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Calculating your mortgage penalty…

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.

Calculating Payout Penalties & Interest Rate Differentials (IRD)

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

Expert, unbiased advice is what i offer to all of my clients.

Author, Lisa Alentejano

Posted in advice on locking in your mortgage, Bank of Canada, Bank of canada rates, BC Mortgages, Best Rate Mortgages, Canadian Economy, Canadian Mortgage News, Debt, fixed or variable rate or both, Fixed rates, Interest \rate Increases, Jim Flaherty, Kamloops broker, Kamloops First Time Home Buyer Tips, kamloops mortgage, Kamloops Mortgage Broker, Kamloops mortgage consultant, kamloops mortgage financing, Kamloops Mortgages, Kelowna Mortgage Broker, Kelowna Mortgage Financing - Lisa Alentejano, Low Interest Rates, mark carney, Mortgage Affordability, Mortgage Broker Kamloops, mortgage financing kamloops, Mortgage Language, Mortgage Rates, Mortgages - Get a second opinion, paying a penalty to break my mortgage, Pre Approval Mortgage, Protecting your biggest investment your mortgage, rate fixed mortgage, Real Estate Market, Refinance Your Mortgage, Renewing your mortgage, salmon Arm mortgages, should you lock in your mortgage, variable rate mortgages, Vernon Mortgage, Why use a mortgage broker

Mortgage Rates – How to protect yourself when they increase – Video message!

Heres a video I personally did on how to take a proative approach to protect and prepare yourself with rising interest rates in the future and save thousands of dollars! Click below to view video

Inflation Hedge Strategy - Learn to protect yourself from rising rates

Lisa Alentejano

Posted in BC Mortgages, Best Rate Mortgages, British Columbia Mortgages, buy vs rent for students, Canadian Economy, Canadian Mortgage News, Kamloops Mortgage Broker, Kamloops Mortgage Broker - Lisa Alentejano, kamloops mortgage financing, Kelowna Mortgage Broker, Kelowna Mortgage Financing - Lisa Alentejano, Mortgage by Lisa Alentejano, Salmon Arm Mortgage Broker, salmon Arm mortgages

Condo for the studious kid?

Summer is drawing to a close and if the student in your household is studying in Toronto, they may be moving back into residences or private rental accommodation.

However, some parents are choosing to buy a place for their offspring, and perhaps some friends, to live in for the duration of their studies. While it may sound like a great investment, your financial planner will be getting you to ask some tough questions.

Ask yourself: “Can we afford it?” says Carol Bezaire, vice-president, tax and estate planning at MacKenzie Financial in Toronto, who reccomends planning ahead by asking: “‘What are we going to do with this property if our child doesn’t go to school or drops out?’ Down the road if the child decides they want to stay in the place, ‘What kind of arrangement with the child are we going to have?’ ”

Ms. Bezaire recommends getting legal and tax advice when drawing up an agreement between you and your child. If you charge your child rent, they can write it off as a tax credit. However, you will need to record the rent as income on your return and you will be liable for tax on any capital gain when you sell the property. If space will be rented to non-family members, Ms. Bezaire says, you must get tax advice on operating a business rather than a personal arrangement.

The type of housing stock available may also affect the rent-versusbuy decision.

“As a market investment, condos have definitely grown exponentially. In Q2, we had 9,445 condos sold,” says Pauline Lierman, senior research analyst, Urbanation in Toronto. A lot of that is due to the fact that students have a desire to be in the city, but there is a shift away from the houses that are broken down into units. “Families are moving back in and buying them and converting them back into singlefamily units, so you’re getting areas where there isn’t as much supply of the traditional type of student-ghetto housing.”

Some parents – particularly from overseas – have been planning ahead.

“Some projects have been very successful in their marketing to forward-thinking families,” says George Carras, president, RealNet Canada. “They may consider that, ‘My child is much younger, we like Canada and we’d like them to come to school in Canada. So let’s just invest in the condo as possible accommodation.'”

Mr. Carras says such purchases tend to be focused around University of Toronto’s and George Brown’s main downtown campuses.

“You can start to see some of the development acquisitions and interests taking place further north,” Mr. Carras says. “For Seneca, [there’s interest in] some of the growth that’s taken place in and around the Sheppard corridor. You’re within a reasonable distance to the school but you’re also accessible to public transit.”

While your child studies, many new and resale condos will come up for sale in the GTA. Mr. Carras and Ms. Lierman both say continued population growth, coupled with a decline in single-family home construction, means there will likely be decent demand should you decide to sell the condo when your child graduates.

Posted in Bank of canada rates, BCMortgage, Best Rate Mortgages, Canadian Economy, Canadian Mortgage News, Fixed rates, Home Loans, Kamloops broker, kamloops mortgage, Kamloops Mortgage Broker, Kamloops Mortgage Broker - Lisa Alentejano, kamloops mortgage financing, Kamloops Mortgages, Low Interest Rates, Mortgage Affordability, Mortgage Broker Kamloops, Mortgage Rates, Refinance Your Mortgage, Renewing your mortgage, salmon Arm mortgages, Save your money

Suprise: Low interest rates seen sticking around

Interest rates have recently being going somewhere unexpected: down.

At their trough last week, the yields on 10-year U.S. Treasuries, the benchmark North American rate, touched 3.11 per cent, the lowest level in six months and more than half a percentage point below their February peak.

Yields on 10-year Government of Canada bonds have fallen, too, and are now virtually identical to their U.S. counterparts.

The sliding rates have surprised many market watchers. With the United States government bumping up against its debt ceiling, inflation ticking upward, and a growing debt crisis in Europe, most expected interest rates to be increasing.

While predicting the future for rates is notoriously difficult, some observers believe that the current low-rate environment may continue for a while. If so, it will mean pain for savers, but good news for borrowers.

A drop in interest rates is equivalent to a sale on the price of money, and corporations are already rushing to take advantage of the easy lending conditions, even if they’re in no immediate need of funds. A case in point is Google Inc., which has $37-billion (U.S.) in cash and marketable securities on its balance sheet, but raised $3-billion from a bond issue last week anyway. Mortgage rates have fallen, too – good news for homeowners looking to refinance.

But lower rates have not turned out so well for some of the market’s savviest players, including Bill Gross, the founder of Pimco, the world’s biggest bond fund. Earlier this year, he sold his U.S. Treasuries, because he thought interest rates were poised to rocket higher, which would drive down prices of bonds.

It’s difficult to fault his logic: only a few months ago, the case for higher interest rates seemed so compelling.

Governments around the world are carrying bloated deficits and massive borrowing needs. In the United States, politicians have yet to agree on any clear path to deficit reduction, despite more than $1-trillion in annual red ink. Meanwhile, oil has been trading consistently around the $100-a-barrel level, thereby lifting inflation, another bond-market negative.

And the U.S. Federal Reserve is no longer putting its thumb on the scale. In less than six weeks, it is going to end its program of quantitative easing, under which it is buying $600-billion in Treasuries to goose the economy. Many bond-market followers believe the Fed’s massive buying binge has been propping up Treasury prices and keeping yields artificially low.

So what has been pushing rates lower in recent months?

A weaker-than-expected recovery is the major culprit. “The global economy, and the U.S. economy in particular, is not on quite as solid a recovery track as people were imagining in the very optimistic days of six months or so ago,” observes Peter Buchanan, senior economist at CIBC World Markets.

A slew of recent statistics underlines that weakness, ranging from the poor state of U.S. home sales to the slowing pace of U.S. manufacturing growth. Meanwhile, the Japanese economy, the world’s third-largest, is shrinking and creating a further drag on global commerce, although few foresee a double-dip recession.

“We’re looking ahead toward a bit of a cooling in economic growth,” said Paul Dales, senior U.S. economist at Capital Economics, who foresees output in the U.S. rising about 2 per cent this year.

That level of growth won’t be “anything to celebrate but it’s nothing like the recession we saw previously,” he said.

Another factor driving rates lower has been the early May rout in commodities, which dampened some of the worry on the inflation front. In addition, the recent sluggish performance of the stock market suggests that investors are getting nervous and growing more willing to buy super-safe government bonds.

Mr. Dales believes the current trends have room to run, and that rates will surprise to the downside.

He predicts U.S. 10-year Treasury yields could slip to 2.5 per cent in the low-growth, less inflation-spooked environment he foresees ahead.

If growth continues to be slow, lower rates might be staying around for a while.

Mr. Buchanan says the most likely scenario, given the poorer economic outlook, is for the Fed to hold off on raising rates until 2013. He believes the yield on Treasuries will rise gradually, instead of falling further, getting back to 3.4 per cent by the end of this year and to 4 per cent by the end of 2012.

Posted in Mortgage Affordability, Mortgage Broker Kamloops, Mortgage by Lisa Alentejano, mortgage financing kamloops, Mortgages - Get a second opinion, new mortgage rules canada, Pre Approval Mortgage, Real Estate Market, salmon Arm mortgages, Tax Break, Variable rates

Effective April 19, 2010 Qualifying Rate Guidelines Will Change

Effective April 19, 2010 Qualifying Interest Rate Guidelines Will Change

  • Fixed Rate Mortgages of terms less than 5 years and all Variable Interest Rate Mortgages: applications will be adjudicated based on the greater of the 5 Year Bank of Canada Benchmark Rate**, or the actual customer rate (inclusive of any customer discretion).
  • Fixed Rate Mortgages of terms 5 years or greater: applications will be adjudicated based on the actual customer rate.
  • This change applies to both conventional and insured mortgages.

The three key changes associated with this announcement are:

  • Borrowers will need to be able to afford a five-year fixed rate mortgage, even if they choose a mortgage with a shorter duration.
  • Investors, who want to buy a home that they don’t plan to live in, will have to make a minimum down payment of 20%.
  • Canadian home owners will only be able to withdraw 90% of the value of their homes in a refinancing, down from 95%.

The good news is that buyers still can purchase a home with 5% down and can still go up to a 35 year amortization.  The reason for the changes is the Government of Canada is wanting to make sure that if interest rates go up, purchasers will still be able to afford their mortgage payments.  With regards to refinancing your home, the Government of Canada is trying to discourage people from borrowing against their home for a quick fix for their financial problems.  They are trying to have home owners use their home as a savings tool and not just an easy way to keep consolidating their debt.

Please call me if you have any further questions on the changes or if you would like to go through a free no obligation mortgage information session.  We can look at pre-qualifying you for a mortgage, rate hold guarantees, even refinancing or renewing an existing mortgage.  I look forward to hearing from you! 1-888-819-6536

Posted in Applying for a mortgage - Lisa Alentejano services the interior, BCMortgage, Best Rate Mortgages, Canadian Mortgage News, Home Loans, Interior home mortgage, kamloops mortgage, Kamloops mortgage consultant, kamloops mortgage financing, Mortgage Affordability, Mortgage Broker Kamloops, Mortgage Playground - Lisa Alentejano, Mortgage Consultant, Refinancing, salmon Arm mortgages

Mortgage brokers earning consumers trust

Heres a good article supporting what i do. Enjoy the read….

Mortgage brokers earning consumers’ trust with range of flexible products and services

At one time, the services of mortgage brokers seemed reserved for those who could not get a property loan from their bank, credit union or trust company. And while a broker might find them a loan, he or she usually charged a hefty fee.

Today, thanks to a dramatic change in lending practices, a growing sophistication among borrowers and mortgage brokers significantly upgrading their professional standards and image, arranging that home loan through a broker is increasingly the way to go.

“Mortgage brokers arrange 25 per cent of all residential mortgages in Canada last year and 40 per cent of mortgages sought by first-time buyers,” says Jim Murphy, president of the Canadian Association of Accredited Mortgage Professionals, the industry’s national trade group. Why the upswing in popularity?

“I think it comes down to three things,” says Murphy.

“The first is choice. Brokers have access to scores of lenders and can help people create a mortgage suited specifically to their needs.

“The second is service. Brokers do all the hunting, assemble all the paperwork and can often obtain a mortgage commitment within hours, not weeks.”

And, as for trust, CAAMP awards the Accredited Mortgage Professional designation to brokers who have at least two years’ experience, pass a course on ethics, responsibilities and the technical aspects of mortgage arranging, and maintain at least 12 hours of continuing education a year.

“While we have 12,000 members, about 3,600 of them now have that AMP designation,” Murphy says. “People know that if a broker can claim AMP status, he is a trained accredited professional.”

But there’s more: Brokers no longer charge fees for arranging residential first mortgages; the fees are paid by the lender. And in most jurisdictions, they cannot charge upfront fees for arranging second mortgages or non-traditional forms of lending. In fact, when it comes to finding the perfect mortgage, using a broker has become much like having your own free personal shopper.

“What we are really is advocates for borrowers,” says Ajay Soni, senior broker at Invis in Vancouver.

“We may be paid by lenders but we represent the best interests of the borrower. Because we deal with so many lenders — I regularly deal with between 20 and 30 — we are not committed to any one bank or institution or to any one product.”

John Panagakos, a broker with The Mortgage Centre in Toronto, notes that he works with many lenders, “each with half a dozen different products to choose from.”

He adds: “I also like to work with clients to provide things they might not think about, like building an exit strategy into their loan so they don’t face big fees to pay early or get into another loan when interest rates change.”

While borrowers may enjoy a banquet of options when it comes to mortgages, two factors still determine who gets the best deals: the borrowers’ credit score and their ability to make payments. Again, mortgage brokers can help, says Ellis.

“Self-employed people may run into challenges dealing directly with lenders,” he says.

“They often take advantage of all the perks and tax breaks self-employment can create, and as a result may not have the tax returns to justify the size of the loan they need. We understand that lenders often ask individual applicants for material that may not truly be needed.”

To find the right broker to meet your needs, start by seeking a referral from a family member or friend, suggests Murphy.

Brokers say the bulk of their new business comes from referrals from past customers.

“It is like choosing any other professional,” says Soni.

“Remember if you are a first-time homebuyer you may be dealing again and again with this person through the years. Great brokers always look for lifelong relationships.”

Vancouver Sun

Lisa Alentejano, AMP

Posted in Applying for a mortgage - Lisa Alentejano services the interior, Best Rate Mortgages, British Columbia Mortgages, Fixed rates, Home Equity, Interior home mortgage, Interior Mortgage Expert - Lisa Alentejano, Interior Mortgages, Kamloops home mortgages, Kamloops Mortgage Broker, Kamloops mortgage consultant, kamloops mortgage financing, Kelowna Mortgage Broker, Low Interest Rates, Mortgage Affordability, Mortgage Broker Kamloops, Mortgage Consultant Kamloops, Mortgage Playground - Lisa Alentejano, Mortgage Consultant, Mortgage Rates, Refinance Your Mortgage, Refinancing, salmon Arm mortgages, Vancouver Mortgages, Variable rates, Vernon Mortgage Broker

Variable rates are looking good

Variable rate mortgages are looking good
Variable rate mortgages are looking good

Variable rates are looking good..

 Its a dicey decision whether to break your mortgage or not. Most banks are not encouraging it but in some cases it makes sense.  Anybody who bought their first house in the 1980s must marvel at mortgage rates today, or perhaps not.   With prime rate at 2.25% a variable rate mortgage today is looking pretty sweet. 

 Consumers who locked into variable-rate mortgages tied to prime before credit markets tanked are getting as much as 90 basis points below prime and borrowing as low as 1.6%.   It’s the deal of the century. In October, the banks suddenly changed the rules on borrowing and demanded consumers pay a 100-basis premium over prime if they wanted to go variable. The banks have eased up since and the premium on a variable-rate product is now 30 basis points above prime for a 2.55% rate. It poses an obvious question for anyone who has locked into rates as high as 5.75% on a five-year fixed-rate mortgage:   Should they break that mortgage? “It probably does make sense to break it now,” says Vince Gaetano, vice-president of Monster Mortgage. He gives the example of one client who came into his office this past week with a $205,000 mortgage and a 5.24% interest rate. The customer had 3½ years left on a five-year mortgage. The penalty to break his mortgage is the greater of three months interest or what is called the interest rate differential. The interest rate differential is the lost interest between your current rate and market rates. In that client’s case, his interest rate penalty is calculated based on the current four-year rate at his bank, now 4.14% on a discounted basis. The lost interest to the bank is about $7,800, which is what the customer will have to pay. It’s a big penalty but Mr. Gaetano argues that if that same customer breaks his mortgage and goes with the variable-rate mortgage at 2.55%, the savings would be in the $13000 to $14,000 range over 3½ years — more than offsetting the penalty.

There is also a nifty little trick you can pull off if you have a prepayment option on your mortgage. Mr. Gaetano’s customer has a 25% prepayment privilege, so he can knock $57,000 off his mortgage and lower his penalty by about $2,800. “You can access [that 25%] from an unsecured line of credit or some credit cards for a few days and reduce your penalty because the penalty is based on the balance outstanding,” says Mr. Gaetano.

While not encouraging people to break their mortgages, the banks are acknowledging that some consumers who locked into higher rates can save money if they refinance at the new lower rates. “I think it does make sense as an option for some people trying to lower their rate,” says Joan Dal Bianco, vice-president of real estate-secured lending at TD Canada Trust.   She says if you are refinancing your mortgage, you can take the interest rate differential penalty and tack it on to your new mortgage. If you have credit card debt, you can add that on too, and the refinancing makes even more sense.

The office of consumer affairs for the federal government has a great site to help you make the decision: Moshe Milevsky, a professor at York University’s Schulich School of Business, who created the calculator used on the government site, says it ultimately comes down to how much money you will save on your mortgage if you break the contract. “To me, it’s pure mathematics. There is nothing speculative or probabilistic about the decision to break a mortgage. It is the classic example of undergraduate finance time-value-of-money calculations. If the homeowner can refinance into a mortgage with an identical term that reduces monthly payments above and beyond any penalty costs, then go for it. Plain and simple,” says Mr. Milevsky. Breaking your mortgage based on a decision to go into a variable-rate mortgage is an entirely different decision. “This decision shouldn’t be confused or muddled with the classic long or short decision, or whether real estate prices or interest rates are headed up or down from here,” he says. So, it comes down to two choices: The first is to break your locked-in mortgage and renew for another fixed term. If it saves you cash, that is a no-brainer. The second choice is whether to switch products and go with a variable-rate mortgage. Historically, consumers have saved money 88% of the time going variable, according to Mr. Milevsky’s own studies. I’m still in the camp that favours a variable rate.  This will not save you any money, but if you are strapped for cash because one of the breadwinners in your home has lost a job, the banks will let you lengthen your amortization period. If you have a 25-year amortization you can lengthen it to 35 years without any service charges — other than the huge jump in interest charges!

If your wanting to calculate a ball park figure, read my post on “calculating your mortgage penalty” it will help you put some real numbers together.

author - Lisa Alentejano
author - Lisa Alentejano