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 - http://business.financialpost.com/2015/02/09/why-you-should-care-about-the-banks-posted-rates-on-mortgages/

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

Own Sweet Home - Episode 4: The inspection uncovers…crucial decisions

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.

 

8 Tips For Finding Your New Home

A solid game plan can help you narrow your homebuying search to find the best home for you.
House hunting is just like any other shopping expedition. If you identify exactly what you want and do some research, you’ll zoom in on the home you want at the best price. These eight tips will guide you through a smart homebuying process.
1. Know thyself.
Understand the type of home that suits your personality. Do you prefer a new or existing home? A ranch or a multistory home? If you’re leaning toward a fixer-upper, are you truly handy, or will you need to budget for contractors?
2. Research before you look.
List the features you most want in a home and identify which are necessities and which are extras. Identify three to four neighborhoods you’d like to live in based on commute time, schools, recreation, crime, and price. Then hop onto REALTOR.com to get a feel for the homes available in your price range in your favorite neighborhoods. Use the results to prioritize your wants and needs so you can add in and weed out properties from the inventory you’d like to view.
3. Get your finances in order.
Generally, lenders say you can afford a home priced two to three times your gross income. Create a budget so you know how much you’re comfortable spending each month on housing. Don’t wait until you’ve found a home and made an offer to investigate financing.
Gather your financial records and meet with a mortgage broker  to get a prequalification letter spelling out how much you’re eligible to borrow. The lender won’t necessarily consider the extra fees you’ll pay when you purchase or your plans to begin a family or purchase a new car, so shop in a price range you’re comfortable with. Also, presenting an offer contingent on financing will make your bid less attractive to sellers.
4. Set a moving timeline.
Do you have blemishes on your credit that will take time to clear up? If you already own, have you sold your current home? If not, you’ll need to factor in the time needed to sell. If you rent, when is your lease up? Do you expect interest rates to jump anytime soon? All these factors will affect your buying, closing, and moving timelines.
5. Think long term.
Your future plans may dictate the type of home you’ll buy. Are you looking for a starter house with plans to move up in a few years, or do you hope to stay in the home for five to 10 years? With a starter, you may need to adjust your expectations. If you plan to nest, be sure your priority list helps you identify a home you’ll still love years from now.
6. Work with a REALTOR
Ask people you trust for referrals to a real estate professional they trust. Interview agents to determine which have expertise in the neighborhoods and type of homes you’re interested in. Because homebuying triggers many emotions, consider whether an agent’s style meshes with your personality.
Also ask if the agent specializes in buyer representation. Unlike listing agents, whose first duty is to the seller, buyers’ reps work only for you even though they’re typically paid by the seller. Finally, check whether agents are REALTORS®, which means they’re members of CREA- the Canadian Real |Estate Association, Canada's national real estate association.
7. Be realistic.
It’s OK to be picky about the home and neighborhood you want, but don’t be close-minded, unrealistic, or blinded by minor imperfections. If you insist on living in a cul-de-sac, you may miss out on great homes on streets that are just as quiet and secluded.
On the flip side, don’t be so swayed by a “wow” feature that you forget about other issues — like noise levels — that can have a big impact on your quality of life. Use your priority list to evaluate each property, remembering there’s no such thing as the perfect home.
8. Limit the opinions you solicit.
It’s natural to seek reassurance when making a big financial decision. But you know that saying about too many cooks in the kitchen. If you need a second opinion, select one or two people. But remain true to your list of wants and needs so the final decision is based on criteria you’ve identified as important.
Source:  Future Investments Inc. blog

Own Sweet Home – Episode 3: The hunt for home begins

episode 2 Home Sweet Home

If you need more information on home buying please contact David Cooke , your Calgary mortgage broker at
Dominion Lending Centres Westcor

Own Sweet Home - Episode 1: Meet the couple and their team of professionals

Part 2 in the series about buying a home