toronto mortgage rates

3 Tips When Renewing Your Mortgage

Mortgage QualificationI have to share this personal experience since it resembles what I deal with on a daily basis with my mortgage clients. My home and auto insurance policies have been with a company for years now until I got my renewal letter a few weeks ago. The jump in insurance premium caught my attention especially since my wife and I are responsible drivers: we have 2 young children, and our records have been impeccable; no tickets, no violations, no accidents.....Usually I get my renewal, go through it to ensure there aren't major changes, the price is reasonable based on the previous premium and then renew.

Sounds familiar? You get your mortgage renewal, too busy with kids, work and life, numbers look ok and you renew?  I wasn't happy with the increase in premium and decided to look around.

I tried a price comparison site which provided a low price but after connecting with the insurance company it turned out the information transferred to them from the rate site was inaccurate and the quoted price was invalid; it was higher.

Sounds familiar? You check out a mortgage rate site to find out the rates being quoted are for 30 day closings, have restrictive conditions, not valid for rental properties, you can't refinance the mortgage in the future.....and the list goes on.

By investing some time I saved 25% off what was offered by the existing insurance company.

3 Mortgage Renewal Tips

  1. Don't sign the renewal letter sent by your incumbent lender
  2. Rate sites provide a number but don't tell the full story
  3. Take the time to consult with a professional, it could save you thousands of dollars

In my business, new and repeat clients are provided with superior service and their business is never taken for granted.  I don't understand why some businesses take their existing clients for granted.

If your mortgage is up for renewal, you don't want to be taken for granted and looking for professional unbiased advice, please contact me.

How To Beat 2.99% 5 Year Mortgage Rate

Bank of Montreal's 2 week promotion of 2.99% 5 year fixed rate has initiated a flood of emails from lenders lowering their interest rates on various mortgage terms.  Yes, the gloves are off since we are back from the holidays and the real estate market is active again. Can this rate be beat?  The answer is yes if one looks at a longer term.  Here is a scenario I ran for clients today based on a $250,000 mortgage:

Option 1: 10 year fixed 3.89% amortized over 30 years.

Option 2: 2.99% 5 year fixed amortized over 25 years, renew at normal interest environment of 5.75% for 5 years (click here for historical chart).

For both options, the monthly payments are set exactly the same over the 10 year period.  Here is a screen print of the comparison chart:

Summary:

  • Option 1 home equity after 10 years: $75,706  (10 year fixed results in additional equity)
  • Option 2 home equity after 10 years: $69,576
  • Payment shock with option 2: $310 per month when renewing from 2.99% to 5.75%
  • With inflation hedge mortgage strategy, additional equity would be obtained with option 1

In conclusion,  mortgage rate is important, however looking at the long term picture and minimizing the cost of homeownership is key.

To discuss how you can be mortgage free sooner, please contact me.

2 Factors That Can Affect Your Home Value

The second factor that can affect your home value is jobs creation or an unemployment spike. Cities or towns that are reliant on one major industry are exposed to large swings in real estate values.
For example cities such as Windsor and Oshawa are reliant on the automotive industry. Since the automotive industry downturn, many jobs that support the auto industry have been lost as well (tool & die, transportation, manufacturing companies, sub suppliers...). As unemployment numbers rise, the supply demand pendulum swings towards more people selling their homes and/or less having the appetite to buy homes since there is a lack of job security which lowers real estate values.  This has been evident in Windsor over the last few years which continues to struggle in creating jobs.

Keep in mind the next time you are looking for a home or an investment property in a city, to take a look at job creation activities such as companies relocating or expanding, infrastructure investment or a city that is diversified in multiple industies. Afterall, having all the city's eggs in one basket is risky!

To discuss your personal mortgage needs, please contact me.

What's Happening To Variable Mortgages?

What Was That Lender's Name Again?

Mortgage brokers promote dealing with 20 or more lenders.  However, many homeowners only recognize the big 6 banks they have seen on street corners.  So who are these other lenders that brokers promote? In Canada, approximately 25% of homeowners use the services of a mortgage broker.  These lenders are Canadian owned and operated, but choose to fund their mortgages through the broker channel to cut overhead costs on "brick and mortar".  Afterall, having full-time salaried employees with benefits cost money, not to mention the costs of operating a bank branch.  Due to the reduction of expenses for the "non-bank" lenders, they tend to pass on the savings to borrowers through lower rates.

What are The Risks of Dealing With Non-Bank Lenders?

There is a mis-conception, especially after the financial credit crunch in late 2008, that borrowers will lose their homes if the mortgage is funded by a non-bank lender.  This is absolutely not true.  The risk is assumed by the lender since they are the ones giving out their money with the understanding the borrower will repay the mortgage on time.  Also, keep in mind these lenders function under the Canadian Government rules and laws.

Why Should I Choose a Non-Bank Lender Over A Bank?

You don't have to.  A non-bank lender is an option that is presented by your mortgage professional to consider.  Other important factors to consider when choosing a lender are:

  • How is the mortgage penalty calculated?
  • If I decide to lock in, do I get the posted or discounted rate (typically 1.5% difference)?
  • What features are built into the mortgage (pre-payment, increased payment, portable, assumable...)?
  • What are the fine print terms that I should be aware of?
  • Who & how will my mortgage be managed? Afterall, getting a mortgage is one thing but working with someone who will oversee the mortgage and optimize it to reduce overall interest is another skill (click here for inflation hedge mortgage strategy)

Bottom line, if you pay your mortgage on time no on will take your home away!  This is Canada afterall.

To discuss your personal mortgage financing situation, please contact me.

How You Can Buy A Home With $24.95?

A client approached me a few weeks back with interest of getting pre-qualified for a mortgage to buy their first home. During our initial meeting, we discussed their goals, where they see themselves in 5 years and cash flow projections based on mortgage interest rates over the next 5 years.  One of the questions I ask, is how the person's credit score is. The client stated they had no outstanding debt with very little credit card balance that is paid off every month.  Once all the necessary information was gathered, a credit check was completed and I was shocked to what I saw in their report. There was an outstanding student loan which showed delinquency for over 21 months which literally had destroyed the client's credit score and history.  I contacted the client to notify them of the issue and they were surprised to hear there was a balance since they stopped receiving a bill after they moved to their new address. They had thought the loan was paid off. Unfortunately, the outstanding balance was minimal but had accumulated lots of interest over the 21 months.

In this case, the client will have to re-establish their credit and show 2 years of good credit history to qualify for a mortgage at a decent mortgage interest rate. There are other alternatives, but are more costly.

By checking your own credit score annually from Equifax (http://goo.gl/5xqCP) these type of issues would be resolved. Similar to a medical annual check up, an annual credit check is important to verify there aren't any errors or items that need to be addressed immediately.  The cost of checking your credit score is $24.95.

To discuss your personal mortgage financing needs, please contact me.

Why Ultra Low Mortgage Rates Are Not Good?

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We have experienced low mortgage rates since the financial credit crisis in late 2008.  The purpose of the low rates is to stimulate consumer spending which will result in economic growth and recovery out of the recession.  In the last few weeks, there have been talks regarding the European debt crisis and how similar it looks like the 2008 credit crisis.  It started with Ireland and Greece, which are considered small economies in Europe. The credit crisis talks have shifted to Spain and Italy which are large economies.  As Germany and France continue to bailout their Euro zone counterparts, they accumulate more debt.  There were talks last week that France is in financial trouble which resulted in a stock market sell off among other bad economic news.  The bottom line there is a storm brewing in Europe which will come to fruition sooner or later.  This uncertainity has resulted in bond yields dropping to historic lows which will result in lower fixed mortgage rates.

There are now possibilities the Bank of Canada might hold or even consider cutting its benchmark rate (which sets prime rate) to stimulate the Canadian economy just in case Canada gets dragged into a slowdown due to what's happening in US & Europe.  This means continued low rates for the foreseeable future.

So What You Might Ask?

The concern with even lower interest rates, is creating more demand in the Canadian real estate market.  This is good news for first time home buyers since the affordability requirements will drop, however, more bidding wars might result (I can only comment on Toronto's real estate market since this is where I conduct my business) and some would lose out.  Canadian household debt is already at an all time high and taking on further debt could result in an unpleasant consequences for all (http://goo.gl/zzcDH).  The lower rates will pull the future demand into the present and leave a void in the future.  The other concern is Canadians getting used to these low mortgage rates and not plan for higher interest rate environment when mortgages renew in a few years from now.

Finally, taking on debt with a responsible plan to pay if off can be a good thing. However, taking on debt and not planning for higher interest environment will have dire consequences.

To discuss your personal mortgage financing situation, please contact me.

 

Are Mortgage Interest Rates Dropping?

The Roller Coaster Market And Your Mortgage

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It has been a roller coaster for the last few days in the market!  There has been a lot happening over the last month or so in the global economy which has resulted in some serious volatility in the market (stocks & bonds).

The majority of homeowners, unfortunately, get a mortgage from their local branch, set the payment and forget about it till renewal.  I call it "set it & forget it" approach.  Since 2008, there has been a lot volalitility which is anticipated to continue as the western economies deal with unprecedented levels of debt.  Here is a number to put things into perspective: Between today and September 1, 2011, European countries have to pay 57 billion euros of interest!  These numbers will have a huge impact on the recovery of Europe, not to mention the US which is dealing with its own fiscal challenges.

Why Should You Care?

A mortgage, whether it is for a home, cottage or rental property is an investment vehicle.  Similar to one's RRSPs, which I am sure lots of Canadians are now reviewing on a daily basis, a mortgage needs to be reviewed on a regular basis to optimize it for what's happening in the economy. This means someone overseeing the mortgage, notifying the borrower when to adjust the mortgage payment to reduce the mortgage amortization and save thousands of interest dollars as well as adjusting the mortgage for renewal at a higher interest environment.  These low rates will not be around forever.  The beauty of all this after mortgage funding service, is it comes at no cost to the borrower from a mortgage professional, believe it or not.  Unfortunately, the majority of homeowners don't utilize this free service.

This is a great opportunity for Canadian homeowners to take advantage of this low interest rate environment and set up a plan to achieve mortgage freedom and save thousands of unnecessary interest dollars.  Afterall, it is your hard earned dollars!

To discuss your personal mortgage finance situation, please feel free to contact me.

My Commentary On What The Bank Of Canada Said Today

What's Your Best Interest Rate?

Typically, one asks for the best mortgage rate when looking for a mortgage.  In this video, other questions to be considered are discussed to help one decide since a mortgage is an investment vehicle not a commodity.

Where Is Prime Rate Going?