Roughly 50% of your interest is paid in the first 10 years of your mortgage. So if we can decrease the lifetime of the mortgage, this could provide a huge value in savings.

So lets say you want to put 25% down on a $1 million dollar purchase, here is why we would we say do 20% down instead. The math may surprise you:

The first chart in this link the is based upon a $750,000 with a 2.79% over 25 years.

Amortization Cheat Sheets

The second chart below is the result based upon $800,000 with a 2.79% over 25 years with a $50,000 lump sum on payment 13

 
Amortization Cheat Sheets
 

So doing some quick math here:

All being equal and the calculation taking the extra 5% actually saves you $71,558 and pays the mortgage off 2 year faster. I have accounted for the payment difference as well. Keep in mind there are additional strategies here that could benefit you. I assumed no yield on the $50,000 for one year. Even a basic GIC or something of the light would produce a small yield. Another strategy would be to use that money to put into your RSP account and generate a tax refund, then apply that amount as an extra mortgage repayment.

Until recently there has not been much in the way of official press releases from the insurance industry, and just this week the Insurance Brokers Association of BC provided a comprehensive document outlining why we have a problem and how it is affecting strata corporations. I encourage current strata owners to have a read of the article, and share this with anyone you know that is either planning on buying a condo or selling their condo.
IBABC Press Release

A new study by Zoocasa shows that homes in Vancouver may be costly to buy, but they are cheaper to own than in other cities. Out of the 25 major cities studied, Vancouver has the lowest property tax rates which can more than offset the higher prices of housing in that city. The owner of a home with an assessed value of $1 million in Vancouver will owe just $2,468 a year in property tax, compared to $6,355 in Toronto or more than $10,000 in Ottawa.
On a pure property tax basis, Vancouver home ownership is also cheap in comparison to cities in the U.S. For example, the annual cost of owning a home in Vancouver with a property tax rate of 0.25% is roughly half that of Toronto (with a 0.64% rate), a third that of Seattle (0.84%), and almost a fifth that of San Francisco (1.16%). So, for foreign buyers, Vancouver is a relatively inexpensive place to park money. This has been a significant incentive for speculative investment, especially in high-end homes and in turn, it is likely a historical factor that has driven up home prices over the past twenty years.
Residential real estate prices have doubled in Vancouver over the past decade. This has put homes out of reach for much of the local population whose wages have not kept pace. The average home price in Vancouver is now a wicked ten times average household income.

Canada’s big banks are locked in a competitive pricing war over variable-rate mortgages, but economic trends point to more interest rate hikes ahead — leaving Canadian mortgage borrowers struggling to interpret the mixed messages.

The Bank of Canada has raised its trend-setting interest rate once this year and is expected to do so at least once more before the end of 2018. When interest rates rise, banks are inundated with demand for fixed rates, so borrowers can lock in their rates.

As a result, Canada’s lenders are working to attract borrowers to variable-mortgage rates, which are tied to the fluctuations of the central bank’s overnight rate. They are offering special rates as low as 2.45% for May, some of the biggest-ever widely advertised discounts advertised by the big banks. At the same time, they have increased the rates of their fixed-rate mortgages.

Even in this rising interest rate environment, experts suggest current variable-rate options are attractive when compared to fixed-rate mortgages.

“Up until recently, when asked, I had been favouring the fixed over the variable,” said Dave Larock, president of Integrated Mortgage Planners in Toronto.

His attitude changed after fixed-rate mortgages became more expensive in response to higher bond yields and variable-rate mortgages got cheaper due to competition among lenders.

As a result, the gap between the available rates from the 15 lenders Larock consults widened to nearly one full percentage point, with the five-year variable rate at 2.45% and five-year fixed rate at 3.39%.

“That’s your margin of safety,” Larock said. “That’s how far variable has to rise before you’re paying more than the fixed rate.”

Larock cautioned there are plenty of warnings that the Bank of Canada’s influential overnight rate will be going up again this year — a move that would quickly push up the cost of a variable-rate mortgage.

But he said it’s debatable whether the central bank will act as quickly as economists anticipate, adding it’s statistically unlikely that the overnight rate will go only upward over the next five years, given historical trends going back 28 years.

“Even if rates go up first, there’s a very reasonable chance that at some point they’ll drop (again).”

As a result, borrowers could very well end up paying less total mortgage interest over the next five years by choosing a variable rather than fixed rate, Larock said.

But some argue it’s unwise to become too focused on securing the lowest available interest rate.

“You might actually not be doing what’s right for you, given all of the things that are around the financial needs of you or your household,” said Stephen Forbes, a CIBC executive vice-president whose role includes personal banking.

Forbes pointed to a client in Toronto who initially wanted to borrow $800,000 through a variable mortgage to help pay for a $1.6m house.

“Her only focus was on rate. She wanted the lowest rate possible,” Forbes recalled.

But the client changed her mind after taking a broader look at the situation, including her household income, non-mortgage debt, children’s ages, and her and her husband’s lifestyle aspirations.

The fixed-rate option provided her the certainty she wanted over knowing what her rate would be for the foreseeable future, he said.

In the end, Forbes said the client opted to borrow only $650,000 with a fixed-rate mortgage — not variable — and also consolidated non-house debts in a line of credit at a lower rate.

There are times when a variable rate mortgage is the perfect decision for a borrower, Forbes said, but that depends on the individual’s circumstance and their ability to cope if the variable-rate mortgage becomes more expensive.

“What I see sometimes that worries me is when people use a variable rate mortgage as a lever to borrowing more — hoping that rates will not change down the road.”

There are ways for people with variable-rate mortgages to protect themselves from a higher interest rate, Larock said.

Borrowers can structure their household budget to be able to pay the higher fixed-term rate for the next five years — even if the variable mortgage’s rate is lower, he said.

“Instead of just pocketing the extra cash … plow that savings back into the mortgage to pay if off more quickly.”

The Canadian Press

Paying off a large debt like your rental property’s mortgage is unquestionably a great and liberating feat, but there are several circumstances where you might not want to do that.

Here are the other situations to consider that could make paying off a rental mortgage early a poor choice:

1) You lose your mortgage interest deduction. The mortgage interest is treated like a business expense for rental property. This deduction is most important in high tax brackets.

2) You lose a low borrowing cost. In the age of low mortgage rates, it makes sense to hold onto a low fixed mortgage rate for as long as possible. On the other hand, if you borrowed at a high rate either pay it down or shop around and refinance.

3) You tie up capital in an illiquid asset. Unless you have a very diversified net worth, having a lot of capital tied up in a property can be risky.

4) You decrease your financial returns. If you put 20% down, a 4% appreciation on the property means a 20% cash on cash return thanks to leverage e.g. $100,000 down payment on a $500,000 house that appreciates by $20,000 = $120,000 equity, a 20% increase. If you’ve paid off the other $400,000 in mortgage early, the return falls all the way down to 4%.

5) You miss out on opportunities to invest more efficiently. Instead of tying up all of your capital in one property, you can invest surgically in multiple properties through methods such as “real estate crowdsourcing” in locations where valuations are much cheaper

If you no longer need motivation to achieve financial freedom, pay off your mortgage. Not having the tax deduction isn’t the end of the world because you still have the ability to deduct “depreciation” on your taxes.
Your goal should be to become debt free when you absolutely have no desire or ability to work a day job or maintain a rental property. You’ll find that the older you get, the less you want to deal with tenants.
It feels great to not only to have no mortgage on a rental property, but it sometimes feels even better re-investing the proceeds of a sale in passive income investments that require no work.

Source: Financial Samurai

Rates have substantially increased over the last 6 of months. We have seen 3 prime rate increases with more on the horizon. Fixed rate mortgages have also followed suit due to bond market instability and the increases are noticeable. Consumer sentiment has rapidly moved from Adjustable rate products to longer term Fixed rates of 5 years or greater. The advantage of Fixed rate is that they provide clients with added security and stability against this recent storm of volatility. This storm doesn’t seem to have an end in sight either with many questions still to be answered in the coming months. When will bond rates stabilize? Will global pressures continue to drive increases? Will we see a return to historical norms? What will be the impact of NAFTA negotiations/deterioration on the Canadian economy?

If clients you are concerned these days it’s with good reason. Perhaps the interim answer to all this instability and volatility is to start looking long “term”. 7 & 10 year terms to be specific. Longer term mortgages like a 10 year term help insulate you against potential increases in the short to long-term as well as provide safety and consistency with mortgage payments that won’t fluctuate with the market. We don’t have to go back very far (6-7yrs) to a time when 10 year mortgages were a very popular and attractive option. During that period of time many case studies show this product didn’t work out for those borrowers who selected those 10 year terms, however there was a major difference between that period of time and today. 6-7 years ago we were in a more stable rate environment and there was very little difference between the 5 & 10 year rates at the time. Shortly after this period, rates quickly dropped to even further all-time lows. Compare those details to our current market situation and it becomes quickly apparent rates have been continually rising with more sustained increases forecasted. So a 7 or 10 year mortgage option today might be work a good look. The 7 yr rates especially are very close to the same as 5 year rates.

7 & 10 year term mortgages give you:
• Security
• Stability
• Protection against rising rates
• Providing cost certainty as part of long term financial plan
• Protection against future legislated rule changes
• Portability options while maintaining their competitive rate
• Standard penalty calculations
• 20% lump sum payment
• 20% payment increases

Contact me to discuss your specific situation more at gregory.ero@dominionlending.ca

The Office of the Superintendent of Financial Institutions (OSFI) issued a revision to Guideline B-20 on October 17, 2017. The changes will go into effect on January 1, 2018, and will require conventional mortgage applicants to qualify at the Bank of Canada’s five-year benchmark rate or the customer’s mortgage interest rate +2%, whichever is greater.

OSFI is implementing these changes for all federally regulated financial institutions. As a result, some customers looking to purchase a home or refinance may experience a reduction in the total principal amount they are qualified to borrow.

Up to December 31, 2017 After January 1, 2018
Target Rate 3.39% 3.39%
Qualifying Rate 3.39% 5.39%
Maximum Mortgage Amount $400,000 $325,000
Available Down Payment $100,000 $100,000

Home Purchase Price $ 500,000 $425,000

A customer’s maximum mortgage amount will be influenced by other factors including product and term selected, amortization period, other debt obligations, and credit score.

One month of headlines suggest interest rates are dropping to new lows, another says no changes anytime soon, and recently many headlines seem to be suggesting an increase soon. This stream of mixed messages contradicting one another has been steady since rates dropped to 50-year record lows in 2009.

Many were adamant in 2009, and each year since, that rates could go no lower, and yet they have. Sure there have been a few shortlived blips upward along the way, in defiance of all who are calling for a return to normal… whatever normal may now be.

The key driver of interest rate movement is the economy in general. Not a thin slice of it such as real estate. What drives interest rates down? Economic bad news. What will drive rates up? Economic good news.
Economic good news seems in short supply since 2008.

Interest rates are a very large economic lever, far too large to be used simply to cool the arguably overheated real estate markets of two particular cities. Cooling of real estate is not addressed via interest rate hikes, markets are cooled and have been cooled as of late through lending policy changes.
Many commentators forget that only a few short years ago there existed 40-year amortizations with 100% financing not just for owner-occupied but for investment properties, and variable-rate mortgage qualifications that were much easier than today.

The reality is that borrowers in 2007 – at nearly double the current interest rates – qualified for larger, and arguably riskier, mortgages than borrowers today do.

And always do the math, yes math is no fun, but here is a shortcut:
A 0.25% rate increase equals a $13 per month increase in payments per $100,000 of mortgage balance.

One month of headlines suggest interest rates are dropping to new lows, another says no changes anytime soon, and recently many headlines seem to be suggesting an increase soon. This stream of mixed messages contradicting one another has been steady since rates dropped to 50-year record lows in 2009.

Many were adamant in 2009, and each year since, that rates could go no lower, and yet they have. Sure there have been a few shortlived blips upward along the way, in defiance of all who are calling for a return to normal… whatever normal may now be.

The key driver of interest rate movement is the economy in general. Not a thin slice of it such as real estate. What drives interest rates down? Economic bad news. What will drive rates up? Economic good news.
Economic good news seems in short supply since 2008.

Interest rates are a very large economic lever, far too large to be used simply to cool the arguably overheated real estate markets of two particular cities. Cooling of real estate is not addressed via interest rate hikes, markets are cooled and have been cooled as of late through lending policy changes.
Many commentators forget that only a few short years ago there existed 40-year amortizations with 100% financing not just for owner-occupied but for investment properties, and variable-rate mortgage qualifications that were much easier than today.

The reality is that borrowers in 2007 – at nearly double the current interest rates – qualified for larger, and arguably riskier, mortgages than borrowers today do.

And always do the math, yes math is no fun, but here is a shortcut:
A 0.25% rate increase equals a $13 per month increase in payments per $100,000 of mortgage balance.

And keep in mind that the majority of Canadians are in fixed rate mortgages, and the majority of them have renewal dates a year or two away. And for those mortgage holders an increase from todays rates of 0.25% – 0.50% would in fact only be equal to their current rate.

A 0.25% increase in the Bank of Canada rate would impact less than 10% of households across Canada, perhaps less than 5% of households. And that impact would be on average ~$39 per month.

Could you handle a $39 increase in your mortgage payment? Odds are you have actually already increased the minimum payment on your own as so many Canadians do. In that case you are already ahead of any increase.

Is the economy truly strong enough for an increase? We shall see come July 12 what the Bank of Canada thinks.

Are the small percentage of variable rate mortgage holders in Canada not already making higher payments ready for a 0.25% increase – overwhelmingly yes, they absolutely are.

The big beneficiaries of these uncertain times or trepidation around even a slight interest rate increase will be those in fixed rates approaching renewal dates over the next 12 months, and those enjoying the ride in their variable rate mortgages.

Be sure to start the renewal conversation with your broker six months out from the mortgage renewal date. Your current lender may suggest that rates are about to move and suggest locking into something early as the right move, but always consult with your independent mortgage broker first to determine if the move being suggested is right for you – or simply just right for the lender.
What is right for you matters to us.

Robert McLister
Published Thursday, Feb. 02, 2017 12:30PM EST
Last updated Thursday, Feb. 02, 2017 11:19AM EST

“What’s your best mortgage rate?” was once a fairly straightforward question. These days, it’s impossible to respond intelligently to it without asking a litany of other questions.

That’s true today more than ever thanks to recent federal rule changes. Ottawa’s changes to regulations have jacked up lenders’ costs – and the lowest mortgage rates – on refinancings, amortizations over 25 years, million-dollar properties, single-unit rental properties and mortgages where the loan-to-value ratio is between 65.1 and 80 per cent.

So be prepared to play a game of 20 questions to find your best rate in today’s market. Note that thanks to new mortgage rules, which make it more expensive to lend to people who the government deems higher risk, the last six questions on this list have taken on a whole new importance.

Here are those questions:

1) What’s the term?

Mortgage contract length (“term”) and rate type (fixed or variable) are usually the biggest factors impacting your rate.
As of this writing, the cheapest five-year fixed rate, for example, costs 50 basis points (bps) more than the cheapest five-year variable rate. (Note: 100 basis points equals one percentage point, so 47 bps equals 0.47 percentage points.)
2) Is the mortgage for your primary residence, a second home or a rental that you won’t live in?

If you rent out the property and don’t live there, you’ll pay up to 25 bps more than if it were your primary residence.
The cheapest rates are seldom available on second homes or unusual properties.
3) Can you adequately prove your income?

If you can’t, forget about the lowest rates. In most cases you’ll pay at least 150 bps more.
4) Where is the property located?

The province matters. The lowest one-year fixed rate in New Brunswick, Newfoundland, Prince Edward Island, Northwest Territories, Nunavut and Yukon is over 30 bps more than in Alberta, British Columbia and Ontario.
The city matters, too. You’ll cough up at least 10 bps more than the lowest market rate (on the term you want) if your property is rural. The reason: if the borrower doesn’t pay, it’s harder for the lender to sell a rural property.
5) When is the closing date?

The longer you want your rate guaranteed, the more you’ll pay. A 90– or 120-day rate hold typically costs at least 10 bps more than a 30-day rate hold
6) Can you live with prepayment restrictions?

Some lenders now charge 10 bps above their lowest rates if you want to prepay an extra 5 to 10 per cent on your mortgage.
One of the country’s lowest rates currently allows no prepayments at all.
7) Can you live with portability headaches?

If you move to a new home, certain deep discount lenders will force you to close your old property and new property on the same day (good luck with that). Otherwise you’ll pay a penalty.
Remember that if you’re using the equity in a property you’re selling for the down payment on your new property, and that new property closes before your old one, you’ll usually need extra cash or a bridge loan. Not all lenders offer bridge loans.
You’ll often pay 5 to 15 bps more, compared to the lowest market rate, to have a full 90 days of porting flexibility and access to bridge loans.
8) Can you live with refinance restrictions?

If you want the freedom to refinance early with any lender, some lenders will charge you 10 bps more than their lowest rates for that privilege.
If you want to cash out more than $200,000 in equity, you’ll often pay at least 15 bps more than the cheapest market rates.
9) Can you live with a large penalty?

More than three-quarters of the fixed mortgages sold in this country do not have, what I’d term, “fair” penalties. In other words, if you break the mortgage contract early, you’ll often pay through the nose (more on that).
Some lenders offer both high– and low-penalty options, with the low-penalty mortgages costing 10 bps more. But even with that rate premium, you’d likely still pay less than if you broke a fixed mortgage with a high-penalty lender, like a major bank.
10) What type of property is it?

A few lenders charge 5 to 10 bps more for high-rise condos, depending on your equity and other factors.
11) Do you want good rates when you renew and/or if you refinance early?

Some lenders try to stick their renewing or refinancing customers with horrid “special offer” rates (they’re not so special, trust me).
If you want a lender that’s highly competitive after you close, you’ll often pay at least 10 bps more than the cheapest market rate.
12) Do you have any credit flaws like bankruptcy, consumer proposal or unpaid debts?

If so, some lenders won’t even touch you. The ones who will, will charge 50 to over 200 bps more than the lowest rate in the market.
13) Do you have a property address already or is it a pre-approval?

You’ll almost never get the best rate on a pre-approval (more on that). Expect to pay at least 10 to 20 bps more than rock bottom rates if you haven’t purchased your property yet.
14) How big is the mortgage, as a percentage of your home value?

If you’re a well-qualified borrower, “loan-to-value” (LTV) is the second-most-important factor in determining the rate you’ll pay.
If your LTV, for example, is 80 per cent instead of 65 per cent, you’ll often pay at least 15 bps more than the best market rates.
Oddly enough, someone with an 80 per cent LTV will pay up to 20 bps more than if they had a 95 per cent LTV. Why? Because mortgages with less than 20 per cent equity cost lenders less, since borrowers must pay for their own default insurance.
15) Can you pass the government’s “stress test”?

If you’re getting an insured mortgage (which is usually required if you have less than 20 per cent equity), you must prove you can afford a payment at the Bank of Canada’s five-year “benchmark” rate. That rate is roughly two percentage points higher than your actual “contract rate.”
If you can’t do that, but you have at least 20 per cent equity, some lenders will let you qualify on your “contract rate” instead, which is much easier, but you’ll pay at least 15 bps more.
16) What is your credit score?

If your credit score is less than 680, it could cost you a minimum of 10 bps more. A few lenders won’t deal with you at all, and others will limit their rate specials to borrowers with scores of 700 or 720.
By regulation, a sub-680 credit score will also limit the amount of debt you can carry if you want a competitive rate.
17) Are you purchasing, refinancing or merely switching lenders?

A refinance today costs 15 to 50 bps more than the lowest market rate on a purchase.
18) What is/was the property’s purchase price?

Many lenders now charge 15 bps more if your property value is more than $1-million.
19) Is your mortgage already insured?

If it is, and you’re simply switching lenders with no changes to the mortgage, you’ll save at least 10 bps compared to average discounted rates.
20) How long of an amortization do you require?

Many lenders, including big banks, are now charging 10 bps extra for amortizations over 25 years.
The above list of questions is by no means exhaustive. And there are always exceptions. One is if you’re asking for a renewal rate from the lender who presently holds your mortgage. If you send them a copy of various competitor’s rates, you won’t need to answer all these questions to get their lowest rate.

Ottawa’s new mortgage rules have made factors such as healthy credit scores, purchase price and amortization lengths more important. The changed regulations have led some lenders to advertise as many as 10 different rates for a five-year fixed mortgage alone.

Today’s landscape requires lenders and mortgage brokers to factor in more criteria than ever before when setting rates. So if you see a red– hot bargain advertised on a lender or broker’s website, it’s bound to have caveats. Get ready to ask–and answer–plenty of questions.

Body expert Alan Pease, co-author of The Definitive Book of Body Language, reveals the signals you may be sending without even realising it and how to change them.

1. Crossing your body

“Most people, when they’re giving bad news, have a tendency to cross their arms on their chest or hold hands with themselves in front of their body or clench their fingers together,” says Pease.

“These are all self-protection signals. Somebody who sees you do that, particularly females, will think that you’re not feeling very confident about what you’re saying.”

2. Signals that imply superiority 

“The worst thing a man can do is sit back in his chair with his hands behind his head. It’s called the catapult – it looks like you’re about to fire your head at someone,” says Pease.

“That’s a superiority position used almost entirely by men. It’s the most intimidating management pose that a male can take in the presence of a female subordinate.”

He suggests leaning forward to make people feel relaxed: “We lean forward towards people we like, admire and sympathise with.”

3. Too much eye contact

If the person you’re talking to is having difficulty maintaining eye contact, and if you maintain eye contact, it gives the impression that you’re trying to stare them out or being critical or judgemental.”

4. Hiding your hands

Don’t have your hands in your pockets or under the desk. Have them visible and talk with them facing upwards.

“Monkeys and chimps do this too. It’s the most non-threatening position a human or primate can take because it shows you’re not concealing things in your hands or under your arms,” says Pease.

“We’ve done quite a bit of testing with people presenting to audiences with a palm-up position, the second audience where they’re talking mainly with the palm down and the third audience where they use a finger point.

“The palm-up users get up to 40% more retention of what they said and are described by the audience in much more favourable terms than the palm-downers. The finger pointers get the worst results. If you talk with your palms down, you’re seen as authority, management, maybe telling them what to do or telling them off. It’s very powerful when you’re in a situation where you’re delivering bad news such as redundancies.”

5. Inappropriate facial expressions 

When listening to an employee complaint, it’s important to recognise that men and women listen to each other differently and respond accordingly, explains Pease.

“If you’re listening to a male, limit the expressions on your face. One of the ways women listen is to increase the expressions on the face to show the other person that you’re reading the emotions of what they’re saying.

“So if someone is telling you what happened, if you’re listening, you’re likely to be reflecting her emotions on your face to encourage and support her. Men don’t do that. If a man listens to a woman with a poker face, she begins to think he’s judging her critically. If you’re listening to a woman speak and she’s upset about something, you want to show compassion. You mirror the expressions on her face. If you’re a woman listening to a man, the reverse applies.”

Additionally, as strange as it may sound, when you nod your head while you’re listening it’s beneficial to nod it in groups of three.

“When you nod three times, it encourages people to talk more and share more information. If you go more than three times, that means to shut up. If you can get people to talk out issues, they often explain the issue to themselves,” says Pease

6. A poor handshake

Getting the handshake wrong can create a bad first impression. Pease offers his tips for getting it right.

“To create a rapport where people feel accepted, you keep your palm vertical,” he says.

“The origin of the handshake is arm-wrestling back in the Roman era and the guy with the hand on top had the upper hand. Keep your palm straight and exude the same pressure you receive and people will feel like you’re accepting them and not trying to dominate or threaten them.”