Yesterday, our office had the fantastic opportunity to sit down with our companys' President, Mark Kerzner and discuss current market conditions, the what's this and what's that of mortgage lending. There were some very good questions asked throughout so I thought I would share a few of those insights with you.
How important is interest rate?
This question was posed to us but I am extremely interested in what the consumer thinks. So I'll ask you this, how important is interest rate to you? Do you feel that interest rate is the "be all, end all" of a mortgage or would you rather choose a mortgage based on the service, consistency and availability of products to best suit your lifestyle?
If I were to inform you that mortgage flexibility could save you thousands of dollars per year as opposed to interest rates saving you hundreds, would this alter your opinion on interest rate?
I am fully aware of the bragging rights attached with interest rates and the conversations over friendly gatherings, family dinners, Sunday brunch..."What's your rate? How much do you pay?" Brokers typically have access to the lowest rates, incentives and the best overall products on the market. Variable rates used to be the talk of the town but as of late, fixed rate products are dominating the marketplace.
Interest rates drive volume, plain and simple. Banks want to get the most from their existing clients as well as capitalizing on new ones'. One major lender has just raised fees on all customer accounts, I wonder if this is due to the loss of market share when the 2.99% rate specials were in full effect and are now trying to boost their numbers?
Have you ever heard of the term, "In the drawer offer?"
Mortgage renewal time is interesting in the lending world. Let's hypothetically say a few years ago you walked into a bank and obtained a mortgage on your own accord. Your mortgage is now approaching the end of it's term and you've just receive a letter from your current lender outlining an offer to continue with their services. I would argue that your existing mortgage lender will not necessarily provide you with the best offer right out the door, they'll have evaluated their client base and will provide you with either a standard letter or an "In the drawer offer." In the drawer offers are basically ones' that evaluate you as a client, what do you mean to them? How much influence will you provide their business? Keep in mind that this is not always about interest rate, there may be a much better mortgage product on the market that contains the flexibility that is ideal for you. Your lifestyle may have changed significantly over the last few years and this would be the ideal time to discuss your options in detail. As a broker, I am constantly keeping in contact with my clients and am consistently scanning the marketplace so that I am always able to offer you the best product from my drawer, always.
Lenders are banking on their renewal customers to just sign on the dotted line and continue business as usual. At times, you may just feel that this is convenient and it may very well be; digging up certain documents can prove to be troublesome at times. But, wouldn't you like to potentially save a considerable amount of money? Allowing your mortgage to automatically renew simply means that you've missed an opportunity to save some hard earned cold cash.
According to an Angus Reid survey commissioned by ING Direct in 2009, 27% of Canadians allow their mortgages to automatically renew. This means that over one quarter of Canadians did not perform their due diligence upon renewal. I'll make the assumption that these consumers did shop around originally for their first mortgage so why not do it again, but this time with the assistance of a Mortgage Professional. Remember, our services are absolutely free for typical residential transactions and we are experts in your best interest, we think outside the branch.(TMG)
Market Overview
There has been a renaissance in the marketplace over the last few years. In addition to the elimination of the 35 and 40 year amortized mortgages (these are still available on conventional deals with a handful of lenders available through brokers), we've seen a complete 180 degree turn in regards to fixed and variable products. Canadian Mortgage Trends reported earlier this year that 94% of Canadians were choosing fixed rates over variable. Just a few years ago, ARM's dominated the market; this is a true sign that the world is changing. Locking in to an interest rate below 4% is just remarkable. I would suggest hedging against these rates as inevitably they will rise, and potentially sooner than expected according to the experts. The Bank of Canada decided to maintain it's overnight rate target at 1% today. There has been talk about tightening mortgage rules and specifically HELOC's (Home Equity Lines of Credit). OSFI wants to impose a 65% LTV limit on all HELOC's, currently borrowers have access up to 80%. This regulation would paint all borrowers as weak and overleveraged when truly that is not the case. It's thought that if these changes do happen, the limit may be closer to 70 - 75% LTV. It is also rumoured that the minimum 5% down payment will be increased to 7 - 10% and that the maximum amortization may be reduced to 25 years from the current 30.
I take pride in providing my clients awareness and education in the mortgage industry so that they are able to make a sound decision when purchasing a home or making changes to their current product. If you have any questions, I would love to hear from you and provide you with the answers that you deserve, contact me today!
As always, I encourage you to contact me if you have any questions with your current mortgage or are looking for one. Please find me on facebook at Jason Nesseth | Mortgage Specialist | British Columbia and on twitter @jasonmortgages.
"Working with you for the life of your mortgage"
Jason Nesseth with TMG The Mortgage Group Canada Inc. If you have any questions or comments about this blog, please feel free to call Jason at 604.375.7375, email jason.n@mortgagegroup.com or visit his website at jasonnesseth.com