Tag Archives: mortgages

The Six Big Banks May Help You

In an announcement last night, the six big banks may help you with mortgage deferrals for up to six months in view of the coronavirus pandemic. The press release is from the Royal, TD, Scotia, Bank of Montreal, CIBC and National Bank.

But, and it’s a big but: The PR release says they “may” help – but you need to contact your branch for details. In other words, it’s not a given, it’s up to each branch working with each customer and you may not get any help or relief! The PR release headline makes them sound caring, but there aren’t any specifically outlined parameters. Colour me skeptical in that they get the big positive headline while maybe or likely not actually doing much for an individual mortgage holder when push comes to shove. That’s why the release says “contact the bank directly to discuss the options available.” Sorry to be so negative, but there’s a long track record…

Keep in mind that this was a head office decision and then a PR release. 12 hours later your branch doesn’t know what this means, what the parameters are, etc. So calling them today will likely result in just being frustrated – or declined. And remember that the banks are not gifting you one nickel. A deferral is only the ability to pay later. It will also likely be the principal portion of your mortgage since the interest is their income. Take your mortgage balance times the rate divided by 12 and you’ll know how much interest you’ll be paying this month. You may need to still pay the interest but can defer the principal portion of your payment. If you’ve had a mortgage for less than maybe 10 years, that could be as little as one-tenth of your payment – and that’s not much relief…But we’ll find out.

Also in that same announcement, some of the banks, notably CIBC and RBC will be limiting their hours at some branches in some areas while other branches will simply close.

Reluctant as they may have been, the banks have also passed on the full prime rate decreases. That makes the basis of most borrowing now 2.95%.

If you took our advice and held off renewing your mortgage, you’ve just saved yourself one percent. On a $300,000 mortgage that amounts to $250 a month in interest savings or $15,000 if you lock it in for a new five-year term.

At this point, the rate decrease isn’t likely to fuel demand for more borrowing or a spike in home sales. We’re in a new world for a few months. This is the Bank of Canada making sure that the economy does not seize up. Remember that dropping rates is horrible for lenders. Their profits come from the spread between what they pay for deposits and the higher rate they get from lending – and that’s shrunk significantly. They’re also faced with an increase in loan loss provisions (setting money aside for defaults) and higher default rates.

Zig When Banks Want You to Zag & Adulting 101

Last month we talked about a survey that showed 8 out of ten people want financial advice from their bank. Great idea – from the wrong people! Getting financial advice and learning the insights is a great ideal or it’ll cost you huge. But don’t get it from people who are on commission. Here’s more proof of that going on right now:

Interest rates are stable and heading down. The Federal Reserve in the US will start dropping them before Canada, but they will come down in both countries. I first mentioned that we will be going into a recessing last fall already.

What are all financial institutions advertising heavily right now? Getting a fixed longer term mortgage at a “special” rate. OK, rates are coming down – so the WORST thing to do is lock yourself in right now at higher than need be rates! Banks want you locked in for five years or longer. That way, when rates come down, you’re way overpaying and it’s their additional profit.

What you do not hear from any of them right now are any ads on GICs. Why? Because if you lock those in right now you’ll get the higher rates before they drop. That’ll make you money but cost the banks a significant amount of profit: You get the high rate – they have to pay it while prime rates are dropping.

Adulting 101 Course

What a great idea! And it’s something four or five parents or grandparents can do together this summer: An Adulting Boot Camp. A high school in Lexington Kentucky this year started a three-day adulting 101 course for grade 12 students. Day one is all about money, day two is home & health and day three is being a professional. It’s everything from budgeting to saving, how to do laundry, basic cooking, car maintenance, ironing a shirt, shaking hands, making eye contact, tucking in your shirt, leaving your cell off during an interview and a ton more.

I love it love it love it! They may seem like such no-brainers to us older generations, but it isn’t in any way shape or form for 18-year olds!

George Boelcke – Money Tools & Rules book – yourmoneybook.com

Is There A Point In Paying Down Your Mortgage?

I recently received an email from a lady asking if there is still a point in paying down her mortgage when house prices don’t seem to be increasing.

It’s a very good question. However, she’s confusing the mortgage with the value of her house. They really aren’t connected. The mortgage is the DEBT owed – the value (up or down) is what it can be sold for. The difference is what comes out in cash equity when it’s sold. In a perfect world, the mortgage is tiny – the value is high. So what’s cashed out on sale is huge equity. Or if the mortgage balance is still high and the value hasn’t gone up much – the difference between the two is a much smaller amount of equity.

The value is what you can sell the house for. The mortgage balance determines the cheque you’ll actually get if you sell.

The difference between owing and value is your equity. If you pay down the mortgage – the equity increases. That takes work and money. If you just pay the regular mortgage, equity builds slower. On the “value” side of the house – that is a second increase, but one you can’t control much, as it’s the market and what a buyer is prepared to pay.

All of us, hopefully, will pay off the mortgage. It’s just a question of whether it’s double or triple the original amount when interest is added for 25 years, or whether it’s much quicker and thus, much less interest, by paying weekly payments (that takes about seven years off) or adding a lump sum whenever  you can.

She’s right in that it’s the last debt that should be paid as it’s the lowest interest rate. It shouldn’t even happen before paying off a car or credit card. But for someone that’s debt free, except the house, it then becomes a choice. Invest extra money, or pay off the house – or both.

For over six years now we’ve heard that there’s an imminent massive housing price correction. I guess all these ‘predictors’ will eventually be right if you just keep saying it every year. In 2014, prices increased an average of 6% while the Bank of Canada predicted a 30% correction. In 2010, the Economist warned of a 25% reduction but prices increased 6.8%.

Predicting the housing market is a game you’re bound to lose, just like trying to time the stock market. Pay down your mortgage and invest a little money each and every month. If you’re not retiring today, or not selling your house this week – watch all those investment shows for entertainment value, and not specific advice to your financial situation.

Five Steps to Mortgage Debt Freedom

Another hockey season starts today and I have two predictions: Vancouver and Edmonton won’t make the playoffs…although I’m more certain about the Oilers than the Canucks… and we’ll get another massive wave of 95,000 Scotiabank commercials…in the first week… I can’t help the Canucks and my Oilers, but I can help you with one of the main Scotia commercials.

Last year, one of the always-played commercials was a lady pulling into her driveway and a marching band came out and played.  She actually paid off her mortgage – and that’s something so few people do in a given year. The tag line was to come see Scotia to learn how to become mortgage free.

Well, you don’t actually need to do that. I’ll give you the scoop on what an appointment with them will get you in less than their 30-second commercial time.

-Shop around and get at least three quotes when your mortgage is up for renewal. They can vary by up to half a percent or more.

-If rate shopping gets you a lower rate, don’t lower the payment – shorten down the time you have left on the loan.

-Set it up for weekly payments if you can possibly afford it.

-Take advantage of your 10 or 20% prepayment privilege each year if you have a few thousand dollars.

-If you can swing it, go in and get your payment increased 10 or 20% right now. It’s not a lot, but it’ll add up to a lot.

That’s it – it really is that simple. If you do one or two of these five things you’ll be mortgage free much faster than 90% of people who are on the forever plan and a ton of people in their 50s or older who aren’t going to live long enough to pay off their home.

Getting your rate down by half a point on just a $200,000 balance will save you $1,000 a year. But, instead of dropping the payment and leaving your loan on the forever plan, just cut two or three years off the term. You’re used to paying a certain payment, so don’t think you’re saving or gaining anything if you take a lower payment.

Changing from monthly to weekly payments has the effect of paying 13 payments a year. That’ll cut the typical mortgage down by four to five years – and that’s a lot of time saving!

Lastly, almost all mortgages let you prepay up to 10 or 20% a year without penalty. If you have a bonus, a tax refund, or some money – dump it on there. It cuts the length of time by a lot. Leave the payments the same and any online calculator can show you the huge interest savings it’ll create. That’s assuming you don’t have any debt that’s at much higher rates. If so, those balances are way more of a priority.

But the best way to be mortgage debt free is still to sell your expensive home and purchase a cheaper one. Less price equals less mortgage. Unfortunately, that’s something very few people would consider…

Is It Right or Wrong?

Today, here are two moral dilemma stories. What do you think? Are either, or both of these, right, or wrong?

A number of years ago, in Michigan, some dealers experimented with a system that had a computer chip installed in vehicles which were financed. If the payments were past due, the owner would get a warning from this electronic signal in the car. It warned that the vehicle would become inoperable if the payment was not made within three days. Another warning came through the car the following day. Then, on day three, the car’s electronic system was automatically shut down, and wouldn’t start. Talk about a way to get someone’s attention to make their payment!

The dealerships were able to finance the vehicles with this software for a lower interest rate, because the risk of arrears was much lower on these loans. It resulted in a lot less repossessions, but the backlash was so huge, the technology didn’t take off to any large degree. Very bad idea, or would you buy it with the mindset that it’s reasonable not to drive something you can’t afford to pay?

Last year, in the U.S., between 700,000 and one million people walked away from their homes – but not in a typical foreclosure.

Strategic defaults are foreclosures of homes were the mortgage holder HAS the money, and HAS the ability to pay, but chooses not to. These people owe more on their home than the value, and make a conscious decision to stop making the payments. It will give them six months or so free housing until the bank comes to foreclose. At that point they walk away, reasoning, they’re saving themselves tens or hundreds of thousands of dollars paying a debt that is way more than their home is worth. They literally trash their credit, but reason that they are still way ahead, financially, by now being able to walk away from their home. In many interviews, on various programs, a lot of these homeowners were asked if they didn’t feel guilty, or some moral obligation to pay the mortgage that they CAN pay and voluntarily signed. The answer has always been no.

If you have the financial ability to pay, would you walk away if you owed $10,000 more than your home was worth? What about $50,000? What about when the value of your home has dropped by 50% or more such as many places in Arizona, Florida, or California have experienced?

Before you answer that, you should know something else. The biggest apartment complex in the world is Stuyvesant Village in New York. We’re talking 11,000 apartments and 18 highrises. In January, they defaulted on a $4.4 billion mortgage and voluntarily walked away. And who was one of the big five investors? The Church of England.