BLOG / NEWS Updates
CASH BACK MORTGAGE, IS IT REALLY WORTH IT?
CASH BACK MORTGAGE, IS IT REALLY WORTH IT? Recently, I have been hearing a lot of people being offered a Cash Back Mortgage by their agents or by Bank Representatives. Worse, they are being presented as if it is a free money. Banks DO NOT GIVE FREE money. Furthermore, this product s pros and cons are not properly explained. But let us go back to the basic. If you do not have money saved up as down payment and you have a lot debts in place and you opted to go for Cash Back Mortgage, you just placed yourself in a Financial Suicide. Below is a link the article of Financial Post dated April 20, 2014. This article maybe dated but the facts about Cash Back Mortgage stays the same. To read the Financial Post Article , click here. Now, if you read the entire article, let us apply it to the current Cash Back Mortgage being offered by CIBC. For example, and I am not saying this is the actual rate, you are buying a house for $400,000 and CIBC gives you a cash back of 5% ($20,000) at 3.49% 5 year fixed rate compare to possible 2.44% rate you could get if you are not doing a cash back. With Cash Back:Without Cash back: Monthly Payment=$1994.97 Monthly Payment=$1,690.94 Interest Paid after 5 years=$64,754.97 Interest Paid after 5 years=$42,690.97 Based on the above estimates and example, you are paying $304.03 more on monthly payment and at the end of 5 years, you would be paying $22,064 more interest if you go for a Cash Back Mortgage. Please note, the computation above does include Mortgage Default Insurance premium which is applicable if your down payment is less than 20%. So if you are getting an Insured Mortgage, you could be paying more. In addition, if you pay off, transfer or refinance your Cash Back Mortgage before your term is up, you would need to pay back if not in full, a portion of your cash back. Which basically leaves you trapped by your Bank. Now, let us go ahead and use CIBCs Mortgage Prepayment calculator by going to https://www.cibc.com/ca/mortgages/calculator/mortgage-prepayment-calculator.html . Assuming, you did get the Cash back Mortgage in 2016 with Maturity of June 1, 2021. And for example purposes, We will use current rate offer of 3.49% 5 year fixed ,Cash Back of 5%, and the Principal Balance after 1 year is $390,000 and current posted rate of 4.79% for 5 year fixed. Your rate discount is the difference between posted rated of 4.79% and rate special offer of 3.49% (1.3%) . So, this is what you should come up with: Prepayment Charge of $11, 291.36 Cash Back Repayment of $20,000 Prepayment charge including cash back $31,291.36 That is a HUGE penalty! Now, is Cash back Mortgage bad? No. Is it for everybody? No. Cash back can be beneficial to a specific situation. That is where Professional Agents or bank Representatives come into play. They should be able to explain to you the Pros and Cons and not just sell you a product. So always make sure to talk to you licensed Mortgage Professional.
Bank of Canada increases overnight rate target to 1 per cent
The Bank of Canada is raising its target for the overnight rate to 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent. Recent economic data have been stronger than expected, supporting the Banks view that growth in Canada is becoming more broadly-based and self-sustaining. Consumer spending remains robust, underpinned by continued solid employment and income growth. There has also been more widespread strength in business investment and in exports. Meanwhile, the housing sector appears to be cooling in some markets in response to recent changes in tax and housing finance policies. The Bank continues to expect a moderation in the pace of economic growth in the second half of 2017, for the reasons described in the July Monetary Policy Report (MPR), but the level of GDP is now higher than the Bank had expected. The global economic expansion is becoming more synchronous, as anticipated in July, with stronger-than-expected indicators of growth, including higher industrial commodity prices. However, significant geopolitical risks and uncertainties around international trade and fiscal policies remain, leading to a weaker US dollar against many major currencies. In this context, the Canadian dollar has appreciated, also reflecting the relative strength of Canadas economy. While inflation remains below the 2 per cent target, it has evolved largely as expected in July. There has been a slight increase in both total CPI and the Banks core measures of inflation, consistent with the dissipating negative impact of temporary price shocks and the absorption of economic slack. Nonetheless, there remains some excess capacity in Canadas labour market, and wage and price pressures are still more subdued than historical relationships would suggest, as observed in some other advanced economies.
Canadian home sales fall further in July
According to statistics released today by The Canadian Real Estate Association (CREA), national home sales declined further in July 2017. Highlights: National home sales fell 2.1% from June to July. Actual (not seasonally adjusted) activity in July stood 11.9% below last Julys level. The number of newly listed homes edged back by 1.8% from June to July. The MLS Home Price Index (HPI) was up 12.9% year-over-year (y-o-y) in July 2017. The national average sale price edged down by 0.3% y-o-y in July. Julys interest rate hike may have motivated some homebuyers with pre-approved mortgages to make an offer, said CREA President Andrew Peck. Even so, sales activity continued to soften in the Greater Golden Horseshoe region. Meanwhile, sales and prices in Montreal continue to strengthen. All real estate is local, and REALTORS remain your best source for information about sales and listings where you live or might like to. July marked the smallest monthly decline in Greater Golden Horseshoe home sales since Ontarios Fair Housing Plan was announced in April, said Gregory Klump, CREAs Chief Economist. This suggests sales may be starting to bottom out amid stabilizing housing market sentiment. Time will tell whether thats indeed the case once the transitory boost by buyers with pre-approved mortgages fades. Click here to continue reading