Newsletter September 2019

Here September comes. I would like to share the latest news.

1. Prime Rate remains unchanged. What to expect going forward – decrease in overnight lending rate?
2. Fixed rate has become significantly lower, what to do in such situation?
3. First-Time Home Buyers Initiative (FTHBI). Support for those buying for the first time without large down payment.
4. Unexpected phone call from a person regarding Critical Illness Insurance.
5. At the very beginning of October, there will be another draw for the “Three Night Cottage Vacation”. Why “Manage Your Mortgage” program is interesting for you.
6. If you plan to travel and do not have benefits at work, you can process your own travel insurance on our website.

Now everything in more details:

1. Prime Rate remains unchanged. What to expect going forward – decrease in overnight lending rate?

Prime Rate = 3.95%. The overnight lending rate remained unchanged on September 4th. Even though there has been a decrease in lending rate in US, chair of Bank of Canada stated that this is not current direction for Canada. One of the indicators with strong influence on the decision of Central Bank is inflation. In July, the inflation remained at 2%, which is the norm. It is expected to see a decrease to 1.7%. On top of that, the unemployment level has been record low for quite some time now. Statistics Canada reports annual economic growth of 3.7% in the second quarter, which is above the expected 3%. This data does not say that we should rush and drop our lending rate, although 40% of experts expect at least one drop this year, the remaning 60% believe that there will be no change in lending rate until the end of 2020. “Economists predicting BoC’s Poloz will stand pat on interest rates” – was the article published in Financial Post on August 10th. This is where it is mentioned that majority of experts do not expect a change until the end of 2020. Even the chairman of the Reserve Fund in the US has stated that further decreases of lending rates will be paused for now.
“BoC holds “thunder” for now” – this article was posted in Financial Post on September 5th. It discusses that the staff at Central Bank did not give any indication that we will see a rate cut next time. They stated that they would monitor the statistical data and world economy.

2. Fixed rate has become significantly lower, what to do in such situation?

In June of this year I met with a couple, who have obtained a mortgage last year with a fixed rate of 3.39%. We have discussed the possibility of switching to a lower rate (significantly lower than 3%). Yes, there will be penalties of approximately $4,000, but the benefit for the remaining period will be over $11,000. They will save $7,000 over the next 4 years, and the monthly payments will be a few hundred dollars less. This family also wanted to increase the amortization period to lower the payments. On top of that, they wanted to take out $40,000 for some renovations. Life goes on and we have an opportunity today to make some changes to our current mortgage and correct our financial situation.
If you have a variable rate mortgage with a low discount to Prime Rate or a fixed rate mortgage with a rate of over 3%, contact us and we will review the option of getting out of such situation.
In order to better understand how beneficial it may be for you to switch to new mortgage you will likely require help, and we are ready to assist you. A half-hour meeting or even a scheduled phone call can very likely save you some money. In the early stage, it is sufficient to request an analysis of your current situation by sending an e-mail.
Once we receive the request, we will do the necessary calculations including penalties and administrative costs. If it turns out that you would benefit from switching, we let you know.
Send us the necessary information and your requests (increase the amortization period, consolidate debts or to simply improve your current rate) to Galina at mail@totrov.com.

Below is the information we would need to do analysis:

1 – Amount of your current mortgage and approximate property value.
2 – Name of the bank and the remaining amortization period.
3 – Current mortgage rate and type, variable or fixed.
4 – If you have a fixed rate mortgage and it is with a big bank, please send us first 2 pages of your annual mortgage statement. It includes important information that we would need to calculate penalties.

New bank will cover the legal and the appraisal fees so you do not have to worry about this.
By the way, I would like to touch on why you will not receive the best fixed rate if you try to switch from variable to a fixed rate mortgage with your current institution.

1 – Any discounts (unpublished promotions) are only offered to new clients. We always know who offers what discounts and do the “shopping around” for you.
2 – Using our commission, we are able to offer you the best mortgage rate.
3 – We will find an option that best suits your request and current situation.

Yes, there is some paperwork requirements during the switch, but often it is worth it. We are waiting for your calls and meetings with you.

3. First-Time Home Buyers Initiative (FTHBI). Support for those buying for the first time without large down payment.

First-Time Home Buyers Initiative (FTHBI) comes into effect in September 2019 and support first time home buyers with small down payment.
For example, if a family has 5% of the property value and they are purchasing an existing property, the insurance company CMHC (Canada Mortgage and Housing Corporation) will give them an additional 5%, which will result in total down payment of 10%. This will decrease the monthly payments of the buyers. If a person is planning to enter a contract on a new construction, the insurance company CMHC will give 10% of purchase price in addition to the buyer’s 5%. In either case, the total down payment from the buyer and the insurance company has to be less than 20%, because of the involvement of the insurance company. This program is also referred to as Shared Equity mortgage (SEM).
At the time of the sale of the property in the future the insurance company will receive its portion of the profit proportionally to the initial contribution.
Household income can not exceed $120,000 per year and the mortgage amount given can not exceed the household annual income by more than 4 times.
With these limitations in mind, the program may not be very beneficial in bigger cities like Toronto Vancouver and surrounding areas.
Example: looking at the household annual income limitation of $120,000 and using the stress test, the family can qualify for a purchase of property value of $600,000 (5% own down payment and 5% from the government), but there is the second limitation: mortgage amount and the 5% contribution from the government can not exceed the household income by more than 4 times. The possible maximum purchase value in this scenario is $490,000. This support may not fit everybody. We are always ready to assist you with this government support program for your purchase.

4. Unexpected phone call from a person regarding Critical Illness Insurance.

A week ago I received a call from a person asking me to send them a claim form to receive money under the Critical Illness insurance program (they obtained such coverage with return of premium). It turns out that two weeks prior his wife underwent an operation to remove cancerous tumour.
A few days later our office was surprised to find out that our client, for whom we have multiple mortgages, passed away from a long-term illness (cancer). She did not have any insurance.
Elena, who has been responsible for insurance in our office for 15 years, told me that I have never really discussed the coverage with that client. There are various reasons why people may not have serious illness insurance coverage.
But we all understand that having financial support during these times definitely helps with the situation. People are less stressed and is more focused on getting better. On the other hand, unfortunately, if there is no financial support, the ill person deals with the same ongoing financial obligations and tries to get back to work as soon as possible. Often this happens against medical advice. We consciously understand that we are not fully healed yet we return to work. We do not know how this works out long-term. Sometimes, the outcome is not good.
I really like this insurance contract. It helps the insured while they are alive.
Today you can’t say that you will not be able to obtain such coverage. Today such coverage can be obtained by anybody, regardless of what illnesses you may have had, family history, previous refusals from other insurance companies. It doesn’t even matter if you are a smoker or not. Anybody is accepted as there is no medical questionnaire. Call us and we will confirm it for you.
If you want the option of return of premiums in case coverage was not used, it is also possible. In such cases the insurance coverage also becomes a savings account. You can save for different goals that you set for yourself, but if the insured becomes ill, they will receive a lot more than they have saved to that point.
There is also an option to get such contract for your children, there is an interesting option of return of all premiums after 20 years. This can be a good addition to the children education savings plan (RESP) as well as insurance plan, just in case.

5. At the very beginning of October, there will be another draw for the “Three Night Cottage Vacation”. Why “Manage Your Mortgage” program is interesting for you.

At the beginning of October, we will hold another “Three Night Cottage Vacation” draw. 5 prizes will be drawn and one of them will offer the winner a stay at a cottage with family or friends. Check our website for details of the draw – https://www.totrov.com/en/three-night-cottage-vacation-en/.
But it is not important on whether we do the draw or not. On its own the “Manage Your Mortgage” https://www.totrov.com/en/mortgage-en/manage-your-mortgage/ program is so interesting that everyone should participate in it. There is no losing, you win in any situation when it is time for a mortgage renewal. Rates offered by the bank can change very fast, fixed or variable. Participation in this program is a guaranteed win.
We wait for you to register and good luck in the draw.

6. If you plan to travel and do not have benefits at work, you can buy your own travel insurance on our website.

For a few years now, our website allows you to buy your own travel insurance when traveling abroad. If you are over 60, we would prefer to process travel insurance through our staff as there are different coverage options based on possible existing conditions. In other cases, we recommend to use our website and process travel insurance at your convenience. Please visit the link below to find out more about travel insurance where you will also be able to find premiums for your travel coverage. Approximately in the middle of the page, you will find a link to a page where you can buy your insurance. If you have any questions, call us during our business hours and we will be happy to assist.
https://www.totrov.com/en/insurance-en/travel-insurance/

We hope to hear from you or see you soon.
Our office is open 9 a.m. to 9 p.m. and Saturdays by appointment.

Serguei Totrov
Financial Advisor, CFP, CLU, EPC
Mortgage Broker, AMP
416-222-0533
www.totrov.com

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