Mortgage Plans Can Calm The Waters

Stepping into a calm pool

Well, it’s the first week of May and what had promised to be a year of economic recovery and a new government has, errr, become chaotic. A mortgage plan can calm our individual chaos.

Obviously the item topping the news are fractious, seemingly illogical attempts to re-write trade relations on a global scale but, Canadians are also faced with uncertainties around housing, government spending and inter provincial relations.

Those uncertainties have of course spilled over into the housing market, with prices coming off and lenders continuing to hold the costs of borrowing higher than might be desirable - fixed rate spreads are being held at about 170 basis points where in a robust market, that spread might be closed to 145 basis points. On the variable side of the book, a “ good “ discount is now 60 basis points where it was 100.

In a market such as this, managing your costs is ever more important and having a strategy to minimize costs when purchasing is vital. Here are 5 ways to manage your mortgage costs and preserve your net worth in unstable economic times:

1. Choose a variable rate adjustable payment mortgage, one where the interest is compounded semi annually. Predictions are that we’ll see 3 further reductions in the overnight rate this year.

2. Engage a broker to help with mortgage renewal. At very least, you will get some assistance in negotiating with your current lender. At very best, you can save hundreds of dollars a month by switching out to another lender with better pricing and potentially extend the amortization as well.

3. Take the opportunity to re-finance. If you are stuck in a high rate term, you can potentially re-finance at a lower rate and monthly cost, with little in the way of penalties. A re-finance can also reduce borrowing costs on other high cost items as well.

4. Think before you pay down the mortgage.If your goal is to pay off your mortgage as quickly as possible, review your pre payment benefits. Even the smallest increase in payment can have surprising benefits. Conversely, large lump sum payments may be better utilized in your investment plan rather than paying down the mortgage. ( I know that sounds wrong headed but the $100,000 you are thinking of using is often better “spent” investing. The $350 in interest cost may be easily recovered in a good investment plan ).

5. Utilise an Equity Release mortgage to free up tax free cash to offset losses and life event costs on your investments, leaving your investments intact longer.

None of these are easily done on your own, but if any of these five have peaked your interest, I am happy to help. I am just a phone call away.

Best regards,

JB