Dear Ross, I live in Dundas, Ontario, and I am considering a 10 year mortgage @ 3.98% from First National. I have been variable with PCF for 12 yrs (prime – 0.9% currently, past few years) PCF might match the FN rate. Better to stay with PCF? They started with 4.04% on a ten year product and might go lower (they keep calling me) I’m 57, mortgage balance $114k, college costs for daughter, but have $22k RESP still available) No other debt. House worth ~ $350k? Single income household. Work until I am 67 (likely dead before *laughing but only half kidding*) Probably only work 7 more years.

I just spoke to a nice guy @ PCF. Sounds like 5 years most popular, now @ 3.34%, amortized over 10 years? Or a variable rate mortgage at prime less 0.1 percent. Weekly payments.

Then he started to talk about the interest rate differential penalty (IRD) being “substantial.” (Example, if I die and house sold) I was not happy with the guy! He actually told me any idiot knows about penalties!!

Must decide, hate the worry. Advice? What would Ross do? Thanks….Charlotte.

Hi Charlotte

It’s not just about the rate. Heaven forbid you have to break your mortgage mid term, you would worry about pre payment penalties. I for one would not ever work with a mortgage lender who obliquely or directly referred to me as an idiot.

As a matter of fact, most IRD calculations are idiotic, and even to an experienced eye like mine, seem almost random in their calculation. This is one of my personal peeves of the mortgage industry.

I can tell you from 25 years of experience that institutional lenders such as National Bank (and perhaps PC Financial too) tend to have more punitive IRD calculations.

Because most of my clients are going into fixed rate mortgages right now, this is a super important issue for me – I prefer to deal with lenders who have favorable IRD calculations – and that is only one of several lending criteria I apply.

As far as rates are concerned, any good mortgage broker can beat the PCF quote of 3.34% with their eyes closed – 3.29% tops (maybe 3.19% – it depends) for five years fixed; and most likely 3.99% for ten years. If three years were your preference, you could secure a rate of 2.89% – but personally I prefer longer terms.

One nice thing about ten year mortgages is that after the first five years, the penalty calculation reverts to only three months interest – and NOT IRD. Paying an extra 0.7% for ten years of peace of mind (vis a vis rates rising) is not a bad insurance policy.

Charlotte, if you would like my assistance or that of another local mortgage broker, you are  welcome to give me a call – one thing is you can stop being a do it yourself expert – and leave it all up to a mortgage expert – we would select from over fifty available lenders, and you will automatically benefit from the lowest rates possible for your circumstances.

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The mystery of refinancing your home

 

Top ten reasons to refinance your Toronto mortgage

In the Greater Toronto Area, mortgage rules and guidelines have been in a state of flux for two months. Seems like every week, lenders are modifying or even suspending certain lending programs.

Recently affected are rental properties, refinances and the length of amortization periods; and mortgages for self-employed Canadians are even harder to obtain now. Furthermore, in the past two weeks, mortgage interest rates have crept up between 0.25 and 0.4%.

If you are a homeowner with upcoming financial needs, you should seriously consider refinancing your home sooner rather than later. Here are some reasons why:

 

  • Toronto mortgage interest rates may go up further. For a refinance, most lenders will allow you to hold a rate for 90 days, and some 120 days. You can get your application in now, and take your time about completing the transaction. At least you will be rate protected.

 

  • The number of lenders offering 30 year amortization mortgages without tacking on an interest rate premium for the privilege has shrunk dramatically. Balance sheet lenders (such as banks and credit unions and certain lenders) have resisted so far, but who knows what lies ahead.

 

  • If you are carrying high interest credit card debt, car loans or even personal lines of credit, it may well be to your advantage to roll all these into your mortgage; pay off all these debts, and improve your monthly cash flow dramatically.

 

  • If you are planning to buy an investment property, tapping into your home equity for the down payment, consider extracting the equity now, while the going is good.

 

  • If you plan to help your kids buy their first home or perhaps finance their education, there’s a lot to be said for getting this done now.

 

  • If your current mortgage is coming up for renewal in the next year or so, it may well be worth your while to terminate that mortgage early; pay a modest prepayment penalty, and lock in a cracking good rate and mortgage terms for the next five years.

 

  • Most people who have five year mortgages maturing in the next year have rates between 2.89% and 3.29%, so this could be a real pick up!

 

  • If your marriage is breaking up and one of you is going to stay in the family home, now is a good time to restructure your mortgage to pay out your spouse.

 

  • If you have plans to refresh or renovate your home, with rates and terms this agreeable, you may be well served to extract some equity now to pay for the project. It’s cheap!

 

  • If you are in the middle of a consumer proposal, you should seriously think about refinancing your home now and paying it off early. You will not end up with an “ A lender” at this time, but you will position yourself very well to transition over in two to three years’ time.

 

  • Related Article: Why you should pay off a consumer proposal early 

 

If you would like to understand your refinancing options in strict confidence call us at 416-989-1000 for a free consultation.

If you prefer, you can email Ross at info@askross.ca. He answers every email he receives personally.

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