# Mortgage advice for a friend



## lost in space (Aug 31, 2015)

My niece recently wrote me asking for some advice, their mortgage is coming up for renewal and she want's to take advance of cheap money but is worried rates might rise. This is my advice but before I sent it I'd like some feedback

Thanks 

- use a mortgage broker let them do the shopping around
- ask what the IRD is 
- how realistic is it you'll move the mortgage each time you get a better deal Weight this against better terms elsewhere.


What if interest rates rise, protecting yourself!

Instead of a higher payment put the difference in the bank and every year or two if things are going good put a large payment. If you lose your job you have a cushion to fall back on. 

Any thoughts


----------



## wendi1 (Oct 2, 2013)

Make sure it's a conventional mortgage and not one of those filthy collateral things. http://www.thestar.com/business/personal_finance/spending_saving/2012/04/01/collateral_mortgages_why_banks_like_them.html

Find out how much it costs to retire it early.

Rates will rise (eventually). I would go fixed rate under these circumstances, but variable rate is fine as long as she has some extra cash flow to manage the changing payment.

I like prepayment options (my last mortgage allowed me to pay 20% off each year, and increase the payment by 20% each year).

She can look up good mortgage rates on the internet, and use it to bully her lender.


----------



## lost in space (Aug 31, 2015)

wendi1 said:


> Make sure it's a conventional mortgage and not one of those filthy collateral things. http://www.thestar.com/business/personal_finance/spending_saving/2012/04/01/collateral_mortgages_why_banks_like_them.html
> 
> Find out how much it costs to retire it early.
> 
> ...


Wow good point on collateral mortgages!!!

Love the idea of bullying the lender thanks!!!


----------



## dougboswell (Oct 25, 2010)

First of all, the article in question regarding collateral mortgages is 3 years old. Large lenders like RBC, TD and National Bank offer collateral mortgages when you are having a line of credit attached to it. It is true that the bank can register it at higher level but National Bank will let you register it at the higher amount or at the amount of the actual mortgage value. The downside is that as it is registered as a collateral you will have to have a lawyer and pay the discharge fee to move it to a new lender, approximately $1400. However the savings over term by going to another lender may far outweigh the cost of moving it.

I have never seen anywhere in a commitment that they will register it at P + 10%. If you think about it why would anyone agree to this when they can go to another lender and not face this. Everything has to be disclosed to you upfront before you sign any papers. You would not find it popping up after the mortgage closes.

A variable rate mortgage offers good rates today. If the rates do rise and you feel that it may stretch your budget you can switch it over to a fixed rate one although you will have to take the rate that they offer you.

Usually on a switch the new lender will cover the legal fees and the cost of an appraisal.


----------



## MRT (Apr 8, 2013)

dougboswell said:


> First of all, the article in question regarding collateral mortgages is 3 years old. Large lenders like RBC, TD and National Bank offer collateral mortgages when you are having a line of credit attached to it. It is true that the bank can register it at higher level but National Bank will let you register it at the higher amount or at the amount of the actual mortgage value. The downside is that as it is registered as a collateral you will have to have a lawyer and pay the discharge fee to move it to a new lender, approximately $1400. However the savings over term by going to another lender may far outweigh the cost of moving it.
> 
> I have never seen anywhere in a commitment that they will register it at P + 10%. If you think about it why would anyone agree to this when they can go to another lender and not face this. Everything has to be disclosed to you upfront before you sign any papers. You would not find it popping up after the mortgage closes.
> 
> ...



wow...what lawyers do you work with? anyone paying $1400 to discharge and register a new mortgage is being ROBBED.


----------



## dougboswell (Oct 25, 2010)

MRT said:


> wow...what lawyers do you work with? anyone paying $1400 to discharge and register a new mortgage is being ROBBED.



I don't work for or with any lawyer. $1400 might be a little high. Discharge fee is around $350. Lawyer's fee can vary. At least $700


----------



## Just a Guy (Mar 27, 2012)

You could always do it yourself, it's only a matter of filling out a form, submitting a copy of the discharge and paying the fee. It's not difficult and, usually, the people at the registration office will even help you fill out the forms properly, not that they are complicated.


----------



## Mortgage u/w (Feb 6, 2014)

I suggest variable. Always been a winner. Even if rates rise, you have a long way to go before it matches the current fixed rate and needs to go way beyond that in order to wipe out your savings. Penalty is always 3 mths interest should you break your term and if BOC decides to put the economy in a depression by raising rates by 2% in one shot, you can always lock in a fixed term at no extra cost. The banks will match the best rates out there - they know the rates out so no surprise for them, they just hope you don't.

If you want a fixed term, I suggest a short term - but stay away from the banks cause their penalty calculations are ridiculous. Seek a mortgage broker to gain access to a mono-line lender.


----------



## My Own Advisor (Sep 24, 2012)

You can find 5-year variables with a mortgage broker around 2% now with 20/20 prepayment options. That is, historically, outstanding.

Even if rates rise 1% in the coming 2-3 years, that's still moving well under prime.

Again, rates have some distance to go before they hit 5-year fixed discounted rates at 2.5 or 2.6%. It would take 2 rate hikes at 25 basis points to get to 2.5%. We might get one rate hike per year in the coming years. 

If you want the "insurance", go fixed. If you want what's best short-term go variable.


----------



## nobleea (Oct 11, 2013)

The spread between 3yr fixed and 3yr variable is only 0.23% right now for some brokers.

It's true you can lock in to a fixed rate at some point, but the rate you lock in at is usually not very attractive. It'll be the posted rate at the time you choose to lock in, not when you signed the mortgage. That could be 4-5%.


----------



## Mortgage u/w (Feb 6, 2014)

nobleea said:


> The spread between 3yr fixed and 3yr variable is only 0.23% right now for some brokers.
> 
> It's true you can lock in to a fixed rate at some point, but the rate you lock in at is usually not very attractive. It'll be the posted rate at the time you choose to lock in, not when you signed the mortgage. That could be 4-5%.


I'll have to disagree. Why go 3yr variable when you can lock a better rate for 5yrs variable? If you made a good choice with the 3yr, why wouldn't you want an extra 2 yrs ? 
Also, if BOC increases the prime, there is always a delay before the lenders adjust so you have plenty time to lock in if the rate hike spooks you. Here is where a mono-line lender shines - they post the lowest rates so when you lock in to a fixed rate, its not as high as the exaggerated rates that the big banks post.

The spread right now between a 5 yr fixed vs 5 yr variable is roughly 50 bps. BOC needs to announce an outstanding economic recovery in order to justify such a hike. Even at that, it needs to go higher still in order to wipe out the savings you already profited. 

The way I see it: people that are scared that rates will sky-rocket, are basically and unknowingly predicting a blooming future economy within the next 5 years? If that would be the case, I doubt the lenders are not seeing this and are blindly lending money at 2%.


----------



## nobleea (Oct 11, 2013)

Mortgage u/w said:


> I'll have to disagree. Why go 3yr variable when you can lock a better rate for 5yrs variable? If you made a good choice with the 3yr, why wouldn't you want an extra 2 yrs ?
> Also, if BOC increases the prime, there is always a delay before the lenders adjust so you have plenty time to lock in if the rate hike spooks you. Here is where a mono-line lender shines - they post the lowest rates so when you lock in to a fixed rate, its not as high as the exaggerated rates that the big banks post.
> 
> The spread right now between a 5 yr fixed vs 5 yr variable is roughly 50 bps. BOC needs to announce an outstanding economic recovery in order to justify such a hike. Even at that, it needs to go higher still in order to wipe out the savings you already profited.
> ...


I don't disagree, I'm just saying, that depending on the term one chooses (and there could be other reasons for not going with 5yr), it's not a cut and dried case. And the whole concept of, oh I'll just lock it in, doesn't really hold water. In most instances, it's probably better to stick with the variable rate. Or even break the mortgage and refinance (since penalties are much less severe on variables).


----------



## dougboswell (Oct 25, 2010)

MRT said:


> wow...what lawyers do you work with? anyone paying $1400 to discharge and register a new mortgage is being ROBBED.


Lawyers also carefully read over the documents the lenders sent to them to get signed. I have seen a couple of times where the lender sent the document with the wrong interest rate typed in and it was the lawyer who caught it. When you are making a purchase in Toronto of a home at $500000 or more $1000 is an insignificant amount. What about the double land transfer tax in Toronto. You are paying $20000 - $50000+ depending on the sale price.That money eventually ends up with politicians spending. Now that is Robbery.


----------



## lost in space (Aug 31, 2015)

Mortgage u/w said:


> If you want a fixed term, I suggest a short term - but stay away from the banks cause their penalty calculations are ridiculous. Seek a mortgage broker to gain access to a mono-line lender.


from my niece "Okay now I'm confused, who do we get a mortgage from other than a bank?"

And what is a mono-line lender?

Thanks


----------



## Emjay85 (Nov 9, 2014)

lost in space said:


> from my niece "Okay now I'm confused, who do we get a mortgage from other than a bank?"
> 
> And what is a mono-line lender?
> 
> Thanks


mono line lenders only deal in mortgages, no other lending products, such as car loans, student loans etc. Those are the other lenders other than banks. First national being one of them.


----------



## lost in space (Aug 31, 2015)

Emjay85 said:


> mono line lenders only deal in mortgages, no other lending products, such as car loans, student loans etc. Those are the other lenders other than banks. First national being one of them.


I assume the best way to find one would be via a mortgage broker, asking only because for most people a bank would be the most natural place to look for a mortgage


----------



## Mortgage u/w (Feb 6, 2014)

lost in space said:


> I assume the best way to find one would be via a mortgage broker, asking only because for most people a bank would be the most natural place to look for a mortgage


That's correct. Only an independent mortgage broker can access mono line lenders. As mentioned, mono line means institutions only offering 1 product, namely mortgages (be it residential or commercial). You can research them, there are plenty. First National being number one in Canada, MCAP, HomeTrust, Equitable Bank, etc follow. You can see what each has to offer on their web-sites but your local Mortgage broker can break it down for you much easier. Seek a reputable broker; one who has several years experience and deals with large volumes. You can also seek a broker such as with True North Mortgage. Although they are salaried, they act in the same manner as a commissioned, self-employed broker does and have access to the same lenders. They generally buy-down the rates so tend to offer better rates that posted.


----------



## JohnK (Jun 2, 2016)

*Mortgage Brokers are the way to go*

Hi everyone, 
I came across this thread a while back when I was looking to restructure my mortgage at that time I was under the impression that using a bank was the way to go. However after reading the thread bellow I decided that I would give a mortgage broker a try. I called this guy that I keep hearing about on the radio his name is Terry Kilakos and he is the owner of North East Mortgages. After the first meeting I realized how wrong I had been all the years dealing with the incompetence of the banking industry. In 1 hour he was able to save me Tens of thousands of dollars over my term and he restructured all my finances. The cost to do business with him $0.00 the rate that I got was 2.44% for a 5yr fixed lower than any bank I had ever came across. 
I want to thank the post bellow as well let everyone know that if you need a good broker you should give him a call. 


John K.




lost in space said:


> My niece recently wrote me asking for some advice, their mortgage is coming up for renewal and she want's to take advance of cheap money but is worried rates might rise. This is my advice but before I sent it I'd like some feedback
> 
> Thanks
> 
> ...


----------



## redsgomarching (Mar 6, 2016)

i just gave some clients 5 year variable at 2.35% with 20-20 and options to lock into a fixed rate if they feel rates will rise. 

personally i hate it when people come in rate shopping and have no idea what type of mortgage they want because they just want a lower number. sure variable might give a lower rate but if rates increase and they are not prepared it could mess up their cash flow. whereas some customers like the idea of 20-20 but when you put into perspective the average mtg that i have done is around 400k. 20% down is 80k. the average household income definitely does not allow for 80k after tax earnings to put towards a mtg so it would be worthwhile in looking at a lower rate mtg with less prepayment. etc.

if anyone is going shopping for rates i make sure i find out what type of mtg they are looking for first and then give the best rates for the type of mtg.


----------

