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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.

Posted 2 Comments on BMO announces lower rate IF you take a shorter amortization! Interest rates

BMO announces lower rate IF you take a shorter amortization!

Have you heard the big news?   BMO lowers rate their best discounted 5 year fixed rate to 3.49%  to encourage Canadians to take an amortization 25 years or less.  They claim they want to encourage Canadians to pay their debt off faster…..  Sounds nice and in keeping with the Christmas spirit, doesn’t it?

Ok, before we get all warm-hearted and teary eyed, let’s take a closer look at what this really is.    First, this IS NOT the best discounted fixed rate in the market.   A good Mortgage Broker can get you 3.39% out there with no restrictions on amortization (even lower with some No Frills mortgage products).   We all want to pay our mortgage off faster, but choosing a shorter amortization only limits your future options…   My recommendation to almost all my clients is to take the longest amortization possible……

It’s not that I want you to have a mortgage forever, it’s about having options….  I always take a ‘what if’ approach….   Follow me for a minute…

Let’s say you had a $300,000 mortgage and you took this BMO 3.49% rate,  your payments on a 25 year amortization with be $1496.23/mth.   But if you took a truly discounted mortgage at 3.39% with a 35 year amortization, your minimum payment would be $1216.75/mth.   You could always INCREASE your payment to accelerate your amortization to 25 years or shorter.

Now, let’s say you lost your job, had some unexpected expense come up, or a financial emergency or just needed to lower your payments.   If you chose 25 year amort, then you are stuck with that payment.. if you chose 35 year, then you can always go back to that lower payment…    That’s the flexibility that we want.  It’s not about taking longer to pay, it’s about having the option to reduce your payment if needed.

LET’S NOT FORGET THE BANKS HISTORY WHEN IT COMES TO RATES

In keeping with the Christmas theme, Mr. Potter would be approve the Banks latest strategy.   In case you didn’t know, the 5 year Canada Bond is in record low territory…. hovering at around  1.31%… the 5 year fixed rates are priced from the bonds… the spread is normally around 1.25% to 1.40%… and yet today, the spread is 2.18%…. WOW!  and why?  TO MAXIMIZE PROFITS.   This is has nothing to do with wanting to helps Canadians. 5 year fixed rates should be under 3.00% but they aren’t, because the Banks want to maximize profits.

VARIABLE RATE PRICING IS AT 1990’s LEVEL

Variable rate pricing went from Prime less 0.90%, 3 years ago, to Prime plus 1.00% in during the October 2008 US mortgage crisis, to Prime less 0.75% just six months ago…. to Prime plus 0.20% today.    That’s right, Prime PLUS 0.20%.  Haven’t seen this pricing since the ’90s.  There are no fundamental reasons for this… it’s simply profit taking by the banks.. they are forcing us to take a 5 year fixed rate.   Sure, today’s 5 year fixed rates are at historical lows, so there is very little attention being given… but when rates go up, and they will in a few years, we will start to ask for more competitive products and better options other than a 5 year fixed rate….  (Can you see Mr. Potter’s grin getting larger?).

My advice… think about who your banker works for….and who your Mortgage Broker works for….

Posted 1 Comment on Why use a Mortgage Broker Case study

Why use a Mortgage Broker

There was an article in the Globe and Mail recently entitled ‘Why use a mortgage broker?’.    No, this image wasn’t part of the article but it’s an image that many  will conjure up when we hear the word ‘Banker’.

The article talks about why Financial Planners and other professionals will recommend, and work with,  a Mortgage Broker vs. having the client go directly to the Bank.  Here’s a few quotes from the article that make it easy to understand.

  • “It’s the most efficient way to get the best-priced and best-structured mortgage”.
  • “So rather than shopping at multiple financial institutions and negotiating with each financial institution and arm wrestling them to give you the best deal, it’s one phone call and they do the rest for you.”

And here’s some facts from a Bank of Canada review published in February 2011 entitled ‘Competition in the Canadian Mortgage Market’:

  •  This one is no surprise…. “The results also indicate that borrowers who use a mortgage broker pay less, on average, than borrowers who negotiate with lenders directly”. 
  • Here’s one that may surprise many of you…  “The results also indicate that higher income households pay higher rates, on average, than lower-income households.”
  • And here’s another one…  “Banks also offer larger discounts to new clients than to existing clients.”

I’ll add a few more of my own….   A broker shops the market…doesn’t work for any one lender but instead works for the borrower….. and provides the borrower with clear, neutral and unbiased advice.    Brokers save borrowers money and will continue to shop for better rates at renewal and throughout the life of the mortgage…

Posted 1 Comment on RBC apologizes to brokers… sort of… Did they tell you they are brokers too? Mortgage News

RBC apologizes to brokers… sort of… Did they tell you they are brokers too?

Last week, an RBC Mortgage Specialist decided she needed to degrade Mortgage Brokers in order to get more business… Her marketing piece caught the attention of Mortgage Broker around the country…   Her attempts to discredit Brokers backfired… BIG TIME!  The broker community was in an uproar and an apology had to be issued by RBC.

This apology was issued by RBC’s Public Affairs Advisor…. Let’s give some credit to RBC for issuing a public apology  ….. (pausing for 2 seconds….)  Ok, that’s about all the credit I want to give….  It falls short of hitting mark.  The wording is weak and I do not find the content to be sincere.   Why hasn’t that RBC Mortgage Rep apologized?  (I won’t call her a ‘Mortgage Specialist’ anymore as it’s not an accurate description of her duties)  Where is she?  Did they fire her?

RBC has been paying their Mortgage reps a commission for years.. and it’s based on the mortgage volume, the term and the RATE.. yes, RATE… if the Mortgage Rep sells you a higher rate, they get paid more…

HOW TO BE A MORTGAGE BROKER WITHOUT BEING A BROKER

But here’s another little known secret.. Back in the early 2000’s, RBC created the Alternative Mortgage Solutions (AMS).  This department would take declined mortgage applications and broker them to secondary Lenders like Home Trust, Equitable Trust and other institutional Lenders or Private Lenders… The intention was to retain as much client business as possible while also generating a new source of revenue.

The AMS is paid a referral fee from the secondary Lending institution and or charges a fee.  That’s right.. they charge a fee!!    And you guessed it, the Mortgage Rep is compensated at the end of the day based on the fees earned on the mortgage…. Effectively, RBC is brokering mortgages without being a broker….  Let’s give credit where it’s due.. they have become a mortgage brokerage without having to follow the strict regulations and guidelines of becoming a broker.

Can you say ” double standard”?

If you are an ‘AAA’ borrower, RBC can only offer you their own products, and if you don’t qualify they will broker out your application to their list of secondary Lenders…   So who has the better product selection? … A mortgage broker that deals with dozens of ‘AAA’ Lenders and ‘B’ Lenders and ‘C’ Lenders, or with one Bank that can only offer you a limited product selection?

Maybe some good has come out of this mess after all…. Disclosure and knowledge.