# seeking thoughts on mortgage options for imminent closing of townhouse



## joncnca (Jul 12, 2009)

Anyone have any thoughts about which option would be best on a 85,000 mortgage? Best in terms of most flexibility, early payment, and least amount of total interest paid, all balanced out.

1. TD: 3.3% fixed rate for 3 years, 1% cashback (of 85,000) immediately. option to increase monthly payment by 100% of monthly amount, option to make lump sum payment of 15% of original principal once a year.

This was some kind of special agreement with my homebuilder. It's not offered anymore for the new developments.

2. BMO: prime-0.85% variable for 5 years. 20% extra payment (once per year?), plus option to make lump sum payment of 20% of original principal once a year.

I checked the actual value of principal and interest after 3 years and it works out like this.

TD: Interest: $7,601.06 and Balance: 69,263.46

BMO: Interest: 4,934.90 and Balance: 68,387.40

Difference is 876.06. BUT, factor in the $850 cashback, and the difference is only $26.06.

Furthermore, this is also based on the (unrealistic?) assumption that interest rates will stay as they are right now for the next 3 years. Any increase and this $26.06 advantage could easily be negated, right?

BMO simultaneously offers a re-advanceable HELOC. I like that flexibility, but I don't see why this couldn't be achieved by applying for a TD HELOC separately if necessary. Not sure what the interest rate on something like that would be though... anyone have a HELOC with TD, get any good rates?

Any thoughts about which option seems the best?

Thanks!


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## Jungle (Feb 17, 2010)

Forecasters are suggesting that the BOC may not raise prime until September. 

With TD, all new mortgages are now registered with a collateral charge against the title. There was a lot of controversy regarding this decision, because when you renew your term and switch lenders for a more competitive rate, you must pay hefty lawyer fees to unregister the lien that TD imposes. Now, TD will have the strangle hold on you, and there will be no will for them match competitor's mortgage rate when they know you must pay $1000+ to get out..

Most banks are willing to do prime + 0.5 on the HELOC now. 

So..to answer your question, I would go with BMO BUT some posters on RFD mortgage rate threads still posting they are getting prime -.90 +from credit unions. Best to check what the latest offering are from all banks.


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## DanFo (Apr 9, 2011)

My existing TD mortgage isn't affected by the new collateral charge mortgage thing td is doing now....but from what i read if your getting a HELOC on top of your mortgage at another bank your mortgage will have a collateral charge against it anyhow... I think the new collateral charges at TD will only have a negative affect on someone who isn't interested in HELOC's ...as for the options on my td mortgage ...4.45% in the mid of a 5 year fixed...option to dbl my normal bi weekly payments (done) and i can pay up to 10 % (I think) of the orignal principal each year (all at once or as I can afford the extra payments).


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## Jungle (Feb 17, 2010)

Still I think the new policy is pretty slimey, because we know the real reason why they are doing it. For this reason, even without a HELOC, I would not perfer giving them my mortgage business.


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## DanFo (Apr 9, 2011)

every bank does whatever they can to get your money..I definately see TD losing a few mortgages by not having the option to opt out of the collateral charge..I wouldn't get another mortgage with them because of it...but for some who may want the credit they're are some advantages..I'm the minority without a HELOC compared to most of the people i know... so regardless of where they are they're all pidgeonholed to pay fees if they wanted to change mortgage institutions..I do see people getting stuck with TD by not knowing the disadvantages of a collateral charge...but some lessons are learned the hard way.


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## DanFo (Apr 9, 2011)

have you tried a mortgage broker??....A few people I work with got better deals through a broker then by going straight to the bank..not sure how much time you got to get things set up though .


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## Four Pillars (Apr 5, 2009)

What are your intentions with the mortgage? Pay it off asap or let it run a bit?


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## joncnca (Jul 12, 2009)

thanks for the replies everyone,

i haven't tried a mortgage broker because my builder had an agreement with TD in which my preapproval would be valid for up to 24 months (while the house was being built). other banks wouldn't sustain the preapproval for more than 3-6 months.

more recently, i sought out a friend of mine at BMO, who has been telling me about the mortgage products there.

I didn't know about collateral charge mortgages, but I quickly googling a couple of articles about it just now. it seems to me that the readvanceable mortgage/HELOC with BMO should also be a collateral charge mortgage, so this would put it on par with TD being a collateral charge mortgage.

overall, my intentions are to pay off the mortgage sooner than later, i've done my calculations with a 15 year amortization, which is actually more than comfortable, so i'm also hoping to make some lump sum payments too. 

i had planned on getting a HELOC to be able to tap into the equity in case an investment opportunity arose (i.e. buying into the small business where I am currently employed, buying investment property). i'm looking to strike a balance, with the intention of paying off mortgage in the absence of other 'better' opportunities. so i did have the intention of getting a HELOC.

so like i said, if both these options are collateral charge mortgages, it'll be equally costly to switch lenders. anyone know what the fees are to switch lenders for a collateral charge mortgage? ballpark, am i looking at a percent of home value, mortgage balance, flat rate....hundreds, thousands?

in my calculation, would it not be cheaper to go with TD, as my benefit with BMO would only be about $26, assuming prime doesn't go up for the next 3 years....? 

i like that BMO is setting me up with a readvanceable mortgage off the bat, no more applying afterwards, and the credit line increases as I pay down the mortgage (not that i'd be rushing to borrow against equity without a really good reason). with TD i'd have to go and reapply for a HELOC afterwards, and the limit would be fixed...btw, how much of a limit do people usually ask for/get with a HELOC?


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## Jungle (Feb 17, 2010)

Usually 80% of your home value minus your mortgage balance is what you get for a regular mortgage HELOC (not high ratio)

For example. Home is worth $100,000/ Mortgage balance is $50k. You get 30K heloc.


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## dagman1 (Mar 3, 2010)

The problem is you are missing the big picture when you say the difference is only $850 because you have paid much, much more in interest.

What I would do if I was you because this purchase seems to be well within your ability to pay, is go with the variable interest rate then take the difference between what you would have paid with the variable and what you would have paid with the fixed, and add it as a lump sum payment at the end of the year. While rates are certain to go up, the question is when and how much, as there is still quite a bit of economic uncertainty.


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## Syph007 (May 2, 2011)

I would never use TD based on that new collateral garbage. http://gailvazoxlade.com/blog/archives/2230

If you want to be positive you are getting the best deal, Id recommend trying a mortgage broker, then can do the leg work for you and are free to use. They get paid by the lender on referral.


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## joncnca (Jul 12, 2009)

TD: Interest: $7,601.06 and Balance: 69,263.46

BMO: Interest: 4,934.90 and Balance: 68,387.40

After 3 years.

Difference in interest is $2,666.16, but this is a theoretical maximum savings assuming that prime doesn't go up over the next 3 years. if prime goes up, this savings in interest decreases. 

But i see what you mean. Actually, i just ran some of the numbers. Assuming prime goes up by 1% per year, with current rates sustained for 1 year, so 5% by this time 2014.

BMO (variable) Balance: 69,323.22, Interest: 7,132.24
TD (fixed) Balance: 69,263.46, Interest: 7,601.06

Factor in $850 cash back, both are pretty evenly matched.

As for collateral charge mortgage, the BMO product i'm interested in is readvanceable and is a collateral charge mortgage anyway...so no difference between BMO and TD.

where's the crystal ball that will help me predict prime!!!?


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## marina628 (Dec 14, 2010)

We did two mortgages with TD in last 8 months and we didn't mind the collateral mortgage in our situation as one house will be paid out at end of 5 years and the other has just over 7 years left.I did like the fact if we bought another house and used our equity for the down payment they will waive any appraisal and legal fees for us as we have $xxx,xxx equity and they registered the lien for higher amounts .

If I were in a situation where I have many years left on the mortgage and did not want to be tied to one bank I may not like it.For us TD Bank has always matched any rates and most cases made us a better deal.My last Mortgage we got 5 year 3.49% they paid our legal and appraisal for us.


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## marina628 (Dec 14, 2010)

You guys have to consider he is two years away from closing ,a bird in hand is worth more than two in the bush. Variable may be 5% in two years or the may stay the same.I work with a TD Bank mobile mortgage person not a branch and I have to say every time we have showed her rates from other banks she has always matched them or done better.
Can't you take the TD offer and if rates change in the future pick a different deal?I do know they will give you the best rate between present deal and the rate at closing as we bought a new home that took over two years to close and did the 2 year rate guarantee as well.


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## joncnca (Jul 12, 2009)

actually closing is in about two weeks, june 15 of this year. i purchased march 2010, occupancy october 2010, not about to reach final closing.

i was doing those simulations to compare how much interested i would pay/remaining balance owing at the end of 3 years because the TD offer is for a 3 year fixed, so I used that as a point of comparison.

the BMO mortgage is 5 year variable. at the end of 3 years, i'd have to renegotiate with TD anyway, so i'm using 3 years to compare, as who knows what'll happen after 3 years.

it all comes down to prime. Here's what it looks like for the first 3 years:

Left column is prime-0.85, far right is projected prime rate/ First BMO is prime stays at 3% for the first year. Second BMO roughly assumes prime will go up to 3.5 by this time 2012...approximately, since they probably won't change anything tomorrow.

BMO 
balance	interest	prime
2.15	79,580.46	1,762.96	3
3.15	74,378.35	2,410.95	4
4.15	69,323.22	2,958.33	5
7,132.24	

TD 
3.3	79,925.21	2,704.41	3.00
3.3	74,681.57	2,535.56	4.00
3.3	69,263.46	2,361.09	5.00
7,601.06	

BMO 
balance	interest	prime
2.65	79,733.86	2,172.46	3.5
3.65	74,656.98	2,798.26	4.5
4.65	69,702.89	3,326.13	5.5
8,296.85	

so this becomes a discussion about how much prime is likely to go up...


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## marina628 (Dec 14, 2010)

Sorry I assumed the house was under construction And closing was far away.


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## financialnoob (Feb 26, 2011)

joncnca said:


> so this becomes a discussion about how much prime is likely to go up...


Then really it becomes a discussion of how much risk you're comfortable with. I think you need to look at a risk/reward comparison based on prime, and whether you're comfortable with it.

But nobody here can possibly know where prime will be in 2 to 3 years.


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## marina628 (Dec 14, 2010)

For me the decision was easy as I am at the end of my mortgage(s) so I opted to take the locked in 3.49% for 5 years.If i had a long time to go I probably would stick to the variable rates.


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## Financial Cents (Jul 22, 2010)

Nice rate marina628. I can see rates moving up 50 basis points later this year or by summer 2012, but really, who friggin' knows...


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## I'm Howard (Oct 13, 2010)

B of C, No Change in Rates, things are slowing down.


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## joncnca (Jul 12, 2009)

so all things considered, i've decided to go with BMO.

this is kind of an aside, but all of my regular banking is with TD.

there doesn't seem to be any easy (and free) method to transfer funds between the major banks, and depositing a cheque seems to take way too long (although shouldn't i be able to get exempt from having personal cheques held???).

anyway, how feasible is it for me to link a BMO account to my existing ING (already linked to TD) account. then i can can do the transfer through ING, which is generally pretty quick. i know ING tends to hold for 7 days, but if i make regular transfers, then i can set up a buffer, and constantly be depleting and replenishing the buffer in ING.

is this stupid? is there an easier/better way to do this?

thanks!


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