Tag Archives: variable rate mortgages

What to do about your debt after the interest rate hike

Should you act upon future rate hikes now?

TORONTO — Many consumers will soon find their debt loads heavier now that Canada’s central bank and the country’s biggest commercial lenders have raised their benchmark rates by one-quarter percentage point.

The country’s biggest banks raised their prime rates after the Bank of Canad hiked its overnight lending rate Wednesday by a quarter of a percentage point to 1.25 per cent.

It’s a challenge for Canadians still struggling to cope with the record amounts of consumer debt they amassed after the 2008 financial crisis because lenders use their prime rate as a benchmark for setting some other short-term rates including variable-rate mortgages and lines of credit. A hike is good news for savers as the prime rate also affects interest rates for savings accounts.

If you’re contemplating how to best take advantage of the increased rates or avoid falling into further debt, personal finance expert and Ryerson University business professor Laleh Samarbakhsh shared her advice.

Q: Now that the rate has gone up, what financial choices should I be making?

A: With the interest rate increase, debt becomes more and more expensive. Before you do anything, you have to understand what kind of debt you have to start with.

We have good types of debt and bad types. Good types can include any investment that is made to contribute to progressing your future. For example, a student loan is a good type of loan because you are investing in your ability to make more money. At the same time, debt you have from real estate or your primary residence is considered a good type of debt because you’re accumulating equity.

Focus first on what is considered bad debt like credit card debt, lines of credit or any kind of debt with higher interest rates and no future investment. Pay off the debt with the higher interest rate first, but also consider what debt you have that is tax deductible.

Q: If I have some money in a Tax-Free Savings Account, but also some debt, should I pull out that money in the account and pay off the debt?

A: A lot of times people might consider borrowing from a lower debt to cover a higher debt or borrowing from a TFSA to make a payment. My recommendation is if you have some tax deductibility because of debt you have, keep it. As much as paying off debt is important, if you won’t be able to pay off all your debt, you can use the deductibility you have from some to save on taxes and create an income to pay off the high-interest or bad debt.

We have had a successful year on the investing market, so if an individual makes contributions to their TFSA and has a portfolio with a higher return of 20 per cent or 25 per cent, it makes sense to keep that because the advantage is no tax being paid in the TFSA.

Q: What should I do if I have been looking at buying a home or if I just bought a home and am dealing with a mortgage?

A: For individuals who care about their credit score and are applying for a mortgage shortly, consider your credit limit. The types of debt that have a credit limit should be paid off first to release your capacity.

The typical concerns after a hike are usually individuals with mortgages because those are the biggest debts people carry. My advice would be for individuals with variable mortgage rates to consider locking down a fixed mortgage rate.

Q: What should I do if I have no debt, but want to take advantage of the hike?

A: Saving is making even more sense now because savings accounts will have fairly higher interest rates, so if you have no debt, my recommendation is to start with capping your Registered Education Savings Plan contributions first because that brings you tax savings.

Once the RESPs are capped, I would also invest in a Tax-Free Savings Account. The interest you make is tax-free, so I recommend maximizing your TFSA contribution.

After that, there are lots of forums and markets for investment and you can consult with your financial adviser about what is best to invest in at the time.

Q: Some economists think we might see further interest rate hikes later this year. Should I act on those rumours now?

A: It’s hard to predict what is going to happen, but we know the decade of low interest rates are over. It’s important to be more careful with spending and what kind of debt we are taking on and how and what the plan for repaying it is.

If you’re concerned, take action sooner rather than later and don’t let it bring mental pressure to your daily life.

This interview has been edited and condensed for clarity and length.

Source: MoneySense.ca – by Tara Deschamps, The Canadian Press 

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How rising interest rates are squeezing homeowners

Mortgage holders on tenterhooks as they prepare for Bank of Canada’s next rate announcement Oct. 25

Gerry Corcoran is bracing for Oct. 25. That’s when the Bank of Canada will make its next interest rate announcement, on the heels of two consecutive rate hikes. Corcoran said he can’t afford a third.

“A lot of us with variable rate mortgages are on pins and needles because we’re like, ‘Are we going to get hit again?'”

‘It’s kind of smacked my finances around a little bit.’– Gerry Corcoran, new homeowner

Corcoran, 38, signed the mortgage for his two-bedroom condo in Stittsville back in June.

Two weeks later, on July 12, the Bank of Canada announced a rate increase of .25 per cent, the first increase in seven years. It was followed by a second .25 per cent increase in September.

As someone with a variable rate mortgage, Corcoran says those small rate hikes have had a sizeable impact. He estimates they’ll cost him about $65 per month.

While it’s a cost he says he can absorb, as a new homeowner Corcoran only has a few hundred dollars a month in disposable income. It’s also meant he’s had to put on hold his plan to enrol in his employer’s matching RRSP program until next year.

“It’s kind of smacked my finances around a little bit,” he said. “It hurts.”


 


Gerry

‘A lot of us with variable rate mortgages are on pins and needles because we’re like, ‘Are we going to get hit again?” (Ashley Burke/CBC News)

Homeowners in ‘panic mode’

After years of record-low interest rates, people in the mortgage business say they’ve been waiting for this other shoe to drop.

Erin MacDonell, a mortgage agent with Mortgage Brokers Ottawa, says she saw a spike in calls after the rate hikes. Many callers were eager to buy — or refinance their mortgages — before rates went up again.

“People are in a little bit of a panic mode,” MacDonell said.

But even if interest rates continue to climb, she says a new federal “stress test” will help mortgage holders weather the changes.

Erin MacDonell, mortgage agent, ottawa mortgage brokers

Mortgage agent Erin MacDonell says calls from both potential buyers and homeowners looking to refinance spiked when the Bank of Canada announced a rate increase in July. (Ashley Burke/CBC Ottawa)

Under the safeguard introduced last October, a borrower had to be approved against a rate of 4.64 per cent for a five-year loan — even though many lenders are offering much lower rates. That rate is now 4.84 per cent.

The test applies to all insured mortgages where buyers have down payments that are less than 20 per cent of the purchase price.

“No one should be struggling too, too much,” MacDonell said.

Instead, she predicts future rate hikes will simply mean “people won’t be qualifying for as big of a house as they maybe wanted in the past.”

Gerry Corcoran says despite being forced to tighten his belt, buying was still the right choice for him.

“At the end of the day, even with mortgage and condos fees, I am still paying less to own this place than [I’d pay] to someone else to rent it.”

Source: Karla Hilton · CBC

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New financing rules could drive more consumers into more volatile mortgages

Proposed changes to mortgage rules may force some consumers to consider more volatile variable rate mortgages in order to qualify under a strict stress test proposed by Canada’s banking regulator.

Guidelines published by the Office of the Superintendent of Financial Institutions in July, which the agency is now receiving feedback on, would change the qualifying rules for uninsured mortgages in Canada — a less regulated segment of the market made up of consumers who have down payments of 20 per cent or more.

The rules under consideration would force consumers to qualify for loans based on the rate on their contract plus 200 basis points, a move that might lead some people into shorter term loans that have lower rates and are therefore easier to qualify for.

“It could be one of the unintended consequences,” said Benjamin Tal, deputy chief economist with CIBC World Markets Inc., about the changes. Tal believes OSFI will modify its proposal before it is finalized and one of the factors under consideration could be how the rules might discourage Canadians from locking in their rates.

Rob McLister, the founder of ratespy.com, said the potential impact of the changes can be seen when examining the current yield curve, which shows longer term rates are still much higher. As an example, with the prime rate now 3.2 per cent and the average discount on a five-year variable rate mortgage around 65 basis points, that means those consumers would have to qualify based on a rate of 2.55 per cent plus 200 basis points or 4.55 per cent.

 

“Generally, the variable will be cheaper. Maybe the one-year or two years (even more so). We have people who can’t qualify because of 10 basis points. I think it will force at least 10 per cent of uninsured borrowers to look at shorter-term rates that have more risk,” said McLister, who notes the average five-year fixed rate mortgage is more like 3.19 per cent.

Those consumers looking for the safety of a five-year rate would end up having to qualify based on 5.19 per cent with the 64 extra basis points meaning they could get a larger loan by borrowing at short-term rates.

The Bank of Canada has raised its overnight lending rate twice in the last two months and may do so again in October. Such hikes, which affect variable-rate products that are tied to prime, are part of the risk that comes with a floating rate product.

CONVENTIONAL BORROWER

McLister said a typical conventional borrower would qualify for a home that’s about six per cent more expensive by choosing a lower more volatile variable, one- or two-year rate instead of a “safer” five-year fixed.

That assessment was based on latest median household income from Statistics Canada, average non-mortgage debt, a 30-year amortization and a 20 per cent down payment

The OSFI changes fly in the face of previous government policy, which had tried to entice people into longer-term products by making the qualifying easier.

Consumers with less than 20 per cent down on a mortgage and their loans backed by Ottawa already must qualify based on the five-year Bank of Canada qualifying rate of 4.84 per cent. That rule change was made in October, 2016 but previously those high-ratio borrowers could use the rate on their contract if they were locking in for five years or longer.

Robert Kavcic a senior economist with Bank of Montreal, said households in Toronto — currently facing rapidly declining sales and an average price correction of almost 25 per cent from the April peak, can withstand more rate increases but he agrees people on the fringe may turn to shorter-term money to get into the housing market.

“I think the goal is to make sure people can pay higher rates two or three years down the road,” said Kavcic.”It does sound like there is more caution (about proposed changes) given what is happening in the Toronto market.”

Source: Financial Post – Gary Marr gmarr@postmedia.com

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What the latest rate hike means for you

Those with mortgages will feel the hike the most

The Bank of Canada is hiking its benchmark interest rate by a quarter point to one per cent. So, what does that mean for people with credit card debt or a mortgage?

Economist Bryan Yu with Central 1 Credit Union says if you’re carrying a lot of debt on your credit card, you’ll probably start to notice higher interest charges.

“They’re going to be facing the quarter-point increase on terms of that debt for their servicing… That’s a quarter point on an annual basis. So, it is going to be a bit of a pinch going forward.”

“Likely, we are going to see a couple more hikes going forward,” he speculates. “But I think at this point, it will be relatively stable for most individuals until about next year.”

So, it might be a good time to start chipping away at that balance.

“They should keep in mind that this is sort of the early stages of a longer-term rate cycle. So, they may want to be looking at paring back some of that debt over time,” says Yu.

“When it comes to credit card debt, it’s a normally high cost debt, unlike mortgages, which is relatively cheap money. So you don’t really want to be holding on to that type of a debt going forward because of the high cost associated with it. So, if you are looking at paying off any debts whatsoever, it should be those high-cost loans.”

Effect on mortgages

For those with a mortgage, Economist Tsur Somerville with UBC explains who’ll feel this rate hike the most:

“If you have an adjustable rate mortgage, then your mortgage payments will be going up very, very soon. And if you’re on a fixed rate mortgage, it means that when you renew, you’re going to be looking at higher payments then.”

Somerville says while the Bank of Canada hiking its trendsetting rate won’t alone make a huge impact, it’s part of a process that is increasing the cost to borrowers, which could dampen the real estate market.

 

“You start seeing increases in what people will have to pay on their mortgages. That affects pricing and affects demand.”

He adds first-time buyers will be most affected. “Those are the people who are entering mortgages; they’re not carrying an existing mortgage. So, we would expect those to be the people who all of a sudden are looking at qualifying for a smaller mortgage and having higher payments on a mortgage than the existing amount.”

This is the second time this year that the Bank of Canada has moved the benchmark higher.

“I think if we get a third and fourth hike, I think that a kind of accumulated pattern that starts to have an effect on people,” says Somerville. “Any one-off effect, the amount and payment is relatively small and you can sort of brush it all off. But when they start piling up, [it starts] making a difference.”

Source: MoneySense.ca –  Martin MacMahon and Denise Wong, News 1130

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De-mystifying mortgage penalties

Research has shown that over 83 per cent of people break their mortgages early, resulting in their incurring hefty mortgage penalties that sometimes far exceed the annual interest on a mortgage. People break their mortgages early for several reasons, including relocation, the end of a marriage relationship, loss of a job, to take equity out to invest elsewhere and for many other reasons. A mortgage penalty is a fee built into the contract to prevent or make it difficult for you to break the mortgage, in addition to compensating the provider for the loss of interest income. Different mortgage providers calculate the penalty in different ways, which is why it is always a good idea to shop around before settling on one particular provider. Also crucial is ensuring that you read the fine print before signing the mortgage document, so that you have an idea of the penalties (if any), that you are likely to incur in the event that you break the mortgage.
How mortgage penalties are calculated
Traditionally, banks and other lenders have used two main methods to calculate mortgage penalties. This means that in the past, you were assured of paying a standardised penalty depending on which method the bank used. As a rule, you could then expect to pay the greater sum calculated under the following methods:
The three month interest method: Here, you basically calculate the interest due on your next three mortgage repayments and pay the three month total.
Interest Rate Differential (IRD): The IRD is calculated by multiplying your mortgage balance by the difference between your original mortgage interest rate and the current interest rate that the lender can expect to charge upon reselling the mortgage.
The first method has typically been applied on variable rate mortgages, while fixed rate mortgages would use the ‘higher amount’ rule where they pick the larger sum depending on which method is used to calculate the penalty figure. However, with the advent of new mortgage lenders with cheaper interest rates and friendlier lending terms, banks have taken steps to reinforce their customers; including changing the way the IRD is calculated. Today, for instance, you may find that your prepayment penalty is calculated in the following ways:
  • Using posted rates as opposed to discounted ones, which significantly increases the penalty.
  • Basing their penalty calculations around a variety of factors including bond rates.
  • Rounding off to the next longest remaining mortgage term, and many others.
What this means for you as a customer is that your mortgage penalty is likely to be extremely high, or you may find yourself stuck with your current mortgage provider in order to avoid incurring an exorbitantly high penalty. Unfortunately, unless you are an insider in the mortgage industry, you may also find yourself unable to calculate the rate personally, forcing you to rely on the formulas that your lending partner has come up with. Fortunately, there are ways to avoid finding yourself in this situation or at least significantly reduce the penalty you pay to your mortgage lender.
How to protect yourself from high penalties
Whether you are just starting to shop around for a mortgage or are looking to offload a current one in favour of a friendlier option, the following strategies can help you avoid paying a hefty penalty:
  1. Read your mortgage contract thoroughly: Take time to completely go through your contract before signing the document. Ensure you find out exactly what penalty you will be expected to pay in case you decide to break your contract early. Ask your mortgage agent to clarify how the penalty will be calculated and if possible, have a lawyer or other mortgage professional go through the document with you. Make sure to seek clarification on terms you do not understand and ensure that you are clear about any other costs associated with breaking your mortgage early. Ensure to read the fine print and only sign when you are completely satisfied with the terms of the mortgage.
  1. Understand, and take advantage of pre-payment clauses: Pre-payment clauses allow you to pre-pay up to 20 per cent of the balance of your mortgage annually without incurring a penalty. Pre-paying your mortgage allows you to significantly reduce the amount of your mortgage so that you can decrease the penalty you have to pay for breaking the contract. In addition, you can often take advantage of the end and beginning of a calendar year to double your prepayment in order to bring the mortgage balance down even further. For example, you could pay the first instalment at the end of December, and the other as soon as the financial year begins in January. Pre-payment allowances can vary from lender to lender so ensure you understand what options you have.
  1. Ensure that the contract allows you to break your mortgage: One of the most crucial things to look out for before signing the mortgage contract is whether the lender will allow you to break the contract early. Some lenders have clauses built into the contract prohibiting you from breaking it early and ensuring that you pay a very hefty penalty in the event that life circumstances force you to break it unintentionally. Sometimes, these types of “restrictive” mortgage products can come with lower rates. These lower rates are to make up for the fact you can’t break the mortgage early! These lower rates can be tempting, but without having a complete understanding of the mortgage product and it’s restrictions, they can lead to an unfortunate surprise down the road should you decide to break your mortgage early.
  1. Enlist the help of the Ombudsman for Banking Services and Investments Office: While IRDs remain unregulated for now, consumers with valid complaints may still enlist the help of the OBSI office if they feel that their penalties are too punitive. If you have been unable to successfully negotiate a reduction of the mortgage penalty with your mortgage lender, you can get some help from the OBSI, and even get part of the penalty reimbursed if the office rules in your favour.
  1. Learn how to calculate the penalties yourself: Educate yourself about how the various penalties are calculated in order to avoid situations where your mortgage lender rips you off because you are uninformed. As a rule of thumb, variable rate mortgages will use the three-month interest method, while fixed term mortgages will use the IRD. If you are still unsure on how to go about it, contact a trusted mortgage professional who will be happy to help.
Taking out a mortgage is a great way to get a place to call a home or premises to conduct your business. However, changes in life circumstances, the desire to move somewhere else, or simply wanting to access additional equity can force you to break your mortgage contract early, resulting in hefty penalties from your mortgage lender. Canadian mortgage laws are yet to regulate how the mortgage penalties are calculated, which means that many people find themselves at the mercy of mortgage providers as far as penalties are concerned.
Fortunately, there are a few steps you can take to protect yourself from hefty penalties or at least significantly reduce the amounts you pay upon breaking your mortgage. With a little research, you should be able to discover the methods that work best for you. A mortgage loan will likely be the biggest debt you incur in your life and it’s very important to ensure you have a good understanding of the mortgage product’s terms and conditions. Most importantly, ensure to work with a trusted mortgage professional who can help explain the terms of your mortgage commitment to you, and address your concerns about the associated penalties should you decide to break the mortgage down the road.

Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage.

Source: WhichMortgage.ca – By Dan Caird  24 March, 2017

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Variable-rate mortgages becoming more important to the market – study

Variable-rate mortgages becoming more important to the market – study

The gap between the number of borrowers going for fixed and variable rates has become larger recently, pointing to the increasingly important role that variable-rate mortgages are playing in the Canadian housing market.

In a recent study, RateHub revealed that while the spread between fixed and variable offerings has shrunk to 0.2 per cent of a percentage point in 2016, movement in the two product types has demonstrated a larger divergence in the past few months.

The best five-year variable rates available in Toronto since November 1 is at 1.83 per cent, while the lowest available fixed-rate product climbed slightly by 0.35 per cent, up to 2.44 per cent.

“We’ve seen increased interest in variable rates,” RateHub co-founder and CanWise Financial president James Laird told Global News.

Laird explained that the rise in bond yields will trigger increases in fixed-rate payments, while the BoC’s benchmark interest rate (which influences variable-rate products) is expected to remain stable for most of the year.

Also, the stricter stress test implemented by the federal government late last year will make variable-rate mortgages—which would end up being the relatively inexpensive options—more enticing.

Laird emphasized, however, that these are just predictions, and there is no assurance that the trend in the spread between fixed and variable rates will sustain itself all year. Would-be borrowers who should ensure they can manage a rate increase before they go with variable-rate mortgages, he added.

Source: MortgageBrokerNews.ca – by Ephraim Vecina | 07 Feb 2017
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How to read your mortgage documents

(Freeimages.com / Evan Earwicker)

A snapshot of typical mortgage documents and a few tips on what to watch out for

Thomas Bruner was a well-informed and financially savvy shopper. Thank goodness. Because his bank made errors in his mortgage documents. Big errors.

It was late 2015 and Bruner and his wife, Leslie, were in the process of selling their North York town-home to move into a larger upper beaches family home in the east end of Toronto. (We’ve changed names to protect privacy.) As a number-cruncher, Bruner knew how important it was to shop around for the best mortgage rate and was delighted to secure a five-year fixed rate of 2.49% with his current bank. To get that rate, he’d shopped around and negotiated hard with the bank representative at his local branch. But when the purchase of the home was closer to being finalized, Bruner was transferred to a bank mortgage specialist. That’s when the problems started.

A meticulous man, Bruner read every word of the 30-page mortgage document—some of it in small, fine print, and other sections bogged down with legal jargon. An hour later, Bruner emerged stunned. His bank had made a mistake. A big mistake. A mistake that added $100s to his monthly payments and tens of thousands in interest over the life of the mortgage.

Instead of 2.49%, they’d calculated his mortgage payments based on a rate of 2.99%. The bank had also changed the rate of payments from biweekly to monthly. If he’d signed the mortgage documents without reading the package, he would’ve paid more than $4,075 in extra interest payment,over the five year term*. That’s no small change. (*Assumes a $450,000 mortgage amortized over 25 years, interest calculated based on a five-year term.)

So, Bruner called the bank’s mortgage specialist. Rather than apologize and amend the error, the mortgage rep tried to argue that this was now the going mortgage rate—the best the bank could offer. Bruner was stunned, yet again. “I argued back,” he recalls, “explaining that we had locked in our rate during the pre-approval process. We were only 40-or-so days into the 90-day rate-hold guarantee.”

Screwed by the bank?

Bruner isn’t the only one to notice problems. According to the Ombudsman for Banking Services and Investments (OBSI), errors made by the banks rank No. 4 in the top 10 reasons for customer complaints. However, when asked for specific statistics on the precise number of complaints lodged, and how many of these complaints directly relate to errors in mortgage documents, an OBSI spokesperson replied that they don’t release this information. Instead, the OBSI offers very pretty spiderweb and sunburst visual representations of customer complaints.

This lack of transparency prompts the question: How many other people have been screwed by a professional working in the real estate market? (Cue the wrath of every bank, mortgage broker, home inspector, insurance agent, realtor and renovator involved in this industry.)

Still, how many of us signed a document only to realize, after the fact, that there was an extra charge? Or found an error that’s in the lender’s favour? While reading every page of every legal document we sign is the smart, prudent thing to do, truth be told very few of us understand all of what’s written in an insurance contract, mortgage document or even a purchase and sale agreement.

To help, here’s a snapshot of typical mortgage documents and a few tips on what to watch out for—keep in mind every lender have their own versions of this document, so this is meant to be illustrative only.

 

To help you process the information, consider the following.

Look for key rates and terms

mortgage documents

The pink arrow points to the mortgage interest rate that you will be charged during the duration of the loan term. Check this. Even a 10 basis point change in the rate can add up over the long haul.

The green arrow points to the length of your amortization, expressed by the number of months. Check this. Some of the biggest mortgage document errors are in how long a loan is amortized for; while a cheaper monthly rate can seem appealing, this sort of error can tack on tens of thousands of extra interest costs over time. Above this amortization rate, is your term length—how long you’re committed to pay this lender, based on the rates and terms you’ve both agreed upon. The line should also state whether you’ve agreed to a fixed, variable or open mortgage. . The type of mortgage you agree to can have serious implications on the penalties you’re charged should you opt to make an extra payment, or break your mortgage agreement. For simplicity sake, a one year mortgage is expressed as 12 months, while a five-year mortgage term is expressed as 60 months and a 25 years amortization is expressed as 300 months.

 

The three numbers in the red box reflect the monthly mortgage rate you will pay (a mixture of principal plus interest), the monthly property tax you will pay to your bank (who will then make a payment on your behalf) and the total amount you will pay based on the addition of these two amounts. If you want to double-check your lender’s math, try Dr. Karl’s Mortgage calculator.

The orange arrow is how frequently you will make payments to your lender. Check this. Not only does payment frequency help reduce the overall interest you end up paying, but to make changes after you’ve signed your document can cost you an out-of-pocket fee.

The yellow arrow is the day you first get your money and the day the interest clock starts ticking. Pay attention to this. Some lenders will charge you a larger amount for the first payment of your mortgage to cover the interest that has accrued from the Advance Date to the day you make a payment against the outstanding loan. Some lenders don’t increase the first payment, but allocate a larger portion of this payment to pay off the outstanding interest. Either way, you want to be clear about what’s being charged, and when.

Don’t forget property taxes

Mortgage documents

Under the property taxes clause you will notice that the monthly sum added to your mortgage payment is an “estimate” based on the lender’s assessment of your annual property taxes. If you don’t want to pay your property tax monthly or you want to amend how much you pay you’ll need to negotiate this with your lender.

Loan prepayment privileges can make or break a penalty

mortgage documents

In recent years, we’ve heard a lot about mortgage penalty fees. You pay these penalties to your lender whenever you break the negotiated terms of your loan contract. If you have an open mortgage, there should be no penalties for pre-payments or to pay-off the entire loan before the end of the negotiated term. If you have a variable-rate mortgage, you will be charged a penalty that’s equivalent to three months of mortgage payments, plus administrative fees. If you have a fixed-rate mortgage, you will be charged a fee that’s calculated using the Interest Rate Differential calculation. This calculation is different for every lender, but it can add up, quickly.

 

Planning a reno? Read the fine print

mortgage documents

Many homebuyers are shocked to learn that they can void their home insurance policy if they undertake home modifications or renovations without first notifying the insurance company and, typically, paying an additional premium. But did you know you can also void your mortgage loan contract—and prompt a lender to recall and cancel the loan—if you obtain a mortgage and don’t disclose intended construction, alterations or renovations to the home? Read your mortgage contract carefully to see exactly what must be disclosed.

Be prepared with documentation

mortgage documents

When reading your mortgage contract the lender will typically list the type of documents you are required to submit in order to verify the information you have provided. This will include pay-stubs, Notice of Assessments for your income tax, as well as additional loan or income verification. But don’t be surprised if your lender follows up with requests for additional documentation. Typically, they cover this off with a broad statement that notifies you that any information they request must be provided. A sample of this type of statement is above, in the red square highlight.

 

Check the accuracy of the payment frequency

mortgage documents

Do you have a plan to pay off your mortgage quickly? Part of that plan may include how often you pay your mortgage—the more frequent the payments, the more you pay and that means paying off the principal faster, which reduces the overall interest you pay for the loan. Every mortgage document will have an area where you can choose the frequency of payments. Be sure to check off your selection, as making change after the document is signed will cost you, as you can see below (in the red circle).

mortgage documents

Administrative fees to open and close a mortgage loan can add up. Ask for an amortization schedule—to verify how much of each payment is going towards the principal and how much is interest—and you’ll need to pay your lender. Want a mortgage statement? Fork out more money. Need to renew, you may be slapped with an additional fee. But the one that can be annoying, even if it is relatively minor, is the “Payment Change Fee” (highlighted in red). If there’s an error in your payment frequency in mortgage document you signed and you phone to make a correction, this lender will slap you with a $50 fee. Not your error, but it is your penalty. To avoid paying unnecessary fees, make sure to check your mortgage documents for inaccuracies.

 

Make sure you have insurance

mortgage documents

Did you buy a home but forget to shop for a home insurance policy? If your mortgage advance date arrives and you still haven’t been able to submit valid home insurance to your lender, expect a fee. For example, this lender charges $200 per month until you can provide evidence of a valid insurance policy for the home.

Other fees are deducted from the loan amount

mortgage documents

Did your lender ask for an appraisal on the home you want to buy? Don’t be surprised if you have to pay for that report (see highlights above). Plus, some lenders who require title insurance will deduct it from the total amount loaned to you; it’s only a few hundred dollars, but it can leave you scratching your head as to why you didn’t get your full mortgage-loan amount.

 

Where to go to complain

mortgage documents

Have questions or concerns about your mortgage documents? In your contract you should see a clause that clearly states how to get in touch with your lender or how to lodge a complaint. If this doesn’t work, and you’ve worked with a mortgage broker, contact the broker directly. They should work on your behalf to sort out any discrepancies with the lender. Finally, if your independent broker isn’t helpful or if you went through a bank to get a loan and you’re not getting anywhere, consider contacting the bank’s ombudsman. This is an independent role within a financial institution that’s tasked with addressing consumer complaints. If this fails, consider lodging a complaint with OBSI. But be warned: It can take up to nine months just to get an answer on a complaint, sometimes longer.

Scan the mortgage snapshot

mortgage documents

Finally, almost all lenders now provide a synopsis of all fees and terms in that back of your loan document. This doesn’t mean you should skip over the body of the document, but this summary is a great spot to start verifying if key terms, such as the mortgage rate and the length of amortization, is accurate. If not, mark it, and go back to your lender. Don’t be afraid to fight for what you agreed to. Bruner wasn’t.

Despite the reluctance by his bank’s mortgage specialist, Bruner eventually got the rate he was initially promised. One key component to his negotiations were the emails he’d kept. The correspondence was evidence of what Bruner was promised and made it hard for the bank to rescind the initial offer.

Source: Money Sense – by   October 31st, 2016

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