I want to start by thanking my usual sources of information Chief Economist for DLCG Dr. Sherry Cooper,  RMG Vice President of National Sales – Bruno Valko,  and our friends at TD Economics.

The US and Canadian Economies seem to be diverging on two different paths.

The US is in an election year and everyone is laser-focused on the economy, seemingly out-performing expectations.  The US is posting higher-than-expected jobs and their inflation rate came in higher than expected.  In Canada, we received some good news on Tuesday when our inflation rate was lower than expected at 2.9% vs the 3.0% expectation.
Let’s examine our Canadian numbers:

2.9% – Inflation Rate Year-over-year
2.4% – Core Inflation Rate Year-over-year
-0.3% –  Inflation Rate Month-over-month

Groceries I think we are all noticing prices are pulling back down to 3.4% year-over-year down from 4.7% in December.   When I go to Costco, I notice that everything is “on-sale” back down to what their regular prices used to be.  It’s a good anecdotal sign!
To all the sun-seekers, your vacation prices are coming down.   Our shelter costs are still very high propped up by ridiculous housing policy and high interest rates.

The US economy doesn’t show many signs if any of slowing down.  In Canada we are lagging badly, even the Prime Minister is hoping for the Bank of Canada to start reducing rates.  We are directly affected in Canada by the US economy.   The 10-year US treasury yield is directly correlated to our 5-year Canada bond yield which we determine our fixed-rate mortgages.

So if Canada is lagging and the US is surging, what does this mean for people like myself who are renewing their mortgage this year?

We don’t know. However when I asked my magic 8-ball this morning “Will mortgage rates come down this year?”, I flipped it over to a pleasant “All signs point to yes”.

If you are purchasing a new home, renewing your current mortgage or planning on refinancing, having a discussion and making a plan that is suitable to your own situation.

We would love to help!

Our scenario comes from a recent client we helped with their mortgage.   Credit scores were good, employment and income were very good, but there was quite a bit of consumer debt.   The mortgage on the home was at a pandemic-low interest rate, and while it seemed silly to try to find a replacement option, the amount of interest being paid on credit cards and unsecured lines of credit was gut-wrenching. for our readers who don’t have the time to read to the end here is our Cole’s notes version.

Refinancing didn’t make sense – Sold Home – Paid Off ALL Debt – Bought New & Better Home – Lower Overall Monthly Payments – Better Cashflow ($1,500/mo.) – $25,000 put into savings – HAPPY FAMILY!

The first thing we tried to do was to refinance the home.  There was enough equity built up in the property to qualify for a mortgage refinance (more than 20%), but not enough to consolidate enough of the debt to make sense (especially at a higher mortgage rate).
We explored some other options such as an independent consolidation loan, a car loan refinance, and even a 2nd mortgage.   Nothing made the family’s situation all that better.

We asked the question, “How would you feel about selling your existing home and leveling up on a new home?”   The clients wanted to know more about this option.  Let’s break it down.

The home was purchased in 2019 for $350,000, with a 10% down payment a mortgage payment of $1,518.66 per month, and a mortgage rate of 2.89%.   The mortgage is coming up for renewal in December 2024.   Since 2019 the house has increased in value to about $480,000 due to some very nice renovations, modernization, and a market increase in price.  Their current mortgage balance as of November 2023 was approximately $287,111.00.   The debt they hoped to pay or consolidate in the refinance was close to $115,000.00 (a couple of credit cards, 2 lines of credit, 2 car loans, and a buy-now-pay-later credit card).  The interest rates on the consumer debts were, 19.99%, 19.99%, 28%, 3.9%, and 1.9% and the buy-now-pay-later had a rate of 33% if the full payment wasn’t received by July 2024.  Total monthly payments including the mortgage and all debt payments were approximately $4,300.00.

Remember, we didn’t have enough equity to refinance and accomplish the goal of a full consolidation   For this family in particular, their current home, while beautiful wasn’t meeting their needs (3 kids under 10, 2 dogs, 1 cat, a bird, and some fish).   We qualified the clients for a new home of $550,000.0o with a minimum down payment of $30,000.   They sold their home for $485,000 just before Christmas with a March 15th, possession date.  After fees, commissions, and mortgage penalty ($2,100)  they had about $173,500 left to pay out the debts in full.  They had a remainder of $58,000 to use for the down payment and closing costs.

They purchased a new home for just under $500,000 with a possession date at the end of February.   This home was bigger, nicer, and in the same neighbourhood.  We were able to secure them a rate of 4.99% for a 5-year fixed rate.   Their new mortgage payment will be $2853.10.   This is a lower overall payment of $1,457.13 per month because all of the debt will be paid in FULL!!!  This family will have an extra $1,500 per month in their budget.

For transparency,  there were costs.  The cost to sell the home (REALTOR, Lawyer, Mortgage Penalty), and there were costs to purchase the new home (Closing costs approximately $7800).

This solution worked perfectly for these clients.   A new home that suited their needs, one lower monthly payment, and $1,500 more cash flow for their household budget.  I forgot to mention they had a little money left over to put in their savings account of just under $25,000.

If you applied for a mortgage refinance and were denied, or the numbers didn’t make sense, please call us for a 2nd opinion!

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!

Yesterday, the US released economic data, which is already negatively impacting Canadian fixed mortgage rates.

US inflation numbers were 3.1%, which is above market expectations of 2.9%.  Core inflation also remains stubborn and it ticked up from 0.3% to 0.4%.   Immediately we saw our bond yields increase.  The 5-year Canada Bond Yield opened this morning at 3.79% (Remember the 5-year fixed rate mortgage rate will usually be priced 1.5%-2% over the yield).  The higher bond yields mean tighter margins for mortgage lenders and increases will most likely be coming today and tomorrow (Feb 14 and 15th).

Last week Statistics Canada Labour Force Survey is starting to show signs of increasing immigration.  Full-time jobs increased by 37,300 and part-time jobs increased by a whopping 48,900.   Many of the jobs are in the public sector and many were in the service sector.  The working-age population increased by 125,500 or 1,000,000 people year-over-year.  ONE MILLION PEOPLE! *insert Dr. Evil laugh here*

Canada is challenged.

1. Population explosion.
2. Housing shortage.
3. Interest rates are being dragged up by a hot US economy.
4. Terrible mortgage policy for over 12 years.
5.  Infrastructure concerns (schools, roads, services, transportation, health)
6.  Wages are up over 5% year-over-year.

I’ve been saying this for quite a while now that I think any rate decreases are going to be slow and steady barring the occurrence of a major calamity (financial, health, war, weather).  This early rate reprieve may be coming to an end.  It is a great time to call us for a 2nd opinion on your existing mortgage.  If you are going to purchase this year, it’s an even better time to get pre-approved and lock your rate in!

If you made it this far, contact us right now and we will be happy to answer your questions.

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!