Competition in the wireless market heats up

Today’s post is less about mortgages and more about saving money on your cell phone bill each month. Yesterday, a friend told me about a new plan from Fido called “FidoCity” where, for $40.00 a month, you get 2000 anytime minutes, unlimited text messages and pay NO monthly $6.95 system access fee. They are also giving away Blackberry Pearls for free when you sign up for a three year contract. Seemed like a good deal to me.

I took a look at my last Rogers bill. (I’ve been with them for 5 years and have been fairly happy with their service). Here’s what I found: I had unlimited evening and weekends starting at 8pm each night & 250 anytime minutes for $25.00 a month. Extra “anytime” minutes clock in at $0.35.  I was also paying $10.00/month for 2500 text messages plus of course the extra annoying no-value charge of $6.95 for that ridiculous system access fee. On top of that it was costing me $7.00 a month and Caller ID was costing me $8.00. Extra charges! Tons of them. Yuck.

Time for a phone call to Rogers customer service. Mission: get a better deal than what was being offered by the competition. A WAY better deal.

I’ve written about this before, but anytime you’re calling a company to get more from them, always remember the golden rule: Be pleasant and polite. Nothing will nowhere faster than taking a poor attitude with an over-worked, underpaid customer service rep. Trust me. I know. I was one for years.

I decided to direct my first call to someone in the Sales department; I figure that most sales people understand value and the importance of customer retention. The woman I spoke to was nice, but was unable to help me get into a new plan similar to what Fido was offering. I asked to speak to someone at the management level who had the authority to help save the company a long term pre-authorized paying client. After being told “sir, management will just tell you the same thing”, I said I didn’t mind reiterating my story again to someone new. I was put on hold for about a minute before someone new came on the phone.

This next person had clearly had a rough day, and seemed to be coming into the call braced for another heaty call from some hot-headed jerk. (There’s LOTS of them out there. Trust me. I know. I was “the manager” you’d talk to at a phone company for years.) Anyway, after repeating to me three times that Rogers simply didn’t have a plan that came anywhere close to what Fido was offering, I asked her what Rogers was prepared to do to save an otherwise happy customer that just wanted a better deal. If they didn’t have the exact plan I was after, perhaps they could sweeten the deal with some other perks? After all, I was a happy, long term pre-authorized paying customer that didn’t want to leave, but if the value was better elsewhere….(you get my drift) With that, the manager suggested I speak to someone in the Retentions Department. Bingo.

The woman I spoke to in The Retentions Department was nothing less than awesome. She doctored me up a plan that buries the Fido plan as well as anything else out there. I no longer pay system access fees. I now have free unlimited texts. All incoming minutes are free, and I have more outgoing minutes than I know what to do with. I also got a brand new, free upgrade to a Blackberry Curve. Moral of the story: Always be nice to your customer service people on the phone, especially when you want something. Know that in terms of numbers from the corporate side of things, it costs a company a lot more to go out and get a new customer than it does to keep an existing one. Always use that fact to your advantage, and don’t stop politely escalating your calls until you are speaking to someone who’s job it is to make sure you don’t walk out the door.

Dealing with your bank is no exception to this rule.

Product Spotlight: Scotia STEP

Otherwise known as The Total Equity Plan, Scotiabank has a product that allows their clients to split the mortgage into up to three different categories.  With a traditional mortgage, you typically have one rate, fixed or variable, that remains the same throughout the course of the term. With the STEP mortgage, you could have part of it as a line of credit, part of it as variable, and part of it as a credit card. They approve you at what’s called a “global limit”, and that amount is re-advance-able at any time. In many ways, this mortgage product is what one might refer to as a “HELOC” (Home Equity Line of Credit.)

What’s the benefit of structuring a mortgage this way? First, you are diversifying your interest risk. If you work with a financial planner, you will hear them discuss a “diversified portfolio” which spreads the risk out evenly amongst a variety of investments; the goal is to mitigate risk by avoiding having “all of your eggs in one basket”. The same works with the STEP program; you can take advantage of low variable rates AND the safety of a fixed rate portion. Secondly, because a global limit is set up at the outset, you have access to your home equity at any time. This can be extremely convenient for investing purposes since you don’t have to re-apply for additional credit. Borrowing to invest from the line of credit portion can be a great way to build up a healthy no-registered portfolio.

Things to consider: you need at least a 20% down payment. You cannot be a temporary resident of Canada. Your beacon score should be right up around the 700 mark. If you want to invest with some of your home equity, make sure you do it with a professional.

A helping hand?

In some mortgage transactions, a little extra help is needed to get the deal done. Sometimes, the applicant is fresh out of school and has little work history. Other times, there has been blemished credit and the lender needs a bit more security on the loan. These are just two examples of when a co-signer or guarantor might come into play.

What’s the difference between these two? Quite a bit, actually.

A co-signer is registered on title and has an interest in the subject property. Payments are typically made by the primary applicant. A co-signer is somewhat of a co-owner.

A guarantor is a little different; first, they are not registered on title, so they have no claim on the property. Secondly, the guarantor personally guarantees payments if the primary applicant defaults.

So, with a guarantor then, we have more responsibility for the property but less, if any, claim to it. It is for this reason that anyone wishing to be a guarantor for a transaction must consult legal council before proceeding.

In most cases, we see guarantors involoved with young buyers who either haven’t been working long enough or don’t have enough established credit. Typically, it is a parent helping out one of their kids. Depending on the payment history, income and education level of the primary applicant, a guarantor could be released from obligation within a year. However, this varies situation to situation, lender to lender. Co-signers, on the other hand, must go through a legal process to be removed from title, and like 99.9%  of all legal processes, fees are involved.

The best of both worlds

With the heavy speculation of economists forecasting inflation within the next year, for some people it’s a tough decision on whether to go fixed or variable with their mortgage. With Prime as low as it is (0.25% at the BoC), the allure of variable savings is definitely there, especially with fixed rates climbing back up again after record lows in the spring.

Firstline Mortgages has a solution with their Auto 6/12 mortgage.  This product offers clients the ability to select either a 6 month or 1 year fixed rate closed mortgage at a low rate (like around 2.75%) with the option to convert to a longer term mortgage at any time with no pre-payment charge.

A rate of 2.75% is close to what you’d be paying for a regular variable closed these days, so you can take advantage of similar savings but be protected from any volatilty in Prime. The idea is that once you have a better grasp on where you think rates might be going, you can act accordingly…In the meantime, enjoy a year of low rates.

I like this product in that can provide peace of mind to particularly a new buyer who might want to save on rate for the first year. I don’t like it because in my opinion, a client should have a solid game plan going into a mortgage. It could be that if they’re on the fence about rates, then perhaps they haven’t thought the purchase through enough. Plus, as history has shown, it’s never a good gamble to try and predict rates. Sure, you get a 2.75% for 1 year, but when the term is up, where are rates going to be? “Higher than now”, based on recent record lows, would be the educated guess, n’est pas?

Anyway, Firstline is a great lender who specializes in unique mortgage products and solutions. They’ve got a million options. Need to talk shop? Send me an e-mail to wright@mortgagegrp.com.

It takes just one

Today is Monday, and in honour of sliding gracefully into another hectic week of finance, I thought I would post this video taken recently at The Sasquatch Festival. For those of you who have been to The Gorge, you’ll know that it’s a very special place….special enough to instigate a full-on spontaneous dance party….Please watch until the very end, and have an awesome week. Remember….they call it “the present moment” for a reason…..

CLICK HERE!!

Fixed Rates on the way back up?

As I’ve discussed in previous posts, fixed rate mortgages are tied in closely to the bond yield (or, in other words, the rate of return on the bond.) The 5 year bond yield was up 0.21% yesterday which is the biggest one day jump since February. It is currently at 2.58%. Four weeks ago, the bond yield was at 2.01%. This all happened on a day when the TSX dropped by 143.76 points. (Typically, when the stock market goes down, the bond yield does too.)

What does this mean to you?

Fixed rate mortgages are going to be going back up as soon as tomorrow with some of the lenders out there. If you are thinking about getting a pre-approval or a rate hold, contact me as soon as possible so you can cash in on the huge savings that will still be available for the short term.

For those of you that like graphs, here you go!

Don’t shoot the messenger: practical tips on talking to companies part 1

Before I became a mortgage broker, I was a call center employee. I started with Primus Canada in 1999 as a customer service representative. It was my job to answer incoming calls from existing clients and prospective customers looking for a better long distance plan. (As the company grew, we got into pagers, dial-up internet, broadband internet, voice over IP, and cell phones too.) The job was, in hindsight, some of the best training I could have hoped for in terms of how to deal with customers. The work was laborious and a huge test of patience on a daily basis. Sometimes you felt like a rat in a cage. Not only were you expected (and monitored) to take upwards of ten calls per hour, you were required to say certain things at certain times with even the most “undesirable” of attitudes on the other end of the phone. I was quite good at my job. I was especially good at handling an “irate customer” -there’s some industry jargon for you- someone is absolutely blue-in-the-face angry the second they call in. I was so good at handling these people that I got promoted (even though sometimes it felt like condemned) to the roll of escalations manager. Have you ever been so pissed off that you wanted to speak to a manager? Well I was the guy that you’d speak to.

My favorite call was always the “Dial Up Dad”. About once a week, my phone would ring and some poor CSR (customer service rep) would be on the other end with a furious customer on hold. The customer had received their bill for dial-up internet service and it was in the hundreds, maybe even thousands of dollars, a far cry above the advertised “unlimited $19.95″ a month. Their concern was understandable. What had happened? How could this possibly be accurate? Well, as we know, the internet and “adult-related material” have had a long and exceptionally stable relationship. Back when dial-up was king, surfing to naughty websites would re-direct your phone call to an international long distance destination after (And ONLY after) the user clicked an “OK” box explaining this would happen. The result? Charges of $1.00/min and more to places that most people can’t pronounce.In seemingly all cases, there were teenage boys living in the home. The charges on the bill frequently happened late at night or between the hours of 3.30pm and 6.00pm, when little 14 year old Jimmy was at home alllll alone after school.

As the escalations manager, my job was to listen to the customer, review their account history (including payments, notes from other calls, and length of time as a client, amonsgt other things) and make a decision on their bill that would please both parties. I didn’t have a specific amount I was allowed to credit on the account – my dcisions were always fairness, reasonabililty and to a large degree, how the customer chose to speak to the company.

Tune in tomorrow for part 2….

New rules in the bond market on the horizon

With fixed rate mortgages being tied closely to bond yields, it’s important to keep an ey on new regulations in that industry. Tomorrow, the Investment Industry Regulatory Organization of Canada (IIROC), will propose new rules on Friday that will revamp bond market pricing in an effort to make it more transparent and more cost effective for potential investors. By the sounds of things, consumer protection is one of the main goals here. The full story is available here, and I’ll be posting a new story tomorrow once we see what the new rules are. Ideally, I’m hoping that these new rules will keep bond yields low, thus keeping fixed rate mortgages low as well. If and when inflation does kick in, fixed rates will become increasingly popular, particularly amongst the more risk adverse clients. Stay tuned.

Pay off your mortgage or help spur the economy?

As we all know by now, the Bank of Canada has dropped their rate to 0.25% with many of the retail lenders following suit with their rate at 2.25%. I know some people that have a Prime -1% variable rate. They should be thinking about vacation right about now. The goal of a cut like this is to put money back in the hands of the consumer. I think it will have a positive effect. As much as I’d like to think that most people will keep paying the same amount towards their mortgage to pay it of faster, I don’t think that will be the case. (the statistics don’t lie. Only about 3% of mortgage holders make pre-payments on their mortgage debt. That tells me that some money in the wallet now is more important than a lot more money in the wallet later.) Spring is here in Vancouver, and for many people, it’s time to get outside, soak up the sun and shake off the cobwebs of winter. That also equates to sitting on a patio in Yaletown sipping cold beers and watching the playoff hockey. It’s a west coast luxury that we wait all winter for, and being frugle in May just isn’t that much fun. I heard a rumour the other day that the Canadian Government will begin to become active in bonds to keep fixed rates low as well. That is excellent news for the risk adverse home owner/home shopper looking to get into a new home. It’s also great news for those currently in a fixed mortgage paying rates above 5%. If you lot can swing it, the numbers might just gel to buy you out of that old clunky mortgage and get you into something like a smooth and slick 3.69%. I should be selling cars, maybe. (Beware the IRD) Send me a message below if you’d like me to run the numbers. Why just this afternoon I saved a man about $5,000.00 by switching him away from his current rate.

“The most powerful force in the universe is compound interest”

Albert Einstein said that. I think we’d all agree that he was a pretty sharp cookie. I’m not so sure he’d appreciate being referred to as a cookie, but I digress.

To pick off where I left off yesterday, I want to show you why making even small extra mortgage payments can pay long term dividends, especially if you subscribe to the old adage “a penny saved is a penny earned”.  Almost all mortgages come with what’s called pre-payment privileges whereby you are allowed to pay a certain percent extra at given times above and beyond your normal mortgage payment. Why would you want to do this? In short, paying more money within the same contractual period (i.e. 5 years) will actually shorten your amortization and allow you to pay off your debt a heck of a lot faster, freeing up your money for more important things, like heli-skiing trips and sweet new cars.

So, here’s the scenario. Let’s suppose you have a mortgage for $350,000.00 at 5% interest on a fixed rate for 5 years. Your mortgage payment will be $2,035.62/mo. If you keep making the exact same payment for the full 5 year term, at the end of the term your balance will be $309,776.11. Further, your last payment of the 5 year term will be broken down as $755.02 going to principle and $1,280.60 going to interest.

After a full five years at it, 63% of your payment is going straight to the bank. Yuck. That sort of like getting to what you thought was the top of a mountain only to find out there’s yet another peak to go.

Let’s change the scenario a bit. Suppose you took advantage of the 20% pre-payment privilege on every payment that you made, making your new monthly payment $2,442.00/mo. Here’s where the savings really happen.  At the end of the 5 year term, the balance will be $282,175.93. The last payment in the term will be $1,273.08 towards principle and $1,168.92 towards interest.

52% or your payment is going to reducing your principle. Sounds a lot better to me.

To make this strategy work, you really need to take a close look at where you spend your money. The difference in monthly payment between scenario 1 and scenario 2 is about $400.00. I know people that spend half that a month on coffee. If you’re young and single and Deadmau5 is in town and you just need to get that new pair of Rock and Republic’s and you want to drink Heinekens and Jager Bombs all night (not to mention getting a new haircut)…..this strategy might not work for you. I have friends that can easily rack up $400.00+ bar tabs. Ironically, those friends aren’t home owners.

The difference in balance after 5 years between the two scenarios is about $27,601.00. You don’t have to be Einstein to figure out that cutting down on habitual spending can save you a mountain of money. Where can you save money in your day-to-day activities?