Thursday, February 19, 2015
Canadian Press | National Post | January 30, 2015
OTTAWA — Squeezed out by stricter bank regulations, a growing number of mortgage-hunting Canadians have been turning to non-traditional lenders to overcome borrowing hurdles like bad credit.
The proportion of mortgages given out by alternative institutions, other than banks or credit unions, remains small at roughly 2.2% of the entire market, said a recent analysis by CIBC.
But their share of the overall mortgage market has grown from 0.8% during the 2008-09 recession and is now expanding at a rate of about 25% per year, says Benjamin Tal, deputy chief economist of CIBC World Markets.
Tighter government regulations have opened things up for alternative lenders to fill an important void.
They provide options for a range of potential borrowers, from people saddled with wobbly credit, to the recently divorced, to the self-employed who draw a smaller income from their business for tax purposes, says Jason Scott, a broker with the Mortgage Group in Edmonton.
“They play a niche role in the market,” Scott said.
He said, for example, these lenders can give someone whose credit kept them from qualifying for a bank mortgage the chance to rebuild their rating, although at a higher interest rate.
Scott said they can also fill a need for the recently self-employed who don’t have a long-enough income record for bank approval, or business owners who don’t take home a large enough salary.
He estimates about 10% of his clients acquire mortgages from alternative lenders, sometimes called “B-lenders” or “C-lenders.”
“There’s a growing segment of the population where it’s harder for them to get qualified with A-lenders,” he said.
“So, we need these alternative lenders to provide solutions while we’re getting them into a position where they can then go back and get the best rates.”
Gordon Hone, the president of Armada Mortgage Services, a small private lending firm in Maple Ridge, B.C., said his service is usually a short-term solution where his clients try to improve their credit ratings to eventually earn a lower rate, sometimes with a bank.
“That’s ultimately what we try to do — is help the client get back on their feet,” Hone said.
For those considering a mortgage through a non-traditional lender, Hone suggests would-be borrowers consult at least one experienced, reputable broker to find out more about the available options.
He said borrowers should also inform themselves as much as possible and, with increasingly heated competition in the private-lending market, Hone said it doesn’t hurt to shop around.
Elie Melki, a Montreal-area broker for Dominion Lending, recommends borrowers be vigilant and to always read the fine print.
Melki said he knows of people who were surprised with a 10% penalty because they hadn’t paid everything back after one year.
“You have to watch out who you deal with because some of them are not always honest,” said Melki, who added there are many companies with excellent services.
Last month, the Bank of Canada warned of the pitfalls associated with increased lending by less-regulated lenders to clients who are considered to have lower capacity to repay debt.
Tal said at just 2.2% of the market, non-traditional mortgage lending remains too small to pose a threat to economic stability.
However, he said it could become an concern if it were to climb to 5% of the market.
“We don’t want to kill this market because it’s a market that is part of a healthy system,
“We just have to make sure that it’s not being abused.”
Thursday, February 12, 2015
Thanks to lower gas prices, we all have more cash. Here are some smart things to do with it.
1. Protect your identity. Hackers, scammers, and identity thieves have greatly increased their activities on the Internet. Buy a good cross-cut shredder for around $100, and shred all papers with vital info such as account numbers once you no longer need them. You may also want to subscribe to a credit monitoring service to check activity on your accounts.
2. Buy a home safe. Security is important offline too. A fireproof safe is a secure place to store important documents, such as wills, birth and marriage certificates.
3. Create a will. Spend some of your extra money to craft this important document. If you die without a will, state law divvies up your estate.
4. Beef up your homeowner's insurance. Standard policies usually don't cover things like sewer backups or give you the liability limits you may need. Talk to your insurance advisor about upgrading.
5. Get a tablet computer. A tablet is lighter and cheaper than a laptop, yet lets you do many of the same things–surf the Web, email, check social media and videos, watch movies and TV shows. Available online for as little as $99.
6. Buy discounted gift cards. Go to gift card resale sites that buy and sell unwanted cards for less than face value. Get cards for online and offline retailers you regularly use.
7. Purchase a scanner. It lets you make digital copies of photos you have only as prints. This makes it easy to organize and share with family and friends. Good ones start around $200.
8. Add to your savings. The best thing to do with any extra money is to add it to a savings or investment account. Putting away just a little more money each month quickly adds up to what you may need for a home down payment, educational costs, or a major purchase.
4 ROUTES TO THAT FIRST HOME
Here are four ways for first-time buyers to find a starter home they can afford:
1. Focus only on what you need to start. Think of your starter home as a financial launch pad to the ideal home you'll spend the bulk of your life in. Decide how long you want to stay in your starter. Then list your basic needs for space and location, and don't worry about amenities.
2. Look at resale homes vs. new. New homes generally cost more than "existing" homes being resold by the resident owner. New starter homes can be hard to find, with most builders targeting upgrade buyers. An older home in a well-established neighborhood might give you what you need at a price you can manage, even accounting for renovations and repairs.
3. Be smart about location. Home prices and property taxes are higher in better neighborhoods and school districts. Why pay this premium if you find a nice home in a good neighborhood and it'll be years before your kids are in school? Another consideration: if you find an affordable home farther from work, be sure to factor in the added commuting costs.
4. Get a mortgage pre-approval. With well-priced starter homes, you can find yourself competing with other buyers. See us for a mortgage pre-approval to strengthen your offer.
Whether you're purchasing your first home, upgrading, or downsizing, please contact me for help with the financing. We're also happy to answer questions about refinancing your current home or funding home improvements. Just call or email us any time.... Have a great day! firstname.lastname@example.org
Garry Marr | January 28, 2015 | Financial Post
Certified financial planner Jeanette Brox says young Canadians still have a good reason to withdraw from their retirement plan to buy a house: current prices.
Ms. Brox, who works for Investors Group, says taking money out of an RRSP is the only way some first-time buyers can scrape together enough for a down payment.
“I think it’s a great idea, because one of the hardest things to do is get a big down payment. If you’ve got a couple with substantial amounts in their RRSP, you can take out 50 grand,” Ms. Brox says.
Canada’s Home Buyer’s Plan allows a first-time purchaser a one-time chance to withdraw up to $25,000 from their RRSPs, with the condition that the money be repaid in 15 years.
“When the program first came out, I wasn’t all that in favour of it,” says Ms. Brox. But when you see the prices of houses, it is getting that much tougher to buy.”
Dipping into an RRSP can help first-time home buyers avoid costly mortgage default insurance, which is required by Ottawa if you have a down payment of less than 20%. That insurance premium can run as high as 3.15% of the value of your loan if you only have 5% down, the minimum amount of equity required by a regulated financial institution.
Ms. Brox says borrowing requires discipline, because suddenly you’re not just saving for retirement, you’re also paying back a loan to your RRSP.
“I think most of my clients are [paying it back], but the bottom line is you are going to have to make some sacrifices. Do you need that extra car?” she says.
Repayment has become a problem for some Canadians, with up to one-third of first-time buyers never getting around to it, said Phil Soper, president of Royal LePage Real Estate Services.
Repayments are due in the second year following the year you made the withdrawal. (If you made a withdrawal sometime in 2015, your first payment would be due sometime in 2017.) Generally, you repay 1/15 of the total amount you withdrew every year until the loan is repaid.
The penalty for not making a repayment for a year is that the amount will be included in your income for that year. Even bankruptcy won’t get you out of repayment; you still have to make the annual repayment.
Mr. Soper says one reason the federal government has probably been loathe to increase the $25,000 withdrawal limit, even in the face of rising prices, is the repayment problems. But he’s still a proponent of the plan because it gets people to that 20% down payment threshold. That makes a $250,000 home, even if it’s a high-rise condo, attainable in most markets in Canada.
Mortgage broker Calum Ross says that at this time of year people have a unique opportunity if they are thinking about buying a home in the near term and have RRSP room. He suggests making a major contribution to your RRSP and simply withdrawing the money shortly thereafter — there is a 90-day period during which it must stay in your account — to buy a home.
“Even if you have to borrow, your debt-servicing numbers will still work,” says Mr. Ross, noting that the borrowing money is just being used for an RRSP contribution. “There are a lot of high-income professionals [who], because of a high barrier of entry into the market in some high-value markets, are still not homeowners.”
Royal LePage’s Phil Soper says he expects the housing market to slow down a bit, which could mean more activity from first-time buyers who see more affordability and are willing to access their RRSPs.
While people are increasingly using the tax-free savings account to save for a home, Mr. Soper says it shouldn’t be compared with the RRSP because it doesn’t allow people to reduce their tax burden and use that contribution to buy a home.
“The TFSA is money you’ve already paid tax on, so you’re not saving anything. It’s just a handy place to have money appreciate,” he says.