11 Mar

Jingle Mail Debunked


Posted by: Val Thibault

          There have been many stories on the news in the last little bit about a surge in jingle mail. What is jingle mail you ask? It is when a homeowner is no longer able to make their mortgage payments due to a health issue, job loss or other life event so they choose to mail the keys to their mortgage lender thereby surrendering their home. The bank knows they have the house to do with what they will and the clients carry on unencumbered to deal with their life. The problem is that this is not how it works. At all. You cannot step away from your mortgage obligations and the consequences of not paying the mortgage in this way. I do not care what Bob at the coffee shop told you his brother did, it is simply not true. Let’s look at this myth and debunk it.

          So what can you expect exactly? If you stop paying your mortgage, for whatever reason, the bank and the mortgage insurers have legal recourse to come after you. I am not a lawyer and so I will not get into the particulars but you need to know that you are liable for the legal fees incurred by the lender to foreclose upon the property, any shortfall claim from the lender, the Realtor fees to sell the home, and the loss on the mortgage. These costs add up very quickly and are into the tens of thousands before you know it. They can take legal action against you even after the house has been sold to a new person. Yes, you are responsible for them and you agreed to be so in the mortgage documents you have signed.

          Another point to consider is this, once you have been foreclosed upon, the chances of you getting another mortgage are next to 0. The foreclosure will be reported on your credit report, to the bank and to the mortgage insurer if you had purchased the home with less than 20% down. Lenders are not likely to lend you the funds needed to purchase when you were clearly unable to meet your obligations the first time.

          So what should you do when life has left you unable to make your mortgage payment? Talk to the lender BEFORE things get out of hand to see if you can come to an agreement. If you don’t get anywhere that route, call your mortgage default mortgage insurance provider directly. Remember that big insurance premium which was added to your mortgage? It can come in very handy in this situation. Those companies do not want to see you mail your keys in as it is less expensive to help you now than it is to payout on a claim later. The 3 companies who provide mortgage default insurance in Canada are CMHC, Genworth and Canada Guaranty. Each has their own policy for these situations, as do the lenders, but they can help in a variety of ways.

1.  Capitalized Arrears- occurs when the money that was past due on your mortgage, along with any interest and penalties you have acquired, is just tacked on to the mortgage balance that you owe.

2.  Increased Amortization- The overall length of the mortgage can be stretched which will reduce the monthly payments.

3.  Partial or shared payment Plan – They may reduce your costs to interest only payments or a reduction to an interest plus a small amount to the principle.

4.  Deferred Payments – Your payments can be deferred up to 6 months.

5.  Promissory Note- The insurer can actually lend you the funds to catch up, often at 0% interest.

6.  Assisted Shortfall Sale – If the worst comes to pass and there is no way for you to keep the home, the insurer can assist in a shortfall sale. The benefit of this is that it leaves you in position that once you are back on your feet, you can be approved for another mortgage by the lenders AND the insurers. It is very important to note that each lender and insurer are different in their policies so you may not be able to access all of these solutions. If you put more than 20% down you are not likely to call upon the assistance of the default insurance provider. Call your lender, your mortgage specialist and you default insurance provider as soon as you think you may be in trouble. There are also insurance companies out there offering job loss and disability insurance so consider those options while you are healthy and employed.

That’s all for this week. Until next time.

9 Mar

Lines of Credit


Posted by: Val Thibault

         So there are vast arrays of financial products available for you. One of the more common is the line of credit or LOC for expediencies sake. Like most things it is neither good nor bad but let’s take a minute to have a closer look anyway, shall we?

         There are 2 types of lines of credit. The first is a Home Equity Line of Credit. It is important to note that this is in fact a type of mortgage. Your lender has taken the time to assess your home’s value and then has a lawyer register this against your home through the Alberta title system. This type of mortgage allows for great flexibility. You can pay it down as quickly as possible without penalty. You can also access the funds again should you have the need. The money can be used for whatever you like. And best of all you can make interest only payments which can be great for your overall cash flow. But as a well-known superhero says, “With great power comes great responsibility.” If you make interest only payments for the life of your mortgage, you will always owe the entire original amount. This product can be very insidious and needs to be managed carefully. It would be horrible to realize in 25 years that you still owe the lender the full amount.

         The majority of lenders have had to comply with recent government policy changes and now are only able to offer up to 65% of your home’s value for the LOC. Your local credit unions and a few others are still able to offer up to 80%.

         The other type of LOC is an unsecured product. With this one, you go to your bank and if your credit history is strong, they may give you a LOC. You are still able to use the funds for anything you need. Interest rates are often better than those available on a credit card. It can be a great tool for life’s bigger expenses such as a new furnace. Many lenders will still even allow you to use the LOC for the down payment on your new home. But the LOC can also work against you. First of all, you have to be disciplined enough to repay more than the interest only payments the lender will require. Set your repayment amount to 3% of the balance and you will be on the right track. As a part of the rule changes mentioned previously, we now have to calculate 3% as the monthly payment when qualifying you for a mortgage so carrying a high balance can hinder you come time to purchase a new home.

Use the LOC wisely my mortgage minions. That’s all.

9 Mar

Bank of Canada Maintains Rate At 1/2% Target


Posted by: Val Thibault

To no one’s surprise, the Bank of Canada announced today that it would leave its overnight rate target at 1/2%, just as it did on January 20 when it last met. The Bank noted that financial market volatility has slowed since the last meeting and oil prices and the Canadian dollar have strengthened. Consumer spending continues to underpin the economy as employment growth has held up despite continued weakness in the energy sector. Business investment is weak, owing largely to the demise of oil industry capital expenditure, but non-oil exports have rebounded owing to the weaker Canadian dollar. The Bank’s inflation assessment remains benign.

The Bank continues to anticipate significant fiscal stimulus in the federal budget slated for March 22 and will incorporate their assessment of the economic effects of such stimulus in their April projection. End of story.

What is more interesting is that today marks the seventh anniversary of the post-financial-crisis bull market in stocks. In March 2009, few people would have imagined that stock markets were on the precipice of a major and sustained recovery as the global economy was suffering the near-collapse of the banking system and the economy was in recession. But stocks have climbed that wall of worry more or less ever since thanks to enormously accommodative monetary policy. As Bank of America Merrill Lynch analysts point out in a note today, seven years of positive stock market returns came from 619 global interest rate cuts, $10.4 trillion worth of asset purchases by central banks, and $9 trillion worth of global government debt yielding zero percent or less.

Canada’s stock market was a top performer during the heydays of robust oil prices until 2014–but has underperformed since then. Nonetheless, the TSX is up more than 60% since the bull market began. This has been paled by the performance of the U.S. stock market which has surged 162% over the same period, which could well help to explain the remarkable success of Donald Trump and even Bernie Sanders.

The fact is, in the U.S. especially, the rich are getting richer and the middle class is falling further and further behind. Trump and, to a lesser degree Sanders, are appealing to the disaffected. Trump’s base are the lower-skilled, less-educated Americans who have not enjoyed the fruits of the economic recovery and stock market surge. They have seen their wages decline and their job prospects dim with Washington seemingly deaf and mute to their pain. These people are angry and fearful. Trump is promising a shake-up and playing into their xenophobia and prejudices, while Sanders is scapegoating Big Business and Wall Street. Both are blaming America’s free trade deals for killing American jobs and they have successfully touched a nerve. America has a long history of xenophobic fears of job loss–be it fear of the Japanese in the late 80s or the giant sucking sound of Mexico during the Ross Perot campaign in the 90s. This time, however, Trump has hijacked the Republican Party, garnering record turnouts attracting some alienated Democrats and Independents. Whether he runs against Hilary or Sanders, he will clearly be a formidable opponent. While he is not talking about building a wall between Canada and the U.S., he will likely continue to threaten free trade. Trudeau and Trump would not be comfortable bedfellows so Trudeau should enjoy his time this week with Obama as things could change drastically in the new year.

Article Source: Dr. Sherry Cooper Chief Economist, Dominion Lending Centres