When Rahim Moosa lost his job last October, he decided to sell the house he'd bought with his wife a year earlier.

His lender, TD Canada Trust, said there would be an $8,000 penalty to break his five-year closed mortgage – an amount he found tolerable.

"By the time we sold in April 2009, TD Bank quoted us a doubled penalty of $18,000. Now, they are stating it will be approximately $25,000 upon closing in June," he says.

Most mortgage contracts and renewal forms specify that clients seeking an early exit will pay either three months' interest or an interest rate differential (IRD), whichever is greater.

The IRD is calculated by taking the outstanding balance, multiplying it by the gap between your existing mortgage rate and the current rate for a term similar to what you have left, and multiplying by the number of months left to the end of your term.

Mortgage rates have fallen steadily since last fall, making the IRD penalties grow bigger and bigger.

Once I got involved in Moosa's case, TD worked hard to cushion the blow. It sent him to a mortgage specialist, who suggested making a 15 per cent lump-sum prepayment using a line of credit that would be paid back at closing.

Since TD hadn't told him about this option last October, Moosa asked for and received the right to make a 30 per cent prepayment to reduce the outstanding balance.

The estimated penalty is now $11,000 to $14,000.

"We won't know for sure what the exact penalty will be until the payments are made using the line of credit next week," Moosa says.

He wonders why TD dragged its feet when told about his financial problems last fall.

"Our branch representative should have advised us that we could pay a 15 per cent lump sum to reduce the penalty.

"TD needs to have a better process in place, particularly when dealing with clients whose largest investment is in their hands."

Moosa's comments will be reviewed, Hechler said. "We could have moved more quickly to help and provided clearer information from the beginning."

Kevin Plautz, also a TD mortgage customer, felt he received misleading information when he asked about breaking the deal to take advantage of lower rates.

His financial adviser initially quoted a penalty of $2,100, based on three months' interest. Other TD staff he spoke to later did not challenge that figure.

Only when he was ready to renegotiate did he learn there would be an IRD penalty of $5,900.

"I wouldn't have bothered doing a renegotiation if I had just been told the correct penalty at the start or one of the many times I asked about it since then," he says

TD agreed to reduce his IRD penalty to $4,000 after I escalated his complaint to the head office.

"We have offered to substantially reduce the amount of Mr. Plautz's IRD penalty as a goodwill gesture in recognition of the confusion he experienced over the amount he was quoted," Hechler told me.

While planning to take the offer, Plautz is leaving TD. He's found another bank that will give him a lower interest rate and cover $225 of his $270 mortgage discharge fee.

"I have a very bad taste in my mouth. I think I still prefer to move my business," he says.

I'd like to hear from readers. Have you tried to renegotiate a mortgage amid falling interest rates? How did the lender respond and what penalty was charged? I'll publish comments in a future column.

New and revolutionary mortgage payment discoveries explain how Consumers in Canada, the United States, the UK, Australia and the Commonwealth, give away huge amounts of money, freely every week or month with each mortgage payment. In fact this is true around the world for almost all Borrowers. We pay our mortgages and loans on terms dictated by the Lender without the expertise of a new wave of professionals who specialize in turning debt and mortgage payments to the financial advantage of the Consumer.



Lenders extend their loan repayment terms over 15, 25 and 30 years for maximum profits on the loan. Consumer Mortgage Repayment Specialists could shrink those profits by thousands of dollars depending on their experience and skill at saving you excessive and unnecessary payments. With some coaching, you too could divert new dollars to pay off the home loan in record time with big savings.

You would create these savings from Mortgage over payment if you could reduce taxes, eliminate excessive interest charges and shrink other payments on the loan. Success with the new way to pay means an early end to payments for an extended number of months. These are payments that in fact, are entirely un-necessary but you think you must make because usually you follow the Lenders' Plan.

Canadians, for example, are allowed tax deductions for retirement savings, as business expenses, and as tax credits for the costs of money used for investment purposes. Unfortunately, many Consumers forgo these allowable tax deductions. These lost tax dollars could be utilized efficiently to reduce excessive mortgage interest payments.

Citizens and Residents of the United States of America too, as Borrowers, have become desensitized to this huge wastage in mortgage costs because of:

• Record low interest rates recently
• Rising house values followed by the sub-prime mortgage fiasco
• The fact that Americans can deduct interest costs on their taxes and
• Aggressive home equity loans by Banks and Mortgage Lenders so that the average North American Home has become a virtual ATM Machine loaded with instant cash available to the Home Owner to spend

As a result, Borrowers and Home Owners continue to add their hard earned dollars to huge Bank Profits, unwittingly. We lack fundamental knowledge about how best to make mortgage payments and home equity loans work in our best interests. New approaches to faster mortgage payments show results very early. Savings of $10,000.00 in one year are not uncommon. About $30,000.00 of savings after three years of payments is almost always achievable.
Any good early, mortgage re-payment program can cause the disappearance of as many as 70 to 120 months of mortgage payments you no longer must make. In order to succeed, the Borrower must follow with discipline, a skilfully designed and specific fast mortgage repayment plan that applies money concepts differently.

This is a complex field. Consumers do not know which story to believe. How do you separate the genuine Mortgage-Payment Wiz-Kid" from the fraudulent, scam Artists and Pushers of get-rich-quick schemes that never work?
The News Media generally favors an easy and sensational story like credit card interest, pay day loans, or the recent surge in foreclosures. Academics, Statisticians and Researchers are not generally practical in their approach to these problems. Professionals in the Mortgage and Loans Industry have been funded largely by the Lending Establishment.

Almost all of them, including the brightest ones work for Lenders. As a result, Consumers have been abandoned, left to the mercy of Bank Profits and Mortgage Loan Officers' fees. What compounds the problem even more is the multitude of self made "Specialists", who in fact know little about the subject. Many of those who comment on fast mortgage payment options may hardly have basic college level math. Some may not ever have had any practical experience in paying a mortgage. You are reading. So here's your mortgage how to tip.

The most important tool for use in designing a good mortgage repayment plan is an amortization schedule that lists all payments from Payment #1 to the Final Payment. To design a good plan, you must compare and contrast different repayment scenarios for that mortgage. The average Canadian mortgage contract is written so that the loan will be repaid in 300 Payments. American mortgages get repaid in 360 Monthly Payments, generally. You must know and include the impact of related financial decisions such as taxes, retirement savings and investments etc. Even additional fees and costs must be considered. Three key components of your plan make a big difference in delivering dollars into your retirement account because of your skill in devising a clever mortgage repayment strategy:

The first of these components is the frequency of compounding and the frequency of payments. For example, Canadian Lenders do not exact a fee for changing from monthly payments to a bi-weekly mortgage repayment schedule. Many American Lenders charge such a fee. In Canada therefore, it is standard knowledge that you would reduce the number of years of payment from 25 to around 22 years by simply changing to a Bi-weekly mortgage payment schedule. A good plan from the new breed of Mortgage Payment Planners would pay off that mortgage in 10 to 12 years.

The second major planning component is the application of tax rules to benefit the Borrower. Our generous Uncle Sam allows US Taxpayers to deduct the interest on the mortgage loans on their homes to a maximum loan size of one million dollars. Canadian Mortgage Payment Planners, however, must distinguish themselves by devising various schemes to make the Canadian Mortgage Interest Tax deductible. Clever yet perfectly legitimate tax planning schemes could make a difference in your mortgage costs to the tune of tens if not hundreds of thousands of dollars.

Thirdly, a clever investment program that is closely integrated with the mortgage repayment plan could free you, the Borrower from loan payments much sooner and leave an Investment Account at the end.

Consumers have been diverted successfully to focus their attention on the low interest rate game. They are also enticed with other gimmicks such as interest-only payments, 100 percent financing, cash back from the mortgage at closing. These offers sedate and distract us from the real meaningful issues such as the time it would take to repay the entire loan. How much does the mortgage really cost? Such costs must be counted in before tax dollars and in after tax dollars. What are the penalties, fees and costs for early repayment?

A fast mortgage payment plan that ignores any of those three key components above is an Amateur’s Plan. Unfortunately, most mortgage pay off plans do not include such considerations. At the time of approvals and funding, Consumers become overwhelmed with the mortgage process. Even professionals, like dentists and doctors, teachers, nurses and police, even accountants and financial planners can be so intimidated with the experience that they accept the Lenders' Payment Plan without question. That payment plan usually has a built-in, profit pool to be counted in the hundreds of thousands of dollars over the life of the mortgage. The new breed of Mortgage Payment Specialists knows how to design a Consumer friendly, Mortgage Payment Plan that integrates tax issues, compounding frequency and investments. All three components, when skilfully integrated into a mortgage payment plan, deliver savings counted in the hundreds of thousands of dollars over the life of the mortgage.

Already you can see that the overwhelming majority of Borrowers do not usually create their own specific, mortgage payment plan. Those who do would not have the tools to integrate tax planning, payment and compounding frequency, in addition to investments into their plan. So you must consult an expert who has those skills. Since space does not permit, we will end here. Later on, we will explore the real benefits of a Fast Mortgage Payment Plan. In another article, we will explain the magnitude of those savings in numbers the size of which once again are too often misunderstood.

Metro Vancouver housing starts showed another substantial drop in April leaving new-home construction at about one-third the level it was a year ago, according to figures from Canada Mortgage and Housing Corp.

Builders started work on 483 new homes across Metro Vancouver in April, almost 70 per cent fewer than April, 2008.

To the end of April they'd started 2,302 new housing units, some 66 per cent fewer than the first four months of last year.

Starts were down in every municipality except Delta, which has seen construction start on 93 new homes up to the end of April, a 75-per-cent increase from a year ago.

"New home construction is facing competition from a well-supplied resale market and a growing inventory of unsold new homes," Robyn Adamache, a Canada Mortgage and Housing Corp. analyst said in a news release.

"Builders will remain on the sidelines until some of the existing new and resale supply is absorbed."

Construction across B.C.'s urban areas remained depressed in April with builders starting only 842 new homes during the month, down 73 per cent from the 3,092 started in the same month a year ago.

Once booming Kelowna saw the steepest decline with only 29 new starts in April, down 88 per cent from the 249 started in the same month a year ago.

In Victoria, starts were down 87 per cent at 54 units, and in Chilliwack starts were down 87 per cent at 21 new units.

Vernon was the only urban area to see an increase in starts with 64 new units reprsenting a 16 per cent increase from a year ago.

Overall, however, builders started work on just 3,363 new homes to the end of April compared with 11,385 in the first four months of last year.

More people are seeing condominiums as an attractive investment opportunity than was the case a year ago, according to a survey released Monday.

TD Canada Trust said 44% of respondents in a survey of urban Canadians said conditions had improved over the last year with regard to the prospects of buying a condo for investment purposes. That was up from 21% in a similar survey done last year.

The bank said lower prices and Canada mortgage rates are the main reason people are being drawn to condos as a way to make money over the longer term.

"This is a good time to explore a condo purchase given that mortgage rates are very attractive right now and many condos have dropped significantly in price," Joan Dal Bianco, the bank's vice-president of real estate secured lending, said in a statement

In fact, 43% of the respondents said if they couldn't afford a condominium right now, they'd consider partnering with a friend or relative to buy one for investment purposes.

But there were other reasons than investing people had for wanting to buy a condo. The most popular one, cited by 39 per cent of survey takers, was that condos require less maintenance than house do. The second most cited reason for buying a condo, a 21 per cent, was that they're more affordable than houses.

The survey, done by Angus Reid Strategies, involved 200 respondents in the cities or surrounding areas of Vancouver, Calgary, Toronto, Montreal and Halifax between March 30 and April 7.

TD Canada Trust (TSX:TD) has lowered its residential mortgage rates between 0.1 and 0.6 percentage points, bringing the signpost five-year closed mortgage rate down 0.2 points to 5.25 per cent.

Among the changes to the bank's posted rates, a one-year open rate fell 0.15 points to 6.55 per cent, a three-year closed mortgage was reduced 0.75 to 4.15 per cent and the seven-year closed rate dropped 0.1 to 6.6 per cent.

The 10-year closed rate was unchanged at 6.7 per cent.

The moves brought TD rates roughly in line with those of Bank of Montreal (TSX:BMO) and Royal Bank (TSX:RY), both of whom lowered fixed rates last week on the heels of a Bank of Canada overnight rate cut.

Royal and BMO's five-year closed rates were also dropped 0.2 points to 5.25 per cent.

Last Tuesday the central bank took the overnight target rate to 0.25 per cent, the lowest level practical and committed to keep it there for a year.

The commercial banks quickly cut their prime lending rates in step with the Bank of Canada, moving the benchmark for variable-rate mortgages and other loans by a quarter-point to 2.25 per cent.

At the same time

Scotiabank (TSX:BNS) lowered its rates by between 0.3 and 0.2 per cent. Its five-year closed mortgage rate is now also 5.25 per cent.

Laurentian Bank (TSX:LB) dropped its rates by between 0.25 and 0.4 per cent. Its five-year closed rate is also 5.25 per cent, a drop of 0.2 per cent.

The closest thing to a real estate crystal ball in the last few years has been the house auctions that are regularly held around the country.

In 2006 and early 2007, the official housing statistics were still showing that house prices were holding up. But that was largely because so many sellers were refusing to sell. The auctions, made up mostly of foreclosed homes, showed the truth: house values were starting to plummet in many places.

So a few weeks ago, I decided to go to an auction at a hotel ballroom in Washington — and to study the results of several others elsewhere — with an eye to figuring out whether prices may now be close to bottoming out.

That’s clearly a huge economic question. Last week, JPMorgan’s chief financial officer told Eric Dash of The New York Times that JPMorgan, and presumably other banks, would be under pressure “until home prices stabilize and unemployment peaks.” As long as home prices are falling, foreclosures are likely to keep rising and the toxic assets polluting bank balance sheets are likely to stay toxic.

There are reasons, though, to think that prices may be on the verge of stabilizing. Relative to fundamentals, like household incomes and rents, houses nationwide now appear to be overvalued by only about 5 percent. You can make an argument that the end of the housing crash is near.

But that’s not what I found at the auctions.

•

“This is a perfect storm of opportunity,” Bob Michaelis, goateed with a shaved head, told the 300 or so people who had come to downtown Washington for the auction.

Mr. Michaelis, the auction manager, spoke from a lectern on stage, and his goal seemed to be to persuade people that they might never see a buyers’ market as good as this one. Prices have plunged, and interest rates, he said, are at “generational lows.”

“Look around to your left and your right, and you’ll see someone who sees an opportunity just like you do,” Mr. Michaelis said. “We’re approaching the bottom of the market, I think. We’re approaching the bottom of the market, if we’re not there already.”

He then told the audience that, in the last 100 years, house prices have recovered from every downturn and gone on to reach record highs. Oh, and Wells Fargo and Countrywide were standing by, ready to offer financing to qualified auction buyers.

If nothing else, this sales pitch certainly had chutzpah. It combined the old bubble-era notion that house prices always rise over time (ignoring the fact that incomes, stock values and the price of bread do, too) with the new postcrash idea that houses must be a bargain because they’re a lot cheaper than they used to be. Even Countrywide, which was taken over by Bank of America after so many of its subprime mortgages went bad, is still part of the housing pitch.

Yet as soon as the auction began, it was clear that the pitch wasn’t working.

The winning bid on the first home auctioned off, a two-bedroom townhouse in Virginia Beach, was $115,000. Just last July, it sold for $182,000, according to property records. A four-bedroom brick house with a two-car garage in Upper Marlboro, Md., went for $375,000. Last year, it sold for $563,000.

Throughout the evening, such low-ball prices continued to win the bidding. At one point, the auctioneer, Wayne Wheat, interrupted his sing-song auction call to cheerfully ask, “Where are my investors?”

The tables that had been set up around the edges of the ballroom, reserved for people planning to buy multiple houses, were mostly empty. Many audience members, like the man in a camouflage baseball cap just in front of me, were attending their first auction.

On Sunday, my colleague Carmen Gentile went to a larger auction, in Miami, to see if my experience had been unusual. It wasn’t. The homes there also sold for just a fraction of what they would have even a year ago. The rate of decline in Miami hasn’t even slowed noticeably in recent months, according to data kept by Real Estate Disposition Corporation, known as R.E.D.C., which runs the auctions.

A recently transplanted New Yorker named Michael Houtkin won the bidding on a one-bedroom condominium on the outskirts of Boca Raton, a few blocks from three golf courses, for the incredible price of $30,000. “Things were almost being given away,” he said later.

As is often the case at these auctions, the seller of the condo — Fannie Mae — retained the right to refuse the winning bid and keep the property. But Mr. Houtkin told me he was optimistic his bid would be accepted. An R.E.D.C. employee suggested to him that $30,000 wasn’t much below the minimum price that Fannie Mae had hoped to receive.

How could that be? Because Fannie Mae, like many banks, is inundated with foreclosed properties. In recent weeks, banks have begun accelerating foreclosures again, after having held off while waiting to find out which homeowners would be eligible for the Obama administration’s assistance program.

The glut of foreclosed homes creates a self-reinforcing cycle. Falling prices lead to more foreclosures. Foreclosures lead to an excess supply of homes for sale. The excess supply then leads to further price declines. Jan Hatzius, the chief economist at Goldman Sachs, says that the “massive amount of excess supply” means that home prices nationwide will probably fall an additional 15 percent.

This estimate hides a lot of variation, too. In Miami, Goldman forecasts, prices could drop an additional 33 percent, which is pretty amazing since they’ve already fallen 50 percent from their 2006 peak.

Nor is excess supply the only reason prices still have a way to fall. Nationwide, homes may not be overvalued by much. But in some cities, including New York, San Francisco, Los Angeles, Boston, Chicago and Miami, they remain very expensive. So while Mr. Hatzius and his Goldman colleagues are somewhat more pessimistic than most forecasters, the difference isn’t enormous.

I’ll confess that this bearish picture isn’t exactly what I had hoped to find. A year ago, as part of a move from New York to Washington, my wife and I bought our first house. We did so fully expecting prices to continue falling (though perhaps not as much as they ultimately will, given the severity of the financial crisis). But we decided they had fallen enough for us to take the plunge. We preferred buying before the bottom of the market instead of renting and having to move again in a year or two.

Still, when I wrote about that decision last spring, I argued that anyone who didn’t have to move probably should not buy yet. Prices still had a way to fall.

Mortgage rates in Canada, which have plunged by almost 50 percent in the last year, aren’t likely to fall further, said Phil Soper, chief executive officer of Brookfield Real Estate Services Fund.


“Certainly with the Bank of Canada’s target rate set at virtually zero, there’s very little room,” Soper said today at a conference in Toronto on Canada’s real estate market. The rate is “the lowest it’s been in anyone in this room’s lifetime.”

Rates for home loans have been dropping during the biggest financial crisis since the Great Depression, with some lenders offering mortgages approaching 4 percent, Soper said. That compares with an average posted five-year rate of 7.5 percent a year ago, according to the Bank of Canada. He added that home prices in Canada aren’t likely to rise “sharply” over the next two years.

Bank of Montreal, which sponsored the conference, lowered its rate for a five-year fixed-rate mortgage this month to 4.15 percent.

“We are approaching almost zero interest rates,” at the Bank of Canada, said John Turner, the Toronto-based bank’s director of mortgages. “The question becomes, how much upward pressure will there be as we come out of this recession?”

The Bank of Canada last month cut its benchmark lending rate to 0.5 percent, its lowest ever, and said it’s preparing to use policies beyond interest rate moves to revive an economy hit by a recession and tight credit markets. The next rate announcement is April 21.

Canadian existing home sales rose in February for the first time since September as buyers took advantage of lower mortgage rates and prices, according to the Canadian Real Estate Association’s Multiple Listing Service. Sales of existing homes rose 8.6 percent from January to28,669 units.

Bank of Montreal senior economist Sal Guatieri predicted that Canada’s housing market will decline further this year, without the “crash” experienced in the U.S.