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Mortgage Contracts – A Must Read


Should the need arise to terminate your mortgage early, the Mortgage Payout Penalty may be one of the largest surprises in the contract. Most early mortgage payout penalties are either 1) three (3) months interest or the Interest Rate Differential, whichever is greater.

If you are paying off your mortgage before the maturity date, most  financial institutions charge three months interest.  This means if you have a balance of $210,000  and a rate of 6.29% you will pay:

$210,000.00 x 6.29% = $1,100.75 per month x 3 months= $3,302.25

However if there is a significant difference between your rate and the current rate, your lender may use the interest rate differential to calculate your rate. You were smart to educate yourself and get a great rate. However most financial institutions use current posted rates on the day you signed rather than negotiated rates to calculate your penalty.

Since the posted rate when you got your mortgage was 7.79% , you negotiated 6.29% and  current rates are 4.79%, combined with your 5 years remaining of a 10 year mortgage,  the differential you will pay is :

$210,000 x (7.79% – 4.79%) 3% x 60 months (5 years) =$31,500 which is 9.53 times as much as three months interest.

As a banks primary goal is profit, guess which one you are going to be charged. Now had you had included using your negotiated rates rather than posted rates, the penalty would have been 1/2 of that or $15,750. This is one of the items in the mortgage contract that may be negotiable. If you don’t ask, the answer is always “No”

Every bank /financial institution uses a different system to calculate penalties. When you are in negotiations, find out what system your lender will use should you want or need to pay out your mortgage early. Do your best to get the lowest payout possible and make sure that it is carried into your new contract if and when you renew.

Many lenders will revert to standard clauses when you renew and it is in your interest to watch for this kind of change-up. Even though the wording may be similar to what it was, make sure you are clear on the meaning because the difference can be costly. Make sure you get a Mortgage Payout signed by your lender to ensure that there are no misinterpretations on your part.

The banks spend a lot of money on training their loans officers. Whether you have a short time to the end of your term or you just started, we have well trained long term industry professionals that may be able help you with a financial plan to save you years of payments and reduce the pain should you need to terminate your mortgage early.

Contact me ~ 250.766.2106 or ~ for a cost free obligation free consultation to see if we can help you pay the bank less.


Asset Protection

One of the most effective business models for asset protection is the Three Tier Investment Structure. This consists of , as the name implies, three layers of companies structured so that the parent company owns the the other two companies.
The parent company is called a Holding company and it owns a Consulting company or an Operating Company plus a Real estate company. This structure separates the ownership from the daily management and the assets by having all three companies do different functions.
The Holding Company owns the Management Company and the Real Estate Company while in turn being held by the shareholders. This can be an individual, a partnership, or a family holding shares in the company and making decisions on its finances and direction. It also makes it easy to keep wealth in the family as the shareholders can be replaced with no interruption in business and no estate taxes. It allows for income splitting among the shareholders. It also facilitates cash flow between the Real Estate Co. and the Consulting Co.

The Holding Co. separates cash holdings from ownership and management of properties, but it is taxed at an “inactive tax rate” of 35% to 50%. While it manages wealth by giving protection from lawsuits, income tax, capitol gains and probate taxes, it is financially beneficial to put all transactions through the Consulting Co.

The Consulting or Management Company does not have or hold any assets. It separates management from ownership giving another level of protection. It does all dealings with the public and manages the Real Estate Co while being the flow through for all monies. It is taxed at 16% to 18%.

The Real Estate Co. owns the property. Being a separate company, it allows for joint ownership with third parties, whether individuals or companies. It separates management from ownership and has no cash flow. Within the company, it isolates different properties from each other. Every property should be its’ own corporation, thereby shielding all other properties from any legality. The Real Estate Co. does not file a tax return as it has no income, only flow through.

For anyone who has investment real estate through Sole Proprietor Ownership, I would strongly advocate switching to the Three Tier system of ownership. It can save being wiped out by a lawsuit or other calamities. Setting it up will cost less than $5,000 and can save years of work and strategy.

Your Mortgage ~ 25 Ways to Save Money

There are many ways you can save money when negotiating and paying a mortgage. Here is a list of 25 ways to save yourself enough money to put your kids through university or if invested wisely, can become a large portion of your retirement plan.

Last year in Canada the five largest banks posted profits of $22.4 billion, up from $19.5 billion in 2010. A large portion of that came from mortgages. When one considers that a mortgage averages $301,000, installment loans average $22,849, for auto loans it is $19,228 and credit cards are $3,573 on average, it is easy to see where people are paying the bulk of interest.


1. Banks create money out of thin air. They are in the business of making a profit. Unless you share a bed or blood with the loans officer, then you need to be on your toes when negotiating a loan (mortgage).

2. If you are a long term customer of the bank, do not assume that you will get the best rate. Do your homework on the internet. A new customer that is more knowledgeable can negotiate an “introductory” rate that is better than you may get. Read #1.

3. Most terms in the mortgage contract are negotiable. Read the contract thoroughly.

4. Most banks will use the Posted Rate to determine a penalty clause rather than the lower rate you negotiated. This is called a “Change Up” and can cost thousands more if you are forced to sell and pay out the mortgage. Check #1.

5. Learn to ask for a discount!! I may repeat this again.

6. Many bank managers receive a daily or weekly list of discounts available. It changes, so if you have a good relationship with the manager, see if there is something available on  mortgage negotiation day that works for you and not the bank.

7. If you are a long term customer, the bank may give you a good mortgage rate to keep you in the hopes that they may cross sell you another product. Always check elsewhere before signing on the dotted line.

8. NEVER BUY MORTGAGE INSURANCE FROM THE BANK. The insurance company will take your money for years, but disqualify you when you need it because you were never properly qualified in the first place. It is about bank and insurance company profits and does not benefit the customer. Read #1.

9. Educate yourself. The banks spend a lot of money training their loans staff. Read my blog. Read other peoples blogs on banking.

10. Learn to negotiate. You will not get the best rates unless YOU ask.

11. Check on your bank’s variable rate. Traditionally it is at least 1 % lower than the fixed rate  which translates into over $4000 in 5 years on a $250,000 mortgage. Use the variable rate, but NEGOTIATE to be able to convert to fixed rate , without penalty, should the interest rates start to skyrocket.

12. Current rates are from 3.09% to 5.24%. The difference in interest on a 5 year term, 25 year amortization, with a $300,000 mortgage is $70,211 (5.24 %) – $42,883 (3.09%) = $27,328. That is a pretty decent car in my world. NEGOTIATE.

13. The banks are in the business of lending money. If your mortgage is coming up for renewal let them know you are shopping. You will get a better rate!! Banks do not make money if they don’t lend money. A lesser profit from an educated customer is offset by a greater profit from someone who believes the bank is their friend.

14. Ask the question!!! The answer to all unasked questions is “No”.

15. Check your credit score. Try to keep it above 620. You can get it for free once a year without hurting your score. FICO is the agency lenders use when they are evaluating your past ability to pay. If your credit score slips, repair it as soon as possible.

16. The longer you are at a financial institution, the greater the possibility of getting better rates as long as you do your homework.

17. Talk to a local mortgage broker. Give her your information and let her shop for you. She is working in YOUR best interests, not the banks’. If the bank is not in the ballpark, go with the broker. Somebody will get paid for the work of negotiating your mortgage, let it be her rather than the president getting a slightly larger bonus.

18. If you are buying for the first time or renewing your mortgage, go online for current rates (Canada Print the rates and go mortgage shopping with list in hand.

19. To get your mortgage paid the fastest with the least money, you must pay interest only on what you owe, decrease your mortgage payments along with your decreasing balance and apply the savings as interest free payments against your outstanding balance. This must be negotiated! The bank does not do this as a matter of course.

20. Use your savings account as a holding pen for investments or emergencies. It is better to put your money under your mattress than save for retirement because you have to pay taxes on the interest. Savings accounts are paying less than 2% while inflation is about 5%. Check Shadowstats .

21. Learn to ask for a discount!! Read #1.

22. Start a home based business. A portion of all home expenses can be written off even if you are not successful. The best option would be a network marketing company with a product that resonates with you and that you would use. If you are successful, that is better than working at a second job you hate.

23. Learn to negotiate!!!!! Check #1

24. If you want to make your mortgage payments tax deductible use the Smith Manoeuvre or a variation as an investment ~ tax strategy. It is not for everyone, but if you can utilize it, it can be a powerful strategy.

25. Use your home as an ATM for investment money. This is a better option than a mortgage burning party for your long term financial health. These have been heavily written about by Robert Kiyosaki in his series of books, his lectures and his on-line presence.

I cannot state it strongly enough. Banks are in it for profits. If you do not do your homework, you will pay more, usually much more. So take a look at my list, check my blog for more information and cultivate any friend or family member in the banking business. Uninformed people pay more!! Check #1.


IF you do not like paying the bank, contact me for a cost free consultation at or 250.766.2106

Where the Banks “Make” their money.

Have you ever dreamed of being able to make money appear out of thin air the way a magician makes rabbits and doves appear out of seemingly bottomless hats. Within certain limitations the banks can do that exact thing. It is called the Fractional- Reserve Banking System and is used throughout the world.

The fractional system in many countries works on the premise that banks only need a fraction of the money that people deposit to cover immediate withdrawals.

This goes with the premise that not all people will take all of their money out of the bank at the same time. The banks can lend up to 90% of the money that has been deposited. If it is redeposited by the persons who borrow it, it can be re-loaned creating an almost endless supply of Phantom Money.

The 10%  or 1/10 (one tenth) that banks cannot loan is called the reserve and the inverse 10 /1 ( ten to one) is called the  Reserve Ratio. The Reserve Ratio is also called the Money Multiplier or the Economic Multiplier by the banking system and its proponents. It is the Phantom Money created out of thin air that did not exist until you borrowed it.

This system supposedly limits the money creation that occurs in the banking world and keeps a reserve to serve immediate withdrawals. However banks can go back to the central bank of most countries for reserve extensions which makes  the system a bad joke for all practical purposes.

The central bank can also initiate an infusion of “High Powered Money”  which then can be multiplied by the banks in question. High powered money is the sum of currency in circulation plus the banks reserves. In simple terms it is mostly cash money that was printed rather than phantom money that was created by a notation in a ledger or in a computer.

Therefore since the banks can get reserves from the central bank whenever they want, reserves are a non-issue. This also means that banks are almost fully in charge of the money creation process. This has been very evident in Canada, New Zealand and Sweden where reserves have been abolished. In Australia there is a 1% Non-callable reserve. This is really turning the money creation process on its head.

The whole banking system has been described as a giant Ponzi Scheme that relies on the next bunch of suckers to pay off the first ones.  This is made worse if one adds in the fact that the government gives the banks license to create money. It is no surprise that the banks are making record profits.

So the next time you go to your bank, usually on the best corner in town, to negotiate or re-negotiate your mortgage don’t feel that you have any friends there. Your best course of action is to educate yourself by learning all you can about the process. You must also know current interest rates so you know if the loans officer is trying to pull the wool over your eyes.

You must also be prepared to take your business to another financial institution if you cannot get a decent rate. Unless your negotiation skills are really good, you will save a lot of money by bringing in skilled professionals who know the system. Our team can save you up to half of the money ~real money~ you are currently obligated  to pay the bank, if you can qualify.

If you do not like paying the banks any more than you absolutely have to, contact me to find out if you can qualify.  You cannot make a change if you do not make a change.  I primarily service the Okanagan Valley, but if you are willing to do a Skype session , I can help anyone in Canada and some parts of the USA.

My information is Fred Murray:  at  phone -250.766.2106, email – and Skype – fred.murray50.

The Smith Manoeuvre and the Readvanceable Mortgage

To Smith or not to Smith, that is the question. I agree with the originator, Frazer Smith,  that it is a great way to leverage your house as an investment anchor even if I do not agree with his investment strategies.

Almost everyone has heard of the Smith Manoeuvre, but many are not sure what it is. Even more so they are not sure of the advantages and disadvantages. There are also variations on the Smith Manoeuvre  that may be more effective and safer than the original.

The Smith Manoeuvre is an investment  ~ tax strategy that allows you to write off the interest you pay on your mortgage while using a Home Equity Line Of Credit (HELOC) attached to your mortgage as a source for investment.  Essentially it converts your non-deductible mortgage debt into deductible investment loans. One of the first pitfalls is that the investment returns will cover the loan payments.

Essentially it is a loan with two parts, 1) a home mortgage and 2)an attached HELOC.  Some banks do them and some do not.  As you pay your mortgage, your line of credit is advanced by the same amount. So if you have a $500,000 readvanceable mortgage, $300,000 as mortgage and $200,000 as line of credit, you will always have a mortgage of $500,000.  As you pay down your mortgage, your line of credit increases to where you will have a HELOC of $500,000.

One of the good things is that you only pay on the amount of the HELOC that you have used. Therefore it is great for education costs, emergencies, investments, etc.  And if you do an investment that uses all available credit, the revolving payments from your mortgage will be building a fund immediately for unforeseen circumstances.

The original Smith Manoeuvre focused on investing  in Mutual Funds, a strategy I can not recommend as today’s front-runner Mutual is tomorrows also-ran. The Smith Manoeuvre can be a solid strategy if you invest in something that will not disappear with a downturn in the market.

I know a number of people who are working at entry level jobs, normally done by a high schooler as a part time job, because they trusted someone else with their life savings. Therefore I advocate a different strategy for the Smith Manoeuvre that gives the homeowner a much greater control over their investment. Nothing is guaranteed, but the odds can be improved.

If the bank tells you you can afford a $500,000 readvanceable mortgage and you are in a $350,00 house with some paydown, you have a decision to make.  Do we go for the big house and buy lottery tickets to take care of our retirement. Or do we negotiate with the bank for a readvanceable mortgage and invest in something that will be paid for by Others Peoples’ Money.

A $200,000 investment in a commercial holding when properly leveraged can give a substantial return. The nice thing about it too is that should you and your partners go for a commercial loan (almost inevitable), the bank will double and triple check your numbers on the investment. This will give you a much warmer feeling if the bank OKs it as they believe it is a solid investment.

If you want to invest in a house it can be done. Depending on where you are in Canada, $200,000 will not buy a rental house unless the vendor will carry part of the mortgage. A stringent analysis of the local housing market is essential for either case as with any investment. The major difference with investing in real estate is that the investor is in control of most of the factors in the equation.

For those who don’t want to bother with caring for an extra property, either hire a property manager or invest with whatever investment company you are comfortable with.  Talk to an accountant who is familiar with this procedure before you take the plunge. After the fact is not a good time to find out the strategy you want to use is not tax deductible.

All of these strategies work better if you are paying the bank less. Contact me at 250.766.2106 or

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