I have a little test for you.
Apply for a mortgage on these terms. You have enough cash on hand in your bank account, or in the form of liquid investments, to cough up a 35% down payment on a home. But you have no regular income. Maybe you’re between jobs. Or your husband left you. Or you’re retired. Nonetheless, you have an acceptable credit history, always played by the rules, owned houses before, are a ruly Canadian citizen and, besides, you have a fat down payment of 35%. Will the bank or the broker give you financing?
Now apply on these terms. You have enough cash on hand in your bank account, or in the form of liquid investments, to cough up a 35% down payment on a home. But you have no regular income and have never owned Canadian real estate. Nonetheless, you have an acceptable credit history, and that fat down payment of 35%. Will the bank or the broker give you financing? Oh yeah, and you immigrated to Canada a hundred days ago from Wazookistan and just got your permanent resident card.
Take the test. You’ll discover that the banks will refuse a mortgage to the Canadian and offer it to the new arrival. At a time when the feds are deliberately trying (and succeeding) to derail the national housing market by making it harder to people to score mortgages (like banning those 30-year amortizations), does this seem a tad odd to you? Even discriminatory?
It’s not widely known that banks and mortgage brokers have some special deals for folks who have recently decided to take up residence in this nation. In fact, catering to the immigrant crowd is a big business.
As BC mortgage broker Leah Coss puts it: “As a new immigrant whether you have a job or no job or are self employed, if you put 35 percent down, they don’t care about income, they aren’t going to ask you about credit. They just simply want to see the money, that it’s your own money. It cannot be gifted from a family member or anything like that. It has to be from an account whether it be an overseas account or local account. It has to be an account in your name and be your funds, then you can get a mortgage with 35 percent down.”
Says the Royal Bank: “Down payment without two years’ employment history: If you have a substantial down payment (35% or more), and aren’t able to provide the usual confirmation of employment / income to prove you can service a mortgage, you still may be able to get a mortgage by simply answering a few basic questions about your financial history, and your permanent residency status.”
Says Assured Mortgage Services: “New Immigrants can purchase with 35% down payment and have no job and no credit. Must be in Canada for less than 2 years.
Said a TD mortgage specialist when I interviewed him this week: “An immigrant would need at least 35% down, and a minimum of $40,000 from their own resources. They must have relocated to Canada within the past five years, and pass our own internal assessment. There would be a loan-to-value financing of 65%, but no income qualification or verification is necessary.”
Would the same person who is a Canadian citizen and has lost their job but still has an identical down payment get the loan, I asked? “Sorry, no. We require evidence that the loan can be serviced.”
As for mortgages insured by CMHC, with as little as 5% down, immigrants are also welcomed by our banks.
“In support of providing mortgage financing to new immigrants where no Canadian credit score has been established,” says TD Canada Trust in its online material, “our new policy will allow mortgage financing with loan-to-value ratio up to 95% for qualified new immigrant applicants and insurance from CMHC or Genworth.” In this case you need to be employed – for the last 90 days.
Canada needs immigrants, of course. So does our economy. Without immigration our population would atrophy and without the investment, skill and desire that newcomers bring, we’d all be poorer. But you’d think that twenty or thirty years of paying bank service charges, suffering bad advice from TNL@TB and being force-fed those dreadful mutual funds would have earned you at least equal footing with the new guy.
Alicia has a problem. She finds me uncle-ly.
“Hi Uncle Garth – Yes that’s what my husband and I think of you. You’re like Canada’s straight shooting, talk no nonsense uncle,” she writes. Guess it’s better than Dear Abby. But I’d personally have chosen something closer to ‘stud muffin’.
“I am hoping you can confirm that I am a good student and have read and applied your teachings. Hubby and I just bought a place in the Hammer (aka Hamilton). It’s old and strong and costs about the same as a 350 square foot decomposing pressed cornflake sky box in Toronto. Cost of the house is less than 2x our household income. We want less exposure to risk, wanted to be flexible, and wanted to build our savings and not have all our eggs in one basket.”
Good girl. Nice strategy. Remember the breathing mask filters.
“My question is this – I think it would be wise for us to lock in now for a 10 year fixed (Royal will give us 3.79%), but we are also thinking we should do the 30 year amortization the NL@TB is offering us. We think we can pulverize our mortgage in less than 10 years but like the flex of the 30. Did we get it right? Paperwork is not yet signed. Ps – you rock. Alicia.”
Well, babe, you’ve hit on one of the few advantages of a 30-year mortgage – locking in a rate for ten long years and then scaling back the monthly payment by extending the amortization. Using this technique you get a monthly which is about the same as that of a cheapo five-year home loan, and yet you need not worry about where mortgage rates will be in 2018 (and they won’t be pretty).
Moreover, because of the Canada Interest Act (I explained this in a recent post so boring people bled when they read it), the 10-year home loan actually becomes fully open at the end of five years, meaning you can pay off as much as you want, when you want.
Of course, there are two problems: (a) lower monthly payments with a 30-year mortgage mean you end up paying more interest than with a 25-year deal (but in this case you gain rate protection) and (b) F will soon crush the long mortgage out of existence. So, vite.
I told you last week that the Department of Finance, OSFI (the bank cop) and the Bank of Canada were about to lower the boom on thirty-year amortizations, because real estate is not croaking fast enough. (Just read this story to see how the world views our steamy little bubble.) When the post was published here Friday a banker made this comment to the mortgage industry newspaper, which reported on this blog’s facts:
A report on Greatest fools, blog of the day? Sorry, I will have to pass. Honey boo boo’s Mom is getting married which is probably more relevant to the mortgage market than any of GT’s wild speculations.
Don’t you just adore those bankers? They look great in their little Porsches after a Hummer rolls over them. Not that I would know.
In any case, my information was correct. The same mortgage newspaper was forced to report this on Monday:
Federal policymakers are exploring additional mortgage rule tightening, CMT has confirmed. A spokesperson from Canada’s banking regulator, The Office of the Superintendent of Financial Institutions Canada (OSFI), verified that it is looking at the issue of limiting amortizations to 25 years on conventional mortgages (those with 20%+ equity). Currently, those “low-ratio” mortgages can have amortizations up to 35 years.
For the record, the feds have done some damage control (it’s a sad day when Ottawa reacts to a pathetic blog), by moving their leak-type announcement up in time, and vowing we’ll be consulted on a change which will (a) lessen consumer options, (b) increase mortgage costs and (c) strip up to 10% from national home sales.
“A decision in that regard would be taken once we hear back from the industry. Any proposed changes to our mortgage guideline that may result from this work would be subject to a public consultation process.”
In reality, that’s a fraud. In the words of an Ottawa insider who knows better, “The public consultation is a sham…decisions are already made.”
And make no mistake. This is a big deal. As you know, 30-year mortgages are already verboten when a borrower wants or needs CMHC insurance, but there have been no limits placed on uninsured loans, where a downpayment of 20% is made. In the estimation of one analyst (Peter Routledge at National Bank) an astonishing 48% of all outstanding mortgages – insured and uninsured – in the portfolios of the monster banks have amortizations of longer than 25 years. Of all the uninsured loans, at least four in 10 have been financed over 30 years.
So, have the banks been playing fast and loose with risk? Do all these long, long mortgages taken out with lower monthly payments suggest millions have pigged out on properties they couldn’t finance otherwise? Or are the feds simply hot to squish the housing market every way possible, short of raising interest rates?
Beats me. I’m just Uncle Garth. So, Alicia, if you want to do the 10-year loan term hedged with a 30-year am, go back and see the bank lady before the lights go out. In a few weeks you’ll be F’d.