Variable Rate Mortgage? Switch and save $5000 or more!

Tick-tock...

If you've negotiated a variable rate mortgage over the past 3-4 years, and stuck with it, you're probably in a prime minus .35-50% product. This would put you in the 3.50% range This was an excellent deal back then, but only so-so today.

Timing is everything

Well, we're currently seeing limited time discounts that are more than double what they were back then (prime minus 1%, or even more with some lenders). This means it's currently an excellent time to have a conversation about how we can get you that much bigger discount and effectively reverse the last few rate hikes you've experienced. From there it will allow us to do one of 2 things: we can roll your payment back down and you pocket the savings, or keep the payment the same and use the extra funds to pay down the principal and pay off your home sooner.

8th Inning...

Unless you've been in a bubble, it's hard not to watch the train wreck that has become the United States over the past 2 years. While Trump claims the economy is a "tremendous" success (due to him). We're already starting to see the cracks in its foundation. The TRILLION (with a T) dollar tax cuts implemented in 2017 will soon expire at the beginning of next year. These tax cuts were essentially an (over) stimulus package for an already thriving economy built during the Obama era. To top it off, we are also well into the longest "Bull" run the stock markets have had since the Great Depression. This is an unsustainable trajectory, and once those tax cuts disappear next year, we could quickly see the momentum come out of the US economy. This is not a prediction of if, but when, and it is even more likely due to the strained and weakened relationship between China/US, coupled with the slowing global demand for oil. Canada will be directly affected from this inevitable event. They are our biggest trading partner, so when they stop buying products from us, we stop building them, and that will have an immediate effect jobs on Canadian jobs on a major scale (Hello, GM in Oshawa, ON).

What happens then?

Well, the first thing that happens in an economic downturn is stimulus is injected into the economy by The Bank of Canada in the form of reduced overnight lending rates. These rates are directly tied to the banks prime lending rates (which affect your lines of credit and most importantly, your mortgage). While there are some out there that oppose my viewpoint, I believe that for reasons the reasons mentioned above, we're going to see the move toward lower rates within the next 12-18 months. We're already seeing the further halting of rate increases, as the BOC has left rates unchanged in their last 2 meetings due to decreased inflationary pressures. With a benchmark of 2.5%, those numbers have shifted from 2.8% in mid 2018 down to 1.7% going into 2019. I believe we'll see that number become the new norm in 2019 reducing the need to increase rates any further.

Using history as a guide.

If I learned one thing from the economic collapse of 2008/2009 - when stock markets start to under perform, discounts on variable rate mortgage erode, quickly (as the amount of money in the system becomes more scarce). Back then we saw lenders with (what we thought) were aggressive discounts - Prime minus .75% was extremely good in those days. But in the weeks/months that followed the collapse of the stock market, these discounts eroded quickly and the we moved into an era of prime PLUS 1+% products within a few months. If you got in before those discounts evaporated, you saw INCREDIBLE savings as the Bank of Canada rolled back rates. Many clients saw a sustained 1.75% mortgage rate for several years and saved thousands, while others were paying double for the exact same product.

Switch and save...

My fear is those of you that are out there with only a year or 2 left on your current mortgages are going to be renewing at a time when these discounts are long gone.

Here's an example of how we took a client with a $250k mortgage, that was about 4 years into their term, and how we manged to save them about $5000. Note the current rate of 3.50 dropped by just by just .55%, yet the impact it made was drastic to the bottom line.

You might see the net savings of $7051.50 on the bottom line and think that certainly looks better than $5000, why the difference? Well, there's always a penalty associated when you break any mortgage, however, the variable rate mortgage is the least expensive to break at only '3 months interest'. This means it will cost about $2000 to implement this strategy - however, this $2000 does NOT come directly from your pocket. It is added to the payout amount, so if you owed $250k today, the new mortgage would be based on $252k. This is why the net savings are reduced but are still significant enough to pursue.

How can I take advantage of this?

Simple. Reach out to me at mark@normanlane.ca and have me run some of these numbers specifically for you. All I need to know is your current mortgage amount, the approximate value of your home, and your current rate to create this same chart so you can see how much you can save.