Friday, March 9, 2012

Mortgage comparison calculator

This is a selfish ask, but one that I hope will translate into a useful House Hunt Victoria community tool.

I want a mortgage amortization calculator (preferably online or Excel-based) that can give me a realistic comparison of cost difference between variable and fixed rate mortgages.

Here's the dilemma: currently we're using a variable rate. The interest rate is stupid cheap. But our bank just decided to offer a stupid cheap fixed rate mortgage product. And Carney is openly musing about raising the BoC prime, though a timeline is unknown.

I want to be able to run a scenario that assumes an escalating variable over a defined period of time. Ultimately I'm looking to have an accurate version of cost differential.

There are all kinds of mortgage amortization calculators online which you can use to compare fixed versus variable. But the comparisons are limited by the term defined. The terms create the inaccuracy in the comparisons because they're based on years, not months.

For example, let's assume that the discounted variable rate will climb from 2.15% today to 3.15% over the next 18 months at a rate of 0.25% after 6 months, 0.5% after 12 months and the last 0.25% (totaling 1%) at 18 months--at this point in time there would be 24 months left in the term. I want to compare this cost experience to a 4-year fixed rate of 2.99%.

We might be able to crowd source this online--I spent about an hour last night playing with a couple online calculators but didn't figure out a system that would give me a result where I was even slightly confident in the results. A step-by-step system might be the outcome I'd need to be able to confidently feel like I've been able to do a cost analysis. Alternatively, some of you Excel wizards might be able to come up with a formula-based method of making these types of comparisons.

If we manage to collectively pull this off, and I'm confident the HHV community can, I'll pin it up on the resource links section permanently and shower the creator(s) with exhaustive accolades that will have even the most arrogant person imaginable blushing!


Mrs. W. said...

The Globe and Mail had a story on this yesterday "go long" or "go way long" that compared the 5 year and 10 year rates....

Of course it will always depend on your underlying assumptions about where mortgage rates (the bond market) and interest rates (prime) will be in the future.

a simple man said...

Something mildly calming about a 3.99% for ten years...unless of course the variables sticks at 2-3% and you get to curse at it for ten years. Always a gamble.

I have been burned by both.

a simple man said...

Here you go HHV:

I am pretty profeicient with excel, but sometimes my google skills are faster:

Mortgage Comparison Calculator

a simple man said...

**gack. Need edit capabilities**


Unknown said...

Here's a decent mortgage calculator, you can enter all types of rate adjustments, prepayments etc.:

a simple man said...

yes, Karl's calculator - that was the one I was thinking of, but found the other one as well! Good find.

HouseHuntVictoria said...

That Dr. Calculator looks comprehensive. But I'm not sure how to accomplish what I want to do using it.

Here's the thing, and maybe my ask wasn't clear enough, I want to adjust the variable rate within the 4 year term and compare that result to the fixed.

Essentially I'm trying to create an accurate accounting of what total interest paid would be if the variable rate climbs over time.

As far as I can tell, I'd have to do the math on individual months in order to get to a reasonably accurate result. When we're dealing with a less than 1% difference between fixed versus variable interest costs, it becomes challenging.

The question I'm trying to answer goes something like this: "Is the peace of mind a fixed rate product provides worth $XX,XXX to me?"

a simple man said...

HHV - I think both the calculators here will do that - if i am understanding you correctly.

HouseHuntVictoria said...

I think you probably understand me. I also think I'm the weak link in the process... I don't understand how to make them do the calculations I want them to.

HouseHuntVictoria said...
This comment has been removed by the author.
HouseHuntVictoria said...

Did this make it do what I want it to do accurately? screen grab

a simple man said...

If you press the "interest rates" button on bottom of karl's calculator, I will open up a number of boxes where you can fill in interest rates and how long they lasted.

Also, the other link will directly compared the fixed rate to the variable interest rates that you determine the rate change and when it occurs within the 5 yr period.

Introvert said...

How do variable rates work? Can one switch to a fixed rate at any time? Does the bank penalize for this maneuver? (I know next to nothing about variable rates.)

Mrs. W. said...

Just Janice here -
The 10 year rate is insurance. It's insurance against failing to qualify at renewal due to the house being worth less than the outstanding mortgage.
It's insurance against higher rates later.
It trades the security of fixed payments over a specified period of time for what might be lower payments using the variable rate.
Insurance always comes at a cost - but invariably there are times when having insurance 'pays off'. In the face of the current uncertainity and relatively low-long rates, I think it's cheap insurance to get right now.

We live in strange times - times in which the uncertainity is something to hedge against.

fatjay said...

There's a mortgage calculator at that is fairly useful.

It can be modified to make the comparisons you want. HHV, I sent you an example.

a simple man said...

Introvert - most banks will allow you to convert into a fixed at almost any time.

Just Jack said...

I agree with Just Janice, a ten year rate is good insurance and lowers your risk for a shock in interest rates at renewal time. Rather than having to renew 2 or 4 times during a typical 5 and 3 year term.

A 10 year term is not for everyone. For the last decade, there has been a high turn over rate in real estate with a lot of the homes listed today having been bought less than five years ago. So in relation to the current market - 10 years is long term. Marriage, death, divorce, relocation and sickness and just plain old getting older can cause you to change residences.

Beware of the small print. Especially penalties like the Interest Rate Differential. If you have to sell before your term is up.

Or say your Great Great Uncle dies and you inherit a hundred thousand dollars. And you want to buy down your mortgage by a hundred grand - the bank might not let you.

The interest rate is the hook, the terms are where the lender reels you in.

Until that mortgage is paid off - the bank might not let you subdivide, demolish and or build a new home.

You have made a pledge with the lender and they have used the home as collateral. You are not allowed to do anything that would affect the value of that collateral without first obtaining their permission.

Just Jack said...

Another point. You don't have to re-qualify at renewal time. And it doesn't matter that your home may be worth less than the mortgage. Traditionally, most lenders have just rolled the mortgage over into the next term. Especially if it is an insured mortgage.

BUT..... The lender is not required to do so. The lender has the option NOT to renew. Like some American lenders in Canada have done. Then you would have to secure financing through another lender. And that means qualifying with the new lender and that the property be worth more than the mortgage.

If you can not get financing, then the lender will start proceedings to recover their money which could mean a possible foreclosure on your property. Even though you have never missed or been late in a payment.

Its all in the fine print - oh you didn't read that - its there in black and white, next to your signature.

Leo S said...

Traditionally, most lenders have just rolled the mortgage over into the next term. Especially if it is an insured mortgage.

If you have no choice but to renew (ie, other lenders would not approve you), then you lose a massive negotiating tool. Yes your current lender will likely renew you, but they can essentially dictate the rate if you're stuck. You might end up paying posted rates instead of your nice discounted one.

pod_x said...

We live in strange times - times in which the uncertainity is something to hedge against.

I hope the times aren't interesting because there is uncertainty, there always is.

Just Janice said...

There's always been uncertainty, but it seems like we're going through a period when events that should be exceptionally rare are 'common'. 1989-2000 was extraordinarily mundane in comparison to 2001-2012.

Just Jack said...

If you are locked into just one lender, you're going to pay.

The 2.99 or 3.99 interest rate was the bank's loss leader. You could try to whine or plead poverty to the lender, but chances he or she is just gonna be a kid out of school who has to call Toronto to get permission to wipe their nose.

I wouldn't doubt, if renewals were handled out of India in the future. Try pleading poverty to someone who lives in a tin shack with 14 other relatives.

dasmo said...

That's ok your property management company will also be outsourced. They won't fix anything in your building and will raise the rent by 4.3% every year. When you call to complain they will ask for your credit card to charge you $150 to upgrade your rental support package.

Dave said...

The times couldn’t be more certain. As example, the 3.99 ten year that banks are now offering gives one of the clearest signs yet we are entering the “dreaded lost decade". If you are confused how this could be, wait until next year when they are offering 2.99 for a ten year and maybe then it will dawn on you. I parenthesized “dreaded” & “lost”, since for those in the know, there will be nothing dreaded or lost about it.

Fortunate Fool said...

Here is a great link with all kinds of mortgage and loan calculators...

DavidL said...

I just want to add to the comments regarding mortgage renewal.

Ten years ago, I got a mortgage with the Bank of Nova Scotia (BNS) for a 3 year term. It was a form of hybrid mortgage (no longer offered) where the interest charged was based off the variable rate, but the payments were based on a fixed interest of 6.6%. This effectively allowed me to pay down the mortgage and little quicker, as the average interest charged was just 4%.

In 2005, three months before the term ended, I proactively contacted BNS to try to set up a mortgage renewal meeting. They told me that I would have to wait until I receive the mortgage renewal papers, which I should receive a month before the term ended. As this seemed suspicious to me, I started doing research and discovered that this is a typical practice, as without much time before the term expires - it is harder for the mortgage holder to shop around.

Only ten days before the mortgage term ended, I received the renewal papers. In spite of an perfect payment history, excellent credit rating, owing less than 75% of the assessed resale value, BNS offered me their very worst rate.

I called BNS up to discuss and to try to negotiate a better fixed or variable rate. They refused,and I was told that my mortgage was not eligible for a variable rate. I told them that I then had no option but to move my mortgage to another lender. I was told "good luck" trying to do that. I told them that I had already negotiated a variable rate mortgage elsewhere (with ING) that was 3% less than the fixed rate they were offering.

But the story doesn't end there... ING processed the transfer the day following when the mortgage term came due. BNS contacted both ING and me demanding a $3700 fee for early repayment of the mortgage. Even after explaining how dates and a calendar work to the unhelpful BNS representative, they still said that I owed the money. The ING representative told me that this was typical, and that they would wait a week before trying to reprocess the mortgage transfer. A week later, the mortgage transferred smoothly and BNS ensured that I would never have any future financial dealings with them.

DavidL said...

When relating the above story to a recent friend who is a mortgage broker, he said that 75% of mortgage holders just sign the paperwork at renewal time. There is no incentive for the bank to offer better rates as most people just don't consider trying to get a competitive rate.

He also mentioned that over the past months, some of the banks: TD, RBC and BNS (and perhaps others) - have all been changing the fine print on their mortgage products, making it (financially) very difficult to move a mortgage to another lender at renewal time. Therefore the banks are offering some very attractive rates to new mortgage holders, but will essentially "stiff" them at renewal time. There is nothing illegal about this, as the mortgage holder agrees to these terms when signing the mortgage. When signing a mortgage: read the fine print, talk to a lawyer. Better yet, consider a reputable mortgage broker.

a simple man said...

Thanks for the warning about BNS - I will avoid them. Banking with RBC, TD, ING and HSBC right now.

TD has really been a good experience for me so far - tremendous banking package - I don't pay a cent in fees and have travel credit cards, safety deposit box, chequing, etc.

Leo S said...

Looks like another sleepy week of sales in the under $550k SFHs.. Oh victoria market. Where's the pizzazz that we had in the 2000s? Where's the passion of multiple offers and over asks? Now all we do is fight about rental ratios and sit quietly at open houses.

DavidL said...

Apparently TD's new mortgage agreement is the most restrictive of all the major banks. I moved my personal banking away from them 7 years ago, as I found the fees too much. (Simple Man: are getting some kind of exclusive banking package?) I've had good luck with TD (Waterhouse) for self-directed investments, though.

ING also offers at 10 year fixed mortgage at 3.99%.

DavidL said...

Here's some more about the fine print in some of these new low interest mortgages front Canadian Mortgage Trends:

patriotz said...

(Simple Man: are getting some kind of exclusive banking package?

My guess is that he's over 60. I'm a TD customer myself, you can avoid paying fees as long as you watch the fee structure (particularly keeping transaction count down) and maintain a minimum balance. But I'm not getting free cheques, etc.

a simple man said...

I am a long way until 60y. If I keep a balance over $10,000 they waive all banking fees (cheque purchase, chequing, interact fees (theirs), travel credit card fee, safety deposit box, ect). I have the same for my business account.

I have inquired about mortgages a few times and getting pre-approved and they have quoted rates that were so uncompetitive I was stunned. And this was from the woman who handles all of my accounts at the branch on Oak Bay Ave, not some nameless drone from a call-centre in Toronto.

Marko said...

I also bank with TD - the problem I have with keeping $10,000 in an account is I can buy $10,000 worth of BMO shares or other rebuttable Canadian company and receive $500 in dividends per I wouldn't call the cheques free.

dave said...

Then again, BMO's shares have lost 5% in the past year so you would have ended up even.

Marko said...

Or you bought in the low 30s so the shares have almost doubled in three years and the book dividend is 9%.... :)

Either way, having $10,000 in a non-yielding account is lost opportunity elsewhere.

a simple man said...

I guess it is safe, but not aggressive by any means. Safer than having it disappear in a house purchase.

dave said...

You may want to stick to doling out realtor advice Marko. It's bad enough you are already misguiding people down that path.

dave said...

Next thing Marko will tell us is we should have bought Apple shares like he did when they were $5 per share.

Alexandrahere said...

a simple man: my safety deposit box runs around $44.00 per year. I get free cheques with no fee banking transactions from all the banks I deal with.....but no free SDB. I'm going to have to inquire about this one.

Leo S said...

@dave Marko is completely correct. The investment is beside the point. Having $10,000 in an account yielding essentially 0% is a lost opportunity cost. Don't like an investment? Put it into Ally and get 2%.

Either way that $10,000 minimum balance translates into a fee of at least $17/month. If you do better than 2% it's more.

a simple man said...

Don't like stocks - don't trust them.

I invest my money in my businesses and make far better returns.

Like getting my hands dirty.

LeonMaynard said...

Wheatworks Mortgage Calculators were great a few years ago, but I haven't used any of their products recently, so I can't attest to their usefulness for your purpose; but I strongly suggest you give their products a try. They have a free basic version and a very comprehensive version for about $40.

pod_x said...

Shoving your money into a checking account and calling it a day is terrible advice. I wouldn't even call it "safe", as you're guaranteed to lose money every year. If you're willing to accept even a modicum of risk, you can do much better than that, and earn more than your bank fees will cost you.

It is this distrust and incredulity at being able to obtain investment gains that is driving the housing market, which is seen as "a sure thing", even though it is extremely risky, very expensive to hold, and so highly leveraged, even sub-penny stock pink sheets speculators hyperventilate. Yet, real estate is seen as safe. Only thing a house is guaranteed to do is cost you money in taxes and maintenance. Even keeping out the elements is a questionable proposition with some of these old timers.

It's all backwards; productive economy = bad, money pit black hole of a glueshack = safety.

DavidL said...


I agree that there are much better ways to get free personal banking than by maintaining a minimum balance. It is much better to invest the money than to save $15 to $25 a month in bank fees. In Victoria, I know of three options for no-fee (personal) banking: Coast Capital, PC Financial and ING.

a simple man said...

I guess it is time for me to find a financial adviser, then.

So much to know these days.

a simple man said...

I also bank with Coast Capital - they are great.

SilverSurfer said...

One trick I've learned to get free chequings or savings accounts at some banks that don't offer it to the average person is to create a joint account with one of your senior parents or grandparents, because, you guessed it - at some banks, they get free services! Alternatively, open up a free chequings account at Coast Capital Savings, you get many perks without any service fees, and no gotchas, which is hard to believe at first.

I have one of those, but also like to have a 2nd or 3rd account at alternate institutions for a myriad of reasons, so I leverage my elders for that ;-)

SilverSurfer said...

simple man,
Sure, go through the experiencing of talking to a financial adviser, maybe even 2 or 3 at different institutions. It's a worthy exercises to do some long term financial planning, even if you're a young'in.

The process itself is educational if you've never done it before. Discuss options such as retirement planning, life insurance, RRSPs, TFSAs, networth calculations, identifying your risk appetite or aversion, ultimate short, medium and long term goals etc. Typically, these 1 to 2 hour exercises are free.

Now when it actually comes down to dropping $$ based on financial advisor recommendation is where I draw caution. These guys are trained to SELL you what their institution is pushing for many reasons. They are not trying to con you per se, they are simply trying to meet their institutions or personal commission quotas and simultaneously try to sell you something that matches your risk profile and investment goals.

Sounds reasonable until you realize that 95% of these people don't really have a clue about investing in uncertain markets and even less downward markets. It is ingrained in their heads that markets ALWAYS go up over the long term. They will pull out cherry picked charts (even semi-long term ones) that attempt to justify their unfounded optimism.

When the 2008 crisis struck, the vast majority of all bank financial planner clients in Canada lost 20-40% of all their networth! Their advice will is ALWAYS buy and hold, until you retire! There is never an exit plan in the medium or short term - unless you tell them you want to "invest" in a mortgage. It's utter nonsense investment advice! Also good luck ever trying to time any buying or selling - nearly all transactions take 1-3 DAYS to execute.

All you need to ask yourself is, if these people really understand investment planning, WTF are they still doing working at a desk in a banking branch 30 years into their careers in some cases? If you want average returns, follow the herd and get average advice.

Remember the golden rule, if you want to be successful at anything, ask for help from those that already ARE successful (not from somebody who's job and paycheque depends on sellin g you something).

Good luck.

Robert Reynolds - HMR Insurance said...

HHV did any of the calculators linked above provide your answer?

If not I can create such a calculator in excel or google spreadsheet for you. Let me
know if it is still needed

also in responce to silver surfers post above re: financial planners. I am not yet a CFP I'm working on it I'm half way through the courses. Most planners especially institutional planners from banks or big insurance companies have very specific marching orders from their managers. Ie: sell this not that. This is hotthis month push it not that.

Find someone independent if possible. They will have more product to choose from more options availible and will have weede out companies with poor service or shitty contracts.

Most will still recommend Buy and Hold as that is how we get paid 99% of the time. Most advisors are paid a commission when you invest. We have to pay the commision back if you sell your investment in the first 3 years or so.

I come from an insurance background so I like to ensure that there is insurance in place to ensure that you can get to your goal should something bad happen (death/disability) not everyone wants insurance though. Also if I sell you an insurance policy I get paid a commission which offsets the risk of chargebacks on short term investments. It also helps build a fence around clients if another advisor comes knocking.

Being a planner is a business even fee for service has some conflict of interest and I have found that NOBODY wants to pay fees that will provide me with same level of compensation as commissions will. Unfortunately that is how the industry is set up at the moment. There has been a push toward Fee For Service only for the last 20 years, it has gotten nowhere.

also long time no post for me. I have been finding not following the housing market daily has done wonders for my sanity.

Alexandrahere said...

Silver Surfer: Your last advice was excellent advice.

I liken the feelings I have when I am with CPF's (especially with Investers Group) to the feelings I have had with the time-share salespeople in Mexico. So easy to walk in and listen; and then later, so desperate to get out of their grasp.

Alexandrahere said...

sorry, meant cfp's. Nice to see you back Robert do seem like the exception to the rule.

Robert Reynolds - HMR Insurance said...

Thanks Alexandrahere

HHV see if this does what you want.

i spent a little while on the wife's netbook and google spreadsheets

please only edit the GREEN CELLS as it will break the spreadsheet if you do. if you wanna mess with it make your own copy as Google spreadsheets doesnt let me lock the formula cells to keep it safe from tampering.

1)enter the amortization period in years IE: 20
2)enter the loan amount
3)enter your custom month by month interest rate on your variable mortgage
4) scroll to the right and enter the fixed rate

the spreadsheet will automagically calculate the monthly payments, principle and interest. it will SUM these numbers over on the right. compare the SUM of interest between the variable and the fixed sides of the spreadsheet.

for example $100,000 loan over 20 years using HHVs assumptions after 48 months
Variable Interest Paid ~$10600
Fixed interest rate paid ~$11000

hope it makes sense
FYI I don't expect Prime BoC rate to change before well into 2014

dasmo said...

Apple shares have never been $5... That said investing in Equities does have a better return than RE if you choose wisely. Apple has gain 3234% from when I bought it. RE hasn't touched that. But I wouldn't put too much weight in financial advisors since they didn't recommend buying it and have recommended selling it to me many times... They are sales people not service people.

Invest in what you know.

Anton said...

Forget advisers and their high MER recommendations and high commissions. Forget choosing stocks wisely. Unless you want to make investing a part time job then just buy broad based very low expense ratio ETFs. People always have a few stocks that go stratopheric. Those are the ones you hear about. They don’t mention the Nortels, RIMs, Enrons Polaroids etc that spectacularly went the other direction. I liken it to the folks who go to Vegas or buy lotto tickets and are quick to tell about their wins.

V=Bh/3 said...

The foundation crumbles?

An eight-month stretch of meagre job creation is driving more Canadians out of the labour force, especially the young…The country’s labour participation rate has ebbed to its lowest level in a decade. Young people are leading the exodus. Their jobless rate hit 14.7 per cent last month…the economic consequences will include muted consumer spending among the young, heavy debt loads and delayed home buying.

Leo S said...

The picture in Canada as a whole isn't looking great, but Victoria added 6100 jobs and the unemployment rate dropped by 0.3%.

dasmo said...

Investing doesn't need to be a part time job. You don't need to become a day trader. Just pay attention, invest in things you know, diversify, and don't buy based on stock tips or TV personalities. You will probably do well. I have picked a few duds but on average my picks (not including apple) have doubled in value. I like coke, invested in coke. I like reactine for allergies, invested in pfizer, Look around and what brand do you see everywhere on construction sites, CAT, I invested in CAT, etc. I've gone long on everything. Got out of a few when I felt they were going nowhere (because your money can completely evaporate) Hardly rocket science or a part time job.

Russ said...

I agree with Anton.

For all but the most connected insiders picking individual stocks is a lottery. I've gone for a broad mix of low MER ETF's and a long term time-horizon.

... except for my hidden physical gold but thats another topic!

a simple man said...

thanks for all the comments on investing. The discussion typifies exactly how I feel about it - confused.

dasmo said...

Well mutual funds and ETFs have not done much for me. I got into investing almost 15 years ago so have a decent horizon to judge with. For me, Id rather trust my own instincts than hand my money over to a computer or some fund managers I've never met to manage.

DavidL said...

Back in the mid 1990's, my employer (at that time) would match the first $500 that each employee put in a mutual fund - as long as the funds were bought through Investors Group (who brokered that deal?!). The consultant tried to convince me that that I should put all my money in high tech and Internet startups.

I didn't know much about investing, but had read the "Wealthy Barber" and new that I didn't want to put all my eggs in one basket. I split my investment monies between energy and small cap equities with some bonds and financial dividends. Within a few years when the "dot com" bubble burst, many were loosing their shirts while I enjoyed modest growth.

I tried to rebalance my portfolio, but was amazed/dismayed to discover that most of the products offered by Investors Group were back loaded so that any redemption within six years of purchase was subject to penalties. Additionally, the MERs were typically 2.5 to 3.5% - sucking off a lot of the profit.


I have tried investing with a range of companies, but have only found "true happiness" by pooling all my investments into a self-directed portfolio so that I can avoid a lot of unnecessary fees and bad advice. Over the past 15 years, I have done well with a mix of mutual funds, EFTs, bonds, dividends, etc.

Here's what I do:
* Rebalance my portfolio each quarter (3 months). I don't buy and hold. I move my monies around based on how I think certain aspects of the market will perform.
* Use a contrarian approach... don't be a sheep and follow the masses. I buy in to a winning strategy early and am not afraid to cash out. (Example: sold TSX EFTs at 13,500 then bought Canadian government and corporate bonds. These took off like a rocket with 17% annual growth as other investors exited from the equities market in the summer of 2011.)
* I have a mix of equities (stocks), bonds, dividends, etc.
* Many low MER mutual funds outperform their more expensive counterparts. I examine the real performance of a fund: look at the alpha, beta, Sharpe ratio, etc. Occasionally, a high MER fund is worth the expense because of the performance.
* I read investment books, read blogs and research on the Web.

DavidL said...

Sorry about typos... I'm being undermined by the predictive typing on my Android phone.

Marko said...

Monday, March 12, 2012 8:00am

MTD March 2012 2011

Net Unconditional Sales:

152 622

New Listings:

465 1,501

Active Listings:

3,832 4,100

Please Note
•Left Column: stats so far this month
•Right Column: stats for the entire month from last year

HouseHuntVictoria said...


That's exactly what I was looking for. Idiot proof way of doing the math. If it's correct, and I have no reason to believe it isn't, I'm within a $1000 (should interest rates play out the way I'm assuming over the next 5 years). A small price to pay for peace of mind.... on the other hand, should the interest rates not rise as much or as fast (calculated on no change), it'd be around $13K, which is more than any of my vehicles have ever costed me.

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