Mortgage Matters: Borrowing Money in 2008 - By Bob Quinlan

Bob Quinlan, a great Mortgage Alliance Broker from Prince George wrote this very relevant article and it pretty much summarizes 2008 changes in mortgage industry and great advice for people as lending is getting tougher.

By Bob Quinlan

A lot has happened in the financial world over the past couple of months. Although media have been reporting the declining stock markets and the failure or near failure of many institutions with a great amount of severity, most of the people on the street don’t realize how we might be affected here in Prince George. Many people think that this all happened south of the 49th parallel and we are all insulated from everything here in Canada.

Wrong.

Although we do have a stronger banking system and more sound lending practices, many of the banks prospective investors are reluctant to invest in mortgages unless they know their money is safe. And the banks need investors to stay in business. The investors will invest where their return is greatest and safest. Understand that the Canadian Banks are regulated by the government. They can only lend a percentage of the assets they hold for security. The security they have is now a much lesser value. So, they can’t lend as much money as they could before. But, they have to make as much money as possible in order to keep the shareholders happy…otherwise the shareholders will pull their money out to invest somewhere else. Without investors (capital) it’s difficult to run a business. Jobs get cut.

So, now the banks have to get more from less. How do they do it? Simple, they pull back the credit that is not making money for them and place it where it will make money. That means, and many have already found out, the banks are re-evaluating a lot of clients’ credit. Companies who rely on operating lines of credit are finding they are cut back or cancelled entirely. No cash, no supplies, no payroll. No jobs, no mortgage payments being made. Houses go into foreclosure bringing the prices and overall value of the market down.On the personal side, many people have lines of credit and credit card limits that they are not using. These are unsecured debts (no property to cover the debt). Many of these will be decreased or again closed altogether. Now, as far as qualifying for a mortgage, if your credit is good (doesn’t have to be excellent…just good), your employer will provide a letter stating that your income is assured, you have at least 5% down payment, 1.5% for legal and closing costs and the home you are interested in is decent (finished, habitable, on a property that is properly serviced and less than 5 acres) then you should be easily approved. The people who are going to have difficulty in getting approved are the ones who have poor credit or a history of some late payments or collections. Note, I said difficult, not impossible. If your employment is such that your earnings come from self-employment, commissions, on –call and you don’t have a two-year history of income then your application will be more challenging, not impossible. If you are at all wondering what you might qualify for (purchase price, down payment, interest rate, payments, etc.)

I recommend you sit down with someone who can advise you on your situation. You can get information on your credit rating from: http://www.equifax.ca/ I highly recommend this for anyone who hasn’t checked on their credit lately. From time to time I do come across reports that have incorrect information. This can be very difficult, time consuming and frustrating to repair. It’s best to know this now rather than finding about it when you are faced with a deadline of getting an approval.I can’t stress enough how important it is to understand your credit rating and how it is being interpreted by various creditors. The ability to provide for your family’s future depends greatly on how responsibly you manage your credit. It is the first item of information a potential creditor will look at to determine your credit worthiness.

Bob Quinlan is a Mortgage Broker with Mortgage Alliance Prince George, you can reach him by email :bob@pgmortgages.ca or by calling the office at 250-564-9161

Good Time for New Home Buyers

I am thinking that there are many people who hear nothing but negative economic news and assume that now would not be a good time to purchase a new house. From where I stand, I think for renters, in particular, now is likely the best possible time to buy.

Here are some of the reasons why I think buying real estate today is a good plan:

1) Mortgage interest rates are at a near historic low, e.g., 4.75% for a five year fixed mortgage;

2) Current supply of houses and condos on the market is substantial and many more will be coming on the market this Spring; and

3) Housing prices have been dropping since 2007; now is the time to get a great bargain.

For anyone whose current rent is in the $1700 per month range, you can likely qualify for a $350,000 house. Put those rental dollars into owning a home. Today is the time to call and get approved for a mortgage at a fabulous interest rate!

Some Mortgage Terms explained

Sometimes, I meet people who are confused with closed and open mortgage, open mortgage is where you can pay off your mortgage without penalty anytime, but some people think, it has something to do with rate change, they think it is not locked and rate can change for them at any time, and closed mortgage they link where rate is fixed for the whole term. As more educated people are, likely they will be aware of what they are getting into. So I thought, I should explain few terms here, and also in next blog, I plan to write about RightMortgage®, anyone knows, what it is about?

CLOSED MORTGAGE:
A mortgage whose terms state that it cannot be paid out, even with a penalty, unless the lender agrees. In some cases, a closed mortgage may be discharged at a defined cost, usually Interest Rate Differential (IRD), but sometimes with a punitive penalty such as full interest to maturity.

OPEN MORTGAGE:
This allows borrower to pay back the borrowed funds without notice or penalty.

PORTABLE MORTGAGE:
A mortgage which allows you to transfer the existing amount and terms of your mortgage over to a new property without penalty. The mortgage will, of course, have to be registered on title of the new property, so strictly speaking it is not identical in all respects. While most mortgages have a portability feature, in the event you might need more money when you transfer the mortgage over to the new property, make sure you either have the right to blend in any new funds required, or can arrange the additional funds separately.

To learn about more terms, visit the website

http://www.mortgagealliance.com/terms-glossary/mortgage-terms-glossary.asp

Wish you a Merry Christmas

I received this beautiful email from my niece today and want to share with all of you.

Christmas is forever, not for just one day,
for loving, sharing, giving, are not to put away
like bells and lights and tinsel, in some box upon a shelf.
The good you do for others is good you do yourself...


"Wish you a Merry Christmas "

Mortgage Alliance Team

Canadian Mortgage Trends

In recent weeks, there have been numerous articles in the national media on the state of the Canadian mortgage industry. Just thought some of the differences in mortgage trends in Canada and the United States were interesting and worth knowing about:

Arrears and default rates remain low in Canada compared to the U.S. Canadian mortgage holders have on average over 50% equity in their properties. For all home owners, (those with and those without a mortgage), the equity ratio exceeds 70%;

Longer amortization periods and no down payment mortgages do not equate to subprime or alternative mortgages which are based on a borrower's credit worthiness. Relatively few outstanding mortgages in Canada have 40 year amortization periods – only six percent or just over 300,000 mortgage holders out of 5.25 million;

Mortgage products in Canada are transparent. Mortgagors with a variable rate product know their rate and most have the option to convert to a fixed rate product. In the past year, 40% of mortgage holders took out a variable rate mortgage with the expectation that declining rates will continue to drop. This is in stark contrast to the U.S. where the resetting of variable rate mortgages means millions of mortgage holders have been and will continue to face higher rates;

A rise in default rates in Canada is not apparent. It's a fact that the economy is slowing; however if borrowers find themselves with financial difficulties, it will most likely be a result of their employment situation rather than their mortgage product;

Differences between the Canadian and U.S. markets remain. Variable rate mortgages that have and continue to be reset to higher rates are not common in Canada. Those who hold variable and even fixed rate products in Canada are now doing so in a declining interest rate environment. A greater percentage of mortgages in Canada are funded by balance sheet lenders than in the U.S. Subprime or alternative lending products were never as common in Canada;

Canada has a rich history of mortgage insurance. Nearly half of all mortgages obtained in any given year are insured with a second approval process for mortgage applications. Underwriting principles and guidelines in Canada, while not perfect, are more thorough than in the U.S.; and

Regulation for Canadian mortgage brokers and agents is more stringent than in the U.S. Several provinces have recently updated or are in the process of updating their origination legislation including Ontario, Quebec, Saskatchewan, Manitoba and Nova Scotia. There are now license requirements and in most provinces education and disclosure requirements. This will ultimately lead to enhanced professionalism in the industry and added security for Canadian borrowers.

5 year fixed term rate below 5%

As variable rate is above prime right now, 5 year fixed rate looks like a good idea as it slides down less than 5%. For people planning to buy in 3-4 months, seems like a good option to get pre-qualified to hold the rate, if rates go down even further then they have benefit of getting the new lower rate, but if not they will be happy that they had the rate on hold.

Looking at market conditions, looks like lot of people are waiting and watching. It is still a good idea to work with a mortgage planner, who is well aware of market conditions and work in your best interest.