Canadian Economy

When Bank of Canada governor Mark Carney made his inaugural speech as head of the banking industry's global regulator on November 8 he said the world economy is getting hurt by a slump in liquidity, meaning banks are less willing or less able to lend money. And because global liquidity has fluctuated over the past five years, Carney said that Europe is already in a recession. He used the 2008 collapse of the U.S. investment bank Lehman Brothers as an example. The impact of that was that banks shied away from lending to both companies and consumers. That helped plunge the world economy into a major recession.

Clearly, if banks stop lending, consumers stop spending and businesses stop spending. For an economy to function, money needs to keep moving.

There has been talk recently that Carney might lower the prime interest rate to keep inflation in check. Carney has also said that the Canadian economy won't fully recover until well into 2013. Currently the prime rate is sitting at 1%. Inflation is approximately 2.7% and is predicted to slow to 1% in the second quarter of 2012. The Bank of Canada likes to keep the inflation rate between 1 and 3%. 

So what does that all mean for Canadians?

So far, the credit crunch hasn't hit Canada. While mortgage lending has tightened up a bit, banks are still lending money to businesses. The federal government has been making slight concessions to make sure Canada continues to grow:

• For example, on November 27, Finance Minister Jim Flaherty eliminated $32-million in manufacturing tariffs. This will allow businesses to lower their costs, enhance their ability to compete globally, which will help stimulate growth and job creation.
• On November 23, Mark Carney said he would stay flexible on interest rates. Despite the fact that inflation has been creeping higher, Carney said that although it may take longer to return inflation to target, being flexible with the rates will protect the country from any economic and/or financial shocks.
• The federal government is also moving ahead to change the laws that govern financial institutions, adding more oversight to protect consumers. "Canada has been ranked as having the soundest banks in the world by the World Economic Forum for four consecutive years," said Jim Flaherty, Minister of Finance in a statement released on November 23. "The Financial System Review Act will ensure our financial system continues to be secure for Canadians and a fundamental strength for our economy."

These changes likely won't have a direct impact on most Canadians but the after effects will. They include more jobs, higher profits for all businesses, access to low cost money for home buying and investing, stable housing markets and a strong and healthy banking system. 

All of this makes Canada a growing, stable economy that can weather short term fluctuations for a strong and prosperous future.

Penalty Calculations

"When a Certified Financial Planner (CFP) can’t figure out how to calculate his mortgage penalty, it’s got to be really tough for Joe Borrower.

Globe & Mail columnist Ted Rechtshaffen, a CFP, recently wrote about this very topic. He says: “My mortgage breakage cost truly is a mystery…I have read my mortgage contract…It can’t be found in the fine print.”

Like many banks, his (TD Bank) explains how to calculate its penalty, but people have to deduce the numbers to plug into the formula themselves.

Those numbers include:

1. The contracted interest rate (easy enough)
2. The posted rate at origination (not as easy)
3. The months left on the term (easy)
4. The relevant comparison rate (not as easy)
5. The current mortgage balance

To confirm these numbers, the borrower generally has to call his or her lender.

Wouldn’t it be nice, however, if you could log into your lender’s website and get this information with one click? It would, but lenders would much rather you call them for it. That way they can try to sell you a new mortgage.

A key point Rechtshaffen makes is that some lenders go out of their way to muddy the waters with respect to mortgage penalty calculations. They do that by:

• Not including certain inputs for calculating your penalty in their mortgage contracts (like the posted rate); and/or,
• Not telling you where to get the inputs on your own; and/or,
• Not clearly explaining (with examples) which term to use when determining yourcomparison rate; and/or,
• Writing penalty explanations in language that almost requires a law degree.

Penalty calculation shouldn’t be this cryptic. CAAMP says that 47% of people who refinance before maturity have to pay penalties. (It’s actually more than that if you include refis with blended rates [which have penalties built in].) So it’s not like this is some infrequent obscure need that borrowers have.

Lenders who believe they have their customers’ best interest at heart should provide a web page that clients can log into. It should provide an instant penalty quote, with a comprehensible explanation of how that penalty was calculated, showing the math.

RBC has a semi-workable solution with its penalty calculator. Unfortunately, you have to fill in the blanks yourself and few people will know what to enter for things like the “Discount off posted rate.”

In any event, one of the nice benefits of not getting a big bank mortgage is that your penalty is often based on discounted rates instead of posted rates. That often saves people hundreds or thousands of dollars. It’s even more meaningful given that most people break their five-year fixedterms in 3.5 to four years on average."

Rob McLister, CMT

CAAMP Consumer Survey Highlights

CAAMP just released its Fall Consumer Survey. Here are a few highlights from that report. To get your copy of the report visit CAAMP's website at www.caamp.org * The total value of owner-occupied housing in Canada is estimated at $3.017 trillion. Mortgages and lines of credit on these homes total $982 billion, leaving $2.035 trillion in home owners' equity. The equity is equal to 68% of the total value of the housing. * Among those who renewed or refinanced an existing mortgage during the past 12 months, 21% changed lenders and 79% remained with the same lender. The rate of switching has edged upwards - two years ago it was 12%. * Fixed rate mortgages remain most popular (60%). * Among borrowers who renewed, a large majority (78%) saw reductions, a smaller proportion (13%) saw their rates rise, and 9% had no change. * Based on the housing market forecasts, the volume of residential mortgage credit outstanding is forecast to continue expanding. Growth is forecast at about 7.7% during2011 ($80 billion) and 7.3% in 2012 ($81 billion). A preliminary look at 2013 suggests growth of 7.0% ($83 billion). Call or email Sharie Marie Mortgage Team today to discuss how your mortgage.

Is it time to lock into a fixed rate mortgage?

"It’s one of the most agonizing decisions homeowners make: Do you go fixed or variable? Mortgage, that is.

The decision could end up costing – or saving – big bucks on what is often the single biggest purchase many will make. Research shows that, in the past, a variable-rate mortgage has been cheaper than a fixed-rate one.

But today’s market is different from decades past in two big ways.

“The spread between fixed and variable rates is extremely low by historical standards. Moreover, we can no longer rely on a long-term down-trend in rates,” said Robert McLister, a Vancouver-based mortgage planner and editor of theCanadian Mortgage Trends blog. “Given all that, the historical advantage of variable is less applicable today.”

It can be confusing for homeowners. Both interest and short-term mortgage rates are sitting at rock-bottom lows. But inflation is the wild card here. Statistics Canada reported on Friday that the core inflation rate has climbed to 2.2 per cent – its highest level in nearly three years.

Given the uncertain global economic outlook, the U.S. central bank has signalled it will hold its benchmark rate at close to zero through to mid-2013. And even though Canada’s economy is not faring too badly, the Bank of Canada is expecting to keep its key rate steady at 1 per cent until well into 2012.

So how do you make the decision? Let’s compare the two mortgage products.

Variable mortgages, which are based on the prime rate set by the central bank, fluctuate alongside the prime rate. And with rates slated to move sideways for the near future, there are still arguably plenty of savings to be had.

With a fixed-rate mortgage, homeowners lock in their mortgage rate for a specific period of time, the most popular being five years. People with a fixed-rate mortgage often pay a small premium for the security of knowing that their payments will stay the same. And since rates can arguably only rise from their current lows, locking in seems like a good call.

“The difference between today’s variable rate, which is 2.7 per cent on the street, and a good fixed rate, something like 2.99 per cent for a four-year, is remarkably tight at 29 basis points,” Mr. McLister said. That is equal to about one rate hike.

It’s a small price to pay for “knowing that you won’t get skewered by rising rates.”

Moshe Milevsky, a finance professor at York University and the often-quoted author of mortgage studies showing that variables tend to outperform, says that because interest rates are so low, the amount people will save from choosing variable over fixed will be lower in the future.

Like most mortgage experts, he believes a person’s circumstances should dictate which mortgage they choose. The decision should also be part of a larger financial plan.

“For people who are making their first purchase with a large amount of debt, small down payment and big risk, I would say not to take on more risk by gambling on floating rates,” Mr. Milevsky wrote in an e-mail.

On the other hand, people who are renewing with a substantial amount of equity, have a strong personal balance sheet, income statement, and other assets to fall back on in the event of a crisis, can go floating, he said.

Mr. Milevsky also suggests checking out a hybrid mortgage, which is partially fixed and partially floating. “By diversifying your mortgage debt you can reduce some of the worry.”

The good news, according to Mr. McLister, is that today’s low interest rates are favourable for all mortgage shoppers. “This is a great time to get a mortgage, if you are in the market for one,” he said. “You are most likely not going to get burned, no matter which term you take.”

Mr. McLister says these are the top considerations for people struggling to decide:

1. Financials 
Because variable-rate mortgages entail more risk, you need to know whether you are financially sound. Borrowers should have “good I.D.E.A.S.” That means your: Income should be stable, Debt should be reasonable, Equity in your home should be roughly 15 per cent or more, Assets should give you liquidity if cash flow gets tight and Sensitivity to risk should be low.

2. Spreads 
When the difference – or spread – between fixed and variable rates gets tight, variables lose some advantage. When the spread is less than one percentage point and we’re near the bottom of an economic cycle, fixed mortgages often have a higher probability of outperforming. Today’s spread between a five-year fixed and a variable is an astonishingly low half a percentage point.

Odds are better than 50/50 that we’re near the bottom of a rate cycle.

3. Breaking early 
People often break their mortgages early, for reasons that include refinancing, selling, divorce, or just changing to a mortgage with a better rate. One bank source pegged the average duration of a five-year variable to be about 3.3 years. Lenders penalize you for getting out of a fixed mortgage early. Penalties on variables are generally three months interest, whereas fixed mortgages can sting you with horrendous interest rate differential penalties. If there’s a chance you’ll refinance or break your mortgage, a variable may cost you less.

4. Flexibility 
Variables give you the option of changing your mind and locking into a fixed rate for free, which is useful if interest rates are not likely to rise in the near future. The problem is, locking in can be expensive because you’re forced to time the market, which is tricky. Also, you’re stuck with the lender’s “conversion rate,” which is often a fifth to a half a percentage point above its best fixed rate.

5. Alternatives 
The five-year fixed and the variable are not the only options; take a peek at shorter fixed-terms. Today, for example, you can find two-year fixed rates at 2.49 per cent, whereas most variables are 2.7 to 2.75 per cent, or higher. You can also diversify rate risk with a hybrid mortgage – one that’s part fixed and part variable.

6. Comfort of knowing 
If you can secure a fixed mortgage at a good rate, there’s less need to monitor the interest rate market. You know exactly how much interest you’ll pay. Variable-rate borrowers, on the other hand, must ride the rate roller coaster and tolerate some anxiety."

-ROMA LUCIW Globe and Mail Update

Contact a Sharie Marie Mortgage Team Professional today to discuss your options

 

Canadians realistic about household debt

In the past decade consumer confidence in Canada was much higher than what would be expected based on certain household fundamentals including Real Disposable Income Growth, Debt-to-Income Ratios and Consumer Capability Indices. It appears that pre-2008, consumers were confident they could increase and manage their household debt when indicators pointed against this.

Then, since the global financial crisis of 2008, Canadian consumers have become more realistic about their debt. Yes, they continue to borrow; however, the pace of that borrowing has slowed down. This change in mindset is happening during a time when their capacity to manage their debt has increased.

A recent report by economist Benjamin Tal of CIBC, analyzed this new trend on seven household fundamentals. He found that as of the second quarter of 2011, the Consumer Capability Index was back to the level seen before 2008, with the gap between confidence and capability narrowing notably, relative to the wide gap seen during most of the decade. This improvement in the capability index was not due to a strong growth in income but reflects the fact that while the level of the debt-to-income ratio is still rising, the speed at which it is, in fact, slowing.

"The key here", Tal wrote, "is the notable softening in the pace of growth in personal non-mortgage credit which is currently expanding at the slowest pace since the early 1990s. In fact, the ratio of consumer credit to disposable income has been stable over the past year."

According to the report, other factors contributing to the recent improvements include:

1. A higher savings rate which, while easing lately, is still double the rate seen before 2008
2. Personal bankruptcies are down
3. Relatively low and stable debt service costs
4.  A stabilizing long-term unemployment rate at a relatively low level

"While consumers will continue to take advantage of historically low borrowing costs," Tal said. "The practical implication of their more realistic approach is that spending in the near future will be slower but more balanced growth as it will be based on fundamentals as opposed to wishful thinking."


-Debbie Thomas TMG The Mortgage Group Canada Inc.


For more information please contact a Sharie Marie Mortgage Team Professional

Fifteen years of economic growth means little in everyday lives

OTTAWA - A generation of solid economic growth has meant little in the everyday lives of most Canadians, according to a new index of wellbeing.The finding is a yellow light for decision-makers that social unrest is just around the corner unless deep changes are made, warns Roy Romanow, the advisory board chairman of the University of Waterloo group that created the index.

The index suggests the middle class, in particular, is eroding."There are some very, very troubling signs," Romanow said in an interview.

"I think if we continue on this trajectory we're going to have bigger and bigger disparities. You can never build a solid political, social and economic community with wide disparities."

The Canadian Index of Wellbeing is meant to be GDP's alter ego, measuring the quality of life in society in ways gross domestic product does not.

The index has been years in the making, pulling together 64 indicators to track progress in areas such as community spirit, education, health, environment, leisure and democratic engagement. While GDP measures what companies and government produce, the wellbeing index measures how Canada and its people are faring.

It shows that between 1994 and 2008, wellbeing improved by just 11 per cent. The economy over that period grew by 31 per cent. So while investment and corporate activity were ticking along at a decent pace, Canadian households saw only minor improvements in their lifestyle. "The divergence in the (index of wellbeing) and GDP tells us emphatically that we have not been making the right investments in our people and in our communities. And we have not been doing it for a long time," the report on the index says. The index's subcomponents show that quality of life actually deteriorated over that time frame in areas such as the environment, leisure and culture, and time use.  Researchers noted that metal reserves are at rock-bottom, species abundance has declined, greenhouse-gas emissions have soared, and ground ozone has risen.

When it comes to leisure, Canadians are working out more and taking longer vacations, but they spend less time engaged in arts and culture. Health care saw a slight gain — we're smoking less and getting our flu shots, but diabetes and depression were on the rise. Wealthier people had better health status.  Living standards rose 26.4 per cent, but at the expense of income inequality. The rich took the lion's share.  While parents are reading more to their young children and signing them up for all sorts of classes, kids are also spending more time in front of screens. And seniors are seeing less of their families.  In other words, a typical household is now working harder and longer to keep on track financially, at the expense of having free time with family and friends, enjoying arts and culture, and volunteering.  "Many Canadians are simply too caught up in a time crunch to enjoy leisure and culture activities in the company of friends and family. The question raised by the results of this domain: Is that progress?" the study asks.

On the positive side, the index also revealed that Canadians feel safer than in the 1990s, and feel a stronger sense of belonging to their community. The "community vitality" index rose 20.7 per cent over the 15 years. Education has improved, especially with university graduation rates soaring. But our international rating has declined in literacy, math and science.  While Romanow, the former NDP premier of Saskatchewan, is the face of the new index, he says the work put into the index is far from political or ideological. Rather, the data is taken from Statistics Canada and elsewhere, collected and crunched by a wide variety experts in their field. The work is recognized by the Organization for Economic Co-operation as leading edge.  The policy prescriptions, however, point to failures at every level of government over the past couple of decades, Romanow says — adding that he, too, carries some of the blame. "We all wear some of this."  Instead of focusing on redistributing wealth and building programs that improve quality of life for Canadians, governments are obsessed with juicing GDP, he said. The result has been to whittle away at the vibrancy of the middle class, and undermine core Canadian values that encourage individual effort, in part, through redistribution of wealth, Romanow said. "I think this is a yellow light. A cautionary light," he added. "We want to be able to make sure that ... our societal values are not diminished here."

Heather Scoffield, The Canadian Press, On Thursday October 20, 2011, 6:40 am

By Heather Scoffield, The Canadian Press

Average resale home prices rise 6.5%

"A September surge in home buying helped boost the number of Canadian homes sold in the first nine months of this year an unexpected 1.2 per cent compared to the same period last year, according to figures compiled by the Canadian Real Estate Association.

Sales of existing homes rose 2.7 per cent in September compared with August, according to a monthly report released Monday by CREA. On a year-over-year basis, home sales in September were up 11 per cent from the same month in 2010.

The strong September activity drove the number of homes sold on CREA's multiple listing service in the first nine months of 2011 to 361,749.

The increase over last year was surprising given that many economists and industry watchers, including CREA, had earlier predicted that sales this year would decline over the same time in 2010.

TD economist Sonya Gulati said she expects a “tug of war” between several factors — including low interest rates and waning consumer confidence — to take hold in the coming months, leaving conditions fairly balanced, with sales and prices holding steady at current levels over the next year.

“Several factors appear to have clipped the wings on resale activity this year, including: (1) new mortgage eligibility rules; (2) a wave of economic uncertainty emerging in recent months; and (3) a growing saturation of the first-time home buyer category,” she said.

“Helping cushion the impact of these negative forces has been the persistence of low mortgage rates. “

Sales have remained stronger and for longer than expected largely because the period of ultra-low interest rates has been extended beyond earlier expectations due to an uncertain global economic outlook. The Bank of Canada's overnight lending rate currently sits at 1 per cent.

Low interest rates impact variable mortgages and other loans tied to a bank's prime rates, and have encouraged many, especially first-time buyers and those who might not otherwise afford ownership, to enter the market.

The Bank of Canada dropped rates to an emergency low 0.25 per cent during the recession of 2009 to encourage Canadians to spend on big purchases like houses.

Buyers entered the market in droves during the latter half of 2009 and early part of 2010, driving prices higher as some — encouraged by low lending rates — engaged in bidding wars to secure a home while rates were low.

That drove prices to record levels that some economists have predicted are not sustainable. Others have said a drastic drop could be on the way.

The national average price for a resale home made its smallest year-over-year increase since January, rising to $352,600 — up 6.5 per cent from September a year earlier.

That's down from as much as 9.3 per cent year-over-year increases posted in July, noted Bank of Montreal economist Robert Kavcic.

The upward pressure on prices from high-end sales in the expensive Vancouver and Toronto markets appears to be receding, he added.

“Note that sales in formerly white-hot Vancouver are now just two per cent above year-ago levels compared to nearly 30 per cent year-over-year in the spring, and average prices have come off the boil in recent months, though they're still up 10.5 per cent year-over-year.”

“Meantime, Toronto (and most of Ontario for that matter) is now seeing sales growth at a heated 21.3 per cent year-over-year pace, but that compares to a depressed period last summer.”

The September increase in activity reflects strengthened activity in a number of major markets, led by Toronto, CREA said.

The number of newly listed homes nationally was little changed in September from the previous two months and more that two-thirds of markets were in balanced territory.

New listings were up from the previous month in a number of major markets including Toronto, Montreal, Ottawa, Oakville and Vancouver, but declined in Edmonton and British Columbia's Fraser Valley.

The national sales-to-new listings ratio, a measure of supply and demand, stood at 52.8 per cent in September, up from 51.6 per cent in August.

“Canada's housing market remains stable amid continuing financial market volatility, contributing to Canadians' confidence in the economy and providing support for Canadian economic growth,” said Gregory Klump, CREA's chief economist.

“Interest rates are expected to remain low for longer, and evidence suggests that recent changes to mortgage regulations are preventing the kind of excesses they were designed to avert. Both of these developments are good news for the housing market.”

Economists have predicted interest rates will remain on hold until 2013. However, Mr. Kavcic said he believes sales and prices will fall somewhat next year.

“Canadian housing continues to look balanced and healthy, as low mortgage rates and a falling jobless rate are offsetting weaker consumer confidence and tighter mortgage rules,”he said.

“We continue to expect sales and prices to cool in the year ahead, but the landing should be a soft one.”

SUNNY FREEMAN

Ottawa— The Canadian Press

Class action lawsuit filed against one of the 'Big 6" banks

A class action lawsuit has been filed against one of the largest banks in Canada in regards to calculations of prepayment penalties. The lawsuit alleges that this bank has been improperly calculating prepayment penalties since 2005.


The lawyer heading the suit has stated that "Starting in 2005, [the bank] started using language in its standard charge terms that was extremely vague regarding how its prepayment penalties would be calculated," says Kieran Bridge, lead counsel on the case, in partnership with Siskinds LLP.


The vagueness of the above mentioned language is said to make this bank's prepayment penalty unenforceable. The case was started with a single mother getting divorced had to sell their family home and ended up with a $47,000 prepayment penalty. Prepayment penalties have always been one of the main complaints amongst consumers and without some kind of change to our system that is likely to remain the same. 


While most do look at Canada's banking rules and regulations regarding mortgage to be superior to many other nations, it's possible we may be lacking in progress in this area. In recent years we've seen other countries bring in legislation attempting to unify the process and calculation for these penalties, instead of letting each individual lender have full range of how they interpret an Interest Rate Differential penalty. Maybe this lawsuit will be the beginning of a change in the right direction. 


By working with a Sharie Marie Mortgage Team professional, we'll keep you informed on the penalty calculation with your lender. Visit www.SharieMarieMortgageTeam.com today to set up an appointment.

No change to Prime Rate until 2013?

BMO Capital Markets pushed its rate hikes forecast back to 2013 on Tuesday, citing continued serious economic risks both home and abroad.

"The new forecast pushes the expected time frame for the Bank of Canada to raise its benchmark interest rates back from previous expectations of the second half of 2012. As recently as this spring, economists had been speculating about a rate hike before the end of 2011, but the market turmoil of the past few months sparked by the eurozone debt crisis has changed all that. "As global economic risks have escalated, casting commodity prices and the Canadian dollar much weaker, the Bank of Canada's diminishing tightening bias has probably diminished further," Michael Gregory, senior economist with BMO Capital Markets, said in a report. Mr. Gregory noted that the market has now actually swung all the way into cut territory pricing in two 25-basis point rate cuts by April 2012. But with inflation slightly below target, a weak loonie and credit markets still functioning, movement in either direction is unlikely. "The policy easing bar remains high. Short of signs of imminent recession, the bank should remain on hold," he said. Mr. Gregory also forecasts the loonie to tumble further, down to US93¢ before recovering to parity by 2013." - Eric Lam, Financial Post


To discuss whether fixed or variable rate is right for you call a Sharie Marie Mortgage Team Professional today.

Why the sudden increase to Variable Rates?

Please enjoy this September 22, 2011 press release from Mortgage Brokers Association of British Columbia in regards to the recent increase to Variable Rates.

"The secret to the sudden increase in variable rate mortgages

Why could I get Prime minus .90 last week and today it is Prime minus .25?

 September 22, 2011 (Vancouver) – A great question, says the Mortgage Brokers Association of BC (MBABC), especially when fixed interest mortgage rates are remaining the same.  The quick answer?  As with many things, it all boils down to money.
Over the last couple of months, banks and other lenders have been offering historically low variable interest rates to qualified homebuyers in an effort to attract new clients and mortgage business.  In the short term, lenders have been prepared to accept these low profit margins with the knowledge that, as the prime rate inevitably rises, so too will their profit on variable mortgages – a similar ‘loss leader’ tactic used by retailers to get consumers into their door.

“However”, says Geoff Parkin, MBABC’s president, “the recent announcement by Bank of Canada governor, Mark Carney has changed the mortgage lending landscape.”   Carney stated that, because of poor performing global markets and continuing economic uncertainty, the benchmark interest rate would remain unchanged.  The long-term outlook indicates continuing low fixed interest rates with no significant increases to the Prime rate.  “In a nutshell”, says Parkin, “the bank’s theory of anticipating rising profits on variable rates was proven wrong.  They’ve had to quickly respond to this situation by reducing the variable rate discount in order to gain back profit.”

What does this mean for consumers who have variable rate mortgages?  Much of the same, says Parkin.  “We continue to see low fixed rates and the variable rate is under 3.0%.  There may still be value in going variable over fixed, but because consumers all have different financial situations and mortgage needs, we recommend they obtain expert financial advice from their MBABC mortgage broker.”"

Need access to your Home Equity?

Whether you need extra cash to pay off debt, renovate your home, travel, or whatever the reason may be. With mortgage rates as low as they are, this is a great time to refinance.  In the past, most people have resorted to a second mortgage or home equity line of credit to access their equity. More often than not these days, its more beneficial to pay out your first mortgage, incur a penalty, and refinance an increased amount at a lower rate. Take a look at this example of a client SharieMarieMortgageTeam recently helped gain access to their equity.

Bob is currently amortized about 27 years on his mortgage of $270,000. He has been in this mortgage for just over 3 years and is paying an interest rate of 5.29%. Since he has a penalty of almost $9000 to pay out his mortgage early, he went to his financial institution to discuss a second mortgage to access some of his equity. Bob was quoted a second mortgage for $40,000 at 7%, or a blended rate mortgage at 4.50% (for another 5 years) for the entire $310,000. Since the blend and extend option saves Bob the $9,000 penalty, he was leaning towards this option. This is what his payments would be:

Currently for the $270,000 - $1490/month

Option A - Keep current mortgage in place 2 more years and take a second mortgage - $1770/month

Option B - Lock in 5 more years at 4.50% for total $310,000 - $1565/month

Bob approached our team to double check his options and make sure he was making the best choice financially for him. We recommended Bob refinance his current mortgage to $319,000, giving him the equity he wanted and including the penalty in his new mortgage to avoid having to come up with the cash out of his own pocket. 

Option C (SharieMarieMortgageTeam Solution) 

$319,000 at 3.29% for 5 years keeping amortization the same as it currently is - $1390/month

So as you can see, our option provided Bob with a lower rate to lock in at for another 5 years and gave him access to his equity. Even though he incurred a penalty of $9000, his monthly payment is actually $175 less. Saving him almost $11,000 over the five year term, and freeing up monthly cash flow for Bob. This solution worked well and met Bob's needs. This is not necessarily always the best option for people as it does increase the balance owing on the mortgage, but in this situation it was ideal for Bob's needs. 

If you'd like to see how you can access equity and free up monthly cash flow, call SharieMarieMortgageTeam today.