By Ozzie Jurock
This article appeared in The Vancouver Sun on April 12, 2003
Losses in lending first overseas and then losses by lending with 'irrational exuberance' to the high tech sector matched against a stable real estate market see our financial institutions take their gloves off, slugging it out, overruling their own managers and creating a bewildering array of new mortgage products. There are now 18 versions of open mortgages ... 3/4% below prime, 5.15% 5-year terms; mortgages aimed at the self-employed, 100% homeowner financing to $400,000, financing the investor with more then 3 properties, 90% secondary financing and of course the very hard-to-finance. New products, new deals, new mortgage company subsidiaries. (What the bank won’t finance in the front, they may in the back, through a higher risk subsidiary.) To figure out what is best for lil’ ol’ me and my lil’ ol’ mortgage has many a consumer totally befuddled.
For instance this week, mortgage broker John Ribalkin from Mortgage Intelligence advises that General Motors Corp (GMAC? I thought they sold cars?) has brought out a brand new product for second mortgages of up to 90% of appraised value. The rate will vary between prime + 2.5% to prime plus 8% (likely the higher end rate), depending on client and property location. 25-year amortizations are available for purchase, refinance and equity take outs. (No Pre-approvals available). Minimum mortgage $10,000, maximum $100,000. Maximum combined lending ratios ... 90% in urban centers, well and septic properties in a town or subdivision. (If your Beacon score is less than 660, lending is to 85%. What the heck is a Beacon score? See below.) Lending goes to 75% rural or apartment condos. Applies to owner occupied properties - up to a fourplex. Properties must be in average or better condition and in a 'marketable' residential area.
Looking at this new product it is clear that all lenders are in a heated 'mortgage war'. Peter Kinch advises that his company The Mortgage Centre, amongst other lending, targets first-time homeowners, new homebuyers, and self-build clients. X-CEED Mortgage Corp. (Bank of Montreal) targets clients that are outside traditional borrower profile, such as those who are self-employed. X-Ceed offers ‘no-money-down’ mortgages. Qualified purchasers can borrow 100 per cent of the real estate's value with no extra fees.
Scotia Bank also introduced a no-down payment option for first-time buyers. In a press release the bank states that “The mortgage is designed for people who don't have a down payment for a home but have excellent credit ratings and repayment capacity."
These mortgages are insured by GE Capital Mortgage Insurance Company (which is making a run at CMHC insurance), to allow the customer to finance the total cost of the home as well as the insurance premiums! But alas - no-money-down mortgages are not available in Alberta.
Scotia bank also offers up to five per cent cash back on a seven-year term mortgage, and up to four per cent on a five-year term mortgage.
TD Bank Canada Trust has a "Deep Discount Mortgage". This one has a first year interest rate of 4.95 per cent, on five-, seven- or 10-year mortgage terms ... and a higher rate for the balance.
The Bank of Montreal is the only bank that offers an 18-year open term mortgage that has the same rate as the bank's five-year, fixed-rate mortgage. You can pay it off in full or make partial prepayments and early renewal at any time without interest penalty.
And then there are consolidators. All into one easy payment. In The United States some banks offer up to 125% (!!?) of home value for the purpose of debt consolidation. In Canada for instance, Manulife Financial will consolidate customer's debts into one account, including 75 per cent of the mortgage, credit cards and other loans. You add checking account, savings account and other income into a single multi-purpose account. This supposedly saves money, because all the loans are now payable at a lower interest rate, and interest owing on the account is calculated daily, which supposedly means that every dollar deposited immediately lowers debt. Hmmm ... !? Of course, you better not consolidate and then merrily go back to your ‘high credit rate credit card debt’ with your new found ‘consolidated freedom’.
Of course the market is also driven by the new mortgage broker ... such as large independent national brokers like Mortgage Intelligence mentioned above, INVIS. There are also local brokers like Strategic Mortgage Professionals Inc. in Vancouver. All will have access to dozens of financial institutions (some - not all brokers!) are very well versed in all of the new products. Make sure YOUR mortgage broker is and matches your personal needs to one or more of the new products that work best for you.
So, check with YOUR broker, to make sure you get the best deal. And, yes, it is a moving target. For some getting cash back is the key, for others the lowest possible rate is the only thing that matters.
And a 5.1% 5 year term or a 10 year 6% rate is still the best in 40 years. So, the shootout at the mortgage corral has the effect of getting you the best of all possible worlds: The Financial institutions actually WANT you, you get the lowest rate, the may not need your T-4 to verify income, they may let you top up your loans into your house ... and all that without any bullets fired.
This score is what lenders base their lending to YOU on. In other words, the better your score, the easier the credit, the worse the score ... enough said. You now can check your credit on-line in Canada. No red faces, no forms to fill, no one else to know. For some $4 - 20 dollars you know your total credit history and standing and of course your Beacon score.
Go to www.equifax.ca and get your credit score instantly online and a copy of your personalized credit report. More importantly, you get a full explanation of your score and how lenders view your credit risk with tips on how you can improve your credit score over time. Also included is a custom graph showing how you rank nationally among other consumers, specific factors that most heavily affect your credit score and a plan for specific actions you can take to improve your score.
See also: Ozzie Jurock's Real Estate Action Group
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