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Hot summer, cooling economy and low mortgage rates..

It’s been a slow week for mortgage news.. but that’s okay.. when it comes to interest rates, boring is good!

Mortgage rates are remaining low as the Economic data around the world is still not great.

Fixed rate mortgages are hovering at just over 4.00% for  a 5 year term… still in historical low territory and well below the 25 year average of 8.25% for posted rates (discounted rates are approximately 6.75%).

Variable rate mortgage continue to be a favorite.. and why wouldn’t it be… under 2.00% rates, fixed prepayment penalties of 3 months interest  compared with Fixed rate penalties of 3 months interest or Interest Rate Differential which have been as higher 8, 9, 10, 13 months interest or more… Yes, from your major Banks…

Hybrid mortgages are the hot product lately..l saw some stats stating they have become more popular… but be careful.. these products tend to have limitations and restrictions that can cost you dearly in the future….

Remember, a Mortgage is more than just the rate… Rate is the single biggest factor that affects your overall cost,  but it’s not the only thing…

One more tip… any long-term contract has a price.. and the price is usually more expensive than we think.

Posted Mortgage News

Does this ad make you laugh or get you mad?

In February, the Federal government announced many changes to tighten mortgage lending policies to ensure Canadians don’t get in over their head when it comes to mortgages.. they also promised to STANDARDIZE Mortgage Penalties…  well, we have not seen or heard anything about it… Come on Feds, make the change…   Canadians need your help..

Last week someone sent me this mobile pic from just outside a Scotiabank branch..  We couldn’t help but find the ad amusing…  In case you can’t read it.. “Penalty & fees have you  upset?  No respect? Get service and advice worth switching for”.…

Well Scotiabank, speaking on behalf of all Canadian borrowers for just a minute, the answer is YES… we are upset.. so what are you going to do about it?

Pause… wait… I don’ t hear anything…  Just what I thought.. nothing..

We found the arrogance disturbing.  Scotiabank is no different than any of the other major bank when it comes to calculating their prepayment penalties…and in fact, I have more than a few clients that will get quite upset after seeing this.

You see, they are part of a long list of Mortgage Borrowers that found out, the hard way, that mortgage prepayment penalties can be extremely high… 6%, 7% and sometimes 10% of the outstanding mortgage balance…  Here’s a good example from a Bank of Montreal client… this article was written in Ellen Roseman’s Blog…   Her reader is quoting a $30,000 penalty on a $360,000 mortgage with 2 years remaining…

Think you are immune?  Well, if you are in a fixed rate mortgage, then I’ve got news for you.. you are susceptible to the same outrageous penalties if you take any fixed rate mortgage.    The Banks are selling 5 year Fixed rate mortgages as getting ‘peace of mind’ and protection from potential rate increases….   And yet, study after study has proven that SHORT term and VARIABLE rate mortgages outperform any fixed rate..

Make an informed decision, stay alert and make sure you know what you are getting into when choosing a FIXED rate mortgage…  Feel free to contact me anytime for my advice or opinions.

Posted Mortgage Tips

Do bi-weekly payments save you money?

Back in the mid 90’s, there was a huge marketing blitz by the Big Banks that promoted making bi-weekly payments instead of the traditional monthly payments.   The sales pitch was that you could save huge amounts of money and pay your mortgage off much faster….save 4 or 5 years off your amortization…. Sound familiar?   Well, BI-WEEKLY PAYMENTS DON’T REALLY SAVE AS MUCH AS YOU THINK!

And I’ll prove it…. here’s the straight facts!

Let’s use a $200,000 mortgage with a 25 year amortization, a 4.00% interest rate and a 5 year term.

MONTHLY PAYMENTS $1,052.04.  MORTGAGE BALANCE AT END OF 5 YEARS $174,107.86.

Now let’s calculate bi-weekly payments and the balance remaining at the end of the 5 year term.

BI-WEEKLY PAYMENTS $485.55.  MORTGAGE BALANCE AT END OF 5 YEARS $173,885.20

So you end up reducing your balance by only $222.66 over a 5 year period... Not much of a benefit…you really aren’t paying your mortgage off sooner.

You may have seen options by your Lender or Bank to pay an ACCELERATED PAYMENT.   This simply means you increase the amount you pay every month…  The normal acceleration formula is to make one more month’s worth of payments every year but spread it out over the 12 months… I’ll show you.

LET’S USE THE SAME MORTGAGE OF $200,000, 25 year amortization, 4.00% interest rate and a 5 year term.

ACCELERATED MONTHLY PAYMENT $1,139.71.  MORTGAGE BALANCE AT END OF 5 YEARS $168,300.27.

You end up with a balance that is $5,807.59 lower at the end of 5 years…but don’t forget, you paid and extra month’s worth of payments every year during those 5 years, totaling $5,260.20.  So the net benefit is really $547.39….

Now let’s look at ACCELERATED BI-WEEKLY PAYMENTS of $526.02….the  MORTGAGE BALANCE AT END OF 5 YEARS IS $168,121.95.

The net benefit is a little better… $725.71…

BOTTOM LINE…. increase your payments and you’ll pay your mortgage off sooner…go with a bi-weekly ACCELERATED payment… it is a better choice.. bi-weekly or weekly payments are not a mysterious formula for paying your mortgage off sooner… It’s the INCREASED PAYMENT that helps you pay it off sooner…… After all, the best mortgage is no mortgage.

Posted Interest rates

Historical Interest Rate charts

One of our Lenders, Firstline, sends out a monthly update on Interest rates  .. click here FLM-Historical- Rate-Sheets-May 2010 .  The Charts go back 25 years… some very interesting patterns…  Overwhelming data that shows Variable rate or short-term mortgages really do outperform Longer term fixed rate products…

Another benefit is a fixed or reduced mortgage prepayment penalty…. (anyone with a longer term fixed rate could face enormous penalties of 6, 7, 10 or even 12 months worth of interest)…. Variable rate or short mortgages usually have penalties of 3 months interest or less.

Not sure where you fit in?   Call me anytime with your questions or comments.

Posted Mortgage News

Are you one of these people?

Was reading this survey about First Time Home Buyers that TD Canada Trust did recently...

Thought the most interesting stat was that 3/4 of the people surveyed were opting for a Fixed Rate mortgage.   And in the same paragraph, the TD rep acknowledged that Variable Rate mortgages performed better… Does any of this sound familiar?

Here’s some more good news.. well, actually it’s bad news for the Stock Market and investor confidence but it’s good news for interest rates… The 5 year Canada Bond has dropped significantly…  We were at 2.33% at one point today… meaning 5 year fixed mortgage rates should really be hovering around 3.80%… but instead we are seeing best rates at around 4.29%…   WHY?  Pure profit taking by the Banks…

But don’t fret…this uncertainty means there is less chance for rates to increase and less chance they will increase significantly…. And for those in a Variable rate, rates of 3.80% and 4.29% are still too high….  Variable rate mortgage clients are enjoying 2.00% or better…   Enjoy the summer!