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CategoryMortgage Tips

CMHC, Genworth double charge…. did you pay twice and not know it?

We’ve all heard the saying, ‘necessary evil’….. You know… something that we need or must have but don’t necessary like….  kinda like that cough syrup that doesn’t taste so good but you know you need it to feel better.

Default mortgage insurance is a ‘necessary evil’…. without it, we wouldn’t be able to buy a home with less than a 20% down payment with low interest rates.  But what if you bought a house, paid the CMHC or Genworth insurance….and a few years later you bought a bigger home or you refinanced your house for some home renos or debt consolidation?  Do you have to pay CMHC or Genworth insurance again?  If so, how much will this cost?

A Financial Planner’s story gives new meaning to ‘necessary evil’

One of my reader’s, a Financial Planner, shared a recent experience…. and I must admit, this isn’t the first time I have seen or heard about this happening…His client had a CMHC insured mortgage and then later wanted to refinance the mortgage for some home renos… It appears his client was charged FULL CMHC insurance premiums on the entire mortgage, AGAIN!!   This is not right…. and we call this DOUBLE CHARGING.

A CMHC or Genworth or Canada Guranty insured mortgage can be refinanced with REDUCED insurance premiums charged ONLY on the new funds. It is up to the submitting Lender or Banker to inform the Insurer that the current mortgage is already insured.    Unfortunately, I have seen and heard of other cases where the Banker did not have the experience or knowledge or cared to take the time to inquire if the current mortgage was already insured…  and then went on to simply process the application as a NEW CMHC or Genworth insured loan (Canada Guaranty is fairly new and I have not seen any cases involving them yet)…  And the borrower gets stuck paying the FULL COST again….

How much would a mistake like this cost?

Well, here’s an example and some formulas to follow…

Let’s assume we have someone who bought a house for $350,000 in January 2008 and they required a 95% loan to value mortgage, or $332,500.  They took a 35 year amortization. They would have paid mortgage insurance of 3.15% or $10,473.75 giving them an original starting mortgage balance of $342,973.75 (the insurance gets added to the mortgage and is not payable up front).

Fast forward to today…. their home is worth $402,000…their mortgage balance is approximately $331,149 with a 32 year amortization remaining…. they want to refinance up to 90% of the value of the home…  that would give them $40,200 in new funds and their mortgage would be $361,800 (before insurance)…  The borrower will be charged additional insurance on the new funds only at the rate of 4.65% or $1,869.30.….the new mortgage is $363,669.30.

But what if your Banker didn’t submit your application to CMHC or Genworth as a previously insured mortgage?  What if your Banker sends your CMHC insured mortgage to Genworth or your Genworth insured mortgage to CMHC?   What if you weren’t given credit for the previous insurance you had paid?   Think this can’t happen?  Guess again…it’s happened before and it sounds like it’s happening again.

And now the results of the Banker’s mistake

That same mortgage will cost you $6,813.90 in extra mortgage insurance.  That’s because your banker submitted your application to the insurer as an entirely new mortgage application.   You will be paying new insurance on the entire mortgage….  Here’s the formula:  $361,800 x 2.40% or $8,683.20… your new mortgage is $370,483.20….a difference of $6,813.90…. that’s right….an overcharge of $6,813.90…. and remember, this gets added to your mortgage so you are paying interest on this for 32 years!!… The additional interest will cost you another $4,915 in interest… that’s a grand total of $11,728.90 of unnecessary expense… this isn’t necessary, it’s just evil.

We can only hope that this problem isn’t widespread.   If you’ve experienced something similar then I suggest speaking with your Mortgage Broker to get a review… I would certainly be interested in hearing about it.

Social networks, internet and Personal referrals….The test of time.

Information is hitting us at an astounding rate… Used to be radio, TV and newspapers ….then came the internet…now it’s social network like twitter and facebook or personal blogs…. Mortgage info and opinions are everywhere…It’s as simple as doing a Google or Bing search on your iPad or mobile phone..

But how reliable is the info you are getting and can you find what you really want online?  After all, we’re not buying a new TV or appliance…. this is a mortgage, a huge debt…

I did a search on ‘mortgage’ and got 3.5million possibilities.   I narrowed it down to ‘mortgage rates canada’ and still got 1.3million sites…how could anyone know which site is best for them?  Or credible?

I tried one more time…‘ best mortgage product for married couple buying their third home with one child in Ontario’… there, that’s quite specific.. only got 5,710 possibilities…

Many of the sites were small businesses but a lot were blogs, and that’s ok…I like blogs… Some of the sites are great.  But how many of these sites really know what they are talking about?   I was quite disappointed to see that many of these sites were being run by unqualified people with little or no practical experience in the Mortgage or Financial Services industry.  And this really troubles me.

So here are a few tips to finding a credible site or blog expert:

-is the writer or editor easily found and identifiable?

-how many years of experience does this person have in this industry?

-what makes that person an expert or an authority?

-how much practical time does this person have in the business? (are they all theory and no practical experience?)

-is the site or blog personally managed by the creator or editor?

-are there any sponsored links or banner ads on the site and if so, is there any possible conflict by having that sponsor?

-would that sponsor still allow for impartial writing or distribution of information? (careful, the answer isn’t always that easy)

THE TEST OF TIME…..In the end, I find that most of us still value the opinion of a trusted friend, a colleague or business associate or a family member.  These people’s opinions, within our circle of trust, still carry more weight than any internet site…  The internet is great for gathering info and opinions but be sure you know where that info is coming from and what the motives are behind that info…

TD taking action with new collateral mortgage

No, the hand-cuffs are still on if you took a TD Mortgage recently.. yes, they are still being registered as a collateral charge and not the normal, conventional charge…

But I heard from a good source that TD is working on changing their policies to allow for the transfer-in of collateral mortgages.  That would mean that TD would accept collateral mortgages from other financial institutions should new clients wants to bring their mortgage to TD.

But how does this help a TD client that is up for negotiation with their mortgage when TD knows they cannot transfer that mortgage out without having to pay new legal fees to move that mortgage?   The borrower loses their leverage to negotiate…it’s really that simple…  here’s a great article from Gail Vax-Oxlade telling us what she thinks about TD’s new collateral mortgage.  Remember, collateral mortgages are not accepted by other financial institutions for transfers….

This subject isn’t going away… we will see if other Banks will follow TD’s lead and go with a collateral mortgage charge or whether they will accept collateral mortgages for transfers.  Stay tuned for more on this major shift in mortgage registration.

And who will pay that extra cost to transfer mortgages in and convert them to TD’s collateral charge?   For now, it’s TD picking up the cost, but does anyone really expect that to continue?   At some point, that cost will most likely be passed to the consumer.

TD is taking a big risk.. maybe it’s a calculated risk… they certainly have the deep pockets to pay for this.. at least for a little while…. I’m sorry to say it looks like the TD borrower is going to lose out in the end.

What mortgage product does your bank want you to take?

Here are some interesting stats…

-A Variable rate mortgage outperforms a fixed rate mortgage in over 88% of the time… According the Milevsky study done earlier this decade and updated in 2008….

-Variable rate mortgages have been at least 1.00% lower than the 5 year fixed rate mortgage over the past 25 years….and on occasion, better by as much as 2.00%.

-Canadians move every 3 years on average…meaning they must either refinance their mortgage or pay it out.

-a Variable rate mortgage has a fixed penalty of 3 months interest.

-a 5 year fixed rate mortgage has a penalty that is at least 3 months interest but has no limit…. and in the past 18 months, we have seen penalties of 6, 10 and even 14 months worth of interest.

-yet, 66% of Canadians have a 5 year fixed rate mortgage…

Is the 5 year fixed rate mortgage really the right product for 66% of Canadians?    Can the 5 year fixed rate mortgage be the right product for everyone?  Which mortgage product do you think your bank wants you to choose?

By the way, can you guess which mortgage product is the most profitable?…. you guessed it.. the 5 year fixed rate.

Make sure your Mortgage Broker does a needs analysis before they recommend a mortgage product for you…. There is no ‘one size fits all’ when it comes to mortgages….  Ask yourself, ‘who is this mortgage best for’…. my bank or me?

Don’t expect new mortgage penalty laws til next year…maybe.

Mr. Potter would be proud

Seeing that it’s near Christmas, I thought this old classic movie pic was appropriate for today’s topic.  “The house always wins” (in case you can’t read the small print).   And how true that is…

It sounds like the long-awaited Federal Govt’s Standardization of Prepayment Penalties won’t happen til some time next year at the earliest….maybe.    A good source told me that the Govt wants to put that Bill through together with several other Finance laws…..but I’m beginning to wonder if they will make any changes at the pace they are going.

The Bank lobbyist’s have done their jobs well.   Mr. Potter would be proud.   Record low mortgage rates brought us record high mortgage penalties.   6, 10 and even 14 months of interest were charged as prepayment penalties to Canadian borrowers in the past 20 months.   To put it another way, we have seen penalties of $10,000, $20,000 and more. Continue reading “Don’t expect new mortgage penalty laws til next year…maybe.”

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