31 May

Reverse Mortgages Vs HELOCS

General

Posted by: Angela Calla

At a quick glance a reverse mortgage and a HELOC appear very similar. However, once you begin looking at the details they have many striking differences between them.

In short, while both can meet the immediate purpose of the loan, a reverse mortgage is designed to accommodate the individual’s lifestyle well after they receive the money. Comparatively, a HELOC can cause increased financial stress over the long-term making many homeowners regret taking out the loan in the first place.

SIDE-BY-SIDE COMPARISON:

If you are 55 or older and considering a HELOC, make sure you take the opportunity to talk about the benefits of a Reverse Mortgage and the difference it can have in your life.

If you would like to learn more about Reverse Mortgage and the opportunities it can provide you, please contact The Angela Calla Mortgage Team and we will be happy to help you live a lifestyle you’ll enjoy.

Angela Calla has been a licensed mortgage broker for 14 years. She has been with Dominion Lending Centres since its inception in January 2006. Residing in Port Moody, British Columbia, Angela is a regular expert guest on several news stations, television shows, radio programs and local and national publications.  She was the AMP of the year in 2009, and has consistently been one of DLC and the industry’s top performers since 2006. She can be reached at callateam@dominionlending.ca  or 604-802-3983

 

30 May

Poloz Opens The Door For A Rate Hike In July

General

Posted by: Angela Calla

As expected, the Bank of Canada held rates steady at 1.25% for the third consecutive month but said that first-quarter growth was stronger than expected and that developments since April suggest that higher interest rates will be warranted.

The first quarter GDP numbers are out tomorrow morning, and it’s clear the Q1 growth will be above the 1.3% figure the Bank projected in the April Monetary Policy Report. This opens the door for a rate hike possibly as soon as the next meeting on July 11. The Canadian dollar rallied on this news as many feared that the Bank was behind the curve in responding to a recent rise in overall inflation–induced by higher gasoline prices–and very tight labour markets.

Uncertainty remains on the NAFTA front, dampening global business investment. Canadian firms long for a bright and stable resolution of trade conflicts with the U.S., which continues to be elusive. Business investment picked up in the first quarter and the Business Outlook Survey released in late June will give the central bank a window on business intentions before the next policy meeting.

Concerning the housing market, the Bank’s press release noted that “Housing resale activity has remained soft into the second quarter, as the housing market continues to adjust to new mortgage guidelines and higher borrowing rates. Going forward, solid labour income growth supports the expectation that housing activity will pick up and consumption will continue to contribute importantly to growth in 2018.”

Not everyone shares this optimism. The past week’s bank earnings releases show that mortgage originations have slowed considerably from year-ago levels and some have suggested that weak activity will prevail for the rest of the year.

The posted mortgage-rate, which is used to qualify borrowers, has risen to 5.34%, making it more difficult for some to gain approval, particularly at the federally regulated lenders. Variable mortgage rates are much lower as the gap between fixed and floating rates has hit historical highs.

Bottom Line: The central bank statement was much more hawkish than expected suggesting we are on target for a rate hike in July and another one is likely in October as well.

The Bank of Canada raised rates three times since the middle of last year as the economy moved closer to full capacity. But the Bank has been in a holding pattern since January cautiously waiting to see the results of trade negotiations and the degree of the slowdown in housing.

These factors will determine the pace of future rate hikes with the Bank estimating its neutral rate is 3%, more than double the current overnight rate. The Bank will only very gradually approach that level, mindful of the impact on an overly indebted household sector.

 

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

Angela Calla, Mortgage Expert, AMP of the Year in 2009 has been helping British Columbian families save money with the best mortgage strategy for over a decade from her Port Coquitlam office location. She is a regular contributor to national and regional media outlets and long-time host of The Mortgage Show on CKNW Saturdays at 7pm, and sits on many advisory boards for mortgage lenders and insures.  Angela can be reached to help you or for media inquiries at callateam@dominionlending.ca or 604-802-3983.

 

 

22 May

How to Navigate The Mortgage Rate Wars

General

Posted by: Angela Calla

You may have heard that rates are changing, and that is true. They don’t call it war for nothing and you need an expert by your side!

Think of mortgage brokers as your loyal soldiers. What we are seeing is exactly what we anticipated when prime rate goes up and discounts go down. Confused? Don’t be, variable rates are based on prime and both Bank of Canada Prime and Bank Prime are different.

What the new discount means is what it means – they anticipate prime to go up higher.

With current regulations, borrowers qualify for more mortgages on a variable rates! This is a shift from the previous policy where more Canadians were having to take fixed rates to qualify for the most.

These new discounts on new mortgages getting taken out there discount is lower off of the bank’s prime rate- this does not apply to an existing mortgage.

Did you notice earlier I said the bank’s prime rate, you would think they are all the same… right?

This is not the case. In November of 2016 one Canadian lender broke the trend of their counterparts and raised their internal prime to immediately impact their existing customers by adding to their amortization. This discount below was for new clients, they increased the discount so it looked bigger.

Example
Lender who broke the trend prime     Other lenders prime
3.65 %                                                             3.45%
Discount 1.05                                               Discounts ranging from 1.00-.95%

It’s important to note – each lender has unique criteria to be met to get these offers: some only for purchases, some only with switches, some only certain amortizations, and some only certain property types. The list goes on!

Remember your broker shops all these lenders without bias, while protecting your credit score to assist you in finding the best one. It’s important that we evaluate the following criteria with these lenders- here is an example of three lenders:

Lender one
• Bank has a higher Prime than anyone else
• No change to payment
• Increases amortization which can put into effect a trigger clause- cash call in on mortgage or forced pre-payment and other costs such as appraisal at your expense
• Not portable
• Does have a 12 month penalty payback if getting a larger mortgage at new rates! Best one!
• Have to go to branch to lock in and then be subject to their IRD (usually 3-5% of balance pending where you are in your term).
• Based on history this lender is generally the first to raise their rates and last to decrease

Lender two
• Prime rate consistent with all lenders
• Change to payment so amortization doesn’t increase
• NO trigger clause
• Have to go to branch to lock in and face large IRD between 3-5%
• Not portable but will refund you within 6 months if the mortgage is larger and will get rate available at that time

Lender three
• Prime consistent with all lenders
• Change to payment so amortization doesn’t increase
• NO trigger clause
• lender will pay back penalty within 3 months of getting a larger mortgage with them
• your mortgage expert can assist you with lock in
• If you lock in they have the lowest penalties in the country to break your mortgage in the future, generally 1-1.5% of the balance

With seven-in-10 mortgages breaking before the term is over, this should be weighted very carefully.

Let me demonstrate the following:

A mortgage that gets locked in with first or second lender above at $500,000, by the third year the cost to break a mortgage will be between $15,000 and $25,000. With the third lender the cost would be between $5,000 and $7,500.

What to do with this info?

These new wars apply to new mortgages. If you have a mortgage with a discount less than .50, a renewal upcoming, looking at accessing your equity for home renovations or to consolidate debt and you have a variable rate, it may be time to run the numbers to see if taking a new variable rate mortgage is beneficial for you. One of the significant benefits of having a VRM is to get out at any time with only three months interest penalty (unless a restrictive product was taken for a better rate or had a sale only clause).

As you can see we have only scratched the surface in terms of the differences. There are many other differences and mainly you have to consider as a consumer, do you want to be calling a bank branch and play Russian roulette with the education level and sales goals of the person who guides you through deciding what to do with your biggest asset? Or would you rather have a mortgage professional who is in the front lines proactively guiding you and assessing the economic factors to give you personalized advice based on their experience and knowledge of the mortgage industry.

Depends on what you value most!

Do you have questions on how we can help you?

Angela Calla has been a licensed mortgage broker for 14 years. She has been with Dominion Lending Centres since its inception in January 2006. Residing in Port Moody, British Columbia, Angela is a regular expert guest on several news stations, television shows, radio programs and local and national publications. She was the AMP of the year in 2009, and has consistently been one of DLC and the industry’s top performers since 2006. She can be reached at callateam@dominionlending.ca or 604-802-3983.

15 May

The Spring Housing Market Is Off To A Slow Start

General

Posted by: Angela Calla

April is usually the start of a spring housing market ramp-up, but this year the new mortgage stress test and rising mortgage rates have continued to be a negative factor. Those expecting an early-stage pick-up marking an end to the payback for sales pulled forward into the fourth quarter of last year have been sorely disappointed. Local real estate boards in Toronto and Vancouver announced that activity was weak in both markets in April–down just over 32% in Toronto and by 27.4% in Vancouver relative to a year ago. In Toronto, the weakness in April reflected at least in part a decline in new listings as would-be sellers might still find it hard to list at today’s lower prices for single-family homes.

Price-wise, developments last month should please policy-makers. Toronto’s aggregate benchmark price fell below year-ago levels (which constituted all-time highs in the area) for the second-straight month by 5.2%—providing some much-needed affordability relief. Single-detached prices (down 10.3% year-over-year) contrasted starkly with condo prices (up 10.2%). On a year-over-year basis, the drop in the aggregate price virtually matched the decline recorded during the 2008-09 recession.

The annual rate of benchmark price increases in the Vancouver region has slowed as well in the past two months. In April, that rate eased back below 15% for the first time since November last year. The deceleration isn’t doing much yet to improve affordability in the area, but it will be considered a sign that the market might be changing course away from overheating. The suite of market-cooling measures announced in the 2018 BC budget is poised to keep prices on this decelerating path over the coming months.

On a national basis, data released today by the Canadian Real Estate Association (CREA) show a 2.9% decline in home sales from March to April to the lowest level in more than five years (see chart below). About 60% of all local housing markets reported fewer sales, led by the Fraser Valley, Calgary, Ottawa and Montreal.

Actual (not seasonally adjusted) resale activity was down nearly 14% compared to April of last year and hit a seven-year low for the month. It also stood almost 7% below the 10-year average for the month.

Activity was below year-ago levels in about 60% of all local markets, led overwhelmingly by the Lower Mainland of British Columbia and by markets in and around Ontario’s Greater Golden Horseshoe (GGH) region.

As expected, this year’s new stress test lowered activity not just in the red-hot markets, but it has destabilized market balance for housing in Alberta, Saskatchewan and Newfoundland and Labrador about which CREA warned the government. As provinces whose economic prospects have faced difficulties because they are closely tied to those of natural resources, it is puzzling that the government would describe the effect of its new policy as intended consequences,” said Gregory Klump, CREA’s Chief Economist.

New Listings
The number of newly listed homes declined 4.8% in April. Having reached a nine-year low for the month, new listings stood 12% below the 10-year monthly moving average.

With sales having fallen by less than new listings, the national sales-to-new listings ratio firmed slightly to 53.7% in April compared to 52.6% in March. The long-term average for the measure is 53.4%. Based on a comparison of the sales-to-new listings ratio with its long-term average, about 60% of all local markets were in balanced market territory in April 2018.

The number of months of inventory is another important measure of the balance between housing supply and demand. It represents how long it would take to liquidate existing inventories at the current rate of sales activity. There were 5.6 months of inventory on a national basis at the end of April 2018, the highest level since September 2015. The long-term average for the measure is 5.2 months.

Home Prices
On a national basis, the Aggregate Composite MLS Home Price Index (HPI) rose 1.5% year-over-year (y/y) in April 2018. This marks one full year of decelerating y/y gains. It was also the smallest y/y gain in prices since October 2009.

Decelerating y/y home price gains largely reflect trends among GGH housing markets tracked by the index. Home prices in the region have stabilized and have begun trending higher on a monthly basis; however, rapid price gains recorded one year ago have contributed to deteriorating y/y price comparisons.

Condo apartment units again posted the most substantial y/y price gains in April (+14.7%), followed by townhouse/row units (+6.5%). By contrast, one-storey and two-storey single-family home prices were down (-1.1% and -4.8% y/y respectively).

Benchmark home prices in April were up from year-ago levels in 9 of the 15 markets tracked by the index.

Composite benchmark home prices in the Lower Mainland of British Columbia continue to trend upward after having dipped briefly in the second half of 2016 (Greater Vancouver (GVA): +14.3% y/y; Fraser Valley: +22.7% y/y). Apartment and townhouse/row units have been mainly driving this regional trend while single-family home prices in the GVA have stabilized. In the Fraser Valley, single-family home prices have now also begun to rise.

Benchmark home prices continued to rise by about 14% on a y/y basis in Victoria and by about 20% elsewhere on Vancouver Island.

Within the GGH region, price gains have slowed considerably on a y/y basis but remain above year-ago levels in Guelph (+5.9%). By contrast, home prices in the Greater Toronto Area (GTA), Oakville-Milton and Barrie and District were down from where they stood one year earlier (GTA: -5.2% y/y; Oakville-Milton: -8.7% y/y; Barrie and District: -8.4% y/y). This reflects rapid price gains recorded one year ago and masks recent month-over-month price gains in these markets.

Calgary and Edmonton benchmark home prices were again little changed on a y/y basis (Calgary: +0.1% y/y; Edmonton: -0.9% y/y), while prices in Regina and Saskatoon remained down from year-ago levels (-6.5% y/y and -3.4% y/y, respectively).

Benchmark home prices rose by 8.4% y/y in Ottawa (led by a 9.4% increase in two-storey single-family home prices), by 6.3% in Greater Montreal (driven by a 7.3% increase in two-storey single-family home prices) and by 4.2% in Greater Moncton (led by a 5.6% increase in one-storey single-family home prices). (Table 1).

Bottom Line
Housing markets continue to adjust to regulatory and government tightening as well as to higher mortgage rates. The speculative frenzy has cooled, and multiple bidding situations are no longer commonplace in Toronto and surrounding areas. Home prices in the detached single-family space will remain soft for some time, and residential markets are now balanced or favour buyers across the country. The hottest sector remains condos where buyers face limited supply.

Owing to the housing slowdown, a general slowing in the Canadian economy and significant trade uncertainty, the Bank of Canada will continue to be cautious. But as inflation trends higher, we expect the Bank to hike interest rates once again this summer and possibly in the fall as well.

Last week, the Bank of Canada increased the qualifying (posted five-year fixed) mortgage rate from 5.14% to 5.34% in response to benchmark mortgage rate increases at most of the chartered banks. TD bank led the rate hikes when it increased its posted rate for a five-year fixed mortgage by a whopping 47 basis points to 5.59% on April 25.

The central bank qualifying rate is separate from the actual mortgage rates offered by banks to borrowers but is used to assess homebuyers who are seeking loans. The higher rates come as an estimated 47% of all existing mortgages will need to be refinanced in 2018, up from the 25 to 35% range in a typical year, according to a recent CIBC Capital Markets report.

A rise in government bond yields preceded the slew of bank hikes. The yield on the Government of Canada benchmark five-year bond was 2.25% this morning, compared to 1.02% a year earlier. Fixed-rate mortgages tend to move with government bond yields of a similar term, reflecting the change in borrowing costs.

Competitive pressure among the banks appears to be heating up as BMO last week offered what is possibly the largest-ever discount on variable rate loans. The bank is promoting a variable five-year mortgage at 2.45%, a full percentage point below its own benchmark rate. This morning, TD Bank joined is rival in offering a highly discounted variable mortgage rate effective until the end of the month. Canada’s lenders often provide special spring mortgage rates as homebuying activity picks up. These moves come amid slowing mortgage growth.

Borrowers still have to qualify based on the much higher Bank of Canada posted rate of 5.34%.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

The Angela Calla Mortgage Team will work with you personally to ensure you get the best mortgage options contact us directly at 604-802-3983 or callateam@dominionlending.ca it’s never too early or too late to start planning to position yourself best in the market.

10 May

Is your bank shafting you on rates for mortgages, lines of credit?

General

Posted by: Angela Calla

It’s a mistake to shrug off interest rate increases because all banks are doing it.

There’s a lot of sameness to how banks treat their customers, but raising rates is an exception. We’ve recently seen varying levels of aggressiveness in raising mortgage rates. And in one case, we’ve seen an unusually shaky hand in ramming through a rate hike on lines of credit. If you’re a borrower, keep an eye on how banks compare with each other to make sure you’re not getting shafted.

Read more here: Bank Shafting you on rates?

Angela Calla, Mortgage Expert, AMP of the Year in 2009 has been helping British Columbian families save money with the best mortgage strategy for over a decade from her Port Coquitlam office location. She is a regular contributor to national and regional media outlets and long-time host of The Mortgage Show on CKNW Saturdays at 7pm, and sits on many advisory boards for mortgage lenders and insurers. We can be reached to help you or for media inquiries at callateam@dominionlending.ca or 604-802-3983.

1 May

Fixed Rates Are On The Rise. Are You Ready?

General

Posted by: Angela Calla

With the Bank of Canada holding rates steady this April, the same is not the case for the bond market, which impacts fixed rates.

In every interest-rate market there are many factors leading to and increase and we are hoping to provide a little bit of clarity on what is happening and what it means to you and your loved ones.

At this time, we see fixed rates increasing as the bond market increases, and our economists anticipate two more Bank of Canada increases of prime rate by the end of 2018.

Why do we note this information and how does it relate to you?

If you are in a variable rate, you will want to:
1. Review your lock-in options. Knowing it’s unlikely the prime rate will reduce and fixed rates are on the rise, there could be a sweet spot to review your options now.
2. If you decide not to lock in, it’s time to review your discount to see if a higher one can be obtained elsewhere.

Locking in won’t be for everyone, especially if you are making higher payments and your mortgage is below $300,000, which most people fit and will continue on that path. Locking in will be up to a 1% higher rate than you are likely presently paying.

If however rates raising another 50 basis points this year and knowing you can likely lock in below 4% now is most attractive to you, this may be your time. The next announcement from the BOC on Prime Rates is May 30th 2018.

If you are in a fixed rate:
1. If you obtained your mortgage in the last year, stay put.
2. If you are looking to move up the property ladder or consolidate debt, get your application in to us ASAP so we can hold options for up to 120 days.
3. If you are up for renewal this year or know someone who is, secure your options now with us as we keep a watchful eye on the market.

Please reach out to a Dominion Lending Centres mortgage professional so we can help ensure you or a loved is on the right path in our ever changing market.

Angela Calla
Dominion Lending Centres – Accredited Mortgage Professional
Angela is part of DLC Angela Calla Mortgage Team based in Port Coquitlam, BC.

Angela Calla, Mortgage Expert, AMP of the Year in 2009 has been helping British Columbian families save money with the best mortgage strategy for over a decade from her Port Coquitlam office location. She is a regular contributor to national and regional media outlets and long-time host of The Mortgage Show on CKNW Saturdays at 7pm, and sits on many advisory boards for mortgage lenders & insures. Angela can be reached to help you or for media inquiries at callateam@dominionlending.ca or 604-802-3983

27 Apr

TD Bank Raises 5-year Posted Mortgage Rate, Royal Bank also Upping Rate

General

Posted by: Angela Calla

TORONTO — Two of Canada’s biggest banks are raising their benchmark rates for five-year, fixed-rate mortgages.

TD says as of Wednesday it increased its posted rate for five-year fixed mortgages to 5.59 per cent from 5.14 per cent.

Mortgage planner and rate comparison website founder Robert McLister says the increase is “unusual” as the benchmark rate hasn’t seen a jump of 45 basis points or more since March 2010.

TD spokeswoman Julie Bellissimo says a number of factors are considered when determining rates including the competitive landscape, the cost of lending and managing risk.

Meanwhile, Royal Bank spokesman AJ Goodman says the lender plans to raise its posted rate for a five-year fixed mortgage on Monday to 5.34 per cent compared with the 5.14 per cent currently posted.

McLister says the actual rates banks offer to borrowers are not seeing an increase, but notes the Bank of Canada uses the posted rates at the big banks to calculate the rate used in stress tests to determine whether homebuyers qualify for loans.

CTV News

Angela Calla has been a licensed mortgage broker for 14 years. She has been with Dominion Lending Centres since its inception in January 2006. Residing in Port Moody, British Columbia, Angela is a regular expert guest on several news stations, television shows, radio programs and local and national publications. She was the AMP of the year in 2009, and has consistently been one of DLC and the industry’s top performers since 2006. She can be reached at callateam@dominionlending.ca or 604-802-3983 for an questions or media requests.

27 Apr

Poloz Holds Rates, Sees More Room For Growth and Rising Inflation

General

Posted by: Angela Calla

The Canadian dollar fell sharply immediately after the release of the Bank of Canada’s Official Statement providing a more bullish forecast for the economy while holding rates steady. The Bank hiked its estimate of noninflationary potential growth, implying there was more room to grow without triggering rate hikes. The central bank now suggests the economy has a noninflationary speed limit of 1.8% this year and next, accelerating to 1.9% in 2020. Formerly, the Bank had estimated potential growth to average about 1.6% for the next two years.

Many market participants had expected a more hawkish statement as inflation has risen to close to the Bank’s 2%-target in recent months. The central bank appears to be straddling the fence, suggesting that rate hikes are coming, but the economy still needs stimulus. The good news is that growing demand is generating new capacity as businesses invest to meet sales, a development that Governor Poloz says the central bank has an “obligation” to nurture.

The Monetary Policy Report (MPR) notes that three-quarters of industries have a capacity utilization rate within five percentage points of their post-2003 peak. The business outlook survey, meanwhile, indicates that sales expectations have firmed. Taken together, this implies that there’s a real need for investment to meet higher demand.

The chief concern is that protectionism, which remains the central bank’s top risk to the outlook, coupled with the U.S. tax overhaul means businesses will choose to expand capacity outside of Canada. A “wide range of outcomes” is still possible for the NAFTA, according to the MPR, which did not acknowledge recently reported progress in talks between Canada, Mexico, and the U.S.

The central bank now sees first-quarter growth at 1.3%, down from a January forecast of 2.5%. Forecasts for 2018 were also brought down to 2%, from 2.2%. But 2019 growth was revised up to 2.1% from 1.6%. This stronger growth profile reflects upward revisions to the U.S. fiscally induced expansion.
Slower growth in the first quarter primarily reflected weakness in two areas. Housing markets slowed in the wake of the new mortgage guidelines. Exports also slowed, in part owing to transportation bottlenecks.

Concerning housing, the Monetary Policy Report contained an interesting chart (below) showing the cumulative change in housing resales since January 2017 with the following comment: “Housing activity is estimated to have contracted sharply in the first quarter, following the implementation of the revised B-20 Guideline. The contraction was amplified as some homebuyers acted quickly in the fourth quarter of 2017 to purchase a home before being subject to the new measure. In the second quarter of 2018, housing activity is expected to pick up as resales start to recover.”

Bottom Line: Despite upward revisions to inflation, the Bank’s assessment seems to be relatively sanguine. I expect two more quarter-point rate hikes this year–likely in the summer and fall.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

The Angela Calla Mortgage Team will work with you personally to ensure you get the best mortgage options. Contact us directly at 604-802-3983 or callateam@dominionlending.ca for assistance or for media inquiries. It’s never too early or too late to start planning to position yourself best in today’s market.

23 Apr

Over 55 & On a Fixed Income? We Have a Mortgage For That

General

Posted by: Angela Calla

There has been no shortage of changing in policies, and one specific area that continues to grow is reverse mortgage space. There are so many baby boomers who are house rich but cash poor and are living on fixed incomes.

We have recently seen new lenders enter this space and competition makes lenders better! So having the power of choice with a reverse mortgage is welcomed, especially with so many mortgage rule changes making it even harder for the more mature borrowers to qualify as normally their highest income earning years are behind them.

These mortgage options allow them to stay in their homes longer, access capital for further investment, healthcare, and travel and have monthly cash flow while enjoying the fruits of their decades of labour with NO monthly payments.

Baby Boomers Market Stats 2018

If you or someone you care about can benefit from these new developments or want some clarity in evaluating all the available options without bias- we have a mortgage for that. Please contact us directly.

Angela Calla, Mortgage Expert, AMP of the Year in 2009 has been helping British Columbian families save money with the best mortgage strategy for over a decade from her Port Coquitlam office location. She is a regular contributor to national and regional media outlets and long-time host of The Mortgage Show on CKNW Saturdays at 7pm, and sits on many advisory boards for mortgage lenders & insures. We can be reached to help you or for media inquiries at callateam@dominionlending.ca or 604-802-3983

18 Apr

Breaking a Mortgage – Can you do it?

General

Posted by: Angela Calla

Do you have a mortgage? So do I! Looks like we have something in common. Did you know that 6 out of 10 consumers break their mortgage 38 months into a 5-year term? That means that 60% of consumers break a 5-year term mortgage well before it’s due…but do you also know what the implications are of this? Let’s take a look!

People need to break a mortgage for a variety of reasons. Some of the most common include:
· Sale and purchase of a new home *without a portable mortgage
· To take equity out/refinance
· Relationship changes (ex. Divorce)
· Health challenges or life circumstances are altered

And a whole other variety of reasons. So what happens if you have one of the above reasons, or one of your own occur and you have to break your mortgage? Here is an example of what would happen:

Jane and John Smith have lived in their home for 2 years now. When they bought the home, they recognized that it would need some major renovations down the road, but they loved the location and the layout of the home. They purchased it for $300,000 and have 3 years left but would like to access some of the equity in their home and refinance the mortgage to afford some of the bigger home renovations. This refinancing would be with 3 years left on their current mortgage. So, what are Jane and John looking at for cost? There are two methods that are used to calculate the penalty:

POSTED RATE METHOD (used by major banks and some credit unions)
With this method, the Bank of Canada 5 year posted rate is used to calculate the penalty for Jane and John. Under this method, let’s assume that they were given a 2% discount at their bank thus giving us these numbers:

Bank of Canada Posted Rate for 5-year term: 5.14%
Bank Discount given: 2% (estimated amount given*)
Contract Rate: 3.14%
Exiting at the 2-year mark leaves 3 years left. For a 3-year term, the lenders posted rate. 3 year posted rate=3.44% less your discount of 2% gives you 1.44% From there, the interest rate differential is calculated.
Contract Rate: 3.14%
LESS 3-year term rate MINUS discount given: 1.45%
IRD Difference = 1.7%
MULTIPLE that by 3 years (term remaining)
5.07% of your mortgage balance remaining. = 5.1%
For the Smith’s $300,000 mortgage, that gives them a penalty of $15,300. YIKES!

Now, Jane and John were smart though and used their Dominion Lending Centres broker to get their mortgage. Because of this, a different method is used.

PUBLISHED RATE METHOD (used by broker lenders and most credit unions)
This method uses the lender published rates, which are generally much more in tune with what you will see on lender websites (and are generally much more reasonable). Here is the breakdown using this method:
Rate when you initially signed: 3.24%
Published Rate: 3.54%
Time left on contract: 3 years
To calculate the IRD on the remaining term left in the mortgage, the broker would do as follows:
Rate when you initially signed: 3.24%
LESS Published Rate: 3.54%
=0.30% IRD
MULTIPLE that by 3 years (term remaining)
0.90% of your mortgage balance
That would mean that the Smith’s would have a penalty of $2,700 on their $300,000 mortgage.

A much more favourable and workable outcome! Keep in mind that with the above example is one that works only if the borrower has:
· Good credit
· Documented income
· Normal residential type property
· Fixed rate mortgage

For Variable rates mortgages, generally the penalty will be 3 months interest (no IRD applies).
If you find yourself in one of the scenarios that we listed at the start of this blog, or if you just need to get out of your mortgage early, be smart like Jane and John—review your options with a DLC Broker! In the example above, it saved them $12,600 to work with a broker! It really does pay to have a Mortgage Broker working for you.

Geoff Lee
Dominion Lending Centres – Accredited Mortgage Professional

Angela Calla, Mortgage Expert, AMP of the Year in 2009 has been helping British Columbian families save money with the best mortgage strategy for over a decade from her Port Coquitlam office location. She is a regular contributor to national and regional media outlets and long-time host of The Mortgage Show on CKNW Saturdays at 7pm, and sits on many advisory boards for mortgage lenders & insures. For guidance with your mortgage we can be reached to help you or for media inquiries at callateam@dominionlending.ca or 604-802-3983