Pace Of Mortgage Credit Speeds Up And Borrowers Need Guidance

Mortgage Rules

Don’t look now but mortgage borrowing is accelerating.

And, as the Globe and Mail’s Mike Babad warns, it’s definitely worth keeping an eye on.

Writing in his Business Briefing column, Babad reminds Canadians of our country’s history with expanding debts and inflated housing markets and points to statements by BMO’s Benjamin Reizes about Bank of Canada numbers that show mortgage credit rose 4 per cent in August from a year ago.

READ: Canadian Mortgage Rates Among The World’s Highest: Report

“That’s little surprise, with home sales perking up in recent months,” Reitzes, a rates and macro strategist, said in a report. “Even so, mortgage credit growth remains well below the high single-digit gains seen from 2015-2017, and well below the double-digit pre-crisis levels.”

Reitzes also pointed out that the speed up might make the Bank of Canada “reluctant” to make a forecast cut to its benchmark overnight rate in order to not “worsen financial vulnerabilities.”

Babad notes that Gluskin Sheff + Associates chief economist David Rosenberg is in agreement.

READ: Mortgage Rates Continue To Plummet In Canada: Ratehub

“We know,” said Rosenberg in a note, “that elevated household debt levels are top of mind for the Bank of Canada, and their reluctance to lower the overnight rate (despite a vast amount of global central banks having done so) can only be interpreted as concern on their part towards making the situation worse,” he said in a note.

Meanwhile, Steve Huebl of Canadian Mortgage Trends writes that, in this era of do-it-yourself online mortgage shopping, Canadians very definitely need some guidance regarding mortgages. Huebl says that’s the key insight from a Rates.ca national survey released this week. The survey found that half of Canadians are not aware of the various mortgage options that are available to them.

READ: Mortgage Rates Are At The Lowest They’ve Been In 2 Years: Ratehub

The survey also reveals that 9 out of ten respondents did not know that mortgage interest is charged semi-annually. In fact, 29 per cent believed that interest is compounded monthly and 28 per cent had no idea at all.

Dustan Woodhouse, President of Mortgage Architects, and a former active broker, told Huebl that we should be concerned about this lack of mortgage knowledge.

“Sounds about right,” said Woodhouse, the author of numerous educational mortgage books. “We know about what we pay attention to, i.e., The Kardashians. The material concern in this is how easy it makes it for the government to over-regulate the industry, with clients blaming the banks—rather than the appropriate parties. This disconnect is deeply concerning.”

READ: Canadians Turn To Big Banks For Mortgages Despite Higher Rates

Huebl cites this data from the report as an example of Canadians’ lack of mortgage knowledge: only four out of 10 Canadians (39 per cent) are aware that they can avoid paying mortgage default insurance on their mortgage if they make a down payment of 20 per cent or more. Default insurance currently sits anywhere from 4 to 6 per cent of mortgage value, which Huebl rightly points out is significant money being spent perhaps unknowingly and unnecessarily.

Experts such as Woodhouse and Paul Taylor of Mortgage Professionals Canada agree that making mortgages more about housing and “interesting and relevant” to home buyers and owners is the right way to educate Canadians.

READ: Tougher Rules And Higher Rates Fade Canadian Mortgage Risk

So how does the data from the Rate.ca survey translate in a world of increasing DIY mortgage shopping?

Taylor interprets it this way, saying the stats “clearly demonstrate the need for professional and impartial advice at the time of purchase/renewal/refinance. And while some may suggest they are comfortable purchasing online without counsel, I think we can see that is inadvisable in almost all cases.”

So, it appears that mortgage shoppers might indeed benefit from guidance, in some form or another. And, as Babad points out, they definitely need to keep following what’s going on in the wake of August’s mortgage borrowing “speed up”.

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