You will hear from these lenders that by paying off expensive credit card debt and taking advantage of having your payroll deposits go straight into your “all in one” account, you will be saving money. The truth is, you will…BUT the main point is to really determine if this is the best deal for your situation. If you consider the high cost of credit card debts, just about anything would be better than that.  Keep in mind that most of these products are interest only and the rate is usually geared to the Bank Prime lending rate. The rate is normally Prime plus 0.50% which is  3.50% today. If you’re used to paying rates as high as 18% on your credit cards, I can well imagine the enthusiasm of getting into a product like this. By the way, don’t forget the idea of having your payroll deposited directly to your account and you are told how much of a benefit this will have in paying your mortgage off so much faster, perhaps even by years.

Sounds good so far, doesn’t it? But could you have saved even more interest?  The answer is yes!

Let’s consider a new all in one mortgage where your current balance owing is $300,000. Your average monthly net pay is $8,000. (both yours and your spouse). You’ve paid all your credit cards, car loan, etc. with this new mortgage so you’re on the road to financial freedom!

But wait a minute…what’s the rate again?…3.50%! A better rate would be 3.00%, right? A 0.50% difference is a whopping $1,500 annually in more interest paid for having an “all in one” account.  By choosing a re-advanceable variable rate mortgage at Prime (3.00%), you would be putting your hard earned dollars in your pocket instead of the bank’s.

“But Ed . . . I’m saving more on interest because my payroll deposits reduce the amount of interest I pay each month.” Okay, let’s take a look.

That $8,000 going into your account each month has the impact of $23.33 monthly (provided of course that you don’t use any of it during the month but you will need to eat,  probably put some gas into your car, and pay bills). Perhaps you may not use all of your $8,000 every month so you may even see your balance come down over time. However, the most you can possibly save by a direct deposit to this all in one account is still only $23.33 monthly or in a year $280.00. The difference between the higher rate is $1,500, less the maximum advantage of your payroll deposits, is now $1,220. That’s $1,220 more you are spending than with the normal variable rate mortgage at 3.00% and having your day-to-day chequing left alone!

If you find that during the year you have extra cash in your chequing account, you can choose to pay down your mortgage with your prepayment privileges (up to 15% pre-payment is allowed per year, which in our example of a $300,000 mortgage is $45,000 pre-payment allowed per year). Or, invest into a TFSA (Tax Free Savings Account), purchase an RRSP, or plan a vacation. You already have peace of mind knowing that you are meeting your mortgage obligation and have a good understanding of when your mortgage will run it’s course. With an all in one product it is often difficult to really appreciate where you stand at any given time, and in the worse case scenario you may end up exactly where you started.

In my example above, it may be in your financial best interest to choose a re-advanceable variable rate mortgage at a lower rate than an all in one product. However, if your mortgage balance is relatively low, say under $50,000, the difference between paying the extra 0.50% and having your average monthly payroll deposits of $8,000 going into the same account is minimal when comparing it to a re-advanceable variable rate mortgage. Just make sure your lender has your best interest in mind when helping you choose between the two!

The next step for most of us is to arrange a new mortgage on this residence. Here is where so many now make a mistake. They simply go to their own financial institution and accept what they have to offer. They felt their bank was the obvious choice to provide them with the best terms and conditions they were looking for. The truth is there is no one bank (or credit union) that can say they have the best rates in all terms, fixed or variable, or that they have the best products. So why do most of us take so much time to buy yet take so little time to find the best mortgage? This is by far the biggest debt one will incur in their lifetime. Perhaps it is that most just trust their banks or it’s too much work to start phoning other lenders. Well, here is where we can help.

We take your mortgage seriously. We will go over all your available options in choosing the right mortgage for you. The best rates may not necessarily be the best mortgage as I’m sure you spotted a few less expensive homes but chose to avoid them no matter what. Mortgages can sometimes be the same. Our job is to share with you the lenders that can provide everything you are looking for, including great rates, great service, and great products. There is no cost for our services when we are able to deal with traditional “A” lenders.

So why not pick the right mortgage, just like you picked the right home.

So what is the big attraction to a HELOC? Perhaps it is simply the re-advanceable nature of this product which permits you to re-borrow what you pay down or that there is ready cash available in the event emergency funds are needed. In my previous blogs you may have read that there are lenders out there that also provide for a “hybrid” type mortgage that is not only re-advanceable but can allow for fixed rate components, lines of credit, variable rate components, and even a couple of Visa’s! But here are some real differences between a HELOC and the “hybrid” re-advanceable mortgage you need to be aware of.

One lender that offers this HELOC product will now allow you to actually lock in any portion of your HELOC at their best fixed rate (variable rates are not allowed). Once the term is up, it simply becomes available as a HELOC again. Perhaps you may even decide to lock in once again. So far so good. Let’s say that you take them up on their offer and lock in a good portion of your HELOC with a 5 year fixed rate term and that in two years time you decide to now sell your property and move to the other end of town. You pay a visit to your local branch and request your existing mortgage be ported (transferred) to your next property in order to not only avoid paying any penalty but to hold on to the remaining 3 years of your great low 5 year fixed rate you received 2 years earlier. This is not an unusual request at all as most lenders will permit portability with their conventional mortgages but this lender will advise you that your original HELOC is a collateral charge on your residence and not a conventional mortgage so the portability feature is not available to you. You will most likely incur a penalty on the fixed portion of your HELOC which is normally the greater of 3 months interest or IRD (Interest Rate Differential). Not only will you be frustrated to have to pay a prepayment penalty on perhaps a very good rate you hate to give up on but you will now need to negotiate a new rate for whatever term you are interested in. Let’s hope that interest rates aren’t too much higher at that time!

The “hybrid” re-advanceable mortgage discussed above will give you much more peace of mind and allow for your various components to be ported to your next residence without incurring any penalty. You still need to qualify again but every lender does that.

If you would like more information on the benefits of a re-advanceable mortgage, please give me (Ed) a call at 250-808-9000 or toll free at 1-888-877-3535. I look forward to talking with you soon.

We hear this from our new clients all the time.  Often they will share their negative bank experiences with a close friend or relative, co-worker, or their financial planner. In most cases, they are encouraged to contact a local Kelowna mortgage broker to help them. At The Mortgage Centre – BC Direct Mortgages, our Kelowna mortgage brokers’ advice to you is free. For all deals approved by an “A” lender (chartered bank, credit union, etc.) there is no broker fee. Normally, a broker fee is charged to a client who requires a non traditional source of lender (ie a private lender or “B” lender) when all the banks have declined the mortgage due to poor credit, debt servicing problems, or any other host of concerns that prohibit an “A” lender to approve your mortgage.

Kelowna mortgage brokers at The Mortgage Centre – BC Direct Mortgages understand your needs and will work closely with you to obtain the lowest rate available in the marketplace, along with securing best terms and conditions suitable to you. We will take the time to listen, provide you with expert advice, and provide you with the peace of mind you deserve for a stress-free experience. By the way, we are local and not a Call Centre or a brokerage firm outside our area. Give Ed, Chris, or Shannon a call to discuss your  own situation today at 250-762-2070. We’re here to help you.

For those of you who are contemplating purchasing your first home, we will take the time to explain all the steps to you in order that your home purchase be stress-free. We will provide you with a 120 day pre-approval that will lock in a guaranteed rate up front. By the way, if the rates go lower, your rate will go down as well.

We look forward to hearing from you soon.

However, I would caution you making this your number one priority over any other financial strategy of building your personal net worth over the road to your retirement years. You may first wish to consult with a financial expert regarding the pros and cons of sticking solely with your plan of paying off your mortgage faster with all your available financial resources, versus a more systematic approach to your financial well-being that also includes investing regularly in RRSP’s, RESP’s, and contributing to Tax Free Savings Accounts (TFSA’s).

First off, an RRSP contribution will provide a tax break far exceeding any interest savings from paying down your mortgage in any given year, as long as you are making sufficient income that reduces the total taxes payable and that you have the RRSP contribution room to do so. Contributing to a TFSA will also provide for tax-free income in your retirement years that may be very beneficial to you.

You need expert advise from trusted, knowledgeable people that will not only listen to your financial goals in life, but will also provide you with the necessary framework to accomplish them. I firmly believe that every situation is unique out there. How quickly you should pay off your mortgage and how much you can afford to invest with on a regular basis is obviously different from everyone else. Perhaps the ability to do all three would be a great plan and strategy set up by your trusted financial expert (ie- investing in RRSP’s, TFSA’s, and paying off your mortgage faster too).

If this scenario interests you, or you would like more information on what financial plan would work best for you, we would be more than pleased to refer you to one of the financial experts over at the Canada Loyal Financial office located at 309 Banks Rd. in Kelowna. They take their client relationships to the next level, and are dedicated to keeping all their clients informed and educated with all the products and services available to them. I look forward to talking with you soon to discuss mortgage strategies that best fits your needs and introducing you to one of the many financial experts at Canada Loyal Financial for a complete financial review and plan. By the way, our advice is free and there is no obligation by you at all. You can reach me (Ed) at 250-808-9000 to discuss further.

In a report in yesterday’s Globe And Mail, Ed Clark, the chief executive officer of Toronto-Dominion Bank, said the federal government should reduce the amortization of CMHC insured mortgages from 30 years to 25 years.

Apparently, we Canadians need to curtail our spending habits and the best way to fix this problem is for the banks to keep reducing the amortization which simply is the number of years it would take to pay your home off in full. Let’s take a peek at what that might mean for you. Purchasing a home for $360,000 with a 5% downpayment and using a 5 year fixed term rate of 3.39% and a 30 year amortization, the mortgage amount would be $352,089 (CMHC insurance included). The monthly payment would be $1,554.88 (principal and interest only). Assuming annual property taxes of $2,400 and  35% GDS (Gross Debt Servicing  is the total mortgage payment including property taxes and $50 for a heat calculation, divided by your gross income) the income required would be $61,882. Those with an excellent credit rating may be considered using  44% GDS/TDS (Total Debt Servicing is your mortgage payment plus other debts) which would reduce the amount of income required to $49,224.

If the amortization were to be reduced to 25 years and the monthly payment kept the same at $1,554.88, the mortgage amount would be reduced to $315,083 which  is $37,006 less than with a 30 year amortization. That means  you would qualify for a less expensive house if you were under a debt servicing restraint or the income needed to qualify would be higher ($68,142 at 35% GDS and $54,204 at 44% GDS/TDS).

But is this going to solve all our problems of climbing out of debt here in Canada? I think not. Perhaps the big banks should consider the logic of approving folks for a home equity line of credit (HELOC) which has NO amortization at all. You simply pay interest only and these rates are in the range of Prime plus 0.50% to Prime plus 1.0%.  The debt load is most likely never reduced as once you get accustomed to an interest only payment, it is often difficult to discipline yourself to actually pay down any principal on a regular basis. So why don’t the feds start with the HELOC type product instead by at least encouraging (forcing is a bad word) the banks to consider a repayment of HELOC’s. I’m not a big fan of this product simply because a variable rate product is cheaper (currently at Prime) and my clients really do want to see some light at the end of the tunnel as to when their mortgage would be paid off.

Lastly, what about credit card debt? I hear from so many of my clients that their credit card limit has been increased by literally thousands of dollars and how tempting and easy it is to use them. Why don’t the banks start here to reduce our appetite for spending? The big banks should simply stop increasing them WITHOUT the cardholder’s consent.

I truly believe that home ownership is a great thing. Whether it’s a modular home, condo, or a single family dwelling, it’s still the place we take sanction in and call our “home”. I trust the banks will take a hard look before they reduce the amortization any further and look at perhaps all the other “opportunities” within their grasp. Just my opinion. By the way, only 7 more shopping days left until Christmas!!!

So let’s say the cost of your new home is $400,000. You will need 5% (or $20,000) plus provide evidence of another 1.5% (or $6,000) for a total of $26,000. If you are exempt from paying the Property Transfer Tax, your closing costs will be much lower (perhaps $1,500 to $2,000), but the lender still needs you to show them the  1.5% (or $6,000). What if you are short funds for closing costs? We may have a solution for you.

One of our lenders will provide a cash back (paid on the closing date) which will satisfy both the lender and insurer the requirement of having closing costs available. On a $380,000 mortgage (after 5% downpayment) plus CMHC fees of $11,210, the cash back to you is $6,259.36 which is more than the closing costs required. Better yet, if you are exempt from having to pay the Property Transfer Tax, you will have funds left over for perhaps some new appliances, minor renovations, etc. The interest rate for a 5 year fixed term on this mortgage is slightly higher (3.89% if closed within 30 days and 3.99% if closed within 120 days) when compared to the lowest rates with some other lenders but the others are not providing you the extra funds needed at closing with their mortgage product. This is an option to consider if it fits your needs.

If you would like more information on this cash back option, please give us a call today to discuss further. We’re here to help you every step of the way.

A HELOC (Home Equity Line Of Credit) is a form of revolving credit in which your home serves as collateral. With a home equity line, you will be approved for a specific amount of credit. The maximum limit is determined by your debt servicing ability and the appraised value of your home (maximum 80% loan to value). As an example, if your home was appraised for $400,000 then the maximum limit that can be approved would be $320,000 (assuming of course that debt servicing was within the lender’s guidelines). You are required to pay interest only monthly payments as there is no obligation to pay down any principal.

In both cases you have pledged your home as security and in the event of any serious delinquency, the lender could exercise their right to foreclose. I’ve had clients often mention that they do not have a mortgage on their residence (they consider themselves “mortgage free”), but quickly add that they have a HELOC instead. Their HELOC may have a current balance of $300,000 and has been at that balance for years paying only the required monthly interest. Most clients find it difficult to pay down any principal as there is always unexpected expenses throughout the year, never mind occasional interruptions in their income.

One disadvantage with a HELOC is that the interest rate that the lenders charge is normally higher than a VRM (variable rate mortgage). This difference could be as high as 1% which is quite substantial in my opinion. Yes, a HELOC is open and there is no penalty if you were to sell your residence and pay off your loan completely. However, most clients do not intend to sell their home anytime soon, so the extra interest that is paid is hard to justify. Secondly, it may be difficult with your lender to lock in the majority of your HELOC to a fixed/variable rate product to secure lower rates and still keeping a portion available as a HELOC. So what do we suggest?

BOTH! We have lenders that will allow you the flexibility of a re-advanceable mortgage that includes a line of credit product along with your choice of fixed/variable rate products that can work well with your monthly budget requirements. Save on interest, have available cash when you need it, and reduce your principal all at the same time. Call me today for more details.