Long term contracts have a price… nothing has changed from 2010

Originally posted in 2010…. some things never change..  enjoy and beware.

Here’s a great article written by consumer advocate, Ellen Roseman.  She points to different industries where signing in for the long term protection can be very costly and expensive.

Ever wanted to change cell phone providers?  How about internet providers?  Move your investments or rrsps?  Cancel that hydro or gas contract because you moved?

And how about mortgages?  When interest rates started heading downward about 12 months ago, thousands of borrowers in fixed rate mortgages wanted to get out of their higher rates and start benefitting from the record low interest rates we have been seeing.

But they were shocked to hear of unbelievably high early prepayment penalties… the example Ellen uses is about a $46k penalty on a $530k mortgage with a major bank…  I’ve seen dozens and dozens of situations like this.

Beware of long term mortgages… with the average person moving or refinancing about every 3 years, choosing a 5 year fixed rate term is usually not the best option.  It could cost you more than you think… always seek professional advice from a reputable mortgage broker before selecting your mortgage.

(Just a personal note… It sure would have been nice to see some mortgage relief given to the average homeowner during the recession.   CMHC used to cap their penalties to 3 months interest but removed this cap in 2000…quietly, all financial institutions are free to charge a higher penalty…and they all do.. the longer the term, the greater the penalty…)

Your best interest is my only interest.   I reply to all questions and I welcome your comments.  Like this article?  Share with a friend.

Steve Garganis 416 224 0114 steve@mortgagenow.ca

Debt diversification vs Debt consolidation…who wins?

debt

ONLY IN CANADA

Attention:  Bankers, close your ears.. we don’t want you to hear this.  Credit card balances, lines of credit, car loan, student loan, home reno loan, personal loan..   If you have one or more of these and you own a home, you’re probably losing money by paying a higher interest rate.  In many cases, $thousands are lost and overpaid each year.   And your Banker is laughing and recording Record profits!!

It’s surprising how many of us have some, or all of these debts… and ALSO a house with lots of equity.  Yet, as Canadians, we somehow think it’s better to separate our mortgage from other debts.  We somehow think it’s good to pay down our mortgage but then rack up other debts.  This attitude has puzzled me for years.

check out this chart for one client.. tell me if this looks familiar: Read the rest of this entry »

Marital splits… woman seem to be at higher risk when it comes to finances.

 

Stack of Coins and Bride and Groom Wedding Cake DecorationsThey say about half of all marriages end up in divorce.  In Canada, it’s around 48%.  In the U.S., it’s around 53% according to Stats Canada.  You’ve probably heard these stats before.

But what happens when a couple splits and all the financial matters were being handled by just one spouse?  In most cases (but not all), it’s the woman who is left with no knowledge of money matters.    Over the years, I’ve seen hundreds of marital splits and in an overwhelming majority of cases, the woman is left in the dark when it comes to finances (that trend is changing as today’s women are becoming more financially astute..  good for them.. let’s continue that trend).

There is HOPE and HELP.   Here are some things you can do to take charge of your finances before or after a marital split: Read the rest of this entry »

Mortgage tricks… and treats!

halloween-moneyHappy Halloween! And before the kids knock on your door.. just thought I’d send a quick mortgage trick and trick..

TRICK..  ‘Stress Test’ for mortgage qualifying.  The Finance Minister, Bill Morneau, blindsided Canadian Banks, Financial Experts and consumers when the govt introduced mortgage rules making qualifying even tougher.  The new rules mean consumers must qualify at the posted bank 5 year fixed rate.

TREAT... The reality of the new mortgage rules is that it’s not going to affect that many.  One of Canada’s biggest mortgage lenders told me, confidentially, that over 95% of their portfolio would easily pass the new stress test.  The REAL devil here is the Canadian Press.  Unfortunately, they are making this latest change sound like a death-blow for the real estate market.  Gauging my own clients profiles, I would say that even fewer than 5% would be affected.

If you’ve followed my site, you’ll know I’m a huge Variable rate advocate.  More than 90% of my clients have been in a Variable rate product.  And guess what?  They’ve always been able to qualify using the posted 5 yr fixed rate.

The govt wants to slow the housing market and property value increases.  I agree, we don’t want to see house prices continue unsustainable increases.   Not sure this latest change is the correct move.  Perhaps, this rule could have apply for higher priced homes only..?   Exclude homes less than $600k or $700k? Just a thought..   I’m also unsure the lack consultation or input from industry experts, was a wise move.  More open discussion is needed.  Just my opinion..

Happy Halloween.

Your best interest is my only interest.   I reply to all questions and I welcome your comments.  Like this article?  Share with a friend.

Steve Garganis 416 224 0114 steve@mortgagenow.ca

Tax Free Savings Accounts should be 2nd on your list

There are over 10million TFSA accounts in Canada according to this article in the Financial Post.   Wow, it’s great to see that level of savings….

But hold on…..is this the right strategy for those of us with a mortgage?    Well, if you have a mortgage on your principal residence and the interest is not tax-deductible, then I think it’s NOT the right strategy.

For most of us, the interest on a residential mortgage is not tax deductible (I say for most of us because if you rent out part of the home or use it for your business then you may be able to claim a tax deduction).

Take those after-tax $$dollars and pay your mortgage first before putting them into a TFSA… reduce the amount of non-deductible debt and then focus on a TFSA….   If you own an investment property, then this strategy may vary slightly…. but for most of us, let’s get rid of that mortgage first…

And yeah, for those higher income earners looking to diversify, then sure.. A TFSA makes sense.  But for most Canadians, I would suggest getting rid of the mortgage is a better strategy.

Your best interest is my only interest.   I reply to all questions and I welcome your comments.  Like this article?  Share with a friend.

Steve Garganis 416 224 0114 steve@mortgagenow.ca

Mortgage Brief… Homebuyer of the future.

the futureThis is the homebuyer of the future…

This past June, Mortgage Professionals Canada published their survey results on the Next Generation of Homebuyers.

Take note: Adults under the age of 40 who don’t currently own a home but expect to own in the future, if you are planning on buying, or help a child get into homeownership, these results can be an interesting comparison to your own situation. Here are some of the key findings:

  • 52% are under 30 years old, 48% aged 30 to 39
  • 55% single, 39% married/living with a partner
  • 81% have no children
  • 72% agree that mortgages are good debt, and 76% agree real estate is a good long-term investment. 58% are optimistic about the economy in the next 12 months.
  • The decision to buy is often influenced by key life events – start a family (33%), getting a promotion/raise (30%), getting married (29%), inheritance (8%).
  • Primary downpayment sources are personal savings (73%), gift/loan from a family member (36%), TFSA (33%) and RRSP (29%).
  • Average downpayment savings is $37,000 among imminent buyers.
  • Neighbourhood (61%), safety (58%), and potential for increase in value (50%) are the most important home features. Features that are considered to be worth a premium are nice neighbourhood (33%), short commute (31%) and safety (29%).

Read the rest of this entry »

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