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Mortgage Broker News | 14 May 2015, 07:30 AM Agree 0
The majority of Canadian homeowners would welcome the opportunity to lock in their mortgages for longer according to a new survey from CIBC.
  • Omer Quenneville | 14 May 2015, 08:10 AM Agree 0
    The may feel this way without proper information being fed to them from the bank. It is a fact that they will want to or need to refinance much sooner for what ever reason and the bank will walk away with a nice big fat discharge penalty cheque. Variable is still the way to go.
  • Randy | 14 May 2015, 09:03 AM Agree 0
    I agree. The lenders will gain more for longer term mortgage as the borrower will have to pay a hefty penalty if they want to refinance before the term is over. Most of the times people refinance within the first term. Variable rate is the way to go.
  • Randy | 14 May 2015, 09:03 AM Agree 0
    I agree. The lenders will gain more for longer term mortgage as the borrower will have to pay a hefty penalty if they want to refinance before the term is over. Most of the times people refinance within the first term. Variable rate is the way to go.
  • Jerry Quigley | 14 May 2015, 09:25 AM Agree 0
    What would you ( Randy & Omer ) say if the penalty dropped to, say 6 months interest, after 3 years into the 10 year term?
    The 10 year CMHC insured terms of old actually provided for max 3 months interest after 3 years. I am using 6 mos as the 3 may not be attractive enough to a lender that must commit to 10 years.
  • Darr Robbins | 14 May 2015, 09:35 AM Agree 0
    Most people only view interest rate risk when contemplating between fixed versus variable.
    This is a huge mistake as they do not examine the biggest risk of all: A Margin Call.

    A variable mortgage is a callable loan. The next event such as 2008 could very likely result in loans being called by the lenders. Negative real yields are wreaking havoc on earning spreads. As consumers are saturated with debt, banks will attempt to find new sources of revenues. If I was a lender who sees very little upside potential in lending to over-leveraged borrowers, I would consider purchasing their home and having the previous owner as a tenant.

    The automobile industry is a clue as what may come to be. People once paid cash. Then came short term loans. The loans then became longer. As prices increased, payment became too large. Then came leases. Now leases extend to eight years. Nobody owns cars anymore. According to Stats-Can, the household equity in automobiles is zero. The same could happen to homes in the next credit squeeze and is a risk to consider.
  • Darr Robbins | 14 May 2015, 11:55 AM Agree 0
    Irrespective of what's written in the mortgage agreement, Canada’s Interest Rate Act grants borrowers the right to prepay any mortgage with a term of greater than five years once the first five years have passed, for a penalty of no more than three months of interest. This a least gives the borrowers some reprieve against outrageously high 10 year or longer mortgage rates.

    Lenders tend to hedges their mortgage book using “Effective Duration” management. Consequently, they will match a mortgage with a bond of similar duration. That bond would have an “Effective Duration” considerably less that the mortgage term. On a ten year mortgage, the duration could be as short as five years. That's a huge spread.
  • Ron Butler | 14 May 2015, 12:10 PM Agree 0
    Darr, other than the correct info on the penalty after the 5th year of the 10 - year product everything you posted is semi distorted and half truth. VRM mortgages cannot be called, they are not demand loans in the traditional sense. The rate may go through the roof but in keeping with present policy they will not be called. The car stuff has no application to mortgages: long term mortgage amortization has existed for so many decades in Canada. You clearly have some knowledge but you churn out way too much alarmist blather. A thoughtful discussion of the overreaching of mortgage lending in Canada can be had without constant references to dire outcomes.
  • Darr Robbins | 14 May 2015, 12:30 PM Agree 0
    Renewal risk (or callable risk) is a very real risk. We live in a world where five sigma events are now frequently occurring. Just because an event has not occurred does not mean it should be disregarded. Being forewarned is being forearmed and should not be deemed as alarmist. People are entitled to weigh all the risks even those out in the tails.
  • Ron Butler | 14 May 2015, 12:35 PM Agree 0
    The 2008 WFC was the most significant worldwide financial event since the Great Depression. Not one single Schedule A bank in Canada called a VRM mortgage. So I will chalk your response up as: pure blarney.
  • Darr Robbins | 14 May 2015, 12:52 PM Agree 0
    Ron- Banks were bailed-out by the taxpayers following the the 2008 WFC. Structural reform has not occurred. The can has just been kicked further out. Governments have implement new rules to protects bank solvency through depositor bail-ins. Cyprus was a test case. Banks will always be at the top of the food chain and the global debt problem is now larger than ever.
  • Ron Butler | 14 May 2015, 12:58 PM Agree 0
    More misinformation and misdirection: Canadian banks were NOT recapitalized as they were in the USA, more liquidity was made available to them but there was no cash injection bailout. Darr, you keep evading the point: there was an epochal financial crisis In 2008 and ZERO calls on VRM mortgages. End of story, case closed.
  • Darr Robbins | 14 May 2015, 01:17 PM Agree 0
    Do not confuse what has not happened with what could potentially happen. It is you that's misinformed. Canada went from a budget surplus to a 50B deficit with a period of 6 month in 2008-9. Canadian Banks did receive a cash injection. Here's a refresher for you courtesy of the Neil MacDonald at the CBC here and here:

    Study Reveals Secret Bailouts to Canadian Banks!
  • Ron Butler | 14 May 2015, 01:28 PM Agree 0
    Darr, eventually you jump the shark and the Illuminati stuff starts, it took several post this time though, you are getting better.
  • Darr Robbins | 14 May 2015, 01:32 PM Agree 0
    The farce is strong with this one.
  • Dustan Woodhouse | 11 Jun 2015, 10:19 AM Agree 0
    Well said as always Mr. Butler. The key stat missing from the story is that 6 in 10 of the 1 in 4 that take a 7/10 term will be hit with a massive penalty that they were not clearly informed of.
  • Ross Kay | 11 Jun 2015, 11:23 AM Agree 0
    Mortgage Brokers should have all clients on 6 month terms with rolling 90 day commitments for their book of mortgages.

    Monthly updates and contact with their book builds trust, value and saves clients $1000's.

    This also prevents Banks from getting easy renewals with no fees paid back to the Broker, instead those fees are taken by the bank to build their profits.

    The entire strategy Mortgage Brokers business models are built on must change both for their own benefit and that of their clients.

    One of the Standards of Business Practice for Realty Advisors is the mandatory use of a Mortgage Brokers offerings.
  • Ron Butler | 11 Jun 2015, 11:36 AM Agree 0
    Honestly, we don't need another Garth Turner want-to-be chucklehead with a silly world's "coming to an end" website blathering on our industry blog.
  • Ross Kay | 11 Jun 2015, 12:28 PM Agree 0
    Equity Management in residential real estate dictates whether a regular Canadian retires in wealth or financial hardship. Like interest rates capitalizing on market conditions determine which side of the curve you are on.

    Right now over 3 million homes were purchased for nothing and 10's of 1000s more each month are crossing that threshold. This means TOTALLY FREE, costing nothing, no mortgage payments or down payment.

    Is Canada in a Housing Bubble?? Is the Bubble building each month?? Yes and Yes. This is simply the way any housing market is able to go forward. After you go through a couple of corrections you learn the world does not end and only that the people who least can afford it are hurt.

    If you think that is a knucklehead approach I will gladly accept it.

    Rogers thought I was a knucklehead too!
  • Ron Butler | 11 Jun 2015, 12:40 PM Agree 0
    Relentless, silly blather, Rogers walked away from a web based real estate play plagued by execution and operations issues they could never lick. Every other realtor is hiring. I am 60, I have been through some downturns and there may be one coming but renewing 6 month mortgage terms is pure stupidity.
  • Kevin | 11 Jun 2015, 03:44 PM Agree 0
    The comments thread on this just demonstrate the sheer lack of knowledge of some brokers. Several longer term mortgages (10+ years) become open after their 5 year anniversary. If you are a smart broker, know the business and products available you would know that.

    Longer terms may not be for everyone, but they do make sense for many given the low rates - which will not last forever.

    The ONLY reason why brokers do not support the longer terms is because it makes it more challenging for them to churn their book of business.
  • Ron Butler | 11 Jun 2015, 03:49 PM Agree 0
    Kevin, we did a study of comparative rates for the last 7 years, clients with a 10 year fixed did worse rate wise than clients with a 5 - yr. Variable or Fixed, you cold challenge that by saying that we don't know what the future will bring for rates but in todays current low rate environment rates better really start to soar for a 10 - yr. fixed to make any sense for a consumer.
  • Dustan Woodhouse | 11 Jun 2015, 04:02 PM Agree 0
    To be fair Kevin, your study can go back 30 years with the same results. A ten year fixed has not been a winner over the past three decades.

    Once fully advised with comparative math none of my clients have chosen a 7 or 10 yr, not in the last 1100+ transactions.

    I also disclose to every client that asks for a ten year that the compensation paid out by the lender is double that of a five yr, and triple that of a 2yr. (a product which I have been a fan of since 2009)

    Once clients realize that I am in fact advising them of options that cut my paycheque by 50% - 65% then they truly pay more attention to the power of a 10yr payment applied to a variable rate mortgage.

    A lower mortgage balance, that is where a clients security lay. Less so than in an interest rate 75% higher.

    One guys opinion. :)
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