19 Dec

Does it make “Cents” Breaking Your 5-year Mortgage for a Lower Interest Rate?


Posted by: Adam Sale

Does it make “Cents” breaking your 5-year Mortgage for the current low interest rate?

Many home-owners are asking if it’s worth breaking their 5-year fixed mortgage to take advantage of the low interest rates?

As always, it depends.

Most home-owners asking this question arranged their mortgage in late 2017-2018, when mortgage rates were averaging 3.5%. This means they are between 1-2 years into their 5-year mortgage term.

The longer the length left in a mortgage term, the higher the pre-payment penalty is for breaking the contract.

Fixed-rate mortgages have a clause in the pre-payment section stating the penalty for breaking the contract is the greater of either a 3-month interest charge, or an Interest-Rate Differential penalty.

Generally speaking, if there is more than a year left in the mortgage term the Interest-Rate Differential is used. Typically, the IRD charge is substantially more than paying 3-months of interest.

One of the biggest misconceptions about mortgages is

all Interest-Rate Differentials are the same,

 this is false.

The Big 5 banks have the strictest IRD charges on the market, often thousands of dollars more than a credit union or wholesale-banks IRD charge.

Mortgages at Big 5 banks are designed to penalize you more for breaking your mortgage than the savings you will gain from a monthly mortgage payment at a lower rate.

If, instead, you are with a credit union or wholesale bank there are scenarios where it may be advantageous for you to break your mortgage, depending on how these individual lenders calculate their Interest-Rate Differential charge.

If you are curious on what it costs to break your specific mortgage, give me a call I’d love to find out if there is an opportunity to save you some money.

Thanks for reading,

Adam Sale

5 Dec

BoC Holds Interest Rates at 1.75; Is a recession coming?


Posted by: Adam Sale

BoC Holds Interest Rates at 1.75; Is a recession coming?

Bank of Canada holds interest rates steady at 1.75% for the ninth-consecutive policy announcement.

What does this mean Canada’s Economy? Is a recession still coming?

Over the last year we’ve been bombarded with information about a looming recession and the "inverted yield-curve prophecy."

Then, in November sentiments changed when the yield curve returned to regularity. Sparking news articles stating “We avoided the recession!”

So, what are we to believe?

Canada’s economy is in an interesting position. Quebec and Ontario are thriving which is propping up our GDP, while many sectors in our western provinces are struggling.

BC has yet to feel the full effects of a severely contracted forestry sector. Alberta and Saskatchewan’s Oil & Gas supply chain has reached a bottleneck, causing energy producers to allocate their investments south of the border.

Thankfully, there is some good news - we live in Vancouver. A couple key features of our western major city are:

1.      Vancouver’s economy is diversified

2.      Desirable place to live

Vancouver has a robust economy fueled by real estate, finance, construction, international trade, tech, the public sector, and tourism. No other city west of Toronto offers such a diverse mixture of industries. If we are heading into a recession, this variety will help cushion the affects.

Which brings me to my next point, Vancouver is a desirable place to live.

In 2018 Canada approved an estimated 313,000 temporary residents, Ontario received the bulk of the newcomers with an estimated 42% and BC received the second largest amount of migrants with an estimated 21%.

Of the 21% migrants, the majority reside in Vancouver due to our large universities, employment opportunities and (of course) our temperate climate.

In conclusion, Canada's economic growth is easing, but we still continue grow. If our economy were to stagnate and enter a recessionary period the Bank of Canada is well positioned to adjust interest rates respectively.

Thanks for reading,

Adam Sale B.Mgt – Mortgage Broker

Cell: 778-215-4121 | www.AdamSale.ca

Email: adamsale@dominionlending.ca