Skip to content

CategoryMoney saving tips

2.89% 5yr fixed rates are available… but are those offers legit…?

You’ve heard the saying, “there are no free lunches”…. or “if it sounds too good to be true, it usually is”.…  I’m not sure how these sayings got started but they probably came from a bad experience…  My favorite is, “the problem with things that are free, is that they cost too much”.…   These sayings can be applied to most things in life…   including your mortgage.

Recently, I’ve seen a growing number of websites and radio ads offering these so-called “great mortgage products” at 2.99% and now 2.89% for 5 yrs… A number of readers have asked me if these offers are legit?  Here’s what I tell them…. Hope you find this useful…

In short, the rates are real but the product offerings come with too many strings attached for my liking….. things like the rates are for CMHC insured mortgages only… or the rates are only held for 30 or 60 days….you can’t pay the mortgage off for the first 3 years…. limited prepayment privileges…..prepayment penalties are far higher than other mortgages….you lose your ability to negotiate a rate if you have to refinance the mortgage.

These product have, and can, end up costing you more in the end.   This is why you won’t see me promoting or advertising these rates.

A CLOSER LOOK AT WHAT THESE PRODUCTS ARE ABOUT

In trying to capture market share, some Lenders have created products with slightly lower rates… Ok, I like that part of it…. BUT, they come with inferior terms and restrictions…… and this is where you could end up paying big time, on the back-end of these mortgages.    You’ve seen my previous articles about $20k, $25k, and $30k in mortgage penalties….. This is what makes these products and other NO FRILLS mortgages a bad option…and why I refuse to endorse them.

Let’s face it, the first thing most of us look at is the price… If I said you can buy and iPad for $200, or a 65″ Plasma TV for $500, you would keep listening… In the case of mortgages, we look at rate… 2.89%….  But hopefully, you keep asking questions.  9 times out of 10, you would probably find out there is a catch….. Maybe you have to buy something else, or the make and model is older or of a very poor quality, or the sale was only for a limited time, or it’s a refurbished model, etc….  You get the picture…

In most cases, those offers are just bogus.   The headlines are there to catch our attention… They want to entice you…to get you in the front door or to make that phone call, or to click that link on your computer….The seller is hoping that either 1 out of 10 will not ask too many questions and take the product… or they will shift you into another product… The old bait and switch….  That’s how most of this type of advertising works.  It’s a numbers game…

And it isn’t any different with mortgages.  But the problem with mortgages is that we are talking about a very complex financial product.  A mortgage is a loan agreement, a legal contract that will bind you for 5 years, in most cases.   The loan is secured by your house.  Think about that… You are putting up your home as security… you better understand all the terms, obligations, limitations, restrictions, privileges….. most importantly, look at how much it will cost you to exit this product.

Here’s where I have a BIG problem with these flashy ads….  in most cases, the borrower doesn’t even know what questions to ask…  They can’t get all the required info in order to make an informed decision.     We saw a great example of this earlier this year when BMO offered their 2.99% NO FRILLS mortgage… only, they didn’t market it that way… they called it a Low-rate mortgage…   Quite a play on words.  They made it sound like they were doing us a favour by pushing people into these mortgages… but as my readers know, the limitations to this product can and will prove costly for a large number of borrowers….  which is why I gave that product a huge thumbs down.

For those seeking my opinion and advice, I suggest you take a good hard look at these offers…. ask questions…. you’ll probably end up being part of the “9 out of 10 group” that asked too many questions and saved themselves from a mortgage disaster.

Should you need my help or advice, feel free to contact me anytime.   steve@mortgagenow.ca or 416 224 0114.

Steve

Wanna know where rates are going? Look at 2 yr bond yields.

Probably the most popular question asked is, “where are rates heading?”  Or “when will they go up?”   Let’s face it, if you have a mortgage or are invested in real estate, then you better know the answer or understand what affects rates.  After all, interest rates can make or break a housing market.

We decided to take a few minutes to explain how you can follow the indicators that affect interest rate movement….  We won’t make you a Financial Expert, but you will gain a better understanding of what affects rate movements…

My first suggestion is to stop paying so much attention to the news or TV… (apologies to my media friends)… but the wild headlines are there to grab your attention…  it’s not that difficult to understand…

Last week, the Bank of Canada met for the 5th time in 2012.   There are 8 scheduled meetings each year… (and by the way, this helps to keep rate movement and monetary policy more predictable…. the more predictable a Govt is, the more stable it’s economy is.)   The Key Rate is set during these meetings… this rate directly affects Variable rate mortgages…. No surprise, the Bank of Canada Governor, Mark Carney, kept the rate unchanged.

That means Bank Prime is still 3.00%.   And with more negative economic news from Greece, Spain, other parts of Europe, the U.S, and now Canada, it’s safe to say rates should remain flat for some time……(remember, bad economic news usually means rates will drop or stay low).

So the Bank of Canada’s Key Rate (also known as Target Rate or Overnight rate) directly affects Variable rate mortgages… but indirectly, they also affect Fixed Rates.   A better short term indicator to watch is the 5 yr Govt of Cda bond yield.   We watch this to see where fixed rates are headed in the short term… say, over the next few days or or few weeks.   A good long term indicator for Fixed rates is the 2 yr Gov of Cda bond yields.   Financial Experts  pay very close attention to this index if they want to know where rates are going in 6 months or longer.  And at present, the 2 yr yields are very low…..

Bottom line, rates should remain low for some time…   Not so hard to follow, right?

And not to confuse you, but historically, Fixed rates usually go up ahead of Variable rates…. so we need to watch Bond yields together, with the Bank of Canada’s Key Rate to gauge where rates are going…

Hope this helps… and as always, feel free to call or email me…

Steve Garganis

416 224 0114

steve@mortgagenow.ca

Does this sound like your Bank?

THE PHONE CALL RIGHT AFTER THE OCTOBER 2008 U.S. SUB-PRIME MORTGAGE CRISIS

It’s November 2008.  News of the U.S. Subprime mortgage crisis has just broken out.   Panic sets in around the world.  Stock Markets collapse.  Govt’s are scrambling to avoid an economic recession…. or possible depression.

Your Banker calls with some advice about how this will affect your mortgage. You’re concerned and don’t understand how these world events will affect you…. The Banker recommends you get out of your Variable Rate mortgage and into a Fixed Rate mortgage…. or they recommend an early renewal of your Fixed Rate and lock into a new 5 year term…

Back then, the best discounted Fixed rates were hovering at 5.95%.  You listen to the Banker’s advice… after all, they are supposed to look out for your best interests, right?

WRONG!  Time for a reality check…Your Banker’s advice was dead wrong…. when economic times are tough, interest rates don’t usually go up, they go down….  Anyone that is in the Financial Services industry should know this….  and yet, that’s exactly how this scenario played out for thousands of Canadian homeowners.

Some say it’s easy to look back and be critical… I agree… except I go on the record with my personal opinions…. Had you been one of my client’s, you would have received my warning to watch out for ‘special bank offers’ and not to lock into any lock term product….. here’s a link to my October 13, 2008 Market Trends report.

BUT IT GETS WORSE…..

You want to take advantage of these record low rates that have been around for the past 12 months….. after all, if you had stayed in a Variable rate, (like 80% of my clients did), you would have enjoyed rates as low at 1.35% during that time..  Instead, your Banker hits you the infamous BIG SIX BANK penalty calculation and wants a penalty of $10,000.  OUCH!  How’s that for a double slap in the face?

Does this even sound possible?   Guess what… it’s not only possible but it happened….and it happened to thousands of Canadian borrowers….  In this example, the borrower has paid over $14,000 in extra interest charges, so far… We trusted the BIG BANKS because they are on every street corner.  They are on TV, in the media, and are so highly regarded in global banking communities…  But how does this help you, the individual person?  or the average family with a mortgage that’s trying to get ahead and benefit from these record low rates…

This isn’t about bank bashing… this is about Banker’s given too much respect and offering little or nothing in return…. Far too many borrowers have gone through  the scenarios described above… and it’s really unfortunate.   By the way, the mortgage balance for this client is only $118,000.… imagine what the loss would be if their mortgage balance was $200k or $300k or more!!

THE GOOD NEWS…..

Yes, there is some good news… You don’t have to make the same mistake…  you can benefit from other people’s experiences…  Get yourself a Mortgage Broker working for you…  An independent expert with an unbiased opinion.   If you were a client of mine, you would have received numerous warnings about these so-called ‘special offers’…and to avoid them…doing so would have saved you around $7,500 per year on a $300k mortgage

It’s never too late…  Getting a great rate is important, but being in the right mortgage product is where you will truly save thousands… We’ve been helping Canadians do it successfully for years…….. Feel free to call me if you need help….

Steve Garganis

416 224 0114

$4k penalty on a $109k mortgage… $8k penalty on a $213k mortgage.

This week I received a few more examples of the ridiculous penalty calculations that the BIG SIX Banks have been using…  If these penalties don’t scare you, then continue to deal with the BIG SIX.

One client has a mortgage with Scotiabank….$109k balance with a 3.60% interest rate and 3 yrs remaining… her penalty to get out is $4,000…!   That’s 10 months worth of interest.

Another client has a mortgage with TD Bank….  $213k balance with a 5.35% interest rate and 1 yr remaining… his penalty is over $8,000…..!  That’s equal to almost 9 months worth of interest.

If these penalties scare you then keep reading…there is a solution…

There are better alternatives to the BIG SIX Banks….  There are several smaller Lenders, good reputable firms, that don’t use the same formula to calculate your penalty….. and you don’t have to give up anything on rate, terms or prepayment privileges…

Had the Scotiabank client gone with one of my other Lenders, then her penalty would have been around $1340…   and the TD Bank client’s penalty would have been around $5140.

Get an unbiased opinion…. Speak with a neutral party…. Call your Mortgage Broker before making any decisions….  If you don’t have a broker, call me…I’ll be glad to help.

$24,000 and $19,000 in savings by refinancing their mortgages.

We’ve seen a growing trend lately… Customers calling to find out if there was any way to take advantage of today’s record low rates…..   If you are buying for the first time or are renewing a mortgage, then the answer is simple… YES..  But what if you are one of the thousands of Canadians that listened to their Bankers and the media or so-called ‘Experts’ and took at Fixed rate mortgage a few years ago.

You have a rate of 4.00% to 5.50% and you keep reading about record-low interest rates in the low 3.00% range….. what can you do?   Well, here are 2 recent examples…. These are real clients….  These are real savings…

So where was the Banker in all this?  Why didn’t the Banker call these clients to make them aware of the huge savings?   In case you didn’t know it, the Banks are a business… and they want to maximize their profit.    Don’t ever forget that.

CASE STUDY #1… 6 YEARS REMAINING AT 5.45%

We had a new client contact us with a $350k mortgage… they were with a BIG SIX bank.. their penalty to exit would be $10k… that’s a lot of money, and we don’t like anyone to pay penalties…..but we did the math and found this client a 3.29% mortgage for 5 years… the end result worked out to be a gross savings of $34,000…  After paying the penalty, they realized a savings of $24,000 over the next 5 years.   WOW!  That’s an easy decision to make.. the clients also decided to add the penalty into the mortgage…. imagine savings almost $5,000 per year!

CASE STUDY #2… 7 REMAINING AT 5.25%

Another client had a $235k mortgage… also with a BIG SIX Bank… penalty to exit was $4k…. we also found a 5 yr mortgage at 3.29% for this client… the savings worked out to $23,000…less the penalty, that worked out to $19,000 in savings over the next 5 years!…  Again, a no-brainer… Clients moved on this right away… we added the penalty into the mortgage and put almost $4,000 per year, into their pockets.

CAN YOU SAVE ON YOUR MORTGAGE?

We’re seeing more opportunity to save money by taking advantage of today’s low rates…. Don’t wait for your Bank to call.   These are just a few, recent examples.  If you’ve been thinking about how you can save on your mortgage, then take a few minutes and look into it.   Get your mortgage reviewed by an unbiased person.  Call a good Mortgage Broker.  It could be worth a closer look.   If you don’t have a broker, then feel free to contact me and I’ll do some quick math.   You might be pleasantly surprised with the results.

We’ll be sharing more of our success stories and tips on how you can save money on your mortgage.

%d bloggers like this: