Mortgage 101 – Natural disasters and the housing market | September 18th, 2023

In this edition of Mortgage 101, Clinton Wilkins and Todd Veinotte discuss the impacts natural disasters have on insurance and the housing market. The guys talk about the importance of re-evaluating insurance and the property factor in risk tolerance.

Please note that the below content is pre-recorded and may not always reflect the most current information or developments.

Todd Veinotte 00:05
Oh, welcome to Mortgage 101 your guide to homeownership with Clinton Wilkins and myself, Todd Veinotte. And it’s Hurricane Lee impacting the region this weekend. Clinton, welcome. What do you think of the Hurricane Lee?

The impact of weather events on home insurance

Clinton Wilkins 00:18
Well, we are recording our show on Wednesday, just so everybody knows. So we’re not really sure what’s going to happen. I really hope it’s not going to be bad. You know, I think we’ve been through enough storms and weather events and fires and floods here in our region. I think we need to catch a break.

Todd Veinotte 00:34
I think we definitely need to catch a break. But to that, though, how has that impacted the local market with all of the displacement and people, I would think in many instances, not in in homes, obviously yet, who’ve lost homes?

Clinton Wilkins 00:50
You know, I think there certainly has been an impact, I think, depending on, you know, where you’ve lived in, you know, what type of impact you’ve had, we’ve had several clients that have had floods, you know, lots of insurance claims going on. Obviously, we’ve had clients that lost homes in the fire. It’s not been easy for people. And you know, what I really feel for everyone, whether you’re a client or not a client, like I really do feel for you, and everybody’s situation, because obviously, everybody’s situation is a little bit different. And, you know, we talked in our previous show about insurance, you know, do you have enough coverage, does the type of coverage you have cover things like floods, and, you know, acts of God, you know, quote, unquote. And, you know, obviously, everybody’s, you know, feeling it. And I think that hopefully, we’re moving in the direction that things will renormalize here in our region, but, you know, there certainly has been a lot of change in terms of our climate and stuff like that.

Todd Veinotte 01:47
Does any of this impact lender’s enthusiasm for the area, when you have issues like this?

Clinton Wilkins 01:53
You know, when the actual floods were happening, like we had some lenders even pull back and say, you know, if there’s properties that were in that impacted area, they wanted a full appraisal of the property.

Todd Veinotte 02:06
There you go. Yeah.

Clinton Wilkins 02:07
So I think, you know, they certainly have gone in more cautiously. And, you know, there certainly were a lot of areas that were very heavily impacted. And I can understand a lender wanting to protect themselves. You know, certainly some, even prior to closing, they wanted to make sure, you know, the home was still okay, like they wanted to get photos and stuff like that. You know, I think it’s being cautiously optimistic that we’re going in the right direction. And I think when we’re in a situation, like a natural disaster, it’s, you know, all hands on deck, and we really want to move in the right direction and make sure that everybody is going to be first safe, and then that borrowers are protected, lenders are protected, etc.

Property is a big factor in risk tolerance

Todd Veinotte 02:45
Okay, so we know that some areas, in Bedford along Sackville river, there are talks about buying of, the province buying some of those properties. They haven’t committed to do that. Or so let’s suggest that there’s, there’s no bailout to use that term from government. And clients or people want to sell those properties. I would think that in disclosure in doing that, whoever buys that property, they’re going to go to a lender. These are going to be big factors, I would think.

Clinton Wilkins 03:15
And we certainly have had properties that have been in a situation where they’ve been in a flood zone before. And maybe the lender wants an appraisal, or maybe that lender will say, you know what we’re okay with this borrower, but we don’t like the property. And we do see that all the time. And, you know, I think that’s one thing to be, you know, cognizant of. When we look at doing a mortgage, it’s not just about the borrower, the property makes a big piece of the lender’s risk tolerance. Where is the property located? What is the condition of the property? What is the value? What is, you know, more unique? Or is it more standard? Is it rural? Is it urban? All these things factor in to the lenders decision if they’re going to be willing to advance those mortgage bonds or not to the borrower.

Todd Veinotte 04:00
Alright, so is it possible, well it’s not only possible, I’m sure many times the borrower says, no, I’m not, again, to your point, this is not the home that we’re going to lend you money to buy. Look for something else.

Clinton Wilkins 04:13
I think it does happen. And I think, depending on, you know, a lenders response, sometimes clients do get cold feet. And sometimes a lender will come back to say, you know, what, we really liked the borrower, but the property is not for us, we are willing to do it with x y z, maybe we’re willing to do this, but we want insurance from the Canadian Mortgage and Housing Corporation, even if it is a conventional mortgage. So if someone puts down 20%, technically, you don’t need to have CMHC insurance. But sometimes lenders will come back to say, we’re willing to proceed with this property. If we also insure it, which is an additional cost of the borrower, maybe the borrower doesn’t have to pay for an appraisal, but you know, it’s an additional cost. But then the borrower would get a lower interest rate in theory because CMHC mortgages are at a lower rate than a conventional mortgage. The client doesn’t pay for an appraisal, but they have that insurance cost on top. It’s then backing that lender 100%. So if there is a loss, if there’s a foreclosure, the Canadian Mortgage Housing Corporation is going to make the lender whole.

Natural disasters and mortgage payments

Todd Veinotte 05:15
Okay, so interesting, if somebody’s home is if they lose it to through natural through fire, whatever, let’s suggest fire. They still have to make those mortgage payments, correct?

Clinton Wilkins 05:26
Yes, you need to make your mortgage payments. I think in some instances, lenders were offering deferrals to customers while they were sorting out their insurance situation. Because just imagine if you’re making your mortgage payments, but you also have to pay for housing somewhere else that can put someone in a bad financial position pretty darn quick. Right, so many lenders were offering deferrals until people started out their insurance because I think in some cases, insurance claims take a very long time.

Todd Veinotte 05:52
Yeah, well, especially now when they’re probably inundated with so many other claims.

Clinton Wilkins 05:56
So many, so many. And now we deal with people and obviously, all kinds of different industries. I had a borrower today that worked in the insurance industry, and they say, it’s just been wild. The amount of inquiries and claims and, you know, it’s almost like they’re going they’re fighting fires themselves, fighting fires internally, just because it’s been, obviously so busy.

Insurance is not a factor in expenses

Todd Veinotte 06:16
So when looking at, when working with clients, obviously, there’s a big picture. It’s not just the mortgage payment, somebody’s when they’re looking at their monthly budget in order to buy that house. Their insurance factors into that and property tax factors into that, right?

Clinton Wilkins 06:16
Yeah, the big things that we look at in terms of ratios, obviously, are people’s debt payments. And their housing costs. So obviously, the housing costs the one thing we look at is heat and property taxes. So those are two big – ,

Todd Veinotte 06:42
Not insurance?

Clinton Wilkins 06:43
Not insurance, we don’t factor that in, when it’s an owner occupied property, we don’t have to factor that into the expenses. But that’s why we don’t lend people 100% of their income. We’re only lending people, you know, 40, 42 to 44%, in some cases, higher, just depending on like, what their whole situation is. But we’re not lending people 100% of their income. Because part of their income is going to income tax and part of their income is going to pay for everything else. It’s paying for insurance, Netflix, you know, operating their vehicle, all these other things. So we’re never financing anybody out 100% of their income, because that would just not be prudent.

Don’t ostrich: talk to your insurance

Todd Veinotte 07:18
No, for sure. Okay, so I guess to circle back a lot of the people, a lot of people who are going through a lot of these issues because of displacement, and all of that. The best thing to do, I guess, is always as we say, don’t ostrich any of this stuff, right? Don’t

Clinton Wilkins 07:33
Do not ostrich!

Todd Veinotte 07:34
That’s right.

Clinton Wilkins 07:34
Ostrich is our bird, our national version of our show here or like a mascot.

Todd Veinotte 07:40
Yes. Do not, do not ostrich people. Make sure that you talk to your mortgage guy right here.

Clinton Wilkins 07:45
Yes. Talk to your lender, talk to us, for sure. And I think also talk to your insurance company, you know, if you’re going through any type of hardship, in terms of a loss, if you have a claim going talk to them, because sometimes insurance will even give an advance to people, which may help you know, with, you know, making their payments, stuff like that, because there’s so many additional expenses people don’t think about.

Todd Veinotte 08:07
Alright, so, again, the what I’m talking about, we got another three segments, what do you want to get to today?

Clinton Wilkins 08:14
You know, we’re definitely talking about the Bank of Canada, I know listeners are gonna want to tune in and hear this. We’re gonna talk about what’s going on here in the market in Halifax. And you know, the fall is just such an interesting time, I think. And, you know, we just came out of the summer. Summer was actually very, very busy. So we’ll talk about that. And the other thing I really, really want to talk about Todd, is what interest rate should you not take? Because I think a lot of people just have it in their mind they want to do it a certain way. And I’m certainly going to talk about what type of trends we’re seeing, and what is really most popular. And why is that?

Todd Veinotte 08:51
Well, the mortgage, you don’t want to take it to the high interest rate, is it not?

Clinton Wilkins 08:55
That’s what Todd said before the show. You don’t want to take the interest rate that’s the high one.

Todd Veinotte 09:00
That’s right. Well, I mean that I would say that’s prudent advice.

Clinton Wilkins 09:04
I think that is good advice. But right now all the rates are high, Todd. It doesn’t matter what rate, what rate product you take. They are all high. So I think the right product that you need to take is the right product that’s right for you. And we’ll certainly talk about that a little bit more.

Todd Veinotte 09:18
Mortgage 101, your guide to homeownership, we’ll be right back.

If you’ve liked what you’ve heard, and you want to learn more, feel free to visit us online at teamclinton.ca