We’re getting a lot of questions lately about mortgages, so we thought we’d get an expert to answer some of them. Gord McCallum, the Broker at First Foundation Mortgages here in Edmonton has provided some answers below, and will be contributing to the blog periodically to update us on what’s going on with mortgages.
Is it harder to get a mortgage these days?
The short answer is yes! If your credit is beat up, you’re buying a beat up house, you’ve got too much debt, no down payment, or you can’t prove your income it’s tough to get a mortgage. Otherwise, it’s easy!
The nature of the current mortgage market is that credit is more difficult to come by for lenders – therefore, they’re stingier than they have been in the recent past because they can’t afford to take any more risk. The good news is that, for 80% of people out there, they’ll still qualify easily for a mortgage. There is always demand for qualified applicants and good homes. That is simply being accentuated because of the current economic environment. Don’t forget, lenders make money by lending money…so they want to lend it to you. You just have to be able to pay it back.
I heard that rates have shot up! Is this true?
Actually, not really. Without getting technical, rates have both decreased AND increased – at the same time. From a technical standpoint, rates have decreased…however, borrowing has gotten much more expensive, so the spreads between the true cost of borrowing and what lenders are paying have increased. The net result is a slight increase in some rates – but nothing serious. In fact, interest rates are still very low on a historic basis and we’re likely to continue to see rates that are affordable for Canadians who have good jobs and are not carrying too much debt.
What happens if a lender goes out of business?
We’ve heard this question a million times. The reality is that some banks, trust companies, and brokers have gone out of business in the US and the same could, theoretically, happen up here. The good news is that the possibility of that happening up here is small, and it doesn’t have to affect your decision making or prevent you from getting a mortgage. If you’re afraid of a bank or mortgage-specific lender going out of business then this should put your mind at ease:
- Most Canadian banks and mortgage lenders have very little exposure to the US sub-prime market
- Most of the lenders we deal with that aren’t banks are capitalized with money from large banks and or large institutional investors
- The Canadian banking / financial system is the strongest in the world
- Even in the US the failure of several banks represents only a small fraction of the entire banking system and has not caused the foreclosure of homes. (That was caused by people not making their payments)
- Most importantly these financial institutions are lending YOU the money – not the other way around. Best case scenario? You get a free house (not likely). Worst case scenario? Someone else buys the mortgage and you continue to make payments – just to another company. Same terms. Same contract. No risk.
What should I do going forward?
- This too shall pass. Always remember that we’ve been through tough times before and will probably go through them again some day.
- Stop reading the newspaper. It only makes things (seem) worse and it won’t make your payments for you.
- Live within your means. If you can afford to spend or invest, there are bargains to be had out there. If not, reduce your spending and consolidate your debt (you can refinance to do this, and it can drastically improve your cash-flow and/or reduce your interest rates).
- Most importantly, make your payments so your credit stays strong and don’t panic. If you want to buy a home, buy one. If you’re thinking of investing in real estate or the equity markets, this is your time machine – you can buy now for prices we haven’t seen in a long time.
