CategoryMortgage News

Posted February 3, 2014 Case study

Lower rate = Lower payment and a Lower balance in 5 years!

We all know that a lower interest means a lower monthly payment. But did you know that a lower interest rate means you will also owe less when your mortgage comes up for renewal? This has been overlooked by consumers and experts alike. I haven’t seen any articles covering this. And it should change how you choose your next mortgage product.

It all has to do with the effects of compounding interest. Let’s take a look at 2 borrowers, each with a $400k mortgage. Borrower 1 is Mary. Borrower 2 is Dave. Mary has today’s 5 yr fixed rate of 3.29%. Dave has the more normal rate of 5.50% (the rate most experts think we will see in the next 3 to 5 yrs). We’ll amortize both mortgage over a 25 yr term.

Dave’s mortgage has monthly payments of $2441 and a balance owing of $356,749 at the end of 5 years. Mary’s mortgage has monthly payments of $1953 and a balance owing of $343,728 at the end of the first 5 years. Notice the difference in the balance owing after 5 years. We are talking about a $13,021 difference. That’s the effects of compounding interest. Continue reading “Lower rate = Lower payment and a Lower balance in 5 years!”

Posted January 30, 2014 Mortgage News

Olympics are coming.. and so are the dumb bank ads.

I’m a huge hockey fan. I love watching Olympic hockey. It’s fast paced and every game counts. If you’re like me, then you’ll probably be glued to the TV set watching and cheering on Team Canada. GO CANADA GO!

Unfortunately, that means you’ll also have to put up with those dumb bank ads. These ads drive me nuts. They deliver a terrible message to consumers. Here’s one from RBC from the 2010 Olympics about a young couple buying a home, probably their first, and the RBC mortgage specialist recommends they ‘split their mortgage to save money…. part fixed and part variable’. Anyone get that? Sounds like some sort of magic solution. Confused? You should be.

Splitting your mortgage is probably the worst thing you can do. Here’s why the BANKS like it. There are certain BANKS that will allow you to split your mortgage into 2 or more parts. This product was introduced in the mid ’90s. Now ask anyone that took this type of mortgage it they’d ever take it again. NO WAY! Continue reading “Olympics are coming.. and so are the dumb bank ads.”

Posted January 27, 20142 Comments Mortgage News

Bank of Canada says no rate hikes, but possible rate drops!!

Last week, the Bank of Canada governor, Stephen Poloz, held the first of 8 scheduled meetings to set the Target Rate. This is the rate used to set the Bank Prime rate which currently sits at 3.00%. No surprise, no change in the rate. It has been the same since Sept 2010.

From 2011 to 2013, the previous Bank of Canada governor, Mark Carney, continually announced of a pending rate increase. But late last year, Poloz changed the tide when he announced it could be a few years before rates go up. One of the key drivers for rate hikes is inflation. The BoC target for inflation is between 1% and 3%. If inflation goes above 3%, we can expect rate hikes.

Inflation is not a concern. In fact, there are concerns about deflation as the current inflation rate sit at 1.2%. Some experts believe we could see the BoC rate drop. Great news for anyone in a Variable rate. We are also seeing the govt of Cda bond yields drop. Friday’s close was down to 1.59% for 5 yr bonds. Haven’t seen that level since June 2013. This means Fixed mortgage rates will probably go down further. Continue reading “Bank of Canada says no rate hikes, but possible rate drops!!”

Posted January 27, 2014 Consumer Debt

Debt consolidation tip… just pay less interest!

January is usually a tough financial month for most of us. Holiday bill payments, rrsp contributions, property tax bills and if you are self-employed, you probably have to make some sort of business tax or corporate tax payment. If December is the Holiday Season, then January feels like a hangover!

BANKS and Credit Card companies love this time of year because this is when we will normally carry a balance and have to pay those crazy interest rates that range from 9% to 24%. Wait, before you get too depressed, there could be a better option. There’s a less expensive way to manage your debt. Continue reading “Debt consolidation tip… just pay less interest!”

Posted January 20, 2014 Case study

Buy now or wait for house prices to fall? The results may surprise you…

Should I buy now with interest rates still hovering at record lows, or wait for prices to fall? When will house prices fall? … and by how much? What will the interest rate be in the future when house prices fall?

These are the questions most Canadians asking themselves these days. It’s no secret that Real Estate values are at an all time high in most parts of the country. The calls for a housing correction, crash, or bubble have been going on for almost 10 years now but it hasn’t materialized.

I won’t get into the discussion here about whether house values will drop or crash or when that could happen.. because I don’t think it should be part of the buying decision. That’s not a typo. Market timing is a dangerous thing. Stock advisors will tell you this. Buy now, if you are able to commit to the plan. Read on to see why I believe this to be true. Continue reading “Buy now or wait for house prices to fall? The results may surprise you…”