Some people say that saving money is easier than making money. You just need to tighten your belt. Making money is too difficult and you need to snatch food from other people's mouths. After taking a loan to buy a house, it is considered natural for the borrower to be taken advantage of by the bank. There are only a few opportunities for the borrower to take advantage of the bank. The money that the borrower saves is the bank's wool. In this game process, the borrower is at a disadvantage in most cases. If he wants to take advantage of the bank, he needs some opportunities, skills and knowledge.
01 House slaves need to be careful when the bank plucks out the wool and then eats the mutton.
Banks earn profits through the interest rate difference between deposits and loans to maintain profitability and operations. This is the oldest business model and is most directly reflected in the mortgage loan business. Collecting interest from borrowers is like pulling wool from the borrower. The bank collects while the borrower grows. Both parties sign a contract. One is willing to collect and the other is willing to be harvested. Banks usually will not kill the sheep before harvesting the wool. This is a universal principle.
In the U.S., there was an incident of large-scale killing of sheep and harvesting of wool: after the subprime mortgage crisis, banks had reduced their losses from government bailouts, but through large-scale fraud, banks squeezed the mortgage loans that had been written off as bad debts again by auctioning off borrowers' homes. From 2009 to 2012, after the subprime crisis in the United States, a huge scandal was exposed. That is, banks forged huge amounts of false documents, claiming that they had the right to foreclose on certain properties, driving homeowners to the streets, and realizing secondary profits on bad mortgage loans. American writer David Dayen published a documentary work "House Slave" that exposed the scandal. I think this book deserves a Pulitzer Prize.
Let me first talk about what a “house slave” is. According to my observation, House slaves have two characteristics: 1. Self-occupied residence The monthly loan payment exceeds the monthly income 50% above; 2. The balance of the owner-occupied mortgage is too large and is close to the house price80-90%。To put it simply, when buying your own home, you take too many steps and stretch your muscles. As long as the slightest unexpected situation happens, you will lose your balance. He failed to overtake in the curve, but instead overturned in the curve. There are many victims in "House Slaves". The first one, Lisa Epstein, changed to a bigger house before giving birth to a bigger mortgage, and the lending institution was mortgage company A. It was discovered that the child had a congenital defect as soon as she was born. Not only did Lisa have to pay huge medical bills, but she also had to miss work and go to the hospital. It was very difficult to pay the mortgage. After the subprime mortgage crisis broke out, she asked Institution A to restructure her repayment plan, but found it very difficult to contact the loan service staff. In fact, her loan had been securitized and sold to Bank B. After many twists and turns, she finally contacted the new mortgage owner Institution B, but the reply she received was: If you are still repaying normally, the bank has no time to deal with you, implying that she must default on the loan first before the bank will deal with her situation. Lisa felt that this was what happened, so she cut off the payment. However, she never imagined that not only was there no one waiting to help her solve the problem, but she also received a foreclosure document: Due to default, the bank required the property to be auctioned. Lisa was knocked unconscious by a blow to the head. After she regained her composure, she read the foreclosure documents and found that the person who wanted to auction her property was Organization F, not A nor B. Lisa is a nurse and has no ability to understand what is going on. However, she is a stubborn mother. She actually used her own efforts to study and understand the relationship between ABCDEF in the entire process. In the end, she found that F had no right to auction her property because there were too many false documents in the asset securitization process. F was asking her After the foreclosure request was made, the procedures were completed, and the reissued procedures were documents produced by a professional foreclosure "factory." Linda Green, who signed the document, was originally a female worker who was hired to sign the document. When she signed on behalf of others in the foreclosure factory, she also represented the vice presidents of more than 20 financial institutions. Similar incidents were discovered in many states in the United States at the same time, and were finally exposed by the TV program "60 Minutes." Mass foreclosures were put on hold. But many banks that committed crimes have not been brought to justice. In the end, you can read the book about the fate of these house slaves. The ending is quite tragic. Lisa is a non-professional player, and her investigation process is extremely slow. In the process, hundreds of thousands of homeowners have been evicted from their homes due to inexplicable fake documents.
The fact that banks are both harvesting wool and eating mutton can only happen in a rotten capitalist country like the United States. The mortgage default rate in Canada is 1/10 that of the United States, and it seems that housing slavery is not hard work. The mortgage asset securitization rate in the United States exceeds 60%, and more than half of the loans are sold to bond investors. If borrowers have difficulty repaying, they can only find independent third-party loan service providers, but most loan service providers do not have the authority to change the repayment plan; less than 35% of Canadian mortgages are securitized, and major banks still provide loan services after selling mortgages. If the borrower has difficulty repaying, the bank has the right and willingness to change the repayment plan to avoid exercising foreclosure. During the epidemic, all major banks in Canada provided borrowers with loan repayment deferrals of up to 6 months. In addition, when Canadian banks deal with bad debts, they do not directly use the right of foreclosure, but first enter the power of sale procedure. That is, during the sale of the property, the homeowner still has the right to pay the arrears and stop the auction. In the United States, there is no power of sale buffer program. After the subprime mortgage crisis, those banks in the United States that maliciously expropriated properties took advantage of the chaos while accepting government bailouts to engage in fraud and exploit legal loopholes, causing huge losses to U.S. real estate.
Before the subprime mortgage crisis, the United States issued a large number of such Predatory mortgage lending , Predatory lending, that is, lending money despite knowing that the borrower has no ability to repay. After the borrower defaults, the house is auctioned, and the borrower's down payment is swallowed up in large amounts in the process. Canada has not found that banks intentionally do this. On the contrary, people who have no borrowing ability are finding ways to make fraud and deceive banks. For self-occupied housing, the loan amount cannot exceed the annual income 5 times, otherwise they will be in trouble. For families whose mortgage amount is too large, various insurances, such as life, disability, critical illness, unemployment, etc., must be sufficient and timely insured, and cannot be left to chance. To put it simply, you can let the bank make money, but you cannot give it the chance to make money. Not even once. The borrower must repay on time.
The number one way to save money on a mortgage is to keep the house, otherwise not only will you not be able to save money, but you will also lose all your down payment.
02 House Slave’s Self-Redemption
American idol Benjamin Franklin, the grandfather on the one-hundred-dollar bill, once wrote a short essay that had a profound impact on later generations of Americans. The title is "The Whistle," and you can search and read it. It was written that when he was a child, he received a bunch of change from adults during the festival. He ran out happily to buy toys. On the way, he was attracted by another child's whistle, so he took out all the change and exchanged it for the whistle. After returning home, his family told him that he paid three times the price for the whistle. Franklin not only felt ashamed, but also remembered this story for a lifetime. He told future generations, "In short, I think, The great human misery they suffered was caused by their misestimation of the value of things, and by paying too high a price for their whistles. In short, I conceive that great part of the miseries of mankind are brought upon them by the false estimates they have made of the value of things, and by their giving too much for their whistles.” In Toronto, we can see many people subletting their basements to rent a house, which is a manifestation of the difficulty in affording their own home.
There are also housing slaves caused by loan operation errors. For example, if the original mortgage has been paid off, the next home is bought without a mortgage, and the original home is rented out. The situation is: there is no loan for the investment house, and the mortgage has to be repaid slowly with after-tax income. What delays things the most is that your borrowing capacity is exhausted and you no longer have the ability to take out a loan to buy an investment property. I analyzed the case of this "mortgage vegetative" at an event held by the Landlord.com in January 2019. I have received many calls from vegetative people in the past year. I regret not seeing this video of mine on YouTube earlier. I personally rescued a family that was in a vegetative state due to mortgage loan. They were very determined. They used the investment house as collateral, borrowed a private loan, paid off the mortgage, then used the investment house as a mortgage, and used the bank's mortgage loan to pay off the private loan. From then on, they were not only ready to retire at any time (no loan in the home is an important indicator of retirement), but also opened the door to real estate investment. I don’t want to repeat the entire content of last year’s lecture on how to free yourself from the status of a house slave. Please search for this video of mine on YouTube.
The second biggest way to save money on a mortgage: and the biggest way to save money on a mortgage is to have the mortgage on your house paid by the tenant. The lower the balance of the mortgage, the better. You cannot retire until the mortgage is paid off. The more investment mortgages, the better, so that tenants can repay principal and interest. If you only have one home, there is only one way to save money on a loan: repay as much as possible in advance.
03 The world of loans on different properties has changed a lot
For multi-house holders, if there is a HELOC on their mortgage, they can make a big change in the loan universe, constantly replacing high-interest loans with low-interest rates, and lowering the overall loan interest rate. Example 1: Property A has a total credit limit of 300,000 but the loan balance is only 140,000. You can take out 160,000 and immediately convert it into another installment loan. The new loan interest rate of 160,000 is the current very low interest rate. The borrower can use this money to reduce the balance of other BCDEF and other loans with high interest rates. Example 2: The total credit limit of real estate A is 300,000, and the loan balance is only 140,000. You can withdraw 20,000 to accelerate the repayment of the balance of 140,000, reduce the balance to 120,000, and withdraw another 160,000. A total of 180,000 has been withdrawn, and the withdrawal of 180,000 is converted into another installment loan. The new loan interest rate of 180,000 is currently a very low interest rate. The borrower can use this money to reduce the balance of other BCDEF and other loans with high interest rates.
Multi-house holders can remortgage the loan with the lowest penalty, and the new large-amount loan will have a low interest rate, and the cash withdrawn will be used to accelerate the repayment of other investment mortgages with high interest rates, thereby reducing the overall interest rate of multiple investment housing.
Please note that The prepayment amount plays a very important role here. Within the prepayment limit given by the bank, there is no penalty for accelerating repayment, and there is a penalty for exceeding the limit. Many people only compare interest rates when applying for loans and do not compare repayment amounts from different banks. They are very immature borrowers. In September 2018, the two-year fixed interest rate was 3.39%. Bank R only gave 10% of the early repayment limit every 12 months; Bank B gave 20% of the repayment limit every calendar year, that is, 40% could be repaid in advance every 12 months. Borrowers who chose Bank R that year found it difficult to reduce their balances.
The third big way to save money on mortgage loans: loans for different properties, pass HELOC Or increase mortgages to achieve a large transfer of loans, thereby lowering the overall interest rate level.
04 Is there any chance for the borrower to take advantage of the bank?
Can the wool from the bank be harvested? Yes, when the sheep fight with each other, the wool falls on the ground, just pick it up.
Since entering the summer of 2020, competition among banks has become increasingly fierce in terms of interest rates, but the most fierce competition is the "transbanking" business. You can search with the keyword "switch mortgage Canada" and you will be able to find promotions from various banks. Loans made by borrowers from July 2017 to March 2020, or loans renewed, will have higher interest rates than now. When the borrower does a blend and extend at the original lending bank, the penalty is very high and it is not worth it. For additional mortgages, because the new loan amount is small, the original bank will not provide a particularly preferential interest rate. If you transfer to another bank, you will receive VIP treatment. Because if the loan is transferred before it expires, the original contract will be broken, so there will be a penalty. Various banks currently have cash incentives for borrowers to switch banks, which has soothed the hearts of those who were fined. Transfer the loan to a new bank and enjoy the current interest rate of 2%, as well as cash rewards. It is completely the result of five sheep fighting each other. The bank's wool will not be picked up.
Judging from the situation this summer, borrowers will have to pay some fees and fines in the process of switching banks. It is not easy to transfer a loan. Most borrowers will take the opportunity to redo the loan to maximize the loan amount. In the real estate market, switching banks is creating a group of families who have down payments to invest in more properties. Large-scale bank transfer activities not only provide benefits to borrowers by lowering interest rates, but also inadvertently inject more new funds into the real estate market. Successful people in real estate investment look down on petty speculation in the stock market and are actively preparing funds to enter the market at any time before the arrival of large-scale housing price increases.
The fourth trick to save money on mortgage loans: gods fight and mortals profit. Taking advantage of the competition among banks, borrowers can benefit from borrowing cash incentives transferred to banks, lower interest rates, and raise funds.
To answer a question that is often asked: Since the covid 19 pandemic, all industries have been in decline, and millions of people in Canada are receiving relief. Why are housing prices so strong? Who is buying a house? I think this is an era where those who can get loans get rich first. Under the current circumstances, those who still have a stable income, can remortgage on real estate, withdraw cash, and invest in buying more real estate are becoming the winners. This is fair and just, and it is a reward for families who pay taxes truthfully all year round and strive to be in the upper reaches. Housing prices have always been supported by families who can get loans, not people who receive relief. Housing prices have been rising steadily, and some areas have even seen compensatory increases, which shows that families striving for the top are still the backbone of this society and the backbone of this country.
Conclusion:
For homebuyers, the size of the bank's early repayment limit determines the potential to save money on the mortgage. At any point in time, the interest rates of various banks are different. Smart borrowers should not choose the loan bank with the lowest interest rate at a certain point in time, but should choose the bank that allows the largest prepayment amount.
For investors, the cost of capital is the most important. The interest rate on a mortgage loan is the interest rate with the lowest cost of funds and there are no alternatives. Some people go to great lengths to borrow money against life insurance policies and RRSP portfolios for other investments, only to find that the interest rates on these loans are several times higher than mortgage loans. Find a job you like and pay taxes honestly. These are the minimum requirements for obtaining a mortgage loan. It is not difficult and is easier than any tricks. Ou Shen made it clear in his book "How the Middle Class Protects Their Wealth": The 2/8 law in real estate investment is that 80% of the time is spent looking for opportunities to obtain a mortgage loan, and 20% of the time is spent looking for a house. The most essential and core spirit of real estate investment is to use the house as a mortgage to obtain the lowest cost funds. The house is just a carrier in this process. Many experiences of people who have lived through it are often ridiculed as stupid and slow by people who are obsessed with getting rich quickly, but The best in real estate investment are all conservative people. This is fairness and justice in Canada. Many people don’t understand what low interest rates and large-scale banknote issuance mean to our lives. To quote Ou Shen again, “The optimal investment strategy for middle-class families in the era of low interest rates is to build an asset package with mortgages as the core.”
