The following is a strategy which utlises the Scotia STEP product. It is something tailored for specific clients with specific goals, and a very specific profile. This scenario applies to less than 15% of my clients, perhaps you will be able to use it, or parts of it, more often than I.
Any lender that offers a match-a-payment/miss-a-payment program would qualify to use for the following strategy, I tend to find that for a few key reasons (relating to the sort of client that is in a position to pursue this) Scotia is often the best fit for this specific client and scenario. Having a strong relationship with Scotia and a fantasic dedicated underwriter also helps.
The debate over placing clients with Big Bank vs. MBS lenders is another story altogether. Lets set that aside for now. We are introducing enough complexity here without having add yet another layer to the discussion.
First familiarize yourself with Scotia’s match-a-payment/miss-a-payment program, then consider utilizing the following;
When I have a client come into my orbit whose current amortization is near or under fifteen years I always review the following concept with the client;
Keep in mind that your typical client with less than 15 years to go on their mortgage is often over 50 yrs of age, typically very fiscally conservative (i.e. zero consumer debt and a stellar beacon score), generally a very prudent individual. A Broker is lucky to have this client in the first place as they have historically dealt with Big Bank directly. These qualities also often create challenges when trying to sway the client towards an MBS lender. in fact simply speaking with an independent Broker often has these clients at the edges of their comfort zone to start with. Why take them any further over the line on the initial transaction.
I present what I refer to as a ‘no cost’ insurance plan. On paper we take the amortization out to 30 years, and then we implement the match-a-payment option, doubling the baseline payment and putting the client back on track for the effective amortization they were after. For every payment they double up on they are able to miss-a-payment in the future should the need ever arise. Of course nobody every plans to miss a payment, nor would you ever want to, however this is like a sort of disability insurance policy that costs nothing at all to have. Besides which there is the middle step of simply halving the payment back to the baseline 30yr Am payment. Fiscal relief is an email away should it ever be required, life in unpredictable and having options and flexibility like this is appealing to most clients.
There is often initial resistance to the mis-perception that the client is somehow taking their mortgage back out to 30 years. I ask that the client hear me out completely, as although it might not seem appealing after the first few words, there is something truly beneficial for them within this plan. There really is no downside other than for a client who will opt for that lower payment and not implement the double payment…and that is not how this client is wired, if they were then they would not already be on track to be mortgage free in 15 years or less.
A standard line I use; ‘mortgage payment and amortization have a symbiotic relationship, as you increase one, the other decreases, and vice versa’. With this plan the client is in the drivers seat.
Be clear; They are not contracting for 30 years.
Rather than being locked into a higher payment, they have effectively created a two step buffer should anything in life change radically; 1. Cut the payment in half if need be. 2. Reduce the payment to zero for an equal period which double payments were made for (within the term only – the skipping a payment count resets to zero at the end of the term).
Another common element with candidates for this strategy is that they often have very low LTV’s. Although the following suggestion has a side benefit of creating a larger file for the Broker, it is also truly in the best interests of these type of clients in particular.
The language I use; ‘I do not suggest a HELOC product for every client, however as you have significant equity in your property combined with the fact that you clearly know how to manage your capital and your debt, the Scotia STEP is also worth discussing.’ Scotia offers what is call the Scotia Total Equity Plan or ‘STEP’ program. It gives you the ability to split your mortgage up into 4 different products, perhaps splitting the current balance between a 2yr fixed and a 5yr fixed or mixing in a variable component***(a closed variable mortgage component within a HELOC is not something not every lenders HELOC allows) leaving the remaining equity to 80% LTV as accessible via an open line of credit that costs no extra to register and nothing to have available should need for capital arise.
What sort of needs? Perhaps an RRSP top up, an investment property, a vacation property, a deposit on a new home, assisting children with a down payment for a property, simply having prompt access to the capital should it every be required’.
The point of this is for you the Broker to present options to clients that truly add value, not to over complicate things. It is not the simplest gameplan to explain to a client, yet if you are clear then clients will see value in the strategy and appreciate it. I have found it tends to be a combination of the advice given, creation of options, and a genuine concern for the clients options and detailed methodical presentation of the mortgage structure that tends to see the relationship between Broker and Client grow in strength throughout the transaction.
Break it down one step at a time, practice the dialogue with another broker, family member, whoever. You need to be able to articulate all of this clearly and you will put yourself head and shoulders above the individual that your clients spoke with at their local branch. often a branch whose HELOC product is not near as robust, be familiar with what the competition offers and where the differences are, differences that may be material to the client at least as far as keeping options open.
Often the clients have dealt with Scotia in the past and their own staff failed to explain every option, benefit and unique factor of the STEP to the clients. Once again making you out to clearly be the superstar that you are!
(full disclosure; Scotia represents less than 25% of my YTD volume for 2013. This is not meant to be a Scotia promotion at all.)
This is a unique strategy, and a great one to be able to articulate clearly and confidently. It helps that this is how I have my own residence financing structured, it helps me explain it more clearly, and it helps make it clear that I beleive in it.
Be the expert, the trusted advisor, not the order taker.
Have a good day!