Mortgage Math: very INTERESTing…

Since last week, the CIBC and Scotiabank have been waging a polite battle over my home mortgage. Since that initial inquiry from CIBC, I’ve had a few telephone conversations with both banks.  Scotia has now elevated my inquiries to the branch manager level too. Oh what fun!

As I reported yesterday, my mortgage is really comprised of three distinct banking products. Because that’s the case, it makes the analysis of my options a little more complicated. At least a gal who graduated from art school thinks it’s complicated!

Here’s the status quo (all at Scotiabank):

  • product 1: mortgage of $223,545 at 2.15% variable
  • product 2: mortgage of $107,566 at 4.16% fixed
  • product 3: unsecured line of credit, $39,749 at 5.5% variable (Prime plus 2.5%)

For the record, all the math I’ve done is considering that interest rates will remain stable (which I know will never happen), and I’m not presuming any additional lump sum payments. So, where the rate is variable, I must consider there will be a shift over time. There are also issues of cashback offers and penalties, which are not part of my intial assessment. I’m looking big picture, rather than short term pain/gain.

Here are three options:

  1. Do nothing:  If I continue with all my current products and change nothing, I estimate a total interest payment to the bank of $94,590 over the remaining life of my mortgage, which will be about 12 years for loan 1, 20 years for loan 2 and 11 years for loan 3. Can you say ouch? My annual mortgage payments are estimated at $33,360, with an average monthly bill of about $2780.00
  2. Move it all to CIBC: With their offer of 2.5% (variable, prime minus .5%, calculated monthly), I’d be looking at a total interest payment of $74,111 over 15 years. Better than $94K for sure. This would see the whole thing paid off in 15 years, or when I’m 62. My annual mortgage payments are estimated at $29,540 with an average monthly bill of $2,462. Cheaper to carry monthly, and I save 20K over the status quo.
  3. Take Scotia’s new offer: Scotia is suggesting we keep loan 1 as is. It’s hard to touch 2.15% and that’s my biggest loan. They’re further suggesting to break loan 2 (penalty to be discussed later) and start a new one at 2.2% (variable, prime minus .8%, calculated semi-annually). In addition to breaking loan 2, they’re also suggesting that we take the maximum that my equity will allow out of loan 3, and merge it with loan 2. That amount would be 33K. Therefore, loan 3 would be reduced to about 6K, and loan 2 would be increased to about $140,566K. In addition, they’re seeing an improvement in my credit rating, and I’ve gone to the top of their class. Therefore, they’re proposing a reduction in the interest for loan 3 at 4.5%. See, I told you it was complicated!

SO, with loan 1 as is, loan 2 boosted by 33K but dropped to 2.2%, and loan 3 with a much reduced principle and reduced interest rate, I’d be paying a total of $55,681 in interest over the life of the mortgage. Loan 3 would be gone in 32 months, loan 1 would be gone in 12 years, and loan 2 would be paid out in 15 years. The biggest chunk of my mortgage would be paid when I’m 60, and I’d have a smaller amount to deal with until I’m 63.

With Scotia’s new offer, I’d be paying $34,100 annually toward my mortgage, for an average monthly payment of about $2841.00.

If somebody came up to me and said “Hey Tracy, let’s do a bit of paperwork now, and give me about $150 more per month, and I’ll give you 40K when you’re in your 60s, I’d really be tempted.

Although I’ve done these types of calculations many times before, I’m always amazed at how interest adds up over the life of a mortgage. In the short term, there’s not a huge differential, but when you look at interest over the life of an amortization – man, that’s powerful motivation.

I can give a bank $94,590 if I do nothing (my status quo), or I can move banks and save 20K by paying $74,111 in interest (move to CIBC), or I can allow the bank that has my business now to negotiate a better deal, and pay out an estimated $55,681 in interest (negotiate with Scotia).

Scotia has also offered me a 3 year term at 2.99% fixed for Loan 2, which I didn’t fully elaborate on above. Over the next few days, I’ll weigh in on the cost of carrying these options, and the penalties and perks that are being offered. I haven’t made the decision yet, but there’s one thing I know for sure – I’ll be saving some money between now and 62  🙂

Oh finally, thanks to the calculator here, it helped a lot!


The battle for my mortgage is on

There’s a new battle on the horizon: the manager of my local CIBC branch & Scotiabank. What’s up for grabs? The mortgage for our family home.

Some of you may recall that most of my banking business is with CIBC. My local branch treats me like a rock star. I have my day-to-day banking there, my children do as well. There’s one RESP and the line of credit that has occupied my headspace for the last year and a bit.  Since last year, that same CIBC branch also has the mortgage for my rental property, after they approached me about it and won the takeover bid.

I have two big financial products elsewhere: RRSPs are elsewhere, and my home mortgage is with Scotiabank.

Imagine my interest when the same CIBC branch manager called me last week and told me she was interested in making an offer for the mortgage on our family home. Yes, she wants my fiscal albatross.

Her offer: 2.5% (variable) and 2% cashback.  CIBC’s variable is calculated at Prime minus .5%, calculated monthly.

When she called, I was finishing up some work projects and preparing for a trek to Vancouver. Now that I’m back, I’m ready to really consider my options with my home mortgage. Of course I’ve made a few calls to Scotiabank in order to determine what my penalty would be for taking my business away from them. They’ve given me some options which I’ll lay out in my next few blog posts. The branch manager from Scotiabank found it important enough to track me down in Vancouver. Yes, the battle for my mortgage is on.

If I’m smart (and that’s a big IF most days), I could really benefit from this.

Today, I’ll start understanding the offers, and the nuances. This kind of analysis is never easy. If you’re a new home buyer and you’re on the hunt for a mortgage, it seems easier to assess the various offers lenders will give you. Once you’re already in the game and have a complicated set-up like I do, it’s harder to really put the numbers on paper and decide what move (if any) makes sense.

While the internet is chock full of amoritization calculators, I find it difficult to find the calculator that I want to tell me (a) what I need to know or to allow me to (b) fiddle with the terms. Since there’s a considerable amount of money on the line, I’m going to do my best to find the right tool today.

My home mortgage at Scotiabank actually plays out into three distinct accounts. For the record, there is no second mortgage, in the way most think of a second mortgage. It’s just that the mortgages were taken out at different times, therefore, there is more than one product.

a) the mortgage my (now ex) partner and I took out when we purhased the house in 2007. It’s the biggest in dollar value, and the cheapest rate: 2.15% variable (today), and the term is up March 2012. Balance as of today: $223,546. The remaining amortization on this is 12 years, 4 months. For the record, Scotiabank calculates their rate semi-annually.

b) the mortgage I took out on my own to buy out my ex in 2009, at a fixed rate of 4.16%. Balance as of today: 107,566. This mortgage is due August 2014, and has a remaining 20 year amortization.

c) a line of credit (because my house was undervalued by their appraiser and they wouldn’t give me enough actual mortgage to buy out my ex). The balance here is $39,749. I’m required to pay interest only, but of course, I pay more. My interest rate here is linked to prime, currently 5.5%. I’ve been putting $400 or $500/month toward this consistently.

When I bought out my ex, and took out (b) and (c) above, Scotiabank’s appraiser said my home was worth $450,000. While this sounds like a lot of money (and it is), the only home on my street that had sold anywhere near that value was a complete gut job. The appraiser didn’t actually consider that the home that sold for that price was infested by rodents, had no HVAC system, needed a new roof, new windows, and was taken back to the studs when the owner purchased it.

Last week, another house sold on my street. One that is quite similar to mine, although does not have the size of property that I have, and does not have a fully finished basement like I have. It sold for $537K with only 6 days on the market. Dare I say that if either the CIBC or Scotiabank were to send around another appraiser, they’d change their tune.

Today I’ll return the calls of two branch managers and let you know my options. On one hand I think this will be fun to “do the math” on my options. I’m also excited about potentially having a mortgage that takes up one line on my bank statement, instead of three. However, I know I could make a giant mistake here, and I’m nervous about that.

For now, I’ll enjoy being the sweetheart of two branch managers and see what transpires. Stay tuned over the next few days. There will be math! I’ll look forward to your input as I make a decision. Oh, what fun!

What am I teaching my kids about money?

There must be a dozen times every week when I wonder what message my kids are picking up about money management.

Not only do I wonder, I worry a bit about it too.

For most of their lives they pretty much had whatever they wanted. Then, once they started living with a single parent (either me or their Dad), suddenly things changed a bit. I’d have to say that they still have pretty much anything they wanted, but what they don’t have is instant gratification.

Since January 2010 I’ve been pretty consistent with money management, and I’ve totally brought them both on board with our finances and enlisted their support in our journey. As a family, we’ve come a long way.

There are times when they must think I’m inconsistent with my message and my actions. I do worry if I’m sending them mixed messages, or if they’re picking up on the importance of values. For instance, when it’s somebody’s birthday, I love to find a nice restaurant to go to, and we have whatever the heck we want. This isn’t how we normally live. If we dine out somewhere, we typically try to find someplace that’s inexpensive, casual and serves up food that won’t make us feel gross an hour after we leave. If it’s a birthday dinner, we get dressed up, we might take a cab there, and we just forget about how the bill tallies up entirely. I’ve never regretted a dollar spent on a birthday dinner.

Earlier this week, we also encountered my old friend “health care spending”. I suspect that I spend more in this area than most do, but my costs are decreasing now that both girls are (mostly) covered by a benefit package. Still, I would not blink an eye if I had to shell out for any amount of money that meant my children would benefit from a drug, a treatment or something that aided in a diagnosis of an ailment. I’ll walk an extra four blocks to save $1 on a bag of milk, but I wouldn’t hesitate to give the medical lab $175 for blood tests. Do the kids find this confusing?

Sometimes I think I see the wheels turning in their heads and they’re asking themselves “who are you and what’d you do with our Mother?

My youngest will be heading off to her final prom this spring. For me the same deal applies – it’s a very special occasion, you get to be princess for an evening. (Unlike some, however, for me that does not mean limo’s or nights in a hotel, etc).

In the year ahead, I need to focus on making more of a point on being clear about values, and how spending should reflect that. I value my children and their health and well-being, that’s where a lot of spending will go. I also value living in a safe and central neighbourhood, I’m paying for that privilege.

Still, in the last few months, I’ve found the “it’s only money” mantra creeping back into my psyche. That certainly doesn’t reflect my personal values, and I have to reel that in – and fast!

Health Care confusion

Over the last week or so, daughter number 1 hasn’t been herself. Actually neither has the youngest to be honest.

My eldest daughter’s illness has taught me a few new things about the red tape around health care, at least here in my neighbourhood. When she started feeling poorly, of course we called our family doctor to make an appointment. He was booked fully during the week we called, so we had to book an appointment for the following week.  Normally this seems acceptable, but when you work shifts, and you don’t know when you’re schedule is, it’s a pretty big gamble if you’ll actually be available when your appointment is booked.

The next gamble is requesting either a morning or an afternoon off at work for the appointment and have it actually stick when the schedule is posted. I’m happy she’s working, but I do think the management at her store could pay a bit more attention to the needs of employees. I digress.

By the time we called for a reschedule, our family doctor was heading off on two week’s vacation. However, due to their office policies, you can only book an appointment for up to five days in advance, so there was no option to book an appointment for his return. (Funny, that policy didn’t seem to apply to them when they book you into the following week, it only applies to patients calling in requesting appointments further in advance).

In the interim, my daughter’s health took bit of a turn, so I took her to our walk in clinic. The clinic doctor, a lovely woman, ordered some blood tests to screen for a few things, including an underactive thyroid, and to check her iron levels. (She has very low iron, but it’s improving – this is one of her symptoms).When we started discussing the potential of celiac disease, the clinic doctor mentioned that family doctor’s can’t order a test for that.

After she spoke about a few other options, I asked her “did you say a family doctor can’t order the tests for celiac?” and she confirmed that I heard her right. “Who does then?”, I asked. Apparently only a Gastro-Intestine specialist can order it, and have OHIP cover it.

Naturally this triggered the Mom-rant. My daughter would have to wait for our family doctor to return, then make an appointment: add 10 days. Then she would have to be referred to a GI specialist and get an appointment to see them: add any number of days, could be 60, could be 90, could be 7. Then she could get a stupid test, meanwhile her health continues to deterioriate?

The clinic doctor again confirmed my assumptions. She then added, “for some reason, if I order it, OHIP doesn’t cover it, if a GI orders it, it’s free.” My lightbulb went off.

I asked “is the only thing standing between my daughter and a blood test for celiac today my visa card?” and she said “yes.” Of course I said “order it today.”

This brief encounter over a few hours with our Medical Center reminded me of how easy it is for a person to fall between the cracks, or at least, to think they’re going mad. Take a young adult, who isn’t herself, and is already feeling disoriented and confused. Then tell her the clinic doctor can’t test her for something, and suggest she wait for any number of days/months before she can be tested. In other words, suck it up buttercup, we have rules. Wouldn’t it have been better to say “we can do this and this test, but there’s a fee, or if you wish, you can wait to be referred to a GI.”

Thankfully, we’ve heard back from the clinic and her thyroid is fine, and her iron, while still too low, is improving over her last test. The celiac test will be outstanding for another week, we knew that in advance.  As my daughter was finishing hearing the results by phone with the clinic doctor’s office, they said “I’ll transfer you to your family doctor so you can make a follow-up appointment.”

That’d be nice, but it’s still not five days away from his return to the office. We’ll call back later.

When I thaw, I’ll have my M2 license

It’s official, I now hold an M2 driver’s license. This past weekend was my motorcycle training course here in Toronto.  There was a classroom session Thursday evening, and two full days in a parking lot just off Lake Ontario Saturday and Sunday.

On Thursday night, about 21 students showed up. By the end of Saturday, only 19 remained.

This course was hard. There were three other people there who either owned, or were planning to own a motor scooter, like my Piaggio. All the rest either owned (or will own) a motorcycle. On Thursday night I learned that we’d be using the school’s motorcycles instead of our own bikes. I had a panic attack. What do I know about real motorcycles?

Somehow I managed to convince myself that I wasn’t the only novice in the room and I certainly wasn’t the only person they’d ever taught who had no motorcycle experience.

Saturday was hard for two reasons. The first was getting accustomed to a motorcycle. We were encouraged to try different bikes. I probably tried about four. There were fuel levers to turn on, chokes, clutches and kill switches. It felt entirely overwhelming for most of the day. In my head, I imagined the instructors had a wager of who was most likely to finish at the bottom of the class, or the most likely to put their bike in Lake Ontario. I was further convinced that my name figured prominently in both wagers.

The second issue was weather. It rained and rained and rained on Saturday. It barely let up. It was also quite cold. Add to that our location right at the edge of the Lake and you have all the ingredients for one miserable day. Many students didn’t have a proper rain suit yet. Some were drenched. Those who picked up a cheap suit at Canadian Tire or similar places found out quickly how inadequate (and porous) they were. My rain suit that I picked up at the Motorcycle show was brilliant, and kept me dry.

I learned very quickly not to wipe the puddle off my motorcycle seat with my gloves, but just to sit on it. My butt was covered by my rainsuit, my gloves were not. One pair of gloves were entirely worn out by the weekend, another pair is sitting over the furnace vent drying out.

Despite the argument I had in my head about not showing up on Sunday, I managed to drag myself there. As an extra cruel jesture, Mother Nature unloaded snow, sleet, moments of freezing rain, a few minutes of hail, and multiple instances of that horizontal driving snow. Actually, it was unbeleivably miserable.

By noon we were down one more student. Now there were 18. As Sunday morning wore on, I got a little more confident and really tried to focus on the things I was doing wrong, and gain a bit more skill with the things I was doing right. At lunch I realized how much I’d learned over the day and a half, and that despite being the coldest and wettest that I’d likely ever been, it had been worthwhile, despite my performance on the test after lunch.

After lunch, the remaining 18 took their test maneouvers one by one. I was asked to repeat an emergency stop. I figured I had blown it when they asked me to do it again. But I did it, and just wanted to have a good attitude, be gracious to the instructors who were super patient with me, and do my best.

Once all the riding was done, we all hung around waiting for the results to be handed out. One by one students were called in for a private consult with an instructor. Folks were leaving in their cars and I didn’t understand if they had passed or failed. Lots of folks left in their cars.  I was just standing around hanging out with a gal that was also a scooter owner, and who lives in my neighbourhood. She was called next. She flashed me a thumbs up! I was happy for her. By the end, I hadn’t heard from the instructor yet and I yelled out “hey, did I pass or fail?”

A few of them chuckled and told me that I had passed! Imagine my shock! The gal who had stalled a bike about 28 times the day before, dropped another one actually passed (that’s me, by the way). One instructor who was consistently busting my chops, in the nicest way, over my repeat errors said “congratulations Tracy – you’ve really come a long way!”  Yep, I think I did too. It occured to me that those who were called first were asked to leave, because there was no official MTO paperwork to hand to them. They would have to schedule a re-test. Those of us who were left behind had to wait for our paperwork.

From a group of 21, which included five women, only 11 passed their M2 this weekend. Of those 11, two of them were women. Coincidentally, both scooter owners. The Ministry does not have a distinct M2 course for scooter owners. Since my scooter is not limited speed (it will do 105 km/hour), it classifies as a full-fledged motorcycle. It doesn’t have chokes or clutches or fuel levers. Driving it is very different than the bikes I was on this weekend, but the lessons about safety and maneouvering are valid. In another 18 months, I can get tested for my full M. The school I trained with this weekend has an M2 exit course that is specifically for bikes of 200cc and smaller. Sounds like that will be the course for me when the time comes.

Consider this fair warning…lock up your loved ones. I have a license to drive any time of the day now. I intend on using it!

March’s Report Card: B+

If I were a teacher, I’d be fired for issuing such a late report card!

On the weekend, I finally had a chance to do the recap of the March madness version of personal finance, Tracy style. Despite it being an expensive month (a motorcycle appeared on my VISA bill), I managed to finish with my head temporarily above water.

Three things saved me in March:

  • I earned more in my part-time job than I had budgeted for,
  • I received first and last month’s rent for the rental from my new tenant, and
  • I temporarily availed myself of my financial parking lot that’s earmarked for my 2010 taxes.

April, however, is not going to be pretty, and I’ve promised you that for a couple of months now. At least with fiscal planning, you see it coming.

This week I’ll send in my 2010 taxes and my post-dated cheque for April 30th. I’ll know then just what the overall hit will be on my line-of-credit for my motorcycle adventures, little spend-a-thons, etc.

I’m actually expecting to earn less in my part-time work in April, as I’m taking a few days off for Motorcycle training. Less income, more expenditures. Still, no regrets over the motorcycle. I’ve had it on the road a few times now, and I love the freedom to get on it and go somewhere whenever it suits me. I also love that I must ride with a zero blood-alcohol level. Perhaps the desire to ride will keep me from the odd glass of wine here or there? That could save a few bucks (not to mention calories!).

My March report will be the last time in a while that I let you know the balance on my line of credit remains at $0. I should take a picture of it, while I still can  🙂


March ended?

Apparently, just over a week ago, March ended. I haven’t even tallied up my March spending and revenue in order to weigh-in with a personal report card for March.

I’m hopeful that on the weekend I can take a bit of a pause and try and sort it all out.

Seems like a couple of months now that I’ve been having more and more difficulty keeping up with myself. While I’m not overly worried about the results for March, I can tell you that I’ve been spending money like it’s water lately.

Of course you know about the motorcycle. I got it on the road, by the way. It’s a bucket of fun and I can get from A to B in 15 minutes, rather than an hour. (You’d think with all that time saved I’d do my month end financial report card?)

I’ve also paid for my insurance and my motorcycle safety course. Two weeks ago I went to the Motorcycle show here in Toronto, and picked up a leather coat, chaps, gloves and a rain suit. The leather makes me feel like a Dominatrix. The rain suit makes me feel like a lost orphan. Either way, I’m suitably geared up for a season of riding.

Oh, the eavestrough was installed. The squirrel that was evicted in the process found a new way in (in under 12 hours) and it’s also been repaired – again.

The nice man who did the eavestrough has pointed out how the bricks on my house need serious repointing. I knew it needed it, but he’s shown me just how badly. His ballpark estimate is $1600 for repointing. Sounds like a bargain, actually, compared to the eavestrough.

He also pointed out that my front steps were crumbling. I’ve already arranged for that work to be done. I have no idea of the price tag for that job. I wake up to the sound of cha-ching in my head a lot lately.

I forgot that it was prom season. Yep, there’s a dress paid for and waiting to be picked up. It’s a far too much money dress, but it’s the right dress for my daughter.

With all that said, I’m sure by the end of April there will be a negative balance in my line of credit again. The only question will be, how much?

Not all of my spending has been necessary. Some has. No, I didn’t need a motorcycle. No, my daughter didn’t need that particular dress. Yep, the house needed new eavestrough, yes the squirrel needed to go. Of course the steps need replacing, and the bricks likely need repointing before the side of the house starts to really need attention. Next year the driveway probably needs to be dug up and replaced too. The house was built in 1923, it needs a bit of attention on the outside. Thankfully, the majority of the inside needs very little.

So, I’ll keep plugging along here. As I ponder the spending that’s already under the bridge, and the bills still to come, I’m particularly thankful that I spent 2010 narrowing in on my debt. It will mean that the debt that’s still to come will at least be manageable. I know that it doesn’t have to be forever.