An ah-ha moment

I’ve had two conversations with friends during the last week about what exactly a mortgage brokers does.

Because I am a mortgage broker and immersed in the industry, I assumed  everyone understood the difference between mortgage brokers and bank employees.

I had an “ah-ha” moment this week.

Over the weekend a friend said, “I don’t understand why someone would use a mortgage broker. We’ve always just gone to our bank.”

This friend has squeaky clean credit, two strong incomes in the household, and a significant amount of equity in her home. She would be able to approach any lender and have a mortgage approved.

I stumbled a little bit with my answer. I talked about how brokers have access to many different lenders, and how brokers most often have flexible schedules.

What I missed was:

  • the personalized service brokers offer.
  • brokers specialize and are experts in their field.
  • we work for our clients, not any specific lender.

I started my career with one of the chartered banks. I benefitted from fantastic training opportunities. I realize now that being a broker is truly a luxury. I am able to focus on one product line and seek suitable options for my clients.

What exactly do mortgage brokers do?

Mortgage brokers can be either independent or work for one specific financial institution. Independent brokers have access to multiple lenders including chartered banks, credit unions, mono-line mortgage companies, and private lenders.

Each of these types of mortgage lenders has slightly different policies and lending criteria and offers different rates accordingly. For instance, chartered banks tend to be more conservative and extend credit to clients with very clean credit and a strong employment history.

Private lenders, at the other end of the spectrum, will consider clients with bruised credit or more erratic income, provided they have a significant amount of equity.

A mortgage broker will meet with you and assess your situation. Your broker will then explore options to find the best fit for you, evaluating considerations such as your credit and employment history, down payment available, and your income. 

After spending some time getting to know a bit about you, your long-term goals, and what type of property you are hoping to purchase, they will offer recommendations and suggestions to help point you in the right direction.

The beauty of working with independent brokers is that they complete your application and pull your credit bureau once, then shop different lenders on your behalf.

This is a significant advantage as you might spend hours going from appointment to appointment trying to do this on your own. 

If your situation is unique (i.e.: you are new to Canada, have less than perfect credit, you are self-employed), a broker will be knowledgeable about specialty programs offered by different lenders. In cases like this, they will be able to explore different financing options for you.

Once you have written an offer on a house and have been approved for a mortgage, your mortgage broker will connect with you to collect documents and signatures required by your lender.

They will work with you until your paperwork goes to your lawyer (or notary) and be available to answer questions as you move through the process.

So what does this mean for clients?

One of my clients recommended me to a co-worker who is shopping for her first home. My client raved about the service mortgage brokers provide, and as they chatted she came to realize that her co-worker had no idea what mortgage brokers do. 

When my client relayed this story to me, I recognized that a lot of the service brokers provide happens behind the scenes.

This led to an interesting conversation between my client and I. Granted, she is one of my biggest cheerleaders –  but she went on to tell me how she told her co-worker about why she feels working with a mortgage broker is the only way to go.

From her perspective, here are some of the benefits of working with a mortgage broker:

  • RELATIONSHIP – I took the time to get to know her as a person and learn about what was important to her.
  • PERSONALIZED SERVICE – Brokers are not bound by a 9-5 schedule, so we were able to work around our clients’ schedules.
  • COMMUNICATION –  I kept her updated as we moved forward with her application. Frequent updates helped reduce her anxiety.
  • OPTIONS –  Her bank was not able to finance the type of property she chose. With access to more than 50 lenders, each of which has slightly different policies, I was able to research these options to find the best fit for her unique property.
  • EDUCATION AND ADVICE –  I spent time with her to make sure she understood the process and her options. I connected her with other professionals that I have worked with in the past. What she found most valuable was that I provided a breakdown of closing costs after our first meeting. She said that in four previous home purchases no one had done that for her.

I’ve told people many times that the beauty of being a mortgage broker is that we concentrate on one product line – mortgages. Each client we work with is unique, and each lender we work with is different.

As brokers, we learn something new every day and make a point of keeping up to date with legislative changes and new products as they are introduced.  

A key take-away here is that mortgage brokers are specialists – they focus solely on helping their clients find mortgage financing.

Turnaround time for a straight-forward mortgage application in the broker world can be as little as a few hours and is more typically between 24 and 48 hours.

Most clients we work with say that waiting for an answer about their financing is the most stressful part of the process, so such a quick turnaround time is one of the most significant benefits of working with a mortgage broker.

As a rule (unless your broker has to seek out a private lender), the personalized service provided by a mortgage broker comes at no cost to you. Mortgage brokers work on a commission basis, and this commission is paid by the lender after your mortgage is finalized.

This does not affect your interest rate in any way, and you will likely find that mortgage brokers are highly motivated to help you find a mortgage because if they don’t, they don’t get paid.

Whether you are looking to buy a home or refinance your existing mortgage, a mortgage broker can help you navigate your way through the new mortgage rules.


Mortgaging through divorce

Divorce sucks.

This week I met with five clients who are separating. This was unusual for me; it’s been a while since I’ve worked with clients who are going their separate ways.

Each situation was slightly different, but for three of the five couples, financial issues were what pushed them to the point of separation.

Stressing day after day about outstanding bills or not having funds available to manage the necessities of life is not a fun way to live. Even the strongest couples have a tough time surviving financial duress.

Whether you are trying to salvage your relationship or are past that point, it is important to know that you have options. Some of these options involve dramatic lifestyle changes, while others can be fairly simple changes.

If you are trying to straighten out your finances, here are a few ideas to consider:

  • Have a heart-to-heart with your spouse and go over all of your bills so you are both on the same page as to how serious things are. Brainstorm together to think about options.
  • Draw up a budget detailing your fixed monthly costs. Compare your bank statement to the budget to see if there are any changes you can make to free up monthly cashflow (can you cancel your home phone? Drop to a lower package for TV and internet?). It can be staggering to total up how much we spend on items like drive-thru coffee or takeout meals.
  • Approach your bank for a consolidation loan. Do you have family that might be open to helping?
  • Prepare a list of your assets and see if there is anything you might be able to sell. Things can be replaced at a later date – your sanity not so much. Could you potentially survive with one vehicle instead of two? Do you have toys in the yard that you don’t use all that often (ie: quad, snowmobile, boat)?
  • Do you have RRSPs, investments, or a life insurance policy with a cash value that can be redeemed? Withdrawing from your RRSP could potentially create a tax debt the following year, so think carefully before taking this step.
  • Consider refinancing your home to pay off consumer debt and reduce your overall monthly payments. This will only be an option if you have a significant amount of equity in your home. The maximum mortgage lenders can consider is 80 per cent of the value of your home. If your home is worth $500,000, the maximum mortgage available would be $400,000 (subject to income and credit qualification). In this example, if your current mortgage balance is $350,000 you could potentially access $50,000 to pay off other debt.
  • Think about taking on a second job or looking for a position that pays more.
  • Talk to your creditors to see if there is any way to reduce monthly payments due.
  • Sell your home and look for a more economical place to live. In our market, this isn’t as straightforward as it sounds, but being able to pay off your bills might be worth the upheaval.
  • Approach a credit counselling agency. Sometimes having a frank conversation with a third party might help you identify solutions. There are programs such as consumer proposals or bankruptcy where the credit agency will negotiate with your lenders to reduce the amount due and come up with a more manageable payment schedule. These are options of last resort as they will affect your credit rating for the next seven (or more) years, depending on how long it takes you to fulfill your obligations.

If you are past the point of salvaging the relationship and are at the point of dividing your assets (and bills), hopefully you are able to work collaboratively to sort things out.

If one spouse is looking to buy the other out of the marital home, the 80 per cent rule with respect to refinancing does not necessarily apply. Although the program is not published online, Canada Mortgage and Housing Corporation will insure mortgages up to 95 per cent of the home’s value when there is a marital breakdown involved.

Using the example of the same home valued at $500,000, the spouse taking over the home would be eligible (again, based on income and credit qualification) to mortgage up to $475,000 to pay out the spouse that is moving out.

There are a few intricacies to be aware of. A spousal buyout is essentially treated as a purchase of the home, so most lenders require a purchase agreement in addition to a separation agreement.

You will need a separation agreement which spells out the division of assets and identifies any support to be paid (or received, whichever end you are on). If there are no children involved and no spousal support payable, some lenders will accept a Statutory Declaration stating this in lieu of a separation agreement, but this is decided on a case by case basis.

In this situation, the new mortgage can be used to pull equity to pay out the ex-spouse’s interest in the home but not to pay off joint debts. It is important to keep this in mind when you prepare your separation agreement.

Reach out for help before things get too bad. It is heartbreaking to see couples torn apart, regardless of the reason.

Most importantly, find a financial professional that you are comfortable working with to help you through the process. Judgement is the last thing you need.

Sometimes that extra set of eyes reviewing your overall financial picture might help you identify a solution to get you back on the right track. If you find yourself in this position, I am willing to help you look for alternatives.

2nd mortgage helps sleep

One of my clients just had her first decent sleep in two years.

In my last column, I wrote about her. She just popped into the office to tell me that her second mortgage had been finalized and all her bills were paid.

And, as a result, she slept – soundly.

We talked about the next step of her plan, which is staying on top of her bills and waiting for her credit score to improve so we can move her back to an A lender.

Over the last 1 ½ years I’ve heard that the intent of the mortgage Stress Test (qualifying clients at the Bank of Canada Benchmark rate or their rate plus two per cent) is to protect Canadians from over-extending themselves.

I talked about that in an earlier column.

In reality, the clients I see who are most impacted by the Stress Test are ones who already own their homes and are looking to refinance to pay off outstanding credit cards and personal loans.

Mortgage approvals have always been subject to a thorough review and approval process; clients need to demonstrate that they are employed (have the financial capacity to repay their mortgage), have a down payment, and have a history of managing their credit.

On the other hand, most people can apply for another credit card or increase their existing limit fairly easily. They can pop in to a car dealership on a whim and leave at the end of the day with a shiny new ride.

This is by no means a simple issue that is solved by tightening up the maximum mortgage amount that people qualify to borrow.

Life happens. People can become over-extended due to changes in life circumstances such as:

  • job loss
  • separation/divorce
  • illness
  • the expense of sending a child to college
  • or any number of crises.

Since the introduction of the Stress Test, I see more and more clients who are finding that their only option for accessing equity in their home is an alternative lender.

These lenders generally come with a fee and higher interest rates.

Even with the fees and higher rates, alternative mortgage options can be the solution to help clients get their feet solidly beneath them again.

Last week, I attended a learning session organized by CMBA-BC (Canadian Mortgage Brokers Association – British Columbia). Any time I attend training, I come away with something valuable that helps me better support my clients.

One of the speakers was Ray Basi, Director of Education and Policy at CMBA – BC. He explored the pros, cons, and pitfalls of second mortgages.

The fact that our association added this topic to the agenda tells me I am not the only broker facing this challenge.

The Bank of Canada Benchmark rate has increased again, reducing borrowing power again by approximately  $2,000 per $100,0000 that people are looking to mortgage (ie: if they qualified to borrow $400,000, that figure is now reduced to $392,000).

I heard last week of an alternative lender now offering a 40-year amortization. Although this might solve the immediate crisis of qualifying clients for financing, I don’t like to see the longer-term implication, which is an increase in interest that clients might pay over the lifetime of their mortgage.

People who are not facing financial challenges are quick to say that if people can’t afford to refinance, they should sell their homes. The irony is that in our market, rent is often higher than what those clients are paying for their mortgage.

Although there are certainly options available, I think we are in for a bit of a rough ride until we adjust to the new way of doing business. 


Buying a strata property

When you write an offer to buy a home, life seems to go into fast forward mode.

Between negotiating the offer, having your financing approved, co-ordinating and attending the home inspection, and potentially selling your current home, it’s easy to get caught up in the whirlwind and becoming overwhelmed by some of the details.

During the last two weeks, I’ve had two separate clients dealing with strata-related issues, so I thought I’d share some information for you to think about if you are considering buying a strata unit.

I’m working with a client who is buying a condo on Vancouver Island. Although the building is older, the unit he is buying is lovely; it has been completely updated and is move-in ready.

He made sure he had his finances organized before writing an offer, so this should have been a straight forward approval.

When the strata documents were reviewed by CMHC, they questioned why the Strata’s contingency fund was so low.

In this situation, the Strata had been carefully planning extensive renovations to the building. They had just finished re-doing the roof, siding, and updating all of the common areas.

My client’s mortgage was approved, but it pointed out for me the importance of clients reviewing and understanding strata documents during the purchase process.

What is a contingency fund? Essentially, this is a reserve account set aside for potential repairs or upgrades that will need to be done by the strata complex. These are generally big-ticket items that do not happen on a regular basis.

Operating funds, on the other hand, cover the day to day expenses of running the strata complex. Items covered by the operating fund include things like:

  • insurance
  • landscaping
  • utilities
  • regular maintenance.

The second clients I mentioned are a retired couple living in an older complex here in Kelowna. They have a small mortgage and manage nicely on their pension income.

They found out recently that they need to come up with almost $25,000 to cover a special assessment. This assessment is to cover the expense of replacing the roof and siding on their building.

What is a special assessment?

A special assessment can be levied by a strata council to cover extraordinary expenses that arise when the strata does not have adequate money to cover the expense.

In this situation, the Strata did not have adequate reserves (in their contingency fund). Owners of the units are being offered options as to how to cover their share of the costs.

In this case, my clients either need to come up with the $25,000 up front, or their strata fees will be increased by almost $200 per month.

Living on a fixed income, they are concerned that the $200 a month will create hardship for them.

The challenge for these clients is that on their pension income, under the new lending guidelines they no longer qualify for the mortgage they are carrying, never mind increasing it by $25,000.

Their mortgage payment and current strata fee total about $750. They cannot find a home or apartment to rent for anywhere near that amount.

Puts them between a rock and a hard place.

Which brings me back to reviewing and understanding your strata documents, and playing an active role in your strata council (or at least attending meetings and participating in decisions that affect the finances of your strata).

This is important for not only purchasers but also for current owners.

A well-run Strata has a plan in place to address upcoming upgrades and major maintenance issues. This plan is usually laid out in a depreciation report, which outlines when major projects will be scheduled and helps the Strata make informed financial decisions so that funds are on hand when needed.

Strata owners vote about how finances are handled. As an owner, you can see how important your input can be.

The final important piece to consider is a review of the minutes from the previous AGM (Annual General Meeting) and the last year or so of strata minutes. You will be able to see how issues are handled, and if the Strata for the council is planning proactively for upcoming expenses.

These minutes will also likely show if the owners are a fairly harmonious group, or if there are strained relationships between owners.

Many people don’t really understand the ins and outs of living in a strata complex. For a general overview of the expectations and obligations of stratas, you can find a great overview on the provincial government’s page.

Your realtor will provide strata documents for you to review. It is important that you take some time to read the information provided and ask some general questions so you understand the health of the Strata’s finances.

If you are purchasing privately, I encourage you to hire a lawyer to review the documents on your behalf.

A few minutes spent up front, and awareness of how your Strata is making strategic decisions, can potentially save you major stress down the road.

More The Mortgage Gal articles

About the Author

Laurie Baird and Tracy Head are mortgage brokers with Verico Complete Mortgage Services. Together they have over 45 years of experience in the mortgage industry.

As mortgage brokers, Laurie and Tracy spend time getting to know the people they work with and help them understand the mortgage process. They support their clients before, during, and after a home purchase.

Laurie and Tracy are able to offer their clients advice and options. With access to over 40 different lenders, Laurie and Tracy are able to match the needs of their clients with the right mortgage package. They work closely with their clients to find the right fit, and are around to provide support for years down the road!

Contact them at 250-862-1806 or visit:

Visit Laurie's blog at: https://www.okanaganmortgages.com/blog

The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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