The privacy commissioner has moved her focus from Facebook’s privacy policy issues to Canadian mortgage brokers, as she said yesterday that mortgage brokers still have a ways to go to ensure the privacy of their clients are protected.

Jennifer Stoddart said that the privacy office investigated the case where hundreds of credit reports were stolen by a person impersonating a mortgage broker 2 years ago, and found that the brokers who were investigated have tightened up their security but still have a ways to go.

The main areas of improvement need to be:

With mortgage broker‘s only making up 25-30% of mortgage origination market share, the last thing the industry needs is concerns over the privacy of clients information. Mortgage broker market share is much higher in the UK for example, and was in the US too, before the housing crisis.

I was on CTV’s Canada AM this morning along with Roberts Group mortgage broker & owner Paula Roberts, answering viewer’s mortgage related questions. I thought I’d share my answers here as well.

Q. How high and how quickly is the Bank of Canada expected to increase rates?

Milyda

Answer: Well the Bank of Canada announced yesterday that they are keeping interest rates at their current levels for now. However, the big surprise was that they removed the conditional commitment to keep rates at their current 0.25% until July 2010.

This means that the Bank of Canada’s key interest rates, which is what influences variable mortgage rates, could start going up as early as June 2010.

Industry experts are forecasting that interest rates will go up by 1.5% by the end of 2010 and 3% by the end of 2011.

This means variable mortgage rates could be heading higher beginning in June and once rates start going up, they’ll most likely be increasing by 0.25% or 0.50% each time. This is a slow and steady rate increase as we move towards getting back to a more ‘normal’ rate environment.

Q. My friends used a mortgage broker when they bought their house last month, but we I’m with a bank. What are the differences between a bank and a mortgage broker?

Sandy

Here are the main difference between working with banks versus mortgage brokers:

Banks

Starting with the banks:

Mortgage brokers

Mortgage brokers on the other hand:

If you’re considering between working with either one, it’s really a personal decision. I’d recommend speaking to your bank and a mortgage broker and then seeing which one provides the best offer.

If you have any other questions or would like any further explanation on these, please feel free to email me at Kelvin (at) RateSupermarket.ca.

Kelvin

We all know mortgage rates are near all time lows and that rates will inevitably go higher. Long term bond yields, which affect fixed mortgage rates, have increased over the past few weeks, so we’d expect fixed rates to increase as well. But that didn’t happen. Many of the big banks are doing a massive market share push right now, and have surprisingly decreased fixed mortgage rates despite bond yields increasing. Variable rates have stayed constant as the Bank of Canada recently re-iterated there conditional commitment to keep them at this level until the summer, although we’ve seen a slight increase in the discounts to prime with a Prime – 0.55% or 1.70% 5 year variable come out last week.

This has resulted in people starting to prepare for the rate increases, and much talk in the media over the past week about mortgage penalties. When you take out a mortgage, it is a contract that comes with a commitment, but like many contracts, there is an out clause if you’d like to terminate the contract early. However, that out clause comes at a price – and this is the mortgage penalty fee.

Historically, the penalty fee has been a payment of 3 months worth of interest, but some lenders use the higher of 3 months interest or an IRD or “interest rate differential”. The IRD is based on the difference between your original interest rate and the interest rate that the lender if they were loaning the funds out today. Some banks cheekily use the posted rates to calculate this differential, although that is usually not the actual rate people get for their mortgages.

As different lenders use different penalty calculations, it can be difficult for consumers to know how much the penalty is. As a result, the government announced in the recent budget that as a move towards greater “consumer protection” they would look at standardizing how lenders disclose and calculate prepayment penalties. This is applicable to fixed rate mortgages as variables don’t have IRD penalties.

IRD calculation

Here is an example of how to calculate the IRD:

IRD vs 3 months interest

If you’re looking at refinancing to break your current mortgage and move to a lower rate then you simply need to:

Mortgages are a complex product and once you start looking at all the available options including fixed vs variable rates, cash back, no frills, quick close specials, full-featured products, and the list goes on, it can be difficult to know which product is the best for you. That’s where a good mortgage broker can help. They can offer the following services:

• They work for you, not the lender
• They have access to many lenders including many major banks, specialty and mortgage-specific lenders, enabling them to find the best product for you, versus a single lender
• Can help with strategic financial planning – Are you going to want additional cash for home renovations? Are there other debts you can consolidate?
• Offer their services for free

The reason they can offer their services for free is that mortgage brokers are paid commission by the lenders once they close a deal, and work on 100% commission only (some charge for special, difficult situations or when organizing for private lending), but most only work on commission, so be wary if they want to charge you. The compensation is based on a percentage of the mortgage amount and varies for different mortgage rates, products, rate terms (i.e. a 1 year fixed versus a 10 year fixed), and even for different brokers. There are different options available on how broker’s can take their commission, such as up front or over the term of the mortgage, but we won’t get into that for now.

A few rules of thumb are:

• Fixed terms typically pay more commission then variable terms
• The longer the fixed term the more commission (ie. a 10 year fixed would pay more than a 1 year – which makes sense as the lender can predict their revenue stream for a longer period)
• Commissions can vary among brokers as larger ones receive additional bonuses based because of higher volumes
• No frills products which are “stripped down” with some features removed to provide a better rate typically offer lower commissions
• Speaking to many brokers they make an average of 0.75%
• A no frills, quick close product could offer 0.50%, while a full featured 5 year product could provide 1%

Brokers that do a lot of business, such as sourcing over $100M in mortgages annually (to put this in perspective CAAMP reports that there was $952B of residential mortgage credit outstanding October 2009), typically get better deals from lenders based on the volumes they provide and that’s how some can offer lower rates than other brokers. Additionally, if a lender has funds that become available or needs to hit their quarter/annual targets they can make a lower rate product available to a large broker and this sometimes results in special offers and deals in the market that no else has access to.

So all brokers don’t always offer the same rates or products and that’s why, as we try and provide the most comprehensive mortgage rate market comparison in Canada, we compare different brokers as well as the banks, credit unions and other lenders.

Surprisingly, mortgage broker market share is estimated at between 25-30% in Canada versus other markets such as the UK and US (before the economic collapse) where they are over 60%. Therefore there is a lot of growth available to brokers in Canada, and they offer a great service and we hope many more Canadians will consider talking to one before they take out their next mortgage. If your current bank or lender offers you a better deal, that’s great news. You can now sleep easy as you know that you’ve compared the market and increased the likelihood of getting a better deal after speaking to a broker.

Earlier this week a forward looking agency said that today’s well-informed shoppers will be on alert in 2010, and take advantage of the vast amount of information out there to make better buying decisions.

We hope this is the case for Canadian mortgage shoppers as well. Although, there is a vast amount of information on different mortgage rates, products, lenders and brokers, many Canadians are not taking advantage of them.

A CAAMP survey last year found that “when obtaining their mortgages, Canadians received an average of 1.94 mortgage quotes. Only 3% received more than 4 quotes”. This is truly an amazing statistic and the worst thing a mortgage shopper can do is simply sign and return the renewal form they receive in the mail from their current lender. Many times the renewal rate is simply the posted rate which can be up to 2% higher than the best mortgage rates available at the time.

If you’re looking to take out a mortgage, we recommend these 3 simple steps:

1. Do your homework

The Bank of Canada and Finance Minister have stressed recently that they are worried Canadians are taking on too much debt as a result of record low interest rates, including very low mortgage rates, and they have to start planning for upcoming inevitable rate increases.

Although the Bank of Canada said this week that they won’t increase rates to cool off any housing bubble, they are still looking to increase rates during the summer. As a result, if you’re looking for a mortgage now, make sure to plan in higher rate increases, many experts are saying 2-3% over the next few years, and see if you can still handle those payments. Understand what level of risk and repayments you’re willing to take on.

2. Compare mortgage rates

Taking into consideration of the renewal letter example above, its very easy to compare mortgage rates now, and get a quick grasp on what’s available in the market, that there’s no excuse!

3. Speak to a mortgage specialist

For any major decision, it is usually worth it, to speak to an expert. We understand that mortgage rates are not the only thing that matters when mortgage shopping, there are very important details such as the prepayment options, portability, penalties, etc that you also need to consider. However, mortgage rates are a good starting point and enable you to explore your options from there.

A good mortgage planner such as a broker will help you understand the various options, find the best product for your own personal situation and best of all there services are free, as lenders pay them commissions for funded deals.

Following these 3 easy steps will provide you with a great understanding of your own financial situation, what products are available in the market and an expert opinion to consider. You should be in a good position to then make an informed decision on your mortgage. If 2010 is the year of the well informed consumer, make sure you’re one of them.

The other major banks followed RBC’s move to lower mortgage rates this week. Bank mortgage rates are dropping as result of lower 1, 2 and 5 year bond yields. Bond yields drive fixed rates because they are a big part of mortgage lenders’ cost of funds that they use for fixed mortgage rates. Variable mortgage rates have stayed the same as the Bank of Canada has not changed their target for the overnight rate (which influences variable rates). The next Bank of Canada announcement is on December 8, 2009.

CIBC

CIBC mortgage rate changes:

TD

TD mortgage rates changes:

Fixed Rates

Variable Rates

VIRM Closed TD Mortgage Prime
VIRM Open TD Mortgage Prime + 0.80%

BMO

BMO mortgage rate changes:

Fixed Rates

Variable rates

5 year closed 2.25%
3 year open 3.05%

Special Offers*

5 year(fixed/closed) 4.29% -0.19%

*This special discounted rate is not the posted rate of BMO Bank of
Montreal. Rate is subject to change without notice. Offer may be
withdrawn or extended without notice. Mortgage funds must be advanced
within 90 days of the application.

Scotiabank

Scotiabank mortgage rate changes:

Their special discounted rates* also changed:

one-year fixed closed 2.35 per cent (decreases by 0.20 per cent)
five-year fixed closed 4.29 per cent (decreases by 0.25 per cent)

* The special discounted rates are not the posted rates of Scotiabank. Rates are subject to change without notice. Offers may be withdrawn or extended without notice and cannot be combined with any other rate discounts, offers, or promotions. Mortgage funds must be advanced within 120 days of the application date. Other conditions may apply.

Canadian Tire has decided to quit the residential mortgage business and sell it to National Bank of Canada at book value for $167M. Canadian Tire was very aggressive offering cheap mortgage rates when it first launched, however, they said they ended up only doing about 1,000 deals over the life of the trial due to their limited offering in only a few cities across Canada including Kitchener Waterloo and Calgary and focusing on A clients. Here is the press release from the Canadian Tire website:

Toronto, Ontario and Montreal, Quebec – (October 14th, 2009): Canadian Tire announced today that it will be expanding the availability of its successful retail and broker deposit products (high interest savings accounts, tax-free savings accounts and GICs) as part of a focused retail banking strategy that will also see Canadian Tire sell its mortgage portfolio to the National Bank of Canada. The sale is expected to close in the fourth quarter 2009 and the transition of customer accounts will be completed by early 2010.

Launched in 2006, Canadian Tire Financial Service’s (“CTFS”) retail banking products currently include high-interest savings accounts, GICs, tax-free savings accounts, home loans and the Canadian Tire One-and-Only account. At the end of the second quarter 2009, the retail banking business had more than $2.1 billion in deposits and approximately $167 million in mortgages. The core credit card business has performed well in a difficult economic climate and the Company is confident about its prospects for new growth as the economy returns to health. Additional growth will be derived from an expanded suite of credit card products and related services.

“Our retail banking strategy has been successful and is meeting all of our internal financial targets,” said Stephen Wetmore, President and CEO, Canadian Tire Corporation. “Market analysis is demonstrating that we will drive growth to CTFS through a greater focus on expanded deposit products, new and innovative credit card products and related services. In order to maintain this focus, we will no longer offer mortgage products and are pleased to be working with National Bank, an organization that shares our passion for customer service, to ensure a smooth transition for our customers.”

The mortgage portfolio will be sold at essentially the book value of the portfolio. In the fourth quarter CTFS will record a pre-tax charge related to exiting the Bank’s mortgage operations that is estimated to be $6 million.

“National Bank of Canada is delighted to acquire such a high quality portfolio of home mortgage accounts,” declared Réjean Lévesque, Executive Vice President, Personal and Commercial Banking, National Bank Financial Group. “We are looking forward to providing these new clients access to the best advice and the solutions most-suited to meet their financial needs and expectations. This latest acquisition is a good example of our strategy to expand in select markets in Canada,” said Mr. Lévesque.

The mission of the Personal and Commercial segment is to offer the Bank’s wide range of financial products and services to clients via its branches, service outlets and remote banking, as well as through a network of partners coast-to-coast.

You’ve been to the open houses, explored various neighbourhoods and perhaps even checked out local schools before settling on the home of your dreams. Now it’s time to negotiate your first mortgage, a process which done right, could save you tens of thousands of dollars.

Today’s low interest rates have made buying that first home easier but it can also breed complacency. Rates will rise eventually so purchasers need to not only find a place they can afford, but ensure that they have negotiated the best mortgage terms possible and educated themselves on the document they are about to sign.

When it comes to mortgages, the first lesson is that not all mortgage lenders are created equal. That become quickly apparent to Naysan and Nahid Hariri, both 28, who are mortgage shopping for a $438,000 home now being built for them in Richmond Hill, Ont. “I found that a couple of institutions were a number of (interest) points higher than others,” he said.

The Hariris also found that the big banks, which tend to have higher posted mortgage rates than smaller financial institutions, were reluctant to lower their rates. “My understanding with banks is that if you have services with them, they tend to work out something better for you.” Because first-timers typically have less money parked with a particular institution, they tend not to have the leverage to demand lower rates.

Read the rest of the article here.

Interesting article in the Globe and Mail on how younger Canadians are not “respecting” mortgages as much as our parents did. Here it is:

For me and most of my friends, mortgages represent the single large expense in our family budgets. We are staring at many long years of amortized mortgage payments on our homes. Yet, we are all still spending on vacations, cars and electronic goods. We spend even as we pay large sums of interest to service the biggest debt load of our lives.

Mortgages used to be treated with more respect. My grandparents led what we would consider to be austere lives until their mortgage was paid in full. They didn’t own a car or travel. Their single nod to consumerism was the purchase of a television set in the 1960s. Until their last payment was made to the bank, they didn’t even put aside money for retirement.

According to consumer advocate and financial expert Linda Leatherdale, our modern approach to spending is making us “house poor”.

“Your goal in life is to have a mortgage free house, especially by the time you retire,” she says. Money should be saved and applied to your mortgage, rather than spent on frivolities like trips.

Some financial experts make a strong case for paying off your mortgage before paying into an RRSP or buying equities. After all, it’s a guaranteed return and a safe bet. After seeing the value of my portfolio dribble away last year, it’s not difficult to convince me to invest in my mortgage first. But it will be challenging to curb the spending on holidays and other creature comforts.

“To be house rich, you need to be disciplined,” Ms. Leatherdale counsels. “There’s nothing better than paying your mortgage. You give money to yourself, not to the banks.”

She has some stern advice for those who want to own their home before they retire. First, don’t even consider buying a home unless you have 20 per cent of the purchase price. A down-payment less than that will result in the added expense of mortgage insurance.

Next, make mortgage payments on a bi-weekly, rather than a monthly, schedule. The heightened pace is comparable to making 13 monthly payments, which will lead to a faster payoff and lower overall interest costs. If you can, double up on mortgage payments as often as possible.

“There is nothing better in life than being mortgage free,” says Ms. Leatherdale.

I’ll have to keep her words in mind the next time I feel the urge for a holiday.

The Globe and Mail reported that Vancity’s online banking arm, Citizens Bank, will stop offering residential mortgages and focus solely on credit cards and foreign exchange services for non-retail members. This has resulted in Vancity selling the majority of its retail loans, including mortgages, personal loans and secured lines of credit, to TD Canada Trust. This follows on the news back in November when Citizens Bank announced they were retreating from the broker channel.

Vancity President and CEO, Tamara Vrooman , says it is a good business decision because it returns capital that can be reinvested to enhance member services at the credit union. It also focuses Citizens Bank on what it does best.

“We pioneered online banking in Canada, but it’s become a crowded marketplace,” says Vrooman. “Our members have told us repeatedly that they want us to focus on our core strengths. We’re local, we’re community-focused, and our offering is based on building relationships and providing service. In a national, online market, we were unable to achieve the scale necessary to succeed. Therefore, the bank’s business model wasn’t making full use of our strengths.”

The sale, which closed on August 5, 2009, means that:

None of Citizens Bank’s 30,000 members need to take any immediate action. Citizens Bank will work closely with each membr to minimize any inconvenience and provide the support they need to transfer their business over the coming months.