Other than getting the best rate possible, what do you need to know about negotiating a mortgage? Are you aware of break fees? Pre-payment privileges? Do you know what penalties, if any, the bank will charge you? Have you come up with a budget, independent of the bank's?
Doug Melville, Canada's banking ombudsman, joined us on Wednesday to answer your questions in a live online discussion about how to set up your first mortgage.
Mr. Melville also appears in this video posted on the globe investor personal finance site Wednesday as part of Building Blocks, a special web series geared towards educating young Canadian families about various personal finance topics. In the video, Mr. Melville talks with Globe personal finance reporter Roma Luciw about the process, pluses and perils of negotiating your first mortgage. Building Blocks is running online every Wednesday for four months. For last week's story and tips video, click here.
Mr. Melville was appointed the ombudsman for banking services and investments (OBSI) in August of this year. He joined OBSI, an independent organization, in 2006 as senior deputy ombudsman for banking services. Before that, he held positions in the financial industry and worked as a management consultant and policy analyst in Canada, Africa and the Middle East in the fields of international development, political and economic analysis and project management and evaluation. He has a law degree and an MBA from the University of Western Ontario, and a Master of Laws from Osgoode Hall Law School at York University.
Mr. Melville joined us Wednesday at noon ET for a live online discussion. Your questions and his answers will appear in the space below.
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Roma Luciw, Globeinvestor.com: Hi. My name is Roma Luciw and I am a personal finance reporter and web editor at the Globe. Some people have already sent us some questions through email and we will get to those right away.
Andrew asks: A couple years ago I was one of those people that got a 40-year mortgage and since then I somewhat regret that. The mortgage is currently a five-year fixed rate term. I was wondering if it is possible when renewing my mortgage to shorten the amortization period by five to 10 years? I realize the monthly payments would be more and that isn't an issue. I am just not sure if I am stick with the 40-year amortization period or if that can be adjusted at renewal.
Doug Melville, Banking Ombudsman: Andrew, At the end of your current term, you can very likely make all sorts of changes to suit your needs. I hear you about wanting to shorten the amortization period so you can to maximize your pay-down of the mortgage over time. I suggest you speak to your mortgage lender about the options available to you upon maturity of your current five-year mortgage. You might also ask them what options there are to make occasional pre-payments under your current mortgage...that could also see you mortgage-free faster.
Ashley asks: If I select a five-year closed variable mortgage (and get a better interest rate now), but interest rates go up in two-three years, will my payment be the same or will it increase with the interest rate?
Doug Melville, Banking Ombudsman: Ashley, The variable rate on your mortgage means that the interest you owe the lender changes with the market rates over time. In most such mortgages - check your mortgage document and ask your lender to be sure - your total payment stays the same but the proportion of your mortgage payment that goes toward paying down your mortgage can vary. If interest rates go up, your interest portion of your payment goes up and the proportion that pays down your mortgage drops. This would mean your mortgage will take longer to pay-off. When your current mortgage matures, the total payment amount can be reset to suit your needs given the interest rate environment. As I mentioned in the previous question, check if you have the ability to make occasional prepayments on your mortgage so that you can off-set any interest rate increases and pay down your mortgage at the pace you want.