In case you are not yet added to my data base, here is Ruby’s first mortgage video.
https://youtu.be/VlKQI2HrnSs
Ruby will be emailing weekly, so email me if you want to be added to the list.

Thinking of leaving your mortgage early…it may cost you more than 3 months interest…

Interest Rate Differential (IRD)

The IRD is a compensation charge that may apply if you pay off your mortgage prior to the maturity date, or pay the mortgage principal down beyond the amount of your prepayment privileges. The IRD is based on:

• The amount you are pre-paying; and,
• An interest rate that equals the difference between your original mortgage interest rate and the interest rate that the lender can charge today when re-lending the funds for the remaining term of the mortgage.

Most closed fixed-rate mortgages have a prepayment penalty that is the higher of 3-months interest or the IRD. Most variable-rate mortgages do not have IRD penalties.

The “Comparison Rate” is the lender’s rate for the term most closely matching your remaining term. For example, if you have 22 months remaining, it is common for lenders to use the posted rate of their 2-year term as the comparison rate. Things to note…

• Each lender has its own formula for calculating penalties.
• Some lenders do not use the discount you received in their calculation, which decreases the IRD and can lower your penalty considerably.
• When determining the comparison rate, some lenders round up your remaining months to the next longest term.  Some round down.
• The Interest Act prohibits IRD penalties on terms over 5 years, after five years has elapsed.  In such cases, a maximum 3-month interest penalty may apply. For example, someone who has been in a 6-year mortgage for 60 months or more would pay a 3-month interest penalty (maximum) to break it before maturity.
• A small number of lenders prohibit breaking a mortgage early—regardless of the penalty—unless in the case of an approved bona fide sale.
• The moral:  Always contact your lender directly for an exact penalty quote.

Feel free to contact me with any mortgage questions.

When it comes to saving money, there are a lot of little things you can do that add up to make a big difference! Here are 10 of my favourite money-saving tips:

        Automatic savings are one of the most effective ways to save because you can’t spend what you can’t access! Instruct your employer to transfer a certain amount from your paycheck each pay period into an RRSP or savings account (or both) or set up automatic transfers in your banking account to coincide with your payday.

        Consolidating debt will result in a single monthly payment and lower interest costs! Many people don’t realize just how much money they are wasting on interest each month, especially if you have multiple loans or credit cards. Consolidating debt can help you gain control and maximize spend on the principal amounts to pay off loans faster.

        Budget with cash if you have trouble with overspending or find it too easy to use your card. After your bills are paid, take out the remaining cash (spending money) and only use that. Once the cash is gone, you’re out of money until next payday! Having physical cash in hand can also help you think twice when making purchases.

        Buying in bulk is a great way to save a bit here and a bit there when doing your regular grocery shop or purchasing other items. Know you’ll need more? Stock up at once for bulk savings, which will help you in the long run!

Before Buying there are two things you should always do. The first is to wait at least 24 hours and the second is to shop around! If you still want to buy something the next day, make sure you get the best price available!

       Plan Your Meals. Most of us don’t have time to make breakfast (let alone lunch!) before we fly out the door for work. But what if I told you that getting up an hour earlier could save you over $100 a week!? Just think about how much you spend going out for breakfast AND lunch each day? Groceries are a lot cheaper and you can even prep a few days worth of meals on Sunday while you get ready for the week.

       Think in Hours versus Dollars every time you are looking to make a purchase, especially large ones to help you understand the TIME value of money. A new $24 Blu-Ray = 1 hour of work. A brand-new mattress = 41.67 hours of work. Understanding the time that went into earning money for a purchase can help with reconsidering frivolous items, or encourage you to look for the best deal on necessary products.

       Utility Savings can help you save each month! Don’t blast your A/C with all the doors in your house open, don’t pump the heat without sealing cracks and consider things like installing water-saving toilets and running cold-water wash cycles to save energy (and money!) every day.

       Master DIY – While sometimes you can spend $120 to make a $20 item yourself, there are some things that do benefit from DIY, such installing dimmer switches, that can help save you money in the long run.

       Save Windfalls and Tax Refunds for a rainy day. A good rule of thumb is to put 50% of bonuses, tax refunds or other windfalls into your savings account and put the rest against loans owing. While you might want to go on a shopping spree or plan a vacation, paying off your debt NOW will free you up in the future

When it comes to cleaning up credit, there is no better time than now to recognize the importance of your credit score and check if you are on track with your habits. To get started with your credit clean-up, there are a few things you can do:

Pull Your Credit Report:

For most of us, our credit score is something we only think about when we need it. However, if you are unsure of where you stand, this is a great time to find out! The Fair Credit Reporting Act lets you get one free credit report every year through Equifax or TransUnion. Pulling your own credit report results in a “soft” inquiry on your report and will not affect your credit score. Email me at mark.unwin@shaw.ca to get your free credit report today!

If You Find Errors, Dispute Them:

When doing your annual credit score review, it is a good idea to go through line-by-line and confirm no errors. If you find any errors, report and dispute them immediately as they could be affecting your score.

Consolidate Your Loans:

One of the best tips for managing your credit and working towards future financial success, is to consolidate your debt. Consolidating debt means reducing multiple loans to a single monthly payment, which typically has a lower interest rate allowing you to maximize paying on the principal amount.

Once you have put the effort into cleaning up your credit, you will want to keep it that way! A few tips for maintaining your credit and maximizing your financial future include:

Pay Your Bills:

This seems pretty straight forward, but it is not that simple. You not only have to pay the bills, but you have to do so in full AND on time whenever possible. Paying bills on time is one of the key behaviours lenders and creditors look for when deciding to grant you a loan or mortgage. If you are unable to afford the full amount, a good tip is to at least pay the minimum required as shown on your monthly statement to prevent any flags on your account.

Pay Your Debts:

Whether you have credit card debt, a car loan, line of credit or a mortgage, the goal should be to pay your debt off as quickly as possible. To make the most impact, start by paying the lowest debt items first and then work towards the larger amounts. By removing the low debt items, you also remove the interest payments on those loans which frees up money that can be put towards paying off larger items.

Stay Within Your Limit:

This is key when it comes to managing debt and maintaining a good credit score. Using all or most of your available credit is not advised. Your goal should be to use 70% or less of your available credit. For instance, if you have a limit of $1000 on your credit card, you should never go over $700.

NOTE: If you find you need more credit, it is better to increase the limit versus utilizing more than 70% of what is available each month.

Whether you qualify for a mortgage through a bank, credit union or other financial institution, you should be aiming for a credit score of 680 for at least one borrower. If you are ready to start your home-buying journey, or are looking to refinance your existing mortgage, I can help you review your credit score and financial information to help you get the most from your money

Buying a home is one of the largest investments you will ever make! In order to make your home hunting experience the best it can be, there are a few key mistakes to avoid and be aware of before you start your journey:

1) Not Getting Pre-Approved: One of the most important aspects of buying a home is the mortgage application and approval process. No matter what type of home you are looking for, you will need a mortgage. One of the biggest mistakes when it comes to the home-buying process is NOT getting pre-approved prior to starting your search. Getting pre-approved determines the actual home price you can afford as it requires submission and verification of your financial history to ensure the most accurate budget to fit your needs.

2) Not Setting or Following a Pre-Determined Budget: Another mistake that people make when home-hunting is not setting, or following, a pre-determined budget. It can be tempting to start looking at the top of your budget, or even slightly over, but when you consider closing costs and the long-term financial responsibility of home ownership, it is best to avoid maxing yourself out. Getting pre-approved will help determine what you can afford.

3) Not Hiring a Real Estate Agent: Our office and your real estate agent are two of the most important members of your homebuying A-Team! In today’s competitive real estate market, it can be very difficult to acquire property without the help of a realtor. One reason is that realtors can provide access to properties that never even make it to the MLS website! They can also gain access to information about homes that may come onto the market, before a listing is even signed. Most importantly though, a realtor understands the ins-and-outs of the home buying process and can tell you how to be successful in your endeavors to purchase a home by guiding you through the process from the first viewing to having your bid accepted.

4) Focusing Too Much on Aesthetics: While we understand that bad interior design can really affect the perception of the home, you don’t want to be blindsided by it. At the end of the day, aesthetics can always be updated! Giving up the perfect price or location or size for a few aesthetic details (such as paint color, flooring, or even outdated appliances or light fixtures) is one of the biggest mistakes people make! Most homes have incredible bones that only need some minor tweaks to become your perfect space.

5) Not Thinking Ahead: What you want and need in a house today, could be very different from what you want and need in a house in the future. It is important to be able to look ahead – are you planning on having children? Are your parents getting older and in need of a retirement space? These are things that are good to take into consideration when buying a new home. Buying a home isn’t a permanent decision as you can always sell your home later on if it doesn’t work for you in the future, but it is almost always easier to plan ahead so you can grow with—and not out of—your home whenever possible.

If you are looking to purchase a new home, whether your first space or a step-up from your current living situation, we would be happy to help! Please don’t hesitate to reach out to set up a virtual appointment and discuss your mortgage options, pre-approvals and everything you need to know BEFORE you get started.

Interest Rate Differential (IRD)

The IRD is a compensation charge that may apply if you pay off your mortgage prior to the maturity date, or pay the mortgage principal down beyond the amount of your prepayment privileges. The IRD is based on:

• The amount you are pre-paying; and,
• An interest rate that equals the difference between your original mortgage interest rate and the interest rate that the lender can charge today when re-lending the funds for the remaining term of the mortgage.

Most closed fixed-rate mortgages have a prepayment penalty that is the higher of 3-months interest or the IRD. Most variable-rate mortgages do not have IRD penalties.

The “Comparison Rate” is the lender’s rate for the term most closely matching your remaining term. For example, if you have 22 months remaining, it is common for lenders to use the posted rate of their 2-year term as the comparison rate. Things to note…

• Each lender has its own formula for calculating penalties.
• Some lenders do not use the discount you received in their calculation, which decreases the IRD and can lower your penalty considerably.
• When determining the comparison rate, some lenders round up your remaining months to the next longest term.  Some round down.
• The Interest Act prohibits IRD penalties on terms over 5 years, after five years has elapsed.  In such cases, a maximum 3-month interest penalty may apply. For example, someone who has been in a 6-year mortgage for 60 months or more would pay a 3-month interest penalty (maximum) to break it before maturity.
• A small number of lenders prohibit breaking a mortgage early—regardless of the penalty—unless in the case of an approved bona fide sale.
• The moral:  Always contact your lender directly for an exact penalty quote.

National Bank of Canada cut its posted 5-year fixed rate by 15 bps on Monday, following similar cuts by BMO and CIBC over the weekend, while RBC and TD lowered their rates last week.

In May, similar big-bank posted rate reductions caused the qualifying rate to fall from its then-current level of 5.04%, since the rate is based on a mode average of the big banks’ 5-year fixed posted rate. That marked their first time since January 2018, when OSFI’s stress test was introduced, that the benchmark qualifying rate fell below 5%.

“It will make qualifying easier, or permit some people to borrow fractionally more,” Paul Taylor, President and CEO of Mortgage Professionals Canada, told the Globe & Mail.

Just how much more? Well, not a whole lot in the scheme of today’s average home prices.

Rob McLister, founder of RateSpy.com, calculated that a buyer earning $70,000 a year and purchasing with the minimum 5% down would be able to afford roughly $4,000 more home, or about 1.2%.

“That’s not much to get excited about, but on a market-wide basis, small buying power improvements are inflationary for home prices, other things equal,” he wrote.

At 4.79%, the benchmark qualifying rate will be just 15 bps above the all-time low of 4.64%, last seen in July 2017, McLister notes.

Stress Test Still Well Above Market Rates

Despite the reduction, the stress test rate is still roughly 290 basis points above the lowest nationally available insured rate today.

“At present, [the current formula] results in a big increment above actual contracted interest rates,” noted MPC chief economist Will Dunning in a previous report.

And that’s despite the current interest rates expectations, including Bank of Canada Governor Tiff Macklem’s suggestion there will be no interest rate hikes for the next two or even three years.

“Interest rates are very low and they are going to be there for a long time,” Macklem said.

A Better Formula Still on Hold

While these recent small reductions to the mortgage qualifying rate are assisting affordability to a small degree, industry leaders have called on the federal government to proceed with a plan to change how the stress test rate is calculated.

In April, the Department of Finance said homebuyers purchasing with an insured mortgage would be stress-tested at a rate equal to the weekly median 5-year-fixed insured mortgage rate plus 2%.

At the time, when the stress test rate was 5.19%, the change would have reduced it to 4.89%. But in March, at the height of the COVID-19 pandemic, the government announced it would suspend the proposed changes.

A similar change for the uninsured mortgage stress test, which was being considered by the Office of the Superintendent of Financial Institutions (OSFI), was also put on hold.

The pause on new regulatory changes was sensible “given the marketplace uncertainty in March,” Taylor said last month. “However, as we begin to open businesses again…now is the time for OSFI and Finance to consider implementation of the new test.”

The stress test rate is about to fall for the second time in three months following cuts by Canada’s Big Six banks to their 5-year fixed posted rates.

Mortgage experts say the Bank of Canada will reduce the benchmark qualifying rate—a.k.a., “stress test rate”—from 4.94% to 4.79% this week.

National Bank of Canada cut its posted 5-year fixed rate by 15 bps on Monday, following similar cuts by BMO and CIBC over the weekend, while RBC and TD lowered their rates last week.

In May, similar big-bank posted rate reductions caused the qualifying rate to fall from its then-current level of 5.04%, since the rate is based on a mode average of the big banks’ 5-year fixed posted rate. That marked their first time since January 2018, when OSFI’s stress test was introduced, that the benchmark qualifying rate fell below 5%.

“It will make qualifying easier, or permit some people to borrow fractionally more,” Paul Taylor, President and CEO of Mortgage Professionals Canada, told the Globe & Mail.

Just how much more? Well, not a whole lot in the scheme of today’s average home prices.

Rob McLister, founder of RateSpy.com, calculated that a buyer earning $70,000 a year and purchasing with the minimum 5% down would be able to afford roughly $4,000 more home, or about 1.2%.

“That’s not much to get excited about, but on a market-wide basis, small buying power improvements are inflationary for home prices, other things equal,” he wrote.

At 4.79%, the benchmark qualifying rate will be just 15 bps above the all-time low of 4.64%, last seen in July 2017, McLister notes