Why you should NOT renew your mortgage with the bank … The BANK has the BANK’S interests ahead of yours – ALWAYS!
Why you should NOT renew your mortgage with the bank … without checking with a broker (me) first, because the BANK has the BANK’S interests ahead of yours – ALWAYS!
Below is an article that shows the bank does not have your best interest in mind. Because they are paid to make money, not help you make the best decision for your finances. I get calls like this every day from incorrect mortgage payoffs to bad advice overall. Now you can see how clear it is with this example.
Paying off mortgage safer than investing the cash
Study after study suggests that Canadians are having a tough time paying off their mortgages, as debt levels continue to hit record levels year after year. Why?
Could it be that there are more opportunities to spend? Could it be that some people don’t want to pay off their mortgages faster?
Or are some professionals advising alternate investment strategies, suggesting that paying off the mortgage is not the best financial strategy?
BIG MORTGAGES AFFECT RETIREMENT
Rebecca and Darcy are in their mid-50s and are starting to think about retirement planning; they would like to retire in the next five years.
One of their biggest hurdles is a $225,000 mortgage. Currently, their $2,200 monthly payment would have the mortgage paid off in 10 years.
Rebecca and Darcy recently both received increases in pay at work, allowing them to increase their mortgage payments by $1,000 per month and pay off their mortgage in just under seven years.
Just as they were working with the banker to renew their mortgage, Darcy also got news that he is going to receive a significant inheritance, which he could use to pay off the mortgage all at once. When they asked the banker what they should do, the advice concerned them.
ADVICE FROM THE BANK
The banker suggested that in a low-interest-rate environment, paying off the mortgage might not be the best thing to do with the $225,000 inheritance.
Instead, they could invest it into a mutual fund that made over six per cent over the past year and over five per cent compounded over the last five years. With mortgage rates at 2.5 to three per cent, higher investment returns would mean more money in their pocket.
The banker put together a nice graph showing Rebecca and Darcy that investing the $225,000 would give them over $315,000 in seven years at five per cent, and that their $3,000 monthly payment would mean the mortgage would be paid off at the same time.
The bank’s conclusion? Keep the mortgage and invest the lump sum for a higher return.
WHAT WOULD YOU DO?
The banker is mathematically correct, but the big “if” lies in the rate of return, which cannot be controlled or predicted. The five-per-cent return is not guaranteed; what if the next five years aren’t as generous?
I ran some numbers at two per cent for the couple, and in that scenario, $225,000 would only grow to $258,000 after seven years. Alternatively, paying off the mortgage and investing the $3,000 per month mortgage payment at the same two per cent would give them $274,000 after the same period.
Basically, if the return on investment is greater than the interest cost on the mortgage, then the math would tip toward investing money. If the return on the investment is lower than the interest rate on the mortgage, then the math would tip toward paying off the mortgage.
We could complicate the calculation with after-tax returns, but we’ll keep things simple for this column.
The bottom line is paying down the debt is a more conservative option. It puts more control, flexibility and security in the hands of Rebecca and Darcy. Investing is always great when the returns come, but a good return is not guaranteed.
The banks make money when you keep a mortgage and they also make money when you invest in their mutual funds. Could that have any influence over the banker’s advice here?
There is no right or wrong solution here. Both investing and paying down a mortgage are financially responsible.
I tend to err on the conservative side, so if I were in Rebecca and Darcy’s shoes, I would pay off the mortgage, then invest the $3,000 per month for retirement. What would you do?
Jim Yih is a financial expert. Visit his award-winning blog, RetireHappyBlog.ca
© Copyright (c) The Edmonton Journal
Calgary house price growth best in Canada
CALGARY — Calgary experienced the best monthly growth rate in house prices in May for repeat home sales across the country, according to a new report released Wednesday.
The Teranet-National Bank National Composite House Price Index said prices in Calgary were up 2.3 per cent from the previous month.
Nationally, prices rose by 1.1 per cent in the 11 markets surveyed. It was the ninth time in the 15 years of index data collection that May prices were up 1.0 per cent or more from the month before. The previous occurrences were in 2002, in 2004 through 2007 and in 2010 through 2012, it said.
The May monthly gain was one per cent or more in seven of the 11 markets surveyed led by Calgary. They also included Edmonton (1.9 per cent), Hamilton (1.4 per cent), Montreal and Winnipeg (1.2 per cent), Ottawa-Gatineau (1.1 per cent) and Toronto (1.0 per cent). Lesser monthly increases were recorded in Quebec City (0.8 per cent) and Vancouver (0.7 per cent). Prices were flat in Halifax and down from the month before in Victoria (0.8 per cent).
The index is estimated by tracking observed or registered home prices over time using data collected from public land registries. All dwellings that have been sold at least twice are considered in the calculation of the index.
On a yearly basis, prices in Calgary rose by 5.8 per cent — the second highest in the country behind Quebec City’s 6.5 per cent.
At the national level, for a second consecutive month, the index was up 2.0 per cent from a year earlier, the smallest 12-month increase since November 2009.
“By way of comparison, the Case-Shiller home price index of 20 U.S. metropolitan markets was up 10.9 per cent from a year earlier in March,” said the report.
In Canada, the price gain over the 12 months ending in May exceeded the cross-country average in seven of the 11 markets surveyed for the national composite index. Besides Calgary and Quebec City, prices were up in Hamilton (5.8 per cent), Winnipeg (4.6 per cent), Edmonton (4.0 per cent), Toronto (3.9 per cent) and Halifax (2.3 per cent). The 12-month increase matched the average in Ottawa-Gatineau (2.0 per cent) and lagged it in Montreal (1.9 per cent). Prices were down from a year earlier in Victoria (4.1 per cent) and Vancouver (3.2 per cent). For Vancouver it was the 10th straight month of 12-month deflation.
The people that buy high end homes are often “job creators” and able to see what is happening in their business. They can see that things are going well now and are looking better in the future. All great for our continued economic prosperity in Calgary.
Prices and luxury home sales reach new lofty levels
CALGARY — Calgary’s resale housing market set a number of records in May.
According to preliminary, unofficial data on the Calgary Real Estate Board’s website, new levels were reached during the month for median and average MLS sale prices in the single-family market as well as for total residential sales in the city.
Also, the month had the highest level ever for luxury home sales of properties more than $1 million, according to Mike Fotiou, associate broker with First Place Realty in Calgary. There were 84 luxury home sales in May, besting the record for any month which was previously 80 in May 2012.
Kaitlyn Gottlieb, a realtor with Century 21 Bamber Realty in Calgary, said the upper-end market is seeing an increased demand for inner-city luxury homes with areas such as Hillhurst, Crescent Heights, Capitol Hill, Altadore and Parkdale some of the most coveted for homebuyers who are seeking the level of craftsmanship and detail you traditionally find in estate-style homes. It’s a development trend that shows no signs of slowing down.
“Today’s Calgary’s real estate market continues to show positive growth with steady price increases which are especially apparent in the starter to average single-family home sales, signalling a high level of confidence in both buyers and sellers,” said Gottlieb. “Inventory is increasing, although remaining lower than last year and properties particularly under $500,000 are selling very close to asking price in a shorter period of time, as buyers are prepared and ready to move on properties as they become available. We are also seeing an increase in competing offer situations as a result of the high demand and the lower inventory currently on the market.
“As we move into a more balanced market, buyers are also seeing great opportunities in Calgary’s market and as prices increase, the inventory increases, offering more choices for buyers. Calgary’s growing economy coupled with the tightening rental market and recent rental increases (contribute) to the market’s activity as renters move away from renting and into home ownership.”
The average sale price of a single-family home in May reached a record of $521,887, eclipsing the previous mark of $518,604 which was set in March of this. Average sale prices during the month were up 4.03 per cent from a year ago. The median price was also a record at $454,400, up 4.24 per cent from last year. The previous median price record was $450,000 in March of this year.
Record prices were also set in May for total MLS residential sales in the city with the average price at $462,161, up 3.85 per cent from last year, and the median price at $406,500, up 4.23 per cent from May 2012.
Previous record prices for total MLS residential sales were set in March of this year at $460,903 for the average and $403,000 for the median.
“With Calgary’s moderate but steady increases in the average home price and increasing number of sales, both buyers and sellers can expect a positive and opportunistic spring market. Overall these factors equate to a positive housing market and long term sustainability for Calgary,” added Gottlieb.
In May, total MLS sales in the city of 2,543 were up 6.80 per cent from last year while single-family sales of 1,766 increased by 3.46 per cent.
Meanwhile, a special housing market report released Monday by TD Economics, said resource-based economies, like Calgary, are facing better economic prospects over the next two years.
“Known for better job opportunities, more and more new immigrants and Canadians are choosing Calgary as their main destination,” said the report. “The inflow of people is expected to help support housing demand and help mop up some of the large amount of new homes currently under construction in the metro area.”
Calgary is also starting 2013 from a stronger position than some other markets. Calgary’s housing market peaked in late 2007, at which point the market looked to be overpriced and overbuilt, said TD Economics.
“But, the housing market went through its correction once the recession struck in 2009 and there has been less froth in the market since. Existing home sales are down 32 per cent from the peak experienced in 2007, while home prices have remained relatively flat since 2009 – helping to stabilize the home price-to-income ratio,” it said.
“Growth in Calgary home prices is likely to moderate from the current pace, but should remain slightly positive over the forecast horizon. Furthermore, home sales are likely to continue to grow moderately and housing construction ought to occur at the pace of household formation.”