Did you get your mortgage last year?  Are you in a Fixed Rate Term over 5.5%, maybe even over 6%?   Are you worried that you may have a very high penalty?

I’m writing this post today to tell you that you may be able to get out of your existing mortgage with a 3-month interest penalty, or a small IRD (interest rate differential).  This works particularly well if you have a mortgage that is insured with CMHC/Sagen/Canada Guaranty because you can transfer your mortgage to a new lender with a rate very near 5% –  In almost all cases a 0.5% – 1.2% rate reduction can save a staggering amount of money.

Here’s what we can offer:

1. A lower rate that can save you $1000s
2. Complimentary legal work through FCT or FNF Canada (The lender will cover these costs)
3. We can include up to $3,000.00 of your penalty into the new mortgage.

Contact us today for a complimentary consultation!

It’s easy to think of your mortgage transaction as a “one & done” scenario.  Many people in the mortgage industry, from bankers to loan officers to other brokers, can provide a transactional service.   You’re another number, a notch on the post, and a check-mark on the spreadsheet.   The mortgage product you may have may have been the best rate at the time and it may have been the worst.  The terms may be excellent, or not so excellent.  It doesn’t matter to the transactional salesperson.  It reminds me of Alec Baldwin’s famous scene from Glengarry Glen Ross “ABC – Always Be Closing” (for your reference here is the YouTube link https://www.youtube.com/watch?v=AO_t7GtXO6w).  This isn’t how we’ve ever viewed our business.

We prefer a different approach.  In the spirit of Glengarry Glen Ross, I was trying to think of a good acronym and came up with PRESS.  We always want to have good PRESS!!!
P – Partnership
R – Responsive
E – Educational
S –  Supportive
S – Secure

We apply this holistic approach to our business so that we can provide you with a lifetime of excellent mortgage advice for you, your friends, and your family.   We can explain and educate you why we are recommending to you a product, rate, term, insurance coverage or referring you to one of our excellent industry partners.  When choosing to partner with clients, REALTORs,  lawyers, insurance providers, financial planners, etc the standard we’ve always used is if we would refer them to our parents.  If the answer is yes, we would love to work with you!

As mortgage professionals, we are more than just the rate and the transaction.  We can recommend the right products, lenders, and strategies that will give you financial savings and peace of mind.

Contact us today for a complimentary 2nd opinion about your mortgage.

This isn’t a trick question.  Many of the big banks in Canada this week are offering 120-day locked-in pre-approvals/rate holds of 5.7% or higher.   There isn’t any reason for a borrower to agree to pay more.

Before we get into the large sums of money that can be saved, I wanted to take a moment to mention the virtues of using a mortgage professional.

1.  If rates go down during your pre-approval period, we will automatically get the lower rate for you.
2. When you purchase a home we will again shop your rate around to all of our 20+ lenders.
3. We are going to review all of your documents up front, check your credit, and about 140 more items to ensure your pre-approval is as bonafide as it can.

These three features on their own should be enough to convince anyone to use a broker.  But WAIT!  THERE’S MORE!  There are massive savings that you can realize as a borrower.

Our average mortgage size over the last 3 months has been $330,000.00.  Let’s compare 5.7% vs 5.14% for a 5-year fixed insured mortgage rate over a 25-year amortization.

$107/month lower payments.
$8,906 less interest paid over 5 years.
$2,474 more principal paid over 5 years.

The savings are substantial.

What happens if you apply the $107/month payment to the principal each month (an apples-to-apples comparison)?

The payments will be the same ($2,053 per month if you’re wondering).

$9,779 less interest paid over 5 years.
$9.767 more principal paid over 5 years

But WAIT! THERE’S MORE!

If you simply increase your payments to match there is an added benefit that the amortization of your mortgage drops from 25 years to 22 years and 7 months.

It really pays to speak to a mortgage professional.  We can help you save $1000s of dollars in unnecessary interest and fees!

Contact us today!

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!