TD boosts posted 5 year mortgage rate

Mortgage Tips Robert Ganzhorn 25 Apr

TD Canada Trust

Wow….TD just boosted their 5 year posted mortgage rate to 5.59% a full 40 basis point over their previous rate of 5.19%

This matters for a few reasons..

Its the average of the big banks 5 year posted rate that the Bank of Canada (BOC) qualifying Rate is derived from. If enough of the big banks do this you can expect a higher BOC qualifying rate. This would make it harder to qualify for a mortgage since that rate is used in both insured and uninsured stress tests for home buyers and investors.

It also means that if you’re in the process of a mortgage application with TD you should quickly start to look at other lenders..they just made it harder to qualify with them.

And finally remember that the calculation for breaking a fixed mortgage with TD has an add back in the penalty calculation equal to the discount you received from the posted rate effectively increasing a breakage penalty significantly.

If the big banks follow suit less affordability is a possibility. I’m wondering if this will effect selling prices.

Just in time for the spring market..odd timing hmmmmm….

Why do some lenders have posted mortgage rates but never issue them with a mortgage?

Mortgage Tips Robert Ganzhorn 18 Apr

If you’ve shopped for a fixed mortgage you’ll notice the big 6 banks (and some other lenders) all have a table of posted mortgage rates. You’ll also notice the posted rates have a “special offer” or a “call for special offer” note. Talk to the bank staff and it’s clear that posted rates are almost always higher then what is actually offered.

So why are those rates even posted if they aren’t used?

Posted rates come into play regarding the term of your mortgage. Breaking your mortgage early will result in a penalty to compensate the lender for lost interest revenue. This is true for all mortgages (unless you happen to have an open mortgage). The key difference is that lenders calculate mortgage penalties with some subtle differences.

Have a look at your mortgage documentation to see if there is any reference to a “discount off posted rate”. If there is then Congratulations! You’re a player in the posted rate game which entitles you to paying significantly more to break your mortgage than if your lender that didn’t use inflated posted rates.

Why is this the case?

Lenders using posted rates add the discount you received from the posted rate back into the penalty calculation. Effectively your penalty is calculated as if your mortgage contract rate was the posted rate at the time of signing.

As of today the posted rate for a 5 year fixed mortgage at one of the big 6 banks is 5.14% while the “special” is 3.65% for a discount off posted of 1.35%. That is a significance difference and will add up quickly should you decide to break that mortgage.

There are a few take-aways from this:

  • Always ask your lender how they calculate breakage penalties and get the details
  • Never just walk into your bank – always consider a few lenders
  • Talk to a mortgage broker – we have access to the best rates and are familiar with lender policies around breakages

 

 

 

 

Free credit reports – what you need to know

Mortgage Tips Robert Ganzhorn 16 Apr

I’m seeing a lot more of those free credit reports from Credit Karma and Borrowell from clients. Requesting them is a good thing but there are some items you should know to clear up possible confusion.

There are two credit reporting agencies in Canada. Your credit score can (will likely) be different from each of them. Its due to the manner that each of them uses to calculate your score.

Of the two, Equifax is the one predominantly used by lenders. Not that Transunion isn’t used by lenders but nowhere near as much as Equifax is. Borrowell uses Equifax and Credit Karma uses Transunion. The moral here is to pull both – not only can the score be different but so can the actual content of the report.

And finally, you likely think that all credit bureau pulls are the same if taken from the same bureau. That’s just not the case. The credit bureau that you request is different than the bureau that I request which is once again different from the bureaus that the lenders request. The credit score can also vary between each report as well.

So what good is a free pull from these services? Although the score can be different from the lender bureau requests it still gives you a general idea of where your score sits and most importantly if the content reported on your bureau is accurate. Believe me I see a lot of errors and missing items when I request client bureaus.

If you have questions please feel free to reach out to me directly.