The Important P’s of Mortgages

General Pam Pikkert 27 Apr

The Important P’s of Mortgages

With a name like Pam Pikkert I am sure you can understand that I am particularly partial to the alphabet’s most perfectly pronounced letter of P.   I am kidding, of course, but after meeting with a client this week I realized that a pattern was emerging and it all centres around some really important mortgage terms which all begin with the letter P.

Most of the time we become very focused on the interest rate we are being offered which makes a lot of sense given that it’s the easiest to understand and has what feels like the biggest impact to us as the lower the rate the lower the payment.  There is more to a mortgage than this though and discounting the other parts of the mortgage could very well cost you in the long run so take a look at these 3 P’s.

Portability – Portability is the term for being able to take your mortgage with you from property A to property B without a penalty. Seems pretty straightforward but as always you should look a little deeper. 

  • What types of properties are acceptable to your lender?  If your dream includes an acreage with a barn for your horses then you need to ask if your lender likes them too.  Not all property types are considered by all lenders so asking ahead of time can save you money later.
  • What is the allowed time frame the port has to happen within? If the possession of your existing home occurs before you take possession of the new home you will be required to pay the penalty in full and it will be reimbursed after the fact.   Some lenders allow up to 60 days for this move to happen.  I have seen others who require it to happen on the same day or before.   This is a very large difference and certainly worth asking about before you finalize your mortgage.
  • What type of a mortgage will you have if you need an increase?  Most lenders will blend the rate of your current mortgage with the rate being offered at that time for the new funds.  You may end up with a rate higher than the best but once you calculate a penalty it can make great sense to choose this route.  Some lenders will split your mortgage into a component A and B.  This is a bit of as pain potentially as you now have 2 payments with 2 different maturity dates indefinitely.

Penalty

There is no set standard in Canada among financial institutions as to how a mortgage penalty is calculated.  Find out before you accept a mortgage offer as to how your lender calculates theirs.  This part isn’t at all fun however the onus is actually on you to learn.  A mortgage is a binding legal contract in which the lender is obligated to disclose this formula to you ahead of time. 

The other thing to watch out for are additional penalties.  Some mortgages offer a really great low rate but if you read the fine print there is an additional 2.75% fee if the mortgage is broken.

 

Prepayment Privileges

There are scads of ways you can pay your mortgage down quickly.  Increase your payments, change your payment frequency, or put lump sums against your mortgage.  Make sure the pre-payment privileges you are being offered match your strategy.    You may want to choose a lower rate in exchange for a decreased prepayment amount if that suits.  Or on the flip side if you plan to be very aggressive then make sure your mortgage allows this. 

 

And there you have it!  The pointedly poignant look at the particularly perilous p’s of mortgages.  Educating yourselves and choosing a well-qualified mortgage professional is your best defense as always!

Price Increases You Need To Know About.

General Pam Pikkert 10 Apr

Price Increases You need to Know About

Well this article is not full of much good news at all but forewarned is forearmed as my old pappy used to say so let’s just dive right in and learn about 2 pricing increases which may affect you if you are purchasing a home.

Mortgage Default Insurance

Let’s start with a quick refresher.  There are 3 mortgage default insurance companies in Canada: CMHC, Genworth and Canada Guarantee.  When you are purchasing a home with less than 20% down you will be required to pay a set percentage of the purchase price, less your down payment, to one of these companies.  This insurance is solely for the benefit of the mortgage provider.  Basically they are able to lend to those of us with less than 20% down because these companies are insuring them against financial loss if you default on your mortgage loan. 

Last week they announced that those people who are purchasing a home with less than 10% down are now considered to be a higher risk and so they have decided to assess a higher insurance premium on these clients. The new rate for a loan-to-value ratio up to 95 per cent is 3.6 per cent, up from 3.15 per cent. For a loan-to-value ratio from 90.01 to 95 per cent, but a non-traditional down payment, the premium climbs to 3.85 per cent from 3.35 per cent.  A non-traditional down payment is generally where you borrow the down payment from a secondary source.  To put that in perspective, if you are purchasing a home worth $250,000 you will be looking at paying $5.20 more per month.  This change will take effect June 1, 2015.

Land Title Fee Increase

                In the most recent budget set forth by the provincial government a pile of fee increases were announced.  One of these was the Land Title fee.  Land Titles is the governmental agency which registers legal documents against the title of a property.  Mortgages, Builder’s Liens, Utility Right of Way and Transfer of Title are a few examples.

For our purposes we will be looking at the fees changes to registering a mortgage and a land transfer. 

Current land transfer and mortgage registration fees are $50 plus $1 per $5000. 00 on the value registered.  That translates to about $270.00 on a $500,000 purchase.

After July 1st this will go to:

Registration fee of $75.00 plus $6 per $5000.00 registered which translates to $1280.   A quick mental calculation shows the increase to be just over $1000!

So the average lawyer fee with land titles etc will now be more in the $2500 range.

 

So fees have definitely increased which is certainly something that I want all of you to be aware of.

Have a great week everybody.

Just for the Ladies!

General Pam Pikkert 10 Apr

5 Tips Today’s Financially Savvy Lady Needs to Know

 

                Ok ladies this article is written just for you.  There are things which you need to know to make yourselves a financial Wonder woman. 

  1. Have Credit.  It is a hard fact that you must have credit and that you must manage it wisely.  You need to have credit just to get utilities or a cell phone let alone to buy a car, a home or book a vacation.    You need to have 2 types of credit reporting on your behalf.  One of them must be a credit card and the other can be a car loan or other fixed payment type product. Keep in mind that when this loan is paid off you need to get a new secondary credit.

Things you should know:

  • If you have a secondary credit card from your partner’s account chances are it is not reporting to your credit bureau.  Make sure you have your own credit card or else ensure that the card you have chosen reports for both of you
  • Cell phones and mortgages now report on the credit bureaus so keep those up to date.
  • It is your responsibility to make all your payments on time so set a reminder in your phone if you need to but don’t be late. 
  • If your life sees you moving frequently then opt for electronic bill notification to ensure that nothing get missed.
  • Do not exceed 50% of the available credit limit as it is can be seen as an indication of poor credit management
  1. Be on the Mortgage   If you are purchasing a home with anyone else you need to make sure you are on the mortgage.  Even if you are not currently employed outside of the home you should be on there.  It will allow you to phone the lender in case you have a question or need to catch up on a payment.  It will also ensure that if the worst case occurs that your home seamlessly transitions to you so you are not trying to deal with that on top of everything else.

 

  1. Know Where Everything is Say your partner takes care of all financial matters in your relationship.  Or say that as a single lady you have not yet organized all that annoying paperwork.  Do yourselves a favor and do so now.  Experts say that you should be able to put your hands on all documentation within 2 minutes of needing it.  Decide on a system and get organized.   Here are a few of the things you should have on hand.

 

  • Tax Info
  •  Insurance Policies
  • Investment, RRSP’s and other savings (including passwords)
  • Proof of Debt Repayment

 

  1. Have Sufficient Insurance Another necessity of life is adequate insurance.  The younger you are when you put these in place the cheaper it will be and a qualified insurance professional will make sure you are well protected.  It’s a good idea to have coverage outside of your employer’s as few of us stay with the same company indefinitely.  Here are the types of insurance you should have.
  • Life Insurance 
  • Disability Insurance
  • Critical Care

 

  1. Save Some Money

I totally get that saving your money does not seem like fun but trust me, your 65 year self would definitely tell you to get going on this NOW!    Consider setting up an automatic savings plan.  The money comes out each month without you having to make between saving or that fabulous new purse. 

 

There you have it ladies.  No more excuses.  It’s time to become a financial superstar!

So It’s Time to renew your mortgage

General Pam Pikkert 8 Apr


You have been living your life and things have been going just swimmingly and then (cue the music from Jaws) you get notice from your current mortgage provider that your mortgage is up for renewal.   Well there is no need to panic my friends.  This week we are going to teach you how to navigate the mortgage renewal process like a boss!

So basically you have a few options open to you.

  1. Just sign.  This option is the easiest for sure but it is likely not in your best interest long term.  I have said it before and I will say it again that banks are in the business of making money and there is nothing wrong with that.  The offer you receive on your mortgage renewal will likely be above what you can get with a little research but you will not have to do anything more than just sign on the dotted line and perhaps that is just fine with you.

  2. Negotiate with your current lender.  I am fully aware that we live in Canada and as such negotiation seems somewhat rude but I know you can do it and that you should do it!  Often all you have to do is make a phone call to a friendly rep who will enter into friendly negotiations with you until you both agree upon a final rate that likely lies between their first offer and the best rate on the market..  Then you sign the offer; send it back to them and next thing you know you can rest easy knowing your mortgage is all taken care of.

 

Either of these first 2 options can be great if there has been a life change for you.  Perhaps you have recently become self-employed and cannot verify your income for a new lender.  Perhaps you are a casualty of the falling price of oil and have been laid off temporarily.   No matter what the case accepting the renewal offer can be what’s best for you.  But if your life hasn’t changed and you want the best option possible then you really need to look at number 3.

 

  1. Shop around!  Despite your best negotiating abilities you will likely always be able to find a better rate out there somewhere.   I know that many of you would rather have a root canal than redo your mortgage but before you sign you owe it to yourself to look at you options.  

Most lenders offer a mortgage switch program.  It’s as easy as it sounds really.  You are simply switching your mortgage from one lender to another.  They will pay for an appraisal if its required.  They will also pay for the cost of a legal signing service to come to your home when it’s convenient for you to sign all the final papers.  Oh, and did I mention that you will be offered the best rate possible?

You will need to expect the process to take about 6 hours all together and you are going to need to provide paperwork to the new lender as it is a new mortgage

  • Letter of employment and recent paystub

  • Renewal offer from your current lender

  • Proof of home insurance

  • Property tax bill

  • Other items as needed

Why should you even bother you ask?  The numbers don’t lie so let’s take a look at them shall we?

I have based these numbers on a $300,000 mortgage with a 25 year amortization.

  1. Renewal offer at 3.19% for a 5 year fixed rate

$1449.14/month with $257,353.34 left owing at maturity.

  1. Switch offer at 2.69% for a 5 year fixed rate

$1372.45/month with $254,878.62 left owing at maturity.

 

That means that you will pay $76.69 less per month or $4,601.40 over the 5 years.  But wait!!  You will also owe $2,474.62 less at maturity bringing your total savings to $7076.02.  Holy doodles!!   That translates to your time being worth $1,179.33/hour.

 

So there you have it in a nutshell.  I think the mortgage renewal process will now be less intimidating by far.   It’s your money folks, keep it!