Zan Molko’s Mews…
and Views.

Whose money is it anyway?

After the challenge of finding, and negotiating the purchase of your new home, the next most important task is electing how you are going to pay for it.

Since most of us mortals do not usually have all the cash required, the dreaded mortgage becomes our predominant financing option.

Whether you are renewing your current mortgage or applying for a new one, the principles affecting how you hold onto your money remain the same. Let's face it, the banks make enough money. Why not keep some of your own hard-earned cash.

Negotiating a Mortgage today is like buying a dozen eggs. This week Supermarket "A" has a special and next week Supermarket B offers the same for a few pennies less. Well it is the same with Financial Institutions. Bank "A" may be flush with cash or riding the money markets well this month. Trust Company "B" may simply be aggressively pursuing market share. Who cares why, just show me the best deal.

But who has time or the knowledge to shop around? The electronic age has contributed immensely to make shopping for a Mortgage a relatively painless exercise. You can use a Mortgage Broker, or shop directly on the Internet. Or you can employ the services of "Mortgage Direct" (or similar service), which offers the same advantages as does the Internet, but also offers the added benefit of professional human consultation at no additional cost to the borrower. "Mortgage Direct" will electronically bid your application to at least eleven different Financial Institutions. Within 6 hours several different Mortgage options including the best available features and rates could be presented to you.

If your business practice allows for dividends or periodic surplus cash payments, consider contributing to your RRSP and then applying the tax refund to your Mortgage. A few years ago one of my clients chose a mortgage with a slightly higher interest rate resulting in increasing his monthly payments by $89 totaling $3,204 over three years. However, the prepayment privileges afforded a net interest saving of $14,174 over the same period.

The business of mortgages has become quite sophisticated. A competitive market has had a considerable effect. It costs the Financial Institutions significant marketing dollars to acquire a new customer. Use this leverage to encourage your Mortgagee to share the savings by keeping you as an incumbent client.

Recently one of the major banks wrote to one of my clients 60 days prior to the expiry of his five year term demanding a fee of $650 for the renewal of his mortgage at the prevailing non discounted rate. When pushed for an explanation, the manager said this was the normal procedure on renewals. Not for this Realtor, as I directed my client to another bank for no fee and a full 1% off the quoted rate.

If your situation does not allow for a conventional Mortgage i.e. 75% or less of the Purchase price, you will typically need to carry an insured High Ratio mortgage. The insurance fees can be distastefully high and depending on the total downpayment, a first & second mortgage could present a more efficient alternative. Despite the inevitable higher interest rate on the second mortgage, by avoiding the mortgage insurance and paying down the second mortgage within three years or sooner, savings of thousands of dollars could be realized.

In these days of increased specialization, you are well advised to seek the assistance of your Realtor or Mortgage specialist and ask not what you can do for your bank but rather what can your bank do for you.

It is after all, your money.

Do you have questions or comments about the contents of this article? Zan would love to hear from you. Write to zan@zanmolko.com or call him directly at (416) 441-2888.