Canadian real estate buyers are jumping in head first, since the recession didn’t impact housing. However, since the beginning of the pandemic, experts said no issues would be apparent until the end of the year. The reason is a term only finance and banking nerds have been using – the deferral cliff. The deferral cliff is the expiration of programs that bought distressed owners a few extra months. Until the deferral cliff arrives, we won’t see any of the problems in the housing market. Here’s when it’s coming, and when you should see an impact.
Mortgage Deferral Cliff
The mortgage deferral cliff is when payment deferral plans begin to expire. After the pandemic driven shutdown, Canadian and US governments scrambled to get banks to defer mortgage payments for the unemployed. Starting in April, people without income were allowed to delay payments for up to 6 months. This eliminated the spike in arrears we would normally see during a recession. It also happens to restrain inventory from hitting the market. As the six month deferral period ends, homeowners that aren’t back on their feet, are going to have to deal with their housing woes.
Industry experts warned mortgage deferrals give a false sense of security. Since people haven’t seen any defaults or distressed sales, moral hazard was created. That is, people now think housing markets have no risk. However, this is only temporary. As these deferrals expire, we approach the cliff. Once we get there, a significant number of people that haven’t got back on their feet will start to
Most Canadian Mortgage Payment Deferrals Will Expire In October
Since the longest deferrals are six months, we don’t really see any issues pop up until October. In October, about ~500,000 mortgages should expire. Followed by another 221,000 in November, and a big dip lower to 15,000 in December. There’s a mild bump higher with 24,000 in January, and February won’t be known until the cut off is reached next month.
Canadian Mortgage Deferral Cliff
The estimated number of expirations of payment deferrals for Canadian mortgages.Oct 2020Nov 2020Dec 2020Jan 20210100,000200,000300,000400,000500,000Mortgages
Source: Bank filings, Better Dwelling.
Now, don’t confuse the expiration of payment deferrals with a spike in arrears rates. It takes 90 days of non-payment for a mortgage to fall into arrears. This means October’s surge wouldn’t see any contribution to arrears until January. November would be in February, etc… That said, rising arrear rates depend on liquidity.
If you can’t afford your home, what’s the first thing you do? List it for sale. The inability to pay doesn’t always turn into defaults when there’s buyers. Instead, people list their homes for sale and hope it sells and closes before the lender tries to claim it. Unless you’re not all that smart, this is the first thing you would look to do. In which case, we should see a spike in inventory first.
“Bells and whistles tend not to rank high on ROI,” DiClerico says. “The high-tech home theater might mean hours of fun for you and the family, but it’s probably not going to pay for itself when the time comes to sell.”
Of course, that doesn’t mean you can’t outfit your house with the latest technology—if you’re making an improvement that you’ll love and enjoy, go for it. But if you’re looking to roll up your sleeves and tackle a project that will offer serious bang for the buck, try one of these home improvement projects next weekend.
1. Refresh your kitchen cabinets
“If the cabinets are in good shape, adding a fresh coat of paint or stain will dramatically transform the feel of the entire kitchen,” DiClerico says.
Be warned: Even though painting isn’t very difficult, it’s still time-consuming. You’ll need to remove the doors and drawers to ensure a clean finish. “But in terms of skill level, it’s something even novice DIYers can handle,” DiClerico says.
And remember, slow and steady wins the race when it comes to any painting project.
“You could lose some buyers with a sloppy paint job,” says Scott W. Campbell, a real estate agent in Milwaukee. “If you truly want to increase ROI, a good paint job takes time and patience.”
Making a great first impression on home buyers is one of the quickest ways to boost your home’s value.
“Landscaping and gardening are the biggest ones that also are simple,” says Kendall Bonner, a real estate agent in Lutz, FL. “Curb appeal has a significant impact on buyer’s purchasing decisions.”
Aside from adding tasteful foliage and keeping your lawn manicured, a few strings of café lights can also improve your home’s outdoor space and curb appeal. Don’t forget to paint old fences and prune overgrown plants.
3. Give your front door a makeover
Want to boost your home’s curb appeal but don’t have a green thumb? Spruce up your front door instead. All it takes is a few coats of paint. (The same rules apply: Work slowly and carefully to avoid drips and roller marks.)
“A fresh pop of color at the front door is a great way to enhance your home’s curb appeal for not a lot of money or time,” DiClerico says.
“Outdoor living is hugely popular, even more so since the pandemic, since people are looking to expand their home’s usable living space,” DiClerico says.
Creating a new deck is possible to do yourself, but “it’s not for the faint of heart,” he adds, especially if you’re putting in concrete footings for the deck posts. This project is best for intermediate to advanced renovators, and it helps to have a few friends on board to assist.
Keep the design simple—avoid any tricky changes in elevation—and work with pressure-treated lumber instead of hardwoods that are tough to cut and screw into, DiClerico says.
You don’t need to spring for a fully finished basement to appeal to prospective buyers.
“Spraying the basement unfinished ceiling with flat black latex paint can make big difference to clean up a look, and spraying the walls,” Campbell says.
To take your project to the next level, you can add carpeting and adjustable lighting. By cleaning up the basement, you can help prospective buyers envision a space that will fit their needs, whether it’s as a rec room, play area, or home gym.
“Anytime you add usable living space to the home, you increase its value,” DiClerico says. “That’s true now more so than ever given all the time we’re spending at home.”
Making an addition to your home might not be realistic. But smaller improvements, like adding a pantry in the kitchen, a new storage unit in the garage, or even closet organizers, add valuable storage space to your home and will pay off when you’re ready to sell.
7. Make small repairs and keep up with maintenance
It may not be as satisfying as tackling a big project, but staying on top of your home’s basic maintenance is just as important and promises serious ROI.
“Many of today’s buyers are staying away from fixer-uppers in favor of move-in ready homes that won’t require frequent repairs,” DiClerico says.
Seemingly small problems like a leaky faucet, loose gutter, or missing light fixture can be a red flag.
“When buyers see things like that, they think to themselves, ‘What else is wrong with this house that I can’t see?’” DiClerico says. “Spending a few hundred dollars on these small repairs will let the buyer know that this house has been cared for.”Looking to sell your home? Claim your home and get info on your home’s value.Lauren Sieben is a writer in Milwaukee. Her work has appeared in the Guardian, Washington Post, Milwaukee Magazine, and other outlets. Follow @laurensiebenThe realtor.com® editorial team highlights a curated selection of product recommendations for your consideration; clicking a link to the retailer that sells the product may earn us a commission.
As the new year approaches, we’re all probably looking to make some life changes. Maybe you just want to eat more vegetables, or maybe you’re thinking bigger. Your income isn’t cutting it anymore, and it’s time to move on from your job. You really want to pursue another academic degree. Or maybe it’s time for you to relocate, and you’re asking yourself, “where should I live?”
Moving to a new city is one of the hardest things to do. Uprooting your life and starting another one comes with a mixture of feelings: part of you might feel optimism for opening a new chapter in your life while another part of you may feel like you’ve quit or failed. Regardless of whether you get a job in a new place or just need a change from the same old shit, there comes a time when you have no choice but to relocate.ADVERTISINGAds by Teads
Timing a move is tricky. You’ll be hesitant to leave behind the life you’ve built for yourself in your current city, the relationships you’ve forged while living there, and the job it took you forever to get. On the other hand, you’d hate to miss out on new opportunities because you dragged your feet. No one can tell you when it’s time to seek greener pastures, but we can provide some signs that it might be time to go. Sometimes a change of scenery is just what you need. Here are 10 signs you should think about moving to a new city.
Your Passion Lives Elsewhere
It is really easy to bargain with yourself when it comes to your dreams. No matter which way you cut it, the television industry lives in Los Angeles and New York, web start-ups congregate in San Francisco, and oil men reside in Texas. Though it is possible to be a huge fish in a smaller pond (just ask some of the best filmmakers in New Orleans and Austin), it isn’t necessarily the best move. If there is a better place to be to do what you love, whether it be composing sonnets or catching trophy winning trout, it might be time to find your Mecca. We all know that the Internet has put careers within reach of people working remotely, but be real about what you’re giving up if you don’t live where the action is. Yes, you can design apps in your shack in rural North Dakota, but is that giving you the best chance at success?
You Haven’t Lived Anywhere Else
You don’t know if you don’t try. Though this sounds like the sort of thing your mother would say in an attempt to get you to join marching band or math club, it’s still good advice. There are people out there (we all know at least a few of them) who know deep down that they want to live their entire life in their hometown. There are also those people who graduate college and decide that they’ll live out their days in their college town. There’s nothing wrong with a decision like this, but if you aren’t absolutely sure where you want to spend your life, it can’t hurt to try something new. The worst thing that can happen is that you don’t like it and opt to move back. If you move back, at least you’ll be able to replace “What if?” with “I tried it and it sucked.”
There’s Some Place You’ve Always Wanted to Live
When I moved to New York City, a friend said to me, “You know, there are New York people, there are L.A. people, and there are career people.” I often find myself thinking about how right he was. One of the most annoying parts of living in New York City is listening to people who “just love New York,” and believe that it is “the greatest city in the world.” I like to think I’m a “career person,” in that I could make rural Minnesota work if I had to. The point is, if there’s a place that you love, why not live there? We’ve all met some older person who constantly sings the praises of their favorite city and has never spent a meaningful amount of time there. They love London or Paris or Beijing so much, yet they’ve only been once or twice. If there is a place you want nothing more than to spend your time in, why aren’t you there? Regardless of your concept of the afterlife, you likely don’t believe you’ll be spending it in San Francisco or Seattle, so if that’s where you want to be, hop to it.
Your Goals Have Changed
In a society where we pour years of study and thousands of dollars into our chosen fields, it almost feels like a sin to abandon your path. Never mind that you likely chose your career at eighteen years old. Think about the other things you liked when you were eighteen. Do you like any of the foods, bands, or clothes you were into back then? For those of you who aren’t yet eighteen, think back to when you were twelve to get an accurate picture of what I’m talking about. Unless you suffer a worse case of arrested development than Buster Bluth, the answer is likely no. What reason do you have to stay a veterinarian now that you are a decade removed from that transformational experience you had rescuing a cat from a tree as a teenager? If you decide that what you really want to do (this year) is handcraft scented candles, then by all means go to the best city for candle crafting and give it your best shot. If you go back to being a veterinarian, at least you’ll have cool stories to tell about that one year you spent crafting candles.
You Hate the Weather
If you absolutely hate the cold, can’t stand the heat, or can’t bear the wind, why are you still putting up with it? I can’t count the number of times someone from L.A. has moaned to me how much they “miss seasons.” If you’ve ever spent a winter in a Northeastern city, between the chattering teeth and strings of curse words, you’ll hear people swear they are moving before next winter. Obviously, there are probably higher priorities when choosing where to live than the climate, but if it will make you happier, why not at least consider whether weather might further your life satisfaction? Now consider it three times fast.
Someone You Care About Is There
No one likes long distance relationships. That’s why most of them end with one party hooking up with a fellow graduate student, co-worker, or cult member. That doesn’t mean they can’t work, but by definition, they aren’t ideal. If you work for a multi-national corporation with campuses in every major city or you work from home, it might be time to consider moving where your partner needs to be to succeed. If they get into the best graduate school, lands their dream job, or have a burning desire to start a deep sea fishing business, why not try it with them? You can collect unemployment in any state, dawg.
You’re Ready To Start A Family
The last thing most young people want to think about is starting a family. Anyway, if you’ve graduated college, you’re going to see a few couples move to the suburbs and take on mortgages in the next year or so. If you’re an artist type or super career-driven, you’ll tend to associate this with giving up or failure. Just a heads up: when you visit the people that make this choice and you see their huge houses and their happy children, you won’t feel like it’s them who failed. I’m not here to tell you that if you don’t start a family you’ll end up an empty husk on the corporate ladder. All I’m saying is if you’re feeling it’s time to pull the “house and two kids” card, no one is going to fault you for it. In fact, your friends who are still downing beer by the pitcher and having one-night stands might even be a little bit jealous.
You Realize You Were Running Away
Living in New York, every three months or so, you help pack a U-Haul for someone moving back to where they grew up. Even in our constantly changing world, 60% of people stay in the same state where they were born in, and it’s okay to join them. You’ll meet a fair number of people who realize, after some time spent in distant locales, that they were always running away from something, and that it’s time to go home. The fear of stagnation motivates many people to up and leave their hometown and try something else. Sometimes the drive to escape parents, ex-girlfriends, or slacker friends who hang out at the gas station leads them to pack up their parents’ station wagon and head elsewhere. For many people, there comes a time to return after they’ve gained knowledge that they couldn’t find around the block from their childhood home. There’s no shame in moving back to where you lived before, as long as you come back having learned something about yourself.
You Have No Reason to Stay
You might look around some day and realize that the reason you moved somewhere no longer exists. Maybe you moved to Chicago with your college buddies after school, and one by one they have left. It could be that you moved to New York to act, but you’ve done a hell of a lot more waiting tables than acting over the last five years. Maybe the girlfriend you moved to Philadelphia for has become your ex-girlfriend. I’m not advocating running way from your problems, or hopping a few exits down the interstate every time a relationship implodes or you’re handed a pink slip. On the other hand, if you’re sitting at the coffee shop one day and your realize that your life would be no different sitting in a coffee shop in Austin or Boulder, maybe it is time to find a place that feels like it matters.
You Complain About Your City All the Time
Don’t get me wrong: everyone hates where they live a little bit. In New York, bitching about your rent and the subway’s tardiness are as common as complaining about the weather. In order to live in Los Angeles, you are contractually obligated to bemoan the shallowness of the populace twice a day. In Pittsburgh, you either complain about how the Steelers are playing or you complain that everyone is obsessed with the Steelers. If your complaints about a city go beyond your standard bitching and you start to sound like the bitter old guy who sits at the diner alone yelling at no one in particular, it might be time to check in with yourself. If you hate the transportation, the politics, or how nothing happens after 10 p.m., those things aren’t likely to change any time soon. Maybe absence will make the heart grow fonder, and if that happens, you can return to hating everything about your city with a renewed energy and vigor—once you’ve tried a new place and hated it, too.Sign up for the Complex Newsletter for breaking news, events, and unique stories.SUBSCRIBE
Getting ready to buy your own home? There are a lot of boxes new homeowners have to tick off, and one of the most confusing can be insurance. Certain types of insurance are mandatory and others are optional…. but highly advisable. Here are 5 types of insurance the experts want every homeowner to have.
While not legally required, it’s nearly impossible to get a mortgage without proof of home insurance. But why would you want to leave your biggest investment unprotected? Home insurance covers the rebuilding or replacement value of your house, detached structures such as a garage, your contents, plus personal liability if anyone gets hurt on your property.
The cost: Varies depending on coverage, home value and additional factors
Many condo owners think their condo corporation’s commercial condo insurance covers their unit, too. This is not the case. It is limited to common areas like the building structure, its exterior and shared spaces like the lobby or elevators. You’ll need a personal condo policy to protect your own unit, its upgrades and contents (including those stored in your locker).
Personal condo insurance isn’t legally required, but most mortgage lenders consider it mandatory. You should too, says Steve Totani, a real estate broker with Zolo Realty in Toronto.
Totani provides the example of a small condo building that experienced massive flooding as the result of a plumbing problem. Owners’ homes were ruined as were their belongings. “Once the units were repaired, they each got an empty unit with four dry walls. Property insurance would have brought a condo owner’s unit back to how it was, for example, granite countertops and better appliances. Just relying on the condo’s [building] insurance is a big mistake. Paying $20 or $30 a month extra can save you tens of thousands of dollars in that sort of situation,” explains Totani.
The cost: Varies depending on coverage, condo value and additional factors
A property’s title is the legal proof of its ownership. When you buy a home, the owner signs the deed over to you. Title insurance protects you against challenges to your ownership or issues relating to your home’s title, such unpaid liens, encroachment issues, fraud, and other issues that could prevent you from selling, leasing or mortgaging your property. (You can read more details here.)
Toronto real estate lawyer Bob Aron writes that “most real estate lawyers today regard title insurance as a critical component of the [real estate] transaction and will usually not close a purchase without it.” Likewise, most lenders make it a requirement for financing.
The cost: A one-time premium based on the value and location of the property, generally in the $225 to $325 range.
MORTGAGE DEFAULT INSURANCE
Mortgage default insurance (also known as “mortgage insurance”) is mandatory on all high ratio mortgages. Those are mortgages with a down payment of less than 20 percent of a home’s purchase price.
This insurance protects lenders in return for qualifying borrowers with as little as 5 percent down, making it a win for both parties. Without mortgage insurance, homeownership would be impossible without a sizeable down payment.
The cost: Between 2.8% to 4% of the mortgage amount. This can be rolled onto the mortgage so it’s not an out-of-pocket expense.
“Life insurance is the type of insurance that’s overlooked the most often” says Totani, the Zolo Realty broker.
“People ask about mortgage rates, property tax, property insurance, and their monthly payments, but I hardly ever hear anyone asking, ‘Should I top up my life insurance policy?’ to ensure their mortgage is paid off and their family is not going to be out of their home,” in the event of a tragedy, says Totani.
Totani advises checking your policy and upgrading it if needed, to reflect your homeownership situation. The peace of mind this provides will be worth the effort.
The cost: Varies depending on life insurance type, coverage, and personal factors.
The head of Canada’s national housing agency is asking banks and mortgage companies to stop offering higher-risk mortgages to over-leveraged first-time buyers, because they represent a threat to the economy.
In a letter to officials in the federal government and representatives of Canada’s banking and credit union industry, Evan Siddall, the CEO of the Canada Mortgage and Housing Corporation, asked lenders to be more strict about how much money they are willing to lend to fund home purchases, and more diligent about who they are lending to.
The letter was first reported on by financial news channel BNNBloomberg before Siddall released the letter publicly on social media.
“I am asking you to continue to support CMHC’s mortgage insurance activity in preserving a healthy mortgage sector in Canada,” Siddall wrote to the banks, credit unions and other mortgage lenders that make up his customer base.
While the CMHC does not directly loan out money to buy homes, it has a massive influence on Canada’s housing market because it insures a big chunk of the loans that lenders give out.
By law, borrowers with down payments of less than 20 per cent must purchase mortgage insurance to cover potential losses if they default on their loans. Premiums that borrowers must pay for that insurance can add thousands of dollars to the cost of the loan.
The goal was to make it harder to get an insured loan, in the hopes that borrowers already stretched thin would not be able to get one and thus not be able to get in even further over their heads by buying a house they may not be able to afford. But things didn’t quite work out that way.
CMHC is the dominant mortgage insurer, but they do compete with private companies Genworth and Canada Guaranty for business. It’s impossible to downplay CMHC’s outsized impact on the market, however — as of the end of 2019, the crown corporation was on the hook for $429 billion worth of Canadian real estate, by insuring the mortgages on it.
The insurers often move in unison, so in the past any change at CMHC was quickly matched by the other two. But that didn’t happen this time, which means the CMHC’s moves had little impact beyond moving borrowers from CMHC to a competitor. Anyone who was locked out by the CMHC’s higher standards simply got insurance elsewhere where the standards were lower.
In his letter, Siddall pleaded with lenders to work with CMHC to make sure lending standards don’t become even more lax.
“There is no doubt that we have willingly chosen to forego some profitable business that our competitors would find appealing,” Siddall said.
“While we would prefer that our competitors followed our lead for the good of our economy, they nevertheless remain free to offer insurance to those for whom we would not.”
By not tightening lending standards, Siddall warned that the entire economy could be put at risk.
The Switzerland-based Bank of International Settlements, an industry group for central banks around the world, warns that as a rule of thumb, when households have debt loads above 80 per cent of their gross income, it’s bad for the economy.
Canada’s ratio on that front has blown past 100 per cent and is approaching 115 per cent, Siddall warns.
“Too much debt not only increases risk, it therefore slows economic growth.”
CMHC expects house prices to fall
COVID-19 has walloped every facet of the Canadian economy, but broadly speaking, house prices have yet to fall in any meaningful way. Compared to last year, average prices were flat in March and April, before ticking higher, in May and into June.https://datawrapper.dwcdn.net/6GnwF/1/
But that is unlikely to continue forever, Siddall warns.
He suggests a big reason that prices are staying high is because massive government spending programs like CERB and CEWS have allowed people to keep their heads above water for now.
But those are set to expire in the coming months, as will the hundreds of thousands of mortgage interest deferrals that banks have doled out.
Once those programs end, bankruptcies and defaults may follow, and that is when prices may decline as new buyers are unable or unwilling to pay ever-higher prices, and sellers behind on their mortgages could become desperate to sell.
“The economic cost of COVID-19 has been postponed by effective government intervention,” he said. “It has not been avoided.”
House prices could fall by about 18 per cent and the impact of COVID-19 will be felt into 2022, the CMHC said recently.
Siddall said that under the current rules, there are loopholes that could allow people to buy houses with negative equity.
Although rare, mortgages for 95 per cent of the home’s value are allowed, and that loan would come with a four per cent capitalized insurance fee. Even a tiny fall in the housing market for someone with that loan would be onerous to withstand, as the homeowner would owe far more on their home than it is worth in reality.
‘Dark economic underbelly’
“In the midst of an economic calamity,” Siddall said, “we risk exposing too many people to foreclosure. These are individual tragedies that also create conditions for exacerbating feedback loops and house price crashes.”
Without naming names, Siddall accuses some in the industry of handing out too many risky loans while ignoring the long-term cost of doing so.
“Please put our country’s long-term outlook ahead of short-term profitablility,” he said.
“There is a dark economic underbelly to this business that I want to expose.
Though reverse mortgages have been available in Canada for many years, they remain a commonly misunderstood product. A reverse mortgage is unlike most traditional mortgage products; it’s a long-term financing solution that gives borrowers over 55 years old access to a portion of the equity that already exists in their home and turns it into payment free, tax-free cash.
By 2024, it is expected that one in five Canadians will be aged 65 and older. Proceeds from a reverse mortgage can be used to free-up cash flow by paying-out existing debts, to help finance in-home care services, to purchase a second home, or to provide early inheritance. In addition, payments are completely optional, proceeds are tax free and the borrower will never owe more than the value of the home.
Since the introduction of their reverse mortgage business in 2018, Equitable Bank has been on a mission to help brokers understand the benefits of the product in order to better serve their clients, starting with building trust.
“Clients need not only to trust their broker, but also trust the lender who is providing their financing,” said Paul von Martels, vice president of prime and reverse mortgage lending at Equitable Bank. “We have a reputation for providing excellent service and continue to invest in those capabilities, so everyone involved, from borrowers to brokers, lawyers and appraisers, have the utmost confidence in the process.”
To help broaden the understanding of a reverse mortgage, von Martels shared some common myths and explained why they just aren’t true.
The process of getting a reverse mortgage is difficult Prospective reverse mortgage clients may have different expectations of how they want to work with their mortgage broker. There may be mobility issues or maybe they just feel more comfortable communicating in-person or over the phone rather than chatting through a video call. In some cases, borrowers may be acting through a power of attorney or a family member.
The process is very similar to a standard mortgage – borrower needs analysis, application submission, adjudication and finally fulfillment. What is unique is the need for independent legal advice (ILA) for both title holding and non-title holding spouses. This is an important borrower safeguard designed to ensure borrowers understand the obligations and details of the mortgage.
“We recognize the unique needs of the borrower and have designed processes to support. We are patient, flexible and allow clients and their brokers to move at the pace and manner that they feel most comfortable in. We can move fast too, closing these deals from start to finish in 1 week’s time. “
The bank will take my home Equitable Bank registers a mortgage charge at 55% and provided the borrower continues to meet the ongoing mortgage obligations, he will never owe more than the fair market value of the home. This is commonly referred to as a no negative equity guarantee, meaning if the mortgage value ever exceeds the value of the property, Equitable Bank can only collect on fair market value, no more.
Reverse mortgages are considered a limited recourse loan which means lenders have recourse to the property only; equity shortfalls at the time of sale are not the client’s responsibility.
Reverse mortgages are a product of last resort More and more, this product is being used as a financial planning solution where borrowers are accessing home equity, at very competitive interest rates, to optimize investment portfolio strategies, participate in government tax programs, or add to their nest egg for next generation family members. Clients and brokers are also utilizing the various features of the product to lower the borrowing cost such as using Equitable Bank’s Lump Sum product or setting up scheduled advances.
The narrative of reverse mortgages is changing, and people are taking notice. The product is improved, the rates lower, and more than ever, it serves a critical financial planning need – aging in place.
Borrowers are locked in for life with a reverse mortgage A borrower should never feel trapped or tied into a product. That said, its important for borrowers to understand the prepayment options. Reverse mortgages are a longer-term product and might not be the best option for clients who want to pay-out in a few years.
“One example is if a borrower is moving into a long-term care facility, 50% of the charge is waived, likewise if the last surviving borrower passes, its entirely waived” said Joe Flor, director of national sales at Equitable Bank. “In general, Equitable Bank’s prepayment features allow clients to repay sizable amounts of interest and principal without incurring any charges. It’s the flexibility people need and expect.”
Rates are too high For those less familiar with reverse mortgages, there’s a belief that rates are sky-high and more like private lending rates, closer to 10% for example. This certainly isn’t the case.
“Our fixed rates range from 3.84% to 4.84%. Much lower than people think,” said von Martels. “One-time setup fees, appraisals and legal support range between $2,500 to $4,000. Accrued interest compounds, but for borrowers with other sources of cash flow, there are options to minimize the interest cost with partial or full monthly interest repayment.”
On the other end of credit-pricing spectrum, reverse mortgages are commonly compared to HELOCs. Unfortunately for those without a HELOC already in-place, the income qualification standards can be quite difficult to meet on a retirement income and they don’t offer many of the favourable borrower safeguards that reverse mortgages do.
At the end of the day, von Martels says it’s about building trust and knowledge with industry partners. Equitable Bank is long established, managing more than $30 billion in assets.
“We have a reputation as being a disciplined lender with a strong commitment to its mortgage broker partners. Our reverse mortgage business is no different. We’re in this for the long term and will continue learning and improving. That’s our commitment to our broker partners.”
Source: Mortgage Broker News – by Kasi Johnston 01 Jun 2020
Canadians couldn’t get answers on mortgage deferrals at Canada’s biggest bank because information and eligibility requirements kept changing almost by the hour, a source who works for RBC tells CBC News.
When the first details were eventually given out to frontline employees at RBC’s Mississauga call centre, they revealed deferrals would be available to all mortgage holders, but in a way that appears to ensure the bank would not lose money in the short term and may even come out ahead.
“Deferrals actually meant that interest accrued from each deferred payment was being added back into the principal balance of the mortgage,” said the source.
“Technically clients would then be [charged] interest on top of interest for those payments [that were] deferred,” they said.
In effect, it’s as though the bank is loaning you the amount that you would have paid in interest during the deferral period and then charging you interest on that loan as well.
“They’re going to make more money because they’ve just loaned you more,” said Peter Gorham, an actuary with JDM Actuarial Expert Services.
“I don’t know that I want to say it’s profiting. I would say it’s not costing them a penny.” he said.
“People are increasing their debt load. If you are not desperate for the financial relief, don’t take it,” Gorham said, adding RBC and other banks are taking on increased risk from deferrals, a risk that could grow significantly if the COVID-19 crisis runs from months into years.
When it comes to repaying the increased debt load from a deferral, there may be other complications for mortgage holders.
“This also means an increase in clients’ payments at their next renewal period due to the increase in mortgage balance,” the source at RBC said.
If the client doesn’t want a bigger payment, they can extend the amortization period, the source added. But that typically requires a full credit application which may affect their credit score.
The other option is making extra payments after the deferral period ends to bring the mortgage back down as quickly as possible to its original amount.
Two other big banks have mortgage deferral polices similar to RBC’s.
In an updated set of deferral FAQs posted on its website, Scotiabank too says interest will continue to accrue.
“You will pay more interest over the life of your mortgage, but a deferral will also help you with your short-term cash flow,” the banks states on its website. Scotiabank is also offering deferrals on personal and auto loans, lines of credit, and credit cards.
On its website, BMO also states interest will continue to accrue on mortgages.
The Canadian Bankers Association issued a statement late Sunday night saying, “Customers should understand that [a deferral] is not mortgage forgiveness. Mortgage deferral means that payments are skipped for a defined period of time, during which interest which would otherwise be part of the deferred payments is added to the outstanding balance of the mortgage.”
Credit card deferrals
RBC is also offering six-month deferrals on credit card payments, according to an email obtained by CBC News. But once that period ends the minimum payment would include all accrued interest from the deferred payments. Meaning the minimum payment could jump significantly.
Most minimum payments on credit cards are interest plus $10. But Quebec passed a law in 2017 changing minimum payment requirements in an effort to counter rising household debt by making people pay off more than just accumulated interest.
Minimum payment on credit cards in Quebec is 2.5 per cent of the balance owing and will eventually rise to five per cent.
Last week, all of Canada’s big banks agreed to a request from Federal Finance Minister Bill Morneau to defer mortgage payments for up to six months for people suffering financially due to COVID-19.
The banks issued a joint statement saying they “have made a commitment to work with personal and small business banking customers on a case-by-case basis to provide flexible solutions to help them manage through challenges such as pay disruption due to COVID-19; child-care disruption due to school closures; or those facing illness from COVID-19.”
But initially many Canadians looking for deferrals said, after waiting for hours on hold, they were told they didn’t qualify. One BMO customer — who is actually a former BMO branch manager — said he was told he needed a full credit check and credit application and even then the bank would not tell him their criteria for approval.
It turns out the person he spoke with may not have known the criteria themselves at that point.
By midday Wednesday, workers at RBC’s Mississauga call centre still hadn’t been informed.
WATCH | Consumer frustrated at lack of information about mortgage deferrals
Confusion surrounds COVID-19 mortgage deferrals
Many Canadians looking for relief from mortgage payments during the COVID-19 pandemic are met with a confusing process. 2:00
“Anyone calling in to RBC between 8 a.m. and noon was directed to call back ‘later’ as we had been given no direction or timeframe as to when relief procedures would be implemented, other than ‘soon,'” a source told CBC News.
On March 13, the finance minister said that he had already spoken with the CEOs of the big banks. The banks issued their statement promising to work with Canadians on a case by case basis on the evening of March 17, around 7 p.m. ET.
Canadians began calling their banks the morning of March 18.
But, as late as March 20, Canadians were still being told no information was available.
“I was on hold for 11 hours [March 19] and then five hours [March 20],” said Lindsay Gillespie, who has a mortgage and a line of credit with FirstLine Mortgages, a division of CIBC.
“I finally got through and was told there’s nothing that can be done right now, they don’t have anything set up. I was told to call back another time,” she said.
Also as late as March 20, some RBC customers were still being told they didn’t qualify for a six-month deferral.
“We called RBC and were told that deferrals are being assessed on a case-by-case basis and that our eligibility for a deferral is limited to six weeks,” said Jeff Hecker, a principal at a Toronto Marketing research firm.
“No explanation was provided,” he said.
In a statement issued Sunday evening, RBC said “the developments around COVID-19 are moving quickly and we understand that clients have questions. Our frontline employees are doing incredible work to respond to clients quickly and effectively, and we are staying close to them to ensure they have the information they need to support clients.”
Some in the mortgage industry say the confusion over deferrals is understandable, given the unprecedented and rapidly changing nature of the COVID-19 crisis.
“You’re going to get hiccups in this process; it’s never happened before,” said Robert McLister, mortgage expert and founder of RateSpy.com.
“It’s case-by-case, it’s completely at the lender’s discretion as far as I understand it. Even though the big banks have agreed with the federal government to offer these programs, there’s no mandatory federal guidelines that I’m aware of,” he said.
McLister says it’s possible some people are being declined mortgage deferrals because they can’t prove their income has dropped.
“But generally speaking if you are in legitimate need and you’re about to default on a mortgage payment the lender is going to work with you,” he said.
Some Canadians looking to defer mortgage payments due to COVID-19 say they are facing delays, confusion and outright denials from the country’s big banks.
“My wife called the 1-800 number for Bank of Montreal, talked to an adviser on the line to see what we are eligible for,” said Evan McFatridge of Dartmouth, N.S., whose family is down to a single income because his wife has been laid off from her job at a restaurant.
“She was told that our mortgage was too new to qualify for a deferral,” he said.
As part of the government’s pledge to help Canadians suffering financially due to COVID-19, Finance Minister Bill Morneau asked the heads of Canada’s big banks to allow people to defer mortgage payments for up to six months.
The banks responded by issuing a statement saying they “have made a commitment to work with personal and small business banking customers on a case-by-case basis to provide flexible solutions to help them manage through challenges such as pay disruption due to COVID-19; child-care disruption due to school closures; or those facing illness from COVID-19.”
But some Canadians looking for relief from mortgage payments say they’re encountering a confusing, opaque and seemingly arbitrary process that is only adding to the stress of illness, isolation and lost income.
“I called in yesterday, spent two hours on the phone, and they required a full credit check and credit application in order to even see if I was qualified [for a deferral] and then didn’t even give me a time frame,” said one former BMO branch manager.
CBC has agreed to keep his name confidential because of his concerns that his comments could jeopardize his current employment situation.
“So, they had to speak to both me and my wife over the phone, get all our income, our jobs, our assets, our liabilities, said they had to send it to the credit department for review and that someone would contact us,” he said.
“They had no criteria for what they’re looking for. If they said to me, ‘One of you has to be laid off. One of you has to be in isolation. You have to sign a disclosure statement.’ Fine.”
The man’s wife is on reduced hours at home because she has to care for their kids, whose schools have been shut. Facing the loss of a large chunk of their family income, he said ,he wanted to get ahead of the problem and defer two or three months of payments.
“Even if I had to pay the interest payments during that time and they deferred the principal amount so the balance stayed the same, so be it, that’s fine,” he said.
“I’ve been through things in Alberta like the Fort McMurray fires where basically [all that was required then] was a call in to defer payments.”
Questions for banks unanswered
CBC News asked each of the big five banks for more information on the criteria for the case-by-case-based decisions on mortgage and credit deferrals.
Who would qualify?
Is there an application process?
Does the entire household have to be off work?
Will they require documentation?
None of the banks answered any of those questions.
TD, CIBC and Scotiabank all responded by repeating their commitment to work with personal and small-business banking customers on a case-by-case basis. Each encouraged customers to contact their call centres directly or visit their websites.
BMO and RBC did not respond to emails from CBC News.
‘My family will run out of money’
RBC customer Elsie Mamaradlo of Edmonton said she was also denied a deferral because her mortgage was too new.
“I got so frustrated and at the same time worried,” said Mamaradlo, who lost her job when the public recreation centre she works at was shut down due to coronavirus concerns.
Mamaradlo said that without the mortgage deferral, she faces a grim future.
“My family will run out of money for food and essentials,” she said.
Mamaradlo’s mortgage is insured with the Canada Mortgage and Housing Corporation (CMHC). The government is purchasing up to $50 billion of insured mortgage pools through the CMHC, which says that stable funding for the banks and mortgage lenders is meant to ensure continued lending to Canadian consumers.
In a tweet, CMHC said it “will support lenders in allowing deferral of mortgage payments for up to six months for those impacted [by the coronavirus].”
Alyson Whittle of Cochrane, Alta., said her bank, B2B, which is a subsidiary of Laurentian Bank, told her she could defer her next mortgage payment but then the following payment would be double.
“I was super frustrated,” she said.
Whittle, who works in sales for a home builder, and her husband, a utilities driller, are both out of work.
“My mom came to visit us and she had just come back from Las Vegas and developed a respiratory illness,” she said.
After that visit, Whittle says both she and her husband started feeling similar symptoms. They’re now both off work in isolation but haven’t been tested yet.
Laurentian Financial Group’s assistant vice-president of communications, Hélène Soulard, said it’s possible Whittle called before they were able to inform their call centre representatives about the deferral options.
“Rest assured we are committed to helping our customers who are facing hardships if they are not able to work due to illness, job loss or other reasons related to the COVID-19 crisis,” she said.
Terrio warned that this figure will noticeably increase in the very near future.
“I think 20% estimates will be drastically low if this drags on for months,” he said in an interview with BNN Bloomberg. “This [virus impact] is now drastically out of control.”
Declared as a pandemic by the World Health Organization last March 11, the COVID-19 virus has ground global markets to a standstill, with economies currently on freefall.
As of press time, more than 225,000 cases have been reported in over 150 nations. Jobs markets have suffered as governments worldwide mandated various restrictions, including social distancing and work stoppages.
The possibility of lower, or even zero, income has especially dire implications upon Canadian tenants, Terrio stated.
“Renters who lose their jobs are going to be in big trouble [in major centres]” he explained. “This is going to lead to huge increases in insolvencies, it’s just a matter of when.”
“I’m hoping [the government is] aiming more funds at people who don’t own homes. If 93% of people filing insolvencies are renters, there better be support for renters,” Terrio added.
“Once people lose their jobs and absorb what happened, this is going to be crazy. Could be summer, could be early fall. But I think it will happen within six months, and I think it’s going to be way more than we thought.”
The state of New York will allow some homeowners to skip their mortgage payments for three months in response to the spread of COVID-19.
On Thursday, the New York Department of Financial Services (DFS) sent a letter to mortgage servicers directing them to provide several relief options in response to the outbreak, including suspending mortgage payments for up to 90 days.
“As the outbreak continues to spread, a growing number of companies have started to warn markets about the adverse impact of COVID-19 on their financial conditions,” DFS said in the letter. “Companies in certain sectors are already laying off employees and taking other drastic actions in response to the crisis which is likely to cause more financial stress on local communities and consumers.”
As a result, DFS said it was issuing guidance to mortgage servicers to “do their part” to alleviate the impact of the outbreak on borrowers who can demonstrate that they cannot make timely payments. DFS has instructed mortgage servicers to support New York borrowers by:
Forbearing mortgage payments for 90 days from their due dates
Not reporting late payments to credit-rating agencies for 90 days
Offering borrowers an additional 90-day grace period to complete trial loan modifications, and ensuring that late payments during the COVID-19 outbreak do not affect borrowers’ ability to obtain permanent modifications
Waiving late fees and any online-payment fees for 90 days
Postponing foreclosures and evictions for 90 days
Ensuring that borrowers don’t experience a disruption of service in the event the servicer closes its office, including making available other ways to manage their accounts and make account inquiries
Proactively reaching out to borrowers through app announcements, text message, email or other means to explain the assistance being offered to borrowers
“The Department believes that reasonable and prudent efforts by your institutions during this outbreak to assist mortgagors under these unusual and extreme circumstances are consistent with safe and sound banking practices as well as in the public interest and not subject to examiner criticism,” DFS said in the letter.
Earlier this week, the Department of Housing and Urban Development and the Federal Housing Finance Agency issued a 60-day moratorium on foreclosures and evictions in response to the COVID-19 outbreak.
Source: Mortgage Professional America – by Ryan Smith20 Mar 2020