The age of e-mortgages in Canada & a 2014 mortgage outlook

I hope everyone is having a good start to 2014. This week's blog entry has to do with market predictions for 2014. How does the real estate market look in 2014? Will 2014 bring us additional Federal mortgages changes? This time of year these are the "usual suspect" type questions. 

Often I listen to and read about speeches and articles that talk about the future of mortgages and the direction of real estate in Canada. I often follow Robert McLister, mortgage columnist for the Globe & Mail. On 30 December 2013, Robert wrote an article entitled "Five Canadian mortgage market predictions for 2014." This article outlines a couple areas such as:

1. The expectation that more mortgage tightening is on its way: I think that more change is definitely en route as the Feds try to further dampen market values. I can understand that controlling market values is paramount however I'd keep an eye on unsecured debt as well. Canadians tend to have equity which is great but I've seen more and more clients with more personal debt than equity in their property(ies).
2. Stronger online presence: More and more websites pop up that advertise mortgage rates. I agree with Rob that this trend will continue as more and more consumers look to the web to research mortgage information and options. People don't have the time to shop from bank to bank anymore. However, as we shift further into an indebted society and where mortgages are more challenging to qualify for, I still would argue that qualified mortgage brokers do serve a purpose. Here is where selling mortgages strictly based on rate can create a problem. For example, due to one's credit, income and equity circumstances you may not qualify for that posted online rate. As mortgage brokers we must do a better job at sharing and disseminating this information to the consumer. 
3. Credit unions will merge: I'd say this is more applicable in Western Canada and Ontario.
4. Hybrid mortgages will become more popular: A hybrid mortgage is a mortgage that is split into two segments. Typically one is fixed and the other portion could be on variable rate. Do these mortgages help save you money over time? I'd argue in most case probably not! Most banks that offer a hybrid mortgage would have each mortgage balance on a different term. In other words, if you need to sell or refinance then you could be faced with a larger penalty for no reason. If you are certain you won't touch your mortgage then this could be an option for you. Again, as mortgage brokers we must do a better job at explaining the in's and out's of such mortgages as they aren't designed for everyone. 
5. Consumer IQ will increase: In the age of open information the consumer has much more resources at their fingertips. I would argue the mortgage and other related information has been controlled. Given the role of the web, radio, and print I'd argue that it's important to share that information openly with the consumer. Yes the consumer is more informed but it's also important that we mortgage brokers continue to guide informed clients and gauge their expectations in a realistic manner. From there we can match the consumer’s needs and goals with the right mortgage.

I always welcome feedback and comments. Have a great week everyone.

CAAMP Mortgage Conference Review

I just returned from spending a few days at the Mortgage Forum 2012 in Vancouver. The event is organized by the Canadian Association of Mortgage Professionals or CAAMP. Before I left for the conference I told all my clients and friends that my mom let's me go to CAAMP. Gotta love bad mortgage humor...

CAAMP stage for the marketing & customer service panel

This Forum is held annually and herds mortgage brokers, banks and other service providers all in the same conference center from across Canada. This year several panels were created that discussed the direction of the mortgage industry, the direction of the Canadian economy, mortgage client customer service and marketing. First and foremost the economist panel pretty much all agreed that they do not foresee rates going up anytime soon and if they do it would be a small increase. So everyone out there don't worry about rates going up especially if you are looking to buy for next summer or refinance.

In previous blog entries I raised concern about Canadian household debt. After his panel, I informally chatted with Carlos Leitao from Laurentian Bank, more about debt and income levels. Carlos mentioned that unsecured debt was not a problem in Canada yet he did not mention about secured debt. I also asked Carlos about Canadian wages which he agreed wages have not increased accordingly.

 

Bank economists discussing state of Canadian Economy (hosted by Amanda Land; economists: Warren Jestin from Scotiabank, Carlos Leitao from Laurentian Bank, & Stephane Marion from National Bank)

What was most remarkable about the conference was the panel on public perception and customer service quality. Based on stats presented by Rob Daniel from Maritz Canada, only about 44% of Canadians use a mortgage broker. This tells us that we as an industry are still not getting the word out about our role and the value we provide. Clients that do use a mortgage broker statistically appear to be pleased with our work but we need to continue to communicate with our clients after they have received their mortgage.

Host Amanda Land asking a question to Rob Daniel

The last part of the Forum focused on marketing, customer service and role of technology in business. David Usher launched the discussion speaking about creativity, virtually everything is learn-able and that in every business fear is what drives our personal limits.   

David Usher speaking and later singing

Randi Zuckerberg speaking about her experience building Facebook with her brother

Biz Stone sharing his experience building Twitter and role of philanthropy in marketing

The discussion was quarterbacked by Scott Stratten who spoke about social media being a conversation and communication vehicle.

Overall, the event was well worth attending but also eye opening. The experiences shared by Biz Stone, Randi Zuckerberg, David Usher, Mitch Joel and Scott Stratten have helped me realize a few things in terms how to cultivate better customer service and relationships.

What’s going on with my variable mortgage?

Quite a few important changes have been taking place in themortgage industry. This week, I will focus on closed variable rate mortgages.If you presently, have a variable rate mortgage, you’re looking to refinance ormaybe even buy then you should know that the variable discounts have beenshrinking. A variable rate mortgage is based on the Bank of Canada lending ratewhich currently rests at 1%. The Bank of Canada is responsible for printingmoney and managing interest rates. Great job, I know! The Bank of Canada meetsevery three months to discuss amongst other things whether to increase,maintain or decrease that 1% lending rate. Each bank turns around and adds 2%to the 1% giving 3% to which they can loan to the public. Depending on the typeof loan you require such as variable rate mortgage, a personal line of credit,secured line of credit and even some bank car loans are all based on thevariable. 

Each of these variable-based loans can have a discount or anaddition added to the 3%. In other words, if you need a car loan through yourbank then they could charge you 3% plus 3% giving 6% and that addition of 3% iswhat follows you for the life of your loan or term. Currently, the closedvariable mortgages rest at 3% minus a discount. This year we have seendiscounts on average at minus 0.75%. Here is what I mean by the discounts areshrinking whereas the Bank of Canada lending rate of 1% has remained stableover the last few quarters.  Whataccounts for this change, good question? Some reports suggest that the last jobfigures in the US have bumped up the cost of borrowing but my gut tells me thatmany Banks have lost by giving deep variable discounts and now they are tryingto recover.

Based on all this is variable still the way to go? That’salways a personal choice. I would say that many clients are still requestingthe variable but my advice is simple. You know yourself best. If you keep yourfinances organized and relatively in-tune with the economic buzz then thevariable might be for you.

If you have any specific questions you’d like to discuss innext week’s article please feel free to email me.