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Mortgage Penalties- Do I Break During Term

I thought I would remind everyone about the cost of penalties when breaking a mortgage during term. A lot of people think that one lender is the same as the other, but you can be terribly wrong with that mindset. The Globe and Mail published an article called “The Hidden Trap of Mortgage Penalties” and is worth reading. It is likely a wake-up call to most.

When you go to one of the Big Five banks web sites and look at their mortgage rates, a 5 yr fixed term with most is 4.64%, where as if you go to some of the other trust and credit Unions(we call them Mono Line lenders),a posted 5 yr fixed rate can be as low as 2.69%. As the article points out, it is these “posted” rates that can dramatically affect your penalty when the IRD(Interest rate differential) part of the penalty formula is used.
Just another reason you should shop around and talk to a good mortgage broker(hopefully me 🙂 ) and NOT just your banker.  Have a mortgage question? Please feel free to drop me a line anytime, 7 days a week.

Remember When, What Have We Learned From High Mortgage Rates

This is a great Globe and Mail article taking us back a little in the history of mortgage rates…
Yes rates will go up, but the debt we have is what we have. Simply be aware and start to manage it responsibly.
If you have it now, minimize future borrowing especially for unnecessary items. Now, in a time of low rates is the best time to crack down and pay down the debt, when more of your hard earned dollars will go to the principle and less to interest.

Consolidate loan and credit card debt where possible and maximize payments to pay the debt off sooner, again, minimizing your interest cost. If necessary, use the equity in your home to consolidate debt, but keep the amortization of the mortgage short so that the debt is paid off quickly.

Don’t consolidate debt into a secured Line of Credit with interest only payments. Even at a low rate, interest only payments will never make the debt go away.
Remember we currently have the lowest rates in history. Plan your financial future wisely.

Bridge Financing OR Refinancing Your Home?

I often hear the question, can I use bridge financing if my house doesn’t sell? There is a common misunderstanding about what is, and when “bridge financing” is used, so I thought I would help in clearing this up.

To clarify, bridge financing is used when you have purchased a home, for example closing August 1st, and you have your current home unconditionally sold, closing Sept 1st, one month later than your purchase date. It is this short period of time between the purchase of a home and the sale of a home that bridge financing fills the gap.

The key is that the house you own is UNCONDITIONALLY SOLD, meaning you have an accepted agreement of purchase and ALL conditions that are part of that agreement have been waived by the purchaser (i.e. building inspection and financing clause).

In this scenario it is a simple bridge. The same lender that is giving you your mortgage on the new home, will lend you your expected down payment from your sale (that you won’t get till your house sale closes) on a short term bridge loan at a minimal cost. A setup fee of approximately $250 and interest of up to Prime +4% is commonly charged but can differ from one lender to the next. Depending on the size of the bridge loan required, and the lender you use (let’s assume over $100,000) the lender also may require your lawyer to register the loan as a mortgage against your residence.

If your existing home is NOT sold, then bridge financing is NOT available.

In this scenario you have to simply REFINANCE your home if there is sufficient equity in your home to borrow the down payment. Remember that you can ONLY REFINANCE up to 80% of a property’s value, therefore you’re not always able to refinance a home for down payment when it does not sell.
You must also qualify with income and credit when refinancing which can be an issue at times when you are carrying two properties.

Refinancing requires a mortgage to be arranged on your existing home. It often involves paying for an appraisal of your home and a lawyer to register the mortgage.

It is very important to look at this worse case scenario when purchasing a home without a condition of selling your existing home. And I’m afraid this is usually the case when purchasing a builder built home a year down the road. If you don’t have the ability to borrow the down payment from your home or access it from family if your home doesn’t sell, or qualify to carry both properties, then you really should reconsider the whole purchase.
The ideal scenario is purchasing a home with a condition of selling your existing home. This way eliminating any concerns.

For all of you out there that have purchased already, closing down the road, and have a home to sell, make sure you look into the worse case scenario(of your home not selling before your purchase date) with your lender. It is best to know your options earlier than later. Plan ahead and get your house listed (ideally with a knowledgeable REALTOR) with plenty of time to sell, and make sure it’s priced right for the market. Today is currently a buyer’s market.

I am currently seeing more scenarios of houses NOT being sold, and unless planned for, it’s not a position you really want to be in.

Who pays for the service of a Mortgage Broker?

When you’ve been in the business as long as I have been, it’s a constant struggle to remind yourself that some of the most basic understanding of how mortgage brokers work is not known by the public. Once in a while someone will ask the question, and I’ll say, Oh Ya, they didn’t know that.
This happened yesterday when someone asked me if there is a fee for my service and who pays it?
My “job” as a mortgage broker (I am a registered mortgage broker, not an agent- save that for another days post) is to arrange mortgage financing for people either purchasing a home or refinancing a property that they already own. I love what I do, it was a career choice I made 28 years ago and to do it full time, I have to earn a living. I think most of you can relate to that. So who pays me?
Most people in my business are self-employed, 100% commissioned paid, which means we are NOT paid a salary. I also do NOT work for any one bank/lender. I deal with likely 20 different trust companies, credit unions and banks, therefore have a choice of which lender best suits your needs and has best rate on any given day. I’m paid by the lenders who I place your mortgage with. If you qualify normally, borrower do NOT pay me a broker’s fee, the lender pays me, AFTER you get your money, and generally that is the only time I will get paid.

So you quickly realize how important it is that I keep you happy! If I don’t keep you happy, I don’t get paid. And after you close, if you don’t happily refer me to friends and family, my income stops.
So only a happy client creates a happy business model for me, therefore I guarantee you great service and great rates right up until closing date.
The only exception of being paid by the lenders is when I am arranging financing for people where there are circumstances that require funds from private or “B” type lenders. This occurs when due to either poor credit, or income issues, the normal “A” type bank won’t approve the mortgage. In these scenarios, a broker fee may be charged to the client, but these fees must by law, be disclosed up front. Remember that when funds are required when the big banks say NO, I am always ready to come up with a “plan B”. So the ONLY time a broker fee is charged is when I am arranging funds where generally the banks can’t help you.
If you’re looking to purchase or finance a home, remember to do your homework and ensure you get a mortgage that is a fits your needs and gives you best rate. That is what I do every day, and do it well. The only thing I ask is that you remember that I am NOT paid a salary. I provide a service to you that is paid for by the lender, but I ONLY get paid if I keep you happy with a mortgage that suits your needs.

So feel free to drop me a line at 613-222-2624 if questions or visit for 24 hr day, 7 day a week information at your finger tips.
Have a great weekend,
Dan 🙂