Mortgage penalty calculations.. More important than the interest rate. + MORE Apr 27th

Last December, the credit union trade group released a paper on credit unions’ role in the mortgage industry. While somewhat belated, it contains statistics worth mentioning and statements worth debating, not the least of which is their take on mortgage brokers. Here, in no particular order, are some of its key points. The source is the Credit Union Central of Canada (now called “Canadian Credit Union Association” or CCUA): CUs in the Mortgage Market 58%: The percentage of credit union loans that are residential mortgages In 1961 it was just 12.7%. “…residential mortgage lending is now at the centre of credit union business,” notes Rob Martin, author of the READ MORE

The first step to buying a home is saving up for a down payment. In Canada, all you need is 5 per cent down to qualify for a mortgage but the question is, where should you park your down payment?
It should be a pretty straight forward answer, but in this low-interest rate environment many potential home buyers are afraid that the money they’ve put aside isn’t exactly earning them a whole lot of interest. Are there better places where you can put your money while getting a higher return?
Related read: Investing University – It’s Time to Get Started>
Understanding Risk Tolerance
There are plenty of investment options where you can potentially earn more money with your down payment such as ETFs and stocks, however, those are much riskier investments. So sure you could potentially earn a 5 per cent return, but you could just as easily be down 5 per cent. Basically, with risk comes reward. There is no such thing as a risk-free investment that will give you a high return…

Part 2: Variable Vs. Fixed
When choosing the best mortgage you’ll need to decide between a variable or fixed rate mortgage—terms that are not synonymous with open and closed.
Open/closed mortgages refer to the flexibility you have in paying off the mortgage debt, while fixed/variable mortgages refers to how the interest rate is calculated and applied.  (That means you can have: a fixed closed mortgage, a variable closed mortgage, a fixed open mortgage, and a variable open mortgage.)
The key to variable and fixed rates is to understand how interest rates are calculated and how these impact each type of mortgage:

Fixed rates are based on movement in the bond market (the benchmark for a 30-year fixed rate mortgage is the yield of a 10-year bond). As bond prices rise, fixed rates will also rise and the spread between the two reflects the risk investors are willing to take when they move their money from a secure product, like bonds, to invest in mortgage securities. There are times when that spread becomes very wide or very thin—a reflection of world events, such as the subprime mortgage crisis of 2008/2009 and the recent catastrophic situation that has befallen Japan…

WHY ISN’T ANYONE TALKING ABOUT THIS? You bought a home…  you need a mortgage.. what’s the first question you ask your Banker?  “what’s your best interest rate?”.  And the second question is usually, “what product should I choose?”. Almost no one asks about Mortgage Penalties or how they are calculated.  After all, how often does […]