Credit counselling is less regulated and the quality of service and fees varies greatly. They are not legally required to have any training. Literally, anyone can call themselves credit counsellors and they will not be breaking any laws. That is why some are somewhat shady. The Government of Canada website actually issued a consumer alert on this – click here.

The Federal government licenses insolvency trustees. They have formal training and are the only ones allowed to set up consumer proposals and bankruptcies. These are legal processes that bind the creditors. If you are having trouble paying your bills my recommendation is to go see a licensed insolvency trustee; however, if you plan to apply for a mortgage or another type of loan within the next 5 years AND you have some equity in your home; then I would check with an experienced mortgage broker as well.

It may be possible to refinance your property or get a second mortgage to consolidate your loans into a smaller monthly payment. This will preserve your credit and allow you to borrow in the future. A good mortgage broker will go through the pros and cons of your options including all costs involved.

The post Credit Counselling Can Prevent You from Getting a Mortgage! first appeared on John Chan Mortgages.

A home equity loan requires the lender to put their name on your title. This means lawyers are involved. The borrower is responsible for all legal costs and a $2,000 budget is probably average. The lender and the mortgage broker will charge a fee. Sometimes the mortgage broker fee is inside of the lender fee as the lender often give half of their fee to the broker for compensation. Some lender charges admin fees, inspection fees and various fees for arranging this loan. The key is to ask for the total fees. What they call it is not as important.

Currently, if you are in a large city in BC the total fee should be around 2-3% of the loan for a first mortgage and 3 – 5% for a second mortgage. It really should not be higher unless your situation is extreme. For example, you quit your job to work on your new business for the last two years. You ran out of money and stopped paying your bills a year ago so your credit is terrible and you have no money.

In terms of rate, it is harder to pin down because so many factors go into deciding it. Credit worthiness, location, type of property, the amount of equity left after the loans and the condition of the property all play into it. However currently a good rate for a home equity loan would be 6.5% for a first and 8% for a second.

So, the minimal setup cost for a $100,000 home equity loan would be as follows:

Lender fee: $1,000
Broker fee: $1,000
Legal fee: $2,000
Appraisal: $400

TOTAL: $4,400

So, the initial cost is substantial and you wouldn’t go this route if you are borrowing a small amount of money.

Depending on your situation consider mortgage payment deferral for 6 months, home equity line of credit, refinance of your mortgage or a personal line of credit.

Also consider the various programs offered by the Provincial and Federal Government:

https://www2.gov.bc.ca/gov/content/safety/emergency-preparedness-response-recovery/covid-19-provincial-support

https://www.canada.ca/en/department-finance/economic-response-plan.html

If you need help deciding whether a home equity loan makes sense for you, feel free to give me a call. John at 604-831-4437.

The post Home Equity Loans in the World of Covid-19 first appeared on John Chan Mortgages.

The operations highlighted by the Globe and Mail are “private lenders” who lend out their money to launder dirty money. They charge interest rates from 40% to 120%. 60% is the legal maximum allowed by the Tax Act. Legitimate private lenders charge interest rates that are much lower. Usually between 5% to 14%.

These questionable operators mainly target non-residences with limited access to money outside of their home country.

The key difference is these money launderers will want to give you the money in cash because they cannot deposit it into an account without triggering some sort of regulatory alarm. Their non-residence clients will actually use the money here in Canada and may not need to deposit huge amount of money into accounts here. This is why it is unlikely that someone living here would be able to borrow money from such lenders because once someone tries to deposit $10,000 cash into an account, red flags are raised at the bank. And they don’t want that.

So, these operators are out there, but your chance of helping these people launder money are small. And if you refuse to take cash, almost none.

The post Private Lenders that Launder Money? first appeared on John Chan Mortgages.

You need to talk to someone familiar with this product to make an intelligent decision on it. A majority of the information on the internet refers to the products in the United States. It is not the same here. It is much better in Canada.

We were not quite onboard with this product at first until we saw this graph.

Basically, it shows a 1 million dollar house with a $350,000 reverse mortgage (orange) at 5.84% interest rate. The interest accumulated is in blue. And the equity the owner has is in purple. So, after 15 years of not paying a penny, there is still $728,000 in home equity left. And this is assuming an appreciation rate of 3%. Canadian house appreciation over the last 35 years averages 4.89%. It is 6% over the last 15 years. And this is for Canada, not Vancouver which would be a lot higher.

Even under this conservative estimation, the owner will still have a large portion of home equity left.

This is definitely a viable solution for someone who wants to stay in their house but have limited income.

Give us a call to find out the pros and cons of this program and whether there is a better solution for you.

The post An Introduction to Reverse Mortgages first appeared on John Chan Mortgages.

Check at your local credit union or bank to see if you qualify for a personal loan. You never know until you ask. If the amount you owe is greater than $40,000 and you have a property, you might be able to clean up your financial situation with a home equity loan.

Often payday loan is a debt trap. Between 50 to 75% of the loans are repeat loans. Fees quickly add up. In a study in the states 41% of borrowers needed a cash infusion to pay off a payday loan. So borrow from your friends or family first, because you’ll end up borrowing from them anyways. If you do it first you will actually need less and save a lot money.

Cut down your expenses and sell some of your stuff before you get a payday loan.

Remember payday loan rates are five to six hundred per cent annually speaking. NEVER use a payday loan to pay off your credit card. If you can’t pay the credit card rate of 29%, you’ll never be able to pay off a 600% payday loan.

If you have to borrow a payday loan, ask yourself where you will be getting the extra money to pay this loan and the fees in a week or two. If you cannot answer this question, then you are going to be in a hamster wheel of debt. You’ll just end up owing more and more as fees pile up.

As a pre-emptive measure, build credit early. Often young people cannot borrow any money from traditional lending institutions because they do not have a credit history. Apply for a couple credit cards, use them responsibility and pay them off each month. Records of phone bill payments are useful, but not as good as credit card usage history.

Good luck and may you never need to consider a payday loan.

The post Before you get a payday loan, consider this. first appeared on John Chan Mortgages.

In our previous article, we determined that shadow banking and sub prime mortgage lending are very different. Shadow banking cover a large area of financing outside of banking that most people find acceptable such as credit unions, pension funds, trust companies and mutual fund companies. Sub-prime mortgage lending is only a very small part of it.

So, what is “sub prime lending”? Some say it is lending to people who may have problems maintaining the repayment schedule.

Then sub-prime mortgage must be lending to people who may not be able to pay their mortgage. And if it is unregulated then it just seems like a bad idea.

The problem is that the term is loosely defined and is applied to describe mortgages that are relatively safe as well as mortgages that are guaranteed to fail. During the time of the US financial crisis, sub-prime mortgage lending was lending money to a minimum wage earner a 100% of the value of the home. And because they have no way of paying for the mortgage, the lender also lends them the monthly payments for the next two years. In Canada, we are talking about 20% – 25% down payment with non-traditional proof of income because the client fixes cars on the side. It is like comparing apples to oranges.

Mortgage lending is so misunderstood by the media, that I often see articles referring to First national, Street Capital and CMLS as shadow lenders and implying that they are not regulated which is so far from the truth it is ridiculous. If shadow banking is defined as non-bank lending, then it is true these are shadow lenders. But these lenders follow all the rules the banks do because their mortgages need to be insured by CMHC. Also, they sell their mortgages to the banks which requires the mortgages to conform to government guidelines. Including their volume numbers into the “sub-prime” category just confuses the issue because their mortgages are as safe as the bank’s if not safer. They often ask for more paperwork. And they don’t finance mortgages for multi-million dollar homes to students or house wives with no income.

Now Home Trust and Equitable Bank are sub prime lenders. They mainly deal with two types of clients. One is people with credit issues and the other is people who have problem proving their income in the traditional manner. But self-employed people, recent immigrants and those with thin or no credit history often have trouble securing financing from traditional banks even though they have the ability to support the mortgage payments. So while we know how much mortgage loans are generated by these sub-prime lenders, we really don’t know how many of them are true sub prime; that is, at a higher risk of default then bank loans. Also getting mortgages at these types of institutions often mean a down payment of 20% to 25%. Hardly a dangerous risk unless, the value of the home drops by 20% to 25%. And if you have been following what has been going on with Home Trust (parent company is the Home Capital Group), you’ll know that these entities are far from unregulated.

And finally, we get to the true “remote corners of shadow banking” – private lenders. But even here the classification is not clear. In fact, there are two distinct groups. First is the mortgage investment corporation (MIC). Basically, these entities were designed by the government to increase the flow of capital into the mortgage market and to allow small investors access to mortgage investments. Legislations were brought in in 1973 to allow for their existence. When the government refers to these MICs as unregulated, they mean MICs do not follow any lending guidelines put out by the provincial or federal government, but it doesn’t mean they are not governed by rules. Yes, they can lend to who ever they want, but because these loans are not insured by the government, they are not securitized. Instead of selling them off, which was a large part of the problem during the US financial crisis, all the MIC’s mortgages are kept on their books. If they make a bad loan, they eat the loss, not some poor shmuck who bought the investments from Goldman Sachs because they were made to believe the toxic mortgages were triple AAA rated investments. I would argue that if all the mortgage loans must be kept on the books of the lending institutions, the US financial crisis could not have happened.

Now comes the truly unregulated shadow bankers: the individual private lenders. People with extra money to invest, who decides to invest their money by lending it to people who cannot get the loan from a bank. They may be lending fifty to sixty thousand from their RRSP accounts or it could be a high net worth individual with several millions to invest. They may feel it is safer than putting it into the stock market. And many would argue that they are right.

Now the big question. Should we be concerned about unregulated sub-prime lending? If we are just talking about the individual private lenders, then obviously not because the amount is so small, but even if we include all the MICs, we are still only talking about 1% of the outstanding residential mortgage credit according to a recent CMHC report on private lending. It is too small to cause any great harm to the economy. Focusing on this is only a distraction to solving the real problem of ever raising real estate prices. Increased sub-prime lending is a response to this problem. While reckless borrowing may cause personal tragedies, sub-prime lending is not going to be the cause of some sort of economic disaster in Canada in my humble opinion.

The post Shadow Banking Part II – Should We be Concerned with Unregulated Sub-prime lending? first appeared on John Chan Mortgages.

It has been thrown around haphazardly and gives a perception that mortgage lending in this area is a large hidden unregulated system that can bring the economy down or at least do great harm.

One article mentions how new rules will push more people to borrow through mortgage investment corporation which is the most remote corners of Canada’s shadow banking sector accounting for 40% of Canada’s banking space. Now when you add headlines such as “Subprime Lending, Which Wrecked U.S. Economy, Becoming A Problem In Canada” and “Subprime Lending Market in Canada Skyrockets to Record as Banks Tighten Reins”, this certainly seems like there is something to worry about. Wow, 40% of Canada’s loans are unregulated subprime lending?

Fortunately, this is not true. This unwitting confusion or willful sensationalization is made possible by the fact that the term shadow banking is not clearly defined. In recent years, it has been mainly used to describe and understand the financial crisis of 2008. It has also come up when referring to the unregulated banking and financial activities in China and whether it would cause a global crisis. In this sense, it covers a lot of financial activities. Basically as long as it is not through a bank, it is shadow banking. This would include commercial papers, money market funds, bonds, treasury bills, securitized instruments and finance company loans. In this definition insurance companies, mutual fund companies, trusts, credit unions and pension funds are part of the shadow banking system. That is why shadow banking seem to make up such a large part of the banking space!

Now to put things into perspective. A 2012 CD Howe report on shadow banking in Canada estimated the major parts of the shadow banking system are about 868 billion dollars. Finance company loans consist of 95 billion but only about 15 billion are mortgage loans. When you compare the 2 trillion that chartered banks have out as loans, you can see this 15 billion dollars is only about 0.5% of the total loans outstanding. Hardly anything to write home about AND most of those loans are regulated.

In the next article I will peel away more confusion around mortgages within the shadow banking system.

The post What is Shadow Banking in Canada? first appeared on John Chan Mortgages.

Previously Grow was the only peer-to-peer lender that was offering a credit check that did not affect the credit score. Now Borrowell and Amber Financial both offer a “soft” credit check that will not hurt your credit score during the initial application process.

Lending Loop has just worked out their issues with the provincial regulators and is back online connecting people who want to invest in businesses and the businesses that want to borrow money. However, if you are a start-up, you are still out of luck because they only lend to established small and medium sized businesses. The rates are from 7.5% to 26.5% depending on the credit rating and origination fee starts at 3.5% and goes up to 6.5%

The post A Quick Update on Alternative Lending in Canada first appeared on John Chan Mortgages.

The loan size is between $5,000 to $35,000. They offer terms of 3 to 12 months.

Interest rate range is 5.99% – 24.99%

Minimum 6 month in business with 50K in annualized revenue.

Minimum personal credit score of 600

Origination fee of 1.5 to 3.5% of the loan.

For more information you can visit their website at www.lendified.com

Lending Loop focuses on larger loans but are currently having regulatory difficulties and can no longer lend out investor money until it is resolved. Currently they are using their own funds to fund the loans.

Grouplend has changed its name to Grow. Everything else has stayed the same except recently they lowered the lowest interest to 4.8% and extended their term to include 5 year terms.

This space, sometimes referred to as FinTech, is growing and changing rapidly.  I don’t see too much risk borrowing money from them, but lending your money through their systems would require high risk tolerance.

The post An Update on Alternative Lenders in Canada first appeared on John Chan Mortgages.

So through Lending Loop the average Canadian can invest in small business loans. Once an account is open and funded, the investor can review loans that have been vetted by Lending Loop and placed into their risk categories. An investor can pledge a minimum of $50 to any one loan and is not permitted to fund 100% of a loan. It is highly recommended that the investors spread their investments among many loans to average out the risk of any individual business. Note Lending Loop charges a 1.5% annual fee to the investors.

For small business owners, it is another alternative to the banks. Depending on the assessed risk of the business and the length of time the money is needed, the interest rate varies from a low of 6% to 15.5% and their lender’s fee varies from 3.5% to 5.5%.  You can borrow up to $500,000 but your business must be in existence for 2 years or more and have annual revenue of $200,000 plus.

You can get more details by visiting their website: https://www.lendingloop.ca/

The post Lending Loop: Another Peer-to-Peer Lender for Small Businesses Enters the Canadian Market first appeared on John Chan Mortgages.