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

Another example of BIG SIX BANK inflated penalty calculation.. $13,634.00! Wow!

big-six-banks1 If you still think your local BANK is your best friend, think again.  Last week, one of my client’s discovered it would cost them $13,634 to exit their mortgage early.  Compared with only $2736 if they had chosen a BETTER mortgage Lender.

Here’s the details..  The clients had a $395,000 mortgage balance remaining.  Renewal date was October 2018.  Original term was 5 yrs and their rate was 2.77%.  The rate is competitive, but not any better than what I could have offered at that time.  There had to pay the mortgage out.

Penalty quote is $13,634.  That’s equal to over 14 months interest!!  Wow!  Incredible.   $13,634 compared to $2736.

I’ve shared many examples similar to this in the past.  It’s really simple.  DON’T FOCUS ON THE RATE!.   There is so much more to choosing a mortgage than just rate.  The average Canadian changes their mortgage ever 3 years.  And there are many reason this happens.. change of job, marital status, family issues, health issues, etc.

And if you are expecting your Banker to show you other products to compare, well, that’s just not gonna happen.  It’s like expecting Ford to send you to Toyota for a new car.  Not gonna happen. Do yourself a favour and speak with an unbiased, neutral professional. Speak with an experienced Mortgage Broker that deals with dozens of Lenders.  You’ll be glad you did.

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 »

Bi-weekly payment myth… it doesn’t pay your mortgage off faster.

RRSP home buyers planFor years, we’ve been told to pay our mortgage bi-weekly. Magically, it will  pay your mortgage off faster.  Hmm, let’s put that to the test.

(SPOILER ALERT!)  Around 6 yrs ago, I wrote an article showing some simple but effective math to explain this.   I’m constantly getting emails from my readers asking me what they should do..obviously, a popular topic.

Let me also say, there is merit to paying bi-weekly…I’ll explain further on.

HISTORY OF BI-WEEKLY PAYMENTS

Back in the mid 90’s, there was a huge marketing blitz by the Big Banks that promoted making bi-weekly payments instead of the traditional monthly payments.   The sales pitch was that you could save huge amounts of money and pay your mortgage off much faster….save 4 or 5 years off your amortization…. Sound familiar?   Well, BI-WEEKLY PAYMENTS DON’T REALLY SAVE YOU ANYTHING!

And I’ll prove it…. here’s the straight facts! Read the rest of this entry »

Bridge loans explained… your bank hates them but they are extremely useful

bridge-loansBridge loans are short-term loans that bridge the gap between two different closing dates.  More commonly used when an existing homeowner sells their home, and buys another home, with two different closing dates.   But bridge loans have become a very popular way to take possession of that new home while it’s empty for 2 or 3 weeks to allow for renos.   Best of all, it’s really inexpensive!

THE OLD WAY

In the past, most homebuyers would have their selling and buying dates match.   It’s always been a bit of a juggling act as you have to pack your moving truck and unpack it, all in less than a day.   Somehow, everyone manages to get it done… but you talk about one of the most stressful days in your life….moving ranks right up there!   Throw in some kids, maybe a dog, and a house full of stuff and you have a real chore on your hands….

THE NEW WAY… 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 »

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

%d bloggers like this: