How to shop for a mortgage – Part 2 (Prepayment Options)

This is our first video in our series on what you need to look for when shopping for a mortgage & we’re going to talk about prepayment privileges.  repayment privileges are your tools to become mortgage free faster.  When you buy your home, you do not want to be paying it off for the next 25 or 30 years.

With every mortgage, you have the ability to make more than your required minimum monthly payment.  This goes directly to principal & can go a long way in shaving years off that mortgage & the amount of interest you will pay over the life of that mortgage.
The standard prepayment options you want to make sure you have are:

-15% Increase payment: this means increasing your monthly payment by up to 15%.
EXAMPLE: if your regular payment is $1000 / month, you could increase up to $1150 / month in year 1.  In year 2, you could increase to 15% above that.

-15% lump sum payment: this refers to putting a large deposit on your mortgage.
EXAMPLE: if you have a $200K mortgage, you could put up to $30K in lump sum payments per year.

-double up payments: on any payment date, paying up to double that amount.
EXAMPLE: $1000 / month payment.  You could pay up to $2000 as a one-off payment.

Now these options are not mutually exclusive.  You could really utilize all 3 if you wanted to & really, you should use all three.  The thing you want to watch out for, is that some lenders will offer you a “low rate” mortgage, where they give you a discounted rate, but slash your prepayment options to 5%/5%, or 10%/10%.  Don’t be fooled, it’s not necessary to sacrifice your prepayments to get a low rate.

The other thing you want to watch for is some banks will only allow you to make prepayments on the mortgage anniversary, once / year.  I can’t stress enough how much of a pain in the butt this is.  For 365 days a year you have a plan how much you’re going to put down on your mortgage.  If you end up putting too much or not enough, you have to live with that decision for the next 365 days.  It’s far more convenient to make a $1000 lump sum payment every 3 months, than it is to plan for a $4000 lump sum once per year.

So the important thing with prepayments are 15% / 15% / Double up & you want to make sure you can make those prepayments throughout the year, not just on the anniversary.

Ryan Zupan
Mortgage Planner

How to shop for a mortgage – Part 1 (intro)

Today we’re going to talk about the most important concept to think about when coming into the mortgage transaction, and that is, mortgages are not all the same.  From one bank to the next & even within that bank, from one mortgage to the next, there are a lot of little differences that can have a huge impact on how much that mortgage is going to cost you.
It’s very similar to buying a car, you don’t just decide you want an SUV just walk to the nearest dealership & start haggling on price.  You want to do your homework, you have to shop around, look at the fine print & weigh the pros/cons of the products out there & then make your decision.  Some cars have better gas mileage or their maintenance is cheaper, or they have a higher safety rating & so on.  It’s very similar with mortgages.

All banks calculate their penalties differently.  All banks have different prepayment privileges.  Some banks make you pay for a CMHC insurance premium even if you have more than 20% down.  The list goes on.  It all boils down to how this mortgage fits into your overall financial picture & your goals with the property.

My point here is that you need to look at more than just interest rate, but a lot of ppl get so obsessed with getting the lowest possible interest rate that they forget about all the other factors that make up a good mortgage.  You NEED to see the bigger picture.

I’ll give you an example.  On a $200K mortgage, the difference between 3.09% & 2.99%, is $10 / month.  This surprises a lot of people.  $10 / month is of course important, I mean, over 5 years that’s $600 saved, but it’s not something that should cause you to sacrifice good prepayment options or go with some small financial institution that may not be in business in a few years.

When I first sit down with a client, the first thing we go over is the 3 main things you want to look at when shopping for a mortgage:

1) Prepayment privileges
2) Penalties
3) Registration

These three differences can go a long way in determining how much this mortgage is going to cost & they’re very important.

In my subsequent videos, we’ll delve into each of these topics, explain why they are important, & outline how they can be worth more than the rock bottom lowest rate.

Thanks & tune into my next video to learn about how prepayment privileges differ.

Ryan Zupan
Mortgage Planner

February Real Estate Stats


Demand for detached homes continues to be strong across Greater Vancouver, with particularly high sales volumes occurring in Richmond and Vancouver Westside.

For the past two months, the number of properties listed for sale and those sold on the Multiple Listing Service® (MLS®) in Greater Vancouver outpaced the 10-year average in both categories. From a historical perspective, February’s 3,097 home sales outpace the 2,742 home-sale average recorded in the region over the last ten years.

“We saw an increase in demand across our region last month as more buyers entered the market in advance of the spring season,” said Jake Moldowan, president of the Real Estate Board of Greater Vancouver (REBGV). “The intensity of this activity varied between communities. Our statistics tell us that single detached homes in Richmond and the west side of Vancouver remain the most sought after properties in our marketplace.

Between November 2010 and February 2011, the MLSLink® Housing Price Index (HPI) benchmark price of a detached home in Richmond increased $190,739 to $1,099,679; in Vancouver West, detached home prices increased $222,185 to $1,850,072. In comparison, detached home prices across the region increased $51,762 between November 2010 and February 2011 to $848,645.

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