To appreciate the uniqueness of its product, we have to travel back to March 2011. That’s when 35-year amortizations were banned on high-ratio mortgages. By summer 2012, 35-year amortizations were eradicated on most conventional mortgages as well.
But a few lenders held strong including RMG Mortgages, a division of MCAP. RMG has maintained a 35-year amortization option for those with 20% equity or more. And that’s been easier said than done.
“If a financial institution is regulated by OSFI, they generally cannot offer 35-year amortizations,” says Bruno Valko, RMG’s Director of National Sales. “Furthermore, if the investor buying the mortgage is regulated by OSFI, again a 35-year amortization is not available. It’s the ability to not be OSFI-regulated while establishing a non-regulated investor interested in purchasing the mortgage that allows RMG to offer 35-year ams.”
RMG fills an important void with its extended amortization, a feature that gets more negative press than it deserves. Longer amortizations were conceived to help Canadians increase their buying power, but that’s never been their wisest use.
They’re best suited to folks who can afford a home with a shorter amortization, but who prefer lower payments so they can divert cash to better uses. That may include paying down higher-interest debt, building a tax-free savings account for retirement or emergencies, funding educational expenses, building a business, financing renovations, offsetting childcare or medical expenses, and so on.
Many Canadians have a perception that 35-year amortizations, in and of themselves, are high risk. But the data suggests otherwise.
“There is no indication that a 35-year amortization is riskier from a default perspective,” says Valko. “Many people choose 35-year ams and then immediately increase their payments to a 25-year am post-funding.” The assurance of knowing they can always fall back to 35-year amortized payments is important for some people, like those with variable commissions or self-employed income.
But offering 35-year amortizations isn’t RMG’s only edge. The company has built a reputation in the mortgage broker channel for below-market pricing.
“I’m sure the majority of brokers agree that consumers are far more educated on rates today than they were, say, five years ago,” notes Valko. “…Many show up at the broker’s office with their expected rate already in mind.”
RMG serves those clients with scaled pricing that permits deep discounts, plus a “Low Rate Basic” option that trades flexibility for even better rates. “…It’s important to be competitive first and then allow brokers the ability to discount further when in competitive situations by reducing their commissions,” Valko states.
RMG’s Low Rate Basic (LRB) option is 10 bps cheaper than its already competitively priced standard mortgage. But the tradeoff is a very high penalty (3% of principal) and limited port, blend & increase ability. These limitations don’t suit most people, but the LRB remains an important product option for borrowers who insist on bigger discounts. (Note: RMG rebates some of its penalties when clients refinance with RMG.)
Besides reduced rates and extended amortizations, RMG mortgages have other perks:
- Unlike the major banks, RMG’s standard mortgage comes with fair penalties based on discounted rates. On fixed-rate mortgages, the difference versus bank penalties can sometimes amount to thousands of dollars.
- The company’s prepayment privileges are ample at 20% per year lump-sum, plus an annual 20% payment increase option
- RMG is one of few lenders to pay another lender’s discharge fee (up to $250) when a client transfers in
- On mortgages of $150,000 or more, RMG covers appraisal costs up to $300 depending on mortgage size
- For insured borrowers who are salaried, RMG has an expedited approval process that requires no more than a recent pay stub for income confirmation
- RMG has no restricted lending areas in most provinces
In 2013, it was hard to find a newer mortgage product which offered more uniqueness, overall value and utility than RMG’s mortgage. And for that reason, it is this year’s Canadian Mortgage Trends’ Mortgage of the Year.
About CMT’s Mortgage of the Year:
Canadian Mortgage Trends grants the Mortgage of the Year award each January to the mortgage product that has offered the greatest innovation, flexibility, and/or cost savings to homeowners in the prior year. This is the sixth year that the award has been presented.
Recipients to date include:
- 2013: RMG’s 35-Year Mortgage
- 2012: No recipient
- 2011: BMO’s Low-Rate Mortgage
- 2010: Coast Capital Saving’s “You’re the Boss” Mortgage
- 2009: TD Financing Services’ “Specialty Mortgage”
- 2008: National Bank of Canada’s “All-in-One” Mortgage
- 2007: MCAP’s “FlexStar” Mortgage