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Beware of Mortgage Penalties

Beware of Mortgage Penalties

Beware of Mortgage Penalties

I originally posted a breakdown of how mortgage penalties are calculated by different lenders on January 4, 2011.

A recent article outlining how TD Bank charged a $30,000 mortgage penalty to a woman forced to sell her home due to the Covid-19 pandemic shows how this remains relevant today.

WE TOOK THE MYSTERY OUT OF HOW PENALTIES ARE CALCULATED

We decided this needed a more detailed explanation… but a strange thing happened when we started to answer these questions. We made a startling discovery. We caution you – the results could get your blood boiling if you’ve had to pay a penalty!

We found that the banks have shrunk or reduced the spreads between their Posted and Discounted rates on shorter-term mortgages over the past few years… and this has had a huge impact on Interest Rate Differential (IRD) penalty calculations. Continue reading “Beware of Mortgage Penalties”

Mortgage Penalties: You could pay thousands to break your mortgage depending on your lender!

Young family discussing family finances

I originally posted a breakdown of how mortgage penalties are calculated by different lenders on January 4, 2011.

This remains relevant today and, since this has been my most popular article to date, it’s worth a repost!

WE TOOK THE MYSTERY OUT OF HOW PENALTIES ARE CALCULATED

We decided this needed a more detailed explanation… but a strange thing happened when we started to answer these questions. We made a startling discovery. We caution you – the results could get your blood boiling if you’ve had to pay a penalty!

We found that the banks have shrunk or reduced the spreads between their Posted and Discounted rates on shorter-term mortgages over the past few years… and this has had a huge impact on Interest Rate Differential (IRD) penalty calculations. Continue reading “Mortgage Penalties: You could pay thousands to break your mortgage depending on your lender!”

Should you look at 10 year fixed rate mortgages?

Fixed rate mortgageToday, right now, we are experiencing all-time record low fixed mortgage rates.  Great news if you need a mortgage.  And some of you may be thinking of locking into a longer term mortgage.   Let’s take a look at that option.

Going longer could be an option for some.  The Best 5 yr fixed  is around 2.59%.. some special deals exist for larger mortgages or faster closings… but let’s use 2.59% for now.   Does it make sense to pay 0.30% more for the first 3 years of your mortgage, just for the benefit of knowing what your rate will be for the last 2 years?

(a warning… you’ll see lower rates advertised.. but be careful.  There are so many NO FRILLS products or products that carry inflated penalty calculations, limited repayment options and other hidden fees.. stay away from those)

Continue reading “Should you look at 10 year fixed rate mortgages?”

I have 2.39% for 5 yrs fixed available…but I wont sell it.

percentageIt’s true.  I have access to this great rate.  It’s around 0.20% lower than the best rate today.   And you won’t see me recommending it to my clients.

That’s right, I’m recommending they don’t take it.

Why?  It’s simple.  No, I don’t want my clients paying more on their mortgage. I want to see them PAY LESS to own their homes.  This is one of those products that carries an inflated prepayment penalty. Should the homeowner need to get out of their mortgage early, they will be hammered with a ridiculous exit cost.   We’re talking 10, 12, even 16 months worth of interest penalty.

Statistics clearly show we are paying or changing our mortgages every 3 years.   So, chances are, you will have to pay this penalty.   On a $300,000 mortgage, your penalty could be $9,000 or more.  Compared with $1,943.  That’s a $7,000 difference.

That 0.20% savings on the rate equals $600 per year..   You still think that 2.39% rate is great??

The next time you hear or see something that sounds too good to be true, it probably is.  If you aren’t sure, call me or an experienced Mortgage Broker for unbiased advice.

Your best interest is my only interest.   I reply to all questions and I welcome your comments.  Like this article?  Share with a friend.

Steve Garganis 416 224 0114 steve@mortgagenow.ca

Variable rate is out, Fixed rates are in…. But, which term…?

Variable rate mortgageFor more than a decade, I’ve been recommending Variable rate mortgages, as the product of choice. My clients have saved $thousands.  It’s been a great 11 year run..   But now, the strategy has changed slightly.   Read on, to see my newest recommendations..

QUICK VARIABLE RATE HISTORY.

First, you need to understand the history..  Variable rate had lots of pluses.   It had a lower rate of interest, the penalty can never go over 3 months interest, and you have the option to lock into a Fixed rate at any time.

Being in a Variable meant paying lower rates.  In fact, the difference, compared with Fixed rates, ranged between 1.00% and 3.00%.  This translated to several $$thousand in less interest each year. Continue reading “Variable rate is out, Fixed rates are in…. But, which term…?”

Have Fixed mortgage rates hit the bottom?

record low ratesEarlier this year, Fixed rates hit new all-time lows.  This must sounds like a broken record, or for those in the modern error, sounds like a glitch or a skip (somehow, ‘broken record’ sounds better).

5 year fixed rates hit 2.59%.  This is the lowest we have ever seen. (before you start emailing me that you’ve seen lower rates, yes, I know.. I see them too and have access to them.. but those products are full of restrictions, limitations and inflated prepayment penalty calculations… for our purposes, I’m only discussing quality mortgage products with no gimmicks or strings attached).

Now, looking at the 5 yr govt of Cda bond yields (this is where fixed rates are closely priced from), we have seen this drop down to as low as 0.70%… it’s been holding steady in the 0.80% range since July.    Normally, the 5 fixed rate is priced 1.10% to 1.50% above the 5 yr bond yield..  but the spread has been at or over 1.79% for quite a while.   So, why haven’t the fixed rates gone down further? Continue reading “Have Fixed mortgage rates hit the bottom?”

Bond Yields are up… will Fixed Mortgage rates follow?

graph trend upFixed mortgage rates are tied closely to the Govt of Cda bond yields.   And bond yields are up…  Since mid April, the 5 yr Gov of Cda bond yield has gone from 0.75% to 1.07%.   That’s a 0.32% jump.   Normally, we would see fixed mortgage rates go up.

So far, no increase.  But that’s probably more to do with a competitive Spring housing market.   This is when most house sales and mortgage transactions take place.   The Banks need to maintain certain market share levels in order to keep shareholders happy.    They are willing to sacrifice a little profit margin (and I do mean little… they seem to make up for this with higher service fees as was recently reported, but let’s not get into that now…).

If the bond yields continue to increase, we will see fixed mortgage rates rise.  That’s an automatic.   The real question is how long will the bond yields continue their climb?   It will be interesting to watch the next few months.   We can expect to see some rate increases as the Spring market ends and Banks look to increase their profit…. A pattern that repeats itself year after year..   but here’s what you can do to protect yourself… Continue reading “Bond Yields are up… will Fixed Mortgage rates follow?”

Mortgage Rates hit Record lows again!

record low rates This isn’t 2010, 11, 12, 13 or even 2014…  It’s 2015, and once again, we are making this announcement.  5 year Fixed Mortgage rates are an new all-time lows!  Today, you can get a 5 yr fixed rate for 2.79%, even 2.74%, with some conditions.  (and by the way, yes, I am seeing slightly lower rates advertised, and I have access to these, but I won’t recommend these to my clients as they contain inferior terms, limited privileges, product restrictions and inflated prepayment penalty calculations… I won’t promote these.)

Just 2 years ago, the Federal Minister of Finance’s office picked up the phone, and called a Bank because they were advertising a 5 yr fixed rate at 2.99%.    The federal govt was concerned that the record low rate, at the time, would promote more consumer spending and make the already hot real estate market, even hotter. Continue reading “Mortgage Rates hit Record lows again!”

Long term is almost always more expensive.

long term contractsEver 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 down about 4 years ago, thousand of borrowers in fixed rate mortgages wanted to get out of their higher rates and start benefiting from the record low interest rates.

But borrowers were shocked to hear of unbelievably high early prepayment penalties…   Penalties of $15,000, $20,000, $30,000.    One recent situation had CIBC charging a $33,000 penalty on a $500,000 mortgage.  I’ve seen dozens and dozens of situations like this.   Almost all of these high penalties were from one of the BIG SIX BANKS…    Continue reading “Long term is almost always more expensive.”

5 year Fixed rates are going up.. time to consider Variable rate.

graph trend upThe 5 yr Gov of Cda bond yields hit a 2 yr high on Friday reaching just over 2.00%.  That’s up around 0.35% since mid July and up around 0.75% since May.   The increase started in May when the U.S. Federal Bank Chair, Ben Bernanke, made some comments about possible easing of the Fed’s stimulus program beginning as early as September.

Fixed mortgage rates are closely tied to the Gov of Cda bond yield.   When the yield goes up, mortgage rates are sure to follow.  With 5 yr fixed rates expected to rise, it makes for an interesting mortgage market.  Which product and term is best to choose today?   The answer is different for everyone.   We all have different needs, goals and risk tolerances.   Continue reading “5 year Fixed rates are going up.. time to consider Variable rate.”

Looking back 5 years.. which mortgage product did your Banker recommend in 2008?

greedy bankerRemember 2008?  It was almost 5 years ago that the U.S. sub-prime mortgage scandal erupted.   October 2008, to be exact.  That’s almost 5 years ago…  And with October and November 2013 renewals being less than 120 days away, we can now lock in some rates for those upcoming renewals.  So I thought this would be a great time to see what sort of advice and recommendations the Banks were giving to their mortgage customers.

THE BANK’S ADVICE

The funny thing is, Banks have never changed their advice or strategy.  ‘Take a 5 year fixed rate’.  That’s all the Banks seem to want to promote.  And with good reason… it’s the most profitable product FOR THE BANKS.   But historically, it’s NOT the best product to take.   There is no historical data that I am aware of that shows taking a 5 year fixed is the best strategy.  But I’ll get into that in more detail later. Continue reading “Looking back 5 years.. which mortgage product did your Banker recommend in 2008?”

When the U.S. sneezes, Canada gets a cold… I’m getting the sniffles…mortgage rates are headed up.

US sneezes Canada catches coldYesterday, the U.S. Fed Chairman, Ben Bernanke, announced he ‘could’ start to ease their stimulation of the economy later this year.   That small announcement has had a huge impact on the global stock markets and bond yields.   Stock Markets are down around 2.00% around the world as of 2.30pm today.

The U.S. has been buying around $85billion worth of bonds every month in an attempt to keep interest rates low.  And with that simple announcement yesterday, the world’s markets have reacted.   Bond yields have started to climb…

Our own 5 yr Govt of Cda bond yield is up to 1.75%.  That’s up around 10bps from yesterday, and up 60bps from the beginning of May.  In fact, we haven’t seen these levels since October 2011 and again in March 2012.   We already received warnings from our Lenders that wholesale mortgage rates are likely to go up.   Remember, bond yields affect Fixed mortgage rates.. but they will have an indirect affect on Variable rates, too. Continue reading “When the U.S. sneezes, Canada gets a cold… I’m getting the sniffles…mortgage rates are headed up.”

Banks raise mortgage rates

RBC-BankRBC is raising their rates… As expected, fixed mortgage rates have gone up.  RBC is the first of the BIG SIX to raise their rates.  RBC’s 4 yr rate special will go to 3.09% from 2.99% and their 5 yr rate special will go to 3.29% from 2.99%.

Of course, these are NOT the best rates in the wholesale mortgage market, nor are they the best fixed rate products.  But RBC is the largest mortgage lender in Canada, so we must take note.   This rate increase is no surprise.  As reported on May 13th and May 28th, bond yields had increased over 30bps in May.  A rate increase was imminent.

Wholesale mortgage rates started to go up a few weeks ago.  And as of June 10th, all Lenders will have increased their rates by around 10bps.

Remember, 5 yr fixed rates are still below 3.00%.  I don’t think there is any reason to panic.  We can expect the other BIG SIX banks to follow with their own rate increases.  Fixed rates are closely tied to the Canadian govt bond yields.   And with the stock market in the U.S. hitting unexpected record highs, and the our own Toronto Stock market making significant gains, it was only a matter of time before rates moved.  Economists still believe rates won’t go up quickly.  It will take time for rates to go up significantly.

Your best interest is my only interest.

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

Steve Garganis 416 224 0114 steve@mortgagenow.ca

5 yr Bond yields up significantly.. expect fixed rates to go up..!

big news 5 yr Govt of Canada bond yields are up over 30bps in May.   We should expect fixed mortgage rates to increase if they hold at this level.  If you are thinking of buying, refinancing or if your mortgage is coming up for renewal, I suggest you contact your mortgage broker and get some rates held.  This could be the beginning of the long-awaited mortgage rate hikes.

There is another chart you should look at if you want to see where Fixed mortgage rates are headed over the next 6 months.   The 2 year Govt of Canada bond yields are a good 6 month indicator of where rates are going…. and this chart shows the 2 year bond yields jumped over 25bps in May.

We’ll report any changes as they get announced.

Your best interest is my only interest.

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

Steve Garganis 416 224 0114 steve@mortgagenow.ca

 

BMO caves in to Federal govt pressure and raises mortgage rate.

Bmo wide It was bound to happen.  BMO announced their so-called ‘low-rate’ (NO FRILLS) 5 yr fixed rate mortgage would be increasing to 3.09% from 2.99%.   This comes shortly after the Federal Minister of Finance, Jim Flaherty, said that he called BMO and asked them to pull their 2.99% ads.   Last week, the Minister’s office asked Manulife Bank to withdraw their recent ad promoting a similar low rate.  Flaherty i don't know

While, 2.99% isn’t the best rate today, it was the lowest advertised rate from the BIG SIX BANKs.    It was somewhat symbolic.    Of course, Mortgage Brokers have access to even lower rates through the wholesale mortgage market, but these lenders don’t have the deep advertising pockets that BMO or the other BIG SIX BANKs have.   So the publicity surrounding this rate and the increase will get much more air-time.   You can actually find full-featured 5 year mortgages at 2.89% today, through a good mortgage broker (a word of warning.. I’ve seen lower rates offered, and I have access to these products… but these products are not full-featured and come with some limitations that make them less attractive… just be careful when choosing your mortgage and your mortgage broker)Continue reading “BMO caves in to Federal govt pressure and raises mortgage rate.”

Fed govt, BIG SIX BANK’s pushed us into Fixed rates!…part 2 of 2.

Flaherty and Harper

IT’S NO COINCIDENCE THAT THE BIG SIX BANKS CONTINUE TO REPORT RECORD PROFITS.

The Bankers were onto something.  Now if they could only keep Variable rate pricing higher or make itMark Carney tougher to get a Variable rate mortgage…. In 2010, the Fed govt would help increase those Bank profits…All new Variable rate mortgage borrowers would need to qualify at the Bank posted 5 year fixed rate.   The Feds said they had to tighten Mortgage Lending Rules… They had to make it tougher to qualify for a mortgage with fluctuating interest rates to ensure we would not have a ‘housing bubble’ and a ‘mortgage default problem’…  This pushed out 5% more borrowers from qualifying for, and benefiting from Variable rates.  And by the way, at that time, Variable rates ranged anywhere from 1.50% to 1.95% compared with the best discounted 5 yr fixed rate of 3.89%…..!  Anyone seeing a pattern here?   (Some stats to remember…Mortgage defaults have been under 0.50% for over 15 years are currently at around 0.33%… this is at or near record lows!!… so where’s the problem??)

This is also when the BIG SIX BANK’S inflated, and unfair mortgage penalty calculation came to light.   The lower rates became, the higher mortgage penalties climbed…  $10,000, $20,000, $30,000 in mortgage prepayment penalty charges were popping up in mortgage blogs and news sites.   Even the media had to jump in and cover some of this…  And when Canadians needed a break in their mortgage payments, they were left out in the cold.   These inflated penalties made it impossible to get out of their higher Fixed rate mortgages without paying an enormous penalty. Continue reading “Fed govt, BIG SIX BANK’s pushed us into Fixed rates!…part 2 of 2.”

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