I see this time and time again.

Clients have opted for a fixed rate mortgage with their bank – a chartered bank – and they find out the ‘great’ rate they signed up for comes with a massive curveball!

IRD – Interest Rate Differential – get to know this term.  It is scary.

To get the market rate received, the bank gave you a ‘discount’ off their posted rate.

This posted rate is used in their interest calculations on full pre-payment.

Your 5 yr fixed at 2.99% or 3.09% had a discount of 1.8%-2.15% (from 4.79, 5.09 or 5.24%).

At the 3 yr mark, the posted rate could be 3.44% is deducted from the posted rates at the time of your mortgage.

The applicable posted rate less this 3 yr rate (or 1, or 2 or 4 as applicable) can generate a rate differential of 1.35% to 1.80% times your mortgage balance times the time remaining.

Example: 3.09% Big Bank fixed needs to be ‘broken’ after 2 years for whatever valid reason.

Balance $500,000 x 3 years (36mos/12) X 2.15% rate differential = $ 32,250 penalty due.

A broker channel lender with whom I work with – the penalty would be 3 months interest – as they don’t have the posted rate model.  Penalty = 500,000 x 3.09%/12 x 3 = $ 3862.50 penalty due.

Did you see the difference?

Broker Penalty : $3862.50

BIG Bank Penalty: $32,250

Which one would you prefer to pay?

Why not consider using a mortgage broker and save yourself down the line!

It is $28,000 question!

Yours in Mortgages,

Michael James

As 2015 whips into gear, here are some borrowed quips on the rate forecast and housing market insights for the year to come….

• The CREA revised its forecast for annual housing sales in December, projecting national activity to reach 485,200 units, a year-over-year increase of 0.8 per cent.
  • In December, Scotiabank predicted that interest rates will stay lower for at least another year, with the first increase not due until the beginning of 2016.
  • The Bank of Canada, in a report published in December, forecasted a moderation of housing prices in the coming year.
  • Economists predicted that the Bank of Canada will not raise interest rates until the last quarter of 2015.
  • A poll, published by Reuters in November, forecast that 2015 would see a slowdown in housing construction and prices.
  • In November, the OECD forecast that Canadian interest rates will rise in May 2015.
  • Data from the BCREA, published in November, predicted that housing starts will be slightly below 30,000 units in the province in 2015, while residential sales are forecast to increase 1.2 per cent to 84,900 units.
  • Economists, speaking at the Calgary Economic Development’s 2015 Economic Outlook in November, predicted that there will be a softening of the economy in Calgary and throughout Alberta next year, but were careful not to predict a crisis.
  • A report published by CMHC in November said the overall trend for housing starts will continue steady with a dip in 2015, before rising again the following year.
  • The annual Emerging Real Estate Trends report, published in October by Urban Land Institute and PricewaterhouseCoopers, said the hot housing market will continue into 2015. The report also said 2015 will see a greater focus on creative solutions for city living.
  • CMHC’s third quarter Housing Market Outlook, published in August, said that economic and demographic fundamentals will continue to support housing activity into 2015.

1. I shop the best rates and products from 90 different Banks, Credit Unions and Trust Companies including: TD Bank, Scotia, Credit Unions, and many others. 

2. My services are free as the bank pays me a finder’s fee. The Industry is changing and banks now have to compete for business, so they value our referrals.  Keep in mind, they spend millions of dollars operating their many branches, plus internal staffing and layers of management, so they can afford to offer deep discounts for the business we bring to them. 

3. Isn’t it time the Banks compete for your mortgage business? You wouldn’t get just one opinion from one doctor if your physical condition were in question…why get just one opinion when your financial condition  is going through the most significant transaction of its life? 

4. Your bank very rarely gives you the best rates and products. Most homeowners renew their mortgage every four or five years automatically, so they rarely receive the best rates and programs.  Since Dominion Lending Centre sends lenders millions of dollars of new business each month, they always offer us the deepest discounts which I pass that on to you – whether you are purchasing, refinancing or renewing. 

5. Our application process is simple and quick. I’ll just take a little info and send it electronically to the lenders that I feel are the best fit for your situation; I should have some feedback later that day or the next!  

6. One of my best benefits is I’m available on your terms! Isn’t it frustrating when a bank takes several days to get back to you, and then you have to make your way through their endless voice mail boxes? 

7.  I take one credit bureau only and forward it to all the lenders!
   Many people inadvertently disqualify themselves from getting the best rate when they are shopping for a mortgage. When multiple banks pull a credit bureau, your Beacon score drops every time, sometimes eliminating the chance for the best mortgage or a mortgage at all! 

8. There’s a mortgage product available for almost everyone now. When a person’s situation isn’t ideal, there’s usually a story about why; maybe they changed jobs, maybe they went through a divorce or another life-altering event and their credit was affected.  It is my job to tell your story to the lender that will qualify you. 

9. I appreciate your business. I sincerely appreciate your business and want to do a good job for you because I want all your family and friends business in the future!  (Has any bank employee ever told you that?) 

10. I am a certified Expert.  Most bank employees are not certified and only know about their own bank’s products and do not know and cannot advise you to go to another lender where you can get qualified. You wouldn’t go to your G.P. if you needed a specialist. Deal with a mortgage expert specializing in mortgages from all lenders. 

11. I work for you, not the banks. I don’t get paid unless I fund your  mortgage with a lender that is giving you the product you need and I have no interest in getting the lender more interest on your mortgage, as the higher the interest, the lower the amount I can qualify you for; clearly I work in your best interests, not the lender’s. 

12. Rate Protection. If the rates drop before you close you automatically get the lower rate and if rates go up you have the lower rate locked in. The last time you got pre-approved for a mortgage at a bank, did you get a commitment letter? Did they offer you a rate protection like the one I can secure for you? 

13. Commitment Letter Every-time. I provide a commitment letter every time so you can relax and be confident your mortgage financing is in place! 

14. A mortgage broker is no longer the “lender of last resort”! Actually we are becoming the first choice of the educated borrower.

  For more information on how you can get the best mortgage for your specific needs, call or email:

Michael James

Mortgage Expert

Dominion Lending Centres Mortgage Evolution

Tel: 604.770.4900 | mjames@mortgageevolution.ca | www.mjamesmortgages.com

10 Most Commonly Asked
Mortgage Questions

 By Michael James Mortgage Evolution

mjames@mortgageevolution.ca 604.770.4900

 1. What’s the best rate I can get?

• Your credit score plays a big part in the interest rate for which you will qualify, as the riskier you appear as a borrower, the higher your rate will be. Rate is definitely not the most important aspect of a mortgage, however, as many rock-bottom rates often come from no frills mortgage products. In other words, even if you qualify for the lowest rate, you often have to give up other things such as prepayments and porting privileges when opting for the lowest-rate product.

 2. What’s the maximum mortgage amount for which I can qualify?

• To determine the amount for which you will qualify, there are two calculations you’ll need to complete. The first is your Gross Debt Service (GDS) ratio. GDS looks at your proposed new housing costs (mortgage payments, taxes, heating costs and 50% of strata/condo fees, if applicable). Generally speaking, this amount should be no more than 32% of your gross monthly income. For example, if your gross monthly income is $4,000, you should not be spending more than $1,280 in monthly housing expenses. Second, you will need to calculate your Total Debt Service (TDS) ratio. The TDS ratio measures your total debt obligations (including housing costs, loans, car payments and credit card bills). Generally speaking, your TDS ratio should be no more than 40% of your gross monthly income. Keep in mind that these numbers are prescribed maximums and that you should strive for lower ratios for a more affordable lifestyle. Before falling in love with a potential new home, you may want to obtain a pre-approved mortgage. This will help you stay within your price range and spend your time looking at homes you can reasonably afford.

 3. How much money do I need for a down payment?

• The minimum down payment required is 5% of the purchase price of the home. And in order to avoid paying mortgage default insurance, you need to have at least a 20% down payment.

 4. What happens if I don’t have the full down payment amount?

• There are programs available that enable you to use other forms of down payment, such as from your RRSPs, a cash-back product, or a gift.

  5. What will a lender look at when qualifying me for a mortgage?

• Most lenders look at five factors when determining whether you qualify for a mortgage: 1. Income; 2. Debts; 3. Employment History; 4. Credit history; and 5. Value of the Property you wish to purchase. One of the first things a lender will consider is how much of your total income you’ll be spending on housing. This helps the lender decide whether you can comfortably afford a house. A lender will then look at your debts, which generally include monthly house payments as well as payments on all loans, credit cards, child support, etc. A history of steady employment, usually within the same job for several years, helps you qualify. But a short history in your current job shouldn’t prevent you from getting a mortgage, as long as there have been no gaps in income over the past two years. Good credit is also very important in qualifying for a mortgage. The lender will also want to know that the house is worth the price you plan to pay.

 6. Should I go with a fixed- or variable-rate mortgage?

• The answer to this question depends on your personal risk tolerance. If, for instance, you’re a first-time homebuyer and/or you have a set budget that you can comfortably spend on your mortgage, it’s smart to lock into a fixed mortgage with predictable payments over a specific period of time. If, however, your financial situation can handle the fluctuations of a variable-rate mortgage, this may save you some money over the long run. Another option is to opt for a variable rate, but make payments based on what you would have paid if you selected a fixed rate. Finally, there are also 50/50 mortgage options that enable you to split your mortgage into both fixed and variable portions.

 7. What credit score do I need to qualify?

• Generally speaking, you’re a prime candidate for a mortgage if your credit score is 680 and above. The higher you can get above 700 the better, as you will qualify for the lowest rates. These days almost anyone can obtain a mortgage, but the key for those with lower credit scores is the size of the down payment. If you have a sufficient down payment, you can reduce the risk to the lender providing you with the mortgage. Statistics show that default rates on mortgages decline as the down payment increases.

  8. What happens if my credit score isn’t great?

• There are several things you can do to boost your credit fairly quickly. Following are five steps you can use to help attain a speedy credit score boost: 1) Pay down credit cards. The number one way to increase your credit score is to pay down your credit cards so they’re below 70% of your limits. Revolving credit like credit cards seems to have a more significant impact on credit scores than car loans, lines of credit, and so on. 2) Limit the use of credit cards. Racking up a large amount and then paying it off in monthly instalments can hurt your credit score. If there is a balance at the end of the month, this affects your score – credit formulas don’t take into account the fact that you may have paid the balance off the next month. 3) Check credit limits. If your lender is slower at reporting monthly transactions, this can have a significant impact on how other lenders view your file. Ensure everything’s up to date as old bills that have been paid can come back to haunt you. Some financial institutions don’t even report your maximum limits. As such, the credit bureau is left to only use the balance that’s on hand. The problem is, if you consistently charge the same amount each month – say $1,000 to $1,500 – it may appear to the credit-scoring agencies that you’re regularly maxing out your cards. The best bet is to pay your balances down or off before your statement periods close. 4) Keep old cards. Older credit is better credit. If you stop using older credit cards, the issuers may stop updating your accounts. As such, the cards can lose their weight in the credit formula and, therefore, may not be as valuable – even though you have had the cards for a long time. Use these cards periodically and then pay them off. 5) Don’t let mistakes build up. Always dispute any mistakes or situations that may harm your score. If, for instance, a cell phone bill is incorrect and the company will not amend it, you can dispute this by making the credit bureau aware of the situation.

 9. How much will I have to pay for closing costs?

• As a general rule of thumb, it’s recommended that you put aside at least 1.5% of the purchase price (in addition to the down payment) strictly to cover closing costs. There are several items you should budget for when it comes to closing costs. Property Transfer Tax is charged whenever a property is purchased. The tax will vary from jurisdiction to jurisdiction, but I can help with the calculation. GST/HST is only charged on new homes, and does not affect homes priced at less than $400,000. Even homes that exceed the price threshold are only taxed on the portion that exceeds $400,000. Certain conditions may apply. Please contact you lawyer/notary for more detailed information. Your lawyer/notary will charge you a fee for drawing up the mortgage and conveyance of title. The amount of the fee will depend on the individual that you use. The typical cost is $900. If you’re purchasing a single-family home, you’ll need to give your lender a survey certificate showing where the property sits within the property lines. Some exceptions are made, however, on low loan-to-value deals and acreage properties. A survey will cost approximately $300-$350, but the lender will often accept a copy of an existing survey. Other costs include such things as an appraisal fee (approximately $200), title insurance and a home inspection (approximately $350).

 10. How much will my mortgage payments be?

• Monthly mortgage payments vary based on several factors, including: the size of your mortgage; whether you’re paying mortgage default insurance; your mortgage amortization; your interest rate; and your frequency of making mortgage payments. You can view some useful calculators to find out your specific mortgage payments: www.dominionlending.ca/mortgage-calculators

Read more: http://www.vancouversun.com/bank+Advice+helping+children+with+that+first+home+purchase/9638256/story.html#ixzz2wWecoBqO