CHIA Talk #13 Refinancing

Melanie Lachaine - a woman of heart and head - exercises the profession of mortgage broker by adopting a human approach to advise buyers in their financing, refinancing and mortgage renewal of their houses and condos. It gave me great pleasure to welcome her to Studio SF to record the 13th episode of the #real estatetalkshow Real Talk with #CHIA!

This episode aired on June 15, 2022 and is rebroadcasted on our Youtube channel. 

Here is it translation:

Hello everyone, I am your happy broker Chia and your “Real Talk with Chia” host. Today I have the great pleasure of inviting Mélanie Lachaine, who is with us to talk about mortgage refinancing.

-Hello, thank you Chia for the invitation.

-It's a pleasure. Well yeah ! Melanie, we've known each other for a few years.

-Already.

-In addition, we’re neighbours

 -We share the same passions and live in the same neighborhood, it's wonderful.

 -It's true, two mothers, with children, two professionals in the same field. Anyway, I'm really happy that you accepted my invitation to be here today, thank you.

 -It's me who thanks you, it's really a privilege, really.

 -Yes. In fact, Mélanie, both of us haven't been in real estate for our entire career, have we? So I would like you to share with the audience your professional background.

 -Wow, yes, it's really there, a beautiful story in fact, because it's a series of events that led me to my last career, which is this one, then by passion. It is a choice that I made by passion but also by family choice. In fact, it's still my career in sales. In any type of sales and my last career, my last job was in financing as well, but in the automotive sector.

 -OK.

 - So, I was working for an insurance company. So I was helping CFOs with car financing transactions and aftermarket products as well. So, one thing leading to another, I became a mom in my late 30s.

 - The best job.

 (laughs)

 -The best full-time job of our lives.

 -Yes that's it.

 -It led me to make different choices because work required me to be on the road, and to be further from home and all that, and I was already doing my studies as a mortgage broker out of passion and to increase my knowledge because I had investment projects. So I said to myself, why not study the profession in parallel to really deepen my knowledge, understand mathematics, understand financing.

 -Very well.

 -And...

 -Very important actually, for everyone.

 - My God, this is the key to success in real estate.

 -Yes.

 -It's really undeniable. That's really the key, the source, because there are so many options out there that when it was time to drop my daughter off at daycare and drive two hours and knowing she could maybe -becoming sick, picking her up, I said “ok, let’s put the priorities back.” And why would I make my plan B a plan B when I can make it a plan A?

 -Perfect.

 -So I went to entrepreneur school to be able to complete my course in 3 months and I became a mortgage broker in January 2019. My last career started in January 2019 as a broker.

 -Yes ! Today, many, many beautiful achievements, I congratulate you.

 -Thanks thanks.

 - Then earlier you were talking about solutions, ok? There are many, many mortgage solutions. I know precisely because, as a real estate broker, I also work with buyers who do their financing and refinancing. There are obviously 2 ways to do it: either that buyers work with a mortgage broker who has access to 150 different products from different lenders. So there are traditional banks that we know, there are virtual banks, there are all sorts of solutions depending on the case.

-Either we can work with a bank with the... what do we call the mortgage specialist?

 -It depends on the financial institutions, but they will be called mortgage marketer, mortgage specialist.

 - That's it, and having access to the products of this bank, specifically speaking.

 -Exact.

 -That's it. And what made it so that in 2019, when you got your license to practice, did you feel like... what brought you to brokerage?

 - That's a really good question. It is the experience. Because when I got my first mortgage, I did business with a bank, not even knowing that the profession of broker existed, and not knowing either that each bank has its specific niches and its specific criteria and its products of their own.

 -Yes.

 - So not knowing it, I did business with a financial institution and I did not understand anything about what happened to my transaction.

 -OK.

 -So I went from buyer to owner.

 -Yes.

 -Without knowing what was happening or the next steps.

And when I did my course, for sure, for me, it was undeniable, it's a broker because I want, and that's in my core values, to offer the best product for the client. , not do as we say in good Quebec, “fit the customer in the product”, but rather fit the product to the customer. Because when we talk about mortgages, we mainly need them.

It's not an interest rate, it's not a mortgage contract, it's what is the current need? Then when we talk about refinancing,

-Yes.

 -It's even more precise.

 - Yes, absolutely.

 -Because in refinancing, we have even more internal criteria because we work conventionally, and not insured, so each of the banks has room for manoeuvre.

 -Yes.

 - So, when banks approached me at the beginning of my brokerage career to come and work in a financial institution, for me it was a non-negotiable. Even if the financial attraction was presented, it was not possible for me to say to myself “I will work for only one financial institution and convince my clients that it is the best”, because I know that it is not reality. So for me, that was it, it was really to offer the most beautiful portrait to the client in all its transparency.

 -Yes.

 -Then today with the MF in addition, we are even more transparent than we have ever been.

 -Absolutely.

 -We make recommendations, 3 options, we clearly explain to customers each of the products for whom, for what, the costs attached to it, and especially the underside of the contracts.

 -Yes. Yeah yeah that's it. It's all in the art of communicating well, then behind all that, when you're able to explain well, it's not really a lot, a lot of investment, to fully understand each product and its advantages and disadvantages, is it not? For instance...

- A mortgage, we compare to a DNA.

 -Yes.- I live in a condo, my condo tower, we could all have the same lender, we wouldn't have the same product, or even better, each owner could have a suggestion of lenders that will be completely different because it's is his situation.

 - Yes, absolutely. That's it, because like a buyer who refinances to buy, or the first buyer, or a buyer who buys with a partnership, for example his parents, or a buyer who is a student, who has just arrived from outside the country, or someone who is here temporarily with a work permit. In any case, there are so many different profiles, aren't there?

 -Yes.

 -Yes that's it. But today we're going to focus on refinancing, because for me, refinancing is what... I work a lot with my real estate investors who use refinancing as an essential tool to really increase, enrich their family heritage, instead of having their permanent residence only, or another chalet, a plex, another plex. But it is possible, precisely, with the refinancing strategy to increase the different varieties, to diversify its investments.

 -Absolutely.

 -And then, what is it, so what are the different situations where a client comes to see you and asks “well, I need a refinancing solution”, renovation?

 -In fact there, I would even tell you that at the base there are people who do not even see refinancing as being a solution.

 -Ah!

 -Sometimes, it's just to discuss with them a need or a project, and there, we look for financial solutions to carry out the project. And when you already have assets with equity, it's sure and certain that it becomes a leverage effect tool.

 -Yes.

 - So, this is where we come to meet a need with property. It depends on the investor profiles. It is certain that any investor profile will be really studied and analyzed at its fair value, but to increase family assets, the mortgage leverage tool is excellent because refinancing can be used, whether to new real estate acquisitions, whether to make a donation to the family.

There are refinancings that I do for workers who want to anticipate, become self-employed, so free up equity on their property to allow them to make a transition without having financial worries.

 -Yes.

 -The mortgage, there, it is by discussing a need together that we realize the tools that exist. It's amazing what you can do with this tool.

 -So much.

 -We realize so many dreams, so many projects, you know?

 -Yes.

 -Yes, there are renovations that we can do on the property, so we are looking for an additional value on our property.

 -Absolutely.

 - So, we come to invest in our heritage, we can also make investments in terms of investments, even financial investments. So you know, it depends on the client's profile, but the refinancing of the main or secondary residence, or even the rental when you're in the residential sector, you have so many options, you just have to be able to qualify a file and above all to seek fairness.

 -Yes.

 - Then if we can get into the subject of equity, there... we had a nice bubble there, real estate, at that time. People who have refinanced or who are at the end of their term and who want to get the new value, that's where they will gain equity.

 -Great, have a good time.

 -Exactly.

-Exactly. So if I hear correctly, there are still many people who don't know the word “refinancing”?

 - Absolutely, yes. And then, they don't know how useful it can be to them.

 - Yes, absolutely.

 -Even an example as simple as “I don't want to invest, I don't want to finance anything, but I'm planning to retire and I want to lighten the financial load”.

 -Exactly. That's the right word, “relieve”.

 -Lighten my financial burden while being able to afford to live, then to be able to continue to grow, then to age in my house, in my property that I have paid for for x number of years.

 -Absolutely.

 -It's a leverage effect to really relieve us, relieve us of a financial burden.

 -Ah, I love leverage, I've been using it for... For a very long time! And I so wish that everyone could know, this strategy and generate more passive income. Because you know, life is full, we are full of responsibilities. Like us, in addition to being mortgage and real estate brokers, running our business, we also have family, friends, other projects that we want to carry out, that we are passionate about sharing, is this not ? So, it's just... it's really, really something that... That's why I actually started this show, "Real Talk With Chia." I would like to share as much knowledge as possible, because I learned everything on my own, little by little, through experience, buying one building, selling one building, buying another, then adding over the years. But if there's a space where you can learn, that's fantastic.

-Absolutely, then you know, in any project that we anticipate, it's really to surround ourselves with professionals.

-Yes.

-I learn from the professionals. If I have health problems, I will consult a professional in this field. So it is certain that in real estate, real estate broker, we cannot do without your services. As much as I tell myself that mine is also essential, because I have the knowledge of being able to study the mortgage market in place of the client who goes to his bank with his refinancing file.

-Yes.

 -"What can I do ? What can I have?” then go knock on the other door with his own file? It's a gain in time, it's a gain in energy, then in knowledge.

 -Yes.

 -It really is...

 -That's it. I can't even count the thousands of hours we invest just to be constantly up to date, changes, regulations, can I?

 -Oh yes.

 -Ah! (laughs)

 -You have to keep up to date, it's moving, and above all, it's moving a lot at the moment.

 -Yes quite.

 -The market is adapting to the current situation, it is changing a lot.

 -I agree with you that working with a professional means working with a counselor who is knowledgeable.

 -Exact.

 - Yes, correct, and it really brings a lot of value. Then in fact, precisely, speaking of all his up-to-date knowledge and all that, can you share with us... Does the rate, the current rate increase, have an impact on a file of refinancing?

 - It is certain that yes. Why ? Is it that we also talk about the debt ratio?

 -Yes.

- So in the residential sector, we have debt ratios to respect and in refinancing too. The advantage we have in financing versus buying is that we have different tools. Then from one bank to another one can just use a refinancing on a security. So we can increase certain debt ratios depending on the loan-to-value ratio that we borrow. So, there are really different tools to use depending on our profile. So that's where I come in, where I'm like “ok, I have a property value of X and my maximum possible refinance is still 80% percent of the value”.

 -Exact.

 -So an 80% of the value. With the client file, am I able to meet my debt ratios to obtain 80% refinancing?

 -Yes.

 -If my answer is no, then I have to work, then really work in the macro, to come and find the right mortgage product. So what I'm going to do is really analyze each of the financial institutions to see how to qualify the customer's best transaction. So when we say we talk about the interest rate first, it's wrong, but the interest rate has an impact.

 -Yes.

 -Why ? It's that in the debt ratios, the DB and the TD, the mortgage payment of the financing...

 -Ah, beautiful calculations!

 -Very nice calculations!

 (laughs)

 - Very nice calculations, but at the moment, the reality of the qualification, if we qualify a file for a client who wants to have fixed rate financing, it is a contractual rate plus 2%.

 -Yes.

 -It's a lot. This means that our amount that we want to request, we must request more than 6% refinancing. You have to qualify, it's the Bank of Canada's “stress test”.

 -Yes.

- So there, it increases our debt ratios vs. Back then, when rates were lower, the rule of thumb was the higher of the Bank of Canada's stress test of 5.25%.

 -Yes.

 -And the contractual rate plus 2%. But when we have a 2% contractual rate at 4% using 5.25%, then we have gone to 6. More than 6% for fixed rates. So we come to increase our footprint, our ratio, and therefore reduce our borrowing capacity.

-That's it. In fact, it may irritate some borrowers, I understand. Because when you feel like making an acquisition or accomplishing something, you are actually looking for a refinancing solution. On the other hand, I think that this scale that we are increasing for the stress test is in fact safe for the whole country.

Precisely, if we compare. You know, last night, I was with the bankers and we talked about the economy, and comparing ourselves to the United States, which could have a bubble much more easily than what is happening here in Quebec, because that precisely, we have our government which is taking the necessary measures to ensure that the banks will not become over-indebted.

 -Yes, then the stress test is not just good for the banks or for the institutions, it's really for the customer.

 -Yes too.

 -Because the customer who comes to borrow has a maximum of his borrowing capacity and that during his mortgage renewal at the end of his term, if the rates have increased by 2 and 3% and he is no longer in able to make the payment with the same ease, he is not in a better position either, so that is why the stress test exists. It's for seeing today, at today's rate, with upside risks, and right now, it's more risky, it's a reality, am I still able to pay my mortgage? So it's also a financial security for the user.

 -Yes, and when we say financial security, in fact, it is emotional security. (laughs)

 - There is not a folder that works the same way.

 -No no.

 - At all, at all, at all.

 -That's it.

 - Then it's sure that working in refinancing with investors is pleasant, in the sense that they understand the mathematics, the gymnastics to be done, and the risks to be taken too, but often it's when people come to refinance to invest, it's because they don't just have a property or they don't just have a situation that will lead them to be at risk.

 -That's it. Perhaps for those who are listening to us now, but who have not yet explored this avenue. Can we give, perhaps, a very simple scenario. For example, I have a client who bought his condo, he lives there and then, he wants to increase his investments. He went, therefore, to seek refinancing on his current condo by buying another one. He moved there to rent the first and live in the second. In this kind of scenario, what do you recommend? How do you support the client and what strategy do you recommend, is it better for him to live in his first condo, or is it better for him to live in the second condominium?

 -It depends on his strategy. In fact, what is more profitable for him, to rent too.

 -Yes.

 -Of course, when you live in a property, you can also choose to insure that property, if you become the occupant of the property. What that means is that obviously, you can put less than 20% down, so have an insurer.

 -OK.

 -What you can't do with rental.

 -OK.

 -So if you buy a rental, and well automatically, it's a 20% down payment, so the investment is greater.

 -That's it. Actually, thank you, that's what I wanted to hear. So you have to... there are like a few points to think about beforehand, and that's why it's good to discuss with you or another mortgage professional, precisely. Because it actually depends on several elements. The first element is the rents. So, where are we going to get more income, less expenses, including net income, which comes as an increase in passive income? And then also you have to think what is at the tax level?

 -Yes.

 -In one of the episodes, we talked about it with a real estate tax expert, Chantal Couture, and so she explained to us how we should plan for the resale to start not being taxed. So there are lots and lots of factors to consider.

-Many factors. If I just look at the qualifications on my side, we are still in the residential sector. What strategy are we going to use to qualify a folder with two properties? Because debt ratios must always be taken into account. So which bank is going to give the best borrowing capacity or the best debt ratio capacity to use in calculating the income from the rental property? How to consider the building subject, not subject? So, it's a lot of things to know, then to use.

 -Yes.

 - Then, they all have their different rules.

 -I'm curious. In fact, for example, I know that you work like 16 hours a day, but we'll just take an example that in an 8 hour work day, which never happens. How much time do you spend precisely to “educate”?

 -My client?

 -Yes.

 -For a transaction?

 -Yes ?

 -I would tell you since the last 2 years, much more. A lot a lot.

 -And why ?

 -Because it's important that they know what's going on right now.

 -Yes.

-The impact, interest rates and their situation. So when for example there, it was the pre-qualifying period at the beginning of the year. So during the pre-qualification period, I'm still doing a needs analysis. That's the first thing. “What are your plans? Do you intend to buy for the long term” or is it a young couple for example, who will buy a property, “is it for the long term” or...

 -Transient.

 -Or if it's a transition. So here we are going to study one: the down payment. You are going to invest in this property and you are going to put all your lives in the same basket. We want to buy it, but possibly rent it to buy another later, we will make appropriate strategies.

So there's a lot of education that's going to be done right from the pre-approval on my side, the way I work.

 -Yes.

 -So, it's to popularize the mortal mortgage so that everyone understands.

 -Exact.

 -What I regretted not having when I made my purchase. So, whether it's a first buyer in pre-qualification or an investor in an investment strategy with several properties, it's going to be the same popularization and the same explanation of the solutions that need to be done, because being in the business, I see the solutions and I have fun, and I have a crazy pleasure in being able to find solutions. Then sometimes, I get the client to think differently about what he hadn't even thought of himself.

 -Yes.

 -Then we just encountered a situation, then we have a solution and a different avenue that we hadn't thought of.

 - That's it, that's exactly what I like to do.

 - It's a pleasure there, I love it. It takes a lot, it's a lot of time, a lot of investment, but so rewarding, there, because...

 - Yes, that's it, it fills.

 -It's of all beauty. So yes, then even until the end of the transaction, I explain the mortgage agreement, I explain the mortgage contracts, what you are getting into, why I made these recommendations to you, why I am offering you more one than another, yes.

So that's a transparency, then an integrity, that...

 -Absolutely.

 -Working for a single bank, I couldn't afford.

 -This is what I also cherish a lot as an approach to customer support.

-So here is. I hope you enjoyed this content and thank you Melanie for being with us today. And if you feel like discussing your financing or refinancing project with a professional with heart and mind, I invite you to contact Mélanie Lacahine.

 -Thanks a lot.

 -Thanks thanks.