22 Mar

Prepayment Penalties: Banks Vs Monoline Lenders

General

Posted by: Patricia Kirkham

Simply stated, if you pay your mortgage off before the end of your term, you’re going to face a ‘prepayment penalty’. But there’s nothing straightforward about how that penalty is calculated when you compare banks and monoline lenders.

Monolines are dedicated mortgage lenders. While lenders such as banks and credit unions provide an assortment of financial products and services in addition to offering mortgage financing, monolines solely concentrate on mortgages. The term ‘mono’ literally means one, as in a singular focus.

Monoline lenders follow the same rules as Canadian banks, and actually help keep mortgage pricing competitive.

Most fixed-rate mortgages have a prepayment penalty that is the higher of three months’ worth of interest or the interest rate differential (IRD). IRD is based on: 1) The amount that is being prepaid; and, 2) An interest rate that equals the difference between the original mortgage interest rate and the interest rate that the lender can charge today when re-lending the funds for the remaining term of the mortgage.

Penalty calculations can vary drastically

When selecting a mortgage, it’s important to ask upfront about prepayment penalties. Let’s face it – life happens. A lot can change over a five-year period, or whatever term you select for your mortgage. If you have to break your mortgage contract before your term expires, it’s nice to know it won’t cost you a fortune to do so.

Your penalty amount will be larger the farther away you are from your renewal date.

Here’s a Monoline Vs Bank comparison example of how penalties are calculated:

I can help you decide if paying out your mortgage early makes sense for your specific situation.

Have questions about payout penalties or your mortgage in general? Answers are just a call or email away!

*The postings on this site contain my own views and don’t necessarily represent the company’s positions, strategies or opinions.

13 Mar

How the mortgage industry became green

General

Posted by: Patricia Kirkham

How the mortgage industry became green

When I started working as a broker in 2005, the mortgage industry and the financial industry in general weren’t very eco-friendly. Let’s face it. When someone buys a home, there’s a paper trail. Starting with the mortgage pre-approval which can run four pages,  the Offer to Purchase, which is another 12 pages, income documents, notices of assessment, appraisal, and MLS listing condo documentation to add to the pile of paper. Often you would end up with a stack of paper 50-60 pages high. I needed a copy, the lender needed a copy and then my broker needed to keep a copy on file for seven years. I found that I was going to Staples and buying a case of 5,000 sheets of paper every year. I recall going to my broker’s office and seeing the admin assistant struggling to find a place to put another big box of files as the storage room was full.
What a difference a few years makes. Lenders started to accept documents in PDF format, saving us from faxing them, while brokers and lenders started to use secure servers to store the documents and the paper pile dropped for me from 5,000 sheets a year to less than 500. With photo scanning apps on phones, I expect that the paperwork will continue to shrink.
However, there are other signs of greening in the financial sector. Products like CMHC’s Purchase plus Improvements allow us to encourage our clients to change their windows and doors for more energy efficient ones, adding insulation and putting the renovations into their mortgage. In addition, if the repairs result in an Ener-guide reading of more than 82, or if they buy a new Built Green Canada home, they can qualify for a 15% rebate in their mortgage default insurance premiums.
We may not be building windmills or using solar power, but the Mortgage Industry has definitely become greener in the past decade. If you have any questions, contact a Dominion Lending Centres mortgage professional near you.

David Cooke

David Cooke

Dominion Lending Centres – Accredited Mortgage Professional
David is part of DLC Clarity Mortgages in Calgary, AB.