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Lower rate = Lower payment and a Lower balance in 5 years!

Mortgage Burning1 We all know that a lower interest means a lower monthly payment.   But did you know that a lower interest rate means you will also owe less when your mortgage comes up for renewal?    This has been overlooked by consumers and experts alike.  I haven’t seen any articles covering this.  And it should change how you choose your next mortgage product.

It all has to do with the effects of compounding interest.   Let’s take a look at 2 borrowers, each with a $400k mortgage.  Borrower 1 is Mary.   Borrower 2 is Dave.   Mary has today’s 5 yr fixed rate of 3.29%.   Dave has the more normal rate of 5.50% (the rate most experts think we will see in the next 3 to 5 yrs).    We’ll amortize both mortgage over a 25 yr term.

Dave’s mortgage has monthly payments of $2441 and a balance owing of $356,749 at the end of 5 years.   Mary’s mortgage has monthly payments of $1953 and a balance owing of $343,728 at the end of the first 5 years.  Notice the difference in the balance owing after 5 years.    We are talking about a $13,021 difference.  That’s the effects of compounding interest. Continue reading “Lower rate = Lower payment and a Lower balance in 5 years!”

Buy now or wait for house prices to fall? The results may surprise you…

Housing-affordability

Should I buy now with interest rates still hovering at record lows, or wait for prices to fall?   When will house prices fall? … and by how much?    What will the interest rate be in the future when house prices fall?

These are the questions most Canadians asking themselves these days.   It’s no secret that Real Estate values are at an all time high in most parts of the country.   The calls for a housing correction, crash, or bubble have been going on for almost 10 years now but it hasn’t materialized.

I won’t get into the discussion here about whether house values will drop or crash or when that could happen.. because I don’t think it should be part of the buying decision.   That’s not a typo.  Market timing is a dangerous thing.  Stock advisors will tell you this.  Buy now, if you are able to commit to the plan.  Read on to see why I believe this to be true. Continue reading “Buy now or wait for house prices to fall? The results may surprise you…”

Credit counselling, Consumer proposal or Bankruptcy? I only like one of these options.

debt aminationA couple, in their 30’s, contacts me for a mortgage.  They want to buy a new home.  She is a teacher, he is a Manager at a computer firm.  Incomes are good.  I check their credit.  Let’s stop here for a minute..   If they had good credit, an approval is simple and we would provide the clients with several mortgage options.

But let’s assume that this couple ran into some debt and credit issues 3 years ago… and they made 3 different choices about how to resolve those credit problems.  Credit counselling, Consumer Proposal and Bankruptcy.  And I’ll bet the results will surprise you…I want to take you through each scenario and show you how long each of these 3 options affect your ability to finance a home.. Continue reading “Credit counselling, Consumer proposal or Bankruptcy? I only like one of these options.”

Looking back 5 years.. which mortgage product did your Banker recommend in 2008?

greedy bankerRemember 2008?  It was almost 5 years ago that the U.S. sub-prime mortgage scandal erupted.   October 2008, to be exact.  That’s almost 5 years ago…  And with October and November 2013 renewals being less than 120 days away, we can now lock in some rates for those upcoming renewals.  So I thought this would be a great time to see what sort of advice and recommendations the Banks were giving to their mortgage customers.

THE BANK’S ADVICE

The funny thing is, Banks have never changed their advice or strategy.  ‘Take a 5 year fixed rate’.  That’s all the Banks seem to want to promote.  And with good reason… it’s the most profitable product FOR THE BANKS.   But historically, it’s NOT the best product to take.   There is no historical data that I am aware of that shows taking a 5 year fixed is the best strategy.  But I’ll get into that in more detail later. Continue reading “Looking back 5 years.. which mortgage product did your Banker recommend in 2008?”

So-called “Best Rate sites” are put to the test with shocking results.

which mortgageThere’s been a surge of ‘Best Rate’ sites popping up… Chances are, you’ve probably seen one or more of their online ads…   You know the ones…‘shopping’ for the Best mortgage rates in Canada’ and ‘comparing Canada’s mortgage brokers for the best rate”.   It does sound great… and it seems to be getting lots of attention… Even the media are covering and quoting these sites…  And although I like that these sites promote how Mortgage Brokers can offer great rates, I’ve noticed some disturbing trends that you need to watch out for.

“I JUST WANT THE BEST RATE”

You say you want the ‘best rate’?  Really?  Or do you want to pay the least amount of money on your mortgage?   I’ll bet it’s the latter.  Make no mistake, these two things are very different and I’ll prove it.  But let’s face it, the rate gets everyone’s attention.. Most people don’t want to hear anything beyond that.. until they get burned for $$thousands on the mortgage later on.

Now what if I told you that 80% of my clients were paying a rate of 1.35% during 2009 and 2010, would that get your attention?   Of course.  And it’s true.  80% of my clients were in a Variable Rate mortgage based on my recommendations….and almost all of them didn’t panic and lock into a fixed rate (like the BIG SIX BANKS wanted them to)…they stayed in those products based on my specific advice recommending they not lock into a Fixed rate….    That’s called being in the right product at the right time.  My average client saved $6,000 during that time. Continue reading “So-called “Best Rate sites” are put to the test with shocking results.”

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