Mailbag: Paying Off a Collection

Mortgage-Mailbag Question:  I am in a fixed mortgage and I want to switch mortgage lenders. Are there any lenders who will pay the penalty fee for the switch? – Anonymous

Answer:  Yes. It is possible to find a broker or lender who will cover part or all of your penalty, depending on the size of your mortgage and how big the penalty is. The problem is that you'll seldom get fully discounted rates. You will most likely be upcharged on the rate so the broker or lender can compensate for the cost of paying your penalty.

You're usually better off to pay the penalty yourself and get the best rate you can. Ask your mortgage planner to compare the net benefit of each scenario to determine which option costs less.

Mailbag: Paying Your Penalty

Mortgage-Mailbag Question:  I am in a fixed mortgage and I want to switch mortgage lenders. Are there any lenders who will pay the penalty fee for the switch? – Anonymous

Answer:  Yes. It is possible to find a broker or lender who will cover part or all of your penalty, depending on the size of your mortgage and how big the penalty is. The problem is that you'll seldom get fully discounted rates. You will most likely be upcharged on the rate so the broker or lender can compensate for the cost of paying your penalty.

You're usually better off to pay the penalty yourself and get the best rate you can. Ask your mortgage planner to compare the net benefit of each scenario to determine which option costs less.

Mailbag: Long-term Closes

Mortgage-Mailbag Question:  I heard that the longest rate hold I can get is 120 days. What should I do if my house isn’t closing for 153 days? – Shirley McCullough

Answer:  A couple of lenders now offer 180-day rate holds.  National Bank is one of them, through its broker channel.  Its rate is pretty reasonable for long-term rate assurance. (For a 5-year fixed, it’s in the 4.09% range depending on the mortgage planner you use).

The nice part is this:  If National Bank is offering a lower “90-day rate,” three months from your closing date, you can switch to that better rate. On the other hand, if rates go up, you’re protected.

National’s 6-month rate holds are a handy solution for folks closing in over 120 days.  Talk to your mortgage planner for more details.

Mailbag: HELOCs vs. Mortgages

Mortgage-Mailbag The Question:  A reader emailed the following question…

“What is the difference between a HELOC and a variable-rate mortgage? Why would someone want a HELOC instead of a mortgage?”

The Answer:  HELOCs and mortgages have important differences. We’ve contrasted certain aspects of HELOCs and mortgages before, but here’s a summary of the differences for reference.

HELOCS MORTGAGES
Allow you to continuously borrow and re-borrow up to your available limit (i.e., they are “revolving”). Can only be paid down (unless they’re readvanceable).
Have rates that are not guaranteed for the life of your term. Lenders can increase the rate premium they charge on HELOCs at any time. (By the way, Kudos to lenders like FirstLine, National Bank and Canadian Tire, who have refused to raise LOC rates on existing customers.) Come in two flavours:Fixed…with mortgage rates that are guaranteed for the life of the

term.Variable…which have guaranteed spreads from prime for the life of the term (e.g.,  prime + 0.25% or prime – 0.50%).

Are fully open. Are usually closed but can be open.
Require 20% equity Often require just 0-5% equity
Offer interest-only payments Don’t generally allow interest-only payments
Are usually reported to the credit bureaus—which can negatively impact your score (only a handful of HELOCs are not reported) Are usually not reported to credit bureaus, and typically don’t harm your score even if they are.
Are technically callable by the lender—even if you make your payments on time. Mortgages cannot be called as long as you abide by the terms of the mortgage.
Have higher interest rates, as of today Have notably lower interest rates, for the most part

HELOCs are generally most suited to very financially stable individuals who value liquidity (quick access to their home equity).

Keep in mind, many of the things that make HELOCs unique can be either a benefit or a disadvantage, depending on the borrower. If you need help deciding if a HELOC is right for you, get some free advice from a mortgage professional.

Mailbag: RRSP Home Buyers Plan

The Question:  A reader and first-time homebuyer emailed the following…

“Can I use the RRSP Home Buyers Plan (HBP) to pay the GST on my new home purchase?  Or can money from a RRSP account only be used for the mortgage downpayment?

The Answer:  According to CRA’s HBP Guide:

As long as you buy or build a qualifying home, and you meet all the applicable conditions to participate in the HBP, you can use the funds you withdrew under the HBP for any purpose.

So there you go.  Paying your new home's GST with HBP funds is fine.

In fact, you can spend the money on a 14-day cruise to Tahiti if you want to—assuming you want your $25,000 cruise to cost you $15,000 in interest.  (In case there's any uncertainty, that’s not recommended.)