TD Wants You In Debt Longer

I am all for creative schemes to help consumers, especially with mortgage financing having tightened as of April 19th 2010. One thing that I have been trying to drill into my client’s heads is the thought of becoming mortgage-free faster, by taking advantage of the lump-sum payments, making accelerated payments, or adding a small amount to each regular payment you make. The goal is to be mortgage-free, isn’t it? TD Bank has come out with changes to their mortgages and how they are registered, that appear to benefit the consumer, but may in turn keep the consumer in debt longer AND make it much tougher to leave TD Bank. I don’t like this one bit.

Let me explain: moving a collateral mortgage is far more expensive because of the fees involved. Let’s say in 5 years your mortgage at TD Bank comes up for renewal, and TD is only offering you prime - .75. Meanwhile I have found you Prime - .90 elsewhere. Most other lenders do not register their mortgages as collateral mortgages, therefore the fees involved when switching are nil on the consumer’s end. However as with the Scotiabank STEP product, the TD mortgages will now be subject to fees incurred with moving this mortgage, fees that suddenly may not make sense to pay.

So what is the benefit of the TD policy? Simple - they register 125% of the value of your home right away, so accessing the funds (in the case of a new market boom, or renovation thus increase in value) will be easier. However this seems like TD is turning the tap on and leaving it running. I don’t know of many clients who love the idea of increasing their mortgage balances, unless it makes financial sense. I worry this sort of lending…


Rates Remain Low

Yesterday the Bank of Canada decided to stay the course and kept its overnight rate at 1%. Furthermore, sentiments from the Bank are that moving forward we will most likely see low rates until at least 2011, and then a tightening of monetary policy. I know that I said on twitter two nights ago that I was on the fence whether the Bank would be raising rates again or not, however I feel this move is the right one, at this time. Clearly our economy is not growing by leaps and bounds as originally thought when rates were going up (as we have seen 3 jumps already this year). Consumers in Canada are still eyeballs into debt, at a 146% clip (debt to income). Furthermore, the global economy is sputtering, as our neighbours down south cannot seem to get things to work even with hefty government bailouts. Where do we go from here?

Some clients have chosen to take the excellent offers on hand now such as the 3-year 2.9% or the 5-year in the 3.5/3.6% range. Short-term they’re probably going to hate me. Long-term, they’ll love me. Keep in mind that a mortgage / house purchase is a long-term investment. Some people choose to look at their stocks on a daily basis, and trade often. Others choose the buy-and-hold strategy. Same with your mortgage. A repeat buyer, for example, may be more comfortable within a variable rate mortgage - they have been through rates going up and down, payments changing etc. However a first-time buyer is leaning towards the fixed and rightfully so. Rates this low won’t remain this low forever, and although there will be some savings now, moving forward they will evaporate while the fixed will go up, and they will not be able to lock in…


Now That You’re Approved…

Getting an approval can sometimes be easier than closing a deal. I’ve seen times where an approval comes to me within an hour, but closing the deal can take weeks. Here’s a primer on how to ensure a smooth closing:

  • Employment
  • Most lenders require a recent job letter (30 days old), and recent paystub. If you are an hourly-wage employee, 2 years of T4s or Notices of Assessment may be required. Keep in mind if your representative in HR is going away on vacation, the bank must have someone to verify the employment with, therefore the sooner we get the employment letter, the sooner the bank can cross this off their “to-do” list.


  • Down Payment
  • There are many options to satisfy the downpayment condition, including: GICs, RRSPs, Home Equity Lines of Credit, and regular savings. If your downpayment is coming from an immediate family member, a gift letter is required. To satisfy the downpayment condition, banks must see 90-days history from all accounts where the moneys are coming from and/or a downpayment along with deposit to account from that source.


  • Photo ID, Void Cheque, Lawyer
  • These three are mandatory for us as mortgage agents at Mortgage Edge.


  • Maintaining Clean Credit
  • I have seen a few deals collapse at the last minute because of this. Say a client is on the line with qualifying, they have some debts but are still in line with the numbers. They get approved, and suddenly take on a new car lease of $600/month. This suddenly takes them out of the qualifying range! A bank is allowed to check the credit 5 days prior to closing (as per their contracts), so it is essential that the credit remain clean.





    How To Reduce Amortization

    Simply put, amortization is defined as the term at which you have to repay your mortgage. Until April 19th, the maximum amortization allowed was 40 years. Since then, 35 years is the maximum that a client can amortize their mortgage in Canada, with the exception being Equitable Trust - allowing for 40 years under their product guidelines. As soon as the extended amortization was introduced, clients jumped on it in order to reduce cash flow - however the “forced savings” model went out the window. Even though a great majority of mortgage products allow for some form of pre-payment (10 to 25%), a great majority of clients do not take advantage of these.

    Think about it: 35 years is a very very long time to pay off a mortgage. I’ve had clients who have managed to do it in under 10 years, normal working people with normal paying jobs. I’m not here to argue that you should sacrifice the next decade of your life to do the same, but I want to show you just how easy it can be to pay down the mortgage quicker, and almost without noticing you are doing so. Now that rates are low, I will use the example of a 3.59% 5-year fixed, simply because it is a standard rate, and one that will give us a 5-year window into potential savings (as opposed to a variable rate mortgage, which can go up in the next 5 years)

    Example: $250,000 mortgage (pretty standard across the board) - at 3.59% with a 35 year amortization schedule gives us monthly payments of $1042/month. By paying this bi-weekly instead of monthly, we’ve already reduced amortization down to 29 years and 11 months - and this just means one extra months’ worth of payment per year. Now,…


    Getting Married? Contact The Credit Bureau

    If you are thinking of getting married, one very important question you’ll have to face (besides where will your mother-in-law sit), is if you are going to change your last name, or even hyphenate it. One of my best friends (and a client) got married and changed her last name. Lo and behold when it came time to arranging her mortgage financing, I did a quick check on her new last name, and sure enough the credit was brand new (active for 3 months). Trouble was, her old credit was 10 years active (and fantastic). We had to make a call to equifax and transunion to consolidate these two, and the lender totally understood our situation (using her new credit, she would not have qualified for 5% down).

    If this sounds like your situation, here’s where to contact Equifax http://www.equifax.com/contact_us/en_ca and TransUnion http://www.transunion.ca/ca/aboutus/contactus_en.page

    Keep in mind you’re contacting the credit agencies, so have all your personal information on file when you make that call.


    “Burn My Mortgage” on W Network

    Got wind of an interesting new show on W Network (in Canada) called “Burn My Mortgage”, which puts families who overspend into various challenges (you know, typical reality fare), but will hopefully teach the viewers on how to cut out certain spending habits, and cut down on how long they are in debt for. In the opening show, a family will be mortgage free 14 years sooner if they follow the advice of the show.

    The link to the show is here http://www.wnetwork.com/Shows/BurnMyMortgage.aspx and if you want to appear on it, and meet their guidelines, check here http://www.wnetwork.com/BeOnTV.aspx


    The Realtor.ca Website

    The other day I was in Prague and I had a client email me to get mortgage payments for a property they were looking at. They sent me the link, and I thought I would take the shortcut and use the http://www.realtor.ca’s built-in website calculator. After plugging in the numbers, I did the “measure twice, cut once” approach, and cross-referenced them with another calculator. Sure enough, the http://www.realtor.ca site does not incorporate CMHC fees, which is a huge mistake. I have emailed the Canadian Real Estate Association on this, because I find it to be a big problem for other clients.

    Lesson here? Never ever assume the payments on a mortgage calculator are correct, until you have spoken to a Mortgage Professional.

    An example - if you went on the realtor.ca site, and found a house asking $200K, the calculator would tell you that your payment would be $823.30 per month with 5% down.

    What it did not do is figure in the 2.75% CMHC insurance which would be mandatory, and increase your monthly payment to $855 per month.

    (difference times 60 months, we’re talking almost $2000 difference)

    Another complaint about the website which I hope will be addressed: how come I can’t view properties on my ipad? Surely Realtors will be increasingly using this as a great sales tool - I as a mortgage agent have already seen its positive effects: light, easy to use, and a great demonstration tool for clients. Yet, the website won’t show up on my ipad, which is strange (not to mention, ineffective).

    http://www.realtor.ca has come a long way from the old days, but can still go a lot further to improve the usability from a client’s perspective.

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