How To Calculate Mortgage Penalty When Refinancing Mortgage

Mortgage is a contract between borrower and lender in which borrower agrees to take a loan for house on a given interest rate. Therefore, if a borrower wants to enjoy lower mortgage rate than what he is paying, there is a penalty to break the contract. Most lenders charge an early payoff penalty on closed mortgages if the debt is paid prior to the maturity of the term. The penalty amount is equal to the lending institution’s cost of finding another investment for the remainder of the mortgage term. The cost may be many thousands of dollars .Lender must describe the penalty they could charge on the mortgage agreement

The estimated mortgage prepayment / refinance penalty on Closed Term Mortgage is:

The greater of three month’s interest OR the interest rate differential for the remaining mortgage term

THREE MONTHS INTEREST PENALTY

= (Outstanding Mortgage balance * Existing Mortgage Interest Rate * 3) / 1200

For example: If John’s mortgage balance is $50000 at a rate of 6% p.a., then using above formula closest estimated penalty would be (50000 * 6 * 3) / 1200 = $750

INTEREST RATE DIFFERENTIAL (IRD)

= (Outstanding Mortgage balance * (Existing Rate – Current Rate) * Remaining term of mortgage in Months) / 1200
.
For example: If John’s mortgage balance is $50000 at a rate of 6% p.a. and he wants to refinance the mortgage at a rate of 4.5 p.a. and has remaining term of 2 years, the closest estimate of penalty using above formula would be (50000 * 1.5 * 24) / 1200 = $1500

Do not assume the same wording means the same calculation with different lenders. It is as clear as mud. Some lenders use posted rates for their IRD calculation and some use discounted rates. Variable-rate mortgages do not have IRD penalties. Lenders are not consistent in how to use and when to use above methods of penalties. This problem will persist until the laws in Canada are changed to require consistency on how lenders charge mortgage penalties. Always consult your lender to get exact amount of penalty before making a decision to refinance

Money Quotations that inspires me about money

Ever since I was a kid I knew somehow that money makes the mare go. Money is one of the most important thing that makes this world go around. Sometimes people don’t agree with me arguing that money cannot bring happiness, money cannot bring health.
All I ask them is just one question, what if tomorrow all your wealth is gone and if you go bankrupt with no money to put food on table, no job, no home, no cars etc etc.? Sometimes they go speechless, sometimes they agree that money is really important to enjoy life and it can bring happiness and it can bring health as well.

Following quotes have always inspired me and always will

• Money is like a sixth sense of a person without which he cannot use the other five properly William Somerset Maugham



• Lack of money is the root of all evil
  George Bernard Shaw (1856 - 1950)



• The only way not to think about money is to have a great deal of it
  Edith Wharton (1862 - 1937)



• If you can count your money, you don't have a billion dollars
  J. Paul Getty (1892 - 1976)



• We can tell our values by looking at our checkbook stubs
  Gloria Steinem



• The real measure of your wealth is how much you'd be worth if you lost all your money Author Unknown



• A bank is a place that will lend you money if you can prove that you don't need it
  Bob Hope



• Money isn't the most important thing in life, but it's reasonably close to oxygen on the "gotta have it" scale
  Zig Ziglar



• It's a kind of spiritual snobbery that makes people think they can be happy without money
  Albert Camus

How to Save on Auto Insurance

Not all of us are lucky enough to have easy access to public transport or sometimes it’s not feasible or sometimes too time consuming. We have to rely on our good old car to more around and earn living and with car come necessary overhead of car insurance. Well all I understand is a penny saved is a penny earned and we can use that penny where we need it most. So following are few ways we can reduce or eliminate financial burden of car insurance

1. Have a close look on policy: This is probably one of the prime reasons we pay more than we should. Auto Insurance policies are difficult to understand as they include many details in form of numbers and codes which we cannot understand and sometimes relevant for just internal use of insurance companies. Check your policy details closely for any mistakes like your postal code, trim level of car, age, sex, marital status, years of experience, KMs driven to work and annually: Many a times a small mistake by your insurance broker can cost you a lot and its very difficult and time consuming to recover losses



2. Maintain a good credit score: Almost all insurance companies check your credit score before offering you quote and some of them factor your credit score for the premium charged. Some companies even provide extra discounts for person having a better credit score considering that a preferred client



3. Maintain a good driving record: Better driving habits leads to better insurance rate. Some companies even offer accident or claims free discount



4. Insure all autos with same insurer: This way you get multi vehicle discount which sometimes is 15% or more



5. Insure home or contents insurance and auto with same insurer: More lines of business you have with your insurer better discounts and better bargaining power you have



6. Understand the coverage you need: Buy insurance for perils you are worried about and want insurance companies to pay for in case of loss. For example consider removing collision and comprehensive in case of older vehicle or for a winter beater. If you are worried about theft of car take specified perils coverage instead of comprehensive, that alone can save you lot of money



7. Buy accident forgiveness: Accident forgiveness coverage means if you are in an accident and that accident is your fault, insurance company will forgive that accident or they will not increase you premium on renewal because of that at-fault accident. Not everybody is eligible for that. Only drivers who are accident free from last 6 years are eligible. It’s an optional coverage so it does cost you. But in case of at-fault accident premium increase is much higher and that accident affects your rates for 6-10 years. With this coverage at least first one will be forgiven. Remember single vehicle accident is considered at-fault accident



8. Buy rental car or non-owned vehicle coverage: Buy this optional coverage that gives you a rental car in case of accident. It’s also called loss of use coverage. If you travel a lot or without a car it will difficult for you to go work or you have no access to second vehicle this coverage is very useful. Cost varies between different companies but much cheaper than if you have to rent a car for a week



9. Choose deductible you are comfortable with in case of claim: I never advice to choose a higher deductible just to reduce your premium. Rather my advice will be choosing a deductible that you are comfortable with in case of loss. Deductible is the amount of money you need to pay from your own pocket before insurance company pay out claim. Example would be comprehensive coverage with (which covers any windshield damage) deductible of $1000. In case of windshield breakage you have to pay for any damage up to $1000 and then company will pay. If cost of repair is less than $1000 insurance company will pay nada. So there is no use have windshield coverage with $1000 deductible when you can never claim it



10. Shop around: Before signing auto insurance contracts shop around. You should take at least 4 quotes before you sign up. Insurance rates change frequently so don’t assume that last year X company was providing higher rates so this year also their rates will be stay high



11. Compare apples to apples: When shopping around for auto insurance compare with same coverage and same deductibles. Your comparison will be wrong if from one company you request $0 deductible and from other company you request $500 deductible or if you add optional coverage available that you are eligible for



12. Give yourself time to think about: Start shopping around for quotes 30 days before renewal is due for your policy. That way you have enough time to have quotes mailed to you from other companies instead of deciding in a rush



13. Ask about discounts: Discounts varies from company to company like group insurance discount, membership discount like CAA or sears, student, retiree, occasional driver discount, hybrid vehicle, aftermarket alarm system, snow tire discount, online quote discount, driver training course, lower mileage driven, pay in full discount



14. Inquire if there are any surcharged applied: Sometimes companies charge admin fees or surcharges for high performance vehicles, interest charged for convinience of monthly payment, very high mileage driven



15. Pay you insurance on time: Plan and budget for car insurance because if you miss a car insurance payment, insurance companies charge you NSF fees anywhere between $25 - $40 and bank charges you separate NSF charges anywhere between $40-$60. With proper planning you can eliminate these extra charges

11 Myths About Auto Insurance In Ontario

There are many things about auto insurance we assume that will increase the premium charged but sometimes these assumptions has no grounds. Following are few points which will help residents of Ontario to understand auto insurance better and might be helpful in saving money on car insurance

1. Price you pay for car: Other factors being constant, Insurance does not take into account whether u pay $1 or $50000 to buy a car or get it as a gift or won in a lottery. Insurance company base premium on cost of repairs in case of lose. In most cases expensive and newer the car higher the premium unless it’s a antique



2. Color of car: Other variables being constant, color of your car has nothing to do with premium u pay for insurance



3. Leased, Financed or Owned: Whether u lease, finance or own the car outright, if coverage u choose is exactly same premium charged will be same



4. Specified perils or Comprehensive Claim will increase my premium: A specified peril or comprehensive claim does not affect ur premium. So if u claim for theft of car or for cracked/chipped windshield damage, it will not increase ur premium



5. Not At-Fault accident will increase my premium: If the accident is not considered ur fault and u claim for damages it will not increase ur premium whether company pay out $1 or $10000. Well purpose of auto insurance is to protect u when it’s not ur fault in accident. If its ur fault, they protect u but u have to pay for protection provided with increased premium on renewal



6. If I don’t claim, my insurance will not go up: Assuming u don’t have Accident Forgiveness coverage and if its considered ur fault in accident whether u claim $0 or $100000 ur premium will go up on renewal. U cannot get rid of fault saying that it was a minor accident or fender bender and I did not claimed anything



7. If my points are dropped or if I didn`t get any points for the ticket it will not be on my record: Convictions stays on ur record for 3 years from the date of conviction and not from date of offence or when u get that ticket. Further if u loose any points or points are dropped in court, ticket still stay on record unless ticket is dropped. If u pay the fine on ticket or pay reduced fine after the court trial, it means u have accepted that u have made an offence



8. If police says I’m not at-fault, insurance company will consider me not At-fault: In case of accident police can define if u are criminally charged or not but only ur insurance company has final say on whether u are considered at fault or not based on fault determination rules defined in insurance act of Ontario. Police report can only help in determination of fault. Example of that would be suppose its bad wheather and ur car skid on a icy patch of road and u hit a guard rail or car went into ditch, police may not charge u for negligence or any crimial or traffice offcence but in eyes of insurance companies thats an at-fault accident



9. It was bad whether, my car skid so it’s not my fault: In Ontario single vehicle accident is considered AT-Fault accidents. Insurance will say, in case of accident they have to define someone at fault, since they can’t sue or blame whether so its ur fault. Further, say if 1000 people drive on same road in same whether, if u had accident or u skid in ditch – it’s ur fault



10. A small claim won’t affect my rate as much as large one: Amount company pays out for claim does not matter, only thing matter is whether u are considered at-fault or not



11. I will get a lower premium if I have a licence higher than G class: Other variables being constant, whether u has class B, F, D or A licence it doesn’t matter. Rate is based on class G2 or G licence

Auto Insurance in Ontario

Nobybody like to pay for auto insurance but everyboby wants to have protection from liability arising from an auto accident. In this blog I will try to describe some of the major factors that affect ur car insurance in Ontario. I`m choosing Ontario as i`ve lived good part of my life in Ontario and every province in Canada have different rules and regulations. Some of the factors described below does not affect auto insurance in some provinces
I`m explaning auto insurance from my personal experiences and using little research I did talking to licenced insurance agents and online public resources. I would like to share my knowledge and findings with every resident of Ontario so that we can understand insurance better and use it our advantage instead of considering it as nessessary evil sucking up our money for nothing
Auto Insurance premium in Ontario depends upon following major variables

1. Where you live: Other variables being constant, Insurance premium in congested city is higher than in rural area because of less traffic, likelihood of vehicle theft and vandalism is less in rural areas or in countryside or areas in north



2. Car itself (Sedan, coupe, SUV, pickup, van): Rates are based on accident benefit rating, collision and comprehensive rating of car. Every car has it own ratings based on previous experience of insurance companies. If it’s brand new model where stats are not available, rates are based on repairability and availability of parts



3. Price of car : Expensive car means more cost of repairs to company and more they charge as premium



4. Safety features of car: Better safety features like alarm systems, safety ratings means lower premium



5. Trim level of car (CE, LE, SXT, EXT, VE, S, SD etc) : Different trim levels comes with options like heated seats, leather interiors, sun roof, fog lights etc. More options u have in ur car more the cost of repairs to insurance companies and more the premium they charge



6. Age : Younger drivers generally pay more premium than older drivers due to lack of experience, statistics show they tend to have more traffic violations, accidents, they are more involved in racing, speeding etc etc. That’s more risk for insurance companies so they charge more premium



7. Sex : Other variables staying, statistics show female drivers drive less, involved in less accidents and hence they pay less premium



8. Marital status ( married, single, common law) : Other variables staying same stats show married couples drive more responsibly, so less risk to insurance companies and less they charge



9. Class of licence : Having an unrestricted G class licence means better driving skills meaning less risk and less premium charged



10. Number of years of experience : More experience u have, better ur driving skills are and less premium u have to pay



11. KMs driven to work : Driving to work means car is on road more and regularly so again higher risk and higher premium



12. Annual KMs driven : More u drive annually more u pay



13. Use of car (personal or business) : Cars used for business purposes are rated higher than personal use cars



14. Number of accidents and tickets : Of course better driving record leads to better insurance rates



15. Coverage you need (Liability, Specified Perils, Collision and Comprehensive):
    Liability coverage protects u if someone is killed or injured in an accident, or their property is damaged
    Specified Perils pay for losses caused by fire, theft or attempted theft. Lightning, windstorm, hail, rising water, earthquake, explosion, riot or civil disturbance, falling or forced landing of aircraft or parts of aircraft, stranding, sinking, burning
    Comprehensive covers losses listed under specified perils, falling or flying objects, missiles, vandalism, collision with live animal, windshield damage
    Collision or Upset cover losses when car is involved in collision with other object or tips over, collision with dead animal, when ur car is damaged due to pot holes in road, collision with any object in or on the ground



16. Deductible you want : Higher deductible translates to lower premium because higher deductible means in case of loss insurance company has to pay out less so they charge less premium
    Above list is not exhaustive by any means. There is lot more to each of these. All I`m trying to do is draw ur attention towards understanding auto insurance because being a consumer myself I feel that I should know about product I`m buying. Understanding things gives me satisfaction that I`m not throwing my hard earned money on something which I don`t need. Better I understand it more utility i can get from it