Many of you have likely seen the Smallenfreuden campaign that Visa has been running for the past few weeks. The premise behind it is to entice Visa cardholders to use their credit card for even the small, every day purchases, that one would normally make. The advantages, as they say, are that you earn reward dollars on all your purchases while being able to track all your purchases on one, easy to read bill.
I don’t like it.
As a Mortgage Broker, I see people every day who have racked up their credit cards or lines of credit to point where they are barely able to make the minimum payments on them. Maybe they were smallenfreuden-ing at one point? The simple truth is that human nature kicks in for the great majority of our population and it’s way too easy to use that little plastic card to make every day purchases. Well when your bill comes a month later and you have forgotten about these little purchases which now total, say $800, that you had not budgeted for paying in a bill that month, maybe you are only able to pay half of it at the end of the month. And the cycle continues…. next month, since you have now collected interest on that extra $400 sitting on your card, with an additional $800 in #smallenfreuden purchases, your balance is now over $1,200. And the cycle continues…
I think you get my point on how dangerous a marketing campaign this really is. Visa loves it as they are collecting more interest off these people than ever! The “rewards points” that you will collect off these small purchases are slim to none and don’t even come close to evening out the amount of interest you might end up paying. Fact of the matter is, credit cards that have even a half decent rewards program are only eligible to certain customers who meet certain income and credit standards. These people are not the ones I am worried about. It is the larger majority of the population who might succumb to this harmless looking advertising campaign that Visa is running.
My only advice is: be responsible, and be careful what you smallenfreuden. And if you are going to smallenfreuden, take advantage of online banking and log on and pay that sucker off right away.
Cheers to good credit.
Recently I helped a couple out who were refinancing their townhouse (they were unable to sell it) and using the equity to buy a new principal residence, while keeping the townhouse with a renter in it. They did not contact me until one week prior to completion on both the refi and the purchase. They were referred to me by a friend of theirs and a previous client of mine. The appraisal on their townhouse did not come back with the value that they needed in order to take enough equity out to complete the purchase of their new home. They were now in jeopardy of losing their $20,000 deposit and also being sued by a whole string of vendors and buyers with offers contingent on the completion of this purchase.
Immediately I began wondering why this appraisal was left to the last minute of this deal? Especially in a market where values on stratified units have been dropping consistently each month. I put my thinking cap on and began going through my mental Rolodex of lenders to see who might be able to help this couple out in such a short time crunch. I immediately got one of my underwriters on board who said “no guarantees, but let’s give it a shot!”
We made sure we structured the deal perfectly and worked tirelessly over the next 24 hours. In the end, we were able to get both deals approved and at best rates, in less than a week! My clients were over-the-moon happy that I was able to save their home and their $20,000 deposit, and are now all settled in in their new home.
The moral of this story? The Broker they originally contacted to handle these transactions persuaded them to use their services by offering to use part of their commission to buy down the interest rate. When asked if I would do the same for them, I politely explained that I get paid what I do for a reason, and there is a reason that within 5 minutes of contacting me, I knew how to structure this deal and which lender to go to in order to save their bacon. This made complete sense to them and the old adage of “You get what you pay for” rang true in their ears.
Securing a rate hold is like having insurance on your mortgage rate – you no longer have to worry about mortgage rates increasing while you find your new home over the next 90-120 days. And if rates drop within that same period, so too will your preapproved rate.
For instance, if you obtain a 3.00% rate hold and then global risks subside and the economy strongly recovers over the next three to four months, that 3.00% could easily jump to 3.5% or higher. In this case, your rate hold for 3.00% would have saved you half of a percentage point, which would translate to a savings of a significant amount of money over the term of your mortgage.
But a rate hold means nothing if you don’t meet the lender’s qualifications. By obtaining a preapproval and a rate hold, you can be confident you have access to mortgage financing and you’ll know how much you can spend before you head out shopping for a property.
It’s important to note, however, that there is a significant difference between being preapproved and prequalified. In order to obtain a preapproval, the lender fully underwrites the deal, whereas with a prequalification only the most basic details are considered. Remember that many banks will only issue a prequalification, while mortgage brokers will ensure you’re preapproved.
As always, if you have questions about rate holds or preapprovals, or other mortgage-related questions, I’m here to help!
Recently a client asked, “When do my mortgage payments start?”
Unlike rent that is paid in advance, mortgage payments are paid AFTER you have received the money. For example, if your mortgage completes on November 30th and your payments are set up on a monthly basis, your first payment will be on December 30th. Weekly, bi-weekly or semi monthly payments will be adjusted so that a full payment will be paid by the time the first monthly payment is due.
Moolala author, Bruce Sellery, recently commented that going back to your bank for your mortgage, simply because you have been a long-time customer there, is "zombie behaviour" and is downright lazy! He continues to offer up more guidance an some insight on picking your next mortgage originator. Check out the article on Zombie Behaviour! It's a good read.
It doesn't happen often, but there is the odd time when a client shows a little uncertainty with the Monoline Lender I may have placed them with. In all instances, there are many different reasons why I have chosen that particular lender, and this is one of the major advantages of using a mortgage broker. They are usually offering the best combination of rate, product, customer service and quick turnaround times. Yet still, from time to time, I have someone question who they are and what their background is. To be honest, I don't blame them for asking. However, the main thing to keep in mind is that as a borrower, you have all of their money; they don't have a dime of yours! The lender is carrying all of the risk in this situation.
Here is an article from the Globe and Mail which goes in to greater detail about why you should not fear the monoline lender. It's a good one if you've ever come across this situation.
Simply put… YES. Never before have the 5-year fixed and 10-year fixed rates been priced so closely together!
I have many good friends that are financial advisers and, thankfully, they often put on their "devil's advocate" caps when I present them with new ideas, such as this one.
As a result of our conversations, the below video was created to support the idea that now, more than ever, is the best time to secure yourself with a 10-year fixed mortgage.
Please consider sharing this with your friends and family via email, Facebook, Twitter, carrier pigeon, or whatever method of delivery you prefer. I truly hope that as many people as possible invest the time to see this video and take advantage of this opportunity while it is available.
Below the video I have created a free sample report that you may view by clicking on the button. Enjoy.
OK, OK, I'm finally writing my first blog! I must admit I am feeling a little, no, a lot intimidated right now as I think the "blogosphere" is already filled with people far more intelligent than me!
I've been told to write about anything and everything. I talk all day so this should be easy.
A friend mentioned in his first blog that at least his Mom would read his posts. My Mom doesn't own a computer and doesn't want one!
Hopefully my random thoughts will strike a chord with you. If they do, great! If not, I will print them and show my Mom.
Do I Really Need A Down Payment?
Yes … and … No. Currently the minimum down payment required to purchase a home is 5% of the Purchase Price. With house prices hitting all time highs this amount can be a daunting amount to save.
There are options!
The most widely used resource for first time homebuyers is The Bank of Mom and Dad. A family member can "gift" funds to be used for down payment. An advance of an inheritance is an acceptable gift as well. What if this isn't a possibility? Surprisingly there are still a few lenders who will provide cash back (3 – 5%) at closing and allow these funds to be used for down payment. Tighter lending guidelines have reduced the number of lenders participating in these programs. You must always remember that you get nothing for free! You will be paying for these funds with a higher interest rate and if you want to pay out the mortgage before it comes due you will be paying a portion of the funds back.
Another source of down payment funds is your RSP. All first time buyers are able to withdraw up to $25,000 from their RSP without paying tax and use the money for down payment. This money does have to be repaid to your RSP and the funds do have to be in the RSP for a minimum of 90 days prior to withdrawal.
So, to answer the question, Do I Really Need A Down Payment?
Yes you do, BUT, No it doesn't have to be saved and there are some options available to secure these funds.
Whew! That wasn't so bad! I will show it to Mom when I see her!
So often this is the first question that clients ask. How can you blame them? The media and other outside influences have trained us to think that way. Every website and window ad we come across is advertising some sort of rate. What the majority of consumers fail to realize is that the two rates they are comparing, may be two different products. One may come with all the bells and whistles, ie. prepayment privileges and payout options, basically the Cadillac of mortgages; while the other may not have any prepayment privileges and may be totally closed, basically the Toyota of mortgages. Both will get you from A to B, but one will definitely get you to your destination a lot quicker. Of course, this destination we speak of is your Mortgage Freedom Day.
Therefore, instead of asking, "what is your best rate?" A more appropriate question should be, "what is the best term for my family and our situation?" As we have seen time and time again, choosing the wrong term may end up costing you a lot more in the long run.
For example, as a Mortgage Expert, it is my job to get to know you and understand what your plans and goals are. If your plan is to be in this home short term, maybe 2 or 3 years, then it might not be the best idea to be discussing 5-year options as you will likely pay a penalty to get out of that mortgage in 3 or 4 years time. However, this house could be the one you plan to stay in for a long time and grow your family in. Or maybe it is a revenue property that you want to know what your expenses will be long-term. Well then maybe we should be taking a look at the security of a 10-year term which is currently priced historically low and never before has it been priced so close to the 5-year rate, with just a .60% spread from the average 5-year rate available. Two great products. Two totally different purposes and situations.
The bottom line is, we put a strategy in place for all of our clients and because of these strategies, our clients tend to pay off their mortgages, and realize their Mortgage Freedom Day, much sooner than the average person. After all, isn't that the ultimate goal?