Kevin Bell

08/21/2024

Is it time to refinance?
Many clients who got mortgage over the last 2 years have fixed rates much higher than what is currently available in the market today. The good news is that for many of these borrowers, they can pay a 3-month interest penalty to refinance their existing mortgage, and choose from much the better mortgage options available today.
As an example, Jennifer got a mortgage a year ago at 5.69% 5-year fixed rate, there are 4 years remaining on her mortgage and she can pay a three-month interest penalty and refinance her entire mortgage at today’s rates.
Today’s penalty is 3 months interest, or 1.425% of the mortgage balance, and the interest savings be refinancing will be about 1.2% (5.69% minus 4.49%) for each of the remaining years on her mortgage. On Jennifer’s $1M mortgage, this math works out to savings on $48,000 and a penalty of $14,250, for net savings of $33,750.
Different lenders will calculate the IRD (Interest Rate Differential) differently. Most lenders calculation references the posted rates for the remaining term on your mortgage. Bank’s posted rates bear little resemblance to the rates people get on their mortgage and have more to do with how this penalty is calculated.
For Jennifer, the lender has a posted rate of 6.69% today for a 4-year term (the term that corresponds to the remaining term on her mortgage). The lender is signaling that they can replace her existing 4-year mortgage with another 4-year mortgage at 6.69%. By replacing Jennifer’s mortgage, the lender would be receiving more interest over the remaining term, and accordingly would be happy to charge Jennifer a 3-month interest penalty and lend the money to another borrower.
Of course, nobody is getting 4-year mortgages at 6.69% today, and this may cause the lender to update the posted rate at some point in the future. If the posted rate were to change to 4.99% the lender would calculate the replacement costs at the difference between existing rates and her 5.69% over the remaining term, and suddenly the penalty would change (0.7% difference * 4 years) to 2.8%. The lower the posted rate, the larger the penalty.
If you are paying more than 5% on a fixed rate mortgage, it is worth looking into the money that you can save by refinancing. This opportunity may not be available for long.
Please reach out if you have any questions
[email protected]

07/31/2024

Sunny ways

05/24/2024

04/04/2024

Does the Bank of Canada remind you of a dog chasing it's tail?

03/04/2024

How Danny saved $25,000 on his mortgage renewal
In today’s volatile interest rate environment, I can’t overstate the importance of taking advantage of a full 120 day pre approval period.
At Direction Mortgage, we call all our existing clients at least 4 months ahead of renewal since we know that this will give us the greatest opportunity to lock in the best rates. We simply secure the best rate available and improve the rate if bond yield fall, and lower mortgages rates become available.
Why does you bank wait to send a renewal offer one month before your renewal? The banks have the information to help their clients save money offering renewals 4 months before maturity, but instead the banks deliberately choose not to help their clients. But why?
Simple.
For Canadian banks, waiting until 1 month before renewal is incredibly profitable strategy as this helps them segment their clients.
If you are waiting for a renewal offer, your bank knows that you are either (1) not price sensitive, so the rates you see do not reflect the best rates available or (2) unable to qualify at another institution.
By charging clients more on a renewal offer, the bank makes more money.
In addition, as we have seen consistently over the last 18 months, in a rising interest rate environment, rates can be lower to much lower 4 months ahead of your renewal than 1 month before your renewal.
For example, today's 5-year fixed rates are 0.5% higher than they were 3 months ago. Too bad some people are waiting to see what their bank will offer

02/26/2024

Lowest rates and fees on second mortgages

02/02/2024

Beyond ensuring the macro conditions are in place to reduce construction (including higher interest rates and slow building permit approval process), what additional steps could government take to create a housing crisis?
Record immigration levels? Anything else?

01/02/2024

How many rate cuts do you expect from the Bank of Canada in 2024?

12/01/2023

Direction Mortgage and I are grateful to have won the Toronto Star Readers Choice Award for best Mortgage Company / Service (again). I look forward to teaching more clients to make mortgage interest tax deductible going forward, in addition to getting the best rates and terms on mortgages. Thanks again.

11/09/2023

In the last couple week, 2 and 5 year bond yields have dropped by about half a percent. If your lender isn't lowering the rate on your mortgage approval to reflect the decrease in bond yields, you might want a second opinion.

[email protected] 416-769-1440

10/26/2023

No surprise from the Bank of Canada yesterday, which held rates steady for the second consecutive meeting. The BoC will try to convince Canadians that further rate hikes are on the table but it is clear from their language and the deteriorating economic backdrop that we are done with rate hikes for the cycle.

The Bank of Canada today held its target for the overnight rate at 5%, with the Bank Rate at 5¼% and the deposit rate at 5%.

10/19/2023

Please vote for Direction Mortgage as Best Mortgage Company or Service in the Toronto Star Readers Choice Poll. Thanks again for the support.

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