Manage Your Mortgage

For those who have purchased a real estate or think about purchasing (how to escape unnecessary bustle and save money)

Everyone who has ever bought real estate remembers that important and bothersome event. It also concerns not only the choice of the house and the moving itself but the arranging of the mortgage at a favourable rate. Well, at last everything has settled, you have moved, received the mortgage with quite a good rate – now you can relax and live quietly!

The question is how to live and not to grieve? You need to pay mortgage, so you have much more responsibility. However, there are no unsolvable problems, everything can be gradually decided.

The time of the mortgage renewal eventually comes along. Of course, you remember that the date of the contract renewal is close, but life is so speedy; there are so many things to do that you simply forget about it. As a mortgage is coming up to the renewal date, most banks will send a mortgage renewal notice in the mail – usually one to two months prior to the term expiration. Everything will be included in that letter, a lot of info, except the best offer with the lowest rate on your mortgage. At this time the banks tend to take advantage of our busy schedules to assume that you will sign on with them for another term. The worst part is that the banks only tend to offer you their posted rate with very little or no discount. Almost 60 percent of the public sign this renewal without researching what the competition has to offer. If you renew the mortgage with your bank under the offered interest rates you will overpay a pretty sum of money in a form of additional percentages estimated to cost in the tens of thousands. So, don’t be part of the masses – avoid higher rates, avoid unsuitable products and terms. Certainly, it takes a lot of time, patience and efforts.

Also, if you have just one month left to find new mortgage you might be upset to realize that not a long time ago, for example, two months before your renewal date all mortgage interest rates were essentially lower. What to do? – we take what we are offered. Life is life.

Here are some statistics numbers.

In October 2008 within a short period of time (several days) all banks changed the formula of calculation of the rate on a variable rate mortgage from Prime Rate minus 0.75% to Prime Rate plus 1%. Thus, if we are talking about two home owners whose renewal supposed to be in the middle of December, depends on the time when they began their renewal process we could find the huge difference between their new mortgage rates. For those, who began the process of renewal in November, a month before term expiration, the new mortgage rate was 5% (Prime=4% plus 1%). For those, who initiated the process 2.5 months prior to the end of term the new rate was approximately 3.25% (Prime mines 0.75%). Let us assume, both homeowners have to pay the mortgage over a 20 year period and the amount of the debt is approximately the same – about $300,000. At 5% the monthly payments will be $1,971 but at 3.25% the payments will decrease to $1,698. It is not difficult to guess that practically the whole difference in $273 goes to the bank.

But even more, you might wonder if you can see what proportion of principal and interest will be those payments.

Assume interest does not change all 5 years.

At 5% the interest paid to the lender is $1,237 and repayment of debt is $734. During the next 5 years, you will pay to bank $68.417 of interest.

With 3.25% the bank’s interest will be $807 and $891 going to the debt reduction. For next 5 years, the bank will receive from you $43.950 of interest.

That $24.467 difference in the amounts in 5 years went entirely to the bank. In order to pay this money, you have to earn $35.460 before taxes (we are using marginal tax rate 31% tax, which is present by default).

This loss is – a direct result of the delay in applying for a mortgage.

June of 2009.
In a matter of few days, 5-year fixed rate has risen from 3.65% to 4.49%, the rates were changing practically every hour.

October of 2009.
After the June increase on 5-year fixed mortgage rates, gradually, the rates decreased from 4.49% to just fewer than 4%. And again, in a matter of days, it increased to 4.34%.

April of 2010, 3.64% turned into 4.69%.
If you calculate the difference in interest paid with a mortgage amount of $300,000, it is substantial. $300,000 x 1.05% (4.69% – 3.64%) = $3,150 per year. Now multiply that number by 5 years and we are looking at $15,750. Take tax into consideration and that is equivalent of $22,856 in extra income needed over the next 5 years.

Due to Coronavirus, Central Bank of Canada made unprecedented three decreases to overnight lending rate within just one month from 1.75% to 0.25% (3 times by 0.5%). Prime Rate at the banks has also decreased by the same 1.5% but the banks have taken away the discount on Prime Rate. If prior to reduction to overnight lending rate discount on Prime Rate was approximately 0.75% – 1.00%, now it is simply not there and instead of formula of Prime minus 0.75%-1.00%, we have Prime plus 0.2%. All of this happened practically in one week.

Let’s take a look at what is happening with the fixed rate around the same time. Even prior to the decrease in Prime Rate, at the end of February 2020, fixed rate has seen a strong decline due to lower return on government bonds and was down to 2.5% (in some situations), but in just a few weeks, in the second part of March of 2020, it increased to 3.2%.

In both situations (with variable and with fixed rate), changes happened unexpectedly, often daily. At 10 o’clock in the evening, the bank would send out a memo that the rate will be increased in two hours. One of the banks sent us a notice of changes on mortgage rates 6 days after the actual change has taken place (these 6 days included weekends).

Nothing could be accomplished in just a few short night hours. You manage to help some and miss the others, but we are worried about each one of you, especially about those that we are actively working with at the time but do not have documents yet.

So those that did not lock in the rate, certainly missed out and lost money.

We are here to offer you the expertise and resources so you can take advantage of the competitive mortgage market. All you need it to be registered for a special program – “Manage your mortgage”. Here’s how it works:

1. 120 days before the renewal date we contact you and confirm the best possible rate and product to suit your interests. If within a 4-months period rates go up you already have the best. If the interest rate becomes better you automatically receive the lower one.
   We will continue to monitor the situation on the market and if we come across something interesting we contact you and secure the best mortgage rate.
2. Throughout the remaining years before the contract is up for renewal we follow the changes of mortgage rates in the market. We will offer you the ability to transfer existing mortgage if in your personal situation it is beneficial to change to new conditions, even with penalties.

For every family who has mortgage – we offer you a registration for this interesting and profitable program – no obligations, no fees.

For those who are not familiar with the process of transferring a mortgage to another financial institution we just want to inform you that it is a no cost or almost a no cost process. If you don’t change the terms and conditions of the previous contract, such as the amount of the debt and the length of amortization period, in most cases the bank pays for the appraisal and legal expenses. So you practically don’t have any expenses during the transfer but you will win as you receive the better mortgage rate.

Let’s sum it up:

• You will have a better mortgage rate at the time of the mortgage renewal in the future.
• During the remaining period of time of the mortgage, before the renewal, we will follow up with the best rates on the market. In case of cardinal changes we will offer you some movements which will be financially favourable for you.
• You will be always well informed about any important changes in the mortgage industry (we will regularly inform you about any changes of the mortgage rates, and the tendencies in the future, and also about any important financial news).

In order to be registered online you have to fill out the following form below. Please be advised that we don’t request any confidential information. You also can use our fax 416 222 0338 and send information through fax.

Now, on to pleasant stuff. You all know what a promotion is. We also decided to promote our interesting program and offer everyone, registered for Manage Your Mortgage, to participate in a quarterly draw.

We have decided to make an addition to our draw. Starting July 2015, we are offering 5 prizes in the draw. The main prize is still the same – chance to rest with the family and friends at a cottage on Lake Huron. The cash equivalent of such prize is $650 to $950, depending on time of year. Four additional prizes will be drawn in a form of a gift certificate in the amounts of $250, $200, $150 and $100. This certificate can be used at the time of your mortgage renewal, if you are renewing your mortgage with us.

Here is the list of prizes for the “Three Night Cottage Vacation” draw

• Main prize – equivalent of $650-$950 – trip to a cottage within a year of the win (excludes High Season, when the cottage rentals are on weekly basis)
• Second prize – $250 gift certificate*
• Third prize – $200 gift certificate*
• Fourth prize – $150 gift certificate*
• Fifth prize – $100 gift certificate*

* Upon renewing your mortgage through our company, the Gift Certificate will be exchanged for a cheque of the same value.

I know of many examples of mortgage owners contacting their bank three months prior to the end of their contract with a goal to secure the best possible rate in advance. Often the response is that nothing can be certain so much in advance and it is best to wait for a notice of renewal. You will surely receive it, the question is when? A month prior to renewal the bank for sure will offer you the best rate at the time but the situation may have changed by then and not in your favour.

Then there is the opposite scenario – the bank employee is offering to renew your mortgage right away, two-three months prior to the end of term but in this situation you also may lose if the rate improves before your renewal. The interest can fluctuate over short periods of time without any global changes therefore both situations pose some risk.

Sometimes, the banks will send a renewal offer six months prior to the end of term ( for example Scotia Bank). Here we also have a risk that you have locked in the rate but lose as the rates may have improved during that period.

But we are most worried in situations such as the following: we know the expiry of an individual’s mortgage contract and offer that person to lock the best rate four months in advance. The owner of property refuses leaning on the fact that there is still time left. The person wants to see the offer from existing lender and promises to get in touch with us at that time. We wait a few months then we get a call – I finally received an offer from my bank, can you do something better? It is hard to speculate what the answer to that question will be, it may very well be that during the week it took the letter to get to the person, the interest has increased and the answer will be NO, you have a good offer from the bank and there is nothing better on the market at this time. But there is a possibility, a very real possibility, that by that date the interest will be worse than when we were first discussing it a few months back. Banks do not provide a week advance notice that the rates will be changed, they just notify us that the rate will be higher in a few hours, some banks don’t even do that.

It is important to not just register but give us an opportunity to take care of you and lock in the best mortgage rate four (4) months prior to the end of your existing contract and then monitor the rates.

Detailed terms of the drawing can be found here.

Form that needs to be completed to register for the Manage Your Mortgage program.