10 Things the Bank Doesn't Want You to Know About Your Mortgage
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Transcript of 10 Things the Bank Doesn't Want You to Know About Your Mortgage
The following ten secrets will reveal some nasty truths about banks and mortgages. Our intent is to help educate you so that you have the power to make knowledgeable decisions about your mortgage.
Your home and how you finance it is likely one of the biggest financial decisions you will make-‐so knowledge is power!
Unlike a bank, Mortgage ConnecCon is an independent advisor that has your interests in mind. For over 20 years our business has been building custom tailored mortgage strategies that suit a client’s needs, not the banks.
Our saCsfied customers and their referrals tell us that our service is offering a value that they cannot find elsewhere. Our goal is to do the same for you.
1. The Bank is only compeCCve when they have to be
2. The mortgage is the “IN” the bank looks for to sell other products
3. A Mortgage Specialist is not a Broker
4. A Home Equity Line of Credit is a mortgage
5. Banks rarely waive penalCes
6. What IRD is and how it is calculated
7. That compounding ma]ers and closed doesn’t mean fixed
8. What a Collateral Loan is
9. Property tax collecCon benefits the bank
10. Lock-‐in rates are not guaranteed
This is the bank model and employees of the bank are trained to sell products at the greatest profit for the bank. Discounted prices may be offered, but only if the bank needs to do this to maintain business.
Mortgage ConnecCon has a completely different model. We are paid by the lender based on the loan size, not the price of the product sold. Furthermore, we are not employed by the lender.
As a result, you get unbiased advice on product offerings and the fully discounted price is provided without you having to negoCate as Mortgage ConnecCon has already done this on your behalf.
The Bank is only compeCCve when they have to be
The mortgage is the best chance for a bank employee to cross sell products to consumers. So, even if you get a good product and price on the mortgage, you will be hit with other products that likely do not meet your needs and are overpriced.
Every bank employee has a mandate to sell between 2-‐3 products per customer. Acer the mortgage you are likely to be pushed to buy insurance, and open addiConal bank accounts and borrowing vehicles.
In most cases the bank offered products are not the best in the market.
The mortgage is the “IN” the bank looks for to sell other products
All the banks have road warriors-‐mortgage specialists that are ocen confused as brokers. If you are dealing with someone that has a bank name on their business card, you are dealing with an employee of the bank.
You are only being offered one product line and your future lender is employing the person helping you make very important financial decisions.
Mortgage ConnecCon is truly independent without any hidden agenda. Our business is built on saCsfied repeat clients and their referrals.
A Mortgage Specialist is not a Broker
Banks will sell the benefits of a line of credit as a tool to pay off a mortgage. In reality a line of credit is a mortgage. It is an interest only loan secured against a fixed asset (your home), that can be re-‐advanced as principal is paid back.
Banks sell that it is less expensive because the minimum payment looks lower (but it is just interest). A line of credit is a huge money maker for banks, because ocen consumers only pay the minimum and never a]ack the principal.
If you have a home equity line of credit with monies drawn on it, you are not in the best priced borrowing vehicle and you are not mortgage free!
A Home Equity Line of Credit is a Mortgage
When a bank says “they will cover the penalty cost” they normally do one of two things. Either the penalty is rolled into the loan amount, or it is applied to the interest rate offered.
Banks are some of the most profitable companies in Canada and they do not give money away!
Banks rarely waive penalCes
Interest Rate DifferenCal (IRD) is the penalty that may be charged if a fixed rate mortgage is broken prior to maturity. In theory it is the cost for the lender to re-‐invest the monies. So, it will apply if current rates are lower than the contract rate on a mortgage being discharged.
Unfortunately, most banks are not fair in the rates they use for the comparison and the result is extremely high penalCes that do not reflect the actual cost to re-‐invest.
Mortgage ConnecCon makes sure it suggests lenders that calculate IRD fairly. If you do not know the terms of what you are signing up for, a good rate upfront may cost thousands later.
What IRD is and how it is calculated
At face value the price on a rate might look really good unCl you realize how ocen the interest is compounded.
Standard mortgages are compounded semi-‐annually, but many bank offered variable rate mortgages are compounded monthly or more.
What does this mean?
The more ocen interest is compounded the higher the effecCve rate of interest. Also, banks ocen adverCse really low closed rates, but that doesn’t mean they are fixed. Bo]om line-‐the rate may not be as good as adverCsed.
That compounding ma]ers and closed doesn’t mean fixed
Many banks are now registering mortgages as collateral loans. The idea is they will register a higher amount on Ctle than what you are borrowing so that you can borrow more down the road without having to re-‐register (assuming the value on the home is there).
However, what they do not tell you is that by doing this it becomes more expensive to move your mortgage to another lender. Mortgages can be transferred without a new legal expense, but if registered as a collateral loan this is not the case.
Now you have to pay a lawyer for new registraCon come renewal if you want a product from another lender. This is another fence the bank wants to put around you!
What a Collateral Loan is
Property taxes are due annually and do not need to be collected with your mortgage payment. Banks like to collect taxes to gain interest on the monies unCl they have to pay the appropriate municipality.
Do yourself a favour and pay the city directly.
Property tax collecCon benefits the bank
In such a low interest rate environment many consumers are going into variable rate mortgages, but what if you what to convert to a fixed down the road?
Most banks do not guarantee what sort of rates will be offered.
Whenever working with a client that is taking a variable rate product, Mortgage ConnecCon makes sure the lender they choose will guarantee a fully discounted rate on lock-‐in.
You never want to have to negoCate a price once the bank already has you as a client, because you have no power in the negoCaCon.
Lock-‐in rates are not guaranteed
Please feel free to pass this booklet on and as an added bonus we encourage you to schedule a one hour complimentary mortgage consulta8on ($200 value).
This is great for experienced mortgage holders, or poten8al first 8me buyers. To book your consulta8on please call 403.229.3390 or email [email protected].