Should You Use a Mortgage Broker? Bank vs. Broker

While banks are a familiar option, mortgage brokers offer distinct advantages that can make a significant difference in your homeownership journey – whether you’re purchasing your first home, or refinancing an existing mortgage. Here’s why a mortgage broker might be the ideal partner in navigating the complexities of securing a mortgage.

  1. Unveiling a Wider Mortgage Landscape: Unlike banks, which are limited to their own products, mortgage brokers have access to a vast network of lenders (sometimes upwards to 30! – although nobody needs that many options). This opens doors to a wider array of mortgage options, including conventional loans, government-backed programs, and niche offerings tailored to unique applicant situations. This empowers you to find a mortgage that perfectly aligns with your financial profile and goals.
  2. Competitive Rates Through Expert Negotiation: Mortgage brokers leverage their relationships with multiple banks and lenders to negotiate on your behalf. Their industry knowledge and understanding of prevailing market rates allow them to advocate for the most competitive terms and interest rates possible – given your circumstances. This can translate to significant savings over the life of your loan and prevent ‘mortgage remorse’ later.
  3. Streamlined Process and Personalized Guidance: This is a big one. The mortgage application process can be overwhelming. Mortgage brokers act as your guide, simplifying the paperwork, handling communication with lenders, and ensuring a smooth flow throughout the process. They also provide personalized guidance, explaining complex mortgage terms and tailoring recommendations to your unique circumstances.
  4. Expertise for Complex Scenarios: If you have a less-than-perfect credit score, are self-employed, or have a unique financial situation, securing a loan from a traditional ‘big’ bank is going to be challenging. Mortgage brokers specialize in navigating complex scenarios and can help find lenders who cater to your specific needs.
  5. Commitment to Your Success: A mortgage broker’s success hinges on finding the best possible mortgage for you. They are legally obligated to act in your best interests, ensuring transparency throughout the process. This fiduciary duty translates to a genuine commitment to helping you achieve your homeownership goals. Mortgage brokers’ livelihoods also depend on building long-lasting relationships and strong referral sources – so unlike the banks, they earn your business and do not take it for granted.

 

Beyond the Advantages:

It’s important to acknowledge that there are some potential drawbacks to consider. Mortgage brokers typically earn commissions from the lenders they place loans with. While this doesn’t necessarily mean they prioritize the lender’s interests over yours, it’s essential to ask upfront about their compensation structure and ensure they are transparent about any potential conflicts of interest. You are unlikely to have any issues with a well-seasoned and reputable mortgage broker.

Choosing the Right Broker:

Do your research and compare different brokers before deciding. Look for someone with a proven track record, strong industry knowledge, and a positive reputation. Don’t hesitate to ask questions about their experience, qualifications, and fee structure. Nowadays, reviews count for a lot – but reviews aren’t always genuine. Speak to the mortgage broker personally and go with your gut based on how you feel after.

The Final Verdict

While banks offer a familiar route, mortgage brokers provide a wider range of options, competitive rates, personalized guidance, and expertise in navigating complex situations. By leveraging their network and knowledge, they can help you secure the best possible mortgage for your dream home or a strategic short-term mortgage solution to bridge the gap between big ideas/plans. Remember, the decision ultimately depends on your individual needs and preferences. Do your research, ask questions, and choose a partner who prioritizes your financial well-being and guides you towards a successful homeownership journey.

 

We hope to earn your business. (905) 455-5005

B-ing There for You: A Guide to B-Lender Mortgages in Canada

Buying a home in Canada is a dream for many, but navigating the mortgage maze can be daunting. And if you already own a home, perhaps a mortgage refinance is becoming a challenge with the big banks. If you’ve encountered roadblocks with traditional banks/lenders due to credit score, income, or down payment constraints, B lenders might offer a lifeline. But before diving in, understanding the ins and outs is crucial.

 

Who are B Lenders?

Unlike the big banks (“A” lenders), B lenders are non-big bank financial institutions offering mortgages to borrowers who don’t meet the stricter criteria of their A counterparts. They cater to individuals with:

Lower credit scores: B lenders generally accept scores below the 600 minimum often required by most A lenders.

Non-traditional income: Self-employed individuals, recent immigrants, or those with variable income streams may find B lenders more flexible.

Higher debt ratios: If your debt-to-income ratio exceeds the 44% threshold for A lenders, B lenders will have options for you.

 

Pros and Cons of B Lender Mortgages:

Pros:

Accessibility: B lenders offer a chance for homeownership, for those excluded by traditional bank and lenders.

Lenient criteria: They consider factors beyond the credit score, like future earning potential or alternative income sources.

Shorter terms: B lender mortgages often have 1–3-year terms, encouraging quicker improvement and transition to A lenders.

 

Cons:

Higher interest rates: B lenders compensate for increased risk with significantly higher interest rates compared to A lenders.

Larger down payments: All B lenders require a minimum down payment of 20%, unlike the 5% allowed by A lenders for purchases under $1 million.

Fees and penalties: Expect higher origination fees (and possible higher prepayment penalties, and other charges depending on the lender)

Limited product selection: B lender mortgage options might be less diverse than those offered by traditional banks and lenders.

 

Is a B Lender Mortgage Right for You?

Carefully consider your situation before taking the B lender route. Here are some key questions to ask your mortgage broker:

  • Can you afford the higher interest rates and fees?
  • Is the shorter term a realistic timeline for improving your credit and income?
  • Are there alternative options like government programs or credit counseling?

 

Exploring B Lenders:

If you decide to pursue a B lender mortgage, research thoroughly. Here are some tips:

  • Have your mortgage broker compare rates and terms from multiple lenders.
  • Read the terms and conditions and understand all fees and penalties – with the help of your mortgage broker.
  • Seek advice from a mortgage broker specializing in B lenders. In other words, how much B business do they do on an annual basis? Do they understand the mortgage products available across most B lenders? You want to work with someone who has experience and takes the time to update themselves on changes in underwriting.

 

Remember: You must go through a licensed mortgage broker to obtain a mortgage through a B lender. B lender mortgages can be valuable solutions, but they’re not a magic bullet. Approach them with an open mind, understand the implications (if any), and ensure they align with your long-term financial goals. By being informed and making responsible choices, you can turn a B lender mortgage into a stepping stone towards achieving your homeownership dreams.

 

For more information on B-Lender mortgages, check out this other blog written by CMS: B Lender Mortgage in Canada: Pros and Cons (cmsmortgages.ca)

Call us for best representation you can get in this industry! (905) 455-5005

What Documents do I Need to Get a Mortgage?

Buying a home? Congrats! Or maybe you’re refinancing your mortgage to make your mortgage work for you. Now, before you get swept away in open-house dreams or renovation plans, let’s talk paperwork. This guide will serve as your roadmap, outlining the essential documents you’ll need to navigate the mortgage process smoothly and efficiently.

While this list might look intimidating, it’s important to mention that not all of these will be needed for your mortgage approval. What is needed will vary from bank to bank based on your mortgage request and personal circumstances.

 

Establishing Your Identity and Residency

  • Government-Issued ID: Show off your driver’s license, passport, or any other government-issued ID that proves your identity.
  • Social Security Number: Keep your social security number handy, it’s like your financial fingerprint.
  • Proof of Residence: Provide documents verifying your current address, such as utility bills, a lease agreement, or a recent bank statement.

 

Unveiling Your Financial Health

  • Proof of Income: Gather your most recent pay stub and T4s from the past two years to demonstrate your income stability.
  • Tax Returns: Depending on the nature of your income, lenders might ask for your most recent 2 years’ tax returns, including all schedules and
  • Bank Statements: Collect statements from your checking, savings, and other bank accounts for the past few months to offer a comprehensive picture of your finances and down payment (if purchasing).
  • Proof of Assets: Prepare documentation showcasing your assets, such as investment account statements, retirement account statements (RRSP, TFSA, etc.), and any other relevant asset information. This is what the banks refer to as your ‘liquid assets’ and is included in your net worth calculation.

 

Demonstrating Employment and Business Income

  • Employment Verification Letter: Request an official letter from your employer confirming your position, employment status, and income details.
  • Self-Employment Documentation: If you’re self-employed, gather documents verifying your business ownership and income (business license, business financials, business bank statements, and tax returns for the past two years).
  • Additional Income Documentation: If you receive income from other sources, such as rental properties, investments, alimony/child support, childcare benefits, disability, etc., provide supporting documentation.

 

Property Information and Appraisal

  • Purchase Agreement: Include a copy of the fully executed purchase agreement between you and the seller.
  • Appraisal Report: The lender may require an appraisal report to assess the property’s value.
  • Homeowner’s Insurance Information: Be prepared to provide details about the homeowner’s insurance policy you plan to secure.

 

Addressing Debts and Liabilities

  • Credit Card and Line of Credit: Gather recent statements for all your unsecured debts, showing the outstanding balances and minimum monthly payments.
  • Loan Statements: Include statements for any outstanding loans you have, such as student loans, car loans, personal loans, or any other debts.
  • Other Outstanding Obligations: Gather relevant documentation (ex. separation agreement) confirming the amounts and payment terms if you have other financial obligations, such as alimony or child support payments.

 

Additional Documents:

Depending on your specific circumstances, you may need additional paperwork. Examples include:

  • Gift Letters: For down payment or closing cost assistance from family or friends (aka ‘gifted funds’)
  • Divorce or Separation Agreement: If applicable.
  • Other Relevant Legal Documents: Bankruptcy or consumer proposal discharge, collection payout statements or release letters, etc.

 

Tips for Organization and Preparation:

  • Dedicated Folder: Organize your documents in a designated folder or binder for easy access.
  • Digital Copies: Consider creating digital copies of your documents for secure storage.
  • Utilize the Checklist: Refer to this checklist throughout the process to ensure you have everything.
  • Start Early: Gather documents early to avoid last-minute stress.
  • Communicate with Your Broker: Maintain open communication with your mortgage broker for guidance and clarification.

 

Remember, being well-prepared with the necessary documents is crucial for a smooth and successful mortgage application. By following this guide and working closely with your lender, you’ll be well on your way to achieving your homeownership dream. Call us today for guidance and support (905) 455-5005.

Can I Get a Mortgage with Bad Credit or No Income?

Mortgage qualifications haven’t changed much in the last decade, apart from minor underwriting adjustments over time. While these subtle adjustments have led to an adaptation of mortgage underwriting, both credit and income remain of greatest importance in obtaining a mortgage for the amount needed, and at an affordable interest rate. In short, banks and lenders will always want to ensure:

  1. That you are a responsible borrower and manage your debts well, and
  2. That you can afford the mortgage they’re giving you, regardless of how small or large.

 

Can I get a mortgage with Bad Credit?

We’re asked daily – Can I get a mortgage with bad credit? Absolutely.

Bad credit is not a hard stop when it comes to mortgage financing. Needing good credit to obtain a mortgage is a misconception. Both B-lenders and private lenders offer mortgages to those with bad credit as high as 85% of the property value. They’ll accept credit history with active collections, delinquencies, past bankruptcy, past consumer proposals, high debt utilization, etc.

Credit is also a huge gray area now. Blemishes can often be rationalized, and exceptions are granted far more often than they once were. Since credit reporting is much more advanced now, bad-fair credit can fall in the large range of a 400 – 650 beacon score. While some lenders have minimum beacon score requirements, others have none.

If you have bad credit and are looking for a mortgage (either a purchase or a refinance), you will most likely need to explore a B-Lender mortgage or a Private Lender mortgage. When doing so, interest rates and closing costs will be higher than traditional banks, but they will help you achieve your purchase or refinance. Seldom can the Big Banks accommodate this due to their very stringent requirements.

 

Can I get a mortgage with No Income?

More and more, we’re getting asked – Can I get a mortgage with no income? This is more of a challenge and needs to be answered in 2 ways.

  1. Yes, a Private Lender is likely to help with mortgage financing to 80-85% LTV, even if you do not have a source of income.
  2. No, a B-Lender is unlikely to be able to help without a source of income.

It’s not unreasonable to assume that without income, you cannot afford a mortgage. Can we agree on this? If given the choice, it is always advisable not to obtain a mortgage without sufficient income, even IF a lender is willing to give it to you. Doing so only puts you at risk of default. Here’s further context.

Private Lender – While private lenders are still concerned about your ability to repay the mortgage, they can offer options that institutional lenders simply can’t. For example, they can exercise something called ‘mortgage prepayment’ which can significantly reduce or eliminate your payment for the term of the mortgage. They can sometimes cap fees to the mortgage as well, making it less of a financial strain to close. The reason for this is a result of regulation, or lack thereof when it comes to private lending. Private mortgages are always intended to be short-term solutions. It’s highly recommended to work with a very experienced and reputable brokerage when looking for private mortgage financing.

B-Lender – Being an institutional lender, backed by investors, there are guidelines and requirements for the mortgages placed on the B-Lender’s books. As such, B-Lenders follow debt servicing requirements – albeit less stringent than the major banks. Because of this, they hold firm on underwriting criteria that are of utmost importance (credit, income, debt ratios, loan-to-value, etc.). B-Lenders might not be able to help applicants with no income, but they sure are more flexible with the nature or source of income (if unconventional).

 

To summarize – Can you get a mortgage with bad credit or no income? Yes. Should you? That’s where we come in. Call us today for options, opinions, and a quote. (905) 455-5005.

When Will Mortgage Rates Drop?

Can you believe it’s been almost 2 years since mortgage rates first started their climb? For some, these 2 years have flown by, while for others, it’s been a financial nightmare.

The Bank of Canada raised its policy rates 10 times between March 2022 and July 2023, totaling 4.75% in increases for variable-rate mortgages. Though not directly tied to the Bank of Canada’s rate increases, fixed mortgage rates also saw major increases because of increasing bond yields.

Between higher costs of food, fuel, and services, increased mortgage payments crushed household budgets for those on variable rates, or for those who had a mortgage renewal during this time. Talk about sticker shock.

But we’re not here to dump bad news on you. Quite the opposite. Interest rates appear to have seen their peak, which became apparent many months ago. We’re already starting to see relief in fixed rates as government bonds ease. Though there hasn’t been a downward movement in variable-rate mortgages yet, the Bank of Canada is expected to start its slow and steady decline by the end of quarter 2 this year (2024).

If you’re interested, most of the big banks publish their interest rate forecasts publicly, so it’s easy to stay current with expectations and timelines.

Here are some frequently asked questions that we’ve been helping homeowners understand lately:

  • When will mortgage rates drop?
    • Mortgage rates are expected to start dropping by mid-year (or close to the end of quarter 2).
  • Will we ever see pandemic-level mortgage rates again (1% – 2%)?
    • It’s very unlikely for the foreseeable future.
  • How much will mortgage rates drop?
    • Interest rates in a healthy economy (historically speaking) sit between 3% – 4%. Slowly but surely, we’ll get back down to these levels.
  • Will my variable rate mortgage payment drop?
    • Yes, as the Bank of Canada starts the descent on their policy rate, you will immediately see relief in your variable rate mortgage payment.
  • If I converted my variable rate mortgage into a fixed rate mortgage, can I switch back?
    • Unfortunately, a variable rate can convert to a fixed rate, but not the other way around. Unless you break your mortgage and refinance, you will have to stick it out with your fixed-rate mortgage.
  • Should I choose a fixed-rate mortgage or a variable-rate mortgage?
    • This will also be a question that’s hard to answer as a one-size-fits-all. It’s very circumstantial, and a lot of time and effort go into assessing your options and lifestyle before advising on the best options for you.
  • What if I’m stuck with a mortgage payment I can’t afford?
    • While we hope this is not your case, sadly many people are in this boat. If you can’t afford your mortgage because of how much rates have increased, speak with your bank or broker asap to see if there are measures in place to help you reduce your payment.

There are many more questions that might arise. If this blog does not answer your questions or bring clarity to what is expected for mortgage rates in the year ahead, call us so we can delve a little deeper on this topic. Often, it helps to discuss your specific scenario rather than in general terms. We’re always ready to have these conversations. Call us now at (905) 455-5005.

Mortgage Renewal Rates in Canada

Here’s a crazy statistic: 80% of all mortgages outstanding as of March 2022 are coming up for renewal in 2024. This amounts to approximately $250 billion in mortgages. 2025 is expected to be an even bigger year with a whopping $350 billion in mortgage renewals expected. Although rate cuts are within sight, between now and 2026, almost all mortgage holders will see an increase in their mortgage payments – some as high as a 54% increase.

If you’re reading this, it’s likely you fit this bucket and are worried about what’s ahead. So, what should you do to ensure you’re making the right choice at renewal? Here are 6 things to consider before your mortgage renewal to make sure you’re getting the best deal and considering the best options.

 

  1. Speak to your mortgage broker or bank at least 90 days before maturity. You might be interested in considering alternative options (a mortgage switch or refinance). Or, at the very least, your trusted mortgage broker can provide an honest second opinion and feedback that might help with mortgage rate negotiations.

 

  1. Prepare early – don’t wait until the last minute. This goes hand in hand with #1. Too often, we have people call us just 1-2 weeks before maturity (sometimes as little as days before). Allow yourself enough time to consider all viable options. Also, ‘early mortgage renewal offers’ as the banks refer to them, go out sometimes as soon as 120 days before maturity.

 

  1. Consider a shorter fixed rate term. Unlike most years before 2020, shorter-term fixed-rate mortgages are growing in popularity because of present high rates, and their expected decline within the next 24 months. Considering shorter fixed terms (1, 2, or 3 years) will allow you the flexibility to lock into a lower rate sooner than a 5-year fixed would allow.

 

  1. Consider a variable-rate mortgage. Alternatively, if you’re a little more risk-tolerant, consider a variable rate term rather than a fixed term. Doing so will allow you the flexibility to break your mortgage with the lowest penalty clause (especially if you foresee major changes within the term of the mortgage – for example, a sale, downsize, or upsize). A variable rate term will also reap the benefits of upcoming rate cuts, which are expected to begin by mid-2024.

 

  1. Extend your amortization. If your bank allows for it in the mortgage renewal process, increase your amortization to help reduce your mortgage payment. This might not completely offset the increase in your payment due to higher rates, but it will help improve your cash flow. Most banks will allow amortization as high as 30 years. Select banks might allow as much as 40 years to certain clients.

 

  1. Consider a mortgage refinance. A simple mortgage renewal isn’t your only option. A refinance might be the right choice for you, especially if you require additional funds through an equity takeout. Maybe you need to consolidate debt, invest in another property, or renovate your home to improve its value. A simple renewal with your existing bank will now allow you this option.

 

2024 and 2025 are going to be big years for mortgage renewals. We’re in a high-interest rate environment, so having the right guidance and options now is more valuable than when rates are low. If you work with a Mortgage Broker at CMS, you’ll be getting over 36 years of industry experience. Call us today and ask for Neil or Aman. (905) 455-5005.

How to Get a Home Equity Loan in 2024

If there is ever a time when homebuyers need to access their home equity, it’s 2024.

Rising costs across all categories have tightened the grip on household budgets. While mortgage rates have increased gradually over the last 18 months, the lag effect means that Canadians are realizing the damage more so now, than when the rates first increased. This is because with each passing month, cash flow dwindles, and deficits grow larger.

As a result, more homeowners are considering dipping into their home equity to keep them afloat until rates come back down, or until the market recovers slightly making a sale more profitable.

 

Reasons to get a Home Equity Loan:

While the reasons for needing a Home Equity Loan are endless, the most common reasons we’ve helped with recently are:

  • Clearing up mortgage arrears
  • Clearing up property tax arrears
  • Clearing up personal income tax arrears
  • Consolidating high-interest debt/personal loans
  • Paying out existing mortgages
  • Subsidizing higher living costs for the family
  • Increasing cash flow due to higher mortgage payments

…. Among many other reasons. There truly is no right or wrong reason and loan sizes range from $25,000 – $500,000.

 

How to Get a Home Equity Loan:

Getting a Home Equity Loan can be a lot easier than applying for an institutional mortgage. While there is some overlap in requirements, Home Equity Loans through non-institutional lenders are less stringent, have a quicker turnaround, and often more flexible terms.

Steps:

  1. Application – A home equity loan still requires an easy mortgage application. It’s a formality really, to meet compliance for both the broker and the lender.
  2. Credit Check – As part of the application, and as a formality, credit checks are done for Home Equity Loans, just like traditional mortgages.
  3. Supporting Documents – A list of supporting documents will be provided to you based on the details of your application (variables will change depending on the applicant and the nature of income)
  4. Appraisal – Unfortunately, it seems that the days of not needing appraisals are behind us until further notice. With such a questionable market, lenders need a formal appraisal to ensure the Home Equity Loan is not exceeding their risk exposure (in most cases, 80% of the appraised value).
  5. Lawyer Meeting – With any mortgage, a lawyer (or title insurance company) has to register the Home Equity Loan against your property.

 

Other things to know about Home Equity Loans:

As a mortgage broker, we’ll be your main point of contact throughout the process of obtaining a Home Equity Loan. This streamlines the process and avoids unnecessary communication from many different parties. Other things you should know about Home Equity Loans are:

  • Turnaround (from the application stage to funding) can take as little as 48 – 72 hours under urgent scenarios.
  • Fees associated with Home Equity Loans include lender fees, brokerage fees, legal fees, and appraisal fees. Fee amounts will vary based on the size of the loan request.
  • A home equity loan can come from a bank or lender, a corporation (numbered company), or an individual (private lender)
  • Home Equity Loans can range from $25,000 to over $500,000 (possibly more on a case-by-case basis)
  • Some home equity loans are more appropriate than others, depending on the applicants, existing first mortgage, timeline and exit strategy. We’ll be transparent with you based on our experience.

 

If you’re considering getting a Home Equity Loan in 2024, give us a call for guidance on the process, costs and expectations.

Important: Don’t forget to ask us about ‘exit strategies’

We look forward to speaking (905) 455-5005

What is the Prime Rate in Canada?

What is the Prime Rate (or prime lending rate) you ask?

The prime lending rate in Canada is a base rate used by commercial banks to determine the rate at which they lend you money. It’s a term often used for their most credit-worthy clients.

While this applies largely to mortgages it is also applicable to unsecured personal lines of credit, certain credit cards, and almost all business-related loans.

For mortgages, the Prime rate is used specifically to express the variable rate mortgages. As you might know, the variable interest rate is expressed as either Prime minus (-) or Prime plus (+).

* Prime Minus would be considered a discount on the prime rate, while Prime Plus would be considered a premium on the prime rate.

Example: At the time of writing, the prime lending rate in Canada is 7.20%. If you’re being offered a 5-year variable rate mortgage of Pprime minus 1.00%, you are being offered a mortgage rate of 6.20% (7.20% – 1.00% = 6.20%). Your ‘discount’ (in this case 1.00%) remains constant throughout the term of your mortgage, regardless of when the prime lending rate rises or falls.

 

What Happens When the Prime Rate Changes?

We’re no strangers to the rise of the prime lending rate, especially over the last 24 months. However, starting in mid-2024 and continuing throughout 2025, we are expected to be in a prime rate-dropping cycle. Hypothetically, if prime falls to 5.50% between 2024-2025, your mortgage would fall by an equal amount. Using the same example above, your mortgage rate would drop from 6.20% to 4.50% (the equivalent drop in the prime rate).

*The exact opposite is true when the prime rate rises, as we have been from March 2022 to Present.

 

How do Banks determine the Prime Rate?

Banks do not just wing it when it comes to the prime lending rate. The prime rate is based on the Bank of Canada’s overnight lending rate. While not mandatory, financial institutions have been known to raise or lower their prime rate by the same amount as the change in the Bank of Canada’s overnight rate. Each year, the Bank of Canada publishes its full meeting schedule, so you can stay up to date with when interest rate announcements are taking place.

 

Do all banks in Canada have the same Prime Rate?

There is consistency across the industry when it comes to the prime lending rate. However, few banks are an exception to this. The true differences come in the form of discounts on the prime rate.

 

If you have questions about variable rate mortgages, or forecasts as to where the prime rate in Canada is headed, call us today at (905) 455-5005.

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