Phil and Sue recently received a renewal offer from their bank. They currently have a variable rate mortgage and they noticed that the higher fixed rate offer at 2.64% had a lower payment ($1,298.14) than the lower variable rate offer at 2.14% with a $1,482.17 payment. This didn’t make sense to them so they called us to see if they could meet with us to look at it.

We met and our analysis showed that we could get them a payment of $1,199.60 per month versus the banks offer at $1,482.17. A huge savings. 

We then had to extrapolate to determine the effective amortization used to obtain the higher variable bank offer and payment.  As it turns out the payment the bank showed was based on an effective amortization of approximately 23 years when the fixed rate payment was based on the actual and correct remaining amortization of 29 years. In other words 6 years less amortization increases the payment substantially. But why would the bank do this we all wondered? Was it a mistake?

The question was, why would the bank use different amortizations to show payments and not compare apples to apples? It was obvious that the fixed rate payment looked more attractive than the variable. But again why?

The truth is that the banks want everyone to go ‘fixed’ versus ‘variable’. Reason being if the borrower has to break the mortgage during the term due to moving, separation, divorce, job loss or relocation and even death of a spouse (stuff most think will never happen but does and the banks know this) the banks will make a lot more money from the penalty.

So we called the bank with Phil and Sue in our office and were told the variable rate payment was based on a 3 year ‘fixed’ rate payment, not the stated 2.14%. What? Even though in fact the fine print stated this, most people never read the fine print and if they do it is mumbo jumbo to them. This appears to be another tactic by the banks to get borrowers to opt for the fixed rate option because the variable payment is much higher. People always want the lower payment right? And the banks know this.

As it turns out Phil and Sue, we learned after probing about their future are planning to move next summer. We won their business over after showing them that typical penalties from our lenders are four times (75%) less. Case in point the bank penalty had any borrower taken the 2.64% ‘fixed’ option would be $9,695 as compared to $2,133 from our lenders, some $5,429 less. Incredible! Reality hits you in the face. You go to sell your house. You have to factor in Realty commissions etc., and if you ever get into a bank collateral mortgage when selling you must pay off all your other debt instruments with the bank like loans, credit cards, lines of credit etc., because they all become secured under a bank collateral mortgage. We never put you into one of those.

Folks, we invite you to bring your bank renewal offer in to us to look at because we can save you thousands of dollars, oh and by the way we will put you into much safer (non collateral bank) mortgage.

For your next mortgage isn’t it clear who you should choose?  We don’t play games and we protect you. Please spread the word.

BUYING RESALE HOMES NOW A LOT EASIER!
Our homes in time (usually within 10 years) become outdated. Today renovating your
current home is more difficult because refinancing to do so is now limited to a maximum
of 80% of value. Hence the only other option is to buy. Studies show that majority of
purchasers of resale homes are not satisfied with the home they buy and would like to,
for example, upgrade the kitchen, bathrooms etc. As a result many buy a new home
instead but often are stuck with an inferior location, no trees, landscaping etc.
Now you can purchase a resale home AND RENOVATE it at the same time to your
tastes. This is called PURCHASE PLUS IMPROVEMENTS and is a really excellent
program that gives you up to $40,000 on top of the purchase price for renovations and
upgrades that add real value to the home.
Let’s say you buy for $400,000 and you want to upgrade the kitchen and master bath.
You determine through written plans and contractor quotes that the cost will be $40,000.
If the home is appraised taking the upgrades into account and confirms a value of
$440,000 you can qualify for up to a 95% mortgage. Note, the size of down payment
can be whatever you wish.
You must however submit your plans and quotes for approval at the same time the
mortgage is applied for. Therefore it is best to put in your offer a condition that allows
you sufficient time to obtain quotations AND gives you a financing clause that is longer
than usual (we suggest two weeks versus 5 days) giving you enough time to put your
plans in place and also enough time to get the financing. Your Realtor will negotiate the
timing via the Seller’s agent.
Once you close the purchase and sale you still only need a minimum 5% down payment
and the work must be completed in 90 to 120 days from closing. The extra $40,000 is
held in trust by your lawyer until the work is compete as verified by an appraiser. This
wrinkle means two things. One your contractor will not be paid until upgrades are
finished. Two, you will likely still need to pay the contractor(s) an up front deposit.
Contractors should have no problem with this arrangement when they are shown the
offer and mortgage approval at the higher amount which will cover the appraisal.
This is a really excellent program to help you find a home you will really love.
Please call us first to sit down and discuss this program with us, so that you fully
understand how it works.

BANKS STEALING FROM PRIME RATE REDUCTIONS
When is enough, enough? Profit taking that is. Bank profits have been soaring endlessly
without fail, quarter after quarter, year after year, and yet their appetite for more is
unquenchable.
Most recently, once again they have not passed on to the consumer the full value of the
quarter point prime rate reduction by The Bank of Canada.
The B of C is trying to stimulate a sluggish economy while the Big Banks are thwarting
B of C’s efforts (our federal government) by grabbing much of the decrease in prime
rate.
TD was first to announce that they are reducing prime by only 10 basis points or 40 per
cent while keeping the other 60 per cent to pad their profit margins. Do you think they
are the least bit afraid of the feds?
Next RBC, CIBC and BNS announced they would pass on 15 basis points or 60 per
cent of the reduction. A little nicer, but still not nearly enough is it? This should be our
money, our savings. We think that this should be illegal. We can bet that when prime
increases next, the banks will pass on 100 per cent of any increase, or who knows add
on an extra .10% or ten extra basis points together, because they are not held
accountable.
We are seeing a very dangerous trend where the banks can seemingly do whatever
they want.
What’s going on anyway?
Should not be held more accountable? A lot more accountable?
While the Feds have the power to keeps the big bad banks in line, they are not doing
so. However we the people (cumulatively speaking) still have the power to force the
banks to relent. Just take the recent attempts to introduce ‘User Pay Fees’ which were
designed to start charging consumers a fee just to make a loan, line of credit, credit
card and yes even a mortgage payment. In short we could not make the required
payments of debt obligations without paying an additional ‘fee’ to pay. Crazy right?
We consumer backlash made short order of that one. The same could potentially
happen if Canadians are vocal about the outlandish profit skimming above.
Isn’t it time we the consumer be heard again? What is at stack is not just the one 40%
bank ‘take’ last week but actually the previous one as well.
Please stand up and be heard because we are going to. Go Canada!

HOUSING MARKET LOW RISK TO ECONOMY SAYS BoC
Canada’s housing market despite its hot spots, is not a significant risk to the economy
due to regulation of mortgage lending says The Bank of Canada.
BoC also stated “House prices have been rising relative to household income for about
20 years and driving forces have included a shift towards urban living, growing
population - including migration - lower interest rates and improving credit conditions”.
The tighter lending conditions have also improved credit worthiness of borrowers, with
average credit scores rising. Canadians have been paying down their mortgages and
mortgage default is extremely low.
This is our reality folks, so stop believing the spin doctors pushing the ‘Negative’ button
for their benefit. I refer to the Banks perpetual ‘Rates are going to Rise Soon’ and the
media sensationalizing overheated markets...’The Sky is Going To Fall’ type of language
designed to sell more papers, magazines etc.
The economy continues to be weak. Some say it’s in Recession. Inflation is so low that
there is fear of the opposite, Deflation.
As we walk the streets of Centre Wellington we notice that there are few For Sale Signs
and noticeably so. It’s a great time to buy a first home, to move up, to trade down and to
build that dream home with rates as low as they were half a century ago.
It’s also a great time to build your wealth by acquiring a second (rental) property and to
renovate your existing home.
Aside from Toronto, Vancouver and Calgary the overall housing market is stable and is
expected to continue to produce price growth.
We are CW’s number one source of mortgage financing. Give us a call today to discuss
your needs and remember DO NOT RENEW WITHOUT TALKING TO US FIRST!
You won’t get a recording or press 1, 2, 3 for whatever. We answer our phones ‘Live’
and that’s just the beginning of our friendly, professional service to our neighbours.