Payout Penalties and the Bank’s new(er) trick


Short Version:

Broker only lenders – the top 3 broker-only lenders are bigger than any of the banks in Canada – do not have POSTED rates like the banks do. They do not then give discounts off of posted to keep you happy. They have 1 rate and that is the rate you get which is usually always lower than the bank rates.

Banks give you the discount off of posted “becuase they love you” now BUT if you ever have to payout your mortgage the banks then “recapture” that discount on the payout penalty. We see many instances when it used to be about $2000 it is now more like $9000! OR more!

This makes a big differance to your final payout and another reason to use a professional, full-time, top mortgage broker for your mortgage. (The rate is the rate, BUT the details make all the differance!)

Long Version:

Many of the banks are using the value of the discount given today as the basis of comparing the remaining term IRD (interest rate differential) payout calculation.  This means if rates  today stay the same as when you got your mortgage before, a client paying off his mortgage (becuase you are moving or we lucky enough to run into a windfall of funds), the bank penalty is now $10,000 MORE than if you were at at a broker lender – as in, a lender that bases IRD on the Best Broker Rate for the exact same IRD calculation.

So, if you are at RBC, TD, CIBC, BMO or Scotia that “discount” you get off the posted rate can really come back to haunt you later!

Another reason to use a professional, full-time, mortgage broker!

Mark Herman, Top Calgary, Alberta mortgage broker, mortgage renewal

Retail Sales: Alberta spends the most

“More support of Calgary and Alberta home prices; the high-value jobs in Calgary pay more and the 40,000 people a year that move to Alberta are spending that money. The numbers are mind blowing.”

Mark Herman; Calgary, Alberta mortgage broker

 Jonathan Muma Nov 25, 2014 10:25:24 AM

Albertans love to shop.

That’s according to the latest report from Statistics Canada which shows retail sales are up $6.7-billion, or 7.4 % from a year ago through the first nine months of this year.

That’s the highest annual growth rate in the country.

The next closest province is British Columbia at 5.3 %, and Canada overall, retail sales grew to $42.8-billion, up 4.5% from a year ago.

YYZ & YVR homes: more expensive than Rome, closing in on Paris!

This is some interesting data on the housing market in Vancouver and Toronto from one of the banks we deal with.

Mark Herman; Calgary, Alberta mortgage broker

Canadian home prices really are “world class”, at least in the country’s two hottest markets.

A survey shows the price for prime residential property Toronto and Vancouver has surpassed Rome and is closing in on Paris. Vancouver is at nearly $1,400 a square foot and Toronto is a little above $1,200. (Top spot is London at more than $3,600/sq. ft.)

The survey says growing foreign investment as a key reason for the rising prices because international investors consider Canadian real estate as a safe haven.

That’s backed up by high-profile Canadian economist Sal Gautieri. He also points to domestic factors: population growth in Toronto and Vancouver (and Calgary) has outpaced the national average by about 2 to 1 over the past decade; economic prospects remain good in both cities; and low financing continues to be a key factor in pricey markets.

Tricky changes to the mortge rules

Here is one of the changes of the mortgage rules that is now in effect – called the B21 Rules.

It will be sure to cause surprise for some customers that have large Line of Credits – LOCs

How the banks are now calculating monthly payments for secured lines of credit:

  • The outstanding balance (not the limit) will now be amortized over 25 years using the Bank of Canada 5-year benchmark rate to determine the monthly payment

What that means …

For the calculation of your QUALFYING INCOME – as in, the way the government says your mortgage math is done – your total balance on your LOC is now treated:

  • as a mortgage
  • with a 25 year amortization and
  • the rate used to calculate the monthly payment is the government’s “benchmark rate” which is about 5%.

This number is now used as your payment, not what the payment actually is.