If your current mortgage is coming up for renewal and you would like to save money and time, please read this post.
I'd like to explain the mechanisms that enable mortgage brokers to often present more favourable rates at the time of mortgage renewal. Mortgage brokers have access to a variety of lenders, many of whom employ a financial tool known as "back-end" loan insurance. This insurance, typically provided by organizations like the Canada Mortgage and Housing Corporation or similar private organizations, is purchased by the lender after funding the mortgage, without the borrower's knowledge. Its primary function is to mitigate the lender's risk should the borrower default. This risk mitigation allows the borrower to qualify for lower interest rates, as the lender's exposure is decreased. Smaller lenders, in particular, are inclined to adopt this insurance strategy, thereby transferring the cost benefits to consumers in the form of more attractive rates. Contrast this with the business model of traditional banks, whose expansion and established reputation are more important to attracting and retaining customers than rate competition. These institutions do not require back-end insurance and can self-insure against defaults with adequate capital reserves. As a result, bank rates on renewal are usually higher than what's available in the broker space. Here's a hypothetical example: Loan amount $550,000 Remaining amortization period: 15 years Bank Rate: 5.49% Term: 3 years Loan Amount $550,000 Remaining amortization period: 15 years Broker Rate: 4.90% Term: 3 years Total savings experienced over three years: $12,522 or $4,174 per year or $347.73 per month. If you have a mortgage coming up for renewal, I would be happy to discuss or help you understand your options. Sarah Colucci, Mortgage Agent Sherwood Mortgage Group, Broker 12176 Direct: (647) 773-4849 Email: scolucci@sherwoodmortgagegroup.com #mortgages #mortgagerenewal #mortgagebroker #interestrates #mortgageadvice #mortgagetips #homeowner #propertyowner
0 Comments
If you have ever been granted a mortgage, you are probably familiar with terms like Prepayment Penalty and APR, which is an abbreviation for Annual Percentage Rate.
To remind you, a prepayment penalty is applied when you end your mortgage agreement early, and the APR represents the annual cost of borrowing, including any fees or extra costs linked to your mortgage deal. Statistics indicate that many borrowers do terminate their mortgage agreements early and incur prepayment penalties, which increase their overall borrowing costs. However, the expense of ending your mortgage agreement is not frequently addressed at the time of obtaining your mortgage approval. Prepayment penalties vary depending on factors such as the length of the term, mortgage amount, interest rate, remaining time in the mortgage contract, type of mortgage (fixed or variable rate), and the specific lender. Unfortunately, there is no universal prepayment penalty that applies to all situations. Canadian chartered banks often have expensive methods for calculating prepayment penalties on fixed-rate mortgages, which can burden consumers financially when trying to exit these contracts. In contrast, monoline lenders tend to use more favorable methods that can save you money if you exit early. You may be wondering why Canadian banks are more expensive in this regard. Let me explain. The Interest Rate Differential (IRD) calculation is used to determine penalties for fixed rate mortgages. The IRD measures the difference between your interest rate and the rate the bank can charge for a new mortgage of the same term, starting from the current date to the end of your original term. Big banks use "posted rates" – which are typically higher than the discounted rates they actually offer their customers - to calculate the IRD. This results in a much larger differential, and thus, the prepayment penalty is higher. In contrast, monoline lenders (accessed through mortgage brokers), which specialize in mortgage lending only, use their discounted rate rather than some artificial posted rate. This tends to result in a much smaller prepayment penalty. Therefore, when calculating your annual percentage rate, you must consider and factor in your potential (and likely) prepayment penalty and how your mortgage lender calculates it. In the end, prepayment penalties from Canadian Chartered Banks usually tend to amount to a much larger APR making the interest rate seem much less competitive when actually considered. Do you have a question about your mortgage or exiting your existing mortgage? There are loopholes available to avoid having to pay prepayment penalties and I would be happy to discuss them with you. Sarah Colucci, Mortgage Agent Sherwood Mortgage Group, Broker 12176 Direct: (647) 773-4849 www.coluccimortgages.com #mortgages #mortgagebroker #realestate #mortgageadvice #torontorealestate #mortgagetips #money #financialadvice #banks Maybe you've recently been approved for a mortgage loan or are considering changing your current mortgage payment frequency. I can help you understand the differences between monthly and bi-weekly accelerated payments.
Monthly payments are as straightforward as they sound - every month, you make one payment, which is a fraction of the principal amount owed, plus the interest component. This is a steady approach to paying off your mortgage, and spreading the cost of the mortgage evenly over the year. Bi-weekly accelerated payments, however, divide the monthly payment in half and require this amount to be paid every two weeks. Since there are 52 weeks in a year, this results in 26 payment, or the equivalent of 13 full monthly payments, each year. This method ends up amounting to one extra mortgage payment annually, which has the effect of paying down your mortgage principal more quickly, thus reducing the amount of interest paid over the life of the mortgage. Now, whether you choose monthly payments or bi-weekly, accelerated payments all depends on your comfort level and financial situation. You must consider the opportunity cost of the additional payments under a bi-weekly accelerated plan. If these funds could be invested at a higher rate, for example, you may choose to opt for monthly payments and invest the difference. However, if you're rate is high, or if investment opportunities are not available, a bi-weekly, accelerated payment may be more advantageous. You can change your payment frequency as needed. If the current frequency is not benefiting you, feel free to make a change without any issues. You must make sure to determine whether various payment frequencies are available when choosing a mortgage lender. If you have any questions, I would be more than happy to help you. Sarah Colucci, Mortgage Agent Sherwood Mortgage Group, Broker 12176 Direct: (647) 773-4849 www.coluccimortgages.com #mortgages #mortgagebroker #interestrates #paymentfrequency #savings #mortgageadvice #homeowners #torontorealestate #realestate #moneytips If you've recently separated from your partner, you may be wondering if you need a Separation Agreement to get a mortgage, and if it's absolutely necessary.
Here is the information you need. When obtaining a mortgage loan, lenders need to assess your liabilities, and that it includes any support payments like child or spousal support. Without an official Separation Agreement, there is no way for a mortgage lender to ascertain all of your liabilities. Spousal and child support are monthly financial obligations that must be taken into account when qualifying for a mortgage, as they could potentially disqualify you depending on the amount. After a separation, you will need a copy of your finalized Separation Agreement detailing the division of assets, responsibility for support payments, and the payment amounts. It is important to have this document prepared and finalized promptly after a separation to prevent any delays in closing your mortgage transaction, particularly in a spousal buyout situation or when purchasing real estate. If you need guidance on this process, I would be more than happy to help you. Sarah Colucci, Mortgage Agent Sherwood Mortgage Group, Broker 12176 Direct: (647) 773-4849 www.coluccimortgages.com #mortgagebrokers #separation #spousalbuyout #mortgages #divorce #mortgageadvice #realestate #homeowners #torontorealestate Is your mortgage up for renewal? Here's what you should know.
A couple of months before you maturity date (the end of your mortgage contract), your lender will likely mail or email you a renewal agreement, which gives you some renewal options. You do not have to re-qualify on mortgage renewal if you decide to renew with your lender. Usually, just signing the renewal document is enough. If you want to determine whether there are better interest rates available or if you feel the rate you were offered is too high and not competitive, you can shop around. When renewing your mortgage, we can simply switch your lender and transfer the mortgage, and the new lender pays for the legal fees and any appraisal on your property, if it's required. This way, you are not out-of-pocket on the expenses and received the benefits which are lower interest payments and a more affordable monthly payment. When you're renewing your mortgage and just signing back with your lender, you cannot extend the amortization period back out to twenty-five or thirty years which would give you a lower monthly payment. You cannot consolidate any debts you may have. You cannot negotiate any of the terms. Unfortunately, due to higher rates and mounting credit card debt, just renewing a mortgage and signing back with the lender are not feasible options for many people. Depending on your financial situation, and the fact that you're now renewing into double the rate you had, you may want to explore lower payments and debt consolidation. In this case, we would treat it as a refinance, and you would need to re-qualify for the mortgage loan. Re-qualification does not have to be a painful process and it actually isn't most of the time, provided you can have your documents available. Most times, the standard income documentation is needed along with a copy of your property tax bill. Re-qualification can be confirmed in as little as twenty minutes during an appointment. Feel free to get in touch with me today. Most times, lenders are willing to fight for your business and offer competitive interest rates, while also seeing you in a better financial position for the next few years. Sarah Colucci, Mortgage Agent Sherwood Mortgage Group, Broker 12176 Direct: (647) 773-4849 www.coluccimortgages.com #mortgagebroker #mortgagerenewal #interestrates #debtconsolidation #realestate #mortgageadvice #financialadvice The Unprecedented Rise of Canadian Rental Prices: A Critical Failure of the Central Banking System11/25/2023 In a startling turn of events, Canadian rental prices have soared to unprecedented levels, surpassing income growth for the first time in 60 years, according to a recent report by BMO. The surge in rental prices, with an annual growth rate of 8.2% in October 2023, is the highest recorded since 1983. This alarming trend is outpacing the underlying trend in personal income, which has seen average annualized growth of 3.9% over the past five years [1].
The root causes of this phenomenon can be traced back to the excessive leverage facilitated by the prolonged period of low interest rates. Central bank research indicates that keeping interest rates excessively low for an extended period has contributed to inflated home prices worldwide, including in Canada [2]. This has allowed investors to dominate the market, displacing first-time buyers and further driving up housing costs. The impact of this surge in rental prices goes beyond economic implications. It highlights a critical failure of the central banking system and raises concerns about the sustainability and affordability of housing for Canadians. The scale at which rapid leverage expansion has driven up home prices and subsequently influenced rental costs hasn't been witnessed since the collapse of the Bretton Woods agreement and the era of "too big to fail" banks. This is a rare event in the global monetary standard and calls for a closer examination of the policies and mechanisms governing the housing market. As Canadians grapple with the soaring cost of renting, it becomes imperative to address the underlying factors contributing to this situation. Finding a balance between stimulating economic growth and ensuring affordable housing for all citizens is crucial. The current state of escalating rental prices serves as a wake-up call, urging policymakers to reevaluate their strategies and take necessary steps to rectify this critical failure of the central banking system. [1]: Source: Canadian Rents Outpace Income For The First Time In 60 Years: BMO [2]: Source: Central bank research on low interest rates and home prices If you're considering paying off your mortgage early, you may be surprised to learn that you could face a prepayment penalty. In Canada, prepayment penalties are a common practice among lenders, and they can significantly impact your finances. In this article, we'll explore what prepayment penalties are, how they work, and which provinces in Canada allow them. What Are Prepayment Penalties? A prepayment penalty is a fee that a lender charges when a borrower pays off their mortgage before the end of the term. This fee is meant to compensate the lender for the interest they would have earned if the borrower had continued to make regular mortgage payments until the end of the term. Prepayment penalties are typically calculated as a percentage of the outstanding mortgage balance or as a certain number of months' worth of interest. The exact amount of the penalty will vary depending on the lender and the terms of the mortgage. How Do Prepayment Penalties Work? Prepayment penalties are usually triggered when a borrower pays off their mortgage in full or makes a lump sum payment that exceeds the allowed prepayment amount. This amount is usually a percentage of the original mortgage amount, such as 20% or 25%. For example, if you have a mortgage of $300,000 and your prepayment amount is 20%, you can make a lump sum payment of up to $60,000 without incurring a penalty. However, if you make a payment of $70,000, you will be charged a prepayment penalty on the extra $10,000. Why Do Lenders Charge Prepayment Penalties? Lenders charge prepayment penalties to protect themselves from potential losses. When a borrower pays off their mortgage early, the lender loses out on the interest they would have earned if the borrower had continued to make regular payments until the end of the term. Prepayment penalties also discourage borrowers from refinancing their mortgage with a different lender, as this would result in the original lender losing out on the interest they would have earned. Which Provinces Allow Prepayment Penalties? In Canada, prepayment penalties are allowed in all provinces and territories except for Quebec. However, even in provinces where prepayment penalties are allowed, there are certain restrictions and regulations in place. Provinces That Allow Prepayment Penalties The following provinces and territories allow prepayment penalties:
Provinces That Don't Allow Prepayment Penalties The only province in Canada that does not allow prepayment penalties is Quebec. This is due to the Consumer Protection Act, which prohibits lenders from charging penalties for early mortgage repayment. Restrictions and Regulations Even in provinces where prepayment penalties are allowed, there are certain restrictions and regulations in place to protect borrowers. For example, in Ontario, lenders are required to provide borrowers with a prepayment penalty disclosure statement that outlines the penalty amount and how it is calculated. In addition, some provinces have limits on the amount of the prepayment penalty. For example, in British Columbia, the penalty cannot exceed three months' worth of interest, while in Alberta, the penalty cannot exceed the lesser of three months' worth of interest or the interest rate differential (IRD). How to Avoid Prepayment Penalties If you want to avoid prepayment penalties, there are a few strategies you can use:
Conclusion Prepayment penalties are a common practice among lenders in Canada, and they can significantly impact your finances if you're not aware of them. It's important to understand how prepayment penalties work and which Provinces in Canada allow them. By negotiating with your lender and choosing a mortgage with a lower prepayment penalty, you can avoid these fees and save money in the long run. Weakness in Canada's housing markets is spreading beyond Vancouver and Toronto, with national home sales down 5.8% and new listings down 2.3% in October, according to the Canadian Real Estate Association. High interest rates and affordability concerns are driving the weakness, and the decline in sales is outpacing the pullback in new listings. Home prices were generally flat in October, with the MLS Home Price Index down 0.8% month-over-month but up 1.1% from last year. Economists expect tough market conditions to continue into 2024, with prices potentially falling further.
BRACING FOR IMPACT: THE LOOMING MORTGAGE CRISIS IN CANADA AND THE PROACTIVE STEPS TO MITIGATE IT11/16/2023 By 2026, as a staggering $400 billion in mortgages come up for renewal, homeowners may face monthly payment surges of up to 48%. This is a serious concern, particularly for those tied to negatively amortizing loans, which can extend the loan's duration because only interest is being paid monthly.
What's even more concerning is that the most substantial challenge is expected to hit in 2026, especially for variable-rate mortgages. These homeowners have managed to maintain consistent monthly payments despite rising interest rates. However, if interest rates do not decrease, they could face a sudden and intense payment shock, potentially as high as 84% in 2026. This is a financial wake-up call like no other. Even in the years leading up to 2026, the situation isn't much better. Shocks of 32% in 2024 and 33% in 2025 have been predicted by experts. This is a gradual but definite rise, increasing the financial burden year by year. There is a possible lifeline, though. If the Bank of Canada's overnight rate drops by 100 basis points, the payment shock in 2024 and 2025 could be reduced to around 22 or 23 percent. However, to significantly mitigate the impact in 2026, the rate would need to drop to 0.25 percent. Given the current financial landscape and the conflicts unfolding in the Middle East, this is seen as an unlikely scenario. This predicament isn't just a challenge for homeowners. It's a major hurdle for Canadian banks as it impacts revenue growth, increases the risk of mortgage delinquency, and may lead to greater losses on other credit forms. As a borrower, you can mitigate some of these risks by working with your lender or renegotiating your mortgage terms altogether. #mortgagebroker #paymentshock #mortgages #canadianbanks #mortgagerenewal #mortgageadvice #bankofcanada #interestrates 1. Getting the value of the property WRONG
If you're a new or inexperienced buyer or a buyer who is not familiar with the area, you could make the mistake of inaccurately assessing the property's value which could result in overpayment. Some prices are too high, others are too low, and the only way to really know fair market value is to find out what has sold in the area. Housesigma is an app that can offer information about a property's past, such as reductions in sale price, terminations, and more. 2. Lacking the appropriate marketing resources Access to Realtor.ca's network can be beneficial when buying or selling a home. While selling a home privately is an option, it can be challenging to gain exposure without being listed on a major network. 3. Not knowing how to negotiate effectively Negotiation plays a significant role in the process of buying and selling a house. As a buyer, it is important to aim for a fair price, while as a seller, the goal is to secure the highest possible value. Apart from negotiating the price, there are other elements that require negotiation, such as inspection terms, financing conditions, and other relevant clauses specific to the transaction. Lack of negotiation skills in these areas can put you at a significant disadvantage if you are bound by a contract and also expose you to significant financial risks. To enhance your negotiation skills, you have the option to seek assistance from a reliable realtor or alternatively educate yourself on the process of real estate closing. 4. Not being prepared for the time commitment If you are a seller, particularly in a market that is currently experiencing a decline, it is crucial to allocate sufficient time to effectively sell your property. Similarly, as a buyer, it is also important to have adequate time as you will have access to numerous listings and properties for sale, which will require you to conduct thorough research and ensure that you make the correct decision. If you prefer to save time, you have the option of seeking assistance from a reliable and respected real estate agent. They can assist in showcasing your house to potential buyers and, if you are buying a property, they can dedicate the time to finding the right property type that aligns with your preferences. 5. Not staging your home. One can argue that in a "hot" market, staging your home may not be necessary. This was evident during the pandemic when buyers were competing for properties without physically visiting them, and also in 2017 when the market was at its peak and almost any property would sell for a high price. However, in a declining market, it is probable that your house will need to be in excellent condition and have an attractive appearance to attract potential buyers. This often necessitates property staging. While staging can be costly, there are instances where realtors may include staging services at no additional cost and include it in their commissions. This means that you won't have to pay upfront but can still receive good value, as you are likely to achieve a higher sale price. 6. Not knowing how to rule out unqualified buyers One way to ensure a successful sale is to know for sure that your buyer is qualified. Often, a buyer will have a pre-approval certificate that provides confidence they can qualify for a mortgage loan to purchase the property. It can be difficult to know how to qualify a buyer and what to look for, but working with a real estate agent can help you since they know what to look for. On the other hand, you have the option to personally determine the eligibility of buyers by obtaining a pre-approval certificate from a prominent financial institution, and implementing specific terms or conditions to safeguard your sale. Have a mortgage question? Please feel free to call us. Direct: 647-773-4849 |
By: Sarah ColucciSenior Mortgage Agent, Lic. M14000929 Categories |