Manage Your Mortgage
For those who have already bought or are considering purchasing real estate (how to avoid unnecessary hassle and save money).
Everyone who has ever bought real estate remembers the event well, and how could you forget it? Choose a house, get a bank loan for housing, move - and all in a fairly tight timeframe. Well, finally, everything is settled - moved into the house, got lucky with a low-interest mortgage - life is good!
Just as you get used to the peaceful life, time quietly approaches for mortgage renewal. Typically, everyone remembers that the contract renewal date is somewhere nearby, but life goes at such a pace, with so many small and big things, that the periodically arising right thought - it would be nice to inquire about mortgage rates in advance - is immediately forgotten.
Finally, a letter arrives from the bank where the mortgage is currently held, with a large amount of information - contract renewal date, mortgage rates for all occasions - fixed and variable interests, contracts of different durations - for 1 year, 2, 3, 4, and 5 years. Everything will be there, except the very best offers with low interest rates on the loan (mortgage rates). Why? Very simple - you are a busy person, there is no desire to spend your time searching for the best mortgage rate, negotiations, so you sign the mortgage on the proposed conditions. Most banks hope that you will be among those Canadians who simply sign documents for contract renewal.
However, if you renew the mortgage with your bank at the interest they offer, over the years you will overpay a substantial amount due to higher loan interest, not just hundreds of dollars - possibly thousands or even tens of thousands. In other words, you need to check, compare (shop around), but it takes time, a lot of patience, and certain efforts, not everyone will want to. How soon do you think the bank will send a letter with new conditions before the end of your contract term? Only one month, at most one and a half, and this is not such a long time for searching and processing a better mortgage, as it may seem.
Imagine how frustrating it will be if it turns out that if you had started looking for a new mortgage literally a few days earlier, the gain in the mortgage rate would have been significant. But what to do, we take what we have. Such is life.
Take a look at some numbers
In October 2008, within a few days, the rates on variable rate mortgages changed dramatically from Prime minus 0.75% to Prime plus 1%. Imagine neighbors whose mortgage renewal date is in mid-December. In early November 2008, Prime was 4% — this figure is the same for everyone, but the mortgage rate for a neighbor who started looking for the best interest on the mortgage in November, one month before the renewal date, will be 5% (Prime plus 1%). The one who initiated the entire renewal process 2.5 months before the expiration of the old mortgage terms will have 3.25% (Prime minus 0.75%). Let's assume both neighbors have 20 years left to pay, and the debt amount is approximately the same, around $300,000. With a 5% interest, payments will be $1,971, and with a 3.25% interest, payments will be $1,698. It's easy to guess where the $273 difference is going — almost all to the bank. But you'll be even more surprised when you look at the ratio of principal and interest in these payments.
Let's assume the interest doesn't change for the entire 5 years.
At 5% interest, $1,237 goes to the bank as interest, and $734 goes towards debt repayment. Over 5 years, you will pay the bank $68,417 in interest.
At 3.25% interest, $807 goes to the bank as interest, and $891 goes towards debt repayment. Over 5 years, you will pay the bank only $43,950 in interest.
The difference of $24,467 over 5 years all goes to the bank's profit. To earn this money, you would need to make $35,460 (assuming a 31% tax rate).
This loss is a direct result of delaying the process of obtaining a new loan.
In a matter of days, the interest on a 5-year fixed mortgage rose from 3.65% to 4.49%. Mortgage rates were changing literally by the hour.
After the June increase in interest on a 5-year fixed mortgage, it gradually fell just below 4%. Again, literally within a few days in October, it rose to 4.34%.
3.64% turned into 4.69%. If you calculate how much additional interest needs to be paid to the bank over 5 years with a debt amount of $300,000, you will be horrified. $300,000 x 1.05% (4.69% - 3.64%) = $3,150 per year. Then multiply this amount by 5 years, and you get $15,750. Taking taxes into account, you would need to earn $22,856 over the next 5 years.
Due to the coronavirus, the Central Bank of Canada unprecedentedly reduced the benchmark interest rate three times in just one month, from 1.75% to 0.25% (three times by 0.5%). The Prime Rate in banks also decreased by the same 1.5%, but the discount from the Prime Rate was removed by banks. If before the rate cut, the discount from Prime was around 0.75% - 1.00%, then it simply disappeared after, and the formula became not Prime minus 0.75% - 1.00%, but Prime plus 0.2%. And all this happened literally within a week.
Let's see what happened with the fixed rate at around the same time. Even before the Prime Rate cut, at the end of February 2020, the fixed rate significantly decreased due to the reduction in government bond yields and dropped to 2.5% (under certain conditions), but within a couple of weeks in the second half of March 2020, it rose to 3.2%.
In both cases (with the variable and fixed rate), changes happened unexpectedly, often daily. At ten o'clock in the evening, the bank would send a letter that the interest would increase in two hours. I received a message from one bank about changes in mortgage rates 6 days after they changed the terms (these 6 days included the weekend).
And what can you do in these few hours? Almost nothing. You manage to help someone, but not everyone, and we worry about each individual, especially those with whom we have already started working but have not yet received the documents.
In other words, those who did not manage to lock in the best rates undoubtedly lost and lost money.
Now about the events of 2022-2023.
I think everyone is well aware of what happened during these 1.5 years.
Mortgage rates simply skyrocketed, and now many are anxiously awaiting the expiration of their current contracts. In 2022-23, mortgage rates were rising weekly, and of course, it would be ideal to lock in the lowest rates by the time the current contract expires, but for that, one needs to remember the exact renewal date.
In such a fast-paced and uneasy time, we all lack time. Accordingly, people miss the period in which they can lock in mortgage rates and benefit from it.
How to avoid such a situation?
It's simple — sign up for the Manage Your Mortgage program. Registration does not imply any obligations on your part. We will help you secure the best mortgage rate available in the market four months before your renewal date. So:
- We will contact you 120 days before the renewal date, confirm, and lock in the best interest rate available at that time. If the rate goes up over the next four months, no one can take away your best rate. If, however, the interest decreases during this period, you automatically get the best rate. We will continue to monitor the market situation, and if something interesting comes up, we will contact you and lock in the best mortgage interest rate for you.
- Additionally, throughout the existence of your mortgage, we will keep track of interest rate changes. If the situation arises in a way that, even with penalty sanctions taken into account, it would be advantageous for you to terminate the existing contract and switch to a new one, we will inform you.
Manage Your Mortgage is indeed an attractive program. The benefits of using it can be very, very real.
We offer everyone with a mortgage to register for Manage Your Mortgage program for free.
If you have never switched to another bank, you probably fear that the switching process involves some financial expenses. Financial institutions are interested in customers, so if you do not change the terms of the previous contract, such as the debt amount and the duration of the amortization period, the bank covers the cost of the home appraisal and expenses for a lawyer. Thus, there are little to no financial costs during the switch, and the gains are usually evident.
So, let's summarize.
To have confidence in today's scenario,
- That you will have the best mortgage rate at the time of contract renewal in the future,
- That during the time remaining until this event, we will monitor changes in interest rates in the lending market, and in case of significant changes, we will suggest actions to take,
- That you will always be informed about all important changes in the field of lending (we regularly provide information in Russian not only about changes in mortgage interest but also about possible trends in the development of the financial market, about everything in the world of finance that may be of interest to us and you).
You simply need to register online by filling out the form below. No confidential data is required, and there are no obligations — it's a risk-free option.
You can also send the required information by fax to (416) 222-0338 or register directly in the office; we are always happy to meet you.
Now, onto the most pleasant part. You all know what a promotion is. So, we've also decided to promote this interesting program and offer everyone registered with Manage Your Mortgage the chance to participate in a lottery.
Recently, we decided to make additions to the lottery. From the beginning of 2023, we are also raffling off 5 prizes, but the main prize will now be the Thermomix TM-6 Kitchen Robot, which has no analogs in the world. The value of such a prize in the dollar equivalent is $2,371.
The 4 additional prizes will be Gift Certificates in amounts of $500, $400, $300, and $200. You can use such a certificate when renewing your mortgage contract if you are renewing through our company.
So, prizes during the lottery in the Manage Your Mortgage program.
- The main prize – equivalent to $2,371 – is the Thermomix TM-6 Kitchen Robot, which would be of interest to practically any family.
- Second prize — Gift Certificate in the amount of $500*
- Third prize — Gift Certificate in the amount of $400*
- Fourth prize — Gift Certificate in the amount of $300*
- Fifth prize — Gift Certificate in the amount of $200*
* When renewing a mortgage through our company, this Gift Certificate will be exchanged for a check of equivalent value.
Detailed terms of the lottery can be read here.
I know many examples where mortgage holders contact their bank three months before the contract expires, hoping to secure the best interest rate in advance. Often, they are told that no one can say anything so early, and it's better to wait for a letter. The letter will definitely will be sent, the question is only when? A month before mortgage renewal, the bank will, of course, offer its best conditions, but the situation may change over time and not in your favor.
It can go another way —bank staff may suggest renewing the mortgage right now, 2-3 months before expiration, but in such a situation, you can lose if the interest improves during this time. Interest rates may fluctuate over a short period without disrupting the overall trend, so in the described situations, there is always a risk.
Sometimes banks send offers six months before the contract ends (Scotiabank, for example), but there is a threat that by fixing the rate for half a year, you may lose because rates may go down during this period.
However, we are most concerned when situations like this occur: we know when a person's contract renewal is due and offer them to lock in the best rate four months before the contract ends. The property owner refuses, citing that there is still time. They want to get an offer from their bank and promise to contact us later. We wait a couple of months, a call comes in—finally, I received an offer from my bank, can you do better?
It's hard to imagine what the answer to this question will be because it may happen that the interest has risen during this time, and then the answer will be NO, your bank's offer is good, and there is nothing better on the market today. But there is a chance, and it is significant, that on that day, the interest will be worse than when we started the conversation a couple of months ago. Banks do not warn us a week in advance about their plans to change the mortgage interest, they simply notify us that the rate will be higher in a few hours, and some banks do not even do that.
You not only need to register but also give us the opportunity to take care of you and lock in the best mortgage rates four months before the expiration of the existing contract, and then monitor the interest.
Table to be filled out for registration in Manage Your Mortgage program.
And other paragraphs remain unchanged.