Buyer beware – of your Realtor

Real Estate DAZADA DIAMOND 15 Jul

Buyer beware – of your Realtor

During a typical home sale, the listing agent commits to negotiate for the highest possible price. The buyer’s agent commits to negotiate for the lowest possible price. That can work nicely for both sides of a deal – unless those agents happen to be the same person.

How does a single agent negotiate for parties with opposing financial objectives? This is the dreaded ‘double ending’ that CBC Marketplace exposed in a documentary about shady behaviour on the part of real estate agents. It’s a pretty obvious conflict of interest, one guaranteed to benefit the agent at the expense of buyers and sellers.

But what about a situation where the buyer’s agent happens to work at the same brokerage as the listing agent? It happens every day. To be clear, these are two different agents, ostensibly running distinct businesses, but they work for the same company.

This is exactly the same conflict of interest as double ending, but in this situation, it’s called ‘dual agency.’ The brokerage – not the agent – has signed two separate contracts for representation.  With one of them, the seller expects the brokerage to negotiate for the highest possible price. With the other one, the buyer expects the brokerage to negotiate for the lowest possible price. How the heck is that supposed to work?

Here’s how real estate brokerages make it work: The lawyers who drafted the standard contracts for representation anticipated this conflict of interest and disclose it right in the contract itself, cleverly hiding it in plain sight. When the agents involved in a transaction are employed by the same brokerage, the standard contract stipulates that the agents will remain impartial with respect to the negotiation. Neither agent will provide their client with information or opinion that is intended to benefit their client at the expense of the other party to the negotiation. In other words, they won’t negotiate on behalf of their client.

So why would a savvy investor like yourself sign a contract for representation if you thought your agent would withdraw negotiating services in the middle of the transaction? You wouldn’t. Not willingly, anyway.

Sure, the contract discloses the possibility of dual agency, but does the consumer understand the probability of dual agency actually occurring or what it might mean in terms of the price paid or received? Not a chance. Let’s have a look at these issues.

The potential fallout
First, what is the probability that dual agency occurs? When a brokerage has a large share of a community’s listings, the probability is pretty high. Some brokerages employ hundreds of agents and cover massive territories. A lot of investors don’t typically take note of the name of the brokerage where their agent is employed, but they should. The more prominent the brokerage, the higher the probability that the buyer’s agent and the seller’s agent will be working for the same company.

What about the impact on the price paid or received? Real estate agents are trained to negotiate, but if they have to withdraw that service, what is the financial impact on their clients? Happily, there is independent research on this. The efficacy of an agent during a negotiation has been measured as anywhere between 5% and 10% of the price of the home – so on a transaction worth $1 million, dual agency can make a difference of $50,000 to $100,000 on the final price that is paid.

For investors conditioned to eye the bottom line, there is another important financial consideration to make: If your agent won’t be negotiating on your behalf, should they be paid the same amount as if they were truly and fully representing their client’s financial interests? Shouldn’t the standard contracts for representation include a fee reduction in the event of dual agency, accounting for the reduction in essential services provided? An educated consumer will always ask their agent for this simple amendment to the standard contract.

Paying for a service that isn’t delivered is bad enough, but things can get much worse. What if your agent ignores the law – essentially doing you a favour – and gives you advice on the price and/or terms of the offer in spite of being caught in a dual agency? That would not only be a breach of contract law, it would also be a breach of agency law. Penalties could include fines and/or the rescission of an otherwise firm, and potentially lucrative, deal.

The fine print
So how can you be sure that an agent will actually have your back? Before signing anything, read your contract for representation. Every word of it. Then have your lawyer review the agreement. (You’re going to use a lawyer to transfer title anyway; it shouldn’t cost you anything for this extra service. Most lawyers will gladly throw it in with no charge.)

Ask for your lawyer to explain the implications of dual agency. Then get a referral to a brokerage that will guarantee single agency. The costs of dual agency are simply too high to take a chance that it might happen to you.


Mortgage, housing agency says home prices won’t recover from COVID for years

Banks & Bank of Canada DAZADA DIAMOND 14 May

Mortgage, housing agency says home prices won’t recover from COVID for years

TORONTO — Canada Mortgage and Housing Corp. officials said Tuesday they expect real estate prices won’t return to pre-recession levels until late 2022 at the earliest.

The housing agency also cautioned that the impact of the COVID-19 pandemic is unpredictable and beyond its worst-case estimates prior to the outbreak.

CMHC routinely does stress tests to estimate what could happen under various severe conditions, but chief executive Evan Siddall said the stress tests focus on what’s considered to be “plausible” scenarios.

“We did, back in January, look at a pandemic scenario that was not as severe as this,” Siddall said in a teleconference to discuss CMHC’s annual financial report for 2019.

“And I’m sure that you’d understand that the realm of plausibility has expanded significantly as a result of all the experience we’ve had.”

Siddall said the federal Crown corporation — which provides market analysis for housing-related industries, mortgage insurance for lenders and funding for public housing projects — is now revising its estimates on an expedited basis based on experience during the spring and summer.

He said preliminary figures indicate that about 10 per cent of homeowners across Canada have chosen to defer their mortgage payments, although the rate seems to be higher in parts of the country that rely heavily on the oil and gas industry.

“Tens of thousands of Canadians are having trouble meeting their mortgage commitments,” Siddall said.

Canadian Mortgage and Housing has given lenders the flexibility to extend mortgage deferrals by a further six months, he said, but the deferrals will mean that missed payments will be added to the total mortgage amount owing on terms determined by contractual agreement between lender and borrower.

CMHC chief economist Bob Dugan said that reliable forecasts are difficult to make because there are so many unknown variables, including how much income levels deteriorate because of unemployment, the timing of future immigration and how the construction industry responds.

“But for Canada and for Ontario, I think, the best case we’re looking at … house prices getting back to their pre-recession levels, at the earliest, by the end of 2022,” Dugan said.

The CMHC presentation came shortly after the release of April statistics for Canada’s largest real estate market.

The Toronto Regional Real Estate Board said April home prices in the Greater Toronto Area fell 11.8 per cent from March, when COVID-related shut-downs including open houses began to be put in place mid-month as Canada stepped up its fight to control the health impact of the coronavirus.

Prices for GTA renters were also down for the month, with the average one-bedroom rent falling 2.7 per cent to $2,107, and the average two-bedroom rent falling 4.1 per cent to $2,705 — still high in comparison with many Canadian cities.

On Monday, Greater Vancouver’s real estate board said its composite price benchmark index was up 0.2 per cent from March, but that the number of sales hit the lowest levels in nearly 40 years — 62.7 per cent below their 10-year average.

Other major cities will be releasing their local and regional figures ahead of a national tally to be published by the Canadian Real Estate Association onMay 15.

Siddall said that recent federal emergency legislation will ensure CMHC gets the financial resources it requires to perform its functions which, for the first time, include assisting small businesses through a rent-assistance program announced last month.

However, he said, CMHC had ended 2019 with a strong financial position and said it continues towards a 2030 goal of ensuring all Canadians can get the housing they need at affordable prices.

In the meantime, he said, it’s likely that both incomes and home prices will “sag.”

“And it’s how those move relative to each other that will define the gap between where we are now — post-crisis — and where we will be.”

This report by The Canadian Press was first published May 5, 2020.


The Top 7 Misconceptions About Reverse Mortgages

Mortgage Tips DAZADA DIAMOND 16 Apr

The Top 7 Misconceptions About Reverse Mortgages

How much do you really know about reverse mortgages? Maybe you know that reverse mortgages can help Canadians 55+ access the equity in their home, tax-free. Maybe you know that tens of thousands of Canadians are using a reverse mortgage as part of their financial plan. But did you know that there are 7 common misconceptions when it comes to understanding reverse mortgages in Canada. As Canada’s leading provider of reverse mortgages, HomeEquity Bank can help set the record straight.

  1. If you have a reverse mortgage, you no longer own your home

Nothing could be further from the truth. You always maintain title, ownership and control of your home – HomeEquity Bank simply has a first mortgage on the title.

  1. You will owe more than the value of your home in the end

Also, untrue. Every CHIP Reverse Mortgage from HomeEquity Bank comes with a No Negative Equity Guarantee(1) which states that as long as you – the homeowner – have met your obligations, the amount you will have to pay on the due date will not exceed the fair market value of your home. In fact, over 99% of HomeEquity Bank’s customers retain equity in their home when they decide to sell, with over 50% of the home’s value remaining after the loan is paid back (on average).

  1. Only people younger than 62 can apply for a reverse mortgage

In Canada, the CHIP Reverse Mortgage is available to Canadian homeowners aged 55 and older. In fact, as you age you are more likely to qualify for a higher amount on your loan. A reverse mortgage is a lifetime product and as long as the property taxes and insurance are in good standing, the property remains in good condition, and the homeowner is living in the home full-time, the loan won’t be called even if the house decreases in value.

  1. Failure to make payments can result in eviction

This myth is one of the most common when it comes to reverse mortgages. The CHIP Reverse Mortgage does not require any monthly payments, meaning you can’t miss payments in the first place.

  1. Arranging a reverse mortgage is very expensive

This is also untrue. Much like a conventional mortgage, an appraisal of your property and independent legal advice is required, and your responsibility to pay for. The only remaining cost is a one-off closing and administration fee. When you compare this to the costs of “rightsizing” to another home, you will find a much more affordable option in a reverse mortgage.

  1. Reverse mortgages have much higher interest rates than conventional mortgages

While it’s generally true that interest rates are a bit higher than a traditional mortgage, the difference is not excessive. Plus, making monthly mortgage payments is simply not a viable option for many retired Canadians, and – even if it were – many would struggle to qualify for a traditional mortgage in the first place. For these reasons, many retired Canadians are choosing reverse mortgages over conventional solutions.

  1. You won’t be able to pass on your home to your children

The idea that your children won’t be able to inherit your home is a complete myth. Your heirs will always have the option of keeping the property by paying off your reverse mortgage after you pass away. Plus, HomeEquity Bank’s No Negative Equity Guarantee, (1) states that if the home depreciates in value and the mortgage amount due is more than the gross proceeds from the sale of the property, HomeEquity Bank covers the difference between the sale price and the loan amount. Therefore, you will never owe more than the fair market value of the home.

To find out how much you could qualify for, try our reverse mortgage calculator, or contact your DLC Mortgage Broker.


Mortgage Lenders Provide COVID-19 Update – Part 1

Latest News & Economy DAZADA DIAMOND 7 Apr

Mortgage Lenders Provide COVID-19 Update – Part 1

In a recent panel discussion series hosted by Mortgage Professionals Canada, a cross-section of some of the country’s top lenders provided updates on how COVID-19 has impacted their operations and shaped their outlook.

The overwhelming message was one of positivity and resilience. Within a matter of days, many lenders smoothly transitioned to having thousands of employees work from home to ensure business continued “as usual” for their clients.

Here are some of the key takeaways from two of those panel discussions…

Operating in a ‘New World’

  • COVID-19 mortgage outlookJason Ellis, President and COO of First National: “In a very short period of time we have pivoted to an entirely work-from-home operation…our greatest challenge, as it is for probably all financial service providers, is the number of requests from concerned borrowers looking to defer their mortgage payments.”
  • Mark Aldridge, CEO of MCAP: “We have over 800 employees across the country working from home…I’m happy to say employees from underwriting, sales and all kinds of other MCAP employees have joined in with our call centre, so it’s all hands on deck” to work through the backlog of client requests.
  • Lysa Fitzgerald, VP of Sales at Manulife Bank: “We’ve got 12,000 employees across Manulife all working from home and that’s going extremely well for us.”

The Opportunity at Hand

  • Jared Morrison, COO of Alta West Capital: “As the experts in the mortgage space, more than ever it’s time [for brokers] to stand up and help your clients, provide that advice and be a calming influence on their lives. This is when they need it most. And as lenders in our space, we do have the flexibility to offer products that can help people right now,” Morrison said, noting their underwriters are working about double the normal volumes on deals that include debt consolidations, refinances and other restructuring of mortgages.
  • Michael LeBlanc, CEO of FCT: “From a technology and a support perspective, our people are working really hard, our systems have been performing excellently, and we hope, like you, that this doesn’t last too long and that we’re all able to weather the storm. As an industry, like everything else, these kinds of events actually allow us to come out on the other end stronger than we ever were before, and I think that’s a good opportunity here too.”

New Appraisal Techniques

  • Lysa Fitzgerald, VP of Sales at Manulife Bank: “First and foremost we want our appraisers to be safe, so we have to revisit some of our credit policies. We want to make sure that if an appraiser deems it an unsafe environment…that we have the ability to perform drive-by appraisals, so we will take those in lieu. If we cannot provide a drive-by appraisal, then we are, on exception basis, looking at desktop appraisals.”
  • the future of digital mortgages in canadaMark Aldridge, CEO of MCAP: Aldridge confirmed that MCAP and RMG have approved modified full appraisals, and now allows appraisers to rely on “virtual inspections completed by the customer by various means.”
  • Hali Noble, Senior VP, Residential Mortgage Investments & Broker Relations, Fisgard Asset Management: Noble confirmed they have approved modified approvals, which could include the use of video, but added they could revisit appraisals following the crisis. “Even though the money is already out and we’re already funding it, a couple of months from now we’re going to require an update to the appraisal” when the appraiser is able to enter the home, Noble said, “to see if everything is as the pictures showed, or maybe it isn’t, so we can act sooner rather than later.”

The Use of e-Signatures

  • Hali Noble, Senior VP, Residential Mortgage Investments & Broker Relations, Fisgard: “Just like the appraisers have done, our lawyers and legal teams across the country have made adjustments, and this might be a really good thing. They’ve had to take a look at all of their processes, and look at doing more online. I think there are some good things that will come out of this as far as signings and witnessing, etc.”
  • Mark Aldridge, CEO of MCAP: Aldridge confirmed MCAP is accepting e-signatures for purchases. “That’s something we already had up and running.”

If Employment Position Changed Since Initial Approval

  • mortgage payment relief announcedJason Ellis, President and COO of First National: “At this stage, First National is going to close mortgages as planned despite the fact that a borrower may have had a change in circumstances in the commitment period. Obviously, a difficult decision to make from a risk-management perspective, but from a social accountability perspective, we feel it’s the right thing to do right now.”
  • Mark Aldridge, CEO of MCAP: “Insurers came out with a collaborative approach to those who had their employment change, and we’re following that process for all insured and insurable loans. For uninsured loans, we are looking at those on a case-by-case basis and employing common sense.”
  • Ryan Lee, President and CEO of Three Point Capital: “We made an internal decision to not go back and pull commitments…The one thing we’re going to try and account for is to ensure people don’t close on this file in the next 30 days and then give us a call the following day to get on our payment deferral program. So, we’re having some conversations with the brokers and borrowers upfront.



Canadians are slowly growing their trust in alt lenders

Banks & Bank of Canada DAZADA DIAMOND 22 Jan

Canadians are slowly growing their trust in alt lenders

Canadians are slowly growing their trust in alt lendersCanada’s alternative lending industry has been growing steadily but there us still some way to go before it has trust levels that match traditional lenders.

A new study from online financing directory Smarter Loans shows that the industry continues to mature and approval from Canadian consumers in 2019 rose to 3.5 stars out of a possible 5, up from 3.2 stars in 2018.

Personal loan consumers prefer FinTech loan providers but according to the data, Canadians are still more likely to seek a mortgage or business loan from a traditional financial institution, such as a bank.

Almost 70% of respondents strongly agreed that they are well informed about lending options open to them and that online applications are fast and easy to complete. They also believe that borrowing from online lenders is safe and that their fees are transparent.

But 30% of consumers approached a traditional lender first, slightly more than in 2018. The same share of respondents said that they don’t feel the online borrowing experience felt entirely safe and want more transparency on fees and terms.

Most consumers consider between 3 and 9 lenders before making their decisions.


Don’t Fear the Digital Future of the Mortgage Industry

Latest News & Economy DAZADA DIAMOND 7 Jan

There’s no denying the mortgage industrylike many othersis in the midst of a digital transformation. Depending on your perspective, that’s something that can either be feared or embraced as a new opportunity.

The fear, of course, is that as the industry moves towards greater automation of the mortgage process, the jobs of brokers and underwriters would slowly start to disappear.

the future of digital mortgages in canada

It was a key topic of discussion at the 2019 Digital Mortgage Conference in Las Vegas, where industry experts suggested those fears are overstated, and for two key reasons.

First, while the development and integration of technology at major lenders has made giant strides in recent years, those on the front lines have been shockingly slow at adopting the tools made available to them (at least according to American data).

And secondly, even if the adoption rate of the newest technologies and automation was through the roof, speaker after speaker made the point that there will always be a need for good, old-fashioned human mortgage advice for a large segment of the population, particularly as increased government regulation increasingly complicates the mortgage process.

Lack of Adoption in the Mortgage Industry

Much progress has been made over the last few years in implementing the latest technologies and tools to create a more automated and efficient mortgage application process.

“Half of lenders have at least some sort of real-time pricing, product selection, bank data and online approval capabilities,” said Garth Graham, Senior Partner at STRATMOR Group, a leading U.S. mortgage industry advisory firm. He noted that’s up substantially from 20% just two years ago.

But the research also shows a flip side to these positive advancements. For example, just 6% of lenders have a high adoption of solutions that pre-fill data that the institution already has. And while 20% of U.S. lenders reported having an e-closing solution, the adoption rate is only 5%.

lack of digital technology adoption“The adoption is the struggle,” Graham said. “If your adoption is low, look in the mirror. Most blame vendors for low loan officer adoption, but banks need to commit to people, process and technology.”

He said lenders need to ask themselves, “Are the people trained? Are they properly motivated and do you hold them accountable? Have you redone your process or are you expecting the technology to do the same process over and over again?”

That’s not to say there’s not a problem on the front lines.

“We know it’s a challenge for lenders to get their loan officers to use technology,” said Jennifer Stevenson, Director of Consumer Engagement at Ellie Mae. Her colleague Matt Dowd, VP of Product Management, recounted an anecdote about one of his co-workers during her own mortgage application, where she had to take the initiative to ask her loan officer whether they had a more efficient way to transfer documents online other than by email.

“The loan officer said, ‘oh yeah, yeah, we have this consumer portal you can go to,’” Dowd recounted. “Here’s a person who had to proactively reach out to the loan officer and ask for the experience she was looking for, even though it was offered the whole time and she was just never made aware of it.”

Even though 93% of lenders have online portals for clients, only about a third of borrowers are using them. Given that 80% of consumers say they would use an online portal, “when it was offered,” the issue is clearly that they’re not being made aware of it during the application process.

The Canadian Experience

Those on this side of the border have a lot to take away from the current challenges being seen in the U.S.

“Mortgage brokerages and lending companies are struggling to get their staff/brokers to embrace and adopt change,” said Dong Lee, Chief Operating Officer of DLC Group of Companies, who attended the U.S. conference. “There’s been so much tech creation over the past few years, and adoption is really hampering the fruits of that investment.”

Asked what he sees as the most important technological improvement, Dong said it will involve offering clients the streamlined customer journey that they demand.

“They are going to compare what the customer experience is like in mortgages to other services/products and expect more,” he said. “For instance, emailing a mortgage document is going to be taboo with the heightened sensitivity to securing customer data. This wave is going to hit us, much like the sudden extinction of fax machines.”

digital mortgages in canada

Lee Noble, Vice President of Business Development at Lendesk, agrees, saying the adoption of improved technology is no longer optional.

“Much of the technology that was being toted as new is now being accepted as table stakes, with a focus on the underlying benefits of this technologychiefly being improved borrower experience and reduced origination costs through greater efficiencies,” he said.

“I think we will continue to see more innovation involving different stakeholders in the mortgage transaction, engaging solicitors and realtors.”

Kevin Dear, VP of Broker Experience at Newton Connectivity Systems, agreed, saying that at the end of the day the goal is “how to take that friction out of the mortgage experience, both for the agents and the clients.” That includes automation in all aspects of the process, including appraisals.

“I think that’s really where we’re going to be heading in Canada as well,” he said. “Improving client journeys and client experiences upfront through technology, but being able to automatically validate things like client and property information, again so the quality of data that’s in that application for the underwriter is more refined, so they’re not having to spend that first hour cleaning up an application.”

A 100% Digital Mortgage Application is Still Far Off

Which brings us back to why the increasing digitization of mortgages shouldn’t be feared. The argument is that the increased implementation of technology is meant to assist and complement mortgage professionals, rather than replace them.

The goal isn’t to turn this into a “self-service world,” says Tom Wind, EVP, Consumer Lending at U.S. Bank.

“What we want to turn this into is a digitally enabled world where we take a lot of the drudgery out of the process and then allow our team to really focus on talking to customers about what are their needs,” he said.

He noted that just a couple of years ago, most of his employees’ time was spent on gathering documents. “Now less time is spent on that so we can spend time on meaningful things, like helping people figure out how can they achieve their goals.”

Rakesh Sheth, EVP, Home Lending Business Insight and Digital Strategy at Wells Fargo, echoed those sentiments.

“I want to emphasize the point that human advice is so critical,” he said. “Not for everyone, of course. There are some that will feel very comfortable [completing the mortgage process completely online], but for many, they would like to do things in a fashion where they get advice from someone.”

room for traditional mortgage brokers in a digital futureIs the digital age of mortgages upon us? Of course. Does that mean the loss of the industry’s existing players?

Of course not, according to Mark Burrage, Head of Mortgage Digital Experience at USAA.

“It can be seen as a job threat, in that a digital application is replacing employees’ jobs,” he said. “But it’s actually an enhancement to their experience. You have to make sure that messaging is very solid, because—quite frankly, and this is coming from someone who runs a digital lending bank—we’re a long way away from a fully digital mortgage.”

Burrage said it’s important to highlight to mortgage industry employees how the technology will “enhance their overall experience and create efficiencies,” what he calls the “what’s-in-it-for-me factor.”

For that reason, industry professionals should be excited about the benefits a more digitized and automated industry can offer.

“It’s an exciting time in the space,” said Dear. “Now it’s about how can we make the end-to-end experience more frictionless for both the client and the agents by creating more systems that just collaborate with each other or are an all-in-one type of product.”

It’s just a question of how well these systems can be adopted.



Payment Frequency

Down Payment & Buying DAZADA DIAMOND 21 Nov

Payment Frequency

One of the decisions you will need to make before your new mortgage is set up, is what kind of payment frequency you would like to have. For many, sticking to a monthly payment is the default, however, different frequencies may end up saving you less interest over time.

Monthly Payments

Monthly payments are exactly as they sound, one payment every month until the maturity date of you mortgage at the end of your term. Took a 3-year term? You will make 36 payments (12 payments a year) and then you will need to renegotiate your interest rate. 5-year term? You will make 60 payments.

$500,000 mortgage

3% interest rate

5-year term

$2,366.23 monthly payment


$427,372.90 remaining over 20 years

$69,346.70 paid to interest

$72,627.01 paid to principal


Semi Monthly

Semi-monthly is not bi-weekly. Semi monthly is your monthly payment divided by two. That means, you are making 24 payments every year, but each payment is slightly less than half of what the monthly payment would of been.

$500,000 mortgage

3% interest rate

5-year term

$1,182.38 semi monthly payment


$427,372.99 remaining over 20 years

$69,258.59 paid to interest

$72,627.01 paid to principal



Bi-weekly, you are not making 2 payments every month. With 52 weeks in a year, you are actually making 26 payments, 2 more than semi-monthly (2 months a year you make 3 bi-weekly payments). The interest paid and balance owing are slightly less than the others, but mere cents. You will still need to make payments for another 20 years.

$500,000 mortgage

3% interest rate

5-year term

$1,091.38 bi-weekly payment


$427,372.36 remaining over 20 years

$69,251.76 paid to interest

$72,627.64 paid to principal


Accelerated Bi-Weekly

Just like regular bi-weekly, you are not making 2 payments every month. With 52 weeks in a year, you are actually making 26 payments, 2 more than semi-monthly. However because this is accelerated, the payment amount is higher.

$500,000 mortgage

3% interest rate

5-year term

$1,183.11 accelerated bi-weekly payment


$414,521.40 remaining over 17 years 4 months

$68,325.70 paid to interest

$85,478.60 paid to principal


You have increased your yearly payment amount by $2,384.98, $11,924.90 over 5-years. That extra $11,924.90 has decreased your outstanding balance at the end of your mortgage term by $12,850.96 because more of your payments went to principal and less went to interest. Also, you will now have your mortgage paid off more than 2.5 years earlier.

The same option is available for accelerated weekly payments which will shave another month off of time required to pay back the whole loan as well. If you can afford to go accelerated, your best option is to do so! Especially in the early years where a larger portion of your payments are going towards interest, not paying down your principal.

If you have any more questions, please do not hesitate to reach out to a Dominion Lending Centres mortgage professional near you.


Principal & Interest

Credit & Debt DAZADA DIAMOND 20 Nov

Principal & Interest

Principal and interest are the two components that make up a mortgage payment. Principal is the portion of your payment that goes towards paying down the outstanding balance of your mortgage. Interest is the other portion of your payment which goes directly into the pockets of your lender and does not contribute to paying down your mortgage balance.

What some people may not realize is that a compounding interest rate (what the majority of all mortgages are) is weighted differently depending on how many years you have left on your mortgage.

If a young couple were to purchase their very first home, lets say $500,000 for example, and they had a $100,000 down payment, their mortgage would be $400,000. If they had today’s interest rates, their mortgage would be around 3%, compounded semi-annually, over 25 years with their interest rate re-negotiable every 5-years if they keep the same term. Assuming they were able to get 3% for the entire 25-years, their monthly payments would be $1,892.98 a month for the life of their mortgage.

Their first payment however is not $1,892.98, with 97% of it going to paying down the $400,000 balance and 3% going towards interest. The very first payment would actually be broken down as $993.81 of interest and $899.17 going towards paying down the principal balance of $400,000.

Now, it wont stay like this forever, the very last payment before the first 5-year term is up would be broken down as $854.62 going towards interest and $1,038.36 of the $1,892.98 going towards paying down the principal. It wouldn’t be until year 10 where the interest portion dips below $500.

If you can, any pre-payments you make each month will directly pay down the principal balance outstanding. This will also in turn, allow for less interest to be charged as interest is always calculated based on the current balance outstanding. In the later years, it may not be as advantageous, but in the first 5-10 years, it can be extremely beneficial.

If you want to see the break down of principal and interest portions inside your own mortgage, feel free to reach out to a Dominion Lending Centres mortgage professional near you.


When it comes to mortgage break penalties, big banks are often the worst

Banks & Bank of Canada DAZADA DIAMOND 18 Nov

Committing to a mortgage for five long years exposes people to the most insidious aspect of residential financing: prepayment charges.

And when it comes to such charges – the penalties you pay come when you back out of your mortgage early – some lenders take a greater toll on your bank balance than others.

Big banks are usually the worst. Mortgage finance companies are often the best.

And these bank competitors want you to know it. More and more, smaller lenders are using their preferential penalty calculations as a selling point, as well they should.

This year I’ve seen lenders such as Equitable Bank, Manulife Bank of Canada, XMC Mortgage Corp., Merix Financial, CMLS Financial Ltd., RFA Mortgage Corp., First National Financial LP, and MCAP all go out of their way to step up marketing and educate consumers on how bad penalties from major banks can be. (Mind you, a few of these lenders also have “no-frills” mortgages with high penalties – for example, 3 per cent of principal. So watch out for those.

What is a ‘fair-penalty lender?’

A fair-penalty lender calculates its standard prepayment charges, for lack of a better word, “fairly.”

It does so by comparing your actual mortgage rate to a rate equal to (or close to) what it charges new customers for a time frame similar to your remaining term.

Unlike Big Six banks, fair-penalty lenders don’t use arbitrarily inflated rates (“posted rates”) in their calculations. That only serves to drive up penalties.

So why doesn’t everyone get a mortgage with a fair penalty lender?

Well, because most people are conditioned to pay more for big bank financing. Among other things, they trust the brand, like the convenience or like knowing they can walk into a branch to talk to someone if there’s ever a problem (although, for most people, mortgage problems after closing aren’t too common). And the cost of that convenience is steep.

A simple example

Suppose you’re a major bank customer with a regular 3.19 per cent $300,000 five-year fixed mortgage that you got one year ago.

Now imagine you:

  • Need to consolidate debt into your mortgage;
  • Just found a new job in a different city and must sell and rent;
  • Want to break and renegotiate to a lower rate;
  • Have to break the loan early for some other reason – maybe because of a loss of income, divorce, inability to get a fair rate from your bank on a “port and increase” (that’s where you move your mortgage to a new property and increase the loan size), or inability to qualify for a port.

In these scenarios, one popular bank would charge you an interest rate differential (IRD) penalty of roughly $16,800 to exit your existing mortgage.

Compare that with just three months’ interest (about $2,400) at a “fair penalty lender.”

To put that another way, the extra $14,400 you’d fork over to the “less fair” lender would be like paying an 8.19-per-cent interest rate versus the 3.19 per cent. That’s astronomical. These days, determined mortgage shoppers do backflips to save even a 10th of a percentage point off their rate, let alone five whole points.

Ways around penalties

Some big banks are kinder than others when it comes to helping you avoid prepayment pain. The better ones let you add money to your mortgage without penalty, offer early renewal options and have flexible portability rules.

But more often than not, you can find a similar mortgage from a fair-penalty lender for a comparable price or better – without the penalty shackles.

If you’re dead-set on a big-bank mortgage and want to lower your exposure to heinous fixed-rate penalties, consider a short-term fixed or variable rate instead – if it’s suitable for you. By suitable, I mean you have a tolerance for potentially higher rates sooner than five years and you have no problems getting approved for a mortgage.

These days, with so many people taking fixed rates because they’re cheaper than variable rates, banks stand to make a killing on prepayment charges. That’ll be especially true if recession hits and rates fall further. We come across people almost every week who’d love to refinance at today’s lower rates, but they can’t because their bank penalty is too harsh.

The time has come to heed this lesson as borrowers. Big-bank IRD penalties clearly overcompensate banks for the legitimate expenses they incur when a customer backs out of a mortgage early. The more that people demand fair penalties, the more pressure it’ll put on Canada’s six biggest lenders to change their method


5 ways you could use a CHIP Reverse Mortgage

Mortgage Tips DAZADA DIAMOND 30 Oct

5 ways you could use a CHIP Reverse Mortgage

Reverse mortgages are continuing to grow as a retirement solution for Canadians 55+. Homeowners 55+ are unlocking their home equity for tax-free funds that improve their cashflow and pay-off higher interest loans. Consider your own financial needs. Do any of these 5 common scenarios sound familiar?

1) You have missed a payment/made a late payment.
Credit card payments can become a vicious cycle; you make monthly interest payments and elongate the process of chipping away at that debt. Alleviate the stress of credit card debt by consolidating smaller loans with a reverse mortgage at a much lower interest rate. By consolidating your debt with a reverse mortgage, you can eliminate the stress of having to make monthly payments towards your loan and in turn, free up your monthly income.

2) You have asked to skip a payment or are accessing your investments earlier than you’d like.
If your debt has led to missing payments or touching your RRIF or retirement accounts, consider using a reverse mortgage to unlock up to 55% of your home equity. This way you can pay off debts while your investments keep working for you.

3) You want to start crossing things off your bucket list, yet can’t afford to.
Maybe your dream is to purchase a second home like a cottage, take a vacation, or even just dine out or attend the theatre regularly. A reverse mortgage can improve your retirement lifestyle by supplementing your monthly income without affecting your OAS and pension.

4) You want to financially assist your aging parents/kids/grandkids.
As the sandwich generation, you’re caring both for kids and aging parents. That can place huge financial stress on a household. A reverse mortgage can give both you and your aging parents financial independence and the ability to help your kids/grandkids pay for their education or even assist with a down payment for their home.

5) You are facing unexpected expenses.
Maybe it’s a leaky roof or a flood in your basement. Or you might have to renovate your home, allowing you to stay in your home long term. A reverse mortgage gives you quick access funds to pay for unplanned expenses without worrying about making any payments until you move or decide to sell your home.

If any of the above examples resonate with you, the CHIP Reverse Mortgage from HomeEquity Bank could be a great solution. Choose to receive funds as a lump sum or a monthly advance, depending on your needs. Your DLC Mortgage Broker can tell you more!