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Mortgage Solutions for the every day Canadian mortgage consumer. Are you thinking about becoming a mortgage broker learn first hand what you should look for in a brokerage and what you need to be successful.
Len 00:02
Welcome. My name is Len Lane, and I am the founder and president of Brokers for Life Inc. and we are Dominion Lending Centres in Western Canada. The topic of our podcast will be about what we consider to be Real Life Mortgage Solutions.
Len 00:19
Welcome back. This is podcast number two in a series talking about insurance. Yes, I know it's a topic that none of us ever want to talk about. But we also have an insurance program called Mortgage Default Insurance, which is pretty much covers anybody who doesn't have 20% down. We've been talking about how that works for everybody and why it works. And today our guest speaker is Teresa Ferbey, Sagen account manager for Edmonton and area, longtime in the insurance industry or that side of the insurance industry. Anyway, so having worked for Genworth in the past as well. Teresa, welcome.
Teresa 00:54
It's so good to be with you here today. Thank you for inviting me.
Len 00:59
No problem. So, title insurance, you know, when people buy homes, they realize that there's so many different types of insurance, whether it's title insurance, life and disability insurance, and current home insurance. But the other one that's that's pretty much predominant in mortgages is that in the real world, the majority of Canadians have less than 20% down to buy a property. What role does Mortgage default insurance play in making home insurance possible?
Teresa 01:29
Like you said, it is the reality for most when purchasing a home, whether it be their first or second home, it can be challenging to come up with that 20% down payment that is typically required or has been in the past. The government allows us one of three insurers to protect the lender, take on that risk, so that the borrowers can put less than 20% down and pay a premium to us to do so. And it allows them to get into a home with less than that 20% down.
Len 02:05
Super important. I know the first-time buyer is probably one of your biggest programs. But what are some of the other more popular programs? And why do you think they are?
Teresa 02:16
We have a great new to Canada program. That is probably one that has taken up a lot of popularity lately. The reason that it has is because we, in Canada, have allowed a lot of people to immigrate. So, newcomers coming to Canada, we are expecting 500,000 this year, and 500,000 next year. So, there's a lot of people coming to this country and find really quickly that they want to make this their home. And so our new to Canada program is awesome. We actually have a few recent changes as of last week, that make this program really easy for first-time new to Canada for worse to purchase with less than that 20% down as little as 5% down with very little requirement in order to qualify them. So, it's wonderful.
Len 03:13
A well-used program, I'm sure, like you said there. We've done millions of new Canadians over the last few years. And I'm thinking that will may continue into the future as well as we as we continue to have an aging population and myself included as we need to replace people in the industries. Right? So, what else is, I know you do a great job with self-employed clients as well. What are some of the details of that program?
Teresa 03:41
Absolutely. Yes, we do have a business-for-self program. So, for those that have their own business, and they want to purchase, oftentimes they have great accountants and they declare a lot less income than they actually truly bring in. So, knowing some of those details, what their gross business revenue is, and what they actually bring in and what shows that they've paid their income tax to our lovely government, all those things are part of it, they put 10% down they pay a little higher premium than your typical first-time homebuyer but they're allowed to buy their primary home with 10% down and we call it our stated or alt a business for self program. So, that absolutely is another popular program. We have heard that one in four Canadians actually do have some sort of business for self component. So, it's a great program.
Len 04:46
Yeah, it's not uncommon and a lot of new Canadians also seem to want to work for themselves. We have a lot of Ukrainian clients in our broker business because of Tetyana, but they all seem they are all tradesmen in most cases, and they're the ones that want to come and start their own company and start off fresh in a new world, right? So.
Teresa 05:08
Yeah, there are a little bit of limitations, though if they're new to the country, and want to be business for self. We want to see them get a little established before we can consider them and have their permanent residency established as well. But yeah, those are two great programs, we also have another one that has gained a lot of popularity is our Purchase Plus Improvements Program that sometimes goes nicely with our Energy Usage Efficiency Program. And the Purchase Plus Improvement Program allows people to purchase their perhaps dream home, their home that at face value, maybe has some limitations, or they want to make some improvements, and add that to the mortgage when they purchase and make it their dream home. So, the Purchase Plus Improvements Program has become very popular. Most people think that if they want to do improvements to their home after they purchase, they can just refinance, and add those improvements back into their home. But many people don't realize that the government has taken away that refinance ability from the default mortgage insurers at this time. So, they need to wait until they have enough equity built up in their home to do that. So, really, making those improvements at the time of purchase is most ideal. And so it has gained a lot of popularity in the last little bit as well.
Len 06:40
That program was pretty much limited to $40,000 for many years. We have several lenders that are now saying that they can go to $100,000, which I can't even consider that to almost be construction at that point. But so how is that working? We've been told that some will allow us to do draws on that $100,000, if the project is big enough.
Teresa 07:04
Yeah, actually, our program allows people that we don't necessarily have a minimum, and we don't necessarily have a maximum amount. However, it needs to make sense. So, our Purchase Plus Improvement Program, if the improvement is 20% of the purchase price, or sorry, 10% of the purchase price, or greater, you can do up to four draws on that improvement amount. If it's less than 10% of the purchase price, then it is a one advance, but whether it be $20,000, you know, building a deck and a fence, that could be something that would be maybe $20,000, maybe doing a small improvement to the home, fixing up the kitchen or bathroom, maybe that might be a little bit more pricey. Maybe that's $40,000. And perhaps it's finishing the basement of a home that you know has an undeveloped basement, maybe it's building a garage. So, there can be several things that you can do to a home, that can all be part of it. And again, if it is 10% of the purchase price or greater than we allow up to four drawings. So, there are some limitations with some different lenders, that will control what that limit is. But we at Sagen actually don't necessarily have a minimum or a max.
Len 08:36
That’s good to know. We see that a lot for basement development and these days, that's about $40,000, if you put in a bathroom down there. It’s ot hard to go over $40,000 unsure if you need to do roofer and build a garage or something like that. So, that I actually added that into my construction podcast that I did a couple of weeks ago that, you know, Purchase Plus Improvement in when you get into that scale of work. You know, it really goes more into construction and talked about how the drawers are a great improvement to that program, because not everybody has the $100,000 to go ahead and do all the work and wait to get paid, right?
Teresa 09:14
Absolutely. Yeah. So, it is great. Another one just as far as popularity would probably be our vacation or second home program, which allows people to buy that vacation property or buy a second residence in another city perhaps one spouse or partner works in one city and one works and they other and they have a home base and in one of those cities and they need another residence and the other one. So, you can really purchase a second property for that purpose with as little as 5% down and a lot of people have the misconception that you need 20% for your second home And really there's programs that allow you to purchase with as little as 5% down in those cases.
Len 10:08
Yeah, I had two conversations in the last two days about exactly that, that they owned properties already, but they wanted to buy a cottage or do something like that. So, that program definitely has some good usage, especially in northern Alberta, it seems, right? So, you and I both are big fans of what we're going to talk about next, the HOAP the HOAP program through Sagen and is a passion project for both of us, I guess, right? You know, I talk about it a lot because I’ve had clients that have had needed it in the past, whether it was the fires in Fort McMurray, or the floods somewhere, it seems that there's always a need to to assist our clients. When the fires were happening in Fort McMurray and people were calling, I usually was praying that it was Genworth in those days, or Sagen saying that we could at least have some source of maybe aiding them as they get through all of what they were going through. And I believe you went off and did just that for quite a while with and worked directly with the HOAP program.
Teresa 11:08
I did. You're absolutely right. So, our whole program, our Homeownership Assistance Program. So, our acronym HOAP, it is a program that I've been very passionate about, like with you, Len, and we're both great cheerleaders for this program and talk about it every chance we can. So, this program is designed to help people that experience true financial hardship. So, like you said, whether it be the fires in Fort McMurray, so natural disaster, if it is job loss, which we experience or see a lot of, or reduction in hours or pay, that can affect somebody's financial situation. Maybe there's accident or illness or perhaps even death, that will affect somebody's ability to pay, maybe there's marital breakdown. And there were two people on that application, that application at the beginning of that home and one leaves and one is left to carry that, and that can be a financial strain as well. So, our program is designed to help any of those people, and in many different ways, whether it be defer mortgage payments, tack those mortgage payments back onto the end of the mortgage term. Perhaps it's a partial payment, perhaps it's an amortization increase, we actually have the ability to take that mortgage that initially was at 25 years and take it all the way up to 40 years on the back end, if we need to. And when it's for financial hardship reasons, we don't charge an extra premium to do that. We take financial assessments of the homeowners, and figure out what they can afford, and stretch that amortization so that they can make their mortgage payments and keep their home. We can also do promissory note. So, that's really a promise to pay, we do a loan between the homeowner, and us at Sagen at 0% interest rate. So, we don't charge them anything for this loan between us. And it's really to maybe help whether that time of maybe there's many payments that are behind, and we can lump them all together and do a promissory note. Maybe there was a shortfall, they had to sell their home. And there was more owed on that home than the market was able to sell that home for. And so there's a loss or a shortfall there. And we can do a loan between the homeowner and us to pay that out over time. It's a far better solution than foreclosure and having you know, a judgment on that person, so that will affect them for the rest of their home borrowing time, I guess. So. The solutions are wonderful. There are so many stories and situations people can get affected by financial hardship in many different ways at different times in their lives. And so it is a wonderful program. Again, we don't charge anything extra to utilize this program. So, that I believe that when we charge that premium initially to protect the lender, that default mortgage insurance premium, we are also protecting the borrower at the same time should there be financial hardship so and you're right, I did have the opportunity to work for that department for about six months. Since during the peak of COVID, and it was a very busy time for that department of ours. As you can imagine, so many people affected, and it was heartwarming to be able to be on the other end to take those calls, talking to those homeowners, and figuring out a solution that best fits them. So, it is a wonderful program for sure.
Len 15:22
The benefits are huge. And you know, you talked about foreclosure, there's nothing worse than foreclosure on an insured mortgage with any of your competitors. It's the kiss of death for the rest of your life. It feels like that it’s never really forgiven, it seems, right? HOAP program, I didn't know that you didn't charge any interest on some of those that's pretty impressive. But you're also the only insurer that the client can go directly to to talk about the possibilities. Is that right?
Teresa 15:51
Absolutely. Yes, you are right.
Len 15:54
Yeah. And that's, that's like I said, when there's a problem, and it's not your company, it basically just gets referred back to the lender, and they have one objective, and that's to protect their investment and as well, right? So, sometimes that goes that directly to foreclosure kind of idea. So, all these insurances they pay for them upfront, how portable is the Sagen insurance?
Teresa 16:20
That’s a great question. Yeah, we do have a kind of portability feature, really. So, if somebody is, they've got a home initially, they decide they want to maybe upgrade and purchase a new home, they port there, they can certainly import their mortgage over to that new property in most cases. And what's wonderful about default mortgage insurance is that you can also port that insurance over to the new property as well. It's great we can, a mortgage insurance can be ported to a new property for up to a maximum of six months after the closing date of that currently insured mortgage property, if that makes sense. We do have also the the portability table, I guess, is are rules around that is within six months, it's 100% of that premium is ported over, within 12 months, it's 50%, and within 24 months, it's 25%. So, the insurance premium is there for the duration of that amortization, that 25 years typically is initially what it is. And so, it allows that insurance premium to be ported over to that new property over, you know, in future events, I guess.
Len 17:44
Right. So, I know I had thrown in that other question. And I know that in the US, it's done as a monthly fee. And just like insurance on your house or car or whatever, right? I don't imagine there's any sign of a change coming in Canada, because it's pretty much regulated by what CMHC does. And they're not changing that or paying the insurance premium upfront, right? 30-year amortization coming for new homes? A little undercut by CMHC I saw for the fee. Do you think they will follow suit?
Teresa 18:18
Absolutely. Yeah, we've actually, uh, we did put out a lender update just last week as well. And our lender update regarding the 30-year amortization is that we are actually only charging 20 basis points above the standard premium. And so there's just that surcharge or an amortization greater than the 25 years. So, we have done the same as well.
Len 18:49
Yeah, and you know, the talk, the lots of talk, and they read about five mortgage news feeds every day of extended amortizations, maybe being the saviour of the new home industry, I guess, or homes in general. You know, for many years, we go back far enough that there was 40-year amortization and zero down payment. Do you hear any talk about going beyond that 30? 30 seems to be a fairly safe number, I think for most.
Teresa 19:17
Yeah. I mean, I think it is wonderful that we can, we have that coming as of August 1, the 30-year amortization for first-time homebuyers, for a new build, or not previously lived-in home, which is wonderful. I do think it is the start. I think the government will see the response from borrowers and see if that helps with affordability for new homeowners. I do hope that there might be and there is some talk about it maybe being 35 years in the future, but I think it's going to all depend on how well this rollout goes. This is probably just one of the first phases.
Len 20:00
So, we're obviously going back to our own books and searching the clients who didn't quite qualify if they're looking at new homes still or if they haven't bought that, you know, to be in touch with them to say, well think about this in August, but the 30-year amortization will make some difference. It's not a huge difference, but it might help them qualify for another 20 or $30,000. Right? So. Okay. Well, thank you very much for this morning, Teresa, this is great that we got a chance to add another insurance talk in this morning. It's a necessary thing for everybody and I appreciate your time this morning on a Monday morning to get this podcast.
Teresa 20:37
I appreciate your time too Len. It's always great to spend time with you and talking about the things that we love most or are most passionate about. So, it's great to be here with you today too.
Len 20:50
Thanks for listening today. I hope you found the information that we provided to be useful in your mortgage journey. And remember, you can always find our associates at www.brokersforlife.ca/associates. Have a great day.