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Posted Mortgage News

You heard it here first!… Rule of thumb for choosing Variable over Fixed.

First For the past few years, the Bank of Canada has warned us about the imminent interest rate hikes.   Reminds me of the boy that cried wolf.    “Interest rates are going up…  soon!…  real soon…. really, really soon!!”   But last week, the new Bank of Canada Governor, Stephen Poloz, surprised many experts when he said rates would remain low for quite a while.

This announcement prompted many advisors to jump on the Variable Rate bandwagon and start recommending Variable rate over Fixed rate.   I agree…  Variable rate is the obvious choice for most of us today.   But I also noticed a familiar rule of thumb being quoted in the media.   So I wanted to set the record straight. Continue reading “You heard it here first!… Rule of thumb for choosing Variable over Fixed.”

Posted Case study

Giving up the Bank Kool-aid.

Big six banksRecently, I’ve had several new clients contact me about getting out of their higher rate BANK mortgage… No surprise here… with interest rates reaching new all-time lows, it only makes sense to look into this further…

But I’ve noticed a very familiar pattern developing….See if this sounds familiar:

1-First, you hear about these record low fixed rates… maybe online, from a friend, or from one of my current clients…

2- You contact your Bank to see what they can do…

3-Your Banker gives you 2 options… 1- pay an inflated prepayment penalty (BIG SIX BANKS make you pay for any rate discount) and get into a new 5 yr fixed rate of 3.29% (this is the best advertised rate today by a BIG SIX BANK).  OR 2- they’ll blend the penalty into a new mortgage but your rate will be higher… (this never works to your advantage.. there is NO assurance the Bank will offer you the absolute best discounted rate when calculating your new rate.. it’s been a favorite tactic of the Banks for decades…don’t drink this kool-aid… it will cost you $$thousands). 

Most of us will stop right there and go no further…We’ve consumed so much Bank kool-aid that it’s turned us into a flock of sheep… But if you’ve started to become immune to the Bank tactics and want to explore further, then read on…

4- You call a Mortgage Broker, maybe me… you discover that today’s best 5 yr fixed rate is under 3.00%…   (That’s today’s best 5 year wholesale mortgage rate with NO ADDITIONAL RESTRICTIONS OR LIMITATIONS…It’s important to understand this fine point.)  And you discover it’s now worth paying the penalty to get into this new mortgage.

5- Everything is going great… but come payout time, your Banker contacts you… They make a last-minute plea to save your business… Somehow, they miraculously offer to match the Broker rate…

Every heard of this before?  What would you do?

Most of my clients, that go through this process, quickly discover who has their best interests at heart.  They realize it’s better to deal with ‘rate-setters’ vs ‘rate-matchers’.    But oddly enough, I have seen some clients stick with their Bank… Like other addicts, they can’t seem to explain it..   Even after going through the entire mortgage review and approval process (or what I refer to as the  Bank detox process).   When asked why they stayed, they couldn’t give any logical reason.  They just keep going back to the Bank for another fix.

10 years ago, this happened more often.  But times have changed.  Kool-aid is out.  Protein shakes and Red Bull are in.  Today’s consumer is more educated… information flows faster.  Even the Bank of Canada said “borrowers who use a mortgage broker pay less, on average, than borrowers who negotiate with lenders directly”. (February 2011 entitled ‘Competition in the Canadian Mortgage Market’’).

As always, if you have any questions or comments or are just looking for a better mortgage, please free to contact me anytime.

Steve Garganis 416 224 0114 steve@mortgagenow.ca

Posted Mortgage News

Mortgage Broker vs. Mortgage Specialist

Getting calls on this topic once again so I thought I’d clear the air on this very important topic.   So what’s difference?   They both arrange mortgages…. and both can offer advice and product select, right?  WRONG!!!.   The differences are a plenty….I’ll cover the more relevant ones here.

I’ll start with the a quote from a recent Bank of Canada study that tells the story very clearly: “… borrowers who use a mortgage broker pay less, on average, than borrowers who negotiate with lenders directly.”   click here for the entire study.

I can probably stop writing after that statement but I wanted to point out a few more things:

  • A Specialist works for one Bank or a single Lender.    They are employees of the Bank or Lender.   They can only offer you one brand of products.
  • A Broker is independent.  They are not employees of any Bank or Lender.  They can offer products from several different Lenders.
  • More Lenders competing for your business means betters terms and rates.
  • A Specialist isn’t required to be licensed to arrange mortgages.   There are no standards for educational requirements (although most Lenders do provide some in-house training).   
  • A Broker must successfully complete a Provincially regulated Broker course and continue to maintain their good status to keep that license.
  • A Broker can provide unbiased advice.  They work for you, the borrower.

Look, you wouldn’t ask Burger King who makes the best burgers and expect them to say Harvey’s?   So why would you ask a Bank Mortgage Specialist to tell you which Lender has the best mortgage product for you?   Enough said.

Banks and Lenders are great suppliers of money, but they can’t give unbiased advice.  They can only offer you their products…and they will try to charge the highest rate possible…  but that’s okay.  They are a business.  And they will always try to maximize the profit for their employer, the Bank.

If you would like to compare mortgage products and rates, call your Mortgage Broker.

Don’t have one?, then call me.  I’d be happy to help.

Steve Garganis

416 224 0114

Posted Money saving tips

Does this sound like your Bank?

THE PHONE CALL RIGHT AFTER THE OCTOBER 2008 U.S. SUB-PRIME MORTGAGE CRISIS

It’s November 2008.  News of the U.S. Subprime mortgage crisis has just broken out.   Panic sets in around the world.  Stock Markets collapse.  Govt’s are scrambling to avoid an economic recession…. or possible depression.

Your Banker calls with some advice about how this will affect your mortgage. You’re concerned and don’t understand how these world events will affect you…. The Banker recommends you get out of your Variable Rate mortgage and into a Fixed Rate mortgage…. or they recommend an early renewal of your Fixed Rate and lock into a new 5 year term…

Back then, the best discounted Fixed rates were hovering at 5.95%.  You listen to the Banker’s advice… after all, they are supposed to look out for your best interests, right?

WRONG!  Time for a reality check…Your Banker’s advice was dead wrong…. when economic times are tough, interest rates don’t usually go up, they go down….  Anyone that is in the Financial Services industry should know this….  and yet, that’s exactly how this scenario played out for thousands of Canadian homeowners.

Some say it’s easy to look back and be critical… I agree… except I go on the record with my personal opinions…. Had you been one of my client’s, you would have received my warning to watch out for ‘special bank offers’ and not to lock into any lock term product….. here’s a link to my October 13, 2008 Market Trends report.

BUT IT GETS WORSE…..

You want to take advantage of these record low rates that have been around for the past 12 months….. after all, if you had stayed in a Variable rate, (like 80% of my clients did), you would have enjoyed rates as low at 1.35% during that time..  Instead, your Banker hits you the infamous BIG SIX BANK penalty calculation and wants a penalty of $10,000.  OUCH!  How’s that for a double slap in the face?

Does this even sound possible?   Guess what… it’s not only possible but it happened….and it happened to thousands of Canadian borrowers….  In this example, the borrower has paid over $14,000 in extra interest charges, so far… We trusted the BIG BANKS because they are on every street corner.  They are on TV, in the media, and are so highly regarded in global banking communities…  But how does this help you, the individual person?  or the average family with a mortgage that’s trying to get ahead and benefit from these record low rates…

This isn’t about bank bashing… this is about Banker’s given too much respect and offering little or nothing in return…. Far too many borrowers have gone through  the scenarios described above… and it’s really unfortunate.   By the way, the mortgage balance for this client is only $118,000.… imagine what the loss would be if their mortgage balance was $200k or $300k or more!!

THE GOOD NEWS…..

Yes, there is some good news… You don’t have to make the same mistake…  you can benefit from other people’s experiences…  Get yourself a Mortgage Broker working for you…  An independent expert with an unbiased opinion.   If you were a client of mine, you would have received numerous warnings about these so-called ‘special offers’…and to avoid them…doing so would have saved you around $7,500 per year on a $300k mortgage…

It’s never too late…  Getting a great rate is important, but being in the right mortgage product is where you will truly save thousands… We’ve been helping Canadians do it successfully for years…….. Feel free to call me if you need help….

Steve Garganis

416 224 0114

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.