Canadian Mortgage

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Revisiting the Vendor Take-Back Mortgage

Published September 17, 2019 by Real Estate Leads

Nearly every reputable realtor will have long since established ties with a mortgage broker to whom they’ll recommend clients who are going to need financing assistance from a lender in place before they’re able to purchase a home. In much the same way it’s beneficial for a mortgage broker to understand the workings of real estate investment and transactions, it’s helpful for realtors to understand mortgages AND the history of ways people have found the means of financing homes in Canada.

As we always insist, being knowledgeable makes you more appealing to prospective real estate clients and furthers your reputation as a ‘good’ realtor in your locale. Finding new clients for whom you can flex your muscles in this regard is a challenge, but here at Real Estate Leads our online real estate lead generation system for Canada is a proven effective way to be fast-tracked towards meeting real people who are genuinely considering buying or selling a home in the near future.

What Is It?

A vendor take-back mortgage is a unique kind of mortgage where the home’s seller extends a loan to the buyer to secure the property’s sale. They’re also called seller take-back mortgages, and it’s true that both the buyer and seller can benefit if the circumstances are right. It creates the possibility that the buyer might be able to purchase property above their financing limit, and conversely the seller is potentially able to sell the property at or above asking price more quickly.

Born in the Days of High Interest Rates

Vendor take-back mortgages were common in Canada some 25 to 30 years ago, and the reason they were so frequently taken was because interest rates were sky-high back then compared to today. Vendor take-back mortgages were very common in the ‘80s and ‘90s when interest rates were well over 10% and sometimes even moving up to as high as 20% in the early 80s.

Some have suggested that the new B-20 mortgage stress test that’s been in place for a few years now might make vendor take-back mortgages start to become a ‘thing’ again. That might be so, but industry and broker experts say that would only be the case if applications have other qualifications that extend beyond the 200 extra basis points as they’re detailed in the B-20.

It’s true that sellers could benefit by having a vendor take-back mortgage as it could earn interest on money in ways standard lenders wouldn’t offer and in a more secure environment due to the financials being leveraged against real estate.

Industry consensus is that vendor tack-back mortgages be something of a fix for those lacking purchasing power due to the B-20 stress test, but we’ve been warned not to expect them to be resurfacing in the residential real estate market anytime in the near future. This is primarily attributable to the growth of private lenders and mortgage investment corporations, and then there’s the fact that sellers usually redirect finances earned from the sale of homes to purchasing new ones.

This, of course, is true of both inhabitant homeowners and property investors.

Tempered Enthusiasm

We can understand that vendor take-back mortgages are not as commonplace in the market today because people need money to purchase their own homes, but these types of mortgages would really only work well if that homebuyer was planning to exit the market sometime shortly thereafter.

On this, one industry expert was recently quotes as saying “If you sell your property and you have this equity on hand and you’re then unsure of what to do with it, it’s pretty common to then look to invest it with a mortgage company or lender.”

We’ll conclude today by mentioning that despite all these forewarnings and the fact that vendor take-back mortgages represent less than 1% of the traditional residential real estate market, they can be more appropriate in the commercial real estate sector. On the commercial side – where the rate of return is a bit more attractive for the investor – an operating business may also be part of the transaction and this changes the assumption of risk factor for the buyer.

Will vendor take-back mortgages ever return to the residential market? They may, but it’s unlikely they’ll ever be as commonplace as they were 20-plus years ago.

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Decline in 5-Year Fixed Mortgage Rate a Big Plus for Prospective Buyers

Published July 29, 2019 by Real Estate Leads

As a realtor, one of the things you’ll encounter often is people who are adamant that variable-rate mortgages are always preferable when financing a home. There’s a lot to be said for them, no doubt, and it’s one of the many things a client may ask their realtor long before they talk to a mortgage broker for the first time. As we keep harping at here, an informed and knowledgeable realtor is one who tends to be well regarded – and referred – by his or her clients.

Which leads us to also say again that there’s so much to be said for making a strong first impression when meeting with would-be clients. Here at Real Estate Leads, our online real estate lead generation system is a proven-effective way of not only creating more of these opportunities, but creating more genuine ones – meaning with people who are genuinely considering buying or selling homes in the near future.

So, in the interest of building on your knowledge base, let’s discuss the ramifications of this reduced 5-year fixed mortgage rate in greater detail.

Dipping to 5.19%

There it is – the interest rate used for mortgage qualification has fallen to 5.19% from its previous spot at 5.34%. it’s especially noteworthy because it marks the first decline since September 2016. Back then the benchmark qualifying rate fell to 4.64% from 4.74%. It’s been rising ever since, and that’s based on the same reflection of what the BoC (Bank of Canada) sees as the economic outlook of the country.

This past week’s drop has much to do with global central banks deciding to loosen lending policies, but we should keep in mind that Canada’s five-year bond yield – which impacts five-year fixed mortgages – has been going down from January 1st onwards.

More Purchasing Power

The consensus seems to be that the interest rate decline will allow a homebuyer earning $50,000 a year to afford a home that’s some $4,000 more expensive than would have previously been the case. For someone earning $100,000 a year, they can be looking at something $8,300 or so more expensive.

How this will be beneficial for homebuyers – and investors – doesn’t need much explanation. In tandem with the Bank of Canada’s decision to hold the interest rate two weeks ago, we’re currently seeing the most auspicious period for prospective buyers in 19 months. Further, economists believe we’re unlikely to see the interest rate move on the variable side over the next few months.

Additional Considerations

It should be mentioned as well that there has been considerable speculation that the Bank of Canada will cut rates before the end of the year. While this would be even more beneficial considering a mortgage, those same economists say we shouldn’t hold our breath in that one. The belief is that unless we see those risks affect the domestic economy, it is unlikely rates will decline this year. In contrast to the US, real policy rate in Canada is still 1.75% and inflation was 2%. Long story short, the real interest rate here in Canada will be lower.

Sign up with Real Estate Leads here and receive a monthly quota of qualified, online generated buyer and / or seller leads that are delivered to you exclusively and for your privately-served region of any city or town in Canada. It’s a dynamite way to supercharge your prospecting efforts, and you’re almost certain to see your business grow exponentially