Broker: Lenders, time for forced-savings mortgage

Broker: Lenders, time for forced-savings mortgage

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 “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, 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.

  • Firstline 2011-08-24 2:12:32 AM
    I have been doing forced savings mortgages for years with my clients. Most decent lenders will permit this action. Firstline was a pioneer utilizing this technique helping their borrowers pay off a 25 year amortized mortgage in 12 years in many cases. CIBC dismantled this benefit soon after acquiring Firstline. This simple simple strategy helps me show my Clients that I work in their best interest and a bank works in the best interest of their shareholders not their customers.
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  • Angela Wong-Liao, Invis Mortgage Agent 2011-08-24 3:14:17 AM
    As a veteran Mortgage Professional and a former banker for a number of years, I agree forced savings is essential encouraging Canadians saving for the rainy days, however, I do not agree not to pay down the principal of their mortgages. When I was a Bank Branch Manager over 20 years ago, I helped customers to set up fixed savings plan, automatic transfer of a certain portion of their pay from their checking account into a high interest savings account (Tax free savings account in today's market), then prepay their mortgages monthly but leaving a certain portion as emergency savings (saving for the rainy days). This strategy works but only if the customers (participants) have the staying power and decipline. In my opinion, we can advise our clients/customers with the best strategy, it is up to the clients/customers to implement the strategy.
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  • Walid Ayoub Mortgage Intelligence 2011-08-25 1:43:51 AM
    It would be a great idea, especially if we agree with client about limit on amount to be saved say $20K once that is reached then extra payments go to pay down the principal if client takes money away from $20K savings say to buy a car then $ go to saving account rather than extra principla payments until limit is reached. My 2 Cents worth
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