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

Tips on how to reduce your mortgage penalty

break your mortgage

Interest rates are still near record low levels. You’ve heard your co-workers,  friends or family brag how lucky they were to renew into these once in a lifetime rates.

But how you do you take advantage?  If you break your fixed rate mortgage then you face an enormous prepayment penalty…we’ve seen reports of $10k, $15k, $20k and even $30k in penalties….Wow!

Well, here’s a few tips…

-first, if you are in a 10 year fixed rate mortgage, and your are at least 5 years into the term, then the maximum penalty is 3 months interest  (this is a little known fact… Section 10 of the Interest Act of Canada).

-One more way to reduce the penalty is to utilize the annual prepayment privilege that’s within the mortgage.  Most mortgages have between 15% and 25% prepayment privileges which equates to a 15% to 25% reduction in the penalty…. Read the rest of this entry »

Is there a better mortgage rate out there?

where to invest You’re 2 years into your mortgage term.  You got a great rate… or so you thought…? But now you aren’t sure.   So much talk about record low interest rates…  You begin to question..  Maybe there’s a better deal out there?   Did you choose the right product and Lender?  Has your mortgage advisor or broker contacted you during those two years?  Does this sound familiar?

We’ve all heard of buyer’s remorse….    That’s when you make a purchase, only to regret spending the money days or weeks later.    I’m seeing a lot of people second guessing their mortgage decision recently.   And I have news for you… RELAX! There is a way to check to and see if you made the right choice, and better still, there is a way to see if you can do better today. Read the rest of this entry »

More BIG SIX BANK penalty nightmares… when will Canadians learn to look elsewhere for their mortgage?

greedy banker Here’s a great article from The Star’s Ellen Roseman on mortgage penalty nightmares.  She shares just a few stories out of the dozens she’s received over the past little while.   There is no reasonable justification for charging borrowers these inflated penalties…   If you think your immune from these penalties, think again.

Notice the name of the Banks that are mentioned in her article… Yes, part of the BIG SIX club…  Don’t get lulled into believing that dealing with a BIG SIX BANK offers some sort of immunity from higher penalty charges…   The experiences of these borrowers and countless others proves otherwise…

I’ve been getting more calls and comments on this recently… $10,000, $15,000, $20,000 in penalties.  How is it that the smaller Lenders can offer the same or better interest rates, and not charge these inflated penalties?   The BIG SIX BANKS reported a record $30billion combined profit in 2012…!!  Doesn’t make any sense, does it?   And yet, it continues…

Remember, there are several other Lenders that don’t calculate their penalties with the same inflated formula…   Seek advice from a mortgage broker…  get another opinion… There are better options and I have access to them!   It’s no secret…. I’m happy to share this info to anyone that wants it.

Come on Federal govt… do something to stop this madness and protect Canadians from this gouging!

Your best interest is my only interest!

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

Steve Garganis 416 224 0114 steve@mortgagenow.ca

Mortgage Penalties exposed… an in-depth study, part 2…the update.

greedy banker Two years ago I published, what would become, my most widely read article.   Mortgage Penalties exposed…. an in-depth study reveals unjust penalties was written to show just how unfair penalties had become.   The surprising results showed that the BIG SIX BANKS were the leaders when it came to charging the highest penalties in Canada.   If you had a Fixed rate mortgage and thought your mortgage penalty could only be a 3 month interest charge, you were in for a huge shock.

Consumers were experiencing $10k, $15k, $20k and even $30k in prepayment penalties and more! Ridiculous amounts.   Put another way, these penalties equaled 12, 16, 20 months worth of interest and sometimes more!   But we also discovered some good news..   There are better alternatives to the BIG SIX BANKS.!  There are several other Lenders that don’t use the same inflated and unfair prepayment penalty calculation as the BIG SIX BANKS.   There are other Lenders with competitive, and often better, interest rates, and with much lower penalties.  That original study opened the eyes of Canadian borrowers. (another eye-opening stat…the BIG SIX BANKS reported a record $30billion in combined profits for 2012.)

Two years later, with more consumers being forced into Fixed Rate products, we thought it was time to revisit Mortgage Penalties and see what changes had been made, if any…

Read the rest of this entry »

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. Read the rest of this entry »

Fed govt, BIG SIX BANK’s pushed us into Fixed rates!…part 1 of 2.

Mark CarneyVARIABLE RATE MORTGAGES WERE THE BEST OPTION

For years, I’ve promoted the merits of Variable rate greedy bankermortgages vs Fixed rates.   To me, it was a no-brainer.  Historical stats showed that you would save over 1.00% on your mortgage, per year, every year (some years had savings of over 3.00%!).   Do the math…  That works out to $1,000 to $3,000 per year for every $100,000 of mortgage.

And for years, the BIG SIX BANKS, the Bank of Canada, the Federal govt and other fear-mongers pointed out that Variable rates fluctuated and your rates would change and possibly go up…

If  you were able to block out these warnings, do a little research, then you may have been lucky enough to enjoy the huge savings that Variable rates gave us over the last 15 years…  Fortunately, over 80% of my clients listened to my advice and chose Variable rate.  But even at the height of Variable rate popularity,  just 45% of Canadians were ever in a Variable rate product at any one time. Today, it’s less than 15%.

In 2008, the U.S. sub-prime mortgage crisis hit.   Financial markets were in turmoil.  New Variable rate mortgages were either pulled from the shelf or were priced so high as to make them an unattractive option (prime plus 1.00% with some Banks).

BEGINNING OF THE BANKS HIGHER PROFITS

The Banks actually liked this.   After all, the most profitable mortgage product is the 5 year Fixed rate.  Not hard to figure out.   The lower the interest rate, the less the Bank’s make.   This became a great opportunity for the Banks to reduce their Variable rate exposure…  And so began the great campaign to force us into 5 year fixed rate mortgages.  (by the way, these inflated Variable rate prices only lasted around 6 months…we’re not back to the good old days of Prime less 0.90% but anything at Prime less 0.50% or better is worth a look….it’s worth noting for the record that I still didn’t recommend 5 year fixed rates to my clients during this time… I recommended shorter term fixed rates ranging from 6 months to 3 years and then went back to Variable rate… history has shown that this was the right strategy).

Flaherty and HarperStarting in late 2008, and continuing today, Bankers would call, email or write letters to their Variable rate mortgage clients to warn against higher rates coming…  and they should consider locking into a 5 year fixed rate mortgage.   There were many reasons given… a bad economy… uncertainty in the financial markets… or my favorite, a special rate offer (it was special alright! Lol!!)… And the media jumped in too.  TV, radio, newspapers, major news websites…how many times have you have heard the warnings about rising mortgage rates??…or record personal debt levels??   This created an even higher level of uncertainty and fear… Mr. Potter would be proud!

Think about it… The Banks were strongly recommending that Variable rate clients go from a rate of 3.25% or better, and into a 5 year fixed rate of 5.50%!!? (November 2008).   And the worst part about all this is that hundreds of borrowers listened and did it… and have regretted it ever since!!!  Where’s your Banker now?…

watch for part 2 of 2… FED GOVT, BIG SIX BANK’S pushed us into Fixed rates!… tomorrow!

Getting a mortgage today?  Speak with a Mortgage Broker…and think twice about sticking with your BANK…. you could just save yourself $thousands.

As always, I welcome your comments and questions.  Let me know if I can help.

Steve Garganis 416 224 0114 steve@mortgagenow.ca

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