Mortgage Update

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Negotiating a mortgage can be overwhelming at the best of times. Knowing who has the best options and the best rates takes time, dedication and expertise. That’s where Equal Mortgages comes in. We are passionate about our industry and offer each of our clients’ sound expert advice, helping make the process as stress free as possible. Whatever your circumstances, we’ll find a variety of mortgage options that work for you.

www.equalmortgages.com
20858 Fraser Highway
Langley, BC V3A 4G4
Julie Brunsch
Phone: 604.418.4819
Email: julie@equalmortgages.com
Susan Stam
Phone: 604.996.5919
Email: susan@equalmortgages.com

Mortgage Update for July 2010

Has anyone ever explained to you the advantages and disadvantages of taking a longer amortization on your mortgage? It is a very important part of the mortgage decision making process and one that is quite often ignored or not adequately discussed.

The amortization of your mortgage is the years that it will take to pay off your mortgage in full. The maximum amortization is now 35 years which allows for the lowest monthly payment. This allows people to qualify for a larger amount of mortgage than with a 25 year amortization. This is an advantage for some but it also increases the amount of interest that you will pay over the life of your mortgage because the amount being paid down on principle each month is substantially less. For a typical $250,000 mortgage amortized over 35 years at a fixed five year rate of 3.95%, the monthly payment is $1,094.66, interest paid over the 5 year term is $47,258.98 and the principle reduction over the term is $18,420.62. If you take the same mortgage but amortize it over 25 years, the monthly payment is $1,308.28 ($213.62 more per mo.), interest paid over 5 years is $45,943.04 ($1,315.94 less) and the principle reduction is $32,553.76 (that’s $14,133.14 more in just 5 years!). You can see why lowering your amortization can drastically save you money over the life of your mortgage PLUS make you mortgage free that much sooner.

A great idea, which I suggest to many of my clients, is to take the maximum amortization you can as this establishes a minimum monthly payment with your lending institution, and then have your payment increased to the maximum that you can afford. This will increase the amount being paid against your principle every month, which will in turn reduce your interest cost and pay down your mortgage faster BUT will also allow you to reduce your monthly payment back to the minimum if you ever have any financial difficulties. Two important points to consider regarding this plan are 1.) if your mortgage will be insured by CMHC (ie, you have put down less than 20% of the purchase price), this might not be a good option as CMHC charges more for longer amortizations and 2.) make sure that your lending institution offers flexible repayment options that will allow you to increase your payment and then lower again if needed (most institutions do).

If you would like to further discuss the implications of varying lengths of amortization and what difference it can make to your mortgage, please feel free to give us a call or email us.

Mortgage Update for June 2010

With the recent increase to the Bank of Canada’s key lending rate, many people are now wondering if now is the time to lock in those variable rate mortgages that have been doing so well for the last several years. Fixed versus variable has also always been an important question to ask when determining what option you should select for your mortgage. This decision should always be based upon your own personal situation.

Some thoughts to consider when contemplating locking in your existing variable rate mortgage or taking a variable rate mortgage on your new mortgage term instead of a fixed:

*How will increases in prime rate affect your personal situation? For some, changes in rates will not drastically affect their financial situation, but for others, even small changes can have a significant impact on their monthly cash flow. Remember, variable rate mortgages have no ceilings for rate increases, so with your present situation, are you able to handle increases to your monthly mortgage payments?

*How will your other debt be impacted by interest rate increases? Your mortgage is a debt that you have some amount of control of regarding rate – you decide fixed vs. variable, you decide when to lock in a variable rate mortgage – although you cannot dictate the rate available at that time. With other forms of debt - credit cards, personal lines of credit, and variable rate personal loans - you do not have any control over the rate. If you carry a significant balance in any of these forms of debt, rate increases will impact these debts and therefore decrease your monthly cash flow when your payments subsequently increase.

There are other areas to consider as well therefore making this an important and somewhat complex decision for most consumers. If you would like to further discuss the pros and cons of a variable rate mortgage and how it may or may not benefit your personal financial situation, please give us a call.

Mortgage Update for May & June 2010

Have you ever thought about increasing your mortgage payment and wondering what sort of affect it would have on your mortgage? Well, it would have a BIG impact and is seriously worth looking into.

Most institutions offer repayment options that can be used to lower your principle owing. Almost all institutions offer options to change the payment frequency from monthly to biweekly or even weekly and the ability to increase these payments as well. Any extra amount you pay goes directly against principle and over a typical 25 year mortgage, that can have a dramatic impact on how quickly you pay off your mortgage and therefore, how much interest you pay. Also usually offered, is the option to apply a lump sum directly against the principle. This amount can range from 10 to 20% of the original mortgage amount and can be applied on the anniversary date of the mortgage or at any time during the calendar year, depending on your institution’s repayment policies.

For example, on a $250,000 mortgage with a five year rate of 4.50% and amortized over 25 years, the monthly payment would be $1,383.68. If you changed that payment to a rapid biweekly (26 payments per year based on 13 months of payment rather than 12) of $691.84 you would reduce your principle by just over $8,000 in that five year period alone. This would result in substantial interest savings over the life of your mortgage, the less principle you owe, the less interest you pay, the quicker you will pay off your mortgage.

Another option to consider is applying your tax refund as a lump sum against your mortgage. The Canadian government has stated that the average tax return is $1,400. If that was applied against your mortgage every year for five years, while maintaining the minimum monthly payment, your principle reduction would be approximately $7,800, resulting in a significant interest savings over the life of your mortgage.

Your financial institution should have several options available for reducing your mortgage, saving interest and therefore, allowing you to become mortgage free that much faster.

If you would like to discuss how these options can directly benefit you, please do not hesitate to give us a call.

Mortgage Update for April 2010

Recently the Canadian government announced some changes to policy regarding how Canadians qualify for mortgages. These changes are meant to ensure that borrowers do get into financial difficulty in the future with regards to their mortgage financing. Borrowers looking for terms of less than five years on a fixed rate mortgage will now have to qualify at the five year posted rate as will those applying for variable rate mortgages. Secondly, for homeowners wanting to refinance their existing mortgage, the loan to value maximum has been reduced from 95% to 90% of the value of your home. Lastly, investors wanting to purchase rental properties will now need to have a minimum down payment of 20%.