New Mortgage Complete
We received the papers from the lawyer today for our mortgage refinance and worked with the numbers. I am pleased to say that the transaction cost us nothing. Actually, we saved about $933 over the remainder of our term including the penalty and legal fees. How is this possible you ask? Well the first factor was we locked a rate in after the first jump in fixed rates. By the time the deal closed fixed rates had jumped a bit more reducing our penalty. We would have done better if we would have locked in before the first increase but I am happy with the result. The second factor was that we were able to get our penalty reduced by $1168.48. This took a couple of phone calls and some explaining to our lawyer, but it in the end it was reduced. Check out the Original Discharge Statement and the Revised Discharge Statement. I removed the personal and lender information from the statements. I am curious to know what the asterisk represents internally to the lender. If you want to know how we saved this money, purchase my soon to be available ebook, The Mortgage Reduction Guide.
Saving money by changing lenders was a perk, but not the reason we chose to move our mortgage to National Bank. National Bank has an All in One Product that we felt would better suit our needs and save us some interest costs. I rarely recommend products on my blog, but this one impressed us so much that I believe it is worth mentioning.
In the next couple of weeks I will show you how we intend on saving money using this product and how you may be able to as well. Due to the structure of the account I am also going to have to change the way I track our Mortgage Pay Off Progress. I am bouncing a couple of things around, but I have not decided exactly how I will track this. I may add a line for Net Worth to the mix. I have updated it to reflect the new mortgage amount and interest paid. To properly reflect the cost of the switch I have included the penalty and the legal fees into the interest costs. These number will change quite a bit by June or July when we consolidate some accounts and no longer have money idly sitting around.
Original Balance: $316,000.00 (Jul 2008)
Current Balance: $238,836.86 (May 2010)
Total Payments: $108,907.77
Total Interest: $31,137.38
Projected Interest Saved: $270K +
Mortgage Questions
I have included a video that I think makes a very strong point. When you are dealing with a financial institution ask questions about the products you plan on using and get the answers in writing. This is applicable to all products but I will concentrate on mortgages.
When you are first buying a home it is very exciting and very stressful. You will deal with your mortgage rep and lawyer and you will likely run into things that you don’t quite understand. Ensure that you ask questions and have things explained to you until you do understand. Some common questions would be:
- Is the mortgage portable and assumable?
- What are the exact prepayment privileges? When can prepayments be made and how much?
- Can the mortgage contract be broken without selling the property?
- What is the penalty if the mortgage contract is broken and how is it calculated?
- Can you increase the payment amount and the payment frequency?
- If you are in a variable rate mortgage and want to lock in, what fixed rate do you receive? Posted less a certain percentage, or is it negotiated?
- If I take a cash back mortgage does the penalty increase and by how much?
- If you accept mortgage life and disability insurance can it be canceled at any time?
Ensure that you ask questions as not asking may cost you in the long run. Be wary of mortgages with very low rates. Many are “Value” or “No Frills” mortgages which offer little or no prepayments and you may not be able to break the mortgage contract unless you sell your property. These mortgages can be very restrictive.
I am still working on my ebook, The Mortgage Reduction Guide which will be a little more specific with some questions that may end up saving you hundreds, or thousands of dollars on your mortgage. Make sure you ask for ask for a real pony or be left disappointed and possibly with less cash in your pocket! I love that commercial.
Mortgage Update
After being backed up for a couple of weeks due to the sheer volume of applications National Bank has issued a commitment for our mortgage. We have sent in all of the documents and we are hoping that we will have the All In One Account in place by May 13th. When it is in place I will start tracking our finances a little differently. I will be tracking our mortgage debt, tax deductible debt for our rental expenses and net worth. Although I was focused on paying off our entire $316,000 mortgage in 5 years I may have been too focused and missing out on some other opportunities.
My spouse can buy back some of her pension. Retiring earlier is very inviting. I will continue to keep my RRSPs topped up and my spouse will contribute to a spousal RRSP as we prepare for me to move to 100% self employment in the future. We may even look at TFSAs. Unfortunately the prepayment privileges are a little restrictive compared to my original mortgage. A 10% lump some and up to double every payment will not allow me to fully pay off the mortgage by the end of the 3 year term. If we are ever in a position where we are having money idly sitting around we will discuss ways to use it. At the end of the term we will not have a fixed component to our All in One product and should be able to pay off the balance in a few months.
If you have ever Googled anything like, “pay off your mortgage sooner” or “save money on your mortgage” you have likely come across mortgage acceleration programs or money merge accounts. The premise of most of these systems is that you never have money idling sitting in a chequing or savings account. Your money is always offsetting interest on your debt. This is what we are going to do, but I will pass on any pricey software. This will work to our advantage because at any given time we have between $9,000 – $15,000 sitting in our bank accounts waiting to pay expenses. Our plan is to keep our line of credit with a balance of about $20,000 while the rate is under our mortgage portion interest rate. When prime goes up and our line of credit interest is higher than our mortgage interest we will keep our line of credit balance right around $0.
Switching to National Bank’s All in One product will save us on interest costs and give us the flexibility with our debt and finances. I am looking forward to it.
Income Tax Quarterly Installment Payments
I have filed my taxes this year and have mailed the Receiver General a cheque dated April 30, 2010. Due to my business income my tax liability was in excess of $3,000. I am not complaining as I was able to use the government’s money for the whole year, but nautrally they don’t like this. Like everyone else, if you owe them money the sooner they get it the better.
If I have to send them in excess of $3000 again for the 2010 tax year they will ask me to pay my taxes in quarterly installments. My business income is sporatic so I do not want this to happen. This was an easy fix. I simply supplied my employer with a TD1 Form requesting more tax be taken off of my cheque. Although I will get paid less every month, I will not have the same tax liability in the spring of 2011.
If you work a part time job you may want to consider doing the same. Your part time employer will only be considering your part time income when they take tax off of your cheques. This will likely require you to pay taxes the following spring.
If you want to read more about quarterly installments check out this link from the C.C.R.A.
April 2010 Mortgage Reduction Report
Although we are in the middle of April I am able to post the results for the whole month because we are not making any prepayments. There are a couple of reasons for this. I have a large tax bill because I do not pay any taxes during the year on my business income. I have increased my at source deductions with my full time employer so I will not have that issue next year.
There are some changed coming in the next couple of months with the way we handle and track our debt and net worth. We are moving our mortgage to National Bank to take advantage of their All in One product. Although we are still focused on paying down our mortgage I also want to tie that in to our net worth. We are still planning for the future and there may be an opportunity to take advantage of the RRSP rules in the future. We are also going to cash dam our rental properties. There will be more on that in the future, but basically it will turn no tax deductible debt into tax deductible debt which is advantageous.
I have learned some things and saved some money in the process of refinancing our mortgage. I will pass these tips on to you in the next few weeks. Our new way of banking should speed up our debt reduction plans.