Clarifying Mortgage Penalties

Last month, the federal government published a Mortgage Prepayment Code to ensure borrowers are better informed by lenders (federally regulated institutions) when it comes to situations where mortgage prepayment penalties may be charged – namely, for the purpose of clarifying interest rate differential (IRD). This is a positive step, because IRD calculations and penalties have traditionally been very confusing to borrowers. IRD is a charge many borrowers face when paying off a mortgage prior to its maturity date, or by paying the mortgage principal down beyond the amount of annual allowable prepayment privilege limits. And IRD penalties can prove quite costly depending on the remaining mortgage term. IRD is based on: 1) The amount that is being prepaid; and, 2) An interest rate that equals the difference between the original mortgage interest rate and the interest rate that the lender can charge today when re-lending the funds for the remaining term of your mortgage. Most closed fixed-rate mortgages have a prepayment penalty that is the higher of three months’ worth of interest or IRD. The new code requires that lenders “provide the information in language, and present it in a manner, that is clear, simple and not misleading.” The Code requires lenders to provide, among other things: 1. Annual Prepayment Information. This includes such things as prepayment privileges that the borrower can use to pay off their mortgage faster without having to pay a prepayment charge. Examples include making lump-sum prepayments, increasing the regular payment amount and increasing the frequency of the payment to weekly or bi-weekly. Lenders

must also inform borrowers of the dollar amount of the prepayment that the borrower can make on a yearly basis under the terms of their mortgage without having to pay a prepayment charge. As well, an explanation must be provided on how the lender calculates the prepayment charge for the borrower’s mortgage (for example, a certain number of months’ interest or IRD). 2. Information Provided When Borrower Faces a Prepayment Charge. If a prepayment charge applies and the borrower confirms to the lender that the borrower is prepaying the full or a specified partial amount owing on their mortgage, the lender will provide, among other things, a written statement to the borrower including the applicable prepayment charge and a description of how the lender calculated the prepayment charge (for example, whether the lender used a certain number of months’ interest or IRD). If the lender used IRD to calculate the prepayment charge, the lender will inform the borrower of: the outstanding amount on the mortgage; the annual interest rate on the mortgage; the comparison rate that was used for the calculation; and the term remaining on the mortgage that was used for the calculation. 3. Enhancing Borrower Awareness. To assist borrowers in better understanding the consequences of prepaying a mortgage, lenders will make available to consumers information on the following topics: differences between various types of mortgages; ways in which a borrower can pay off a mortgage faster without having to pay a prepayment charge; ways to avoid prepayment charges (for example, by porting a mortgage); how prepayment charges are calculated, with examples of the prepayment charges that would apply in specific circumstances; and actions by a borrower that may result in the borrower having to pay a prepayment charge. Click here for full details of the code requirements from the federal finance department. As always, if you have questions about mortgage penalties, or other mortgage-related questions, I’m here to help!

Financial Planning

Regardless of your current job security level and your overall financial wellness, taking a proactive approach to your finances by putting mortgage payments aside while you’re doing well can help set any homeowner’s mind at ease for the future. It’s a wise move to set money aside each pay period so you can accumulate six to 12 months’ worth of mortgage payments in a short-term GIC as security for a possible job loss. Planning for the future and things such as illness or potential job loss is one of the most important undertakings homeowners can make to ensure you can pay your mortgage in uncertain times. And, best of all, if you remain healthy and your job remains secure, you can take the money out of your GIC and make a prepayment back on your mortgage on your anniversary date (or whenever your prepayment options permit you to do so), which can end up saving you thousands of dollars in interest payments and trim down the amount of time it will take to pay off your mortgage. But if it’s not plausible to save money each pay period, refinancing to access the equity you’ve

already built up in your home is another valid option for planning ahead in uncertain times. In addition to freeing up money to store future mortgage payments in a GIC, some of the money can also be used to pay off high-interest debt – such as credit cards – and get your New Year off to a fresh financial start. You will find that taking equity out of your home to pay off high-interest debt can put more money in your bank account each month. And since interest rates are at historic lows, switching to a lower rate may save you a lot of money – possibly thousands of dollars per year. There are often penalties associated with paying your mortgage loan out prior to renewal, but these could be offset by the extra money you save through a refinance. With access to more money, you will be better able to manage your debt. Refinancing your mortgage and taking some existing equity out could also enable you to do some home renovations, take a vacation or even invest in your children’s education.

Must have Real Estate Apps for 2012

	Crumbtracks This is a real estate journal for buyers.  Buyers  can take video, photos, make notes, comments and rate every home they view.  It stores and organizes it all for the client and realtor.  Even includes a working mortgage calculator!
	TourNarrator This captures buyer's comments as they view the listing.  It is captured in a PDF and can be emailed to your buyer or the listing Realtor for instant feedback on your showing of their listing.
	Real Alert Safety device for agents that can set off an alarm on your phone, insta-dial 911, locate hospitals on GPS, records suspicious data, instant alerts a friend via email with your location and has a flashlight built in.
	Magic Plan The only app that measures, draws, and publishes interactive floor plans of homes just by taking pictures.  Create floor plans of your listings in minutes!
	Photosynth A very simple app that creates 360 degree virtual tours of your listings from a series of shots taken by your smart phone.
	Milebug Full GPS tracking on your phone and reporting of all your mileage in categorized by work or pleasure.  One of the most sought after audit areas with Revenue Canada and Realtors.
	My Measures & Dimensions Lets you take any photo and quickly draw dimensions on top of objects or spaces in the photo. After photos are marked up with measurements, they can be emailed to anyone, or added to the iPhone's photo library.
	Courtesy of GoMax Solutions www.gomaxsolutions.com

Hybrid Mortgages: Consider a 50/50 mortgage?

Hybrid mortgages – also known as 50/50 mortgage products – include an equal mix of fixed-rate and variable-rate components within your single mortgage. This means you get the best of both worlds – the security of fixed repayments with the flexibility of a variable rate. Although there was a time in recent years when mortgage experts considered a variable rate mortgage as the obvious choice to save mortgage consumers money over the long term, with fixed rates remaining near historic lows, a 50/50 mortgage may be a great alternative for you. In essence, since it’s extremely difficult to accurately predict rates over the long term, a 50/50 mortgage offers interest rate diversification, which can help reduce your level of risk. If you opt for the Dominion Lending Centres 50/50 Balanced Mortgage, half of your mortgage is locked into a five-year fixed rate and half is at a five-year variable rate. You can lock in your variable-rate portion at any time without paying a penalty.

As well, each portion of the 50/50 mortgage operates independently – like two separate mortgages – yet the product is registered as only one collateral charge. The 50/50 mortgage product is well-suited to a variety of borrowers, including those who: Would normally go fully variable but are afraid prime rate is at its bottom Aren’t comfortable being locked into a fully fixed rate Can’t decide between a fixed or variable mortgage Savvy first-time homebuyers Some features of the 50/50 mortgage include: 20% annual lump-sum pre-payment privileges 20% annual payment increase ability Portability (the option to transfer your existing loan amount to a new property without penalty) As always, if you have questions about the 50/50 mortgage product and whether it’s right for you, or other mortgage-related questions, I’m here to help!

Introducing EnRICHed Academy

Dominion Lending Centres is proud to announce the launch of EnRICHed Academy’s “Smart Start for Financial Genius”! This program has been designed to educate young adults (13-23) and their families on the fundamentals that build wealth in an entertaining, funny and entirely interactive way. No program like this currently exists, and the need and demand across North America is at an all-time high. This is our way of giving back to communities across Canada, ensuring our youth embrace financial literacy. Click here to view the EnRICHed Academy trailer on YouTube. Why we created EnRICHed Statistically, 6 out of 10 Canadians live paycheque to paycheque, which means if their income stopped for only one pay period they’d have to rely on a Line of Credit or Credit Card to make ends meet  From 1989 to 2006, total credit card charges rose from $69 Billion to $1.8 Trillion; a 2,600% increase  Today the average household credit card debt is $16,007 The yearly savings rate of an average Canadian has gone from over 12% of income in the early 90s to under 2% today Household debt in Canada has more than doubled over the past 10 years 84% percent of college graduates in North America indicated they needed more education on financial management topics. Parents expect the schools to teach financial literacy and schools expect parents to. The fact is, most parents and teachers are ill equipped to teach students and kids on this subject and, therefore, don’t

The average college graduate is $23,186 in debt What EnRICHed looks likeThe program comes in a box and contains 5 DVDs of entertaining but highly educational video on creating a foundation for building wealth. There is a 100-page workbook that the family will work through that includes activities and exercises as well as other materials that correspond with the topics covered in the program. 15 key topics covered by EnRICHed Understanding money 101 Why some people don’t save money… no matter how much they make How much we actually spend at an early age Saving money vs Making money Why starting to save at an early age is critical The magic behind compound interest and how it works How to buy your first investment property by the age of 23 How to get into the stock market How credit cards work Good debt vs Bad debt How taxes work on a paycheque Why goals are critical to building wealth The difference between a dream and a goal How to write down goals and take action The importance of building your personal brand Feel free to give me a call or send me an email if you’d like to learn more about EnRICHed Academy.

It Can Pay to Break Your Mortgage

With mortgage rates still hovering near historic lows, chances are you’ve considered breaking your current mortgage and renewing now before rates rise any further. Perhaps you want to free up cash for such things as renovations, travel or putting towards your children’s education? Or maybe you want to pay down debt or pay your mortgage off faster? If you’ve thought about breaking your mortgage and taking advantage of these historically low rates, feel free to give me a call to discuss your options. In some cases, the penalty can be quite substantial if you aren’t very far into your mortgage term, but we can determine if breaking your mortgage now will benefit you long term. People often assume the penalty for breaking a mortgage amounts to three months’ interest payments so, when they crunch the numbers, it doesn’t seem so bad. In most cases, however, the penalty is the greater of three months’ interest or the interest rate differential (IRD).

The IRD is the difference between the interest rate on your mortgage contract and today’s rate, which is the rate at which the lender can relend the money. And with rates so low these days, the IRD tends to be greater than three months’ interest. Because this is a way for banks to recuperate any losses, for some people, breaking and renegotiating at a lower rate without careful planning can mean they come out no further ahead. Keep in mind, however, that penalties vary from lender to lender and there are different penalties for different types of mortgages. In addition, the size of your down payment and whether you opted for a “cash back” mortgage can influence penalties. While breaking a mortgage and paying penalties based on the IRD can result in a break-even proposition in the short term, if you look at the big picture, you’ll see that the true savings are long term – as we know that rates will be higher in the years to come. Your current goal is to secure a long-term rate commitment before it’s too late, and here lies the significant future savings. As always, if you have questions about breaking your mortgage to secure a lower rate, or general mortgage questions, I’m here to help!

Three Holiday Spending Tips

Whether you’re planning for Christmas, Hanukkah, a big New Year’s Eve party, a trip to visit family or friends, or a winter vacation, the time is now to get your finances in order to avoid debt and regrets that can lead to the holiday blues. The season of gift-giving and fellowship too often creates the spirit of giving far beyond what you can realistically afford. But if you start now you can be holiday guilt- and debt-free for the New Year. Here are three tips to help you stay on track. 1. Create Expectations and Family Buy-In.You may have a magic budget number in mind, but unless everyone is willing to stick to it, then the target is useless. The key is to communicate with family members and begin planning now to avoid last-minute weaknesses and over-buying. Minimal lifestyle changes such as skipping dessert in a restaurant, packing a lunch, or renting fewer movies can help save money that can be earmarked for the holidays. Kids can contribute to a coin jar and learn about the value of saving as well.

2. Make a List & Definitely Check it Twice.Record everyone on your gift-giving list and be sure to check it twice. Set recommended amounts and then keep track of spending along the way. Recognize that over-spending in one area means that you must reduce costs in another – a notion that’s easier said than done when you’re in the throes of the holiday spirit. Check your list for necessities and consider changing the amount of a gift if your budget is looking tight. Remember that it really is the thought that counts! 3. Say No to Last-Minute Temptations. Stores know the temptation of exquisite decor displays and fabulous clothing that lead to impulse purchases and, with it, a case of buyer’s guilt later. Be strong and don’t give in. A pass on that $100 lush velvet skirt today may ultimately lead to a much happier and financially-fit spring season next year. A general guide: if it’s not on your “approved” list, then the answer is no. Exceptions can occur, of course, on last-minute party invites or occasions, but keep close watch on overall costs.