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CategoryMortgage Tips

Is Affordability better or worse?

Here’s an interesting statistic…  5 years ago, a 5 year fixed rate mortgage was around 4.35%… and the maximum amortization was 25 years…. a $250,000 mortgage would cost you $1363/mth.

Today, a 5 year fixed rate mortgage can be found at 3.89% (and lower)… and the payment is $1300/mth….. let’s increase the mortgage to $300,000 and use the new maximum amortization of 35 years… new monthly payment is $1303/mth….

Affordability is better than ever… these historical low rates will not be here forever.. make sure you are taking full advantage…. talk with your Mortgage Broker for full details…

Don’t get trapped with dumb Bank ads…

Watching the Olympics the past few weeks meant I had to endure watching tons of RBC commercials… I normally reach for the clicker and change channels but gave up after they kept popping up every 10 mins.

One commercial in particular really bugged me… have you seen this one? The young couple are looking at a house with an old kitchen.  And then their RBC Mobile Mortgage Specialist suggests they split their mortgage … “part variable and part fixed…  to save money.”

Ok, can anyone tell me what that means?  ‘…To save money'”.   So splitting your mortgage will save you money?  Really? How? Who says?  Show me statistical data to support such a claim…

I remember that when these split mortgages became available at the TD Bank (I worked there in the 90’s), it was great idea to reduce how much business would leave the banks… Ask anyone that has been in a split mortgage what happened when it came time to renew the 2 split portions…you lose your leverage to negotiate the rate because you cannot transfer your mortgage out until both maturities match….

The result….you get whatever rate the Bank wants to offer at maturity….  BEWARE…. this is bank Kool-aid again… I don’t drink it…

Here’s another recent article about Bank commercials from Ellen Roseman of The Star.  This ties in with the bank ads portraying many of us idiots…

Tips to paying your mortgage off sooner

These tips from the UK’s MSN.com might sound familiar but there some subtle differences….. First, here are the 4 tips.

1. Overpay when possible (make prepayments)
2. Get the best possible mortgage deal.
3. Check out an offset mortgage (All in One mortgage in Canada)
4. Switch to a better deal when your Capital increases….(shop for a better deal as your pay down your mortgage)

    Nothing earth shattering…. simple but good advice.    Now here is my additional advice ….  #2 suggests we get the best deal…and we all want to pay the least amount of money…but being in the right product is just as important as going for the lowest rate…a good example is today’s variable rate mortgage of 1.95%… it’s the lowest rate available.. but is it the right product for everyone?  Probably not…

    #3 was also interesting… the All in One mortgages are becoming more popular and there are a few different lenders offering these now….these products are also known as Australian Mortgages…

    #4 is great advice… when your mortgage comes up for renewal…shop around… speak to a broker… most financial institutions won’t offer you their absolute very best rate at renewal… this is a fact… and we understand… after all, it is a business and Banks want to make a profit.  But let’s not contribute too much to the lender’s bottom line.

    Deal with recognized professionals….

    It’s been almost 2 years since the rules that govern Mortgage Brokers and Agents came into effect…so why hasn’t everyone complied with the smallest of requests?

    On July 1, 2008 new rules governing Mortgage Brokers and Mortgage Agents came into effect in Ontario.   One of the changes was to make it easier for consumers to identify who they were dealing with.  Prior to July 1, 2008 we saw all sorts of titles out there.. Mortgage Consultant, Mortgage Planner, Mortgage Specialist, etc… the list was endless…. and qualifications were sketchy.

    Well, that’s all changed.  In Ontario, there are only 2 designations.  Mortgage Broker and Mortgage Agent.   Both are authorized by a Brokerage to deal or trade in mortgages on its behalf and who have achieved other educational, proficiency and eligibility criteria.

    But I’m still amazed at how many individuals and companies have not made the change.  They still advertise and refer to themselves as Mortgage Planners or Mortgage Consultants, Mortgage Specialist…etc…  My advice to Brokers and Agents is to make the changes immediately…These people are at risk of being fined and or having their license suspended.

    My advice to consumers….BEWARE of anyone that has not taken the time to adjust and make the changes…if they won’t respect a minor change such as this, it makes you wonder what other regulations are not being respected.

    Long term contracts have a price

    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…)

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