Tag Archives: penalties

No Frills Mortgage

February 4, 2013

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You may have heard the term “no frills mortgage” thrown around when mortgage shopping.  No, we’re not talking about the No Frills grocery chain here… So what exactly does “no frills mortgage” mean?

Generally speaking, a “no frills mortgage” is one offered by a lender that usually has a lower rate, but also comes with several trade-offs or stripped-down options.  Some of these stripped-down options are:

  • Quick-closing deadlines (the deal has to be done in less than 30 or 60 days, etc)
  • Little to no prepayment privileges
  • Restrictions on when prepayments and top-ups can be made
  • No pre-approvals
  • Lack of mortgage portability (might not be able to move the mortgage to another property without breaking the mortgage)
  • Higher penalties

These products are designed for someone who wants the best rate, and doesn’t necessarily want to pay for added flexibility.  There’s always a bit of a risk in taking a no frills mortgage – no one knows for certain what curve balls life may throw our way.  But for those that are fairly certain they won’t need to break their mortgage, or have extra cash to pay down their mortgage, sometimes a no frills mortgage is a great way to save a little money.

There are currently some fantastic “no frills” mortgages out there, including a new one by RMG Mortgages called the Low Rate Basic Mortgage.  If you’re interested in exploring low-rate, stripped-down mortgages (or see how they compare to full-featured mortgages), contact a mortgage broker in your area.  We’d be more than happy to explain the various “no frills” and “full-featured” mortgages available, and discuss which ones would be the best fit for you!

Tim

Tim is a mortgage agent in Barrie who specializes in helping first-time home buyers. He works with a variety of lenders and can help customize a mortgage with the best rates & options that fit the needs of each customer.

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Government Releases a ‘Mortgage Prepayment Code’

March 5, 2012

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Yesterday, the federal government published a ‘Mortgage Prepayment Code‘ which basically guides all (federally regulated) lenders how they communicate the IRD (Interest Rate Differential) to borrowers.

Yay! This has been a long time coming. For years, banks and lenders have been obscuring penalty descriptions with vague, complicated formulas for calculating prepayment charges.

A link to the full ‘Mortgage Prepayment Code‘ can be found here http://www.fin.gc.ca/n12/data/12-025_3-eng.asp, but here’s a list of what lenders must now disclose to borrowers:

  • The formula for calculating the exact prepayment change (it has to be simple and not misleading), and an easy way to estimate penalties if there are numerous variables involved
  • A full description of all inputs/variables used in the formula (i.e. no more vague talk)
  • Information how how to obtain each of the inputs/variables
  • An example and/or worksheet to help consumers figure out their own prepayment penalty

On top of that, lenders also must annualy provide a description of the borrower’s available prepayment privileges, the exact dollar amount of their prepayment options, any explanations of why their penalties could change, fees associated with each prepayment option, and contact information for staff at the lending institution that are knowledgable about penalty calculations. The lending institution will also have to supply, upon request, a written statement with the prepayment penalty, a full description of the formula used and when the prepayment penalty quote expires. The lenders will even have to post calculators on their public websites to help determine “reasonable” (i.e. not thousands of dollars off) estimates of prepayment penalties.

Overall, a huge win for borrowers. Even as a mortgage specialist, it can be difficult to figure out prepayment penalties – when these changes come into place on November 5th, 2012, it will be a lot easier for the Canadian public to figure out the costs associated with prepaying their mortgage (or breaking their mortgage).

 

Tim

Tim is a mortgage agent in Barrie who specializes in helping first-time home buyers. He works with a variety of lenders and can help customize a mortgage with the best rates & options that fit the needs of each customer.

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NHL Trade Deadline Day

February 27, 2012

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I have to admit – I’m a huge hockey fan, and every year I take “NHL Trade Deadline Day” off to lounge around and watch sports TV all day.  I’m self-employed (I work under a brokerage – Real Mortgage Associates – but not for them), and one of my favourite benefits of being my own boss is a flexible schedule.  As soon as the 2012 NHL Trade Deadline was announced, it was added to my calendar as a full-day appointment – something that makes many of my regularly-employed guy friends jealous, I’m sure.  😉

But what does the NHL Trade Deadline have to do with mortgages?  As I sat there watching “player reactions” after just finding out they’ve been traded (this year there were 15 trades that included 31 people), none of them specifically mentioned their house or mortgage, but many of them noted that getting traded results in having to move their family.  I imagine in many cases, this means selling their house and buying a new one.  Now consider the fact that a good chunk of these athletes make $X,xxx,xxx/year, so their house and mortgage are probably a pretty decent size.    If they have to break their mortgage early, this could end up costing them tens of thousands of dollars in penalties.  Here in-lies the importance of a good mortgage broker.

If your situation is such that it’s possible that you may be moved for work, changing jobs, etc., it may be more important to have an open mortgage that you can easily get out of.  Sure, a privilege like this could cost you a little in the rate department, but if you have to break the mortgage early, it could pay for itself hundreds of times over.  Would you rather have a rate of 3.19% and the possibility of high penalties, or 3.29% with some great pre-payment privileges and low buy-out penalties?  If there’s little chance you’ll be needing to break the mortgage, saving $20/month may be worth the chance, but on the flip side, that $20/month savings could end up costing $20,000 in penalties if you’re not careful.

When it’s time for you to buy your first house, or renew your current mortgage, take the time to chat with a mortgage professional.  A good mortgage broker will ask these types of questions and help you pick the rate and options that best suit you!  You may be a tenured college professor who’s not going anywhere anytime soon, but if you’re a NHL player, location-certainty isn’t exactly set in stone – just ask the 31 players that were traded today.

Tim

Tim is a mortgage agent in Barrie who specializes in helping first-time home buyers. He works with a variety of lenders and can help customize a mortgage with the best rates & options that fit the needs of each customer.

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What is an IRD (Interest Rate Differential)?

September 26, 2011

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The world of mortgages and real estate is filled with an excessive amount of acronyms.  If you were to overhear some of our conversations, you would swear we were speaking a different language – LTV and PMI this, and IRD and ARM that, API, BPS, and it goes on and on.  While most people don’t really need to bother to learn what most of these mean, if you currently have a mortgage, one of the acronyms you should know  is IRD (Interest Rate Differential).  This is the charge that may apply if you pay off your mortgage prior to the maturity date, or pay the mortgage principle down beyond what you’ve set up as a pre-payment privilege.

Basically, if you’re going to break your mortgage early, the IRD more or less represents the profit the lender was going to make on your mortgage had you not broken it early – and it’s what you’re going to pay them so that you can break it early.  This penalty can be tens of thousands of dollars, so before you break your mortgage (whether it’s to refinance, to get a lower rate, or to buy a new house), you need to make sure you know what your IRD is ahead of time.

The IRD is calculated based on the amount you are pre-paying and an interest rate that equals the difference between the interest rate on your current mortgage, and a comparison interest rate that the lender would charge today to re-lend the funds out for the remaining term of your mortgage.  So if you have 3 years left on your mortgage, that comparison rate would be the interest rate the lender currently has for their 3-year term, or if you have 10 months left on your mortgage, they would usually round up to what their current 1-year term rate is.  Of course, just to keep it interesting for all involved, each lender has its own formula for calculating penalties (some round up, some round down, some seem pretty close to random), so the best way to find out what your current IRD is, is to simply call up your lender and ask.

While most variable-rate mortgages do not have IRD penalties (since a variable-rate mortgage is, well, variable, it always adjusts to current market conditions), most closed, fixed-rate mortgages have a pre-payment penalty that is the higher of 3-months interest or the IRD.

Wo what’s the best way to find out if it’s worthwhile to break your current mortgage for better rates or for a refinance?  Call your current lender and ask them what your IRD would be if you broke your mortgage today (they’re the ones who are going to charge the penalty – they’re the best ones to ask what that penalty will be), then call your favorite mortgage broker and let them figure the rest out for you.  😉  Once we know what your IRD is, we can let you know if it’s worth your while to break your mortgage right now, or wait until your IRD gets a little smaller.

Tim

Tim is a mortgage agent in Barrie who specializes in helping first-time home buyers. He works with a variety of lenders and can help customize a mortgage with the best rates & options that fit the needs of each customer.

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