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Should they buy a bigger house?

Here’s a case study from the Financial Post about a young couple with a young child looking to move out of their condo and into a house with a yard.  They have a good combined income of $118k per year.  Debt load is low.  They own a condo and have a small mortgage.

In the end, they will need a $300k mortgage. Can they afford to buy a larger home today?   The experts say yes… and I agree based on the data provided.

One more thing that isn’t mentioned but I wanted to point out… affordability.. given interest rates are at record lows, their mortgage payments would be lower than ever… Cashflow is always important and must be considered.

Your best interest is my only interest.

As always, I welcome your comments, calls and questions.

Steve Garganis 416 224 0114 steve@mortgagenow.ca

58% of Canadians want to pay down their debts

The latest Canadian Consumer Outlook index showed that 58% of Canadians are worried about their debt.  This is a great time to get your debts reviewed…. a financial check-up…

With December credit cards bills coming in and your property tax bills coming up in the next few months, now is the time for a review… and guess what.. you might be pleasantly surprised to discover that there is some savings potential in your mortgage.  Debt Consolidation is not a bad word.

Call your mortgage broker for a review today.

How to reduce mortgage penalties

Interest rates are at records lows.. it’s popular water-cooler talk… You’ve heard your co-workers or friends who are lucky enough to renew their mortgage into these emergency, once in a lifetime rates..

But how you do you take advantage?  If you break your fixed rate mortgage then you face an enormous prepayment penalty…we’ve seen reports of $10k, $15k and $20k in penalties….Wow!

Well, here’s a few tips…

-first, if you are in a 10 year fixed rate mortgage, and your are at least 5 years into the term, then the maximum penalty is 3 months interest  (this is a little known fact… Section 10 of the Interest Act of Canada).

-One more way to reduce the penalty is to utilize the annual prepayment privilege that’s within the mortgage.  Most mortgages have between 15% and 25% prepayment privileges which equates to a 15% to 25% reduction in the penalty….

-negotiate the penalty in combination with an extension on your current term..this requires some discussion with your current lender and you should seek the help of a mortgage broker…if the lender wants your business they may be able to offer some incentive to stay.

Another situation where the lender cannot charge any penalty is if the mortgage goes into default and the lender issues a Notice of Sale (legal action to collect the mortgage)…. of course, I”m not suggesting that anyone default on their mortgage.

Our best piece of advice is this… don’t take the lender’s penalty calculation at face value… penalty calculations have changed and most bankers couldn’t tell you how the penalty is calculated if you asked them.  Always review the penalty with an unbiased party… speak with your mortgage broker or lawyer…enjoy the weekend!

Mortgage rates went down?

What’s this? RBC,  BMO and National Bank have lowered their posted fixed rates?  Yes, it’s true… the 5 year fixed rate is now 5.39%.  Bond rates have come down over the past few weeks after some concerns about the speed of the recovery.

These are posted branch rates…some banks advertise lower special rates of around 4.09%…. of course, there are even lower wholesale or discounted rates through the mortgage broker market…. speak to your mortgage broker to get current rates.

Variable rates aren’t expected to move anytime soon…  in fact, here’s one forecast for interest rates to remain flat for the entire year…. and I think this is very possible..  Happy Savings!!!

Canadian mortgage lessons 101

Here’s a good article from the Financial Times about Mortgage Lending in Canada…..and the lessons the U.S. can learn about prudent mortgage lending…  The article points to 3 important differences between the 2 countries.

Here’s another article that points to a great study done recently by the Canadian Association of Accredited Mortgage Professionals (CAAMP).   The study showed that Canadians more cautious than our American friends when it comes to taking on debt.  And they chose fixed rates over variable rates in 86% of the cases…

It’s good to see that Canadians are perceived as cautious people, however, we shouldn’t assume that variable rate mortgages are a riskier proposition… there was a great study done by Professor Moshe Milevsky, in 2001, that compared fixed rates and variable rate mortgage….. in that study, Professor Milevsky concluded that variable rate mortgage borrowers were better off being in a variable rate mortgage….

The study was updated in 2008 and the findings were even better… the variable rate mortgage was a cheaper option than fixed rate in over 80% of the time.   Of course, we each have different needs and risk tolerances… always seek professional advice.. speak with your mortgage broker.

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