Last week more of the Big Canadian Banks announced record profits; lending is driving their profits.
The big banks take the cream of the lending crop and are happy to let higher interest rate lenders take the higher risk consumer.
Anything the big banks consider high risk; not only gets passed off to other lenders if the big banks decide to take on a client with some higher risk they ensure they charge a higher interest rate.
I don’t deny the banks some additional compensation, but the rates they are charging are not necessary. The growing profits prove my case.
I am writing this blog post to have you think about your financing and your lender:
- Are you getting right rates and treatment?
- Is your bank your best choice?
- Are you getting a little fat and lazy, taking on higher interest rates because you are comfortable with your lender.
- You might think an extra 1 or 2% on your loan principal is a big deal; did you calculate the extra cost?
- Why would you give your money away when you don’t have to?
- Is your bank taking care of you?
- Do they even know you?
My wife and I use two different financial institutions; both of the Big Bank varietal. We have our investment real estate mortgages with two large banks.
What concerns me is over the last several years we have seen the traditional lenders become less conventional in their lending practices.
In early 2002 my wife and I purchased a vacation rental condo in Canmore, Alberta, and our bank was happy to not only have the mortgage on our primary residence they were delighted to have the mortgage on our vacation rental condo. The bank was not prepared to give us income credit for the vacation rental earnings. (No revenue history) We had to show we could serve both mortgages with our work income only.
It is reported in Canada and the United States, most vacation properties are outpacing the residential real estate in price value increases.
With the advent of companies like HomeAway and VRBO (Vacation Rental By Owners) no longer are we seeing many of vacation homes sitting ideal not earning an income. These services are helping vacation owners not only cover their total costs; these owners are making a profit on these properties.
I recently consulted and coached several couples to purchase vacation rental real estate. The biggest obstacle for these folks was the Big Banks were not interested in their mortgages. The Big Banks were not interested in looking at the business model and the revenue that is generated by these type of vacation rental property.
My wife and I earn two and half times the revenue through vacation rental income versus if we were to rent our property out on a monthly lease. We only have to rent our vacation rental real estate 200 nights to earn this type of income versus a yearly residential lease.
Today’s banks are Big Business, and they have lost their financial souls once based on small business and entrepreneurial practices.
Our vacation rental small business model is more financially viable than ever.
There is little risk in mortgage real estate in Canada; residental or vacation real estate.
Don’t you think it is time the Big Banks stopped calling, “Wolf?”