Topic: Mortgage Interest Rate Buy Down

[Griswald, DME]

I'm hoping others are willing to share their experiences regarding mortgage rate buy downs via the IRP program.

I'm curious how many have taken advantage of this?  We did for our first house via the IRP program and have really benefited from a low interest mortgage.

There's a good explanation of this process (along with a calculator so you can crunch numbers) here if anyone is curious how much they can buy down to:

http://www.canadamortgage.com/articles/learning.cfm?DocID=30&CFID=2393275&CFTOKEN=95336139

Keep in mind you can't go below the CCRA prescribed rate, although it's only 2% currently!  Plus you can access the 25K no interest for five year loan via the IRP program as well, which means if you combine that with an interest rate buy down you can go less than 2% on your mortgage.  It has to be a fixed rate mortgage though.

I believe if you use your excess cash from an IRP move (from Custom envelope?  I forget which envelope) it's a tax free benefit vs taking the cash and using it for whatever (then you are taxed on it).   I have to double check on this but I'm almost certain this was tax free.

I'm curious if you use your posting allowance to buy down your interest rate if that money also becomes tax free... does anyone here know for certain?

[MJP]

I used it for my recent move and have an amazing fixed rate for my mortgage.  I usually use a variable rate but crunching the numbers I couldn't come close to my fixed rate that I have now.  Looking at the detailed listing of expenses I used both my Custom and my Personalized to do the mortgage buydown.  I am pretty sure that it is tax free as my tax benefit summary is really low.

I had excellent service through HLC, drop me a PM if you want the name of the person I used.  They rocked and made sure every step of the way I knew what was going on.  Highly recommended IMHO.

[Nix]

We did this and since we bought a fixxer upper for dirt cheap, we combined the buy down with our interest free home loan for a combined mortgage rate of 0.845%.  And yes, I am bragging! 

[Griswald, DME]

We did this and since we bought a fixxer upper for dirt cheap, we combined the buy down with our interest free home loan for a combined mortgage rate of 0.845%.  And yes, I am bragging! 

Holy Crap, less than 1%?

[Harley Sailor]

We did this and since we bought a fixxer upper for dirt cheap, we combined the buy down with our interest free home loan for a combined mortgage rate of 0.845%.  And yes, I am bragging! 

And to think I was happy that they dropped my renewal rate by that much

[Nix]

I noticed they dropped the prescribed rate to 1%.  Combine that with the 25K no interest and you could get damn close to 0% mortgage.

[armywife411]

Is this 25K loan something new?? I have never heard of it and we bought our first house 3 years ago.

[Nix]

No it's not new.  It's been around for as long as I can remember.  It's the member's responsibility to read the documents IRP gives you.  If you don't read them, you lose out on a hell of a lot of money.  I can't stress this enough.  Read those books, no matter how thick and boring they appear.  I'm serious too, because if you don't know about this and you've purchased a house (assuming it was an IRP move) then there's a lot of other stuff you're most likely missing out on.

[achichirau]

What is and how do you get this 1% prescribed rate?

[Elorajen]

We took advantage of this last year, so our rate is low, but hell if it couldn't be lower. I think we are at 3.85% (this was before the interest rates started to drop).

The 25K thing isn't a loan, you just don't pay interest on your mortgage for that portion. Have a 100K mortgage, and pay interest on 75K.  We also used what was left of the envelopes to pay down the mtg further. I beleive it is tax free, because it becomes a taxable income when you go to sell.

Please, correct me if I'm wrong, this is how I understood it.

[Nix]

When it really comes in at a sweet deal is when you almost have your house paid off and you have no interest on 25K of it for five years   I wonder if you only needed 25K mortage if you could use it over the five years for no interest?  If you're not paying any interest on it then it's not worth paying the 25K off in one year even if you could...!

[3Green]

I've been told by RLP that this option is ONLY available through Home Loans Canada (a division of CIBC). While they have been very good to me in the pre-approval stage and I'd be happy to work with them, several other banks have said that they too can accommodate a mortgage interest rate buy down using RLP envelopes.

I called my RLP rep, as well as 2 others that I've dealt with, all 3 of them collectively couldn't tie a shoe lace. To make a long story short, they have all each given me different answers to the same question, so I have about 10 different answers.

Ultimately RLP has to send the funds to whatever bank I go with so the bank alone telling me that we can do a buy down isn't enough. At some point, RLP will have to agree. Just to be clear, we're talking about an interest buy down - not an interest subsidy (that option expired when I moved into a PMQ vs directly into a house I purchased.)

It seems odd that as gov't employees we'd be locked into dealing with ONLY one specific institution to use an allowance (and a considerable allowance at that.) It sounds corrupt and unfair to all the other competitive institutions that they too cannot offer their services to us because we have to use this allowance. It amounts to HLC cornering the market on the whole CF.

Is it true that you can ONLY use HLC for a buydown? Or is that custom envelope available for a buy down at any bank?

[Nix]

And to make it worse, you should see my mortgage contract with HLC; it's so full of spelling and grammatical errors it's scary to think it's a legal document.  And we're not talking the odd spelling error, the document is chocked full of them.. every paragraph has at least two or three.

They were horrible to deal with but unfortunately (at least this is what IRP told me) HLC were the only ones to answer an RFP for this service from the Feds, so there must not be a lot of benefit from their end for providing this to us.

You have the option of keeping only the $25K part with HLC and the rest of the (normal) mortgage with whomever you choose, but keep in mind HLC will not be happy if you do this.  They tried so hard to get us to avoid this that they even lied about what mortgage rate HLC could offer us should we stick with our (then) current provider.  We phoned our current provider who told us that was simply not true.

[CBH99]

Forgive me for these questions, but I am definately curious.

I'm in the process of purchasing a house AS WE FLIPPIN' SPEAK.  Looking at properties tomorrow, and will be putting an offer in by the end of the week.

I am a reservist out of Lethbridge, Class A.  Does any of this apply to me??  And if so, how do I access this??

[Adam]

I just relocated to Trenton.   Brookfield relocation (IRP) recommended  CIBC Group Mortgages,
They offered a 35 year mortgage, 3.6%(with the buy down) at a five year fixed rate, with a monthly payment of $550.

Then a friend told me to contact Manualife 1.  They offer a Home Equity loan, Resulting in a monthly payment of $341 and the loan will be paid off in 12 years, saving me $131,000!

 

[Adam]

A correction to my last post, with a payment of $550 at a 3.2% interest rate for 12 years.

[Occam]

Then a friend told me to contact Manualife 1.  They offer a Home Equity loan, Resulting in a monthly payment of $341 and the loan will be paid off in 12 years, saving me $131,000!

That's Manulife One, if you're Googling it.

I only skimmed them, but did you read the posts here:

http://www.redflagdeals.com/forums/manulife-one-mortgage-166864/
http://www.redflagdeals.com/forums/warning-manulife-bank-ripping-off-manulife-one-mortgage-account-customers-647071/23/#post7707488

[Occam]

For those who weren't already aware:

http://home.hlcmortgages.com/area.php?s=About%20Us&p=1

"HLC Home Loans Canada ("HLC") is a division of CIBC Mortgages Inc. in Saskatchewan; in all other provinces, 3877337 Canada Inc., a subsidiary of CIBC Mortgages Inc., carries on business as HLC Home Loans Canada."

[Nix]

I am a reservist out of Lethbridge, Class A.  Does any of this apply to me??  And if so, how do I access this??

If it's an IRP move then yes, you are entitled to it.

[Petamocto]

I just got done with this myself, having been posted to Gagetown from Pet this past spring/summer.

I used every penny of my interest buydown, both my entire monthly salary, and $1,500 left over in my custom envelope.

All banks will let you use the personalized (monthly rate), but you can only use Custom funds if you go with Home Loans Canada (CIBC).

The thing about the buy down is that the cheaper your house, the higher the rate buy down.  For ex, if you bought a million dollar home, your $6,000 might only buy down your 4% loan to a 3.95% loan...but if you bought a $100,000 house it might buy your 4% down to 3%.

On my $222k house in Oromocto West, I was able to buy down my locked in 3.75% to 3%, and then with my extra $1,500 it ended up at 2.8%.  Highly recommended savings yes, but I had nothing but bad luck with HLC/CIBC at the beginning.

They completely misplaced my funds for a month (until I prompted them), because my first two payments came out showing no buy down at all.  After I lost my mind in rage I had the receipts from the lawyer and IRP showing that the money had been spent, and then CIBC finally saying "whoops, we accidentally put the money in the wrong spot".

Make sure you track your pennies!

If there's one tip I can give you, it's buy a trailer!  Even if you have a Honda Civic, spend the $1,000 on a trailer with the wiring harness.  Here are three reasons why:

1 - When the movers pack your house, they won't pack anything liquid.  This means not just booze, but everything from shampoo to tanning oil.  If you add up all these things in your house, they are likely several hundred dollars.  Your trunk will be full of luggage and valuables, so put the piquids on the trailer!

2 - Every time you move, you will get 50% more mileage if you have a trailer.  So say you would get $1,000 for gas and wear and tear, you'd now get $1,500.  Yes you actually will spend some more on gas money, but certainly not 50% more for a little 8x5' flat trailer.

3 - Say you have something like a motorcycle or snowmobile that you would have to pay more for out of your custom envelope ($300-$500) for the movers to ship.  You know where I'm going with this: put it on the trailer!!  Save that $500 in your custom envelope for more buy down $$.

So in one move, for the cost of $1,000 to buy it, and $200 more in gas, you've saving $500 if you have a bike, getting $500 more free money, and saving several hundred in alcohol / other liquids.  So if you have a motorcycle, in one move you have a free trailer.  If you have no bike, it will take you a couple moves to get your free trailer.

[Titan]

The best option (financially) in my opinion is to utilize your envelopes (personalized & customized) in the most tax effective way to lower your mortgage rate, without incurring a taxable benefit.

Mortgage interest Buydown
You would be able to use the funds in your personalized envelope towards buying down your mortgage rate up front. This way you get full value for your money vs. taking it in cash upon moving in which case it is taxed.

Mortgage Interest Subsidy
You would be able to use the funds in your customized envelope towards subsidizing $25k of your mortgage to 0% interest, again without incurring a taxable benefit, the alternative would be giving this money back to brookfield upon moving


When you combine these 2 rate reductions, you are looking at a far lower mortgage rate than a Manulife One product, or any other "discounted" mortgage provider. 

The biggest advantage is that if you are posted and you are in a mortgage term, you can port your boughtdown mortgage rate to the new location, without paying a mortgage breaking penalty.

I personally have assisted hundreds of DND members for the last 6 years with their relcoation mortgages, and have had great feedback from all of them. I work alongside IRP (Brookfield) so as to make the relocation process for DND Members as seamless as possible.

Cheers,
T

[Nix]

Mortgage Interest Subsidy
You would be able to use the funds in your customized envelope towards subsidizing $25k of your mortgage to 0% interest, again without incurring a taxable benefit, the alternative would be giving this money back to brookfield upon moving

When you combine these 2 rate reductions, you are looking at a far lower mortgage rate than a Manulife One product, or any other "discounted" mortgage provider. 

It will be interesting to see what the group mortgage plan offers me.  I can get 3 yr fixed at 3.35% and that is not including the buy down.  I have not checked with the group mortgage yet, but I've always found CIBC and Firstline to not offer the most competive rate, so in the past I went variable (which does not entitle me to the $25K subsidy), cashing out my envelope and I was still ahead of the game without using the subsidy.

Plus, Firstline or CIBC insist on the interest rate differential or 3 months penalty (whichever is more), and, while this may not affect us in today climate of rising interest there are no guarantees.  I do find it a bit weird that they have the DND contract but they have no DND clause; apparently it's "before their lawyers" (and has been for quite some time so I will be surprised if I see them come out with a DND clause anytime soon).

I haven't checked what rate I can get for 5 yr fixed but it will be interesting to see what I'm offered so I can do a comparison.  Has anyone here asked CIBC or Firstline to rate match?  Have you had any luck? If they price match I may take the risk of the penalty and still go with CIBC or Firstline.

[Titan]

Are you being posted? and do you have personalized and customized funds? These make a big difference in the final mortgage rate you would pay.

In regards to the penalty, the greater of IRD or 3 months interest is standard at all banks on closed fixed-rate mortgages at all banks.

Cheers,
T

[Nix]

Are you being posted? and do you have personalized and customized funds? These make a big difference in the final mortgage rate you would pay.

Of course they can make a big difference in the rate.  I know all about the options available to me for buy down, and I also know that the interest rate buy down is NOT ONLY AVAILABLE via the group mortgage (ie CIBC or Firstline).  I stress this because I’ve been outright lied to, told that a buy down is only available “from us” (ie the group mortgage plan).

Like I mentioned in my previous post, it wasn’t worth my while to accept the higher rates being offered via CIBC or Firstline in order to obtain no interest on $25K for max 5 years – the spread between them and my lender was too large to make it worthwhile.  It would be nice to know if they will rate match, as it would be nice to get 3.35 fixed for 3 yrs less the buy down and the subsidy for those 3 years, even with the inconvenience of how you have to make extra payments.

In regards to the penalty, the greater of IRD or 3 months interest is standard at all banks on closed fixed-rate mortgages at all banks.

ING, Scotia Bank, Scotia Bank, as well as some Trusts offer 3 month only penalty for fixed mortgages when it’s a RCMP / DND move.   So it may be standard at all banks, it’s a bit misleading to say it’s standard at all banks when many offer DND members the 3 month only interest penalty, which I want to stress again, is extremely important to get if there’s any chance of rates going down as it can cost you thousands upon thousands of dollars in penalties that IRP DOES NOT REIMBURSE.  I still don't see the group mortgage (via CIBC and Firstline) finalizing the clause anytime soon, which is a shame seeing as they have the contract.  I understand why, they of course need to make money, but they also need to remain competitive.

I do not want to come off as knowing it all, but I do know enough, and am still learning.  The best thing I can say is, members who want to save a lot of cash need to do a lot of research and don't believe the first thing they hear from anyone.  I’ve been researching online and speaking with many, many mortgage brokers and specialists for years and I’m still learning ways the banks and other FI’s screw you over with mortgages.

[Titan]

That's an excellent feature for DND members to have 3 months interest penalty instead of IRP. Especially in a low rate environment, the IRP can be very high.

Nix says it best, do your research, know all the options, and compare before you go commit to anything.

T

[ServingYou.ca]

Nix,

I am have sent an email to my Firstline rep and will ask some of those questions you posted. 

[ServingYou.ca]

Just wanted to post an update, Firstline does not add in the CF clause for 3 months Interest Penalty only.   Firstline also does not have the 25,000 interest free loan.

[Nix]

Just wanted to post an update, Firstline does not add in the CF clause for 3 months Interest Penalty only.   Firstline also does not have the 25,000 interest free loan.

Your rep is correct about the CF clause - it's "Before their Lawyers" currently... (and has been for quite some time... ie we will most likely never see it happen).

However, your rep is wrong in saying they do not have the $25 interest-free loan.   CIBC and Firstline via the Group Mortgage are the only two who can offer the Mortgage Interest Subsidy, which is maxed at $25K.  This is a contract they have with the CF.  I speak with my IRP rep at least a few times a week, and we have discussed the MIB ad nauseum so this is how I know this to be true.

[Titan]

As mentioned above, Firstline and CIBC can use the $25k interest free loan towards your mortgage, whereby $25k of your mortgage interest is covered by the customized envelope. Its offered through Group Mortgages, which does not have a contract with DND, rather they have an arrangement with Brookfield.

Thanks
T

[babnaw]

I can't speak for if they price-match while offering other CF perks, but my mortgage is currently with CIBC and both renewals I've had with them I told them what I could get at "x" bank and they brought their offered rates down to be more competative.  This last time they didn't exactly match the rate at the other bank, but they came within .15% of what the other bank would give me.

I haven't checked what rate I can get for 5 yr fixed but it will be interesting to see what I'm offered so I can do a comparison.  Has anyone here asked CIBC or Firstline to rate match?  Have you had any luck? If they price match I may take the risk of the penalty and still go with CIBC or Firstline.

[Griswald, DME]

Note:  This does not include OUTCAN postings, which, thanks to Lucie Mann, has no IRD penalty.

Just an update, Group Mortgages has changed their policy.  You can no longer get a  second mortgage with them unless you are porting your mortgage with another financial institution and you are restricted to no additional money on the first mortgage.  In other words, if you need any more money and want to get the $25,000 home relocation loan from Group Mortgages, you're stuck going with them.  They will, to a point, match competitors rates as a previous poster has mentioned.   The problem with this is, once you're in with them you have to pay fees to take your mortgage elsewhere, and they (many banks, not just CIBC or Firstline which is a trust), the Group Mortgage, know this so they won't necessarily give you a competitive rate when it's time to renew.

For the Home Relocation Loan to be pumped as a benefit in the IRP books they give you, when in fact it is not accessible to everyone moving, is very disappointing to say the least.  Unfair really for a benefit like this to only be open to some people and not others.  The Group Mortgage would not be out any money by offering the HRL to everyone as the military pays for the interest on this loan.  Group Mortgages in my opinion is simply being greedy.

I believe someone else mentioned that, even though Group Mortgages has the agreement with Brookfield, they do not have an exception for military pers to pay only the three months interest for breaking the mortgage (vs the Interest Rate Differential which at times can cost you thousands of dollars of which you will be out of pocket for).  For them to NOT have this exception for military pers when other financial institutions do, to me is a complete crock.

I've also read that if you do go with a second mortgage with the Group Mortgage, it is a royal nightmare dealing with the policies.  Staff are great to deal with, it's the policies that hinder good customer service.

For these reasons, along with a general sense that the level of customer service at the upper echelons of CIBC is lacking, we decided to forgo the $2-$3K we would have saved up front by going with the Group Mortgage and are going with another financial institution which is well known for wanting to keep their customers happy and also have an exemption for military pers for the interest penalty when and if we have to break our mortgage.  I feel the $2-$2 saved up front would quickly be eaten up by the higher interest and penalties we will pay in the future if we stuck with the Group Mortgages.

Just a few things to consider when arranging for your next mortgage.

[Griswald, DME]

Here is a good article for those who find the mortgage wording confusing (and it is, don't feel bad if you can't understand this very easily).  This article is about OUTCAN postings, but it has a lot of relevant information about postings domestically as well.  Worth the read if you are entering into a mortgage soon.

http://www.ubiquitousmagazine.ca/en/military-spouse-renegotiates-mortgage-policy-outcan-postings

[Nix]

Great article, thanks for posting.  In part thanks to Griswald's article, we just signed off on our next mortgage at a combined rate of 2.1%.  We make 2.5% on our savings account at the bank right now, so 2.1% for a 5 yr fixed rate mortgage makes it almost not worth paying off it's so cheap!