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Consolidate your debts and save money with today’s record low rates.

It’s December 2011, fixed mortgage rates are at historical lows…a 5 year fixed rate can be had for 3.39% and in some cases, even 3.29%.   Does it make sense to refinance your mortgage and consolidate that car loan, student loan, credit card, line of credit or other debt?   The answer is an overwhelming YES!

Compounding interest rates are a killer.  If you have $20,000 or more in non-mortgaged debt, then you should consider consolidation.   Especially with today’s record low interest rates.

Here’s an example of one situation:

 Rate  Balance  Payment
 Mortgage 3.99% $300,000 $1,349
 Car loan 6.00% $24,000 $563
 Credit Cards 18% $10,000 $300
 Line of credit 7% $10,000 $300
mortgage penalty $2,993 $0
 Totals $346,993 $2,512

And here’s what the new situation could look like after consolidating their debts:

 Rate  Balance  Payment
 Mortgage 3.39% $346,993 $1,533
 Car loan $0 $0
 Credit Cards $0 $0
 Line of credit $0 $0
mortgage penalty $0 $0
 Totals 3.39 $346,993 $1,533

So in this example, we are reducing the monthly payment by $979.00.     Let’s take some of that money and put it towards your new mortgage… if you took $500/mth and put this towards your mortgage for 5 years, you would reduce your amortization to 10 years and 7 months.   Clearly, this is worth breaking the mortgage and paying the penalty.

(keep in mind, the penalty could be higher if the lender uses an Interest Rate Differential to calculate the penalty… Always speak with your Mortgage Broker to ensure the penalty is accurate).

 

 

Posted 1 Comment on Why use a Mortgage Broker Case study

Why use a Mortgage Broker

There was an article in the Globe and Mail recently entitled ‘Why use a mortgage broker?’.    No, this image wasn’t part of the article but it’s an image that many  will conjure up when we hear the word ‘Banker’.

The article talks about why Financial Planners and other professionals will recommend, and work with,  a Mortgage Broker vs. having the client go directly to the Bank.  Here’s a few quotes from the article that make it easy to understand.

  • “It’s the most efficient way to get the best-priced and best-structured mortgage”.
  • “So rather than shopping at multiple financial institutions and negotiating with each financial institution and arm wrestling them to give you the best deal, it’s one phone call and they do the rest for you.”

And here’s some facts from a Bank of Canada review published in February 2011 entitled ‘Competition in the Canadian Mortgage Market’:

  •  This one is no surprise…. “The results also indicate that borrowers who use a mortgage broker pay less, on average, than borrowers who negotiate with lenders directly”. 
  • Here’s one that may surprise many of you…  “The results also indicate that higher income households pay higher rates, on average, than lower-income households.”
  • And here’s another one…  “Banks also offer larger discounts to new clients than to existing clients.”

I’ll add a few more of my own….   A broker shops the market…doesn’t work for any one lender but instead works for the borrower….. and provides the borrower with clear, neutral and unbiased advice.    Brokers save borrowers money and will continue to shop for better rates at renewal and throughout the life of the mortgage…

Posted Case study

Solar power subsidy… part 3 and the conclusion of my application.

Solar power…. those words make me think of green energy.. no more smoke stacks… electric cars, no nuclear power plants..etc…    These were some of the reasons I applied to get my own home approved for the Ontario Government’s Microfit subsidy program.   Oh, that and the $0.805/ KwH that I would be earning… a $0.70/KwH profit… Sounds like a no-branier, but would that be enough of an incentive for me to go through with the purchase?

Three months ago, I began the process of applying to the Ontario Power Authority for approval to the Microfit program and was approved.   I applied for approval to the Local Distributor Company (LDC local hydro company)..in my case it was Burlington Hydro.   They sent out an Engineer to ensure my house would qualify….. good news is that I was approved…  Everything was set.  I just needed to get a site assessment for my our peace of mind to see if my house was positioned correctly to take advantage of the sun’s rays.

I contacted an installer and supplier… They did a free site assessment…(most installers and suppliers wanted to charge me a fee)…  My house was not positioned to achieve optimum efficiency…. I would achieve only achieve 72% efficiency out of a recommended 90%…. Cost to install 30 high-end panels would be $45k.    My expected annual return would be around $5,500.…

End result…it would take me almost 10 years to recover my investment… but then again, I would have that 20 year govt contract selling my power at $0.805/Kwh compared with paying $0.11/KwH…

So after several dozen hours spent researching, applying, meeting with inspectors, installers, etc and 3 months later, my decision is to not move forward with the install.   There are many reasons but it seems to me that we still don’t know what effect this would have on the value of our homes…. Will prospective buyers like the panels in 3, 5, or 10 years?   Will the panels be out of date when I go to sell?   There just seems to be too many unanswered questions at this time…

The installer told me that my approval from OPA is good for 12 months… and maybe the price of the panels will drop enough that it could make sense for me to get the installation done…. but right now, a 10 year payback it way too long….   I’ll update you further should I have any new information…

My advice to anyone that is looking to participate is to do your research… there is a lot of data to be digested…  Buy Canadian… don’t just go with the lowest cost panels… buy quality.. we have some harsh weather in Ontario… Contact the Canadian Solar Industries Association for some referrals…. seek out a reputable installer and supplier… Get recommendations directly from the manufacturer….

If you want more info, just drop me a line and I’d be happy to share more details of my research.

Posted Case study

Investing in a multi-unit properties? Take care…

Recently, I noticed something very strange happening with multi-unit properties and I want to share two experiences with you…

I was approached to refinance 2 separate and different Multi-unit properties by 2 completely different borrowers.    Both properties were in the Greater Toronto area.   They were both in great condition and were bringing in good rental income.

Property 1 was purchased in 2008 for $385k.  There are 3 legal rental units.   It generates good rental income of $3700/month. The owner paid utilities.

Property 2 was purchased in 2006 for $610k.  There are 3 legal rental units.  It generates rental income of $3400/mth…. The tenants paid utilities…(it should be noted that Property 2 is in a more expensive part of town where real estate prices are higher).

Fast forward to today…. Based on current appraised values, Property 1 is currently worth $460k, Property 2 is currently worth $660k.   Keep in mind that these are actual rents for both properties.

So how can this happen?  It’s clear to me… the buyer’s of Property 2 overpaid in 2006….Property 1 is in a less expensive part of town but the rental income and condition of the property are more relevant when dealing with investment properties….

How can you avoid this mistake?  Seek out the help of a good Mortgage Broker… A good broker can seek out the opinions of a recognized real estate appraiser… and even crunch the numbers with an experienced Lender to determine the property’s Lending Value…

As an aside, the average sale price of a single family home in GTA in 2006 was $350k…. today, it’s around $427k.   Multi-unit dwellings can be attractive but consider single family homes if you want to invest in real estate.  Always discuss the purchase with a trusted group of advisors… including your Mortgage Broker.

 

Posted 19 Comments on CBC news reports Scotiabank slams client with $30,000 penalty! Case study

CBC news reports Scotiabank slams client with $30,000 penalty!

A word about world events the past 4 weeks…  We have seen a lot of turmoil overseas……  Egypt, Libya  and other middle east countries…. We need to pay attention…. Let’s hope for an immediate and peaceful resolution…

The Tsunami in Japan has been horrible… the images on TV are tough to watch…what a tragedy… Our hearts go out to the people of that nation.

Fixed rates drop slightly and Variable rates remain flat.

We have also seen how mortgage rates can be affected by these events… The uncertainty has caused the Bond market to fall…. and we even saw a very small rate reduction by the Big Banks… Posted Fixed rates are down around 10bps… 5 yr fixed is 5.34%. Continue reading “CBC news reports Scotiabank slams client with $30,000 penalty!”