A Post-Christmas Mortgage Discussion – Guest Post

20 Jan

January is like Monday morning not just in the sense that it’s the beginning of the year as   Monday is to the week, but it is also the time of year when all the fun seems to be over and it’s time to get back to reality. Along with this comes the reality not only that we might have a couple extra pounds of Christmas turkey dinner to burn off, but that we need to take another look at our finances after December’s spending.

What’s the most expensive thing you have and will ever purchase in your entire life? It’s not jewellery and it’s probably not even your car. If you’re a homeowner, your house is probably the biggest and most important financial asset and the core of your budget that everything else revolves around. It’s critical to make sure the numbers work out on what you can afford and how your home fits into your life in the short, medium and long term.
I’ll tell you right now that I am a licensed mortgage broker… so if I sound a bit biased, it’s just because I really love my job!

Who has the best rates?
Generally speaking a mortgage broker offers the lowest rates up front. At a bank, you may be able to negotiate your way down to a good rate especially if you start with “my mortgage broker said he/she could offer….” Most banks will also offer posted rates on their websites which are much higher than what most people are paying. This serves not only to make it look like they are giving you a big discount off their standard interest rate, but it also gets factored into the often painful calculation of your break penalty if you ever needed to get out of the mortgage by selling your home or to refinance for a better interest rate down the road.

Break penalty, what???
Yes, unless you are in an open mortgage then you are bound by a contract for as long as the term is (most commonly 5 years). If you need to break the contract in that time for any reason including to sell your house, or to refinance to consolidate debt or get a better rate, then lenders will charge you a penalty for that. Normally the more reasonable penalties are 3 months interest, but sometimes you have to pay an interest rate differential (IRD) which almost requires you to have a Ph. D in math to calculate. Here is a good article that elaborates on that. Some of the lowest rates mortgage brokers offer can be associated with higher break penalties, so no matter who you are working with, the break penalty should be explained to you before you sign anything. If you know you won’t break the mortgage during the term, you can probably save a lot on the interest rate by choosing what is commonly called a “no frills” mortgage.

Can I save money on interest by paying my mortgage faster?
I’m glad you asked! Yes! Most lenders let you put extra money against the principle, which means you don’t pay any extra interest on it. In fact it saves you interest in the long run because it essentially takes time off the end of your mortgage. It won’t lower the payment in the short term, but over the lifetime of the whole mortgage you will save lots of interest. My favourite calculator to see just how much interest in a given scenario is here.

What’s the difference between a mortgage broker and a bank lender?
Lots of things! But the main difference is that the bank is one lender that offers only their own set of products, and a mortgage broker is an independently licensed person that knows what many lenders offer and finds the best solution for you. We are paid on commission from the lender in most cases and the biggest incentive is to find the best product that works in your situation.
When I know people are going to check their branch after speaking with me, I always help them ask the right questions and if they do end up going with their bank I always stay in touch to make sure they know about market updates and how rate and policy changes can apply to them.
The most important thing of all is to do as much research as possible and know what questions to ask your mortgage broker or bank mortgage advisor. When it comes to this enormous financial decision, it’s certainly worth knowing your facts and doing your research before putting pen to paper.

About Me: After an exciting career with the Canadian Army that saw us move several times across Canada, my family and I settled down back home in Winnipeg. Having greatly appreciated our mortgage broker during our moves, I took up the challenge to become licensed as a mortgage broker with Castle Mortgage Group; the fastest growing and highest volume producing company in Manitoba. For any questions or if you would like any further mortgage advice, please don’t hesitate to call or email me. Email: [email protected] Cell: 204-890-2446, Website: www.tedvailas.com


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