Mortgage Advice

[Nufy]

This is real estate in Newfoundland...

Can't you just pay cash for your house with 11,000.00 ??????

[Peanut]

Beware the penalty fees with RBC, as I mentioned before.

But I doubt you can really go wrong with 3.75% over 5 years. And the 10% per year lump sum and the ability to do double-up payments does add up to a lot of accelerated payments/savings if you want to do that. We're with RBC on a fixed plan and *generally* happy with it, if that helps at all.

[MJK]

Originally Posted by Nufy

This is real estate in Newfoundland...

Can't you just pay cash for your house with 11,000.00 ??????

I'll just use that to buy me shack.

[MJK]

Originally Posted by Peanut

Beware the penalty fees with RBC, as I mentioned before.

But I doubt you can really go wrong with 3.75% over 5 years. And the 10% per year lump sum and the ability to do double-up payments does add up to a lot of accelerated payments/savings if you want to do that. We're with RBC on a fixed plan and *generally* happy with it, if that helps at all.

Ok so I guess the question is this:

Do I do a fixed rate, biweekly accelerated and pay the penalties

OR

Do I make it a variable rate biweekly accelerated and take my chances on interest rates?

[MJK]

I am also being offered life insurance and all that jazz with this as well. Do I want this through the RBC?

[prarieboy]

Originally Posted by MJK

This is with the RBC bank.

Basically from what I understand I would be making bi-weekly payments but I have the option to put down a 10% lump sum every year on the anniversary of the loan and on top of that I can double up my bi weekly payments if I chose to do so. Here is an e-mail he wrote me.

" You can do open variable 5 year term, presently at prime (2.5) plus 1 per cent or 3.25 today. No limits on pre payments. It is variable and if the prime stays low over the next 2 years or so (if we are still in the recession, it will stay low...but it could go up. With 5 year fixed at 3.75 you can pre pay with penalty by paying biweekly accelerated, 10 per cent each year, double up payments. Overall if all 3 are done you would pay 25 percent and have a great rate fixed!"

Thoughts?

I think your banker made a typo here.

With my fixed mortgage at Royal Bank I can pay without penalty 10 percent per year and double up each payment. I am on the Bi-weekly accelerated plan.

Maybe they spell without differently in Newfoundland, I don't know.

[Mike Oxlong]

Originally Posted by MJK

This is with the RBC bank.

Basically from what I understand I would be making bi-weekly payments but I have the option to put down a 10% lump sum every year on the anniversary of the loan and on top of that I can double up my bi weekly payments if I chose to do so. Here is an e-mail he wrote me.

" You can do open variable 5 year term, presently at prime (2.5) plus 1 per cent or 3.25 today. No limits on pre payments. It is variable and if the prime stays low over the next 2 years or so (if we are still in the recession, it will stay low...but it could go up. With 5 year fixed at 3.75 you can pre pay with penalty by paying biweekly accelerated, 10 per cent each year, double up payments. Overall if all 3 are done you would pay 25 percent and have a great rate fixed!"

Thoughts?

The open mortgage isn't a bad option either. There are zero penalties associated with this type of mortgage so you can pay it off as fast as you want, if you end up selling the house in 3 years there are no penalties to pay out the mortgage either.

It kind of depends on your situation. If you think you are going to be in that house or hold on to it long term then I would likey just go with the 3.75% fixed rate, unless you anticipate putting down more than 10% a year on lump sum payments. In that case you might want to look at other options.

I would go with fixed over a variable rate right now. Variable rates are likely going to stay low until approx June of next year. However when they start to climb and you want to lock in to a fixed I am pretty confident you won't be able to get anywhere near 3.75%. Not to mention you would be paying Prime PLUS on the variable which isn't ideal when rates do start to climb.

It all comes down to your comfort level. If you want to know what your payments are going to be for the next 5 years then take a fixed and know that you have a fantastic rate locked in for the term.

If you want to take advantage of REALLY low variable rates now and will take the risk of them rising in a year or so then go variable.

And if you anticipate having boatloads of cash to throw down on the mortgage, or think you might sell it in a few years, then take the open .

[Peanut]

Hmm, now that I re-read your post I'm not sure what "penalties" they are talking to you about on the accelerated plan? We are on the accelerated plan and there are no penalties to be on the accelerated plan or to make double up payments... that I know of? Maybe I'm confused? In our case, the big penalty was going to come from switching from a 5.1% rate to a 3.75% rate... they make you pay the difference between the two rates that they would have made off of you on the remaining term. So for us it would've been $15,000+. Hope I'm explaining that right.

My broker recently told me that she doesn't think the interest rate would be changing for at least a year... but that's just her opinion I guess, fwiw. You could chance it on the variable and always lock in at a later date if it looks like rates would be going up.

I'd recommend getting your own life and disability insurance. From what I can tell, the RBC insurance is not a good deal and if anything were to happen, the life insurance $$ goes to them directly (not your spouse or dependents or whatever). So if you go get your own insurance you can:
a) get more insurance for the same price (that's what I've found)
b) your beneficiaries get the insurance money directly and they decide if they want to use it to pay off the mortgage or not (maybe they prefer to sell the home and use the insurance money for something else, for example). So having your own insurance offers a bit more flexibility in that regard.
c) When we moved, we had to re-qualify for RBC insurance even though we ported the same mortgage. So if a health issue had come up between the time we first qualified and the time we moved, we would've had a hard time getting insured (more premiums I guess). So with your own insurance you can always move and not worry about it.

I'm not an expert by any means, but that's what I've learned over the past couple years with my home-buying, mortgage and insurance experiences.

[prarieboy]

^^^^

All you need to know right there.

Too Late... I meant Mike's post. Peanuts is really good too though.

[Peanut]

Originally Posted by fotze

Post exactly the final borrowed amnount and we can figure out the exact numbers. This is the question everyone struggles with. Fixed with certainty or variable with probable riches.

10% seems like crap though, never heard of that low before and mine is on the low end. Call him on this. You would be suprised how much you can negotiate. Get a quote from Oxlong to keep them honest, and if you bank with Royal bank you can be sure they can do more for you and are hoping you weren't smart enough to shop around for better rates.

We definitely have this.

[MoneyGuy]

Originally Posted by MJK

I am also being offered life insurance and all that jazz with this as well. Do I want this through the RBC?

No, no, no. Use personal-owned life and disability insurance instead. Do yourself a favour and look at this piece done by CBC Marketplace on mortgage insurance: - http://www.cbc.ca/marketplace/in_denial/

If you want to save some time, my word for it: MOrtgage insurance is not good. Contact a good insurance broker for life and disability.

There has been some great advice here, but also some wrong info. Use a mortgage broker. Don't just walk into a bank. Congrats on the house; good decision.

[MJK]

My situation is this:

House is $210,000

I will be in the North 2 more years and will want to pay off as much as possible in those two years before I head back to NL and have my salary cut in half.

Also thanks for all the advice everyone, I have learned a ton already.

[MJK]

This is what I just got in response to penalty.

there is no penalty with the 3 options outlined below. The only penalty you would incur would be a 3 month interest charge if you paid the full amount within the 5 year FIXED term. If you decided on the 5 year VARIABLE term, there is no penalty charges what so ever. paying bi-weekly, up to double payment and up to 10% lump sum per year, there is no charges. Only if it's paid in full under a fixed term

[Slava]

Originally Posted by MoneyGuy

No, no, no. Use personal-owned life and disability insurance instead. Do yourself a favour and look at this piece done by CBC Marketplace on mortgage insurance: - http://www.cbc.ca/marketplace/in_denial/

If you want to save some time, my word for it: MOrtgage insurance is not good. Contact a good insurance broker for life and disability.

There has been some great advice here, but also some wrong info. Use a mortgage broker. Don't just walk into a bank. Congrats on the house; good decision.

What he said. Mortgage insurance is just a bad deal plain and simple. If you are going to pay that mortgage down fast it makes even less sense. Buy your own policy from a broker and rest easy knowing that your covered without paying too much as you go along.

[Mike Oxlong]

Originally Posted by MJK

This is what I just got in response to penalty.

there is no penalty with the 3 options outlined below. The only penalty you would incur would be a 3 month interest charge if you paid the full amount within the 5 year FIXED term. If you decided on the 5 year VARIABLE term, there is no penalty charges what so ever. paying bi-weekly, up to double payment and up to 10% lump sum per year, there is no charges. Only if it's paid in full under a fixed term

No penalty charges on the OPEN variable rate. There will be penalties with the closed variable rate.

They can offer you a better rate than 3.75% as well. Try to do a little negotiating with them. Or like others have said get a broker to do all the leg work for you.

[ken0042]

Originally Posted by MJK

I will be in the North 2 more years and will want to pay off as much as possible in those two years before I head back to NL and have my salary cut in half.

Assuming interest rates aren't going to up in that time, I would look at a 2 year term, then go from there. The reason being you can have your 2 year term now and make your silly payments, then when your salary drops you can also re-adjust your mortgage to a payment amount that suits your lifestyle better.

For example, let's say your payments now are $1000/ month and you put $1200 on to pay it down quicker. Then in 2 years you can re-do the mortgage making the minimum $800 per month.

Also, even though I get paid by-weekly my mortgage is semi-monthly. Just because I like have 2 paydays per year with no mortgage payment coming off them.

[Peanut]

Yeah, our penalty wording on the fixed was something along the lines of: the GREATER of the 3 months interest or the difference of interest remaining on the term between your rate and current interest rates (including whatever discount they may have applied to your rate).

It basically worked out such that if you want out, RBC bends you over no matter what. Rates go up - you owe them 3 months interest. Rates go down - you're probably in even worse shape, penalty-wise.

Edit: As fotze said, they're not mentioning the interest differential penalty and that's the one that can be brutal.

[albertGQ]

I wanted to refinance my mortgage but the penalty was over $12k. I had to do a blend and still ended up with a 4.77% rate for another five years

I'm still fuming over it

[MoneyGuy]

Originally Posted by Slava

What he said. Mortgage insurance is just a bad deal plain and simple. If you are going to pay that mortgage down fast it makes even less sense. Buy your own policy from a broker and rest easy knowing that your covered without paying too much as you go along.

Ha, I know that both Slava and I have had people on this site buy real insurance from us.

BTW, I sent one of my clients to a mortgage broker a couple of years ago. When we met a few months ago I asked how it went and they told me they had made a mistake. They had taken a 10-year amort. I almost fell out of my chair. When I asked, they admitted that the broker has advised strongly against this. I told them they should have taken his advice. They know this and deeply regret taking the 10-year amortization because rates have fallen and they desperately wanted it out but the costs were well over $10K. It was HER idea to go 10 years, not his. Crap!

[MoneyGuy]

Originally Posted by MJK

Ok so I guess the question is this:

Do I do a fixed rate, biweekly accelerated and pay the penalties

OR

Do I make it a variable rate biweekly accelerated and take my chances on interest rates?

Nothing against the folks here, but do this: Hook up with a good broker like Mike on this site and ask him/her your questions. they're the experts on this stuff; the rest of us are either just guessing or making educated guesses. I know the brokers are also, but they work with this stuff every day.