We have a couple of applications on our desk at the moment.  Our clients have built their new home and love it.  However, the build process was delayed, delayed, and delayed some more.  Their initial rates held by their banks in the 2%-4% range quickly became close to 6% in the last half of 2023.  This meant higher payments and higher qualification standards.  Some buyers had to walk away from their new home and deposit, and the ones who managed to qualify for a mortgage are probably not too happy with their new payment.

I’m here to offer a solution that could save $1000s of dollars in unnecessary interest.   The example today is a $500,000 mortgage that started in August 2023.  The mortgage was initially insured by one of Canada’s Mortgage Default Insurers (CMHC/Sagen/Canada Guarantee).   I’ll break down the numbers below.

$500,000 – Initial Mortgage Balance
5.89% – Initial 5-year Fixed Rate Mortgage
25-year amortization.
$3,166.41 – Monthly Payment
$494,731 – Current Balance as of Feb 1, 2024

What happens if the client decides to pay their penalty and transfer their mortgage to us???  We can absorb up to $3,000 of costs into the new mortgage (note: we cannot exceed the original mortgage amount of $500,000).  Any additional fees will be paid by the client out-of-pocket.   Let’s compare some numbers!  The penalty to break their mortgage is $7,285 (calculated on a Big 5 bank’s payment penalty calculator).

$497,731 – New mortgage amount
$7,285 – Penalty charged by current BANK
4.94% – New 5-year Fixed Rate
25-year amortization
$2,891 – New Monthly Payment

The costs to the client will be approx $5,402 (Penalty difference, Legal fee, discharge fees, etc).

The Savings:
$275.00 – Savings in Monthly Payment
$22,890 – Savings in Term Interest (60mos)
$6,363 –   Difference In Principal Paid.

Now, what happens if we take the $275 in monthly savings and re-apply this amount to the mortgage?
$25,039 – Savings in Term Interest (60mos)
$25,013 –  Difference In Principal Paid
3-year 10-months knocked off the 25-year mortgage amortization.

Are those savings worth the $5,400 cost?  We let you decide.  Getting a 2nd opinion this year is very important, even on your new mortgage obtained in 2023.

You may just save a bundle!

Contact us for more information!

All mortgage holders renewing in 2024 will experience a little or a big payment shock.  If you’ve been following along, we are committed to providing all clients with our best renewal rates!   We will honour this commitment until the end of 2024%

But what if the lowest renewal rate isn’t enough?   Let’s face it, 2023 was brutal for inflation, groceries, gas, cost of living, property taxes, and utilities all were high and killing our household budgets.   You may have borrowed a bit too much on your credit cards, the line of credit balance may also be too high, and you may have taken more out of savings than you would have liked.

If this is the case, the answer may be to think empirically.  Let’s compare all of your monthly payments, utilities, car loans, leases, credit cards, lines of credit, and loans.  If you have more than 20% equity built up in your home, a refinance may be the best option.  The rate may be slightly higher than your renewal rate, but you may be able to lower your overall monthly payments and pay off your debts faster.

We are experts in helping our clients make this decision!

If you are curious to know which is better (renewal or refinance), contact us today!

Any time that we do a State Of The Rate post we like to acknowledge and give many thanks to our industry colleagues who compile data and present us with excellent and concise economic updates.   A big shout-out to Dr. Sherry Cooper Chief Economist for DLCG, Bruno Valko VP of RMG Mortgages, and all of our other fantastic sources of economic information and data.

The first and most important thing to mention today is that 5-YEAR CANADA BOND YIELDS opened high and have been inching up since the new year.  We are expecting mortgage rates to increase SOON!  Today the yield opened over 3.5%, and remember that lenders will set their 5-year fixed mortgage rates approximately 1.5% – 2.5% above the yield.  The variance depends on many factors, insurability, predictions, swaps, volumes, financial institution goals, market share, etc.   This week our mortgage agents have been extremely busy contacting pre-approved clients, renewal clients, and clients who have been sitting on the sidelines to lock in rates in the event they go up.

We are all hoping, wishing,  and willing that the rates will come down.  The next couple of years are going to be the largest mortgage years in almost half a century, Canadian families will be facing larger than anticipated mortgage payments.  Mortgage professionals like us want to have a busy year and many REALTORs hit a bit of a slump at the end of 2023.   We all want rates to come down!

Why are we seeing this increase in bond yields?  The US economy keeps outperforming, inflation is very resilient and the Central Banks (FED and BoC) keep waffling on their interest rate rhetoric.  Good economic news equals bad news for mortgage rates.
Here’s what’s happening:

UNITED STATES

• US jobless claims were lower – They were expected at 207,000 and came in at 187,000.
• US employment numbers were much higher – 164,000 vs the expected 115,000
• US non-farm payrolls are also up – 216,000 vs the 170,000 expected
• US unemployment rate; 3.7% vs the predicted 3.8%
• US core inflation – is up
• US retail sales, industrial production, manufacturing, all UP, UP, AND UP

CANADA

• Unemployment rate – flat
• Full-time employment – down
• Part-time employment – is up
• Core inflation – slightly up
• Year-over-year inflation – is high
• Retail sales are slumping

While Canada is slightly struggling in comparison to our neighbour, we are very linked to their performance.   We may feel a squeeze coming in the first part of the year.  The Bank Of Canada will be announcing its next rate decision on January 24, 2024.   We are predicting verdict of “no change” while we wait to see what happens economically.  With it being a US election year, my feeling is that the US economy is going to be in the crosshairs of all American voters and will likely stay strong and robust.  Time will tell.

Contact us for a mortgage rate hold and pre-approval today

In this series, we are diving deep into the fine print of mortgage contracts and explain the terms.  I also want to explain the mortgage elements that are important to me.  I hope every existing mortgage holder and every soon-to-be mortgage holder will read this series of posts on social media and our blog.  Please feel free to share with your friends, family, and colleagues.

MORTGAGE PENALTIES & FEES

We are going to calculate 3 penalties based on the same scenario.
Penalty 1: $3,100.00
Penalty 2: $11,000.00
Penalty 3: $13,750.00

Life happens.  Divorce, death, disability, job loss, large repairs, new opportunities, winfalls, and hardships.  These factors can turn one’s life upside down, and also will most likely affect your mortgage and where and how you live.   The first area we are going to cover is mortgage pre-payment penalties.   A mortgage prepayment penalty is a fee that will be charged to you by your lender if you, overpay your prepayment privilege amount,  break or exit your mortgage contract early,  switch/transfer your mortgage to a new lender before the end of your closed mortgage term or pay your mortgage balance in full before the end of the closed term.

There are two types of terms, open and closed.  An open term is generally more expensive in terms of rate (usually 1%-2% higher than the lower closed term), but you are allowed to pay as much principal as you like, at any time without penalty.
A closed term is lower cost to borrowers and will be restricted or closed to the amount you are allowed to pay each year (usually 10%-20% annually), some lenders will allow you to increase each installment payment (usually 10% to as high as a double up).

Not all penalties are calculated the same way by each lender.  There are three types of penalties, an IRD – Interest Rate Differential, an IP – Interest Penalty (usually 3mos), and a POB – Percentage Of Balance Penalty.  Almost all lenders who offer closed terms will have these three penalties in the fine print.  Most mortgage contracts will state in the event that you violate the contract by overpaying or breaking the mortgage you will pay the “GREATER” of the Interest Differential Penalty or the Interest Penalty.   Most borrowers’ brains will assume, or lead them to believe that the 3-month interest rate penalty will be greater, which will be the penalty charged if they break their mortgage.  This assumption can be VERY COSTLY.  The POB – Percentage of balance penalty is what it is, usually 2.75% – 3% of the outstanding mortgage balance at the time.

Let’s calculate a 3-month interest penalty.   In today’s market, a $500,000 mortgage at a 5.19% 5-year fixed rate, amortized over 25 years will have a monthly mortgage payment of $2,962.34.  At the beginning of the mortgage term, your principal portion of this payment is $823/month and your interest portion is $2,139.  A 3-month interest penalty in the first 5-year term of the mortgage will range between $5,712 and $6,417 depending on when the mortgage is paid in full.  It’s important to note that as the mortgage continues the principal amount will increase and the interest amount will decrease each payment.  It is also important to note that at the end of the closed term the mortgage becomes open and no prepayment penalty will apply.

As today’s interest rates are higher today than they were 2-5 years ago, many borrowers breaking their closed-term mortgages will have this penalty.

What about IRD – Interest Rate Differential Penalties?  These can be nasty and calculated very differently at each financial institution there is a Standard IRD and a Discounted IRD.   The IRD is the amount of interest left owing from the time you break your mortgage to the end of the term.  However, in the case of a Discounted IRD two different interest rates are used.  The first is the posted rate at the time your mortgage was signed.  The posted rate is not the rate you are paying on your mortgage, it’s the rate the lender will post on their interest rate board or website.  Generally, the posted rate is 1.25% to 2.25% more than the borrower receives from the lender.  If the 5-year fixed posted mortgage rate is 6.90% today and the lender gives you a discounted/contract rate of 5.4% this means in the eyes of the lender they have generously given you a discount of 1.5%.  It doesn’t matter that the market/street rates are 5.4% or lower.  If you break your mortgage at this lender your IRD Penalty will be calculated using the difference between the 6.9% and the current rate when the mortgage is broken.   The current rate used to calculate the IRD can also be based on the current posted rate for a closed term with a similar length or the current posted rate for a term with a similar length less the original discount given.  Confused?  Yeah, me too.  IRD calculations are a nasty business.  Here are two examples that will hopefully clear it up.

Standard IRD:
$500,000 Mortgage Balance
2 years – 24 months remaining on the mortgage term.
5.19% – Current Mortgage Rate
4.99% – Lenders Current Mortgage Rate
[5.19%-4.99%]/12 x $500,000x 24 = $3,100.00

Discounted IRD:
$500,000 Mortgage Balance
2 year – 24 months remaining on the mortgage term
5.19% Current Mortgage Rate
6.79% Lenders Posted Rate at the time the mortgage started
1.60% Rate discount
5.69% Current 2-year rate offered by your lender.
[5.19%-(5.69%-1.60%)]/12 x $500,000 x 24 = $10,999

The difference in the relatively same scenario is $7,900.00

POB – Percentage Of Balance Penalty
$500,000 Mortgage Balance
2.75% Penalty Amount
[$500,000 x 2.75%] = $13,750

If you carry your mortgage to term and nothing happens in your life, then the mortgage penalty won’t even matter.  However, if any of the following happens, the mortgage penalty will soon become one of the most important terms in your mortgage.
* Divorce resulting in the sale of the marital home
* Death resulting in the sale of the family home
* Disability or Illnesses resulting in the sale of the family home
* Job loss resulting in the sale of the family home.
* Wanting to transfer switch your mortgage to a new lender for a better rate
* Being transferred through work out of province resulting in the sale of the home and not being able to port or afford a new mortgage in the new city or province.
* A large inheritance or windfall that will allow you to pay your mortgage balance in full.

We’ve said it before and will say it again.  Saving $11 per month on your mortgage payment on a rate could cost you $1000s of dollars should life happen.

Contact us today for a 2nd opinion on your mortgage!

I’m entering my 28th year of financial services this year.  I have worked for two major banks, two financial services firms, and a life insurance company and of course worked independently as a mortgage broker, life insurance agent, and financial advisor.  I am a big believer in reading all of the fine print, and the terms and conditions of contracts.   It is important to know what you are applying for and what you are agreeing to.   If you don’t understand it, don’t sign it.

I want to get into the fine print of mortgage contracts and explain the terms.  I also want to explain the mortgage elements that are important to me.  I hope every existing mortgage holder and every soon-to-be mortgage holder will read this series of posts.  Please feel free to share with your friends, family, and colleagues.

Mortgage Life/Disability Insurance (Credit Protection)

My dear friend Kyra at DLC Head Office will appreciate my putting this topic first.   Having the proper amount of insurance coverage for your household/family is the most important financial planning decision.  It forms the foundation of your financial plan.   It is recommended as a general rule of thumb that each household carry 6-7 times the annual household income, plus all debts be covered with life insurance.  It is also a rule of thumb that 100% of net household income be replaced in the event of disability or illness.  Only a fraction of Canadian households carry this level of coverage.

Credit protection, for many years, has received some bad press.  There have indeed been some nightmare scenarios over the years, however most credit protection insurance is excellent!  You must understand what you are signing and applying for.

Post-claim underwriting resulting in claims being denied :
This happens when a person dies or injures themselves, claims their insurance provider and the company only underwrites the application after the claim has been made.  This means that the client has made all of their insurance premium payments as agreed, but the application has yet to formerly be approved.  If it is approved, great.  If it is declined, the family is refunded all of their premiums but the mortgage balance is not paid off.  How terrible would this be if your family lost one income, was mourning and in grief, and then found out, they did not have the insurance they thought.

Decreasing Benefit:
This is true.  As you pay down your mortgage, the balance decreases.  In the event of someone passing away the insurance provider will pay the mortgage balance and any penalties.   The argument is that the premium payment doesn’t decrease and only the benefit or payout amount does.   In my career, I have had 5 clients who made claims where their entire mortgage balance was paid out, 9 clients (maybe 10) who had a disability or illness, and their mortgage payments were made (Principal, Interest & Taxes) for them for up to 2-years, and I am sad to say I have had 6 clients pass away without accepting any coverage.   I can tell you that the families who had their mortgages paid out in full were not worried about the decreasing benefits.   The clients who were disabled and had their mortgage payments made for 2-years while they healed were very happy.  Finally, the families that were left with one income or no income and a large mortgage all except two had to sell their homes.  We always recommend that every single client make an appointment with a licensed life insurance expert because it may be better and of more value to have private and independent insurance.   However, when people wake up in the morning no one ever really declares “I’m going to go and get proper life insurance today”.  What they may say is “One day, maybe, I will go and get proper life insurance”

Slow Claim Payouts:
Slow claim payouts can cause challenges.    Does the family have enough money to make the mortgage payments (principal, interest, utilities, and taxes)?  If the claim takes too long, what happens to their credit score if payments are being missed?   Can the lender start foreclosure proceedings?  The simple answer is yes, however many of the larger institutions have sped up their claims processing to avoid the bad publicity.  However, this is an important question to be asked.

Insurance Portability:
Every Bank or Credit Union will allow you to take their life insurance policy and port/move it to your next home.  You may have to requalify for the top-up portion and pay a little more for the coverage (as we get older the insurance is just more expensive), but they will allow you to keep it.   What happens when you are up for your mortgage renewal, the financial institution sends you the renewal agreement with an atrociously high-interest rate, and you have the financial institution’s credit protection in place.   It may limit you from shopping around for a better mortgage rate.  Wait, what?  If you are in your 40’s or 50’s, insurance premiums are just more expensive.   If you change lenders, you will lose your current insurance coverage with your existing lender.  The cost to replace it may be more than any interest rate savings at another lender.  Your credit protection policy must be portable between lenders.

Exclusions:
What does your credit protection exclude?   This is something that is very important to understand.  What is covered and what is excluded?  Generally, exclusions will include pre-existing conditions, medical conditions from alcohol or drug abuse, suicide, committing a criminal offense, and a few others.  Disability insurance exclusions can include normal pregnancy or childbirth or cosmetic or elective surgery.

Benefits:

What is included?  Each policy is different and the more features and inclusions, the greater the benefit and value.   Here are some inclusions you may want to see if your current coverage includes.  Terminal illness Benefits, waiver of premium due to job loss, blending and extending existing coverage, mental health benefits, and extra disability benefits after you get back to work

Having proper insurance coverage is the most important element of your financial plan.   Having the right credit protection coverage is important.  Relying on your employer’s coverage may prove to be one of the biggest gambles of a lifetime.  Wake up tomorrow and declare “I am going to get proper insurance coverage TODAY!”.  Then call us, we can help you with your credit protection needs and provide you with a qualified referral to an expert life insurance advisor and specialist!

If big box retailers can start selling holiday items in July, I certainly can get our clients ready for Cottage Season in January!

This is the time of year when you may be able to find your dream cottage or vacation property and even get a bit of a deal.   If you follow REALTOR.ca you will slowly start to see more and more cottage and vacation properties being listed in preparation for the spring market.   If vendors are selling this early though, it could be more out of necessity than preference.   It’s a great time of the year to get your finances and pre-approval in order.

What most people do not know about cottages and vacation properties is that you can purchase one with as little as 5% down.

A 5% down payment is required for 4-season year-round access.
A 10% down payment is required for 3-season and seasonal access.

Each type of property will need to meet certain criteria, but the good news is that cottage life is closer than you think!

As a mortgage broker who often and regularly advertises “The Best Rate”, “The Lowest Rate”, “The Greatest Rate” and even “The Best, Greatest, & Lowest Rate”, being asked what our best rate is can sometimes be maddening and a double-edged sword.

Allow me to explain.

One of our treasured and valued REALTOR partners referred a lovely couple to me last week who will purchase a new home in Winnipeg in the coming months.   We were introduced via e-mail.   I always send out our introductory e-mail with our process, explainer videos, FAQs,  contact information, and more.   The response was,

“We only want to know your BEST RATE?”

I kindly replied and explained that each client’s situation is unique and we need to understand their needs, goals, short and long-term plans, understand their financial picture, income, down payment, and many other factors.   I advised that even if I could provide them with the lowest rate without knowing anything about them or their application it may not be the best product for their unique needs.

The reply came?

“Can you tell us your lowest rate or not?”

Of course, I can.    Or can I?  I still don’t know anything about these clients.   A phone number wasn’t provided when requested, and I have to describe my best rate.   What do they want?  What do they need?  Short-term? Long-Term? Hybrid Mortgage? Home Equity Line Of Credit?  Are they risk-loving or risk-averse? 25-year amortization? Or Longer?

I reply with another invitation to meet via Zoom or have a telephone conversation.   I know that as a broker with access to dozens of lenders, we will 19/20 times get our clients the lowest and best rate for their situation.  I know that as a broker we will provide our clients with a longer-term strategy and plan for the future.   I know as a broker we will be able to explain and educate which product may work better for them, whether it be a mortgage HELOC or Hybrid mortgage.

I include in my e-mail some recent successes.  A 4.89% 5-year fixed cottage purchase.  A refinance at 5.49% 25-year amortization.  A Hybrid Mortgage with a HELOC and 2-Fixed Rate portions a 3-year term and a 5-year term.  I go on to explain how a short-term fixed strategy may not work out due to the high premiums of short-term rates at the moment.   I share predictions of rate decreases on the 6-18-month horizon and how this could affect their mortgage.  I even try to explain how getting an insured mortgage rate and paying the default mortgage insurance can help them save money in the long & short terms (when they renew in terms 2 & 3).

I’m hoping that I was able to show them and pique their interest that they need individual and tailored advice.   I can sense that they have a rate from their BANK and are shopping it around.  I understand this as I am a person who loves a deal and to save money.  However, sometimes opting for the lowest rate, the promotional rate, or the bank’s discounted rate can cost tens of thousands of dollars in unnecessary interest and/or fees.

When asking your mortgage professional, bank, or credit union the question “What Is Your Best Mortgage Rate?”, we recommend that you change the wording just a little and ask “What Is The Best Mortgage Rate For Me?  We guarantee that if you find a home financing product that suits your individual and long-term needs you will be far better off in the long-run!

We would love to help you with your next mortgage!

Over half of the mortgages in Canada will be renewed in the next few years.  There will be sticker shock for many Canadian families who will be renewing into rates 1%-3% higher than their current mortgage.   This will result in higher mortgage payments for almost anyone.

While we will keep hoping that the Bank Of Canada will start reducing rates sooner rather than later, we will keep hoping that bond yields will keep shrinking, resulting in lower fixed-rate mortgages.

How can we prepare for higher rates?

1.  Know your numbers – Prepare your household budget and understand all of your income, payments, and cash flow.
2. Determine if it may be wise to tap into any existing home equity to lower payments or consolidate debt.
3. Identify expenses that can be eliminated or reduced (daily coffee, unused subscriptions, etc).
4. Don’t sign your lender’s first renewal offer without getting a 2nd opinion from us.
5.  Don’t panic, we can help!

At DLC Mainstream Mortgages, we will consider your whole financial picture before offering advice.  We may be able to transfer/switch your existing mortgage for a better rate, refinance all of your existing debt into one easy payment, and present alternative product options such as hybrid mortgages that will help you pay your mortgage off faster!

A fresh start begins with contacting us today!

The festive season is behind us, and the New Year is in full swing! As we pack away the decorations and bid farewell to the holiday cheer, many of us are left with the lingering effects of the Christmas and New Year debt hangover. If you’re feeling the pinch of holiday expenses fret not – there’s a solution that could bring relief and set you on a path to financial wellness: mortgage refinancing.

Understanding the Debt Hangover:

The joy of the holidays often comes with a price tag. From gifts and gatherings to travel and indulgences, it’s easy for expenses to add up. As the bills roll in, it’s natural to wonder how to manage the financial aftermath without sacrificing your goals.

Enter Mortgage Refinancing:

This is where mortgage refinancing steps in as your financial superhero. Whether you’re looking to consolidate debt, lower monthly payments, or take advantage of lower interest rates, mortgage refinancing could be the key to alleviating the post-holiday financial stress.

Why Consider Mortgage Refinancing:

1. Consolidate Debt: Roll high-interest credit card debt into your mortgage for a lower overall interest rate
2. Lower Monthly Payments: Secure a lower interest rate to reduce monthly mortgage payments and have one easy monthly payment.
3. Access Home Equity: Unlock the equity in your home for major expenses like home improvements, education, or debt consolidation.
4. Fixed vs. Variable vs. Adjustable Rates Vs. HELOC/HYBRID: Explore options that align with your financial goals, whether the stability of a fixed rate or the flexibility of an adjustable rate.

Book Your Appointment:

The first step in finding out if mortgage refinancing is right for you is to book an appointment with us. We’ll review your financial situation, discuss your goals, and provide personalized advice to help you make informed decisions.

Don’t let the Christmas and New Year debt hangover weigh you down. Take control of your finances and start the year with a plan that works for you. Contact us today to schedule your appointment and embark on the journey to financial freedom!

#NewYearNewFinancialGoals #MortgageRefinancing #FinancialWellness