What's New!

Banks & Credit Unions vs Monoline Lenders

BANKS & CREDIT UNIONS VS MONOLINE LENDERS

Banks & Credit Unions vs Monoline Lenders

We are all familiar with the banks and local credit unions, but what are monoline lenders and why are they in the market?

Mono, meaning alone, single or one, these lenders simply provide a single yet refined service: to fulfill mortgage financing as requested. Banks and credit unions, on the other hand, offer an array of other products and services as well as mortgages.

The monoline lenders do not cross-sell you on chequing/savings account, RRSPs, RESPs, GICs or anything else. They don’t even have these products and services available.

Monolines are very reputable, and many have been around for decades. In fact, Canada’s second-largest mortgage lender through the broker channel is a monoline lender. Many of the monoline lenders source their funds from the big banks in Canada, as these banks are looking to diversify their portfolios and they ultimately seek to make money for their shareholders through alternative channels.

Monolines are sometimes referred to as security-backed investment lenders. All monolines secure their mortgages with back-end mortgage insurance provided by one of the three insurers in Canada.

Monoline lenders can only be accessed by mortgage brokers at the time of origination, refinance or renewal. Upon servicing the mortgage, you cannot by find them next to the gas station or at the local strip mall near your favorite coffee shop. Again, the mortgage can only be secured through a licensed mortgage broker, but once the loan completes you simply picking up your smartphone to call or send them an email with any servicing questions. There are no locations to walk into. This saves on overhead which in turn saves you money.

The major difference between a bank and monoline is the exit penalty structure for fixed mortgages. With a monoline lender the exit penalty is far lower. That is because the banks and monoline lenders calculate the Interest Rate Differential (IRD) penalty differently. The banks utilize a calculation called the posted-rate IRD and the monolines use an IRD calculation called unpublished rate.

In Canada, 60% (or 6 out of every 10) households break their existing 5-year fixed term at the 38 months. This leaves an average 22 months’ penalty against the outstanding balance. With the average mortgage in BC being $300,000, the penalty would amount to approximately $14,000 from a bank. The very same mortgage with a monoline lender would be $2,600. So, in this case the monoline exit penalty is $11,400 less.

Once clients hear about this difference, many are happy to get a mortgage from a company they have never heard of. But some clients want to stick with their existing bank or credit union to exercise their established relationship or to start fostering a new one. Some borrowers just elect to go with a different lender for diversification purposes. (This brings up a whole other topic of collateral charge mortgages, one that I will venture into with another blog post.)

There is a time and a place for banks, credit unions and monoline lenders. I am a prime example. I have recently switched from a large national monoline to a bank, simply for access to a different mortgage product for long-term planning purposes.

An independent mortgage broker can educate you about the many options offered by banks and credit unions vs monolines.

 

STARTLING GAP BETWEEN THE LIFESTYLE EXPECTATION AND REALITY OF CANADIANS 40+

STARTLING GAP BETWEEN THE LIFESTYLE EXPECTATION AND REALITY OF CANADIANS 40+

Startling Gap Between the Lifestyle Expectation and Reality of Canadians 40+Over the last few years, we have seen many retired Canadians outliving their retirement savings and requiring a financial solution to help them live the rest of their retirement. In the media alone, there is a constant outpouring of articles relating to retirement planning, preparing enough savings for retirement, as well as numerous articles around when to tap into your CPP. For many retirees and those approaching their retirement, these articles are a reminder of how to prepare and what to anticipate. However, Canadians continue to struggle with their finances in their retirement years.

Many Canadians are entering their retirement years with debt and underestimating the amount they need to save for retirement. In a recent national survey of Canadian homeowners, 40+, that we commissioned, we found there is a large gap between the lifestyle expectations of those Canadians studied and the reality. In fact, a startling 69% of Canadians researched expressed confidence that they have sufficient funds to retire, however 43% of retirees studied have debt including a whopping 35% of Canadians 75+. While 78% claim to have savings and investments, a full 40% have less saved than $100,000. That means, the majority (53%) of Canadian homeowners 40+ have either no or less than $100,000 in savings to carry them through retirement!

The study further goes on to show that a significant portion (82%) of those studied, reported that having the ability to stay in their homes during retirement is very important and 69% value their home equity as an important asset in their retirement plans.

This study also enabled us to question the familiarity of the reverse mortgage product. More than half of the respondents claimed that they were familiar with reverse mortgages, and among those who would consider a reverse mortgage, 50% of them said that the main reason for considering a reverse mortgage is to supplement their income.

Many respondents wanted reassurance that they would continue to own their own home without ownership being transferred to a third party. (yes-customers continue to own their own home!) The respondents also felt more at ease knowing that banks and other secure financial institutions offered the CHIP Reverse Mortgage (they do!) and if the solution was recommended by financial professionals (it is!).

This study is a reminder of how important it is to continue to raise awareness to the reverse mortgage product. Canadians prefer to age in place, are carrying debt and have inadequate savings, but many are directed to solutions that don’t give them the opportunity to live in their homes without the need for monthly mortgage payments. Reverse mortgages are a smart and comprehensible solution for Canadians planning their retirement. We are certified CHIP experts, give us a call to see how we may be able to help you!

   

New Mortgage Insurance Premiums

   

Purchase Plus Improvements

HOME FINANCING SOLUTIONS – PURCHASE PLUS IMPROVEMENTS

Home Financing Solutions – Purchase Plus ImprovementsAre you on the hunt for a new home but can’t find exactly what you are looking for? You’re not alone. House hunters experience this scenario every day. With real estate prices increasing you may not be able to buy your dream home the first go-round.

Think about buying a fixer-upper. There are many potential properties that you can put your own personal stamp on. Why not renovate something?

There is a mortgage product called Purchase Plus Improvements (PPI). With the PPI the lender is able to provide additional financing to improve the subject property. This type of mortgage is available to assist buyers with making simple upgrades, not conduct a major renovation where structural modifications are made. Simple renovations include paint, flooring, windows, hot-water tank, new furnace, kitchen updates, bathroom updates, new roof, basement finishing, and more.

There are parameters to the PPI mortgage program:

  • Apply for up to a maximum of 10% of the as-improved market value
  • Utilize as little as 5% towards the down payment
  • At the time the application is submitted for approval the lender requires a construction quote to verify the work that is planned for the subject property
  • Renovation to be completed within 120 days
  • A third party (appraiser) must verify completion
  • One advance of the funds once the project is complete
  • Once the renovation is complete the lawyer would release the funds

PPI Scenario

Listed or Purchase Price: $450,000

Value of the Renovation: $45,000

As-Improved Value: $495,000 (new Purchase Price)

Maximum Borrow: $49,500 (10%)

Purchase Price: $495,000

Down Payment: $24,750 (5%)

Mortgage Amount: $470,250

Mortgage Insurance: $16,929

Total Loan: $487,179

Monthly Mortgage Payment: $2,146.17

For many, it is a daunting task to seek a mortgage plus a second type of financing to complete renovations, so why not opt for the PPI option?

With all the different types of mortgages out there, be sure to contact us so we can show you how we have a mortgage that best suits your specific needs!

   

4 Critical Questions to ask Your Mortgage Broker

The big 4!

4 Critical Questions You Must Ask Your Mortgage BrokerWe have often talked about understanding the personalities of your mortgage on our blog, but another part of that is working with your mortgage broker to ensure that you are getting the best product and sharpest rate possible. Asking critical questions will help you to not only understand your mortgage, but to also understand the benefit of working with a broker vs. the bank. It will also allow you to rest assured that you have flexibility and security in the mortgage that is selected for you. Here are our 4 critical questions to ask any mortgage broker you work with:

Question 1: What is the best rate you can get me?

Keep in mind, that if you are shopping for your own mortgage, you do not have access to the same resources that a mortgage broker does. A broker can do mortgage comparison to show you what you qualify for. In addition, a good broker can help you compare apples to apples and shops your deal to more lenders. However an important fact to remember is that the lowest rate is not always the best choice! Many lenders offer discounted rates that come with major restrictions and high penalties, this all has to be considered when looking at rate.

Question 2: What payout options are available with each loan?

Different lenders offer different payout options varying between 0-20% lump sum payments each year. Some institutions allow you to double your payments monthly and/or once a year. Others will allow you to increase your payments by 20% once per year. There are many varieties of prepayment options, so you really need a broker to seek out the best prepayment options for you.

Question 3: What are the penalties for paying out a mortgage early?

Penalties are three months of interest, or the interest rate differential (whichever happens to be greater) and pending on the type of mortgage you are in (fixed or variable). In another case, a lender may calculate your penalty based on the Bank of Canada’s 5 year posted rate as the penalty payout and not the discounted rate you are in. Unfortunately, since no one can predict the future, you can enter into a 5 year term, and you don’t know what may happen in 2-3 years. If there is a reason you need to get out of a mortgage, you must know your payout penalties.

Question 4: What about amortization?

Your amortization period is the number of years it will take you to become mortgage free. The more that you pay on a payment, the lower your amortization will be. A typical mortgage amortization is 25 years although some opt for 15-20 but others may need an extended amortization up to 35 years. There needs to be flexibility in amortization.

Note: Different lenders, especially working with people with bruised credit don’t always allow the extended 35 years.

Asking these 4 questions will help you to make critical decisions about your mortgage, and can give you peace of mind regarding your mortgage broker’s ability to get you the sharpest rate. Don’t be afraid to ask questions, and if you don’t understand something always ask for a more in depth explanation. Your home may be the biggest purchase you make in your lifetime, understanding the terms and working with a skilled DLC mortgage broker is worth an investment of your time.

   

Page 12 of 13