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How to turn your property into a vacation rental- Ask a Vancouver Mortgage broker

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Vancouver Mortgage BrokerWant to make a few extra bucks renting out your home when you’re out of town? Or maybe you have a cottage you’d like to rent out when you’re not using it. Here’s what you need to know to turn your property into a money-making vacation destination.

Dropping off the keys

All property owners have their own rules about handing over the keys, says Bordo. Some hide them under a rock, others have secure key holders near the front door that require a pass code. Some even take the time to meet with renters in person and walk them around the property. Returning the keys can be as simple as tossing them through a mail slot in the door.

Go the extra mile

“Marketing your property doesn’t end when your renter signs up,” says Bordo. You need to offer the same level of hospitality as a hotel. “Leave a bottle of wine or chocolates as thank-you gifts,” says Bordo. Doing so will help ensure they’ll rent from you again and they’ll give you a great review.”

Avoiding problem guests

Worried your place will be trashed? Ask your renters for references and look them up on Facebook and LinkedIn—a professional is less likely to punch holes in your walls. Rental sites can tell you if anyone has lodged a complaint about them. If you’re really worried, try meeting the renter in person or chat by phone. As a final protection make sure you ask for a deposit of between 15% to 20% of the rental fee to pay for any damages.

Your sales pitch

Before you can rent your place, you have to get noticed. Sites likeCottageCountry.com and Airbnb offer one-stop spots for listings, but you still need to stand out from the crowd. Start by writing a detailed description of your property that flaunts the features of your place and highlights local amenities and activities, says Mark Bordo, founder and president of CottageCountry.com. Crisp high-quality photos are key. Make sure rooms are cleared of clutter and well-lit.

Make sure you’re covered

“Once you start offering your property for rent the standard home insurance policy won’t apply,” warns Pete Karageorgos of the Insurance Bureau of Canada. If renters damage your property you may not be covered. Before you rent, call your insurance company to add appropriate coverage (usually called a rider or endorsement), he says. You also need to be aware of any local or provincial laws that could restrict short-term rentals.

What should you charge?

Airbnb suggests researching nearby hotels and other vacation rentals to get a sense of what the market will bear. Low prices are a good way to get people through the door initially and will help you build up reviews. There’s money to be made: The average place on CottageCountry.com goes for about $1,500 a week. The major sites accept credit cards from renters and pay you directly so you don’t have to worry about a renter skipping out on the bill. Typically the money is transferred to you via PayPal when the renter leaves.

More Canadians in debt, making lower monthly payments poll finds – Consult with Bruce Coleman, Vancouver Mortgage Broker

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By: Linda Nguyen The Canadian Press

Vancouver Mortgage BrokerA new poll suggests that more Canadians are in debt this year and taking longer to settle their accounts.

The study released Wednesday by the Bank of Montreal (TSX:BMO) found that 83 per cent of Canadians surveyed admit to having some form of debt, an increase from 74 per cent a year earlier.

But the poll also found that the average amount of monthly debt repayment has fallen by 13 per cent from a national average of $1,138 to $986. Regionally, those in Alberta had the highest amount of debt payments each month at $1,225, while those who live in Quebec reported the least amount at $768.

BMO vice-president Janet Peddigrew says these results could indicate two things: either people are having more trouble making high monthly payments, or they’re in no hurry to pay down their debt due to current low interest rates.

“We’ve had prolonged interest rates for a few years now, allowing people to take on more debt while still ensuring that it’s affordable so they’re able to manage the debt that they have,” she said.

The annual poll also found that nearly half of those surveyed said their household debthas decreased in the past five years, compared with 28 per cent who said it has increased during that period. More than half said they plan on being debt-free within five years.

Meanwhile, a majority of homeowners said they anticipate being mortgage-free within 10 years and a third said they can do it in five years. Twenty-nine per cent plan on paying down their mortgage within the next year.

Peddigrew cautioned that Canadians shouldn’t be lulled into thinking low interest rates will last forever, and that debt left unpaid now can be as easily handled in the future.

“If there is any message that comes out of this it is to be prudent and look at reducing your debt levels now that (interest rates are) still low because we all know that they’re going to start creeping up,” she said.

“Time is of the essence. If you can afford to pay more on a monthly basis, do it and get it reduced.”

The largest source of debt cited by Canadians polled was a mortgage, at 34 per cent, followed by car payments at 19 per cent and student loans at 14 per cent.

The online poll done by Pollara surveyed 1,005 Canadians on their debt levels and repayment between July 12 and 16.

The polling industry’s professional body, the Marketing Research and Intelligence Association, says online surveys cannot be assigned a margin of error because they do not randomly sample the population.

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101 Series: How to Find an Interior Designer – Consult with a Vancouver Mortgage Broker

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How to Find an Interior Designer
Vancouver Mortgage BrokerWhether you just bought a home or condo, you might not be satisfied with the look. It doesn’t matter whether it’s a brand new or older property as you want may very well likely want to make your own statement about what your new purchase says about you.
Unfortunately, many people aren’t as artistic as they would like to be when it comes to finding a balance for your décor and the image you wish to project on your home or condo’s interior. You want to do it right because there are a lot of things that you can do really wrong.
If you don’t possess the ability to know what really adds some style and balance to the interior then you might want to get someone who is especially trained in creating the type of vision that would appeal to your particular taste.
The person you would want to hire to help you achieve your objective is a qualified and professional interior designer. These folks are trained on how to use space, lighting and colour coordination to their best effect for each room in the house or condo.
The cost of using the services of a qualified interior designer can be pricy and may range anywhere from $300 to $600 dollars for a consultation. The amount they charge by the hour can be pricey also but the expense can be a worthwhile investment especially if you do it right. The final results can greatly help in the re-sale aspect of your residence down the road.
Here are some tips to help you find and hire the right interior designer.
1. Use a Home Décor Store to Find a Home Designer
Many people have a favourite home design store that uses the services of home designers they may be able to recommend. This is also the place where home designers use themselves so you may simply find a good recommendation from the staff that work in the store and get some business cards so you make some calls.
Many of these larger home designer stores as well as some of the smaller boutique stores actually employ people who are professional accredited interior designers. You may be able to use their services and can even find discounts if you buy from that particular store which can be a real money saver.
2. Use the British Columbia Home Designer Association
You should always ensure that the home designer you want speak with has a membership with the BC Home Designer Association. You can also look up the website for the Interior Designers of Canada and then select B.C. which you will give a broad range of designers that work in your area or region and start there.
You should also visit the website of these designers so you can a better feel about their services, professional credentials, education, and online references that you can call and check for yourself.
3. Speak to People you Know
Your family, friends or co-workers may have used an interior designer and they perhaps can recommend the services of someone they used. You can also learn about problems they encountered and can learn about which designers you might want to avoid. Your realtor or even your mortgage broker might be able to offer some recommendations.
Hiring a Potential Interior Designer
There are some people out there who have hung out their shingle and advertise themselves as an interior designer. They may or may not possess the right expertise for the job so you should always follow through with an interview process and ask the right questions before you consider hiring someone.
You want to ask them about their education, training, credentials, and always ask them for references. You want to make sure they are insured and perhaps even bonded. It’s also a good idea to contact some of their references.
You have to feel comfortable with the person and make certain that you communicate well. You want to know the parameters of their services and spell out clearly what you expect and what you can expect from them.
Finally, you also want to protect yourself by having a contract drawn up which outlines the start and completion date and how the payment schedule is to be worked out.
Using a home designer can be a good investment as you can avoid a lot of design mistakes that novices make. A quality designed interior can also greatly enhance your ability to quickly flip the residence when you put it on the market later on.

How to Pay Off Your Mortgage Faster with the Right Term – As a Vancouver Mortgage Broker

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How to Pay Off Your Mortgage Faster with the Right Term

MrPrivateMortgage_DreamHomeOne of the best ways to pay off your mortgage quicker is to reduce the cost of how much you borrow. There is nothing which impacts this more than the term you select for your mortgage.

Choosing the most suitable term is more vital than even finding the lowest mortgage rates or features found in your mortgage contract. Finding the best term can protect you from being locked into a punitive rate or from increasing rates if you neglected to lock yourself in for a sufficiently longer term.

What is meant by a mortgage “term?” It simply refers to the actual length of the contract for your mortgage. The most popular term selected by over 50 percent of Canadian mortgage borrowers is the 5 year fixed term.

However, keep in mind that simply because a 5 year fixed is more popular doesn’t necessarily mean it’s right for your particular situation. The reason is that the ideal term  will vary and is dependent according to how interest rates change and to your specific financial predicament.

For example, in just the last 2 months alone, some of the longer-term fixed rates have increased by as much as half a percentage point which has made some terms less appetizing.

Here are some of the best and worst terms that are currently found on the mortgage circuit.

Best Current Term Mortgages 

1. Four-year fixed Term

You will find many four-year fixed rates which are still below 3 per cent. With this term you can save yourself almost as much as a third of a percentage point than the interest which you would find on a five-year fixed term.

This could mean a savings as much as $2,000 over 4 years on a mortgage worth $2,000.000. Although a 5 year term might give you an extra year of protection from a rate increase, you are also more likely to have pay a penalty should you to decide to renegotiate or break from your mortgage before the term expires.

You could take a 4 year term and renew into a 1 year term so that you still get 5 years protection from rate increases and greater flexibility.

2. One-year fixed Term

Many lenders don’t push the one year term because of their low margin but they can be very handy in certain circumstances. One reason is that they have extremely low rates and are presently at around 2.39 percent. They can be a very suitable choice for people who have less than 15 years on their mortgage and are willing to take the risk that rates will continue to remain low.

A 1 year term can also be a suitable alternative for a variable rate.

Terms to Avoid 

Here are some terms you presently avoid.

1. Five-year variable Term

Although you might save as much as 0.40 percentage points with this term versus a four-year fixed term, you also lose your rate protection which might be important come 2015.

2. Three-year fixed Term

If your not planning to break your mortgage in three years, then you should select something else because the 0.10 percentage points you could save from a four-year fixed term might be offset by higher rates when you go to renew.

3. Seven-year fixed Term

From a math perspective a 7 year term has always been considered a poor choice because you really can’t justify the premium rate, and if you are concerned about whether inflation will raise interest rates that it might well be worth while to pay another 1/10th of a percentage point and get yourself a 10 year term instead.

Choose your Term Wisely

In some instances you might not even qualify for some of these terms and it a lot depends on your individual and future financial circumstances when it comes to a renewal. The bottom line is that you should spend as much time picking the most suitable term for your needs as you do in choosing interest rates.

Bank Break Fee Calculators Can be Unreliable – Ask a Vancouver Mortgage Broker

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Bank Break Fee Calculators Can be Unreliable

Vancouver Mortgage BrokerIf you want break from your mortgage early then you obviously want to know what your lender will be charging you for “break fees.”

To make this process more transparent, the Federal Finance Department implemented new changes just recently which requires banks to provide you with online guidelines and penalty calculators.

Although this new requirement makes the process more convenient for borrowers, one problem which has emerged is that the quote you receive from a bank lending representative and what is displayed by the calculator shows can have a significant discrepancy. The quote provided by the rep versus the calculator can contain anything from a minor to a major difference.

Some Background

Back in September of 2012, the FCAC (Financial Consumer Agency of Canada) required that all banks would now have to provide penalty calculators along with a description of the formula used on their website.

The purpose was that consumers would know how much they could expect to pay when it cam to deciding whether to refinance or renew their mortgage. The most popular mortgage in Canada is the 5 year fixed mortgage and almost half of the people who opt for this mortgage alter it before the term ends.

And, many of those who do refinance or decide to renew their mortgage early have to pay what is called a “prepayment charge” or penalty to do so.

Anyone who wants to consider this route also wants to know the mortgage break penalty prior to refinancing because a very expensive penalty can make refinancing too costly.

The idea of requiring penalty calculators was meant to empower the borrower so they could estimate their penalty before making their decision but some problems have emerged with these calculators.

Problems with Online Breakage Fee Calculators

The biggest problem that has emerged is one of accuracy. In one instant there was one consumer who obtained an online penalty quote from a calculator that was just slightly more than $1,000 than what they received in writing from the bank rep.

When the bank was asked about the discrepancy, they claimed they didn’t want the customer to be unpleasantly surprised. They also pointed out that Penalty Disclosure requirements outlined by the Feds specifically requires that the calculator estimate should be higher than the actual penalty.

To be fair, most discrepancies that you find between the bank reps and the calculators are relatively small, but this is not always the case. There are no FCAC guidelines that stipulate how close the discrepancies between the estimate and the actual penalty should be.

Some calculators Are Confusing

Another problem with these online calculators is that they require information which is obscure and leave people as being uncertain about what they should input. Some of these banks make your search around their site time consuming as you have to search their sites for data which could have been automatically input for you.

Some of the data required can lead to the input of incorrect data which could result in costly mistakes.

Who Has the Best and Worst Calculators?

The most user friendly calculator is found at ING bank. One of the most unfriendly user calculators is found at HSBC which requires looking up much more detailed information than calculators found at other online bank sites.

Although calculators are a convenient tool, you should not consider the results as being entirely accurate. If you make a simple input error, the mistake could mean thousands of dollars. So, use the calculator as a tool but you should always call the bank to get a quote from one of their reps so you don’t end up unpleasantly surprised.

A New Site for Private Mortgages – Consult with Bruce Coleman, Vancouver Mortgage Broker

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A New Site for Private Mortgages

Dreamhome One of the newest sites set up to assist independent mortgage brokers help their non prime borrower clients find suitable lenders is called Strategic Matches. The purpose of this site is so these “B” borrowers can find the best possible deal online through their broker.

This site is simple to use. All the broker has to do is complete their client’s application and submit tit o the site. The results show all the lenders which meet the borrower’s needs. The broker can send their client’s application to either just a single lender or to any number of lenders that show up in the results.

The lender has 2 days to reply by either making a commitment or getting in touch with the broker. After the lender provides a quote, then the broker’s client has 2 days to accept the commitment.

The Advantages of Strategic Matches

  • Many brokers prefer to use lenders they know. Strategic Matches allows the offer to come from lenders they don’t know and exposes the deal to more lenders which can help the borrower have a better chance in finding a better rate and even possibly better terms or fees.
  • Both the broker and borrower can save time as a broker has to spend more time manually when shopping around for a private deal for their clients.
  • This site also allows the lender to pre-screen their deals more easily because they can set their own criteria that they enter so they don’t have to waste time on deals which don’t meet these criteria.
  • This site is also convenient for those private lenders who want to attract business when they have the available cash to lend.
  • It is also advantageous for a broker because they can retain control of their files such as when they have to co-broker with another broker or a “B-desk.”
  • Another advantage for brokers is that they won’t have to split their broker fees with another party unless it’s an in-house deal.

The Disadvantages of Strategic Matches

  • Strategic Matches isn’t free and takes as commission a ¼ point from each broker that closes a deal. This will likely be passed back to their client through a broker fee which has been marked up.
  • There are also some lenders which will take a submission that has been sent multiple lenders and require the submission be made on an individual basis and then must wait before sending to another lender. This could be a bit more time consuming for the broker.
  • Another problem is that the broker may not perform sufficient due diligence on the lender before they recommend it to their client.

The focus right now for Strategic Matches is currently in B.C. which currently has 29 lenders on the system. Additionally, there are14 lenders from Alberta and another 7 lenders from Ontario who signed onto the site. The site intends to continue to promote more lenders from the latter 2 provinces in the next little while as the demand grows.

Also, the focus is strictly for residential financing but commercial lenders may be added later on. The site is a simple premise that promises to be very convenient for brokers, lenders and consumers.

Canadian housing market defies skeptics as starts top expectations – Vancouver Mortgage Broker, Bruce Coleman

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TORONTO — Canadian housing starts were stronger than expected in June and May figures were revised higher, according to data released on Tuesday, the latest report to show the property market rebounding from last year’s government-induced slowdown.

Vancouver Mortgage BrokerHousing market fuelling loonie’s rise from two-year-low

The Canadian dollar rose from its lowest level in almost two years before a report Tuesday forecast to show the pace of home construction in June stayed above the year-to-date average for the second month in a row.

Continue reading.

The seasonally adjusted annualized rate of housing starts was 199,586 units in June, according to data from the Canadian government’s housing agency. Analysts polled by Reuters had expected 187,000 starts in June.

The Canada Mortgage and Housing Corp also revised May starts higher, to 204,616 from the 200,178 originally reported.

The stronger-than-expected numbers helped boost the Canadian dollar in early trading.

With sales finding a floor in recent months, prices well behaved and homebuilding close to demographic demand, the soft landing story looks firmly in place

The latest data come exactly one year after tough new mortgage rules aimed at cooling the market came into effect. Canada’s Conservative government tightened the rules in a bid to prevent a possible housing bubble.

Those rule changes, the government’s fourth such crackdown since the financial crisis, succeeded in dampening housing market activity.

But after nearly a year of cooling sales and concern that Canada could have a U.S.-style housing crash, demand has roared back in key markets, helped by borrowing costs that remain near historic lows.

“Canada’s housing market continued to defy the skeptics in June, not to mention Mother Nature and a bout of labour market unrest,” BMO Capital Markets economist Robert Kavcic said in a note to clients.

“With sales finding a floor in recent months, prices well behaved and homebuilding close to demographic demand, the soft landing story looks firmly in place.”

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The data on Tuesday showed starts of single urban homes decreased by 4.1% to 62,743 units in June. Starts in the multiple urban starts segment, which includes Toronto once-booming condominium sector, decreased by 2.0% to 114,342 units.

Urban starts increased in the west coast province of British Columbia, but fell in all other regions, including Atlantic Canada, Ontario and Quebec.

The report suggest homebuilding was likely a mild contributor to second-quarter economic growth, rather than a drag, said Emanuella Enenajor, an economist with CIBC World Markets.

“We still see housing slowing in later quarters, although that softening will likely be deferred until late 2013 and 2014,” she said in a note.

© Thomson Reuters 2013

First-time home buyers undeterred by mortgage rules and rates – Bruce Coleman, Vancouver Mortgage Broker

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by  

About two-thirds of first-time buyers say they’ll purchase a home as planned and are unaffected by new mortgage rules brought in by Ottawa a year ago, says a new survey.

Vancouver Mortgage BrokerThe findings come as the banks continue to increase long-term interest rates in the face of rising bond yields but refuse to bump up the posted rate for a five-year, fixed rate closed mortgage — a key measure in deciding how much a consumer can borrow after the new rules were introduced.

Rates on the five-year mortgage have been rising steadily since the beginning of May in response to bond yields. At one point the Bank of Montreal offered a five-year, fixed rate closed mortgage for as little as 2.99% but that’s now up to 3.59%.

Meanwhile the posted rate has stayed at 5.14% at most banks. That posted rate is used by Ottawa to establish what is called the qualifying rate for consumers who require mortgage default insurance. Consumers not locking in for five years or more face the qualifying rate but since it has hasn’t risen they can borrow as much as ever.

A department of finance spokeswoman noted the five-year is set by the Bank of Canada and is based on the posted rates at Canada’s largest banks.

“The Government continues to monitor the mortgage market and protect taxpayers,” said Stéphanie Rubec manager, media relations, via email. “Prices for financial products, including mortgage interest rates, reflect a financial institution’s business decisions. Due to the fact that taxpayers are the ultimate backstop for government-backed insured mortgages, financial institutions are expected to lend prudently.”

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Farhaneh Haque, director of mortgage advice and real estate-secured lending at Toronto-Dominion Bank, said for most consumers it hasn’t had an impact because the majority of mortgages are for longer than five years — meaning consumers can use the lower rate on their contracts to qualify.

“The profile for our customers is the longer term anyway so it hasn’t had a material impact,” said Ms. Haque.

The Bank of Montreal survey, conducted by Pollara, found on the one year anniversary of the latest mortgage rule changes 66% of Canadians buying for the first-time will do so as planned.

Among the other changes was shortening of amortization lengths from 30 years to 25 years. The survey found 14% of Canadians will buy sooner, partially out of fear rules could get even tougher.

Meanwhile there is very little to indicate the posted rate will be rising any time soon, despite the fact government of Canada five-year bond has risen about 65 basis points since May 1.

“You do have to remember when rates where at all-time lows they didn’t lower the qualifying rate either,” said Rob McLister, editor of canadianmortgagetrends.com. “I have never talked to a banker or lender who has openly admitted they are keeping the rates low to qualify more people.”

He says it’s mostly a practical issue for qualification because very few people actually take the posted rate. Mr. McLister said some lenders like to keep it low to appear more competitive.

But there is no question the qualification rate will have to rise if bond yields keep rising. Plus, rising long-term rates might send people back to cheaper variable rate products, creating a more urgent need to tighten loan requirements.

“Once you get a one percentage point gap between short-term and long term, people start looking at variable,” said Mr. McLister.

David Madani, an economist for Capital Economics, agrees it is just a matter of time before the qualifying rate and posted rates start to jump. “There is usually a bit of a lag,” said Mr. Madani.

One bank economist, who asked not to be named, said there is a caution at the banks right now about the bond market. “They want to know that these rates are here to stay,” said the economist.

Can your Vancouver Mortgage Withstand a Stress Test?

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Can your Vancouver Mortgage Withstand a Stress Test?

Vancouver Mortgage BrokerFrom a recent survey performed by the Bank of Montreal, three out of ten first-time home buyers believe that mortgage rates will remain the sane over the following five years. It would great if they did but what happens if it doesn’t turn out that way?

Making your mortgage payment can be a lot less stressful if you are certain that you can financially manage a higher payment. Should rates rise however, it also certain that as many as 20 percent of all mortgage borrowers could face some payment stress.

Lowering that risk of being stressed financially may require some pre-panning and there are calculators available that will help you determine whether you will be financially stressed if rates rise. You can find these calculators simply by entering “Mortgage Stress Test Calculator” to find out how you fare.

These calculators have been designed to illustrate what you might be paying in the future using interest rates which have been estimated based on the balance of your mortgage should it have to be renewed.

The basic rule of thumb used by mortgage lenders is that you should not be using more than 32 percent of your gross income to cover your mortgage payment plus what you will be paying for property taxes, home heating costs, condominium fees and other related costs.

If you do not have adequate financial resources that go above and beyond this 32% ceiling then you could find your monthly budget severely stressed or even shattered as a consequence. This is particularly something to consider if you are also saddled with other large monthly payments that you have to maintain.

Tips of How to Reduce Mortgage Payment Stress

  • You can buy a cheaper house so you manage future rate increases more easily.
  • You can increase the amount of the down payment you put down on your home.
  • Choose to lock your mortgage into a fixed rate which is longer such as a 5 year or a 10 year term fixed rate.
  • Make extra mortgage payments to reduce the principal.
  • Reduce your other current debts so you will have extra cash on hand should rates rise.
  • Invest a certain percentage of your available income into a TFSA (Tax Free Savings Account) which you can access as needed should rates rise down the road.
  • If you can afford a 25 year amortization, you could extend the amortization to 30 or 35 years and set the payments as a floating payment to match a 25 year amortization which allows you to lower payments if rates rise.
  • Choose an adjustable rate mortgage which has a fixed payment which affords you some financial protection during the term itself (but not when the term matures).
  • Some, but not all lenders also offer a “skip-a-payment” option which can be used as a last resort because otherwise you will be increasing the amortization and will also likely increase the amount of overall interest you will be paying.

If you have to use either the longer amortization option or the skip-a-payment option then your mortgage payments may actually be too costly to begin with.

Crush your mortgage – MoneySense shows you how to pay off your mortgage early and become debt-free sooner than you imagined. – Consult with Bruce Coleman, Vancouver Mortgage Broker

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Opaque contracts. Stiff penalties. Unnecessary insurance fees. Mortgage documents are full of traps that make it extremely difficult to pay off your biggest debt. MoneySense shows you how to pay off your mortgage early and become debt-free sooner than you imagined.

By David Hodges | From MoneySense Magazine,

Vancouver Mortgage BrokerIt was a sun-drenched autumn afternoon in 2005 when Heidi Croot and her husband Phil Carey found themselves barreling down Highway 401 toward the picturesque lakeshore community of Port Hope, Ont. Armed with a picnic lunch, the couple was in a celebratory mood. finally, they were following through on a promise made to each other more than a decade ago: to pay off their mortgage early, free themselves from their well-paying but stressful corporate jobs in downtown Toronto and downsize to the countryside. Croot and Carey, then 47 and 59, had been living north of the city in the commuter town of Thornhill. They were tired of suburban sprawl, not to mention their daily two-plus-hour slog to and from work. Small, quiet Port Hope, some 100 km away from the gridlock and congestion of Toronto, would soon be their new home.

Croot and Carey paid off their 25-year mortgage in 2002, 10 years earlier than expected. With the freed-up income, they were finally in a position to focus solely on building up their retirement savings—and that’s exactly what they did, continuing on with their regular jobs for three years prior to moving to Port Hope. These days, Phil is retired from his engineering career, while Heidi has transitioned to part-time work. Their only regret is that they didn’t figure out how to do this earlier.

As the couple will attest, paying off your mortgage is the single most important step towards financial independence and a prosperous retirement. Owning a principal residence outright gives you the financial freedom to funnel money that formerly went to your mortgage into your savings or to pursue lifelong dreams like travelling. Don’t forget, too, that mortgage interest adds tens of thousands of dollars to the real cost of a home, so a shorter mortgage slashes the amount you pay in total. Paying off your mortgage as quickly as possible should therefore be an important goal for any homeowner—whether you’re halfway through the process, just starting out, or even just contemplating buying a house.

If all the above advantages sound compelling, bear in mind that sacrifices will have to be made. “Paying off the mortgage early wasn’t easy,” Croot says. “We had friends who were going out twice a week for dinner and we didn’t do that.” Without question, tightening up your spending is a key tactic for freeing yourself from mortgage debt, but there are also many other strategies that won’t cost you a dime and can save you thousands. Allow us to let you in on the secrets every prospective and current home owner should know.

Polish off your credit score

If you’ve always paid off your debt in a timely manner, your credit score should be fine. But that doesn’t mean you couldn’t have any unexpected surprises, says Toronto fee-only adviser Jason Heath. He cites the example of a client who was buying a condo and was unaware she had $300 outstanding on a Holt Renfrew card. It took her more than three months to repair her credit rating. While that single infraction wouldn’t have been enough for a bank to deny her a mortgage, it could have resulted in a significant jump in her interest rate.

Moshe Milevsky, an author and finance professor at the Schulich School of Business, says people applying for mortgages should pull their credit scores six to 12 months in advance to make sure there’s nothing wrong. “Get your credit report from all the bureaus,” he advises. Also, try to avoid job volatility for at least six months before applying, as this will make your income appear more stable in the eyes of the banks.

Maximize your down payment

While all home mortgages in Canada require a minimum 5% down payment, paying 20% upfront is one of the single biggest cost-cutting measures a borrower can make. Not only will you owe the bank less principal and interest, but critically you will avoid having to pay Canada Mortgage and Housing Corporation (CMHC) insurance premiums that would add thousands of dollars to your mortgage. CMHC mortgage loan insurance doesn’t protect you—it protects your bank if you default. It’s mandatory in Canada for down payments from 5% to 19.99%. (This insurance can also be purchased through Genworth, a private company.) And the cost is substantial—for instance, if you only put a 5% down payment on a $350,000 home, the CMHC premium will be a hefty $9,144.

If you can’t afford an initial payment of 20%, putting down 10% to 15% will still reap major financial savings. “Those are the insurer breakpoints where insurance fees drop,” says Vancouver mortgage broker Rob McLister. “For example, putting down 10% instead of 9.9% saves you 0.75 percentage points off your entire mortgage amount. That’s $1,500 on a $200,000 mortgage.” For those looking to boost their down payments, the Home Buyers’ Plan is a popular option; it lets you withdraw up to $25,000 in a calendar year from an RRSP to put toward a home you are buying (or building).

One of the best strategies for avoiding mortgage default insurance premiums—and to get into the market sooner—is to buy a house that fits your budget. “Sometimes you can’t move into your dream house as quickly as you want,” says Jason Heath. “But with a smaller property you’re that much closer to having that 20% down payment, not to mention money left over.” That was the strategyAnne Langevin, a 43-year-old retail clerk, and her husband Rene, a 42-year-old finance manager, followed back in 1998 when they bought a $210,000 suburban starter home in Mississauga, Ont. “It was just the two of us and the house was reasonable. It wasn’t a huge mansion,” says Anne.

Get the best rate

Prospective home buyers often stick with their own financial institutions when applying for mortgages, but it pays to shop around. Credit unions and non-direct lenders, known as monolenders, will offer a discount—sometimes just a fraction of a percentage point—that will save you money on interest payments compared to larger lenders. For those worried about getting mortgages from more obscure companies, Heath says to remember you’re borrowing, not investing. “The fact it’s a more obscure institution makes it no riskier than a bank. You’ve already got the money.”

Heath recommends scanning the major rate comparison websites—such as Ratesupermarket.ca or Ratehub.ca—to get a general sense of where the market is. Also be sure to ask your lending institution if the interest on your mortgage will be compounded monthly or semi-annually. The less often the interest is compounded the better—semi-annual compounding could save you hundreds of dollars or more in interest.

If you’re not comfortable negotiating on your own, a mortgage broker will do that on your behalf for free. Mortgage brokers are paid a finder’s fee by the lender. There’s no charge for a pre-approval and no obligation. “We’ve always used mortgage brokers,” says Anne Langevin. “When you go into a bank you have to haggle for a lower rate. My husband and I don’t like to haggle.”

Normally variable-rate mortgages are a better deal than fixed-rate mortgages because you pay a premium for the security of locking into a rate. However, that doesn’t appear to be the case right now, says Jason Heath. “Fixed and variable rates have almost been identical for five years—2.9% on fixed and 2.8% on variable,” he says. “So, arguably the cost of locking into a fixed-rate mortgage is so cheap that it’s more compelling to do so.”

Watch the fine print

Securing a low interest rate can shave years off a mortgage, but equally important are the terms of your contract. “Not looking into that and just going by the rate can get you into trouble,” says Calgary mortgage broker Joe Jacobs. For instance, when the Bank of Montreal was the first major lender to drop its five-year lending rate to 2.99% early in 2012, you couldn’t break the mortgage to switch to another lender. “That’s a fairly significant thing,” says Jacobs, “but a lot of clients didn’t know what that was.”

This is where experienced mortgage brokers can make a difference, he says. They will review any restrictions or potential penalties on the mortgage that may end up costing you far more than a small rate difference.

Prepayment privileges also go a long way toward helping pay off a mortgage faster. It may seem unfair, but most mortgages limit your ability to pay off your debt early because the financial institutions will lose the interest revenue that they were expecting. Most mortgages allow borrowers to make annual prepayments of 10% to 20% of principal, without extra fees, with the increased payment amount going directly towards the principal. Just be sure to inquire about the details, as some “no frills” mortgages may prohibit this option. Also be aware that payout penalties—the fees you’ll pay if you break your mortgage early—can sometimes cost tens of thousands of dollars.

The right amortization

Those who want to pay off their mortgages sooner should choose the shortest possible amortization within their financial means, or, as Moshe Milevsky, puts its: “as short as possible until it hurts.” While the typical amortization period is 25 years, it can be as short as 15 years, or as long as 35 years (if you made a down payment of 20% or more on your home). Forcing yourself to pay off the mortgage in fewer years translates into lower interest costs and substantial savings. The major hitch, however, is that your regular payments will be much higher.

To give yourself the best of both worlds, Vancouver mortgage broker Mark Fidgett advises going with a longer amortization, but setting your regular payments higher with prepayment privileges. In effect, you could be paying off a 20-year mortgage in 10 years, but you’d also have the flexibility to switch back to smaller installments if you were to experience any changes like a job loss or the birth of a child. “That way, you’re in control,” says Fidgett. Your payment schedule can also make a big difference. Payments can be made every month, twice a month, every two weeks or weekly. Going with one of the latter two options is preferable because it will accelerate your payments by an additional two weeks every year. For instance, over a 25-year amortization period on a $350,000 home with a 3% rate you would save more than $18,000 in interest by going with an accelerated biweekly plan.

Prioritize your mortgage

Maximizing your down payment and procuring the best rate and terms possible will save you thousands of dollars. But extra payments will have the biggest impact. To do that, you’ll have to make some tough decisions about your spending and cut out non-essential items, such as family vacations and other luxuries. You may need to stop saving for retirement, depending how serious you are about being free of your mortgage. While that may seem extreme, those who free up their home debt quickly can easily make up for lost investment time later on, provided they funnel cash that previously went to their mortgage into retirement savings.

Remember that paying off debt has the same impact as saving, as both add to your net worth. However, most people’s retirement money is in investments that may or may not gain value, while money paid against the mortgage gives you a guaranteed return by saving you interest.

Nicholas Hui, an auto parts salesman, and his wife Kathy Chan, a law firm marketing manager, followed this strategy, paying off their $434,000 mortgage on their Markham, Ont. home in six years. “We didn’t have extravagant lifestyles,” he says. “We didn’t go to Europe or anything.” Instead, they opted for an open mortgage, which has a higher interest rate but no penalty for making extra payments. Several years of sacrifice and a few $20,000 and $30,000 lump-sum payments helped them meet their goal. These days, they’re quickly catching up on their RRSPs and have started RESPs for their young children—all without the burden of a large mortgage hanging over their heads.

The real key to paying off your home faster is to make sure you get a mortgage that allows you to make extra payments throughout the year and take advantage of them. “That’s the most likely way you’re going to pay off your mortgage a bit quicker,” says Heath. He says borrowers are less likely to make extra payments if they are only allowed to make a single lump-sum contribution on an anniversary date.

Another strategy for paying off your mortgage faster is to increase your regular payments to the maximum allowed without penalty, typically 10% to 15%. Some mortgage contracts also allow borrowers to double their payments. That was one of the strategies Anne and Rene Langevin used to pay off their $210,000 home in less than five years. In addition to making prepayments of 15% to 20% annually, says Anne, “we doubled-up payments whenever we could.”

Paying off your mortgage early isn’t easy, but you’ll thank yourself for it later on. Back in Port Hope, Heidi Croot and Phil Carey are living proof. These days, the couple enjoy living debt-free in their country home, which sits on seven acres of lush property in Ontario’s Northumberland County Forest. Although the two have socked away a nice chunk of money for retirement, Croot still enjoys working part-time to earn additional income—but at a far more relaxed pace. Budget vacations have long since been done away with, too. “We take more expensive ones now,” says Croot. “Africa is on the horizon. We did Maui last November.” All the sacrifices the couple made years ago to free themselves of mortgage debt have paid off. As Croot puts it, “It’s good to be alive and in the driver’s seat.”

 

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