I believe the mortgage industry has missed the mark on showing Canadians how to achieve that goal. All too often the focus is on the smaller details like low rates. Never is the focus on developing a long term plan to become mortgage-free. The truth is that over the long-term low rates don’t necessarily help you payoff your mortgage sooner or more cost effectively.

But things are changing.

Finally one of the big 5 banks has started to change their tune. They’re now focusing marketing dollars on educating borrowers on how to become mortgage-free faster. That’s what we all want anyway isn’t it?

Scotiabank has recently started running a slew of ads focusing on getting rid of your mortgage and I like it.  Their new marketing features phrases like “own a home not a mortgage” or “become mortgage-free faster and easier”.

You may have seen the Scotia Mortgage Celebration ad running on T.V or this excellent “whiteboard” video circulating on social media about how small changes make a big difference to your mortgage.

Click here to view the embedded video.

I have to admit I was a little green with envy when I first saw these ads and shift in focus from Scotia. I wished I had deep enough pockets and marketing power to present these simple yet powerful concepts as uniquely on my blog. Ultimately I was very happy to see this campaign. I believe this is just another mile-post indicating that the time is right for Canadian mortgage borrowers to focus on mortgage debt-reduction and becoming mortgage-free sooner.

“There is nothing more powerful than an idea who’s time has come.” -Victor Hugo

Around the world and here at home we are seeing a trend towards financial responsibility. From grass-root household budgets all the way to national governments undertaking austerity measures, belts are being tightened.

The fact that a bank, who carefully watches every dollar spent, feels it’s worth-while to spend money on an extensive mortgage-free campaign shows that mortgage debt-reduction is important to Canadians.

For that reason I tip of my hat to acknowledge Scotia.

To be fair though you don’t need to have a Scotia mortgage to pay off your mortgage sooner. Almost all mortgages in the market have similar features.

As an independent mortgage broker I work with Scotia and other lenders. My focus is on helping borrowers develop a plan to pay off your mortgage and work towards debt free home ownership. Contact me today.

If you’d like to stay in touch with me and learn more mortgage debt-reduction tips sign up for my FREE blog updates.

Do you have a tip that you’d like to share with readers about how to become mortgage-free sooner?  Get in touch with me and I’d love to feature your story.

But here is the interesting thing…

As author Matthew McClearn puts it “The astute observer may discern some correlation between the tone of the prediction and the economic interests of its promoter. After all, it seems like the sunniest forecasts come from realtors and banks who are active in mortgage lending; leave it to the depraved journalists—particularly those pessimistic foreign ones—to envisage a fiery apocalypse in our future.”

I have to agree Matthew.

What do you think? Is the Canadian Real Estate apocalypse upon us or is this a passing cloud on a hot summer day?

Leave me your comments below.

Just like the three most important factors in real estate are location, location, location… when it comes to mortgage financing, interest rate is numero uno.

I have to admit this is not an earth-shattering revelation but I’ve observed that borrowers rarely focus their attention on the real story about interest. Read on and I’ll tell you the one thing you need to understand about your mortgage and interest.

Click here to view the embedded video.

If you are shopping around for a mortgage what is your mantra?

Right.

What’s the lowest rate? Find me the lowest rate. Lowest rate, lowest rate, lowest rate.

Like zombies on the loose to consume the lowest rate.

There is nothing wrong with wanting the lowest rate. Rate is the price of the money you borrower. Believe me, I’m all about saving money.

When I go to the grocery store and see a certain brand of milk .50 on sale, it’s in my cart.

Raaaaates…

But what’s the difference between milk and your mortgage?

This is a serious question, consider it for a moment…

Answer. Once you pay for your milk the price you paid does not change. Nothing you do will ever change the fact that you paid $3.49 for the milk.

Your mortgage on the other hand is a completely different story. Yes the interest rate you sign up for is the price of the mortgage but the total cost is in your control. It’s not about what you pay for the mortgage, it’s really about how much you pay for your mortgage.

Don’t believe me?

Consider first time home buyers Fayaz & Sara who needed a $250,000 mortgage amortized over 25 years. They shrewdly negotiated a rate of 4.00% (The best in this imaginary market). Like most first time home buyers they are on a tight budget but they want to pay off this mortgage ASAP so they can get on with their ultimate dream of traveling the world.

They consider monthly payments and using a mortgage calculator figure out that over the 25 year life of their mortgage they are going to pay $144,513.15 to their lender in interest.

Now if they budget their cashflow a little more carefully and take on accelerated bi-weekly payments they figure out that they’ll pay $124,058.22 over the life of the mortgage. That is an interest savings of $20,454.93 just by paying once every two weeks.

Awesome right?

In both scenario 1 (monthly payments) and scenario 2 (bi-weekly payments) the interest rate is the market leading 4% but their decision to take action and pay bi-weekly saves them $20,000 in mortgage interest.

Do you see the point?

It’s not about interest rate. It’s about interest paid.

So, the one thing you need to understand about your mortgage is that it’s not just about the interest rate but the interest paid. Once you set up your mortgage you’ll want to figure out exactly how much interest you are going to pay to your lender and then take action to earn back that money from the bank. And this is where banks and mortgage advisers fail! We should be showing you all kinds of methods to pay down your mortgage and put money into your pocket.

This post is part of the Ultimate Mortgage Insights Series. Leave me your details below to sign up for my email list so you don’t miss any of the the good stuff.

Here’s the deal with mortgage default insurance. It’s an insurance to protect the lender in case you don’t make your mortgage payments and they suffer a loss. And although it’s there for the benefit of the lender, you pay for it.

When do you pay for mortgage default insurance?

If your down payment is less than 20% of the purchase price then you pay an insurance premium. Mortgages that are insured are also called high-ratio mortgages.
If you can give at least 20% as a down payment, you will have what is called a conventional mortgage. In this case, mortgage default insurance is generally not required. There are exceptions to this, for example some business for self borrowers who can’t prove their income might pay an insurance premium even though they have more than 20% down payment.

Here’s an example:

Lauren has saved up $50,000 for a down payment on her new home which she has purchased for $300,000. Lauren’s down payment is 16.6% of the purchase price.

$50,000 ÷ $300,000 x 100 = 16.6%
Because Lauren’s down payment is less than 20% of the purchase price, she will need to pay mortgage default insurance.

How much do premiums cost for mortgage default insurance?

The bigger your down payment, the lower your mortgage default insurance premium.  The premium — that is, the cost of mortgage default insurance — will vary depending on the percentage you have as a down payment. Here are the current premiums for various down payment amounts:

Let’s go back to Lauren to see how the mortgage default insurance premium is calculated

Lauren’s down payment of $50,000 is 16.6% of the $300,000 purchase price of the home. Because her down payment is less than 20%, she will need to get mortgage default insurance.

Lets assume that
• the premium is added to the mortgage of $250,000
• the insurance premium rate is 2%
• the mortgage will be amortized over 25 years

The mortgage default insurance premium will cost $250,000 x 1.75% = $4,375
The total mortgage loan would then be $250,000 + $4,375 = $254,375

Lauren’s mortgage default insurance costs her $4,375 and is added to the mortgage total. It’s worth noting that there is also 8% gst added to the insurance premium which are considered to be part of your closing costs and gets paid at the lawyer’s office.

If you are looking for more information about mortgage default insurance and other costs associated with your mortgage check out some other posts that I’ve written:

What is a conventional mortgage?

What is CMHC mortgage insurance good for?

9 closing costs to consider when buying your first house

I make all of my content free to readers just like you. If you got something useful out of this post please share. And if you are looking to stay up to date with all of my latest content please add you email address to my free blog updates below.

You’ve got choice when it comes to deciding on how often you’d like to make your mortgage payments. The choice is there so you can try to sync your mortgage payments with your cashflow and pay schedule. Most salaried employees get paid bi-weekly which is why bi-weekly payments are the most popular.

But not all payment frequencies are the same.

Some payment frequencies actually accelerate your mortgage repayment allowing you to reduce the total amount of interest you pay over the life of your mortgage. Choosing an accelerated payment also gets you out of mortgage debt years sooner.

Let’s have a look at the 6 different mortgage payment frequencies offered by most lenders. From least frequent to most frequent.

Payment Option Details

Now let’s consider an example to show what type of difference an accelerated payment can make over the life of your mortgage.

Example: Monthly vs. Accelerated Biweekly

Jose is trying to decide between paying his mortgage monthly or paying accelerated biweekly.

Details:

• mortgage principal: $250,000
• amortization: 25 years
• interest rate: 4.50% for the entire mortgage amortization period

Monthly and Accelerate Biweekly Payment Comparison

As you can see in this example, Jose is much better off making the accelerated biweekly payments. He is going pay off his mortgage 3 years 3 months sooner and he will save more than $25,000 in interest payments to the lender.

For more info checkout this video I did recently for a Mortgage Math series:

Click here to view the embedded video.

As a mortgage broker I am focused on helping borrowers save interest and pay their mortgages off sooner. I make all this information readily available to anyone who is interested for free.

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According to the most recent survey of Canadians, 65%  of us have fixed rate mortgages, 28% have variable rate mortgages and the remaining 7% of some sort of combination between the two. (Source: CAAMP “Annual State of the Residential Mortgage Market in Canada” NOV 2012) This is despite the fact that variable rate mortgages have been the hands down winner outperforming fixed rate mortgages 90% of the time! Don’t believe me? Check out this popular study by York University professor Moshe Milevsky Floating Your Way To Prosperity where he compares fixed vs. variable rates over a 50 year period.

But before you start jumping to conclusions about which rate is better, you need to understand the differences between fixed and variable rate mortgages. To help you understand I’ve broken down the two mortgage options below.
Fixed rate mortgage

• With a fixed interest rate mortgage, the interest rate is determined when you apply for your mortgage
• This interest rate is set for the entire term and cannot change
• The amount of your regular mortgage payments is also fixed and won’t change during the term of the mortgage
• You know in advance the amount of interest you will have to pay, and therefore how much of the original loan amount will be paid off during the term.

Variable rate mortgage

• The rate you pay in a variable rate mortgage is based on a formula of prime plus or minus a number
• The interest rate you pay will fluctuate as the prime rate changes
• As the prime rate changes so will your regular payments to the lender
• Because the interest rate can fluctuate it is impossible to determine exactly how much interest you will pay to the lender during the term

When comparing the two options for yourself you might be tempted to jump to the conclusion that variable rate mortgages are the way to go since they have historically outperformed fixed rate mortgages but beware! Uncertainty of the future goes hand in hand with variable rate mortgages. You have to be adventurous and have the ability to changes in payments to work with a variable rate mortgage. At any time external economic forces can cause the prime rate to fluctuate which can change your payments. So the lower rate that typically accompanies a variable rate comes at a premium for added risk. It’s for this reason that 2/3 of borrowers choose a fixed rate mortgage.

Not sure which option is right for you?

I’d be happy to discuss which option is best for you and your unique circumstances. Click here to contact me.

Lenders frequently offer two types of mortgages for various terms: open and closed.
The main difference between open and closed mortgages is the amount of flexibility you have in making extra payments on the principal or in paying off the mortgage completely. These types of extra payments on a mortgage are called prepayments. Since there is greater flexibility in an open mortgage and it can be paid off at any time open mortgages have a higher interest rate than closed mortgages.

Open Mortgage

With an open mortgage agreement:

• you can make prepayments at any time during the term, or even pay the mortgage off completely before the end of the term, without having to pay any penalty;
• the interest rate on an open mortgage is usually higher than on a closed mortgage with a comparable term length.

Closed Mortgage

With a closed mortgage agreement:

• if you want to change your mortgage agreement during the term (for example, to take advantage of lower interest rates), you will usually have to pay a penalty to break your mortgage term agreement;
• the mortgage lender may let you make prepayments without penalty; – prepayment privileges on closed mortgages vary from lender to lender. For example, one lender might let you put a 20% lump sum payment every year, while another might only let you put 5% down every year.
• the interest rate on a closed mortgage is usually lower than on an open mortgage with a comparable term length.

If you are looking for more great info about mortgage products and rates I invite you to join my FREE blog updates. I’m constantly sharing a wealth of information with first time home buyers and best of all the info is FREE with no obligations. Submit your email address below to join today.

There are many popular beliefs from Nostrodamus to the Mayans that 2012 is the year the world will end. Here at Tridac Corporation Ltd- The Mortgage Centre we don’t believe the world will end tomorrow we do think that we are in an era of unprecedented change. Mortgage rates at all time lows and an industry wide “tightening of the belt” are evidence of something bigger that is happening.

Mark and Kelly met with me to see if they could take advantage of their low interest rate to reduce their mortgage faster. Of course! If you currently have a mortgage, whether it is variable or fixed, now is the time to adjust your payment and reduce your amortization. The difference in the amount of interest paid when you reduce your amortization can be significant.

Take advantage of low rates! I can help you make the necessary changes.

If you have a relative, friend of colleague who would like to know the difference in their payment with a reduced amortization, contact me and I’ll be happy to meet with them to discuss different possibilities.

There is a wealth of information in the report. My friends at Ratehub.ca decided to bring to life 5 awesome facts about the Canadian mortgage market in this cool infographic. Enjoy!

There were both positives and negatives to take away from the survey.

Positives

Canadians indicate that those holding mortgages are comfortable with their debt and a majority plan to pay off their mortgage in less than 25 years.  More than 1/3 are taking advantage of current low interest rates to accelerate payments.

Negatives

First time home buyers are finding it harder than ever to enter the market due to recent tightening of mortgage rules. The smaller number of first time buyers is already impacting the resale market, which in turn threatens to dampen economic activity across the board.

Here are some more highlights from the report:

• Since the most recent round of mortgage tightening came into effect in July 2012, there has been a drop in Canadian housing resale activity: between August and October, sales were 8 per cent lower than in the year prior to the announcement
• Approximately 17 per cent of high ratio mortgages funded in 2010 could not have been funded today, including 11% of prospective high ratio homebuyers who can’t qualify under the new 25 year amortization rule
• Regardless of whether Canadians initially selected a 20, 30, or even 40 year amortization period, survey findings continue to indicate that actual repayment periods have generally been only two-thirds of the contracted periods
• It is not only first time buyers who are affected: reduced activity at entry levels means that move-up activity will also be gradually impacted, because potential move-up buyers will find it more difficult to sell their current homes
• Canadians have continued to show prudence when it comes to mortgage repayment: one-third of borrowers made additional payments or accelerated payments on their mortgages; 87 per cent of homeowners have at least 25 per cent equity in their homes; 61 per cent of people who renewed in the past year saw a reduction in their interest rates
• Among borrowers who took out a new mortgage in 2012, a record 47 per cent obtained it from a mortgage broker (my favorite stat by far!)

The report confirms that tightened mortgage rules are having an effect on Canadian real estate prices but at the same time the report also shows that Canadians might be more responsible with their mortgage and consumer debt than the government might have thought. There is a clear trend showing that Canadians have been listening to the rhetoric to eliminate debt which is very positive.

The report, Annual State of the Residential Mortgage Market in Canada(download), is a semi-annual review of the Canadian mortgage market authored by Dunning. The report is based on information gathered by Maritz Research Canada in a survey of more than 2,000 Canadian consumers in October 2012.