A veteran broker is renewing calls for channel lenders to develop a “forced-savings” mortgage, focused on helping borrowers shift debt at the same time it strengthens the industry’s hand.
“Over the years, I’ve taken the idea to a least four lenders, and their response was always positive, but it never went anywhere,” Mike Maguire, owner of Mortgage Wise Financial in London, Ont., told MortgageBrokerNews.ca. “This mortgage product would effectively encourage clients to save money by tying it into monthly mortgage payments, but not as prepayments but as savings – savings that would be sufficiently removed from their access to make them have to think about getting it.”
The strategy mirrors those of the prepayment plans many brokers already map out for clients, a way of whittling away at principal balances faster. Maguire’s proposal not only formalizes that strategy but places that extra money directly into a savings account. It is not used to pay down the principal.
Maguire’s renewed call for one or more broker channel lenders to offer that service comes as an increasing number of Canadians grapple with unprecedented levels of debt, virtually on par with that of their American counterparts. Helping clients get out from under that burden is an opportunity for the broker channel to reassert its position as consumer-orientated partner to homeowners, a role distinctly removed from that of the banks, said Maguire.
“The fact is that the banks don’t really want borrowers to pay off their debt,” he told MortgageBrokerNews.ca, pointing to the growth in unsecured credit. “It’s not in their interest to develop this kind of mortgage. Making it available through the broker channel would help to strengthen the offerings of brokers and allow them to better differentiate themselves from the bank.”
Maguire is, in fact, looking for broker channel lenders – whether bank or non-bank – to look at developing the forced-savings mortgage, which would likely divert funds to a tax-free savings account. Mono-lines, might, however, need to partner with deposit-taking institutions to develop their program, concedes, Maguire.
But removing the cash from within ready reach of clients is key. “You’ve got to make them go further than reaching for the bank machine,” he said.