Month: April 2018

Reverse Mortgage – the pros and cons

General DAZADA DIAMOND 27 Apr

Reverse Mortgage – the pros and cons

You may be seeing and hearing a lot more regarding the Reverse Mortgage in today’s marketplace. I have taken the time to get familiar with the program here in Canada and have been quite surprised by how it’s changed and how different it is to its counterpart in the U.S. and how relevant it has become given our aging population in Canada.

Who are they best suited for? People age 55+ that own a house, townhouse, or condo and want to either increase their cash flow, or access equity without making a monthly payment. The older the client, the higher the approved limit.

Here is a list of PROS and CONS of the Reverse Mortgage.

Pros

  • Funds can be advanced as needed such as a line of credit with interest only accruing on the money advanced.
  • No income debt servicing like other ‘standard’ mortgages. Retirees with fixed incomes can qualify for much more money as our approvals are based on age and property.
  • No payments required. Borrower can retain more of their income and never worry about default or foreclosure.
  • Changes in interest rates don’t affect the client’s monthly cash flow since there no payment required.
  • Clients can pay up to 10% towards the loan if they choose each year, but there is no obligation.
  • Prepayment penalties are waived upon death and reduced by 50% if the borrower(s) are moving into a care home.
  • Borrowers will never owe more than the fair market value of the home at the time it is sold
  • There are no changes to the mortgage amount and no payments required if one spouse passes or moves into a care home.
  • With conservative house appreciation of just 2.5% to 3% per year over time will typically make up for the accruing interest on the reverse mortgage leaving clients with plenty of equity in the end.

Cons

  • Client are choosing to have more income/cash flow TODAY, in return for having less savings in the home TOMORROW.
  • All clients are required to obtain independent legal advice, which is a good thing. But there is a small extra cost. Total one-time set up and legal fees run approximately $2,500.
  • Rates are approximately 1.5% to 2% higher than a best rate secured line of credit.
  • If the housing market never goes up, and the client lives in the home long enough, there is a chance the client could exhaust all the equity in the home to fund their retirement.

If you, a family member, or a contact of yours could benefit from a reverse mortgage or want to learn more, please contact a Dominion Lending Centres mortgage professional who can walk you through the entire process.

  • https://dominionlending.ca/news/reverse-mortgage-the-pros-and-cons/

Subject to Financing- A Must!

General DAZADA DIAMOND 25 Apr

Subject to Financing- A Must!

With most people who are new to real estate and looking for their first home (or possibly second), one of the most significant times is when your offer to buy is accepted by a seller. Unfortunately, that moment is quickly followed by stress, as not many people know what comes next- securing financing. 99% of the time a realtor will ask you if you have been qualified by a bank or a mortgage broker before they write an offer on your behalf. What should be told to you, the client, by the realtor and your mortgage broker is that you need to have a subject to financing condition in your offer.

In order for someone to receive a mortgage from a lender, they need to meet the lender’s (and some times the insurer’s) conditions. Usually, these all revolve around a borrower’s down payment money, their income as well as employment, and the property they are making an offer on. If you make an offer on a home and it is accepted, but for example the lender doesn’t like the property because the strata board doesn’t have enough money in their contingency fund to fix the leaking roof in the next 12 months, they could turn down your application and not lend you money.

If you don’t have the money, you don’t get the home. That is why you have a subject to financing condition, so if for any reason, you can’t meet the lender’s requirements with your income, down payment, or if the property is unacceptable to them or the insurer, you can cancel your offer without any hassle or loss of deposit.

What happens if you make a subject free offer? If you make an offer on a home and it doesn’t have a subject to financing condition in it, that house is now yours once the offer is accepted. Your deposit is no longer yours, and you have to come up with the remaining money. If you cannot and are unable to complete the purchase, the seller may file a lawsuit against you for damages as they have now taken their home off the market potentially losing out on the ability to sell their home to someone else while they waited for you to get financing.

Always, always, always have a condition in your offer that states subject to financing and allow yourself 3 to 5 business days. If you go in without that fail safe and it turns out you really need it, you will potentially be on the hook and if the seller wishes, he or she can sue you for any potential losses. Subject to financing is a must! If you have any questions, contact a Dominion Lending Centres mortgage professional.

  • https://dominionlending.ca/news/subject-to-financing-a-must/

Vancouver turns vacancies into cash cow

General DAZADA DIAMOND 24 Apr

Vancouver turns vacancies into cash cow

by Linda Givetash

VANCOUVER _ The city of Vancouver’s new empty homes tax is expected to bring in $30 million in revenue in its first year.

Vancouver Mayor Gregor Robertson said $17 million has already been collected from owners of almost 8,500 properties that were determined to be vacant or under utilized for at least six months of the year.

“For those who didn’t rent their empty property and chose to pay the empty homes tax, I just want to say thank you for contributing to Vancouver’s affordable housing funding and making sure we can invest more in affordable housing,” Robertson said at a news conference Monday. “For those who did rent their empty homes, thank you very much for adding to the rental housing supply here in Vancouver. It’s desperately needed.”

The tax is the first of its kind in Canada, requiring homeowners who do not live in or rent out their properties to pay a one per cent levy based on the assessed value of the home.

Robertson said the tax was intended to address the city’s near-zero vacancy rate.

The most recent figure from the Canadian Mortgage and Housing Corporation puts the city’s rental vacancy rate at 0.8 per cent, up slightly from the previous year, the mayor said.

It’s unclear yet if the tax has increased the availability of rental accommodation, Robertson said, adding that the city is developing better data collection methods to monitor the impact of initiates like the tax more closely.

The city previously said about 60 per cent of properties affected by the tax are condominiums.

The tax on the properties where owners said their home was empty ranged from $1,500 to $250,000, Robertson said, noting the highest tax bill came from a $25-million home.

The funds will support the city’s affordable housing initiatives and residents can provide feedback on exactly where the money should be spent.

Robertson said increasing capacity at homeless shelters or adding to the city’s rent bank, which provides one-time interest-free loans to low-income residents in a financial crisis, are among the possible initiatives that could benefit.

The median tax due is just under $10,000 and Robertson said anyone who doesn’t pay up will face fines and have the bill added to their property taxes next year.

“Those who are not playing ball here and who are skirting the system, we will get you,” the mayor said.

Nearly 99 per cent of homeowners completed an empty homes tax declaration.

The tax cost the city $7.5 million to implement and annual operating costs for the first and subsequent years are pegged at $2.5 million.

Audits are underway and the city said just under 1,000 complaints or disputes have been filed that need to be addressed in the coming months.

Robertson said it will be up to city council to decide whether the tax is having the desired effect, and that will likely take a few years of data to determine.

“I would say at this point it looks like some signs of success,” he said.

 

The Canadian Press

  • https://www.mortgagebrokernews.ca/business-news/vancouver-turns-vacancies-into-cash-cow-241426.aspx

Having your cake and eating it too – Our House Magazine

Commercial & Rental DAZADA DIAMOND 24 Apr

Having your cake and eating it too – Our House Magazine

This article appears in the April issue of Our House Magazine

Looking for an escape from her daily job, one B.C.-based custom cake maker has found the perfect recipe for success.

Working inside a prison can be one of the most stressful jobs out there. And when you spend hours in a bleak environment where no one really wants to be, you need to find an outlet, a way to balance out the negative.
For Cheryl Arsenault, that escape came in the form of a food everyone loves: cake.
The Chilliwack B.C. resident and Corrections Canada employee wanted to find a hobby to fill her time away from work. A friend suggested they try a cake decorating class. It turned out to be a recipe for business success. She started bringing her tasty creations to work, and very quickly began getting requests.
“I went from just taking a couple of classes to a business in a very short period of time,” Arsenault told Our House Magazine.
Mostly through word of mouth, the baker and her business Mad Batters, has kept her busy. From a Super Mario design featuring a bubble gum machine to a Star Wars Stormtrooper mask, the majority of Arsenault’s cakes are for birthdays and anniversaries, but weddings also keep her on her toes.
Though her side business was taking off, it did bring an unexpected problem. Arsenault quickly realized her dining room table was no place for her edible works of art. And she was also going to need some heavy duty equipment if she was going to go to take her creations to the next level. She originally used a spare room in her townhouse, but last year she bought a home. And besides making room for her parents, she needed a home that could accommodate a commercial baking space.
So Arsenault turned her garage into that space, spending a few thousand dollars for things like commercial sinks, tables and an oven. She now spends up to 20 hours a week during the busy season working from home, pointing out the convenience of doing so means she can make her own hours.
“It’s a good business, I really enjoy having it at home!”

Looking to create your own home based business?

Dominion Lending Centres can help! Cheryl Arsenault somewhat stumbled on a side career making custom cakes for special occasions. While Mad Batters keeps her busy, the home-based business owner does have some advice for the novice entrepreneur.
Whether it be cooking or crafting, she suggested you’ll need to have the space in your home, don’t try to start it in your living room. And be prepared to spend a little money, especially if you need equipment. And that’s where Dominion Lending Centres Leasing can help.
The leasing division can fund all types of home businesses and the supplies that are needed to get started.

As Jennifer Okkerse, director of operations for DLC’s leasing division, explained, a $5,000 lease over a four-year term would be about $150 a month. She noted DLC Leasing would help arrange payments with vendors, all while building credit for the business. And if you wanted to expand to a store front operation, you would now be established among lenders for a small business loan. For more information about DLC’s leasing options, visit dominionlending.ca or email credit@dominionlending.ca.

  • https://dominionlending.ca/news/having-your-cake-and-eating-it-too-our-house-magazine/

Are mortgage terms more important than rate?

Mortgage Tips DAZADA DIAMOND 23 Apr

Are mortgage terms more important than rate?

Why are the terms more important than rate when it comes to a mortgage?

Simple. Seven out of 10 Canadians break their mortgages prior to the renewal date.
Taking the wrong mortgage when you could have qualified for a better one- is a costly mistake.

The biggest mistake anyone can make is they don’t think they need to make a change, or they’re the three-in 10 that won’t break a mortgage.

For those people I give you a short list of potential reasons why you might need to get out of a mortgage early.

1. Sale and purchase – maybe you get an offer you can’t refuse, either work or real estate related, maybe the zoning has changed, your neighbours or strata are unmanageable or maybe you want to grow your family
2. Take Equity out – get renovations done, help family members or buy another investment, pay CRA, or assessments on property
3. Pay off debt – maybe you are like the over 60% of Canadians living paycheque to paycheque and paying over 5% on credit cards or lines of credit. There are much more savings in interest and cash flow for you utilizing your equity.
4. Relationship changes – moving in together, divorce is at a 50% rate these days, kids (needing more space or need to move in together).
5. Health or life challenges – huge illness, unemployment or death of someone on title can be a burden enough.
6. Removing someone from title – a co-signer (3/10 homebuyers get help from a family member) or an ex-spouse.
7. Save money with a lower rate – the market is always changing. It may make sense to break early and go with a different term as the market changes.
8. Pay it off – maybe you won the lottery or got an inheritance.

Some of the above is not avoidable, but the one thing you totally can control is who you align yourself with when shopping for a mortgage. A Dominion Lending Centres mortgage broker will always be looking at all the factors involved in a mortgage without bias to help you make an educated decision on what best suits you.

  • https://dominionlending.ca/news/are-mortgage-terms-more-important-than-rate/

Mortgage Broker Value

General DAZADA DIAMOND 20 Apr

Mortgage Broker Value

Not surprisingly, borrowers often default to their own Banker. And why not? It’s an established and comfortable relationship. Perhaps it’s viewed as the path of least resistance. But is it the right lender for the borrower’s current specific needs? Perhaps not.

More sophisticated borrowers may be of a size or scale that they have their own internal resources in finance, quite capable of securing the required financing. They are likely only in the market infrequently however, and almost certainly not fully knowledgeable as to all of the financing sources available.

Aren’t all Lenders pretty much the same?
Borrower’s may think that all institutional lenders are pretty much the same. Offering comparable rates, and standardized borrowing terms. This is rarely the case. Lender’s often prefer one asset class over another. They may have a particular need for one type of loan. A specific length of loan term may be desirable, for funds matching purposes. Real Estate risk is a fact for real estate lenders. How they mitigate this risk differs however. It may be stress testing interest rates during the approval process. Sophisticated risk pricing models may be used, having regard to previous loss experiences. The lender may rely significantly on collateral value, or guarantees. The conditions precedent to funding will often differ from lender to lender.

A real world example
I had the pleasure last year in advising a client who had 3 sizable real estate assets, in 3 quite distinct asset classes. The borrower’s loan amount requirements were significant, however they were flexible on loan structure. Accordingly, I sought out competitive, but differing deal structures. My goal was to provide a competitive array of options. A number of “A” class lenders were approached, several/most of whom this particular borrower had no previous experience with. I shortened the list to 5 lenders, and received Term Sheets from each.

Each Offer was competitive on a stand alone basis, but they differed quite substantially, in the following ways:

  • Loans were either stand alone, or blanket loans, or some combination.
  • Length of terms offered, differed by asset class.
  • There was as much as a 75 bps rate difference, from highest to lowest Offer.
  • The amortization period depending upon asset class, ranged from 15 to 25 years.
  • Loan amounts on individual assets differed as much as 20%.
  • Third party reporting requirements differed between lenders.
  • There were a combination of fixed vs. floating rate loan structures.
  • Recourse was limited by some lenders, on select assets, or waived entirely, upon a higher rate structure.

Leverage Your Knowledge
These variances are striking, yet each of the 5 lenders were considering the precise same asset, at the same time, with common supporting information from which to base their analysis. How was the borrower to know which Offer to exercise? As a Broker, I can add value by helping the borrower to consider both their immediate and longer term strategic requirements, in the context of their overall real estate portfolio needs. This was precisely how this borrower landed on the most appropriate Offer for their particular circumstances. In this particular case we presented different, yet competitive, and uniquely structured options for the borrower’s consideration.

Consider a Dominion Lending Centres Mortgage Broker when next in the market for financing. Leveraging a Broker’s knowledge is a tremendous value proposition.

  • https://dominionlending.ca/news/mortgage-broker-value/

Imagine your future home

General DAZADA DIAMOND 19 Apr

Imagine your future home

This article appears in the April issue of Our House Magazine 

Looking back at predictions from 50 years ago of what a home would look like and be able to do today, it’s almost laughable. Back then, the home of the future would include rooftop pools that act as air conditioners and a garage for our airplane automobile that has folding wings. Fast forward 50 years from now and depending on where you live in the future, a garage for your car may not even be needed.
Dave Pedigo is the VP of Emerging Technologies with CEDIA, a North American association representing the home technology industry. In 50 years from now, he believes homes will be filled with artificial intelligence, doing things we could only dream of today. The home will know what you like and don’t, where you spend more time and adjust accordingly. Don’t like doing laundry? You might not be alive to see it, but your offspring probably won’t have to worry too much about the annoying chore. There will be one machine that washes, dries and folds all your laundry and a robot to put it away.
Pedigo also predicts the future home will know your health better than you, calculating when you’re on the path to a catastrophic event like a heart attack days before, all while calling emergency services when needed.
“It’s going to be an incredibly, incredibly intelligent home,” he told Our House Magazine. “It will make our lives a lot easier.” While some of that technology is a lifetime away, some of it is closer than you think.
Pedigo explained a couple years back, CEDIA had an opportunity to design and display a home of the future for an exhibition. The home included a concrete wall that will appear invisible. With a touch of a button, the wall will come alive giving you the opportunity to display anything, even the previous day’s weather if you wanted. That feature may only be 10 years away.
“I think in general the goal is to make the home more comfortable, more enjoyable and healthier,” Pedigo said. “By the time we get to 50 years from now, it’s going to be amazing.” Pedigo also noted new technology tends to start off being for the wealthy, but quickly expands to the masses at a much cheaper cost.
We know technology will be a big part of homes, but they still have to be constructed. And the bones of a home will also look very different in the future.
Larry Stadnick has been building custom homes in the Calgary area for decades under his company Corey Homes. He believes homes in the future will be sleek, smaller and very efficient. The builder also sees homes getting boxier, flatter and similar to the mid-century modern style.
The trend Stadnick noted is to build the shell of the home using the insulated concrete form (ISF) which makes the home more energy efficient, quieter and stronger in a natural disaster. The
ICF is basically a cinder block, surrounded by Styrofoam with concrete in the middle. About 30 per cent of new homes in Calgary use the ICF today with that number expected to grow to 40 per cent in the next five years, according to Stadnick.
“With ICF you can control everything, you have total control of the environment [in the home],” he said.
If you talk to anyone with a heritage home built about 100 years ago, they’ll swear the quality of the home is far superior to anything new. But Stadnick sees it very differently, arguing the traditional wood frame home “sucked”, adding their construction was dependent on the forest industry, and how they would react in the weather.
While the latest technology may improve the home in a number of ways, it’s not particularly cheap. And cost is partly why Stadnick also suggests homes in the future, especially single-family homes, will be much more expensive.
“I’d be buying one now if I was a young kid,” he said, adding the cost of material and available land will also continue to rise.
The insides of homes in the future will also be healthier.
The Calgary home builder noted the construction industry is already staying away from certain plastics and materials that can be toxic.
Meanwhile, the organization tasked with representing the residential construction industry in Canada is also looking toward the future.
David Foster, a spokesperson for the Canadian Home Builders’ Association, said his organization is working on new national building codes that will come into place in the 2030s.
He too sees a home that will be extremely energy efficient and safer to live.
The CHBA already has a program in place called Net Zero Housing, where the home generates as much energy as it consumes.
As for safety, Foster pointed out the number of residential fires has plummeted in recent decades and the trend will continue.
“We’re building homes that are more comfortable, healthier to live in, and that will just continue,” Foster said.
The single-family home could also be an endangered species 50 years from, especially in urban areas. With millions of people expected to flood the larger population centres, the CHBA, believes the majority of homes will be multi-unit developments near transit.
But back in Calgary, Stadnick jokes he won’t be around in 50 years to see the home of the future, although he’s confident they’ll be better than today and people will enjoy them just as much. “I’ve lived in more than 30 new homes and every one of them was exciting, and new and fresh and fun.”

  • https://dominionlending.ca/news/imagine-your-future-home/

Closing Costs

Mortgage Tips DAZADA DIAMOND 18 Apr

Closing Costs

Closing costs are a necessity when it comes to purchasing a home. They are not included in down payments, they are not included in monthly mortgage payments, nor are they included in the purchase price of a home, but you are still responsible for paying them, in full. Knowing they exist is half the battle, and correctly budgeting yourself to pay them when the time comes can be a huge weight off your shoulders, especially when the alternative is finding out a week before you close on the purchase of a home that you still owe thousands of dollars.

Lenders will require you to have 1.5% of a property’s purchase price available in cash to be able to cover closing costs. This amount is on top of the 5% minimum required for a down payment. Closing costs that you may be expected to pay, depending what province you live in, when purchasing a home in are as follows:

  1. Appraisal- determining the value of a home.
  2. Interest Adjustment- amount of interest due between your mortgage start date and the date the first mortgage payment is calculated from.
  3. Property Transfer Tax- a tax paid to the provincial government when a property changes hands.
  4. Legal Fees- costs associated with finalizing the sale or purchase of a property.
  5. Prepaid Property Tax & Utility Adjustments- amount you will owe if the person selling you the home has prepaid any property taxes or utility bills.
  6. Property Survey- legal description of the property you are purchasing including it’s location and dimension.
  7. Sales Taxes- some properties are sales tax exempt (GST and/or PST), and some are not. Always ask before signing an offer.

As you can see, many factors go into determining the size of these costs. That is why it is also important to speak with a mortgage broker prior to making an offer on a home. Also, some costs may be exempt, such as the property transfer tax for first-time home buyers. Contact a Dominion Lending Centres mortgage professional to find out if you would qualify to have these costs covered.

  • https://dominionlending.ca/news/closing-costs/

Bank of Canada makes interest rate announcement

Banks & Bank of Canada DAZADA DIAMOND 18 Apr

by Andy Blatchford

The Bank of Canada is maintaining its trend-setting interest rate as its careful assessment of the timing of future hikes continues amid a backdrop of moderating growth.

The central bank, which kept its rate at 1.25 per cent Wednesday, said slower first-quarter growth of about 1.3 per cent was largely a result of housing markets’ responses to stricter mortgage rules and sluggish exports. The bank had predicted the economy to expand by 2.5 per cent in the first three months of the year.

It’s expecting the economy to rebound in the second quarter with 2.5 per cent growth, in part because of rising foreign demand, to help Canada expand by two per cent for all of 2018. The economy saw three per cent growth in 2017.

“Canada’s economic growth has moderated, and the economy is operating close to capacity,” the bank said in its latest monetary policy report, which was released alongside the rate announcement.

“While a moderation was anticipated, temporary factors … are resulting in sizable short-term fluctuations in growth.”

The bank reiterated it expects further interest-rate hikes to be necessary over time and that it will follow a cautious, data-dependent approach when weighing future decisions.

“Some progress has been made on the key issues being watched closely by governing council, particularly the dynamics of inflation and wage growth,” the bank’s statement said.

“This progress reinforces governing council’s view that higher interest rates will be warranted over time, although some monetary policy accommodation will still be needed to keep inflation on target.”

The bank will also continue to watch the economy’s sensitivity to higher interest rates and how well it builds capacity through investment, which would enable Canada to lift growth beyond what is viewed as its potential ceiling without driving up inflation.

Signs suggest the economy has made some progress in building this capacity, the bank said.

The bank is also keeping a close watch on the evolution of external risks.

Exports and business investment in Canada have been held back by competitiveness challenges and trade-policy uncertainties, which include escalating geopolitical conflicts that risk damaging global expansion, the bank said.

It laid out estimates on the growth impacts on Canada due to tax reforms in the United States, which are expected to lure more investment south of the border. Due to these investment challenges, it predicts Canada’s gross domestic product to be 0.2 per cent lower by the end of 2020.

Exports are also expected to take a hit from reduced investment and trade uncertainties. The bank projects that Canada’s GDP will be 0.3 per cent lower by the end of 2020 due to the negative impacts on exports.

Fiscal stimulus introduced in recent provincial budgets is expected to help offset these effects by adding about 0.4 per cent to Canada’s real GDP by the end of 2020.

Governor Stephen Poloz introduced three rate hikes since last summer in response to an impressive economic run for Canada that began in late 2016. But due, in part, to factors such as mounting trade unknowns, Poloz has not raised the rate since January.

The bank offered an analysis Wednesday of some of the key indicators it’s watching ahead of rate decisions.

On inflation, the bank said temporary downward forces weighing on the rate have largely dissipated. Other transitory factors, including higher gasoline prices and recent minimum wage increases are now expected to raise inflation above the bank’s January predictions.

Canada’s annual pace of inflation in February sped up to 2.2 per cent _ its fastest pace in more than three years _ to creep above the central bank’s ideal target of two per cent. Meanwhile, the average of the agency’s three measures of core inflation, designed to omit the noise of more-volatile items like gasoline, climbed slightly above two per cent for the first time since February 2012.

For wage growth, the bank said despite recent improvements it remains below what would be expected if the economy no longer had slack in its labour force.

On Wednesday, the bank also released new economic forecasts in its monetary policy report.

For 2018, it’s now predicting two per cent growth, as measured by real gross domestic product, compared to its 2.2 per cent prediction in January.

The bank raised its growth projection for 2019 to 2.1 per cent, up from its previous prediction of 1.6 per cent, before easing to 1.8 per cent in 2020.

It noted that these readings would still be slightly above Canada’s estimated potential output for the next three years.

 

The Canadian Press

  • https://www.mortgagebrokernews.ca/business-news/bank-of-canada-makes-interest-rate-announcement-241165.aspx

Breaking a mortgage – can you do it?

General DAZADA DIAMOND 17 Apr

Breaking a mortgage – can you do it?

Do you have a mortgage? So do I! Looks like we have something in common. Did you know that 6 out of 10 consumers break their mortgage 38 months into a 5-year term? That means that 60% of consumers break a 5-year term mortgage well before it’s due…but do you also know what the implications are of this? Let’s take a look!

People need to break a mortgage for a variety of reasons. Some of the most common include:

· Sale and purchase of a new home *without a portable mortgage
· To take equity out/refinance
· Relationship changes (ex. Divorce)
· Health challenges or life circumstances are altered

And a whole other variety of reasons. So what happens if you have one of the above reasons, or one of your own occur and you have to break your mortgage? Here is an example of what would happen:

Jane and John Smith have lived in their home for 2 years now. When they bought the home, they recognized that it would need some major renovations down the road, but they loved the location and the layout of the home. They purchased it for $300,000 and have 3 years left but would like to access some of the equity in their home and refinance the mortgage to afford some of the bigger home renovations. This refinancing would be with 3 years left on their current mortgage. So, what are Jane and John looking at for cost? There are two methods that are used to calculate the penalty:

POSTED RATE METHOD (used by major banks and some credit unions)
With this method, the Bank of Canada 5 year posted rate is used to calculate the penalty for Jane and John. Under this method, let’s assume that they were given a 2% discount at their bank thus giving us these numbers:

Bank of Canada Posted Rate for 5-year term: 5.14%
Bank Discount given: 2% (estimated amount given*)
Contract Rate: 3.14%

Exiting at the 2-year mark leaves 3 years left. For a 3-year term, the lenders posted rate. 3 year posted rate=3.44% less your discount of 2% gives you 1.44% From there, the interest rate differential is calculated.

Contract Rate: 3.14%
LESS 3-year term rate MINUS discount given: 1.45%
IRD Difference = 1.7%
MULTIPLE that by 3 years (term remaining)
5.07% of your mortgage balance remaining. = 5.1%

For the Smith’s $300,000 mortgage, that gives them a penalty of $15,300. YIKES!

Now, Jane and John were smart though and used their Dominion Lending Centres broker to get their mortgage. Because of this, a different method is used.

PUBLISHED RATE METHOD (used by broker lenders and most credit unions)

This method uses the lender published rates, which are generally much more in tune with what you will see on lender websites (and are generally much more reasonable). Here is the breakdown using this method:

Rate when you initially signed: 3.24%
Published Rate: 3.54%
Time left on contract: 3 years

To calculate the IRD on the remaining term left in the mortgage, the broker would do as follows:

Rate when you initially signed: 3.24%
LESS Published Rate: 3.54%
=0.30% IRD
MULTIPLE that by 3 years (term remaining)
0.90% of your mortgage balance

That would mean that the Smith’s would have a penalty of $2,700 on their $300,000 mortgage

A much more favourable and workable outcome! Keep in mind that with the above example is one that works only if the borrower has:
· Good credit
· Documented income
· Normal residential type property
· Fixed rate mortgage

For Variable rates mortgages, generally the penalty will be 3 months interest (no IRD applies).

If you find yourself in one of the scenarios that we listed at the start of this blog, or if you just need to get out of your mortgage early, be smart like Jane and John—review your options with a DLC Broker! In the example above, it saved them $12,600 to work with a broker! It really does pay to have a Mortgage Broker working for you.

  • https://dominionlending.ca/news/breaking-a-mortgage-can-you-do-it/
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