Tuesday, February 11, 2020

Survey says Canadians may need to rethink their approach to mortgages


According to a recently conducted survey conducted by Rates.ca, Canadian mortgage shoppers are willing to sacrifice in-person mortgage assistance if it means securing a lower interest rate.

Although 72 percent of respondents said they deal with live mortgage professionals either in-person or on the phone when getting mortgage advice, an astonishing 63 percent said they would consider using an online lender with no human support if the price is right.

Rather than expressing a misanthropic attitude toward mortgage agents, Rates.ca’s Rob McLister says the survey results speak more to the savvy of “mortgage shoppers”, who are defined in the survey as individuals who have had mortgages already, who are in possession of a mortgage that may be up for renewal or who are expecting to agree to a mortgage soon.

“I think it reflects people’s confidence in their ability to sort things out themselves,” McLister says. “Where you see a higher interest in speaking to a person for mortgage advice are first-time buyers, people who may not be as qualified – maybe have some credit issues, have trouble proving enough income – for those folks it’s much harder to get comprehensive, good advice online quickly.”

McLister says real estate investors should include themselves in that cohort.

“If you’re trying to build a rental portfolio, then there’s more value, I think, in speaking to a person. Rental financing is a fair bit more tricky than traditional single-family, owner-occupied financing. There’s things like rental treatment, how much of the rental income the lender will allow when calculating your debt values. There are limits on loan-to-value and a lot more rate categories.

“Until we get to a stage where there’s a lot more real-time advice tools for income property investors, if it were me, I’d prefer to speak with a broker first,” he says.

Some of the survey’s most surprising results emerged when respondents were asked what their most important considerations are when shopping for a mortgage. 47 percent said the lowest possible rate was the most relevant factor; 19 percent said it was the lowest possible borrowing cost.

“Those numbers should be flipped,” says McLister. “What you want to do is pay the least amount of dollars over the course of a term.”

Rather than indicate widespread ignorance of issues such as mortgage fees,

penalties, portability and refinance flexibility, McLister says the high number of Canadians who admit to being rate-hunters points more to the difference between the relative ease of rate shopping and the complex mental gymnastics required to calculate the lowest overall cost of a mortgage.

“It’s easy to look at a number and compare a number. It’s much more difficult to compare contractual terms,” he says. “Rate comparison sites are fantastic, and they’ve changed the game. They’ve tilted the balance of power more toward the borrower than the lender. But one thing they’re not comprehensive about yet is making it simple to compare all relevant contractual mortgage terms.”

But McLister sees a day in the near future when the information available online becomes more comprehensive, the calculators become more useful and mortgage shoppers’ comfort level with mortgage bots increases.

“Give it five years,” he says. “It’s going to be a very different landscape with respect to online mortgage advice. That means more savings for consumers without having to engage with a salesperson.”

Until that day arrives, investors will have to do some of the comparison work themselves. McLister encourages a three-step process for people hoping to find the lowest overall borrowing costs:

Pick the right term from the get-go. “It can impact borrowing cost more than anything else,” he says. “You want to do some research and get some advice about the right mortgage term given your five-year plan.”
  1. Visit a few comparison sites and find out what the best rate available is for your specific term. Look for notes associated with the mortgage types and compare the non-rate attributes.
  2. Once you’ve found a handful of interesting options, call the broker behind the rate and ask them to explain, explicitly, any significant restrictions or features that could save or cost money over the term, including portability, the ability to increase the mortgage before maturity, pre-payment penalties, etc
“Once you’re done with all that, you can have an informed view on which option is going to save you the most over your term,” McLister says.

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