Learning to read

NUDE WAFFLES

When Kip and Janie told their TD bank lady (Wendy) in Winnipeg about the move to BC, they expect good wishes on the new job. Well, to be fair they got that, along with a $4,700 penalty to break a mortgage with eleven months left.

“We were crushed,” Janie told me. “We’d budgeted just for three months’ worth of payments, which would be half that amount.”

What happened? The bank charged them an IRD – interest rate differential penalty – an amount equal to the difference between their rate and the current rate, over the time left to maturity. Bad enough. But the bank went further and humped up the interest between theirs and the posted five-year rate – which only drug dealers, terrorists and other favoured clients pay.

What’s the difference? Well at RBC, for example (the biggest mortgage kahuna), the current five-year posted rate is 5.95%. That is a full 2% higher than the ‘Special’ rate which is given to people with functioning kidneys, and 2.5% more than actual customers pay. In other words, the posted rate is fiction. Except when (as with Kip and Jane) it suits the bank.

This is only one trick banks have in dinging you when a mortgage must be exited early. Some add a charge of up to $1,000 to ‘reinvest’ the money you’re paying back, while others ask for a full year of payments to let you out. Others levy those IRDs on bond yields, slap them on variable-rate mortgages, or just simply prevent early discharge of the loan.

The worst culprits, as you might expect, are the little lenders with strange names that your mortgage broker signed you up with because they had the cheapest rate. That is certainly a decision which can come back to bite you although, as Janie discovered, even the monster banks can be prickish.

How to avoid this? Simple. Read the mortgage contract before you sign it (almost nobody does). Have your lawyer explain clearly what the exit fees are likely to be. Get the mortgage broker to write you an email detailing the charges – and keep it. Ask [email protected], in writing, for a summary of the bank’s policy on early repayment penalties. Discuss it, and plan for it. Five years is a long time, and things change.

Like marriage breakdown. But we have an app for that!

Actually broker Mortgage Intelligence has a new ‘Spousal Separation Mortgage’ specially designed for those awkward moments when your spouse wants to castrate you with an old spoon, but would still like to keep the home.

“It’s hard enough to get through the process of splitting assets in the event of a separation or divorce,” The company gushes. “What if one of you wants to keep the family home? We can help. Although new mortgage rules mean you can only refinance your home to 80 per cent of the value, a Spousal Separation Mortgage allows a buyout to 95 per cent, making it easier for one spouse to keep the home. This new mortgage can provide a fair buyout, and possibly pay off other joint debt.”

Not only does this let your spouse buy you out, but you receive the immense satisfaction of seeing your Ex saddled with a humungous, flipping mortgage on a property financed just before prices crumble.

“Make us one of your first calls. We may be able to help clear some of the financial hurdles.,” says MI. “We’ll guide you through the process, structuring the mortgage for the buyout of one spouse, and then help the other spouse with the purchase of a new home as well. We believe that your home can be the asset that gives both partners a fresh start!”

You bet. Twice the debt and half the assets. Thank you, Mortgage Intelligence.

Speaking of which, have you heard about those new mortgage cancellation fees? No, not when you get out of a home loan, instead, when you just shop for one. Seriously.

Increasingly those cute little almost-bank lenders, like True North, are hammering prospective clients who approach them for a quote, complete an application, get approved, then end up doing business with another company. Borrowers do this, of course, as part of their quest to get the best possible deal – waving a firm offer in the face of another lender who they hope will say, “I can beat that!’

As of now, dealing with a company like True North, can end up costing you 1% of the amount you asked to borrow, if you fold. Yup, that’s a $3,000 penalty on a modest $300,000 mortgage, just for doing the paperwork. So, obviously, read the app before you fill it out. Ask the mortgage broker specifically about cancellation fees. If you don’t like what you hear, sign nothing.

By the way, did you hear the mortgage industry is worried about losing 150,000 jobs as real estate rots?

I wonder whose fault that is.

140 comments ↓

#1 Ford Prefect on 07.11.13 at 7:19 pm

In a different life (lawyer) I used to try to go over mortgages with borrowers sent to my office for independent legal advice and to sign said mortgages. Fuhgeddaboudit. They were, as you put it house horny and had absolutely zero patience for any of the fine print. In all the time I did it I never successfully went over even one mortgage with a borrower. I do not think your sensible advice will do much if any good.

#2 The Man From Nantucket on 07.11.13 at 7:21 pm

Early today.

Great post. Good lesson for those who shop for homes the way they shop for furniture (i.e. “How big is the monthly?”).

I pray that I never have to negotiate a midterm exit with my bastard lenders.

Now, here’s my hypothetical question. Let’s say I have a rate of less than 4%, and their posted rate for the equivalent product is 5.95%……well, how TF can they claim they’re suffering by me paying off early????

I mean, theoretically, they can take my money and hand it out to some other owe-ner at better yield?

#3 E on 07.11.13 at 7:25 pm

We just sold our place and were dinged with an $11,600 mortgage payout penalty. Same thing; it’s not 3 months interest. It’s a ridiculous calculation using posted rates. Needless to say, never getting another mortgage at ATB.

#4 LazyJason on 07.11.13 at 7:35 pm

Great blog as always Garth. Keep them coming.

Now Kip & Janie may be shocked by the IRD amount (who wouldn’t be) but they can add it to their moving costs and deduct it from the income earned in the new location, assuming of course they are moving for work. Plus the movers costs, travel costs, legal fees and realtor fees; it all adds up quite nicely.Plus if they buy a new house I think there are costs covered from that too.

So it may be a hit to the bank account now, but once they file their taxes most of it should come back.

#5 Finally on 07.11.13 at 7:36 pm

Shout shout let it all out

#6 Notta Sheeple on 07.11.13 at 7:39 pm

Tonight’s post should be engraved in titanium and welded to the wall above every men’s public urinal and the back of every ladies’ restroom stall door.

#7 Cody on 07.11.13 at 7:44 pm

#2: I believe you are misunderstanding how loans are created in Canada. Our banks do not have a pool of money from which they draw money to loan out; they simply create it by typing some numbers into a computer. The majority of our money supply is created this way, in fact; only a small percentage is created as currency by the central bank.

So yes, the bank is “suffering” if you pay off your loan early because they stop earning interest off that money they created and loaned to you.

#8 Freedom First on 07.11.13 at 7:56 pm

See….ALL of the banks know that you’re richer than you think. Ignorance is very expensive. But for the RE industry, Banks, etc…….ignorance is indeed “Bliss”.

#9 Smartalox on 07.11.13 at 8:11 pm

Unless the posted rate is less than your current rate. Then the calculation changes, but again, in the bank’s favour. It cost me $9500 to pay off my mortgage at RBC after they crashed the interest rates.

#10 Genuine Mayan Virgin on 07.11.13 at 8:12 pm

Mister Turner, please explain the sign!
Why are nude sunbathers eating waffles?

#11 Dean Mason on 07.11.13 at 8:19 pm

Mortgages should be portable.You should pay only a penalty on the lower or higher balance of your mortgage balance. I know the reason why they are not portable,all lenders are greedy and don’t care about the client.

It’s easy money for them.They always have a new sucker that gets another mortgage and people never learn to avoid this again.

#12 waiting on 07.11.13 at 8:23 pm

When I knew I was selling my house a couple of years ago, I went to the bank to make sure I knew exactly what the penalty would be on the remaining 4 years of the 5 year term (approx. $270,000 mortgage). I made it understood that I would renew with the same bank on my next mortgage and got the 3 month interest penalty in writing. I just didn’t say if or when I intended to get another mortgage. The penalty was approx. $1,800.00 I will renew some day, just not anytime soon.

#13 WrongGarth on 07.11.13 at 8:27 pm

It’s the banks who charge the biggest penalties on fixed rates for years now, not the smaller mono line lenders who brokers use. The biggest penalties have come from TD Bank and RBC for my clients. In fact, the smaller lenders have been the best for my clients overall as they offer low rates, expanded product lines and more sensible underwriting. Banks also have lied to my clients for years, trying to scare them from refinancing at a non bank lender. Most notably Scotia, the kings of lying to clients for years. Sorry Garth but you’re out of touch on the mortgage industry and what banks do to clients in reality . Now go back to bashing gold bugs! Lol

#14 brainsail on 07.11.13 at 8:30 pm

Several years ago we refinanced our US mortgage from a 25 year to a 15 year obligation to take advantage of reduced mortgage rates. Shaved several years off our mortgage and there was no penalty (IRD). Not allowed by law here.

#15 Nemesis on 07.11.13 at 8:30 pm

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#16 magilla on 07.11.13 at 8:30 pm

I believe the IRD only kicks in when the bank rate for the nearest equivalent mortgage product (in terms of time remaining on your mortgage) is lower than your rate.

For Kip and Janie (welcome to BC, leave the skeeters at home before coming), the posted bank rate for 1 year fixed mortgages (closest product to their 11 months of remaining term) must have been lower than the rate on their existing mortgage.

If a bank humps up its posted rates, that works to the bank’s disadvantage in this scenario. There are some quibbles to this (if your original mortgage was obtained at a discount, then that discount will be applied to the comparator mortgage rate).

#17 T.O. & GTA "blinding" wars -July 11 -now with avg price per day per type of dwelling on 07.11.13 at 8:34 pm

I hope that from now on you will have a clear picture of what is going on in TO and GTA

You have sales, you have the last month prices, you have average prices at street level and you have avg price per day for each type of dwelling

What else could you wish ? :-) Maybe a volunteer to graph the evolution of these values

http://recharts.blogspot.ca/2013/07/to-blinding-wars-july-11-avg-discount-0.html

http://recharts.blogspot.ca/2013/07/gta-condo-blinding-wars-july-11-avg.html

http://recharts.blogspot.ca/2013/07/gta-sfh-blinding-wars-july-11-avg-sold.html

In my humble and uneducated opinion these numbers show a worrying trend. The worse is for condos where even if you don’t count the fake sales listings (those where in fact the house was relisted with a new lower price) most of them are sold under (today 89%!!)

#18 Spiltbongwater on 07.11.13 at 8:36 pm

#6 Notta Sheeple on 07.11.13 at 7:39 pm

I would rather see the mortgage contract put into the urinal for anyone who wishes to read it.

#19 Learn to read — Greater Fool – Authored by Garth Turner – The Troubled Future of Real Estate | The Affluent Boomer on 07.11.13 at 8:43 pm

[…] via Learn to read — Greater Fool – Authored by Garth Turner – The Troubled Future of Real Estate. […]

#20 HD on 07.11.13 at 8:45 pm

So basically you get screwed when you want to exit your mortgage early and there is nothing you can do about it.

What I’m getting from that post is that you better know how hard they’ll nail you so you can plan ahead?

Bend over and wait for the input (dry) or, apply the lube yourself and expect the input?

Given the choice, I would rather go for the latter.

Best,

HD

#21 espressobob on 07.11.13 at 8:46 pm

My own humble experience with RE wasn’t pretty. The list of fees & taxes, along with the survey and lawyer stuff was almost comical! The costs involved where another matter, not funny!

And the banks & mortgage brokers want to give us more punishment?

Believe me, investing is hard enough, now I have to wrap my head around this subject for a potential future property? Yikes.

And thanks for the heads up Garth. More homework, the pain, the pain!

#22 DaleFromCalgary on 07.11.13 at 8:49 pm

If they were buying a house in B.C., could they not have had their mortgage transferred from their old house to the new one? I paid off my mortgage in 1997 so I’m out of touch but that’s how I did it back in 1982. No fees either, since the bank was assured of my business.

Also, when I renewed the term, I used a mortgage broker to get a better deal from a new lender with no penalty. Again, no fees and because the broker put the mortgage out on the computer network, I didn’t have to run all over town talking to nice ladies.

#23 observer on 07.11.13 at 8:51 pm

Like all bubble once sheeples see that other are making good coin in a certain industry, they all rush into it. Until it gets too over saturated and then a slight blip and lots of jobs are lost because there’s alot of people in the industry.

Remember dot.com, yep head hunters were paying top dollars for non graduates in the computer field. Once the bubble burst, people who were making six figures got can or took huge cut to 30,000/40,000 dollar jobs. Just above people working min wage jobs.

Deal with it, if the real estate agents, construction etc…. save their bucks they would be rich rich rich. Because its been almost a 12 year run. They should have loads of money save up to weather any storm or retire by now.

#24 Smoking Man on 07.11.13 at 8:55 pm

Yes always a surprise in the fine print.

Got a better one than that story, that’s where I learned a lesson. Learn to read fast after that. And triple copied all paper work.

Back in 80’s had a growing glass mfg business, I out grew my main glass washing machine, it was leased from pacific national, so I got a company to take over the lease..and bought a bigger one. Shipped out the old machine.

Economy was starting to such.

I sold the business, for a shirt load just in time. .

A year later, I get a call from a receiver looking for the old machine, huh. Pacific national went under.

No problem I have the paper work, could not find it. So I go to Allens shop. He’s gone under too.

I had signed a personal guarantee that was transfered but no paper work to prove it.

I tracked down Allen the machine was confiscated by his creditors and ended up in China.

That lesson cost me 60k.

#25 Professional Buyers Agent on 07.11.13 at 9:01 pm

Consumers should seek out competent and experienced assistance from a professional whose business the banks rely upon to increase local branch volumes, that bring bonuses to the branch manager.

That same professional should be your main source (with verification before signing from your lawyer) for sourcing the best terms for a mortgage that will protect you.

The best Buyers Agents in the country can pick up a phone, talk to the local branch manager and have these ridiculous fees minimized to a fair minimum because those branch managers want future business. Placing 30 to 40 mortgages with a branch a year brings alot of power, if your agent has several options for future branch referrals.

The REALTOR as. Buyers Agent will USE a Mortgage Broker they can trust to obtain the best rates and terms available but it is your Buyers Agent who will personally deal with the bank on your behalf, because since they get no coin from the bank, the bank knows they will direct clients elsewhere, if the bank does not act fairly.

But then again maybe your believe MLS stats released to the press for making your home buying decisions too!

#26 Cow Man on 07.11.13 at 9:02 pm

Sir Garth:
A while back you said that some time you would do a script on the Life Insurance Industry. My experience has been that Lifecos operate in a manner that makes the Real Estate Agents and Mortgage Brokers look like Mother Theresa clones. How about your take?

#27 drydock on 07.11.13 at 9:05 pm

#196 Evangeline on 07.11.13 at 6:37 pm
#186
“Everyone is not going to pull out of the stock market on mass because today…”

not to play spelling police, but I think you might mean the French expression “en masse”
———————————————————-

Looser instead of loser is the one that really gets my goat.

#28 GenXer on 07.11.13 at 9:07 pm

I went through this when I sold off too. Best advice I can give is to take out a lone of credit and pay down the max allowed against your mortgage as a lump sum. Then use the rest to max out your payments on a monthly basis through your close date. This can have a large impact on the penalty. Oh yes – don’t forget to threaten to pull your investments from them too is you have anything with them.

#29 RayofLight on 07.11.13 at 9:10 pm

My wife & I bought our first new house in 1978. We had a 10.25 % mortgage, 30 yrs, opens every 5 years. We were scared straight in 1980, because the rates were climbing, and we thought we would loose the house in 1983. We saved like paupers, the children were babies, so they did not miss not having anything. I had a good job, and worked all the overtime I could get. By 1983, the interest rates were approaching 20%. We had saved the balance of the mortgage and closed it. After that, the “mortgage payment” went into liquid assets. Other than marring my wife, that was the best decision I made. I don’t have much sympathy for people who get into trouble with a 3% mortgage

#30 magilla on 07.11.13 at 9:18 pm

#20 HD “So basically you get screwed when you want to exit your mortgage early and there is nothing you can do about it.”

Yep, stick with a variable rate mortgage – no IRD, just 3 months interest.

When you take a fixed rate mortgage, there are contractual rights and obligations that arise. How is one getting “screwed” when the party (the bank) on the other side of the contract exercises the contractual rights you gave it?

#31 Nemesis on 07.11.13 at 9:29 pm

@GeniuneMayanVirgin/#10

There are so few social occasions on which one may legitimately present one’s guests with MapleSyrup ‘PartyFavours’.

Does that help?

#32 Cowpoke on 07.11.13 at 9:36 pm

Who said banks ‘suffer’? You must be joking. They are in cahoots with each other and the government. They have been granted a monopoly by the government. None of them makes a move on their own. They wait for the government to make a decision and then they all move in the same direction. This is nothing more than a heist by the banks. Support the G.I.A.B.O. movement.

#33 Derek R on 07.11.13 at 9:40 pm

#10 Genuine Mayan Virgin on 07.11.13 at 8:12 pm asked:
Mister Turner, please explain the sign!
Why are nude sunbathers eating waffles?

That’s easy. They are poor, unfortunate mortagees who didn’t read the fine print on their contracts. Not only did they lose their homes and the shirts off their backs; they are now reduced to a diet of waffles.

#34 ozy - Toronto capital of whinning on 07.11.13 at 9:44 pm

Toronto capital of whinning!!!

Now about mortgage penalties…if u don’t like it, go open your bank and let customers out with no penalities….you’ll rip 90% of the market, get rich

Toronto capital of whinning!!! Let’s call it WhinnyTo!

So, WhinnyTorians what stops you from paying 10% more every year so you finish it ealry, and aslo increaese payments by 10% (sample from my contract, read yours)!!! So, if u are proactive, you pay it of maybe 9 years early, so you avoid penalty potentially for the last two renewals…which won’t be needed anymore.

And the answer is……what stops you is …..the whinnning!!!

LOL, DWL, I haven’t had so much fun in years!

#35 Rob on 07.11.13 at 9:45 pm

Garth careful what you write; my old lady reads this blog and dont want to give her any ammo. lol

#36 mortgagebrokeron on 07.11.13 at 9:52 pm

true true, ird penalties suck….. go variable, they are usually 3 months interest but still get the break fee in writing.

Also big banks are usually the worst with ird by the way not the small ones. first national is pretty good.

Also for the people who rate shop mortgage brokers for a good rate then take that to “their” bank. They can suck it. Wasting a brokers time is pathetic.

How would you like to work all day then not get paid for your time?

#37 Piccaso on 07.11.13 at 9:55 pm

#29 RayofLight on 07.11.13 at 9:10 pm
………………………………………………………………..

Ray, the pompers now days haven’t a clue. They think 3% is the norm.

A kid making 50K a year thinks a mortgage for 500K is the norm. It’s only 10 times my gross income… what’s the problem?

LOL

#38 Yellow Rox Rock on 07.11.13 at 9:58 pm

For Garth, AK, and the other gold haters, I thought you’d get a kick out of this John Stewart clip titled “The Golden Rage”:

http://www.youtube.com/watch?v=BE5YxEcZqlg

You know I love my Yellow, but a guy has to have some fun with it too.

#39 Piccaso on 07.11.13 at 10:06 pm

#29 RayofLight on 07.11.13 at 9:10 pm
………………………………………………………………..

Ray, the pompers now days haven’t a clue. They think 3% is the norm.

A kid making 50K a year thinks a mortgage for 500K is standard issue.

Hec, it’s only 10 times my gross income… what’s the problem?

LOL

#40 Musty Basement Dweller on 07.11.13 at 10:11 pm

This post and sad story reminds me of how various bastard lenders rape us on credit card fine print. I am sure there is a million stories out there. I sure have a few and am someone who pays their credit card off 99 percent of the time.

#41 rosie "moving forward" on 07.11.13 at 10:11 pm

Mortgages are boring, all those tiny little words. Let’s talk about gold or damn boomers or stupid 30 somethings choking on debt. Whine off.

#42 An Cat Dubh on 07.11.13 at 10:13 pm

Another well written post. The best way to be a “bank robber” is to be a banker.
What about Alberta? Alison “The Red” Redford, former UN lawyer, supports agenda 21, put the province deep in debt after Ralph got them out? Now you Albertans know what it’s like to have an NDP govt. She also looks disturbingly like Jillian Gillard, the Aussie carbon tax queen.

#43 magilla on 07.11.13 at 10:22 pm

Speaking of variable rate v. fixed rate, given that fixed rates may continue to be on the move up, and given the possibility that BOC interest rate (and hence bank’s prime rate) may continue to stay low for some considerable period, do any of you have any thoughts on whether the banks will be increasing their variable rates (ie. by reducing the discount off prime rate, or even going prime + something) to reduce a growing discrepancy between the VR and fixed rate?

I am not renewing for some time (just recently switched from VR to a 5yr fixed), but I am curious

#44 magilla on 07.11.13 at 10:34 pm

#42 Musty Basement Dweller: “This post and sad story reminds me of how various bastard lenders rape us on credit card fine print.”

—–
If your credit card company’s fine print actually allows them to rape you, you should very seriously consider changing to a different lender!

#45 VT on 07.11.13 at 10:44 pm

On bank-bashing days like this I remind myself why I’m happy to own shares in the major banks. Those quarterly dividends sure do change one’s outlooks.

Keep calm and carry on.

#46 Blacksheep on 07.11.13 at 10:47 pm

“So for all of you whom derogatorily call employees slaves please note I take offense at your lack luster vocabulary on behalf of the hard working honest people out there who aspire to become someone better.”
—————————————————
The Owner and Slave labels are so crass, Master and Servant is more PC and legally accurate.

#47 ben on 07.11.13 at 10:52 pm

#29,#39 you struggled when rates doubled. You entered the market in the middle at a the rate of that time, which you could not control. Then you nearly went under.

People now have to enter the market at absurd multiples because that is the price. Rates are doubling from a low base. Are they really dumber than you nearly were?

The kids didn’t make this market. They just got the cheque. You boys all dined out on it.

#48 AK on 07.11.13 at 10:58 pm

#47 VT on 07.11.13 at 10:44 pm
“On bank-bashing days like this I remind myself why I’m happy to own shares in the major banks. Those quarterly dividends sure do change one’s outlooks.

Keep calm and carry on.”
——————————————————————–
I totally agree.

Better to borrow from ‘TD’ and ‘BNS’ rather than Anthony “ The Ant ” Spilotro. :-)

#49 Smoking Man on 07.11.13 at 11:01 pm

#47 VT on 07.11.13 at 10:44 pm

On bank-bashing days like this I remind myself why I’m happy to own shares in the major banks. Those quarterly dividends sure do change one’s outlooks.Keep calm and carry on.
…………….

Exactly, you have just upgraded to a smoking man yellow belt..

#50 MagnumMtl on 07.11.13 at 11:02 pm

My June TD Direct Investing statement included an insert announcing an increase in service fees. The highlight was a $2 charge per mailing for clients who do not sign up for electronic statements.

Each statement and confirm they send will have a $2 charge?

Are they being sent Fedex?

I already receive my statements electronically, but if this catches on the post office will be out of business.

Nickels and dimes are turning into loonies and twoneys.

#51 TheCatFoodLady on 07.11.13 at 11:05 pm

Contracts & fine print… READ YOUR DAMNED CONTRACTS! All of them. Every time. Every single word. We’re renters, (too poor to have any business entertaining home ownership) & when we’ve moved, we’ve made sure we read each line of our leases before signing. Yes Ontario has standard leases but it’s also true there are certain clauses landlords can legally add. Don’t assume you know something. Don’t take anybody’s word about what the Residential Tenancies Act says, your VISA contract, your cable/net contract…

I used to be careless about reading fine print as well as sloppy about reading through monthly statements from banks, cable companies, etc. When I started reading everything, I discovered companies were happy to take my money for bs charges we’d never authorized.

By micromanaging my monthly statements & ‘carrying costs’ of bank accounts, bills, etc., by snarking at the insurance company when they couldn’t explain why they wanted to impose a 13% hike in premium this year, (no claim, always fully paid up, 20+ years with company), we save enough to NOT be eating cat food.

It’s our money, we have little enough of it. We’re not into sharing it unknowingly through our own stupidity – not anymore…LOL. 2 of our 3 kids have learned this & are doing very well for themselves – not bad for millenials. The 3rd one… shudder but her life, her decisions, her consequences. We’re done ‘helping’ her out.

I love banks – as a shareholder. If there’s a way to squeeze a cent of profit out of someone, they’ll find it. I’m not averse to taking advantage of other peoples’ unwillingness to pay attention to their own balance sheets. As a bank customer, I keep my bank on a short leash. We have no debt & our slowly building up an investment portfolio. I’m happy to periodically remind them that my money can walk.

As to the intergenerational blame I’ve been seeing – not buying. Each generation has its own set of unique circumstances & problems around which they must work. Deal…

#52 Fzzzz on 07.11.13 at 11:05 pm

Wow. Good post.

Keep that info coming.

Who knew?

#53 Gg on 07.11.13 at 11:08 pm

Great write up

No more predicting on end of QE. You are wrong. Keep to the RE news.

Stimulus spending will end. The impact on housing will be palpable. — Garth

#54 not 1st on 07.11.13 at 11:10 pm

Stay variable my friends

#55 Devore on 07.11.13 at 11:33 pm

The worst culprits, as you might expect, are the little lenders with strange names that your mortgage broker signed you up with because they had the cheapest rate. That is certainly a decision which can come back to bite you although, as Janie discovered, even the monster banks can be prickish.

Happens all the time, and not just with mortgages. People will cut corners and skimp and go for the rock bottom price, whether it’s a mortgage, insurance, whatever, they’re smug as all f%&* to everyone around them when things are going their way, but when something goes wrong, they complain they are not receiving Cadillac service for a Kia price, and blame “greedy corporations”. They want heated seats in their Kia because their neighbor’s Cadillac has them.

Their mortgage was cheap for a reason. They did not read the fine print, and are now discovering the bad news the hard way.

#56 Mouldy in Nanaimo on 07.11.13 at 11:45 pm

#20 HD on 07.11.13 at 8:45 pm
So basically you get screwed when you want to exit your mortgage early and there is nothing you can do about it.

What I’m getting from that post is that you better know how hard they’ll nail you so you can plan ahead?

Bend over and wait for the input (dry) or, apply the lube yourself and expect the input?

Given the choice, I would rather go for the latter.

Best,
__________________________
Thanks for making my day HD. Your analogy is awesome. Good as Poetry.

#57 Contrarian on 07.11.13 at 11:51 pm

Why bother with a mortgage in the first place? If you can’t afford the price, don’t buy. Stop playing the game… right not1st?

#58 Contrarian on 07.11.13 at 11:57 pm

#33 Shawn… You are wrong. Those deposits you speak of consist of fiat money also. And it’s not a long story at all, it’s just that you haven’t come to grips with the fact that money itself is a scam. Tell me, how would you classify the interest that a bank earns on the money it lends out? Is it a) a medium of exchange b) a unit of measure or c) a store of value? It is none of those things; therefore, it has been created from nothing. Go ahead and prove me wrong.

#59 No Debt on 07.12.13 at 12:03 am

Garth old boy, you scared us off buying into the big dream several years ago and for that we owe you big time.

We rent, we’re debt free, relatively well invested and most important of all, we have the freedom of knowing we can go where we want, when we want, and never have to worry about getting screwed over for life circumstances that are beyond our control.

We may not be millionaires, but we’re free to do as we please, when we please, where we please. And nobody will ever take that away from us.

Now, if I could just do something about this accumulation of “stuff”. If I have to move one more time due to the accumulation of “stuff”, I swear I’ll be the next hubby gone postal. Who could ever imagine a couple in their early 50’s with no kids needing a 4 bedroom house with a garage, just to keep “stuff” in?

#60 Tony on 07.12.13 at 12:17 am

Their first thought should be how much less will this house in Winnipeg be worth in eleven months’ time? Probably at least five times what the fee to break the mortgage is. So you can see this is a very smart move paying the fee selling the house now and saving at least $20,000.

#61 KommyKim on 07.12.13 at 12:55 am

RE: #44 An Cat Dubh on 07.11.13 at 10:13 pm
What about Alberta? Alison “The Red” Redford, former UN lawyer, supports agenda 21, put the province deep in debt after Ralph got them out? Now you Albertans know what it’s like to have an NDP govt.

Ummmm…. She’s a CONservative. So NO, Albertans don’t know what it’s like to have an NDP govt.

#62 Devore on 07.12.13 at 1:00 am

#4 LazyJason

So it may be a hit to the bank account now, but once they file their taxes most of it should come back.

Except they’re moving because of divorce, so they can’t deduct jack squat.

#63 OffshoreObserver on 07.12.13 at 2:27 am

A few points:

1. Kip and Janie didn’t get stung too badly; I had to refinance my commercial mortgage in 2009 because liquidity was waning despite having substantial equity in my apartment block. I had about 3 years left on a fiver and my bank would not give me a line of credit. Hence a new lender.

I refi’d and discovered the IRD was $100K, which took me by surprise because I had mentally calculated about three months’ interest penalty, which would have been about $15K.

I complained to my banker and he knocked off $20K, but the $80K still stung.

2. I sold my building in 2010 and put the proceeds in diversified ETFs. (While XIU has lost about $100k, that is offset by increases in S&P500 ETF, and I bought Apple earlier.)

3. I sold because in the refinancing I had to get a new appraisal of my building and it had jumped up in value such that if I sold and paid off the mortgage and taxes I could retire. Also, it bothered me I had all my wealth in one asset in one location. At 57, I did not have a whole lot of time left to employ my human capital.

4. I opened up a self-directed brokerage account and informed them of my coming good fortune. I got the snow job from my new bank, one of the big 5, including having a foxy lady from the downtown branch make a presentation to me. She wanted me to become a client. When I asked her the fee, she said, “1.25%.”

I laughed and said, that’s 1.25% in first position on my money and asked her what her bank was going to do. She stammered about having so many smart people in Toronto–I am from Vancouver–I’ll do another post later on how much those fees are worth to your bank, which gain is your loss.

I thanked her and asked her why she didn’t recommend ETFs. She left shortly thereafter and I never heard from her again.

My experience with that bank has been horrible. It bounced a rent cheque when I had more than 7 figures in my holdings at the bank. Its excuse: “Well, you are a new customer.”

Again, when I was back in Vancouver this Spring (2013), it took over a month to change an address. I live in Southeast Asia now–my rent is $300/month.

@#33 Shawn
————–

5. The central governments manipulate the amount of money through the reserve requirements–and if you want to get really frightened about potential inflation have a look at the, mostly, declining reserve requirements around the world, which means growing money supply.

Simply put, if the reserve requirements were 100%, a bank could only lend $1 for $1 of deposits. (So they cannot make much money on the interest on the $1 lent and the costs, if any, of the $1 on deposit. Of course, they still have fee and transaction income.

Now, assume the reserve ratio is not 100% but 5%. That means, the bank has to only keep $.05 of the $1 deposit.

Of course, again for simplicity’s sake, assume that the borrower of that $1 redeposits the proceeds and the bank makes more loans.

The amount of money the bank can lend–which, mathematically, is an infinite geometric expansion–is deposit divided by reserve ratio: D=$1/.05 = $20 of loans, or 20 times the deposit.

So now, assume the bank has a loan book of $20 million. They only have to have $1 million on deposit as a reserve requirement: the 5%.

Now it gets interesting. Assume that the interest rate on 5 year money is 5% per year for both deposits and loans–ignore the so-called “spread” or bank mark-up on their cost of funds. As it turns out, this does not really have as much impact on bank revenue as does the leverage on bank deposits:

Bank Revenue per year on $20 million loan book = $1 million.

Costs (ignoring rent and administration) is interest on reserves = 5% on $1 million = $50,000

Bank’s gross margin = $950,000.

It becomes easy to see why a bank charter is very attractive.

More here: http://en.wikipedia.org/wiki/File:Fractional_reserve_lending_varyingrates_100base.jpg

#64 Lucas Greene on 07.12.13 at 2:31 am

Wondering why are the rates so low nowadays? Duffy says that recent moves by the Federal Reserve have held interest rates in check. The government has been artificially suppressing interest rates by essentially buying mortgage loans from the banks – thereby freeing up more money for lenders to then give to borrowers. However, he says government involvement will not last forever, and the rates will start to climb.

#65 Mark on 07.12.13 at 2:56 am

“do any of you have any thoughts on whether the banks will be increasing their variable rates (ie. by reducing the discount off prime rate, or even going prime + something) to reduce a growing discrepancy between the VR and fixed rate?”

Yes, those rates will also be going up as the lending community, including the banks, perceive borrowers as being less creditworthy. After all, banks are more than happy to lend when prices are going up, but once prices are going down, they make the big $$$$ by making credit scarce.

Variable rate borrowers = the ultimate liquidity backstop for banks if there were to be any sort of bank runs or similar sorts of liquidity crises. After all, the banks can jack “Prime” to anything they want as they control the rate in their sole discretion.

#66 The real Kip on 07.12.13 at 6:03 am

So lets see, the economy is good, banks make billions. The economy is bad, banks make billions, some things never change.

Who has a name like Kip anyway?

#67 Kent on 07.12.13 at 6:05 am

Look out for “claw backs”. My wife and I got hit with that one at RBC, and it never appeared in the contract we signed, but only when we ended the mortgage. The bank rep conveniently left those parts of the contract out before we signed and never gave us a copy.

#68 Ralph Cramdown on 07.12.13 at 6:16 am

#7 Cody — “#2: I believe you are misunderstanding how loans are created in Canada. Our banks do not have a pool of money from which they draw money to loan out; they simply create it by typing some numbers into a computer.:

Some people walk into banks, ask to borrow money, and get declined. If banks really created money from thin air for every loan, why would they care whether they got paid back? I’m not trying to bait you; I’d love to hear your answer, because I have trouble understanding how somebody (either you or me) can have such a big misunderstanding of how banking works.

#69 Ralph Cramdown on 07.12.13 at 6:33 am

#38 mortgagebrokeron — “Wasting a [mortgage] brokers time is pathetic. How would you like to work all day then not get paid for your time?”

Your compensation model is the borrower’s problem? Personally, I think getting a commitment and then showing it to your banker to match is a lame move, but I’d have no problem saying “I have a commitment in my pocket, which I won’t disclose to you, and if you can’t beat it by two bps it’s goodbye.”

#70 craig on 07.12.13 at 7:45 am

Huge drop!

In the last two months, mortgage applications have collapsed 43.5%, according to Contingent Macro Advisors, far worse than anybody had anticipated.

http://finance.fortune.cnn.com/2013/07/12/federal-reserve-interest-rates/?iid=s_mpm

#71 Squatter on 07.12.13 at 8:30 am

#69 – Ralph Cramdown:
Some people walk into banks, ask to borrow money, and get declined. If banks really created money from thin air for every loan, why would they care whether they got paid back? I’m not trying to bait you; I’d love to hear your answer, because I have trouble understanding how somebody (either you or me) can have such a big misunderstanding of how banking works.
—————————————————-
Let’s say you get a 5-yr mortgage.
The bank will finance it by issuing bonds at a lower interest rate. They won’t issue a bond just for your mortgage. They will probably issue bonds for large amounts like 1 billion bucks at a time to finance lots of mortgages.
So, the money comes from those who buy the bank bonds, e.g. life insurers, pension plans, etc.
If you repay the mortgage, they make a profit.
If you default, the mortgage insurance will cover the loss up to 20% I think.

#72 TurnerNation on 07.12.13 at 8:39 am

True North has opened up another 2-3 locations in downtown T.O. Bad timing. Say has O-Leary Mort-gages gotten off the ground? Bad timing.

#73 neo on 07.12.13 at 8:52 am

At #33 and #60

So I was at RBC this week and asked for a $6,000 withdrawal from a chequing account. The teller says to me I can only give you $2,500 max. I told her I took out $5,000 a few weeks ago without a problem. She says it is a new policy at their branch. I am not intimating RBC is going insolvent or is in trouble. What I am saying is there is less and less actually physical currency in the system at any one time. The money isn’t even printed. It is ones and zeros produced by keystrokes that comes into existence through debt and leverage.

More likely this is a typical bank overreaction to the large influence of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. — Garth

#74 Wes Mantooth on 07.12.13 at 9:03 am

To quote the previous post

“There’s no choice. Most have little in the way of investment portfolios. CPP pays at best a grand a month and OAS is a measly $537 – nobody can have a decent urban life on that. There’ll be no option but to sell, downsize or rent.”

Time to start asking why Gen Y feels it is appropriate that they will be able to afford an urban lifestyle?

The expectation that a “good” middle class job should naturally allow you to buy a home in downtown Toronto is flawed. Those days are over… Of course the suburbs are waiting…But they dont want the suburbs, they want the junction… and this is why we find ourselves where we are. The tipping point is here… Certain centers may have found themselves at a mass which means that it will take more than a middle class job to enter the housing market.

#75 CrowdedElevatorfartz on 07.12.13 at 9:26 am

” I wonder whose fault that is”

Apparently the Boomers are to blame for everything.

Obese Gen X’ers are our fault.
Meteors hitting Russia, yup, thats another one.
Pets locked in cars on hot days. Thats me!
Pulling the wings off flies.
Cooking ants with a magnifying glass………

Boomers are truely evil.

Perhaps a brilliant Gen X’er out there ( sorry TnT you dont qualify), can creat a virus that will just wipe out Boomers. I’m sure the world would be a better place but ……..who’s fault would it be then?

Ive got it.
The Gen Y’ers can blame the Gen’X”ers……..

And the polluted world keeps turning…… Hand me a gas mask, I have money to count.

#76 mortgagebrokeron on 07.12.13 at 9:40 am

#70 Ralph

6 of one kind a half dozen of the other.

What pisses me off is take for instance the following scenario.

Client of RBC bank goes to the bank and asks for a mortgage. RBC offers 3.54 5yr fixed. Then says if you can find a better offer we will match it.

Client finds 3.29 with a broker takes it to RBC and it gets matched.

What a stupid game!!! Why doesn’t Client just ask RBC for their last best offer up front and go with RBC???

Personally I always go with one best offer and if RBC or whoever tells me they will go lower if they have too then I wouldn’t go back.

What a stupid game

#77 Jeff in Moose Jaw on 07.12.13 at 9:46 am

#47 VT – On bank-bashing days like this I remind myself why I’m happy to own shares in the major banks. Those quarterly dividends sure do change one’s outlooks.Keep calm and carry on.
…………….
#51 SM – Exactly, you have just upgraded to a smoking man yellow belt..
…………….

This is advice I would give to bank employees, and walmart employees…. should be a share holder with these giants. Garth and Smoking Man – keep up the great work.

#78 Daisy Mae on 07.12.13 at 9:54 am

“By the way, did you hear the mortgage industry is worried about losing 150,000 jobs as real estate rots?

I wonder whose fault that is.”

*********************

The elfin deity doesn’t have much to say these days, does he?

#79 Mark on 07.12.13 at 10:12 am

So for all of these people complaining about mortgage penalties, I’m not sure I understand. Isn’t this part of your contract? If they’re trying to charge you something that’s not in the agreement you signed, then they have no legal right so why are you agreeing to pay? And if it is in your contract, then you should have read it before signing. So why are you complaining if you knew about it when you signed the papers? You *did* read the contract before signing it, right? Am I missing something??

#80 Bottoms_Up on 07.12.13 at 10:13 am

#41 Piccaso on 07.11.13 at 10:06 pm
—————————————-
So, what is the norm? Do we live in normal times? I’m afraid to tell you but the 1980’s are gone, 15% mortgages and significant inflation is no longer the norm.

Only looking at the past few years, and the several few to come, can we establish what the ‘norm’ might be (as we are living now, and that is important). Given that mortgages have recently been in the 3-4% range, economic growth and wage growth are stagnant, I’m pretty comfortable considering that 4% mortgages are, and will be, ‘the norm’ for our time.

#81 Doug in London on 07.12.13 at 10:16 am

@observer, post #23:
I couldn’t agree more. Being 52 years old, I have seen boom and bust cycles occur in many sectors, including real estate. On average the real estate cycle is about 10 years, complete with bust times like 1981-82 and the early 1990’s. With that idea in mind we’re LONG overdue for a correction. If I were making money off this industry I would have been saving like Scrooge during the boom so I could not only survive the bust, but possibly even retire altogether.

#82 Canadian Watchdog on 07.12.13 at 10:27 am

#73 neo

So I was at RBC this week and asked for a $6,000 withdrawal from a chequing account. The teller says to me I can only give you $2,500 max. I told her I took out $5,000 a few weeks ago without a problem. She says it is a new policy at their branch.

That's called macroprudential capital controls. You put your money, "now you's can't leave"

#83 George on 07.12.13 at 10:30 am

Compare Vancouver real estate with real estate owned by celebrities in the US.

In LA, $2.5 million buys you a celebrity home complete with pool, spa, fountains, rooftop patio, outdoor kitchen.

In Florida, $2.5 million bought John Travolta a mansion with its own landing strip for his private jet.

In Vancouver, $2.5 million buys you a tear-down stucco bungalow that must be about half a century old.

http://thethirtiesgrind.com/2013/07/11/absurd-vancouver-property-july-11-2013/

#84 Canadian Watchdog on 07.12.13 at 10:46 am

This 100 year old electrical and mechanical contracting company just went bankrupt: comstockcanada.com

CCAA Filing

Way to go central banks. Keep printing and destroying our manufacturing base. Next…

#85 Holy Crap Where's The Tylenol on 07.12.13 at 10:58 am

When perusing contractual print run from the following words.

DISCLAIMER
“WE” OR “US” OR “OUR”
THE READER (YOU”)
HEREBY MAKE
GUARANTEES
WARRANTIES
REPRESENTATIONS
WHETHER EXPRESS OR IMPLIED
SPECIFIC OR GENERAL, REGARDING
CONTAINED HEREIN
BY READING THIS MATERIAL, AGREE TO INDEMNIFY, HOLD HARMLESS AND RELEASE US FROM ANY ACTIONS, CLAIMS, DAMAGES, INJURIES, OR SUITS DIRECTLY OR INDIRECTLY RESULTING OR ARISING FROM
INCLUDING BUT NOT LIMITED TO
FURTHERMORE, WE FULLY DENY, DISCLAIM AND REPUDIATE

#86 Aussie Roy on 07.12.13 at 10:58 am

100% correct deposits create loans.

When this loan is spent, then doesn’t this loan create deposits?.

Deposits create loans is only half the story because it’s not possible to argue that the proceeds of loans don’t became a vendors bank deposit. Unless you believe that all loan proceeds paid to vendors are stored under their mattress.

If you sell your house and the buyer takes out a loan which is then paid to you, then doesn’t this simple example show how their loan became your bank deposit, which in turn can be used to create more loans?.

Deposits became loans, loans become deposits, it’s not rocket science.

#87 Contrarian on 07.12.13 at 11:00 am

My dear Shawn, one who resorts to guilt by association as a logical fallacy: why do you not answer my question? It has nothing to do with doomer or conspiracy sites. And I did not claim that fiat money is foul. Quite the opposite, it is something that works well. But you must not confuse something that works well with something that is the best solution for all, because somebody gets the short end of the stick. I will not attack you personally, but I know full well that you could not care in the least about that last statement. Looking only at bank balance sheets tells you absolutely nothing, but tells me a lot about you. If you define all incoming funds as deposits, you are intentionally missing the point. Tell us, then, from where do those deposits originate?

Yes, central banks create money, as the economy expands. Money in this regard is just a measuring stick. But what are we measuring? Product. GDP. Commercial banks employ the practice of usury to extract more money from the original. Where does that usury come from? It does not come from products or services (those are called bank fees). It is NOT actually a portion of the GDP because usury is neither a product or service. This EXTRA-ECONOMY money must then be laundered. Cue the conspiracies…

So, Shawn, have I enticed you to venture a little further away from the comfort zone of your beloved balance sheets? Perhaps not. Shame.

#88 Evangeline on 07.12.13 at 11:08 am

the boomer generation was mighty rebellious against its precedent generation as well. maybe the purpose of the 5th Commandment was to stop intergenerational bickering 3000 years ago.

#89 Marina on 07.12.13 at 11:13 am

At # 73
More likely this is a typical bank overreaction to the large influence of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. — Garth

Hardly, they want to control everything and everyone; if you get cash from your bank account – they cannot see what is this for and lose control on you.

That is just amazing. — Garth

#90 Contrarian on 07.12.13 at 11:16 am

Let’s go back to First Principles: One of the main functions of a central bank is to loan out money as circulated currency. This is the grease for the gears of the economy. Most currency nowadays takes the form of electronic bits and bytes. All of this is just fine so far, no problems. Now, if each of us was to take a portion of that currency and use it to trade for things we need, then that is not a barter system because we are using the currency money as a medium of exchange. And barter is defined as a system where no medium of exchange is used. Don’t confuse this. So far so good.

Now, what did each of us do to earn that portion of the money in circulation? Well, we have jobs to do, products to make, stuff to innovate, ideas to blossom, etc… So we do all of this, earn that portion of the central bank’s loan and trade it with each other for things we want. If there isn’t enough money in circulation to grease the gears of the economy, the central bank issues more of it, and everybody is happy.

WHERE IN THIS SCENARIO DO YO SEE THE NEED FOR A CABAL OF COMMERCIAL BANKS?

#91 Old Man on 07.12.13 at 11:24 am

I can give an interpretation on the above noted photo, and the words thereof. Guess what? I will hold my opinion in reserve on this one; too hot to handle.

#92 TnT on 07.12.13 at 11:51 am

http://www.cbc.ca/doczone/episode/generation-jobless.html

As per this documentary, the future for Gen Y and beyond is full time earnings will be made up with multiple contract jobs. I think this will help change the “setting roots” in a single address mantra and help create a renter generation.

#93 Karen on 07.12.13 at 11:58 am

To Rayoflight, back in 1980 your mortgage was probably around 40k. Mortgages now are 300k. Takes a lot more time to pay off. It can’t be payed off in a couple years like it used to so until you buy a 300k house, get off your high horse.

At 40k mine would be paid off within 5 years too.

#94 kommykim on 07.12.13 at 12:06 pm

RE: #73 neo on 07.12.13 at 8:52 am At #33 and #60
So I was at RBC this week and asked for a $6,000 withdrawal from a chequing account. The teller says to me I can only give you $2,500 max.

If you need a large amount of cash phone the bank a few bussiness days in advance to let them know how much you’ll need. Then it’s never a problem.

#95 Benderdundat on 07.12.13 at 12:09 pm

Banks! Simple assumption for every transaction where money is changing hands,usually from yours in to someone else’s. They are lying to you! Greed is the creed! Think about all the individuals that grab a chunk of your pay or bank account. Manipulation, the hand is quicker than the eye (or brain sometimes).
Bankers, realtors, politicians, car salesmen, lawyers, baristas with $5 coffee, Mutual funds, grocery chains, furnace repair men, yes that suit looks good on you. This house was owned by a little old lady who only slept in it on Sundays. The list is endless.
Ask questions, get it in writing. Read the contracts. Dig deeper. Don’t be afraid to challenge the so called experts and roll against the tide. Sheep are usually fleeced by the shepherd.

#96 Canadian Watchdog on 07.12.13 at 12:10 pm

#60 Contrarian

Shawn speaks of an old system that doesn't apply anymore. Banks don't really hold any capital, rather fund it with equity and debt. Our banks along with every other major bank in the world would collapse without central bank liquidity injections. But even this unconventional monetary policy has its limits, as the great Keynes himself knew, central banks were limited to delivering positive outcomes and could only intervene for a short period of time before long-term unintended consequences begin unfolding.

Alas, the Basel Committee comes clean and admits Tier 1 risk weightings were nothing more then a fallacious formula enacted by lobbyists of the west to hide leverage and risk (as mentioned by BRICS banking officials who refused to adopt Basil III Tier 1 guidelines).

Canadian banks sink under new ratios

For the past few years, the Basel Committee on Banking Supervision, the global banking regulator, has focused on what is known as the Tier 1 capital ratio, which dictates banks must assign risk weightings to different assets, and hold more cash against the riskiest ones. Canada's banks led the way on this front.

Now a simpler formula, known as the leverage ratio, is getting loads of attention from regulators. Instead of weighting assets by their risk levels, this ratio treats all assets the same – triple-A-rated government debt is deemed just as risky as a subprime mortgage – and requires banks to hold a cash cushion against this overall figure.

Although the Basel Committee will require all banks to meet a leverage ratio of 3 percent by 2018, meaning they must have cash reserves of at least 3 percent of their total assets, other countries are starting to propose going above and beyond.

Well that pretty much explains everything one needs to know, cause when a government triple-A rated bond is as risky as a subprime mortgage, it's pretty clear that the only thing safe at this point are hard assets outside of the banking system.

The next step is what everybody knows has to happen: bail-ins and debt restructuring.

#97 JimH on 07.12.13 at 12:17 pm

#76 Shawn
(responding to the misunderstandings about money)

A good response, Shawn!

Perhaps we would do well to remember that “money” is both a tangible, physical thing like a crisp new $1 bill, AND and an intangible thing as is the case with an entry in a bank ledger. ‘Monetary Realism’ labels physical dollar bills as ‘outside money’ and labels numerical entries an a bank ledger as ‘inside money’. Both forms of money are in every sense of the word, “real”, and are in the final analysis based on trust…

The corner 7-eleven trusts that the $1 bill you hand the clerk really is worth $1; the contractor trusts that the check you write for your renovations is worth the sum of his billing; the contractor trusts that the value of your check will be electronically moved from your ‘ledger’ to his. Only one of the above transactions actually involves ‘outside money’; the latter two deal with ‘inside money’ and are typical of most transactions today. However, one is no more ‘real’ than any other. We do, however, seem to think of that crisp new $1 bill as the only one that is ‘real’.

Yet today almost all money in our economy is ‘inside money’ and almost never pops into existence as a physical thing; we think of it as ‘just numbers in computerized ledgers’, and so it is. In my life, actual, physical money that ‘greases my palm’ comprises only a tiny percentage of the total value of my financial transactions. Once in awhile I go to an ATM to convert some of my “inside money” to “outside money”. Technology seems to be making ‘outside money’ almost unnecessary. Yet we need it from time to time.

There is a good explanation by the NY Fed as to how this money gets into circulation here:

http://www.ny.frb.org/aboutthefed/fedpoint/fed01.html

My brokerage house is also my banker, and ‘cash’ is ‘moved’ form one or another brokerage account into a bank account to cover charges on credit cards &etc. This is all done by ‘inside money’. I have no idea whatsoever what the actual locations of my accounts are, but trust that those numbers in their computer systems are very ‘real’ indeed, and that the transfers and shifts I engineer (and ones that occur automatically) really do happen, and that MasterCard, Visa and Amex actually do get their designated ‘inside money’.

At no time in any transaction does a bank simply “create money out of thin air”. The banks are limited in their loans and also their own payments by their ‘cash’ reserves and by their own ability to borrow.

The fact that these restraints are restraints placed upon their ‘inside money’ ledgers in no way makes them any less real! Otherwise no bank anywhere could ever possibly fail!

#98 Spiltbongwater on 07.12.13 at 12:32 pm

I go to TD bank and put my debit card in and click some buttons and want $1K in cash. The machine tells me I can only take out $800, so I accept. Then the machine asks if I want to do another transaction, I click some more buttons, and request $200, and the machine spits that out to. WTF is wrong with the bank machine? Can’t give me $1K in one transaction, but can give me $1k in 2 transactions. I pay 50 cents per transaction, and every month I have to go argue with the bank manager about eating 1 transaction fee. My daily withdrawl limit is $1k fwiw. This is how the banks book record profits imo.

#99 Humpty Dumpty on 07.12.13 at 12:36 pm

#77 CrowdedElevatorfartz

Duded, there is no such thing as “evil” or evil groups of people…

Just “alternative lifestyles” and ideologies….
This generation takes great pride in “redefining” everything..

Get your gas mask out Stinky, cause your money will not stop this virus from mutating…

Using the same tactics used by “gay” rights activists, pedophiles have begun to seek similar status arguing their desire for children is a sexual orientation no different than heterosexual or homosexuals.

Critics of the homosexual lifestyle have long claimed that once it became acceptable to identify homosexuality as simply an “alternative lifestyle” or sexual orientation, logically nothing would be off limits. “Gay” advocates have taken offense at such a position insisting this would never happen. However, psychiatrists are now beginning to advocate redefining pedophilia in the same way homosexuality was redefined several years ago.

In 1973 the American Psychiatric Association declassified homosexuality from its list of mental disorders. A group of psychiatrists with B4U-Act recently held a symposium proposing a new definition of pedophilia in the Diagnostic and Statistical Manual of Mental Health Disorders of the APA.

B4U-Act calls pedophiles “minor-attracted people.” The organization’s website states its purpose is to, “help mental health professionals learn more about attraction to minors and to consider the effects of stereotyping, stigma and fear.”

In 1998 The APA issued a report claiming “that the ‘negative potential’ of adult sex with children was ‘overstated’ and that ‘the vast majority of both men and women reported no negative sexual effects from childhood sexual abuse experiences.”

Pedophilia has already been granted protected status by the Federal Government. The Matthew Shephard and James Byrd, Jr. Hate Crimes Prevention Act lists “sexual orientation” as a protected class; however, it does not define the term.

Republicans attempted to add an amendment specifying that “pedophilia is not covered as an orientation;” however, the amendment was defeated by Democrats. Rep. Alcee Hastings (D-Fl) stated that all alternative sexual lifestyles should be protected under the law. “This bill addresses our resolve to end violence based on prejudice and to guarantee that all Americans, regardless of race, color, religion, national origin, gender, sexual orientation, gender identity, or disability or all of these ‘philias’ and fetishes and ‘isms’ that were put forward need not live in fear because of who they are. I urge my colleagues to vote in favor of this rule.”

The White House praised the bill saying, “At root, this isn’t just about our laws; this is about who we are as a people. This is about whether we value one another – whether we embrace our differences rather than allowing them to become a source of animus.”

Earlier this year two psychologists in Canada declared that pedophilia is a sexual orientation just like homosexuality or heterosexuality.

Van Gijseghem, psychologist and retired professor of the University of Montreal, told members of Parliament, “Pedophiles are not simply people who commit a small offense from time to time but rather are grappling with what is equivalent to a sexual orientation just like another individual may be grappling with heterosexuality or even homosexuality.”

He went on to say, “True pedophiles have an exclusive preference for children, which is the same as having a sexual orientation. You cannot change this person’s sexual orientation. He may, however, remain abstinent.”

When asked if he should be comparing pedophiles to homosexuals, Van Gijseghem replied, “If, for instance, you were living in a society where heterosexuality is proscribed or prohibited and you were told that you had to get therapy to change your sexual orientation, you would probably say that that is slightly crazy. In other words, you would not accept that at all. I use this analogy to say that, yes indeed, pedophiles do not change their sexual orientation.”

Dr. Quinsey, professor emeritus of psychology at Queen’s University in Kingston, Ontario, agreed with Van Gijseghem. Quinsey said pedophiles’ sexual interests prefer children and, “There is no evidence that this sort of preference can be changed through treatment or through anything else.”

In July, 2010 Harvard health Publications said, “Pedophilia is a sexual orientation and unlikely to change. Treatment aims to enable someone to resist acting on his sexual urges.”

Linda Harvey, of Mission America, said the push for pedophiles to have equal rights will become more and more common as LGBT groups continue to assert themselves. “It’s all part of a plan to introduce sex to children at younger and younger ages; to convince them that normal friendship is actually a sexual attraction.”

Milton Diamond, a University of Hawaii professor and director of the Pacific Center for Sex and Society, stated that child pornography could be beneficial to society because, “Potential sex offenders use child pornography as a substitute for sex against children.”

Diamond is a distinguished lecturer for the Institute for the Advanced Study of Human Sexuality in San Francisco. The IASHS openly advocated for the repeal of the Revolutionary war ban on homosexuals serving in the military.

The IASHS lists, on its website, a list of “basic sexual rights” that includes “the right to engage in sexual acts or activities of any kind whatsoever, providing they do not involve nonconsensual acts, violence, constraint, coercion or fraud.” Another right is to, “be free of persecution, condemnation, discrimination, or societal intervention in private sexual behavior” and “the freedom of any sexual thought, fantasy or desire.” The organization also says that no one should be “disadvantaged because of age.”

Sex offender laws protecting children have been challenged in several states including California, Georgia and Iowa. Sex offenders claim the laws prohibiting them from living near schools or parks are unfair because it penalizes them for life.

http://www.greeleygazette.com/press/?p=11517

#100 craig on 07.12.13 at 12:49 pm

I had a similar experience a few years ago. Had my roof re-shingled and knocked the price down with the contractor by offering cash.

Went to the bank for $5k and was given a huge run around. Teller was so rude and upset that I had the nerve to ask for that much money.

She said I should have called ahead a few days to make sure the BANK had the money.

My response of course was aggressive; I said you’re a bank aren’t you…you deal solely in money don’t you?

She said – yes.

I said – well I don’t call Zehrs 2 days in advance when I want to buy a few steaks, why should I call you for a few bucks??

She gave me the – deer in the headlights look and proceeded to process my request.

#101 Old Man on 07.12.13 at 12:52 pm

I see all these problems with mortgages via the banks, so buy a home free and clear with the vendor making a deal. Say 5/25 fully open with a two months bonus of interest with a VTB giving a vendor a bit more than he could get otherwise. Some vendors do not want cash but income, and might spring for a 10 year term too. Buying a home takes smarts, and make an offer wisely with a 25% downpayment for a VTB first, and if less put a VTB second in the mix, so the vendor can blow it off with a discount. Never listen to any Real Estate agent, and make this type of offer to see if such will be accepted, or better yet talk to the vendor before the offer is presented to him or her.

#102 Spiltbongwater on 07.12.13 at 12:54 pm

Some good Realtor fluff coming out now.

http://bc.ctvnews.ca/mortgage-changes-not-affecting-vancouver-luxury-home-sales-much-1.1364451

#103 crowdedelevatorfartz on 07.12.13 at 12:57 pm

@#95 TnT

You must have majored in English Lit.
Explains why your last statement makes as much sense as an economist explaining that “dismal science” economics………..

#104 crowdedelevatorfartz on 07.12.13 at 1:01 pm

@#102 Humpty Dumty

Ummmmmmm, ok.

Who, in the asylum, allowed you near the doctors’ keyboard…….?

#105 Donald Trump on 07.12.13 at 1:06 pm

Leasehold condo owners get big repair bill

http://www.richmondreview.com/news/215165521.html

More headaches for local leasehold condo owners, this time in the South Arm neighbourhood where dozens of residents were recently informed they live in a building that needs sizable repairs.

Leasehold real estate properties can be purchased like regular properties, but they revert back to the landlord after a specified period of time, with leases running up to 99 years.

While buyers own the lease and enjoy the property at often below-market prices compared to similar-sized strata condos, they also have legal obligations to maintain the building and return it at the end of the lease in the same condition as when they purchased it.

Footing the bill at Bristol Court, 8020, 8040, 8060 and 8080 Ryan Rd., will be the leasehold purchasers themselves, who will be doling out tens of thousands of dollars each over the next two years, according to a notice by Westsea Construction that was obtained by The Richmond Review.

===================================

Again…stay away from Leaseholds.

#106 Old Man on 07.12.13 at 1:15 pm

#105 Old Man – now want to make myself perfectly clear as now is not the right time to buy a home, but at sometime in the future there will be a listing for a showing, and the Real Estate agent has commissions no matter what. So go back to discuss and knock at the vendor’s door for a discussion saying you want to make an offer on his home with the agent, and put the cards on the table.

There are older people that want income and not cash, and they will deal for a younger couple over coffee for a meeting of the minds. So negotiate the offer ahead of time via the agent, and make a deal over coffee for an offer that will be presented and accepted. In other words take control to make your own deal.

#107 Evangeline on 07.12.13 at 1:18 pm

#93
“If there isn’t enough money in circulation to grease the gears of the economy, the central bank issues more of it, and everybody is happy.”

I once asked a gold bug how gold, being in finite supply, could support unlimited money growth, but he didn’t answer me.

#108 Evangeline on 07.12.13 at 1:25 pm

#101
“This is how the banks book record profits imo.”

when it comes down to it, banks don’t measure in billions and trillions of dollars, they measure in tiny fractions and per centages of digital pennies.

#109 Godth on 07.12.13 at 1:28 pm

100 JimH
“cash reserves” how quaint. the year is 2013, we don’t need no cash reserves anymore. just enough cash on hand to service customer demands, don’t forget to give us up to week to order your cash if you want more than a couple grand.

#110 Mister Obvious on 07.12.13 at 1:31 pm

#61 No Debt

“Who could ever imagine a couple in their early 50′s with no kids needing a 4 bedroom house with a garage, just to keep “stuff” in?”
——————————

I know just such a couple. They have a very large 4 BR home in the suburbs complete with a double garage and full basement. Perhaps you might say they were ‘borderline hoarders’.

Just looking in the garage exhausts me. Up until recently there wasn’t room in there for both cars but with some clever packing they are now able to squeeze both vehicles in. The basement is unusable. They have accumulated 26 years’ worth of suburban trappings.

It’s like having concrete overshoes. They are wedged in tight. There is a plan to sell ‘sometime in the next few years’ but the task of clearing out all that stuff in preparation for a sale seems extremely daunting.

And in fact, for many people, the accumulation of 25 or 30 years of Sears and Costco’s offerings takes a psychological hold. It’s easier to go shopping for more stuff than it is to toss away what good money once purchased.

I owned a smaller suburban home up until 2010. Although I never accumulated nearly as much as my friends I still went through the ‘cleansing process’ that is so necessary at downsizing time.

I was merciless. I gave away much of my ‘home ownership things’ like shovels, rakes, hoses, lawnmower, power saws, ladders, paint brushes, pieces of saved plywood and drywall, leftover chunks of flooring, excess furniture and kitchen stuff. The list went on and on. I wasn’t much of an accumulator compared to some, but still, it took months to dispose of everything.

Now I live in a rented 2BR apartment and I still think there’s too much stuff around. About once a week, I make it a habit to find something ‘worth throwing away’ and toss it unceremoniously into the bin. I’m now cautious about what I purchase. In effect, I’ve traded time for things.

I’ve helped several others downsize. Here’s my advice. First, understand that nobody wants your stuff. You can waste ages trying to sell it on Craigslist. People want to pay nothing and that’s about what it’s worth, regardless of what you shelled out at the big-box store eight years ago.

Give away everything you can (and don’t waste a lot of time here) then have a construction waste bin delivered to your driveway. Then start filling it. The liberation will be exhilarating. Move on. Be free. Start living.

#111 Canadian Watchdog on 07.12.13 at 1:42 pm

#103 Shawn

The issue is whether banks should be raising capital with more equity as opposed to debt, and what leverage amount is sufficient to mitigate risk. Holding versus funding is different. Just look at TCE ratios versus Tier 1 and you'll see how levered Canadian banks are. 

#112 Godth on 07.12.13 at 1:53 pm

69 Ralph Cramdown

search engines are useful:
fractional reserve banking canada

simply copy and paste and click search

#113 [email protected] on 07.12.13 at 2:05 pm

Kip and Janie are blaming the bank for their lack of diligence when they signed the deal. Ever heard of the term “personal responsibility”?

Welcome to the adult world guys!!

And for the record, I too spent my 20’s collecting degrees and wasn’t able to buy my first house until I was into my 30’s. My father was 35 when he bought his first house and had to borrow part of the down payment from his father.

I think people need to get over themselves and stop feeling sorry for themselves. Just my observations after lurking around this sight for a few months.

#114 Godth on 07.12.13 at 2:10 pm

112 Evangeline

“I once asked a gold bug how gold, being in finite supply, could support unlimited money growth, but he didn’t answer me.”

How can the earth, being finite, support unlimited money growth?

#115 TnT on 07.12.13 at 2:21 pm

#115 Mister Obvious

The truth about STUFF

http://www.youtube.com/watch?v=MvgN5gCuLac

#116 Rational Optimist on 07.12.13 at 2:25 pm

101 Spiltbongwater on 07.12.13 at 12:32 pm

“This is how the banks book record profits imo.”

Paying a bank manager to spend fifteen minutes a month arguing with you about fifty cent transaction fees is how the banks book record profits?

#117 Old Man on 07.12.13 at 2:30 pm

Now heard from my extensive sources that there is another birthday boy in this room who you all know well, but need to check this out further, so will check with the RCMP as they know him well, as need a solid confirmation as they have a file on him with his birthdate.

#118 craig on 07.12.13 at 2:39 pm

The fate of George Zimmerman now lies in the hands of a jury who will decide whether he is guilty in the killing of Trayvon Martin

If he gets off watch out, it’s going to get ugly.

#119 Evangeline on 07.12.13 at 2:53 pm

“How can the earth, being finite, support unlimited money growth?”

#93 already answered that question, and I’m assuming you’d answer mine, if you could

#120 Buy? Curious? on 07.12.13 at 2:56 pm

Is Mortgage Fraud, aka, out smarting Banks wrong?

#121 Donald Trump on 07.12.13 at 3:33 pm

#124 craig on 07.12.13 at 2:39 pm

You can bet it is going to get ugly:

There are reports that groups are bussing people down to the town as a pre-emptive move to foment rioting.

Some blogs post numerous Twitter accounts by parties encouraging a literal terminal lynching.

Sad thing is, all the evidence points to acquittal, but this case has been allowed to get to highly charged, the accused is in a now win situation. Zimmerman might be safer if he was in jail.

Finally, all the hallmarks of creating a situation to impose martial law.

#122 Dad on 07.12.13 at 3:37 pm

craig on 07.12.13 at 2:39 pm

You should be ashamed of yourself for posting this by the way. I largely agreed with what you wrote up until now (if you are the same craig as above) but this outrageous stereotyping of a minority has no place on a finance blog in Canada.

#123 Godth on 07.12.13 at 3:53 pm

125 Evangeline

unlimited money growth is a fallacious premise from the word go. there’s your answer.

#124 craig on 07.12.13 at 4:05 pm

#127 Donald Trump

It has the explosive potential of a Rodney King scenario x’s 100

#125 Donald Trump on 07.12.13 at 4:18 pm

#128 Dad on 07.12.13 at 3:37 pm

I didn’t see an stereotyping.

Hey why don’t we pass the hat and fly you down when the verdict is read….and report back. Tell the mobs you are “Canadian”, I am sure they will leave you alone.

The jury verdict will be out soon, my guess is by Monday…..I wouldn’t want to be NEAR those areas in the next few days.

#126 Post Haste on 07.12.13 at 4:21 pm

Though I am not advising this is a great option – if you are able to pay off your mortgage before the term ends and will be hit with a hefty penalty – simply default on your mortgage – the bank must provide you wtih a demand letter in paying the balance + 3 months of interest charges.

Could save you thousands — you do take a hit on your credit score for defaulting, but a small price to pay for a load of savings..

Excellent post Garth – this info would have been ideal for me 4 years ago –

#127 Bill Gable on 07.12.13 at 4:36 pm

“Flood-ravaged victims in some of the city’s worst hit neighbourhoods may be fuelling a current boom in luxury home sales.

The city has already experienced a first — four homes selling in one month for more than $4 million.

And according to the Calgary Real Estate Board, month-to-date until July 9, there have been 26 homes that have sold for more than $1 million each compared with 13 for the same time period a year ago.

http://tinyurl.com/mr6qxal

>>Well, Mr. Turner? You keep telling us we are heading over the falls – but people are still carrying on.

I am jeered at parties when people find out I think that we have a problem with valuations here in Vancouver.

Being a Contrarian demands a thick skin – ( and a fifty cal. would be handy).

Man, I was treated like I needed medication, by more than a few people. One guy actually called me delusional. “This is Vancouver, not Mississippi”.

Oy.

#128 Smoking Man on 07.12.13 at 4:48 pm

#123 Old Man on 07.12.13 at 2:30 pm

Now heard from my extensive sources that there is another birthday boy in this room who you all know well, but need to check this out further, so will check with the RCMP as they know him well, as need a solid confirmation as they have a file on him with his birthdate.

…………
Ha

Nicely done old man, Tell the truth, you CIA, NSA, MOSSAD, FBI, CSIS, RCMP….

interesting, going to be glued to your posts going forward..

#129 Evangeline on 07.12.13 at 4:55 pm

#129 Godth

“unlimited money growth is a fallacious premise from the word go. there’s your answer.”

Thanks.

However … I don’t believe the earth places limitations on human creativity. indeed the earth’s limitations are what drive human creativity to rise above those limitations.

3000 years ago people were carving letters on stone tablets and now here we are typing in bits and bytes. Just 150 years ago people were still driving horse-drawn buggies and here we are driving cars and traveling by jet. And the future holds ideas that will go even farther — cures for diseases, travels to distant places in the universe, and things we can’t even conceive of now.

#93 said: “Now, what did each of us do to earn that portion of the money in circulation? Well, we have jobs to do, products to make, stuff to innovate, ideas to blossom, etc… So we do all of this, earn that portion of the central bank’s loan and trade it with each other for things we want. If there isn’t enough money in circulation to grease the gears of the economy, the central bank issues more of it, and everybody is happy.”

And that is what the idea of money as a medium of exchange is based on — no limits.

#130 Mister Obvious on 07.12.13 at 5:09 pm

#121 TnT

Before I even clicked on that link I knew it had to be the George Carlin routine. But it definitely was worth watching again. I was always a huge fan of George. R.I.P.

#131 Junkie Man on 07.12.13 at 5:12 pm

http://www.reuters.com/article/2013/07/12/us-usa-economy-idUSBRE96A0G320130712

“Worries about rising interest rates and falling stock prices dinged U.S. consumer sentiment in early July, while other data showed a firm rise in wholesale prices, which could make the Federal Reserve more comfortable reducing its monetary stimulus..”

Off topic but for all you Stimulus for ever folk.

#132 Godth on 07.12.13 at 5:34 pm

135 Evangeline

http://www.youtube.com/watch?v=FyinD6ZDqeg

Ever heard of exponential curves? How about natural capital? Resource depletion? Overpopulation? Peak conventional oil?

“idea of money as a medium of exchange”, another fallacious assumption. money functions as much more than a medium of exchange.

don’t let me ruin your fantasy though.

#133 crowdedelevatorfartz on 07.12.13 at 5:46 pm

George Zimmerman ……..

Generation “Y”‘s answer to how things will be “different” when they take charge from the Boomers that ruined everything……..

Just sayin

#134 harboursnug on 07.12.13 at 5:47 pm

Just to give you an idea how out of whack prices are.

I bought my first house for $73,000 about 20 years ago and my annual salary was about $35k, maybe $40K

The house price was 2x my salary

The average price today in Calgary is $520K !

That’s 10x the average salary. I repeat 10 times!

How are people doing it?

#135 Craig on 07.12.13 at 6:04 pm

Great weekend coming up in the GTA. Enjoy a few pops with friends / family, the great weather and the great outdoors. Summer comes and goes so quickly.

Forget about money for a few days, it’s just not that important.

Cheers

#136 Steven on 07.12.13 at 6:09 pm

If people had not jacked up the price of homes so high relative to what men get paid may be home sales and construction could have continued a little bit longer.
Now all that is left to buy houses is the 10 to 15 an hour crowd and they don’t qualify because the house prices are way too high. Guess what real estate cultists?
Those unqualified buyers are not going to get raises any time soon if at all so you can either watch your house price collapse or enjoy living in your home and pay your hyper inflated mortgage. It is time for your reality check and you won’t like it.

#137 Craig on 07.12.13 at 6:44 pm

#140 harboursnug on 07.12.13 at 5:47 pm

How are people doing it?

2 ways;

1 – 2 incomes

2 – VERY low interest rates.

20 years ago you were probably paying 10% or more. Today it’s 2.8% (or was)

Huge difference in monthly payments = affordability.

It’s all relative although I will say prices today are outta whack but seem to be coming in line.

Just my dumbass opinion

#138 neo on 07.13.13 at 8:14 am

#99 kommykim on 07.12.13 at 12:06 pm
RE: #73 neo on 07.12.13 at 8:52 am At #33 and #60
So I was at RBC this week and asked for a $6,000 withdrawal from a chequing account. The teller says to me I can only give you $2,500 max.

If you need a large amount of cash phone the bank a few bussiness days in advance to let them know how much you’ll need. Then it’s never a problem.

*******************************************

Since when was $2,501 a large amount of cash? It wasn’t 3 weeks ago? Besides, there are plenty of people paying that amount a month on their mortgage. It is all arbitrary. $25,000 a large amount? sure.

#139 neo on 07.13.13 at 8:22 am

#112 Shawn on 07.12.13 at 1:12 pm
Spiltbong complains:

Bank Can’t give me $1K in one transaction, but can give me $1k in 2 transactions.

**************************************
Maybe there is a limit on the thickness of bills that can be pushed through the slot in one go.

*****************************************

The way I solved the problem of getting the $6,000 was taking the $2,500 cash, bumping up my email transfer to $2,500 and bumping up my ATM withdrawal to $1,500. The $1,500 came of the ATM in one transaction in 100’s and 20’s. So the slot isn’t an issue.

#140 Contrarian on 07.15.13 at 10:00 am

Shawn, you made the mistake of not reading my post before you responded with your canned response about barter. Did I propose a barter system? No. And you did not still answer my question. The deposits do not come from depositors mostly, they come from central bank injections which is referred to as money printing. No not the actual printing, Shawn. Evangeline gets it. Money is indeed multi-functional and not just a medium of exchange, it is just a unit of measure like centimetres, and what it is meant to measure is production output. Shawn will not answer to this but the private group of commercial banks do not contribute any economic output; in fact, quite the opposite. What is a “financial service”? LOL. Note the distinction between a fee on a financial service (legit) versus usury (legally legit but ultimately the inhibiting factor on unlimited growth).