Bye Bye ING, Hello ScotibankING

See what I did there? Clever! All kidding aside it’s a rather sad day in the Canadian Mortgage Market as ING Direct has been unofficially sold to Scotiabank for $3.1B. It has to clear regulatory and Government hurdles but I do not foresee any reason why this marriage will end at the altar. I am a proponent of ING Direct and a customer of theirs so it’s a double-whammy for me. I really appreciate their message of the “un-mortgage”, their extremely favourable IRD penalties, their heavy pre-payment options, and their general flexibility and ease of access as a customer AND as a mortgage agent.

The sale was brought on by troubles in Europe for ING Direct Canada’s parent company, ING Bank. As such, the Canadian operation was put up for auction following the sale of the U.S. division. In an interview with BNN, ING Direct Canada CEO Peter Aceto says he wants to keep Orange separate from Red (the two colours of the banks) for as long as he can. The timeframe given was something in the range of 18 months. I cannot think of two more opposing banks: a big 5 vs an independent, and how they will transition in the future. This gives Scotiabank access to 1.8M customers in Canada, some of which may hold Scotia accounts but many of which I bet will be unhappy to move to a big bank and may head for the exits.

What the future holds we do not know. Will Scotia allow ING to operate as independently as possible? I hope so. ING Direct has done a great job in establishing its reputation and I would be sad to see it completely go away, and am not sure it’ll make that much sense to marry the two companies’ strategies under…


New To Canada Refresher

Recently I had the pleasure of working with Yuri and Svetlana, two relative newcomers to Canada seeking their first home purchase. I wanted to refresh you on the New To Canada program that Genworth Insurance provides my lenders, so that in case you or someone you know are in this position you can rest assured getting financing can be a piece of cake.

First let’s get the important stuff out of the way, care of the website:

Borrower qualification
1. Must have immigrated or relocated to Canada within the last 60 months
2. 3 months minimum full time employment in Canada (borrowers being transferred under a corporate relocation program are exempt)
3. Must have a valid work permit or obtained landed immigrant status
4. For 95% LTV, down payment must be from own resources. For LTV’s less than 95%, the remainder may be gifted from an immediate family member or from a corporate subsidy.
All debts held outside of the country must be included in the total debt servicing ratio (Rental income earned outside of Canada is to be excluded from the GDS/TDS calculation)

One of the most important parts is #4, down payment. Gifted down payments are not allowed with only 5% down. Reason this is important is when people move here sometimes they leave money back home. When transferring money from home it is imperative you keep your original bank statements from there, showing these funds belong to you and only you.

Another crucial point is the timeframe when you would have had to come to Canada by - 60 months.

The beauty of this program is such that you don’t even need credit in Canada. There are “alternative sources” of credit such as an international report, bank statements showing rent…


Porting a Mortgage

Often times people wonder what happens if they have to (or want to) move while still in a closed-term mortgage. Whether you’re in variable or fixed and the time comes to up/downgrade or make a move, many lenders give you plenty of options to make the move financially feasible. First off, if your mortgage is ‘portable’ (or transferable), you will not pay a penalty to move from property 1 to property 2 IF you keep your mortgage within either the current balance OR within the x% of what you’re allowed to pre-pay per year. Confused yet? Don’t be, let me explain:

Current mortgage $400,000.
Pre-payment allowance per year: 20%
Amount prepaid in this year: $0.00
New mortgage $320,000
Penalty: $0.00*

Now, I hope you noticed the little *. There is ALWAYS fine print to consider, but usually all else being equal this is how the system works. If you keep your balance the same OR increase it then we don’t even discuss pre-payments, as the lender is lending you more money and does not need to take that into account.

So what happens to my rate?

Short answer: it depends.

Long answer: it really depends.

All kidding aside, let’s say you’re in a 5-year fixed and you got in in the late 2000s when rates were say, 5.5%. If you’re porting your mortgage you would get a “blended” rate between YOUR rate and the best rate available today for the same term. In this case it’s important to do the math whether it makes sense to take this blended rate OR take a new lower rate and pay the penalty.. If your rate is LOWER than the current rates, same rule applies: They take your current rate and blend with the new higher rates, where you…


The Good News

First, the good news. While on vacation some pretty important news came out from Jim Flaherty who announced that we’ll see no more mortgage rule changes as the Government of Canada is happy with the results of the previous rule changes. A big sigh of relief but at the same time an expected answer. Four rule changes in recent times from the extreme 40-year amortization with 100% financing to where we are today, 25 year amortization with 5% down, and our housing market is showing signs of “cooling” (note: not crashing). I’m glad the Government is finally letting the market determine the direction, the same Government that opened up the borrowing market and artificially created this supposed bubble in the first place after seeing the positive (at the time) effects of such loose lending standards down south.

While rates remain at all-time lows of 2.99% 5yr fixed, however, I don’t think any more tightening would affect the housing market anyways. What will are +2% rates from today’s standards. When shopping for a home enter a hypothetical rate of 5% for your mortgage and if you can’t afford payments at 5% today you should not be buying a home.

If you’re in a mortgage now, best thing to do is set your payments as if rates were 5% and you’ll pre-pay a huge chunk of your mortgage down while rates are so low. A typical $400,000 mortgage at 5% and 25 year amortization runs you at $2362 per month. Today that same mortgage at 2.99% is $1890. If you pay $2362 per month after 5 years your mortgage balance is $30,000 lower, and, if you pay bi-weekly, $43,000 lower.

THIS is why paying down your mortgage now is extremely important.

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