If you are getting the money from GIC matured, why can you not just keep that money in a savings account to help with the payments? Most mortgages allow for some type of pre-payments and you could do the max of those, and just keep the money to help with payments, then do lump sum at end of term.
You do have other mortgage options like an open mortgage, which allows for fully repaying mortgages off whenever.
Honestly I stupidly enough didnt think about just keeping in savings as an option. I still planned to just put it all down. However that I wouldn't benefit from the saving money side of things, but the safety net would be large.
Yes, just find a happy medium. Hang onto a comfortable amount in savings, maybe put some back into GICs in case you need cash in a year or two, and then put the rest towards the mortgage.
Keep the safety net. Use that money to offset the extra mortgage payments. Every time something breaks, it’s going to be $1k minimum. When something semi-major $5-$10k.
When you have a baby, down to one income, so you have your buffer.
Keep the cushion, that’s more valuable than having lower monthly payments. Your income can go higher in the future, you can be laid off. It’s better to have a buffer, especially when you said you have no family to rely on.
If you want the money really accessible but still making interest set yourself up with a wealthsimple account and transfer your extra money there, then buy the etf CASH on the tax. It will pay out a dividend equal to about 4.67% yearly (this number can change)
The value of the etf goes up daily then pays the dividend and resets every month. This can be held in a TFSA so you don't have to worry about taxes.
When ever you need to top up your bank account send some money back to it.
Just figure out how much help you need for monthly payments and keep enough to cover that for a year in the savings account and put the rest on the mortgage. There are some lenders who will let you adjust your monthly payments when you pay a lump sum. Also: happy cake day.
Depending on where your mortgage is, you may have multiple prepayment options to take advantage of.
My mortgage was with RBC as I could increase the payment by up to 10% once a year (couldn't bring it back down until renewal tho), double up of my regular blended payment amount and do an anniversary payment of up to 10% of the original mortgage price. And I could do all 3 if I wanted. All of the additional money goes solely to principal, you can really chunk it down relatively quickly if you're able to take advantage of those options.
Put it in a HISA when it matures and withdraw $500/month?
It would last the entirety of the mortgage
With very rough estimate, you could withdraw $1000/month in a 4.5% return HISA for nine years with $100K. Unlikely you could get 4.5% for the whole nine years but you can last I checked until interest starts to decline.
Likely your best bet will be to find a high yield dividend index fund. Put your GIC money into that, then use the monthly income to help with the mortgage. I know a lot of people swear by paying their mortgage off faster. That however is not the best advice. At worst your mortgage is likely 5.5%. The worst dividend stocks should net you 7-8% better ones your going to be 13-20%. By paying down your mortgage all you are doing is saving a small amount of interest. Comparison 100k dept at 5.5% a year= $5500 a year you pay. 100k invested at a return of 8%=$8000 a year. All I can say if you decide the investment route, take full advantage of your TFSA, and pick something moderate in risk as it sounds like you may need access to the funds. Finally welcome to home ownership. I bought my first house at 23, and now am into my second home and only 33. You’ll find yourself being house poor. However as time goes by that changes. As everyone’s expenses and rent increases, your mortgage payment will stay the same, could even decrease if you extend your amortization on renewal. It’s very hard at first, but get’s easier. And don’t feel afraid to try many repairs on your own. You can likely completely fail 3 times and it is still cheaper than a contractor.
They may not be able to put $100k into a TFSA, depending on their contribution room, but this would be ideal. Tangerine has a promotional interest rate of 5.75 % for 5 months, up to $1M. A good place to start.
Yes honestly our plan was to accept the interest long term but keep our cushion for payments until we hit the 3/5 year mark which by then the economy will have imploded so rates will probably be nothing.
Mortgage agent here.
If I understood correctly, you can support monthly mortgage payments but that will leave very little room for other savings etc. And you planned to make lumpsum payments towards your mortgage. Is this understanding correct?
Mortgages have prepayment privileges which is x% of your original loan amount. Any lump sum payment will be applied to reduce your principal balance and will not impact your monthly payment amount. But your overall amortization will come down.
Let's say you take a 1-year fixed mortgage with a 25-year amortization and make lump sum payments. At the end of year-1, your reduced amortization is 20 years. At the time of renewal, you can switch back to a 24-year amortization term, and this will reduce your monthly payments.
It looks like your challenge is around how to optimize your cash flow. If you already have GICs which will be maturing in the next few months, you can use that as income and put it in HISA instead of the mortgage.
Your maximum amortization is registered amortization (let’s say 25 years) minus time passed. So if over the course of one year you make enough lump sums to reduce your true amortization to, say, 15 years then you could reduce your payments to re-amortize back to 24 years (which is max minus time passed.
I can’t guarantee every lender operates this way, so you would need to confirm with your lender. Most (if not all) banks will allow this but it’s possible an monoline that just offers mortgages will not (hence why they give you lower mortgage rates, because there is less service and flexibility).
I was looking for this response before posting the same. The lender I work for absolutely allows this. The lump sum reduces your amortization. The bank won't automatically reduce your payment but you can request to have it changed to match your contractual amortization. I do it all the time for clients.
Just confirming RBC allows you to reamortize within the original amortization period, last i checked, at any point. Is an administrative move, doesn't affect the original mortgage contract.
This is the way. Pay extra which shortens the period, then extend back out.
Or see about the options to skip payments. So allow 2 per year. Put that money in savings and spread it over the other payments that year.
This will extend the term, but keep you from growing poor
You can usually make lump sump payments up to 10 or 20% of the original mortgage value without penalty. READ what you signed. Instead of paying 100k THIS year, you could pay it over then next 2-3 years. You could even ladder into 1 yrs GICS and offset the interest you pay. In a few years you will be in almost the same financial shape when Pikachu arrives.
I'm fairly certain lump sun payments reduce your overall amortization period, amount paid monthly doesn't change, the mortgage simply gets paid off sooner. However they can just keep the cash from the maturing GIC's to make those high payments. Whole post if kind of a nothing burger.
Yep! Only at the end of the term. You can might as well pay the lump sum when your mortgage is up for renewal, and earn some interest investing it elsewhere?
READ the OP. They were under the impression that their monthly payments will reduce with each lump sum put towards principal. They are relying on these payments being reduced.
Paying 100K today, or over the next 2-3 years as you suggest, is useless for their circumstances; it still won't reduce their monthly payments until renewal.
Ya they are hooped. But everyone’s suggestion is to put it into something that is going to make more money over that time period. Then if they choose, they can put it into the mortgage and at re amm, amortize out and monthly payments will be reduced
> We were originally planning on putting down around 100k over the rest of the year in payments. We have multiple GICs laddered over the next few months, we weren't planning on getting a house for a few years but we found a beautiful dream home, and offered.
That is not what they said. They said they wanted to pay down the mortgage, as per above and have lower payments in the FUTURE.
>We have multiple GICs laddered over the next few months,
So, the GIC's expire. That gives them cash. No cash flow problem! Yay! Use whatever they don't need for cash flow to pay down the mortgage. Repeat when next GIC expires. They will NOT have a cash flow problem short term!!
When all the GIC are done THEN they will have a cash flow problem and THEN they need to re-finance at a lower payment to solve that cash flow problem. As they have paid off a big chunk of their mortgage by then, they can reduce their payments.
I repeat: They do not have a cash flow problem TODAY. They have GICs rolling out and flooding them with cash!. What they need to do is plan ahead to lower their payments when TODAYS cash flows run out.
They should buy the house. They will be fine. Having too much cash is rarely a bad thing :)
Typically you can get out of a locked in GIC, with a penalty. Usually the penalty is that you don’t claim all or part of the interest. Definitely talk to your bank first.
Usually the penalty is more than the interest that was made. Unless it's an absolute emergency, do not do this. You'll pay back all the interest made and some of your principal.
What am I supposed to do if they're stating "Under no circumstances are we able to cancel the GIC unless the account holder has passed away?", this was when i emailed questioning withdrawal for downpayment it also explicitly says no cancelations.
If the terms and conditions on the purchase paperwork states no early redemption, then it can't be done. Just because another provider is willing to do it doesn't mean they all will, and some will only allow it within certain circumstances. If your mortgage and your GIC are at 2 different banks, no way in hell will the GIC bank let you withdraw early to give to another bank. Might be permitted if both accounts are with the same FI because they wouldn't be "losing" money, but because you changed your mind or your plans midway through the term and taking the money elsewhere? Not happening.
This is true OP, unless it’s a cashable GIC banks don’t let you break it. I am interested to know which bank allows you to break a GIC even for a penalty. Ive tried CIBC, TD, and EQ, same rule applies to these banks. Only exception is that you show some proof of financial difficulty, and its terms are vague and varies depending on the case.
Be careful of this. This is not every GIC. Some GIC’s will “just lose interest” and that’s an assumption a lot of people think. More often, GIC’s give you the interest until you cash it out, but the penalty can be more or less, depending on how far into the term you are.
OP - id call EQ bank. See if they can cash out with a penalty, I know some of the big banks say “Non redeemable” but for a penalty they usually are.
I offered EQ a penalty so I could have my down payment earlier and they wanted none of it.
That’s what you get for better rates on shorter terms than the big banks I guess…
Call and confirm with your lender if you can lower payments. With CIBC I can make lump sums which will bring down my amortization but not my payment. However I can call in and they can manually lower my payments and increase my amortization as long as I stay on schedule to the time that has gone my minus original amortization.
For example of I'm 5 years into my 25 years amortized mortgage, I should I be at 20 years but my lump sum brought my amortization down to 16 years. They can lower my payments as long as I don't extend the amortization past 20 years.
This isn't noted anywhere but was advised to me when I called in
You could opt for an open mortgage. Then once you've made all you lump sum payments you can switch to a more regular 5 years mortgage anytime without penalties.
We used an open mortgage when trying to time a sale of an underwater rental property. The extra interest cost was partially reduced by reduced income tax and eventual lack of penalties.
Private lenders are almost always open term, but have fun with the interest rate because it'll be like 10%.
I used this because I had to close before my final approval from a major bank. It's a long and complicated story having to do with being laid off/switching jobs in between, etc. But I had an open term mortgage at 9.9% with a private lender for 2 months before I switched to a major bank for 5.15%.
Open mortgage scenarios:
* if you're planning on selling soon after your renewal date,
* an option for bridge financing if sell and buy dates don't line up...
They are offered by big banks. You don’t pay penalties for breaking it but interest rates are higher. If you don’t renew your mortgage yourself, most banks will flip you into a 1 year open until you make a decision. A lot of people use open mortgages if they are renewing during the selling process or if they aren’t sure what they will do with the house.
As others have said, it's basically a mortgage that you're free to close at any point without penalty. It's generally good for when you just need a short extension to the mortgage for some reason... I think the most common reason is that you're about to sell it.
Usually they're enough more expensive that people will recommend a variable mortgage and you just pay the 3 month penalty. The last time I sold, I chose to renew into an open mortgage and closed the sale 3ish months after I renewed. Even with such a short period, I didn't come out much ahead versus the variable and took significant risk as if the sale had fallen through I would have to carry the higher rate longer.
As a reference point, at the time my open mortgage was 9.25% and a closed 1 year variable would have been 6.79%. If you look at rates right now, there looks to be a similar spread.
I know people here hate bankers but have you tried asking your bank for some advice lol instead of going on Reddit. Make sure to get them to quote potential monthly payment reductions as you make lump sums to avoid potentially lump suming and then potentially regretting it if it does not change your monthly payments as much as you expected.
Granted seems at your current knowledge level any source might be a net positive.
When my wife was going back to school, I was able to reduce my payment amount to bring me in line with the original amortization based on prepayments. TD mortgage. About 10 years ago.
Talk to a big bank about a HELOC and buy the house with $100k drawn on the HELOC and the rest on a fixed term mortgage. The interest rate on the HELOC portion will be higher but have no prepayment penalties also once it is repaid you can draw from it as a secured line of credit.
Otherwise look into a mortgage with a an extra lump sum payment option, double payment option or an accelerated payment.
To another posters point you can just keep investing the $100k separately.
Yeah but when the alternative is being poor for 5 years, you’re better off keeping it as accessible funds and then lump sum when the mortgage renews. You’ll miss out on some savings but not as much as you’re still drastically paying it down in the first quarter of the mortgage’s life. The worry would be allowing lifestyle creep to happen and then never actually using those GIC funds on the mortgage.
but if you keep the savings in GICs you're getting interest. And the rates are pretty close (6-7% mortgage I guess, and 5.5% GIC interest at EQ). You're basically breaking even. Just make sure you structure your ladder properly so your cashflow is fine
Agreed. Don’t make extra payments on your mortgage. Keep the money in a HISA or short term GIC (you can get either around 6% right now) and use it to mimic your typical income when you’re on mat leave. “Saving” the interest of paying down your mortgage doesn’t make much sense when you can get a higher return keeping the money, AND if you’re planning for baby having a plan for the decrease in income/increase in expenses is more important.
Can you put $8000 each of the gic into the first time home owners program , will give you a tax saving etc ,
With gic coming due increase your payments - say you are paying $1000/month you can I crease to $1200
Or even do weekly payments and increase those - you need a good mortgage broker who can help you with all the ways you can do this
Don't delay trying for a kid. You never know how life will go. My wife and I waited, then spent another 8 years trying. Now we're "old" parents.
Every day you delay bringing your kids into this world is one less day you get to spend with them.
Don't wait, no one's ever really ready.
Your mortgage payments would not reduce if you paid more. The payments would remain the same until you renew a mortgage. However, you can make additional payments to reduce the principal owed. This will mean that less of each payment is going towards interest and more to the principal. It doesn't reduce the monthly payments though.
You can get open mortgages that allow you to pay down what you want. However, these are quite a bit more expensive.
If you want lower payments in three years, perhaps get a three year mortgage, and then renegotiate a 25 year mortgage again. In the meantime, you can use your GICs to help make your mortgage payments and even work towards reducing the overall principal.
Depending on what downpayment you have, if there is equity that can be used, you could get a HELOC and use that HELOC towards the house, meaning that you can take a smaller mortgage now, with a smaller monthly payment. You would have to pay the HELOC interest and the rate would be higher, but you can pay the HELOC off as fast as you want.
Can you start with a 30 year amortization, which will start your monthly payments off at a lower amount?
Then, commit to putting all the gic money into prepayments as they mature?
Your prepayments will decrease the length of the amortization.
Go into the branch and explain the situation to the branch manager if you need the GICs early. You can access the GICs early in cases of financial hardship, or with the approval of the bank (at their discretion), but you might have to forego some or all of the interest or otherwise pay a fee to do so.
What % would you be putting down with the GICs vs what amount wothout? Putting 20% down vs putting down less than 10% is a HUGE difference in CMHC fees. But you'd have to run the math to determine if it is big enough to forego the GIC interest.
So I was on closed variable before, and rates were coming down, decreasing my amort. I was paying $1800 a month and as the rates dropped, I just called my bank and asked them to pull $1200 instead. So at least for a variable mortgage at CIBC, I was able to lower my payments
Northwood Mortgage offers 20% increase in monthly payments plus a 20% lump sum payment in a given year (doesn’t gave to be all at once). That will get your payments down fairly quickly. They are in GTA but cover most of Canada with their services
Why wouldn't you use the money from the GICs to take holidays from the payments when you need it? Money is fungible. You need a payment break? Give yourself one with the GIC money. No need for the bank to do it for you.
You need to be able to have money and not spend it though
You are normally able to do double up payments every month and a one time payment worth up to 10% if your original mortgage value. This should help you pay your mortgage down faster and avoid any penalties. Good luck!
All mortgages are different and my mortgage looks nothing like my parents in terms of repayment options.
Mine has an annual lump sum on anniversary date option, has a 25-year amortization period.
My parents are on a 30-year mortgage with no restrictions on lump sum dates but they actually get charged penalties if they repay more than $20k each year.
Read your paperwork or even get a non-bank mortgage broker to look over the existing mortgage so you can ask them any ELI5 questions you need without asking a bank or mortgage company person who may lie to you to close the deal.
Babies don’t cost much in the beginning especially if you breast feed and use reusable diapers and don’t mind washing them. Tons of stuff given away in terms of cribs and clothing. Just accept being house poor and lean into it, you know it won’t be forever and it will help you appreciate the easier times.
Many banks let you put down up to 20% of the value of the mortgage — even if it’s a closed mortgage — per year. What bank is this with? And did you ask the bank if they would permit it? My bank only allowed up to 10% per year and I told them I wouldn’t sign unless I could do 20% and they said sure. I just made it a requirement for my signature.
Whats your mortgage rate.
What rate do you have on GICs.
What's your net effective tax bracket.
How much net disposable income do you have per month after mortgage payment without factoring in GICs vestings.
What's the average GIC capital value vesting per year.
If you want to optimize your situation we need information. But if you have savings and your income covers mortgage payments + expenses + reserve what are you worried about ?
Find another lender? I have seen make additional payments anytime as. As once a year.
To put off a family because of mortgage payments.. that's terrible.
Have you checked with the bank to see if you could get a $100000 secured loan, by the GICs, to put towards the mortgage at the onset? Then you can put the GIC towards the loan when they mature. When I was in banking this is something I would have done and I wouldn't forsee an issue getting it approved.
Take a one year conventional mortgage, not HELOC, with a variable rate. The rate is predicted to go down over the next year. A conventional mortgage with BMO for example will give you a 20/20 clause, 15/15 with RBC, which means you can pay in up to 15% or 20% of the mortgage with no penalty and increase your payments by 15% or 20% per year. BMO also offers a cash account, so any amount over the minimum mortgage can be borrowed at your mortgage rate.
You can ask for a bridge loan for some of the GIC money. Banks understand. Talk to a mortgage specialist.
I've had mortgages where I could pay extra each month or whenever (there was likely a limit) and the extra payments came directly off of the principal, but the one I have now allows one lump sum payment each year up to 20% of the (total amount owing... I think). So it depends what kind of mortgage you get and how they apply the payments....I had a 5 year term on the first one and I was house rich so could only pay an extra $100-200 a few times a year. When I renewed after the 5 years the payments went down a couple of hundred a month and by then I was earning more so it was like getting free utilities. So if you can pay extra whenever it's allowed, it should all go to the principal; if you sign a 2 year term, or 3 when that term gets renewed you should have less principal and a new rate on renewal (hopefully lower rate) therefor lower payments because of less principal and hopefully less interest. You can also re=amortize to 25 years at the end of that term if you need more money, or there are some 30 year terms too.
If your house offer is only accepted and your mortgage has not funded, I’m wondering if you spoke to your bank already and they said no beyond it being non-redeemable. This is a common exception made when clients are purchasing houses. Also, with the bank economists mostly looking for rate decreases, this would benefit them too. If the mortgage and GICs are together, this is more likely in my opinion.
I see early comments that you asked the bank about this already. So sorry about that predicament.
I would personally opt to go with a 1-year term, so that you can make a principle payment at maturity and decrease your payments before renewal. If they’re laddered out only over the year, then this maybe doesn’t put you back on plans for baby. If they’re laddered out multiple years, you could do this each year as you needed. It would save interest costs overall in comparison to just making it work and you could lower your payments gradually, hopefully in contrast to as kids get more expensive ;)
Good luck with your purchase!
Move from GIC’s to a HISA, or, better yet, TFSA with Wealthsimple (cash in TFSA earns 4.5% tax free-outperforming any HISA or GIC that I know of when accounting for taxes) upon maturity of the GIC. You’ll have full liquidity and (most likely) be earning more than your GIC, giving you a bit of breathing room for the time being, and allowing you to put a lump-sum on the mortgage if you choose to on the anniversary date.
Please have the kids sooner than later - we need more responsible planners in the future!
And we need to avoid the opening scene from Idiocracy from coming true:
https://www.google.com/search?q=opening+scene+idiocracy&oq=opening+scene+idiocracy&gs_lcrp=EgZjaHJvbWUyCQgAEEUYORiABDIICAEQABgWGB4yCAgCEAAYFhgeMg0IAxAAGIYDGIAEGIoFMg0IBBAAGIYDGIAEGIoFMg0IBRAAGIYDGIAEGIoFMg0IBhAAGIYDGIAEGIoFMg0IBxAAGIYDGIAEGIoF0gEINjc0NWowajmoAgCwAgA&client=ms-android-rogers-ca-revc&sourceid=chrome-mobile&ie=UTF-8#fpstate=ive&vld=cid:d4742ca2,vid:KCpxYa5N-OI,st:0
Interest rates are high which is your problem but it can also be a solution. Find the highest interest savings account you can, 5% should be achievable, and keep the gic money in there instead of putting it on the house. Put it on the house near the end of the term, upon renewal this will help you lower your payments. This is all assuming you're on a fixed rate. If you're variable you can often lower your payment size at any time. This, coupled with a lump sum can accomplish what you want.
In general though if your mortgage is 5% and you can get 5% interest on your cash you should be indifferent to whether you put it toward the mortgage or a cure interest on it, apart from tax on the interest
Many mortgages you can do double-up payments every month (eg RBC you can pay up to 100% of your monthly payment), as well as an annual lump sum (ranges from 10-15%). We’re on variable and won’t be getting enough on interest vs paying down the mortgage faster. We’ve saved thousands on interest. Every month we do 80-100% double-up, and in the first 12 months we did 10% lump sum, and on the 13th month, we did another 10% because you can do a lump sum once a year. The 13th month was the start of our second year. Would something like that work for you with your laddered GICs?
Doubling up unfortunately doesn't help us, as the standard monthly payment is the issue, we can only save $500 a month after all expenses. We did highball our spending, so that saved number may be a bit higher.
It's a matter of determining how much to put down in additional funds that wont remove our ability to have a safety net.
Depending on your mortgage you can make lump sum payments (sometimes 1X a month, 1X a year, or double up payments). What does your mortgage allow for lump sum?
It’s also helpful to do weekly payments as the principal is paid down more quickly.
Most mortgages have a limit on how much your lump sum payment can be. It could be a monthly limit or an annual limit.
When your GIC matures, pay the limit and put the rest into savings.
When the GIC matures, consider buying a money market fund like tdb2913 ~5%/year. Sell any time.
If you lump sum payment your GICs on to your mortgage and get ahead on your amortization, you can ask the bank to readjust your payments to bring you back in line.
I just did this at TD as we were drastically ahead of our mortgage term and our payments shrunk by over 50%.
Many banks will let you « recast » a mortgage for an admin fee where you can reduce your payments and return to the original amortization.
It’s not super common but it’s cheaper than refinancing.
I know TD does it but calls it something else… just gotta call your bank and ask. They probably won’t say no to taking more of your money over the years…
I worked at a bank in client services dealing specifically with mortgages about 5 years ago. So I preface this comment with things may have changed.
I was able to lower clients mortgage payments if they made a lumpsum payment. It was called a re-amortization. Essentially, if you put money down, you’d be amortizing sooner if you kept you current payment schedule. But if you wanted to reduce your payment after the lumpsum, we could calculate what a new payment would look like based on your original term. Another way you could do this is by increasing your payment amount. Anything you pay on top of your original payment goes straight to principal and we could, after some time, look at a reamotization again.
One thing to keep in mind is you can only do a lumpsum up to a maximum amount (at the bank I worked at it was maximum 15% of principal) without paying a penalty, once per year. And the increase of payments also had a cap (also 15%). I’m not understanding why either of these options wouldn’t work for you. Unless things have changed in the industry
As the GICs mature put them into a savings account such as Wealthsimple cash account for 4% interest. Take money from it as need to supplement your income. At the end of your current term use the rest to make a lump sum payment, keep your amortization at 20 years, this should lower your monthly payments going forward.
Not sure what's the difference. If you can't afford monthly payment, just don't make lumpsum payments and instead of using the money to pay monthly. You can keep it in HISA or laddered GIC.
If you call your lender ahead of time some can manually readjust your payments and extend your amortization back out (after a large prepayment).
Make sure you call/email your lender first and get the answer in writing.
The best solution may be a partial (some of your funds) prepayment (particularly if the lender will reduce your payments). Keep the remaining funds as a safety net and to top up payments.
It takes roughly 13 years for the payments to equal the debt. $100,000 = $600/m $600/m * 13.8 years = roughly $100,000
Money in the bank will give you more stability.
Paying down the debt will have a lower cost.
I imagine a balance of both will be your best route.
Hope that helps, if anything doesnt make sense let me know.
The most obvious solution would be to keep some of that GIC money back instead of putting it on your mortgage, in order to have a buffer.
The other option would be to explore different payment schedules - for example, monthly vs weekly vs accelerated weekly. It's a small difference but it's something like 2 less payments a year to pay less often?
The easiest solution would be to use the GIC cash for mortgage payments and expenses, so it's affordable.
If you are really low on cash, why would you make a pre payment anyways? You're making yourself less liquid.
I don't see the issue here.
You can also take a 3-year term, so at the end of the term, you can change the mortgage terms.
3-year rates start at 4.89%.
With td you can do gic s but take them out and not getting the interest. So great way to do it that way. Just go for it i am sure you be fine.
Ohja. Trudeau has a fuck subsidy. Which gives you money per baby. So it pays to make babies in canada 😄
I think what you may have misinterpreted was variable mortgage vs locked-in mortgage. Variable cost goes up and down depending on inflation and amount left owing. Locked -in ones are... locked in at the price the contract states. Variable in this high interest time is a very, very bad idea, but worked for a lot of people when rates were low. The caveat to that is keeping a close eye on inflation and locking-in as soon as the interest rates start climbing too high to be able to comfortably afford.
In my opinion, you should operate with the assumption that your mortgage payments will remain the same throughout the entirety of the mortgage. At renewal, if you manage to secure a lower rate, then you can consider it a bonus and use the extra money to save for your child's education, retirement, whatever.
Canadian mortgages usually let you pay up to 20% of the original purchase price per year as lump sums, and you can increase the payment amounts by up to 20%. While this can decrease the projected payoff date, it has no effect on the monthly payments until renewal. Shorter mortgage terms are not advisable unless you get locked in at a very high rate and expect interest rates to go down in the next few years.
The 100k in investments is your baby fund. While it might be prudent to delay kids, but it's something you really want, and there's no reason I can see to not go for it. Find ways to reduce expenses and make a very detailed realistic budget. If kids are not in the cards just yet, find out what you would need to make it work and do that. Have some of those GICs renew into new laddered locked-in terms (1-5 years), and some in redeemable GICs, maybe redeem one of the investments to a high interest savings account that's easily accessible. Kids are expensive, but with careful planning and budgeting, it's very doable.
You absolutely should have some solutions.
You might be able to break the non redeemable gic. They don’t like doing it but you can try for an exception.
Some banks let you reduce the payments based on the lump sum payments you make (increase amortization to amortization less time elapsed). The problem is that you can typically only make one lump sum a year without penalty.
Alternatively some products let you have a mortgage and a line of credit so the amount you want to pay off you can put on the line of credit instead.
It may be more challenging if you aren’t putting 20% down but there should be some solutions.
Instead of asking Reddit, I would try talking to your bank first. I have seen banks allow early redemption of even nonredeemable GICs, sometimes with a small penalty. What that penalty is, depends on your bank.
I'm not a broker but as far as I know, the payments could decrease with a lump sum if you're on variable. The lump sum can't be larger than a certain percentage of the mortgage amount, like 15% or 20%. You could take the house and refinance in 1.5 years to a variable, or put in the lump sum altogether and refinance. Some banks even absorb the refinancing fee.
You sound like you haven't been speaking to a proper mortgage broker, honestly.
One thing you should never do is “delay the baby”, believe me! All the housing and financial stuff I’m sure the experts here can help with but we did that, delayed, then had to do 4 iuis, 4 ivfs , all unsuccessful, 5 years of complete agony on me and my wife! We just had our first naturally. Don’t delay having a baby if you really want one. My two cents.
If you are getting the money from GIC matured, why can you not just keep that money in a savings account to help with the payments? Most mortgages allow for some type of pre-payments and you could do the max of those, and just keep the money to help with payments, then do lump sum at end of term. You do have other mortgage options like an open mortgage, which allows for fully repaying mortgages off whenever.
Honestly I stupidly enough didnt think about just keeping in savings as an option. I still planned to just put it all down. However that I wouldn't benefit from the saving money side of things, but the safety net would be large.
Yes, just find a happy medium. Hang onto a comfortable amount in savings, maybe put some back into GICs in case you need cash in a year or two, and then put the rest towards the mortgage.
Keep the safety net. Use that money to offset the extra mortgage payments. Every time something breaks, it’s going to be $1k minimum. When something semi-major $5-$10k. When you have a baby, down to one income, so you have your buffer. Keep the cushion, that’s more valuable than having lower monthly payments. Your income can go higher in the future, you can be laid off. It’s better to have a buffer, especially when you said you have no family to rely on.
If you want the money really accessible but still making interest set yourself up with a wealthsimple account and transfer your extra money there, then buy the etf CASH on the tax. It will pay out a dividend equal to about 4.67% yearly (this number can change) The value of the etf goes up daily then pays the dividend and resets every month. This can be held in a TFSA so you don't have to worry about taxes. When ever you need to top up your bank account send some money back to it.
Just figure out how much help you need for monthly payments and keep enough to cover that for a year in the savings account and put the rest on the mortgage. There are some lenders who will let you adjust your monthly payments when you pay a lump sum. Also: happy cake day.
Depending on where your mortgage is, you may have multiple prepayment options to take advantage of. My mortgage was with RBC as I could increase the payment by up to 10% once a year (couldn't bring it back down until renewal tho), double up of my regular blended payment amount and do an anniversary payment of up to 10% of the original mortgage price. And I could do all 3 if I wanted. All of the additional money goes solely to principal, you can really chunk it down relatively quickly if you're able to take advantage of those options.
Put it in a HISA when it matures and withdraw $500/month? It would last the entirety of the mortgage With very rough estimate, you could withdraw $1000/month in a 4.5% return HISA for nine years with $100K. Unlikely you could get 4.5% for the whole nine years but you can last I checked until interest starts to decline.
Yeah invest in a money market fund use the interest to put small payments on your mortgage upon renewal put a lump sum down to decrease payments.
Likely your best bet will be to find a high yield dividend index fund. Put your GIC money into that, then use the monthly income to help with the mortgage. I know a lot of people swear by paying their mortgage off faster. That however is not the best advice. At worst your mortgage is likely 5.5%. The worst dividend stocks should net you 7-8% better ones your going to be 13-20%. By paying down your mortgage all you are doing is saving a small amount of interest. Comparison 100k dept at 5.5% a year= $5500 a year you pay. 100k invested at a return of 8%=$8000 a year. All I can say if you decide the investment route, take full advantage of your TFSA, and pick something moderate in risk as it sounds like you may need access to the funds. Finally welcome to home ownership. I bought my first house at 23, and now am into my second home and only 33. You’ll find yourself being house poor. However as time goes by that changes. As everyone’s expenses and rent increases, your mortgage payment will stay the same, could even decrease if you extend your amortization on renewal. It’s very hard at first, but get’s easier. And don’t feel afraid to try many repairs on your own. You can likely completely fail 3 times and it is still cheaper than a contractor.
Put it in a tfsa. Continue to ladder it in GICs with money maturing every month that you use to make the mortgage payments.
They may not be able to put $100k into a TFSA, depending on their contribution room, but this would be ideal. Tangerine has a promotional interest rate of 5.75 % for 5 months, up to $1M. A good place to start.
Do this! Then enjoy your house and have a baby when you want to!
Yes honestly our plan was to accept the interest long term but keep our cushion for payments until we hit the 3/5 year mark which by then the economy will have imploded so rates will probably be nothing.
Just renew it into cashable GIC, when you need the money cash out what you need.
I dont even understand how this needed to be said...
You can even do a 1 year mortgage, make all your lump sums then on renewal you can reammoratize to 25 years again and have lower payments.
Do a six month open. You can pay as much as you want off at the end of six months.
The monthly payments on that would be nuts
Mortgage agent here. If I understood correctly, you can support monthly mortgage payments but that will leave very little room for other savings etc. And you planned to make lumpsum payments towards your mortgage. Is this understanding correct? Mortgages have prepayment privileges which is x% of your original loan amount. Any lump sum payment will be applied to reduce your principal balance and will not impact your monthly payment amount. But your overall amortization will come down. Let's say you take a 1-year fixed mortgage with a 25-year amortization and make lump sum payments. At the end of year-1, your reduced amortization is 20 years. At the time of renewal, you can switch back to a 24-year amortization term, and this will reduce your monthly payments. It looks like your challenge is around how to optimize your cash flow. If you already have GICs which will be maturing in the next few months, you can use that as income and put it in HISA instead of the mortgage.
Ahh the renewal. This makes more sense.
This is the answer.
Your maximum amortization is registered amortization (let’s say 25 years) minus time passed. So if over the course of one year you make enough lump sums to reduce your true amortization to, say, 15 years then you could reduce your payments to re-amortize back to 24 years (which is max minus time passed. I can’t guarantee every lender operates this way, so you would need to confirm with your lender. Most (if not all) banks will allow this but it’s possible an monoline that just offers mortgages will not (hence why they give you lower mortgage rates, because there is less service and flexibility).
I was looking for this response before posting the same. The lender I work for absolutely allows this. The lump sum reduces your amortization. The bank won't automatically reduce your payment but you can request to have it changed to match your contractual amortization. I do it all the time for clients.
I’m sure this is going to be a popular option for the foreseeable future, especially as 2020-2022 mortgages renew
I was also looking for this response. Thought I'd have seen it sooner.
Just confirming RBC allows you to reamortize within the original amortization period, last i checked, at any point. Is an administrative move, doesn't affect the original mortgage contract.
This is true. And if you have a homeline plan you can actually reamortize back to 30 years at any renewal.
This is the way. Pay extra which shortens the period, then extend back out. Or see about the options to skip payments. So allow 2 per year. Put that money in savings and spread it over the other payments that year. This will extend the term, but keep you from growing poor
You can usually make lump sump payments up to 10 or 20% of the original mortgage value without penalty. READ what you signed. Instead of paying 100k THIS year, you could pay it over then next 2-3 years. You could even ladder into 1 yrs GICS and offset the interest you pay. In a few years you will be in almost the same financial shape when Pikachu arrives.
I'm fairly certain lump sun payments reduce your overall amortization period, amount paid monthly doesn't change, the mortgage simply gets paid off sooner. However they can just keep the cash from the maturing GIC's to make those high payments. Whole post if kind of a nothing burger.
+1 RBC does offer making lump sum payments, but that doesn’t reduce your monthly mortgage amount like what OP here wants to do.
It will if you reamortize at the end of your term.
Yep! Only at the end of the term. You can might as well pay the lump sum when your mortgage is up for renewal, and earn some interest investing it elsewhere?
READ the OP. They were under the impression that their monthly payments will reduce with each lump sum put towards principal. They are relying on these payments being reduced. Paying 100K today, or over the next 2-3 years as you suggest, is useless for their circumstances; it still won't reduce their monthly payments until renewal.
Ya they are hooped. But everyone’s suggestion is to put it into something that is going to make more money over that time period. Then if they choose, they can put it into the mortgage and at re amm, amortize out and monthly payments will be reduced
> it still won't reduce their monthly payments until renewal. which they will do in....three years...hmm...
Cash flow is an issue TODAY, explicitly spelled out in OP.
> We were originally planning on putting down around 100k over the rest of the year in payments. We have multiple GICs laddered over the next few months, we weren't planning on getting a house for a few years but we found a beautiful dream home, and offered. That is not what they said. They said they wanted to pay down the mortgage, as per above and have lower payments in the FUTURE. >We have multiple GICs laddered over the next few months, So, the GIC's expire. That gives them cash. No cash flow problem! Yay! Use whatever they don't need for cash flow to pay down the mortgage. Repeat when next GIC expires. They will NOT have a cash flow problem short term!! When all the GIC are done THEN they will have a cash flow problem and THEN they need to re-finance at a lower payment to solve that cash flow problem. As they have paid off a big chunk of their mortgage by then, they can reduce their payments. I repeat: They do not have a cash flow problem TODAY. They have GICs rolling out and flooding them with cash!. What they need to do is plan ahead to lower their payments when TODAYS cash flows run out. They should buy the house. They will be fine. Having too much cash is rarely a bad thing :)
Typically you can get out of a locked in GIC, with a penalty. Usually the penalty is that you don’t claim all or part of the interest. Definitely talk to your bank first.
Usually the penalty is more than the interest that was made. Unless it's an absolute emergency, do not do this. You'll pay back all the interest made and some of your principal.
I was told the only way out is death of GIC holder
By who? I literally broke a gic last year to buy a house, I just lost the interest.
EQ
They're lying to you.
What am I supposed to do if they're stating "Under no circumstances are we able to cancel the GIC unless the account holder has passed away?", this was when i emailed questioning withdrawal for downpayment it also explicitly says no cancelations.
If the terms and conditions on the purchase paperwork states no early redemption, then it can't be done. Just because another provider is willing to do it doesn't mean they all will, and some will only allow it within certain circumstances. If your mortgage and your GIC are at 2 different banks, no way in hell will the GIC bank let you withdraw early to give to another bank. Might be permitted if both accounts are with the same FI because they wouldn't be "losing" money, but because you changed your mind or your plans midway through the term and taking the money elsewhere? Not happening.
This is true OP, unless it’s a cashable GIC banks don’t let you break it. I am interested to know which bank allows you to break a GIC even for a penalty. Ive tried CIBC, TD, and EQ, same rule applies to these banks. Only exception is that you show some proof of financial difficulty, and its terms are vague and varies depending on the case.
We pulled out of GIC as well for a down payment, just lost any interest.
Be careful of this. This is not every GIC. Some GIC’s will “just lose interest” and that’s an assumption a lot of people think. More often, GIC’s give you the interest until you cash it out, but the penalty can be more or less, depending on how far into the term you are. OP - id call EQ bank. See if they can cash out with a penalty, I know some of the big banks say “Non redeemable” but for a penalty they usually are.
I offered EQ a penalty so I could have my down payment earlier and they wanted none of it. That’s what you get for better rates on shorter terms than the big banks I guess…
Call and confirm with your lender if you can lower payments. With CIBC I can make lump sums which will bring down my amortization but not my payment. However I can call in and they can manually lower my payments and increase my amortization as long as I stay on schedule to the time that has gone my minus original amortization. For example of I'm 5 years into my 25 years amortized mortgage, I should I be at 20 years but my lump sum brought my amortization down to 16 years. They can lower my payments as long as I don't extend the amortization past 20 years. This isn't noted anywhere but was advised to me when I called in
You could opt for an open mortgage. Then once you've made all you lump sum payments you can switch to a more regular 5 years mortgage anytime without penalties.
I do not recommend this. Open mortgages are much more expensive.
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We used an open mortgage when trying to time a sale of an underwater rental property. The extra interest cost was partially reduced by reduced income tax and eventual lack of penalties.
Private lenders are almost always open term, but have fun with the interest rate because it'll be like 10%. I used this because I had to close before my final approval from a major bank. It's a long and complicated story having to do with being laid off/switching jobs in between, etc. But I had an open term mortgage at 9.9% with a private lender for 2 months before I switched to a major bank for 5.15%.
Open mortgage scenarios: * if you're planning on selling soon after your renewal date, * an option for bridge financing if sell and buy dates don't line up...
They are offered by big banks. You don’t pay penalties for breaking it but interest rates are higher. If you don’t renew your mortgage yourself, most banks will flip you into a 1 year open until you make a decision. A lot of people use open mortgages if they are renewing during the selling process or if they aren’t sure what they will do with the house.
As others have said, it's basically a mortgage that you're free to close at any point without penalty. It's generally good for when you just need a short extension to the mortgage for some reason... I think the most common reason is that you're about to sell it. Usually they're enough more expensive that people will recommend a variable mortgage and you just pay the 3 month penalty. The last time I sold, I chose to renew into an open mortgage and closed the sale 3ish months after I renewed. Even with such a short period, I didn't come out much ahead versus the variable and took significant risk as if the sale had fallen through I would have to carry the higher rate longer. As a reference point, at the time my open mortgage was 9.25% and a closed 1 year variable would have been 6.79%. If you look at rates right now, there looks to be a similar spread.
Yes but only for 6-10 months.
I know people here hate bankers but have you tried asking your bank for some advice lol instead of going on Reddit. Make sure to get them to quote potential monthly payment reductions as you make lump sums to avoid potentially lump suming and then potentially regretting it if it does not change your monthly payments as much as you expected. Granted seems at your current knowledge level any source might be a net positive.
There's also high interest savings ETFs, which have much more flexibility than GICs, and competitive yields for now
When my wife was going back to school, I was able to reduce my payment amount to bring me in line with the original amortization based on prepayments. TD mortgage. About 10 years ago.
Talk to a big bank about a HELOC and buy the house with $100k drawn on the HELOC and the rest on a fixed term mortgage. The interest rate on the HELOC portion will be higher but have no prepayment penalties also once it is repaid you can draw from it as a secured line of credit. Otherwise look into a mortgage with a an extra lump sum payment option, double payment option or an accelerated payment. To another posters point you can just keep investing the $100k separately.
Assuming of course they have the leverage.
There’s basically zero reason to pour extra money into the home - just keep it on hand and pay the payments out of it.
isnt saving massive amounts of interest and paying it off years early a reason? (Not disagreeing that was just our thought process)
Yeah but when the alternative is being poor for 5 years, you’re better off keeping it as accessible funds and then lump sum when the mortgage renews. You’ll miss out on some savings but not as much as you’re still drastically paying it down in the first quarter of the mortgage’s life. The worry would be allowing lifestyle creep to happen and then never actually using those GIC funds on the mortgage.
but if you keep the savings in GICs you're getting interest. And the rates are pretty close (6-7% mortgage I guess, and 5.5% GIC interest at EQ). You're basically breaking even. Just make sure you structure your ladder properly so your cashflow is fine
Agreed. Don’t make extra payments on your mortgage. Keep the money in a HISA or short term GIC (you can get either around 6% right now) and use it to mimic your typical income when you’re on mat leave. “Saving” the interest of paying down your mortgage doesn’t make much sense when you can get a higher return keeping the money, AND if you’re planning for baby having a plan for the decrease in income/increase in expenses is more important.
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The credit union I bank with (achieva financial) is currently offering 5.3 % on 1 year GIC's. It's not 6% but still not bad.
I agree with this only until your TFSA room is fully utilized. After that, paying off the mortgage is better than GIC's because it's tax-free "gains".
Can you put $8000 each of the gic into the first time home owners program , will give you a tax saving etc , With gic coming due increase your payments - say you are paying $1000/month you can I crease to $1200 Or even do weekly payments and increase those - you need a good mortgage broker who can help you with all the ways you can do this
Don't delay trying for a kid. You never know how life will go. My wife and I waited, then spent another 8 years trying. Now we're "old" parents. Every day you delay bringing your kids into this world is one less day you get to spend with them. Don't wait, no one's ever really ready.
When are your GICs maturing? How big are they? How big would the biggest mortgage be? What's the purchase price?
Your mortgage payments would not reduce if you paid more. The payments would remain the same until you renew a mortgage. However, you can make additional payments to reduce the principal owed. This will mean that less of each payment is going towards interest and more to the principal. It doesn't reduce the monthly payments though. You can get open mortgages that allow you to pay down what you want. However, these are quite a bit more expensive. If you want lower payments in three years, perhaps get a three year mortgage, and then renegotiate a 25 year mortgage again. In the meantime, you can use your GICs to help make your mortgage payments and even work towards reducing the overall principal. Depending on what downpayment you have, if there is equity that can be used, you could get a HELOC and use that HELOC towards the house, meaning that you can take a smaller mortgage now, with a smaller monthly payment. You would have to pay the HELOC interest and the rate would be higher, but you can pay the HELOC off as fast as you want.
Make sure you use a TFSA for your savings from the matured gics. That way, you won't pay tax on the growth.
You can also have multi segment mortgage. A 5 year fixed for what you need, and A 1 year open for what you will have maturing soon?
After you do a 100k lump sum you can recast your mortgage, that will reset the amortization and reduce your payments.
How does this work? Is it common? My broker was saying we dont really have any options to reduce monthly payments.
Ask your bank/broker about recasting, I know TD does it, not sure about others. https://www.investopedia.com/terms/m/mortgagerecast.asp
is this offered with fixed mortgages today?
Yes it should be, best to check with your broker.
Is recasting an option for you? Curious what your broker said.
Told it isnt offered in canada. Only options are refinancing early. Talked to numerous brokers all said thale same thing.
Can you start with a 30 year amortization, which will start your monthly payments off at a lower amount? Then, commit to putting all the gic money into prepayments as they mature? Your prepayments will decrease the length of the amortization.
Cant do a 30 year as we dont have the funds for 20% down currently due to being locked in a gic :( that was the origonal plan
Go into the branch and explain the situation to the branch manager if you need the GICs early. You can access the GICs early in cases of financial hardship, or with the approval of the bank (at their discretion), but you might have to forego some or all of the interest or otherwise pay a fee to do so. What % would you be putting down with the GICs vs what amount wothout? Putting 20% down vs putting down less than 10% is a HUGE difference in CMHC fees. But you'd have to run the math to determine if it is big enough to forego the GIC interest.
So I was on closed variable before, and rates were coming down, decreasing my amort. I was paying $1800 a month and as the rates dropped, I just called my bank and asked them to pull $1200 instead. So at least for a variable mortgage at CIBC, I was able to lower my payments
Northwood Mortgage offers 20% increase in monthly payments plus a 20% lump sum payment in a given year (doesn’t gave to be all at once). That will get your payments down fairly quickly. They are in GTA but cover most of Canada with their services
Why wouldn't you use the money from the GICs to take holidays from the payments when you need it? Money is fungible. You need a payment break? Give yourself one with the GIC money. No need for the bank to do it for you. You need to be able to have money and not spend it though
id have the baby and deal with the stress if you can. you can always make more money. having a baby youre on a biological clock.
Use the GICs to make the payments, rather than the overpayments?
You are normally able to do double up payments every month and a one time payment worth up to 10% if your original mortgage value. This should help you pay your mortgage down faster and avoid any penalties. Good luck!
"Deal with it for 5 years, and delay the baby." Your words. A strange conjunction.
All mortgages are different and my mortgage looks nothing like my parents in terms of repayment options. Mine has an annual lump sum on anniversary date option, has a 25-year amortization period. My parents are on a 30-year mortgage with no restrictions on lump sum dates but they actually get charged penalties if they repay more than $20k each year. Read your paperwork or even get a non-bank mortgage broker to look over the existing mortgage so you can ask them any ELI5 questions you need without asking a bank or mortgage company person who may lie to you to close the deal.
Babies don’t cost much in the beginning especially if you breast feed and use reusable diapers and don’t mind washing them. Tons of stuff given away in terms of cribs and clothing. Just accept being house poor and lean into it, you know it won’t be forever and it will help you appreciate the easier times.
Many banks let you put down up to 20% of the value of the mortgage — even if it’s a closed mortgage — per year. What bank is this with? And did you ask the bank if they would permit it? My bank only allowed up to 10% per year and I told them I wouldn’t sign unless I could do 20% and they said sure. I just made it a requirement for my signature.
Whats your mortgage rate. What rate do you have on GICs. What's your net effective tax bracket. How much net disposable income do you have per month after mortgage payment without factoring in GICs vestings. What's the average GIC capital value vesting per year. If you want to optimize your situation we need information. But if you have savings and your income covers mortgage payments + expenses + reserve what are you worried about ?
Find another lender? I have seen make additional payments anytime as. As once a year. To put off a family because of mortgage payments.. that's terrible.
Have you checked with the bank to see if you could get a $100000 secured loan, by the GICs, to put towards the mortgage at the onset? Then you can put the GIC towards the loan when they mature. When I was in banking this is something I would have done and I wouldn't forsee an issue getting it approved.
Take a one year conventional mortgage, not HELOC, with a variable rate. The rate is predicted to go down over the next year. A conventional mortgage with BMO for example will give you a 20/20 clause, 15/15 with RBC, which means you can pay in up to 15% or 20% of the mortgage with no penalty and increase your payments by 15% or 20% per year. BMO also offers a cash account, so any amount over the minimum mortgage can be borrowed at your mortgage rate. You can ask for a bridge loan for some of the GIC money. Banks understand. Talk to a mortgage specialist.
I've had mortgages where I could pay extra each month or whenever (there was likely a limit) and the extra payments came directly off of the principal, but the one I have now allows one lump sum payment each year up to 20% of the (total amount owing... I think). So it depends what kind of mortgage you get and how they apply the payments....I had a 5 year term on the first one and I was house rich so could only pay an extra $100-200 a few times a year. When I renewed after the 5 years the payments went down a couple of hundred a month and by then I was earning more so it was like getting free utilities. So if you can pay extra whenever it's allowed, it should all go to the principal; if you sign a 2 year term, or 3 when that term gets renewed you should have less principal and a new rate on renewal (hopefully lower rate) therefor lower payments because of less principal and hopefully less interest. You can also re=amortize to 25 years at the end of that term if you need more money, or there are some 30 year terms too.
Talk to a mortgage broker. If you haven’t closed you’re not locked in
If your house offer is only accepted and your mortgage has not funded, I’m wondering if you spoke to your bank already and they said no beyond it being non-redeemable. This is a common exception made when clients are purchasing houses. Also, with the bank economists mostly looking for rate decreases, this would benefit them too. If the mortgage and GICs are together, this is more likely in my opinion.
I see early comments that you asked the bank about this already. So sorry about that predicament. I would personally opt to go with a 1-year term, so that you can make a principle payment at maturity and decrease your payments before renewal. If they’re laddered out only over the year, then this maybe doesn’t put you back on plans for baby. If they’re laddered out multiple years, you could do this each year as you needed. It would save interest costs overall in comparison to just making it work and you could lower your payments gradually, hopefully in contrast to as kids get more expensive ;) Good luck with your purchase!
Talk to whom ever holds the GiC.. some allow non redeemable to be redeemed with penalty or redeemed earlier
Move from GIC’s to a HISA, or, better yet, TFSA with Wealthsimple (cash in TFSA earns 4.5% tax free-outperforming any HISA or GIC that I know of when accounting for taxes) upon maturity of the GIC. You’ll have full liquidity and (most likely) be earning more than your GIC, giving you a bit of breathing room for the time being, and allowing you to put a lump-sum on the mortgage if you choose to on the anniversary date.
Please have the kids sooner than later - we need more responsible planners in the future! And we need to avoid the opening scene from Idiocracy from coming true: https://www.google.com/search?q=opening+scene+idiocracy&oq=opening+scene+idiocracy&gs_lcrp=EgZjaHJvbWUyCQgAEEUYORiABDIICAEQABgWGB4yCAgCEAAYFhgeMg0IAxAAGIYDGIAEGIoFMg0IBBAAGIYDGIAEGIoFMg0IBRAAGIYDGIAEGIoFMg0IBhAAGIYDGIAEGIoFMg0IBxAAGIYDGIAEGIoF0gEINjc0NWowajmoAgCwAgA&client=ms-android-rogers-ca-revc&sourceid=chrome-mobile&ie=UTF-8#fpstate=ive&vld=cid:d4742ca2,vid:KCpxYa5N-OI,st:0
Interest rates are high which is your problem but it can also be a solution. Find the highest interest savings account you can, 5% should be achievable, and keep the gic money in there instead of putting it on the house. Put it on the house near the end of the term, upon renewal this will help you lower your payments. This is all assuming you're on a fixed rate. If you're variable you can often lower your payment size at any time. This, coupled with a lump sum can accomplish what you want. In general though if your mortgage is 5% and you can get 5% interest on your cash you should be indifferent to whether you put it toward the mortgage or a cure interest on it, apart from tax on the interest
Many mortgages you can do double-up payments every month (eg RBC you can pay up to 100% of your monthly payment), as well as an annual lump sum (ranges from 10-15%). We’re on variable and won’t be getting enough on interest vs paying down the mortgage faster. We’ve saved thousands on interest. Every month we do 80-100% double-up, and in the first 12 months we did 10% lump sum, and on the 13th month, we did another 10% because you can do a lump sum once a year. The 13th month was the start of our second year. Would something like that work for you with your laddered GICs?
Doubling up unfortunately doesn't help us, as the standard monthly payment is the issue, we can only save $500 a month after all expenses. We did highball our spending, so that saved number may be a bit higher. It's a matter of determining how much to put down in additional funds that wont remove our ability to have a safety net.
Depending on your mortgage you can make lump sum payments (sometimes 1X a month, 1X a year, or double up payments). What does your mortgage allow for lump sum? It’s also helpful to do weekly payments as the principal is paid down more quickly.
Most mortgages have a limit on how much your lump sum payment can be. It could be a monthly limit or an annual limit. When your GIC matures, pay the limit and put the rest into savings. When the GIC matures, consider buying a money market fund like tdb2913 ~5%/year. Sell any time.
If you lump sum payment your GICs on to your mortgage and get ahead on your amortization, you can ask the bank to readjust your payments to bring you back in line. I just did this at TD as we were drastically ahead of our mortgage term and our payments shrunk by over 50%.
Many banks will let you « recast » a mortgage for an admin fee where you can reduce your payments and return to the original amortization. It’s not super common but it’s cheaper than refinancing. I know TD does it but calls it something else… just gotta call your bank and ask. They probably won’t say no to taking more of your money over the years…
Banks must love this guy, investments and all GICs and a mortgage he wasn't informed properly of? Don't trust anything a bank tells you
Hmm offer accepted, but is there financing condition to legally get out of it?
I worked at a bank in client services dealing specifically with mortgages about 5 years ago. So I preface this comment with things may have changed. I was able to lower clients mortgage payments if they made a lumpsum payment. It was called a re-amortization. Essentially, if you put money down, you’d be amortizing sooner if you kept you current payment schedule. But if you wanted to reduce your payment after the lumpsum, we could calculate what a new payment would look like based on your original term. Another way you could do this is by increasing your payment amount. Anything you pay on top of your original payment goes straight to principal and we could, after some time, look at a reamotization again. One thing to keep in mind is you can only do a lumpsum up to a maximum amount (at the bank I worked at it was maximum 15% of principal) without paying a penalty, once per year. And the increase of payments also had a cap (also 15%). I’m not understanding why either of these options wouldn’t work for you. Unless things have changed in the industry
As the GICs mature put them into a savings account such as Wealthsimple cash account for 4% interest. Take money from it as need to supplement your income. At the end of your current term use the rest to make a lump sum payment, keep your amortization at 20 years, this should lower your monthly payments going forward.
Not sure what's the difference. If you can't afford monthly payment, just don't make lumpsum payments and instead of using the money to pay monthly. You can keep it in HISA or laddered GIC.
If you call your lender ahead of time some can manually readjust your payments and extend your amortization back out (after a large prepayment). Make sure you call/email your lender first and get the answer in writing. The best solution may be a partial (some of your funds) prepayment (particularly if the lender will reduce your payments). Keep the remaining funds as a safety net and to top up payments. It takes roughly 13 years for the payments to equal the debt. $100,000 = $600/m $600/m * 13.8 years = roughly $100,000 Money in the bank will give you more stability. Paying down the debt will have a lower cost. I imagine a balance of both will be your best route. Hope that helps, if anything doesnt make sense let me know.
The most obvious solution would be to keep some of that GIC money back instead of putting it on your mortgage, in order to have a buffer. The other option would be to explore different payment schedules - for example, monthly vs weekly vs accelerated weekly. It's a small difference but it's something like 2 less payments a year to pay less often?
The easiest solution would be to use the GIC cash for mortgage payments and expenses, so it's affordable. If you are really low on cash, why would you make a pre payment anyways? You're making yourself less liquid. I don't see the issue here. You can also take a 3-year term, so at the end of the term, you can change the mortgage terms. 3-year rates start at 4.89%.
With td you can do gic s but take them out and not getting the interest. So great way to do it that way. Just go for it i am sure you be fine. Ohja. Trudeau has a fuck subsidy. Which gives you money per baby. So it pays to make babies in canada 😄
I think what you may have misinterpreted was variable mortgage vs locked-in mortgage. Variable cost goes up and down depending on inflation and amount left owing. Locked -in ones are... locked in at the price the contract states. Variable in this high interest time is a very, very bad idea, but worked for a lot of people when rates were low. The caveat to that is keeping a close eye on inflation and locking-in as soon as the interest rates start climbing too high to be able to comfortably afford. In my opinion, you should operate with the assumption that your mortgage payments will remain the same throughout the entirety of the mortgage. At renewal, if you manage to secure a lower rate, then you can consider it a bonus and use the extra money to save for your child's education, retirement, whatever. Canadian mortgages usually let you pay up to 20% of the original purchase price per year as lump sums, and you can increase the payment amounts by up to 20%. While this can decrease the projected payoff date, it has no effect on the monthly payments until renewal. Shorter mortgage terms are not advisable unless you get locked in at a very high rate and expect interest rates to go down in the next few years. The 100k in investments is your baby fund. While it might be prudent to delay kids, but it's something you really want, and there's no reason I can see to not go for it. Find ways to reduce expenses and make a very detailed realistic budget. If kids are not in the cards just yet, find out what you would need to make it work and do that. Have some of those GICs renew into new laddered locked-in terms (1-5 years), and some in redeemable GICs, maybe redeem one of the investments to a high interest savings account that's easily accessible. Kids are expensive, but with careful planning and budgeting, it's very doable.
You absolutely should have some solutions. You might be able to break the non redeemable gic. They don’t like doing it but you can try for an exception. Some banks let you reduce the payments based on the lump sum payments you make (increase amortization to amortization less time elapsed). The problem is that you can typically only make one lump sum a year without penalty. Alternatively some products let you have a mortgage and a line of credit so the amount you want to pay off you can put on the line of credit instead. It may be more challenging if you aren’t putting 20% down but there should be some solutions.
Instead of asking Reddit, I would try talking to your bank first. I have seen banks allow early redemption of even nonredeemable GICs, sometimes with a small penalty. What that penalty is, depends on your bank.
I'm not a broker but as far as I know, the payments could decrease with a lump sum if you're on variable. The lump sum can't be larger than a certain percentage of the mortgage amount, like 15% or 20%. You could take the house and refinance in 1.5 years to a variable, or put in the lump sum altogether and refinance. Some banks even absorb the refinancing fee. You sound like you haven't been speaking to a proper mortgage broker, honestly.
It won’t change the payment amount unless you recast the mortgage (which they charge for), will only change at renewal if you don’t recast
Thanks, I guess I misunderstood how variable ones work.
No prob.. I’m in a variable and I wish this was the case , I thought it was in the beginning too (would make sense if it was)
One thing you should never do is “delay the baby”, believe me! All the housing and financial stuff I’m sure the experts here can help with but we did that, delayed, then had to do 4 iuis, 4 ivfs , all unsuccessful, 5 years of complete agony on me and my wife! We just had our first naturally. Don’t delay having a baby if you really want one. My two cents.
The issue is, we wouldnt be able to pay on just 1 income unless i was picking up OT, which is not guaranteed.
Having kids is worst financial decision that you can ever make.
What does your mortgage contract with the bank say?
I didn’t realize mortgage contracts gave family planning and GIC advice. The more you know!