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Balancing mortgage rate (Comstock Images/Getty Images/Comstock Images)
Balancing mortgage rate (Comstock Images/Getty Images/Comstock Images)

Book Excerpt

Home ownership isn't for everyone Add to ...

Perhaps you already have a mortgage and the end of your term is coming close. You can start searching for the interest rate four months prior to your renewal date. First, check the market and the interest rates. At the point when you renegotiate, you can change to any term and any type of mortgage you want. All you have to do is to stay in the same remaining amortization (unless you want to up the payments and shorten the amortization period). After you have chosen which type of mortgage you want, the first call you make should be to your existing lender to ask for the best rate they can offer. Then call the other lenders, telling them that you already have a mortgage that is approaching its renewal date and you are considering switching lenders. Ask each what the best rate is for the term they have chosen and also if there is any cost for you to transfer the mortgage.

There is NO cost for transferring your mortgage, so do not be loyal to your existing lender if they do not give you the best rate or some combination of features that are superior. If you choose to switch, the institution to which you are transferring your mortgage will do all the legal work with no cost to you. They will be happy to get your business. The only fee you should pay is a discharge fee to your previous lender, which is usually about $300. This is worth it if you are saving more with the lower interest rate. If you do not do anything before or on the renewal date, your mortgage will likely be renewed automatically and you will not obtain the best interest rate, though you won't have to pay a discharge fee.

Keep in mind when you are considering transferring your mortgage that the new lender will check your credit record and will ask for income confirmation. They will also check your mortgage history with different institutions to ensure that you are not in default or have not had late payments.

With a good income from a steady job, a high credit score, and history of on-time mortgage payments, trust me, everyone will fight to get your business.

Experiences with Mortgages

I have relatives who got caught in a housing market with falling prices. That was in Calgary in the early 1980s. They made what only later can be described to have been a classic buy high-sell low decision. Just after graduating from university, they were thinking that they would have trouble getting into the housing market if prices kept rising. They bought a condominium for about $80,000. Within a few months, prices started falling. At one point about three years later, the value of the condo was down to about $30,000. So, investing in a house is not always the path to riches. My relatives did keep living in their condo for several more years. Eventually, they sold for about what they paid. Ironically, about 15 years later the condo was worth over $150,000. Go figure.

That wasn't the first time in recent memory that housing prices have not treated owners well. In 1929, one of my relatives sold his house on Long Island to his neighbour for $1 and walked away to Canada. Neither was it the last. Since 2007, housing prices in the United States of America have been going down-the drop has been 30% on average already and it hasn't stopped yet. Nor will periodic downturns in the real estate market stop happening.

Regarding the size of the house you choose to buy, I really like a line I got from my sister-in-law. "I don't want any more rooms…they all have to be cleaned!" Sometimes a little restraint can really pay off in keeping you sane at a later date. She has never been saddled with so much housework that it got in the way of enjoying life.

Location, location, location…this can really affect your satisfaction with a home and determine whether you get financial gains from your investment in it. I had some friends who bought a house a few minutes walk from where she was going to be working. At first, they thought this was a great feature to the location. Only later did they find out her husband could not sleep with the all-night traffic noise from the six-lane main artery beside the house. As it turned out, it was hard to find other buyers who thought living so close to a main road was a good idea. They put lots of money into renovating the house, but were unable to get that back when it came time to sell a couple of years later.

Excerpt of Financial Hacks is courtesy of Vesna Milevska, copyright registration No. 1083320, registered January 7, 2011

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