Samantha Brookes has been warning Canadians to take a close look at the clauses in their mortgage contracts for years, but her refrain has become a bit more prevalent in recent months.

Since the Office of the Superintendent of Financial Institutions’ mortgage stress test was implemented in January, the founder of the Mortgages of Canada brokerage has seen “a huge influx” of Canadians who fail to qualify for a bank mortgage turning to alternative lenders that range from risky loan sharks to larger, more conventional companies like Home Trust.

While alternative lenders can provide a lifeline for Canadians who have run out of other financing options, Brookes said they come with pitfalls for those who don’t bother looking at the fine print.

“You need to read those contracts,” she said. “(With an alternative lender), the interest rates are higher, the qualifying rate is higher than if you were going with a traditional bank and they are going to charge one per cent of the mortgage amount (as a lender’s fee) for closing, so that means your closing costs increase.”

Alternative lenders tend to offer less wiggle room on their terms, so Brookes said that means you should pay special attention to another dangerous term she’s seen slipped into mortgage contracts: the sale-only clause.

It’s less common, Brookes said, but if left in, it might mean the only way you can break your mortgage is by selling your home. She usually makes sure it’s nixed from her clients contracts immediately.

She also advises mortgage-seekers to research a potential lender’s reputation, which can easily be done online. Looking up some lenders will reveal their involvement in growing strings of court cases, she said.

“If they are constantly in court fighting with consumers for money, are you willing to put yourself at risk with that kind of person?” Brookes recommended asking yourself.

Still, she said alternative lenders “that don’t end up in court every two seconds” are out there and can offer a good mortgage, if you do your research.

Broker Ron Alphonso has seen what happens when you don’t look into your lender. He recently heard from a couple who borrowed $100,000 via a paralegal posing as a broker, who then convinced the couple to give the money back to him so he could invest it on their behalf. Instead of investing it, the paralegal disappeared to Sri Lanka with the funds, leaving the couple on the hook for the money and resulting in eviction from their home.

“They got very, very poor advice,” Alphonso said. “Apparently the person that arranged the mortgage was an agent and paralegal that has since been disbarred. If they had a lawyer working for them, at least the lawyer could have said (before they signed the mortgage) maybe this isn’t right.”

Alphonso recommends seeking advice from a broker, who he said should also be questioned about how tolerant a lender will be if you were to default on one of your payments.

Some lenders quickly force their clients into a power-of-sale or foreclosure, while others will find a way to work out an arrangement that will allow them to keep their home.

“If you are already in some kind of financial problem and you go to a lender that is not flexible, you make the situation worse,” Alphonso said. “If you miss one payment, (within) 15 days you can be in power-of-sale.”

When that happens, he often sees people refuse to leave their home and try to fight the power-of-sale or foreclosure. They take the matter to court and end up spending tens of thousands of dollars in legal fees that can eclipse any remaining equity they might have in their home.

If they lose their case, which Alphonso said happens often, they end up with a massive lawyer’s bill, no equity to cover it and no place to live.

That’s part of why he said those seeking financing should have an exit strategy to get out of any mortgages they sign with an alternative or private lender with a higher interest rate.

“Your goal should always be to get to a lower interest rate,” he said. “If they don’t go in with a true goal of how to get out of this private mortgage, there will be a problem down the road.”

Alphonso recommended looking for an open mortgage, where you can prepay any amount at any time without a compensation charge or a prepayment limit that you would often find in a closed mortgage.

Open mortgages come with higher interest rates, but give buyers the option to switch to a cheaper lender if something happens. However, switching does often come with penalties, he said.

Because some agents and brokers don’t give enough information or fully explain penalties and clauses, he said the best way to keep out of trouble when seeking a mortgage is to ask lots of questions and understand what you’re getting into before signing on the dotted line.

by Ephraim Vecina, mortgagebrokernews.ca

A new report from independent research think-tank Real Estate Investment Network (REIN) ranked Ontario’s largest metropolitan areas in terms of real estate market performance and suitability for investment over the next 5 years.

In terms of growth, diversity, and fundamental strength, Ottawa came out on top of the wide-ranging survey, which looked at multiple factors including economic health, employment numbers, GDP and population growth, housing prices and overall affordability, rent and vacancy rates, and several others.

Robots are becoming an integral part of society. And even though we don’t have Star Wars level technology yet, robots that help with everything from planting to harvest are just around the corner.

At the Farm Progress show in Iowa, Case demo’d their Autonomous Concept Vehicle, which has no cab for a driver and is able to go from its parking spot to the field and back all by itself. It can be controlled and monitored remotely with a tablet as it moves back and forth across the land, planting, harvesting, etc.

There have been major changes in farming with robotics already, from automated milking machines to aerial drones that do land surveying and spraying. However, this new trend of automation seems to be poised to launch agriculture into areas we have up until now only seen with Tesla and Google with self-driving cars.

In response to the worsening farm labour shortage, farmers in Florida and California are already are testing vehicles that replace repetitive, labour intensive tasks normally done by dozens of farm workers. They are also being tested to do things like harvest apples and strawberries, and do things like take care of weeds.

Although there are still many jobs that can only be done by people, make sure to keep an eye on automation. An early investment in technology has the potential to save you big money down the road. Mortgage specialists will be able to advise on the best course of action to take, from when to buy in, to what you can reasonably expect to afford. 

By Doug Alexander and Erik Hertzberg

Canada’s uninsured mortgage market reached an eight-year high in January as government steps to reduce taxpayer exposure to the housing market gain traction, according to data from the country’s banking regulator.

Mortgages that don’t require homeowner insurance surged 19 percent from a year ago, accounting for about 53 percent of the C$1.13 trillion ($864 billion) of home loans at Canada’s federally regulated banks, data from the Office of the Superintendent of Financial Institutions show. Insured home loans fell 6.5 percent from a year ago.

Uninsured mortgages have taken an increasing share of the nation’s housing loans since 2012 as the government moved to reduce the chances of the kind of taxpayer-funded bank bailouts that happened after the U.S. housing crash a decade ago.

Mortgage Market Shifts
Uninsured mortgages now represent around 53% of all mortgages in Canada

Source: Bloomberg Calculations on OSFI collected data

Still, the slowdown of residential mortgage volumes continues, with banks posting a 5.3 percent increase from January 2017, down from a recent high of 6.6 percent in May, the data show. The trend reflects the sentiments of executives of Canada’s Big Six banks, who commented on a cooling mortgage market in recent weeks after reporting earnings results for the first quarter.

“The slowdown in mortgage growth has been evident since the middle of last year, reflecting the impact of prior policy measures, as well as three interest rate hikes by the Bank of Canada,” DBRS Ltd. said in a March 19 note.

In January, OSFI made it more difficult for those with more than a 20 percent down payment to qualify for loans. The measures, known as B-20 guidelines, requires borrowers to qualify at the greater of the Bank of Canada’s five-year benchmark rate or 2 percentage points higher than the offered mortgage rate. Prospective borrowers haveincreasingly been turning to alternative lenders to qualify.

“With new mortgage rules taking effect on January 1, home sales have showcased two straight months of declines,” Barclays Plc analyst John Aiken said in a March 16 note to clients. “While stronger home sales at the end of 2017 could still buoy mortgage growth in the second quarter, we anticipate new mortgage origination volume could be tested in the back half of the year.”

A rise in U.S. interest rates tomorrow is so confidently expected by nearly everyone that a failure to hike rates would shock world markets.

In his first official press conference since taking over for Janet Yellen, Federal Reserve chair Jerome Powell is expected to set the direction for interest rate increases this year and into the more distant future.

What he says will matter to investors around the world. It will also matter to Canadian borrowers.

Trump appointee

One reason market watchers are so confident Powell will raise the key U.S. federal funds rate from 1.5 to 1.75 per cent, with a target of three per cent by 2020, is that he wants to demonstrate continuity of purpose at the Fed despite the ejection of Yellen after a single term.

As a Trump appointee, Powell has attracted speculation that he might be lax about putting the lid on surging U.S. growth.

Certainly others in the administration, including President Donald Trump himself, have seemed unworried by a sliding U.S. dollar that would result if Powell slowed expected rate hikes.

In recent testimony Federal Reserve chair Jerome Powell has indicated he is at least as ready to raise interest rates as his predecessor, Janet Yellen. (Yuri Gripas/Reuters)

“Obviously a weak dollar is good for us as it relates to trade and opportunities,” said Treasury Secretary Steven Mnuchin at the World Economic Forum earlier this year, prompting a sharp decline in the currency.

Combine that with the repeated promise by Trump to boost U.S. growth to four per cent — a level likely to launch serious inflation down the road — and signs of a pliant central banker could be seen as ominous. As Yellen repeatedly warned, letting the economy overheat in the short term could lead to sharp and disruptive rate increases once inflation kicks in.

In recent statements Powell has hinted at rate hikes, but continuity in setting tomorrow’s rate is assured because Powell has only a single vote in the Federal Open Market Committee. The composition of the group, charged with setting rates based on members’ individual outlooks for the economy, remains largely unchanged.

Importing inflation

The longer Powell is in the role, the more influence he will have on the committee’s outlook, so the tone set by relatively unguarded responses to media questions may be just as important as his written statement.

Heavily indebted Canadians cannot expect the border to protect them from the policy outlined by the new Fed chair.

While the Bank of Canada makes its own policy separate from the U.S. Fed, there are a number of ways that what happens in the U.S. tomorrow will affect the Canadian lending market.

One is through what is called imported inflation, something recently raised by Bank of America economists who warned about rising Canadian interest rates.

Canadians who have bought houses recently could be less affected by rising interest rates because stress test rules mean they have the income to cover an increase. (Don Pittis/CBC)

Because the two economies are so closely integrated, an outlook for rising prices and wages in the U.S. presumes higher costs in Canada, too.

The price of U.S. parts and ingredients used to make Canadian products will go up. So will goods like gasoline and oil, priced in U.S. dollars. Retail prices on goods produced or imported through the U.S. also go up with U.S. inflation.

And while Bank of Canada governor Stephen Poloz could theoretically hold Canadian rates steady while U.S. rates shoot higher, there are reasons why that becomes complicated.

If the expected hike happens, as of tomorrow the difference in interest rates between the U.S. and Canada will be half a percentage point, attracting investors from Canada to the U.S. and pushing the loonie down.

Dog on a leash

A lower loonie makes Canadian inflation even higher as imported foreign goods become once again more expensive.

There will also be a cross-border spillover in bond markets. Canadian companies, including banks, trying to raise money will have trouble attracting international investors with rates below what those investors can get elsewhere.

For all the central bank’s purported independence, historically Canadian rates seldom stray far from those of the U.S. The Bank of Canada, like a dog on a retractable leash, can delay, but it cannot alter the final path.

For that reason the most important message from tomorrow’s Powell news conference will be an indication of how fast the Fed expects to raise rates.

3 or 4 increases this year?

Until now, the majority view has been that there would be three rate increases in 2018.

But on Wednesday Fed watchers will be on the lookout for indications that Powell thinks falling U.S. corporate taxes and a growing fiscal deficit will send the economy into overdrive, justifying four quarter-point increases this year.

For borrowers that would mean the cost of borrowing in the U.S. — and eventually in Canada — will rise by a full percentage point. A line of credit at four per cent would go to five per cent.

How high?

Another change afoot is that Powell may decide to make a public statement after every FOMC meeting, giving the Fed chair more flexibility in adjusting rates, making the path of rates a little less stable.

A final issue that could be raised by the new Fed chair is a slightly more complicated one, something economists call the neutral rate. A theoretical concept whose level is much disputed, the neutral rate is the Goldilocks interest level — the point in a stable economy where borrowers are encouraged to borrow neither too much nor too little.

For Canadian borrowers, a rising neutral rate after decades of decline could indicate the long-term path of interest rates in coming years would be higher than otherwise expected.

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More analysis from Don Pittis