Mortgage 101 – Refinancing The Right Way

Todd Veinotte and Clinton Wilkins discuss the impact of inflation on interest rates and the housing market, noting that rates are expected to stay higher for longer.

Todd Veinotte
Welcome back to Mortgage 101, your guide to home ownership with Clinton Wilkins and myself Todd Veinotte and we don’t want to be a downer. That inflation segment hopefully didn’t get people down a bit.

Clinton Wilkins
I mean, I’m sure some people are down. I think it was more just real. And inflation is a problem. It’s a problem because the rates are gonna stay higher for longer, and the cost of goods is going up faster than we want them to be going up. So those are the two problems, the one thing I will report is the markets I think are, I’m not gonna say it’s an all-time high, but all-time high this year, at least right now, while we’re recording this on this Wednesday night, going into the weekend, and the market was talking stock markets. And usually the way it works is, high markets, high rates, low markets, low rates. So would you rather have your investments be high or your rate behind? People who don’t have any investments want their rate to be low, right? But I think a lot of people who have investments want their money to be growing as well. So it’s a very hard balance.

Todd Veinotte
When it comes to net worth, it depends on who you talk to. Put everything in there, if they have a classic car, if they have a guitar, if they’ve got a TFSA, their home, whatever. They throw that all in their net worth. And I’ve heard some people who are a little more, a little more picky when it comes to what should be in that basket. What’s your takeaway net worth?

Clinton Wilkins
For me, put in every piece of real estate, including the primary residence, TFSAs, RRSPs, and even a locked-in RRSP. I’ll put in when people have life insurance, I’ll put it in for a value of $1 even if there is a cash surrender value because that’s not readily being able to be liquid. The things I leave out, I leave out are ESPs, so anything that’s involved with the kids, I leave that out. And household goods that are not easily changed to cash. You can have a classic guitar, for example, that might be worth a lot of money, but you can’t change that into cash as quickly as a vehicle. You can usually change it quicker, right? If they have a classic car, great. But what’s a real market value? Sometimes this sentimental value is higher than what it could realize in the

Todd Veinotte
What about a new vehicle or a newer vehicle?

Clinton Wilkins
It’s five or six years old? Paid off, great. Put it in, I think, even if there’s a vehicle with a lien, as long as the title of that car is in your name, put it in as an asset, because that helps offset the liability. The one thing that we don’t put in is we don’t put lease vehicles in, because you don’t own that vehicle. That’s just a straight-up liability.

Refinancing Mortgages

Todd Veinotte
All right, let’s talk refinance. Let’s talk about refinance. When is a good when is a good time? When do you get somebody in front of you and the light bulb goes off, and you say, This is the prime person that should be refinancing.

Clinton Wilkins
So the right time to refinance is the right time for you. That’s the big gist of it all. People refinance to a maximum of 80% of the market value of their home. What is the market value? It’s whatever the appraisal is going to be. How does an appraisal work? Well, an appraisal is based on your home, square footage, age, et cetera, compared to what has sold recently in your neighbourhood for similar types of homes. We can go to a maximum of 80%. Hence, we have that 80% let’s just say, for argument’s sake, the value of the home is $500,000 that means that you can have a global limit of your product up to $400,000 from that, we could splice that maybe into a mortgage, into a home equity line, however you want to have it set up. Then we have to pay out whatever is currently owing on your home, anything that’s secured. So that’s how you can do it. As a maximum, the reason somebody would refinance would be to clean up debt, potentially improve their property. Do investments, buy a secondary home. I’ve had people refinance to pull equity out to give it as a gift to their kids, so they can buy a home and pay for education. There are a variety of reasons why people refinance, but I think there’s a misconception that they don’t understand. How does that 80% work? Well, it’s 80% of my equity. No, it’s 80% of the market value of the home, less how much you owe, that’s how much you can have access to.

Todd Veinotte
And anytime you can, you can get high-interest debt under control.

Clinton Wilkins
And people are like, I’m refinancing, I’m just extending my mortgage. I’m just paying all the interest at the beginning. It’s all based on the amortization. If you take a third of your amortization, you’re paying a lot of interest. If you take a 15-year amortization, you’re paying a lot less interest and paying a lot more principal. So it’s all based on the amortization. It has nothing to do with when your term starts; when your term doesn’t start, it’s all based on what the amortization is of your mortgage. And that’s one of the number one misconceptions. Well, every time that I refinance, I’m just paying all the interest at the beginning, starting the interest all over again. Well, you’re probably doing a 30-year amortization every time, and you might have to do that just to get approved based on the amount of debt you have, based on the amount of income you have. Maybe that’s the best strategy for you, to do a 30 GB RAM. I don’t do a ton of 30s. I have 30 RAM. For people who want a 30 RAM, or need a 30 RAM, that’s not my default. My default would be 25 years, right? That’s where I start everything 25 25-year amortization. I love an accelerated bi-weekly payment, especially if you’re paid bi-weekly, because then you’re down to 21 years, right? I do all these little tricks to try to get people to pay more years accelerated by will take off. You’re making 26 bi-weekly payments throughout the year, which makes sense, and equals 13 monthly payments. You’re basically paying one extra month every year when you do accelerate it, bi-weekly, and why wouldn’t you, right? If you’re paid, obviously by we make it automatic, Todd, just like when you’re saving and doing investments. Make it automatic. Set up an authorized payment. Set it up on payday. You’ll never miss that money, right?

Credit and Lender Relationships

Todd Veinotte
And, of course, people need to be working. You have to have your finances. You have to have good credit in order to do this. So there are times when perhaps somebody might say, What, I just changed jobs, or my credit’s taking a hit, or whatever.

Clinton Wilkins
Sometimes when we do it, we say, Hey, client, we have to do a B lender or an alternative lender for a year, get your situation cleaned up and get you back into a prime lender. The majority of the mortgages that we’re doing, though, the bulk, are with bank lenders, and bank lenders you would know, like TD, ScotiaBank, Bank of Montreal, we’re dealing with these lenders every single day, every day. And I think there’s a perception like, when you go to a mortgage broker, you’re dealing with a B lender, or you’re dealing with a trust company or a credit union. That’s not always the case. We want to provide the best solution to each customer, and sometimes that’s a bank, lender, and sometimes it’s not. It’s all based on what somebody’s situation is, based on their income, their assets and their credit.

Todd Veinotte
Well, the current lender you have oftentimes just assumes or hopes that you’re just going to renew on.

Clinton Wilkins
Probably the bulk of borrowers do talk, sometimes at their detriment. People are new. And I talked to a couple today, they did the renewal in June. Like, why do you want to refinance in August? You messed up your something changed with your situation. But guess what? Something did change with their situation. I said, Okay, guys, let’s make a really good plan, and we’re making a plan together. They may still go back to their existing lender, and they may be listening to our show right now because I said, Okay, we’ll give you a shout-out on the radio. They may go back to their existing lender, but it might not make sense for them to go back to their existing lender, like maybe they need to do a long refinance, maybe they have to pull equity out. So we’re looking at all that situation, and once I get the documents in, I’m gonna give them that feedback. I don’t wanna do a mortgage for mortgage’s sake. I want this business to be sustainable, and that’s what I’ve done. If I just did every mortgage just for doing it, I don’t think we’d be up to $2 billion. I mean, I don’t think we would be there, because we wouldn’t be having the repeat this year, believe it or not, 85% of the transactions that I’ve done year to date existing clients. Well, as a brokerage, we’re about 60% which is still a huge number in other markets. Oftentimes, mortgage brokers do one transaction for a customer and never talk to that customer, believe it or not. I think the relationship business has worked for us, and I’m pretty proud of it.

Todd Veinotte
So if the bank or the lender, that’s your existing lender, wants to or they send you something in the mail, I’m assuming, and if you don’t reply to or respond to that, does it automatically renew?

Clinton Wilkins
Not always. Here’s the get you, some will auto-renew you into a closed, which that kind of sucks because sometimes it’s a six-month close, and sometimes that’s at a high rate, so you messed up. Some lenders will default your mortgage if you don’t do anything. If you don’t renew it, then they can foreclose on you. But here’s the thing, we try to get a hold of people. The lender tries to get a hold of people, but sometimes people just ostrich and they put their heads in the sand.

Todd Veinotte
That must happen. I would dare say I think there’s mental health.

Clinton Wilkins
I think there’s anxiety, I think there’s financial issues, and it’s tough, you’ll be shocked, though, the number of people that change their email and change their telephone number within five years, people shock you, and we are good. We get cell phone numbers, we get home numbers, we get work numbers, we get emails. I’ll send a friend carrier pigeon to your home. But believe it or not, people change their contact information, and we stay in touch. We mail stuff out, we send emails, we send SMS, like we are staying in touch with our people, but still, somehow, people change their information, and we do not find it out.

Renewal and Auto-Renewal Processes

Todd Veinotte
So obviously, if people want to refinance, when we talked about earlier engineering, we kind of talked about, like, at renewal and the type of people that are good at this type of thing, get your documents in a row, get your tax information, get your income, get all that stuff and get it ready for you, right? Be proactive.

Clinton Wilkins
For sure, we’re dealing with a lot of teachers right now. You want to know why? Because they were off in July and August, and a great time for them to do transactions. So we’re dealing with a ton of teachers. And, I love it. And they have very good, stable jobs. Typically, even if they are subbing, they have a good two-year average. These are pretty easy transactions to do, and I love dealing with teachers in the summer, because, guess what? They are free, footloose and fancy free. They can just run their stuff right over to my office, which we love. A little bit more challenging when September hits, but just like anything, it’ll be busy for a lot of people.

Refinancing for Renovations and Financial Needs

Todd Veinotte
So when people are refinancing, that’s a good time to do some renovations as

Clinton Wilkins
It’s a great time to do renovations. And not everyone does a refinance at renewal. That’s reality. Some people do refinances mid-term. The reason, usually, is that they have to refinance for one reason or another. People probably are not giving up their 2% mortgage to go into a 4% mortgage. Probably not happening unless they need to, unless they need to pay out debt, unless they need to do a spousal buyout, unless they need to do a renovation. But people’s situations change, and that’s why I think we need to change this narrative to say we can’t break our mortgage early. Sometimes it makes sense to break it early to put people in a better financial position. Sometimes people just, it’s hard, it’s a hard pill to swallow. And sometimes people just have to sell, right? That’s, that’s sometimes they have to sell. But let me tell you, it’s a hard pill to swallow to go from 2% to 4% that is tough, but it’s the same thing when it comes up for renewal. Like, I have so many borrowers where their mortgage is coming up for renewal, and we gave some really good rates five years ago, like, sub 2% right? And they’re coming into like, I think I’m just gonna keep this term that I have for now. I’m like, but that’s not the way it works, like this is going to end. But the challenge is that with some lenders, if you renew, you basically give up your remaining term. So this is why it’s really good to have a relationship with a mortgage broker, because you can keep your old mortgage. We get an approval today, but we don’t fund the new one until the existing one is up for renewal, so we can basically switch it over on the day that your old one matures, so you can get every single day out of that low rate.

Todd Veinotte
So there’s so much to know about renewal. I mean, anything we missed, like people don’t know about renewals.

Clinton Wilkins
Every lender is different, and that’s why I think it’s really important to seek the advice of an unbiased mortgage professional and also decide who you’re going to want to do business with. Don’t talk to multiple mortgage brokers, multiple banks. You’re wasting your time, and you’re wasting our time, I’ll be frank. Decide who you’re going to do business with. Decide who you’re going to trust, and then trust them and take their advice. It’s like going to a restaurant and being like, What are your top two things on the right on the menu, and then ordering something else, like, Come on, right below what Be loyal people, unless you don’t think you’re getting good advice.

Todd Veinotte
Mortgage 101: Your Guide to Homeownership. We’ll be right back.