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"Empowering clients to make sound mortgage and financial decisions through education"

Saturday, March 12, 2011

Time for Your Annual Mortgage Check-Up?

Believe it or not, the mortgage you signed last year may already be outdated...and not acting on it could cost you thousands of dollars and / or keep you from enjoying the lifestyle you want to lead.  


A new job, change in salary, marriage, divorce, having a baby, paying for daycare, a child going to University or a child’s wedding?  Maybe you lost your job, maxed out your credit cards, or are planning to go back to school?  Maybe it’s time for that home renovation project or you’re planning on buying an investment property or cottage?

Many of these changes are inevitable and simply part of life so staying on top of your circumstances and changing financial needs is important.  At least once a year, get into the habit of taking a look at your overall finances, including what is often your biggest financial commitment - your mortgage.  

So what are you looking for?
Any changes in your personal life circumstances, similar to the ones listed above, that may have changed your current or long term financial needs. 
What are the interest rate, term and amortization of your present mortgage?  What are the pre-payment options, penalties for refinancing or moving your mortgage?  What are the mortgage options and features being offered today in comparison? 
 “Over any given 12 month period the answers to these questions can vary drastically”
I recently met a couple who thought they had signed a good mortgage a couple of years earlier.  The total mortgage was for $300,000 and their Bank signed them up to a 5 year term at 5.25% which was a competitive interest rate at the time.  The Bank representative also promised them the lowest possible monthly mortgage payment by setting the amortization period at 35 years. 
The problem with their mortgage was that it did not match their immediate needs or more specifically their ability to pay.  The couple’s annual combined income was just over $200,000 which meant they could easily afford to pay twice their present monthly mortgage payment.  After looking at the couples options and talking to them about their retirement goals we decided it would be advantageous to get out of their old mortgage and enter into a new one with more favourable terms.  This eventually led to a new mortgage being signed that took advantage of today’s lower interest rates (3.79% at time of signing) and a significantly reduced amortization from 35 to 15 years.  The decrease in the amortization period alone will take 20 years off the life of their mortgage and literally save them over $125,000 in interest payments.         
This couples experience also emphasizes the importance of looking at your mortgage in its entirety which means paying close attention to much more than just the interest rate being offered...Buyer Beware!
Do not make the same mistake made by so many Canadians and focus 100% of your attention on the best rate available.
“2 out of every 3 Canadians will refinance their mortgage before their maturity date”
With most Canadians refinancing their mortgages before the maturity date it is critical for Canadians to get past the “Best Rate” mentality.  Often, the true value in a mortgage can be found in the fine print and pertains to generous pre-payment privileges; lower prepayment penalties; lower lender fees (if applicable at all); portability; and missed payment flexibility. Many of these features can save you tens of thousands of dollars should you need to refinance your mortgage before the maturity date as 67% of Canadians are finding the need to do.
The importance of any one or more of these features will of course vary from client to client so getting some professional guidance to help you make an educated and prudent financial decision that matches your particular lifestyle and financial needs is important.    
Frankly, this is where Mortgage Brokers earn their keep.   Mortgage Brokers can get you access to multiple lenders and products giving you no reason to settle for anything less than the best available combination of interest rates, pre-payment options and any other terms which may be important to you...and their services are free.        

Domenic Mirabelli
416.303.4480

“Helping you find a mortgage...and peace of mind”

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