It’s the kind of due diligence that may cause brokers short-term pain, but many are acting nonetheless as the voice of reason for a growing number of clients caught up in bidding wars and in real jeopardy of compromising their futures.
“We’re stress-testing clients at five per cent interest rates and showing them why maxing out their pre-approval in order to win a house in a bidding war could cost them their home in five years,” said Deon Yu, a Toronto mortgage planner with Mortgage Architects. “It’s not something they may want to hear because they really love the house, and it may not be in our own immediate interest, but they’ll appreciate that a mortgage broker was looking out for them and that leads to future business and referrals.”
It’s the kind of bitter pill more and more brokers are having to force feed over-exuberant clients in Toronto and other hot markets where demand outstrips supply and prices have risen by as much as nine per cent in the last year.
Sellers are generally the winners in that scenario, netting, in some cases, 10 – 40 per cent over asking.
While default insurers are increasingly putting the kibosh on those purchase plans, insisting on full appraisals that industry insiders argue are more conservative than even a year ago, brokers are frequently having to counsel clients from maxing out their financing in order to beat out other bidders.
Brokers are, indeed, willing to step up to the plate to stress-test client finances at the interest rates inevitably over the horizon, ING Direct’s Kim Luxton told MortgageBrokerNews.ca last year.
Many industry insiders see that kind of intervention as one of the value-adds brokers bring to the mortgage transaction – above and beyond what their road rep counterparts are providing.
Stress testing and having that difficult talk with clients is even more important if they’re approaching retirement age and future revenue may actually fall rather than rise – the reverse phenomenon, said Yu, means the client may will have the option of using all the financing available to them.
Still, he and others, no matter how cautious – how duly diligent – stop short of endorsing OSFI’s guideline proposal pegging a borrower’s eligibility to their age and how close they are to retirement.
“I can’t say I agree with that,” he told MortgageBrokerNews.ca.