Category Archives for Canadian Mortgage

Interest Rate Differential Prepayment Penalty

“Potentially One Of The Most Confusing, And Costly Elements Of A Fixed Term Mortgage Is The Prepayment Penalty”

When you have a fixed rate in place on your mortgage and your looking to do a mortgage refinancing either to acquire additional funds and/or get a better interest rate, you are likely going to be subject to some type of prepayment penalty.

A prepayment penalty exists in the first place to basically protect the lender against loss. For residential home mortgages or any commercial mortgage at say 5%, the lenders cost of funds may be 4% as an example (purely hypothetical to make the math simple), providing them with an operating margin of 1% (5% – 4%) to cover their operating costs and hopefully produce a profit.

Because your funds are locked in at 5% for a period of time, the lender also locks in their cost of funds for the same period of time. If the mortgage is prepaid and the lender is stuck at funds at a cost of borrowing that they can’t mark up due to current market rates, then they can potentially incur a loss on the overall mortgage transaction.

If you try to pay out the mortgage early, they have the right to charge a prepayment penalty which is typically the greater of three months interest penalty, or interest differential.

If rates are higher when you go to payout the mortgage, then isn’t likely going to be an interest differential penalty to consider.

Interest differential in simplest terms would represent the 5% interest rate on your old mortgage, minus the lenders current market rates for the time left on your mortgage, multiplied against the principal outstanding.

But that would be in simplest terms.

In reality, there can be considerable structural differences in how the interest differential is calculated by the lender. While all approaches fall under the governing body for bank and institutional lenders, there is a fair bit of room for them to manage the penalty into their favor if the right circumstances present themselves.

This can leave the borrower not only scratching their head trying to understand how it works, but also leave them facing a considerable prepayment penalty they did not count on or did not properly calculate based on their own understanding of the mortgage terms and conditions.

For a real life example of an IRD calculation that did not excite the borrower holding the mortgage, go to

The good news is that there are supposed to be federal government guidelines coming out in 2011 that will standardize the explanation of the interest rate differential prepayment penalty, or IRD, which should make it easier to borrowers to not only understand what they’re signing up for at the start of the mortgage, but also provide a more clear outline of how to calculate a potential IRD out at a given point in time if required.

Also keep in mind that his only relates to bank or institutional lenders. Private mortgage financing does not typically have any type of IRD written into the mortgage terms. For most private second mortgage loans, the most common prepayment penalty is 3 months interest, but some can also be fully open after a period of time.

If you are considering a mortgage refinancing action where a new mortgage at a lower rate is going to be paying out an old mortgage at a higher rate, then I would recommend that you give us a call so we can go through your prepayment calculation together and then come up with the best strategy to minimize it.

Click Here To Speak With Mortgage Broker Joe Walsh

New Mortgage Rules Now In Effect

“Changes To Maximum Mortgage Amortization and Maximum Loan To Value Now In Effect”

I had previously written that the Canadian mortgage regulations for institutional mortgage lenders such as banks, credit unions, and trust companies, were changing on a few different fronts.

On March 18, 2011, the first of the proposed changes went into effect.

Mortgage amortization periods have now been reduced from a maximum of 35 years to maximum of 30 years. The only exception to this is if you had a legally binding purchase and sale agreement that was dated on or before March 18, 2011. In these cases, the maximum amortization period can still be 35 years. For every other situation, the new rule will apply. There is no distinction between an insured mortgage loan or an uninsured mortgage; residential home mortgage financing for a purchase or mortgage refinancing… All scenarios will fall under the new rules.

Mortgage refinancing rules for insured mortgages for single family units and any multi unit residential mortgage less than 5 total units, have reduced the maximum loan to value from 90% of the property value to 85% of the property value.

If you require any additional information about the rule changes or would like to discuss how they may impact a mortgage financing scenario you are trying to complete or are contemplating, I suggest that you give me a call and book a time where we can go through everything together and get all your questions answered.

Click Here To Speak To Toronto Mortgage Broker Joe Walsh

CIBC Mortgage Products

“Additional CIBC Mortgage Products Are Now Available Through Your Mortgage Centre Broker”

Because CIBC branch mortgage products are available through our Mortgage Centre brokerage, I thought I’d share two new CIBC products that are on the market and available through out office.

New product #1 is the CIBC’s Wealth Builder option that provides up to 140 basis points off the posted fixed rates in addition to 0.25% cash back in your hands at the time of your residential home mortgage closing, and another $100 back each and every quarter.

New product #2 is CIBC’s Variable Flex Mortgage with cash back that provides a variable mortgage rate at prime minus 1/2 per cent plus 2% cash back. If you have a mortgage over $400,000, the cash back component goes up to 3%.

For another take on these programs, you can go to

If you’d like to discuss any of these mortgage programs or others that be a potential fit for your financing needs, I suggest that you give me a call so we can arrange a time either on the phone or in person for a one on one discussion.

Click Here To Speak With Joe Walsh, Your Toronto Mortgage Broker




Spring Home Mortgage Financing Season Is Upon Us

“Not To Early To Start Thinking About Your Residential Mortgage Interest Rate Strategy”

Ok, according to the calendar, I am a bit a head of the game here in the first week of March, 2011 to be talking about the start of the spring season with respect to home buying and the resulting mortgage financing requirements.

But here in Ontario, its certainly starting to look like spring more and more each day and all indications are that its going to be a very active spring market for home buyers.

What we’re also hearing in the news from the major banks is that they are starting to softly tell us little by little that interest rates are going to be on the rise by the end of May, 2011, or at least that’s what they are expecting based on the economic reports that are coming out of both Canada and the U.S.

So if you’re in the market for a new home, now’s the time to start thinking about your residential home mortgage financing requirements as well.

Did you know that you can apply for a mortgage prior to making an offer? This allows you to get a pre approval of mortgage financing in advance for a certain financing scenario. While the pre approval may not be completely binding on the lender depending on the exact property you choose to acquire, the process lets you lock in your interest rate for a period of 120 days.

This gives you 4 months to see where interest rates are headed, provide you with protection against an interest rate increase, but still allow you to take advantage of any drops in rates can may occur for short periods of time. For instance, there is market speculation that the two and three year mortgage rates may dip down in the next while despite the fact that the variable mortgage rate is expected to be on the rise.

Being prepared for spring home shopping includes getting your mortgage financing options in order.

This can greatly reduce the stress that can come with a home purchasing scenario when time lines can be short.

Doing some up front mortgage work can also save you some money potentially over both the short and long term, which is almost always viewed to be a good thing by home buyers.

Depending on your situation, there can be several different types of mortgage programs to work through such as an insured mortgage loan for higher ratio mortgages, a self employed mortgage program for those that work for themselves, and a home equity mortgage for individuals that have no reportable income available.

The best place to start the process is to select an experienced mortgage broker that you can guide you through your options and help you get everything ready so that when the time comes to buy, the financing part has



Click Here To Speak With Joe Walsh, Your Toronto Mortgage Broker

Best Home Mortgage Rates

“How Do You Secure The Best Home Mortgage Rates?”

The most common mortgage related search terms on the web include the work “rate” the in the search phrase indicating a high level of interest in finding the best home mortgage rates.

While this doesn’t come as any big surprise to me that mortgage holders want to secure the lowest interest rate possible, the idea of finding the best residential mortgage rate through just surfing the web does.. a bit.

Depending on who you are talking to, there are many different pieces of advise you can expect to find when it comes to interest rate shopping. While I don’t plan to cover off any type of fool proof approach, here are some things to consider.

First of all, its going to be unlikely that you’re going to be able to find the best rate by just surfing the web.

Why? Several reasons. First, there can be significant differences between the posted rate and the actual rate the lender is prepared to provide. Second, regardless of what rate is posted, you still need to qualify for it and there is no guarantee that you will still get the rate shown on a web page. Third, posted rates through an individual lender will only show their best rate which may not be the best in the market. Fourth, broker posted rates will only cover off the lenders they are dealing with which again may not cover off the entire market of mortgage lenders that are directly relevant to your situation.

In order to be able to zero in on the best available rates for your particular scenario, you would be well advised to work with an experienced mortgage broker who has broad access to lenders in the market place, and who maintains a good pulse of where the best deals can be found at a given point in time.

There are other things to consider such as not requesting maximum mortgage amounts. The more equity that is available post mortgage, the less risk being borne by the lender, which should equate to a lower interest rate offering.

Lastly, start the process of looking for the best home mortgage rate early and allow ample time for the process to be completed. The market can change suddenly, providing short term opportunities that you can take advantage of, if you’re ready to take advantage of them and understand a good deal when it presents itself.

If you’d like help locating and securing the best home mortgage rates on the market, please give me a call and we’ll go through your requirements and the available options together.

Click Here To Speak Directly To Joe Walsh, Your Toronto Mortgage Broker

Upward Pressure On Fixed Rates

“Recent Economic Activity And Reports Could Push Fixed Mortgage Rates Up”

The five year bond rate was on the way up last week.

The most recent job report provided better than expected news about the creation of new jobs in the current economy, putting still more upward pressure on 5 year bonds.

What does this mean for a mortgage holder?

Mortgage financing companies make their money on a spread or profit margin between their cost of money and the cost they lend it out to you. In order to maintain their profit spread, they increase their lending rates when their cost of funds goes up. The current financial market indications are that their cost of money is in the process of going up.

While the money supply dynamics are much more complex that what I just stated, when key economic indicators are moving up like job growth and the 5 year bond rate, there is a growing possibility that the cost of borrowing in the Canadian residential mortgage market will also increase.

In the short term, there is little to suggest that short term rates are going to be changing, but then again…

The near term risk if you will is that long term rates are going to rise.

So if you’re considering a long term mortgage rate for a new purchase or refinance or interest term renewal, then now might be a good time to go through the exercise of seeing what’s available and what will provide the best fit for your mortgage requirements.

One of the best strategies to take to protect yourself from interest rate increases during a decision making period is to apply for financing and get a 120 day rate hold. This will give you time to figure out what you want to do and also to see where indeed the market is headed in the short term. One great thing about a rate hold is, if in the unlikely event that rates went down in the near term, you could still take advantage of that was well.

The best approach to working through a residential or commercial mortgage rate decision is to work with an experienced mortgage broker who can walk you through the different options and strategies that are available to you.

Click Here To Speak With Joe Walsh, Your Toronto Mortgage Broker

2011 Mortgage Rate Outlook

“Where Are Mortgage Rates Headed in 2011?”

Now that we’re squarely into 2011 and all the major banks have served up their forecasts for the coming year, where exactly are Canadian mortgage rates going?

If you believe in the experts, rates are going to continue to rise during 2011 with the majority of opinions right now looking at an across the board interest rate increase of approximately 2% (Example: a current variable rate of 2% rises to 4%).

The current spread between fixed and variable is expected to continue, but with a 2% increase in both the fixed and variable rates, the people with variable rates today would see their interest costs increase to what the current fixed rate holders are paying right now. Thus continues the discussion as to fixed and variable and what if anything should be done with your mortgage term in 2011.

For those individuals on a fixed income budget, a 2% increase in the variable interest rate could double their interest cost by the end of the year. Then again, if you lock in now and the interest rates don’t increase then many people would consider that to be money wasted.

And in the end, the forecasts are only as good as the assumptions they are based on. If the assumptions don’t hold true then its unlikely the forecast they are based on will either. The really difficult aspect of looking into the crystal ball to determine what the future holds with respect to mortgage rates is knowing what major events are going to happen in the world, when they’re going to happen, and the economic impact they will directly and indirectly create.

That all being said, we are once again sitting at the beginning of a year where rates are more likely to go up than down and it only makes sense that one’s existing mortgage term should be reviewed to see if everything is still in keeping with your short and long term financial goals and personal views of what’s likely to transpire in 2011.

If you’re on a fixed income, have a mortgage term coming due, or are in the process of acquiring a new mortgage, the potential for mortgage rates to significant increase over the next twelve months is something to consider before making any decisions.

One of the best ways to make an informed decision with respect to your mortgage is to consult and experienced mortgage broker who is prepared to sit down with you and discuss your situation and the best options that are available at a given point in time.

Click Here To Speak with Joe Walsh, Your Toronto Mortgage Broker

Benefits Of Forward Planning

“The Farther Ahead You Plan Your Mortgage Financing Requirements, The Larger The Potential Benefit”

In this day and age, its all about immediacy… getting things done when you need them without a whole lot of wasted effort.

And typical of the times, when it comes to getting a mortgage in place, the average Canadian will tend to leave the process as long as possible, perhaps holding the belief that there is no real or potential benefit from planning ahead.

But when you consider the amount of money you’re going to shell out on a mortgage over time, even the smallest benefit incurred in the short run could add up considerably over time.

Let’s go over some specific reasons why planning further ahead can be beneficial when it comes to your future residential, commercial, or industrial mortgage.

First of all, there is knowledge. Taking the time to understand the different types of quotes interest rates, payment frequencies, amortization, repayment terms, mortgage insurance, etc. can help you make a more informed decision that will save money over time. None of these items are overly complex to understand, but collectively its still a lot of stuff to wade through.

Second, locking in an interest rate for at least 90 days provides you with more potential decision making flexibility with respect to rate when the day comes that the mortgage needs to be finalized. But this isn’t going to be much of an option if you’re not planning far enough out to take advantage of it.

Third, for certain types of applications like a construction mortgage, the process for applying, approving, and managing this type of mortgage can take some time to understand and apply knowledge. By being armed with what to expect and how to proceed prior to starting construction can make a cash saving difference when issues arise in the middle of your project.

Fourth, and perhaps most important is that the standard mortgage process always seems to take longer than anticipated. Stuff happens that causes delays or issues that need to be resolved before a closing can be completed. This can be a hairy time for the borrower if there is a time pressure involved in the closing process. Starting sooner can alleviate much or all of stress and help to get everything completed on time.

If you buy into this argument but are still not sure where to start, then the best first step is likely going to be selecting a mortgage broker (mortgage coach) to work with. The more time you give a good mortgage broker, the more likely they’re going to be able to deliver added value to you for no extra cost.

Click Here To Speak With Joe Walsh, Your Toronto Mortgage Broker.

2011 Mortgage Interest Rate Predictions

“Household Debt Up And Mortgage Interest Rates Expected To Rise In 2011”

According to Bank of Canada Governor Mark Carney, Canadian consumers now hold more debt as a percentage of their income than Americans. With interest rates expected to rise in mid to late 2011, the possibility of a large scale debt servicing problem is rather high.

With more and more Canadian mortgage holders taking advantage of floating interest rates that remain at near all time lows, the prospects of even very small increases in the mortgage lending rate can have a big impact on home owners ability to make their monthly payments.

This is far from new information … the conservation has just died down a bit over the last 6 months and is now starting up again as Mr. Carney zeros in on the larger areas of concern he sees with respect to keeping his mandate in check, which is keeping inflation under control. While most people don’t see inflation as a problem at the moment, that could change in the near future and the main brake the Bank of Canada has to slow inflation down is increasing interest rates, at least for a period of time.

Due to the swelling level of household debt, the combination of high debt and rising interest rates is a major concern.

So what does all or any of this mean to you?

If you fall into the category of the high consumer debt holder, including very little equity in your home, you may want to start paying closer attention over the next 6 months to the longer term fixed interest rates. If there is short term movement down in fixed rates, you might want to consider taking advantage of the opportunity to lock in for a period of time and reduce the risk of not being able to cover off your monthly mortgage requirements.

The first step, however, is getting a strong hold on what amount of incremental monthly payment you can afford. Going to a fixed interest rate is going to cost more than what you’re paying on a variable rate today so you need to see if your cash flow can even handle it, or make some adjustments to your spending to make the numbers work.

Effectively, the slightly higher monthly payment is insurance against not having interest rates get away from you completely in the coming year or years.

This can be a hard choice to make, especially with rates staying so low for such a long period of time. But the economy always goes in cycles and this time around its likely no different.

The good news is that it appears you have some time to plan ahead and think about what makes sense for your personal situation.

Click Here To Speak With Joe Walsh, Your Toronto Mortgage Broker

Get An Early Start On Both Residential and Commercial Mortgage Shopping

“If You’re Even Considering A Real Purchase, Refinance, Or Development That Will Require Mortgage Financing, Now Is The Time To Start The Mortgage Shopping Process”

Perhaps its just sometime in our DNA, but it seems that most people will leave mortgage financing needs to near the end of their acquisition, refinancing, or development planning process.

I guess the working assumption is that locating and securing an appropriate mortgage is going to be relatively easy and fast to do. At least that’s what a lot of the advertising your read and see are basically screaming at you.

And while it may very well be possible to get a mortgage in very short order, is it going to be able to meet all your requirements and provide the best available terms in the market?

When it comes to getting a mortgage for either a residential or commercial application, there are two key things you should consider that can save you a lot of money and headache over time.

The first thing I have already alluded to and that’s to start early. When I say early, I’m talking months in advance. For residential mortgages as an example, you can lock in an interest rate on a preapproval for 120 days which is basically 4 months ahead of when it may be required. The beauty of these pre-approvals is that if the rate drops further during the 4 month locked in period, you still get the lower interest rate.

The second key thing to consider is to find and select a mortgage broker that you’re 1) comfortable with, and 2) has a focus in the type of mortgage you’re going to be needing. More lead time is more time a good mortgage broker has to shop the market and try to figure out the best possible deal you can secure. No matter how good a mortgage broker may be, if the process is “under the gun” to get completed, the deal secured will rarely be the best deal due to timing.

And if you’re working with commercial real estate, the lead time becomes even more important as the commitment and closing processes for different commercial mortgage applications are almost always longer than you can imagine.

Even if you’re working on a development project that won’t be starting for 6 months or more, its still a good idea to get started on the project financing process with a suitable mortgage broker so that there are no surprises in the future and if the available commercial mortgage financing is going to be demanding certain requirements prior to funding, you will have sufficient lead to time to get everything in place and avoid the mad scramble when the project is about to start.

Click Here To Speak With Toronto Mortgage Broker Joe Walsh

Bank Rate Goes UP – Residential Mortgage Rates Stay Put

“The Anticipated Bank of Canada Rate Increase Does Not Impact Residential Mortgage Rates”

The much anticipated Bank of Canada interest rate increase took place as anticipated on June 1, with the central bank rate moving up from 0.25% to 0.50%.

At the same time, the long term bond rate dropped, providing some mortgage providers to actually drop rates.

It is very uncommon for short term rates to rise while long term rates are falling, but we live in strange times to say the least. All the financial fallout in Europe has pulled down the bond market which provides mortgage lenders with a lower cost of capital.

With more global economic uncertainty, the seems to be the same upward pressure on interest rates that we were seeing just a month or so ago. While near terms rates are still very possible, there seems to be a growing possibility that rates will not move any further for the foreseeable future.

So with all of that said, what does it mean to residential mortgage holders that have variable rate mortgages or that are looking at fixed rate products.

The continuing message is to make sure that you are aware of what your cash flow is going to be able to handle. If you’re like 33% of Canadian mortgage holders that are taking advantage of variable interest rates, the prognosis for variable rates to stay low are pretty good. But even small movements in mortgage rates can be more than some cash flows can handle. So make sure you have a good grasp on the wiggle room you have in your monthly cash flow so you can proactively project how much of an interest rate increase you can sustain before it starts to impact your monthly payment requirements.

One thing is for sure, rates are going to continue to ebb and flow, based on a lot of things we have no direct control over or even understanding of, like the financial dynamics in the European Union.

Hopefully the current run of low mortgage rates will continue. Just make sure you can adjust to higher rates if and when they occur versus just hoping that they won;t.

Click Here To Speak To Mortgage Broker Joe Walsh.

Residential Mortgage Penalties

““Why Are Residential  Mortgage Penalties All Over The News These Days?”

The answer is pretty simple…a dramatic decrease in interest rates. This means most mortgage holders are locked into higher rates. This means higher penalties to break the mortgage. (Keep in mind you are ‘breaking a contract’ – that’s why they call it ‘Penalties”)

Fixed-rate closed mortgage holders must pay three months of interest or make up the difference in the interest rate (whichever is greater) as their penalty for breaking the mortgage before the end of the term. Depending on the length of time outstanding on the mortgage term, the fixed interest rate, and the amount outstanding, the mortgage prepayment penalty can easily get into the $5,000 to $10,000 range. Each Lender may have a different way of making the calculations but generally it is an interest rate differential between the current rates and the fixed rate you’re locked into.

The difference between your mortgage’s fixed rate and the posted interest rate for the term closest to the number of months left on your mortgage. They also take into account the amount of discount you originally received when the mortgage was given.

So what can be done to minimize costs? One way is to ensure that you make a lump sum prepayment before you payout the mortgage. Some lenders allow as much as 25% of the original mortgage amount to be paid down without penalty. Even if you have to borrow off other sources of financing for a short period of time, this is an effective way to basically get rid of 25% of the prepayment penalty.

Another way is to consider porting the mortgage to the new house. Not all mortgage providers will offer this option, but if they do, its definitely something to consider.

In the case of a debt consolidation, you might also be able to get a mortgage increase with a blend in rate. Under this strategy, the lender blends the old rate on the old mortgage funds with the new lower rate associated with the incremental funds. The result is an interest rate that is somewhere between today’s low rate and your current mortgage rate.

It’s important for homeowners to evaluate their situations with a mortgage expert. Most consultations are free; this should be less than the cost of trying to figure it out alone and get hit with a hefty surprise on closing.

Click Here To Speak With Mortgage Broker Joe Walsh

Residential Mortgage Financing In Canada Is A Process

“To Have The Best Residential Mortgage Financing Experience Can Require A Certain Amount of Education, Planning, and Patience”

Buying a house is a big decision for 95% of the population so the process for locating and securing a mortgage program that best meets your requirements is also extremely important, considering it will be the largest single financial obligation most people will ever have.

So while we’d like to believe the process is super simple and quick to take care of, do you really want to make such a big decision on less than complete information? Even if you can easily qualify for a mortgage, how do you know you got the best deal and how do you know what the best deal is? Is it the lowest interest rate? … relevant to what term? Does the amortization and prepayment options match your financial goals? Did you get pre-authorized for a mortgage approval to allow you to lock in a rate early in the process while still being able to keep your options open related to rate declines? Do you know how to keep your options open? Did you have time to research all the hundreds of mortgage programs on the market to figure out which one is the right one for you? How do you know if your current bank can provide the best options for your situation? Have you been checking your personal credit to make sure its as strong as it can be prior to an application? Do you know how to improve your credit quickly in order to provide for the best mortgage programs? What do the best mortgage programs require in terms of credit? If you don’t have a lot of cash to work with, do you understand the rules related to acquiring mortgage insurance? If you’re credit is not the best, are you focusing on the institutional lenders that still provide the next best rates for less than perfect credit score?

The list can easily go on and on and on. Residential mortgage financing is a process that needs to be customized to each person at a given point of time looking to purchase a specific property.

Learning about how it all works is important. And while many would say its impractical to be able to gather all this knowledge for something you only will ever draw on every once in awhile, the next best option is to work with an experienced mortgage broker who can 1) make sure that you understand what information and considerations are relevant to you, 2) provide you with the coaching it takes to accomplish your ultimate goal.

its not unusual for me to work with clients for several months before the process is complete. Its not unusual for it to take that long, depending on your circumstances. And the sooner you start working on your residential mortgage financing requirements, the more likely the results will work out in your favor.

Click Here To Speak With Mortgage Broker Joe Walsh.

Mortgage Rates Fall?

“Mortgage Rate Drop By Canadian Mortgage Lenders Considered to Be A Short Term Thing”

Yes, we have been on the rate increase band wagon now for several months and by the way, I’m still on it.

All indications are that interest rates in general are going to continue to rise which means more future mortgage rate increases coming your way.

But with this week’s mortgage rate reductions of 15 basis points with most major mortgage lenders, we are reminded of how complex and interrelated the global financial markets are.

With the financial crisis in Greece, the global domino effect has generated a positive interest rate impact in Canada. Don’t ask me how all the math and money movement plays out to give us a short term interest rate increase reprieve. Just don’t get caught up in any thinking that this is a new trend with interest rates going down.

At the same time, rates right now are lower, so if you can take advantage of this short term rate reduction, it can mean dollars in your pocket over time.

If you have been looking at locking in a rate for 120 days or refinancing strategies, this may be a good time to re crunch all the numbers to see if there is an opportunity for you to save some money going forward.

Its also really hard to say how long it will last. All indications are that the Bank of Canada is likely to increase its bench mark lending rate on the first of June. It has been sitting at 0.25% now for over a year and is expected to start going up this summer.

All indicators are still pointing to the continued rise of long term residential mortgage rates so you would still be wise to consider what you’re going to be comfortable with going forward in terms of the mortgage risk you are likely going to be exposed to if you’re in a soon to be expiring interest term or a floating interest rate term.

If you’d like to quickly see what types of rates we can lock in for you today, I suggest that you give me a call so I can provide you with your relevant options for immediate consideration.

Click Here To Speak With Mortgage Broker Joe Walsh.

Mixed Rate Mortgages – Key Benefits

“Another Strategy To Deal With Rising Interest Rates Is A Mixed Rate Mortgage and The Benefits It Provides”

With mortgage rates on the rise, many mortgage holders are still reluctant to make the move away from a variable interest rate in order to lock in a longer term fixed rate where rates have already gone up.

In this situation, a borrower may be moving from a rate under 2% to something closer to 4.5% just to protect themselves against long term interest rates that are unknown at this time. Going from 2% to 4.5% is a big jump in terms of your mortgage payment with the interest cost more than doubling.

So one strategy that mortgage holders are now looking more closely at is the mixed rate mortgage which has both a variable interest rate portion and a fixed rate interest portion. Effectively, with this type of residential mortgage program, you have two mortgages in one.

The main benefits of this type of residential mortgage program are related to interest rate and principal prepayment.

With respect to interest rate, you would end up with a blended interest rate based on the variable rate and the amount of principal assigned to the variable component and the fixed term rate and the amount of principal assigned to the fixed component.

Most of these mixed rate programs offer generous prepayment options which provide you a great deal of flexibility to manage your interest risk and costs going forward.

As an example, if rates spike up, you can pay down the variable rate portion of the mortgage and then you will be left with the fixed rate to effectively put a ceiling on your near term interest rate risk.

If interest rates flatten out or even start to go down again, you also have the ability to prepay the fixed interest portion as well to take advantage of lower rate levels that you feel more secure about.

These dual rate mortgages, or split mortgages as some like to call them are a great tool for those that like to have the most flexibility with their mortgage program without taking excessive interest rate risk.

If you would like to learn more about mixed rate mortgages, please give me a call and so we can go through your mortgage requirements and see how this type of mortgage product would apply to you particular situation.

Click Here To Speak With Mortgage Broker Joe Walsh