Broker: banks winning the rental wars

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Some mono-lines may in fact be chasing rental business to the banks by attaching premiums to both the borrower’s interest rate and insurance costs, argues one broker focused on that end of the market.

“In general, if you have a client that can be approved by both a major bank and a mono-line lender for an investment property, it certainly doesn't make sense to have the client pay a premium on the rate or pay an insurance premium with the mono-line lender,” Dave Butler of Verico Butler Mortgages, told  “I use monoline lenders all the time -- they are very important to our industry.  But if I am comparing apples to apples for a client that can be approved by both types of lenders, it is a no brainer to get your client a better overall package and that is present with a major bank such as National Bank or Scotia.”

That’s increasingly the case after several mono-lines signalled their intentions earlier this year to back away from the rental market. The move, made in tandem with their retreat from BFS programs, has actually benefited banks, which continue to take those deals and keep them on their books.

The mono-line move to severely curtail their own rental product is the direct result of the CMHC’s decision to ration access to bulk insurance. The decision means that they can’t securitize those loans.

Make no mistake, suggested Butler, banks have been the most obvious beneficiaries even as they too apply more conservative guidelines to that lending, especially around condo investments.

“Even with the latest changes to Scotia's pricing on rental properties, adding 0.20 per cent to their fixed rate and variable rate,” said Butler. “The rate still ends up being better than those offered by mono-line lenders who incorporate the insurance premium into the rate.  

"For those Monoline lenders that give their lowest rate on rentals but charge an insurance premium to the client instead of pricing it in the rate, the premium paid by the client ends up adding to more than the savings that was had in the lower rate compared to the major bank.”

  • Jason Nugent on 2012-04-25 4:31:18 AM

    In some cases that is true, but in a lot of cases it may be in the clients best interest to pay the rate premium. If the client plans to buy several properties, then it becomes even more important to deal with a monoline lender. As brokers we are trained to look out for the client’s short and long term objectives. Sure the client might be able save 25bps to 50bps on a term, but if they can’t buy another property because they got that cheaper rate, they have not met their goals and we have not done our job. It’s our job to educate them on the advantages and disadvantages of taking that rate. If rate is the most important thing to an investor, they are a bad investor.

  • Ann T on 2012-04-25 4:50:51 AM

    Best rate doesn't always win for clients looking to build a portfolio. Extended amortizations can be an invaluable tool for those looking to purchase multiple rental properties. Focusing on rate for investors is very short-sighted.

  • Ann T on 2012-04-25 4:52:46 AM

    Focusing solely on rates for investors can backfire. Extended amortizations become more important as investors look to build a portfolio as even at a higher rate, payments are reduced. All interest paid on a rental is a write-off making rate even less important. I agree with Jason.

  • Jim T....Advent Mortgage on 2012-04-25 6:09:44 AM

    Dave, I totally agree with you. Not only is National Bank offering a superior product at the lowest rate, the also have the most liberal rental policy when it comes to the number of rentals a client can own. They allow you to have 16 doors. No mono-line lender can touch them on rentals. So Ann and Jason, before you imply that Dave Butler is short sighted by only looking at rates, you should really understand the products in the market place, and secondly, re-read Dave's statement "But if I am comparing apples to apples for a client that can be approved by both types of lenders, it is a no brainer to get your client a better overall package". Apples-apples means all else being the same.

  • Jason Nugent on 2012-04-25 6:21:59 AM

    I was not implying that Dave was short sighted, I agreed with him in part. What I said was that there are a lot of situations where it makes sense to use monoline lenders first. National Banks rental policy is no longer as good as it was and will not work for a lot of clients. What I was saying is that depending on the client it's important to look at all angles. If your business model is let's get this one done and worry about the next one later, your client is in a lot of trouble.

  • Jim T....Advent Mortgage on 2012-04-25 6:33:19 AM


  • Jake on 2012-04-26 4:01:39 AM

    Too bad NatBank only recently got rid of their obtuse DCR calculation for rental income offset, and finally is adapting the typical cmhc of 50% rental offset.

  • Ann T on 2012-04-26 4:16:26 AM

    I agree with Jason. If a client's goal isn't to amass a sizeable portfolio, best rate with shorter am may win. Most mono line lenders max out at 4 properties, so if you start at banks, then try a mono line lender after 4 units, your client won't typically be approved. I save the most "rental" friendly lenders to the end and these lenders do tend to be banks for clients looking to build a sizeable portfolio.

    It comes down to knowing what your client's long term goals are to ensure you can get today's deal done & future deals.

  • Dave Butler on 2012-05-01 7:41:39 AM

    Ya, unfortunately when asked to give some insight into an article you can only give so much info without writing a novel. Again, apples to apples was the main point I was trying to make. Obviously current portfolio analysis and future portfolio planning is required when working with investors and if thats not being done you are not providing your investor with ideal service. But bottom line is that if I have an investors who is looking for less than 16 units and has zero plans to buy any more then how those deals dont go to a Major Bank who is offering a better rate or a similar rate with no insurance premium is beyond me.

    Having said that I am not fighting the fact that if you have an investor looking for 16+ properties than you must look at all options for the client including the monolines.

    Again, when replying back with info for CMP there is certainly only bits and pieces that are used for the article so that it doesnt bore their audience and I agree with Jason and Ann that it all depends on the investor and their goals but that is why I through in the caveat of "apples to apples"

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