Wednesday, November 24, 2010

Mortgage Renewals – BEWARE OF BEING GOUGED!!!

This is something I posted earlier in the year that I think is always relevant and worth re-posting....

Did you know that 84% of all maturing mortgages are renewed with the same lender? 84%!! I find that staggering. Why, you ask? Well, did you also know that at least in the case of the banks, the renewal notices that get sent to you as your mortgage is maturing do not quote their best rates? shouldn’t be.

Why would people renew at a rate that’s not the best available? It’s just like when you walked into the bank to get your first mortgage and the quote you were given was not the best rate. It likely required you to negotiate like crazy to get a rate that still wasn’t the best available. I know, I know, it’s just so easy to sign the renewal notice and send it back and that’s it. Let me draw a comparison. Take a professional athlete who is coming to end of his contract and will be a free agent. Does he simply sign on the dotted line at the end of his contract for whatever the team is offering? Absolutely not!! He tests the free agent market and entertains offers from the open market to find out who the highest bidder will be so he can make as much money as possible. More importantly, he gets an agent to do it for him. The same goes for the world of maturing mortgages. There is a very competitive lender market out there that desperately wants your business and is willing to fight for it. Consumers should be taking advantage of their free agency and that open market to get themselves the best deal possible and save money. And just like in the sporting example, there are agents who are willing to do the shopping for you to get you the best deal. The difference is our services are free to our clients whereas a sports agent charges a hefty fee to their clients.

Most lenders send out their renewal notices 30 days before your renewal. This is by design. The less notice they give you, the less likely you are to switch to a different lender. Don't just sit back and wait for their notice to come in the mail before starting to look at the market. You can get a rate hold up to 120 days out from your renewal. That will protect you against possible rate increases in those 120days and if the rate goes down in that time, you get the lower rate. I always recommend clients get their approval and rate hold as early as possible. Then when their renewal notice comes in the mail they have a choice and the next steps are quick and easy. Getting the "most" out of your mortgage takes active management, not complacency. Over the life of your mortgage you stand to save thousands of dollars by being proactive, instead of reactive.

One of the myths about moving your mortgage to a different lender is that there are huge fees to do it. Although on closed mortgages there are penalties if you want to switch mid-term, if you are at your renewal, there are no big fees or penalties to switch to a different lender. Most lenders will charge $200-$250 and call it an Administrative Charge or Discharge fee but that fee can be included in your new mortgage and would likely pale in comparison to what you would save in interest charges if you change lenders.

If you have a mortgage coming to the end of its term in the upcoming months, give me a call so I can ensure that you’re getting the best deal possible. Just don’t need to do any shopping, negotiating or accommodating the bank’s hours. I’m one phone call away, will do the shopping for you and come to you whenever it fits into your schedule.

At the very least, keep yourself informed so you have as much leverage as possible if you decide to take on the challenge of negotiating with your bank.

Sunday, November 7, 2010

Retiring with a Mortgage

Last week there was an article in the Toronto Star that discussed the amount of baby boomers who are putting off retirement or heading into retirement, still having not paid off their mortgage. With 35 year amortizations becoming the norm, most borrowers now, at least at the beginning of their mortgage, are looking at an end to their mortgage that is tickling the age, if not right into what they deem to be the age they want to retire. This isn’t necessarily a bad thing and may in fact end up being the reality. However, this doesn’t need to be the reality. Most mortgages come with flexible pre-payment plans. If you don’t want to be part of the percentage putting off retirement or still with a mortgage when you are retired, take advantage of your pre-payment options. It’s not difficult to calculate the effect that extra payments will have on the life of your mortgage. Talk to a professional, if you haven’t already, to develop your plan to get mortgage-free sooner, rather than later.

Below is the article that appeared in the Toronto Star on October 28, 2010:

Ontario baby boomers are looking to move to smaller homes in retirement. But first they have to pay off the mortgage.

A poll by TD Canada Trust released Thursday says 86 per cent of boomers want a smaller home when they retire. However, even though they say it is important to pay off the mortgage before they retire, it turns out less than half, or 43 per cent have actually done so.

One quarter of those boomers have paid off less than 40 per cent of their mortgage, meaning they have a ways to go before thinking about retirement.

About half says moving to a smaller home will help them save money, while more than a third says the new home, although smaller, will have more luxurious features.
“Moving to a smaller home can allow you to free up assets to put towards your retirement savings or enjoy in other ways,” said Farhaneh Haque, regional sales manager for TD Canada Trust.

Baby boomers are the post war generation born between 1946 to 1964,with the first wave approaching their retirement years. But an uncertain economy and falling stock markets over the last several years have meant that some boomers have had to hold back retirement or refinance their homes to stay afloat.

For their next property, boomers aren’t all rushing to the condo market either. More than half, or 61 per cent say they plan to buy detached. Condos came in second at 24 per cent. Top reasons for a detached house is that boomers still want a back yard and garden and really hate paying condo fees. Condos are popular because they require less maintenance and offer better security, and have amenities such as a gym or pool.

Meanwhile, another third of boomers are planning to buy a retirement property south of the border.

A quarter say “opportunities created by the depressed real estate market have sparked their interest,” according to the poll.

About ten per cent already own a vacation property, but another 12 per cent plan to buy on retirement.