Laurel: We have Butler Mortgage with Michael Zanzini and Daniel Patton. They own a multi-decade mortgage brokerage, and they've been awarded the top volume broker award in Canada, three years running by the independent organization, Canadian mortgage professionals.
Michael Zanzini is a real estate investor himself. He started private lending at 18 years old. Wow. Good for you, Michael, and purchase his first rental at 25 years old. And you're not a day over 25. You look like 24 actively growing his rental portfolio? And Michael is now one of Butler Mortgage, top mortgage agents in the entire brokerage. Congratulations.
Daniel Patton, just after receiving high honors in college, teamed with his childhood friend, Dave Butler in 2004 to begin their mortgage business career, winning the national rookie of the year award. And then quickly grew a top five ranked team. They formed Butler Mortgages in 2011 and according to the Canadian mortgage professionals magazine, Daniel ranks among the top 20 mortgage agents brokerages in Canada. Welcome guys, congratulations on your achievements. Like I said, Michael, you don't look a day over 26.
Michael: Thank you.
Dan: I wish I had your intro in every webinar I do. I don't know if you're available for that, but thank you so much.
Laurel: I will, no problem. I charge a very fair fee. I think it's $5,000 per year of your age.
Dan: That's great. We really appreciate it. Mike and I have been doing mortgages for quite a long time. Mike is young, but he's ascended in our company to one of the top agents. First of all, thank you to everyone for having us, Laurel. Sarah, congratulations on the retirement. That's amazing who wouldn't be impressed by that. That's awesome.
Mike and I thought tonight, it's always good when we're working with large investment groups like you to give a bit of a market update, there's a wide range of topics that different investors are looking to do. Mike is looking to ask questions, Mike and I thought it might be a good opportunity for us to do so. Go over the current trends in the market, see where the sales stats are at. Talk a little bit about interest rates and then sorta follow up with any bank changes that we've seen. And policy changes, over the last year, there's been quite a bit of shift in terms of the way that banks will approve mortgages.
We'll touch a little bit on that and then certainly any questions that anybody has, we'll be around for the virtual group after. Michael will take over and I'll monitor the chats if there's any questions going on during the presentation. With that, I'll let young Mike take over and he'll walk you through the presentation we have.
Michael: Perfect. All right guys, just like Daniel touched on just going to do a little quick market update, got a few slides coming up, just an update on the purchase and sale number. So, far in 2020 as we all know, this has been a crazy year with COVID going on.
Just to give you an idea of how the market has really changed from the start of the year to mid point of COVID to where we're at now, going into the final quarter of 2020, we're going to touch on rates and we're going to touch on some big policy changes that have happened over the better course of this year as well.
I'm going to dive right into it. Our first chart here, this is a chart for the GTA for Toronto, basically showing over the last four years, dating back to 2017 of the number of sales going on the GPS. So, for anyone that can see the screen, or if you're listening, the gray bar is 2017, green, 2018, blue, 2019, and oranges in the year we're at right now in 20.
As we all know, 2017 was that peak. That was that crazy time where the housing market was absolutely booming. Housing prices were soaring through the roof. So, if you look back in 2017 in February, March and April, that's where that peak was in March, leading into April and a slow digression down into May.
Now, what happened in May, because we were on point to having the hottest real estate boom of all time in that year was that when the government came in and made new rule changes, that implemented everything from how you qualified for a mortgage, they came with the stress test. First on insurance deals, then they slowly integrated that into conventional mortgages with putting 20% down on principal residences and rental properties.
That really started to slowly die. The basic sales and transactions going on for the better part of the remaining of the year. And we saw spike back up towards the end of the year, now flash forward. Now, we're in 2020 crazy times with COVID going on. We're looking at this market now, starting in the new year, there were talks with chief economists saying that 2020 is going to be 2017 all over again.
The housing market is off to a crazy start in January and February and more. Now, for anyone on this webinar today, unless you've been living under a rock, we've been hit with one of the craziest pandemics ever known, like in my lifetime, living up on this planet, I've never seen anything like this. And that started right around my birthday in March. And you can see in March we were hitting crazy numbers, sales, the market was booming and boom, April, May completely just shut down realtors. Weren't going out. How was his work? Moving? People were staying inside. You're ordering groceries from the home. I thought I would buy groceries for my grandparents and my parents, or nobody would buy in the house.
Everything was at a standstill, but as we progressed through those summer months, June, July, and the last couple of months, we've seen the market completely turn and it is absolutely wild. Like we are on past-time record years in the industry this year just look at July, August, and September in comparison to the gray bars of 2017, which was the peak we are right there.
Dan: Mike, if I can just jump in, this is for the GTA just to stress. It's a bit of a bubble, obviously when you're looking at this from outside of Canada, especially the number or outside of Ontario. This is just more so the GTA just wants to focus.
Michael: Just to really prove the point that I'm trying to make on this is the sales are at record numbers. Again, it's a hot market right now over the last few months, and it doesn't seem to be slowing down now going into our next slide, new listings. I'm not going to touch on this for too long, but just to give an idea in comparison to 2017. The peak which I always like to reference up the gray bar, there's 25,000 almost 27,000 listings that were out on the market in 2017 versus a lot less in 2020, and we're seeing the amount of sales that are being driven in this market right now.
This is a big one. This is one that I found last night as we were just touching up our presentation and I wanted to add it. Just to give an idea of going back all the way from January, 1994 in comparison to now, and you will just see the slow progression of increase in home values. And that sped up just distress. This is the GTA in Toronto, right? But this is an indication because we're starting to see it push more out into the Golden Horseshoe area and out there, prices are continuing to rise as well.
This is any indication of real estate, like just looking at the market over a long duration of time, it continues to rise. Now, if you can see my arrow over. The blue line that you can see staggered increasing is the MLS average price. What they're listing the purchase price for to sell the home and the orange is the average price that it actually sells for. You see it's pretty consistent. And then as we all know, in comparison to 2017, we just saw that rush and prices inflated.
We saw the market, we saw the bidding wars. We just saw a pulley that offered everything wild. And then we saw the slow drop later on into 2017 going on into 2018. But what happened here in this drop-off? You had that rule change, you had the cooling of the market is what the government is trying to implement. And you still had people trying to sell at top dollar when the market cooled.
That's where you see that massive spike downwards and slowly over time, over the last two to three years. We've just slowly continued to get right back up there and we're on pace to be hitting those numbers again, which is something that I find fascinating. This has been a while since 2020, like who would have thought we'd be going into the final quarter of 2020 with COVID going on? And the housing market, this strong, it just blows my mind to be completely honest. Now the big topic, I'm going to leave this one for Daniel, interest rates. Dan.
Dan: Interest rates, it's an interesting question because we get asked all the time, what's the best fixed or variable. And it used to be a very simple answer. You'd call me what's the best fix and I'd give it to you. You said it was the best variable. I give you the best variable, but now they do matrix style pricing. A lot of questions go into the pricing things like, is it a rental property? Is the owner occupied? Is it an insured deal? Is it conventional? Is it a 30 year end? Is it 25 year? All of these questions can influence the interest rate.
For the investor, who's normally asking that question. What rate should I take? That's a different question then. What's the best rate? So, we'll talk about both, but let's first talk about where rates are at. We'll start with variable rates. For those that aren't familiar with the way variable rate works, variable rate work is based on the Bank of Canada's prime rate today at 2.4, 5%.
It actually started off in January this year at 3.95%. That's where prime was. People that were getting prime minus 50, because that's how the variable rate is decided. It's a discount, if you were getting prime minus 50, which might've been a standard rate at 3.95% you were getting 3.4, 5% as your interest rate as of January now since then prime rate has dropped, it dropped three times. It's dropped down to 2.45%, which we haven't seen this low in years. I can't remember the last time it was 2.45%, and I've been doing mortgages for about 17 years.
We're seeing record lows when it comes to interest rate reductions in price. So, today you can see on the graph on the far right side. That's when you're talking lowest rate, you're going to get your lowest rate on owner occupied, insured mortgages. That's just the way it works. It has to do with the cost of the bond for the bank, but that's basically how the variable rate is priced on the Bank of Canada's prime rate.
The discount on the prime rate that you're seeing now, give or take on rentals, you're going to get 1.9% to 2.2%. Some banks are a little bit higher than others. 1.9 to 2.2 owner occupied, you can get down to 1.6, 1.7, depending on if you're going mono-line, traditional big bank. Mono-line lenders, we'll talk a little bit about, but they're more so in the ballgame on 5% down, owner occupied, so insured owner, occupied rates on variable.
You're going to be around 1.7 to 1.8, and then rental rates. You're going to be somewhere around 1.9% to 2%, just depending on what fixed rates are. I was mentioning this, they're based on the bond prices. So, fixed rates really are not based on the Bank of Canada. They have really nothing to do with variable rate when it comes to pricing, they're just based on the cost of the bond.
In the 18 years I've been doing mortgages, I've never seen rates of low insured purchases. You can get like 1.69 1.74 for five-year terms on insurance. Owner occupied mono-line lenders. Even the big banks are doing 1.74, 1.79, 1.84 record lows. I've never seen it that low, especially from those guys' conventional mortgages.
Non-insured when you're doing 20% down, they're going to be a little bit higher. Believe it or not. I know that sounds crazy to most people listening. And I answered this question every day, but that's the truth when you're buying a 20% down, believe it or not, you're probably going to take. Now, that's not necessarily a bad thing because you're going to want to be with a big bank.
Anyways, in general, the big banks are priced a little bit higher than mono-line lenders, but regardless, you're still seeing record lows. You're seeing conventional deals anywhere from 1.99 to 2.29 on owner occupied versus rental. Insured deals, you can get down to 1.74, 1.69, something like that. Conventional, maybe 1.89, but high-end 2.29. If it's a rental that's about where your fixed rates are today. Go ahead, Mike.
That's where the rates are at now. Things that we need to consider as investors, when we're setting up our mortgage, aren't necessarily the lowest rate things like the strategy and the intention of the property are going to influence the type of rate we want to get.
For example, if we're doing things like the BRRRR strategy, we're doing something like a flip or something like that. We're going to want a penalty friendly mortgage structure, so that when the time comes for us to reassess money, it's the most cost-effective. If we're doing a rent to own term and we have a two to three-year term, we want to design the mortgage with a little bit of flexibility.
We may be breaking that mortgage in three years. We may want to look at a three-year term, but have a little bit of backup. If the client doesn't take the RTO. The sort of the strategy of the investment property is really the first question I ask my investors whenever we're deciding on the rate, because that alone will help dictate whether we go fixed or variable.
And then from there we can start to shop the rate between lenders big banks versus mono-line lenders. Mono-line lender for those that aren't aware is a bank like an M cap or a bank, like an alternative or somebody like this that offers a discounted interest rate. Now they're called mono-line lenders because they really only have one product that's low rates and mortgages. They don't have things that investors really don't think about 30 year amortizations or the ability to add a home equity line of credit to your property. Mono-line lenders don't have that.
A lot of the time investors will sacrifice a little bit on the interest rate from those guys so that we can stick with the big banks and have access to HELOCs for 30 year am., which is going to help us qualify for more rental properties. It helps keep the payment low. You get a higher interest, write off on those rental properties.
There's a lot of reasons why you'd want the 30 year am., but most importantly, mono-line lenders are just offering a rate. That's all they have to offer. They don't even really compete in rent. Now, I put a point here as well that says, how many properties do we want to buy? This is more so a strategy. The reason I point to this is because interest rates, no matter what, they're important, we all know that's how we're pricing. That's how we're running our numbers. But interest rate isn't necessarily the driving force for us, for investors, depending on the strategy of how many properties we want to buy.
If we want to scale, we need the flexibility to go to different lenders at different times. Every bank is a little different on how many properties they'll allow you to buy and how many they'll allow you to have with them. If you have ideas of buying 5, 10, 15 investment properties, the order becomes very important for the investor.
In some cases, we can shot the big banks between themselves and see who's giving us the best. We always want to do that, but if we're trying to build the portfolio, there's a strategic plan in the order you would go in terms of the big banks. Depending on how many we want to buy, that can also influence what interest rate we're taking only because we may end up going to CIVC rather than a TD in certain situations. Not that one's better than the other, but just in certain situations, we want to structure it properly. That's all. That's a little bit of a wrap up. Mike, I think you're going to jump into the next slide and take over.
Michael: Some bank policy changes. I'll dive right in. Of course, over this year with COVID and everything going on, we've seen banks literally throw different rules, different policies at us. And especially that's in the broker world. We're always on our toes because there's always a new rule. And whether it's not one rule for all the banks and all the lending criteria, other banks have different rules to each his own.
We have to be able to navigate through them and stay on top of it. But some of the big ones that we've seen with is one appraisals. If there's anyone on here that's had an appraisal recently, I'm pretty sure an appraiser's not going in your house anymore. That's a big thing that we're noticing right now. We're seeing appraisals, still doing their comparisons, getting their comparables and all of that. But we're seeing now homeowners having to send pictures up front, taking interior photos.
Now, this can work for or against you in some cases. We're seeing a lot of appraisals coming on, principal residence, owner occupies and refinances now come in, which we weren't seeing before. We're seeing that, which is a big help for a lot of our clients. Another big topic is the stress test. That stress tests that came implemented in 2017. When I referenced the sales on those charts, before that stress test originally started at 5.94% and it slowly worked its way down. Just this year alone, it's dropped four times.
We started the year at 5.34%, and now we're qualifying mortgages at 4.79%, which is a great thing, not to investors. The first time home buyers are brokers, looking at the clients, that's allowing you a little bit in their buying power now because they've cut back in a little bit less strict and stringent on the qualifying, which is great. Turn around times is another big one.
From when we have your deal accepted, offer sent into us processing a file and getting it submitted for an approval. The going rate was like anywhere from one to three days, turnaround times on approvals.. Now, we're seeing banks take four days, five days. Sometimes they're meeting longer. It is what it is with the banks right now, cutting staff, backlog. The market is growing crazy. It's a bullish market out there.
If anyone references the stock market, that's what it's at right now? Another big thing that we're seeing where the banks have been changing lately with policy is all documentation upfront. Like guys, let me be the first one to tell you to attest to this Daniel. The worst thing in mortgages is paperwork. I get it. If there's one thing I can change in my profession, it is somehow getting rid of paperwork document collection, but the truth is banks want everything up front. Absolutely everything from employment letters, mortgage statements. They want to see all of that upfront when you're submitting the deal.
Dan: Very important. Not just for anybody out there shopping right now, that's looking, we understand negotiations and sometimes we have to put a quick close three weeks, four weeks, if that's your scenario. And you're trying to use that as leverage. The best thing you can do is have your paperwork ready, have your job letter collected, have your bank statements. If your down payments are coming from there, have that available. Just be prepared because the banks before they'll issue the approval, as Mike mentioned, they're there, they're looking at all that stuff.
Michael: And then just even to touch on that same topic. Now, banks are wanting us to write emails and submission notes on deals with blurbs, like basically explaining it. Are they deemed essential employees of their employer? Are they working from home? Like they're really interrogating and digging deep on details of every single deal. They're scrutinizing everything from A to Z. But a big thing that happened is HELOCs, Home Equity Lines of Credits. That's a whole nother topic, but every single bank has a different rule on using your home equity line of credit to go and purchase properties.
Some banks will factor in the balance. Some banks will use it as if you have basically used your whole limit. For example, you have a 300 grand HELOC and with 10 grand on it, some banks will only factor in the 10 grand. Some banks are factoring as if it was fully utilized at 300,000. So, that was a big change. Another big one was Scotia Bank at the start of COVID. They came out and sent a mass email and updated everyone. No more home equity lines of credits to purchase rental properties. Like this was a big stab in the back. Kind of it really handcuffed a lot of bus brokers and clients out there who were ready to tap into the market and have access to build up equity in their homes, on their principal residence to go buy more properties.
That kind of really handcuffed us. But where there's darkness, there is light at the end of the tunnel. And just this Friday Scotia came back and announced that they will be allowed to use home equity lines of credits to purchase rental properties again. And we're very happy about that. And that's going to help any client that's now out shopping or looking out Scotia Bank is right back in one of our lenders that we can go to, which is huge. Anything else? No, those are the big ones to be completely honest with.
Dan: I was going to just touch on two questions we get asked a lot on is, where are you going? We have this every day. Can we go firm on an offer? Now, the one thing you got to understand about a firm offer is from a mortgage standpoint, from a bank standpoint, from anywhere when you're going for a pre-approval the bank or the mortgage agent or whoever is qualifying the applicant based on the numbers.
No matter how much Mike or myself can pre approve an applicant and look at numbers, there's two things that have to get approved when you have an accepted offer, there's the applicant and the property. The property still has to pass the approval of the lender and some areas where you can work, you can run into trouble with the property, might be the condition of the home, the location, or the zoning of the home. What else?
Michael: Yeah, just the overall condition of the home and stuff and even values as well.
Dan: Yeah. The appraisal, that's exactly right. The appraisal is what I was going to mention. Sometimes, in a busy market when you're seeing bully offers and a lot of competitive offers over the listing price, there's a concern that appraisals can come in low.
Inevitably the point is, no mortgage broker or bank can tell you that you're okay to go in from, because there's the issue of the property that has to pass. Now we understand it's a competitive market. The less conditions, the better, right? If you're putting your offer in and you have three conditions and the next guy has the same offer with no conditions, they're going to accept the other one.
We want to make our offer as attractive as possible. You just need to understand the risk. That's all. If you have a line of credit that can help back up some of the cost, if there is a short appraisal, these are the things that can help control whether or not you want to go in from. Talk to your financing person.
There's usually a way around stuff like that. There's ways you could work in. That's the big thing we get. We get that every day and then we're seeing, I see it on here about the penalty as well. I'll try to wrap it up cause I know we've got about one minute left. So, the penalties nowadays, the problem, when you have a fixed rate, we get this question. I have 3.14%, I have 2.99%. And the rates today are so much lower. We're hearing 2.09%. Should I break my mortgage to take the lower rate?
First thing you have to do is to call your current lender and find out what your penalty is because chances are, if you're in a fixed rate, you're paying an interest rate differential on your penalty, which means they're basically pricing. If you signed that 3.14% for five years, and you're one year. They're going to figure out how much interest they're going to lose from 3.14% to 2.09%, which would be the new rate over the remaining term. And that's going to be the penalty.
It's rarely enough money to cover what you would be saving by taking the lower rate. But it's, if you've got two years left, it might be worth checking into the penalty. But certainly start with that. Start with calling the bank to find out your penalty. If you're at a fixed rate, chances are it's a hybrid. I think that's it. We tried to keep it under time. I think we're good there. If there's any questions we'll be around hanging out after, but thank you to everyone for allowing us the opportunity.
Sarah: I actually just have one quick question before Laurel hops back on, so just going firm as an investor because this market is crazy, let's just say somebody did go ahead and go firm, do you guys have access to private funds and what does that look like?
Dan: It's a great question, absolutely. That's why we say, you want to talk to your mortgage agent or your bank. You want to have a backup because if the plan is, why do I want to buy this property? Many things can influence the approval, right? Like I said, if you're buying a flip and the properties are in horrible condition, you may have an issue with the bank financing that type of property.
As a backup, you would want to make sure your mortgage person has private lending, something like Sarah suggested, and a private lender doesn't really care about the condition of the home. Their interest rates may be a little bit higher and their costs may be higher, but that might be part of the numbers when you're breaking it down. I You just have to run the numbers.
That's why it's important to talk to the mortgage person so that you can understand what your backups might be. If you need to go in from, do I have the availability to buy it for cash with HELOCs? Do I have JV partners that can help out? Do you have private financing, backups, all those things you have to make sure.
Sarah: Awesome. Thanks for answering. I know there's a few more questions. Guys as you do have questions for either Daniel or Michael, just put them on there just to make sure that it says all attendees and all panelists and you guys can keep answering questions as well, along the way. Let's have Laurel come back in.
Laurel: Thanks, Michael and Daniel, that was great. Really appreciate what you had to say. And as Sarah said, if you have more questions for them, you can put it in the chat. Just be sure that you click for all panelists and everyone attending, because we're just going to repost it anyway. It's to everyone because we all want to know what the answers are and what the questions are.
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