortgage faster without having to pay a prepayment charge. Examples include making lump-sum prepayments, increasing the regular payment amount, and increasing the frequency of the payment to weekly or bi-weekly.
The dollar amount of the prepayment that the borrower can make on a yearly basis under the terms of their mortgage without having to pay a prepayment charge.
Explanation of how the lender calculates the prepayment charge for the borrower’s mortgage (for example, a certain number of months’ interest or the Interest Rate Differential (IRD).
Description of the factors that could cause prepayment charges to change over time.
Customized information about the mortgage, valid as of the date the information is produced, for the purposes of the borrower estimating the prepayment charge. The customized information will include, depending on the type of mortgage product held by the borrower:
The amount of the loan that the borrower has not yet repaid
The interest rate of the mortgage and other factors (for example, rate discount or posted interest rate) that the lender uses to calculate the prepayment charge
The remaining term or maturity date of the borrower’s mortgage
For mortgages where the prepayment charge may be based on the IRD:
How the lender determines the comparison rate to use to calculate the IRD
Where the borrower can find the comparison rate (for example, on the lender’s website)
Where the borrower can find the lender’s financial calculators that the borrower can use, along with the information above, to estimate the prepayment charge.
Any other amounts the borrower must pay to the lender if the borrower prepays their mortgage and how the amounts are calculated.
How the borrower can speak with a staff member of their lender who is knowledgeable about mortgage prepayments. For example, borrowers may contact a staff member through a toll-free number as described in section 5.

2. Information Provided When the Borrower Is Paying a Prepayment Charge

If a prepayment charge applies and the borrower confirms to the lender that the borrower is prepaying the full or a specified partial amount owing on their mortgage, the lender will provide the following information in a written statement to the borrower:

The applicable prepayment charge.
Description of how the lender calculated the prepayment charge (for example, whether the lender used a certain number of months’ interest or the IRD).
If the lender used the IRD to calculate the prepayment charge, the lender will inform the borrower of :
the outstanding amount on the mortgage
the annual interest rate on the mortgage
the comparison rate that was used for the calculation
the term remaining on the mortgage that was used for the calculation
The period of time, if any, for which the prepayment charge is valid.
Description of the factors that could cause the prepayment charge to change over time.
Any other amounts the borrower must pay to the lender when they prepay their mortgage and how the amounts are calculated.

3. Enhancing Borrower Awareness

To assist borrowers in better understanding the consequences of prepaying a mortgage, lenders will make available to consumers information on the following topics:

Differences between:
Fixed-rate mortgages and variable-rate mortgages
Open mortgages and closed mortgages
Long-term mortgages and short-term mortgages
Ways in which a borrower can pay off a mortgage faster without having to pay a prepayment charge. Examples include making lump-sum prepayments, increasing the regular payment amount, and increasing the frequency of the payment to weekly or bi-weekly.
Ways to avoid prepayment charges (for example, by porting a mortgage).
How prepayment charges are calculated, with examples of the prepayment charges that would apply in specific circumstances.
Actions by a borrower that may result in the borrower having to pay a prepayment charge, such as the following actions:
partially prepaying amounts higher than allowed by the borrower’s mortgage
refinancing their mortgage
transferring their mortgage to another lender

Lenders may make this information available on their publicly accessible Canadian website where products or services are offered and upon request by consumers at the lender’s places of business in Canada, including when consumers are pre-approved for a mortgage. Â In addition, each lender will provide on its publicly accessible Canadian website links to information on mortgages provided on the website of the Financial Consumer Agency of Canada.

4. Financial Calculators

Each lender will post calculators on its publicly accessible website for borrowers, and provide guidance to borrowers on how to use the calculators to obtain the mortgage prepayment information they want. Borrowers will be able to enter information about their mortgage into the calculator to get an estimate of the current prepayment charge. Borrowers will also be able to change the information they enter, such as the amount of the mortgage that has not yet been repaid or the remaining term, so that they can see how the payment choices they make affect the prepayment charge.

5. Borrower Access to Actual Prepayment Charge

Each lender will make available a toll-free telephone line through which borrowers can access staff members who are knowledgeable about mortgage prepayments. These staff members will be able to orally provide a borrower with the actual prepayment charge that would apply to the borrower’s mortgage at that point in time. These staff members will also be able to provide to a borrower, on request, a written statement of their prepayment charge, accurate as at the time the statement is produced. A lender will not proceed to take steps to pay out a mortgage until the borrower has confirmed that the borrower’s intention is to pay out the mortgage.

Original Article taken from: http://www.fin.gc.ca/n12/data/12-025_3-eng.asp

10 Year Fixed Rate Terms – 4.49%

admin — Tue, 03 Jan 2012 04:16:16 +0000

With the recent dip in long-term funding costs, lenders are finally sharpening their pencils on 10-year mortgage pricing. Decade-long rates haven’t been this cheap in virtually forever. Some brokers are quoting as low as 4.49% today, whereas most lenders were over 5% last quarter. (Not that long ago, 4.49% was considered good for even a 5-year rate, let alone a 10-year.)

With 10-year mortgages going “on sale”, we did some calculations to see how they stack up against the most popular term, the 5-year fixed.

Looking back through history, 10-year terms have rarely come out on top. If you opted instead for two consecutive five-year fixed mortgages, you would have saved money roughly 9 out of 10 times. (See: Fixed Mortgages: 10 Year vs. 5 Year)

Today, however, 10-year rates have nosedived and lenders are stubbornly refusing to pass along lower costs on 5-year terms. So it’s worth a look to see if the tables have turned.

To do this, we ran a little simulation with these parameters:

A starting 5-year fixed rate of 3.39%
A 4.49% 10-year fixed rate
Equal payments in the first five years (i.e. the monthly payment is topped up on the 5-year fixed to match the 10-year fixed payments)
A 25-year amortization

The result is that 5-year rates would have to jump roughly 3% in 56 months for a 10-year fixed to cost less. (We say “56” months instead of five years because borrowers can hold renewal rates at least four months prior to maturity.)

To put a 3% rate increase in perspective:

The last time rates leaped that high was 17 years ago in 1994. It would imply 5-year bond yield of roughly 4.25%, assuming mortgage spreads stay the same (which they won’t, but it’s a fair guess anyway). A 4.25% 5-year yield is well above the long-term (2001-2011) average of 3.43%. With the BoC’s modest 2% inflation target and lackluster economic growth forecasts, many would argue that an up-move over 3% is fairly unlikely in 56 months (but not certainly not impossible).

Now, this is not to say 10-year terms are pointless. They have their applications. Two examples might be the homeowner with extreme risk aversion or the landlord who wants to lock in a cash flow spread for the long-term.

Either way, you’ll pay a hefty cost up front to know your rate for years 6-10 in advance. Other things being equal, taking a 10-year term will guarantee that you pay roughly $6,000 more interest than the 5-year fixed. That’s in the first five years alone, and it’s $6,000 more for every $100,000 you borrow.

Of course, if rates stay low for the next five years, you can always break your 10-year term after 60 months. In that case, you’d generally pay a 3-month interest penalty, assuming there were a cheaper mortgage to switch into. When feasible, doing this does reduce the downside of a 10-year term, but you’ll still be out $6,000/$100k of mortgage, plus the penalty.

All told, recent rate cuts have made 10-year terms less bad, but they’re not tantalizing yet. They’d probably have to crack the psychologically important 4.00% barrier before homeowners start biting in significant numbers.

Article Taken From:

http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2011/12/10-year-terms-more-taste-less-filling.html

CMHC Warns on Household Debt

admin — Tue, 03 Jan 2012 04:00:16 +0000

CMHC Warns on Household Debt

Dec 29, 2011 – 1:24 PM

REUTERS/Mike Cassese

Residential mortgages remain the largest component of Canadian household debt, but personal lines of credit are growing at double-digit rates and stood at more than 25% of household debt held by chartered banks in 2010, according to a report from the CMHC.

Canada Mortgage and Housing Corp. cautioned that Canadians need to be “vigilant” about growing levels of household debt, noting ramped-up use of personal lines of credit and increasing debt-to-disposable income ratios.

“Household financial vulnerability remains a serious issue that merits close attention going forward,” the CMHC said in its annual Housing Observer report published Thursday.

Personal lines of credit have been increasing at double-digit annual rates since 1986, growing at a faster rate than any other sub-component of household debt, the report said, and represented slightly more than 25% of household debt held by chartered banks in 2010, up from about 3% in 1986.

“It is important that consumers and stakeholders continue to be vigilant in monitoring both the magnitude as well as the composition of household debt and take appropriate action,” said the CMHC, the government-owned provider of mortgage insurance.
But Benjamin Tal, deputy chief economist at CIBC World Markets, said when it comes to debt Canadians have actually done fairly well, especially when it comes to holding back on consumer credit, pointing to “some sort of debt fatigue in this country.”

“We’ve been accumulating a lot of debt but the quality of the debt is still okay,” he said.

Mr. Tal said the real challenge for households lies ahead: “The big test will be the next 12 to 18 months. Can we resist the temptation when interest rates are so low?”

The CMHC report found residential mortgages continue to account for the largest chunk of Canadians’ total household debt, representing 68% in 2010, compared with a low of 63% in 1971 and a high of 75% in 1993.

Over the 2001-to-2010 period, mortgage debt has fluctuated between 69.0% and 67.7%, the CMHC said.

The report noted that most Canadians could handle some level of economic adversity owing to “the high quality of mortgage credit in Canada, the substantial equity position of most Canadian homeowners with a mortgage, and households’ ability to adapt their discretionary spending.”

Ottawa has intervened to tighten mortgage rules three times in recent years and the report noted the latest changes “will further reinforce the stability of the Canadian housing market.”

However, the CMHC cautioned that major challenges to Canadians’ ability to pay their mortgages could come through job losses, another recession or rising interest rates.
Yet, Mr. Tal noted that a significant increase in the unemployment rate is unlikely to come hand-in-hand with rising interest rates, as the Bank of Canada increases rates when the economy is improving and joblessness is falling.

“That’s why I’m not talking about a crash or a time bomb,” he said.

Meanwhile, the report also highlighted the increasing ratio of debt-to-disposable income as a point of concern about levels of indebtedness.

Compared to annual disposable income, household debt stood at 150.6% in the second quarter of 2011, a record high at the time, the CMHC noted. The ratio was even higher at 152.98% in the third quarter, according to Statistics Canada.

The report pegged the low-interest rate environment and rising income and net worth — allowing Canadians to borrow larger amounts — as factors in this trend.
Mr. Tal admitted that an increase in the rate of growth of debt to income can be alarming, but noted that the indicator is not entirely useful in his view as no one is asked to repay their entire mortgage in one year, for example, and the ratio measures total debt versus annual income.

Finally, the report found the number of Canadian households considered “financially vulnerable” increased to about 6.5% in 2010, still lower than levels seen in 2000 and 2001, but slightly above the 12-year period from 1999 to 2010.

The Bank of Canada applies this term to households that spend 40% or more of their gross income on total debt payments and the number tends to increase as the economy and employment weaken, the report said.

Article Reference:

http://business.financialpost.com/2011/12/29/cmhc-warns-on-household-debt/#more-127603

Bank Declined, Broker Approved

admin — Tue, 03 Jan 2012 03:24:25 +0000

THE PROBLEM:

We recently had a client that visited our office in December of 2011 that was declined by a local bank here in Steinbach.

The client was frustrated and came into our office looking for alternative options. We were able to sit down with the client and find that the client had a strong down payment, excellent credit history, however the income proof was a little unusual since there was a portion of the income that was coming from self employment and some coming from T4`d employment and neither had been in place a for more than a 2 year period of time. The branch turned away the client not because the application did not work at the branch, but because the particular person the client saw normally does not do mortgages, and this particular bank rep was not knowledgeable about the uniqueness of the self employed program and exceptions that can be made to the program.

THE SOLUTION:

Since a portion of the income was coming from self employment, we were able to do the application under the stated income for self employed where we used a reasonable and rational income that would be possible to earn consistantly if the employment status changed down the road. Because the self employment was less than 2 years, we were able to get an exception to the policy and got the approval in place. The client was able to get 3.39% on a 5 year fixed rate over a 30 year amortization for a total monthly payment of $656.00. THE KICKER: We were able to get the client approved at the same branch she was originally declined at and got her a better interest rate than what was originally offered.

If you know of anyone that has been turned away at a financial institution for any reason, it never hurts to call us get a free second opinion. If you are not confident that the person across the table has tried everything or has explained why it cannot work, you may fall victim to failure not because your application does not work, but because the person you see does not have all the information in front of them.

ALL WE FOCUS ON IS MORTGAGES, if you are motivated to get a mortgage, we are motivated to make it work for you. If we have to say `no`, we will explain how it can be a yes at some point.