The latest in giant payout penalties, this one was $47,291.
Here is a person – one of my ACTUAL ALMOST-Customers who had to swallow a surprise at TD for $35,000. (We tried 3 times to get him to not take that mortgage.)
To make this even more mind blowing, at a 39% tax rate that is $65,700 the person has to pay … about the same as 1-year of income at a full time job, without tax taken off.
- Would you work for 1 year to give it all to your bank if you had to sell or move or close down the mortgage for any reason?
- Would you sign an agreement like that?
- Have you already signed an agreement like this without knowing you have?
EASY to AVOID …
You don’t need to add in this risk to your home purchase. It is easy to get around by taking a mortgage from a major Broker Bank.
Broker banks calculate the payouts the “old way” which was way more fair to you, the buyer. Click here for the posts about payout penalties.
Broker banks also have better Terms & Conditions than the Big-6.
“Broker Banks have better T&C than all of the Big-6. Call a mortgage broker first.”
Mortgage Mark Herman, Top Rated Calgary Mortgage Broker
We always focus on the Terms and Conditions of the mortgage. Most people have no idea what the bank is talking about when they sign the mortgage. We DO as we do this every day.
Here is a link from a Canadian Law website about a CLASS ACTION LAW SUIT against CIBC for calculating their payout penalties incorrectly: https://canliiconnects.org/en/commentaries/66074
My favorite part of the article is here:
“difficulty of enforcing fairness to consumers … there is a serious imbalance of bargaining power between the oligopolistic banks and individual borrowers. Legislative action to provide better consumer protection would be desirable.”
And here is a link to a guy that was almost our customer but stayed at his bank because they matched our broker rate. And now he is paying a $35,000.00 payout penalty because of it.
Inside data on maxing your credit score – 10 tips
It can be tough to optimize your credit score when you don’t even know what it is? The answer is by focusing more on your overall “credit hygiene” rather than on any one particular score.
Dental hygiene is preventative maintenance to ensure your teeth and gums are the best they can be at all times. Having a similar routine for your personal credit history can be equally important to avoid problems when you least need them—like when buying or refinancing a home.
If you are always employing best practices, then you are optimizing your credit score and your overall credit profile, regardless of who is checking, when they are checking and what is being counted and reported.
Unfortunately, more credit in the wrong hands can lead to abuse. Some people rely on credit to supplement their income and end up in an untenable situation. These credit hygiene tips are intended for people who are responsible with credit.
1. Never Go Over Limits – Leave Some Room
When you have a credit card or line of credit hovering around its limit, you are at risk of going over, which is not a good thing for your credit score. And it might happen innocently—you started out under the limit, but with interest charges and possible over-limit penalties, you are now over limit and lose about 100 points.
Even when you deploy a balance transfer promotion or some form of interest-free period, you should leave room at the top.
It’s like when ordering a coffee, leave room at the top for the milk—even if you take it black, avoid spillages.
2. Accept All Offers of Increased Limits
You should usually welcome credit limit increases. You look healthier and stronger to the casual reader, because your limits have some heft to them. And perforce, you instantly reduce your percentage utilization of credit with an increased limit. This often results in a higher credit score.
Percentage utilization has a 30% weighting on your personal credit score.
3. Spread Around Your Balances
When maximizing your personal credit score, you should look at your utilization of available credit for each individual credit facility. If your goal is to maximize your score at all times, but you do carry credit balances, try to spread it around, rather than cluster it all on one card. One way this can arise is when you use balance transfer promotions to reduce interest expenses. You’ll have to evaluate the trade-offs of each approach.
4. Exercise All Cards and Lines of Credit
We tend to favor one particular credit card (maybe we like their rewards program) and we might neglect our other cards. If you are trying to maximize your credit score, it is good to use all available credit fairly regularly, even if it’s just for a brief moment every few months.
These trade lines can get stale and they are not pulling their full weight. Update the DLA (date of last activity) with a modest transaction and then pay it online immediately.
5. If in Doubt, Do NOT Close a Credit Card
It will rarely be correct to close older, unused credit facilities since they are contributing “score juice.” If you want to close the card to avoid an annual fee, just ask the card issuer to downgrade your card to a free card. You will retain your valuable history, but avoid annual fees (and the spectre of forgetting to pay the fee).
PS: My Avion card just charged me $120 annual fee and I am not using it. I called and they reversed the fee for me! and the card is still open.
Equifax Canada states your history can have a 15% weighting on your personal credit score.
6. Use It or Lose It
If you never borrow money, or you have a solitary credit card in your wallet and you never actually use it, eventually you will have nothing generating a credit score for you. And you may end up with no score at all. And that can really cramp your style when you need a mortgage.
You want at least 2 things reporting to your bureau. 2 credit cards are best so if one oes sideways, you still have one running.
7. Pay Your Active Credit Cards At Least Twice Monthly – The Statement Date Strategy
I keep track of the statement cycle of my oft-used cards, and I pay the balance in full several days BEFORE the next statement is issued. The card issuer typically reports my statement date balance to the credit bureaus – so I always want that balance to be small, and that way my utilization ratios are really good.
And within a week or so of the statement being issued, I go back in and pay the statement balance in full. This ensures I never have interest charges on my core credit card usage, since the balance is always brought to zero before the due date.
The smaller the limits on your credit cards, the more dramatic the impact of the statement date strategy.
8. Pay Disputed Items – Then Argue Your Position After the Fact
You may know someone who was offended by charges they were certain did not belong on their credit card statement. They refused to pay and preferred to wait out the investigation process. Unfortunately, by doing that they run the risk of interest charges and late payments.
My own experience has always been the card issuers do the right thing when fraud or outright billing errors are at hand. So, I pay and wait for the credit to come back to my account when the investigation is complete.
NOTE – if the fraudulent charges are very large and quite serious, this is a different matter altogether and you should strategize the best approach with the authorities and management at the card issuer.
9. Scour & Clean All Reporting Errors
There might be some incorrect information in your personal credit history that is needlessly dragging down your score. Those are easy and necessary fixes. And the impact on the personal credit score can be profound. There are many types of errors, but two examples are:
- You have two or more personal profiles with the credit bureau, so your information is scattered and diffused. Combining it all into one credit report could well increase your score and strengthen your look. (This often happens to people whose name is hard to spell, or who have legally changed their name.)
- You completed a consumer proposal and all the debts included in the proposal should be reporting zero balances and should NOT be “R9s.”
Each agency provides a mechanism on its website for reporting errors. Mortgage brokers can fast-track an investigation with Equifax Canada for their clients. What might take a consumer two months we can often get done in a few days.
10. The Takeaway
The credit reporting agencies may generate a different score for credit card issuers, car dealerships or mortgage lenders, and the score they provide the consumer upon request is typically none of these. Therefore, you should be more concerned with ensuring you are always using best practices that will score well, regardless of who is doing the measuring.
The credit hygiene strategy ensures your credit history is a weapon you can wield with confidence, and that whatever method is generating your credit score, it will always be optimized and at its maximum potential.
“Always be working on your credit,” Mark Herman, best Calgary mortgage broker.Mark Herman, best Calgary mortgage broker.
Another reason not to have your mortgage at your main bank…
Many home owners have all their banking in one place for convenience but this is another “trap.” If everything is at your favorite bank, they can see:
- from your pay deposits if you are still working, or are receiving EI payments.
- what your debts and minimum payments are,
- your savings & checking balances, what your Line-of-credit is, and your credit score.
- they know the value of your home and the mortgage amount.
With all of this data on hand, the bank can decline your deferral and suggest that you use more funds from savings or line-of-credit to make the payments.
Mortgage Mark Herman, Top Calgary Mortgage Broker
Someone who has lost their job, or has reduced pay, due to the virus, is not going to react well to having their bank tell them to continue to make payments from savings or LOCs.
The Deferral Trap
If you have the ability to not defer and can continue to make the payments it will keep you out of the “Deferral Trap.” The “Trap” is when all the payments that were deferred, and the interest not yet paid, needs to be repaid or the lender could renew you at any rate they want; like posted rates. The only way you could change banks and/or still get a competitive rate would be to catch up all the owed funds.
Up to the Banks to allow you to defer … or not.
The mortgage insurers are leaving it to the lenders to decide if they will defer payments or not and the banks have not published any guidelines on how they are going to deal with this. Reviews so far range from, “super-easy, no questions asked, deferred for 6 months” to the other end of the spectrum with “your mortgage is too new” or if you have not been laid off, have not tested positive for Covid-19, or your credit is not good enough, or they want to redo the entire mortgage application, then it is their choice to allow the deferral. The way around this would be to contact your mortgage insurer directly to see if you can work through them if your bank is not cooperating.
Are you looking for a Mortgage Broker who specializes in the FTHBI in Calgary? That would be us!
We have completed 6 of these deals in 2019. There was as total of 260. So that puts us at completing 2.5% of the entire Calgary market for this program. Interesting!
Obviously, we love this program for these 2 reasons:
- You save between $100 and $200 per month on the mortgage payments. For sure. From Day 1.
- The point of the program is to lower your mortgage payments. When the government puts 5% down for you, it lowers the total balance outstanding and this lowers the payments.
- You save about $4000 in the CMHC fees.
- You put down 5%, and the government matches 5% on existing homes. That means your CMHC fee is based on 10% down and not 5% down, and you save that from Day 1 as well.
The down side
The down side is this is registered as an interest free loan from the government. You still pay them back 5% of the sale price when you sell. That is 5% of whatever the sale price is so it could be more or less, but it is still 5%.
“The down side is not a big deal!
Guaranteed lower mortgage payments and lower CMHC fee! This is a win!”
Mortgage Mark Herman, Top Calgary Mortgage Broker near me.
FREE RESEARCH Data on the First Time Home Buyer Incentive from Mortgage Mark Herman.
- Call us for all the data you need on this program.
- We have it all and can explain it to you -it is a long, boring read.
Here is the link to the full article, pasted below https://www.canadianmortgagetrends.com/2020/02/cmhcs-first-time-home-buyer-incentive-off-slow-start/
Four months after its official launh, CMHC’s First-Time Home Buyer Incentive had funded just 4% of its three-year goal, according to new data provided by the agency.
From the time the down payment assistance program launched on Sept. 2 to Dec. 9, CMHC received just 3,252 applications from across Canada, 2,730 of which were approved. That translated into total funding of $51.3 million—well off pace of the agency’s three-year target of $1.25 billion.
Under the program, the government will provide first-time buyers with an interest-free down payment loan of up to 5% for resale purchases, and 10% if the property is a new build. The CMHC then participates in any rise or fall in value of the home, and the loan must be repaid either when the house is sold or within 25 years.
Interest in the program was highest in Quebec, where 1,300 applications were received. Comparatively, just 436 Ontarians applied, according to statistics that were tabled in Parliament last week.
Here’s a look at the breakdown of applications from some of the major housing markets across Canada:
- Greater Toronto Area: 148
- Vancouver: 45
- Edmonton: 447
- Calgary: 260
- Winnipeg: 144
- Montreal 654
- Halifax: 64
- New Brunswick: 60
- PEI: 12
CMHC head Evan Siddall defended the results via Twitter on Friday:
“In addition to CMHC’s challenges in estimating demand for the FTHBI, uneven lender support is a complicating factor,” he tweeted on Friday. “It may also be evidence that there is less unsatisfied FTHBI demand due to the stress test than people claim. People can always buy less expensive homes.
Why is the FTHBI Unpopular?
Since the initiative was first announced in the Liberals’ spring budget, many in the industry have criticized it for being overly complicated and promising negligible benefits.
One of the biggest restrictions of the program is that it’s currently limited to purchases of up to $565,000. In markets like Toronto and Vancouver, buyers can be hard-pressed to find available properties under that threshold. According to recent data from the Toronto Real Estate Board, the average sale price in December was $837,788.
Many buyers have also expressed unease at the thought of giving up equity in their home, particularly with prices rising rapidly in many markets across the country.
While Prime Minister Justin Trudeau promised tweaks to the FTHBI during last year’s federal election, no additional updates have since been provided. The proposed changes would increase the maximum purchase price eligible under the program to $789,000 for buyers in Toronto, Vancouver and Victoria.
It remains to be seen whether the FTHBI’s slow start is a harbinger of future demand over the coming years, or whether first-time buyers will grow more receptive to sharing a chunk of their home equity with the government.
Here is an UPDATE to the Canadian New First Time Home Buyer Incentive Program
A Calgary lawyer recently had an opportunity to review the program and attend a basic seminar. He said he would not recommend the “down payment equity share” program to a first time home buyer for the following reasons – BUT here are our replies … and the Program DOES make sense to do.
NEGATIVE POINTS and the reasons FOR the program are below:
- It will take much longer to be approved for this program than for a normal mortgage loan and sellers may not accommodate the longer condition time.
- We normally pre-approve buyers with these files and this program in advance so there is no extra time needed at the lenders for conditions.
- The math for this program is complicated and buyers that use this program need to be pre-approved as they need the mortgage to match the affordability guidelines and to shop in the right price range.
- The extra time is at closing when 2 sets of documents are needed by the lawyer. As long as this is known in advance, the closing date can be long enough to allow for the extra paperwork to be requested and completed.
- Higher legal and appraisal costs will result as two separate mortgages have to be prepared and registered (one for the lender and one for the equity share) and an extra appraisal will have to be obtained and paid for by the owner if paying out the incentive mortgage prior to the ultimate sale of the property.
- A 1st and 2nd mortgages go on title at the same time as closing.
- Appraisal on purchase is not involved as it has to be a CMHC approved mortgage (CMHC is responsible for the appraisal in this case) and the program is based on the purchase price.
- If the owner wants to pay it off / back sooner, then an appraisal is needed at buyer cost ~$350.
- This would happen if the owner wanted to do extensive renovations to the home.
- An appraisal should not be needed on a bonafide sale, to a 3rd party, via a realtor, and when listed on MLS.
- An appraisal MAY be needed – as the owners cost – if the sale if it is a “private sale” and/ or believed to be below market value.
- (This is to stop the owner from selling the home to a family member for $1.00 and then attempt to repay the loan with $0.05.)
- The buyer has already saved many times the extra costs, savings are about $100 – $150/ month, from day 1. Paying-out at 10, 15, 20 years later … they have already saved $100 x 12 x 10 years = $12,000, in the bank, already.
- A disincentive to improve/renovate the property will exist as any appreciated value is shared with the government notwithstanding that they don’t contribute to the renovation costs.
- Upon repayment, improvements will be included when determining the market value, therefore the Homebuyer will have to consider the cost and benefit of the planned renovations, and decide whether to repay the Incentive prior to making any home improvements.
- IMPORTANT: It may be beneficial to the Homebuyer to repay the Incentive prior to conducting any major renovations to the home.
- A potential trap is being created for non-permanent residents who are legally authorized to work in Canada who can qualify to buy under this program but will have extreme difficulty in selling when their work permit expires as they will not have sufficient equity to satisfy the required withholding requirements under the Income Tax Act
- We have been the largest Mortgage Alliance brokerage in Canada for 6 years in a row, and we do about 20 deals a year for 9xx SIN buyers; 99% of our customers are unaffected by this.
- Again, this program is surgical in for who it works for. The program is not for everyone.
- It may be more difficult to refinance the property (it is not clear whether the Government will permit refinancing of the first mortgage and postpone their security to the new financing)
Updated rules have been released:
- The home CAN be refinanced without triggering repayment of the incentive, however, the shared equity mortgage will only be postponed to the outstanding balance that would otherwise be owing under the first ranking mortgage (i.e. no equity take-out will be permitted ahead of the shared equity mortgage).
- The combination of all charges on a refinance must not exceed 80%.
- This program DOES allow Assumption of the mortgage. Standard rules apply: full requalification by the parties assuming the mortgage directly with the lender. The standard on-going ramifications to the seller still apply.
- This program does NOT allow a PORT of the mortgage to another property. It would have to be paid out at that time.
- If refinancing of the first mortgage will not be possible without paying out the government’s equity share, then the first mortgage lender will have a captive borrower. The lender will have no incentive to reduce posted mortgage rates on renewal resulting in substantially higher interest rates in the second and subsequent mortgage terms for the homeowner.
- As above, the rules do allow the home to be refinanced without triggering repayment of the incentive.
- The renewal rate offered by the lender is independent of the 2nd charge on title.
Side note: We see that lenders are already applying the “Stress Test” under-the-covers on renewals when calculating the renewal rates. More on my blog here: https://markherman.ca/2019/06/
We love this New Home Buyer Incentive Program – NHBI
Mortgage Mark Herman; Best, Top Calgary Mortgage Broker
With rates on the rise, is it worth a 2nd look at longer term mortgages?
- Rates have substantially increased over the last 6 of months. We have seen 3 prime rate increases with more on the horizon.
- Fixed rate mortgages have also followed suit due to bond market instability and the increases are noticeable.
- Consumer sentiment has rapidly moved from Variables rates to longer term Fixed rates of 5, 7, and 10 years.
The long-term trend for rates is up!
The advantage of Fixed rates is that they provide clients with added security and stability against this recent storm of volatility. This storm doesn’t seem to have an end in sight either with many questions still to be answered in the coming months. When will bond rates stabilize? Will global pressures continue to drive increases? Will we see a return to historical norms? What will be the impact of recent events on the Canadian economy?
Some clients are more concerned with rate trends these days it’s with good reason. Perhaps the interim answer to all this instability and volatility is to start looking long “term”. 7 & 10 year terms to be specific.
Longer term mortgages like a 7 & 10 year term help insulate clients against potential increases in the short to long-term as well as provide safety and consistency with mortgage payments that won’t fluctuate with the markets volatility.
We don’t have to go back very far (6-7yrs) to a time when 10 year mortgages were a very popular and attractive option. During that period of time many case studies show this product didn’t work out for those borrowers who selected those 10 year terms, however there was a major difference between that period of time and today. 6-7 years ago we were in a more stable rate environment and there was very little difference between the 5 & 10 year rates at the time. Shortly after this period, rates quickly dropped to even further all-time lows.
Compare those details to our current market situation where rates have now bottomed, and it becomes quickly apparent rates have been continually rising with more sustained increases forecasted.
If security is your top key, lets talk about a 7 or 10 year mortgage option today.
Mortgage Mark Herman
Top Calgary Alberta Mortgage Broker
This short version of the article should provide some confidence that the sky is not falling in Calgary and we will recover.
Mortgage Mark Herman, Best Calgary mortgage broker for home purchases and mortgage renewals
Housing affordability continues to improve in Calgary market
Owning a home in Calgary at market price remains more affordable than it has been on average since the middle of the 1980s, says a new report released Monday by RBC Economics Research.
But the latest Housing Trends and Affordability Report said movements in oil prices are likely to exert a stronger influence on the market direction in the short term.
“Alberta’s housing market is still feeling the impact from the oil price shock,” said Craig Wright, senior vice-president and chief economist, RBC. “That said, the dust began to settle this spring, and we saw a gradual recovery in confidence, which helped rebalance demand-supply conditions. Home re-sales started to turn around, and sellers no longer rushed to list their properties.”
The RBC Housing Affordability measures, which capture the proportion of pre-tax household income needed to service the costs of owning a home at market values, fell slightly in Calgary for both two-storey homes, to 31.9 per cent, and bungalows to 32.4 per cent. The measure for condos stayed relatively the same 19.5 per cent.
RBC’s Housing Affordability measure for the benchmark detached bungalow in Canada’s largest cities was: Vancouver 88.6 (up 3.0 percentage points); Toronto 59.4 (up 2.1 percentage points); Montreal 36.0 (down 1.2 percentage points); Ottawa 35.4 (unchanged); Calgary 32.4 (down 0.4 percentage points); Edmonton 32.5 (down 0.4 percentage points).
“With home resales beginning to turn around and sellers no longer rushing to list their properties in the spring, there was evidence that confidence slowly returned to the Alberta market in the second quarter following the hard blow delivered by the oil price plunge in the previous two quarters,” said the report.
Below is a great example of how the Big-5 banks get you on a mortgage payout.
Always talk to a broker about your mortgage because Grandma used to say, “the rate is the rate, but the details are the details!”
Top Alberta mortgage broker for home purchases and mortgage renewals
As you can see from the example below, the banks “discount rate recapture policy” can result in some pretty hefty added costs —$6,048 in the scenario here!
On July 31, 2011, you buy your first home and sign a five-year, fixed-term mortgage. As your family grows, you start looking at a bigger home, and after a few months of searching, you find the perfect one—on August 1, 2013.
Because of this unexpected upgrade, you now have to break your mortgage three years before it matures (you have $320,000 left on your mortgage). When you signed your current mortgage, you weren’t concerned about prepayment penalties, but as you can see below, prepayment penalties can have a significant financial impact on your bottom line.
|Mortgage date||July 21, 2011|
|Date you break your mortgage||August 1, 2013|
|How much you have left owing on your mortgage||$320, 000|
|Your original mortgage term||5 years|
|How many years left you have on your term||3 years|
|Mortgage breakage fee at the Big-5 banks||Mortgage breakage fee with Broker Banks
|5-year posted rate when you got your mortgage||5.39%||Not applicable for the IRD calculation|
|Your actual contract rate||4.00%||4.00%|
|3-year posted rate on August 1, 2013 (the day you break your mortgage)||3.75%||2.99%|
|IRD formula||(Contract rate – [Posted rate for remaining term – Discount from original mortgage]) x Principal outstanding x Remaining term||(Contract rate – Posted rate for remaining term) x Principal outstanding x Remaining term|
|Difference in fees||$6,048|
For a free mortgage check-up, or pre-approval, or compare what we can do vs. your bank, call Mark at 403-681-4376
• There is no cost to you for our services as the banks pay us for doing their work,
• You get our professional, un-biased advice & expertise on your mortgage,
• We answer our phones and emails, 7 days a week, from 9 – 9, including holidays,
• Your rate will be lower with us as we deal through “broker services” at the banks.
Below is a great summary of why this rate cut is not a big deal mortgage wise.
All the banks kept their rates the same but for TD that lowered their Prime rate by 0.10% only. No other banks have followed yet and are not expected to. As you can see the banks will keep that rate cut to boost their profits … because they love money; specifically, your money, not you.
Variables went down only by 0.1% … and fixed rates all stayed the same … at their 115 year all-time lows. Looks like mortgage interest rates are as low as they can go.
Mark Herman, top Calgary Alberta mortgage broker for home purchases and mortgage renewals.
Why the Bank of Canada’s interest rate cut won’t help us.
After seven years of interest rate cuts, this economic lever is a spent force. The law of diminishing returns means each new cut has less and less impact.
The Bank of Canada decision Wednesday to cut its key lending rate for the second time this year to 0.50 per cent …
The impetus behind the cut wasn’t really about getting you to borrow more or ease your borrowing burden. It was about widening the gap between our interest rates and those in the U.S. to push our dollar down.
“Canada’s economy is undergoing a significant and complex adjustment,” the bank said in its rate decision, noting there was a modest recession in the first half of the year as the economy contracted.
Our dollar started the day down a third of a cent to 78 cents, a level not seen in 10 years. That’s going to make snowbirds unhappy, but the central bank is more interested in fuelling exports to our larger trading partner.
Can the Bank of Canada really save the day? Rates are already so low, we’re at the point of diminishing returns. Each new cut is greater in percentage terms than the last, but the real impact is smaller and smaller.
Here are four reasons this cut isn’t likely to make much difference:
1. Not much relief
If interest rates are at 15 per cent – not far off what I was paying for my first mortgage – and fall to 10 per cent, that’s a 33 per cent decline and puts a huge amount of money in your pocket.
If the rate is 0.75 per cent and falls to 0.50, it’s the same 33 per cent drop, but the saving is negligible. By the time it filters down through the banking system to your line of credit, the difference may add up to a Big Mac meal.
Wednesday’s move by the central bank means the banks will likely lower consumer borrowing costs a little. The betting is that they’ll give us 10 basis points and they’ll keep the other 15. TD Bank was first off the mark, doing just that.
So, suppose you’re a good bank customer. Your $100,000 secured line of credit is at prime, plus half a point, or 3.35 per cent (2.85 plus .50). You’re making an interest-only payment each month which comes to $279 a month.
The bank passes on 10 basis points. Your new combined rate is 3.25 per cent, or $271 a month. Spend that $8 wisely.
2. Indifferent businesses
Businesses who need money to invest are already borrowing. This rate cut won’t make a difference to their plans…
3. Indifferent consumers
… many consumers see the low rates as normal. He’s right, in that anybody 45 or younger has only lived in an environment of falling interest rates. So 10 basis points off is just more of the same and unlikely to generate much interest….
4. Drooping dollar
Economist have noted that the January rate cut did send the dollar lower, but did little to accelerate growth, even as the loonie fell from 87 cents to about 82 cents and now 78 cents..