 Mortgage Update
Let us find the right mortgage for YOU!
 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.
Mortgage Update for January 2012
Cashback mortgage is a term that you don’t hear
discussed too much anymore but it is a product that many
financial institutions still offer. It is a product that
may sound very appealing at first but definitely
deserves some discussion regarding its pros and cons to
determine if it is the right product for you.
Typically, a cashback mortgage will pay out to the
borrower 5% of the mortgage amount in cash, if the
borrower takes a term of 5 years or longer. At a time
when purchasers are buying a new home and all their
available funds are being used for the downpayment,
legal fees, property purchase tax, etc, this may be an
attractive offer to help replenish your savings. Or at
renewal, this cashback offer may present an opportunity
to pay down existing debt, make a lump sum payment on
your mortgage or provide you with an unexpected windfall
for a holiday or another desirable item. Either way, the
costs involved need to be reviewed.
For most institutions that offer a cashback mortgage
option, a clawback clause also applies. This means that
if during the 5 year (or longer) term, you want to break
the contract (ie, early renew, refinance, payout your
mortgage in full), you will owe the financial
institution a portion of the cashback funds that were
initially given to you. Depending on your scenario, this
may be added to your existing mortgage principle or come
out of your home’s equity. It will be treated as an
additional penalty to you.
The other important factor to consider is what rate you
are given to receive this cashback incentive. Financial
institutions do not offer discounts to this rate and the
clients are given the posted rate. Today, with a major
financial institution to receive the 5% cashback, you
would receive 5.29% fixed for 5 years. Our best rate now
is 3.29%. On an average mortgage amount of $250,000 you
would receive $12,500 cashback. The monthly payment
based on the 5.29% (amortized over 30 years) would be
$1,377.82 and on 3.29%, the payment would be $1,090.44.
The difference is $287.38 per month. The difference in
interest paid over just the initial 5 year term is
$24,214.86. You would be paying almost double the funds
in interest than what you received in cashback.
The cashback option may be beneficial for some but
before you consider taking this option, you should do a
thorough financial analysis to determine if it is right
for you.
Feel free to contact us anytime to discuss cashback
mortgages or any other related topics and/or questions.
Mortgage Update for November 2011
Most homeowners seem to automatically take the 5 year
closed fixed or variable rate mortgages. No one seems to
give much thought to taking shorter terms but on
average, most mortgages last approximately 3.44 years.
The reasons this can very from individuals selling their
existing homes and purchasing new, refinancing their
existing mortgages or early renewing to take advantage
of lower rates. Whatever the reason may be, whenever you
do decide to end your mortgage term early, you face a
penalty. Depending on the type of mortgage, existing
rate and term remaining, this can either be three months
of interest or the IRD (interest rate differential).
Financial institutions do offer ways to get around the
penalty such as porting the mortgage, mortgage
assumption and blend and extend early renewal.
Instead of taking one of these options which can
restrict what you are able to do and what rate you are
eligible to receive, take a look at shorter term
mortgages such as the three year. Currently, the three
year rate is extremely low at 3.19% (effective Nov. 18,
2011) compared to 3.39% for a fixed 5 year. Looking at
this option rather than a 5 year will not only give you
a lower rate for the next three years but will open up
your options upon renewal three years later. Based on
history, it seems that many homeowners are making
significant changes and/ or decisions in their lives at
this time. Having this flexibility with your mortgage
may make these decisions and changes a little easier.
If you have any questions regarding the different terms,
rates and products currently being offered, or any other
mortgage questions please feel free to call or email us
anytime.
Mortgage Update for October 2011
What are the advantages of the using a mortgage broker?
There are many reasons to use a mortgage broker:
1. Mortgage brokers are educated professionals who
specialize in mortgages - that’s all we do and that’s
what we know best. Unlike advisors with your local bank
or credit union who need to know a little about so many
varied topics, mortgage brokers only advise on
mortgages.
2. On a large majority of deals, our clients do not pay
for our services. We are paid by the lending
institution. So our expert knowledge, personalized
service and access to dozens of lenders, is free to
almost all clients.
3. We find the best deal on the product most suited to
your needs. Not all products are the same just as not
all clients require the same type of mortgage. We will
make sure that not only do you get the best rate
available but on a product that is right for you and
your financial situation and future goals.
4. We only pull one credit check. If a person were to
apply to several different institutions looking for the
best rate, each institution would perform a separate
credit check which would actually lower your overall
credit or beacon score. This could possibly damage your
future credit opportunities. No matter how many
institutions we send your mortgage application to in
search of the best deal for you, only one credit check
is pulled.
5. We work flexible hours and locations. Our hours are
not determined by preset office hours nor are we tied to
an office. We work when and where our clients need us.
If that means that you would like a meeting at your home
at 9pm after your children are in bed or during your
lunch hour at your office, we will be there.
6. We save you time and money by:
-getting you the best rate
-ensuring that your mortgage is best suited for you and
your needs
-offering you advice on how to pay down your mortgage
faster
-coming to you when and where it is convenient for you.
If you are in the market for a new home, refinancing or
renewing your current mortgage, an investment property
or a second home, give us a call and see all that we can
offer for you.
Mortgage Update for August 2011
Have you ever considered buying a
home that requires some “TLC” or that could use some
updating to bring it into the 21st century but have not
been able to afford the downpayment required AND the
cost of the renovations?
There is a great option available
for those looking to purchase a “fixer upper” in CMHC’s
Purchase Plus Improvements financing program. This
product enables those individuals who want to purchase a
home that requires some updating/maintenance the ability
to do so and finance the cost of the renovation. CMHC
allows you to borrow up to 95% of the as-improved value
(value after the work is complete). There are no
additional fees or premiums charged on this product.
There are even refunds offered on the mortgage loan
insurance premium to those whose renovations to existing
homes are considered energy-saving.
For those that see the hidden
potential in older homes and realize the significant
increase in value that can come from renovating, this
product can help you get into this market with as little
as 5% down. For more information, please visit CMHC’s
website at
www.cmhc.ca and look under Flexible Financing
Options for Consumers. Or, feel free to give us a call
anytime regarding this or any other mortgage issue.
Mortgage Update for June 2011
When you are looking for new mortgage, rate is what
people look at the most. However there are other
important issues to consider as well such as what
percentage lump sum you are able to put down per year,
how much can your payment be increased and do they offer
payment options other than monthly. Two other important
terms to consider are if the mortgage portable and is it
assumable. They may not seem important now but if you
decide to move or refinance during your locked in term,
they become very important.
All institutions charge a penalty (the greater of 3
months of interest or the IRD) when you break your term
for selling or refinancing your mortgage but they do
provide options to avoid this penalty. Portability and
assumption are two of these options. Portability allows
you to port, or transfer, your existing mortgage terms
to a new mortgage (in the case of a refinance) or to a
new mortgage on a new property. The rate and the
remaining term are moved over to the new mortgage and
because the term of the mortgage still continues, there
is no penalty. If you borrow additional funds over what
your current balance remaining is, your current rate
will become blended with today’s rates and the new rate
will be a blended rate. If you borrow less money, you
may actually pay a portion of the penalty but you will
retain your rate. Assumption is when the new purchaser
of your property qualifies to assume, or take over, your
existing mortgage. Again, there is no penalty in this
case but the same conditions noted above apply if they
borrow more or less money. This may actually be a
selling feature on your home if the current day’s rates
are higher than the rate that you currently have on your
mortgage, ie. current rate is at 4.25% for 3 years but
you have 3 years remaining on your term at 3.50%.
When you are applying for a new mortgage, make sure you
ask what their prepayment options are (what is the
maximum lump sum per year and how much you can increase
your payment by), payment options (biweekly, weekly,
etc) and if their mortgages are portable or assumable.
When the time comes to refinance or sell your home,
contact your mortgage institution or your mortgage
broker to find out what your options are. Depending on
current rates, you may or may not want to take your
current rate with you to your new mortgage. If there is
a penalty involved you need to weigh that cost against
the new rates available and see what the best option for
you is.
Feel free to give us a call or email us anytime to
discuss what issues and options you need to look at when
refinancing or thinking of selling your home.
Mortgage Update for April 2011
Today more banks are offering collateral mortgages
rather than your traditional conventional mortgages.
Conventional mortgages have a reducing amortization
where the security decreases as the mortgage balance
decreases and therefore increasing and freeing up your
equity. Collateral mortgages do not decrease in
security. They are like taking a chunk of your equity
and using it to secure your mortgage. This security is
usually used for lines of credit where the balance
floats up and down similar to a visa but with a much
better rate. But now banks are using collateral charges
for mortgage security and this presents some additional
concerns for the home owner.
There are several reasons behind this new form of
security:
1. If you apply for a mortgage and a line of credit at
the same time, only one charge against your property
will be registered and therefore saving on the initial
legal fee.
2. As your mortgage reduces, freeing up equity, you are
in the position to apply for an increase to your
mortgage or a line of credit without having to pay for
legal fees again. However, you will still have to
qualify and depending on your loan to value, an
appraisal may need to be done. The idea here is that it
saves you legal fees.
3. It enables to you to structure your financing to best
suit your needs within one registered charge against
your property.
This sounds great but there are a few things to
consider. This really ties you to your lender. These
products are not transferrable to another institution as
no lender will accept the transfer of a collateral
charge. The harder it is to leave an institution, the
less bargaining power you will have during renewal or
refinance negotiations. Another example would be if you
are interested in a line of credit and you do not like
the terms and conditions of the one offered by your
existing institution, you may not be able to get one
with another institution if the security registered
against your property is high, ie. the existing charge
does not leave any room for another charge against the
value of your home.
Collateral charges can work well for some individuals
but just make sure that you have all the facts and
consider all the options before you make your decision.
Please feel free to give us a call to discuss
conventional versus collateral mortgages or any of your
mortgage questions.
Mortgage Update for January 2011
First Time Home Buyers Incentives
It is very difficult to save the funds required for a
downpayment in today’s real estate market as well as the
other costs related to purchasing a home. The federal
and provincial governments have incentives for first
time home buyers that make purchasing your first home
much easier.
The federal government offers the Home Buyers Plan (HBP)
which allows first time home buyers the opportunity to
use up to $25,000 from their RRSPs toward the purchase
of their principle residence. The funds must remain in
the RRSP for at least 90 days prior to the withdrawl or
they will not be eligible for tax deduction against your
income for that year. You are able to repay these funds
over 15 years. 1/15 is due each year and if the funds
are not paid back into your RRSP, this amount will be
added to your taxable income for the year. For exact
qualification guidelines and more information on this
program, please refer to
www.cra-arc.gc.ca or call #1-800-O Canada.
The provincial government also offers a program for
first time home buyers called the First Time Home
Buyers’ Program which offers a rebate on the property
purchase tax (PPT) on purchases up to $425,000. There is
also a partial rebate on purchases up to $450,000. This
can be quite a substantial savings as the formula to
calculate the PPT is 1% of the first $200,000 of the
purchase price and 2% on the remaining amount. On a
purchase of $425,000 this is a savings of $6,500. There
are also strict qualifying criteria such as you must be
a Canadian citizen, have lived in BC for at least 12
months prior to the purchase date and you must never
have owned a home before as your principle residence
anywhere in the world. For more information on this
program and its exact qualifying criteria, please refer
to
www.sbr.gov.bc.ca.
Please contact us directly if you wish to find out more
about the opportunities available to first time home
buyers as well as the excellent rates that still exist
in today’s market.
Mortgage Update for November 2010
Whether you are considering purchasing a new home or
refinancing your existing mortgage, contacting a
mortgage broker to get a rate hold is an excellent idea.
The main benefit in obtaining a rate hold is that it
protects a rate for you in a volatile market. If rates
are increasing, you are comforted in knowing that you
have a rate held for you and you don’t need to worry
about yours increasing. This will also protect the
mortgage amount that you are pre-approved for because as
rates increase, the amount that you qualify for will
subsequently reduce. Alternately, if rates decrease,
your lender or mortgage broker will ensure that you
receive the lower rates.
Another important element of a rate hold pertains to
penalties with refinances. Today, most people that are
refinancing their closed mortgage are faced with paying
a penalty for paying the mortgage out early as it is
considered breaking a contract. This is either three
months of interest or the Interest Rate Differential (IRD),
whichever is greater. In our current low interest rate
environment, the IRD is the most common penalty and can
be quite substantial. If you have a rate held for you,
which can range from 90 to 120 days, you can take
advantage of this time period to wait for changes in the
interest rate market. If rates increase, the IRD penalty
will reduce as the rate that your current lending
institution is basing your penalty on is increasing.
Therefore, the difference between your existing rate and
the currently rate is also reducing as is the
institution’s loss. The benefit for you it twofold – a
lower interest rate which has been held for you and a
lower penalty.
It is always a good idea to contact a mortgage broker to
discuss receiving a mortgage pre-approval. Not only will
this give you the all important rate hold (at no cost to
you) but it will also give you the security of knowing
exactly what amount of mortgage you qualify for so there
are no disappointing surprises.
If you would like more information regarding rate holds
and pre-approvals, or have any other mortgage questions,
please feel free to email or call me anytime.
Mortgage Update for October 2010
If you want to pay down your mortgage faster, a great
idea is to change your monthly principle and interest
payments to bi-weekly, i.e. every second Friday. Make
sure that when you ask your lending institution to
change your payments that they do so on an accelerated
or rapid basis. It can make quite a large difference in
interest saved over the life of your mortgage. The
difference lies in the way that the payment is
determined. For a regular biweekly payment, the amount
is simple determined by taking your monthly payment
times it by 12 months and then divide by 26 payments. An
accelerated biweekly payment is determined by
multiplying your monthly payment by 13 months and then
dividing by 26 payments. This extra month of payments
spread out over 26 payments is what makes the difference
and will help pay off your mortgage faster.
Example:
$300,000 mortgage at 3.45% fixed rate for 5 years,
amortized over 25 years
Monthly principle and interest payment = $1,489.90
Regular biweekly = $1,489.90 x 12 months/ 26 payments =
$687.65
Accelerated biweekly = $1,489.90 x 13 months/ 26
payments = $744.95
Result => $57.30 extra will go against your
mortgage principle every 2 weeks to shave 3 years off
the life of your mortgage!
$57.30 every two weeks may not seem like a lot but it
does have a big impact over the long run. Wouldn’t it be
nice to get rid of that mortgage early? And all you need
to do is contact your financial institution and ask them
to change to monthly payment to an accelerated or rapid
repayment. Or if you are already on a biweekly
repayment, just make sure your payment is accelerated or
rapid.
If you have any questions on how to pay down your
mortgage faster or any other mortgage questions, please
do not hesitate to call or email me anytime.
Mortgage Update for September 2010
Have you ever wondered what people are referring to when
they say “take the equity out of your home”? If you,
like many homeowners, have experienced an increase in
the value of your home from when you purchased it, you
have equity in your home. This equity comes from the
difference between the current market value of your home
and your current outstanding mortgage balance. You are
able to use this equity as security for additional
financing. This can be in the form of increasing your
existing mortgage, a second mortgage, or in the form of
a home equity secured line of credit.
Second mortgages resemble first mortgages in that they
usually have a fixed mortgage rate for a set term with a
fixed payment, and are usually amortized over a longer
period of time, ie. 25 years. Secured lines of credit
have a floating rate based on prime, at most
institutions that rate is currently prime plus 1%, and
have interest only payments. Lines of credit are
extremely flexible as they allow you to take your
balance up and down, make payments of any size (minimum
payment is interest only) and payoff the balance in full
without penalty and retain the line of credit as long as
you require. However, second mortgages have conditions
similar to first mortgages in that they restrict payment
increases and prepayments to certain amounts, as well as
payments in full.
Using your home equity can be extremely beneficial for
many purposes such as restructuring your outstanding
loans and credit cards to reduce your monthly payment
and overall interest rate; financing large purchases
such as vehicles, recreational vehicles, post secondary
tuition, home renovations or purchasing recreational
property. Your home equity can also be used for
investment options such as purchasing investments or
rental properties.
If you are interested in receiving more information
about how to make the most of your home equity, please
do not hesitate to contact me.
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%.
If you have any questions regarding these or additional changes or would like more information regarding mortgage policies and the best mortgage rates available, please give us a call.
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Deanna Tall
Prudential