How your Mortgage Broker Gets paid and how it works against you

Background:

A mortgage broker is the middleman between the lender and you, the client. A mortgage broker only gets paid when the he/she is successful in getting the loan and the client accepts the loan

 

 

A mortgage gets paid more when you borrow more!

The mortgage broker will attempt to get you to borrow as much as possible. He may say something like "Why don't you borrow more, since the interest rate is so low?" In some cases, if you do have other debt or is looking to make large purchases, it is better to borrow using your mortgage if it is indeed the lowest interest rate. However, whenever you borrow, you may have to pay more fees such lawyer fees are higher and if you break out of the mortgage, the penalty fee is also higher.

 

Only borrow what you are going to use and not anymore.

 

A mortgage gets paid more if you borrow for longer.

The mortgage broker will tell you to go with the longest possible commitment like the five year standard as they claim. He may say something like "Make your mortgage commitment five years or ten years so that you don't have to worry about renewing" or "Five year Fixed rate is the standard. Everyone uses this standard" Five years is the standard for variable rate. Five years fixed rate is a scam. The longer you borrow, the more expensive it is to break out of. If rates go down, you get screwed.

 

Commit to the shortest possible period given the lowest interest rate.

 

A mortgage broker gets paid more if you go with Fixed Rate instead of Variable Rate

Fixed rate is a scam. He may say something like "Interest may go up. Best to play safe."

Fixed rate is higher than variable rate and the chances of interest rate going down is the same chances of it going up. Fixed rate is often 2%-3% higher than variable rate. If you were to listen to your mortgage broker and go with Fixed rate, at five years. The chances of prime rate going up to 2% in 2-3 years is very slim. And even if it did, you would still be saving money! Prime rate would have to go up 4% over five years for you to break even!

 

 

The mortgage broker may want you to buy a used home over a prebuilt home.

Prebuilt homes often come with their own lenders with a guarantee approaval mortgage rate at lower than the mortgage broker can offer. Thus, the mortgage is afraid by going with prebuilt homes, you will no longer use their services. Your mortgage broker may say something like "Used homes are sturdier and visible so that you can see it. They can also be a better investment."
The truth is, prebuilt homes often go higher in value faster than used homes. Prebuilt homes also come with warranty required by the government that the house must be free of defects for a year. Used homes offer no such warranty.

 

 

Bottom Line:

You, the client and your mortgage starts off with a mutually beneficial relationship where you want a mortgage and the broker wants to be the one to give it to you. But that's where the mutual benefit ends. For the mortgage broker to get paid more, he needs you, the client, to lose more. He needs you do things that will simply cost a lot to get the mortgage. You need to rely on yourself or someone else that is not going to benefit from your loss. In conclusion, you need to know what kind of mortgage you are looking for. Don't ask the mortgage broker because he will only look for a mortgage lender that pays him the highest commission.

 

If you have any questions or concerns, post them below...

The scam of condo fees

Condo Fee is a monthly payment the Property Owner makes to cover the cost of maintaining certain aspects of the house such as, but not necessarily, home insurance, snow shovelling, and lawn mowing.

In Toronto, high rise condo generally cover hydro, utilities and shared facilities such as swimming pool and weight room. It usually does not cover home insurance, cable, and property tax. Condo Townhouse often covers home insurance and snow shovelling, but nothing else.

Condo Fee is non-profit managed by a board of directors appointed by voting from you, the condo owners. The board of directors than hires a condo manager paid for using the condo fee to maintain the condo.

1. Although non-profit, it is POINTLESSLY EXPENSIVE to pay the condo manager to maintain condo. The Condo managers hires lawyers to ensure the changes are legal. They generally hire others, not at a cheap rate, to do all the maintaince such as snow shovelling and cleaning shared areas.

2. Another problem with condo fees is that sometimes it does go in the red. What this means, is that the condo account does not have enough money to cover the cost of any potential future costly damages. This means condo owners have to pay more in such situations and the monthyl condo fee rises dramatically.

3. Typically, condo fees go up every year anywhere from 5% to 10% ad this for condos that have sufficient money allocated in the bank!

Bottom line: Condo fees are pointlessly expensive because of the bureaucracy and the maintance which can really be done by you. Unless if you are an old man that cannot perform simple task, it is better not to buy a condo for investment purposes. Condos are good to rent out, but they don't rise that much and the condo fees constantly wreak havoc on the value of the property.

Yet, as I am writing, there are massives of new condos being built in the Toront area. The media must be very good at influencing the public.

Got a question, ask below!

The biggest problem with room rentals

The biggest problem with room rentals is that tenants have the tendency to steal.

Many times, tenants see that you own a house and is collecting (their) money, they feel a self-righteous attitude that you owe them something. So the moment the tenant sees something they like in the house, they justify to themselves that it is ok to accidently take an item since they are the customers and the customers is always right. 

And there is very little you can do because in Canada, stealing isn't really a big deal. In theory, it is a crime, but in practise, the cops have more important things to attend to.


Secondly, the moment you rent to an uncooperative tenant, you have a devil that is in your home leaving you vulnerable and an easy target for stealing, damages and violations.

This devil knows where you live. You can hide, but you can't run.

Getting a tenant out of a room rental where the landlord lives in the same house is acutally much easier than evicting a tenant in a separate location, but during the time the tenant is there, it could caues the landlord more havoc.

I have heard of cases of damages, stolen items and wreckless unaceptable behaviour. Just because they rent, they think they are Gods and deserve to be treated like one. Sometimes, these tenants don't even pay the rent. Further, since the landlord is conveniently close by, the tenant may have the tendency to bother the landlord for every little detail.

If you have a family or precious valuable items in your house, you do not want it stolen, so only rent out to people you know and trust.

Generally, as a home owner, you make more and have more money than the tenant. The tenant becomes envious when he/she sees all these nice items in the kitchen and living room that can be touched and taken so conveniently.

It becomes difficult to yell and evict the tenant which could cause the tenent to retaliate since the tenant knows where you, the landlord, lives! Some tenants have nothing to lose while the landlord has the house and may be a family to worry about, leaving you, the landlord, at the tenants mercy.

Room rentals where the landlord shared entrance or kitchen is not regulated or supported by the Ontario Renter's Tribunal. Social Law applies and this may or may not be a good thing depending on how experience you are with working with this law. Inexperience landlords often fail miserably causing them to lose a lot more than what it is worth.

Best ways to rent out rooms

Inexperience Property mangers often rent out rooms in the same way they rent out houses. This is actually a terrible model to follow because of the shared area such as kitchen and living room.

The best way to rent out rooms is equivalent to following the same model as renting out a hotel suite!

If you are living in the same house sharing entrance or kitchen, you do not need to follow the Ontario Renter's Tribunal and can actually regulate anything you want so as long as it is in writing and agreed upon.

Thus, by renting out rooms like renting a hotel suite, you can safe guard the common area and charge fees for excessive damage or dirtiness. Etiquettely speaking, common areas need to be as clean as they were before the tenant used it.

To safe guard such issues, you, the landlord, need to collect their Credit Card just like hotel manager. When damages, excessive cleaning or use of items that isn't theirs, you are entitled to charge them.

If they do not have a credit card, do not rent to them.

Secondly, make sure you do not rent to cheap tenants. Some tenants, like customers, believe they are Gods because they pay the rent. But, obviously, they are not and the rent really is not that much. One thing to prevent cheap tenants is to check their payment method. Do they pay in cash or cheque? If they pay in cash it is becuase they are too cheap to buy cheques.

Third, make sure you get 12 post dated cheques. If they can't do that, then they are too anal and will be a pain to deal with when a real issue occurs.

Fourth, only accept tenants that are fair and reasonable. It is not worth your time to have tenants that are demanding and sneaky. Some tenants, like customers, will try to get away with as much as possible. If they see they could get items for free or abuse items such as hydro and utilities, they will be difficult to address real issues and are too self-absorbed to have a mutually benefitting business relationship.

Fifth, better to wait for the right tenant, then to settle for less. Sometimes, landlords see that having the rental unit empty cost them a month's rent, so landlords want to quickly rent out. But, trust me, getting a wrong tenant could cost you more than month's rent and may be a lifetime of psychological therapy.

If you are going to rent out rooms, better to wait for good tenants, the deal with bad tenants living in your house next to your own bedroom!

Buying a House - Ground Rules

First, you do not need a Real Estate Agent in buying a home. All you really need is a lawyer to perform the property transaction work. However, if the seller has a Real Estate Agent, then there is a high chance you will want one, too. Houses for sale are easier to visit when you have Real Estate Agent. The Agent has access to opening the doors and letting you in.

A Real Estate Agent is suppose to act on your behalf to buy or sell the home. Both the buyer of the home and seller of the home will have their own Real Estate Agent called a Buyer's Agent and a Seller's Agent.

In Canada, each Real Estate Agent often gets an average of 2.5% (but sometimes lower) of the sold price of the home as commission for selling the house. Some Real Estate Agents provide cash back rewards. Canadian Real Estate Agents gets higher commission than anywhere else. In United States, their Real Estate Agents only get 1% of the commission and their homes are actually much cheaper. Even though Real Estate Agents are the least educated of the parties involved in the buying home transaction, they seem to be getting the biggest piece of the pie here in Canada.

Do not listen to mls.ca and their gimmicks on Real Estate Agents are ethical. (http://www.howrealtorshelp.ca/). Where do they get the idea any Real Estate Agent off the street is ethical. Their claim is based on these tests that they pass to become a Real Estate Agent. Agents passing a test does not meant hey are ethical. It only means they can remember enough to pass the test.

One would believe it should be the Real Estate Agent's job to help the buyer ensure the home is of value. Rightly so, many buyers depend on the Real Estate Agent to protect them and provide them advice and in my opinion, the ethical Real Estate Agent should do that. However, the true reality is that Real Estate Agents do not make money unless if the home is purchased. The reality is that the Real Estate Agent's salary is not truly dependent on giving you advice. The Real Estate Agent's job is to get the buyer to buy a home through them so they can get paid!

Accept the reality of the motivation behind servicing you and listen to their verbal explanation for servicing you. If they do not match, then they are lying and you should never work with people who lie to their clients.

If you have any questions or concerns about these articles or you would like to comment on them,

How to break out of a mortgage commitment, part 1

Background:

A mortgage requires that you are locked in for a certain number of years depending on your mortgage agreement. Most likely you had committed yourself to five years. With this commitment, you agree to pay the lender a certain amount in interest which may be Fixed or variable. If this interest becomes too high relative to current mortgage, you may look into breaking out of it.

So in deciding whether you should break out of your mortgage is knowing all the FEES and how to work with or around it.

Fees:

1. Penalty Fee

This should be your biggest fee. Your penalty fee depends on your mortgage amount, interest rate and remaining years you are locked into the mortgage.

How Penalty Fee is calculated:

If your mortgage interest rate is the same or less then the current comparable rate, then you will be charged three months interest. By comparable, I mean fixed compared to another fixed and variable compared the variable. Otherwise, your calculation would be something like

number of years remaining * interest rate difference * mortgage amount.

I won't get into the details because you should always ask your lender what the exact amount should be and ask them how the calculation works.

Work around:

Since the penalty fee is always based on the mortgage amount, you should aim to make the largest prepayment possible. This will reduce the penalty fee by an equivalent percentage. So for example, if you can make up to a 20% prepayment. Then by doing so, you will reduce your penalty fee by 20%.

If you chose to break out of the mortgage, but still use the same lender, then you should not have make a prepayment. Your current lender should give you a discount because you are already using them and they are the once charging you this fee. Mathematically speaking, however, this discount is always equivalent to the prepayment amount. If the prepayment amount is 20%, then the discount amount is 20%. This actually means there is no special discount in terms penalty fee, if you are able to make the maximum prepayment amount.

Another thing you can do is risk and wait until the current interest rate climbs to the interest rate you are paying. Let's say for example, your fixed rate is 4%. If you believe that the interest rate for fixed will quickly climb to 4%, then you can pay the shorter fee of three months interest. This risk is that you could very well, be wrong.


Go To Part 2...

What to do if your landlord wants to evict you

As a renter, an eviction notice can threaten your lifestyle. Before something like this can even happen, you should always have a fall back plan. First, prevention is the best medicine. Always throughly check your landlord in terms of his character and his conditions to renting the apartment. Is your landlord trsutworthy and reliable? How long does the landlord intend to rent?

Second, make sure you are aware of the procedure for eviction.

For example, in Ontario,

1. If the Rental Apartment meets the conditions with the Ontario Tenant Act, then

If the rental property is on a weekly or daily tenancy, then the termination notice must be given atleast 28 days prior to the termination date and the termination date must be the last day of the rental period.

If the rental property is on monthly tenancy or any other kinds of tenancy, then the termination notice must be given atleast 60 days prior to the termination date and the termination date must be on the last day of the rental period.

If the contract has expired, the tenant can choose to terminate the agreement for any reason.  The landlord CANNOT terminate the agreement for any reason even after the lease has expired. Valid reasons includes a family member is moving into the rental property, the rental property has been sold or landlord needs it for their own use. Landlords often attempt to terminate relationship if they do not like the tenant. However, not liking a tenant is not valid reason for termination. Tenants can claim termination was done in bad faith.

Disputing Termination: Some key points to know
1. After the termination notice, the tenant can still chose to dispute the notice if the tenant believes it was done in bad faith.
2. The landlord cannot take matters in his own hands and change the locks on the rental premises or move the tenant's items out.
3. At the point of dispute, the rental agreement continues as it is. The tenant must continue to provide rent.
4. The landlord can only apply to the Board and the Board will give the landlord a notice of hearing.

Rental Contract: The only condition in the rental contract is that if the rental property meets the Residential Tenancies Act, then the contract cannot violate the Residential Tenancies Act. Other than that, there is no set standard to the rental contract.


2. If the Rental Apartment does not meet the conditions of the Ontario Tenant Act, then Social law applies

If the rental property does not meet the conditions of the Residential Tenancies Act., then Social Law applies. In Social Law, it is matter of common sense and putting everything in writing into the Rental Contract. In Social Law, it is acceptable for the Landlord to lock the rental premises. It is acceptable for the Landlord to move the renter's items. One thing the tenant can do is request to agree to follow the Ontario Residential Tenancy Act. and put it in the Rental Contract. Always make sure you have a rental contract.


Check with your own province to make sure you are aware of all your options.

If you have any questions or concerns about these articles, please comment below...

Room Rental General Guidelines

Too many times, renters rent rooms not knowing what they can and cannot do in the vicinities of the house. Yes, you rented a room, but not the house. So unless explicitly stated, the house is not your right to use. So below are some general guidelines to help you understand appropriate etiquette and rights are. 

1. The share area is shared and cannot be hogged by any one tenant. Do not use it as storage space.

2. Shared washroom should be use for at a standard of 15 minutes. Anymore could prevent other room mates from using it.

3. Shared Laundry should only be done once a week. Anymore is considered overuse, especially when someone else is paying for the hydro and utility bills.

4. Keep quiet especially at night. No one wants to hear your music.

5. Do not use other people's stuff even if it is your landlord. Just because it is there doesn't make it yours. 

6. Don't use the common area like you own it. It is simply there to cook your meal and eat your dinner/lunch/breakfast. Any more use is not part of the standard rental norm.

7. Do not move stuff around the common area. Although you can make suggestion, it is not your final decision to make.

8. Bring friends over is kept at a minimum. Since the hydro and utility bills are shared, it is not fair to have to pay for your friends as well.

9. Do not smoke. Do not even ask. Asking makes it difficult for your fellow room mates to say no.

10. Keep the common area clean. More often than not, renters make a mess of things they are not even aware of. So it better to make an effort to keep it clean because everyone is using it.

How to save as a renter - property types

Depending on your lifestyle, there are several different property types that can help reduce your rental cost.

1. If you are single, then renting a small room is all you need and gives you the cheapest savings. You shouldn't need to worry about maintenance, property insurance, house insurance or even paying the hydro bills on time. But you do need to worry about your room mates. They may be too noisy, too quiet, too dirty or just too nosy.

2. If you prefer more luxury or have more people like a mate, then a small apartment. The cheapest would be a basement apartment.This give privacy time for you and your significant other, but it should be more expensive than renting a room.

3. If you have a family, then condo townhouse or a large apartment. You may be expected to pay the hydro bills. You may even be expected to shovel the snow and mow the lawn.You may consider a house, but you will most likely have to mow the lawn, pay hydro bills and worry about fee almost similar to a homeowner.

4. If you are broke and afford anything, ask the government for social assistance. The Canadian government are extremely helpful to those who are about to evicted and can no longer afford to pay for the rent. Do not ask your landlord for free rent. Clearly, their first priority would be to kick you out!

Planning to rent

1. Finding a good place to rent is not easy. First, the best places are most often taken. Second, you have to know where to look. Third, you have decide on your own wants, needs,. affordability and lifestyle.

2. Some renters may take the perception that they want the cheapest place possible. The cheapest place is a room for rent. However, can you live with other strangers? Can you put up with the possible mess, noise and share responsibilities? There is a lifestyle you already have for your self. How much of your lifestyle are you willing to sacrifice for a cheaper rent.

3. Renting can be viewed as an experience. You're moving to a new place, a new environment and with new possibilities. Regardless of whether the experience was good or bad, you will certainly learn a lot. Take light in the possibilty that you may rent a bad place and be prepared to move if that occurs.

4. Plan several months a head to view the market and what is available. Look in newspapers, Internet and referrals. Get to know the area you intend to live in. What activities are available and how to intend to enjoy your new stay. Get to know the landlord and make sure you can work with him. Just like there are bad tenants, there are also bad landlords.

5. Know the law. Each province has it's tenant act that helps renters resolve issues. Most of the time, the province law is designed to help the tenants, but you need to know what you can do. Do you know what you can do if you get evicted? Do you know what you can and can't do while rening someone else's house? Do you know how much rent the landlord can charge and how often they can raise rent? The main page of RentBin.ca provides you with a link to the tenant laws to each province.

If you have any questions or concerns about these articles or you would like to comment on them, please do so below...