Canada’s regulatory bodies recently implemented new mortgage rules in efforts to maintain a healthy economy. The Bank of Canada says that household debt is one of the key vulnerabilities in the economy and currently, Canadians owe over 2 trillion dollars in total household credit comprised of mortgages, credit cards and non-mortgage loans. Generally, economists believe that high consumer debt increases the risk for a severe recession.
As a real estate lawyer, notary or conveyancer, you may have noticed that over the years, paying out a charge to clear title on a property is not as straightforward as it used to be. At one time, it simply meant paying out the mortgage. One item. Simple. Now, however, people are using their properties as security for multiple forms of credit and as a result removing those payouts in order to transfer title on a real estate deal is more complex.
econveyance Provides Multiple Loan Payments Feature
econveyance simplifies the process of paying out multiple loans within a single Charge. Now providing built-in multiple payout lines that are integrated with other auto features, such as per diem calculations and letter generation, this feature enables you to easily list specific amounts for the fixed mortgage portion, lines of credit and credit card loans that may be secured under a single Charge against a property. This feature is helpful in econveyance because banks and financial institutions require full payment of the entire collateral package in order to discharge their mortgage security. When that happens, property ownership can then be transferred to the new owners.
Automatically generated letters to the lender give you the option to list the component payouts as either one total lump sum amount or separate line line item amounts, so that everyone is clear on the payments.
Why Are Multiple Loan Payments Required?
Banks and financial institutions are increasingly selling integrated products and services bundles together and secured against the borrower's property. Traditional mortgages with payment amounts, terms and due dates are no longer the norm. Your clients may obtain more than just a mortgage when they buy a property. They may bundle a mortgage with a line of credit, credit card or a loan. Some forms of secured credit products provide up to 125% of the original mortgage amount. The banks and financial institutions usually register these as a collateral charge mortgage against the property, which means that in order to discharge the mortgage security, all loans secured by the property must be paid in full in order to clear title for the new owner.
The popularity of bundled credit products cannot be ignored. The attraction of bundled credit is that it allows people to finance big items such as education costs, vacations, home renovations or investments without renegotiating at the bank or financial institution and incurring any related fees.
One of the most common products that Canadian banks sell is the home equity line of credit. Generally, it gives people pre-approved credit related to the equity they acquire in their property. These products rapidly expanded during the early 2000’s, contributing to escalating household debt. The federal government reported in 2017 that there are approximately 3 million accounts for home equity lines of credit with an average balance owing of about $70,000. In the most recent 2016 census, Statistics Canada reports that there are about 9.5 million homeowners. That means that approximately one third of all homeowners are using home equity lines of credit as a way to finance their mortgages and household expenses.
How Canadian Regulators Are Controlling Consumer Debt With B-20 Mortgage Rules
The Financial Consumer Agency of Canada reports that the recent rapid increase in home equity lines of credit is one of the reasons why Canadians are so indebted. The report notes that in 2000, consumer debt was $1.07 for every dollar of disposable income. By 2010 it was $1.60. Last year, this rose to nearly $1.70.
Canadian regulators fear that a country with high consumer debt will not be able to handle increasing economic demands. As a result, they implemented new mortgage rules, for all federally regulated financial institutions, on January 1, 2018 intended to protect the economy.
Canada Introduced New Mortgage Rules: January 1, 2018
The biggest change under new Canadian mortgage rules, is that people with uninsured mortgages, usually denoted by down payments of 20% or more, must qualify at a higher interest rate than what they negotiated with their bank. This is the higher of either the Bank of Canada’s posted 5-year rate or 2% more than their contractual interest rate. Before, people only had to qualify at the contractual interest rate. This rule effectively reduces the overall purchase price of a property significantly.
The rules also require lenders to enhance their loan-to-value ratios which evaluates risk based on equity and credit. Mortgages with less than a 20% down payment need to buy mortgage insurance at additional cost.
New Features in econveyance Provide Simplicity When Processing Complex Transactions
Multiple Accounts Feature: econveyance now allows you to generate more than one account statement in your client’s file. This helps you to easily bill your clients for services provided on an ongoing basis, and not just for the initial purchase or sale of property. Perhaps you provide advice on a mortgage refinancing, or purchase of additional property or even on a different type of legal matter, you can easily keep track of the work billed to your clients with the multiple accounts feature in econveyance. Knowing everything is in one place gives you an accurate overview of your client’s file history. The multiple accounts feature greatly reduces the time it would take you to generate these accounts outside of the software program.
Multiple Loan Payments: This new feature in econveyance lets you easily accommodate the complexities of popular credit products and save time by processing it all in one place. econveyance keeps your workflow simple so that you can simply work.