Friday, February 27, 2015

Why Bank Posted Rates Matter

I am coming up on 10 years as a mortgage broker this spring. However, I started negotiating for better rates before that: on my own mortgage.  Several years ago, my mortgage came up for renewal. I contacted my bank to say that I had received an unacceptable interest rate. Reading the Calgary Herald, I knew that it was possible to get a mortgage for 1%+ less than my bank was offering me.
   I was transferred to the mortgage department at the headquarters in Toronto and I explained my problem and asked for a better rate. I was told that they would have to get back to me after reviewing my file. I didn't hear back for 2 weeks. I called back and wasn't able to get any satisfaction. I then went to another bank and was able to get an even better rate. This was a common strategy. 25% of people would sign the renewal letter without asking for a better rate. This helped to increase profits. Those who asked would be told they were preferred clients and would be offered a better rate. What a game they were playing ! 
   The bank posted rate does not play that much of a role today but it is still important if you have a bank mortgage. We all know that if you want to get out of your mortgage term early, you have to pay a 3 month interest penalty. Re- read your mortgage commitment and I'll bet it says 3 months interest or IRD, whichever is greater. . IRD is Interest Rate Differential. This is the difference between the bank posted rate and the discounted rate that you received. Let's say the 5 year posted rate was 5% and you received a discounted rate of 3%. You are 30 months into your 60 month (5 year ) term.  In order to break the mortgage you would have to pay 2%( the difference between the posted and your rate) times the remaining term of 30 months. 2% X 30 is a lot more than the 3 months interest you were expecting to pay. 
    How can you avoid this problem? Speak to a mortgage broker and have them place you in a mortgage with a mortgage company or a trust company. Banks use the posted rate but mortgage companies use the discounted rate. Most of the time, you end up only having to pay the 3 months interest if you need to break the mortgage. 
     There are other options available to avoid paying the IRD. Be sure to speak with your mortgage broker before you sign a purchase offer to see if they can save you money. 
   Here's a recent article on Posted Rates from the Financial Post -

David Cooke is a mortgage broker in Calgary, Alberta. Contact him at

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Monday, February 2, 2015

Property Assessments as a measure of Value


When homeowners receive provincial Property Assessment notices, some will smile and have a bit more spring in their step, feeling the assessed value is accurate or perhaps even overly positive. Others will wilt and lament a modest gain or even a decrease in the assessed value over the previous year or period. Reactions will of course vary factoring in the potential increase in property taxes that tends to come along with stronger assessments.  The reality, setting aside taxation concerns, is that neither parties' emotions should be tied to the ‘value’ printed on these notices. 
A provincial property assessment is an approximate value based on the (broadly) estimated market value as of the previous years. There is a lag time between the estimation of valuation and delivery of the envelope. It also fails to involve a formal site visit or viewing of the inside of the home to consider either significant upgrades or significant deterioration.
To put this in perspective, few lenders will work with a detailed official appraisal report that is even 90 days old.  Most prefer a report
completed with 30 days, as markets can move significantly month over month.
For these reasons, among others, a provincial property assessment should not be relied upon as a totally concrete indicator of value for the purposes of either purchase, sale, or financing.
Always enlist a licensed professional, or perhaps even two or three, in order to get a timely and detailed appraisal of current market value. This will provide a much more accurate reflection of current market values reflecting recent comparable sales, value for zoning, renovations and/or other unique features to the property.  An appraiser is an educated, licensed, and heavily regulated third party offering an unbiased valuation of the property in question.
Think of your provincial property assessment as something akin to a weather forecast spanning far larger and more diverse areas than the unique ecosystem that is your neighbourhood, street, and specific property.
The forecast may call for rain in your city, yet you might have a ray of sunshine radiating upon your street specifically.
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