The last quarter of 2016 brought considerable change to Canada’s residential mortgage business. In October, the Department of Finance Canada announced new mortgage rules that have had a tempering effect on the market. Then, in late December, the Office of the Superintendent of Financial Institutions (OSFI) mandated a new capital framework for our three mortgage insurers. In the space of three months, our government has changed the rules of lending and borrowing, further complicating the residential mortgage world for Canadian homeowners.
Now borrowers must have their borrowing capacity stress-tested, not against the lender’s current mortgage rate offerings, but against a new qualifying rate, currently posted at 4.64% for insured high-ratio mortgages. This has reduced every homebuyer’s buying power. Some homebuyers who may once have qualified for a mortgage will now not qualify at all.
In addition, traditional lender funding mechanisms have changed, and low-ratio portfolio insurance premiums have increased. These changes have driven up interest rates for Canadian mortgage borrowers, some more than others. Since October, mortgage rates have gone up around 30-60 basis points with many lenders. This has created a double-whammy for the borrower – their purchasing power has gone down while interest rates have gone up.
For consumers, the recent changes represent a major step back, due to the new and far more complex mortgage pricing structures, product surcharges, risk and LTV-based surcharges and new qualification methodology. With these additional layers of complexity, it is doubtful that web-based direct-to-consumer or self-serve residential mortgage sites will be growing any time soon.
But all of these changes work to the benefit of professional mortgage brokers. Why? Because the more complicated the mortgage market gets, the greater the need for homebuyers and homeowners alike to lean on the expert advice of a professional mortgage expert.
Full-service mortgage brokers – the people who live mortgages every day as a sole source of income and are on top of the latest regulatory changes — can help homeowners navigate these increasingly complex waters. They understand the ins and outs of all the regulations; the strengths and weaknesses of the different financial institutions, from bank to non-bank lenders, trust companies to credit unions; and they look for a mortgage to suit the homebuyer, not the other way around. Mortgage brokers don’t work for lenders; they work for the homebuyer. So their advice is informed, unbiased and honest.
That’s why mortgage brokers have been getting a bigger share of the action over the last few years. As revealed in the 2016 CMHC Mortgage Consumer survey, “mortgage broker share of the market is trending upwards for renewers and refinancers, increasing from 21% in 2015 to 26% in 2016 for renewers, and from 33% in 2015 to 38% in 2016 for refinancers…. Market share is even higher among first-time buyers at 51%.”
Homebuyers and homeowners can trust a pro to explain what the new mortgage regulations mean to them, and what their options are so that they can make the most informed decision. A home is typically the biggest purchase people will make in their life. To buy a home without the insight of a professional, full-time mortgage broker just doesn’t add up.
There was a time when car owners with some mechanical aptitude could perform general maintenance on their cars and only needed to visit their mechanic as a last resort. Then car engines became more computerized, and car owners no longer had the specialized tools and skills. Mechanics became more sophisticated and knowledgeable, and demand for their skills increased.
Today, the inner-workings of a mortgage in Canada is much like the inner-workings of a car engine. Better off in the hands of an expert.
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