January 15, 2009
Case Study, Credit, News
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As of today most of us have been back in the office for a bit more than a week. Our holiday binging is over and for the most part we are beginning to feel back to normal.
The New Year so far has been filled with doom and gloom from our media in Canada. Sometimes it seems like they get paid some type of bonus for every bad news story they can publish. So with all of this bad news coupled together with a credit card bill that we all are expecting in the next couple of weeks it is no wonder that we feel a little glum.
So this week I have two things I want to discuss.
Firstly I am going to suggest that we all make a concerted effort to pay down our consumer debt in the first quarter of 2009. I am not a credit councilor but I know that paying down your high interest rate consumer debt is good place to start.
Secondly I am telling everyone I know that participating in the recession is a choice. If people want to join The Sky Is Falling Club let them but you can make a choice not to join. So in my case instead of feeling sorry for myself I have tripled my marketing this year and have worked hard to know where my money is going and to reduce my expenses.
I have made a commitment to end 2009 in a far better position than I entered it regardless what the media has to say about our economy.
I hope you join with me.
Happy New Year!!!
June 12, 2008
Case Study, Switch
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A switch is what the mortgage industry calls it when a person who has a mortgage with one lender decides they are unsatisfied with their current interest rate and want a better rate. So they “switch” from one lender to another.
Generally these type of files are really simple for the borrower, the lender and the broker.
It is important the key aspects on file do not change from one lender to the next; for example:
- Amortization
- Mortgage Amount
- Borrowers
- Property
Case Study
George purchased a detached house in September of 2007 for $300,000. He used $15,000 as a down payment. He also took advantage of the 40 year amortization option. His mortgage amount at the time of purchase was $294,547.50 including the insurance premium.
At the time he got a 5-year fixed rate of 5.7% from lender A. His payments were $1,546 per month.
Nine months have passed and prime has come down.
George is wanted to know if he could switch his mortgage to a different lender and get a better interest rate.
He understood that he would pay a penalty and wanted to know how much it would be.
He called and let me know what he wanted to do so I took an application. The whole process took less than 15 minutes.
It is important to know that he did not want to change anything on his mortgage, just his interest rate.
After I had his information I asked him to send me some key data:
- Employment letter
- Recent paystub
- Most recent mortgage statement.
While I was waiting for him to send me this information, I investigated how much his penalty would be with his current lender. It came out to $4,139.80.
Then I figured out how much interest he would have paid for the duration of the term on his mortgage, and compared that to how much he would pay if he switched to a five year variable rate (assuming interest rates stay steady).
The total interest he would pay if he stayed with the fixed rate at 5.7% would be $65,108.08 for that period.
The total interest he would pay if he decided to switch to a variable rate currently at 4.15% would be $47,223.96 for the same time frame.
So even including his penalty of $4,139.80 he could save as much as $13,744 over the course of the next four years.
When I told George the news he was very pleased and ready to change. I made sure that he was aware that the prime interest rate will fluctuate and his real savings would likely be different.
I also made sure he was aware that he could choose to fix his interest rate at anytime to the best fixed rate available with the lender at that time.
He understood the situation and decided to move forward.
When I had all the paperwork and George’s “ok”, I submitted the data to the lender. The file was complete by the end of the following week.
George paid the penalty from his own funds and was surprised how easy the entire process was.
The morale of the story is – Ask me to give you the straight facts to help you determine if it is advantageous for you to switch your mortgage.