28 Mar

FLAHERTY DIDN’T LISTEN TO BIG BANKS

General

Posted by: Ron Price

 

Good news on the mortgage lending front. The headline read “TD Economist to Gov’t: Raise Minimum Down Payment” and the reaction from the mortgage brokerage industry was swift. The Minister of Finance did not take the bait thrown at him recently from big bank economists who called for a bigger minimum down payment of 7 per cent, and a further reduction in maximum amortization to 25 years, making it tougher to get a mortgage. TD bank economist Craig Alexander said that the real culprit in spiking debt levels ‘has been growing home purchases in the current low interest rate environment’. Riiiight! Funny none of the banks said a word about ‘loading people up with revolving consumer debt, then billing interest only minimum payments (so principal doesn’t get paid down) then put them in a corner with their new collateral mortgage product registered at 100%+ of property value’ thereby limiting future options.

Alexander also stated “If the current overvaluation (of real estate) unwound rapidly, it would be three times the correction (we suffered) in the early 1990’s”, which resulted in property values declining by as much as 50%. In our view this is pure ‘fear mongering’ and is so easy to see through that it’s absurd.

Everybody knows that the real culprit is credit cards and lines of credit, and while we salute Flaherty for showing some guts, the government does not seem to have the will to focus on consumer credit which is THE PROBLEM. By making it more difficult to refinance, Canadians have less ability to eliminate high cost debt much of which the big banks have found ways to manipulate into ‘secured’ debt versus unsecured debt, yet rates remain excessive.

How much power and how much profit should the banks be allowed to get away with? Clearly they have already gone too far and done it ‘all together’. Some may view this as ‘collusionary’ even ‘anti-competitive’ when an entire industry acts ‘in concert’. Until OSFI, the regulatory body of financial institutions investigates their new collateral mortgage product, the view of the mortgage brokerage industry (although admittedly not unbiased) is that it is wise to avoid taking a bank mortgage. Period.

One final thought. Mr. Flaherty, how about putting a moratorium on new credit card and lines of credit for one year, and see what happens to ‘growing’ household debt loads.

19 Mar

LIVING IN ‘LA LA ‘ LAND

General

Posted by: Ron Price

 

Is it time to give your financial life a checkup?  If you are living on your credit cards you have to stop now. 

There are people out there (we meet them every day) who  make modest incomes but are using credit card and lines of credit as if it was extra income.  It’s easy, too easy in fact.  I remember getting my first Canadian Tire Card over 30 years ago and I remember thinking wow I have an extra $2,000 to spend.   It’s so kind of psychological mind game.  Some people have been able to acquire as much as $100,000 dollars in credit cards and get way over their heads by maxing many of them out.

I just had a client in their 60’s show me their credit card statement.  It said on the statement that in making just the minimum payment it will take 102 years to pay it off.  Well do the math!  Last time I checked people we’re not living to 162.  It is the power of compounding interest and it is not in our favour.  If you are using credit to pay credit you are already in the danger zone. Call us immediately before you start missing payments. 

The other day I was in the grocery store and I saw a young couple pull out a credit card to pay for groceries.  We as a society have to get back to basics and stop the insanity.  Live below your means if you can and watch the pennies because that will take care of the dollars.  For goodness sakes stop livin in La La Land. Stop spending and start saving. If you can’t save because you are paying too much interest, then call us to see if we can help eliminate your high cost (bad) debt, and help you get your life back on the rails. Your need a budget. You need to look at your bank statements to see where you spend your money.

Call us for a complimentary copy of ‘MY KIDS ARE GONNA BE RICH’ by Stuart Lyall. It’s for everyone and it will help you.

                                                                                 

19 Mar

General

Posted by: Ron Price

LANDSCAPE CHANGING FOR SELF EMPLOYEDS

Since the 2008 meltdown, qualifying for a mortgage has become more difficult as lending restrictions get tougher for self-employed and commissioned workers. Some 2.67 million Canadians or 15% of the work force are (BFS business for self) self-employed. For many years the pendulum swung in their favour as lenders competed for business based on ‘stated income’ with good credit ratings. Today, good credit is not good enough and many lenders have dramatically tightened or terminated such lending as has CMHC resulting in larger down payment requirements, the return of provable income and higher interest rates and fees. Some lenders consider BFS’s higher risk even with established  businesses.  

The banks now only lend to BFS with large equity and down payments. Fortunately we still have lenders who have a strong interest and belief in BFS borrowers who will lend up to 85%, with longer amortizations, less paperwork, and who will allow secondary financing.  

If you currently have a mortgage with one of the big banks, beware. They may not renew with you at maturity, which happened to a new client of ours who had not missed a payment and his credit and business status was still good. Usually at renewal no new qualification is required. However, more lenders are now reviewing files of ‘Stated Income’ borrowers. Caution; do not write your income down to less than $15,000 since there is no tax below that amount. A surprising number of BFS’ers (their book keepers should know better) write their income down to zero.  Stated incomes are still allowed by some of our lenders but with more scrutiny, and must make sense.

Our advice is to be proactive with your income tax returns by showing a more reasonable income, and most importantly keeping up to date. Call us to do a review of your to ensure that you will be in good shape next time your mortgage matures. If you know you will have a need to borrow this year, it would  be a good idea for you to act before the Feds spring budget when more tightening is expected.