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Understanding No Debt Payouts For B.C. Mortgage Brokers

04/07/2017 12:38 EDT
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Modern apartment buildings in British Columbia, Canada

There are times I ask myself whether anyone actually knows what a mortgage broker does. Unlike some professions, you don't need us...well, until you do. Being a broker comes with a great deal of responsibility as we deal directly with your finances and third party debts. But a new amendment is seeking to make a change to this.

By license, mortgage brokers are legally entitled to lend money secured by a mortgage; regardless of whether it is their own or comes from another party. As a result, during a refinance/renewal, if there is enough equity a mortgage broker typically looks into whether their client has any outstanding debts and, if so, will pay them off and include the debt into the borrower's mortgage.

There are a lot of advantages in consolidating debt including lower overall payments, less interest paid and larger monthly cash flow just to name a few. However, a letter sent to the Attorney General in August by the Canadian Mortgage Brokers Association cited these proposed amendments to the Business Practices and Consumer Protection Act (BPCPA), saying they have created "a new licensing regime for 'debt repayment agents'."

In a nutshell, the letter goes on to note that as a result of the amendment, the services of debt repayment agents overlap with debt consolidation services typically provided by mortgage brokers.

It is prudent here to note that these "debt repayment agents" would be a new licensing category. By that measure, the real concern for the future is that mortgage brokers may not be allowed to represent borrowers who have third party debt, or arrange for this debt to be consolidated.

As put forward by the CMBA, mortgage brokers are seen as a keen eye working on behalf of the borrower to help manage their debt responsibly, as well as warding off foreclosure and collection, while working to improve the credit score of their clients. Not only will this new amendment complicate things for many homeowners trying to consolidate their debt, it could represent just one more expense in an already long list.

Since mortgage brokers can reach out to 30 or more lenders, for those involved in a renewal we work to craft the best possible mortgage for each client and find whatever opportunity exists to consolidate their debt. With the price of housing continuing to climb, I've found that more and more of my own clients are keen to take advantage of refinancing. I have also had cases where a client has no outstanding debt but is eager to have access to equity. Our solution is usually to refinance, often adding in a home equity line of credit for access to additional funds when needed.

Although this type of scenario isn't exactly consolidating debt, I've found that most people include their car or student loan and any outstanding credit card debt into the refinancing. The benefits can be significant. Mortgage are almost always lower, this change would free up cash flow and allows borrowers to either contribute more liquid to their savings or pay down their mortgage faster as they are already used to the higher monthly amounts. Overall, their cost is almost always less than what they had been paying beforehand and the worries of living paycheque to paycheque becomes a thing of the past.

Like so many things related to money, much of what we do can at first seem counterintuitive to our clients. But in the long run, becoming a savvy investor is a long and winding road; and I include refinancing, mortgages and the experience of carrying debt in this category. Personally, I have helped clients consolidate their debt and free up enough cash flow to have a healthy amount of savings. I know from experience that nothing replaces having a trustworthy professional to help walk you through the process. And for the sake of all those in BC, let's hope it stays that way.

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