15 Nov

Why use a Mortgage Broker?


Posted by: Nick Kaaki

Why use a mortgage broker?

Globe and Mail Update


Buying her first house and getting her first mortgage was an overwhelming experience for Roslyn Judd.

She had signed a deal to buy a new house, she had put down her deposit, and she was pre-approved for a mortgage. Now she had to sign a final deal with her bank to lend her hundreds of thousands of dollars.

“I had never applied for a mortgage before and I found that [to be] the most intimidating part of the home-buying process, so I was procrastinating,” she says. “I think it was the enormity of the money that you are asking somebody to lend you.”

Then a friend in the building where she works suggested she check out her company’s website, RateSupermarket.ca to compare mortgage rates and talk with one of the mortgage brokers featured on the site.

So she did, and her mortgage broker was able to get her a deal with a seasoned lender whose rate was much better than what her bank had offered.

“It was the best because it was so personal,” she says. “It was like someone was holding your hand all the way through the process.”

Rona Birenbaum, a certified financial planner with Caring for Clients in Toronto, recommends all her clients seek the help of a mortgage broker when it comes time to buy a house, or refinance or renew a mortgage.

“It’s the most efficient way to get the best-priced and best-structured mortgage,” she says. “Bottom line.”

“So rather than shopping at multiple financial institutions and negotiating with each financial institution and arm wrestling them to give you the best deal, it’s one phone call and they do the rest for you.”

Vancouver mortgage broker Jessi Johnson says a mortgage broker can help you with all aspects of a mortgage, from figuring out how much you can truly afford, to determining the best mortgage product for you, to finding ways to save you money and pay off your mortgage faster.

In addition, you should expect your mortgage broker to review your mortgage a few times a year to see how you can pay it off faster, whether it’s still the right product for you, and if it’s still competitive. “It’s very rare that you’re going to get that service from a bank,” he says.

For people who are inexperienced with negotiating, who aren’t sure what the best mortgage product is for them or have a less-than-stellar credit rating, they can save time, money and hassle by using a mortgage broker, says Ms. Birenbaum.

“For the average person who would maybe not feel comfortable negotiating, who might feel as though they are not in the position to ask for a better rate, they definitely will [save],” she says. “A half per cent over a 20-year mortgage, is tens of thousands of dollars. It could be potentially huge money.”

But those interested in using a mortgage broker need to do some research, says Ms. Birenbaum.

The brokers she recommends are people with whom she has developed a professional relationship, and she knows they will do a good job because they’ve worked with her clients.

“There’s a wide range of experience, qualifications and quality in this particular industry,” she says. “So reputation and experience are extremely important.”

People ask their financial adviser to recommend a mortgage broker, or they can turn to others who recommend their broker.

Mr. Johnson says you should look for someone with several years experience, who is licensed, and has the title AMP – accredited mortgage professional.

Mortgage brokers are regulated provincially so you can check with your provincial regulator on the website for the Canadian Association of Accredited Mortgage Professionals. The organization also has an online directory that can help your search for a broker.

“Like every industry there are rookies, so be careful when researching your broker, get a good idea about their experience before proceeding,” he suggests.

Many brokers now do the bulk of their work online, Mr. Johnson says, and that’s not an issue as long as there’s enough communication with the client either via e-mail or over the phone – and their online application process is secure.

“To be honest, the majority of our clients don’t leave their living room, and I don’t blame them,” he says.

If a broker asks for a retainer of any sort or any payment made out to them personally, that should be a warning sign, Ms. Birenbaum says.

Mortgage brokers are paid their fee by the lender, not by the person who is using the mortgage broker’s service, says Mr. Johnson. “There’s no cost for the client.”

Be aware though, whether you’re doing a new mortgage, a refinancing or renewal, to ask whether there are any legal or appraisal fees, he says. Legal fees for a new mortgage can be about $1,000, but sometimes a lender may cover both legal and appraisal fees; you just have to ask.

Right now, one of the big questions for those looking for a mortgage is whether to go for a fixed or variable mortgage, says Mr. Johnson. While historically variable mortgages have had better rates than fixed mortgages, that’s not necessarily the case right now.

“Any time the fixed and variable rates are very close I do recommend going fixed and they are close right now,” he says. Up until recently about 90 per cent of the mortgages he arranged were variable, but now more are fixed.

4 Nov

One way to profit from the debt crisis – save more money


Posted by: Nick Kaaki

  Oct 21, 2011 – 10:47 AM ET | Last Updated: Oct 24, 2011 2:36 PM ET

By Jason Heath

In 1971, Richard Nixon unilaterally ended the direct conversion of U.S. dollars to gold bullion. This gave more flexibility to the world’s largest economy to expand the supply of U.S. dollars and therefore, U.S. debt, meaning the U.S. dollar was no longer backed by gold bars in storage, but solely by the government’s ability to repay its debts.
At first, this gave the U.S. government the ability to respond to crises like the stock market crash of 1987 by infusing money into the economy. However, it also arguably contributed to the current global credit crisis of the last few years. What began as a predominantly U.S. subprime mortgage crisis involving uncreditworthy borrowers and the banks that provided and subsequently repackaged this financing has morphed into a global sovereign debt crisis requiring bailouts of governments. Global stocks and real estate in some countries, perhaps artificially inflated by borrowed money, have subsequently fallen over the last 4 years.

How can investors profit from a debt crisis? Short selling? Gold? Managed futures? There is a solution that is simpler than these, although it’s sure to garner a lot of criticism from the mainstream political and financial community.

The G7 nations took coordinated steps in late 2008 and early 2009 to prevent what could have otherwise been a much worse recession, steps that were quite warranted to prevent a crisis of confidence. Those steps focused primarily on lower interest rates, increased government spending and quantitative easing.

Lower interest rates lowered debt service costs and stimulated consumer and business spending. Increased government spending helped generate economic growth. Quantitative easing provided some of the funds necessary for certain governments, notably the U.S., to provide stimulus.

What if an individual were to do just the opposite of what the G7 has tried to encourage over the last few years? What if an individual took advantage of lower interest costs as an opportunity to pay off more debt principal with their monthly mortgage payments? What if individuals spent less on consumption and saved more? What if individuals could legally print money like central banks and governments? Well, three out of four ain’t bad.

Ben Bernanke is cringing right now. John Maynard Keynes is rolling over in his grave. Tea Partiers may be cheering, but this isn’t political. If an economy as a whole were to follow the above course of action, it would be bad in the short run for growth. But if we look at the last 10 years as an example, what kind of profit might one have earned by “investing” $1,000 a month in debt repayment?

Assuming a $100,000 debt that had an interest rate of prime, which ranged from 2.25% to 6.25% since November 2001, that debt would be only $7,339 currently, versus $144,168 if those same payments had not been made. Making the $1,000 monthly payments would result in a $136,829 return.

If one had instead invested that same $1,000 a month into Canadian stocks, as measured by the Toronto Stock Exchange, assuming 2% in annual investment costs, one would have an almost identical $136,287 currently. This is a simple calculation that ignores taxes – the tax refund from an RRSP contribution, the tax payable on RRSP withdrawals or the tax payable on the dividend income if the investment was made outside an RRSP – because there are so many possible scenarios and tax implications.

What about if one invested in the U.S.? Historically, S&P 500 stocks have outperformed over long time periods. If we consider the exchange rate losses due to the drop in the U.S. dollar over the last 10 years, one would have only $97,811 after 10 years, again assuming 2% in annual investment costs.

The point is that stocks don’t always come out on top. In fact, bond returns have been far better than stocks over the last 10 years.

Critics may argue that factoring in tax refunds on RRSP contributions disproves the above logic, but the myriad of personal circumstances is too broad to choose a definitive scenario. Not to mention, we could also substitute another stock market for the TSX or S&P 500. The Japanese Nikkei stock exchange, for example, is nearly 20% lower than it was 10 years ago and nearly 50% lower than it was 25 years ago!

There promise to be many critics of this commentary, but opinion is subjective. Furthermore, this isn’t speculation about what stock market returns will be for the next 10 years, but simply a statement of facts that tend to be overlooked.

In summary, one way to profit from the debt crisis is to learn from it. Today’s low interest rates may be meant to encourage borrowing, spending and investing, but they also mean that you can pay down more of your debt now before rates rise in the future. Even if you have a low fixed rate mortgage locked in for the next 5 years, if you have a long amortization period, most of your mortgage will be paid off in the future at future interest rates.

Jason Heath is a fee-only Certified Financial Planner (CFP) for E.E.S. Financial Services Ltd. in Markham, Ontario.