Posts Tagged ‘mortgage renewal’

Mortgage decision made: Scotia keeps my business

Despite the fog and rain in Toronto on the weekend, the fog in my head has cleared over my mortgage options.

I’m going to give Scotia a call this morning and let them know they can keep me, but I’ll be making some changes.

Here’s the low-down:

  • Break my smaller mortgage from 4.15% to 2.15% variable (for 5 year term)
  • Use up the equity they’ll give me to drag $33k of my unsecured LoC (mortgage debt – not consumer debt) into the new traditional mortgage product (reducing the interest rate from 5.5% variable to 2.15% variable
  • Reduce the interest rate on the small balance that will remain in the unsecured LoC from 5.5% to 4.5%

There were too many issues swirling in my head when this whole scenario arose. Now I’ve had a chance to deal with each issue one by one.

I was torn about whether or not to sell the house and try and downsize a bit. I’ve decided to stick it out here.

I was delusional about living some simpler life somehow. I can do this, but not right now. So I’ll carry on.

In the near future, I saw a $15K gap in my expenses/revenue that I hadn’t prepared for, and I went into panic mode a bit. (More on that in future posts).

While CIBC did tempt me with their offer (both the cashback offer as well as streamlining my banking to one branch which helps simplify my life), it’s not the best offer financially.

In the end, I’m glad I didn’t rush this decision. I really wasn’t thinking straight for a while there. (I’m not sure I am now, but at least this option seems clear).

Thanks to all of you for listening to me wax on about it. Now it’s time to get on with it!


New ingredient to the mortgage stew

Despite my thinking I’d assessed all my options, I have a new ingredient for the mortgage stew.

When I dropped into my local CIBC branch on Friday to do some day-to-day banking, my friendly branch manager nabbed me to go over her numbers regarding my mortgage. I indulged her, even though I had already run the numbers myself.

She was working with a different set of numbers.  Here’s the wrinkle:

If CIBC takes on a new mortgage that is $400K, the cashback offer is 3%, rather than 2%. As you might imagine I said “well, my mortgage isn’t 400K, and the cashback offer is a bit of smoke and mirrors to me right now.”  She asked me to indulge her, and since she’s a nice lady, I did.

She added up my existing mortgage, and of course, there’d be the penalties to Scotiabank. Then there was a bit left over. She said “do you have any work that you need to do around the house?”

Gee, the house built in 1923…is there work to do? Heck yeah.

Then I told her I really didn’t want to see a $400K mortgage. She told me the $12,000 in cashback could go right back on the principle, leaving me with a $388K mortgage, which is about $17K more than it is right now. IF I moved it from Scotia, the penalties would be added to my mortgage principle, so the extra 17K is partly penalty, and partly just extra that might be used for some home repairs.

Then she started showing me the math on a 25 year amoritization. Again I slumped in my chair. “What’s wrong?” she asked. “I don’t want to be paying off this mortgage in my 80s” I answered.

She reminded me of a trick that I had used once in the past and had forgotten. The trick is to take out a longer amoritization than you may want, but boost your payments up to the dollar amount that you can tolerate. This way, in the event that something happens to your income (job change, illness, etc) you don’t have to break your mortgage to go back to a lower payment. In theory, you could take a 25 year amoritization and pay it down like it’s a 15 year amoritization. I suspect that many people may think they’ll do this, but they take the long road to pay it down anyway.

So, on $388K over 25 years at 2.5% on a 5 year term, I’d pay $133,141K in interest over the life of the mortgage. That’s if I never paid an extra penny over the required amount. (Not gonna happen).

If I took that same mortgage and treated it like a 15 year amoritization, I’d only pay $77K in interest over the life of the mortgage. That’s almost cut in half. Scary stuff.  If I treated it like a 12 year amoritization, the interest would be just shy of $61K. That’s likely too aggressive for me to pay, but perhaps 13 or 14 years might be doable.

To answer my branch manager’s question – yes, there are things to do around the house. My front steps are crumbling more each day. This was already on the books as a 2011 home repair. Where is the money to come from? I have no idea. I’ve already paid $1600 for eavestrough an facia repair and squirrel eviction. The trouble is, I see the squirrel is back, and she has babies. I’m not happy, but I still have to get them out. Yes, there’s a big hole in my new facia. Do they sell chainsaws to squirrels?

Finally, the brick on my home needs repointing. If not this year, then certainly next year. Next year my driveway needs to be dug up and replaced, and the side of the house needs waterproofing. These aren’t the “nice to haves”, these are the “must maintain the home” things. It’d be nice to have properly sealed windows on my upper level too, but frankly, these can wait for a while.

So, I’m pondering the offer of the CIBC again. I do worry about a job change or a change in my income. After all, I’m the only one bringing home the bacon, and I have nobody to back me up on this stuff. I also worry that I’m tired, I mean really tired, and I have daily fantasies about my retirement.

There was a point in my life when I was thinking about advancing my career, being upwardly mobile, rocking the office. Now, I’m trying to find the path of least resistance. I wish I could see the way clearly. Sometimes I just wish I could moan about it to somebody else and have that somebody else present some options I could bat around.

All this turmoil over a mortgage. The only think I know for sure is this: I’m not rushing this decision, I’ll wait until I’m really sure about the path, and then I’ll take it.

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!

Wrapping up the mortgage renewal: learned something new

It only took 3 months from pursuit to paper signing, but I’ve switched the mortgage on my rental property from MCAP to CIBC.

Why’d it take so long? The CIBC’s promotion of their 3.99%, up to 2% cash back offer if you switched your mortgage to them turned their mortgage folks into one-armed paperhangers. While I think that accounted for some of the delay, most of it was their due diligence on me.

There were three distinct phases in this mortgage courtship.

Phase I: The Pursuit My CIBC branch is small. There are five staff in this branch. EACH of them calls me by first name, knows my preferences and provides outstanding customer service. Because the Branch Manager has bothered to get to know me a bit over the last couple of years, she knew I had a rental property and approached me when their mortgage promotion was launched. It didn’t make sense to move my mortgage for my primary residence, so we went after the rental, since it was almost due anyway.

I updated her file on my situation, and she sent in an application. It was approved in principle.

Phase 2: Fact Checking Once the mortgage office got to me, they requested some additional details from me. When I first became a CIBC client I was working for Government. They learned that I’d left that job and had a new gig for the last 18 months. What? You left Government? The cradle of security? This made them a bit nervous. Not only did I deliver every piece of paperwork they requested, I had to wait for my 2009 Notice of Assessment to arrive so they could verify that what I claimed I submitted for my tax return was actually the case, and that the CRA agreed with all details submitted.

They seemed happy with the Notice of Assessment. Then fact checking continued when they asked to send one of their appraisers to the property. I said it was valued at $200,000. Thankfully, their appraiser agreed with me exactly. So far, I’m golden.

Phase 3:  Final, surprise hurdle After the appraiser weighed in, the mortgage office was happy – mostly. They’re still nervous nelly that my current employment situation has been in place for 18 months. For them, anything less than two years is risky. Who leaves Government? They’re baffled. The Branch Manager calls me in. She verifies my credit is excellent, anything I’ve told them has panned out exactly as I’ve claimed, and I even have a new tenant agreement signed with first and last in the bank. Because I made a job change, they want a guarantee that their first year’s mortgage payments are there. In other words, they wanted a $12,000 GIC.

I gotta tell you, this is a new one for me. But frankly, I get their hesitation. I’m single, I earn a good living, but I have a big, FAT mortgage on my principle residence, and they’re giving me a mortgage on a rental (risk) property. The Branch Manager says “do you have $12,000?” I say “no, I don’t. Is this a deal breaker?” She lets me know she’s trying to get them to waive it, but they’re being sticky.

She tells me if I take it out of a savings account for the GIC, she’ll reimburse any lost interest. Then she asks “what about a line of credit?” Naturally I remind her she can see my line of credit on her screen, because it’s with her bank, but I’m trying to get rid of it, not jack it up by 12K. She gives me her assurance that I will get my 12K back (with any interest paid, and any interest accrued on the GIC) once that two year mark comes and goes, which is December 1, 2010.

I gotta tell you, I had to think about it for a minute. I moaned out loud something like “there goes my spreadsheet”. She chuckled, knowing me a bit and said “I can give you the interest calculations month by month if you want to make your spreadsheet happier.” So, I’ve loaned myself $12K and put a $12K GIC in my name, just to make the mortgage office happy. The CIBC will pay me back my interest on the loan.

On the bright side, since the approval took so long, my mortgage penalty won’t be just over $800 as expected, but $200 instead. The net gain of $2600 in cash back will go a long way toward reducing that line of credit for June. The added 12K deficit in the line-of-credit is balanced out by the 12K GIC.

Once December comes, and we reverse this 12K plus interest in and out deal, I would imagine the CIBC will not hesitate to work with me on any future banking need. In fact, as I was leaving after signing some papers yesterday, I mentioned to the Branch Manager that I’d chat with her next week about the month-to-month interest charges for the 12K on the line-of-credit. She said “it’s only 3% or so” and I said “oh no it isn’t, it’s 7.25%!” She looked at her computer again and said “wow, you’re exactly right…we gotta get your interest rate reduced.”

Yeah, that’d be awesome.  Wish I’d of thought of that!

Oh, and following up from yesterday, I called Rogers and adjusted my cable package slightly. I’m now paying less than I did before their increase. All is well here.

Good days ahead

I’m late posting today – sorry ’bout that!

These seem to be the dog days, or in my house, the cat days of summer. The sun has been out all week. Why does everything seem a little bit better when the sun is shining?

This is Zoe, by the way. She likes to hide out in the Tiger Lillies to stay cool. Then she brings her dirty, furry self in and lays on the sofa. Oh well, I’m not perfect either.

As the week winds up, I’m feeling pretty damned lucky.

Yesterday, I was moaning about not having my Notice of Assessment from the CRA yet, and having only one tenant potential for my rental property.

By end of day yesterday, the CRA had advised me they were in the final stages of reviewing my tax return, and I’d have the Assessment by late next week. The nice people at the CIBC are really happy to hear that.

I also got a phone call from another potential tenant, one who reportedly wants to stay put for a while. I’ll be showing them the property on Sunday.

A few of you have weighed in with your thoughts about my friend Jane (not her real name). Thanks for taking the time to shoot me your thoughts. She’s really on my mind, as you can tell. You’ve helped me confirm what I know, but have second guessed. I can be helpful by providing the knowledge and skills I have, but it’s up to her to do whatever she decides is the best course of action.

With four days left in May, and zero dollars in the grocery envelope, we’ll be raiding the freezer and the fridge this weekend. The girls actually think it’s fun when we run out of grocery money and then we have to get creative. Never once has one of them panicked and thought we’d starve to death. We won’t, of course. Keeping the grocery money in an envelope is a sure fire way to stay on budget. (I prefer an envelope over a jar, it’s a little more stealth in the cupboard, takes up less room too)

There is $20 bucks in the entertainment envelope, so if we have a crisis, I’m sure that’ll cover it.

It’s Doors Open weekend in Toronto, so there’s entirely no need to spend money on entertainment at all, There’s tons of stuff to do for free.

Next week I’ll be spending a lot of time at the rental, and getting it prepped for new tenants. It might be a bit quieter ’round here than usual. I’ll be sure to check in with a month-end report for May (although it’s a bit grim).

Thanks to all of you for being a part of my daily journey here. You’ve become an important part of my day, and I really appreciate reading about your journeys, thoughts and advice.

These are the good ol’ days, aren’t they? Aren’t we the luckiest?

Opportunities & threats ahead

When a month draws to a close, I try to review my budget/cashflow spreadsheet and ensure that I have tracked all that needs tracking, that I review/adjust the next month’s obligations, and try to think about stuff that’s on the horizon that could advance/derail my goals.

Here’s a list of what’s on my mind:

  1. I have one potential tenant for the rental property. They have a rental application to complete and a credit check is pending. If this tenant turns out to be a good risk, they get keys for July 1. That’s good. The not so great part is that I’ll be without a rent cheque for June. This potential tenant is also looking at a short term rental, ending in December, January or February. Since I have no other options, I hope this one pans out. This is the first time I haven’t had potential tenants climbing over each other to get the rental.
  2. The CIBC hasn’t firmed up the deal on the mortgage switcheroo yet. They would like to see my Notice of Assessment (NoA) for my 2009 tax return. My tax return was filed about a week before the deadline. Although the CRA was very swift to cash the cheque I sent along with my return, they’ve been less than swift returning the NoA. I’ve given the CIBC every slip of paper they could ever want, but this one remains outstanding. I have six weeks left until the mortgage actually expires. My current lender’s offer has expired. What if I don’t get my NoA in time? Guess I’ll have to stay with my current lender, at whatever rate they dictate when I’m under the gun. I don’t like that scenario one little bit. Note to self, call the CRA today and inquire after some paperwork.
  3. Financial experts are now divided on whether or not Bank of Canada Governor, Mark Carney will hike the interest rates on June 1. A month or so ago it was practically considered “a done deal” that the rates would increase. Now, with the serious instability in Europe, and new reports that Canadians are carrying more debt than they were six months ago, it’s possible that Carney could hold the line a little longer. The great news is I could make more headway against my line of credit while the rates are still so low. Even another month or two would be a gift.
  4. Neither of the girls have a part-time job for summer. Neither of them have spent too much energy looking either.
  5. The employer for my part-time gig is changing the way they pay staff. This may mean a couple more bucks a month. (When I say a couple, I literally mean a couple). I’ve also been asked to give up one shift. This means I’ve adjusted my revenue projections for August and beyond downward slightly. That’s actually fine with me. Two nights a week and one Saturday morning is enough for me to handle.

That’s the look ahead at the opportunities and threats I see in my horizon. What’s on your radar in the months ahead?

Being organized pays off

photo credit:

Here comes a few nerdy confessions:

I like neat.

I like clean.

I like organized.

Sometimes, friends call me Martha. You know which Martha they mean! Being organized and together is extra cool to me if it suits my decor sensibility, or invisible, depending on what’s being organized and stored. It makes me anxious if too many little things get ahead of me, and I feel like I’ve lost control of knowing where things are at, like paying the bills, tracking expenditures, or even just putting the laundry away in a reasonable amount of time.

To an extent, the need to be organized comes from living in a small house with little storage. If things aren’t where they need to be, then there’s instant clutter. My mind gets soggy when I see or feel cluttered. I just feel a sense of calm when I’m organized. I’m not being nagged by my own thoughts of wondering if something’s not getting dealt with, or can’t be found, or hasn’t been paid on time.

This past week I was reminded that there’s a cost savings to being organized. I had a call from the branch manager at my local CIBC about the mortgage application to switch a mortgage from MCAP to CIBC. She needed my Notice of Assessment from 2008 and 2007, some obscure title document for the property in question, a copy of my current employment contract, and a receipt showing I had paid my municipal taxes in full on the property for 2009. Some documents she asked me for were less than one year old, some are five years old. She added “the sooner the better, I want to get your deal closed because the mortgage office is really busy!”

For a moment, I felt a bit of panic. Then I realized, I have all that stuff. Within 30 minutes I had all the documentation to the bank. The branch manager asked “even the title document?” and I said “yep, it’s all there”.

It occurred to me, if I couldn’t produce these documents, the mortgage office would have seen me as too high a risk to close the deal. What’s the cost of that? It’s the difference between 3.99% interest and 4.39% interest, plus about $1900 cash back. That’s the cost today. The cost in a few more days is hard to calculate, because my current lender will let their offer of 4.39% expire. If I had to come crawling back, would the rate be as attractive? The cost would be in the thousands of dollars over the next five years.

Technology has really helped me stay on top of this stuff better than I ever did.  I regularly use:

  • online bill payment for a future date
  • record the payment date/verification in my iCal on my MacBook as well as on the invoice
  • Excel

I’ve used some old school tricks too that have transformed my budget management this year, including:

  • putting variable expenses for the month in cash in a jar/envelope (thank you Gail Vaz-Oxlade)
  • writing down expenses on those envelope and keeping receipts for the month
  • maintaining files for various expenses

The mortgage office at the CIBC is still pouring over my paperwork. If they need anything else, I hope I can deliver it as quickly.

Legions of people find getting organized to be very difficult. Some are overwhelmed by it. Loads of professional organizers are keen to help if you need a pro. Yes, they cost money, but how much are we willing to pay the bank in missed payment, late payment, increasing interest or missed opportunity costs because we can’t find stuff?

I don’t mind being called Martha every so often. I can take a bit of teasing. While I don’t think I’ll be doing my own fruit preserves and printing my own labels and wrapping the lids with ribbon and tags, I will continue to put things in their place. I like the benefits!