Is someone advising you to take a mortgage with a line of credit? Read this first...
Ever since the low rate introduction in 2008, the banks and mortgage advisors have been promoting and selling a bundled type of mortgage product. At a consumer level, we know these products as an All In One, which means that as you pay your mortgage down the equity is available through a line of credit, a visa, or even a secondary mortgage.
Some of these products for the consumer are known as STEP product through Scotiabank and All In One for TD Bank, Manulife and National Bank, for example.
These products are very often pushed by many Canadian lenders, but why? Many professionals agree that mortgages are not a good return for the banks with the low interest rates between 2.3-2.7%. Therefore, the banks have created a strategy to earn more money on these low interest return years. What ends up happening when people commit to these types of mortgages, they end up accumulating consumer debt (line of credit, visa card) and end up paying a higher interest rate and compounded monthly/daily. Therefore, the principal of the debt gets paid down much slower than your standard mortgage.
So many people come walking into our office at the end of a term of products such as these and often wonder why their feb is being paid down so slowly when interest rates are so slow. These products were created in the best interest of your investment and to be able to invest with your equity while you are still paying off the debt of your house….and maximize on Canada’s tax deduction of “borrowing to invest” which allows you to write off the interest being paid.
“Basically before you sign up for any sort of all in one or bundle type of mortgage, make sure you as a Mortgage Teacher first.”
And to read more…
As part of its mandate to stamp out unscrupulous industry practices, Canada’s financial regulatory body has announced that it will be cracking down on so-called “bundled” loans.
Office of the Superintendent of Financial Institutions assistant superintendent Carolyn Rogers warned mortgage providers under its jurisdiction against providing such products.
“They are rules. They are not guidelines, and they are not principles. We absolutely expect regulated entities to be adhering to them,” Rogers said last week, as quoted by Reuters.
“Anytime a regulated entity is or appears to be designing a product or an approach that is, by its design, circumventing the rules we would take issue with that.”
Bundled loans package a primary mortgage with a second offering from an unregulated group. In the wake of stricter lending standards, such a pairing has gained popularity as a way to sidestep existing bylaws that place a cap on the amount that mortgage providers can lend.
Earlier this month, Fitch Ratings predicted that mortgage rates will remain at record-low levels for the first six months of this year.
The credit rating agency’s 2017 Global Housing and Mortgage Outlook noted that any possible increases would be minimal at best, and that inflation will remain at a relatively manageable 2 per cent.
“We expect that it will result in fewer loans being made available to marginal borrowers, which could reduce loan growth. That said, we expect loan volumes to remain near historical highs as long as interest rates remain low, employment is stable, borrowers are able to qualify under the stricter mortgage rules, and the desire/demand for home ownership remains high,” Fitch stated in the report.
via: Mortgage Broker News