CategoryMortgage Tips

Posted March 5, 20122 Comments Money saving tips

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.

Posted February 22, 20125 Comments Money saving tips

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?”

Posted December 29, 2011 Case study

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).

Posted December 23, 20112 Comments Interest rates

BMO announces lower rate IF you take a shorter amortization!

Have you heard the big news? BMO lowers rate their best discounted 5 year fixed rate to 3.49% to encourage Canadians to take an amortization 25 years or less. They claim they want to encourage Canadians to pay their debt off faster….. Sounds nice and in keeping with the Christmas spirit, doesn’t it?

Ok, before we get all warm-hearted and teary eyed, let’s take a closer look at what this really is. First, this IS NOT the best discounted fixed rate in the market. A good Mortgage Broker can get you 3.39% out there with no restrictions on amortization (even lower with some No Frills mortgage products). We all want to pay our mortgage off faster, but choosing a shorter amortization only limits your future options… My recommendation to almost all my clients is to take the longest amortization possible……

It’s not that I want you to have a mortgage forever, it’s about having options…. I always take a ‘what if’ approach…. Follow me for a minute…

Let’s say you had a $300,000 mortgage and you took this BMO 3.49% rate, your payments on a 25 year amortization with be $1496.23/mth. But if you took a truly discounted mortgage at 3.39% with a 35 year amortization, your minimum payment would be $1216.75/mth. You could always INCREASE your payment to accelerate your amortization to 25 years or shorter.

Now, let’s say you lost your job, had some unexpected expense come up, or a financial emergency or just needed to lower your payments. If you chose 25 year amort, then you are stuck with that payment.. if you chose 35 year, then you can always go back to that lower payment… That’s the flexibility that we want. It’s not about taking longer to pay, it’s about having the option to reduce your payment if needed.

LET’S NOT FORGET THE BANKS HISTORY WHEN IT COMES TO RATES

In keeping with the Christmas theme, Mr. Potter would be approve the Banks latest strategy. In case you didn’t know, the 5 year Canada Bond is in record low territory…. hovering at around 1.31%… the 5 year fixed rates are priced from the bonds… the spread is normally around 1.25% to 1.40%… and yet today, the spread is 2.18%…. WOW! and why? TO MAXIMIZE PROFITS. This is has nothing to do with wanting to helps Canadians. 5 year fixed rates should be under 3.00% but they aren’t, because the Banks want to maximize profits.

VARIABLE RATE PRICING IS AT 1990’s LEVEL

Variable rate pricing went from Prime less 0.90%, 3 years ago, to Prime plus 1.00% in during the October 2008 US mortgage crisis, to Prime less 0.75% just six months ago…. to Prime plus 0.20% today. That’s right, Prime PLUS 0.20%. Haven’t seen this pricing since the ’90s. There are no fundamental reasons for this… it’s simply profit taking by the banks.. they are forcing us to take a 5 year fixed rate. Sure, today’s 5 year fixed rates are at historical lows, so there is very little attention being given… but when rates go up, and they will in a few years, we will start to ask for more competitive products and better options other than a 5 year fixed rate…. (Can you see Mr. Potter’s grin getting larger?).

My advice… think about who your banker works for….and who your Mortgage Broker works for….

Posted September 30, 2011 Mortgage News

BIG BANKS need your help for higher profits!!

The more I think about it, the more fired up I get! OSFI (Office of the Superintendent of Financial Institutions) has come out and said Bank profit margins are shrinking and the BIG Banks may start to loosen their credit lending policies in order to write more business and therefore earn more profit.

This statement just doesn’t make any sense…. let’s think about this for a minute… Take a look at Financial Post’s Biggest Companies ranked by profit in 2010.…let’s see where the Banks rank:

– #2 is RBC $5.2 billion

-#3 is TD Bank $4.6 billion

– #4 Bank of Nova Scotia $4.2 billion

– #9 Bank of Montreal $2.9 billion

– #12 CIBC $2.4 billion

Five of the top twelve most profitable companies are Banks!!! This doesn’t look like the Banks are hurting that badly, does it? We should also not forget that the govt has made several changes to mortgage lending rules…It’s already harder to qualify for a mortgage and line of credit… So what gives, OSFI??

Look, OSFI has spoken and we must not ignore this….I don’t like what they are saying and the logic they are trying to give us doesn’t make sense….But we can’t bury our head in the sand either… The Banks have too much power… We should prepare ourselves for changes… Make plans and adjust accordingly… Don’t wait for the Banks to act.

It’s clear to me that we could see some changes in lending policies…My guess is this will translate to some increased rates on your secured lines of credit, a possible review of your account, even a reduction in your limit… That’ right, the banks can even call your line of credit and ask you to repay it in full…!! They might ask you to lock into a fixed rate mortgage or get into an amortized repayment schedule instead of just paying interest only.

But it doesn’t end there… commercial accounts will also be under the magnifying glass, in my opinion. Commercial loans and mortgages get reviewed annually by the Banks…This is why it’s very important to choose your commercial lender carefully… Not all Banks are alike… there are some institutions that offer commercial loans that are not callable…

Bottom line is to be aware, stay informed and act accordingly…. If you are not sure where you fit in with these possible changes, give me a call.. I’m happy to help.