Stress test rules implemented earlier this year have cooled the market, numbers suggest

If you’re looking for a mortgage on a home purchase — or to renew one on a home you already own — is a mortgage broker or a bank your best option?

The main difference is a bank mortgage officer represents only the products their institution offers, while a mortgage broker is an intermediary who works with multiple lenders and is paid a referral fee by the lenders. Mortgage brokers are regulated in Ontario by the Financial Services Commission and require a licence.

While traditional banks still are used for mortgages by the majority of homeowners, “use of brokers is trending upward,” notes Monica Guido, manager of client relations with Canada Mortgage and Housing Corp. “It’s higher among first-time buyers. Finding a deal, or the desire to get the best rate, is the key reason people use a broker.”

Because mortgage brokers work with many lenders, including major banks, small lenders, insurance and trust companies, and private funds, they often have access to a better rate.

In 2017, 39 per cent of homeowners used a broker to arrange their mortgage, up from 33 per cent in 2016, according to CMHC. On average, consumers consult with 4.5 mortgage professionals when seeking a home loan, including 2.4 lenders and 2.1 mortgage brokers.

“There have been an awful lot of changes in the last 24 months with mortgage regulations and the interest rate environment, and it’s getting more complicated,” says Paul Taylor, the CEO and president of Mortgage Professionals Canada, a national mortgage industry association. “There’s greater need for expert or independent advice, and that’s why more people are coming to mortgage brokers.”

He also finds most broker clients are first-time buyers; he says it may be because they have less reverence for large institutions than their parents do. It may also have to do with how mortgage services are being marketed: Guido says that 59 per cent of mortgage brokers are leveraging technology and social media to reach clients, which appeals to younger consumers, while only 17 per cent of conventional lenders are.

Some of the advantages for both banks and brokers:

Banks

• Customer may already have a relationship with a bank and its staff.
• Can supply a wider financial view and give information about a range of financial products — but a bank loans officer might not have specialized mortgage knowledge.
• May offer some efficiencies of the approval process since the bank may already know a client’s account balances, credit card history, investments, etc.Can provide peace of mind that the institution is large and stable enough to weather periods of financial instability. Banks are required to meet federal underwriting guidelines.

Mortgage brokers

• Offers a one-stop shop; clients fill out one application and don’t seek out multiple lenders’ quotes themselves.
• Often are able to get better rates than offered by major banks.
• Are mortgage specialists and are knowledgeable about what different lenders have to offer.
• May be able to arrange a mortgage for those having trouble getting approved by a bank, such as self-employed people and those with poor credit histories.

Whether you deal with a bank or with a mortgage broker, the down payment rules are the same: a 5 per cent down payment for a house priced less than $500,000. If the purchase price is $500,000 to $999,999, you’ll need 5 per cent for the first $500,000 and 10 per cent for any amount over $500,000. If buying a property of $1 million or more, you’ll need 20 per cent down. For all down payments of less than 20 per cent, you’ll need mortgage loan insurance, offered by providers such as CMHC.

Taylor says a mortgage broker should discuss with you your personal financial and lifestyle situation, whether you plan to stay in a house for a long time or may have to move in a few years (in that case, you may want a mortgage that is portable). The broker should provide details on various lenders, discuss pros and cons of fixed versus variable rates and point out any cancellation or pre-payment policies.

“Make sure the individual is licensed in the respective province you are in,” advises Taylor. “Each province has its own registry and standard of education.”

While credit unions and small lenders are not federally regulated and not required to adhere to some of the underwriting guidelines, Taylor says most of the time they are forced to comply anyway. Many smaller lenders or “monolines” that only do mortgages often sell their portfolios to larger institutions that exercise significant oversight.

CMHC’s Guido notes that the current, cooler housing market in Ontario and the GTA is giving homebuyers more breathing room.

“There is less urgency for prospective buyers to act hastily,” Guido says. “There’s an opportunity to ask around and do research. Ask your real estate agent or lawyer for their references and recommendations.

“Consumers are looking for options and like to receive offers from brokers and financial institutions,” she adds.

Debt doesn’t have to be a four-letter word. Well, it is but it doesn’t have to be a bad thing. It all depends on what kind of debt you have. There are two types of debt: Good and Bad, and if you’ve ever tried to get a loan, these debts are analyzed before a lending decision is made. Now this may seem crazy, but there are debts you should incur, but manage.

Good Debt is defined as an investment that will grow in value. Buying a house, for example, is a prime example of Good Debt. Almost no one plans on paying for their first house with strictly cash; you have to go into debt with a mortgage and pay that mortgage off. This investment, however, will appreciate in value and cancel out any interest you’ve paid over the period of time that you’re paying off that investment.

Student loans are another example of Good Debt. These typically have a low interest rate. Plus, a post-secondary education increases your value as an employee and raises your potential future income. It’s an investment just like a home, but it’s an investment in yourself as opposed to property.

An auto loan can even be considered Good Debt if it’s essential to a business that you may be running. However, unlike a home, cars and trucks lose value overtime, so it’s in your best interest to pay as much as possible up front and avoid high-interest monthly payments.

Bad Debt, on the other hand, is debt that you incur to purchase things that quickly lose their value and will not generate long-term income. These often carry a high interest rate as well, such as credit cards. In these cases, don’t buy it if you don’t need it. A $175-dollar pair of shoes can cost you $250 if you don’t pay off that credit card for years.

Payday loans or cash advance loans are the absolute worst kinds of Bad Debt you can get involved in. Between fees and the excessively high interest rates, you can quickly get underwater with the Quick Cash type of companies. This isn’t news to anyone, but ensuring you don’t have any of that hanging over your head is the best way to avoid Bad Debt getting out of hand.

Everyone at one point or another gets a reality check that makes it clear that you’ve been a bit too free and careless with your finances …and it’s time to make a change. Debt is not necessarily a bad thing, but you want good debt, not bad. If that sounds familiar and you’re looking for a way to be a bit more responsible with your finances, here are 6 steps that can get you out of bad debt and into good debt:

1. Make Minimum Payments and Save Up a Small Emergency Fund – This can be anywhere from $500 to $100 dollars, whatever makes sense to you so you can feel a bit more secure financially in case any small, unexpected expenses come up. It’s amazing how this little bit of savings can keep you from using your credit card for dental emergencies or a blown-out tire.
2. Find a Side Hustle – This can be anything that will make you a bit of extra money on the side that you are able to put towards your debt. Start a Zumba class, sell crocheted blankets on Etsy, get a part time job at Starbucks…anything that can get you a bit of extra revenue.
3. Debt Snowball – This is a pretty popular way to get out of debt and you probably have heard about it before…but if not, here’s a quick synopsis: Rank your debts from lowest to highest, make minimum payments on all of them, but use that extra money from your side hustle to pay off extra on the lowest amount. Once that debt is paid off, take the amount you were using to pay off the lowest amount of debt, including the minimum payment and put it towards the next lowest amount. It’s amazing how quickly you can get rid of a puzzle of credit cards and small loans.
4. Save Up a Larger Emergency Fund – Once you have paid off all your bad debt (credit cards, high interest loans etc.) using the snowball method, save up a more significant emergency fund. You can do it, too! Look at all the income you just freed up! Give yourself an even larger cushion and leave it for a rainy day.
5. Keep Your Credit Cards – I know this may seem counter intuitive, but don’t cut up those cards. Keep using them and use them responsibly. This will build up your credit history and allow you to succeed in any future investments.
6. Get into Good Debt – ‘Good Debt’ may seem like an oxymoron, but it can be one of the largest steps towards long-term financial freedom. Good debt is defined as an investment that will grow in value or generate long-term income. Things like student loans are considered good debt because an education increases your value as an employee and raises your potential for income. Mortgage payments are considered good debt because in most cases the house will appreciate in value. Use this newfound financial freedom to get into Good Debt. Buy a rental property or real estate, or take some online classes to upgrade your education. Take the money and invest in YOU.

Canada Mortgage and Housing Corp. is making changes intended to make it easier for the self-employed to qualify for a mortgage.

The national housing agency says it’s giving lenders more guidance and flexibility to help self-employed borrowers.

Self-employed Canadians may have a harder time qualifying for a mortgage as their incomes may vary or be less predictable.

CMHC is providing examples of factors that can be used to support the lender’s decision to lend to borrowers who have been operating their business for less than 24 months, or in the same line of work for less than 24 months.

It is also providing a broader range of documentation options to increase flexibility for satisfying income and employment requirements.

The changes, which apply to both transactional and portfolio insurance, will take effect Oct. 1.

CMHC chief commercial officer Romy Bowers said self-employed Canadians represent a significant part of the workforce.

“These policy changes respond to that reality by making it easier for self-employed borrowers to obtain CMHC mortgage loan insurance and benefit from competitive interest rates,” Bowers said in as statement.

The Canadian Press