CAAMP president Jim Murphy on mortgages
- June 4, 2007 4:32 PM |
- By Your Voice
CBC.ca welcomed Jim Murphy of the Canadian Association of Accredited Mortgage Professionals to answer your questions about mortgages on Thursday, June 7.
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- Download the audio of the interview (Runs 31:18)
Murphy is president of the CAAMP, the national organization that represents 10,000 mortgage brokers and lenders.
These days, the mortgage business is a fast-changing and fiercely competitive industry. Mortgage rates are going up (twice in the last month) and new mortgage products seem to appear almost every day as the industry devises new ways to address borrowers' needs.
Jim will answer your questions about the various kinds of mortgages and can address trends in the industry. His association has also done extensive research on the Canadian marketplace.
Every wonder why the posted rates at your bank are higher than the rates they end up offering? Ask Jim. Should you always go for the lowest rate or are there other considerations? Jim can shed light on this. Is it really possible to buy a house with no money down? Jim knows. What about equity mortgages? What about the big rise in foreclosures in the U.S.? Is that coming to Canada?
Jim can answer these and many other questions.
Thank you for joining us in this new project to make newsmakers accessible to you in audio and text, truly making it Your Interview.
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Comments (9)
Can you really buy a house with "no money down"? Does this only refer to the cost of the house alone? (Because aren't there legal and realtor fees, as well as property, mortgage, and deed insurance fees, and so on?) Please explain the minimum amount needed to buy a house with "no money down".
Jim Murphy
One of the things that has happened in the Canadian mortgage market over the last couple of years is that there's a lot more product out there. There's a lot more lenders, there's a lot more mortgage brokers, there's a lot more products with longer amortization and there are products with no money down. It's determined on loan-to-value. What is the loan-to-value of the property that one is taking a mortgage out for?
There are definitely products that are 100 per cent loan-to-value. There are even, in some circumstances, even higher. People will lend higher as part of a percentage of the loan-to-value of a property. So, yes, it is entirely possible to have no money down.
Having said that, at closing time, there are always additional costs that consumers, typically first-time buyers, should be very aware of. There are legal fees. There are, for example in Ontario and British Columbia, land transfer taxes or property transfer taxes.
Is a ten-year term with a rate of 5.74% a smart move given the two recent increases in the mortgage rates? Or is it better to do a 5-year term?
When considering the rates at the major banks, Mortgage Brokers rates seem too good to be true. What is the catch?
Jim Murphy
Clearly, this individual is looking for security. Canadian don't have a great history of even seven-year, let alone 10-year, mortgages. We lock in at five years.
In the United States, for example, 25- and 30-year mortgages are very common. In a rising rate environment, people are looking for stability and comfort.
Just ask your mortgage professional, whether a broker or someone at a bank, if they offer a 10-year mortgage and what their best rate is. Check out on the internet to see what might be available and what other lenders might have.
To me, 5.74 per cent sounds for a 10-year like a very good rate, currently. The posted for a 10-year is currently 7.15 per cent, so that's more than a point off.
I should say that our research also shows that Canadians get anywhere from a point to 1.3 per cent off the posted rate when negotiating, so it sounds good, but again, it's the specifics of the individual circumstance.
To what extent currently and in the future will the presence of mortgage brokers change the banking industry?
They seem to be on the rise, is this true and why? What niche are they filling?
Jim Murphy
Our membership at the CAAMP is about 80 per cent brokers and agents. About 20 per cent are lenders and insurers, including the banks.
Brokers in the last five to 10 years have really established themselves as an important distribution channel for mortgages in Canada. The United States has a much more common history of using mortgage brokers.
One of the reasons for that is that Canada had a history of national banks across the country, so that somebody could go to a local branch and deal with all of their financial needs, including a mortgage. In the United States, that wasn't the case because of regional banks. Brokers have a much larger percentage of mortgage volume and business in the United States than in Canada.
But in the last five to ten years, there have been a lot of changes in terms of new product and the growth of the mortgage brokerage channel. I think that mortgage brokers are seen in a very positive light. I think consumers like the fact that they can go to somebody that understand the business, that provides service, that will work for them on their behalf.
I think the mortgage brokerage channel has grown tremendously in Canada. It's probably about 25 to 30 per cent.
I see advertisements for making mortgage interest tax deductible - legally. Is this something I should be exploring, or is this a farce?
Jim Murphy
In the United States, interest on a mortgage can be deducted. There are financial products in Canada in which you borrow against your home for investment purposes. Under federal tax law, you're able to write off interest for investments.
There's something, for example, called the Smith manoeuvre, that has gotten a lot of attention. Obviously, people have to be comfortable with these things. It's a personal thing. The question about investments in equities and bonds is do you get a better rate of return that in real estate? There's lots of issues here.
I'm considering making my mortgage more flexible by picking one that has a) A long repayment period with small payments, and b) The option to double-up each payment. Therefore I would just double each payment, but if I needed money or lost my job, I could just switch back down to the smaller payments. Is there any downside to this plan?
Jim Murphy
I think he's raised an issue that more people are interested in. It used to be that when people got a mortgage, they were just interested in the rate, but there are a lot more factors that go into a mortgage. Additional payments or paying down the principal on a mortgage is very important to a number of people.
Before finalizing a mortgage, always ask questions about that because there's lots of different products out there that offer lots of different repayment schemes before penalties kick in.
Some mortgages may only be 10, 15, 20 per cent of principal allows on a calendar year or the anniversary of the mortgage renewal.
There are some products out there that allow doubling up on the payments. Generally speaking, lenders will allow you to call up and say you want to double up your payments for a certain period and then go back to your initial payment. But you have to advice the lender or whoever is administering the mortgage about that.
So, if you're paying weekly or monthly, you have your standard fee, and you can increase that fee by a certain percentage and on top of that, many mortgages allow lump sum payments on an anniversary of the mortgage within a calendar year.
I want to get into the house reno-flipping market. Is there a certain type of mortgage I should use and is there a no money down possibility.
Jim Murphy
Generally speaking, the rules and products available are not necessarily the same as apply to a principal residence. The assumption with the principal residence is that you'll make the payments, so there's perhaps more flexibility involved in that, as opposed to a second property or an investment property.
Clearly, there are a lot of new products out there, but there may be different stipulations. A no-money-down mortgage, for example, on a second property or an investment, rental or vacation property, there rules may be that they have to show commitment from the purchaser to that property. Now, it may not be a huge down payment, but that may be required on a property that's not your principal residence.
What are the mortgage options offered by the banks for buying land on which you plan to immediately build a house?
Jim Murphy
I don't know specifically if there are products just for that. Obviously, you can get a loan to make a purchase of property. Usually, a mortgage is tied to collateral, but that's not to say that one can't get a loan for a piece of property and pay it back over a set period of time.
How does someone 'negotiate' a mortgage? Is it possible to 'haggle' with a bank, or do they just tell you the rate available to you? Does a good credit rating or mortgage payment history give you any leverage?
Jim Murphy
A lot of this has to depend on somebody's financial situation, with their credit score. This is something consumers are becoming much more aware of. It determines what type of products are available, because there are a lot of products out there.
People don't necessarily pay the posted rate. That's a pretty recent phenomenon, in the past five or 10 years. You have the creation of the mortgage brokerage channel in Canada, which has about 25 to 30 per cent of the market. Our research shows two things: it shows when rates rise, people do shop. They may end up going back to the lender that they have. Canadians are pretty loyal to their lender. In a rising rate environment, they'll shop around and see what rates are and what products are available. I certainly encourage people to do that.
Our second bit of research shows that younger people much more likely to get more mortgage quotes than older people. That's party because people who are older and more established may have a smaller mortgage so a quarter point or even a half point on their mortgage may not have as big an impact in terms of monthly payments or weekly payments, as opposed to a first-time buyer who may have a much larger mortgage.
I don't think there's anything wrong with asking questions. Check out the websites, check out our website. Check out a lot of website for consumer information that would help people with terms, with types of products. Just ask lots of questions.
For a first home buyer, is having a downpayment recommended or are these 0-down worth considering? And if having a downpayment is the best action, is the Home Buyer's Plan recommended if expecting to payback the majority of funds borrowed against?
Jim Murphy
The Home Buyer's Plan is a very good program that the federal implemented in the 1990s that allows first-time home buyers to borrow up to $20,000 from their RRSPs with no tax implications towards the purchase of their home. So, if you're a couple, you can take up to $40,000 out of your RRSPs. Then, you have up to 15 years to pay that back into your RRSP.
It's really a question of your comfort level. The higher the down payment, the less the interest payments you would pay on that mortgage, the more equity you have in that home.
The research shows that the vast majority of Canadians, particularly first-time buyers, only are putting down between five and 10 per cent. People are not putting down 40 or 50 per cent on the price of a home.
The larger the mortgage, the more interest you're going to pay over the time of that mortgage, but that may be offset by the fact that people want to get into home ownership sooner, they want to build equity sooner. If they have a good credit rating and good job and steady income, then they may be able to get into the market and start building their equity.