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27 Oct



Posted by: Tracy Luciani Price

An interesting statistic that just came out from Stats Canada is that Canadians move, on average, every 3.3 years. At first blush, this seems a lot of moving doesn’t it? Some people live in their very first  home until they retire, but this is the exception. Tracy and I bought in Fergus this past summer, and this will be our second move in 7 years. When I think back over my adult life, I have in fact moved 10 times in 35 years, having lived in Burlington for 14 years alone. So there you go, I moved every 3.5 years.

We have had a variable rate mortgage since 2003, which means I had a “fixed” rate mortgage for 8 out of 10 moves. This translates into breaking my mortgage AND PAYING A PENALTY 8 TIMES to the bank. That’s a lot of money paid to mortgage lenders during the term of my mortgages, and estimate that I paid in excess of $20,000, money that could have stayed in my pocket, had I had a variable rate mortgage all along. A recent study by York University states that based on data collected from 1950 to 2007, Canadians 90% of the time saved an average of $20,630 more on a variable rate mortgage vs. fixed rate, over 15 years for every $100,000 borrowed. So with a $200,000 mortgage the savings would be more like $40,000 +. Wow!

You see, when we move unexpectedly during the term of a fixed rate mortgage, we can get hit with the ‘Interest Rate Differential’ or IRD penalty which can be very significant. This is the difference between your contract rate and market rate for the remaining balance of your term. We have seen them in excess of $20,000, and in one instance, the people had already sold and bought ‘firm’ so they were stuck with a huge penalty. Fortunately they had the equity cushion to pay it, otherwise they would have been in jeopardy of completing their purchase and could have been sued.

Why pay a sizeable penalty when you don’t ‘have’ to on a fixed rate mortgage when you only need to pay 3 months interest(not 3 full payments) on a variable mortgage? Folks, most of us do not expect to move as much as we do. But ‘LIFE happens. People change jobs, get married, get divorced, move up, move down, get ill, get injured(losing mobility) and people die. AND we pay a hefty premium in order to have ‘peace of mind’ with a fixed rate mortgage.

The fact is, the banks prefer to sell fixed rate mortgages because they make more profit. whenever people cghoose a variable, the banks tell them to ‘FIX FIX FIX’ or ‘LOCK IN’ for fear of rates rising. isn’t it interesting that the banks always stick to this line, and isn’t it interesting that they, along with the media NEVER tell us that rates will go down. the banks motivation is to make more profit, end of sentence. We are here to save you money, to educate you and to guide you. and consider this. when you come to us first(before purchasing) to evaluate your situation and get you new financing, we always address to penalty issue. from our experience in this business, we have concluded that the vast majority of people do not give this any thought, and from what we have seen, it appears to be something the banks do not readily address either. this but one reason why our services can be invaluable.

Another new statistic reveals that 1 in 3 Canadians(33%) now choose mortgage brokers to get them the best solution. So as you can see, your choice of mortgage provider should involve much more than interest rate alone((even though we offer the best rates out there) but with mortgage ‘terms’ that can save you tens of thousands of dollars over the longer term. Part of the reason for the rapid growth in our industry, we belive, is also the fact that the consumer is more sophisticated than ever. Please call us for your next mortgage change, and experience the difference.