29 Oct

INFLATION…DEFLATION? WHICH IS IT?

General

Posted by: Tracy Price

Over the past quarter, we have seen some rates dip versus increase as predicted. yes bank prime increased two times but fixed rates have come down and the discounts on variable mortgages have become more attractive as well. New reports of moderating inflation coupled with slowing recovery have taken the pressure of the Bank of Canada to increase rates further.

Last week we heard that rates in the U.S. will not increase until at least 2012 and since Canadian rates cannot be more than 2 per cent above U.S. rates, we have to put on the brakes, otherwise our dollar will soar, exports to the U.S. will drop sharply putting us back into recession. The U.S. economy is still very fragile and unemployment is much higher than published. In fact, consumer prices and wages in the U.S. have declined 3 months in a row, which has given rise to new fears of DEFLATION. If you think about it, the U.S.(led by housing) has been in a deflationary recession for at least two years now.

Deflation can be as damaging as inflation as prices(including housing prices) fall, incomes fall, job losses climb etc. what is also worrisome is that credit card rates are climbing at a time when we have record levels of ‘consumer’ debt. We should also point out that the banks are increasing the minimum monthly payments to 3% of balance, which makes it more difficult to pay consumer debt.

Recessions, historically have been caused by excessive inflation. Now there is a possibility here in Canada of a recession driven by deflation. There is also still a possibility ofm a ‘double dip’ global financial crisis which would create a new credit crunch.

What we do know is that the real estate market has cooled. We view this as positive actually, since the market is now more balanced, and the fear of a ‘bubble’ has disappeared.

Folks, if you have any consumer debt, whether you are feeling pinched or not, now is a good time to eliminate that(bad) debt now. Debt is debt, however high interest rate debt is referred to as the ‘devil’ in finances. Using one’s home equity to eliminate high interest debt is the best way to get on sound financial footing.

Call us today for a free evaluation of the potential costs and savings, and the option of getting a customized mortgage product that better matches your circumstances. As experts in mortgages, our mission is to save you money, provide you with professional, unbiased advice, advice you won’t get from your bank.

28 Oct

RENEWING EARLY PAYS OFF FOR DRAYTON COUPLE

General

Posted by: Tracy Price

Rose called after reading in one of our previous articles which stated that it would be better to call us about six months prior to mortgage renewal. We encourage our readers to call sooner rather than later so we can check credit, book the best rate, or help clients get ready for the maturity of their mortgages. Waiting until a few weeks before maturity is stressful and remember your bank is counting on you just signing it without doing any shopping. As a matter of fact, 80% of Canadians blindly sign that mortgage renewal which locks them into a much higher rate, costing them thousands extra.

That’s why we like to start about six months prior to maturity, so we can do a full analysis of every client’s situation. And sometimes it makes sense to pay it out earlier rather than wait until maturity, as was this case.

So we had a look at Rose’s financial situation and much to her amazement we were able to really transform her financial situation. We took her from a 6.1% mortgage on her Drayton property to a 2.2 % variable rate mortgage. In the meantime, we found a way to reduce her total monthly payments from 3500 per month in addition to paying off 11 credit cards totalling some 69,000. Credit card balances were high because she had significantly improved the house. Now she has one easy payment of less than $1,000

But that is only half of the story. We were able to remove her father who had co-signed for the mortgage four years ago and replace him with her new husband who was a former bankrupt. her father was very pleased, and her new husband was legitimized financially and as we like to put it ‘brought back from the dead’ What was more shocking was the value of their home. The appraisal came in approximately 50,000 more than they both expected so all their hard work fixing up the house had alsopaid off, it was a win/win situation for Rose and her hubby. They will now take some of the interest savings and pay down their mortgage as quickly as possible now, saving them even more.

A footnote to this story is that their bank would not lend them the money to improve the house, so they had to rack up high interest(bad debt) credit cards instead, putting them under much financial pressure. They had approached their bank a year ago to see if they could increase their mortgage. The bank declined them. We got it done, and now they are out of a hole3, and their lives are moving forward with ease.

Folks most people have ‘circumstances’ and most mortgages have ‘wrinkles’ and the banks only want straight forward mortgages without ‘warts’ Don’t waste your time approaching your bank. Call us first. We’ll not only get you approved, we’ll get you a better rate, better mortgage product and give you better service.

If you want expert advice to look at your situation, especially if you need a creative solution, please call us. Even if your situation is very straight forward, we will give you a better deal. We love helping people put their financial house in order and we are very good at what we do because we have extensive experience and we care.

28 Oct

DO YOU MOVE EVERY 3.3 YEARS?

General

Posted by: Tracy Price

An interesting statistic that just came from Stats Canada is that Canadians move, on average, every 3.3 years. At first blush, this seems like a lot of moving doesn’t it? Some people live in their very first home until they retire, but this is the exception. Tracy and I bought a house in Fergus this past summer, and this will be our second move in 7 years. When I think back over my adult life, I have in fact moved 10 times in 35 years, having lived in Burlington for 14 years alone. so there you go, I moved every 3.5 years.We have had a variable rate mortgage since 2003, which means I had a ‘fixed’ rate mortgage for 8 out of 10 moves. this translates into breaking my mortgage AND PAYING A PENALTY 8 TIMES to the bank. That’s a lot of money paid to mortgage lenders during the term of my mortgages, and estimate that I paid in excess of 20,000, money that could have stayed in my pocket, had I had a variable rate mortgage all along. A recent study by York University states that based on data collected from 1950 to 2007, Canadians 90% of the time saved an average of $20,630 more on a variable rate mortgage vs. fixed rate, over 15 years for every 100,000 borrowed. So with a $200,000 mortgage the savings would be more like $40,000+ WOW!

You see, when we move unexpectedly during the term of a fixed rate mortgage, we can get hit with the ‘INTEREST RATE DIFFERENTIAL’ or IRD penalty which can be very significant. This is the difference between your contract rate and market rate for the remaining balance of your term. We have seen them in excess of $20,000 and in one instance, the people had already sold and bought ‘firm’ so they were stuck with a huge penalty. Fortunately they had the equity cushion to pay it, otherwise they would have been in jeopardy of completing their purchase and could have been sued.

Why pay a sizeable penalty when you don’t ‘have’ to on a fixed rate mortgage when you only need to pay 3 months interest (not 3 full payments) on a variable mortgage?

Folks, most of us do not expect to move as much as we do. But ‘LIFE’ happens. People change jobs, get married, get divorced, move up, move down, get ill, get injured(losing mobility) and people die. AND we pay a hefty premium in order to have ‘peace of mind’ with a fixed rate mortgage.

The fact is, the banks prefer to sell fixed rate mortgages because they make more profit. Whenever people choose a variable, the banks tell them to ‘FIX FIX FIX’ or ‘LOCK IN’ for fear of rates rising. Isn’t it interesting, that the banks always stick to this line, and isn’t it interesting that they, along with the media NEVER tell us that rates will go down. tghe Banks motivation is to make more profit, end of sentence. We are here to save you money, to educate you and to guide you. And consider this. When you come to us first(before purchasing) to evaluate your situation and get you new financing, we always address to penalty issue. From our experience in this business, we have concluded that the vast majority of people do not give this any thought, and from what we have seen, it appears something the banks do not readily address either. This is but one reason why our services can be invaluable.

Another new statistic reveals that 1 in 3 Canadians(33%) now choose mortgage brokers to get them the best solution. So as you can see, your choice of mortgage provider should involve much more than interest rate alone(even though we offer the best rates out there); but with mortgage ‘terms’ that can save you tens of thousands of dollars over the longer term. Part of the reason for the rapid growth in our industry, we believe, is also the fact that the consumer is more sophisticated than ever. Please call us for your next mortgage change, and experience the difference.

8 Oct

MORTGAGE MAYHEM IN THE FINE PRINT

General

Posted by: Tracy Price

Restrictions contained in the fine print of your mortgage could cost you thousands of dollars. Often these restrictions are contained in the fne print and often homeowners are not even aware of these restrictions until they find the need to break their mortgage. This is why it is so important to talk to the Price Team to make sure you are protected when it comes to the biggest investment of your lifetime. If you have obtained your mortgage directly from the bank, most if not all examples below have not been mentioned or explained to you. Since we look out for your best interest, we not only do our best to steer you away from lenders and mortgage products that are potentially onerous, but we explain any important ones to you.

Here are some examples…

Can’t break your mortgage before your term is up or in the 1st three years.

A penalty surcharge of 1% for mortgages broken in the first 12 to 36 months

Re-investment fees on top of mortgage penalties

Interest rate differential(IRD) penalties based on an onerous bond yield calculation.

IRD penalties on variable rate mortgages(usually only apply on fixed)IRD penalties based on the costly posted vs discounted rate formula

Inability to port unless purchase and sale take place on the exact same day(difficult to do)

No guaranteed rate discount if you switch from variable to fixed rate

No refinances in the 1st year

No free switches for transfer eligible mortgages

Amortization limits of 25 years

Minimum amotizations of 15-18 years

Restrictions on converting from fixed to variable in 1st six months

No ability to break open your equity line of credit without a penalty

No pre-payments within 30 days of discharge

Inability to port across provincial lines

High administation fees for porting 100% clawback of cashback if mortgage is broken before maturity

Requirement of full banking relationship with the lender

No lump sum pre-payment privileges

No annual payment increase

Pre-payments restricted to one day in the year

We think it’s time for the government to step in with regulations on IRD charges and full disclosure is needed for homeowners to understand.

While no one intends to break a mortgage during the term, dramatic rate changes, divorce, sale of house, job transfers, finding a better home, sickness, injury, job loss, investment opportunity, and even bad neighbours can cause someone to decide to break their current mortgage. When you do, we’re here to help you get the best rate and mortgage terms possible.

Wouldn’t you rather have an expert mortgage broker be vigilant on your behalf, than be in the dark, only to get a rude shock in future when you break your mortgage, because you arranged it yourself?

8 Oct

IT’S ABOUT TIME BANKS CAME CLEAN ON PENALTIES

General

Posted by: Tracy Price

Quite frankly, it’s long overdue. Our mortgage industry has been pushing for years for banks to clearly define their penalties. Finally a few lenders are now putting their penalty clauses in their commitments but most have them contained in a 30 page mortgage charge which is given at the lawyer’s office(which clients never read) as the mortgage is closing.

The Federal government in its wisdom will now make it mandatory for full disclosure for penalties.

We see it first hand because of the number of mortgages we handle from many different lenders. Lenders now can pretty much do what they want when lawyers asked for a discharge from the current mortgage. And there is no recourse. There are two penalties for paying out a mortgage early. One is the 3 month interest that applies if the new mortgage rates are higher than the existing or the IRD or interest rate differential. Simply put, it’s when rates go down, the IRD goes up. Here’s how it works. First take the principal balance, multiply it by the difference between the previous high interest rate and divide by 12. Multiply that number by the remaining months on the mortgage term to get the approximate IRD payment owed. Banks do not even have to tell the client how the IRD was calculated in the first place so there is no way of telling if there was a mathematical mistake or not and so basically clients are at the mercy of the mortgage company they are existing from.

The Financial Consumer Agency of Canada has received over 100 penalty related complaints since the beginning of the year and is investigating some of them. In many cases, the banks are going way too far because they are making their calculation on the basis of what the posted rate was at the tme of the mortgage and not on any discounted rate that was agreed upon with the customer.

Last week we had this happen to one of our clients. With only 12 months remaining on his mortgage the bank is charging him 5,000 dollars for breaking his mortgage. This is unfair and wrong and we urged our client to file a complaint.

This is one one of the major benefits of a variable rate mortgage, the penalties are a simple 3 month interest so there are no games being played. The Feds are making changes so that banks are forthcoming about their penalties. Call us for the best mortgage advice and a free analysis of your mortgage situation. Our best 5 year fixed rate is 4.34%. Best variable 1.7%