Long term contracts have a price… nothing has changed from 2010

Originally posted in 2010…. some things never change..  enjoy and beware.

Here’s a great article written by consumer advocate, Ellen Roseman.  She points to different industries where signing in for the long term protection can be very costly and expensive.

Ever 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 downward about 12 months ago, thousands of borrowers in fixed rate mortgages wanted to get out of their higher rates and start benefitting from the record low interest rates we have been seeing.

But they were shocked to hear of unbelievably high early prepayment penalties… the example Ellen uses is about a $46k penalty on a $530k mortgage with a major bank…  I’ve seen dozens and dozens of situations like this.

Beware of long term mortgages… with the average person moving or refinancing about every 3 years, choosing a 5 year fixed rate term is usually not the best option.  It could cost you more than you think… always seek professional advice from a reputable mortgage broker before selecting your mortgage.

(Just a personal note… It sure would have been nice to see some mortgage relief given to the average homeowner during the recession.   CMHC used to cap their penalties to 3 months interest but removed this cap in 2000…quietly, all financial institutions are free to charge a higher penalty…and they all do.. the longer the term, the greater the penalty…)

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

Another example of BIG SIX BANK inflated penalty calculation.. $13,634.00! Wow!

big-six-banks1 If you still think your local BANK is your best friend, think again.  Last week, one of my client’s discovered it would cost them $13,634 to exit their mortgage early.  Compared with only $2736 if they had chosen a BETTER mortgage Lender.

Here’s the details..  The clients had a $395,000 mortgage balance remaining.  Renewal date was October 2018.  Original term was 5 yrs and their rate was 2.77%.  The rate is competitive, but not any better than what I could have offered at that time.  There had to pay the mortgage out.

Penalty quote is $13,634.  That’s equal to over 14 months interest!!  Wow!  Incredible.   $13,634 compared to $2736.

I’ve shared many examples similar to this in the past.  It’s really simple.  DON’T FOCUS ON THE RATE!.   There is so much more to choosing a mortgage than just rate.  The average Canadian changes their mortgage ever 3 years.  And there are many reason this happens.. change of job, marital status, family issues, health issues, etc.

And if you are expecting your Banker to show you other products to compare, well, that’s just not gonna happen.  It’s like expecting Ford to send you to Toyota for a new car.  Not gonna happen. Do yourself a favour and speak with an unbiased, neutral professional. Speak with an experienced Mortgage Broker that deals with dozens of Lenders.  You’ll be glad you did.

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

Mortgage brief…Is it worth changing your mortgage today?

Fixed rate mortgageMortgage rates have never been lower.  Should you break your current mortgage to take advantage of the lower rates?   The answer is ‘yes’ and ‘no’.

YES….if the penalty to break your mortgage is less than the potential savings.  We are seeing many opportunities today where it PAYS to break your mortgage and get into today’s lower rates.

EXAMPLE for one client..  Existing mortgage is $275,000.  The existing rate is 2.99% with 3 years to go.  The penalty to exit is $3500.  The current 3 year rate is 2.24%.  Gross savings is $5602.  Net savings is $2102.

NO… if the penalty to break your mortgage is less than the potential savings.   EXAMPLE..  Penalty is $6500 and Gross savings is $5602.  Net loss is $898.

YES… if you think interest rates are going to be much higher in the next few years, you may still want to bite the bullet, pay the penalty and lock into a longer term fixed rate mortgage.   Everyone is different and has different needs, risk tolerances, plans.  This is a personal choice.

I’ve seen examples of both situations.  You could save money by breaking your mortgage.  The best advice is to speak with an experienced Mortgage Broker. Get an UNBIASED opinion.

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

 

Mortgage penalty calculations.. More important than the interest rate.

greedy banker

WHY ISN’T ANYONE TALKING ABOUT THIS?

You bought a home…  you need a mortgage.. what’s the first question you ask your Banker?  “what’s your best interest rate?”.  And the second question is usually, “what product should I choose?”.

Almost no one asks about Mortgage Penalties or how they are calculated.  After all, how often does anyone have to pay a penalty, right?   WRONG!   $10,000, $20,000, $30,000 and higher.  This is how much penalties can add up to… these are real numbers.   And guess what?  This isn’t some unknown bank or small lender.. These are coming from the BIG SIX BANKS.!!

Here’s a little known stat…. “Canadians change their mortgage every 3 years, on average”.  Ask anyone that’s owned a home before.  Chances are, they’ve had to deal with a mortgage penalty at some point..  and for most of them, it’s an embarrassing subject.   After all, who wants to admit to being the victim?  Check out the stats… Read the rest of this entry »

BIG SIX BANKs report obscene RECORD $34billion in profits for 2015…and still complaining!

greedy banker It’s that time of the year again..  The Banks have to report their annual profits.. And no surprise, the BIG SIX BANKS are at it again..

RBC reported a $10billion annual profit for 2015.  This is the first time a Canadian company reported an annual $10billion profit.  Yet, at the same time, they are crying the blues and warning of troubled times ahead. (uh, that’s the same speech they’ve made for the past 10 years.. here’s a 2013 headline).  GIVE ME A BREAK!!!  Canadians aren’t buying it anymore..

Check out the obscene profits pulled in by the rest of the BIG SIX BANKS..

Read the rest of this entry »

These 3 clients broke their mortgages, paid a penalty, and still saved between $9,000 and $26,000!

long term contractsFixed mortgage rates are at an all-time low.  If you have a mortgage that is over 3.09%, then you should consider breaking it, paying the penalty and getting into today’s lower rates.

That’s short answer… the full answer is a little more complex but, it’s really just simple math.   If the savings is greater than the cost to break, then the answer is obvious.  You should do it!   I’ll give you some real life examples of clients that could be savings huge $$s today if they paid their mortgage and the penalty and went into a new lower rate mortgage…. check out these success stories….
Read the rest of this entry »

Trump’s George Ross says Canada’s Housing market is undervalued….

George RossGeorge Ross is Donald Trump’s Executive VP.  He’s Trump’s senior advisor and has worked with Trump for 30 years.   You’ve probably seen him on TV on ‘The Apprentice’.   This week, he was quoted as saying Canada’s real estate market is undervalued, not overvalued.    That’s quite the opposite of what the so-called experts have been saying for 8 or 9 years.  (by the way, where are those experts now?)

If you listen to his interview, he makes some good points.   Office properties have more upward potential than residential properties.  But the residential market follows the Office or commercial market.   He also says that buying a house for a quick flip isn’t a good strategy.    It may sound good on the TV shows, but it’s a risky game to play.   Mr. Ross says more fortunes have been lost in real estate than have been made.   Read the rest of this entry »

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