Real Estate

• Last Updated:
• May 19th, 2018 3:53 pm
SCORE
+104
Sep 13, 2011
3642 posts
Toronto
fasbo2017 wrote:
Aug 12th, 2017 11:54 pm
Hi Paul,
Can you summarize the proper way to calculate a cash back deal, or point to an example?

Many thanks.
Here's a calculator you can use to ensure you're being given the right numbers: http://www.mortgagecalculatortoolkit.co ... alculator/

Good luck!
Paul Meredith
Mortgage Broker
CityCan Financial Corp (lic. 10532)
Dec 1, 2015
1528 posts
Etobicoke, ON
There is no "official" way to calculate this, as those "effective rates" dont really exist on paper. But the problem is exactly that the lack of a standard way to calculate it (and even worse - failure to disclose how any calculation was made) leads to some cases of gross misrepresentation. An "oversimplified" way to do the calculation would take in consideration at least the difference in interest between the 2 terms. For example, let's assume a \$500k mortgage and 2 offers, both on a 5y fixed rate term, one at 2.75% and one at 2.50%. By calculating the difference in interest (2.75% - 2.50% = 0.25% difference per year) and multiplying it by the number of years in the term (5 in this case) the difference in interest would be 0.25% * 5 = 1.25%. On a \$500k mortgage, that amounts to \$6250.00.
To get the most accurate numbers, one must take in consideration the amortization (25y, 26y, 27y...30y.. etc), payment frequency (weekly, bi weekly, monthly, etc) but using the simplified method above gives you a fairly accurate number.

The problem with this is that I often see people advertising "effective rates" after a cash rebate, and instead of doing the calculation above, they simply (either by ignorance or ill intent) "pick a number" and tell the client "this is what the effective rate is..". I have seen cases where the promised rate was nowhere remotely near what it should be. Cases like someone being offered \$500.00 rebate to make an rate "effectively equivalent to X%" when in reality proper calculation indicated the amount should be \$2800.00. As people dont know how this is calculated, some folks just assume it was done correctly.
No, to make matters even worse, there are a multitude of other considerations to be had too - and some of them are quite difficult to figure out. For instance, 2 very similar offers with almost the same rate, maybe 2.59% and the other 2.54%, on a small \$100k mortgage. The difference in interest is only \$250.00 in this case, however the 2.59% offer comes with a rebate on the appraisal, while the "lower rate" of 2.54% does not. As the appraisal will cost some \$300.00, the higher interest rate would actually end up saving money to the client, when you factor the appraisal costs. This is just a simple example...
Another serious consideration is about collateral charges - often, I see offers of a cash rebate... but at the end of the term, the client will almost certainly be subject to higher rates to transfer to another institution (as these transfers are treated as refinances, not as switches) and on top of that there are legal fees, appraisal fees, etc. So, that "cashback" of \$800.00 today may cost you \$3000.00 at the end of the term.

When you pick a mortgage professional, you should ask lots of questions... and make sure the person can clearly explain ALL details about their offer. If they mention "cashback" or "effective rate", ask how it was calculated, ask for an amortization schedule based on your mortgage amount, payment frequency, etc... ask how that person determined the difference. And you might as well ask for a second opinion.
fasbo2017 wrote:
Aug 12th, 2017 11:54 pm
Hi Paul,
Can you summarize the proper way to calculate a cash back deal, or point to an example?

Many thanks.
Andre Oliveira - Mortgage Agent
FSCO # 10428 - Mortgage Intelligence
Member
Nov 23, 2012
346 posts
Toronto
So I got 2.2% floating 5 years at one bank vs 2.39% 4 years fixed at another bank, which one do you think I should take? Thanks.
Newbie
Nov 23, 2011
16 posts
PETAWAWA
Need some help from Pros. Thanks in Advance.

I am buying a house @ \$257000 assuming to put atleast 20% downpayment with my family income @ 45000. My offer expires on 18th Aug. What best rate should I be looking at Variable Closed as well as Fixed for 5 years.

I have no other debts as well as good credit ratings.
Sr. Member
May 1, 2017
847 posts
rliuthu wrote:
Aug 13th, 2017 5:33 pm
So I got 2.2% floating 5 years at one bank vs 2.39% 4 years fixed at another bank, which one do you think I should take? Thanks.
Hi there,

Both are fairly solid rates depending on the circumstances of your qualifying. 1.95% is the lowest variable you can expect to see, and around 2.64% is the best fixed currently for 5 years - these rates are dependant an certain aspects of your qualifying. Whether you should take the variable or fixed product depends on your risk tolerance to each product. If you are not comfortable with the inherent risk of rising rates associated with variable rates, then you should take the fixed product. If you are comfortable with the interest rate risk, and can afford the payments if rates were to rise during your term, then perhaps it is better for you to take the variable rate.

It all comes down to your level of comfort. For what it's worth, many expect another rate hike come October, so that variable rate may be 2.45% in 3 months. Of course nobody can predict interest rate activity with a high level of certainty, but many economists forecast a hike.

Regards,

Connor
_________________________________
Connor Green
Mortgage Agent
Concierge Mortgage Group
#12179
Sr. Member
May 1, 2017
847 posts
anandgnr wrote:
Aug 13th, 2017 5:33 pm
Need some help from Pros. Thanks in Advance.

I am buying a house @ \$257000 assuming to put atleast 20% downpayment with my family income @ 45000. My offer expires on 18th Aug. What best rate should I be looking at Variable Closed as well as Fixed for 5 years.

I have no other debts as well as good credit ratings.
Hello,

The best rates available right now are around 2% variable and around 2.64% fixed. Rates these days are highly dependant on the specifics of your qualifying (income, down payment, debts, credit, location, etc), so without more information it's hard to say exactly.

From the information you've provided, you would be teetering on the edge of an "insurable mortgage" and "uninsurable mortgage." If you qualify for the insurable bracket, you can expect anywhere from around 2% variable to 2.64-2.74% fixed. If not, anywhere between 2.40% variable and 2.94% fixed.

Regards,

Connor
_________________________________
Connor Green
Mortgage Agent
Concierge Mortgage Group
#12179
Newbie
Jul 29, 2017
7 posts
@valuemortgage and others. Thanks for the work you guys do here. As a new PR with employment income still abroad, what's the best scenario for a mortgage on a \$400k property. Looking to work with a broker here.
Newbie
Nov 23, 2011
16 posts
PETAWAWA
GreenMortgages wrote:
Aug 13th, 2017 6:08 pm
Hello,

The best rates available right now are around 2% variable and around 2.64% fixed. Rates these days are highly dependant on the specifics of your qualifying (income, down payment, debts, credit, location, etc), so without more information it's hard to say exactly.

From the information you've provided, you would be teetering on the edge of an "insurable mortgage" and "uninsurable mortgage." If you qualify for the insurable bracket, you can expect anywhere from around 2% variable to 2.64-2.74% fixed. If not, anywhere between 2.40% variable and 2.94% fixed.

Regards,

Connor
Sr. Member
May 1, 2017
847 posts
Inductor wrote:
Aug 13th, 2017 6:50 pm
@valuemortgage and others. Thanks for the work you guys do here. As a new PR with employment income still abroad, what's the best scenario for a mortgage on a \$400k property. Looking to work with a broker here.
Hi there,

As a recent PR, you will have plenty of options available to you through the numerous "new-to-canada" programs. Which is best to you is dependant on a number of factors, such as your down payment, credit worthiness, ability to repay the loan, if you declare your income in Canada, how long you've lived in the country, etc.

Regards,

Connor
_________________________________
Connor Green
Mortgage Agent
Concierge Mortgage Group
#12179
Newbie
Jul 29, 2017
7 posts
Thanks. So with the newcomers program available, would there be one with a minimum downpayment of 20% and what would be the best fixed or variable interest rate? Thanks guys
Sep 13, 2011
3642 posts
Toronto
Inductor wrote:
Aug 14th, 2017 3:23 am
Thanks. So with the newcomers program available, would there be one with a minimum downpayment of 20% and what would be the best fixed or variable interest rate? Thanks guys
Minimum down payment can be as little as 5%. Rates vary depending on down payment amount and purchase price, but 5 year fixed could be as low as 2.64% of variable as low as 1.95%.

EDIT: Missed your original post stating that income was earned overseas. This definitely makes things much more challenging. You'll definitely need quite a bit more than 20% down.
Last edited by PaulMeredith on Aug 14th, 2017 7:54 am, edited 1 time in total.
Paul Meredith
Mortgage Broker
CityCan Financial Corp (lic. 10532)
Jr. Member
Feb 3, 2008
169 posts
Whats the best rate for first time home buyers in GTA? I will have 20% down of a purchase price of 500-600k.
Where can I see comparisons?
Sr. Member
May 1, 2017
847 posts
wonka1234 wrote:
Aug 14th, 2017 9:16 am
Whats the best rate for first time home buyers in GTA? I will have 20% down of a purchase price of 500-600k.
Where can I see comparisons?
Hi there,

With 20% down, your best 5 year fixed rate will be around 2.69% - 2.74%, and your best variable will be around 2.1%, and potentially a bit better! There are a few comparison sites on the internet, but the rates posted there are mostly misleading, as they typically only apply to a small demographic of borrowers. It's best to get your quotes directly from brokers, as the rates posted on those sites often bait clients in, and then are switched to something less appealing.

Regards,

Connor
_________________________________
Connor Green
Mortgage Agent
Concierge Mortgage Group
#12179
Feb 2, 2014
4737 posts
Toronto
rliuthu wrote:
Aug 13th, 2017 5:33 pm
So I got 2.2% floating 5 years at one bank vs 2.39% 4 years fixed at another bank, which one do you think I should take? Thanks.
Depending on how much you are putting down, you might be able to do better on the variable. Best variable rate is 1.95%.
Kevin Somnauth, CFA
Mortgage Agent and Real Estate Sales Representative
Apr 26, 2004
1954 posts