8 Mar

THE POWER OF PREPAYMENT OPTIONS

General

Posted by: Mike Hattim

Do you have a Mortgage Action Plan (MAP)? If not, it’s time to plan your road MAP to mortgage free living. Every lender provides options, but very few take advantage of them. These mortgage benefits are called PREPAYMENT OPTIONS. The three most common prepayment options are: adjust the frequency at which the payments are made (weekly, semi-monthly, bi-weekly, monthly and accelerated), increase the monthly payment amount (there is a maximum monthly percentage) and lump sum (or balloon, also a maximum percentage of the original mortgage balance) payment. Make sure you know how to utilize them to the fullest and what your maximum amounts are. Don’t feel obligated to maximize the prepayment options but at the very least make extra payments, your retirement savings will thank you later.

Only 32% of all mortgage borrowers exercise their contractual right to make significant efforts to accelerate repayment, including taking one or more of the following actions in the past year:

  • 16% have voluntarily increased their monthly payments.
  • 15% have made a lump sum (balloon payment) contribution to their mortgage.
  • 6% have adjust or increased their payment frequency.

The Power of Prepayment OptionsThe Power of Prepayment Options

Monthly Increase Payment

If choosing an accelerated bi-weekly repayment schedule does not work for your plan, then maybe you might be able to consider adding an extra principal payment to your regular monthly mortgage commitment. The graphic below illustrates how the principal amount is reduced when utilizing the monthly increase prepayment option. By adding $100 to your monthly mortgage you can save $10,729 in interest and reduce the life or the mortgage by 5.9 years.

The Power of Prepayment Options

My Personal Scenario

You are likely asking yourself right now, so what does Michael’s road MAP look like. Well, I’m happy to share that with you. My current lender allows me to increase my monthly payments by 15%, make a annual lump sum payment of 15% (of the original mortgage balance) and/or double up my contractual minimum monthly commitment. I have elected to exercise my contractual right to utilize the 15% monthly increase to the maximum. My monthly contractual payment is $2,074.98. By maximizing the 15% monthly increase my adjusted payment is $2,386.23 which is an extra $311.24 per month. If I had decided to only make the minimum monthly payments of $2,074.98 then the life of my mortgage would be 25 years remaining at the end of this current term (maturing July 2017). However, with the extra payment of $311.24 per month I’ve effectively reduced the life of my mortgage to (currently) 21 years 2 months, even less when it matures in 17 months. If I were to keep maintaining the same course of action as above for the entire life of the mortgage the revised amortization would be reduced from 30 years to 15 years 9 months saving me $114,827.94 in interest.

Why not join the 32%ers elite club?! The contribution can be minimal and usually unnoticeable on a day-to-day basis, the pay-off is years sooner though. The power of making extra payments is overwhelming. Ask any mortgage professional at Dominion Lending Centres how to increase your equity position. Your bank account will thank us later.

 
8 Mar

DIVORCE AND YOUR HOME

General

Posted by: Mike Hattim

We all know that marriage isn’t always forever. When a separation occurs, a home is often involved. Since most couples have a joint mortgage – one where both names are on the mortgage and title of the home – when separation or divorce proceedings occur, many wonder what will happen with the home.

When the marriage comes to an end, there are two obvious options concerning the home: 1) sell the property and split the proceeds according to your agreement and go your separate ways; or 2) one person buys the other party out of the mortgage and the title of the property.

The first option is a straight-forward transaction where you put the house up for sale, sell and split the proceeds. The second option, however, is slightly more complicated.

The decision between the options is a personal one borne out of the specific circumstances of the parties involved. I have helped many borrowers through the home ownership woes of separation and divorce. If you find yourself in this situation and need professional mortgage advice, give Dominion Lending Centres a call.

 
3 Mar

CREDIT CHALLENGED

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Posted by: Mike Hattim

In today’s economic climate of tighter credit requirements and increased unemployment rates taking their toll on some Canadians, there’s no doubt that many people may not fit into the traditional banks’ financing boxes as easily as they may have just a couple years ago.

Your best solution is to consult your Dominion Lending Centres mortgage professional to determine whether your situation can be quickly repaired or if you face a longer road to credit recovery. Either way, there are solutions to every problem.

Mortgage professionals who are experts in the credit repair niche can help credit challenged clients improve their situations via a number of routes. And if the situation is beyond the expertise of a mortgage professional, we can help you get in touch with other professionals, including credit counsellors and bankruptcy trustees.

If you have some equity built up in your home and still have a manageable credit score, for instance, you can often refinance your mortgage and use that money to pay off high-interest credit card debt. By clearing up this debt, you are freeing up more cash flow each month.

I can also offer you some top tips towards a quick credit score recovery – I’m here to help!

 
2 Mar

HOW TO CHOOSE THE RIGHT MORTGAGE TERM

General

Posted by: Mike Hattim

Understanding the terms of the mortgage are paramount in choosing the mortgage product that is right for your particular and unique situation. What is the difference between term and amortization? Are terms all the same for every lender? What are the differences of terms from lender to lender? These are just a few of the questions we receive at Dominion Lending Centres when speaking with our clients. In order to gain understanding on “choosing the right mortgage term’, one has to understand the basics.

Amortization – This is different than “the term” of the mortgage. Amortization is usually offered in increments of 25 years, 30 years, and even 35 years. Amortizing a loan is scheduling payments, usually of consistent payment amount, that will pay off the loan in the agreed upon time period. However, in Canada, the lender will agree to loan money to the consumer only for a portion of the amortization period called “the term”.

The Term – Lenders usually offer term contracts for anywhere from month to month up to 10 year terms. Most commonly, consumers will enter into a 5 year contracted term with the lender. But on occasion, 4 year, 3 year and even 2 year terms can offer lower interest rates. In today’s market, where the economy is in a slump, the lower rate terms are attractive to many consumers. However, in order to qualify for the lower interest rates with lesser years (e.g. 3 year contract) the consumer has to be able to debt service at the Bank of Canada benchmark rate (currently 4.64%). This means the lender will punch in all the numbers and see if you can afford this same mortgage if the rate was 4.64%.

Debt Service – Debt servicing is what the lender does to determine if your income justifies the mortgage you want as well as takes into account all the debt (and sometimes the credit) you have. Another name for this is Total Debt Servicing. Essentially, the lender wants to know if you can afford a mortgage and they have calculations that will determine if you can afford the mortgage.

Credit Score – Credit is another important factor in choosing a mortgage. The lender always looks at the consumer’s credit history to see if they have managed their credit well. If your credit score is low due to a life event that was beyond your control and it is a reasonable explanation, the lender will consider your situation. But that consideration doesn’t always result in a mortgage. In fact, your credit score is one of the most important aspects of life that ONLY YOU can manage.

Timing – It’s been said that 70% of mortgages break before the 5 year term is up. This is an important thing to consider when choosing a term. If you feel you are going to sell within the next 4 years then it is important to look at 3 year term options. If you choose a 5 year term and you think you are going to sell in 3 years, you need to realize there are penalties to break a contract term early.

Penalties – Breaking a contract results in penalties. Early breakage can result in thousands, if not tens of thousands, of dollars. Depending on whether you are in a variable rate or a fixed rate, the amount of penalty you pay to break a mortgage will certainly keep you up at night. It’s important to know what the penalty to break your mortgage will be before entering into a contract term.

Clients tend to think that there is an overall BEST term product on the market. But there isn’t! Every individual has needs that are unique to their situation. Claiming there is an ideal mortgage term is like saying the most beautiful colour is blue. Just like everyone has their favourite colour, everyone has an individual mortgage term that works best for them and we here at Dominion Lending Centres can help!

1 Mar

HOW TO GET A FULLY LOADED MORTGAGE

General

Posted by: Mike Hattim

Be it fully loaded or all the bells and whistles, as savvy consumers we want to know that we got every bit of extra awesomeness available to us and your mortgage should be no different. Sure you want the best rate, that’s a given. Wouldn’t you also like the extras which will make your mortgage even better with none of the yucky stuff? Of course you would! Today we are going to look at what the mortgage extras are that you should be looking for and those you should beware of.

1. Portable – Most mortgage lenders offer a portable mortgage. This is where you can take your mortgage with you from property to property without penalty. Not all porting policies are created equal so make sure yours is not going to limit you later on. There are a few things to keep an eye out for. The first is how long you have to port the mortgage to a new property. Some lenders require you to do so on the same day as you sell. This can make it difficult especially if you were hoping for a few days to move from the old home to the new one. Other lenders will put you into two separate mortgage components which means you are basically stuck with your current mortgage provider unless you pay a penalty on one or the other parts. Finally, not all lenders like all property types or can lend in other provinces. For example, if you currently reside in Alberta but plan to move to an acreage in British Columbia, then you should make sure you are with a lender who will allow this move.

2. Pre-payment privileges – There is a wide spread between the lenders on exactly how much extra you can pay on your mortgage. It can vary from 10% to 20% of the principle amount. There is also a wide range of how soon you can start to make those extra payments. Certain lenders make you wait until the anniversary date. If you plan to be aggressive with your mortgage re-payment, then make sure your lender matches your plan.

3. Pre-payment Penalties – I have said a thousand times or more that there is no standard in Canada as to how the mortgage lenders are required to calculate the penalty if you break your mortgage contract early. They are required to present their calculation formula to you before funding, but even to a mortgage professional, these can be darn near impossible to navigate. Do your research and ask a lot of questions to make sure you are not choosing to place your mortgage with a lender at the nasty end of the penalty scale.

4. Collateral Mortgages- A collateral mortgage is where the mortgage lender registers a higher amount on the title of the property than you have actually borrowed. This can be useful later if you want to get a home equity line of credit as it saves you some steps in the borrowing process. The down side is that collateral mortgages are more difficult to switch out at renewal which can leave you stuck with your current lender even if they have a higher interest rate than is available in the market. It also allows your bank to tie in other borrowing such as credit cards and vehicles to the mortgage which may then have to be paid out when you sell leaving you less money to put down on your next home.

5. Easy to use- There is something pretty nice about making extra payments or checking your mortgage balance on a Saturday morning while sipping coffee in your PJ’s. Find out ahead of time what type of online mortgage management you can do if you are part of the new digital world and value such things

Think of your mortgage as a hamburger. The good things above are the toppings you want like cheese and bacon. The negative can be the things you hate like mustard or mushrooms. Your mortgage can be great or it can be yucky but it’s up to you to order it the way you’d like – and we here at Dominion Lending Centres can help!