15 May

Are You Prepared for Rising Rates?

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Posted by: Patricia Kirkham

Economists are predicting that interest rates will continue to gradually rise over the next couple of years. And, while the good news is that you won’t be shocked by large increases, it’s always best to plan ahead when it comes to your mortgage product and rate.

While the Bank of Canada held rates steady last month, which is the indicator for changes in variable rates, the bond market is increasing, which impacts fixed rates.

Here’s what you need to know depending on whether you have a variable or fixed mortgage.

Variable-rate mortgage holders:

1. Review your lock-in options. It’s always best to know your options should the time come when it makes sense to lock in. (The next Bank of Canada rate announcement is May 30th.)

2. Review your discount. If you don’t have the best variable discount available, it may be worthwhile to consider switching lenders.

Locking in isn’t always the best solution, particularly if you’re making higher payments and your mortgage is below $300,000. Locking in typically means you’ll end up paying up to a 1% higher rate than you’re currently paying.

I’m available to discuss your options and what makes the most sense for your unique situation.

Fixed-rate mortgage holders:

1. If your mortgage is less than a year old, it makes sense to stay the course.

2. If you’re considering buying another property or tapping into your home equity to consolidate debt, finance home renovations, send your kids to school, etc, let’s secure a rate hold so you have peace of mind knowing we’ve locked in your rate for up to 120 days – protecting you if rates rise as predicted.

3. If you’re up for renewal this year, now’s the perfect time to talk about your options.

Have questions about variable- or fixed-rate options 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.

22 Mar

Prepayment Penalties: Banks Vs Monoline Lenders


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.