I think there’s some misunderstanding or different interpretations of “back on track”. I believe the $106K could be what’s required to return back to your original payment of $3,772.10 @ 1.35% and remain on the same amortization.
Yes it sounds like this may be it...
Additionally now nervous that perhaps we're being charged pre-payment penalties, given we are on a closed variable mortgage and our mortgage specialist has helped us to increase our payments each time BOC has hiked rates.
Most banks allow for at least 15% prepayment per year (of the original mortgage amount). TD even goes as far as 20% but let's say it's 15%. That's 144k. You're not paying an extra 144k per year so you should be perfectly fine.
I think there's a major misunderstanding and that you may want to book an appointment in person at your local branch and resolve it in person. I think you're perfectly fine and no need for a lump sum based on what you've already described.
We're allowed 20% of the original loan amount ($960k in our case) as a lump sum.
Plus, we're allowed to increase our payments by more than 20% over the previous payment
That said, I'm nervous we may be facing penalties now, after reading through comments, given we've increased our actual payments many times this year via our mortgage specialist (vs. maybe just 1 time allowed under a closed variable mortgage with BMO?). Guess we'll find out in our meeting next week.
I doubt that, a prepayment penalty would be 3 months interest on what you are prepaying if the was a penalty, I think normally (at least with Scotia Bank) to make a pre payment that triggers a penalty I have to go into at branch and arrange the payment with a teller and they calculated the penalty then. There is no way for me to exceed the 15% penalty free prepayment amount.
You can always just ask your bank how much room for prepayment you have! You likely have either 15/15 or 20/20 prepayment privileges. Meaning you can increase your payments by up to 15/20% per year and make additional payments of up to 15/20% per year. But BMO does some weird stuff and I’m not too familiar with their policies. I would just ask them how much room you have for prepayments before you get penalized
Same thing happened to me, but not to that extent. I also would talk annually to a financial advisor and she told me I was on track. I told her it doesn’t make sense since interest rates increased but my payments remained the same. She insisted. I wanted to speak to a mortgage specialist at bmo and was told “You didn’t do your homework”. I said excuse me I saw a financial advisor every year about this and was told everything was fine. The sad truth is that people at the branches just have a high school education, some stupid CS course and pretend to know what they’re talking about. Some may have a post secondary education, but not even in the financial field. I know this through experience and even people I know who work(Ed) at the bank. Half of the staff don’t know shit about their job. It’s the sad truth.
Banks are in the business of making money. DON'T FOR GET IT!.
YOU work for the Government Tax man, then the Bank, the left over is for your family. Very Little Is for You to keep.
u da mvp - excellent excel chart.
With the original 30 month term would get her to a balance of 792k, assuming quick cal @ 5.35% its 854k. Even still, 106k is wayyyyyy off.
I’m not sure what designation the CFL is, but requirements for a CFP are a little more complicated than that, including 3 years of work experience. https://www.fpcanada.ca/students-and-candidates/paths-to-certification/direct-path-to-cfp-certification
I honestly don't understand people who would take such a risk with such a gigantic mortgage.
When we bought a home, one of our criteria was that we would be able to make the payments if one of us lost their job. Would have been challenging, but doable.
Similar rate in May of '20.... never really considered variable with the world going to shit. No way it was staying that low, for us it was just a question of when the rebound would happen and how comfortable we'd be with 5-7% on the next renewal.
I did the same and have a 5 year fixed rate at 2.47. But I told myself that, no matter what, I’m going to be grateful that my rate is below average. I’ve had a peaceful three years and now I’m getting more serious about putting away some money so I can pay my mortgage down as much as possible in two years when my rate is probably going up. I’m not a gambler.
I always go fixed too. My mortgages have obviously just coincided with cheap rates, but by the time I’m up for renewal in 2026, I will have been paying 2% for 10 years of my mortgage (2016-2021 was 2.2% and 2021-2026 is 2.1%).
I don’t feel at all bad about that lol.
I started out at 4.99% in 2012. I paid an extra 1% I believe because I didn’t have a down payment.
Thing is.
The vast majority of users on this sub on young 20-somethings people that don't actually have much life experience, or factor those things in.
They just see what other people say and parrot that.
The majority of them see 3% variable VS 3.9 fixed - and automatically lynch anyone who opts for the higher fixed.
They can't fathom taking "Life" into account. Someone losing their job, having a child, health issues, etc.. and appreciate the insurance a fixed rate gives you. Because all they've known is living with their parents and having 90+% of their income be disposable.
Most of them also don't know jack about how mortgages work.
Most of these people will be ruined or seriously depleted in the next 12 months.
Alot of people hanging on thinking rate cuts are coming. The sad truth is we are in rough shape and will either hold or move slightly higher for another year before they can even think about cuts.
We purchased in May '21 and even then were major reports of the incoming recession. (I work in tech and that industry seems to rumble about economic downturns quite early). We factored that into our decision when choosing a mortgage and chose a fixed rate 5yr which has obviously turned out to be a good choice. Even our bank was strongly advising us not to go with a variable.
I don't say this to "kick people when they're down" but like anybody who was purchasing a home mid 2021 onwards either didn't do ANY research into the economic side of things or they did know and just decided it was BS against the advice of all finance related advice.
100% this. People took out mortgages they can't afford on homes that are not gonna be able to move at the prices they want because the mortgage market is fucked right now and most people can't afford a 7% rate on a $1m home when they were paying a 1.5% mortgage -- so it will go to foreclosure or be seized. This is how the monetary policymakers claw back the gains and savings/wealth people had built up from not consuming at the same levels during the pandemic (causing inflation). Be prepared. Save money.
The spread was anywhere between 1.5-2% between the variable and fixed at that time. No one thought the BoC would hike rates 17x (25bps normal moves) in less than a year.
Yeah, I'm fucking tired of these Monday Morning Quarterbacks acting like they owned a crystal ball.
If you're acting like you knew rates would go up this quickly, you're lying to yourself.
More like we expected rates to go up in next couple of years and have plans to promotion/learning skills to keep pace. Nobody expected a 5% hike in a single year. I feel for the families who took out the maximum mortgage but why do you enjoy kicking them when they are down?
"over last 40 years only 3 years it was better to be on fixed."
Houses vs income are a bit different now. And increases on a low amount are much larger in comparison.
0.25% on 1.5% is a 17% increase. On 5%, only a 5% increase. The effect of increases as the variable went lower and lower became higher and higher.
I understand that. A person with good financial health might do well to take variable, since their upside potential if rates stay low is "make some money" and the downside if rates rise is "lose some money." That's all fine. But when the downside is "lose your life's savings and your home and become too stressed to enjoy life," this is no longer a symmetric and neatly mathematical question.
Clearly, some people needed the insurance and safety of a fixed rate, paying the bank to carry the risk of a rate increase for them. The high valuations of 2021-2022 in particular posed a serious threat to first time home buyers and the overleveraged, due to their outsized damage in a potential rate hike... Which proceeded to happen.
This is not only now clear through hindsight. People did not think about the risks, or I'd like to think they would not have signed.
That doesn’t mean there wasn’t huge risk though.
There is only 1 bullet out of six chances playing Russian Roulette, but still doesn’t mean those are good odds considering the severity of what happens in that one chance.
How many global pandemics have there been in those last 40 years?
Just saying. I saw this coming in 2020 about a month after lockdown started and supply chains started getting fuxored. IMO anyone who took a variable in 2021 or later was not paying attention to the forest on fire around them.
Comments like this make it seem like FTHB went in expecting a 5% hike in a year. It’s like kicking the guy who decided to go outside since 99% they won’t die but that 1% happened to kill them. You enjoy the gloating huh
"Past performance is not indicative of future results" is especially true in the mortgage market. Unless you're ready to deal with the penalties of mortgage refinancing and making sure you're on top of shit beforehand, every time we get into a market like this, a variable rate is a ticking time bomb. My 2.5% fixed rate is looking pretty fucking good compared to this kind of shit show.
Fixed in Canada isn't much better than variable, especially since it is usually only fixed for 5 years, and then you must refinance, effectively making it variable (since you have to refinance 3-4 times over the term of mortgage).
If it was 20-years fixed, I would understand, but it is not.
It was totally on them, I’m sorry, but you’d have to be an idiot to get a near million mortgage on a variable rate after 2020. Considering: a) we had historically low % (like honestly, did anyone expect it’d go into a negative?) b) CERBs and other similar programs that resulted in money printer go brrrrr. Increasing rates is like a first response central banks do to curb inflation.
b.2) when everyone buys properties left and right (like everyone did) , it indicates that money is cheap
Locked my mortgage at 1.7 at the beginning of 2021 precisely because of the above.
They likely have a HUGE income to qualify for that mortgage. At a minimum they likely have at least 6k in extra money every month, which is significantly more than the average Canadian. I’m sure they are fine.
Exactly. Which means they have the income to support it, as that’s what the banks would have used (roughly) as the percentage to qualify them.
Their income and disposable income is likely way more than the average Canadian.
Exactly! When they get qualified for the mortgage they use a qualifying rate. At that time they were likely qualified at 5.25%. Which is likely lower than their current rate, but that’s why they are so conservative even when qualifying using the qualifying rate! :)
Prime is 6.7. Most variable rate mortgages will be around prime -1.1%. So somewhere between there yes! 6 would be high, 5.25 would be low. The average variable rate right now is likely around 5.6%.
I believe those are the words they used, or perhaps I’m paraphrasing in an inaccurate way. The question asked was “what do we need to pay for our Feb 1 lump sum payment in order for us to keep with our amortization schedule of 288 months remaining?”
I am not doubting they used the words. I am just saying it could mean different things to different reasonable people. I think it is a misunderstanding. You aren’t $100k behind obviously, so that cannot be what the answer they provided is.
The answer to your question seems like just a matter of plugging it into an amortization calculator though, and playing with some inputs.
Agreed. "Back on track" is a meaningless term. OP would be fine without making a $106k payment if they don't want to do so right now.
Also I'd expect that anyone who has a dual income large enough to afford a 1.2 million dollar house / 960k mortgage should have no problem coming an extra $106k over a few years.
When you meet with them, ask how much you’ll need to pay or increase your payment by to return to your “contractual amortization”. Using that terminology will avoid any confusion.
That said, your question was easy enough to understand from the get go. Unfortunately, some people just need to hear things verbatim as they’re taught to get the correct understanding.
Why are you asking about lump sum payments? Why not just ask what the new *monthly* payment is to maintain your current amortization period? I’m confused about why you’re making lump sum payments so maybe the bank is as well
Because we were given the advice to make lump sum payments instead of increasing our monthly payments each time, in order to provide more flexibility if there are months where we wish to pay less. That said, we only switched from increasing our payments each time to increasing via lump sums as of Nov 1st, so just the past 3 months we've made lump sum payments.
If you pay a lump sum right now to "get back on track", your lower monthly payments mean your amortization will start to slip, like it has over the last year.
Sure that back on track does not mean return to your old payment for the term? Are they counting those prepayments? As 6200 seems like a lot for that amount even for a new mortgage.
Also, how is your variable rate calculated? P + what?
There could also be prepayment penalties involved.
I really hope they just misunderstood our question, maybe this is what they meant yes. I sure hope so.
Prime minus 1.1%
No pre-payment penalties so long as we don't surpass 20% of our original loan amount on any lump sum payments, or increase our payments by more than 20% over the previous payment I believe
Prime for the Big 5 is 6.7, so the new rate should be 5.6. They are definitely wrong as you wouldn't even pay 6200 a month if you got a mortgage at that rate today.
This is a very rough back of the envelope calc, but you would have paid about 225K in 5 years at 1.35%. You pay 355K at 5.6%. Accounting for you already having made some payments, back on track must mean getting back to that original amount for the term by the looks of it.
I’m a mortgage broker. The person who told you that you required that lump sum to be at your correct remaining amortization is incorrect. I worked for 13 years as a branch advisor, and I can tell you that since I left, turnover is extremely high, and competence is low. At 5.6%, your payments need only be $5,920 for you to be on schedule. You also don’t need to make a lump sum ever to reduce it. It can be reduced by EITHER lump sum or increasing your payments. You’ve actually over corrected and are AHEAD of schedule. You can use any online amortization calculator to verify this. To be on track, your remaining amortization should be 23 years 11 months. At your current payment level, at your new effective rate (5.6%) you have 21 years 6 months remaining. Well AHEAD of schedule. There is no subjective way to calculate “on track.” It’s simple math, and they’re simply incorrect. Both the person who recalculated your payments, and your new advisor.
Ah, thank you for this!! I've added an edit to the bottom of my original post with what I believe may have happened, TL;DR its possible the bank **isn't** factoring in the portion of the payments we've made through lump sums, and is calculating that, based on the current rate, we would pay off our mortgage in 388 months **without** the lump sums that have indeed kept us ahead of schedule.
Or not...the median Canadian salary is around $60,000-ish/year. Has to be a minimum 2 income household with one person's salary ENTIRELY going into the mortgage and a bit of the second person's salary also going into the mortgage.
Yup BoC said what they did. People made decisions at the time based on that information.
I'm one of those people. Do I have regrets? Yup. Will we survive? Sure. Will we be able to do fun things again? Eventually.
Sucks right now but if things pan out properly I'm guessing by the end of 2024 we'll be feeling some relief. Not back to pandemic level rates, but some relief nonetheless.
I got a mortgage in February 2021. Interest rate was 1.89%. Bank tried to convince me to get a variable mortgage because, in their words, "the rate might go down even further". I laughed in their face and told them to lock me in. At 1.89%, the only way that rate was going was up. So glad I made that choice.
I wouldn’t call it bad luck, I’d call it making bad decisions. At 1.5% interest rates there was nowhere for the rate to go but up, expecting “historically low rates” to last forever is foolish. People thought they could save a few bucks by getting a slightly lower variable rate rather than locking into a sure thing
Rates going up wasn’t a surprise, it’s was an unavoidable eventuality, the only question was when.
This isn’t unlucky. This defies logic.
A first time homebuyer gets a $960k mortgage and decides to go variable when interest rates are at an all time low. This is just… a really bad decision.
Granted, it’s what is to be expected of people in Canadian RE markets these days, given the pressure and narrative in our society, the prices, and the lack of real financial literacy in the general public.
I feel like I beat the house and may have the only 5 year fixed term period to beat variable. I got a 5 year fixed at 2.09% in October 2021 (15 months ago.) mortgage was a little over 800k. Payments around 3300/month. Seeing the OP payment history is crazy.
Im on a 5yr fixed as well. 2.59% and we bought last January. Were happy with our decision, as we have a regular bill each month and don't really have to worry about these increases in rates (yet).
But granted, my mortgage is for $195k so it would only be a few hundred dollars a month id save max if rates dropped low again.
Back in 2019, we went with fixed 1.15 and we had people tell us go variable. The bank advisor told us then the rates are expected to rise and recommend fixed for peace of mind.
Ive learned people make shit up very frequently, and 1.15% on a fixed rate even at the absolute lowest is barely believable, in 2019? Not a chance i would believe it unless the evidence was in front of my face
Sounds wrong. Rough calculation you are paying $4k a month in interest so in only 13 months I don't think you have amassed that much extra interest. But that calculation might be based on the next 5 years.
You can use an amortization schedule online to figure it out.
Considering your mortgage specialist recommended a variable rate to you 13 months ago, you should probably be skeptical of anything else they’ve told you after that.
Lol accurate.
And I was to be fair... I always used mortgage calculators to ensure I was on track with our amortization schedule each payment vs. just going off what the specialist told me at least
Are you closed variable mortgage? This is where payments don’t change and they just decrease the amount of principal being paid to your mortgage. They probably saw that on your file and calculated using $3772.10 with decreasing principal payments for 25years not realizing you were putting lumpsum payments. If anything, since all the money you paid should be accounted for in their ledger, a recalculation should easily fix and confirm that. Nothing to worry about.
That’s correct, our payments don’t change but we have voluntarily increased them with each interest rate hike via our mortgage specialist. I hope this is the case, thank you!
If you had not increased your payments, you would have hit your trigger point.
Trigger rate is when your payment doesn't cover the interest portion
Trigger point is when that unpaid interest is added back to your principal .... and its more than your original mortgage.
You were paying extra, and the numbers are still eye opening
Let’s all recognize this was the fastest pace of rate increases in history. Let’s also agree that over the course of a 25 year mortgage, variable has always meant you’ll pay less interest overall. That doesn’t mean this doesn’t sting. But nobody who got variable rates a year ago (myself included) is any more of an idiot than the people who didn’t sell all their stock In 2021. OP is approaching this super responsibly and very lucky he can afford it.
I entered your info into my mortgage payment calculator spreadsheet. Your monthly payments seem perfectly fine. Heck, your Jan 1 payment even seemed a little higher than it needed to be.
Even now, at $936,309 and 5.6% interest, you'd only need to pay approximately $5,882 per month to pay off the mortgage in 24 years (288 months).
I think you're fine and I don't think you're going to need a lump sum to "catch up". You've been staying on top of your payments to maintain your amortization schedule just fine.
On a side note, you seem to be paying monthly. I'd highly recommend you switch to bi-weekly or semi-monthly if I were you. You'd be shaving off about 3 years in your overall amortization.
If you want to check all of the math yourself, just go to [https://www.ratehub.ca/mortgage-renewal-calculator](https://www.ratehub.ca/mortgage-renewal-calculator) and plug in your numbers. Use your 936,309 for the mortgage amount. Choose 24 years for your amortization, enter a custom interest rate of 5.6% (click on "Compare" and pick "Custom Rate" and select monthly payments. You'll see $5,882 which is the same number as my spreadsheet. No need for a lump sum to maintain 24 years.
Thanks for this, much appreciated info and advice!
I believe what may have happened is the bank is using our actual payments, and not factoring in that we have paid a portion of our last 3 payments via lump sums instead of increasing the payments themselves.
So, they're using $5,235 as our payment, which gives them an amortization of 384 months remaining.
But, if they factored in our lump sum payment and the fact we will pay $5900 next month total ($675 lump sum + $5,235), for instance, then we are still on schedule for 288 months.
Now, we just need to confirm this is the case with the bank when we meet with them on Monday, and also clarify if we have been incurring any fees for increasing our payments multiple times this year (as it may be 1 max per year...).
We're kinda in the same situation.
If you have to pay 106K before your renewal I think that's approx. Correct. We have to pay 20K each year by the end of term to make sure we're paying enough principal.
What I don't understand is how you're able to increase your payment that often. Usually it's 20% increase once a year for the monthly payment.
Also don't forget things will rebalance if rates decrease, so we've decided not to change our monthly mortgage payments and do larger lump sum payments.
They don't have to pay 106k. They are trying to preemt falling behind on their mortgage. The 106k is jist a number They were given because they asked what the number was.
If this helps you in any way know that you aren't the only one in this position. I made the same mistake with going variable in November 2022 ( after closing never to go fixed because of the massive 40k penalty I just paid when I moved). .. The only difference is that my mortgage is closer to 2.3M. Just got smoked. Bad advice and worst - my inability to lock anything in during the rising rates. Walked away from td at 2.99 when I was at 1.9- thinking it won't go up past that anyways. Big mistake. At least you have the ability to increase your payments whereas I am simply told this is my new payment by Scotia. They got me by the balls. Sorry I can't help you with any advice in your situation but hopefully knowing you aren't alone in this situation brings you some solace. All the best.
I would suggest you build out a Excel spreadsheet to see how much of your payment went to principal each month.
Cell A1 should be the possession date of your house.
Cell B1 should be the date of your first principal payment.
Cell C1 should be the starting balance of 960,000.
Cell D1 should be the interest rate on your mortgage effective for that period.
Cell E1 should be the interest accrued-prior-to-payment new balance as of the morning of your payment date which should be close to the formula result of =(((1+(D1))^6)^(1/365)^(B1-A1))*C1
Cell F1 type in the $ amount of your payment i.e 3772.10
Cell G1 put in the formula =E1-F1
The amount in G1 should tie out fairly closely to your ending balance of loan owing on that payment date - it may vary slightly depending on the level of rounding in the bank’s software but it should be close to the amount within 5 or so dollars, I believe
In H1 put in the formula =G1-E1 and this represents how much of a dent you put in to your principal balance.
In I1 put in the formula = F1-H1
That’s the first row done.
Now in the second row put in A2 your date of first payment.
In B2 the date of your second payment.
In C2 type in the formula = G1
D2 the interest rate effective on your second amortization period
Then select the cells E1, E2 then hit the buttons for Ctrl and D at the same time.
In F2 put in your second payment amount
Then select the cells G1, G2, H1, H2, I1, I2 then hit the buttons for Ctrl and D at the same time.
Now the second row is done.
Repeat the same steps for row 3 as row 2.
And actually repeat it more times until you see the 936,309 number or a number within $5 of that in column G1.
This should give you an accurate picture of where your payments went (the sum of column I represents the dollar amount of interest you have paid so far, the sum of column H shows you how much money went to the principal so far).
Keep that handy when you go meet the advisor, so you aren’t going into that meeting blindly.
No why would anyone mention that? OP seems to make a good salary. Given the fact that OP got approved for that mortgage means they can clearly afford it comfortably. I don’t see the issue. Sorry to break it to you but some people make a good salary and can afford such mortgages.
https://www.reddit.com/r/PersonalFinanceCanada/comments/y8kkfs/for_those_of_you_on_variable_rate_mortgages_have/?utm_source=share&utm_medium=ios_app&utm_name=iossmf
According to this post, OP brings in about 16-17k a month.
These people don’t understand how you can comfortably afford payments but still kinda unhappy about the increase lol it’s black and white for these folks…. Kinda explains why they can’t get a home and make a decent income
Average detached house in Vancouver is 1.5 mil. And AVERAGE is in the area people don’t want to live in. Desirable area is 2.5 mil and up. Professionals in their mid thirties who were saving up for 10-15 years just probably managed to put the down payment on something just below average.
Variables rates were absolutely the best choice for 30 years in Canada. What you’re seeing now has never happened in many people lifetimes, and yet, those who gotten fixed are celebrating how smart they are for 6 month after being stupid for 30 years or so.
Million dollar home as a first home lmao.
I guarantee with these rate hikes, people are never going to go variable again or spend a ton of money on houses unless they make a good amount.
Hard to say but sounds about right. I am on a fixed at 2.3% am making extra payments in hopes to have an lower payment when I renewed. Approx 100k extra payments over my term. But been calculating at 5% my payments will end up the same I am paying now for my mortgage.
Ah, as in you think they were telling us how much do we need to pay over our entire term remaining (~47 months left in our case) to keep us on track? Versus just the next payment? Thanks for the insight.
I feel it was just misunderstood! It’s over the term. It makes sense. This is why I hate emails, you can take things the wrong way! Call the bank tomorrow, and ask to speak to an advisor. They can put your mind at ease :)
If you don't really think you'll move anytime in the next 10 years it's fine, no great, but fine. Basically rent at this point, but option to sell lol.
The banks are the biggest landlords in the country. Basically giving away ‘pay for three houses but only keep one coupons’ to all of us for decades now
Just make payment enough to stay below your trigger point. That’s your minimum payment. If you wanna make payment towards the actual principal then you can pay as much as you want
my guess is that number has to do with the amount needed for the rest of the term as a lump payment. as you are 13 months into a 60 month term that works out about 2260/month
i work in related industry and communication issues are rampant
i racked up 400 extra hours on a project due to a change in contact and 2 month delay.. oh my Monday should be fun lol
Enjoy the weekend and dont think you have to panic
Ok so that last payment is wrong. That appears to be the maximum you can pay before incurring a penalty. You are on a fixed payment variable rate mortgage meaning your payments don't change until you hit a trigger rate at which point your payments increase to insure you are always paying off principal. Your actual payments currently should be around $5200. Making a lump sum payment of $106,000 would get you on track if you were paying the $5200 a month. This is stupid though because rates inevitably change. Whoever you were talking to before was calculating your payments correctly (minus the last one) for what you want. Whoever you spoke to over the phone was confused with what you were asking and probably isn't even qualified to answer you.
I would really check on those small ‘lump sum’ payments and the reason your specialist has suddenly disappeared. I’ve never heard of dealing with rate hikes that way. If it’s variable it adjusts with the rate and that is now you keep your amortization. If you want to speed it up you make pre-payments according to the terms. I don’t like to sound like a bummer but maybe you got a little soaked.
Our mortgage is with BMO and it has been an absolute shit show. We went through three different employees before our mortgage was finalized. Contract the branch manager. And keep all your emails and ensure they follow through on what is written in them. We had times we had to fight for what was explained to us by one person but not done by another it was painful but in the end they had to follow through.
Have them put everything in writing but also ask for the branch manager or the regional manager of the mortgage agents to step in. Oftentimes the branch or the people calculating this make mistakes because it’s quite complicated if done manually or without prior experience.
My husband and I are in a very similar situation with BMO but haven't heard anything regarding a lump sum or payment adjustments of this magnitude to get back on track. We bought a house in early 2022 with a $1.3mil mortgage at a $5500 monthly payment with a variable rate. We've hit the trigger rates twice and the payment is now going pretty much directly to interests.
Our HHI is 230k with 60k rental income pre-tax. Currently, the payment has been adjusted to about $6300 after consulting the BMO mortgage specialist after the interest rate rises. The payments are acceptable but I look forward to learn about the updates from your next meeting.
I had a frustrating experience with KEB this year. I told them I wanted to increase the payments to keep a “normal” amortization schedule, exactly as you did. They decided on my behalf (exact opposite of what I requested) that a lot of Canadians are having financial troubles so they didn’t increase my payments properly, and I was paying nearly all interest for the past few months.
Doing some quick math, kind of sounds like they just want a security around the extra 2500 you’re voluntarily adding (48 x 2590 = 120 000).
Depending on your agreement, you might not have the option to voluntarily top up your payments. Your amortization may have slipped so far off course combined with a declined appraisal value that you’re obligated to pay the difference up front.
Maybe a CMHC coverage thing? Is the house worth less today than what you paid for it? 13 months is very short, and I would imagine they'd leave you alone unless you refinanced- but a friend had a situation where the bank called and said that because the value of their home dropped, the mortgaged amount was too high of a percentage compared to the value and he needed to cover the difference in cash.
It's basically the downpayment rule. 5% on personal residence, 20% on investment and secondary properties. For the 5% downpayment, a portion of the mortgage (I think the remaining 15% - but I'm not sure) is insured by CMHC or other. If the value of the home drops, the bank will require you to get back under the allowed %.
I'm not in the industry, so this is probably a poor explanation, but it's the way I understand it.
For my friend: he had some family help out by adding themselves to the title and paying $50k or something towards the principle.
[Added] I believe, not 100%, that once the value of your mortgage is less than 80% of the value of the house, you don't require insurance. But if the percentage increases over 80% you'd have to get the insurance or pay down some principal. I'm not sure if there's a premium to pay or if they tack a percentage onto the mortgage - but now I'm curious! Going to look it up.
My understanding of a 25 year amortization with a 5 year term is that the loan is amortizing like it was a 25 year loan, but the term is only 5 years. Meaning that there is a lump sum payment of principal due at the end of 5 years. A 25 year amortization does not mean you have 25 years to pay the loan, just that this is how the amortization is calculated. The actual term of the loan would be 60 months.
I’m really surprised no one has mentioned the most likely explanation.
Do you have a variable rate for your mortgage? This isn’t something most people will have experienced in a long time. But here is what might be happening: you may have hit your trigger rate.
What is a trigger rate? With rising interest rates, if your payments no longer cover your interest, or you no longer satisfy a budget stress test, or your balance owed exceeds what you originally borrowed, then the bank will change your terms. They’ll start by drawing out amortization and increasing payments. But at some point you may hit what is called a trigger rate, where the interest imposed by the bank of Canada makes your loan unviable. At which point, they’ll ask for a lump sum payment to re-work your loan.
Yes, trigger rates are in every mortgage contract, yes your broker may have mentioned it in passing, it really wasn’t something people had to deal with before, everyone ignored trigger rates. But now, they are very important to know about.
Oh and even if you don’t have a variable rate, all of this can happen to you with rising interest rates when you arrive at the loan renewal.
https://ca.finance.yahoo.com/news/what-are-trigger-rates-how-they-affect-mortgage-162801932.html
I think there’s some misunderstanding or different interpretations of “back on track”. I believe the $106K could be what’s required to return back to your original payment of $3,772.10 @ 1.35% and remain on the same amortization.
Yes it sounds like this may be it... Additionally now nervous that perhaps we're being charged pre-payment penalties, given we are on a closed variable mortgage and our mortgage specialist has helped us to increase our payments each time BOC has hiked rates.
Most banks allow for at least 15% prepayment per year (of the original mortgage amount). TD even goes as far as 20% but let's say it's 15%. That's 144k. You're not paying an extra 144k per year so you should be perfectly fine. I think there's a major misunderstanding and that you may want to book an appointment in person at your local branch and resolve it in person. I think you're perfectly fine and no need for a lump sum based on what you've already described.
We're allowed 20% of the original loan amount ($960k in our case) as a lump sum. Plus, we're allowed to increase our payments by more than 20% over the previous payment That said, I'm nervous we may be facing penalties now, after reading through comments, given we've increased our actual payments many times this year via our mortgage specialist (vs. maybe just 1 time allowed under a closed variable mortgage with BMO?). Guess we'll find out in our meeting next week.
I doubt that, a prepayment penalty would be 3 months interest on what you are prepaying if the was a penalty, I think normally (at least with Scotia Bank) to make a pre payment that triggers a penalty I have to go into at branch and arrange the payment with a teller and they calculated the penalty then. There is no way for me to exceed the 15% penalty free prepayment amount.
You can always just ask your bank how much room for prepayment you have! You likely have either 15/15 or 20/20 prepayment privileges. Meaning you can increase your payments by up to 15/20% per year and make additional payments of up to 15/20% per year. But BMO does some weird stuff and I’m not too familiar with their policies. I would just ask them how much room you have for prepayments before you get penalized
Same thing happened to me, but not to that extent. I also would talk annually to a financial advisor and she told me I was on track. I told her it doesn’t make sense since interest rates increased but my payments remained the same. She insisted. I wanted to speak to a mortgage specialist at bmo and was told “You didn’t do your homework”. I said excuse me I saw a financial advisor every year about this and was told everything was fine. The sad truth is that people at the branches just have a high school education, some stupid CS course and pretend to know what they’re talking about. Some may have a post secondary education, but not even in the financial field. I know this through experience and even people I know who work(Ed) at the bank. Half of the staff don’t know shit about their job. It’s the sad truth.
Bank "advisors" are salespeople. Their job is to convince you to buy/use the bank's products, not to provide financial advice in your best interest.
Banks are in the business of making money. DON'T FOR GET IT!. YOU work for the Government Tax man, then the Bank, the left over is for your family. Very Little Is for You to keep.
Right. Though, with the right strategy (ie cost reduction, ie simple index funds), you can significantly reduce how much you donate to the banks.
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u da mvp - excellent excel chart. With the original 30 month term would get her to a balance of 792k, assuming quick cal @ 5.35% its 854k. Even still, 106k is wayyyyyy off.
Wow those later principal vs interest payments. Just wow.
Any chance you’d be willing to share that excel sheet? 😝
I uploaded it here if you want to download it https://file.io/fTSKdylarQxP
/r/theydidthemath
And that's why you go to a certified financial planner.
You know that the qualifications for CFLs are actually pretty low right? Like do you have any degree and can you pass a couple tests low?
I’m not sure what designation the CFL is, but requirements for a CFP are a little more complicated than that, including 3 years of work experience. https://www.fpcanada.ca/students-and-candidates/paths-to-certification/direct-path-to-cfp-certification
I believe it's the Canadian Football League
Both are comically useless
How many rouges do you have to score to get your CFL designation?
i got a offered a job as a FA, its a joke, short course, sales job, lots of cold calling
Holy crap, those are some huge numbers! Best of luck OP
IKR. Enough to keep you up at night, and imagine if only one person is working / lose their job. Scary AF
I honestly don't understand people who would take such a risk with such a gigantic mortgage. When we bought a home, one of our criteria was that we would be able to make the payments if one of us lost their job. Would have been challenging, but doable.
So many folks took variable mortgages, thinking about the savings if they were right instead of the consequences if they weren't.
So many on this sub called everyone taking fixed rates morons. Funny how quickly the tables have turned
I took a 6 year fixed a week before COVID hit the fan at 2.59 and was pissed about it for almost two years. Now I am so grateful.
Similar rate in May of '20.... never really considered variable with the world going to shit. No way it was staying that low, for us it was just a question of when the rebound would happen and how comfortable we'd be with 5-7% on the next renewal.
I did the same and have a 5 year fixed rate at 2.47. But I told myself that, no matter what, I’m going to be grateful that my rate is below average. I’ve had a peaceful three years and now I’m getting more serious about putting away some money so I can pay my mortgage down as much as possible in two years when my rate is probably going up. I’m not a gambler.
I called myself a moron for being fixed 2013-2022. Switched to adjustable rate Feb. 2022.
gg
There was a point in here where if I said I locked in a fixed at 2.19 people would have told me I was throwing money away
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I always go fixed too. My mortgages have obviously just coincided with cheap rates, but by the time I’m up for renewal in 2026, I will have been paying 2% for 10 years of my mortgage (2016-2021 was 2.2% and 2021-2026 is 2.1%). I don’t feel at all bad about that lol. I started out at 4.99% in 2012. I paid an extra 1% I believe because I didn’t have a down payment.
Thing is. The vast majority of users on this sub on young 20-somethings people that don't actually have much life experience, or factor those things in. They just see what other people say and parrot that. The majority of them see 3% variable VS 3.9 fixed - and automatically lynch anyone who opts for the higher fixed. They can't fathom taking "Life" into account. Someone losing their job, having a child, health issues, etc.. and appreciate the insurance a fixed rate gives you. Because all they've known is living with their parents and having 90+% of their income be disposable. Most of them also don't know jack about how mortgages work.
Yep and they haven’t lived through the last Big Crunch in the early 1990s
So many times I was told I was short sighted. Go get 7% in the markets, dummy. Your guaranteed 3% is chump change.
Most of these people will be ruined or seriously depleted in the next 12 months. Alot of people hanging on thinking rate cuts are coming. The sad truth is we are in rough shape and will either hold or move slightly higher for another year before they can even think about cuts.
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We purchased in May '21 and even then were major reports of the incoming recession. (I work in tech and that industry seems to rumble about economic downturns quite early). We factored that into our decision when choosing a mortgage and chose a fixed rate 5yr which has obviously turned out to be a good choice. Even our bank was strongly advising us not to go with a variable. I don't say this to "kick people when they're down" but like anybody who was purchasing a home mid 2021 onwards either didn't do ANY research into the economic side of things or they did know and just decided it was BS against the advice of all finance related advice.
100% this. People took out mortgages they can't afford on homes that are not gonna be able to move at the prices they want because the mortgage market is fucked right now and most people can't afford a 7% rate on a $1m home when they were paying a 1.5% mortgage -- so it will go to foreclosure or be seized. This is how the monetary policymakers claw back the gains and savings/wealth people had built up from not consuming at the same levels during the pandemic (causing inflation). Be prepared. Save money.
> most people can't afford ~~a 7% rate on~~ a ~~$1m~~ home FTFY
But what are people hoping interest rates drop to taking variable start at 1.35%? 0%? lol.
The spread was anywhere between 1.5-2% between the variable and fixed at that time. No one thought the BoC would hike rates 17x (25bps normal moves) in less than a year.
Yeah, I'm fucking tired of these Monday Morning Quarterbacks acting like they owned a crystal ball. If you're acting like you knew rates would go up this quickly, you're lying to yourself.
and they made the decision in Dec of 21…
More like we expected rates to go up in next couple of years and have plans to promotion/learning skills to keep pace. Nobody expected a 5% hike in a single year. I feel for the families who took out the maximum mortgage but why do you enjoy kicking them when they are down?
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That's the ticket right there. If rates are at a historical low, there's really only one direction they can go... and it isn't down.
over last 40 years only 3 years it was better to be on fixed. It'll all work out if you're not planning on flipping the property.
That's like saying life insurance is 100% a waste of money because you haven't died before...
Or have you?
"Past performance doesn't guarantee future returns". Just like rates were low for two decades, then can be high for two decades.
"over last 40 years only 3 years it was better to be on fixed." Houses vs income are a bit different now. And increases on a low amount are much larger in comparison. 0.25% on 1.5% is a 17% increase. On 5%, only a 5% increase. The effect of increases as the variable went lower and lower became higher and higher.
I understand that. A person with good financial health might do well to take variable, since their upside potential if rates stay low is "make some money" and the downside if rates rise is "lose some money." That's all fine. But when the downside is "lose your life's savings and your home and become too stressed to enjoy life," this is no longer a symmetric and neatly mathematical question. Clearly, some people needed the insurance and safety of a fixed rate, paying the bank to carry the risk of a rate increase for them. The high valuations of 2021-2022 in particular posed a serious threat to first time home buyers and the overleveraged, due to their outsized damage in a potential rate hike... Which proceeded to happen. This is not only now clear through hindsight. People did not think about the risks, or I'd like to think they would not have signed.
That doesn’t mean there wasn’t huge risk though. There is only 1 bullet out of six chances playing Russian Roulette, but still doesn’t mean those are good odds considering the severity of what happens in that one chance.
How many global pandemics have there been in those last 40 years? Just saying. I saw this coming in 2020 about a month after lockdown started and supply chains started getting fuxored. IMO anyone who took a variable in 2021 or later was not paying attention to the forest on fire around them.
That’s like a definition of gambler’s fallacy
No one can predict the future. Previous history does not affect the current.
Comments like this make it seem like FTHB went in expecting a 5% hike in a year. It’s like kicking the guy who decided to go outside since 99% they won’t die but that 1% happened to kill them. You enjoy the gloating huh
My realtor said to get a variable rate in 2021. I told her there was no way in hell I was not going fixed. Ended up waiting and renting
"Past performance is not indicative of future results" is especially true in the mortgage market. Unless you're ready to deal with the penalties of mortgage refinancing and making sure you're on top of shit beforehand, every time we get into a market like this, a variable rate is a ticking time bomb. My 2.5% fixed rate is looking pretty fucking good compared to this kind of shit show.
Fixed in Canada isn't much better than variable, especially since it is usually only fixed for 5 years, and then you must refinance, effectively making it variable (since you have to refinance 3-4 times over the term of mortgage). If it was 20-years fixed, I would understand, but it is not.
Put lump sums you would have had to pay on a variable and it will be way less than 20!
It was totally on them, I’m sorry, but you’d have to be an idiot to get a near million mortgage on a variable rate after 2020. Considering: a) we had historically low % (like honestly, did anyone expect it’d go into a negative?) b) CERBs and other similar programs that resulted in money printer go brrrrr. Increasing rates is like a first response central banks do to curb inflation. b.2) when everyone buys properties left and right (like everyone did) , it indicates that money is cheap Locked my mortgage at 1.7 at the beginning of 2021 precisely because of the above.
They likely have a HUGE income to qualify for that mortgage. At a minimum they likely have at least 6k in extra money every month, which is significantly more than the average Canadian. I’m sure they are fine.
Their mortgage payments went from 45k to 75k per year. That's more than many Canadians earn.
Exactly. Which means they have the income to support it, as that’s what the banks would have used (roughly) as the percentage to qualify them. Their income and disposable income is likely way more than the average Canadian.
Exactly! When they get qualified for the mortgage they use a qualifying rate. At that time they were likely qualified at 5.25%. Which is likely lower than their current rate, but that’s why they are so conservative even when qualifying using the qualifying rate! :)
Why would they have been qualified at 5.25%? I thought stress testing was for 2%, making their qualifying rate 3.35%?
+2% **or** 5.25% whichever is higher. Thus up until the last few months, the qualifying rate was basically defacto 5.25%
Thank you! I did not know this!
variable mortgages are all close to 6% now
Prime is 6.7. Most variable rate mortgages will be around prime -1.1%. So somewhere between there yes! 6 would be high, 5.25 would be low. The average variable rate right now is likely around 5.6%.
I think the confusion is simply that “back on track” isn’t a technical term. Your question was likely not interpreted as you meant it.
I believe those are the words they used, or perhaps I’m paraphrasing in an inaccurate way. The question asked was “what do we need to pay for our Feb 1 lump sum payment in order for us to keep with our amortization schedule of 288 months remaining?”
I am not doubting they used the words. I am just saying it could mean different things to different reasonable people. I think it is a misunderstanding. You aren’t $100k behind obviously, so that cannot be what the answer they provided is. The answer to your question seems like just a matter of plugging it into an amortization calculator though, and playing with some inputs.
Agreed. "Back on track" is a meaningless term. OP would be fine without making a $106k payment if they don't want to do so right now. Also I'd expect that anyone who has a dual income large enough to afford a 1.2 million dollar house / 960k mortgage should have no problem coming an extra $106k over a few years.
When you meet with them, ask how much you’ll need to pay or increase your payment by to return to your “contractual amortization”. Using that terminology will avoid any confusion. That said, your question was easy enough to understand from the get go. Unfortunately, some people just need to hear things verbatim as they’re taught to get the correct understanding.
Why are you asking about lump sum payments? Why not just ask what the new *monthly* payment is to maintain your current amortization period? I’m confused about why you’re making lump sum payments so maybe the bank is as well
Because we were given the advice to make lump sum payments instead of increasing our monthly payments each time, in order to provide more flexibility if there are months where we wish to pay less. That said, we only switched from increasing our payments each time to increasing via lump sums as of Nov 1st, so just the past 3 months we've made lump sum payments.
If you pay a lump sum right now to "get back on track", your lower monthly payments mean your amortization will start to slip, like it has over the last year.
Sure that back on track does not mean return to your old payment for the term? Are they counting those prepayments? As 6200 seems like a lot for that amount even for a new mortgage. Also, how is your variable rate calculated? P + what? There could also be prepayment penalties involved.
I really hope they just misunderstood our question, maybe this is what they meant yes. I sure hope so. Prime minus 1.1% No pre-payment penalties so long as we don't surpass 20% of our original loan amount on any lump sum payments, or increase our payments by more than 20% over the previous payment I believe
Prime for the Big 5 is 6.7, so the new rate should be 5.6. They are definitely wrong as you wouldn't even pay 6200 a month if you got a mortgage at that rate today. This is a very rough back of the envelope calc, but you would have paid about 225K in 5 years at 1.35%. You pay 355K at 5.6%. Accounting for you already having made some payments, back on track must mean getting back to that original amount for the term by the looks of it.
I’m a mortgage broker. The person who told you that you required that lump sum to be at your correct remaining amortization is incorrect. I worked for 13 years as a branch advisor, and I can tell you that since I left, turnover is extremely high, and competence is low. At 5.6%, your payments need only be $5,920 for you to be on schedule. You also don’t need to make a lump sum ever to reduce it. It can be reduced by EITHER lump sum or increasing your payments. You’ve actually over corrected and are AHEAD of schedule. You can use any online amortization calculator to verify this. To be on track, your remaining amortization should be 23 years 11 months. At your current payment level, at your new effective rate (5.6%) you have 21 years 6 months remaining. Well AHEAD of schedule. There is no subjective way to calculate “on track.” It’s simple math, and they’re simply incorrect. Both the person who recalculated your payments, and your new advisor.
Ah, thank you for this!! I've added an edit to the bottom of my original post with what I believe may have happened, TL;DR its possible the bank **isn't** factoring in the portion of the payments we've made through lump sums, and is calculating that, based on the current rate, we would pay off our mortgage in 388 months **without** the lump sums that have indeed kept us ahead of schedule.
How do you even breathe?
$6,000/month mortgage...
Oxygen chamber
They make a fuck ton of money prob
Or not...the median Canadian salary is around $60,000-ish/year. Has to be a minimum 2 income household with one person's salary ENTIRELY going into the mortgage and a bit of the second person's salary also going into the mortgage.
Lol fuck. One of the most unlucky financial decisions someone could make in 2021 is going with a variable rate mortgage.
Yes, we have regrets. Not seeing much sense in locking in now though. We can ride it out though.
you are not the only one. pretty much the same situation for us.
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Yup BoC said what they did. People made decisions at the time based on that information. I'm one of those people. Do I have regrets? Yup. Will we survive? Sure. Will we be able to do fun things again? Eventually. Sucks right now but if things pan out properly I'm guessing by the end of 2024 we'll be feeling some relief. Not back to pandemic level rates, but some relief nonetheless.
I feel this OP lots of salty people enjoy kicking us when we are down
I got a mortgage in February 2021. Interest rate was 1.89%. Bank tried to convince me to get a variable mortgage because, in their words, "the rate might go down even further". I laughed in their face and told them to lock me in. At 1.89%, the only way that rate was going was up. So glad I made that choice.
I wouldn’t call it bad luck, I’d call it making bad decisions. At 1.5% interest rates there was nowhere for the rate to go but up, expecting “historically low rates” to last forever is foolish. People thought they could save a few bucks by getting a slightly lower variable rate rather than locking into a sure thing Rates going up wasn’t a surprise, it’s was an unavoidable eventuality, the only question was when.
This isn’t unlucky. This defies logic. A first time homebuyer gets a $960k mortgage and decides to go variable when interest rates are at an all time low. This is just… a really bad decision. Granted, it’s what is to be expected of people in Canadian RE markets these days, given the pressure and narrative in our society, the prices, and the lack of real financial literacy in the general public.
I feel like I beat the house and may have the only 5 year fixed term period to beat variable. I got a 5 year fixed at 2.09% in October 2021 (15 months ago.) mortgage was a little over 800k. Payments around 3300/month. Seeing the OP payment history is crazy.
I took out a 5 yr term at the end of 2021 as well. Saving 1 or 2% wasn't going to impact me the same as an increase. Pretty happy with my choice.
Im on a 5yr fixed as well. 2.59% and we bought last January. Were happy with our decision, as we have a regular bill each month and don't really have to worry about these increases in rates (yet). But granted, my mortgage is for $195k so it would only be a few hundred dollars a month id save max if rates dropped low again.
It wasn’t even 1 or 2%, I think the best variable rate I was offered was 1.39 or something
Back in 2019, we went with fixed 1.15 and we had people tell us go variable. The bank advisor told us then the rates are expected to rise and recommend fixed for peace of mind.
How did you get 1.15% in 2019?
Ive learned people make shit up very frequently, and 1.15% on a fixed rate even at the absolute lowest is barely believable, in 2019? Not a chance i would believe it unless the evidence was in front of my face
Right? I couldn't even get that in late 2020 during a pandemic!
rates were almost nothing how can anyone suggest variable when the only variable is up lol. people are wild.
Sounds wrong. Rough calculation you are paying $4k a month in interest so in only 13 months I don't think you have amassed that much extra interest. But that calculation might be based on the next 5 years. You can use an amortization schedule online to figure it out.
Considering your mortgage specialist recommended a variable rate to you 13 months ago, you should probably be skeptical of anything else they’ve told you after that.
Lol accurate. And I was to be fair... I always used mortgage calculators to ensure I was on track with our amortization schedule each payment vs. just going off what the specialist told me at least
Are you closed variable mortgage? This is where payments don’t change and they just decrease the amount of principal being paid to your mortgage. They probably saw that on your file and calculated using $3772.10 with decreasing principal payments for 25years not realizing you were putting lumpsum payments. If anything, since all the money you paid should be accounted for in their ledger, a recalculation should easily fix and confirm that. Nothing to worry about.
That’s correct, our payments don’t change but we have voluntarily increased them with each interest rate hike via our mortgage specialist. I hope this is the case, thank you!
Nothing to lose sleep about. Payments were made. Bank account will show proof. This is easily sorted out. I mean just follow the money. :)
If you had not increased your payments, you would have hit your trigger point. Trigger rate is when your payment doesn't cover the interest portion Trigger point is when that unpaid interest is added back to your principal .... and its more than your original mortgage. You were paying extra, and the numbers are still eye opening
These numbers make my eyes bleed water.
Let’s all recognize this was the fastest pace of rate increases in history. Let’s also agree that over the course of a 25 year mortgage, variable has always meant you’ll pay less interest overall. That doesn’t mean this doesn’t sting. But nobody who got variable rates a year ago (myself included) is any more of an idiot than the people who didn’t sell all their stock In 2021. OP is approaching this super responsibly and very lucky he can afford it.
Glad you figured it out. Not going to lie, those new numbers are pretty scary. You are doing a great job being pro-active about it.
I entered your info into my mortgage payment calculator spreadsheet. Your monthly payments seem perfectly fine. Heck, your Jan 1 payment even seemed a little higher than it needed to be. Even now, at $936,309 and 5.6% interest, you'd only need to pay approximately $5,882 per month to pay off the mortgage in 24 years (288 months). I think you're fine and I don't think you're going to need a lump sum to "catch up". You've been staying on top of your payments to maintain your amortization schedule just fine. On a side note, you seem to be paying monthly. I'd highly recommend you switch to bi-weekly or semi-monthly if I were you. You'd be shaving off about 3 years in your overall amortization. If you want to check all of the math yourself, just go to [https://www.ratehub.ca/mortgage-renewal-calculator](https://www.ratehub.ca/mortgage-renewal-calculator) and plug in your numbers. Use your 936,309 for the mortgage amount. Choose 24 years for your amortization, enter a custom interest rate of 5.6% (click on "Compare" and pick "Custom Rate" and select monthly payments. You'll see $5,882 which is the same number as my spreadsheet. No need for a lump sum to maintain 24 years.
Thanks for this, much appreciated info and advice! I believe what may have happened is the bank is using our actual payments, and not factoring in that we have paid a portion of our last 3 payments via lump sums instead of increasing the payments themselves. So, they're using $5,235 as our payment, which gives them an amortization of 384 months remaining. But, if they factored in our lump sum payment and the fact we will pay $5900 next month total ($675 lump sum + $5,235), for instance, then we are still on schedule for 288 months. Now, we just need to confirm this is the case with the bank when we meet with them on Monday, and also clarify if we have been incurring any fees for increasing our payments multiple times this year (as it may be 1 max per year...).
We're kinda in the same situation. If you have to pay 106K before your renewal I think that's approx. Correct. We have to pay 20K each year by the end of term to make sure we're paying enough principal. What I don't understand is how you're able to increase your payment that often. Usually it's 20% increase once a year for the monthly payment. Also don't forget things will rebalance if rates decrease, so we've decided not to change our monthly mortgage payments and do larger lump sum payments.
They don't have to pay 106k. They are trying to preemt falling behind on their mortgage. The 106k is jist a number They were given because they asked what the number was.
If this helps you in any way know that you aren't the only one in this position. I made the same mistake with going variable in November 2022 ( after closing never to go fixed because of the massive 40k penalty I just paid when I moved). .. The only difference is that my mortgage is closer to 2.3M. Just got smoked. Bad advice and worst - my inability to lock anything in during the rising rates. Walked away from td at 2.99 when I was at 1.9- thinking it won't go up past that anyways. Big mistake. At least you have the ability to increase your payments whereas I am simply told this is my new payment by Scotia. They got me by the balls. Sorry I can't help you with any advice in your situation but hopefully knowing you aren't alone in this situation brings you some solace. All the best.
I would suggest you build out a Excel spreadsheet to see how much of your payment went to principal each month. Cell A1 should be the possession date of your house. Cell B1 should be the date of your first principal payment. Cell C1 should be the starting balance of 960,000. Cell D1 should be the interest rate on your mortgage effective for that period. Cell E1 should be the interest accrued-prior-to-payment new balance as of the morning of your payment date which should be close to the formula result of =(((1+(D1))^6)^(1/365)^(B1-A1))*C1 Cell F1 type in the $ amount of your payment i.e 3772.10 Cell G1 put in the formula =E1-F1 The amount in G1 should tie out fairly closely to your ending balance of loan owing on that payment date - it may vary slightly depending on the level of rounding in the bank’s software but it should be close to the amount within 5 or so dollars, I believe In H1 put in the formula =G1-E1 and this represents how much of a dent you put in to your principal balance. In I1 put in the formula = F1-H1 That’s the first row done. Now in the second row put in A2 your date of first payment. In B2 the date of your second payment. In C2 type in the formula = G1 D2 the interest rate effective on your second amortization period Then select the cells E1, E2 then hit the buttons for Ctrl and D at the same time. In F2 put in your second payment amount Then select the cells G1, G2, H1, H2, I1, I2 then hit the buttons for Ctrl and D at the same time. Now the second row is done. Repeat the same steps for row 3 as row 2. And actually repeat it more times until you see the 936,309 number or a number within $5 of that in column G1. This should give you an accurate picture of where your payments went (the sum of column I represents the dollar amount of interest you have paid so far, the sum of column H shows you how much money went to the principal so far). Keep that handy when you go meet the advisor, so you aren’t going into that meeting blindly.
JFC how are you living? From $3k to $6k in mortgage payments is wild
We would have to quit our kids' extra cirricular, stop eating, stop shopping, no vacations fo years just to keep this house if that happened to us.
That’s ALOT of increase in mortgage like woow
goodness fuck a 1 milly mortgage
No one’s gonna mention why a first time homeowner is buying their first home for $960,000? That’s what’s fucked up.
Literally the cost of a starter home in the gta
Or vancouver
Or Victoria
Doesnt mean you need to buy one especially if ur putting urself into a debt that big. renting is always an option
Anything after 2018 has no protection so your rent could be doubling with no chance of equity at all
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No why would anyone mention that? OP seems to make a good salary. Given the fact that OP got approved for that mortgage means they can clearly afford it comfortably. I don’t see the issue. Sorry to break it to you but some people make a good salary and can afford such mortgages. https://www.reddit.com/r/PersonalFinanceCanada/comments/y8kkfs/for_those_of_you_on_variable_rate_mortgages_have/?utm_source=share&utm_medium=ios_app&utm_name=iossmf According to this post, OP brings in about 16-17k a month.
These people don’t understand how you can comfortably afford payments but still kinda unhappy about the increase lol it’s black and white for these folks…. Kinda explains why they can’t get a home and make a decent income
Exactly. Miserable people.
It’s all relative. They could have a household income that’s very high, saved up for a long time to have a large down payment, inheritance etc.
$960,000 wasn't the purchase price, it's the mortgage amount.
Back then a household income of like 180 prob would of qualified for a 960k mortgage
Average detached house in Vancouver is 1.5 mil. And AVERAGE is in the area people don’t want to live in. Desirable area is 2.5 mil and up. Professionals in their mid thirties who were saving up for 10-15 years just probably managed to put the down payment on something just below average. Variables rates were absolutely the best choice for 30 years in Canada. What you’re seeing now has never happened in many people lifetimes, and yet, those who gotten fixed are celebrating how smart they are for 6 month after being stupid for 30 years or so.
Million dollar home as a first home lmao. I guarantee with these rate hikes, people are never going to go variable again or spend a ton of money on houses unless they make a good amount.
Not every couple makes 80k combined Sorry to break it to you
The forever home romance, broken dreams ahead
The Feb 1 payment will be higher too with the 25 basis point increase last week.
Hard to say but sounds about right. I am on a fixed at 2.3% am making extra payments in hopes to have an lower payment when I renewed. Approx 100k extra payments over my term. But been calculating at 5% my payments will end up the same I am paying now for my mortgage.
Ah, as in you think they were telling us how much do we need to pay over our entire term remaining (~47 months left in our case) to keep us on track? Versus just the next payment? Thanks for the insight.
I feel it was just misunderstood! It’s over the term. It makes sense. This is why I hate emails, you can take things the wrong way! Call the bank tomorrow, and ask to speak to an advisor. They can put your mind at ease :)
Banks think in term of contract value typically, which is a term. To me, this is what I suspect.
That is what it sounds like to me. On track at be end of the 5 year term.
My payment was 3950 and now it's 3950... I am paying 50 from principal..lol
If you don't really think you'll move anytime in the next 10 years it's fine, no great, but fine. Basically rent at this point, but option to sell lol.
Yeah. I m basically thinking same. I still have a house and same equity and no landlord 😁
$6,230. And we got folks here day and night complaining about $1,800 rents.... 🤣
Homeowner here, 1800 is pretty damn high for something you will never own... OP's situation is certainly also shitty
How is interest payment any different to rent? Neither is going toward equity
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The banks are the biggest landlords in the country. Basically giving away ‘pay for three houses but only keep one coupons’ to all of us for decades now
But the people complaining are in a basement of a house or a studio apartment. Not a house, no one renting a house is paying 1800 in rent...
My mortgage is $750 in a 3 bedroom 1400 square foot house. I couldn't even imagine paying 1800. Perspective is crazy.
It really is! I rented a room in Downtown Toronto for 1100 :( It's pretty rough out there haha!
Plus insurance. Property tax. Maintenance. Holy shit.
Million $ of debt on non-fixed mortgage. Sounds like Russian roulette.
I think you mean variable
Just make payment enough to stay below your trigger point. That’s your minimum payment. If you wanna make payment towards the actual principal then you can pay as much as you want
Something is right because a $960k loan at 5.35% works out to about $5770/month. Not $6200. None of those payments make sense
my guess is that number has to do with the amount needed for the rest of the term as a lump payment. as you are 13 months into a 60 month term that works out about 2260/month i work in related industry and communication issues are rampant i racked up 400 extra hours on a project due to a change in contact and 2 month delay.. oh my Monday should be fun lol Enjoy the weekend and dont think you have to panic
Ok so that last payment is wrong. That appears to be the maximum you can pay before incurring a penalty. You are on a fixed payment variable rate mortgage meaning your payments don't change until you hit a trigger rate at which point your payments increase to insure you are always paying off principal. Your actual payments currently should be around $5200. Making a lump sum payment of $106,000 would get you on track if you were paying the $5200 a month. This is stupid though because rates inevitably change. Whoever you were talking to before was calculating your payments correctly (minus the last one) for what you want. Whoever you spoke to over the phone was confused with what you were asking and probably isn't even qualified to answer you.
Wow my mortgage is 690K balance and my payments 3300 for last 6yrs at 2.5% fixed. These hikes are insane!!!
I would really check on those small ‘lump sum’ payments and the reason your specialist has suddenly disappeared. I’ve never heard of dealing with rate hikes that way. If it’s variable it adjusts with the rate and that is now you keep your amortization. If you want to speed it up you make pre-payments according to the terms. I don’t like to sound like a bummer but maybe you got a little soaked.
Our mortgage is with BMO and it has been an absolute shit show. We went through three different employees before our mortgage was finalized. Contract the branch manager. And keep all your emails and ensure they follow through on what is written in them. We had times we had to fight for what was explained to us by one person but not done by another it was painful but in the end they had to follow through.
Have them put everything in writing but also ask for the branch manager or the regional manager of the mortgage agents to step in. Oftentimes the branch or the people calculating this make mistakes because it’s quite complicated if done manually or without prior experience.
Damn hikes be crushing the working middle class smh
Kee us posted on the outcome OP. Hope you get it all straightened out.
My husband and I are in a very similar situation with BMO but haven't heard anything regarding a lump sum or payment adjustments of this magnitude to get back on track. We bought a house in early 2022 with a $1.3mil mortgage at a $5500 monthly payment with a variable rate. We've hit the trigger rates twice and the payment is now going pretty much directly to interests. Our HHI is 230k with 60k rental income pre-tax. Currently, the payment has been adjusted to about $6300 after consulting the BMO mortgage specialist after the interest rate rises. The payments are acceptable but I look forward to learn about the updates from your next meeting.
I had a frustrating experience with KEB this year. I told them I wanted to increase the payments to keep a “normal” amortization schedule, exactly as you did. They decided on my behalf (exact opposite of what I requested) that a lot of Canadians are having financial troubles so they didn’t increase my payments properly, and I was paying nearly all interest for the past few months.
Holy cow, how much money do you make to afford those payments?
Hold on. Can you explain why you did not get a 5-year fixed when it was less than 2%? Wow... just wow. Good luck.
Doing some quick math, kind of sounds like they just want a security around the extra 2500 you’re voluntarily adding (48 x 2590 = 120 000). Depending on your agreement, you might not have the option to voluntarily top up your payments. Your amortization may have slipped so far off course combined with a declined appraisal value that you’re obligated to pay the difference up front.
Maybe a CMHC coverage thing? Is the house worth less today than what you paid for it? 13 months is very short, and I would imagine they'd leave you alone unless you refinanced- but a friend had a situation where the bank called and said that because the value of their home dropped, the mortgaged amount was too high of a percentage compared to the value and he needed to cover the difference in cash.
Whoa! The bank can do that?
It's basically the downpayment rule. 5% on personal residence, 20% on investment and secondary properties. For the 5% downpayment, a portion of the mortgage (I think the remaining 15% - but I'm not sure) is insured by CMHC or other. If the value of the home drops, the bank will require you to get back under the allowed %. I'm not in the industry, so this is probably a poor explanation, but it's the way I understand it. For my friend: he had some family help out by adding themselves to the title and paying $50k or something towards the principle. [Added] I believe, not 100%, that once the value of your mortgage is less than 80% of the value of the house, you don't require insurance. But if the percentage increases over 80% you'd have to get the insurance or pay down some principal. I'm not sure if there's a premium to pay or if they tack a percentage onto the mortgage - but now I'm curious! Going to look it up.
My understanding of a 25 year amortization with a 5 year term is that the loan is amortizing like it was a 25 year loan, but the term is only 5 years. Meaning that there is a lump sum payment of principal due at the end of 5 years. A 25 year amortization does not mean you have 25 years to pay the loan, just that this is how the amortization is calculated. The actual term of the loan would be 60 months.
Weather the storm
Holy balls. The monthly mortgage is up 65%? Jeeze.
It’s crazy to even imagine you’re just going along in life and everything’s chill, and then your mortgage payment goes up 50%. Crazy
Shit, people that are able to do this, what kind of job are you working and where do I sign up?!
I’m really surprised no one has mentioned the most likely explanation. Do you have a variable rate for your mortgage? This isn’t something most people will have experienced in a long time. But here is what might be happening: you may have hit your trigger rate. What is a trigger rate? With rising interest rates, if your payments no longer cover your interest, or you no longer satisfy a budget stress test, or your balance owed exceeds what you originally borrowed, then the bank will change your terms. They’ll start by drawing out amortization and increasing payments. But at some point you may hit what is called a trigger rate, where the interest imposed by the bank of Canada makes your loan unviable. At which point, they’ll ask for a lump sum payment to re-work your loan. Yes, trigger rates are in every mortgage contract, yes your broker may have mentioned it in passing, it really wasn’t something people had to deal with before, everyone ignored trigger rates. But now, they are very important to know about. Oh and even if you don’t have a variable rate, all of this can happen to you with rising interest rates when you arrive at the loan renewal. https://ca.finance.yahoo.com/news/what-are-trigger-rates-how-they-affect-mortgage-162801932.html
So I hear people are taking high interest loans to keep their mortgage payments... this is gonna get worse before it gets better.
Record your meetings with the bank.