The math used is mind-blowing from the Big Banks when calculating pre-payment penalties on pay out before the end of term…

Proof Scotiabank is Using a Mortgage Loophole to Take Your Money

(borrowed from an industry colleague)

Have a read through and focus on the Big Bank comparisons for the same mortgage and note that a broker supplied mortgage would have a pre-payment penalty 4.5 – 6 times less!

Certainly worth a conversation don’t you think?

Let me save you $ 12,000!!!!

Yours in mortgages,

Michael

The math used is mind-blowing from the Big Banks when calculating pre-payment penalties on pay out before the end of term…

Proof Scotiabank is Using a Mortgage Loophole to Take Your Money

(borrowed from an industry colleague)

Have a read through and focus on the Big Bank comparisons for the same mortgage and note that a broker supplied mortgage would have a pre-payment penalty 4.5 – 6 times less!

Certainly worth a conversation don’t you think?

Let me save you $ 12,000!!!!

Yours in mortgages,

Michael

Borrowed from DLC Michael Hallett..

Versus (vs) – as compared to or as one of two choices; in contrast with.

At least once a day I get asked, what’s the difference between ‘this’ and ‘that’? With this in mind I put together some content that will hopefully provide some clarity in regards to  a few of the more commonly asked questions.

LAWYER VS NOTARY

Most real estate deals are fairly straightforward, both a lawyer and notary can and will prepare the documents for you. If you are buying a home, they will: conduct a title search, obtain tax information and any additional information to prepare the Statement of Adjustments. Then they will prepare closing documents, including a title transfer, mortgage, property transfer tax forms and forward them to the seller’s lawyer/notary for execution. After you sign your papers, the lawyer or notary will register the transfer, mortgage documents and transfer funds to the seller’s lawyer/notary. Sometimes there are more complicated transactions, at this point one would need to decide LAWYER or NOTARY?

If something were to go wrong with your transaction, a notary cannot represent you in court of law, unlike a lawyer. Nor can the notaries represent and guide you through a dispute process. Notary also cannot advise you on legal matters, for example, if you go to a notary to convey a real estate file and you were to ask a legal question, such as, “I think my neighbour’s fence is on my land, what should I do?” the notary cannot give you advice on what your recourse is.

With regard to the fee structure, there isn’t much of a different these days. If you are unsure of which one to use, it’s always a good idea to phone a notary and a lawyer to describe the services you need and then decide from there.

GUARANTOR VS CO-SIGNER

A co-signer is a co-owner that is registered on the title and is equally accountable for payments, while a guarantor personally guarantees the payments will be made if the original applicant defaults. However, the guarantor has no claim to the property as they’re not registered on the title. Typically a co-signer is added to a mortgage application to increase the income, which will assist with reducing the debt service ratios. Whereas a guarantor will be utilized if the applicant(s) has received past credit blemishes and needs to strengthen the file.

TITLE INSURANCE VS SURVEY CERTIFICATE

These two are slightly different but work in conjunction with one another. Title insurance is an assurance as to the state of title of any given property. In practical terms, it protects lenders and purchasers against loss or damage suffered due to survey problems, defects in title and other matters relating to title fraud. A survey certificate will typically show the lot boundaries, improvement locations and often the locations of any rights of ways or easements registered against the property. This will also assist a purchaser in determining whether any of the improvements on the property encroach on a neighbouring property or if there are improvements from an adjacent property that encroach on the subject property.

JOINT TENANT VS TENANT IN COMMON

When a property is held in joint tenancy, the situation is what I refer to as “the last man standing.” When one joint tenant dies, the entire property belongs to the remaining, surviving joint tenant(s). Only that last person can use his or her Will to give the property to someone else. Tenants in common is a different story. In this arrangement, each person owns a percentage that is registered in their name. They can then leave their share to someone in their Will or sell it (never mind the logistical problems of trying to sell one third of a house).

SWITCH/TRANSFER VS RE-FINANCE

To switch/transfer one’s mortgage, it involves moving your current mortgage from one lender to another without changing anything except for the term and interest rate, amortization remains the same. If switching lenders within the term, there will likely be a penalty for breaking the mortgage, though often the savings in moving to another lender with a better rate will substantially outweigh the penalty. Doing a switch at the end of your mortgage term will allow you to completely avoid the penalty.

In re-financing a mortgage, the borrower is also likely taking advantage of lower rates whilst at the same time accessing equity. The reasons for this could range from; debt consolidation, renovation, purchasing a vacation home, post-secondary education, investment planning and so on… Two other major differences are when one wants to re-finance, the maximum loan is 80% of the market value whereas a switch/transfer lender can surpass the 80% mark as the mortgage amount does not change. And finally, with re-financing the mortgage will need to be disbursed and re-registered with the lender (or new lender) therefore a fee will be charged. With a switch/transfer, there is a possibility that there will be no extra fees charged.

ACCELERATED BI-WEEKLY VS BI-WEEKLY PAYMENT FREQUENCY

Nobody wants a mortgage and everyone that has one wants to pay it off faster, or at least they should. Payments are income streams that lenders blend a principal and interest amount into one payment with the goal to pay more principal than interest. As one gets further through the term the inevitable shift happens from paying more interest to paying more principal (P&I).

The bi-weekly payment is basically 12 monthly payments spread out over 26 installments or every other week. For example, if your monthly payment is $2,000 your total yearly mortgage payment will be $24,000. The bi-weekly or 26 payment equivalent is $923.08 ($24,000.08), the net amount remaining unchanged. To speed up the inevitable P&I shift, one might want to opt for accelerated bi-weekly payment frequency. This is the key to shortening or reducing the life of the mortgage (amortization). The accelerated repayment plan takes a 24 payment cycle and adds on 2 more payments of the same size, for a total of 26 payments or 1 extra payment every 12 months to total 13 payments. So you are paying slightly more each year, thus reducing the life of the mortgage. Using the same example from above, if your monthly payment was $2,000, adding two extra payments to the grand total, one’s yearly mortgage payment would be $28,000, with each payment now being $1,076.92.

Obviously if you have questions, we here at Dominion Lending Centres would love to answer them for you.

Borrowed from industry source Rob McLister…

The Liberals’ new majority gives them all the power they need to influence Canada’s mortgage market. Interest rates, mortgage policy and affordable housing initiatives will all be affected.

Here’s some of what the mortgage market can expect from Mr. Trudeau’s new government:

1. Higher bond yields: Balancing the budget is not a priority for the Liberals until 2019. Trudeau is expected to go on a spending spree and bond traders aren’t keen about it. It suggests a greater supply of government debt and potentially higher long-term yields to come. That, of course, could mean at least slightly higher fixed mortgage rates than we’d otherwise see.
2. A More Hawkish Poloz: The odds just dropped for a cut in prime rate. More spending by Ottawa puts less pressure on governor Stephen Poloz to stimulate the economy with rate cuts. The implied probability of a rate hike by next October has almost doubled, from 8% yesterday to 15% as we speak.
3. Wider RRSP Access: The Liberals say they’ll open access to the RRSP Home Buyer’s Plan, particularly for homebuyers coping with significant life changes (divorce, death of a spouse, a sick or elderly family member, etc.). More access to down payment funds will prop up housing sales and home ownership slightly, and support home prices.
4. More “Affordability”: The Liberal platform includes a review of housing policy in high-priced markets. The new government will “consider all policy tools that could keep home ownership within reach.” What that means, we’ll have to wait and see. It could definitely be positive for renters and income property investors, given the Liberals have promised to “direct CMHC…to provide financing to support the construction” of new rental housing.
5. First-timer Support: Trudeau’s government will add more flexible programs for first-time homebuyers. This could mean any number of things, potentially even higher amortization limits for new buyers.
6. New Blood at the DoF: The Liberals will be installing a new Minister of Finance, who has enormous power over housing regulation. Will he or she be as hands-off on mortgage policy as the outgoing Joe Oliver? We’re guessing not. We’ll likely have an answer by the time the Liberals release their first budget next spring.

With the Bank of Canada announcement today, have you ever wondered who the Bank of Canada is and what is its role in our economy?

The Bank of Canada is the country’s central bank. Its role, as defined in the original Bank of Canada Act of 1934, is “to promote the economic and financial welfare of Canada. “

The Bank was founded in 1934 as a privately owned corporation. In 1938, the Bank became a Crown corporation belonging to the federal government. Since that time, the Minister of Finance has held the entire share capital issued by the Bank.

The Bank of Canada is not a department of the government but rather a special type of Crown Corporation. The Bank has considerable autonomy to carry out its responsibilities.

The Bank of Canada is responsible for:

• Monetary Policy – the goal of monetary policy is to contribute to solid economic performance and raising living standards for Canadians by keeping inflation low, stable, and predictable.
• Bank Notes – the Bank of Canada designs and issues bank notes that Canadians can use with the highest confidence.
• Financial System – the Bank of Canada actively promotes safe, sound, and efficient financial systems, both within Canada and internationally, and conducts transactions in financial markets in support of these objectives.
• Funds Management – the Bank of Canada provides high-quality, effective, and efficient funds-management and central banking services for the federal government, the Bank, and other clients.

The Bank of Canada was created to be the sole issuer of bank notes and to facilitate management of the country’s financial system.

By having an independent monetary institution it allows for the separation of the power to spend money from the power to create money.

Separating the central bank from the political process enables it to adopt the medium and long-term perspectives essential to conducting effective monetary policy.

The Bank carries out monetary policy by influencing short-term interest rates. It does this by raising and lowering the target for the overnight rate.

The overnight rate is the interest rate at which major financial institutions borrow and lend one-day (or “overnight”) funds among themselves; the Bank sets a target level for that rate. This target for the overnight rate is often referred to as the Bank’s key interest rate or key policy rate.

Changes in the target for the overnight rate influence other interest rates, such as those for consumer loans and mortgages. They can also affect the exchange rate of the Canadian dollar.

In November 2000, the Bank introduced a system of eight fixed dates each year on which it announces whether or not it will change the key policy rate.

The Bank of Canada does not set the prime rate; financial institutions set their own prime rates based on the cost of short-term funds, and on competitive pressures among them. The Bank of Canada influences the cost of short-term funds by setting the target for the overnight rate.

The Bank Rate is the rate at which the Bank of Canada lends funds to financial institutions. It is set at 0.25 per cent above the target for the overnight rate, which is the Bank’s key policy rate. As seen in the past, larger banks don’t always pass the discount along to their clients when the Bank of Canada lowers its bank rate.

All the information gathered here for you was gathered fromhttp://www.bankofcanada.ca/about/educational -resources/fgg/

I encourage you to go to the website or click on the highlighted links to expand your knowledge of our Canadian banking system.

TOP 4 REASONS WHY A VARIABLE RATE MORTGAGE CAN PUT YOU FURTHER AHEAD

The general consumer will be hard pressed when left to their own devices to shop on their own for their next mortgage, especially if they visit with one of the BIG banks. Typically they will talk about their most popular and profitable product, the 5 year FIXED rate mortgage. If you don’t know to ask for anything different, that is what they will recommend for you.

Working with a professional mortgage broker, the insight and value we can provide will help you not just get a mortgage, but build a personal home loan strategy to help you get farther ahead down the road, to better reflect you future needs and goals.

So here are the TOP 4 reasons why you need to look at a variable rate type mortgage product.

1) It’s always a cheaper interest rate: The current GAP between the Best in Market (BiM) fixed rate and BiM variable rate mortgage is a difference of = 0.60%— for the Average Canadian Mortgage Balance ($310K), that’s a savings of $159.57 that you don’t have to pay to the BANK for interest each month. Over the full 5 year term, you have saved over $9.5K in interest  – should nothing change in the prime rate (breaks down to just $29.70/month for every $100K borrowed).

2) It’s always a better monthly P+I repayment distribution which helps YOU pay down your mortgage loan balance quicker, and in effect, again pay less interest to the banks.

So –  which product’s monthly payment do YOU want to pay for principal? 59.32% of the lower payment’s monthly amount to principal or 51.15% of the higher payment’s monthly amount to principal?

3) More flexible contract terms, and cheaper to get out of if you need to. To break this type of mortgage contract the penalty calculations are SIMPLE– just 3 months interest calculated on the balance remaining, for the term remaining.

The average Canadian will do something with their contracts after the 3 yr mark so if you owed $281K after 36months of this contract, then your penalty to break about $1,500.

Whereas the FIXED is a very complicated math equation, with fine print, and potential claw backs on the discounts given up from. In the opening contractual terms, you agreed to pay them the full interest of $38,612. After 36 months, you may have paid the majority of that to them, but they will want the rest to full term – it is this calculation that can be quite severe.

YOU can always do a SWITCH into the remaining term fixed as well, should you wish to take that route – with additional costs. Most VRMs are portable, meaning if you don’t need any new money for your next purchase. You can take that existing contract with you to your new property.

4) Banks are NOT going to increase your VRM payment severely…. MYTH— you will have a legal contract term outlining the math equations associated with the Bank of Canada overnight prime lending rate. Most banks have a similar prime. Right now, (as of the last announcement BoC announcement on September 19, 2015) prime is 2.50% and holding…. most internal bank prime rates are now 2.70%. The discount associated with their prime is what they are in control of for the mortgage variable rate offering… BUT once you sign your five year contract that math equation WILL NOT change in the term. The only thing that MAY change is the Federal Government’s Regulated BoC Prime lending rate, and that is capped to a max of a quarter of a point (0.25%) as to not trigger a negative effect in the larger economy. A 0.25% increase (or decrease as we have seen twice this year) for every $100K borrowed is just a change of $12.24/month, which is manageable. Most lenders take up to 90 days to do the administration to change your interest portion of your monthly payment, which gives you enough time to speak with your mortgage agent to help decide if you want to SWITCH to a fixed. (no costs to do that)

Since 2005, the Bank of Canada Rate hasn’t changed much. Back then, it was 2.50%, and lenders had same as their internal prime rate. The Federal Government promised to keep rates low, and from June 2007 to July 2009, they froze that rate to a ZERO increase. We have only seen two increases since then, bringing the prime up to 3.00%, and on December 2010, the Feds again froze the rate, which resulted in NO adjustments until January 2015, when they opted to DECREASE the rate by 0.25%, down to 2.75 and again a second decrease in July 2015 to where we are now. The September 19 announcement has said they will keep rates at a zero increase for some time to come.

Knowing it’s an election year, it’s not likely that the politicians are going to mess around with people’s money — they want their votes… and frankly after the election, whoever the new minister will be…. will take some time to get up to speed in their new duties of that portfolio… so don’t expect much change for the next year. This was reiterated by Dominion Lending Centres’ Chief Economist, Dr. Sherry Cooper, at our most recent conference.

Conclusion: Overall effect of using the variable rate contract is this:

More flexible product, with a lower monthly expected payment; better redistribution of that payment to principal, resulting in a lower end balance to renegotiate in five years time (should nothing happen to the Prime in that term) AND if you want to be conservative, and have a set payment for your household budget then… why not use the lower VRM product and make the FIXED payment.

EVERY additional dollar you put down per month – is now all principal – reducing our overall loan, and now reducing the overall interested they CAN charge you in term.

… or… better yet… why not set that monthly payment difference aside into a TSFA account, and once a year, make a decision to either invest it, or pay down your mortgage balance, or do both.