​Should you pay off your mortgage earlier than 25 years?
The answer depends on a few factors. Firstly, if you have liquid investments, it would depend on what yield they were earning. If mortgage interest rates are much lower as they are today, it makes sense to keep your money in the bank instead of using it to pay off your mortgage. You could lose thousands of dollars of investment gains.

Secondly, if that is not an option, you can simply use the privileges within your mortgage contract to significantly reduce your amortization period and satisfy your financial goals.

What many borrowers don’t consider is just by changing payment frequency and adding extra money to their payment, their amortization period can shrink dramatically. So for example, if payments are set to monthly mortgage payments, by changing to a weekly or bi-weekly, accelerated payment, can have huge benefits.

Many borrowers are often interested in a line of credit because it's flexible. They appreciate the fact that if they needed to pay it out entirely or make a lump sum payment down the road, they would not be charged a penalty. This is true, however, secured lines of credit usually come with higher mortgage rates.

In reality, and in my experience, most people who have high balances on their line or who are ‘maxed out’, find it difficult to pay them off completely or make extra payments. They end up making monthly payments at a higher interest rate and lose money.

On the other hand, to help with personal finance, I offer closed mortgages that have a pre-payment privilege of up to 20%, and in some cases even 25%, per year. This means that borrowers can pay 20% of their original principal balance without a penalty. On a $500,000 mortgage, that's $100,000 each year without penalty. This approach allows borrowers to make a principal and interest payment while still being afforded the privileges of a "semi-open" credit product. In most cases, this is a sound, long term solution.

Of course in a closed mortgage, a borrower cannot access funds like they would in a line of credit. That's why it's important to set up your credit products with your plans in mind and work with a mortgage broker. I often work with borrowers to segment their credit product to what makes sense.

For example, having a larger closed mortgage portion and a smaller line of credit portion that is manageable while still being able to pay off their mortgage sooner.

In conclusion, the answer is YES you should pay off your mortgage as quickly as you can. Always speak and work with a professional.

Have a mortgage question? PM me on Facebook or call 647-773-4849. Buying a home? Need to consolidate costly credit cards? Call today or visit www.coluccimortgages.com
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Sarah A. Colucci
Sr. Mortgage Agent, Lic. M14000929 
Mortgage Edge, FSCO Broker #10680

Research shows most mortgage borrowers search for the best interest rate but hardly ever read through the terms of their mortgage contract which can end up costing them more money down the road. 

In the last few years prepayment penalties have received a lot of attention. 

For example, in 2014, the CBC released an article exposing a penalty a couple had to pay in the amount of $17,000 when they decided to sell their home and move abroad. TD eventually softened the blow but it’s wasn’t until after the couple went public. 

A class action law suit was also launched against CIBC in 2011 by Siskinds LLP after a number of borrowers claimed “that CIBC applied terms and conditions to certain mortgage contracts to allow it unfettered discretion for calculation of mortgage prepayment penalties.” Some people were forced to pay over $50,000 in penalties. 

Royal Bank was also in the spotlight in 2011 when Brian Hyytiainen went public about his penalty that cost him $13,000. He later appealed the penalty to the RBC ombudsman and Chambers Banking Ombuds Office. According to the article published by the Toronto Star, his request for a reduction of this amount was declined. 

If you’ve noticed a pattern of higher penalties amongst big banks, you’re on to something. 

Big banks have the highest and most expensive penalties due to their calculation method. In a fixed rate mortgage, which is the most popular type of mortgage borrowers obtain, big banks use the Bank of Canada’s benchmark rate to calculate penalties. These rates are often highly inflated and can give the impression borrowers received a bigger discount off of their interest rate than they really did. In turn, this triggers a larger penalty. 

Is it any wonder that big banks make millions, if not billions of dollars from pre-payment penalties? It shouldn’t be. Mortgage contacts are designed to make lenders money and big banks will use every avenue they can to generate a profit. 

In conclusion, if borrowers don’t understand what they are reading and most importantly, signing, they won’t be able to protect themselves from bad terms which can be costly. 

As an experienced mortgage agent who prides herself on facilitating clients with the right mortgage for their lifestyle, I don’t like to focus on interest rates as much as I do mortgage terms. 

I occasionally come across borrowers looking for the best pricing only but the bulk of my clients come to me for advise and the best mortgage which means more than just the interest rate. 

If borrowers rate shop they may get the lowest rate but may also be stuck in a punitive mortgage contract, one that has “no frills.” Prepayment privileges, penalty calculations and more may be all skewed to be astronomically more expensive in exchange for a better rate. Not many borrowers want this type of mortgage if it’s explained to them in detail.

To learn more, you can always contact me at (647) 773-4849. I am always willing to either advise on a particular mortgage or even help borrowers read the fine print of their existing mortgage contracts. 

The Office of the Superintendent of Financial Institutions has released a mandate to banks to require a 2% buffer  against bad loans.

OTTAWA ─ June 4, 2019 ─ Office of the Superintendent of Financial Institutions
Today the Office of the Superintendent of Financial Institutions (OSFI) set the Domestic Stability Buffer at 2.00% of total risk-weighted assets, effective October 31, 2019.


This reflects OSFI’s view that key vulnerabilities to Canada’s Domestic Systemically Important Banks (D-SIBs) remain elevated. The key vulnerabilities include Canadian household indebtedness, asset imbalances and institutional indebtedness. Against this backdrop, a favourable credit environment and stable economic conditions continue to provide a window of opportunity for D-SIBs to increase their capital holdings.

An effective capital regime ensures that banks are holding adequate capital to protect against risks to the financial system, while also encouraging them to use their buffers during times of stress to avoid asset-sales or drastic reductions in lending.

This announcement is consistent with the Financial Stability Board remarks that financial supervisors like OSFI should “consider using the current window of opportunity to build resilience, particularly macroprudential buffers where appropriate.”
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Announcing the buffer demonstrates OSFI’s view that increased transparency will support banks’ ability to use this capital buffer in times of stress by increasing understanding of the purpose of the buffer and how it should be used.


Source: 

" Building Resilience: OSFI Sets Domestic Stability Buffer Level At 2.00% ". 2019. Osfi-Bsif.Gc.Ca. Accessed June 5 2019. http://www.osfi-bsif.gc.ca/Eng/osfi-bsif/med/Pages/dsb201906-nr.aspx.