Mortgage Calgary

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When people take out a five year mortgage the last thing they think about is paying it out before the five years are up. Very often that is exactly what happens. Not because they suddenly become independently wealthy by winning the lottery, but because they move. Our society is much more mobile than generations past.

A mortgage is a contract with a financial institution for a certain interest rate for a certain period of time. Most often it will involve a fixed rate of interest for a fixed time. As a consumer we like the certainty of knowing that we will not have to increase our house payment because interest rates go up. We therefore want a fixed rate of interest. The financial institutions also like to know that they will have a fixed income on their investment. If the consumer has no risk of higher payments if interest rates go up, the financial institution should equally have no risk of receiving less if the interest rate goes down. If interest rates go down the consumer cannot take advantage by getting a new mortgage at the low rate and paying out the old mortgage.

If a consumer breaches their end of the deal by paying out the mortgage early or by paying down the principal faster than agreed the financial institution will lose money and will want to be paid the lost amount. Each financial institution will have certain allowable early payment provisions in their mortgage contract. If the consumer wants to pay more than is permitted it creates what is referred to as a prepayment penalty. This is really not so much a penalty as just recovery by the financial institution of the damages they have suffered by reason of the consumer breaching the contract.

Most financial institutions will permit a consumer to increase their regular payment and to pay a percentage of the original principal of the mortgage each year without penalty. The percentage varies with each institution and the privilege can be cumulative over the year or can be limited to a one-time payment during the year. Also most institutions will permit a consumer to port a mortgage. Porting a mortgage means, that if you borrow from the financial institution on a different property at the same interest rate for the time remaining on your mortgage, they do not charge the penalties for discharging the first mortgage.

Payment of all the interest that would be owing to the end of the term of a mortgage on early repayment would over compensate the financial institution. The loss to the financial institution is based on the loss resulting from having to lend the money out at a lower rate to someone else. Financial institutions cannot lend an infinite amount of money but are limited by regulations tying the amount lent to their reserves.

If you pay out your mortgage prior to its maturity date the loss to the financial institution will be the interest differential between what you would have paid and what someone else will pay the bank and will be at a minimum an amount to compensate the financial institution for the administrative cost of having to process a new mortgage. The minimum is usually three months interest but this can vary.

Repayment of cash-back on early payment of the mortgage in addition to prepayment penalties is unjustified. The calculation of prepayment penalties puts the financial institution back where they would have been if the consumer carried the mortgage full term, including the benefit of charging a higher interest rate because of the cash-back. However, most mortgage contracts include the repayment of a portion of the cash-back in the event of early repayment.

Payout penalties can be justified as being fair, but because consumers do not think about payout penalties when they first negotiate the terms of a mortgage the penalties seem harsh when it comes time to pay them.

Seventy percent of Canadians don’t shop around when it comes to around to mortgage renewal time. They simply renew their mortgage with their current lender. This means you lose out on a chance to reduce your interest rate and you may be stuck with a mortgage that might not be optimal for your situation.

Renewing your mortgage gives you a chance to start over. Your existing mortgage is discharged and you enter a new one, one with a better interest rate or better lump-sum repayment terms. Here are some tips that can help you when it’s time to renew your mortgage.

Don’t wait – Start to research the mortgage market three or four months in advance of your mortgage renewal date. This gives you time to research the market to make the best decision. If you wait until the bank mails their mortgage renewal notice, you won’t have the time you need to make the best choice.

Pay down the principal – When your mortgage is up for renewal, it is a great time to put as much as you can afford towards the principle. Since your renewed mortgage is a brand new one, paying down the principle will help reduce the interest you pay over time.

Negotiate the fees – There is a discharge fee of $150 to $300 charged by your existing mortgage lender for switching your mortgage over to a new lender. If you ask for the lender to waive this fee, they often will. Failing that, your new lender will often cover the fees associated with switching. Your new lender might also ding you with some fees, including administrative and legal.

Make sure it is worth it – Not only are there fees involved, but renewing your mortgage with a new lender can be a headache. Since it is a new mortgage, you will have to jump through the usual hoops, proving income and getting your credit checked. Be sure to price out exactly what your renewal will cost you – and save you.

What if there was such a thing as a magic card that you could carry with you, which had the power to open doors for you all over the world? You show someone your magic card and ‘voila,’ you can have what you wish for. You would want to protect that card very carefully, wouldn’t you? Your credit is a little like that. Your good credit is a passport to financial opportunities. A poor credit rating can be a terrible obstacle… and repairing your credit is often a slow and difficult process.

What you may not know is that you can actually use a mortgage to re-establish your credit.

Canadians are carrying heavier loads of personal debt than ever before. For some, the cost of servicing those debts is itself an obstacle to correcting the problem. Each month can be a chase to make the interest payments to keep the debt afloat. But if debts are rolled into a new mortgage, your credit can improve rapidly, assuming of course that you don’t rack up any new debts!

Here’s how it works:

Perhaps you have maximized your credit cards – and maybe even have a short-term loan or line of credit that you are also trying to pay down in addition to your regular mortgage payments. You may be considered a “high risk” borrower under these circumstances, even if you are managing to squeeze out your payments each month. Your overall payment history is satisfactory, but your debt load is heavy. If you consolidate your debts into a new mortgage, you can better manage those debts while also restoring your credit rating.

You may not have considered using a mortgage to refinance and manage your debts, but there are a few significant advantages. For one, your status as a homeowner can give you access to a lower overall borrowing rate. A house is considered very reliable security, so mortgages often offer the best rates available anywhere. In addition, your credit history enjoys an almost immediate boost, as you begin to make your monthly payments.

There are many innovative mortgage options available today, including a new mortgage product that has been designed specifically as a credit repair tool.

This specialized mortgage is good news for clients who are trying to distance themselves from their past credit problems. Debt is controlled quickly – since the new mortgage offers an interest rate lower than credit cards that can dramatically reduce the interest charges on your debt – and your credit typically improves in only a few months.

You probably already know that it makes sense to consolidate your debt into one payment. You can generally enjoy substantial savings on interest charges, and you have a more manageable monthly payment and better monthly cash flow. Consider how a new mortgage can help you manage your debts – and make it a goal this year to improve your credit rating.

- Sherry Jenkins is a Mortgage Consultant with Mortgage Intelligence. Feel free to contact her at (403) 804-3694 or jenkins.s@mortgageintelligence.ca

Refinancing your mortgage can save the average Calgary home owner thousands of dollars over the life of their mortgage. How? By lowering the interest rate or decreasing the term, Calgarians can reduce their mortgage payments right away. Calgary house owners may choose to refinance their mortgage in order to pay bills, invest, travel, or fix up their house.

Getting a lower interest rate
Refinancing to get a lower mortgage rate is a good idea as long as you keep some pointers in mind. Make sure that if you refinance your Calgary mortgage, the refinancing fees will be paid off in the savings you receive from the lower interest rate.