Nasty Reality

One of the most discouraging parts of the mortgage business is the ingredients that we use as a measure of success run counter. When all is good with your life which includes managing money well, paying bills on time and generally enjoying your life, you don’t necessarily need banks, financing, etc.

What I am referring to is the person who is experiencing employment challenges, personal problems like sickness to self or others, which puts a strain on finances. Adding to this, is the recognition that in tougher times, just when problems seem to rise, the whole issue of property value and equity become a problem. If property values are down, then the equity you might have thought you had, is not there. This, then, does not become a solution to debt load. Unfortunately banks are businesses, driven to succeed by profits. Investing in risky ventures is not part of their mission. As a human, telling people this and NOT being able to help plain old “sucks”. If I could hope for one thing it would be that you have a supportive relative that might co-sign. Asking is hard, the stress of debt is harder.

You Sneaky Bank... Maybe Not the Lowest Rates

For many years now, I believe banks focus on efficiency and gain rather than ensuring customer knowledge.  Recently, it has come to my attention that TD Canada Trust instituted a change to their mortgage program.  When you get a mortgage from them it is called a collateral charge.  It has positive and negative points: 

On the positive side, if in 2011 you bought a home for $200,000.00 and put 5% down, your mortgage was registered for an amount of about $195,000.00.  If 15 years later, you owe $100,000.00 and you want to refinance to consolidate debt, you can.  You do not need to see a lawyer for a new mortgage as long as the amount consolidated remains below the original $195,000.00.  This can save you $750.00 to $1000.00 in legal fees. 

On the negative side, there is a loss of flexibility and dependence.  A client was offered, on renewal, a 5 year closed term rate of 4.49%.  Meanwhile, I get clients 3.29% for the same term.  I see this as a way for TD to get clients to take a higher interest rate by reminding clients they would probably like to avoid legal fees if they change mortgage lenders.  However, let’s calculate the numbers: take 4.49% over 25 year amortization, against a rate of 3.29% over the same amortization, it will give you a savings of $87.00 per month; over 5 years, that saves you $5220.00.  This makes the legal fee small in comparison. 

Overall, I want you to know that I can’t prove that TD planned to use this type of mortgage to retain clients.  But, the loss of flexibility and increased work placed on a client to get the best deal comes into play.  For the record, be advised that these types of mortgages are available to TD Canada Trust, Scotiabank and soon to be offered by ING.

In my opinion, this is just one good reason talking to a mortgage broker agent like me is in your best interest.

What You Don't Know About Mortgage Agents

I discussed mortgages with a friend this week and he made the comment that he believes many people don’t really know what mortgage brokers and agents do.   I hope to clear this up for you.

When you deal with a bank, you are dealing with one mortgage lender.  Your bank has specific rules and policies, and if some aspect of your mortgage profile does not fit into their strict package, you will be denied, the deal becomes dead.  However, if you seek out a mortgage agent, you will find that we have access to over 40 different lenders, each with a variety of rates, programs, and different types of deals to benefit you, the client. 

In many cases, when a person is declined by the bank, they come to me, and usually, I can help.  Interestingly, if your first stop is a mortgage agent, then you will only have to access your credit bureau once—if your credit is checked too many times, this sometimes negatively effects your credit score.  See a broker, and you will avoid any added problems, like too many bureau “hits.”

Furthermore, this happens to be an opportune time of year to discuss why mortgage agents are a valuable resource to clients.  Each year, the government requires mortgage agents (some are Accredited Mortgage Professionals or AMPs) to upgrade our Broker/Agent License.  This means mortgage agents are educated about everything to do with the mortgage industry, including rules, regulations, laws, etc. 

This education process is to protect clients.  No one else in the mortgage business has to do this—your bank does not do this.

Honestly, by choosing a mortgage agent, especially an AMP,  you are choosing a person who has an up-to-date education, knowledge of and access to a multitude of lenders; ultimately, this will benefit you and get you the best mortgage possible.

Bah Humbug: Refinancing, Debt & Bankruptcy

I cannot remember a worse week in my mortgage business. For all the bad news I will reference below, I hope you can find a valuable lesson. These clients have forced themselves into difficult financial situations—overwhelming and multiple debts, including tax arrears, collections, and more.   When we are employed, paid well, and live accordingly, there should be no serious financial problems.  However, what if a job ends unexpectedly, or some other unforeseen issue occurs?  In all cases, the key is to continue to “live accordingly,” which may include adjusting your lifestyle.

Generally, when in trouble, people look to the equity in their current home for a financial solution.  It sounds easy: consolidate debt, lower payments, and suddenly, you can afford to pay off your debts, and maybe even live a little. 

The gap in the above scenario is our weak economy; by association, the drop in real estate values.   A refinance is only possible when there is enough value in the property to pay off a large sum of your debts plus other incurring fees.  This week, I have had four clients declined a mortgage because their debts have so severely outweighed the property value; therefore, the only advice I can give is to either try and sell, ask for help from family members, or go bankrupt.  The latter is an especially dark and dismal option that I hate to offer up, but unfortunately, may be the only way to escape from a world consumed by debt.

Closing Date: Why the Rush?

Recently, clients are visiting and asking for help, but with one common theme: the closing date is very short.  In some cases, closing is only a few weeks away.

While a short closing time is possible, in general, you must remember that there are steps involved in getting a mortgage, and several parties required to complete this task for you.

First off, I, the mortgage broker, need to receive a signed agreement of purchase and sale, and an MLS listing; this is submitted to a lender, and takes a day or two to receive a response.  If approved, the lender requests specific documents from you, such as proof of income, downpayment, etc.  If you have excellent employment and credit, this step can be a breeze.  However, if there are any issues with some part of your application (be it employment, the property or your credit bureau), it may take time to adjust.  For example, you may need to request your previous years Notice of Assessments from Revenue Canada, and it can take up to three weeks for you to receive these documents in the mail, or your credit bureau may show a car loan that you actually paid off as unpaid, and you will have to request proof from your dealership that it is in fact paid.  As you can see, there are many scenarios where unforeseen problems will need to be solved with additional documents, which can take time to process.

Once all documents are received and accepted by the lender, then the lawyer will be instructed.  The lawyer will also need time to do all that the lender and the law requires.

Therefore, I try to encourage closing dates to be at least one month ahead.  The mortgage approval process has a domino effect, no matter how short or long of a closing, my expectation is that the client will be prompt with getting required documents in to me, so the lender can be satisfied, so the lawyer can be instructed, so the client gets their mortgage done in time.

Moreover, this process is the same for a debt consolidation mortgage (refinance).   Try not to wait until the pressure is on and overwhelming you before seeking out assistance with your debt or home purchase.  The broker, the lender and the lawyer cannot act instantaneously. Provide time to do your mortgage correctly, so you can get back to your life, with significantly less stress.