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BANK VS BROKER

Buying your first home and getting your first mortgage can be an overwhelming experience.

If this is your first home buying experiencing, applying for a mortgage can be the most intimidating part of the process , so where do you start?

In the past, the home buyer turned to their banks for their mortgage needs, but now you have more options at your disposal with over 40% of consumers turning to mortgage brokers for their mortgages needs instead of the banks.

Mortgage brokers are provincially licensed and regulated by CMBA .   They can help you with all aspects of a mortgage, from figuring out how much you can truly afford, to determining the best mortgage product for you, to finding ways to save you money and pay off your mortgage faster.

Many lenders’ rates and mortgages can only be accessed through a mortgage broker. Not having the selection of lenders, and simply choosing to get a mortgage with a bank, can mean choosing harsher prepayment penalties for breaking your mortgage in the future, as well as a higher interest rate; which can cost buyers thousands upon thousands of dollars over the life of their mortgage.

A mortgage broker is also able to better tailor a mortgage product to your specific needs, whether that be working with a lender who is more flexible when it comes to self-employed income; one who has more flexible prepayment terms; or one that has more options for consumers that possibly have suffered some credit challenges in the past.  Because mortgage brokers have access to more lenders, they’re better able to find a lender and a mortgage based on your specific needs and financial situation to get you the lowest mortgage rates today.

Mortgage brokers offer convenience, which lets you meet around your schedule, not the banks hours.

Mortgage brokers also operate on commission and are paid by the lenders who ultimately grant you your mortgage, so there is no cost to the consumer.   Referrals are the life blood of our business so it is in our best interest to serve you as best we can.

Bottom line,  using a mortgage broker gives you the freedom of CHOICE and comparables to consider, using a bank gives you no other choice but ONE, theirs.

Feel free to contact me with any questions you may have at 1-888-819-6536 or lisa@mortgageplayground.com

 

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Do your homework first… read the fine print – Rate of 2.99 to good to be true?

Although you will never hear any bank say that publicly, this is what is going on. Recently there has been some industry chatter about a few banks offering a sub 3% 5 year fixed product. One particular institution is bragging about their 6 billion dollar portfolio under administration, this product, and how great it is. At first glance you might think ” WOW, that’s awesome!” However as with all mortgages, you have to dig a bit deeper to find out the real nuts and bolts of this sub 3% offer. It’s a great offer alright for the bank, not for you; the consumer.

Based on an average mortgage size of $250,000, that’s 24,000 Canadians that negotiated directly with the bank who will feel ripped off once they find out about their terms and conditions. I am very pro client / consumer, and my job is to look out for their best interests so I simply can’t endorse this product. Consumers though need to know why they shouldn’t either. This product is priced well below the market average for 5 year product, and does not come without it’s “catches”. It’s definitely buyer beware and the bank will not tell you this.

Some of the features (or non-features you might say) are:

Minimal or no pre-payment privileges

This product has extremely low pre-payment features. On a monthly increase basis this could mean nothing to less than half of what the industry norm is. Lump sum payments may also be nothing or less than half the industry norm and if allowed only once per year. Pre-payment features are extremely beneficial and allow for strategies to be put in place. Lack of strategy means lack of interest savings for clients and consumers.

Fully Closed

When I say fully closed, I mean just that. A borrower cannot get out of the mortgage, unless they sell their place if at all. Who wants to sell their place if they want to refinance? I don’t know too many people that would. If borrowers do sell their place, a substantial penalty such as a 6 month interest penalty typically applies.  Borrowers may be offered  a reduced penalty (3 month) if they choose to refinance with that same bank however this still does not offer a borrower access to the entire mortgage market. It also confines them to more inferior product. If a borrower is going to pay a penalty, they rightfully should have the opportunity to entertain superior product. The average mortgage is in place roughly 3 years before being paid out or refinanced. Life just happens. More than likely a borrower will need to do something with their mortgage during their current mortgage term.  To be locked down by these terms and clauses makes absolutely no sense.

No guarantee of best rates upon renewal or refinance

Banks know that consumers may not know the mortgage market at any particular point in time. What’s happening in the mortgage world is usually not on the forefront of people’s minds. When it comes time to renew or refinance borrowers can be offered a rate as high as 1% above the market norm and not realize it. When a borrower asks the bank to do better, they may be offered a discount further however that .5% “special” discount doesn’t look so good when the rest of the market is priced much lower. This amounts to more interest the borrower has to pay over the course of their mortgage. This is more money for the bank that should be staying with you.

Your mortgage will also be registered as a collateral charge.

Beware of this one as it is a very sly practice among banks. What does a collateral charge mean to a borrower? The bank will instruct the lawyer to register the title as a running account. More than likely you running account will have a global limit of the property value itself. This doesn’t mean you are going to get this money, it just means that your property is fully tied up. If you choose another lender at renewal, legal fees apply. A second mortgage or Line of Credit can’t be put behind this product because the bank has tied up ALL of your equity. No matter which way you turn, the bank has shackled you to more costs and fees.

The lesson here is that rate is not everything. Product and Strategy is. Borrowers need flexible product to execute strategy.

Contact me for more information or apply online at http://www.mortgageplayground.com

 

 

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Bank of Canada will most likely hold key interest rate

Canada’s strong economic growth in the first quarter is likely a temporary blip that will give way to more moderate expansion during the rest of the year.

While most analysts agree that should keep interest rates on hold when the Bank of Canada announces it latest policy stance on Tuesday, a number of others are getting nervous about the central bank’s slow pace in normalizing monetary conditions, saying it increasingly runs the risk of fueling higher inflation and destabilizing the economy.

“In order to control prices and avoid wild swings in the economy, we are of the opinion that the Bank of Canada should be more aggressive in the normalization of its monetary policy than what the market expects,” Pierre Lapointe, a global macro strategist at Brockhouse Cooper, said in a note to clients on Monday.

Canada’s gross domestic product expanded at an annualized rate of 3.9% during the first three months of the year, its fastest pace since the first quarter of 2010 when the economy grew 5.6%, according to Statistics Canada.

Falling just shy of the 4% expected by economists, the country’s latest GDP figures were aided by strong growth in the mining and oil and gas industries as almost all major sectors with the exception of retail, and arts, entertainment and recreation.

Business investments in plants and equipment were up 3.2%, the fifth straight increase, while exports were up 1.6% in the first quarter, and imports rose 2.2%.

Jim Flaherty, Canada’s Finance Minister, said the GDP numbers were encouraging when asked about them during a news conference at a Chrysler plant in Etobicoke on Monday morning.

“We knew the first quarter was going to be strong, and it is strong,” he said. “It’s in line with expectations. I’m particularly encouraged by the fact that government capital spending is a smaller part of the growth.”

But Mr. Flaherty, who said he plans on tabling “essentially the same budget” as the one in March that was rejected by the opposition to spark the recent federal election, also acknowledged that Canada’s growth for the rest of the year would be more modest.

Several economists, including David Madani of Capital Economics, agreed that the country’s economic pick-up is not sustainable.

With the temporary boost to growth from higher energy and auto production already realized, Mr. Madani expects second-quarter growth as a low as 1.5%.

He said Canada faces several headwinds and forecasts that slower US economic growth and the strong Canadian dollar will continue to restrain exports, particularly in industries dependent on auto sales and housing construction in the US.

“More importantly, Canadian domestic demand appears increasingly vulnerable to a shaky housing market, where still rising prices test the limits of housing affordability and already high household debt levels,” he said in a note to clients.

Under those circumstances, Mr. Madani said the Bank of Canada is unlikely to raise interest rates anytime soon. Consensus estimates, meanwhile, predict the central bank only raising its key lending rate 25 basis points to 1.25% by the end of the third quarter and to just 1.75% by year-end.

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Canadian consumers expected to remain cautious as interest rates set to rise

Higher food and gasoline prices and hefty debt loads likely to be made worse by interest rate hikes will impact consumers’ buying habits going forward, say those who track retail spending.

It’s going to be tough for consumers who have depended on a low interest rate environment, said TD Bank economist Francis Fong, adding that rates are expected to go up this summer.

“The rising interest rate environment, this high household indebtedness situation — that’s all going to impede the ability of consumers to spend going forward,” Fong said Thursday from Toronto.

Statistics Canada said retail sales increased 0.4 per cent in February to $37.3 billion, giving retailers some relief after declining sales at the start of the year.

Consumers filling their tanks with higher-priced gas, along with those buying furniture and clothing, pushed sales higher in February.

But Fong said consumer spending will no longer be the same driving force going forward as it has been throughout the economic recovery.

The Retail Council of Canada said consumers are “still hanging back a little bit,” especially now that they have to spend more of their incomes on food and gas.

“Clearly, if they’re going to have spend a little bit more on basic necessities, they may pull back a little bit on the nice-to-haves, but not on the need-to-haves,” said spokeswoman Anne Kothawala.

Consumer confidence is soft and that mirrors spending, she added.

“Gas and food prices are actually very closely related. It costs more to transport goods,” Kothawala said.

Statistics Canada said the largest contributor to February’s increase in retail purchases in dollar terms was gasoline sales, which increased 1.3 per cent.

Gasoline prices have been surging along with crude oil, which began rising sharply in February with the outbreak of unrest in Libya, an OPEC member that accounted for about two per cent of the world’s crude output before civil war there.

As of Thursday, the Canadian average price compiled by GasBuddy.com was 129.6 cents per litre, up from about 118 cents per litre at the end of February.

But lower retail sales in Quebec — a 0.8 per cent decline — contributed the most towards the dampening of national retail sales, Statistics Canada said.

“The decline reflected, in part, lower sales of new motor vehicles in the province,” the federal agency said. “This was the second decline in retail sales in Quebec following six consecutive monthly gains.”

Quebec also increased its provincial sales tax to 8.5 per cent in January, up a percentage point.

Sales at clothing and clothing accessories stores were up 2.5 per cent, offsetting a decline in January. Sales at furniture and home furnishings stores grew 2.1 per cent in February, helped by gains in real estate sales.

Prof. Ken Wong of Queen’s University business school said once consumers pay down debt and spend more money on food and gas, there isn’t much left for anything else.

“You have to ask yourself what can be delayed and what can’t be delayed,” Wong said of consumer purchases.

“We cannot rely on interest rates remaining as low as they are as long as they have been going forward,” said Wong, who teaches business and marketing strategy.

Geographically, retail sales in February gained in six of 10 provinces, powered by Ontario where sales increased 0.7 per cent after two consecutive monthly declines.

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Bank of Canada holds key rate

OTTAWA — The Bank of Canada said Tuesday the economy is growing at a “slightly” faster pace than expected as signs emerge of a recovery in exports – although that remains at risk due to a high dollar and poor productivity.

Strength in commodity prices, which is a driving factor behind the Canadian dollar, could get a further short-term boost from recent unrest in north Africa and the Middle East, the central bank added.

As expected, the central bank kept its benchmark rate unchanged at 1%. In a five-paragraph statement, it acknowledged conditions in Canada are strengthening, a day after Statistics Canada reported the economy grew at a 3.3% annualized clip in the fourth quarter — or a full percentage point above the central bank’s forecast. Part of this is due to U.S. economic activity that is “solidifying.”

 

Furthermore, the central bank said early signals suggest a necessary transition is underway, from an economy powered mostly by consumers to business investment and exports.

The Canadian dollar weakened to C$0.9730 to the U.S. dollar after the bank’s statement.

“The recovery in Canada is proceeding slightly faster than expected,” the central bank, led by governor Mark Carney, said, “and there is more evidence of the anticipated rebalancing of demand.”

In its last rate decision on Jan. 18, the central bank said economic recovery in Canada was headed for a period of “more modest growth,” with 2.4% expansion expected in 2011. At the time, Mr. Carney said the country would be hard pressed to “fully benefit” from an upswing in U.S. prospects due to a lack of competitiveness. But the 2011 outlook is near the low end of expectations compared with private-sector economists, who upgraded their forecasts further after the release of fourth-quarter GDP data.

At present, the Bank of Canada said in its Tuesday statement, domestic demand continues to expand although household spending is “moving” in line with growth in disposable income. Over the past year the central bank has raised myriad concerns about the record levels of debt households are carrying, prompting the federal government to move twice to toughen mortgage-lending standards.

In the Bank of Canada’s view, business investment continues to “expand rapidly” as companies take advantage of low interest rates and the need to boost competitiveness. And an anticipated comeback by the trade-oriented sector appears to be unfolding.

“There is early evidence of a recovery in net exports, supported by stronger U.S. activity and global demand for commodities,” it said, although warning: “The export sector continues to face considerable challenges from the cumulative effects of the persistent strength in the Canadian dollar and Canada’s poor relative productivity performance.”

Prior to the rate statement’s release, the Canadian dollar touched another 40-month high, as the loonie hit US$1.0309, up from Monday’s close in the US$1.029 range. The Canadian currency shot upward after the release of the GDP data, on the anticipation the Bank of Canada may begin raising rates earlier than previously believed.

Traders have priced in 100% odds of a rate hike in July, once the U.S. Federal Reserve completes its US$600-billion asset-purchase plan. But some analysts say the GDP report tilts the balance back in favour of an interest rate increase in May.

Derek Holt at Scotia Capital, however, told clients prior to the Bank of Canada release that he expected Mr. Carney to highlight concerns about the loonie.

“Don’t expect the Bank of Canada to abandon its commitment to arguing that over the full cycle, Canada’s lackluster productivity gains and an elevated currency will constrain the extent to which Canada leverages up the U.S. recovery just because one quarter’s worth of data counsels otherwise,” he said.

The Canadian dollar rise is powered by the country’s relatively sterling fiscal fundamentals, economic prospects, and a rise in commodity prices — highlighted by oil prices cracking the US$100 a barrel level last week on concern about Libya.

In the rate statement, the central bank said robust demand from emerging economies is driving the strength in commodity prices, “which could be further reinforced temporarily by supply shocks arising from recent geopolitical events.” That was the only reference to the potential risks posed by a growing wave of protests across north Africa and the Middle East.

Global inflation pressures are rising due to higher energy and food costs. But in Canada, the central bank said inflation is in line with its expectations – the core rate, which strips out volatile-priced items, stood at 1.4% in January – and pricing pressures remain subdued, reflecting “considerable slack” in the economy.

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Experts best at brokering mortgages

Cheryl Hutton and Aaron Coates always thought getting a mortgage would be a challenge. But within 18 days of visiting a mortgage broker, they were able to close a deal on a new townhouse in Calgary without a hitch.

Now in their early thirties, both have careers in the theatre, something Ms. Hutton says has been a bit of a sticking point with banks. “In our industry we never fit the paperwork guidelines ‘for the banks.’ For some reason, people don’t think we pay our bills.”

Although it was their first home purchase, Ms. Hutton says it was surprising how easy the whole process was once they had someone who could walk them through it. “He sat us down, told us what our options were, showed us that it was possible and explained all the steps we needed to take. If it wasn’t for him, we may not have made the leap.”

Sorting through a mortgage process and negotiating rates can be overwhelming for firsttime and seasoned home buyers alike. That’s why people such as Ms. Hutton and Mr. Coates turn to brokers to do the legwork for them.

Yet mortgage brokers will tell you that a good portion of home buyers out there don’t really understand what they do. “Part of the challenge we have in our world is that people aren’t really sure what a mortgage broker is,” says Gary Siegle, regional manager for Invis Inc., a mortgage brokerage firm in Calgary.

Brokers should not be confused with “rovers,” mortgage specialists attached to a specific financial institution who visit customers outside of banking hours, Mr. Siegle explains.

“They only deal with that bank’s product. A broker, however, is an intermediary whose job is to make a match between a lender and a borrower. We represent the individual, not the bank.”

About 30% of mortgages in Canada are done through a broker, according to Perry Quinton, vicepresident, marketing, for Investor Education Fund, a Toronto-based non-profit financial information service.

“The reason more people don’t know about them is because the banks are so visible. It’s easy to gravitate to them when you have your savings accounts, credit cards and investments there already,” Ms. Quinton says.

Going for the comfort factor could cost you however, she adds. “A broker has access to different lenders including banks, and can shop rates and features. A halfper-cent may not sound like much but that could make a difference of about $20,000 for a $250,000 mortgage amortized over 25 years. Any little bit helps.”

Mr. Siegle confirms that shopping around can deliver significant savings.

“Let’s take today’s average posted rate of 5.44%, and you get a point off that at your bank. So you think you just got a really great deal. But the vast majority of rates we deal with as brokers would be another 30 basis points lower -around 4.14%. And if you look at preferred deals that don’t offer features such as prepayment privileges, it can get as low as 3.89%. That’s another 25 basis points below what’s generally available.”

The reason for that is simple, he says. “We offer wholesale rates, banks offer retail.”

For anyone considering a broker, Ms. Quinton advises people to do a bit of groundwork first if they have the time.

“It helps to educate yourself about options and what you can afford. Look at all your living expenses, including student loans and credit card debt. Chances are you are understating those.”

Another thing to look into is the different types of available mortgages and features, including interest rates, payment frequency, amortization, cash-back programs and the ability to make lump sum payments.

“Knowing these things before you go in can save you a lot of money,” she adds.

Any mortgage broker you choose should always meet the right licensing and education requirements, so be sure to check their registration.

If you’re not completely prepared, however, that shouldn’t be a concern when working with a good mortgage broker, Mr. Siegle says.

“After all, mortgages are pretty much all we do. So even if you come in cold, good brokers will walk you through the process and ask all sorts of questions,” Mr. Siegle notes.

“You just need to be prepared to answer them openly and honestly so they can get you the best deal possible.”

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Bank of Canada seen hiking rates in first half of 2011

TORONTO – The Bank of Canada is unanimously expected to keep interest rates on hold next week, but the uneven economic recovery has primary dealers and global forecasters divided on the timing of the next hike in 2011.

The Reuters poll, released on Thursday, showed 93% median probability that the Bank of Canada will keep its key rate at 1% at its next policy announcement date on Dec. 7, with all 44 forecasters polled predicting no move.

Among the 42 that forecast the central bank’s next hike, the majority saw it happening in the first half. The median forecast for the May 31 policy date has the rate rising to 1.25%.

But among the 12 Canadian primary dealers — the institutions that deal directly with the central bank to help it carry out monetary policy — the majority forecast rate hikes in the second half with a median prediction of a first hike in July.

When compared with a similar poll taken in October, the more recent survey showed rate hike forecasts had been moved deeper into 2011.

Thirty of the 44 forecasters surveyed say the central bank will still be at 1 percent after March 1, a more pessimistic view than the last poll.

“Given that the Bank of Canada had indicated that they didn’t want to see that great a divergence with U.S. rates and the Fed was actually doing quantitative easing, it made sense to push out the Canadian rate hike as well as opposed to adamantly defending a Q1 move,” said David Watt, senior fixed income and currency strategist at RBC Capital Markets.

“We’ve had a lot of recovery and we’re seeing some fade at the present time, so you get that caution that maybe the domestic side of the economy is not strong enough to offset the still sizable trade hit and currency strength.”

A report out on Tuesday showed Canada’s economy disappointed in the third quarter with the weakest growth rate in a year, while the economy shrank outright in September, adding pressure on policy makers to safeguard the patchy recovery.

Bank of Canada Governor Mark Carney in October gave a blunt assessment of the global and Canadian economic recoveries, saying the central bank would plot its next move with extreme caution.

Massive new monetary stimulus by the U.S. Federal Reserve to support a flagging U.S. economy also prolongs low rates south of the border, and Canada is seen not wanting to race too far ahead of its largest trading partner.

Mr. Watt noted that a concern for the central bank has been a Canadian dollar strengthening near parity without having seen a strong rebound in oil and natural gas prices.

“Sluggish Canadian growth and an elevated exchange rate will keep the Bank of Canada on hold until well into 2011 if, as we expect, core inflation readings return to their more muted earlier monthly trend,” said Avery Shenfeld, chief economist at CIBC World Markets.

“The U.S. Fed should still be on hold at a near-zero funds rate in early 2012, and wider interest-rate differentials would push the (Canadian dollar) to levels that would be too damaging to Canada’s export prospects.”

Estimates of the central bank’s target for the overnight rate by the end of 2011 range between 1% and 2.5%.

Next on the domestic data front, analysts will keep a close eye on the monthly jobs report on Friday and inflation figures later in the month.