Monster in your mortgage

So you have found your dream home. Congratulations!

Your realtor was a great negotiator and you bought your new home for $475,000. Your mortgage is $350,000 with monthly payments of $1,750 per month over a 25 year amortization.

You were also able to negotiate a great rate (3.5 per cent) with your mortgage lender, so you are feeling pretty good right about now.

But wait a minute, let’s total those payments — that’s $525,000 worth of mortgage payments over the next 25 years. With your down payment of $125,000.

Does that mean you are paying $175,000 more than you agreed to pay for the house?

Assuming that there is no increase in mortgage rates over the next 25 years, the answer is yes. 

If rates increase the overall cost of buying your home will increase significantly as you renew your mortgage at higher rates assuming that rates will increase within the next five years which is most likely.

If you are a typical Canadian mortgage holder, you will take a fixed rate mortgage (80 per cent). 

Canadians are highly motivated to repay their mortgages as quickly as possible and these surveys find consistently that each year more than a third of mortgage holders take actions that will shorten their amortization periods (making lump sum payments, increasing their regular payment to more than is required, or increasing the frequency of payments).

The most recent buyers expect that, on average, they will repay their mortgages in 18.8 years, which is 3.6 years shorter than their average contracted period.

The Monster in your mortgage is the interest you are paying. It’s really quite outrageous when you think about it. Yet every day, many Canadian homeowners are accepting

The Monster in their mortgage without a thought to what it might mean to their overall financial health for the future.

The good news is, something can be done to weaken The Monster and make it nearly helpless.

With a couple of small affordable strategies that do not even require lump sum payments, you could potentially save thousands in mortgage interest even within the first five years of your mortgage.

You can start by:

  • setting your mortgage repayment at accelerated bi-weekly payments.
  • rounding up your payment to an even amount will save you
  • setting yourself on a program to increase your mortgage payments annually.

These are only three of the many strategies that are available to get your mortgage under control and you don’t have to be a new homeowner or wait until your mortgage is up for renewal.

They can be implemented at any time during the life of your mortgage.

It’s up to you to get the ball rolling so if you would like to know more specifically how these strategies can put a large amount of the interest on your mortgage back into your pocket, let me know.

For more information, please call 888-561-2679 or email [email protected].


Before you list your home

If you are considering listing your home for sale in the near future, there are some things that you need to know.

You may think that your first call should be to a realtor, but it should really be to a mortgage broker – not your mortgage lender, but a mortgage broker. Why?

A mortgage broker is going to give you unbiased advice and has many options available to ensure that the financing process goes smoothly for your planned move.

You may not fully understand the limitations and conditions of your current mortgage – Is it portable to a new property?

  • What are the potential interest penalties?
  • Do you need to re-qualify for financing?
  • What costs are involved?
  • Does the mortgage still fit your current circumstances?
  • What happens if you want to buy a new home before your current home is sold?

Here is some information to consider and questions to ask.

  • Not all mortgages are portable such as variable rate mortgages and Home Equity Lines of Credit. Other conditions on your mortgage may also prevent you from moving it to a new property. Many low-rate or no-frills mortgage products are not portable.
  • The timing of the sale of your home may affect the amount of interest penalties being charged. The anniversary date of your fixed term mortgage will determine the amount of the interest penalty. Waiting a couple of months could significantly reduce your potential penalties. If the purchase of your new home does not line up with the sale of your current home you will still have to pay the penalties to your lender upfront and the amount will be credited back to you upon closing of your new purchase.
  • You may understand that your current mortgage is portable, but did you know that you will most likely have to re-qualify for financing to be able to move your mortgage to a new property. Has your overall debt or employment status changed since you originally qualified for your mortgage? It’s possible you may not qualify with your current lender.
  • Discharge fees and re-investment fees may be charged by your current mortgage lender. Are you aware of the potential costs to either payout or move your current mortgage? There can be times where there may not be sufficient proceeds to provide clear title to your home.
  • If you find a new home before your current home sells do you have sufficient funds available to cover the required deposit? Will you qualify to carry two mortgages or bridge financing?

An experienced mortgage broker can review all of the above with you to ensure that the sale of your home goes smoothly with no unexpected surprises.

We can calculate penalties, discuss options for bridge financing as that is not available with all lenders, provide an option for deposit funds and check the mortgage market to make sure you have the right mortgage with the best rates, terms and conditions for your current circumstances.

And we will complete a pre-approval so you can move to your next home with ease.

If you have any questions please reach by phone to 888-561-2679 or email [email protected].

Foreclosure? What to do?

You could be facing foreclosure if you have found yourself in one of these situations:

  • You are about to miss a mortgage payment because you don’t have the funds to pay
  • You have missed one or two mortgage payments
  • You have received a notice or demand letter from your mortgage lender
  • Or you have been serviced a petition for foreclosure

If any of this applies to you, this is a serious situation and you might be on your way to foreclosure.

The easiest thing to do is ignore any phone calls from your lender or the demand letter that they may have sent to you, but doing so is really the worst thing you can do.

Here are some consequences for ignoring the situation.

  • You won’t have any say in the court proceedings and they will go on without you
  • If the home is sold, you will get little if any notice that you have to vacate the property
  • You may have less time to stay in your home than if you had appeared in court

You may have some options to solve this problem, but speaking early to a mortgage broker is really your best course of action if you are unable redeem your mortgage by bringing your payments up-to-date along with any legal costs incurred by your lender.

Here are some ways that a mortgage broker can advise you:

  • Perhaps you can refinance to lower your monthly payments to keep you within your budget
  • We can see if we can obtain a new mortgage with another lender and pay off your current lender
  • We can take a look and see if there is enough equity in your home to make selling it yourself worthwhile
  • Or if we can’t solve your problem, then going to court may be the best option

If you fall behind on your mortgage, the interest and costs can accumulate very quickly and it is critical to seek assistance early before things get out of your control so please give me a call at 888-561-2679 for a confidential conversation or email me at [email protected].


Tighter rules coming

Last week, The Office of the Superintendent of Financial Institutions (OSFI) proposed a further tightening of mortgage underwriting guidelines for all lenders that are federally regulated.

The announcement came almost exactly one year after OSFI said it would review its B-20 guidelines and further scrutinize underwriting standards.

The most significant change will be a stress test for all uninsured mortgages — any mortgage where there is more than 20 per cent equity in the property.

Currently, only insured mortgages (less than 20 per cent equity), variable rate mortgages,

Home Equity Lines of Credit and fixed term mortgages with terms less than five years are qualified at a higher rate.

That rate is the Bank of Canada’s qualifying rate which has recently been increased to 4.84 per cent. The new guidelines will be replaced by a qualifying rate that is 200 basis points or two per cent above the contract interest rate of the mortgage.

In October 2016, new stress test requirements were suddenly implemented for insured mortgages but now the new proposal will apply the stress test to all mortgages in an effort to cool the hot housing markets in Canada.

Why is it important for you to be aware of these changes? Because they are going to affect you. In a nutshell, you will qualify for 25 per cent less of a mortgage than you did prior to the changes.

This will potentially reduce your purchasing power when it comes to buying a home.

With the proposed changes the following information may not matter when it comes to qualifying for a mortgage.

  • That you have excellent credit
  • Or a large down payment
  • A long established relationship with your current financial institution
  • Excellent net worth – savings, investments, equity in other real estate

The new guidelines will require lenders to only look at the net income on your tax return — Line 150 — and the source of that income for qualifying purposes.

Other proposed changes include:

  • loan-to-value (LTV) measurements will be adjusted for local market conditions and risks
  • the prohibition of co-lending arrangements that are "designed, or appear to be designed to circumvent regulatory requirements such as bundled first and second mortgages programs

OSFI has said that its proposed changes will be available for public input until August 17, 2017 and the updated B-20 guidelines for mortgage underwriting will be issued in the fall and come into effect shortly after.

Bottom-line: Very soon, it’s going to become much more complicated than it already is to qualify for a mortgage.

If you need assistance in navigating this very complicated mortgage world please give me a call.

More Mortgage Matters articles

About the Author

April Dunn is the owner and a Mortgage Broker with The Red Door Mortgage Group – Mortgage Architects. She has been assisting clients to purchase, refinance or renew their mortgages for over 20 years.

April has experience as a Credit Union manager, a Residential Mortgage Manager with a large financial institution and as a licensed Mortgage Broker. By specializing in Strategic Mortgage Planning she has the tools available to build a customized mortgage plan, with the features and options that meet your needs.

April provides a full range of residential and commercial mortgage financing options for clients all over the province of British Columbia and across Canada through the Mortgage Architects network.

Contact e-mail address: [email protected] or by phone at: 888-561-2679.

Website:  www.reddoormortgage.com

The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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