Spruce Grove Mortgage Broker: Krista Rumberg
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Should I be locking in my variable rate?

Times have changed in the mortgage industry. For the majority of my mortgage career my clients have been split about 50/50 between fixed and variable. Now, the vast majority of my clients are choosing fixed rates, and I get it. Never have I seen fixed rates lower than variable rates. For all of you sitting in variable rate mortgages, are you aware that you can convert to fixed mortgage with no penalty? The bigger question is, should you? Let’s discover whether this makes good sense for you.

PRO – Reduced Rate

If you timed the market just right you may have a prime minus one mortgage. Prime is 3.95 – 1.0 = 2.95%. Today the best discounted five-year rate is 2.69% so that’s a savings of about a quarter point. That’s not insignificant, and you can lock that in for the remainder of your term. That will equate to a couple of thousand bucks depending on the size of your mortgage. I’ll take reducing my mortgage by a couple grand! The savings will even be more significant if the Bank of Canada raises prime rate in the coming years. But what are the consequences?

CON – Penalty

If you had the experience of working with me you have likely heard me say, “what is your exit strategy?” If you are fortunate, and you actually make it to the end of your five-year term, then you won’t have to consider what your penalty is to break your mortgage. But statistically, six out of ten Canadians break their mortgage (usually around the three-year mark) and that triggers a penalty. I know, you’re not the one who gets transferred, or divorced, or loses a job, or has a spouse pass, or your port is declined– but it is happening to greater than 50% of Canadians.

If you convert to a fixed rate mortgage the penalty clause wording changes from three months interest to three months interest or IRD (interest rate differential), whichever is greater. And IRD is kind of like a swear word . . . it’s nasty. Every lender calculates IRD differently.

If your mortgage is with a big bank CIBC, BMO, RBC, Scotia, and TD then you need to be aware that those banks have the least favourable penalty calculation to the consumer. They calculate your penalty on the spread between benchmark (5.19% today) or posted rate and what your actual interest rate is. This can come up with some pretty nasty numbers (again depending on the size of your mortgage) but I have seen IRD penalties in excess of $20,000.

If you are with a monoline lender (only available thru a mortgage broker) they generally calculate the penalties based on prime rate (3.95% today) or contract rate and what your actual interest rate is. This is greater than three months interest but certainly less than the big five banks.

Why is this happening?

Let’s remember that fixed rates and variable rates are totally different markets. Fixed mortgage rates are driven by the bond yield – how much banks can borrow money for, and variable rate mortgages are driven by the overnight interest rate set by the Bank of Canada – economy based.

I (we) have a variable rate mortgage and we are not converting to fixed, and here’s why. We plan on moving within the term of our mortgage, and we like the flexibility, that if the timing does not work out perfect, the maximum penalty we will be charged is three months interest. So yes, it’s going to cost us some extra money in interest but it will cost us more if we convert and have to break a fixed rate mortgage and pay interest rate differential. Is this called opportunity cost?

Worth the risk?

Most people choose a variable rate because it’s typically priced half, to and entire percent less than a fixed rate mortgage. Combined with the maximum penalty of three months interest it’s often worth the risk of the fluctuating prime rate. I feel the upcoming Federal election has an impact on this unique situation and if I were betting this window is short lived. We are definitely in a quirky situation with fixed being lower than variable and that begs the question, is the risk-reward payoff enough to make the switch to fixed rate mortgage?

What Is Collaborative Divorce?

What is Collaborative Divorce?

I am a Collaborative Divorce Alberta Association professional that works with people through the association is helping find collaborative ways to separate and divorce.

Not all separations are “nasty” and sometimes people find that they need to go their own ways from each other. Through the collaborative divorce process there are professionals that have the same goal as you. They want to help you and your spouse reach a fair divorce settlement, based on your priorities and without the potentially huge expenses and stress associated with a settlement reached in court.

How can I help?

In the process of separation and divorce I work with families and their finances to keep family homes through spousal buyout and/or find mortgages that suit them in their new homes. We work together to find what is the best options for everyone.

It’s imperative to examine your finances to determine if you can comfortably afford to buy out your spouse. If you’ve decided to remain in your matrimonial home, but the mortgage payments, taxes, monthly bills and upkeep push you to your financial limit, the stress that this will put you under may not be worth staying put – even for the sake of keeping something constant in your children’s lives.

As a mortgage specialist who works with divorcing couples, I’ve adopted three key priorities to ensure I serve every client to the best of my ability, including:

  1. Operating with integrity by always ensuring my clients receive the best mortgage product and rate to meet their unique needs – both now and over the long term.
  2. Providing solutions, support and answers while navigating unchartered territory such as separation/divorce, which ultimately leads to financial independence.
  3. Keeping a positive outlook regardless of the situation at hand to help keep clients in a positive frame of mind while they complete their separation/divorce and split the matrimonial home.

Please contact me if you have any questions and I also encourage you to check out Collaborative Divorce Alberta Association for further resources.

Mortgage Broker Spruce GroveMortgage Broker Spruce Grove

Retirement With A Mortgage

There’s a chance you read the title to this article and thought “I’m a long way off from retirement”. That’s okay, chances are you know someone (maybe parents or relatives) who could use this information, feel free to pass it along.

If you find yourself in the position thinking about retirement and what options you have with your mortgage, you’ve come to the right place. As an independent mortgage broker, I can provide you with many more options than a traditional bank. You might be closer to retirement than you think, and a good mortgage can certainly help you along the way.

Although it’s ideal to have your mortgage paid off by the time you retire, that isn’t always possible. Especially in today’s economy. More and more Canadians are carrying mortgage debt into retirement, how well they do it relies on the options they have!

Let me outline some options you have:

Standard Mortgage Financing

Standard mortgages work if you’ve got a steady income, decent credit, and equity in your home. There is no reason you shouldn’t qualify for standard mortgage financing. This usually comes at the lowest interest rate and best terms. Even if you’ve already retired, some lenders use pension and retirement income to support your mortgage application.

Reverse Mortgage Financing

A reverse mortgage allows Canadian homeowners 55 years and older to borrow money from their home with no proof of income, no credit check, and no health questions. A reverse mortgage is a fabulous mortgage solution that has helped thousands of older Canadians to enhance their lifestyle.

Home Equity Line of Credit (HELOC)

A line of credit secured to the equity you have in your home is an excellent tool to allow you to access money when you need it, but not pay interest if you don’t. A lot of Canadians like the idea of rolling all their expenses and income into one account.

To figure out which option is best suited to you, contact me directly. Together we can assess your financial situation, put together a mortgage plan, and then see it through.

Questions on your mortgage, or want to compare your mortgage to what is currently available? Please email me.

Mortgage Broker Spruce GroveMortgage Broker Spruce Grove

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