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Posted 5 Comments on $4k penalty on a $109k mortgage… $8k penalty on a $213k mortgage. Money saving tips

$4k penalty on a $109k mortgage… $8k penalty on a $213k mortgage.

This week I received a few more examples of the ridiculous penalty calculations that the BIG SIX Banks have been using…  If these penalties don’t scare you, then continue to deal with the BIG SIX.

One client has a mortgage with Scotiabank….$109k balance with a 3.60% interest rate and 3 yrs remaining… her penalty to get out is $4,000…!   That’s 10 months worth of interest.

Another client has a mortgage with TD Bank….  $213k balance with a 5.35% interest rate and 1 yr remaining… his penalty is over $8,000…..!  That’s equal to almost 9 months worth of interest.

If these penalties scare you then keep reading…there is a solution…

There are better alternatives to the BIG SIX Banks….  There are several smaller Lenders, good reputable firms, that don’t use the same formula to calculate your penalty….. and you don’t have to give up anything on rate, terms or prepayment privileges…

Had the Scotiabank client gone with one of my other Lenders, then her penalty would have been around $1340…   and the TD Bank client’s penalty would have been around $5140.

Get an unbiased opinion…. Speak with a neutral party…. Call your Mortgage Broker before making any decisions….  If you don’t have a broker, call me…I’ll be glad to help.

Posted Interest rates

Mortgage wars end?…only for the BIG SIX Banks…

March 29th, 2012 is going to be remembered as the day when the BIG SIX Banks ended their Mortgage War.   Well, at least for now.  Rates are up around 0.50% at Retail Branches of the BIG SIX  Banks.  (don’t worry, Mortgage Broker rates haven’t gone up that much and are lower than any of the so-called discounted or special rates advertised by the BIG SIX Banks.)

In what was an unprecedented, public fight for your mortgage, the BIG SIX Banks pulled down their pants and showed how low they can really go with their rates.   We saw BMO come out with their 2.99% NO FRILLS mortgage… ( a product we wouldn’t recommend to anyone due to it’s restrictions, limitations and penalty calculations).    Unfortunately, too many borrowers don’t look beyond the rate and have signed on for this product..   They will have to deal with the consequences in the years to come.

RBC fired back with a pretty good rate of 2.99% for 4 years… It didn’t have the restrictions or limitations but it still had that unfair penalty calculation.   RBC also took some public shots at the BMO product, through the media and their own website.   It was great to see some real competition take place among our BIG BANKS.    There is always a winner in this war.   You the borrower.

TD, Scotiabank, National Bank and CIBC all followed with a similar 4 year fixed rate at 2.99%.   But they still had that same penalty calculation formula I absolutely don’t like.

“Canadian lenders appear to be extremely slow to pass on changes in the Bank Rate to their customers.”  Anyone remember that quote?  That’s a direct quote from the Bank of Canada review entitled ‘Competition in the Canadian Mortgage Market’.

Here’s another one from the same report “borrowers who use a mortgage broker pay less, on average, than borrowers who negotiate with lenders directly”.

The good news about all this rate war stuff is that we saw even better mortgage products being offered through the Mortgage Broker channel.  Remember these quotes the next time you are shopping for a mortgage.

Posted 2 Comments on Banks are at it again… calling mortgage clients before maturity.. 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 1 Comment on BMO 2.99% No Frills mortgage needs another look. Interest rates

BMO 2.99% No Frills mortgage needs another look.

It’s January 25, 2012… that’s the original deadline date issued by BMO for their NO FRILLs 2.99% 5 year fixed rate mortgage.   Since announcing that 2.99% rate, BMO has reportedly been flooded with calls and applications.  And rightfully so.  That’s the lowest advertised 5 yr fixed rate in history.  (we need to say thank you to BMO… they woke up the competition and the competition answered.. we have seen competitive offers from the non-bank lenders… no restrictions or limitations…   This is great news for the consumer.)

This product has also drawn some criticism…There was an interesting articles asking if this product was too good to be true….  click here to see what The Toronto Star thinks.

Let’s look at the restrictions and limitations more closely…    If you are 100% certain about the next 5 years in your life, your job, your health, your family’s health, then this may be a great product for you…. But if you look at the stats, we, as Canadians, on average refinance or change mortgages every 3 years…  With that in mind, the product can be very costly for the unsuspecting borrower….read on and I’ll explain…

I’m not too concerned with the limited prepayment privileges.   The biggest potential risk to borrowers is the inability to refinance outside BMO should they experience some financial problems in the next 5 years.   If a borrower runs into financial problems and needs to take the mortgage elsewhere, because they won’t qualify for a BMO refinance,  they can’t do it.  The mortgage can only be paid out if the house is sold…

An an even bigger problem is the BIG SIX penalty calculation…. let’s say you can somehow refinance in 2 or 3 years with BMO, or you do sell the house and are not porting the mortgage… well, now you must deal with a penalty calculation that makes you pay for the original discount you received at the time of the original mortgage….   And LOOK OUT…This is where we have seen penalties of 6, 9, 12, 14 and even 16 months worth of interest being charged by the Banks to get out of a mortgage..(click here to see how banks calculate their penalties).  (hey, Federal Government, didn’t you promise to standardize mortgage penalty calculation 2 years ago??… when is that going to happen?))

And if you need more money added to your mortgage, what assurance will you have that BMO or any other BIG SIX bank, will give you a good rate or a discount on those new monies?   None… they certainly won’t have to, given your penalty to exit would be higher than other non-bank lenders…    This subject is not talked about very much by the media or by the banks… We will be commenting on this further in future posts….  (hey, how about CIBC and that class action lawsuit over mortgage penalty charges??… I’ll be making some comments on this soon).

Here’s some advice… seek out Lenders that have better penalty calculations... they are out there… they just aren’t as obvious as the Big Six Banks… talk to a mortgage broker and get some comparisons…  you might be surprised to know that competitive rates exist without having to give up your future options…

Posted 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.