Are you interested in making some cash when you buy or sell your next home? Maybe you simply want to learn more about Real Estate in Canada? Have You been looking for general information on buying and financing a home but cant seem to find the information in one specifac place that has consistent information. Take a good look at this program, I think you will find alot of great information and tools for you to use.
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Todays market is bringing alot of questions about whether you should consider refinancing your mortgage for a better rate. There are many different reasons people might re-negotiate their current mortgage. You may be considering using some of the equity in your home you have built up and use it to buy a rental property, Make and RRSP contribution or investment, pay off some high interest rate debt or just renegotiate your current rate for a better more competitive rate and lower monthly payment.
Below are some ways in which you can get a good idea on what kind of penalty you may be faced should you want to refinance your current mortgage. Again these are used simply as a guideline and are in no way exact. The lending institution you are currently dealing with will give you the exact amounts relating to your specifac situation.
Many closed mortgages include a clause stating that the payout privilege on the mortgage will be a three-month interest penalty, or interest differential, whichever is greater.
For the calculations below, using the following scenario:
$300,000 remaining on the mortgage
3 years into a 5-year fixed term at 5.5%
Today’s interest rate: 3.5%
We’ll just be using the simple interest amount – the actual amount of the penalty could be a little less than the amount quoted in the examples.
Three Month Interest Penalty :
Mortgage Balance X Interest Rate X 3 months
Plugging in the variables above, we would get:
= $300,000 X 0.055 X 0.25 (5.5% = 0.055, 3/12 = 0.25)
= $4125.00 would be the 3 month interest penalty
Now we have to calculate the interest differential – and that’s where penalties can be quite substantial – especially since interest rates have dropped considerably lately.
Interest Differential Penalty:
Current Mortgage Balance X Interest Rate Differencial X Time remaining
=$300,000 X 0.02 X 2
(0.02 = 2% which is the difference from 5.5%-3.5%, and 2 years left in term)
=$12,000.00 would be the Interest Differential Penalty
In the example above, the bank would then use the Interest Differential Penalty since that amount is the greater of the two. Remember that the way banks calculates their penalties sometimes is a mystery to me and can be greater than the figures above so make sure you ask.
Please remember that its not always about RATE, although important, there are other important steps you need to take into consideration when considering paying a penalty and shopping for a mortgage. Let a mortgage expert, put strategic steps and the right product in place that will ultimately make sure its in your best interest to pay a penalty and that your saving money.
I would also invite you to take a look at this link.I am part of a community of mortgage brokers that created a forum to get our best ideas together a create a simple and educational strategy showcased here on this website. A program I implement with all my clients, wherever they are in the mortgage process. Its a program created in mind to help consumers pay more attention to their mortgage and implement simple easy steps to save thousands of dollars. When was the last time your bank phone you up at any time to show you how to save money on your mortgage. I think i know the answer…..Please click the link and learn something valuable today then contact me to get started.
I am a licensed mortgage broker with years of financial experience, able to help you with your mortgage any where in Canada and Alberta. Remember my services are free and never should you feel there is any obligation. So please pick up the phone and contact me directly I would love to hear from you 1-888-819-6536. If your more comfortable with email please feel free to email me your questions at email@example.com
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Although you will never hear any bank say that publicly, this is what is going on. Recently there has been some industry chatter about a few banks offering a sub 3% 5 year fixed product. One particular institution is bragging about their 6 billion dollar portfolio under administration, this product, and how great it is. At first glance you might think ” WOW, that’s awesome!” However as with all mortgages, you have to dig a bit deeper to find out the real nuts and bolts of this sub 3% offer. It’s a great offer alright for the bank, not for you; the consumer.
Based on an average mortgage size of $250,000, that’s 24,000 Canadians that negotiated directly with the bank who will feel ripped off once they find out about their terms and conditions. I am very pro client / consumer, and my job is to look out for their best interests so I simply can’t endorse this product. Consumers though need to know why they shouldn’t either. This product is priced well below the market average for 5 year product, and does not come without it’s “catches”. It’s definitely buyer beware and the bank will not tell you this.
Some of the features (or non-features you might say) are:
Minimal or no pre-payment privileges
This product has extremely low pre-payment features. On a monthly increase basis this could mean nothing to less than half of what the industry norm is. Lump sum payments may also be nothing or less than half the industry norm and if allowed only once per year. Pre-payment features are extremely beneficial and allow for strategies to be put in place. Lack of strategy means lack of interest savings for clients and consumers.
When I say fully closed, I mean just that. A borrower cannot get out of the mortgage, unless they sell their place if at all. Who wants to sell their place if they want to refinance? I don’t know too many people that would. If borrowers do sell their place, a substantial penalty such as a 6 month interest penalty typically applies. Borrowers may be offered a reduced penalty (3 month) if they choose to refinance with that same bank however this still does not offer a borrower access to the entire mortgage market. It also confines them to more inferior product. If a borrower is going to pay a penalty, they rightfully should have the opportunity to entertain superior product. The average mortgage is in place roughly 3 years before being paid out or refinanced. Life just happens. More than likely a borrower will need to do something with their mortgage during their current mortgage term. To be locked down by these terms and clauses makes absolutely no sense.
No guarantee of best rates upon renewal or refinance
Banks know that consumers may not know the mortgage market at any particular point in time. What’s happening in the mortgage world is usually not on the forefront of people’s minds. When it comes time to renew or refinance borrowers can be offered a rate as high as 1% above the market norm and not realize it. When a borrower asks the bank to do better, they may be offered a discount further however that .5% “special” discount doesn’t look so good when the rest of the market is priced much lower. This amounts to more interest the borrower has to pay over the course of their mortgage. This is more money for the bank that should be staying with you.
Your mortgage will also be registered as a collateral charge.
Beware of this one as it is a very sly practice among banks. What does a collateral charge mean to a borrower? The bank will instruct the lawyer to register the title as a running account. More than likely you running account will have a global limit of the property value itself. This doesn’t mean you are going to get this money, it just means that your property is fully tied up. If you choose another lender at renewal, legal fees apply. A second mortgage or Line of Credit can’t be put behind this product because the bank has tied up ALL of your equity. No matter which way you turn, the bank has shackled you to more costs and fees.
The lesson here is that rate is not everything. Product and Strategy is. Borrowers need flexible product to execute strategy.
A deteriorating European economy and weak global growth will keep the Bank of Canada from raising rates for at least another year, though an interest rate cut looks highly unlikely, according to a Reuters survey.
The Reuters poll of 41 economists and strategists released on Tuesday showed the median forecast for the next interest rate hike was pushed back by three months to the first quarter of 2013 from the fourth quarter of 2012 projected in a November poll. The Bank of Canada’s target for the overnight rate — its main policy rate — has been at 1% for more than a year.
“The longer we spend struggling with slower growth and the longer we go without the Europeans coming to some cohesive policy solution, the worse the economic drag will be,” said David Tulk, chief Canada macro strategist at TD Securities.
“You get the sense that growth I think is likely to remain lower for longer, just like interest rates.”
Investors in the first quarter of 2012 are expected to focus on the heavy supply of eurozone debt coming due, with fears about a possible lack of demand at auctions. Italian and Spanish bond sales in particular are viewed as the next big tests.
Some Canadian economic data has also been worrisome. A Bank of Canada business survey on Monday showed an increasing number of firms are pessimistic about the rate of sales growth, further reducing pressure for the central bank to take interest rates higher.
The most recent domestic jobs report also disappointed, reversing a trend that saw Canada outperform the United States both during and after the global financial crisis.
Monthly employment data on Friday showed Canada missed forecasts while the U.S. beat them. This gives the Bank of Canada even less impetus to tighten policy before the U.S. Federal Reserve, which has said it expects to keep its key interest rate near zero through mid-2013.
But many analysts expect an even longer pause, and bet the Fed’s next move will be to stimulate the economy, rather than tighten monetary policy.
“If the Fed comes out with its published interest rate forecast at the end of the month and says the consensus points to an even longer hold than the middle of 2013 then that could handicap the Bank of Canada to an even greater extent,” said Derek Holt, vice president of economics at Scotia Capital.
Yet many analysts say the case for an interest rate cut is difficult. Governor Mark Carney has repeatedly warned about the dangers of Canadians borrowing too much as a result of very low interest rates. Data last month showed the level of household debt swelled to another record high in the third quarter.
“A cut in the policy rate anytime in 2012 is extremely unlikely. It would take a global recession of 2008 proportions for the BoC to even consider cutting policy rates,” said Carlos Leitao, chief economist at Laurentian Bank Securities in Montreal. “In our view, 1% is the new, effective, zero-bound.”
Of the 41 contributors, 35 see a rate hike happening after the second quarter of 2012. Five forecasters — BNP Paribas, Capital Economics, Goldman Sachs, IFR Markets and ING Financial — predicted a rate cut across the forecast horizon, up from only three forecasters in the last poll. All five expect the cut by mid-2012.
The possibility of an ease has been anticipated in overnight index swaps for some time, though the timing has been pushed out.
Forecasts for official interest rates at the end of 2012 also dropped from the previous poll — with the median target declining to 1%, from 1.25% in November — indicating one less rate increase next year than was previously assumed.
Interest rate expectations for the four quarters of 2012 have been downgraded continuously in all nine global Reuters polls conducted since last January, with the target for the first quarter of 2012 revised down to 1% from 2.25%.
The poll showed a 99% probability there won’t be a change in rates at the next policy announcement on Jan 17.
A majority of homeowners in British Columbia won’t know what has happened to their property value over the past year until they receive their annual BC Assessment notice in early January 2012.
Each year, BC Assessment sends out Property Assessment Notices on December 31 for nearly two million properties in British Columbia. Local real estate sales determine the property values that BC Assessment reports based on a market value approach with a July 1 valuation date.
However, some BC property owners have received an early indication of what to expect when BC Assessment releases their 2012 Assessment Roll figures on Tuesday, January 3, 2012.
On December 5, 2011, BC Assessment sent out approximately 10,000 “Extreme Value Change” information letters to BC property owners where the assessed value of their property increased by 30% or more above their local area.
These BCA information letters are sent to property owners as part of the pre-roll consultation process for significant value change where the assessed value of a property increases more than the average increase in an area.
“Generally speaking, for property owners whose 2012 assessments have increased 30% or more above the average increase for their local community, we have provided advanced letters informing them of this change,” said Tim Morrison, Communications Coordinator for BC Assessment, in an interview with BuyRIC.com.
“For example, if the average market increase for a specific property type within a specific jurisdiction was 5% and your property increase was 35% or higher, then you would likely receive an advanced letter.”
This advanced information indicates that approximately 10,000 BC property owners across the province will see a 30% or higher than average increase in their 2012 assessment notices.
The most significant 2012 property assessment increases in British Columbia occurred in Vancouver. BC Assessment sent out approximately 1,800 of these “Extreme Value Change” letters to Vancouver property owners and approximately 800 to the North Shore, including West Vancouver and North Vancouver property owners.
Morrison added, “We provide impacted property owners with advanced notification in order to make them aware that the change will likely result in an increase in their 2012 property taxes as determined by their local municipality.”
“We want to ensure that people know that they can contact us, so that we can work with them in explaining our market analysis techniques used to assess their properties.”
BC Assessment serves to ensure accurate, fair, and equitable annual assessments throughout British Columbia. Local governments and other taxing authorities are responsible for property taxation and, after determining their own budget needs in the spring, will decide their property tax rates based on the assessment roll for their jurisdiction.
These “Extreme Value Change” information letters are part of BC Assessments “no surprises” focus to engage BC property owners and local governments on changes that might have a big impact on property valuations.
Ongoing audits, reviews, and market analyses are part of BC Assessment’s quality assurance commitment to property owners.
Thank you to one of my fellow brokers for writing this article. Consumers are becoming slightly more educated about shopping for a mortgage, but clearly not enough, that means we have alot more work to do to make sure consumers are much more informed about their options when shopping for a mortgage wherever they are in the mortgage process. READ ON…
Every now and then we see a mortgage stat that’s a jaw-dropper.
This finding from Manulife Bank is one of them. It suggests there are a lot more people with money to burn than one might expect.
Manulife recently surveyed 1,000 Canadian homeowners between the ages of 30 to 59. Among respondents with a mortgage, two-thirds (65%) did not compare mortgages from more than one lender when they last renewed.
20% stayed with their current lender after maturity and did not negotiate
45% stayed with their current lender and tried to negotiate a good deal, but did not shop around
35% compared mortgages from several lenders and choose the best overall lender and product.
The youngest group (ages 30-39) was most likely to shop around (41%), but was also most likely to
accept their current lender’s offer without negotiating (24%).
We asked Doug Conick, President & CEO of Manulife Bank, why on earth people would give so much power to their lender.
“Most people lead very busy lives and may not have the time or expertise to fully investigate their options,” he said.
“Through our debt survey we’ve found that only about 3 out of 10 Canadians work with a financial adviser to manage their debt more effectively.”
“With busy lives and a lack of advice for most, this decision often gets left until very close to the renewal date, causing borrowers to follow the path of least resistance and renew with their current lender.”
“The unfortunate thing,” he added, “is that this could end up costing them a lot of extra money and keep them in debt longer than they need to be.”
That’s for sure.
In our experience, people who auto-renew often pay 1/2%-3/4% more than necessary, or worse! In fact, we’ve seen innumerable people sign renewal letters at their bank’s “special offer” rate, which is usually well above the market. (Example: Today’s 5-year fixed “special offer” bank rates are 3.94% to 4.09%. That’s up to 80 basis points above competitive rates on the street.)
Even a 1/4% rate difference amounts to over $4,000 more in interest over five years, on a $200,000 mortgage with a 20-year amortization. That’s money that could normally go towards prepaying a fat chunk of principal.
It’s hard to fathom why anyone would let a lender pick their pocket like this. At the very least, folks must find it within their strength to lift up the phone and call an independent mortgage planner.
Even if you’d rather stay with your current lender at renewal, seek out a second opinion. You absolutely owe it to yourself to keep your lender honest by surveying the market.
Of course, this all begs the question of why someone would ever want to deal exclusively with a lender that aims to maximize the interest they pay…but that’s a story for another day.
Sidebar: The report also confirmed, yet again, the various studies which show that people underutilize their prepayment privileges.
In the last year, out of respondents with a mortgage, 70% did not make any extra payments.
By far, the most common reason cited for not making an extra mortgage payment was “a lack of extra money.”
Canadians saved $2.7-billion in the past year renewing or refinancing their mortgages and the betting money among consumers seems to be that interest rates are not going up any time soon, according to a new survey.
The Canadian Association of Accredited Mortgage Professionals says 37% of Canadians opted for a variable rate mortgage in the last year, pushing up the overall percentage of Canadians floating with prime — and vulnerable to Bank of Canada rate hikes — to 31%.
But the group maintains Canadians are not overexposed to a potential rising rate environment with the survey finding 84% say they could handle a rate increase that boosted their mortgage payments by $200 per month. The average amount of room Canadians say they could afford on top of their current costs is $750 per month.
“Overall, our survey paints a picture of Canadians generally and homeowners in particular as very focused on their finances,” said Jim Murphy, president of CAAMP. “They are planning ahead, aggressively paying down their mortgage in advance of any economic jolt.”
Government policy that cracked down on refinancing rules may also be having an effect on the market. Earlier this year Ottawa tweaked the rules on refinancing, restricting consumers to 85% debt on the value of their home, down from 90%.
CAAMP said Canadians have become conservative about taking equity out of their home with 10% of mortgage holders doing so in the last year, a drop from 40% a year earlier.
“There is no need for policy makers to introduce new measures that would reduce housing activity,” said Mr. Murphy, his comments clearly aimed at suggestions the market needs even more governance and tighter measures such as increased minimum downpayments.
It’s clear Canadians are enjoying the low interest rate environment that CAAMP says lowered the average mortgage rate to 3.92% from 4.22%. The effect is that among the 1.35 million mortgage borrowers who renewed or refinanced in the past year, the savings was $2.7-billion.
“Some people are coming out of 5% plus mortgages and saving a lot of money,” says Rob McLister, editor of Canadian Mortgage Trends. Someone with a $500,000 mortgage going from 5% to 3.29% with 20-year amortization could save almost $40,000 in interest over a five-year term, he says.
Mr. McLister is seeing a growing line of people looking to break a mortgage and willing to pay the interest penalty.
CAAMP said 32% of Canadians reported making some sort of change to their mortgage in the past year with almost two-thirds of those people saying they were refinancing or renewing their mortgages. Among those who renewed, 78% got a rate reduction.
Canadians who are looking for that better rate appear ready to shop around with 21% of respondents who renewed or refinanced their mortgages in the last year saying they switched lenders.
Mortgage rates continue to be at or near all-time lows with a flatter yield curve reducing the steep discount on variable rates and making locking in more attractive. The website ratesupermarket.ca says the best variable rate product on the market now is 2.48% while a five-year fixed rate closed mortgage is now as low as 3.19%.
“What you are facing is whether you lock in today and know what my rate will be for the next five years or go variable and gamble,” says Mr. McLister. “There is risk there.”
Sal Guatieri, senior economist with BMO Capital Markets, said the savings are positive because it is putting extra money in the pockets of Canadians. “I almost expect more people to jump into variable given the long-term interest rate environment looks so benign,” says Mr. Guatieri.