Mortgage Blog
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Mortgage Hacks in Canada
June 10, 2021 | Posted by: Andrew Wade
Fixed Mortgage HacksIf you have a Mortgage in Canada and you carry a Fixed Mortgage currently, than pay attention. The Bank doesn't want you to know this but the day your 5 year fixed term is up, your mortgage will revert to a 6 month or 1 year OPEN term which carries a high interest rate. Most banks know you will be moving that loan fairly soon so they charge 6%+ rates. Best current rates as of today June 10th 2021 you are looking a 1 year open term of 2.79% +. This gives you the flexibilty to do whatever you like and take your time to find the best option to place your loan if you don't want to stay with your current lender. Here are the top 10 Mortgage Hacks in regards to the Interest act in Canada, stating the following:
TIP ONE: If no interest is stated to be paid on the loan, than no interest can be charged.
Section 3- If no interest is stated to be paid on the loan, than no interest can be charged. If interest is slated to be charged, but a rate is not set out in the contract than 5% interest is allowed by law to charged. Make sure you know what interest rate you are being charged up front!
A mortgage can be required to be paid in payments of principal with interest to be calculated and paid separately, or blended payments of principal and interest, where do nomt separate the interest portion from the principal.
TIP TWO- If the mortgage contract does not state this required statement than NO INTEREST CAN BE CHARGED!
'For the purposes of the Interest Act, it is declared that the principal sum hereby secured is ___$___ and the rate of interest charged thereon is ______ percent per annum calculated half yearly not in advance'
Section 6- Requires that the mortgage document contains a statement of the interest rate calculated either 'yearly or half yearly, not in advance'. This requirement is commonly displayed as semi annually or annually. If the mortgage contract does not state this required statement than NO INTEREST CAN BE CHARGED! If a mortgage merely requires interest at. set reate per annum, it will be assumed that it is to be calculated yearly, not in advance.
TIP THREE- If the rate in the required statement stating how the interest is calculated is lower than the rate in the repayment clause, only the lower rate can be collected. Keep a keen eye on what your being charged, as you will refunded any interest charged at the higher rate than required statement amount!
Section 7- If the rate in the required statement stating how the interest is calculated is lower than the rate in the repayment clause, only the lower rate can be collected.
Required statement:
'For the purposes of the Interest Act, it is declared that the principal sum hereby secured is ___$___ and the rate of interest charged thereon is ______ percent per annum calculated half yearly not in advance'
Section 8- Deals with the payment of interest on arrears
TIP FOUR- Compound interest (interest on interest) can only be collected if it is expressly provides for it.
TIP FIVE- If no Interest is stated, but its states interest is payable than only a max of 5% interest can be charged.
TIP SIX- Interest rate on arrears can not be higher than the stated interest rate payable on the principal of the mortgage.
Section 10- Deals with right of an individual borrower to prepay their mortgage. Generally this is a contractual matter governed by the specific agreement between the borrower and the lender. This may be the most important tip of all for ANYONE THAT TAKES A FIXED TERM OF MORE THAN 5 YEARS: Anytime after the expiry of 5 years from the date of the mortgage for the borrower to tender payment of al principal and interest outstanding plus an addition interest of 3 months in lieu of notice. After this no further interest can be charged by the lender.
Tip SEVEN- If your mortgages original date when initiated, is more than 5 years already than you have the right to prepay the entire balance at anytime after that with a 3 month interest penalty. If you renewed your mortgage and have a new contract date, then you will have to wait another 5 years to repay the entire balance. Most major banks allow pre payment from 10-20% of the original principal of the mortgage balance. This is only for individuals as Corporations holding mortgages don't qualify for this allowance of prepayment, unless the mortgage was registered prior to January 1st 2012 when Section 10 changed to not allow Corporations to benefit from Section 10 of the Act.
Tip Eight- The max interest rate you can be charged for anything in Canada is an effective annual rate of under 60%. This means that companies can charge you up to this amount when factoring in the compounding of the interest without being criminal.
Tip Nine- Prepay your interest and buy it down through your mortgage broker.
Ask you broker if its possible to pay a lump sum amount towards getting the rate down on your mortgage, as you can typically buy it down further to a maximum amount the lender will allow. Your Mortgage broker can help you make sure this makes viable sense to save you heaps of interest over the term of your loan! For example, if you paid the lender $2,000 to buy the rate down by .5% (half percent) on a $250,000 loan, you would break even after 26 months. This means that you are benefiting on 34 months of the 60 month term with savings over the life of the loan would be approximately $26,343. This is a great way to save money if you plan to stay in the home for at least 5 years
I saved the best for last!
Tip Ten- Get your Broker to ask your Lender for a Rate Adjustment (Blend and Extend)
This is rarely advertised and not always offered by every lender. However, it is worth checking into. There are times when interest rates decline and then the refinance wave starts to happen. People realize they can get a lower rate and start shopping around for lenders. Rather than do a full refinance, you can ask your lender to do a simple rate adjustment for a modest fee. In my example, I had a 5 year fixed I was almost 2 years into, and variable rate discounts were very desirable at P-1%+ (1.45%), so I paid the penalty which they allowed up to 3k to be added to my current mortgage and dropped my rate of 3.25% down to 1.45% and savings of roughly 25k over the life of the mortgage in interest alone. This all goes to be able to pay that mortgage down at least 5 years earlier with one phone call and understanding what your rights as their customer allow. Also what you can do when rates have gone down and you have a large penalty to break the mortgage, then you may be allowed to blend and extend your mortgage if you need new funds and port your mortgage to a new property if you were wanting to sell your home and move that mortgage to another property without breaking it and getting a large penalty!
Always make sure you get Professional advice from a Licensed Independant Mortgage Broker when it comes to your Mortage as it is always free and they can give you advice they are licensed to give you within their juridiction. This is the biggest amount of debt your likely to take on in your lifetime, which you should make sure you completely understand what you can and can't do.
Keep Calm and Get a Mortgage Broker to help reduce your interest and make your life better while having a Mortgage.
Sincerely
Andrew Wade
