Mortgages for the Self-Employed

General Tim Hill, MBA 28 Sep

Brokers are beating the drum for BFS clients

Spreading the word about what brokers can do for clients hasn’t been easy – but there are ways to inform and educate, and in the process, build a book of clients.

“With all the new government regulations that have come out over the last few years, it has affected the self-employed the most,” says Bryan Guertin, principal broker for Mortgage Intelligence Oakville. “CMHC no longer insures stated-income mortgages and the other two insurance companies that still do have really tightened up with the qualifications. Many self-employed are finding out that their bank can no longer help them.”

His recent article in the Hamilton Spectator explains the many ways that brokers work with self-employed Canadians, such as freelancers, contractors and small business owners.

“The timing of this article is perfect,” Guertin told MBN. “We have to make these potential clients aware that there are other mortgage lenders out there that qualify them in a different way to make the numbers work.”

And although BFS clients sometimes end up paying a higher rate, there are ways to keep the numbers down; but it isn’t easy.

“Depending on the equity in their homes, some self-employed deals can be done at best rates,” says Guertin. “I have been a mortgage broker for over 40 years, placing BFS mortgages has always been easy, but we now find them tougher to place.”

The business-for-self client base is simply too large for brokers to ignore, and one that is tailor-made for brokers to engage, says Tom Hickey, VP Operations (Adjudication) for B2B Bank.

“The BFS segment in Canada is growing and represents about 18% of the workforce,” Hickey told MBN. “We see an opportunity to adapt to the changes in the workforce Canada is experiencing.”

And Guertin has seen first-hand his own BFS client base increase.

“In the past, approximately 40% of our transactions were BFS,” he says. “Now we are at 60%.”

 

by Donald Horne | 28 Sep 2015

http://www.mortgagebrokernews.ca/news/brokers-are-beating-the-drum-for-bfs-clients-196982.aspx

Watch out for “cash back” mortgages!

General Tim Hill, MBA 10 Sep

Bank tries to win other lenders’ business

It may be a clever marketing ploy, but brokers are poking holes in one big bank’s mortgage promotion that offers free mortgage switching from existing lenders – and an enticing cashback offer.

“If a client is wanting to switch before renewal time, then it’s likely the current lender will impose a prepayment penalty based on the greater of three months interest or an Interest Rate Differential calculation,” Bill MacDonald, an agent with Invis, told MortgageBrokerNews.ca.

In many cases, that IRD penalty can amount to thousands.

CIBC is currently advertising a campaign that allows clients to switch their existing mortgage for free.

The campaign – which is being pushed online and in print advertisement, including A-frame boards outside branches – tells potential clients that, for a limited time, they can switch their mortgage to CIBC for free, and get up to 5% cash back.

A disclaimer also states that the “free” switch doesn’t include existing lender fees.

But it’s the cashback mortgage that brokers may view as the bigger problem.

“The advertising doesn’t completely reveal that consumers will pay a much higher rate for a “cash back” product … I can arrange a 5 year mortgage today at most lenders at 2.69% but if my client insists on a “cash back” of 5%, then the rate will likely be 6.1%,” MacDonald said. “That, obviously, makes a huge difference in the monthly mortgage payment. Some clients may want or need the ” cash back ” but it’s extremely important they understand the product and whether it’s  definitely worth the higher cost.”

Regulators have long advised against cashback mortgages, with OSFI recommending urging default insurers not to underwrite these loans.

For their part, brokers are wary of cashback options because, as MacDonald explains, they often cost clients a hefty sum in interest.

CIBC announced last week that it had funded $165 billion in mortgages during Q2 — a $7.7 million spike over the previous quarter.

See below for an example of the ad.

Calls to a CIBC rep were not returned.


by Justin da Rosa | 08 Sep 2015

http://www.mortgagebrokernews.ca/news/bank-tries-to-win-other-lenders-business-195874.aspx

In the News … (rate specials)

General Tim Hill, MBA 10 Sep

Lenders using specials to win business from each other

Lenders are duking it out over business and offering special promotional rates to their rival’s clients – much to the chagrin of one leading broker.
 
“The big issue I have right now is the live-deal specials that lenders offer; a lender will publish a new special rate that is only for new business if that client has an existing deal in progress with another lender,” Tim Hill of Dominion Lending Centres Primex Mortgages told MortgageBrokerNews.ca. “It’s a bid to get clients away from other lenders and they all do it but they also hate losing clients.”
 
The biggest frustration comes when two lenders offer the same live-deal special, but the existing lender won’t match the competitor’s promotion for that particular client, according to Hill.
 
The scenario creates a conflict of interest for the broker because he wants to get his client the best rate, but he has to cancel the deal with the existing lender.
 
“Say I have a client with lender A at 2.69% and lender B announces a 2.59% live-deal special,” Hill said. “Lender A comes out with its own 2.59% special but that client won’t qualify because he is already considered an existing client.”
 
MortgageBrokerNews.ca obtained an email sent by one leading lender to brokers announcing this type of deal. The conditions for the 2.59% five-year fixed rate were as follows:
 

  • New business and live deals only
  • Maximum buy down to P-0.85% | 2.49% | 2.14% allowed
  • You must indicate in notes – 5 Year Fixed Promo or
  • 3 Year Fixed Promo or 5 Year ARM P-0.65%
  • 120 Day Rate Hold

 
And while Hill, who is based in Vancouver, has been struggling with an increase in these types of promotions, it appears the trend may be specific to hotter housing markets.
 
“I have not head of this sort of deal; the only thing I’ve had trouble with are quick-close deals,” Steven Klassen of Verico One Link told MortgageBrokerNews.ca. “In Manitoba I haven’t seen lenders do anything like this.”

 

by Justin da Rosa | 03 Sep 2015

http://www.mortgagebrokernews.ca/news/lenders-using-specials-to-win-business-from-each-other-195688.aspx


In the News … (last-minute issues)

General Tim Hill, MBA 9 Sep

Broker: Lender staffing issues leading to last-minute deal issues

Lenders are understaffed and dealing with record volume, according to one former underwriter, which explains the increase in last minute audits and the resulting problems with files.

“There is often another level of review after the underwriter signs off on a deal before it gets funded; the underwriters sometimes miss something and it’s a function of underwriters being overwhelmed,” Tim Hill of Dominion Lending Centres Primex Mortgages told MortgageBrokerNews.ca. “Volumes for lenders are also as high as they’ve ever been, and a lot of documents are being looked at very late in the process.”

Those last minute reviews are done by an auditor that oversees underwriters’ work according to Hill, who worked as an underwriter for Street Capital for over three years before moving to the broker side of the business.

An increasing number of brokers are reporting issues late in the mortgage origination process with last minute audits.

For his part, Robert Clancy of Verico Safebridge Financial argues these last minute audits are being exacerbated by lenders who all interpret mortgage regulations differently.

“A lot of the time there is an issue with conditions being added on by lenders at the end of deal; all of a sudden lenders call and ask for more documents,” Clancy told MortgageBrokerNews.ca. “It seems to be the monolines grappling with the regulation changes; everyone seems to be interpreting them differently.”

One specific example Clancy encountered was when a lender requested – at the last minute –that a number of debts to be paid down.

“They requested this days before closing, and even though we showed them their calculations were wrong they still forced us to deal with it.”

Luckily Clancy was able to work with the client and eventually got the deal funded. But not all brokers have the same luck at the last minute.


by Justin da Rosa | 02 Sep 2015

http://www.mortgagebrokernews.ca/news/broker-lender-staffing-issues-leading-to-lastminute-deal-issues-195600.aspx

Top 5 Tips for Improving Your Credit Profile

General Tim Hill, MBA 11 Aug

In today’s economic climate of tighter credit requirements and increased unemployment rates taking their toll on some Canadians, there’s no doubt that many people may not fit into the traditional banks’ financing boxes as easily as they may have just a year ago.
 
Your best solution is to consult your mortgage professional to determine whether your situation can be quickly repaired or if you face a longer road to credit recovery. Either way, there are solutions to every problem.
 
Mortgage professionals who are experts in the credit repair niche can help credit challenged clients improve their situations via a number of routes. And if the situation is beyond the expertise of a mortgage professional, they can help you get in touch with other professionals, including credit counsellors and bankruptcy trustees.
 
If you have some equity built up in your home and still have a manageable credit score, for instance, you can often refinance your mortgage and use that money to pay off high-interest credit card debt. By clearing up this debt, you are freeing up more cash flow each month.
 
In the current lending environment, with interest rates at an all-time low, now is an ideal time for you to refinance your mortgage and possibly save thousands of dollars per year, enabling you to pay more money per month towards the principal on your mortgage as opposed to the interest – which, in turn, can help build equity quicker.
 
Following are five steps you can use to help attain a speedy credit score boost:
 
1) Pay down credit cards. The number one way to increase your credit score is to pay down your credit cards so you’re only using 30% of your limits. Revolving credit like credit cards seems to have a more significant impact on credit scores than car loans, lines of credit, and so on.
 
2) Limit the use of credit cards. Racking up a large amount and then paying it off in monthly instalments can hurt your credit score. If there is a balance at the end of the month, this affects your score – credit formulas don’t take into account the fact that you may have paid the balance off the next month.
 
3) Check credit limits. If your lender is slower at reporting monthly transactions, this can have a significant impact on how other lenders may view your file. Ensure everything’s up to date as old bills that have been paid can come back to haunt you.
 
Some financial institutions don’t even report your maximum limits. As such, the credit bureau is left to only use the balance that’s on hand. The problem is, if you consistently charge the same amount each month – say $1,000 to $1,500 – it may appear to the credit-scoring agencies that you’re regularly maxing out your cards.
 
The best bet is to pay your balances down or off before your statement periods close.
 
4) Keep old cards. Older credit is better credit. If you stop using older credit cards, the issuers may stop updating your accounts. As such, the cards can lose their weight in the credit formula and, therefore, may not be as valuable – even though you have had the cards for a long time. You should use these cards periodically and then pay them off.
 
5) Don’t let mistakes build up. You should always dispute any mistakes or situations that may harm your score. If, for instance, a cell phone bill is incorrect and the company will not amend it, you can dispute this by making the credit bureau aware of the situation.
 
If, however, you have repeatedly missed payments on your credit cards, you may not be in a situation where refinancing or quickly boosting your credit score will be possible. Depending on the severity of your situation – and the reasons behind the delinquencies, including job loss, divorce, illness, and so on – your Dominion Lending Centres mortgage professional can help you address the concerns through a variety of means and even refer you to other professionals to help get your credit situation in check.

Should You Rent or Buy?

General Tim Hill, MBA 2 Jun

At some point in their lives, most Canadians have probably asked themselves whether it is better to buy or rent a home. And purchasing a home is one of the biggest decisions most people ever make.
 

Ultimately, the decision is a personal choice, but it helps to look at the pros and cons of buying to determine whether home ownership is right for you.

 
Some advantages of buying a home
 
Owning a home is generally considered to be a sound, long-term investment that can provide satisfaction and security for you and your family.
 
Each month when you make your mortgage payment, you are building equity in your home.
Equity is the portion of the property that you actually build through your monthly payment versus the portion that you still owe the lender.
 
At the beginning of your mortgage, more of your payments go toward paying off the interest and less toward paying off the principal. But the longer you stay in your home and the more mortgage payments you make, the more principal you pay off and the more equity you accumulate.
 
Most mortgages also offer you the option of making additional monthly or annual payments to reduce your principal faster. Some prepayment privileges, for instance, enable you to pay up to 20% of the principal per calendar year. This will also help reduce your amortization period (the length of your mortgage), which, in turn, saves you money.
 
There is also a tax advantage. If your home is your principal residence, any profit you make when you sell it is tax-free. A home can appreciate – or increase in value – as time passes, building more equity. As you build up equity, it’s usually easier to upgrade to a more expensive home in the future thanks to the profit you’ll make when selling your current home.
 
As an owner, you can also decorate and improve your home any way you like. Ownership tends to give you a sense of pride and can offer you and your family stronger ties to the community.
 
If you do decide that home ownership is right for you, it’s important to choose a home you can afford. If you can’t afford to buy your dream home, purchasing a more modest home can be a great place to start building equity that one day may allow you to buy the home of your dreams.
 
Since we’re currently in a buyer’s real estate market and interest rates have been dropping, now may be an ideal time to enter into home ownership for the first time.
 
Some disadvantages of buying a home
 
Since it’s easy to get caught up in the excitement of buying a home, it’s important to remember that home ownership has some additional responsibilities as well.
 
For one thing, a home can be expensive. Chances are, your monthly payments will be more than what you are currently paying in rent when you factor in such things as your mortgage, property taxes, repairs and general maintenance.
 
Owning a home ties up some of your cash flow and is likely to reduce your flexibility to move to a new location or change jobs.
 
While your home might increase in value as time goes by, don’t expect to get a big return quickly. There are no guarantees that your home will increase in value, particularly during the first few years. In the beginning, you could actually lose money if you sell because your home may not have appreciated enough to cover the real estate fees, and moving, renovation and other selling costs.
 
Real estate is, however, usually considered a good investment over the long term.
 
When making the decision about whether to buy or rent, it’s important to carefully choose a home you can afford, and then weigh the pros and cons. Millions of people enjoy the rewards of home ownership but, ultimately, it’s a personal decision based on your own priorities.
 
If you’re thinking of buying your first home, Dominion Lending Centres mortgage professionals can answer all of your mortgage-related questions.
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