The decision to choose a fixed or variable rate is not always an easy one. It should depend on your tolerance for risk as well as your ability to withstand increases in mortgage payments. You can sometimes expect a financial reward for going with the variable rate, although the precise magnitude will ebb and flow depending on the economic environment.

Fixed rate mortgages often appeal to clients who want stability in their payments, manage a tight monthly budget, or are generally more conservative. For example, young couples with large mortgages relative to their income might be better off opting for the peace of mind that a fixed-rate brings.

A variable rate mortgage often allows the borrower to take advantage of lower rates – the interest rate is calculated on an ongoing basis at a lenders’ prime rate minus a pre-determined percentage. For example, if the prime mortgage rate is 5.5 percent, the holder of a prime minus 0.5 percent mortgage would pay a 5.0 percent variable interest rate.

As a consumer, the best option is to have a candid discussion with your mortgage professional to ensure you have a full understanding of the risks and rewards of each type of mortgage. Call me today at 416-674-2318 and let’s get started.

The advantages for home buyers to obtain a mortgage pre-approval.

Obtaining a Pre-approval

A mortgage pre-approval from a mortgage lender says you are approved for a mortgage before you have selected a specific property. You simply fill out a mortgage application and provide the lender with income documentation and consent to pull your credit report and evaluate your finances for credit worthiness. The lender will process your application like a traditional mortgage request and will advise you the amount of money that you can borrow.

Knowing Your Budget

One of the big advantages of going through this pre-approval process is that you now know your borrowing limit. You know exactly how much money you can borrow for your home purchase. You also know how much your mortgage payment will be. People often spend time looking at properties that they could never afford or be approved for but when you have a pre-approval in hand you know exactly which properties you should search.

Negotiating With Strength

Having a mortgage pre-approval will give you increased negotiating power. When you look at properties as a pre-approved buyer, real estate agents and sellers will treat you as a preferred customer. Buyers who are not pre-approved represent a degree of uncertainty for the seller so when you make an offer to purchase a property it will be treated as a priority because the seller knows that your offer will essentially result in a sure deal. This means that the seller can agree to your offer and get a guaranteed amount of money instead of wasting time on a potential offer associated with uncertainty of mortgage approval. If a buyer without a pre-approval is chosen, that buyer may not qualify for a loan in the amount that is needed so the sale would fall through and the seller would be right back where he started. Being pre-approved will automatically give your offer a lot more weight when it comes to negotiating with sellers and your odds of getting the house that you want will dramatically improve.

To get pre-approved, call me today at 416-674-2318 and let’s get started, or send me a quick email: garry.grewal@dominionlending.ca

Mortgage brokers keep up-to-date with the latest product offerings from lenders and have intimate knowledge of various features and options. Here are six key reasons for using mortgage brokers.

1. Choice: If you go directly to your bank, you will only be offered products from that financial institution. Mortgage brokers have relationships with several different lenders and are knowledgeable across each lender’s range of products.

2. Works For You: As small business owners, word-of-mouth makes or breaks mortgage brokers. Hence they are motivated to act in the clients’ best interests.

3. Skilled Negotiator: Mortgage brokers’ skill and experience, combined with their relationships with lenders, help them negotiate rates that are often better than what borrowers could achieve on their own. That remains true even in this competitive environment.

4. Goal Orientated: Are you looking for the cheapest rate? Are you interested in paying off your loan sooner? Are you planning on buying another investment property? A mortgage broker will interview you to find out what you want out of your home loan and work to find the best product to suit your needs and home ownership goals.

5. Paperwork: Mortgage brokers help their clients complete and submit the mortgage application, as well as gather the documentation required by the lender.

6. Read the Fine Print: After you’ve received your loan approval, the mortgage broker can help you understand the document and conditions of the contract. Also, the broker can walk you through the next steps leading up to the closing of the mortgage transaction.

To start a confidential conversation, please call me at 416-674-2318 or get started right away with a swift pre-approval from here: http://tinyurl.com/kwhe7kc

Mortgages in Canada are typically amortized over 25 to 35 years. While this seems a long time, it does not have to take anyone that long to pay off their mortgage if they choose to do so in a shorter period of time.

With a little bit of planning, and some sacrifice, most people can manage to pay off their mortgage in a much shorter period of time by taking positive steps such as:

1. Making mortgage payments each week, or even every other week. Both options lower the interest paid over the term of the mortgage and can result in the equivalent of an extra month’s mortgage payment each year. Paying your mortgage in this way can take your mortgage from 25 years down to 21.

2. When your income increases, increase the amount of your mortgage payments. Let’s say you get a 5% raise each year at work. If you put that extra 5% of your income into your mortgage, your mortgage balance will drop much faster without feeling like you are changing your spending habits.

3. Mortgage lenders will also allow you to make extra payments on your mortgage balance each year. Just about everyone finds themselves with money they were not expecting at some point or another. Maybe you inherited some money from a distant relative or you received a nice holiday bonus at work. Apply this money to your mortgage as a lump-sum payment to reduce your mortgage balance and watch the results.

By applying these strategies consistently over time, you will save money, pay less interest and pay off your mortgage years earlier!

1. Make a double mortgage payment whenever you can. Doing this once a year can help pay off the mortgage 4 years sooner! If your payment is $2,000 a month, four years of no payments is $96,000!!

2. Increase the frequency of payment. Going from monthly to accelerated bi-weekly can reduce your mortgage by over three years! For a mortgage with $2,000 monthly payment, three years of no payments is $72,000!!

3. Increase your payment. For example a one-time 10% increase can shave 4 years off the mortgage. That’s $96,000! Imagine if you bumped the payment 10% every year from the get go!!! You would be mortgage free in 13 years! Start to finish! Can’t do it? How about 5% every year? You would be mortgage free in 18 years! Or how about increasing the payment by the amount of your annual raise?

4. Lump sum payments … same idea … mortgage is gone way faster! Even just one payment a year equivalent to 1 monthly payment will give you similar results as #2 above! How about using your annual work bonus?

5. Renegotiate whenever rates drop to save interest and pay mortgage faster! Generally a good idea, however, get independent professional advice (a cost benefit analysis) to make sure it makes sense for you at that time: I can help! A 1% reduction on a $300,000 mortgage will save $250 a month … times 5 years … that’s $15,000!!

6. Keep your credit rating high to obtain the best rate. Always pay on time. Never let payments slip past their due date. Always keep balances low in relation to credit limits on credit cards, lines of credit, etc. 50% or less is best even if you pay the balances in full every month. What generally reports to the credit bureau is the statement balance each month. So if your credit limit is $3,000 and you are running $3,000 a month through the card each month (to collect all those points you never spend or can’t use in blackout periods) and paying in full, it will look like you are maxing out your credit limit and your credit score will drop accordingly.

7. Increase your mortgage! It may sound counterproductive! Do it to roll in your credit cards, line of credit, car loan, etc., for a better rate and a set payment plan. Do you have a low or promo rate credit card? Those seldom end well. Keep the total payment amount the same but pay it in one neat monthly payment to the increased mortgage.

8. Make an RRSP contribution and use the refund to pay down your mortgage.

9. Go variable rate with your mortgage but keep payments as if fixed (higher) rate. Variable rates usually win out over fixed rates in the long run. By paying a higher payment you will pay off the mortgage faster. It’s also a buffer in case the rate rises above the fixed rate for short periods of time. Remember that variable rates are not for everyone. Get independent professional advice to find out what is best for you. I can help again!

10. Take your mortgage with you when you change properties to avoid penalty or higher rate on a new mortgage. This is called “porting”. Make sure that your mortgage has this feature. It is not widely known and could save you a ton of dough.

11. Set up auto savings every pay cheque, even $10, when it reaches the amount of one mortgage payment, apply it to the mortgage. This concept goes nicely with #4 above.

12. Unhook from the money drip … stop paying with your fancy points credit or debit card. Way too easy to overspend! Go old school, go off the grid … pay cash, it works!

13. Don’t ever buy on layaway, you know, six months don’t pay schemes. You think … No problem I’ll just pay it in six months, it will be okay. Think again! If you don’t have it, don’t spend it.

14. Downsize your house. Two good friends and clients of mine, having followed many of the tips here, are in great shape except they have a six bedroom house! Two people, six bed house – go figure! They are nearly debt free so no worries, but can you say the same? Circumstances change, make the adjustments along the way!

15. Don’t want to move? Convert the basement/rooms to rental and use the income to pay down debt.

16. Convert your mortgage to tax deductible. If you are self-employed, own rental property or have investments, this is likely possible. I won’t go into details here, just ask me how.

17. Have a payment priority. Pay ‘on time.’

18. Pay off the highest interest rate first.

19. If you have tax deductible loans, pay them off last, slowest. Pay the non-tax deductible loans first and fastest.

20. Pay off ugly debt first. Stuff like credit card purchases.

21. Payoff bad debt next. Stuff like car loans, boat loans. Things that depreciate in value.

22. Pay off good debt (or shall I say “not so bad debt”) last. Stuff like mortgages, investment loans. Things that hopefully appreciate in value.

23. Buying a car? Finance it if you have to, don’t lease! Check with a professional first – if you are self-employed it might make sense.

24. You have $20,000 in a secret bank account for a rainy day fund and $20,000 owing on a line of credit. Seriously? The bank account is paying you next to nothing (which is taxable income to boot) and the line of credit rate is way higher (and not tax deductible.) You know what to do! You can keep the line of credit open and on standby for rainy day funds. Make it the secret line of credit that you have but never use.

25. Give your Banker more money. No really. Keep enough in your chequing account to meet the minimum requirement to waive your service charges. “My bank charges $10 a month for 25 transactions and nothing, zero, zilch, zip if I keep $2,500 in the account.” Let’s see $10 x 12 is $120 a year to pay off debt. I’d have to earn 5% with the $2,500 in my savings account to come out ahead. No brainer here. Oh yeah, if you need more than 25 transactions a month…see #12 above.

26. #26? BONUS TIP and MOST IMPORTANT. Let’s face it, you’re not the Government and you’re not a Bank, you can’t run deficits forever and you won’t get a bailout … stop procrastinating already! See 1 through 25 above and take action now!

A Word of Caution: Beware of some too-good-to-be-true ultra-low-rate mortgages. These “no frills” mortgages are often loaded with restrictions like pre-payment limitations, fully-closed terms, stripped-out features, or unusual penalties. You really need to compare product to product. If you’re not looking at what you’re giving up, you may regret it in the future. This alone could prevent you from taking advantage of tips #1, 2, 3, 4, 5, 7, 8, 9, 10, 14, 16 and 22!

Call me any time at 416-674-2318 for a confidential conversation and an objective review of your debt situation.