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CategoryMoney saving tips

Flaherty is, isn’t, is, isn’t changing mortgage rules?

So which report do you want to believe….?  2 separate reports… both from April 10, 2012.     We have Reuter’s reporting that Canada’s Finance Minister Flaherty, isn’t making any changes to mortgage rules….  Click here for their report.   Here’s a quote from the article “I have no present plans to intervene in the housing market in Canada,” Flaherty told reporters in New York.

And here’s another report from Bloomberg.com entitled “Flaherty Says He’s Planning Changes on CMHC Rules.” Click here for their report.   Are you confused yet?    Well, you’re not alone.   The mixed messages are everywhere today.   Bank of Canada Carney warning about record high Personal Debt Levels…. you’ve seen this one, I’m sure.   We have too much personal debt… and then another report says Canadians are ready to tackle their debt level… and yet another one that say the economy is very fragile and is at risk of slowing down…

It’s hard to know which report is correct.   One thing is certain… today’s mortgage rates are at historical lows.   The govt and the BANKS don’t want them to last.     If you have a house and some debt, or if you are considering buying a house, then why wouldn’t you take advantage of these low rates…?   I’m NOT saying to go out and borrow more money for a TV or new car or other luxury items…  If you have high interest debt, or higher interest debt than today’s 3.00%+ interest rates, then take action and restructure your finances…   Today’s record low rates won’t last…  You can still benefit from these historically low interest rates.

 

The Star reports BMO suggests it’s time to lock into fixed rates…. well, maybe..

I had a discussion with The Toronto Star’s Susan Pigg about Fixed and Variable rates.  Click here to read my comments in this article.

In short, BMO Captial Markets says it’s time to lock into a Fixed rate…. Well maybe, but I would caution anyone that had a BMO variable rate mortgage to think twice about locking into BMO’s well publicized 2.99% 5 year NO FRILLS mortgage.   This product has limitations and restrictions that make it impossible to get out of the mortgage without selling your home.   There are better options out there…  you can get a great rate without sacrificing your options and privileges.

You also have to factor in the infamous BIG SIX BANK penalty calculation.  We’ve written about this before.  This could cost you dearly should you wish to refinance or have to pay the mortgage out before maturity.   We have seen numerous cases of Bank prepayment penalties adding up to 12, 14, 18 and 20 months worth on interest.  That’s right, 20 months worth of interest.   Don’t get held hostage by your mortgage provider.

If you have a Variable Rate mortgage that is price at Prime less 0.50% or lower, I would stick with it…  If you are higher than this or if you mortgage is coming up for renewal, then you should consider a Fixed Rate mortgage…  And the only reason to consider Fixed rates is because they are priced so close to what a Variable rate could be had for today…  Best Variable is around Prime less 0.25%… that’s 2.75%.  Best 5 yr Fixed  with ALL FRILLS is around 3.19%…

But before you make any decision, please speak with an unbiased advisor, like a mortgage broker…. Find out which product is right for you…  Everyone is different and we all have different needs.  There are so many unadvertised specials these days….  Your Mortgage Broker can access these products and  also help explain the differences in penalty calculations and why this should be looked at more closely, even it you don’t think penalties apply to you…

 

Banks are at it again… calling mortgage clients before maturity..

With all the recent talk in the media about ‘rate wars’ and ‘mortgage market share’, it was only a matter of time before we saw this happening.  Yes, the Banksters are at it again.

We’re getting reports that Banks are contacting borrowers 4, 5 and even 6 months prior to maturity.   Supposedly, they are calling to ‘offer a great rate, if you sign now!’   Hey, that sounds great.  Except the interest rates that we see being offered aren’t really that great. In fact, they are higher than what is available in the wholesale market.

This isn’t anything new.   We saw this happen in late 2008 and early 2009.  The Banks were telling clients to lock into Fixed rates if they were in Variable (and we told our clients to stick with Variable as interest rates were heading down… sure enough, they did go down)…. And they were offering supposed ‘special rates’ 4 to 6 months prior to maturity.    The only problem is that the interest rates being offered were not as good as the Banks made it seem.  And the timing of the product offerings were clearly wrong.

What makes this problem even more complex today, is that some of the Banks are offering NO FRILLS mortgages with limited prepayment privileges and NO option to pay the mortgage out in full unless you sell the house.   They dangle an attractive interest rate but forget to tell you about the product limitations.   STAY away from these products.   They will come back to bite you in your bottom….. bottom line, that is.

Here’s some advice… Before signing any renewal offer, speak with your Mortgage Broker… find out if that offer and product are really as good as the Bank makes it seem.    The stats tell us that most Canadians will not bother shopping and just sign their renewal offer…  and that’s too bad.  A 0.40% difference in rate on a $250,000 mortgage will cost you $4774 in the first 5 years alone.   Don’t be so quick to sign what the Bank offers you… don’t be complacent….you could pay dearly for it.

RRSP, RESP, TSFA or Mortgage prepayment? Which has the best returns?

HOW TO GET THE MOST OUT OF YOUR MONEY

Trying to decide what’s the best move can be difficult…. and I must admit, this is not an easy subject to tackle.   There are so many opinions…. But it’s important enough that I’m going to put my 2 cents in.  My final recommendations are listed at the bottom if you want to fast forward…

First, let’s come to an understanding that we are all different and have different needs…. you must ask for professional opinions and make up your own mind. Having said that, I think that for me, this is actually a very easy decision. Continue reading “RRSP, RESP, TSFA or Mortgage prepayment? Which has the best returns?”

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).

 

 

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