The Vancouver Life Real Estate Podcast Episode 13 - Interview With Andrew Wright, Mortgage Broker

The Vancouver Life Real Estate Podcast Episode 13 - Interview With Andrew Wright, Mortgage Broker

Kicking off the 3 part series that takes a deep dive look into the key members you need on your team, we start with Andrew Wright, a Mortgage Broker with The Mortgage Group.  Andrew walks us from start to finish on what is required to obtain financing, how much you can expect to qualify for and his thoughts on the future of interest rates.  For more information on Andrew, please visit wrightmortgage.ca

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Interview With Andrew Wright, Mortgage Broker

Dan Wurtele  0:02  

Hi, and welcome to the Vancouver Live

Ryan Dash  0:04  

podcast. This podcast is created to answer the most talked about questions when it comes to navigating the Vancouver real estate market. I'm your

Dan Wurtele  0:13  

host, Dan Wurtele, a licensed agent and accredited Real Estate Investment Advisor based here in Vancouver, and I'm joined by my co host Ryan dasht iden.

Ryan Dash  0:23  

I'm also a local realtor and exhausted father of two, husband of one and really happy to be here.

Dan Wurtele  0:30  

Let's get right into today's episode. Hi and welcome to the Vancouver life real estate podcast. Today we're kicking off a three part series discussing the key team members that you need to successfully purchase a home in Vancouver. There's going to be a mortgage specialist then we talk with a home inspector and lastly a real estate lawyer. So as financing a home is one of the key and one of the first fundamental aspects to understand when purchasing Home. Today we're talking with Andrew Wright from the mortgage group. Andrew, thank you so much for joining us today. Why don't you start by telling us a little bit about yourself and how you got into real estate.

Unknown Speaker  1:10  

Thanks. Thanks, Dan. And thanks for having me on on the podcast. It's been it's been 12 years now since I first signed up with with TMG. And it's been it's been quite the ride the this the suggestion for me to to enter the real estate market was actually done by a friend who was a realtor at the time. I was unhappy in my current in my current role back then, and she said, Hey, you should look into becoming a mortgage broker. I didn't even know what a mortgage broker was at that time. Yeah, I was like, What is a mortgage broker? So I immediately went home and googled it and realized that it sounded like something I could I could excel at based on you know, what I was currently doing my skill set and everything else. So I pretty much signed up that day. And yeah, it's given the fact that it's been 12 years if we do a bit of quick math that puts us in fall of two I wasn't eight, when I first started. So on your that was a fun year, that was a stressful year.

Ryan Dash  2:06  

That was, did you think that you might not make it as a mortgage broker in that year?

Unknown Speaker  2:11  

Just out of curiosity? I did. Absolutely. Because that's the one of the things that they first say to you, when you go into training. Maybe it's the same with a with a real estate firm as well, they say, you know, you know, the reality is that it's a very competitive industry. A lot of people don't make it through, especially given that there was a global financial crisis at the time. So I was lucky to have a good network of people that I already knew outside of real estate, friends, family, that kind of thing. And then some of the people that you meet along the way I've been, I've been unbelievably helpful. So yeah, it's been it's been an interesting ride so far, and looking forward to tomorrow and being good at what you do. I mean, I'm just pretty good at what he does so well. I'm only as good as my last deal. I think that's like a true man.

Dan Wurtele  2:52  

I was gonna say starting in 2008 probably prepped. You really good for 2028

Unknown Speaker  2:59  

kind of dead Yeah. Well I right around right around 2018 I was getting a bit nervous because I was like these things happen every 10 years or so. And then two years passed, but honestly, pandemic like Who knew? Right? I

Ryan Dash  3:10  

didn't see that coming. And what next?

Unknown Speaker  3:13  

For sure. Well, we've got giant moths now.

Ryan Dash  3:17  

So a plague is coming.

Dan Wurtele  3:19  

So Andrew, a lot of our listeners are first time homebuyers. And so I think you know, starting on sort of a very basic level, let's get into why getting financed. And understanding the financing aspect of it is a very key first step to understanding how to buy a home and of course, what you can afford.

Unknown Speaker  3:37  

Yeah, no, absolutely. I think that going through the pre approval process is super important for anybody looking to jump into market as first time buyer or to re enter the market or even if you're an existing owner to refinance and essentially a pre approval will accomplish a few things. The first most important thing is it's going to let you know what you can afford what what's in your wheelhouse. What Your payments are going to look like it's going to give you a budget, it's going to give you sort of like a maximum price you can look at and then it's going to give you a realistic price that you can look at. I think as well that from from a real estate agent perspective, I mean, if you're if I'm a first time buyer, and I'm coming to an agent, and I don't have any idea if I'm pre approved or anything, I'm not really letting my agent do the best job they can for me, so if I come prepared, that agents going to be able to hopefully knock it out of the park for me,

Ryan Dash  4:29  

yeah, that pre approval step for us is is like step number one. Yeah, I mean, for us, it's, it's really hard to know what you want to buy. If we don't know what you can afford to totally buy or where Yeah, cuz Vancouver is very, it's dictated on price. Yeah, largely

Unknown Speaker  4:46  

100% especially in like a low rate environment like today where there's potentially going to be multiple offers and that kind of thing.

Dan Wurtele  4:53  

And definitely, as a buyer as well, it's it can be very upsetting. Let's just say to go and look at a bunch of homes and get excited and then find out you don't qualify for that amount and you have to look at a very different caliber of home have so understanding your price range first sets really good, strong expectations into what the experience is going to be like and what you can afford.

Unknown Speaker  5:13  

Yeah. I think another aspect of the pre approval to do from from the buyers perspective too is that as a first time buyer, it can be stressful, you don't really know what the process is like until you go through it. So what I really tried to do is just guide people through the entire process, run some scenarios say this is what probably is going to happen. These are the documents that you're going to need to provide. This is what downpayment looks like this is what your income looks like, what there'd be a gift from your family will there be

Ryan Dash  5:38  

so that pre approval then I mean, are there some basics that the you know, an applicant's going to need just right off the hat and we don't want to get too deep into it, but just you know, the basic necessities that somebody should be prepared for when they talk to you?

Unknown Speaker  5:49  

Absolutely. income verification, especially right now, given the fact that there's been so many layoffs with COVID very important. So all the lenders banks are asking for In most cases, I can say all but in most cases income verification up front. So that means if you're an employee, they're gonna want to see a job letter from your employer saying that you work there and how much you make, how long you've been there, coupled with a pay stub to show that the money's coming in. If you're self employed two years of tax returns to show that you've got money coming in plus notices of assessment show that your taxes are paid those broad broad terms those are sort of what the banks are gonna be looking for these days. Sounds fair for us self employed people. Yeah.

Dan Wurtele  6:32  

I think you've touched on something good earlier too. And a lot of people it can seem I guess a bit scary to enter into not only homeownership but understanding financing and I've got some clients that of course were sent to you Andrew and they were first timers, they had no idea about the process and what they could qualify and they honestly thought they couldn't even afford a home. And they were very pleasantly surprised by the process and what they could afford. And honestly it was only two months later, they got the keys to their new home and they've been in there and so happy ever since accident. So I think sure on, like not knowing or being on the other side of it, it can see maybe a little intimidating. So I think it's always just worth a conversation. You know, Andrew is always available for, you know, a phone call, right. I don't think there's anything. There's no real commitment at that point. It's just understanding the process and what you may qualify for, because, like I said, we've got some real world examples of people who have done that and come out the other side, very happy and surprised about how it all works.

Unknown Speaker  7:24  

Yeah, I think that's I think it's important. I mean, just before coming to this meeting, today, I had a conversation with a gentleman who's probably a year out from from buying a place. He's currently at 60% of his salary due to COVID. But he is expected to come back. He's also expected to come back to being able to work remotely, which is interesting. That's something else that we're seeing a lot right now. Previously, are we?

Ryan Dash  7:43  

Yeah,

Unknown Speaker  7:45  

exactly. Right. Previously, you know, you had to be in the same city, to be able to commute to your job to make that to make that mortgage work these days. More and more. We're seeing employers say, Hey, you know what, due to COVID you guys can work remotely and that's opening up a lot of different Buying options for people?

Ryan Dash  8:02  

Yeah. So we're noticing that a lot of people are moving from their one bedrooms to two bedrooms so that they have a home office or something to that effect. Right. So, okay, let's get into a little some nitty gritty here. I every time I talk to a new buyer, they often confuse down payments and deposits. Right? And what do I need available and when? right because and for us, it's, it's it's very straightforward, but I think for the for the buyer, especially a first time buyer, it can be quite complicated, absolutely.

Unknown Speaker  8:30  

So, downpayment says it's very, very close second to income, if not maybe a little bit more important than income. for down payment deposit is part of it. So the deposit actually forms a portion of the down payment, and it's it's the chunk of money that you give to the seller on the subject mobile date to firm up the deal. It means yes, all of my financing conditions are met. I've 100% for sure, got the mortgage, and now that I know for sure that I've got that mortgage I'm saved to give the deposit to the seller, which is of course non refundable.

Ryan Dash  9:04  

What typically in terms of size deposit, we see is usually 5%. Because that's what we normally recommend something from somewhere around there.

Unknown Speaker  9:11  

Yeah, 5% seems to be fairly common. I think that in certain scenarios where there's multiple offers on the table, then the deposit will be increased. And the reason the deposit increases, because it gives the seller more incentive to accept that particular offer. They're like, wow, more, more money faster. Great. I'll take that offer over this offer. totally makes sense. So what happens with deposit it gets held in trust at the lawyer's office, the remainder of the downpayment funds will be required at the also at the lawyer's office, usually five to 10 business days before the completion date of the purchase. I think, you know, downpayment and deposit are important, but also the source of those of those funds. That's what really needs to be taken, taken into consideration, too. So,

Ryan Dash  9:53  

where that's coming from and how long it's maybe been in your account. 100%, right.

Unknown Speaker  9:57  

Yeah, exactly. It's kind of like it's anti money laundering legislation. Yeah,

Ryan Dash  10:00  

cuz if more or less your buyer just comes into 250 grand, yeah. And there's no real explanation for it. Yeah, it's gonna be difficult to also get him financing or financing.

Unknown Speaker  10:10  

Totally. Yeah, thanks. Okay, this guy makes $30,000 a year, but he has $250,000 in cash.

Unknown Speaker  10:15  

Yeah, yeah.

Unknown Speaker  10:17  

Why is this the case? Yeah, no, for sure. It has to make sense. Something else that we're seeing a lot of these days, especially for first time buyers, and given the fact that our parents have all the equity is the gifted downpayment, right? So, family will hand down money to the kids, usually the former downpayment on home. those gifts are anywhere from $10,000. Plus, I've seen some really big ones. Those are easier to document. You don't need a bunch of bank statements. Usually, it's typically just a letter from the parents, along with one bank statement from the buyer showing that the funds are in the account that usually satisfies the bank.

Dan Wurtele  10:51  

Got it? So maybe that's like a top level example. What can you sort of advise, purchase power versus income right now? I know it's a loaded question. And every case is unique. But like, for example, if somebody makes 75,000, what can they typically afford? Mm hmm.

Unknown Speaker  11:08  

That really comes down to a couple things, the amount of debt that they're that they are carrying on the application, for sure, that's huge. And the amount of downpayment that they that they're coming into it with, if they can, if you can get in there with a 20% down payment, rather than less than 20%, you're going to avoid CMHC insurance, which you can talk touch on, I imagine in a minute or two, and you're gonna be able to qualify on a 30 year amortization. So with that 30 year amortization, basically you're stretching the mortgage out that extra five years and by doing so, it distributes a smaller monthly payment to the application. So the bank's like, Okay, well, you can you can afford more based on the fact that the loan is stretched out, or further distance

Ryan Dash  11:48  

that just decide to I think a lot of people actually live in the down or not in the down payment, sorry, live in the monthly payment, right. So it's, you know, it's one thing when you when you say, look, you need to put $100,000 down here, but I think the more critical question that people often think about is, what is this going to cost me every month? And can I still go and buy some beer at the end of it? Or am I going to be house poor exam? right and and that I think for first time buyers is crucial.

Unknown Speaker  12:12  

Yep. That that's that is crucial. And I think that the stress test, just to elaborate further on that is almost helped with that. Because just to back up for two seconds, the stress test basically is a it's a safety measure that makes sure that the buyer will still be able to make their mortgage payments, if payment if the rate that they currently have goes up two or 3%. And that's one of the main reasons why the Canadian housing market is so strong, it's because we have that stress test. It's not always easy to get into the market because of it, but it does give you that buffer. So the buyer essentially is guaranteed the fact that they'll have at least some sort of wiggle room between what their actual monthly payment is and what the absolute maximum is that they can afford. And that that buffer will be there if you know their day to day their living expenses

Dan Wurtele  12:59  

go so as you can see It's not a finite answer. If I make x, what can I buy? Yeah, it is. There are a lot of moving pieces here. And of course, that's why a mortgage specialist is required, right to help you navigate that and to also show you your options, right? Because if you were to maybe just pay off a student loan or just not buy that car this year, you know, your buying power can change significantly. Yep,

Unknown Speaker  13:21  

exactly. And you're right. It's not it's definitely not a straight answer. I mean, there's certain things like strategies as well will factor into an into an equation like you could buy an older building. And maybe the strategies in that building are 250 bucks a month or something like that. Or you might want to buy something new and shiny that has the pool and the gym, everything else, and your strategies are 400 500 600 bucks. So those types of things factor into how much you qualify for property tax qualified factors into how much you qualify for this, the square footage qualifies because he hasn't put a heat component in there. There's all there's a gazillion little moving parts, which which generally affect things

Dan Wurtele  13:57  

right. So yeah, the banks are smart. Right there. not in the business of losing money here. So they're basically just protecting themselves. They're saying what can this person truly afford with all expenses in? And we can lend on that? Is that

Unknown Speaker  14:08  

about right? that's accurate? Oh, for sure. And it's and it's they will they will give themselves a buffer on top of that, too, just to make sure but because that you hit the nail on the head, Dan Exactly. They're they're definitely not in the business of losing money at all.

Dan Wurtele  14:22  

That's why they got the big buildings downtown. They're doing something right. those buildings are not inexpensive top. Yeah, all the floors. So yeah, you touched on a great topic, which I think we should discuss a little more here is CMHC getting what is what is the difference between an insured mortgage and an uninsured mortgage and which one do I want?

Unknown Speaker  14:45  

Right. Good question, Dan. Okay, so CMHC is the Canadian housing mortgage commission and they exist to for various reasons, but they essentially for this discussion, they pretend they protect the bank. against the borrower defaulting on a loan if they have less than 20% down payment. So worst case scenario, I get a mortgage, I lose my job, but I only put 5% down and I paid that premium. If I go into default and the mortgage goes into foreclosure, the bank is guaranteed to get their money back doesn't protect the borrower protects the bank. That's that's one way to do it. On the other side of the coin, if you have 20% down payment or more, this is obviously just in purchase scenarios, then CMHC insurance isn't required because that in that case, the banks are looking at the borrower, they're saying, well, this person has 20% going into the property, they've got enough. They're providing enough equity into the property. So that worst case scenario, they lose their job, the bank will get their money back.

Ryan Dash  15:42  

So it's like, like any buyer or any seller. It's a risk tolerance that the bank is really working with. Yeah, they're evaluating you based on your credit score. How often do you pay your bills, all that kind of stuff? Hundred percent? Yeah.

Unknown Speaker  15:55  

So the CMHC will apply a mortgage premium that gets built in To the mortgage as well. So say for example, that's a tiered system. So when I say tiered, it means that if you go in with a 5% down payment, you're going to be paying the highest possible CMHC insurance premium. And the reason why, as you said, it's risk dication, they're like, well, this person is only coming in 5%. If they decide to not pay their mortgage, or if they can't pay their mortgage, no one decides to not pay their mortgage, but if they not unless you're in the wrong state.

Ryan Dash  16:25  

It's your mortgage. All right.

Unknown Speaker  16:29  

Then in that case, they're gonna they're gonna charge you the highest premium highest risk that's out if you're in that maybe 15% down payment, you'll see that premium come down significantly.

Ryan Dash  16:38  

So not all CMHC quotes are created equal, correct?

Unknown Speaker  16:41  

Correct.

Dan Wurtele  16:42  

Is it is it a percentage base or a flat dollar fee? or How did they determine the amount? It's a percentage base? Okay, yeah, got that. Okay, so,

Ryan Dash  16:52  

yeah, just while we're on that quick question, I think I get I get asked this from clients of mine who are getting insured mortgages and they always ask Oh, well, there's an insurance premium. I can just roll that into my mortgage right? To make it the answer is is

Unknown Speaker  17:05  

okay. Okay, let's double check.

Ryan Dash  17:07  

Yeah. So so it's not like, Okay, if my premium is, you know, $15,000 or something like that I don't have to come up with that cash,

Unknown Speaker  17:15  

not necessarily. Some people choose to pay it up front, if they have $15,000 extra cash lying around. Hardly anybody does. So yes, they will roll that into the mortgage amount that gets stretched out and built into the mortgage over the course of time. You only had to pay at once. Okay, that which also comes up as a question. They say, Well, how often do I have to pay this? I pay it once at the beginning of the purchase. And that's it. And that's it. Okay.

Dan Wurtele  17:35  

Yeah. So what we always see in the headlines and what I think most people tend to focus on, is the rate right you know, lowest rates ever, you know, this rates available at this bank, but not over here. is the lowest interest rate, the whole story. Is that the most important aspect to a mortgage.

Unknown Speaker  17:54  

The short answer is no, I would say I mean, yes, rate is super important. Typically speaking, what we'll see is when we're seeing these super low rates advertised, generally speaking, those are uninsured mortgage. I'll get into the reasons in a second. And they're generally speaking, also quite restrictive mortgage products. So yes, you're gonna get a super, super low rate that no one else maybe has. But you may not be able to get out of that mortgage unless you sell the property, you may not be able to make any extra payments towards the mortgage, which help you pay less interest in the long run. You may be paying an extra large penalty to get out of the mortgage if you are indeed allowed, but at a inflated amount that you would typically pay.

Dan Wurtele  18:38  

Sorry, did you say there's some mortgages that you can't get out of until you sell the property?

Unknown Speaker  18:42  

Yes, that's a that's a clause within certain mortgage mortgages that are super cheap, and it's called a bonafide sale clause. That is some serious fine print. It's fine print. Yeah. And honestly, I've dealt with clients that have had those before. It wasn't a bona fide sale clause per se, but it was It was a particular lender that was offering a very, very low rate, I took a look at it. And I said to them, like, you know what this the rate is amazing. And you'll pay a little less interest in the five year term. But if you guys want to sell the property and move you can't this particular restrictive restrictive feature was that you couldn't pull it to the mortgage, meaning move the mortgage from property a to property B if you're upgrading Well, these guys didn't have any plans of having that second kid.

Ryan Dash  19:23  

No one does. No, I have no one. My game right away.

Unknown Speaker  19:29  

Oh, yeah, it still works.

Ryan Dash  19:34  

scaring me.

Unknown Speaker  19:35  

Um, so yeah, so all of a sudden, you know, they were in a situation where they needed more space, but they had this restrictive mortgage whereby they couldn't afford the mortgage. They still needed to move so they ended up having to pay a penalty to get out of the mortgage, which was like eight grand or something like that. Yeah. Which was so had they had they gone with a slightly higher rate right out of the gate that allowed portability. And when I say slightly higher rate, I think it was like open Got to point? I can't remember exactly. It was like 2.29 for the super low rate or 2.49 for the regular rate, that 20 basis points spread wouldn't have been the end of the world financially for them, but it does. I mean, you don't over commit to something just because it seems like a great deal. Correct or something behind it. Absolutely. And and that is normally the case with massive purchases. Yeah. Right. Yeah. I think that's well said for sure. Yeah, yeah, you really have to read the read the fine print. That being said, I mean, there there are, there are situations where going with one of those mortgage products might be suitable for somebody, maybe the person is retired, and they know for sure they're not going to move and they know for sure that they're not going to do anything with the property except to sit on it and let it go.

Dan Wurtele  20:42  

Sure. Makes sense. So I think safe to say it's, this is an area that you want to work with a professional who understands all these so totally, they can walk you through all the scenarios and they'll teach you what you don't know because there's a lot to this. Yeah. Something else that you had mentioned that we should help explain. Here is the You mentioned a five year term Why? Why did terms exist? And what is the best term to go for?

Unknown Speaker  21:06  

Another good question. So I mean, there's there's a variety different terms ranging from six months all the way up to 10 years. There's no eight or nine year term, but there's a seven, there's no six, but there's a five

Ryan Dash  21:18  

strange algorithms.

Unknown Speaker  21:20  

Yeah, for sure. The five year fix is typically speaking, probably the most common term that we see, usually, because that's where the most value is for the money. You can go for five years and typically a rate that would be the same as a two or three or four in general, in general circumstances. Sometimes it might make sense to go with a six month term or a one year term. For example, maybe this happened to me the other day, a client had switched from being a salaried employee into being self employed, but they only had one year of self employment under their belt, and it came time for renewal and they said, Well, what do we do, I'm going to be fully self employed in I'll have that two years of history in one year's time. What should Do I said, Well, why don't you just renew automatically into a one year term? Wait until you've got your two full years and renegotiate. And then we'll negotiate. So that's a good example of when you might want to be a one year term. On the far end of the spectrum, I just had a look at rates this morning as far as what 10 year, money looks like right now. So I believe it was Scotia or TD one of the one of those guys 10 year money right now is 3.09%. Three point so put that into context. Less than less than a year ago, that's what the five year fixed was 309 and people were like, ooh, 309 it's getting low again. Yeah, of course. Now we're below 2%. Sure. So you can also look at a 10 year term a 10 year term is going to be awesome for somebody who is maybe buying an investment property and just wants to sit on it. And for 309 wanting predictable outcomes, right? Totally No, no, get no risk. You pay us like, you know, touching on the last point you pay a slightly higher premium to mitigate your risk.

Dan Wurtele  22:56  

I believe in the states they do full term mortgages.

Unknown Speaker  22:59  

I think they do too. Yeah,

Dan Wurtele  23:00  

like you get to 25 years. And that's your rate and you were there locked in. There you go. Why do you think they don't do that here? Or can you?

Unknown Speaker  23:09  

The 10 year terms, the maximum term like, in Canada? Why you can't do it in Canada is unknown to me. I don't know. It's a good question, actually. Yeah. Yeah, it's kind of nice that we don't have to do that. Fair. Especially I would imagine as well, it could be wrong. I don't really know exactly how it works down south. But I would guess that the prepayment penalty to get out of a 25 year mortgage would be substantially higher than it would be to get out of a five year term,

Ryan Dash  23:36  

for example. So like the bank is banking on something maybe strange, not like they've done that before? No, not in the States. And that's where the

Dan Wurtele  23:43  

term comes from.

Unknown Speaker  23:45  

For sure, and I think they're looking at a 10 year term. It does kind of give you an idea what the banks were the banks for seeing money and going, you know, if they're pricing things at 309 for 10 years. That's because they're smart and they know where the money's at all. With that being said, you know,

Ryan Dash  24:02  

personally, I feel like a five year term. The reason I like five year terms is I do think that after five years, much like maybe a presidential term, it should be renegotiated. And it's for both the benefit of the buyer and potentially the lender. Yeah. Right. So for sure, I mean, 10 year mortgages at 3% is pretty, pretty gnarly. That's an amazing rate. Yeah. But you know, when you're looking at five year and you're under two, it's pretty, it's

Unknown Speaker  24:30  

pretty attractive, it is pretty attractive, for sure. And further to that point, too, I mean, the borrower, the borrower, his plans may have changed within that five years period as well. Maybe they're self employed now maybe they're an employee now. Maybe they both lost their jobs and what do we do now kind of thing

Ryan Dash  24:44  

you know, that their product for the everyday person? Totally Yeah,

Unknown Speaker  24:47  

yeah. And I think we're gonna probably be seeing more policy changes come down the pike with all this COVID stuff. And I'm not sure if they're gonna be for better or for worse, policy changes usually have a bit of both. But those policy changes may benefit people coming into new terms or deciding to refinance. Oh,

Ryan Dash  25:05  

okay. Yeah, um, I have a quick question about GST, okay, just a little bit off for train here. I often get the, you know, when a buyer will come to me and say, hey, look, I'm pre approved up to 500 grand. Okay, great. And they want to look at a new product right now it's 500 grand plus GST? How does the GST work? Can I roll that into my mortgage, too? and so on and so on.

Unknown Speaker  25:31  

Right? Good question. GST gets added to the total purchase price. So in that case, it would be the 5% on top of the 500. And that would be the purchase price. So in those scenarios, it's really important to know when you're pre approving somebody whether or not they're looking at a pre sale, or even after the pre approval is done originally, to talk to me or whoever you're working with and say, Look, I'm looking at this pre sale. How did my numbers look given the fact that I had to pay GST as well? And of course, I guess there are certain scenarios where there's like decorating allowances and that kind of thing where that can be reduced from the amount that would be advanced. But generally speaking, it's added to the purchase price.

Ryan Dash  26:08  

So you're not rolling that into mortgage.

Unknown Speaker  26:10  

Well, you're essentially you are but on the purchase price side of things.

Ryan Dash  26:14  

Yeah. Okay. Good to know.

Dan Wurtele  26:16  

Yeah. Got it. Now, it seems like we are in all time record low interest rates right now, is that right? That's right. All Time, all time. What's, what's the lowest rate you've, you've seen

Unknown Speaker  26:27  

of late? The lowest rate that I've heard of? was for 1.69%, five year fixed uninsured? For a renewal? Um, the client called me up and said, Look, my mortgage is up for renewal. This is this is what the bank is offering me. Can you beat it? And I took a look around. So yeah, I can, I can definitely beat that. So I suggested that they call the bank and just to make sure there's no discharge penalty. And when the bank received that phone call and realize what it was for, they said, Oh, well, how about 1.69? That's like, Okay, well, there you go. My sign on the dotted line. Because at the time, I couldn't touch that, of course, yeah, go for it.

Ryan Dash  27:04  

But yeah, that's just another way a mortgage broker can provide value.

Unknown Speaker  27:09  

Sometimes,

Dan Wurtele  27:11  

I think like us, we sometimes will tell clients when to walk away from one deal. Yeah, you know, to look at another because something's just, you know, are better on the other side. So, yeah, we'll advise accordingly.

Unknown Speaker  27:20  

Yeah. And, you know, as a mortgage broker, and as part of my licensing requirement, same with you guys, too, you know, I've got a fiduciary obligation, right. It's in their best interest. I have to say that Yeah. And honestly, that's, I almost get a warm and fuzzy these days when I can do that for a client. Because something that was said to me when I first saw the brokering by a guy named Paul Sobieski, who's one of tmjs head brokers and leading men of all time volume guys, he's always said always do that always be the fiduciary, because it'll always pay dividends, people were afraid will refer you'll get away better reputation, couldn't agree more, you know, and it's just it's the it's the way that we have to do this. So

Ryan Dash  27:53  

So you'd want to be treated 100%.

Dan Wurtele  27:55  

So when we're talking about rates and payments, can you give us a bit of an idea How much a monthly mortgage payment would change if the interest rate were to change? Let's say like a full 1%, for example, right? Yeah. Is that some easy quick math for you? I mean,

Unknown Speaker  28:11  

yeah, I mean, depending if it went up from like, 3%, up to 4%, your monthly payment, again, depending on the mortgage size, that's gonna be rough. Four or 500 bucks a month, probably. Okay, in that ballpark. But again, mortgage size, what the rate is originally what the amortization was originally.

Dan Wurtele  28:28  

That's a big number. It can be that's, you know,

Unknown Speaker  28:31  

six grand a year, right. So this is a situation if that were the case where you might want to consider refinancing, because maybe you were originally on an insured mortgage, but enough time has passed and you now have 20% or more equity in the property. You could refinance, stretch the amortization out to 30 years which would lower your payment even maybe at a slightly higher rate. If that was the that was the concern.

Dan Wurtele  28:54  

Got it. We should also touch on the types of mortgages meaning fixed or variable? What is the difference between those two?

Unknown Speaker  29:02  

Right? Okay, so fixed rate mortgage, basically, you're paying the exact same amount every month or every two weeks or however, however often you make your payments, no changes whatsoever unless you make changes to that mortgage, such as making extra payments. variable rate mortgage is different animal altogether. And variable rate mortgages based on the bank of Canada's prime rate, which today is 2.4 or 5%. And generally speaking, it will be less a certain amount. So for example, B prime minus point five or prime minus point six prime goes up and down or can go up and down and is looked at by the Bank of Canada every six weeks. If prime goes up, your your payment is also going to go up. But most lenders, God prime goes down, you're also going to take it to be able to take advantage of that rate going down too.

Dan Wurtele  29:51  

So it's a little bit of a gamble in the sense of a bet.

Unknown Speaker  29:54  

Yeah. I think if we look statistics over the past 2530 years, I think these stats are a little bit skewed because they haven't factored in the super crazy low five year fixed rates we've had recently. But generally speaking, historically speaking, the variable rate mortgage has performed better than the fixed rate. Interesting, but that, you know, again, 1012 years ago, we had fixed rates in the 5% range. Right,

Ryan Dash  30:18  

but variable rates much less of a gamble more of you're playing the market and and trying to understand maybe market forces that are applying to your home. Yeah, right. And with that being said, if you do have a variable mortgage, and let's say that, you know, all of a sudden the overnight rates start creeping up and and you're, you're starting to pay more and more. It can I switch over to a fixed point. So I so there's an option for that.

Unknown Speaker  30:43  

Totally. Yeah, you can lock in a variable rate mortgage at anytime, to whatever term length that you like, that's equal to or greater than the number of years remaining in your term. So three years in all of a sudden you're like, oh, man rates are going up and this variable, I don't like it, lock it in. Do you get locked into a three, four or five Whatever you want to do,

Dan Wurtele  31:01  

does that cost money to do

Unknown Speaker  31:02  

not to lock in? No, but that's that's a good point. So probably the biggest difference between Variable And Fixed aside from what you pay on a monthly basis, and this is again, for first time buyer, maybe it's not something that he or she are thinking about. To get out of a mortgage, there's always going to be at what's called a prepayment penalty. You might want to get out of a mortgage if you sell a property and you don't have any immediate plans to buy something new. So if you're in a variable rate mortgage, again, generally speaking, the penalty that you would pay on a variable rate is going to be lower than the penalty that you would pay in a fixed rate. So penalty amounts can be something to consider. But compound things even crazier, or even further, I should say is that different banks charge different penalty amounts for fixed rates. So before you get in bed with the particular lender, it's important to know what their penalties might look like if those unforeseen circumstances

Ryan Dash  31:55  

occur. And you have to sell if you are looking staring down at penalty. And let's say you've had a good five years with TD. Yeah. And they're saying, Oh, well, you know, it's three months of your interest that you've got to pay us to get out of your penalty. Yep. Which point Can you say to them? Well, you know, I'm reconsidering my next mortgage with you guys. Would they maybe remove that penalty isn't negotiable? I guess is what I'm saying.

Unknown Speaker  32:21  

There are certain lenders who will give you a reduction on your penalty by maybe up to 15 or 20%. If you pay that penalty and then get into a new term, waiving penalties. I've never seen it happen. Not say hasn't happened.

Dan Wurtele  32:37  

Big buildings

Ryan Dash  32:38  

yet a big dollar,

Unknown Speaker  32:40  

big, big dollar figure and all of all the floors. Yeah.

Unknown Speaker  32:45  

I've never seen it happen. I'm sure there have been cases where somebody's been doing business at ABC bank for 30 years and want your business and they want their business and they've got up schwag of investments with the bank already.

Ryan Dash  32:59  

Well, let's not forget These institutions are not in the business of losing money.

Unknown Speaker  33:02  

Exactly. Yeah. If you're with private banking with with, you know, one of these institutions and you've got net worth in the seven plus figures, then you're not too too concerned about that kind of thing. But for the average investor, the average buyer, there's not a lot of wiggle room when it comes to prepayment penalties. Yeah, I think

Dan Wurtele  33:18  

that kind of begs the question of why work with a mortgage broker compared to just going down to my bank that I already have a relationship with? Right. That's, that's a question. Of course, we get all the time. It's like, Well, you know, I went and, you know, picked up a new book of checks, and they offered me a mortgage. So yeah, yeah, yeah. Is that the path I should go?

Unknown Speaker  33:35  

It can be. I think, generally speaking, I think that one of the best vendors that the brokers have is just choice in the marketplace. If you've got a relationship with with your bank, that can be good, that can be a good place to start the conversation. In most cases, if you have a conversation with the bank, and then come to speak to me, I'm going to have not just different rates, rates important but not everything, but there's going to be a variety of different mortgage options that we have Between all the different lenders that I have access to, so with with the bank that you might already be doing business with, they've got their one rate, and they're one product with the lenders, banks credit unions that I've got access to. There's a wide variety of options to choose from.

Ryan Dash  34:14  

And much like we've discussed here, you know, your mortgage is not just rate exactly there's a it's, it has to fit in contextually into the box that you live in.

Unknown Speaker  34:23  

And and my experience anyhow, with mortgage brokers have been phenomenal, and that they help you get a product that really fits your life, not just necessarily what's best for your cash, too, because you sometimes you need that flexibility depending on whether or not you're just starting to invest or whether you're, maybe you're a 15 year vet, you know what I mean? Mm hmm. That's true. And I think that the other thing to consider is that not everybody is going to qualify for every type of mortgage. For example, let's say you're a TD client, and you don't fit within TDs lending criteria. I don't know you've got some weird self employment history or you've got some strange down payment, but maybe you do fit into criteria with a first National or Scotiabank, or Coast Capital or EQ bank or whoever you like Merricks or anybody. At that point, you can look at these other lending options whereby the lending criteria fit your personal circumstances. Some, some buyers are lucky and they've got the pick of the litter, they can be with whatever bank they want. Most lenders, most clients don't most clients kind of fit within two or three different lenders.

Dan Wurtele  35:24  

Yeah, gotcha. It's almost a good dating service. Right? This is my criteria. Where do I fit best? Yeah, match, match, match match making no sense, right kind of is and I think that's why and to kind of echo Ryan's point is our clients all have different needs and all have different financial scenarios. And those don't necessarily match you know, bank acts that they may you know, personally bank with. So, being able to have options where your scenario fits better with certain banks. I think it ultimately is benefits the consumer here 100% and also, yeah, mortgage mortgage rules seem to change Daly, in a sense, and so, you know, it's like, it's your job to know which bank is offering which policy or what's changed, and where each person might benefit to go, right. Because you know, TD or whoever may change a policy today, you're like, wait a minute, I've got a bunch of investor clients, and this new policy that this bank is offering today really fits these guys. So I'm actually gonna go move them over here.

Ryan Dash  36:20  

Yeah, it's actually really funny, because I've got, I've got clients that are like that, too. And they'll often ask me, you know, what's the best rate and I go, Well, why are you asking me, you know, like, go and speak to your mortgage professional. Right? And that's usually when when I get to get them kicked over to

Unknown Speaker  36:36  

and that's, I think that's a good example. I mean, you Danny mentioned people with investment properties. Certain lenders are terrible for people that have a large book of investment properties, they just and the reason why is they don't like them on the books. They just don't either lenders have a large, much larger appetite and they will make it easier for people with several rental properties to qualify, then they then then be otherwise able to with

Ryan Dash  36:58  

with a different is that risk I think

Unknown Speaker  37:00  

it comes down to the bank's balance sheets and how they how they do to get risk. I think that, generally speaking, some banks will look at rental properties as higher risk. Because again, if we if we're in a worst case scenario, and there's a foreclosure or you're interferes and delinquent on your payments, for whatever reason, and let's say the own for four properties plus your primary residence, you're not going to default on your primary residence, you need shelter cost, yeah, you need, you need shelter, I should say, you're going to if you have to default default in one of your satellite property I see. So that's

Ryan Dash  37:29  

why they don't want to take it on.

Unknown Speaker  37:30  

They don't want to take that on. And what we're also seeing these days is that banks are charging a higher rate, not tremendously higher, but generally higher for rental properties for this very reason. Like this represents more risk to us. So make sense. You have to pay more. Yeah.

Dan Wurtele  37:44  

So for those that have mortgages now, and let's say they got in three, four years ago ish, and then today, we're at all time low rates. Are you recommending that people refinance? And if so, what kind of savings are they looking at?

Unknown Speaker  37:57  

Yeah, I mean, I'm always having that comment. with clients, and it really comes down to a few things necessities is number one right now due to COVID. We're seeing a lot of people who have maybe lost income accumulating consumer debt. That means credit cards, personal lines of credits, sometimes personal loans from banks. And obviously, it doesn't make any it's not doesn't make any sense to be paying 15 19% interest when you could roll that mortgage debt that into a mortgage and be paying one or 2% on it or the other. The other big thing, which is super important, and pivotal in terms of whether or not that transaction will even work or work in the clients best interest is what the prepayment penalty looks like. So, Ryan, let's say that you're on a mortgage that you got a few years ago and you're paying 3.5% But today, you can get 1.99 if your bank that you're currently with is charging you $20,000 to get out of that $400,000 mortgage, it's probably not necessarily going to make sense from a from a cost of borrowing perspective. Yeah, to pay that penalty. That's right. Even Add the sake of getting a lower rate.

Ryan Dash  39:01  

Yeah, because the lower rate over four years might not add up to 20. Grand

Unknown Speaker  39:04  

exactly is the point. Yeah, totally. But let's say Dan's got a property that he signed up for maybe a few years ago, and the rate is 2.49%. But he's only going to be a three month interest penalty to get out is going to be 1200 bucks. In that case, it would almost certainly make sense to pay that small penalty, get into that new low rate, and get carry on from there, because you're gonna pay that 1200 bucks anyways, you're paying it anyway. Right? Yeah. So yeah, cost of borrowing is super, super key. What I like to do is show people, I try not to get too too mathy with people because math freaks people out sometimes because the word finance does. Yeah, yeah, it for sure. So essentially, I'd like to show people what they would be paying an interest. If they keep going in the current term without any changes. I'd like to show people what they'd be paying in interest if they add that penalty into the new mortgage balance at the new rate, and where they would be at the same point in time. And if that number is lower, less than 10 There you go, then it sends a no brainer. If it's higher than maybe doesn't make sense, or it's gonna have different reasons. Yeah. So if it's a situation where you're piled up with, with with high interest debt, sometimes it makes sense to pay that penalty and take a bit of a hit on it, just so you don't have to pay 19% or whoever. Right? So

Dan Wurtele  40:21  

all good stuff. So obviously worth a conversation with your broker to see if there is a savings there for you. Or not. Right. So either way, you know, you're going to be spending the little the least amount possible. Yeah, we definitely want to touch on. Well, a few things to finish up your stress test. The stress test came into play in 2018. And this was, as Andrew said, to help Canadians protect themselves against default. Right? Do you remember what that default rate was prior to the stress test?

Unknown Speaker  40:53  

Hmm. I don't know specifically the number but I do know a funny little thing about the stress test is that it actually He came into effect. I think it was in 2012 or 13. It wasn't just 2019. In 2019, it did come into effect for the five year fixed rate, right. But prior to that the Harper government who were responsible for putting in a slew of rules after 2008 I'm not gonna get too much into politics. But the one thing the Harper government did, right, in my opinion, was was doing that for the sake of protecting the housing industry. I would agree. Right. So for variable rate mortgages, that stress test was put into place a long time ago. Ever since 2008, we've had very low delinquency, very low defaults, because it has been so hard to get a mortgage. I think that the five year stress test was sort of like the last layer of protection that they wanted to put in. How's it helped? How's how's the default rate decreased? I think it has. I don't have the exact figures with me, but I would imagine that it would have it can only have an effect of decreasing defaults. I would say

Ryan Dash  41:55  

On the flip side, did it hurt curbing wealth for young people?

Unknown Speaker  42:01  

Yes, yeah, yeah, absolutely.

Ryan Dash  42:03  

I asked that honestly. Because, you know, it's really hard for young people right now. Yep. It's the probably the hardest hit right now kind of, you know, their jobs, their incomes are gone. And you know, their idea of building wealth, it's difficult. So, you know, for those that are listening that are on that side of the equation, I can appreciate the frustration.

Unknown Speaker  42:23  

Absolutely. I took I took a look at a client's profile yesterday, he and he emailed me and have some having some trouble with some debt. And I looked at when they first qualified, and it was a 2.39 mortgage. That was that was the contractual rate and I looked a little bit further down. The qualifying rate was also 2.39. I looked at the data like wow, these guys qualified at 2.39 on their five year fixed, Isn't that nice? How nice would that have been? I mean, I would love to see the Canadian government smarten up and just put a little and I'm sure there's red tape and whatever, but I would love to see the Canadian government. Apply some logic to letting first time buyers back in the mark. It's such as you have to have a credit score of 7000.

Unknown Speaker  43:04  

Yeah, whatever

Ryan Dash  43:05  

it is, it's got to be really high,

Unknown Speaker  43:07  

high credit score you've got to have, you've got to have provable income, you've got to have a certain amount of down payment from your own resources. Totally. You can have a little bit of gifted down payment for mum and dad, no problem. And for one time exception, give people a 30 year amortization on their first time purchase. Yeah, adjust the credit, adjust the stress test a little bit. And this isn't for everyone. This is for people who can qualify for it. They're good for it. Not this blanket situation which is just hurting all the first time buyers. It's frustrating for me to like, I'll talk to buyers. I can tell they're disappointed. They're hard working people. They saved a bunch of cash. Yeah. And they're still getting squeezed out. Yeah, due to people that are just trying to

Ryan Dash  43:41  

trying the best they can totally Yeah,

Dan Wurtele  43:43  

yeah. So the stress test has been reduced, I believe three times. This year. A bit. Yeah. How much more buying power has that given buyers?

Unknown Speaker  43:52  

From a first time buyers perspective, it's not a whole bunch. Honestly, the last change went down. I believe this 495 down to four 479 so we're seeing a little bit more wiggle room. But maybe for a first time buyer, you're seeing maybe five or so between five and $10,000 of affordability opened up by that lower stress test. One of the things I always try to get people to do I mean, the stress test isn't going anywhere for now. So, even if it means going in with a little bit less downpayment, use some of that money that you might have for a down payment and pay off your debts, pay off any credit card debt you have, because those debts even though you only have to pay, you know, X amount, like a minimum payment per month, the banks will, generally speaking, apply a higher payment on your application, again, giving themselves that buffer. So pay off your credit cards, pay off your lines of credit, pay off anything that has a higher per month, amount you've got if you've got a car loan on there, sometimes I see these younger applications come in and they've got not a lot of net assets, but they've got a 1200 dollar BMW lease payment. $80,000 car Yeah, and it's nice to ball but it's nice to have a sweet ride but that's not gonna make you wealthy It's not gonna make you wealthy

Ryan Dash  45:00  

No. So Angie provided us with a with a load of value here. And I just want to understand, you know, if I'm a consumer and I call you, am I paying you for your help here? Or how do you actually make money? Right? No, I don't, I don't charge I don't charge fees.

Unknown Speaker  45:19  

There are certain circumstances where a mortgage broker has to charge a fee. Those are very few and far between in my in my type of business, generally speaking 99% of the cases, the bank or mortgage provided that provides you with the loan they provide me with a finder's fee. So that's how it works similar way the seller would pay us for finding them the buyer. Yeah, same thing. Yeah. Okay, exactly.

Dan Wurtele  45:40  

Got it. So we are in September of 2020. Right now, and what that date is important for is because we are at the end of the deferral time period for people who want to defer their mortgages. Yeah, right. A lot of the big banks or all the banks offered up up to I believe six months of deferrals. Last number I saw was about 16% of mortgages took took that offer. And, and now we're at the end of it. And the big question, of course is how many of those people that are deferring their mortgages actually needed to? Right? How many people are going to go into arrears because they can't afford to pay them, compared to how many people maybe just took it because they wanted to or put aside some extra cash or whatever the case may be. Love to hear your take on what is going to happen at the end of the deferral period.

Unknown Speaker  46:28  

Right. Very, very good questions. I did bring a couple stats to that. And first National Financial is one is Canada's largest non bank provider. So they had their earnings call q2 the other day, just to give you some context, so in May 2008 of may 11 2020. About 34,000 borrowers or 14% of their eligible borrowers were approved for the deferral. The number is now below 10,000 for those same borrowers, which is about 4% of their borrowers. Okay. The big all the big banks, with the Except of Scotiabank, as well. All of their deferrals are decreasing by about 20%. So that's 16 point. difference. We're down 17.5% in q3 from q2 for all banks except for Scotia Bank for some reason Scotia banks and as an anomaly, and they've seen a bit of a spike 5% more borrowers are taking the deferrals. But the rest of the banks not from from a more subjective perspective, I think that a lot of Canadians being risk adverse, as we are generally as a as a populace, did take the deferral just as a safety precaution. I think a lot of people were scared I was during the pandemic, I was like, what do we do, but has since started paying them back. So I think that regionally in Canada, there's going to be certain areas of Canada that that are going to be hard hitting those are sadly the same areas of Canada that we're not doing well, prior to the pandemic and I'm referring mostly to Alberta, New Brunswick. Unfortunately, this part of the world I think we're a little bit better off. I think that No, we're lucky in Vancouver at least in this industry. And within that we work in we're lucky in that there's a large demand for real estate here. There always has been. Anytime that I've seen a dip for whatever reason, be it socio economic or health or whatnot in real estate prices or activity, or rates go down as smidgen, then there's a flurry of activity and it's just it's just it's the nature of the beast here in Vancouver. Yeah, Dan and I often think that the city has a fear of missing out. It's it's just yeah, you know, as soon as as soon as that there's, you know, headlines, the prices are moving or the volumes moving. Yeah. It's everybody's attention. I agree. I totally agree. And I think that weather is such an important factor here too. I think every spring market we can see it we can you know that first like sunny weekend in late April or May or sometimes even March, somebody's getting a new house. All of a sudden, just things go crazy. So as far as how that refers to the different Cliff or the different slope Hale is referring to it. I think that some people are going to be into a situation whether there are going to be delinquencies, there are going to be some foreclosures, what those numbers are going to look like I don't think are going to be as grave as what we originally thought when we first saw the deferral figures. And I think really only time will tell I think that the stats are encouraging, from what I've read very recently in that they are the banks, the lenders, the mortgage providers, they're all seeing people pay the difference back at an increased amount over time. Do you think that, you know, the US election will have a big impact in terms of what happens up here in terms of investment dollars and what people do? I don't I think people are watching with a keen eye on what's happening in the states simply because the leadership down there right now is, in most cases, despised. I think, I think you know, it makes for interesting TV and I think that's a big reason why the power is the way that it is down there. Whether or not that's going to affect cancer. Canada or Vancouver specifically in real estate, not not as much. I don't think I think people that are up here just want to get into the market. No parking their money here too. Sure, yeah. If some people can do that, and then absolutely.

Unknown Speaker  50:14  

Yeah, it's gonna be interesting to see what happens though. It's good to know.

Dan Wurtele  50:16  

Yeah. So I think you're just to wrap up. We were in, as we mentioned, pretty much all time low interest rates right now. Money is the cheapest it's been ever. What's, what's your prediction on how long rates might stay this low?

Unknown Speaker  50:30  

Yeah, that's another really good question. From everything I've read coming from the Bank of Canada, and actually does tie into our last topic from the US as well, is that the bank candidate has forecasted that for the quote foreseeable future rates are going to be low. Every time in the past that I've seen them say that with the foreseeable future, bearing barring any other additional pandemics, or whatever 12 to 12 to 18 months most likely. That's that's what I've been seeing. The news, I think that i think that you know, every everything can change and everything will change. But that's that's the thing to go on for now I'd say.

Dan Wurtele  51:07  

Okay, perfect. Well, Andrew, this has been a pleasure. I know I learned a lot today. Yeah, this has been very informative. For those that want to learn more about you. What's the best way to get a hold of you think God,

Unknown Speaker  51:18  

you can call me on the phone anytime you like, Well, not exactly like I do. I do have clients that call me anytime. Always, always. It's always funny to have those conversations.

Ryan Dash  51:29  

So do we.

Unknown Speaker  51:30  

Yeah, for sure. You can visit my website right mortgage.ca all my contact information is there. You can catch me on social media at Facebook, right mortgages and on Instagram, right mortgage.

Dan Wurtele  51:43  

That's perfect. So I think to wrap up here, we'd like to say that anyone who wants to potentially work with Ryan and I and work with Andrew, if we can put a deal together. We will cover any appraisal fees should they come up, I guess nice little offer and we'd be happy to give that to you guys.

Ryan Dash  51:59  

100% and Just remember to mention either Andrew's name or the episode and make sure you get the right mortgage.

Dan Wurtele  52:06  

Thank you so much for listening. Thanks, guys.

Ryan Dash  52:11  

That wraps up this edition of the Vancouver life podcast.

Dan Wurtele  52:16  

For more information on this podcast to access a ton of free downloads, investment opportunities, current market info and then homes for sale. You can find it all at WWW dot Vancouver life.com.

Ryan Dash  52:31  

Thanks and we look forward to bringing you more podcasts about Vancouver real estate.