With regard to May 1st CMHC premium increases for clients putting 20% or less down on their purchase;
It is important to provide accurate math to clients in this environment of steadily dropping rates. The temptation to jump to another lender with a lower rate is strong for the client, and for the Broker as well.
The Federal government, with this change, effectively created a small degree of ‘pipeline protection’ for Brokers and lenders alike with approved files already in the system at the lower insurance premiums.
Certainly an opportunity to position oneself as an Expert has been created.
Here is the wording I have used with my clients;
On May 1, 2014 the Federal Government increased mortgage insurance premiums for individuals putting less than 20% down on their residential purchase. It is important to note that the premium increase is dictated neither by the contract dates, nor the completion dates. Rather, the focus is on the date the file was submitted to the lender. Prior to May 1, or afterward?
The key to obtaining the lower mortgage insurance premium was in having the file submitted to a lender, and a mortgage insurance number being granted, prior to May 1. Although the interest rate can only be held for 120 days with the majority of lenders, the mortgage insurer approval (CMHC, Genworth, Canada Guaranty) typically stands for six months.
The temptation to jump to a new lower rate with a brand-new lender must be measured against the higher mortgage insurance premium that would apply to any ‘new’ submissions.
Let’s look at the example of a $100,000 mortgage. (Not because very many people have such a mortgage, but because it makes the math easy to apply to any mortgage balance)
A 0.08% lower interest rate with a new lender would result in a potential savings of $6.67 per month.
Over 60 months this is a grand total of $400.20
However if the down payment is below 10% there is a $400.00 increase in the mortgage insurance premium. Effectively canceling out the slightly superior rate.
If the difference in rate exceeds .08% then the interest rate savings has the potential to outweigh the increased premium.
Although rate is only one component of a proper mortgage strategy, it tends to get a significant amount of focus. In particular, once all of the planning has been done which led to the selection of a specific lender. The interest rate if often only one component of the decision to use a specific lender.
Prior to making any moves and sacrificing a component of the overall plan, perhaps to do with; prepaid appraisals, valuable prepayment privileges, unusually flexible portability options, unique features of a variable rate mortgage, or reduced penalty calculations, it is best for the Broker to contact the current lender with the existing approval and press them to match the market. This can on occasion be done, although timing is everything as many lenders lag the market by a week or two.
Going through the entire process to save 0.10%, which on the average $288,000.00 BC mortgage results in a net savings of only $288.00 over 5 years may not actually be worth the effort with all variables considered.
In any event if you have any concerns, please contact me directly, as once again there is more to the story of moving a mortgage approval than just rate alone.
The Broker should be the one to start the conversation about falling rates in this busy season. The Broker should be taking control of a situation that already exists, one in which your client is wondering what to do.
Do not bury your head in the sand and hope that your clients are unaware of the recent drops in rates, very few clients with an active file and pending completion date have their own heads in the sand. They are highly tuned in to anything and everything mortgage related at this time.
Recognize that the opportunity also exists within those files that you might have been beaten on by another lender channel prior to May 1st. With some of the superior rates being offered on Quick Close files, which is what all those late June files now are, combined with lenders often resistant to rate drops (i.e. Scotia two weeks ago) on files already approved with them – the flip side of the same coin offers additional opportunity to the Broker reaching out to clients with accurate math and breaking down a 0.08% barrier to doing business.
As always, run the numbers and communicate with both your clients and lenders alike.
Make. It. Happen.