This video will help you understand how to compare current Mortgage Rates so you can get a mortgage with overall low costs. This would include not only mortgage rates but also penalties and type of registration.
Banks know your main deciding factor is the mortgage rate. If you do not fully understand all the aspects, you will get a low rate and still overpay on your mortgage.
Your Mortgage Term is like a Soccer Game
Hi. This is Camilo Rodriguez with MortgagesLab. Today, I’m going to show you how you can relate the beautiful game of soccer or any a sport that you like to the game of mortgages.
And I say mortgages is a game because in my opinion, when you are taking a mortgage, you are always fighting against another team. This is you and your family and this is the bank. The reason why I say that you are in opposite teams is that the objective of the bank is always to produce more money to their shareholders.
“You and the bank are in different teams”
So, they want to find ways how they can take more money from the family, from the household. On the other end, myself as head of my family, I want to reduce the expenses, so my kids and my wife can have a better quality of life. We are a soccer family. We love World Cups.
I follow Real Madrid. My son, Pablo, and my daughter, Camila, they play at the local league here in the Lower Mainland, and we’re very passionate about this sport. That’s why I created this presentation and show you how you can win on your own games. The first thing that you do, and I coach both my kids, look at the offense.
Mortgage Rates are the Offense of your Team, The Fun & Exciting
The offense is where all the excitement goes. In soccer, for example, we all know a famous striker like Ronaldo, like in the old times, Pelé, like Messi. We all know these people who are famous and they score goals. In mortgages, the offense is what everybody talks about, the mortgage rate, okay?
So, for example, in this game, we’re going to assume if you’re playing this way, that way, and you want to beat the bank, you’re going to get a very low rate. And on this example, let’s say you got a 2.99% rate which is very low, so you’re beating the bank. So far, everything is very, very good.
“A low Mortgage Rate means only you have a strong offense”
Now, when I am planning the team for a game, super important, to plan a good defense.
Mortgage Penalty structure are the Defense of your Team, The boring but super important
Why? No matter how good your strikers are, no matter how many goals they score, if the other team scores more goals, we lose. So right now, we have three here. Let’s look at the defense on the mortgage side. What would be the defense on the mortgage side?
In my opinion, is the prepayment penalty. So, most families go into a mortgage contract thinking that they will go to the end of the term, let’s say, a five-year term. Statistics show that most families will break that contract. I don’t remember the exact number, but it’s very high, the number of families that did not go to the end of the term.
So, what happens when they break their penalty is they get a…they break their mortgage, is they get charged a penalty. And most, if you’re going directly to the bank, most lenders will not disclose properly how the penalty is calculated, and sometimes it’s very difficult to find out. Let’s look at an example, and this is a real-life scenario.
I didn’t give this mortgage, but a couple got married in Alberta and they bought a $200,000 condo. They put 5% down and they got a mortgage of $190,000 plus the CMHC Insurance, okay? So, so far, everything is very good.
They got the mortgage through a major bank and two years later, unfortunately, again, statistics happened. This couple couldn’t work their things together and they got divorced. None of them wanted to live in the condo, in the property that they purchased. What happened?
They sold it. The first thing that happened is that they had to hire a real estate agent that charged them a fee for their service, okay? The market value of the property was pretty much the same. And they remembered when they went to the bank that they were going to be charged a penalty. Guess how much the penalty was on this mortgage? It was $9,500. So, I created a term because everybody keeps looking at the interest rate.
“Without a good defense you can be charged 3% even 5% of your original Mortgage, you will lose the game!”
For me, is as important a term that I coined and it’s called the expense rate. When you do the calculation and you calculate the mortgage for $200,000 at 2.99% and you include the penalty that the bank charge in the back end, guess how much was the rate that they actually paid for the two years that they were in that mortgage?
“Expense Rate is your interest rate + penalties charged by the bank + other costs you are unaware”
5.67%. So, guess in this game, who won between the bank and the family? The family scored 3 goals, the bank scored 5.7 goals. Game over. Contract finished. Please be very aware of your defense strategy when you work with your lender. The expense rate in this example is 5.67%
Type of Mortgage Registration is the Midfield of your Team, The one who controls the game
Let’s talk now about the midfield. I love two teams, Brazil and Colombia. They move the ball around in the midfield really well. So, the theory in soccer is if you control the ball and you move it around in the midfield, you don’t let the other team take possession of the ball.
They could never score on here. So, this part is all about controlling the ball and having control. In mortgages, the control part is the legal aspect, okay? So, in Canada, to be very…to tell you in simple terms, there is two types of registration that lenders can register on your mortgage, standard and collateral registrations.
“Go around and ask your friends and family if they know if their mortgage is Standard or Collateral, lenders do not disclose this. This is super important”
There is not one that is good or bad, both can be good and both can be bad. It depends on how you use them, but it should be to your advantage to know exactly how they work. I’m going to give you an example on when things didn’t go really well. We had in my office, some doctors came in, and they had already…had a mortgage where they purchased a $400,000 home with a $200,000 mortgage.
So basically, they had a down payment of $200,000 and a mortgage of $200,000. So, it’s very simple. Two doctors, they had good income, extremely high down payment, good property, any bank would give them an approval. What happened to them is that they had a baby and then they both went to school at the same time.
So, their financial situation deteriorated and also they had a lot of time constraint because of the new studies and the baby. So, they began skipping their Visa payments every month. So where they would skip one month, they would catch up the following month. They would skip one month, they would catch up the following month. Just a minor thing in their finances. A few years later, they went back to the same lender that approved this loan, and they requested an additional $50,000 to increase their current mortgage, so they can pay off some high-interest loans that they have acquired over the last two years.
Their bank reviewed their profile. They knew they were doctors. They knew they had a good property, good down payment, so initially, they said, “No problem. We’ll increase it by $50,000.” What happened next is that in the due diligence process, the bank reviewed their credit and their credit history was really low because of what happened to their Visa payments.
“The type of Mortgage Registration in your Title will dictate who has the control, you or the bank”
And because of that little thing, the bank declined them for the $50,000. They were very upset and that’s when their file got to my office. A very simple problem to solve. We have other lenders that will understand that situation and will give them back the $50,000. Because their credit was not very good, they were offered a 6% mortgage…6% interest rate on a second mortgage.
They happily took this approval because their $50,000 were paying about 18% in interest rate. When we moved to the lawyer to register this mortgage, we found out that this lender not only not approve this loan, but the type of registration that they had taken would prohibit a second mortgage to be in behind their first mortgage.
So basically, the lender wrote a clause where they don’t only give them the money, and no other lender can give you the money in the second position. The only solution for them would be to refinance their first mortgage, pay a penalty, and second, get a high-interest rate, 6%, on both their first and the second mortgage.
Not very good for the offense. So, not only did they got hit on the defense, they got hit on the offense, and they got hit on the legal. Be very careful about the 3 strategies.
Be careful on the Coach, Who is the Coach loyal to?
Now, let’s move to the last part, the coach part. Very simple. Would you ask the other team’s coach for advice on how to win your game?
You would never do that because his objective is to win this game. Your objective is to beat the other game. You’re on opposite teams. When millions of Canadians go directly to their bank, to their branch, and sit down with a mortgage representative or a bank representative, they’re sitting down with the coach of the other team.
In my opinion, that’s a conflict of interest. I truly believe that these people are highly trained and they have the good interest in heart of the people that they want to serve. But there are a few things that they cannot do. They cannot give advice about other lenders. Even if they were hungry enough to learn the policies and the products of the competition, which in my opinion, they should because they should know how their own products compare to the competition.
“Never use for your team, the other team’s coach… lol”
Even if they know that they can never tell you, “Go to the bank across the street because they have a product according to this that best fits your profile.” If they do that, they’ll risk their job. They’ll risk their income security, and their manager will fire them because they are not doing what they have been told.
Please, if you are in Canada, get your own coach. Get your independent mortgage professional that has access to different lenders and that knows all these strategies and policies correctly, so they can advise you on the best options for your own mortgage and you can win the game.
“You can win this Game, Camilo Rodriguez at MortgagesLab”
And I’m telling you, you can win this game. All the best. Camilo Rodriguez with MortgagesLab.
The Bank of Canada updates daily the current Prime rate and Conventional 5 year term current mortgage rate.