Buying your first home and getting your first mortgage can be an overwhelming experience.
If this is your first home buying experiencing, applying for a mortgage can be the most intimidating part of the process , so where do you start?
In the past, the home buyer turned to their banks for their mortgage needs, but now you have more options at your disposal with over 40% of consumers turning to mortgage brokers for their mortgages needs instead of the banks.
Mortgage brokers are provincially licensed and regulated by CMBA . They can help you with all aspects of a mortgage, from figuring out how much you can truly afford, to determining the best mortgage product for you, to finding ways to save you money and pay off your mortgage faster.
Many lenders’ rates and mortgages can only be accessed through a mortgage broker. Not having the selection of lenders, and simply choosing to get a mortgage with a bank, can mean choosing harsher prepayment penalties for breaking your mortgage in the future, as well as a higher interest rate; which can cost buyers thousands upon thousands of dollars over the life of their mortgage.
A mortgage broker is also able to better tailor a mortgage product to your specific needs, whether that be working with a lender who is more flexible when it comes to self-employed income; one who has more flexible prepayment terms; or one that has more options for consumers that possibly have suffered some credit challenges in the past. Because mortgage brokers have access to more lenders, they’re better able to find a lender and a mortgage based on your specific needs and financial situation to get you the lowest mortgage rates today.
Mortgage brokers offer convenience, which lets you meet around your schedule, not the banks hours.
Mortgage brokers also operate on commission and are paid by the lenders who ultimately grant you your mortgage, so there is no cost to the consumer. Referrals are the life blood of our business so it is in our best interest to serve you as best we can.
Bottom line, using a mortgage broker gives you the freedom of CHOICE and comparables to consider, using a bank gives you no other choice but ONE, theirs.
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
Expert, unbiased advice is what i offer to all of my clients.
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.
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.
Heres an interesting article on things to consider when locking in your mortgage or at least considering renewing your mortgage for a better rate. Lots of things to look at when rates are at an all time low. You can imagine consumers are taking a good look at their mortgage and where they want to go with it. Small differences in rates can save you thousands over the longer term. As most of us have a mortgage for years, take advantage of at least looking at your current mortgage and consider whether making a change could be beneficial. As always any questions or comments please feel free to contact me at 1-888-819-6536.
The gap between short-term and long-term rates has shrunk enough that it might be time for anyone renewing a mortgage to consider locking in.
Moves last week by the major banks to reduce the discount on variable-rate mortgages comes as the discounts for long-term mortgages have gotten as steep as they have ever been.
“What seems to be happening is they are focusing their attention on fixed rates. We are starting to see some aggressive competition on four-and five-year products,” says Gary Siegle, a mortgage broker and Invis Inc. regional manager in Calgary.
How aggressive? Try as much as 190 basis points. A five-year, fixed-rate mortgage with a posted rate of 5.39% is now being offered for 3.49%.
For whatever reason, the four-year, fixed-rate mortgages are being priced even more aggressively.
Mr. Siegle says he can lock consumers into a four-year, fixed mortgage for as low as 3.09%.
The discounting comes as variable-rate products, linked to prime, have become more expensive. Short-term money has become more expensive in the bond market, forcing banks to reduce discounts.
The banks traditionally move their prime rate with the Bank of Canada rate. With no flexibility there and existing customers getting huge discounts based on old deals, banks are forced to raise rates for new loans as short-term money gets more expensive.
The trend began in April when FirstLine Mortgages, a subsidiary of Canadian Imperial Bank of Commerce known for its low rates, cut its discount on variable rates.
Others banks were slow to follow, hoping to make money on volume. But refinancings have dried up under tougher mortgage rules and sales have slowed, creating the need to tighten profit margins on variable-rate products.
Today, the discount on a variable-rate mortgage is about 55 basis points off the prime rate of 3% – in other words, 2.45%. Compare that to 3.09% on a four-year mortgage and the premium to lock in is not that much.
“This gap is about as narrow as it goes,” says CIBC deputy chief economist Benjamin Tal. “It reflects a flat yield curve, which makes it difficult to make money in this business.”
Mr. Tal says variable-rate mortgages tend to be more attractive when there are inflation expectations not yet expressed in short-term rates. This time, he says, the bond market is depressed, anticipating recession, and that has shrunk spreads dramatically.
The one thing keeping people in short-term money is the sense that there is no urgency to move because the U.S. Federal Reserve Board has pledged not to raise rates for two years, which also effectively ties the hands of the Bank of Canada.
“We know the five-year rate is attractive, but we also know short-term rates are not raising,” Mr. Tal says.
What does that mean on a practical, dollars-and-cents basis?
Let’s use the Canadian Real Estate Association’s 2011 average sale price forecast of about $360,000 and assume a 20% down payment and a $288,000 mortgage.
At 2.45%, your monthly mortgage payment based on a 25-year amortization would be $1,282.98. At 3.09%, your monthly payment rises to $1,376.28.
But even at the gap, you would pay about an extra $7,000 in interest to lock in over four years.
Ultimately, the $7,000 amounts to an insurance policy. You get payment certainty for four years, but at a price.
If rates climb 200 basis points on your variable-rate mortgage, it could cost you $22,000 more in interest over four years. The reality is that rates wouldn’t jump at once and, therefore, increases would likely be gradual.
Moshe Milevsky, the York University finance professor who wrote the oft-quoted study that variable-rate mortgages do better than fixedrate mortgages 88% of the time, said if you start thinking about it like insurance, it comes down to your risk tolerance.
“There are people who pay a lot for protection on their portfolio; there are people who pay a lot for life insurance,” Prof. Mr. Milevsky says. “If the premiums are low enough, you might say, ‘Sure, I’ll pay.’ But if you have a tight budget, every basis point counts, and it might not be worth it.”
To me, he still has the ultimate answer for the tough decision whether or not to lock in.
“I still don’t get why more Canadians don’t split their mortgage,” Prof. Milevsky says. In other words, locking in half of the mortgage and floating with prime on the other half.
“When is a bank going to come to the realization Canadians hate making this choice?”
He’s right. Even with rates this low and the gap between short-term and long-term rates this narrow, it is still a tough call