I find myself repeating myself in emails, sometimes when I do I think maybe I should be posting to a greater community to at least try and get the word out.

Lately people have been approaching me and telling me that they think their mortgage rate is too high and they want to break out now and take advantage of the lower rates. I’m all about saving money.
I agree and start the process and ask them what their current high rate is. The response is usually something in the 5-6% range. All I keep thinking to myself in the back of my mind is how I would have killed to get 6% on my first mortgage. My first mortgage was at 11.8% and this after coming down from 13%. This was not all that long ago folks. Memories are short, I know. The funny story here is the broker I spoke with at the time told me the days of single digit mortgages are gone.
I do my usual qualifications, but I always start my numbers assuming a 5% rate. I don’t think I will every start an application below that, as what’s going to happen in 5 years after this recession blows over? Rates are going to go up. They can’t stay at this ridiculously low levels forever.  I would be doing a disservice to my clients to “pre-qualify” them at any lower rate.

Things have really tightened up at the banks/lenders these days, I’ll give you that. We wont be seeing the major sub-prime mess happen in Canada anytime soon, but what happens if I qualify someone for … I don’t know say $300K today at some low rate like 3.5% and in 5 years the rate goes to 6% (just a year ago) and now their ratios don’t work and they become house or mortgage poor?

When ever I “pre-qualify” someone today, I always make sure there is some kind of room, either in rates or ratios or terms. All I can think is I set them up in this mortgage and they come back to me in 3-5 years and I say, sorry we need to refinance in order for you to qualify again. That wont do much for my business nor anyone’s confidence in me as a broker.

So far in this business, I’ve seen 2 deals where people where buying well within their means. For these folks, rates wont matter until they get up to the 12% mark. Let’s hope we don’t ever go back to that level.
The smart folks I’m talking with tell me they want to break out, but then say they want to keep their payments the same. In one case I had to make sure the lender allowed a 20% increase in mothly payment as that’s how much of a savings they were looking at monthly. The norm is 15% in the industry. The exception is ING that goes to 25%.

What I’m seeing in the advertising world is “low, low monthly payments of $XXX” or I love it when they break it down even further by saying “low weekly” or “only $X a day!” making the consumer think, “Ya, I can afford that! That’s like 12 cups of coffee a day. Cheap.” OK, they’re not really thinking that as every major purchase is an emotional one. The perceived financial barrier is just reduced to a comprehensible number.
It’s kind of morphing into that in the mortgage world. The old “why rent when you can afford” lines. Rates are so low, you’d be a fool not to take advantage of them… for now, yes, but lets not mortgage (pardon the pun) our future today just to take advantage of low rates.

When calculating your own mortgage value, try to use at least 5% and a 25 year amortization. The perceived risk is low with lower rates and extended amortizations. Everything goes in cycles. We’re at the bottom now.

This week saw for me an turn of events that I must say gives me a rather large edge over my competition. Recently my “super” broker (as it’s know in the broker world) Mortgage Alliance Company of Canada (which we affectionately call MACC for short) launched a new offering for all agents within the company.

They call it the VIP lender hub. I have to extoll its virtues this week as it saved 1 deal for me. I see great potential in several ways down the road. The concept is I put together a deal, as I normally would, try first to submit the deal to a lender whom I think would be most appropriate. If that fails for whatever reason, I now have the option to discuss this deal with the “hub”. These are folks who have done so many deals with various lenders they are able to not only offer advice, but use their “good will” with their underwriters to squeeze that borderline deal through. This normally takes years and many multi-millions of volume before they even start to consider squeezing that deal through.
Not only do they get it done, but they also have earned special discounts on rates or terms which they are also able to pass on.

Last week I was harping on not competing on rates as either brokers with more experience or banks with virtually unlimited deep pockets would win that battle everytime. I still wont play that game, but I now have what I think is an ace up my sleeve where I can over deliever on my promise.

“Ya, that rate I promised you? I couldn’t get it for you. Instead I got you a lower rate.”

This business is all about managing expectations. It’s a difficult challenge with some people. I try to formulate in my head how the deal is going to go. Explain it to them, trying to give myself some margin for error. Sometimes the margin isn’t enough and I do my best to explain what area I made an assumption that proved incorrect. Other times, things work out so perfectly that I look like a miracle worker.  Sometimes timing is everything.

Like the timing of rates this week. I give people a rate and get them to sign a deal. The rate drops before the close and they say the rate we got was lower than what we signed.  That’s how it works.

Short post this week. Must go tell the world that the spring thaw has begun on long term money.

Last week I through in a teaser question to see if anyone was reading. I promised to give the answer this week. The scenario that was setup from last week was someone calls me and (who is being fairly rude in my opinion, except that they don’t view it that way at all) asks point blank what’s my lowest rate.

The teaser I posted last week said that the lowest rate I can offer is 0%. Assuming you meet normal qualifications for a typical mortgage, then yes ANY broker can make the same offer. Now if I’m feeling bold, I’ll ask them if anyone else can beat that rate. Finally we move on to the discussion point and hopefully away from rate and onto really what it is that they are hoping to achieve.

It’s that old adage “People don’t care what you show until you show that you care”. It’s really hard to show I care if they ask for a number and I give them what they ask for. If I throw something unexpected at them, then there’s an opportunity for discussion. Otherwise I might as well have a computer answer the phone. “In anticipation of your first question, today’s best rate is blah%. If you wish to talk to a live agent please press one now.”

The other point I’m trying to make here is that to me most folks have a problem or a goal they are trying to achieve. They’ve gone through all the possible scenarios THEY can think of and finally boil it down to one thing. Rate. I say I’d rather work with you to see what your trying to achieve, then figure out exactly what you don’t want or what is unacceptable and then provide you with what best suits your needs. It’s really hard to do this if I just throw a number at you.

I did have a discussion with a gentleman once. I was having a bad day, so I went the opposite way. He called and asked and I say 14%. Naturally his reaction was WTF!?! That’s the best you can get me? Without knowing ANYTHING about you yes, I can firmly guarantee I can get you a mortgage at 14%.

For all I know you could be a former bankrupt with no credit history. My only option is private money. For the risk, they ask for 14%. Well, I’m not bankrupt comes the reply. The discussion then ensues.

So anyone still reading? Still wondering how to achieve 0%?

How about nothing down? This one is really easy. Everyone tells me that CMHC wont do 100% financing. I say they are absolutely right, except the banks will. The deal goes in for 95% and through the goodness of their hearts (sorry I need to fix that sarcasm button, it seems to be dripping) the banks offer you an additional 5% “cashback” at close. For their generosity (sarcasm off) they are more than happy to charge you full posted rates…. for the entire mortgage.

Again, I fall into that category with ING. I don’t believe anyone should finance any property to 100%. After fees you are up to 105% and if you decide to sell, the real estate commission fees will add another 5% on top of that. Calgary 2 years ago would likely be the only time this would have worked with 28% increase in value in 1 year!

You are paying mostly interest costs in the first 5-7 years, so you might start to see some equity build up of significance in 7-10 years in order for you to sell and not have to pay to sell your house.

And finally, the answer you’ve all been patiently waiting for. Think of it in terms of a credit card. If you buy something on credit and you pay it off before 30 days are up, how much interest have you paid? 0% right? You paid before it was due. Everone is happy.

Well, believe it or not the same thing applies to a mortgage. You buy your home. Win the lottery or sell it before your first payment is due and pay off your mortage. Interest charged on the mortgage is 0%.

There are breakout fees naturally, but legally the banks, under their own charter are not allow to charge interest. So, technically speaking the interest is 0%.

If you have teenagers, at least mine are this way, you get used to this line of thinking. We tell them that they are banned from watching TV for the day/week for breaking the rules. We turn around and there they are on their laptops watching videos. We told you, you were banned. “Well, technically you said the TV. You didn’t mention anything about the laptop.” Oh, brother.

Some days I wonder if they will both grow up to be lawyers. Always looking for a way around some obstacle.