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Posted 2 Comments on What mortgage product does your bank want you to take? Case study

What mortgage product does your bank want you to take?

Here are some interesting stats…

-A Variable rate mortgage outperforms a fixed rate mortgage in over 88% of the time… According the Milevsky study done earlier this decade and updated in 2008….

-Variable rate mortgages have been at least 1.00% lower than the 5 year fixed rate mortgage over the past 25 years….and on occasion, better by as much as 2.00%.

-Canadians move every 3 years on average…meaning they must either refinance their mortgage or pay it out.

-a Variable rate mortgage has a fixed penalty of 3 months interest.

-a 5 year fixed rate mortgage has a penalty that is at least 3 months interest but has no limit…. and in the past 18 months, we have seen penalties of 6, 10 and even 14 months worth of interest.

-yet, 66% of Canadians have a 5 year fixed rate mortgage…

Is the 5 year fixed rate mortgage really the right product for 66% of Canadians?    Can the 5 year fixed rate mortgage be the right product for everyone?  Which mortgage product do you think your bank wants you to choose?

By the way, can you guess which mortgage product is the most profitable?…. you guessed it.. the 5 year fixed rate.

Make sure your Mortgage Broker does a needs analysis before they recommend a mortgage product for you…. There is no ‘one size fits all’ when it comes to mortgages….  Ask yourself, ‘who is this mortgage best for’…. my bank or me?

Posted Case study

Deloitte report on Mortgage Brokers.. 38% use brokers

Here’s a great report that was put out by Deloitte. The report shows that Canadians rely on Mortgage Brokers more than ever… but not as a last resort.

Unlike the U.S., where mortgage brokers used to account for 65% of all mortgages arranged prior to the October 2008 mortgage crisis, U.S. broker now account for less than 20% of mortgage business.

Here in Canada, 38% of all mortgage originations went through a mortgage broker…. including  44% of First Time home buyers.

With national and provincial organizations like CAAMP (Canadian Association of Accredited Mortgage Professionals) and IMBA (Independent Mortgage Brokers Association), Mortgage Brokers play a vital role in informing and educating borrowers.    Mortgage Brokers aren’t just a last resort, they are now viewed as a first choice for getting unbiased and professional advice.

Dare we say it, a mortgage broker helps to create competition….and isn’t competition good for the consumer?

Posted Case study

Uncover the hidden equity in your home

Turn on the TV, listen to the radio, read a newspaper or talk to someone at the office water cooler.   What are we hearing?  ‘House prices fall’….  ‘Mortgage rates are going up’…

Okay, are you ready to hear some good news?   Let’s talk about what’s really happening and how YOU can benefit.

Firstly, house values are actually stable according to the Canadian Real Estate Association (CREA).  The article goes on to say that House sales may cool this fall due to a robust Spring market and that house prices may fall.  Hey, that’s okay.. we don’t want to see a runaway market… but that should trigger us to do something now.   Take advantage of these incredibly low rates.

Interest Rates are at historical lows and yet I don’t see much news coverage about that…did you know that a 5 year fixed rate can be had for around 3.69% and in some cases even better for qualified borrowers….   Variable rate is also great… 2.30% is an excellent rate…. and Economists are forecasting for no real increases until the Spring…

REFINANCE WHEN RATES ARE LOW

It’s really no secret…. you’ve heard of buy low and sell high?… well, with interest rates it’s ‘borrow when rates are low and get rid of high interest rate debt’….. This is the best time to borrow money. Here’s how you can benefit….

Let’s suppose your situation looks like this:

  • have a house worth $350,000
  • a mortgage balance of $200,000 @ 5.00% with payments of $1,100/mth.
  • credit cards $8,000 @ 12.00% with payments of $240/mth
  • a line of credit $10,000 @ 6.00% with payments of $300/mth
  • car loan of $15,000 @ 6.00% with payments of $480/mth
  • you want to invest some money into rrsps or resps or some other GOOD investment for $20,000….
  • your monthly payments total $1,640.

Here’s what you could be doing:

  • increase your mortgage by up to $80,000 to $280,000
  • pay off all that debt and take the extra funds (up to $47,000) and invest or use as you require
  • your payment based on today’s 5 year fixed rate of 3.695 would be $1,427/mth
  • your payment based on today’s Variable rate of 2.30% would be $1,227/mth

Your cashflow would actually improve and you would put money in your pocket.

This is just one example of how you could benefit… we all have different needs and different situations…get your finances analyzed by a qualified Mortgage Broker.   See how you could benefit….It’s a great time to borrow…

Posted Case study

Should they buy a bigger house?

Here’s a case study from the Financial Post about a young couple with a young child looking to move out of their condo and into a house with a yard.  They have a good combined income of $118k per year.  Debt load is low.  They own a condo and have a small mortgage.

In the end, they will need a $300k mortgage. Can they afford to buy a larger home today?   The experts say yes… and I agree based on the data provided.

One more thing that isn’t mentioned but I wanted to point out… affordability.. given interest rates are at record lows, their mortgage payments would be lower than ever… Cashflow is always important and must be considered.

Your best interest is my only interest.

As always, I welcome your comments, calls and questions.

Steve Garganis 416 224 0114 steve@mortgagenow.ca