Dominion Lending Centres Taylor Made Mortgages
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Quick email to pass along what I am seeing and hearing, as well as my opinion, regarding mortgages in this COVID environment.
MORTGAGE PAYMENT DEFERALS
- all “A” lenders are offering deferral options for clients, regardless whether the mortgage is CMHC insured or not.
- I have heard that some “B” and private lenders will consider on a case by case
- Important to tell clients that mortgage deferrals are not automatic with any lender. A missed payment without an approved deferral request will be considered a default.
- Borrower’s need to contact their mortgage lender directly. Lenders will not accept instructions from a broker on behalf of a client. That being said, I am more than happy to talk to any of your clients to provide information/advice, regardless of who arranged their mortgage
- All lenders are handling their programs differently. Some are on-line requests, some require phone calls. Some are approving month by month and some will approve a 6-month deferral automatically. Unfortunately there are no standard rules/guidelines I can pass on to you.
- There is no magic with these mortgage payment deferrals, the lenders are just adding any deferred payment on to the balance of the mortgage. Simple way to view it is homeowners are re-borrowing these funds much like a secured line of credit.
- I highly recommend anyone financially affected by the “stay at home” orders take advantage of mortgage payment deferrals. At this point we do not know how long this will continue and people should plan for the worst case. A mortgage payment deferral will help with a household’s cashflow at minimal cost.
- If income has not been affected, I would advise a client not to request a deferral yet. The request will most likely be declined and it will bog down the processing of other requests. Lenders are currently swamped with requests and prioritizing them by next payment date. At this point there is no talk of a deadline to apply.
- A mortgage deferral will not have any effect on a borrower’s credit score. But there can easily be errors made in the transfer of information from lender to credit rate agency (Equifax or TransUnion). Anyone that takes advantage of a mortgage deferral should check their credit report once they start making payments again to make sure nothing was reported in error.
Interest Rates Dropping but Mortgage Rates Increasing?????
- over the past month the Bank of Canada has dropped the overnight rate 1.50%, it now sits at 0.25%. This is the rate the Bank of Canada lends to financial institutions. https://www.bankofcanada.ca/2020/03/press-release-2020-03-27/
- The big 5 banks have followed these drops with their Prime rates. Canadian Bank Prime Rate has dropped from 3.95% to 2.45%
- Despite these rate drops mortgage rates have gone up. Both Fixed Rates and Variable spread to prime have increased over the past month.
|March 2||March 30|
|5-yr Insured||2.59%||Prime minus 1.05%||2.79%||Prime minus 0.20%|
|5-yr Conventional||2.94%||Prime minus 0.80%||3.09%||Prime plus 0.20%|
|5-yr Uninsurable||2.99%||Prime minus 0.65%||3.19%||Prime plus 0.20%|
Here is a link to an article from DLC’s economist explaining the reasons mortgage rates have risen. https://dominionlending.ca/news/why-are-mortgage-rates-rising/
Main reasons for increasing mortgage rates,
- The “market’ is viewing the banks as riskier investments now, compared to 30 days ago
- Cost of funds for the banks are actually increasing
- Their cheapest source of funds, chequing and savings accounts, will be reduced as individuals and businesses make massive withdrawals
- Banks are increasing their loan loss provisions in anticipation of mortgage and other loan defaults
- Mortgage Deferral programs will reduce the funds available for new mortgages
MORTGAGE APPROVALS ARE NOT GUARANTEED
Mortgage providers always have the right to cancel a mortgage approval prior to the closing date of a property is there are any changes to employment, income, credit score or down payment funds. It is typically not a big risk in normal times but obviously that has changed over the last couple weeks. I have been hearing stories in the broker community of “Approved” mortgages being pulled by lenders due to the following reasons,
- Loss of employment, even if applicant is able to get EI. Lenders are making phones calls to employer’s asking for confirmation of employment, possibly just days before closing.
- Drop in revenue of Business for Self applicants. Typically for business owners lenders only request to see the previous 2 years of tax returns to verify income. Lenders are now reviewing Business for Self applicants and assessing if there is a risk of a drop in 2020 income
- Reduced down payment funds due to the drop in stock markets. For example a $100,000 investment portfolio that a buyer had available for a down payment on Mar 1 is now maybe only worth $70,000. If a buyer is unable to make the down payment indicated on the application it could put the mortgage at risk
If you are working with any buyers right now that have accepted offers to purchase you might want to explain that their mortgage approval is not a 100% guarantee in this environment. If they have any negative change in their employment or investments, they need to be proactive about it.
The mortgage process is very slow now.
If you are working with buyers keep in mind you might need a longer condition of financing than normal. All mortgage underwriters are working remotely now and turn around times are much slower for approvals. Appraisals are also getting affected as homeowners and tenants do not want appraisers entering their properties due to fear of COVID. In addition, lawyers, mortgage insurers, and First Canadian Title are all being impacted in this environment. I would avoid quick closes on any transaction right now.
I hope this information is somewhat helpful to you. Please don’t hesitate to call or email if there is anything I can do to help you out.