4 Dec

The Easy Option, Part 2. When easy isn’t an option.

General

Posted by: Jonathan Barlow

Mortgage financing

My other job…

Most of the time, the major selling point for a Mortgage Broker’s services is the proposition that we give you options. I’ve used that reason myself when talking to people about my role.

Well, that is true, but its not entirely accurate. A better line would be something like: We find the right mortgage option for your unique need.

The problem is that that line requires more explanation, but the explanation turns out to be worth it.

While all mortgages are essentially the same, borrowers and lenders are not. Most of the time, a mortgage application addresses not just one but several layers of risk. Each lender has a different set of risks they will tolerate. All of them have a specific list of risks they are okay with and ones they are not okay with. The ‘risks’ are also broken down into property risks and borrower risks.

By way of an example, let’s look at Amir who banks at the Red bank and Ali, who has been talking to a mortgage rep at the Green bank. Both have re-located to Canada under work programmes and have applied to Landed Immigrant Status.

Amir gets a pre-approval, then goes on a hunt with his realtor for a new home. He puts an offer in, accompanied by a healthy deposit. One day before his financing condition is to be removed, the Red bank advises him that they cannot approve the mortgage because it is for a leasehold property. The bank representative he spoke to was not aware that they would not finance leasehold properties.

Often, even the representatives of the financial institution may only be partially aware of their own lenders risk tolerances. If you then layer on multiple risks, such as being New to Canada as well as a leasehold property, it may be too much for your favourite institution to handle.

Back to our story, Ali subsequently makes an offer on the same piece of property and as soon as the offer is accepted, meets with his Green bank rep to get the application process underway. This time, the application is rejected as well, but not because of the leasehold. Instead it’s because the Green bank does not have a New to Canada lending programme that fits Ali’s situation.

Its not always one of each type of risk that causes the trouble either, sometimes it can affect an individual borrower with two or more types of risk – for example, someone who is self employed and also separating from their spouse.

So really, a Mortgage Professionals message is yes, we’ll provide options but we’ll also find the right option that works for each individual, because we’re all well, individual. It’s our superpower.

And finally, YES, the stories of Amir and Ali is true! If you’d like to know what the option I provided both of them is and the eventual outcome, just give me a call.

27 Nov

The Easy Option, Part 1. Easy isn’t always the best.

General

Posted by: Jonathan Barlow

For those of us looking for mortgage financing options for our first or next home, the prevailing attitude is, ‘easiest is best’.

For most of us, myself included, applying for any type of financing is a stressful event; its always easier to, when you’re in your local branch, to strike up a conversation with an account manager and when they say, “Sure, I can help you with that”, to just treat that help as your only option.

On the outside, most mortgages are pretty much the same ( they’re not, but that deserves a separate discussion ), right? Anyway, if you can just walk in and walk out with a pre-approval, why not just do that?

Well, lets look at what you really want to get out the financing;

Let’s say you’re self employed ( not a stretch, really) and have, a couple of years ago started your own small business. Your spouse is also self employed, but works as an independent contractor, in IT, for example.

Initially qualifying for financing might be a bit of a struggle, but you rely on your banks’ mortgage specialist to get you the financing option you need. Of course, they come through in the end and a few months later, you’re happy in your new home and you’re happy you’ve started a relationship with someone who can help.

On the business front, its good news as well. Your small business grows and grows and in about three years down the road, you’ve got a new contract that you won’t be able to fulfill without some financial help.

When you approach the bank, you’re told time and again that, in spite of your great ‘relationship’, what you need doesn’t meet their lending guidelines and they can’t or won’t help you grow your business.

You leave the financial institution thinking, “I deserve better than this” and you’re right, you absolutely do.

Part of my role as a Mortgage Professional is to not only find the right mortgage but also try and anticipate what you might need in the future. I always recommend a lender that you can have a meaningful relationship with, if that’s what is needed.

I’ll always give you options and recommendations, as well as a clear explanation of why I’m recommending one over another. That’s a promise.

24 Aug

Your Home; Your Community.

General

Posted by: Jonathan Barlow

Most of us, even if we don’t participate, crave a sense of community.

Our lives, both digital and analogue versions, are made up of small communities to which we belong. We are the intersection point for all those differing communities.

Each small community has special meaning in our lives; each wave from a neighbour, each time your neighbours’ little kid yells “ HI, JONATHAN!” as she rides by in the back seat of their car, the time you have lunch with a friend you haven’t seen in thirty years, and you end up laughing and joking like no time has passed, has individual meaning for us.

There is a tendency, particularly for homebuyers in areas such as Vancouver, to look at any purchase as an “investment” rather than the purchase of a home and access to a community.

Even in the most adamant ‘investor’ though, the craving for community comes through. Even when I meet with people attuned to the investment side of home ownership, the need for community is clearly evident. It’s evident in statements like, ‘the only neighbourhood we want to live in is….”.

One of the things that I try and walk every prospective purchaser through is an exercise where they sit down and write down the things that their new home must have; the “non-negotiables”, the “must haves” and the “nice to haves”. For each person, the various lists are different, but they help to clearly define what they want in and around their new home.

Two things generally happen when people go through the exercise; They have a clearer picture of how they want to live and a less distinct picture of where they want to live. Because there are now multiple community options, there are more options in terms of where to buy.

Then, armed with your list, you and your Realtor can easily focus on areas and properties that better suit your needs.

So many times in our lives, there’s a real challenge in trying to define what we actually want and need. Make sure you know what type of community you want to be part of before you buy.

If you want more information about the Non Negotiables exercise, you can read about it here.

Here’s hoping you find your perfect community.

JB

27 Jul

Avoiding “Sticker Shock” When It Comes to Mortgage Renewal.

General

Posted by: Jonathan Barlow

Imagine that, a few years from now, the time has come to renew your mortgage.

Several years back, you got a $350,000 at the then great rate of 2.24%. Your mortgage payments are $1522 per month.

Because we are now in what the financial brainboxes call “ an escalating rate environment “ – normal people just say rates are going up – when you open your renewal notice you might encounter the same feeling you get when you look at the price of a car you like.

When you actually do look at the renewal notice, you see that the remaining balance on your mortgage is now $294,662, the new ( very competitive rate ) is 3.25% and that the new payment is $1668, actually $150 dollars a month MORE than you were paying previously. You think “WHAT THE….???”

This type of sticker shock is a new sensation to an entire generation of Canadians. Brokers are fond of talking about the fact that rates have not moved in 7 years but we rarely talk about the fact that rates have been trending down for more than twenty years and chances are, if you’ve had a mortgage for any time during that period, the payment at renewal has always been lower than when you started out.

‘Well, what’s to be done’, you ask? ‘How do I avoid “sticker shock”?

The key to avoiding that sinking feeling is to increase your payment slightly every year. You can find out how much to increase it during your Annual Mortgage Review. By increasing your monthly payment by even 2% a month, you can potentially avoid that sinking feeling  – and pay off your mortgage even faster!

But wait; “Annual Mortgage Review? Qu’est-ce que c’est”, you ask.

An annual mortgage review, done with either your mortgage provider’s representative or your own mortgage representative ( i.e. your friendly Mortgage Professional) is just a quick check up to discuss what the current balance is, how things are going and do a quick review of your early payment privileges, increased payment privileges and potential prepayment privileges.

Its best to have these annually because , well, the average human needs to be shown the same information seven times to learn it – save time and start today.

Seriously, if you feel like you need to do annual review and need help, just give me a call.

JB

7 Jul

Affordability; Let’s put our national housing agency back to work.

General

Posted by: Jonathan Barlow

By now, many of you have heard that, in addition to stress testing insurable mortgages, the government now intend for lenders to similarly stress test non insurable ( what we previously called ‘conventional’ ) mortgage financing, in a bid to better manage risk in the Canadian housing market.

By way of an example, imagine you are a couple who, by dint of hard work, luck and the bank of mum and dad, have amassed a down payment of $600,000.

By some miracle, you’ve located and purchased the very last liveable 3 bedroom semi in East Vancouver for 1.2 million dollars.

Today, given your excellent credit rating and your $85000 a year income, you can qualify for the $600,000 in additional financing needed. Its squeaky, but you’ve demonstrated your ability to pay larger amounts over the years – it’s very “approvable”.

Spool down the road a couple of months however and because the government wants to better manage risk and affordability, you no longer qualify for the financing required. In fact, your purchase cap is now 1,100,000, in a market where prices will likely escalate 2 % in those intervening days.

So who does this extra protection serve? Not our buyers, not our lenders, not even our market place.

Without a concerted effort on the part of the government to actually manage affordability, the changes are meaningless.

Several countries get rolled out as examples of thriving free market economies with stable housing markets; 2 often cited are Austria and Germany. How do they do it?

Well, the key is an entrenched, robust social housing programme. Austria, for example, provides low cost financing to low or no profit developers who in turn partner with the government to build social housing. The ‘developers’ are often community based institutions. One example cited of a common “developer” is a trade union. Bonuses are paid to the developers in order to maintain quality standards, meaning that the build quality cannot be differentiated from commercial developments.

Having recognized that successful social housing means having people from all walks of economic life actually living together rather than in silo complexes in the same neighbourhood, the maximum income threshold is actually quite high. If you are a high income earner, you are just as eligible as a medium or low income earner.

Because the programmes are so robust, market demand for owned real estate is balanced and actually stable.

Last night, I had a two hour conversation with a friend who expressed nothing but frustration about the whole situation here in Vancouver.

From that sense of frustration, I’ll pass on this key message; CMHC, get off your cash swollen backside and get back to work, fulfill your original mandate.

For those of you who have gotten this far and are now rolling your eyes about the whole “social housing thing” it need not be in the same style or format as the European models, but let me make three final points;

1. The only way to increase affordability is to increase supply and thereby reduce purchaser competition. Nothing is currently being accomplished by providing incentives to the commercial housing market. The only way to increase supply is by throwing full support behind the development of social housing.
2. There’s 4 BILLION dollars in profit going back to the federal government from CMHC, that should by rights, be used to fund such an initiative. Even the most conservative of you will agree that “profit”from a Crown Corporation is actually just taxation.
3. There is already precedent for such a scheme. I’d invite you to have a look at Ajax, Ontario. What was then known as Central Mortgage and Housing Corp. managed the development of Ajax. The project was meant to house returning WW2 vets and it was handled by CMHC right up until the town was incorporated. It worked, as far as I can tell, but you’d probably like to check with the townsfolk.

Anyway, end of rant.

Thanks for reading If you’ve gotten this far.

JB

25 May

Where I work matters as much to you as it does to me – The DLC Difference

General

Posted by: Jonathan Barlow

When I made the decision to become a mortgage broker, I was cautioned by friends already in the field to choose wisely where I would plant my flag.

After a bit of deliberation, I chose a franchise that was very familiar to me – the owners were people I had worked with in my previous life. I will admit though, to being less sure about the parent company. The face of their advertising campaign had for some time been errr, well, a kind of obnoxious sports caster. I wasn’t sure the values of the parent company really reflected my own. That sounds a bit pompous and businessy, I know, but really, it comes down to wanting to work with people who treat others the way you do.

Coming up on a year down the road, I’m certain I’ve landed on my feet not only with the franchise office but also the the parent company. There are tons of reasons for me to celebrate but I think how DLC works for you impresses me the most.

Here are five reasons why my working at DLC matters to you, even more than it matters to me:

Size Matters

I am one of 2300 plus like-minded brokers who work under the DLC banner. The franchise office I work from has 80 brokers alone. This means access to more options, better “buying power”, when finding financing for you.

Advocacy

Some of you may have noted that in October, the federal government made changes to the mortgage qualification rules. One consequence of the changes was that your mortgage buying power has reduced by 20%, even while prices go up. All 2300 hundred of us have been involved in a campaign to reduce the harmful effects of these rule changes. DLC’s corporate office have even made presentations to the parliamentary committee studying the matter.

The Best Advice

Because we are 2300 experienced professionals and we talk to each other, we always have the right solution at hand.

The Most Up To Date Information

Our access to current information is remarkable, even in an industry where interest rates fluctuate like gas prices. We receive 30-50 updates a day. When we meet with you, you get the benefit of the most recent, most accurate information we have.

A Single Purpose – Our Relationship With You.

When you win, we win. The one thing that drives success for all of us at DLC is having a great relationship with you; a relationship where you can end up living where you want to, comfortably and sustainably.

Give us a try sometime.

Regards,

JB

Jonathan Barlow
778-230-2572
jbarlow@dominionlending.ca

11 May

Advice and options mean you’re in control.

General

Posted by: Jonathan Barlow

mortgage advice

Be in control.

Today, you and your spouse go looking for a new home. You’re excited because after years of scrimping and saving, you can finally afford your own place.

You’ve engaged a realtor and he’s called you to say that he’s found your new home. You visit the property and while its not perfect, your realtor insists that this is the home for you. He says there’s nothing else available that’s better suited and urges you to make an offer. He mentions at one point that he’s actually the owner of the property he’s showed you. You make an offer at the price he suggests and, hey presto, the offer is accepted!

You move in at the end of the month, happy that you’ve at least got a roof over your head.

It all sounds pretty unbelievable, doesn’t it? You can’t really imagine doing that, can you?

Let’s look at a similar scenario; one where you make a very similar choice.

A month or two earlier, you casually mention to your mum and dad that you’re going to start looking for a home. They’re both pleased and proud – they ask about your mortgage financing – and recommend you go see their account manager at Big Blue Blank.

Like most Canadians, you prefer going to the dentist over applying for credit, so after you meet with Cal from Big Blue, you’re pleased and relieved when he calls you later that day to say you’ve been pre approved for financing at a fixed rate. He’s even guaranteed the rate for 90 days! When you end up buying that not so perfect home, the mortgage is in place in a blink of an eye.

This time, the whole scenario is way more familiar, isn’t it? Why is the second scenario any more acceptable than the first?

A Mortgage Brokers’ value proposition is based upon the ability to offer independent advice about multiple products provided by multiple lending partners.

How we demonstrate that proposition is by providing both advice and options; advice on not only obtaining the right financing, but also repayment strategies and strategies to handle a changing interested rate environment.

By combining options on rates, terms, repayment privileges and to minimize penalties, we provide you with the one thing you didn’t get in either of the two scenarios – informed choice.

Dealing with a broker, any broker, gives each of us back something we are always looking for; control.

As always, if you have any questions, need help or would like to run through some (real) scenarios, please call or email.

Regards,

JB

Jonathan Barlow
778-230-2572
jbarlow@dominionlending.ca

1 May

Vancouver’s Rental Market Needs Carrots, Not Sticks.

General

Posted by: Jonathan Barlow

rentals

Summer is coming

At any given time, in every housing market in Canada, there will be a segment of the population that cannot afford to own their own homes, regardless of any discussions about affordability.

We all want to live within a reasonable distance of where we work, no matter what we do, and one of the ways for that to happen is to rent. The rental market in this city, as with many others, needs to be recognized as a vital part of the housing spectrum. Unfortunately, it appears that all levels of government do not consider it to be so.

Rental real estate Investors can be roughly divided into two groups; the commercial ventures, that own apartment buildings, multiple units etc., and the limited door investor, usually an individual investment property owner . The key difference between the two is the commercial business is in it to cash flow, earn a profit. The limited door investor – perhaps your next door neighbours – a couple who owns their own home and perhaps a condo downtown that they rent out, is not in it for revenue generation. Rather they are in it for wealth accumulation instead of profit. The theory is, as long as the rental pays for itself, their “business” is a success because their key profit driver is the increase in property values.

Right now each level of government uses various “sticks” to drive the rental market, although it appears there is little thought given to the consequences of doing so, particularly when it comes to affordability in the housing market.

The Federal Stick; Stand alone rental properties are no longer eligible for default insurance. Financing options are now limited to half the lenders previously available and all are more costly than even a year ago.

The Provincial Stick; The BC Home Equity Partnership Program.

The Municipal Stick: Combining a 15% foreign buyers tax with a 1% vacant property surtax.

In so many ways, each of these “sticks” make sense on their own, however as a combination, they do nothing to make either rental or non rental housing more affordable. In fact they do the opposite.

Removing the default insurance option from what is a vital part of the rental market not only limits the number of new rental units coming on to the market but also endangers existing rental housing, increasing costs and not allowing owners to refinance repairs and refurbishment.

Ignoring the rental market in favour of offering interest free loans for downpayment also ignores the the fact that a rental housing shortage will drive competition for what today is barely affordable first time housing and will actually increase prices.

If a 15% foreign buyers tax has done nothing meaningful to cool the housing market because foreign buyers are prepared to pay a premium to own here, how will an additional vacancy surtax address that problem?

Perhaps we should consider the following “carrots”?

1. Return default insurance coverage to the stand alone investment (rental) housing sector.
2. Develop a provincial rental housing policy, including tax concessions for commercial, multi unit residential rental projects.
3. Rebate 3% annually of the Foreign Buyers tax for five years, provided that the property is occupied during the entire term ( rental or owner occupied ).
4. Give planning preference and municipal tax incentives for rental housing.

Why am I, a Mortgage Professional, talking about the rental market? Its pretty simple; with an effective, stable rental housing market, competition slows to a more measured pace in the first time homebuyer’s market and demand decreases. As demand decreases, prices moderate. ‘See where I am going with this?

26 Feb

That Conversation We Need To Have

General

Posted by: Jonathan Barlow

A common economic theory states that “there ain’t no such thing as a free lunch”. Seriously, it does.

Its a simple way of presenting the idea that nothing is free, that everything is paid for even if the costs are hidden.

Here are some services that appear free but in fact, are not:

Free chequing.

You may have seen ads for a free chequing account at your local financial institution, may have even signed up for one. You may indeed have a chequing account free of monthly fee but its never free. There may be a requirement to keep a minimum balance in your account, which is in its own way, a monthly fee. Even if there’s no minimum required, you’ll probably be confronted with loan application fees, investment account fees and the like, which replace the revenue the institution has given up by not charging you a monthly fee.

Zero percent vehicle financing.

Many of us are attracted to Manufacturers financing when we’re on the car lot. If we don’t need to pay interest for 5, 6 or 7 years why not? But really, how can the manufacturer afford to offer that? How do they cover the cost? Well, it’s a simple numbers game. The manufacturer thinks they’ll sell, for example, 100,000 “go faster stripes” models of their most popular car. Of that, they calculate that 10,000 people will apply and qualify for the financing and that the financing will cost the manufacturer 60 million dollars. To cover the cost, they add $750 to the purchase price of each vehicle sold. By doing so they turn a 60 Million dollar cost into a 15 million dollar profit.

No Cost Mortgage Financing.

When you use the services of a mortgage broker such as myself, you may have been told that most times, there is no cost to you. This is only partially correct. In fact, there is an indirect cost, in the form of commissions paid by the lender and perhaps also by the insurance provider to us, (if we refer you to an insurance provider if you believe you need insurance). Many lenders, lacking the resources to have an internal sales staff, rely on the Broker network for new business. The cost of those commissions are built into, you guessed it, your mortgage. Well, I hear you saying, what if I go directly to a bank or other lender, can I save that way?

In fact, the actual costs are pretty much the same, although better hidden. The bank pays its internal sales staff a commission or a “variable compensation” at a lower rate, but their office costs are the same, so costs turn out to be very similar. This is why the “best rate” is often widely available and why it’s really important to get advice on the best mortgage terms available as well.

Why are we having this conversation? Well, our regulator, the Financial Institutions Commission ( FICOM ) has made changes to make sure your mortgage broker does a better job of disclosing to you what and how we’re paid. I am telling you a little about it now, because I thought we should talk about it before the changes take place. After all, my job is to give you advice and make you aware of what’s going on. Now, hopefully, you’ll also be a little more aware of how I make my living.

If you want to read more about FICOM and its role in BC’s Financial Markets, you can go here.

22 Feb

Five Best Reasons To Work With A Mortgage Broker

General

Posted by: Jonathan Barlow

Working for You and You Alone.
When you engage a mortgage broker, we work only for you. We only have your best interests in mind. When you meet with a representative of a Financial Institution, they’re working for that FI, not for you.

Better Options.
Banks approve about 80% of the people that apply for a mortgage. What if you, or the property you want to buy fall into the other 20%? A mortgage broker can find financing for you, regardless of where you fall in the 80/20.

Better Advice.
When you meet with a broker, you’ll get an individual service experience that’s focused around your needs and requirements. When you go to a bank, you’ll get a scripted “guided conversation” which has been created by someone at their National Office to help their salesmen sell you their mortgage product.

Better Terms.
Depending on which lender you choose, your early payout penalty can be as little as $1500 or as much as $13000, for the same $350000 mortgage. A mortgage broker will help you choose the best terms for you.

Better Rate.
A mortgage broker can and will find you the best rate to suit your particular needs and history. Combine that with the best terms, and you could save thousands of dollars, even in the first five years of your mortgage.

Whether you’re ready to buy today or in the future, contact me and together, we’ll develop a mortgage strategy that will save you money and put home buying within your reach.

If you’re a first time home buyer or thinking about buying your first home, you can find some great tips and a planning guide on my other website.

If you have any questions, please feel free to give me a call at 778-230-2572.