Most of the big banks have switched to a new ‘Collateral’ mortgage product in the last year. The question is why? Is it better for the bank or for you the borrower? On the surface, the bank will tell you that this new ‘Readvanceable’ mortgage which is registered at 100 per cent of your home’s value, gives you ‘Savings & Simplicity’ with the ability to borrow in future as your mortgage balance decreases, without incurring legal costs. Wow, what a deal. Sounds good right? Well hold on.

You cannot go to any other lender (if you are offered a better rate) because it looks like you have ‘Zero’ equity because your first mortgage is at 100% of value.  Let’s say your mortgage is 50% of value, so you have 50% equity, and during the term a need arises that requires you to borrow more money. You are forced remain at the mercy of your bank, and what they offer you because it is difficult and at best, very expensive to break your mortgage. This also applies to selling your house, which on average Canadians do every 3.5 years. You have to stay with the same bank. Do you think they will give you a very attractive rate? Not likely. They will however, gladly give you a new ‘Blended’ rate which covers the cost of any penalty, but you will not know what the true cost (interest rate) you are paying on the new money.

If you lose your job is the bank going to help you make your mortgage payments? Or lend you more money? Not likely, because now you are considered ‘High Risk’. And get this, if you have credit cards with the same bank and you miss payments, the bank has the right to put you in default and realize on the security of your home property. Theoretically they can put your mortgage in default even if you have not missed a mortgage payment.  AND they also have the right (read the fine print) to increase your mortgage or loan rates to prime plus ten per cent which today means, up to 13 per cent. You see folks, your credit cards are effectively no longer ‘Unsecured’ either. The bank has you coming and going.

So is it worth it to have your new first mortgage registered at the same value of your house? Obviously not. Bottom line, this new type of mortgage gives the banks complete control over you, and it appears that it puts them in a position to be able to charge you higher rates down the road, costing you dearly, especially when you have little choice but to stay with them. Look out for the renewal rate they will offer you as well. If you find yourself in a collateral mortgage, then please make sure all your credit cards are with other institutions.

We suggest that you avoid getting into a collateral mortgage altogether. Call us instead. We will not put anyone into this ‘scary’ product, and we will ensure that you will have maximum flexibility and maximum options to choose from for whatever needs you may have in future.

Bill is retiring in 4 years and has 23 years left on his mortgage.

Bill like many Canadians had refinanced his house in the past to pay off high interest debt. Time and time again he tried not to purchase on credit but it was just too easy.  He told us he couldn’t’ deny himself some expensive toys that kept ‘presenting’ themselves to him time and time again, and he jokingly called himself a ‘debt junkie’.

Only this time with retirement approaching, he has had enough and he decided to change his ways once and for all. Bill had a $249K mortgage, $27K at 6.0% on line of credit and $17K on a credit card at 19.9%. Bill had two years left in his current mortgage term and the penalty will be $4,650. Is it worthwhile for Bill to pay the penalty and refinance? In a word, YES, but only if he takes a borrowing holiday and stops buying on credit we told him.

We got him a new 4 year mortgage at 3.08% to pay everything off, but here’s the thing, since he could already afford his previous payments, we recommended that he not accept the lower mortgage payment, but rather make mortgage payments at the same level he had been paying before including LOC and credit card payment. The result is a balance at maturity of $214,552 versus $254,995 with 8 years 10 months remaining instead of 18 years.

Bill loved our recommendation and we agreed to redo his mortgage again (this is very important) BEFORE he retires when his income is higher, with the objective of restructuring it then and paying it off in less than 5 years into retirement, something he would never have been able to do the way he was going.

Essentially we have taken him from over $290,000 debt today to $214,000 in 4 short years, with a new ability to pay it off much faster saving him tens of thousands of dollars in interest AND and helping him achieve financial security much sooner.

If you are like Bill, call us today so we can help you get where you need to be much faster. And remember, we look out for your best interests, always.