Brokers agree on payment plan

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Strangley enough, brokers are echoing the sentiments of a big bank and warning clients not to follow a recent trend.

“The advice we give to clients is that when rates are low is the time to bang down their mortgage,” Feisal Panjwani of Invis Feisal and Associates told MortgageBrokerNews.ca. “When rates increase, the interest portion of the payment will be higher.”

Record-low rates have contributed to a decrease in Canadians choosing to accelerate their mortgage payments, according to a CIBC poll released Monday, though the bank suggests taking the opportunity to take advantage and pay them down quicker.

According to the poll – which surveyed 1,509 randomly selected participants -- 55 per cent of Canadians who currently have a mortgage are taking actions to repay them faster, down from 68 per cent in a similar poll from 2013. 23 per cent accelerated their payment frequency (down from 42 per cent); 28 per cent increased the payment amount (down from 30 per cent); 18 per cent made lump sum payments (down from 15 per cent).

And while it may be enticing for homeowners to take advantage of smaller payments, brokers warn clients that inevitable rate should be prepared for by paying down as much of the debt as possible.

“I totally agree – this is the time to pay as much as possible,” Fred Testa of Invist told MortgageBrokerNews.ca. “I got my daughter a mortgage last year at a low rate and they know it’s not a question of ‘if’ but ‘when’ rates go up and they’ve increased their payments so that when rates go up there won’t be as much of a payment shock.”

One exception, according to Panjwani, is when clients have outstanding consumer debt with higher interest rates.

“If they have additional debt outside their mortgage they should pay that off,” Panjwani said. “Eliminate high interest rates first.”
But are enough brokers echoing these same sentiments?

 
  • Angela Wong-Liao - Invis Inc on 2014-07-23 2:58:11 PM

    I fully agree with Fred Testa and Panjwani, this is the time to pay down your mortgage as much as you can afford. Interest rates will increase in future and reducing your mortgage balance can absorb some payment shock. I also agree with Panjwani, if you have higher interest rates debts, ie: credit cards and lines of credits, it is wise to pay down these debts first prior to prepaying your mortgage.

  • Daniel McKay on 2014-07-23 4:09:59 PM

    I firmly disagree with paying down mortgage debt, when such low fixed rates are available. Mortgagors are much better off using their excess income to pay down higher interest debt and saving/investing giving current market conditions. Do yourself and your clients a favor by referring them to a financial planner who does not have in house financing. The financial planner should have no problems generating savings returns much higher than what paying down the mortgage will generate, and it return, would probably be more than happy to send some referrals back your way. This has the benefit of building client savings that could be used to make mortgage payments in case they lose their ability to earn income. When rates do go up in the future, they then have the option to pay down the mortgage with the investments as well.

  • Arbitrage on 2014-07-23 4:11:08 PM

    Disagree...if you have disciplined clients now is the time to invest those extra dollars in TFSA's and RRSP's. Roll the tax return from the RRSP investment into the mortgage if you must but a halfway savvy person should be able to get 7-9% on a tax adjusted basis. Even if you already had TFSA and RRSP contributions maxxed I still think there is a strong argument for increasing your mortgage size right now for the purposes of investment. Of course, as mentioned above, paying down your 19% credit card takes priority over everything! :-)

  • Tom Hedderich on 2014-07-25 9:35:29 AM

    Disagree! Refinance into a low fixed rate mortgage if you have not done so already. Establish education funds for you children. Fully fund your own retirement plan. After that apply all excess funds to high rate debt like credit cards or HELOCS. If you have variable rate debt that will be with you for 5 years or more now is the time to convert that debt to fixed rates.

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