To Rent Or To Buy? 8 Questions Canadians Should Ask Before Taking The Plunge

TORONTO – Should you rent or buy?

Conventional wisdom suggests it’s a no-brainer – buying real estate is a worthwhile investment with a high return.

Despite record low interest rates, the sky high prices and carrying costs are causing many to rethink the allure of home ownership.

When you factor in the costs of repair, maintenance and other expenses associated with owning a home, Toronto-based financial planner Shannon Simmons argues that renting and putting saved money into another investment – such as a stock portfolio – could earn more in the long run.

Simmons gives new clients a questionnaire asking where they see themselves in 10 years. Many answer “buying a house.”

“Then we meet in person, and they say, ‘Oh I don’t really care if I buy a house, but shouldn’t I want to?’”

Based on advice from financial planners—both independent and those employed by banks—Global News has compiled a list of questions (and some context) to help you decide whether buying or renting is the right move for you.

1) Do you have 10-20 per cent of the home’s purchase price saved for the down payment?

While it’s possible to purchase a home with as little as five per cent down in Canada, big banks prefer first-time home buyers to have an average of 10 per cent.

“If this is the property of your dreams and it’s a really good buy, and you don’t have the full 20 per cent down,” says Royal Bank of Canada’s Rachel Wihby, it may make sense to pay the mortgage loan insurance charged to anyone who doesn’t put 20 per cent or more down on the home.

But “the less you put down, the higher the amount that you’re actually being charged,” Simmons said. That could mean you end up paying an additional $10,000 or more.

2) Do you have another 1.5-5 per cent saved for closing costs?

First-time home buyers don’t have to pay realtor fees, but there’s a number of other closing costs that need to be taken into account.

Depending where you live, land transfer taxes can carry a “significant” price tag, said Farhaneh Haque, director of mortgage advice for TD Canada Trust.

“Lawyer fees, seller/buyer property tax adjustment, appraisal fees, home inspection fees, even just your moving costs,” Haque said.

David Stafford, Scotiabank’s managing director of real estate secured lending, added fire and loss insurance to the list, suggesting $50-$100 per month as a ballpark figure.

Stafford also stressed the value of a building inspection, particularly for first-time home buyers, who may be easily impressed by granite countertops and hardwood floors but miss such other details as an old furnace, a leaky roof, or electrical wiring that’s in need of repair.

“Given you’re contemplating a multi-hundred thousand dollar purchase, a building inspection for a couple hundred dollars isn’t a bad idea.”

3) Can you keep debt servicing below 40 per cent of your income?

Your total debt service ratio measures the percentage of your gross annual income needed to cover housing payments (principal, interest, property taxes and heat, known as “PITH”) plus registered debts like car loans, personal loans and credit cards if applicable. Simmons says this 40 per cent rule is “specifically to please the bank” and is the general eligibility criteria when applying for your mortgage at most financial institutions.

So if you add it all up, housing payments and other debts should be between 35 and 40 per cent of your gross annual income.

4) Are your monthly fixed costs at 50-60 per cent of your after-tax income?

These “fixed costs” include housing and transportation, groceries, toiletries, and “everything you have to pay every month whether you like it or not,” Simmons said.

“When the money hits your bank account, if more than 60 per cent is tied up in things that you can’t get out of every single month, then you have no room after that for spending money which is not a fixed cost – things like going out for dinner, going out with friends, weddings, anything else that’s not just a bill.”

Keeping this ratio under control ensures you have enough money left over to keep saving, and avoid becoming “house poor.”

“Once you buy a house, it’s not like retirement’s done; you still have to save for other things,” Simmons added. “You also want to make sure that you have enough cash flow every single month that you don’t have to go into credit card debt – and that’s what I see: house broke, all the time.”

5) Can you save 1-2 per cent of your income in a “housing maintenance fee” each year?

The top mistake Canadian homebuyers make? Underestimating “significant renovations needed to the property,” according to a recent RBC poll.

Stafford suggests asking your realtor, and getting a home inspection.

“Even if it’s in pretty good shape, most homes of any age, there’s something you’ve got to do every year…and you need to factor that into your cash flows,” he said.

Simmons advises setting aside 1-2 per cent of your after-tax income each year to what she calls a “house maintenance fund” to avoid going into debt.

“When there’s not that extra cash sitting in an emergency fund, if there’s a $10,000 renovation or if you get cockroaches … It has to go on debt, because you’re not going to live in a place with cockroaches,” she said. “That can take a long time to pay off if you don’t have flexibility with your cash flow.”

6) Do you plan to stay in your home for at least three years?

Haque said TD advises clients to think about their life in three- to five-year chunks when considering purchasing a home.

A young couple buying a condo, for example, should consider how soon they’ll need a bigger space if they want children in the near future.

Wihby suggests regarding a home as a long-term investment – it might not be worth it if you buy a home and sell it a year later.

7) Is your job stable?

Are you planning to stay in your field? What would happen if your income decreased?

These are some of the questions RBC planners ask clients to determine how monthly payments and lifestyle would change as a result of job fluctuations.

“So you need to think of things like, will you be on a single income household instead of two?” Wihby said. “Maybe that means you won’t be taking those trips you thought you’d be taking or maybe you won’t be going to the gym as often.”

8) Are you emotionally ready to own a home?

It may sound hokey. But this is a big lifestyle leap to take.

“A lot of people heard that it was almost a no-brainer to go into property, especially when we saw property prices rising like we did in the past,” Wihby said. “But I think a lot of people got into purchasing a home before they were ready emotionally.”

The impact of what Stafford calls the “single biggest financial commitment for most people” includes the mental shock of going from a tenant to a homeowner.

“When you’re a tenant, the month that cheque goes out, it clears your account, and then you don’t think about it for the next 30 days,” Haque explained. “But when you’re a homeowner, you have those multiple payments like home insurance, maintenance fee, utilities, property taxes, that you have to account for on an ongoing basis. And sometimes it’s very much a shock to your system.”

Simmons emphasizes that homeownership is a personal choice, and isn’t the imperative it was 30 or 40 years ago.

“I know a lot of professionals who just don’t want to be bothered cutting the grass on Saturday, and doing the gardening. … They would much prefer to rent and save a bunch of money, so they can travel every weekend,” she said. “If you’re not actually going to enjoy the house, what’s the point in buying it?”

Visit Dominion Lending Centres Mortgage Village to consult a mortgage professional.

Ten Top Tips For Getting An Overseas Mortgage

Geoffrey Simmonds of Connect Overseas provides some essential advice for anyone looking to get a mortgage abroad.

1. Get finance pre-approved. If you intend to borrow money to help you buy a property make sure you get the finance pre-approved before you commit to the purchase. If you pay a holding deposit to a property agent it is very unlikely you will get this money back if you are unable to raise the finance, so it is important you understand how much you can borrow and on what terms as early as possible. Knowing how much you can borrow before looking at properties will also help you understand exactly what you can afford and you can tailor your property search accordingly, saving you both time and effort.

2. Use a specialist independent mortgage broker. There are various ways you may be able to raise the finance you need in order buy a property. Using a independent mortgage service which specialises in both foreign and domestic property finance, may give you a wider spectrum of options that will enable you to keep the costs of finance down. Raising equity from your UK home or securing finance from a bank in the same country as the property are all options which should be considered. An independent mortgage specialist can help you understand all these options and help you to make an informed decision on which option is right for you.

3. Choose a mortgage that matches your requirements. Although it makes sense to use a mortgage provider that offers the cheapest product in terms of interest rate and mortgage fees, you should also consider other benefits that may be important to you. Variable rate mortgages are usually cheaper than those offered on a fixed rate, however fixed rate deals do give you the added comfort of knowing exactly what your mortgage payments will be every month, which is particularly useful if you are working within a budget.

If you are looking to buy a property as investment or intending to sell it within a few years you should also understand if any early repayment charges apply as these can be as much as 6% of the loan amount. Having a mortgage on a interest only basis instead of repayment may also help reduce your monthly costs, but this option should only be considered if you know exactly how you intend to repay the mortgage, as you will not be repaying any of your outstanding loan balance through your monthly mortgage payments. Another thing to consider is the standard of service offered by the mortgage provider, which is particularly important if you have a time commitment when buying a property. Using a mortgage provider with a good track record can mean you get a mortgage offer within weeks not months.

4. Be prepared to visit the bank. Some mortgage providers will insist that you visit them in person in order to sign the mortgage offer. This is of particular importance if you are buying a property located a great distance from where you live. Sometimes mortgage providers do have branches based within the UK meaning this process can be carried out closer to home.

5. Remember mortgage repayments are not always in pounds.Sometimes a range of currency choices are made available by international mortgage lenders when it comes to repaying a mortgage. Typically however property finance is expected to be repaid in the currency typically associated with that country, so for example in France the mortgage provider would expect your monthly repayments to be made in Euros. A currency specialist service may prove cheaper than your high street bank and therefore should be considered to avoid paying unnecessary fees.

6. Seek independent legal advice. An independent lawyer or solicitor means that they represent you and only you and have no interest in helping the agent sell their property. Impartial advice is important to ensure there is no conflict in interest ,which can occur if the legal representation acts for both the seller and the buyer.

Issues such as nearby upcoming developments or properties built illegally on land registered as agricultural (Spain is a good example of this) should be picked up by the lawyer early on to help prevent you from buying a “problem property”. Although a mortgage provider will carry out a basic property valuation as part of their process this is for their purposes and not yours, it is therefore important you do your own research.

7. Translate everything to English. Buying a property abroad can be a big financial commitment, it is therefore of up most importance that you understand every document and contract before signing them. Most mortgage providers will draw up a mortgage offer in the language associated to where you are buying and you should therefore get it professionally translated in to clear and simple terms that you understand.

8. Be mindful of currency fluctuations. Exchange rates can drastically effect the value of your property and should be considered not only when you look to buy a property but also when you look to sell it. A 5 to 10 percent drop in value of sterling against the currency where the property is located may push the property out of your price range or cause you to rethink the timing of when you choose to buy or sell. Currency rates are constantly changing and the advice from a specialist can help you understand what way the market is expected to move and secure a good exchange rate.

9. Buy to let finance is assessed differently. If you are looking to buy an overseas property as an investment with the intention of letting it out. An international mortgage provider will lend to you based on your disposal income and will not account for any monies you may earn by letting out the property, which is different to how mortgage providers assess applicants in the UK. Typically mortgage lenders abroad will expect you to have at least 35 - 45 percent disposable income left after your current credit commitments and new mortgage for your overseas property have been taken into account.

10. Be prepared not to refinance. Although many international lenders are happy to fund property purchases to foreigners a number of them do not offer remortgage or equity release options. It is therefore important that you are comfortable with any property finance terms you secure at the outset and that you do not stretch yourself financially. A common mistake made by investors is to buy a property outright using their own money with the intention of taking out mortgage finance at a later date, only to find that such an option is not available at that time.

Visit Dominion Lending Centres Mortgage Village to consult a mortgage professional.

Canadian Home Prices In For A Soft Landing, Overvalued By 26 Per Cent: Fitch

TORONTO - Sky high prices in the Canadian real estate market won’t be climbing for much longer, says a report by global rating agency Fitch Ratings.

The agency forecasted Tuesday that home prices across the country are in for a “soft landing” and will either flatten out or slightly decrease over the next five years. It estimates that current prices are overvalued by up to 26 per cent in some regions and could fall by as much as 10 per cent in some places.

Fitch Ratings said the Canadian economy will be exposed when this happens, as many homebuyers have financially stretched themselves to borrow for their home purchase and will be in for a shock once interest rates start to climb.

It noted a downturn in the housing sector will also impact jobs, as companies have scrambled to build new homes and push construction to record levels in recent years.

"With a high level of employment and individual net worth tied to the value of the housing stock, a housing downturn could have serious consequences for the overall economy," it warned in the 12-page report.

Fitch Ratings said home prices have surged more than 130 per cent since 2001, outpacing income growth by more than 80 per cent.

Despite the anticipated decline, the agency said there are several factors that will lessen the impact on the Canadian economy, including the overall low levels of unemployment and proactive government policy.

In July 2012, federal Finance Minister Jim Flaherty introduced tighter rules for mortgage lenders and borrowers — a change that industry says accounted for a slowdown in residential property sales that began the following month and continued through the first part of 2013. The efforts were aimed at avoiding a housing crisis like the one seen in the United States.

Although the policies have been successful at moderating mortgage debt, Fitch Ratings says housing prices still continue to rise.

"Government awareness has appeared to be high, and if the proactive policies specifically targeting a soft landing are successful, then flattening growth or modest decline scenarios become increasingly likely," it said.

Meanwhile, another report released Tuesday by the Conference Board of Canada also predicted that the housing market will be shielded from a hard landing.

"A crash would require a significant negative surprise like an interest rate spike or employment collapse. Since no such shock is in the cards in Canada, a housing crash like the one in the U.S. is nowhere near a possibility," said Robin Wiebe, a senior economist at the board’s centre for municipal studies.

Its Autumn Metropolitan Housing Outlook found that stability in the housing sector is can be attributed to supply continuing to be in line with demographics.

Last week, the Canadian Real Estate Association reported that home resales dipped in October for the first time since February, which some saw as a sign that the housing market is in for a correction.

Transactions fell 3.2 per cent in October from September on a seasonally adjusted basis. But the number was also an 8.2 per cent hike compared with October 2012, when home sales dropped following a tightening of federal mortgage rules.

The association’s national home price index also rose 3.52 per cent from October 2012 and the national average price for homes sold in October was $391,820, up 8.5 per cent from a year earlier.

Toronto, Vancouver and Calgary were responsible for much of the increase in the national home price last month. If they were taken out of the equation, the average price was up 4.9 per cent rather than 8.5 per cent.

CREA also said that the hottest markets in Canada so far in 2013 have been Calgary, Edmonton and Vancouver when judged by total sales volumes, which measures both price increases and units sold. On the flip side, the coldest markets were in Quebec City, Saguenay, Que., and Halifax, all registering double-digit declines.

Visit Dominion Lending Centres Mortgage Village to consult a mortgage professional.

How Do Real Estate Agents Determine Your Home's Value

Thinking about selling your home? Understanding what your home is worth can help you decide how much to price your home and how much it is truly worth. Get real insights from experienced Seattle, WA real estate agents. 

Local Community
Efficient emergency services and thriving local businesses ordinarily translate into healthy property and home values.

Your Neighborhood

Take a look around your neighborhood. Is it safe? Is it visually appealing? Or does your neighborhood have a high crime and poverty rate? Real estate agents, as well as potential buyers, look into these qualitative and quantifiable properties while assessing your home's resale value.

Quality of the School District
High quality schools raise your home's value. Poor school districts and low graduation rates have the potential to negatively impact your home's value.

Community Amenities
Local amenities such as parks and libraries have the potential to enhance local property values. If community amenities are un-kept, dirty and dangerous, this can negatively impact your home's value.

Urban Planning & Property Zoning
Property values can be influenced both positively and negatively by zoning decisions and community development plans. How readily available are local shopping, entertainment and eateries? Is there public transportation available or easy access to a freeway? What is nearby the home for sale? These important issues are things real estate agents need to consider before pricing a home.

State of the Economy
Home sales and the state of the economy go hand in hand. When the economy is flourishing, asking prices for home sales go up. When the economy is depressed, it will be more difficult to sell your home, therefore influencing to a lower asking price.

Perception of Your Neighborhood
Whether your neighborhood's perceptions are negative or positive, realistic or unrealistic, they do influence property values. These perceptions have the potential to drive your home price into the ground or up into the stratosphere.

Natural Disasters
Natural disasters such as hurricanes, wildfires and earth quakes have the potential to lower property values temporarily after such an event. If natural disasters are a reoccurring problem, it can depress your home value permanently.

Visit Dominion Lending Centres Mortgage Village to consult a mortgage professional.

New House Prices Fall, But Real Estate Sector Still Strong

After rising steadily since 2008, Statistics Canada’s new housing price index has flattened out in September, following on a 0.1 per cent increase in August, but a new report says that's no cause for concern as Canadian real estate development will remain strong.

New housing prices fell in Edmonton, Windsor, Ottawa and Montreal, but those decreases were offset by a 0.5 per cent jump in Calgary, which is seeing higher labour and materials prices as it recovers from floods this summer.

The flat housing prices are no cause for concern, according to the Emerging Trends in Real Estate report from Price Water house Coopers and the Urban Land Institute.

Canada’s relative economic health, especially compared to our neighbours to the south, has kept residential real estate strong, says the report, released Wednesday.

Trend to urbanization
Tighter mortgage rules and increasingly cautious banks have helped flatten condo prices, especially in North America’s hottest condo market — Toronto, the report said. But, cranes are expected to remain visible along major city skylines as projects already in the pipeline are fully built and but the trend toward urbanization keeps demand buoyant.

The trend among young Canadians to live, play and work all in the same neighbourhood is driving a boom in both condos and urban office development, says the report.

The outlook for development of all types of property – from residential to commercial – is good in Canada, according to PwC partner Lori-Ann Beausoleil.

Transit is of increasing importance to all forms of real estate development, she said.

Look for transit
“With challenging infrastructure in all major Canadian centres coupled with the urbanization trend, there will be a continued demand for retail, office and residential space in our urban centres where there is easy access to mass transit,” she said.

Redevelopment of urban areas and creation of mixed use real estate are key trends for the coming year, she said, especially in centres such as Vancouver, Calgary, Toronto and Montreal.

But the report says real estate that is far from transit, or a long way from residential areas may become underused and is less likely to be redeveloped because of a significant shift in where people want to live.

Increased automobile commute times and snarled traffic are turning people off suburban living and many Canadians are choosing condo living over the house with a yard which comes with a frustrating commute.

These include the 20-somethings, who are establishing lifelong habits of urban living, and baby boomers, who want to give up snow-shovelling and be closer to the symphony, the report said.

Changes to office market
Older commercial or suburban properties that are not close to transit may wait in limbo for redevelopment.

The office development business is changing with more demand for open layouts, shrinking space use per capita, technology impacts and demands for energy efficiency, Beausoleil advises.

She said the Canadian real estate sector is likely to remain strong for the coming year, and the U.S. market is likely to recover.

“The forecasts show that Canadian real estate players are able to both invest and attract investors. With the U.S. economy on the upswing, we are likely to see even more activity between the two countries, Beausoleil said.

“Over the last several years, Canada has been the interesting real estate story while the U.S. markets were in distress, but now, we expect that the continuing U.S. recovery will be the real story. Still, Canada’s strong market and the spending power of our consumers will continue to position us well in the international community as we head into 2014.”

Visit Dominion Lending Centres Mortgage Village to consult a real estate mortgage professional. 

What is the “Best Mortgage Rate” ?

It’s not synonymous with the “lowest mortgage rate.”

The best mortgage rate corresponds to the mortgage and advice that saves (and in some cases makes) you the most amount of money long-term.

Mortgage professionals routinely advise, “It’s not all about the rate.” To some, that sounds like evil sales-speak meant to boost commissions. The reality is that mortgage flexibility, contract restrictions and advice all have a definitive impact on borrowing costs. And most people don’t discover how much impact until after their mortgage closes.

That said, consumers are obliged to negotiate the very best deal they can. Three years ago, we asked ourselves, what kind of mortgage comparison website would we want if we were shopping for a mortgage ourselves? We thought up RateSpy.com.

RateSpy’s edge is data, lots and lots of rate data — more so than most other Canadian rate comparison sites combined.

Now, why on earth would someone need access to 3,000 mortgage rates and 300+ lenders, you ask? It boils down to probability.

At any given time, different mortgage providers are motivated to offer more heavily discounted rates. They may have:

Surplus liquidity (e.g., a credit union with excess deposits),
A need to replace assets in securitization programs (which is why we see big discounts on mortgages with odd terms, like 3.4 years), or
Internal volume targets that haven’t been met, thus encouraging more competitive pricing.
By definition, the more lenders and brokers one has to compare, the higher the probability of finding a lender motivated to discount below the market.

Of course, once you find a low-rate provider, that doesn’t mean its rate entails the lowest borrowing costs. Asking the right questions is mandatory to ensure the mortgage balances renewal risk with interest savings, and lets you make changes down the road—penalty free. This mortgage rate & features checklist can serve as a guide in that respect.

For these reasons, the interest rate alone can be a misleading number. If your lender or mortgage broker is quoting you a rate 10-15 basis points higher than what you’ve found online, it means nothing until you compare the features, restrictions and speed/quality of service from both providers

Our responsibility
Mortgage shoppers are, and will continue, flocking to rate comparison websites. But the information on these sites is vastly inadequate at the moment. Why, for example, don’t rate comparison sites speak to the penalty facing consumers if they break the mortgage early? Variations in penalty calculations can, and do, cost borrowers thousands more than small rate differences.

We have a responsibility to help consumers find the best overall deal, not just the best rate. The best deal factors in things like term selection, penalty cost, refinance restrictions, porting flexibility, advice on properly structuring an application, advice on building equity and so on.

Every Canadian rate comparison site I’ve seen underperforms in these areas. Even ours…for now. Our mission is to address these information deficiencies so consumers can identify the right combination of rate savings, flexibility and advice in an objective forum with no sales pressure.

Thereafter, we have to make it easier for folks to find competent mortgage professionals for a second opinion. Think about it. If you don’t have a trusted referral, where do you look to find a great broker or banker? How do you know the person you’re calling has the tenure, experience, qualifications and competitiveness to serve you best? Most existing advisor directories help you screen by little more than company, province or city.

Expect mortgage comparison sites to significantly evolve along these lines in 2014.

Sidebar: Rate comparison sites, in their present form, cater only to AAA fully-qualifying clients. Subprime,business-for-self and investor clients are a whole different conversation. There is currently no good mortgage comparison site for these customers, making knowledgeable mortgage advisors even more essential.

Visit Dominion Lending Centres Mortgage Village to consult a mortgage professional.

U.S. Government Shutdown Driving Canadian Mortgage Rates Lower, For Now

The U.S. government shutdown has had an interesting side effect for Canada: It has held out the promise of lower mortgage rates, and therefore a stronger housing market.

Not that the housing market needs much help these days. Housing starts jumped 5.3 per cent in September, according to data released Tuesday by Canada Mortgage and Housing Corp., beating analysts’ estimates. All parts of the country saw rising starts except Ontario, where they fell 15.6 per cent.

September house sales in the two most closely-watched markets, Toronto and Vancouver, are up 30 per cent and 63.8 per cent respectively, according to those cities’ real estate boards (though there is reason to doubt those numbers).

But the housing market could see even more heating, thanks to the U.S. shutdown. That’s because, with the economic uncertainty, investors are flocking to bonds, driving down bond yields. Fixed-rate mortgage rates are tied to bond yields, somortgage rates are going to come down as a result, according to RateSupermarket’s mortgage outlook panel.

Of course the flipside of lower mortgage rates is higher house prices, and Canadian municipal leaders are getting worried about the erosion of affordability, the National Post reports.

In a letter to Prime Minister Stephen Harper, Claude Dauphn, president of the Federation of Canadian Municipalities, urged the federal government to help address the shrinking supply of affordable housing.

“Housing costs and, as the Bank of Canada notes, household debt, are undermining Canadians personal financial security, while putting our national economy at risk,” Dauphin wrote.

But all bets are off if the gridlock in the U.S. Congress extends past the debt ceiling deadline on Oct. 17.

If the U.S. were to suddenly default on its debt, it would “devastate stock markets from Brazil to Zurich, halt a $5 trillion lending mechanism for investors who rely on Treasuries, blow up borrowing costs for billions of people and companies, ravage the dollar and throw the U.S. and world economies into a recession that probably would become a depression,” Bloomberg reports, citing dozens of experts.

So the good news for mortgages could be short-lived indeed.

TROUBLE IN TORONTO CONDOS?
The Toronto Star reports that some buyers of pre-construction condos are struggling to get financing to close their deals.

“Some have had to walk away from deposits worth tens of thousands of dollars. Others have been forced to borrow from family — or against their principal residence — to come up with final payments on condos that lenders are no longer keen to finance,” the newspaper reports.

It’s not just a question of lenders being more cautious in today’s housing market; tighter mortgage rules brought in by the federal government last year mean many who bought condos two or three years ago now have to make larger down payments than they bargained for, the Star reports.

“This is the hardest environment I’ve seen for borrowing money in the last 10 years,” Toronto condo developer Brad Lamb told the newspaper.

Visit Dominion Lending Centres Mortgage Village to consult a mortgage professional.

Alternative Mortgage Lenders Get Boost From Canada’s Resilient Housing Market

Shares in three of Canada’s biggest alternative mortgage lenders look set to rise over the next year due to the ongoing resiliency of the country’s housing market.

“Alt-A lenders should continue to see enviable growth,” said Shubha Khan, an analyst at National Bank Financial. “We believe that near-term housing market risks have moderated, particularly in view of more dovish comments on interest rate policy from the Bank of Canada.”

Mr. Khan said credit quality also remains sound with mortgage delinquency rates near historical lows. He increased his price targets on Equitable Trust Inc., MCAN Mortgage Corp. and Home Capital Group Inc. and reaffirmed his outperform rating on all three names.

Equitable Trust can be expected to rise 30% over the next 12 months to $64, while MCAN will jump 22% to $16 over the same period, he said.

Home Capital Group, meanwhile, is set to climb as high as $95 – a 17% gain – after reporting solid third-quarter earnings on Wednesday after market close.

The company, down about 2% in trading on Thursday — the same day Finance Minister Jim Flaherty reinterated that rates will eventually rise — reported earnings per share of $1.90 on net income of $66.4 million compared to EPS of $1.65 on net income of $57.3-million a year ago.

“Home continues to post record earnings, with no signs of house price weakness evident in its results,” Michael Goldberg, a Desjardins Securities analyst, said in a note to clients. “We project continued earnings and dividend growth, now augmented by securitization gains.”

He said the stock’s rollercoaster performance in 2013 has been largely driven by movements in its short position, but expects that position to decline, driving the price up further. He maintained his top pick rating with a new higher target price of $93.50.

GMP analyst Stephen Boland is not so bullish, however, and left his hold rating and $86.50 price target for Home Capital shares unchanged.

“The stock has performed better than we expected entering the quarter which we believe was an anticipation of the strong results and a general sector rotation into financials,” he said. “That said, we have moved our valuation out a year but are not comfortable upgrading at this time due to the valuation.”

Visit Dominion Lending Centres Mortgage Village to consult a mortgage professional.

Clients Less Willing To Renew Early… For Now

Following historically low lending rates, clients are less likely to opt to renew early, leaving few opportunities for independent brokers to try to entice clients to switch lenders… for now, at least.

“Clients (were) getting 2.79- 2.89 five year mortgages and there is no incentive for clients to jump ship earlier and opt to renew early,” Lee Welbanks of Verico Welbanks Mortgage Group told MortgageBrokerNews.ca. “The banks certainly have the advantage because they can renew four months out and they aren’t charging clients a penalty to renew.”

Nevertheless, clients who signed up for five-year fixed rates five years ago – and whose mortgages are now maturing — will likely look to renew, as rates are lower today than they were when they signed up for the current term.

“The variables rates are in vogue right now and we have high rate fixed rates coming out of maturity and so they’re happy to get in on an early renewal,” Welbanks said.

In many of these cases, clients are usually satisfied to stay with the original lender; leaving few opportunities to entice clients to leave. Though that shouldn’t sway brokers from trying.

“We’re trying to find the deals where the clients need more funds. I have some who like my services but, at the end of the day, clients often opt for the path of least resistance – so they choose to renew with the banks or their current lender even if they have to pay a little more,” Welbanks said. “I think the idea is that we need better incentives in order to switch clients; that may be a cash incentive for the hassle they go through, that may be other products you offer.

“It could be a myriad of things but at the end of the day, we can never stop trying, as long as we are not doing something that acts against the client’s better interests.”

And even if that fails, there is always the knowledge that the future will bring with it a leveler playing field.

“The playing field will be more level in 4.5 years because we won’t see as many early renewals. It’s a brand new deal and they have to play with whatever rates are available,” Welbanks concluded.

How To Beat Banks At Renewal Time

The challenges of the traditionally slow winter season is now being compounded by banks contacting past clients 120 days ahead of renewal – and just out of reach of the brokers’ 90 day rate hold.

“I’m relatively new so I still don’t get those return clients with renewals (and) this time of year in Ottawa it’s slow because people don’t want to move in in December and January,” Nick Bachusky told MortgageBrokerNews.ca. “The banks are getting to the clients first – 120 days out, the managers get an automatic message saying whose renewals are up and then the specialists contact the clients with the best rates. It’s tough for brokers to compete because we can only offer at 90 days out.”

The banks tend to have the rate advantage and it can be difficult to sway a previous bank client to move the mortgage to the brokerage side.

“The banks go on floors: they don’t make revenue on it, they make more on volume (and) if it’s a war on rates, the banks will usually win it,” Bachusky said. “They can go to upper management and get rate matches and clients are more willing to stick with the bank because no new paperwork has to be done and no new rules need to be discussed.”

However, one way to get a leg-up on the competition is to focus on other areas of wealth management and providing customers a more holistic financial services approach.

“For renewals, what we’re finding, is that with our client base we offer more than just mortgage services,” Patrick Briscoe of Mortgage Alliance told MortgageBrokerNews.ca. “We have a little bit more client dedication in the fact that they come to us first to get an opinion on what they should do.”

Briscoe believes it can be difficult to compete on rate but it’s this other services that help keep the client, in many cases.

“We have seen competition from the banks for sure as they compete for rates, but at the same time by offering other services we have been able to maintain the client,” Briscoe said. “We do investment services, life insurance and income tax preparation.”

Perhaps this approach is the best way to stay competitive during this important time of the year.

“It’s nice to have a niche in what we’re doing but we think it’s necessary for brokers to have the same sort of model if they want to remain competitive,” Briscoe said.

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Flaherty: House Prices A Worry, But No Mortgage Crackdown For Now

OTTAWA - Finance Minister Jim Flaherty is taking on the responsibility of averting a housing bubble in Canada that could destabilize the economy, adding he will speak to those in the business to try and keep a lid on rising home prices.

With the Bank of Canada essentially taking itself out of the game by signalling interest rates won’t be raised for some time, Flaherty said Monday after meeting with about a dozen economists that it falls on his department to ensure the market is stabilized.

"It does fall to the Department of Finance to do anything if we’re going to do anything because there’s basically no room for the Bank of Canada to move," he said.

"Some of the economists suggested I have some conversations with people in the building industry because what we’re seeing in certain parts of the country (is) a re-acceleration of housing prices. I do speak regularly to people in the business and I’m going to do more of it now."

Flaherty said he has no intention of acting at the moment, but said he was keeping an eye on the market to see if the current uptick in sales and prices is temporary or the beginning of another hot run.

Most economists see the market slowing after the recent resurgence, including the Bank of Canada. But the central bank also cited the “renewed momentum” as one of three domestic risks to the economy in its October monetary policy report.

"This (the resurgence) would provide a temporary boost to economic activity, but could exacerbate existing imbalances and therefore increase the probability of a correction later on," the bank said. "Such a correction could have sizable spillover effects to other parts of the economy and to inflation."

The minister has been active in the housing market throughout his tenure, at first easing rules but more recently clamping down as Canadians took on ever-increasing debt levels to buy real estate.

The latest measure, which came in July 2012, was followed by a slump in sales and a slowdown in price gains. But the market began picking up again during the summer, particularly in Toronto and Vancouver, with the average home price hitting a new record high of almost $386,000.

Home prices are not Flaherty’s only worry.

The minister told reporters he remains focused on trying to eliminate as much as possible the price gap between the United States and Canada that one recent report pegged at about 10 per cent.

Flaherty said he has been meeting with CEOs of the country’s major retailers to ask for explanations as to why prices for the same items remain elevated in Canada, adding that he is not altogether persuaded by the answers he has been given.

"There are some companies that look at Canada as a relatively small market that is relative well off, (with a) large middle class, and, ‘Let them pay a little more, and they’ll pay it.’," he said of merchant attitudes.

However, Flaherty said he will wait until the results of a study being conducted by the market research firm Nielsen before deciding if anything needs to be done.

"It becomes an interesting question of what the government can do about that … there are always persuasive techniques that can be used to nudge people in the right direction," he said.

The minister has deployed the approach before.

Earlier this year he personally phoned the Bank of Montreal to “persuade” it to raise its five-year fixed mortgage rate after BMO cut it to 2.99 per cent. Flaherty said he was concerned about a race to the bottom on rates that would trigger unsustainable borrowing.