In Your AREA Podcast

Part 2 - Mortgage Changes

April 22, 2019 Alberta Real Estate Association Season 1 Episode 9
In Your AREA Podcast
Part 2 - Mortgage Changes
Show Notes Transcript

Are you receiving a lot of questions from clients who are trying to understand the recent changes to the mortgage rules in Canada? Answer these concerns with ease and confidence after listening to Eden Simari, of Eden Simari Mortgage Solutions and Bill MacDougall of Optimum Realty make sense of it all. 

Speaker 1:

[inaudible] welcome to in your area, a podcast designed by area to update, educate and refresh realtors, brokers in industry, stakeholders on topics that matter most to you. Listen on the go in your car at a coffee shop wherever your day takes you. This is a podcast designed with today's busy realtor in mind and now for part two of mortgage changes, here's your host Bill Mcdougal. Yeah.

Speaker 2:

On realtor point. Um, we're, we've run across obviously the last couple of years where we have somebody that wants to sell their property and they said, yeah, we have a mortgage in its due up. But um, yeah, we don't know much about it and when we go into them we talked to him and say, we'll go to your bank and talk to build the mortgage. Is there a penalty coming out? This is the big cause we have been finding the last two years. All of a sudden we're selling the property, we got an offer on the property and they find that they have a penalty. They had no clue that was there. And how do we as a for us realtors, what questions should we ask our sellers about those, those existing mortgages and how, what questions should we ask? Cause a good, I guess the best way to put it. Well

Speaker 1:

I always think that at the time in Calgary we're all so busy and the majority of our clients are not in our profession. So I would say engage them with the licensed professional like ourselves so that we can do the work nine to five for them while they go about their daily business and things like asking their existing lender, getting their legal consent so we can call on their behalf and get penalty quotes. We can get information if we haven't already done the transaction prior, we can pull information on portability options because for some people that's the better option if, especially if their mortgage is from the 13, 14 years where they had some very low interest rates that they don't want to give up. Um, you know, those are things that we want to discuss with them. And then it's very important for an existing home owner that's working with you guys than if a report is in play. That we're very open in our communication, meaning the broker slash or the banker and the real estate professional that it ports have very tight windows and we need to all be on the same page about making sure that, um, if they're buying and selling that they're actually making sure those possession dates, lineups. So there isn't a huge erroneous penalty no one was prepared for. Okay. Um, the other thing, like I said, if there is a large percentage of, of Canadians that are coming up for renewal this year again and so many of your sellers are actually very close to maturity when they're thinking about selling. And that is a very um, sensitive topic too because we don't want them to flippantly lock into a, a fixed low rate. Um, we want to have a discussion about is an open the best option for you? Can you afford an open cause it's a bit more expensive, is a one year a better option? So, um, I would say engaging the professional as soon as you're even having that listing discussion with because it takes time to get that information from the lenders. Usually I, you know, if, if there was someone we've worked with before a day or two, um, and that penalties are always subject to change until a lawyer actually request the payload statements. So we're, we're working on borrowed time with that kind of stuff and if they are in an eroded equity position that we're very sensitive that we know all those numbers way in advance of assign hitting the lawn. Um, because we don't want anybody in an underwater situation for you, for the buyer, for the bank

Speaker 2:

on the other one is, um, that we run across as we look at as realtors, we all pull title before we sold the property. We look at the mortgages that are on title. Yes. And we see a mortgage of such and such amount of money. And then we see these other instruments on there, like a healer walk or whatever you talk to you seller. Oh, I got nothing on there. There's nothing on there at all. I said, well, why is that there? You need to talk to somebody about getting that straight, right.

Speaker 1:

Is that correct? Yes, that happens a lot. Or I would find what's more common is they actually don't have a mortgage, but they'll have a, he lock registered on it. So as far as you guys are concerned, you'll see what the hilar registration for it. And that is always the limit. Uh, and they may tell you I owe, I don't owe anything, but actually they have a large balance still owing on a healer because when you ask them about a mortgage, they don't, they assume they're, he lock is not a mortgage. So when we pull credit, we will see what the most current balances and then we'll ask for more concurrent statements as well to get a real accurate picture of how much equity. But I would say, I mean it's not part of your transaction, but I, you know, I would ask them for a, an idea of what their current balances I'm going on the product because as soon as you use the word mortgage, um, they'll just, any he locked bore or most of them I find anyway, we'll say, oh, I don't have a more kitchen.

Speaker 2:

So it's been a really for a realtor to actually engage a broker like yourself, mortgage broker, get them in at the very beginning of the process and saying, okay, this is our client that we do some homework, let me know what they can or can't do. Because depending on how much equity they have in the house and what we want to go to, we need to know what we're dealing with on this mortgage to get out of it or to go to a new one, whatever. So that's, are you finding that realtors are doing that more and more?

Speaker 1:

I think, I think so. I think they could do it even more. I agree. Realtors please help us with that because I think if we set that expectation way in advance, we really get ahead of any, you know, frustration and stress for these clients. Our clients are busy. If we can take that off the table and just be very prepared going into a listing situation, it makes the buying experience in selling experience much more positive. And we do have an aging population that's quite large in the city and um, you know, if for some of them they are looking to downsize or that's an inheritance. So we have to be very respectful of equity and the sooner we can get ahead of that, the, I think the happier the transaction, the happier the client it's about the relationship.

Speaker 2:

Absolutely. I know cause their equity, if they bought in 2014 or 2015, their, their um, their equity may have shrunk a little bit since then because of the price. So we need to get ahead of all of that, um, beforehand. Yeah. Any other things that you could get tips for realtors and other than calling a broker at the very beginning? Sure. Yeah. But, um, all of our lives easier. Yeah. I mean some of them won't even with a solar. No, no. I got my bank person, I got my bank person over here. Is there something we can give them a list or something we can give these clients and say, Hey, you need to ask these questions from the bank and then bring it back to me. That huddle feel very good about where we're going forward.

Speaker 1:

Yeah. I mean, I would say every realtor, a realtor in this city, in, in Canada should, should have a relationship of some sort with a licensed mortgage professional, a broker that's not just at a bank. A bank is not a licensed broker. Um, uh, an established, experienced broker that has options, a wide variety of lenders, like through our firm, we have in total a, B and c, 45 institutions. We can go to, not everybody will fit with all 45 and you don't want to go to all 45, but you want somebody that's experienced, um, and that can advocate to the banks on your and your client's behalf. Um, and someone that's passionate about what they do so that we can arm you with questions like make sure your client gets into the bank and asks this. And I've had a number of clients that are very respectfully, very married to their bank and that bank does not lend in my channel. But trust my professional opinion to say, you know, eating, I'm, I'm looking to do this at one of my questions. And so I'll go back and say, we'll make sure you check your portability window knowing that I'm not going to do that in transaction, but just making sure that the consumers are more educated consumer, um, makes that experience happier. So, um, the other thing too is just making sure that if they're married to their bank or, or you're working with a bank specialists that the client knows they're our second opinions and, and other options out there that just because the bank says the price is this, or the porting window is, that doesn't mean that's their only option. And then in this day and age where everyone shops everything, it doesn't hurt to have someone doing that on your behalf. Um, so engaging a professional quite early is important.

Speaker 2:

Yes. You do. You find that some clients are scared to talk to, to, to broker because they know that they don't have to go for the stress test if they stick with their bank or they don't and they don't want to upset the apple card. No, don't tell the bank. Yeah cause I, they might just chuck me out

Speaker 1:

Sherry, that that's, that happens. And I would say less so nowadays. I think and the millennials in particular, those move up buyers first time home buyers are very willing to work with mortgage professionals much more so than I find the boomer generation is very comfortable with their banker, very comfortable with their brand. So the thought of a broker is, is sometimes foreign to them and it, it's a little nerve wracking. Um, but it's all about the conversation and educating them and making sure they understand that we work on their behalf and often we can go right back to their institution with them and just educating them a little more. But yeah, sometimes they really don't want to move and that's okay. Okay. That's already, cause at the end of the day we have to do what's in their best interest. Um, I did want to say just one thing I wanted to mention here about the stress test in particular is there's, um, when this was instituted, sorry to circle back here, Bill, one thing that I met were meant to mention early on as is as a national body of licensed mortgage professionals. We have a group called mortgage professionals Canada. And when these changes were discussed with the government as, um, you know, Pat Kelly as you mentioned before, who's a huge advocate of ours, big fan of Pat. Um, it, our industry as a whole was not consulted. And that was incredibly distressing to us because, um, we are the ones that are working with these institutions representing a large portion of market share in this country. And we were not consulted about how the, um, the changes would affect our markets.

Speaker 2:

Don't feel bad there. Just like so side wasn't either.

Speaker 1:

Oh, sure. Yeah, of course. Right. So, so the banks were certainly consulted. Um, and their goal was, you know, cooling the, the big centers which they have done. Um, and now it's, you know, we're, we're fighting monthly, weekly, nationally, every year to put a voice for Canadians, for Albertans back in Ottawa to say that this stress test has a, you know, in our opinion, achieved what you were trying to do. Let's either amend this regionally or, or as a whole mortgage professionals Canada felt that the stress test should not have exceeded 0.7, 5% above their contract rate because, and right now it's 2%. And so, yes, it achieved what they had hoped in those centers. But you know, in a, in a province like Alberta who coincidentally at the exact same time was going through a very distressing recession and is continuing to recover from that. Um, it affected confidence and truly affected our market. And, um, so we're continuing to fight on a, as a, as a national voice to Ottawa about that, um, to see if that can be amended. And there has been some news reels coming out. It could be because it's an election year, but um, uh, that they are starting to have that discussion now of, of potentially scaling back on that rate. Nothing has happened on that. Um, and also talk of potentially longer amortizations if they don't amend the stress test.

Speaker 2:

No, I've heard the rumors and maybe you've heard the same rumors that I had that there, because of the election, they're looking at amending the stress test for first time home buyers. I'm not sure how that would look and how they accomplish that without other people getting really upset and started suing people saying, you can't look at this age. You, you're penalizing me because I'm older than that or so I'm not sure how they're going to go about that. But obviously the, this stress test has been, I think far more effective than they ever thought it could be. And I think it's now getting to the point of be a detrimental and they're going to have to make some changes on your side with your organization you're fighting for, just get rid of it or just amend it or

Speaker 1:

you know, as a farmer, underwriter and risk manager. Um, and I know a lot of mortgage brokers and realtors will potentially disagree with me on this. I do think a stress test is very intelligent. I think in an increasing rate environment where economies we hope are stabilizing is important. Um, especially because of the increasing debt loads that clients are caring and that the reality of an a higher interest rate come renewal is, is a real reality. And what we've been dealing with for the, for the last five years is a generation of home buyers that purchase their first property at near 1% interest, which is not even economically makes sense. But that was the reality. And now those people are coming up for renewal with more debt, bigger mortgages, et cetera. Um, you know, at, at 2% higher than they renewed. So the thought that rates could potentially be that much higher, um, economically could happen. But do I think 2% heyers appropriate know, um, especially because at the end of the day it's more than just rate hikes of factor into an economy. There's tax changes, there's and realistically mortgage arrears are the lowest. They've been since 2009, like less than 0.3% of mortgages nationally or in default. Uh, we're one of the lowest in the world. So it's, you know, you think about that think well if we had some stress tests, whether it was three quarters of a percent or percent higher, that makes sense cause we have to prepare people so that, cause we're getting a lot of those calls saying, what do you mean I'm renewing at three and a half when my rate is two, two, nine and well that's the reality. But your principal's lower than it was five years ago. And economically most people have had two or three cost of living raises. So it all kind of evens out. Um, so I am not for the cap of abolishing it completely in an increasing rate environment, but I do think it needs to be revisited and potentially even given the, the power of, of lender due diligence. Um, because when lenders can decide case by case if it applies,

Speaker 2:

you don't want another thing too is I'm not sure and we both had been, we're geeks on this nerding out here. The one thing that I have a concern with it, I don't know if it was being followed by the finance minister or the ministry, is the people that are millennials in getting the gift from mom and dad to get the down payment. And so mom and dad are now taking out a line of credit or he lock on there, paid off mortgage. What, what is the government trying to accomplish when that happens on, are they tracking that? Um, is there any way of saying, hey Yo, this is not good?

Speaker 1:

Well, I'm not sure that the government is tracking that, but I can tell you as an industry we are, because we're the ones that, uh, as a large community nationally, the mortgage professionals Canada, we are doing an high increase of those transactions. I, I, I'll speak for myself, uh, specifically, I've done a number of transactions where grandparents are giving warm inheritances way before. Um, you know, they become other inheritance parents are gifting large down payments and there's still a perception among that boomer generation that they, they, um, they need 20% down. No, they in most cases clients can still qualify for 5% down, you know, under half a million purchase price in most cases. Um, but we are seeing a huge uptick in, um, gifted funds or, or inheritance. And so while we have a number of, and in Calgary in particular, there's a big transfer of wealth happening I at right now from one generation to the next. So that's helping a lot of first time buyer with very small loan amounts, which is great to see. Um, on the other hand, it's, it's concerning in the sense that some of them are not just liquidating investments. They are re-registering he locks on their titles. Um, and when then we're doing workouts solutions for the parents down the road when, you know, while I want to move on or I want to get another place and now we're having to debt service. He locks that were pulse to help someone get into, uh, his first home. So it is pulling that dynamic. Um, which is right.

Speaker 2:

I felt it's just pushing the ball down the road a little bit. And I know that in the note, just my personal experience, we're noticing that the boomer generation, um, is not moving out of their big houses yet. They're still holding onto them, but they're getting to the age point where that is going to not so much be a choice in emerge is going to be something they're going to have to do that they've got this sitting on their property. It's going to be all of a sudden they don't have the money they think they have for retiring. Yes. So that's in, you're seeing that down the road?

Speaker 1:

We are and I would say with the stress test, um, there are situations where the borrower on their own has a co-signing, was not an option to help them qualify with the stress test, but a large down payment was, so I'm in Calgary in particular, I'm noticing, um, you know, maybe mom and dad have too many, too much property exposure. They just at this point in their life, they're not willing to jump on another mortgage for five years because they are thinking about retirement and downsizing or being snowbirds or whatever the case. So they're willing to put money forth to help send a daughter, uh, qualify. Um, but that's moving their timeline up quite significantly and affecting their plans. So we, at our firm, we work with, um, a number of boutique financial planning independent firms and we're always working in lock step with them to make sure that, um, just because someone doesn't qualify on his own, is it really the right property or can he do a move up on his own? Like maybe buy a little bit more, more within his means. So he can do it on his own rather than tie up mum and dad's ready to go house. That's about to be. So you have to be so thoughtful about that. Um, and some families are just, no, here's a check and grandma and grandpa wants you to have a down payment and say Levy. But it on the other hand, it is putting some first time buyers into maybe bigger houses. Then we had the stress test wants them to be in. Correct. And so parents are pushing them into that and then, uh, or helping them into that. I shouldn't say pushing, but it's, it's a multistep process that we have. We can't just assume that mom and dad, uh, we'll just write a check and, and that, that's not coming from a liability that, you know, not everybody has that to 50 in cash. It's coming from a library.

Speaker 2:

Yeah. The, the Movoto, the millennials coming in and the first time buyers, and we'll go into the, I want to go back to the, are you finding that the come and talk to and say, I would like to buy this and you won't know Yoshi had really don't qualify for that, but you do qualify for this. And they say, oh, the heck with it. I'm just going to keep our renting until they can afford to buy this and know the taking some legal to me I did advice would be, you know, if you think you're going to see for this higher or one, chances are it's not going to happen. You're better off to take that smaller step and look traditional way of, you know, apartment, townhouse, small hills, bigger, bigger house until you're done. Um, and they seem to, some of the clients wanted to bypass some of those steps. Um, so you're finding that they're going to renting or are they taking the smaller house or whatever?

Speaker 1:

I would say in, in the larger centers, it's without a doubt pushing people to stay in the rental market, which is already very stressed. Vacancy rates under 4% in, in those cities near three, 2%. Um, so I would say in Vancouver and Toronto, which doesn't affect our immediate market, but some realtors do work there as well. Um, yes, without a doubt it's affected them where they've stayed renting. I would say Calgary as a whole. No, I, I've found the stress test has made, uh, a multistep conversation in the sense that they came in thinking they wanted acts. We talked about what their reality was qualification and when they, sometimes they do get discouraged because they had their hearts set on a, on no condo fees. But the reality is it just as of right now that until the stress test changes, that's not in your plan. But we very confidently say like, look with it debt, you know, home ownership is an important step of, of, you know, building an asset and in net worth for yourself. Even if markets aren't performing as fast as they used to, you know, get into something that's reasonable now. And mortgages are portable. You can move it up with you or keep it as a rental and start to build a little portfolio as you grow. And people are very attracted to that in Calgary. And as long as we're positive with them, which is my motto, you have to be happy with these people because it's stressful. It's the biggest step they'll take. And especially if they had the dream house, but it's so important not to put the cart before the horse and making sure they're actually lend or preapproved before you guys take them shopping. Lots of them have looked online already. Um, but it's, it's so much harder for us to convince them to do the step up if, if realtors have taken them shopping before they've done the hard number talk, cause gosh, it would really not be fun in it. And it rarely happens with my book, but it does happen out there where they just, they go to make an offer that's not even close and they don't have parents that can give down payments and they don't have value to help them qualify and co-signers. So I'm putting that preapproval in that budget conversation right up front and saying like, and sometimes I'll, my personal experience that I, I wanted to, uh, cause I had a dog, I wanted a townhouse, but I ended up getting a small condo in Kensington and hung onto it through the boom and did great on it and kept it as a rental and started to move up. And I'm so happy I did.

Speaker 2:

Yeah. The, we've been talking about Calgary and Edmonton is probably not much different. How about the rural areas? What are we seeing in the mortgage and the rulers or they are having a tougher time or, um,

Speaker 1:

the appetite for it. So rural, we, there are lenders that really specialize in rural. The credit unions are always one of the big leaders. The big six are as well. The model lines. Your, you know, your first national is your amcap sucks cetera are still look at them. But the model line tends to love your country. Grads here, your four acres, no outbuildings, just your, you know, like your Springbank properties. They love that kind of stuff. Your urban, rural, if you will. Um, so your, your country, uh, or your non-country rescue your egg or you're farming land, um, it's very applicant dependent now because we have seen some big value fluctuations. Every one is getting an appraisal, whether it's insured or uninsured. Um, because they, there's been such a huge fluctuation in value in Anchorage's. Um, uh, but is there still lending options? Absolutely. Rates are the same as it would be if it was an urban property, but the type of buyer for, um, some of that rural property has significantly changed. And so therefore the lending appetite has, has narrowed a bit, uh, especially if they're self employed, buying rural and, or operating a commercial component to it. Um, but there's still a lot of options. I would say four. Yeah. I haven't seen a huge change in rural other than fly values. So the lenders are definitely less and less or auto evaluating with the insurers. Every single one. Almost all of them need appraisals now, which actually is a buyer is a really important step. I think it's a very important investment is an appraisal. Um, to see what the, you know, obviously the, the realtor helping them, we'll give them some good market value. But, um, it, it gives you an opportunity if the appraisal comes back and it's nowhere near where you're offering and, you know, we have a discussion. Do you want to move forward? Do you want to come up with the difference? You know, so

Speaker 2:

too bad we didn't have an appraiser would go on for another hour. Yeah. Really mark too. Yeah. Anything else you'd want to add on what you want? Any points you want to bring that we haven't touched on? Hopefully you've got a lot of them.

Speaker 1:

We got a lot of them. Yeah, I would just say that, um, as a whole, I know here locally there's been some real, we've gone through a lot in our markets. Um, the stress test didn't help and there was a lot of job loss here in Alberta. I think the morale has really taken a hit. Um, but as someone who travels nationally in my industry quite a bit to Toronto and Vancouver and even Montreal, um, the morale here is there's a fighting spirit in Alberta. And I think if we carry that through to our clients and we just remain positive about, yeah, there's nothing we can immediately do about these changes, but we get ahead of it a few more months in advance and help educate people, um, that I think we're going to have a more confidence, a buyer and seller. And I think that at the end of the day, it as a mortgage professional nationally group, that we're continuing to advocate on our client's behalf, on our realtor's behalf. So we are working to fight in Ottawa to make sure that they know there's a serious resounding impact and that that needs to be rethought. Um, so I, I'm very positive about 2019 and going forward and with rates coming down, I mean, yeah, I think that'll just make it even better. Yeah.

Speaker 2:

Well, the real estate side, we've been, I've been telling my clients, so I would say, look at this is the market you're in. Just deal with the market you're in. Quite frankly, this is probably the best move up market. We've had an a very long time. Please, if you can talk to your mortgage broker and see if we can't take advantage of that move up market because it's, it's there. Um, don't let us. Great. Thank you so much. Want to thank you so much for your words of wisdom. Thank you very members. We wanted to hear from you your feedback and suggestions for future podcasts episodes and really critical to making sure that this strong resource is for you. We invite you to send the feedback through communications@albertarealtor.ca. Thanks to all who took the time to listen. We hope to see you next time. We are in your area.