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Old 05-21-2009, 06:14 PM   #41
Deegee
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The thing is that when you agree to a fixed rate, you are assuming some risk that interest rates could down, and the financial institution is assuming some risk that interest rates could rise.

If you locked in a term deposit or a GIC a year ago at 5.05%, how would you feel is your financial institution phoned you and told you that you will have to only gain 2.00% now? You'd probably be pretty pissed off.
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Old 05-21-2009, 06:37 PM   #42
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Just a quick note on penalties...

The email saying you would only be charged if you paid out the full amount under the closed fixed before the end of term isn't right either. If you want to pay off anything more than the lump sum percentage that the bank allows (be it 10,15,20, or 25 percent) they will charge you a penalty on the excess even if you aren't paying off the whole thing. That's not usually a problem as most people paying off more than the privilege amount are paying off the whole thing but not always. Also, I believe that one lender actually combines the double payment option with the lump sum option so that if you are making double payments it is eating up your privilege room for a lump sum.

One final point about the email re RBC privileges. I believe you said it was only on the anniversary of the mortgage. As far as I know that is wrong. RBC allows multiple prepayments in the mortgage year (as opposed to calendar year) as long as they don't total more than 10 percent of the original principal balance, each prepayment is no less than $500, and is made on a regular payment date. Only a couple of lenders make you save it up all year to pay out once. You're much better off putting an extra 500 a month rather than waiting to put down 6000 at the end of your mortgage year.
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Last edited by onetwo_threefour; 05-21-2009 at 06:48 PM.
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Old 05-21-2009, 07:00 PM   #43
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Originally Posted by Deegee View Post
The thing is that when you agree to a fixed rate, you are assuming some risk that interest rates could down, and the financial institution is assuming some risk that interest rates could rise.

If you locked in a term deposit or a GIC a year ago at 5.05%, how would you feel is your financial institution phoned you and told you that you will have to only gain 2.00% now? You'd probably be pretty pissed off.
Ah but like any good gambling house the bank makes sure the odds are in their favour by scaling the rates differently for different terms so that longer terms that put the bank at more risk of losing out on increases have higher rates and the penalty completely offsets the loss of a borrower who jumps ship halfway through the term if rates drop. So the bank doesn't take much risk at all in that sense. The borrower takes all the risk on that side of the equation.
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Old 05-21-2009, 07:06 PM   #44
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Here si the latest e-mail regarding the best rates he can give me:

5 year fixed 3.75%, 3.65% 3 year fixed, 3.55% 2 year fixed, 3.25% 5 year open variable, 3.05% 5 year variable closed
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Old 05-21-2009, 07:07 PM   #45
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Ah but like any good gambling house the bank makes sure the odds are in their favour by scaling the rates differently for different terms so that longer terms that put the bank at more risk of losing out on increases have higher rates and the penalty completely offsets the loss of a borrower who jumps ship halfway through the term if rates drop. So the bank doesn't take much risk at all in that sense. The borrower takes all the risk on that side of the equation.
Yeah, the bank is never setting anything up to actually help the client more than themselves. I find that a good mantra to keep in mind during their spiels.

As a side note... I JUST got the meaning of your username right now.
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Old 05-21-2009, 07:12 PM   #46
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Yeah, the bank is never setting anything up to actually help the client more than themselves. I find that a good mantra to keep in mind during their spiels.

As a side note... I JUST got the meaning of your username right now.
Then maybe you'll let me know what it means? As a side thought, I hate banks. They do many things poorly. There are so many options now that we can pretty well cut them out of our lives.
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Old 05-21-2009, 07:15 PM   #47
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I would politely suggest that locking in at a fixed rate for 5 years is not something your financial institution (FI) would like to see with the current going rates. They would be much happier with everyone going with 2-3 year rates so that when renewals come due their margins will increase.

A 5 year fixed rate in a couple of years (or even one depending on who you ask) should Term Deposit rates head north again will have the FI lending out at rates lower then what they are handing out.

As a business they will definately put things in their favour by adding stiff prepayment penalty clauses.
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Old 05-21-2009, 07:32 PM   #48
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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!
I think that you mean a 10 year fixed rate, and not just 10 year amortization here?

The good news is that anything over 5 years is not subject to Interest Rate Differential so that might help keep the penalties down somewhat...
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Old 05-21-2009, 08:22 PM   #49
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Really?

That's a new one on me. You could be right. Of the probably 10000 mortgages I've done, maybe 20 of them have been for a term longer than 5 years. I don't know that all lenders would give up on the differential penalty for a 5+ year term. What's in it for them? I'm not aware of any legislation that would stop them from charging it either.
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Old 05-21-2009, 08:32 PM   #50
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Then maybe you'll let me know what it means?
Since you're an Oilers fan you might need a bit more help than most. :P

Look at my user name, my avatar, and my signature and you should be able to figure it out. If not, try thinking of something the Oilers haven't had since the 80's.
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Old 05-21-2009, 08:45 PM   #51
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Here si the latest e-mail regarding the best rates he can give me:

5 year fixed 3.75%, 3.65% 3 year fixed, 3.55% 2 year fixed, 3.25% 5 year open variable, 3.05% 5 year variable closed


Cross check the rates at this site : http://www.canadianbusiness.com/my_m...gage/index.jsp
This gives you a general idea which lending institution has the lower rates
that you can usually get talked down even further. Also I have yet to meet a mortgage broker that works with RBC so it might be worthwhile to contact a RBC mortgage broker direct to make sure that you have a comprehensive look at things. You will notice that the posted rates are just the starting point and there is room to negotiate lower with most of these lenders. You couldn't have picked a better time to negotiate a mortgage as long as you don't mind filling out a lot of paper work.
Also get the mortgage life insurance seperately as pointed out here and don't forget to get disability coverage as this is often overlooked.
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Old 05-21-2009, 08:45 PM   #52
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- try and put down 25 percent of the mortgage when you buy. It saves you paying the Canadian Mortgage Insurance (which is an additional charge on top of your mortgage for insurance).
Actually, it's only 20% dp to avoid mortgage insurance now. Variable is still currently a popular product prime +.80 currently and 5 year fixed also dominates and where you'll find the deepest discount. I really don't see rates going down much lower, so if you want stability, I would go with 5 yr. Otherwise, you could gamble with a variable.
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Old 05-21-2009, 09:18 PM   #53
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Here's an idea to keep CMHC insurance costs down. It doesn't work for everyone, but it may help you. First, this is what CMHC insurance is all about.

Unless you have a a sufficient down payment, you’ll have to pay CMHC insurance fees. This is insurance for the lender.

CMHC fees are calculated on a sliding scale based on the down payment and amortization period. On a 5% down purchase CMHC fees are 2.75% of the mortgage amount on an amortization period of 25 years or less. For a 30-year amortization add 20 basis points and for a 35-year amortization add another 20 basis points. So for a new home buyer where qualifying is tight they typically will pay 3.15% of the mortgage amount which is added on to the mortgage total.

For 10% down the fee is 2% with the same additions for an amortization over 25 years. For a 15% down mortgage the fee is 1.75% with the same additions of an amortization over 25 years. If you put 20% down you do not require CMHC fees or typically the lender will pick them up on your behalf. Your goal should be to have a 20% down payment, if possible. This isn't feasible for a lot first-time homebuyers, of course, so then fees will apply.

On a typical home purchase of $350,000 with 5% down and an amortization period of 35 years, the fees are $10,473. This fee protects the lender, not the buyer. A strong consideration should be given to avoiding the fee.

Here is an idea that may help to reduce or avoid the CMHC fees entirely. Whether this works for a particular individual will depend largely on personal situation, including incomes, debts and other savings.

Take out a line of credit and borrow cash on it. Put the cash into your savings account and don't touch it for 90 days. Once it's there for 90 days it's considered by lenders to be your savings and can be used to boost your down payment. The best way to see if this works for you is to consult a mortgage broker. I suppose first-time buyers could also hit up parents for a loan or gift.
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Old 05-21-2009, 09:30 PM   #54
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Here's an idea to keep CMHC insurance costs down. It doesn't work for everyone, but it may help you. First, this is what CMHC insurance is all about.

Unless you have a a sufficient down payment, you’ll have to pay CMHC insurance fees. This is insurance for the lender.

CMHC fees are calculated on a sliding scale based on the down payment and amortization period. On a 5% down purchase CMHC fees are 2.75% of the mortgage amount on an amortization period of 25 years or less. For a 30-year amortization add 20 basis points and for a 35-year amortization add another 20 basis points. So for a new home buyer where qualifying is tight they typically will pay 3.15% of the mortgage amount which is added on to the mortgage total.

For 10% down the fee is 2% with the same additions for an amortization over 25 years. For a 15% down mortgage the fee is 1.75% with the same additions of an amortization over 25 years. If you put 20% down you do not require CMHC fees or typically the lender will pick them up on your behalf. Your goal should be to have a 20% down payment, if possible. This isn't feasible for a lot first-time homebuyers, of course, so then fees will apply.

On a typical home purchase of $350,000 with 5% down and an amortization period of 35 years, the fees are $10,473. This fee protects the lender, not the buyer. A strong consideration should be given to avoiding the fee.

Here is an idea that may help to reduce or avoid the CMHC fees entirely. Whether this works for a particular individual will depend largely on personal situation, including incomes, debts and other savings.

Take out a line of credit and borrow cash on it. Put the cash into your savings account and don't touch it for 90 days. Once it's there for 90 days it's considered by lenders to be your savings and can be used to boost your down payment. The best way to see if this works for you is to consult a mortgage broker. I suppose first-time buyers could also hit up parents for a loan or gift.
You were going so well up to the end, I WA going to thank your post. But there's a fatal flaw there, every lender I deal with will have a condition that the down payment is not borrowed. A gift from your parents is fine, a loan is not.
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Old 05-21-2009, 09:31 PM   #55
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Here si the latest e-mail regarding the best rates he can give me:

5 year fixed 3.75%, 3.65% 3 year fixed, 3.55% 2 year fixed, 3.25% 5 year open variable, 3.05% 5 year variable closed
We are in the process of renewing our mortgage at the moment...

The difference in interest paid on a $175,000 mortgage over a 5 year period is less than $2,000 for .5 of a percent on the interest rate...

For us it wasn't even a question about what terms we went with...5 year fixed...Mike Oxlong did an awesome job and got us a great rate...spend some time talking to him.
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Old 05-21-2009, 09:43 PM   #56
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Really?

That's a new one on me. You could be right. Of the probably 10000 mortgages I've done, maybe 20 of them have been for a term longer than 5 years. I don't know that all lenders would give up on the differential penalty for a 5+ year term. What's in it for them? I'm not aware of any legislation that would stop them from charging it either.
Actually there is nothing in it for them, and surely they would never give it up. There is legislation in the banking act that prevents this.
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Old 05-21-2009, 09:57 PM   #57
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You were going so well up to the end, I WA going to thank your post. But there's a fatal flaw there, every lender I deal with will have a condition that the down payment is not borrowed. A gift from your parents is fine, a loan is not.
Alot of lenders will ask for three months bank statements to confirm that you've had the money for that long. If you do, then they consider it "savings". You can even be sneaky and put it in a GIC. Print a snapshot of all your holdings with the bank (accounts, loans, investments, etc). These snapshots typically don't have the date the GIC was purchased, so most of the time, you're good to go
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Old 05-21-2009, 10:06 PM   #58
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You were going so well up to the end, I WA going to thank your post. But there's a fatal flaw there, every lender I deal with will have a condition that the down payment is not borrowed. A gift from your parents is fine, a loan is not.
Well, thank away. You can do this. I have clients who have done it.
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Old 05-22-2009, 12:49 AM   #59
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With the lender's approval?


(our firm always gets clients to sign a statutory declaration to the effect that the down payment funds are from the client's own resources and are not borrowed)
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Old 05-22-2009, 09:37 AM   #60
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With the lender's approval?

(our firm always gets clients to sign a statutory declaration to the effect that the down payment funds are from the client's own resources and are not borrowed)
Yes. Most places require that funds be in your hands for a certain period of time, after which it's considered to be your funds, regardless of source.

You're confusing one company's requirements for industry requirements.
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