10 tips to help you get the best mortgage

So you’re looking for the best mortgage terms known to humankind. Well, chances are, you won’t find them. Or, even if you do, trust that the search won’t be easy. You will need to do a lot of looking to find rates that are even halfway decent. Often, what happens is this: you end up paying more for the interest than for the full amount of the principal or the loan itself.

Don’t dig yourself into that trap. Here are some of the best mortgage tips to cut down on your expenses.

1. Supposing all the terms are equal, choose the bank that provides you the lowest spread in interest formula. This results in smaller interest expenses.

2. Pick a fixed rate for the rest of your loan’s life. Do this only after you have found a rate you’re comfortable with. With a fixed rate, you won’t have to worry about ugly surprises or shocking increases down the line.

3. If you feel it’s better to get a loan with an adjustable rate, be sure to reprice quarterly. However, be sure to do this only if you believe the rates will drop lower in the short term and if your bank is offering a rate cap.

4. Increase either your down payment or your equity so you borrow very little. However, if you can invest more at a higher rate, go ahead and put down the smallest equity possible.

5. Lower your interest expenses by shortening your loan term.

6. Go with a declining-balance amortization schedule. The best mortgage experts in the business say this will help you pay lesser interest in the long haul.

7. Pay every two weeks. This may seem tedious to you but there’s a reason for it: it lets you pay off the loan quicker and lets you save on interest in the long run. Or, you can make pre-payments on the principal; this lowers your total interest expense.

8. Consider refinancing the loan if the rates drop. There is a right time and a wrong time to refinance. However, given that rates are lower now than they ever were, it makes a lot of sense to refinance while you can, when you can.

9. Negotiate for some fees to be waived. You may think it’s possible to get some of the settlement fees to be waived but it’s not. Just ask; you will be surprised what a few questions here and there can do.

10. Shop around. You will never find the best mortgage if you do not shop around. Different groups offer different terms. Here’s an insider’s tip to getting your bank to offer you lower interest rates: get the bank to consider the business relationship you have. If you have significant deposits, for example, they just might reduce the interest you need to pay.

There are mortgages, and there are mortgages. Why settle for anything less than the best? Use these 

10 tips to help you get the best mortgage. You won’t be sorry once your wallet starts feeling the difference.

By  Eric  Smith

Should you boost your income or build your assets?

When it comes to money decisions, it can be hard to figure out the right thing to do. Money is about power, emotion, morality and security, among other things. So in this space, we gather a few experts to weigh in on a financial quandary.

The question: Should you focus more on boosting your income or building your assets?

Robert Kiyosaki, author of Rich Dad Poor Dad and Second Chance: “When you work for income via a paycheque — even high and/or steady income — that income stops when you stop working. It’s you working hard for money for a lifetime. When your income — or a part of your income — comes from assets, it’s like having your money work for you 24/7 instead of you working for money and typically paying higher and higher taxes as your paycheques increase in size.

“While there isn’t anything wrong with working for a paycheque, it probably isn’t the best road to creating the wealth and peace of mind that so many overworked, super-stressed and stretched-to-the-max [people] sorely need. Investing in assets, even in small ways, can build wealth and deliver a lifetime of income even if or when you stop working.”

Sheila Walkington, co-founder of Money Coaches Canada: “Your ability to earn an income is your biggest asset, so focusing on boosting your income or at least maintaining your ability to earn a good income and keeping yourself employable is very important. Increasing your income will open up more opportunities to save, pay down debt and to build the life you want.

“But earning more money is not always the answer. Often the more people make, the more they spend, and this can get people in trouble. So the key is to live within your means while also building a financial foundation for a comfortable future/retirement.”

Preet Banerjee, author of Stop Over-Thinking Your Money!: “If financial success was all about increasing income, then celebrities, athletes, doctors, and other high earners wouldn’t have any money problems. Of course you should try to boost your earnings, but the truth is we don’t have as much control over that as we do on what we do with what money we earn.

“Focus on the fundamentals. Whatever you earn, spend less than that. Building assets like investment portfolios and home ownership gives you a base to work from in case any risky pursuit of a higher-income-at-all-costs strategy doesn’t pan out. Once you’ve laid the foundation, then you can focus on expanding your income through less traditional methods. Getting rich slowly tends to work better than always swinging for the fences, with the possibility of striking out.”

by MW Leong Financial Post

Rate shopping sites…tested again.. and failed again.

A few years ago, I published a study on Rate shopping sites.   These sites were gaining popularity with consumers as a  place to go if you wanted to get the best rates.  And they attracted a lot of attention.

You know the sites… they have catchy ads like ‘shopping for the Best Mortgage rates in Canada’ or ‘comparing Canada’s mortgage brokers for the best rates’.
Hey, who doesn’t want the best rate?  These ads work. Canadians were clicking these links to get more info. 

Sounds great, right? Yet, it’s not.

LOWEST RATE OR PAY THE LEAST AMOUNT OF MONEY TO OWN YOUR HOME?

The original study found that consumers wouldn’t ask too many questions. They were too rate focused and didn’t focus on the terms of the mortgage.  Most consumers don’t bother asking any further questions or spend the time required to read the 30 or 40 pages of legal jargon in their mortgage.  And this where it can become a costly experience.

The original study showed that if you asked a borrower whether they wanted the ‘lowest rate’ or ‘to pay the least of money on their mortgage’ , the average person would choose the latter.   And make no mistake, these are two very different things.

My original study revealed that these sites didn’t shop all mortgage brokers or lenders.   The sites listed only a small handful of brokers.  Only brokers that got in early, would be compared….and only brokers that were willing to pay a fee per lead, can participate.   The ‘low rates’ were NO FRILLS products, in most cases…products that carried restrictions, limitations and inflated prepayment penalties.   Hardly a true comparison of ‘All mortgages and All mortgage brokers’.  And hardly unbiased.

Today, not much has changed..  well, that’s not true.   They’ve become worse.  Here’s an update:

• One of these large sites was purchased by another online rate site.  A quick review of their current rate offerings revealed they no longer had competitive rates.  It’s advertising rates well above the best in today’s market.  They seem to just be promoting Banks rates… which are higher than broker rates.
• Another popular site has a BIG conflict of interest, in my opinion.  They decided to start their own mortgage brokerage but are still running and operating their Rate shopping site.  Seriously, it’s true!  This raises the obvious question, ‘how can they remain unbiased and neutral when they own one of the brokerages they are comparing?’  It’s like asking TD Waterhouse or Investor’s Group who has the best Investment Advisors?   Or like asking Burger King or McDonald’s, ‘who makes the best burgers?’.   If I ask Rogers who has the best cell service, I wonder if they will say ?  
• And yet, you’ve see these sites advertised and promoted in our country’s largest newspapers, as unbiased and independent!!   Anyone else see a problem with this.

HOW TO PAY THE LEAST OF AMOUNT OF MONEY TO OWN OUR HOMES

Hey, if you want to compare rates, it’s easier today. Just contact an experienced mortgage specialist.   Ask a friend, your real estate lawyer, your real estate agent or financial advisor for a referral.  

by Steve Garganis

When does a mortgage prepayment charge apply?

 

• Renewing your mortgage before the maturity date
• Prepaying more than the amount of your annual prepayment privilege
• Refinancing your mortgage and selecting a new term
• Transferring your mortgage to another lender
• Paying off your mortgage before the maturity date

In all of the above scenarios, the mortgage balance is being prepaid before the maturity date, which may result in a prepayment charge.

How are prepayment charges calculated for a fixed rate closed mortgage?

If you have a fixed rate closed mortgage, your prepayment charge will be the greater of the following:

• three months' interest on the amount you are prepaying. Interest will be calculated at your annual mortgage interest rate, plus any discount you received
• the Interest Rate Differential on the amount you are prepaying

What is interest rate differential (IRD)?

If you prepay your mortgage, you may be charged a prepayment charge. There are different methods for calculating prepayment charges. In some cases, the amount charged is the Interest Rate Differential amount. At CIBC, the Interest Rate Differential amount is the difference between the following two amounts:

• interest over the remaining term of your mortgage, calculated at your current mortgage interest rate, plus any interest rate discount you received.
• interest over the remaining term of your mortgage, calculated at CIBC's current posted interest rate for the comparison mortgage identified in your mortgage documents.

For a full prepayment, the prepayment charge is calculated on the full amount of the prepayment. For a partial prepayment, the prepayment charge is calculated on the amount of the prepayment that is more than your annual prepayment privilege amount.

How are prepayment charges calculated for variable rate closed mortgages?

If you have a variable rate closed mortgage, your prepayment charge will be three months interest on the amount you are prepaying. Interest will be calculated at CIBC Prime Rate.

Examples of prepayment charge calculations

The following illustrates how prepayment charges are calculated. To estimate your prepayment charge, use the CIBC Mortgage Prepayment Charge Calculator.
Example of estimating the prepayment charge for a variable-rate closed mortgage
Martin has a variable rate mortgage. If Martin wanted to pay off the entire principal amount, the prepayment charge would be equal to three months' interest on the entire amount he is prepaying, calculated at the CIBC Prime Rate in effect on the date the mortgage payout statement is prepared.
Martin still owes $60,000.00 on his mortgage. If the mortgage payout statement were prepared today, and if the current CIBC Prime Rate is 5.000%, here is how Martin estimates the prepayment charge to pay off the entire mortgage.

Step 1:

The total amount of the prepayment.

$60,000.00

Step 2:

The CIBC Prime Rate in effect on the date of the mortgage payout statement is prepared (written as a decimal). Thus, 5.000% becomes .050.

0.050

Step 3:

He multiples the total amount of the prepayment by the interest rate. This is equal to an estimate of one year's interest.

$3,000.00

Step 4:

He divides the annual interest cost by twelve to get an estimate of one month's interest.

$250.00

Step 5:

He multiplies one month's interest by three to get an estimate of three months' interest. This is an estimate of the prepayment charge.

$750.00

When Martin pays off his mortgage, he will need to pay an estimated additional amount of $750.00 to pay for the prepayment charge. This is only an estimate. Martin should call CIBC Mortgages or his current lender to find out the exact amount of her prepayment charge.

Example of estimating the prepayment charge for a fixed-rate closed mortgage
Maria has a 5-year fixed-rate closed mortgage. When she arranged the mortgage, she received an interest rate discount of .500%. Her existing annual interest rate on her mortgage is 6.500%.
The principal amount she still owes is $100,000. She has two years (or 24 months) left in the term of this mortgage. However, Maria has just inherited some money and wants to pay off the mortgage.
In Maria's case, the prepayment charge will be the higher of the following two amounts:

• three months' interest at her interest rate of 6.500% plus the discount she received of .500%, which is equal to 7.000%; or
• the interest rate differential amount

The following shows an estimated prepayment charge for prepaying the full amount of Maria's mortgage:

Estimate of 3 Months' Interest

Step 1:

The amount Maria wishes to pay off is $100,000.00.

$100,000.00

Step 2:

Maria’s current interest rate plus the discount she received equals 7.000%. Written as a decimal, this becomes 0.070.

0.070

Step 3:

The amount Maria wishes to prepay multiplied by her interest rate plus the discount ($100,000.00 x 0.070) equals the estimated annual interest costs.

$7,000.00

Step 4:

The estimated annual interest costs divided by 12 equals an estimate of one month's interest.

$583.33

Step 5:

1 month’s interest costs multiplied by 3 equals an estimate of 3 months’ interest.

$1,749.99

So, an estimate of 3 months’ interest would be $1,749.99.

Estimate of the Interest Rate Differential Amount

Step 1:

The interest costs over the term of a mortgage with Maria’s current principal balance of $100,000.00, with her monthly payment amount of $693.47, a term of 2 years (which is the remaining term of Maria’s mortgage) and her interest rate plus the discount that she received, which is 7.000%, would be $13,603.92.

$13,603.92

Step 2:

In Maria’s case, we determine that the comparison mortgage is the CIBC 2-year fixed-rate closed mortgage. On the date we prepare the mortgage payout statement, the posted rate for this product is 5.000%.

0.050

Step 3:

The interest costs over the term of a CIBC 2-year fixed-rate closed mortgage, with the same principal amount as Maria's remaining balance of $100,000.00, the same monthly payment amount of $693.47 and our current posted rate of 5.000%, would be $9,567.59.

$9,567.59

Step 4:

The interest costs calculated in Step 3 is subtracted from the interest costs set out in Step 1. This is the interest rate differential amount.

$4,036.33

So, an estimate of the interest differential amount would be $4,036.33.

The Estimated Prepayment Charge

Maria's prepayment charge is the higher of the estimated three months' interest costs of $1,749.99 and the estimated interest rate differential amount of $4,036.33.
So, if Maria's mortgage payout statement was prepared today, an estimate of her prepayment charge would be $4,036.33.
Maria should call CIBC Mortgages or her current lender to find out the exact amount of her prepayment charge. The amount above is only an estimate.
 The timing of your prepayment, changes in the interest rate and changes in your payment amount can have an impact on the IRD calculation. You can use the CIBC Prepayment Charge Calculator to see how these changes affect your prepayment costs.

What additional charges may apply when prepaying a mortgage?

There are sometimes additional charges that may apply when prepaying a mortgage in full before the maturity date:

Cash Back Repayment:
• If you received a cash back amount, when you entered or renewed your mortgage, you may be required to repay the cash back. Below are examples of situations where cash back repayment may be required. When you:
• Prepay the mortgage in full
• Ask us to transfer the mortgage to another lender (a "switch")
• Renew the mortgage with an effective date that is before your current mortgage matures
• Refinance the mortgage
• Transfer title to the property and arrange for the mortgage to be assumed by the new owner
• Port the mortgage

Mortgage Discharge Fee/Assignment Fee
• A discharge fee and/or assignment fee for document preparation and registration when the mortgage is prepaid in full.
• If you ask us to transfer your mortgage to another lender, an assignment fee will apply.

How can prepayment charges be avoided? Call me to find out, Steven Porter -1-888-885-8962

Steven Porter, Mortgage Advisor  CIBC, 1-888-885-8962, steven@stevenporter.ca
www.FreeMortgageInfo.ca

Renewing your mortgage? Here’s why you should pick up the phone

I am one of those debt loving people who believe I can do more with my money by carrying a big debt at 3%, than by paying off my house and using up all that cheap capital – but that financial idea is a story for another column.

So, even though my mortgage comes due in October, I decided to lock in a rate four months earlier at a different institution at 2.79% for 5 years fixed. I was thrilled to have another five years of cheap money.

Even though I had already locked in elsewhere, I was interested in what my current mortgage lender would provide. I waited and I waited. Just four weeks before it was due for renewal they sent me a mortgage renewal notice. They could have sent it to me two or three months before my mortgage came due, but they may prefer to leave consumers less time to shop around and more inclined to just renew.

Here is where it gets interesting. “Please indicate which option you are accepting by signing your initials in the appropriate area indicated and return your signed agreement,” the letter stated.

I could just initial the 5-year fixed rate — for the princely rate of 4.79%.

Further on in the letter under a section called “Get the best rate,” it offered to extend to you our special interest rate hold guarantee provided if I signed by my renewal date. But all this says is that if the rate went down between now and about three weeks from now, I would get the lower rate.

This is a full 2% higher than what I am actually going to get somewhere else. If I had a $500,000 mortgage, this would cost me $47,600 more over 5 years by ‘just signing here’ vs. going to a mortgage broker three months in advance.

Just to be sure that I wasn’t missing something I called to make sure that I had the correct instructions and rate on my renewal. An interesting thing happened when I called. In about 30 seconds they said “I can actually get you a rate of 2.99% for 5 years.” I asked why my rate was 4.79%, and they said that this is the standard rate, but I can get this better special rate.

Doing the math, that phone call, using the same $500,000 example, would have saved me $42,800 over 5 years. That was a pretty valuable phone call.

I asked the kind sir on the phone how often people just sign the renewal form, and he said ‘quite a few.’

If a bank gets 5,000 people in the same $500,000 example to sign the renewal, that adds $42.8-million in profit to their bottom line each year.

Please do not automatically sign the friendly mortgage renewal form. At a minimum call to negotiate or call a mortgage lender to get the best deal for you. If you feel some sort of loyalty to your current mortgage provider, then be sure to see someone in person and ask for the very best rate that they give their very best customer. Your future net worth will be glad that you did.

By Ted Rechtshaffen, president and wealth advisor at TriDelta Financial