Category Archives for Canadian Mortgage
Mortgage Rates Continue Their Climb
“Its Not Time For Chicken Little Yet As The Sky Isn’t Falling At The Moment, But Mortgage Rates Are Continuing To Rise And Need To Be Taken Seriously By Mortgage Holders”
Yesterday the Royal bank increased its fixed rate mortgage program by 15 basis points with the TD following close behind and all others expected to be making similar moves in the next day or two.
The trend to higher rates continues as has been predicted and talked about over the last couple of months. The Bank of Canada still hasn’t moved its overnight prime lending rate, but that could change by as early as June.
So with out sounding like a broke record, everyone needs to start rethinking their mortgage rate and repayment strategies. As an economy in general, we have developed a mindset of longer amortization periods and floating interest rates where the masses have ridden out an unprecedented period of cheap mortgage money that have allowed many to purchase a home for the first time and many others to buy larger homes.
But as rates increase and continue to increase, the realities of interest rates settling in at a higher range over the coming months and perhaps years means that its going to cost more to pay for housing, that there will be less money to spend on other things, and that faster repayment strategies are going to be essential to avoid excessive future cash flow being paid towards interest payments.
While the CMHC’s latest consumer mortgage survey indicates that consumers are comfortable with the first round of mortgage rate hikes, or felt they could easily adapt to them, the same is not expected to be true with further increases.
For first time mortgage holders, it has been easy to be spoiled by the current mortgage rates and potentially live to the fullest extent of their means without a great deal of equity in the home and a long term mortgage amortization in tow.
Now is the time to rethink and re-valuate your long term financial goals and where you plan to spend your disposable income in the future. It doesn’t make any sense to ignore the obvious and those that do will find themselves in a cash flow crunch and potential crisis that could have been avoided through a bit of forward thinking.
At the same time, we are not talking about a panic as interest rates are still very low in relation to historical levels. But its better to be safe than sorry and a slow rate creep upward over time can catch up to you, directly impacting your lifestyle and retirement goals.
Click Here To Review Your Mortgage Repayment Strategy With Mortgage Broker Joe Walsh
‘Killing Ewe Softly’- Cooling down the Real Estate Market in Canada.
“How The Mortgage Market And Politicians Are Working Together To Keep The Housing Market in Check”
Call out the dogs; circle the sheep – let’s move em’!
Its official… They’ve gotten together to slow down a real estate market that seemed unstoppable.
Who?
The banks, the bureaucrats, and the politicians for the most part.
Why?
We seem to be making our payments – mortgage arrears are at a normal level.
That’s today, but what about next year? It’s all about next year and the years after that.
With Government deficits continuing to increase at all time levels, sooner or later the money supply has to tighten. Mortgage rates may even go up to double digits. Think I’m crazy, well for those of you old enough to remember, we had double digit rates through most of the crazy 70’s and the 80’s.
So what have ‘they’ done, to cool down the market?
CMHC has made some subtle changes that will have a ‘not so subtle’ impact. These changes include a reduction in the loan to value on refinancing, tightening the rules for the self-Employed; and borrowers working for commission only will no longer be eligible for the program.
The biggest tweak is a cut back on rental properties. Borrowers will need at least 20% down payment to obtain CMHC insurance, on investment properties. Real Estate Gurus cross the
Country are still preaching that the road to riches runs through a multitude of properties purchased using high leverage and low down payment. Starting next month, they might find the conventional halls
empty.
Banks and other Mortgage Lenders are doing their part. Mortgage Interest rates are rising. Every Tick up, knocks a percentage of buyers out of the market.
Don’t forget the HST. HST is just around the corner. How will this affect the market? We don’t know for sure, but the smart money may not be betting on real estate.
Keep in mind that the years of a lop sided trade balance with China has left them with lots of Canadian and American Dollars to spend.
There will come a time when China will stop buying up the debts of North America. China is a huge buyer of U.S. Treasury Bills. This may not go on forever. When it stops, the need for funds will still be
there and they will have to raise the interest rates even further.
So what does this mean to us?
It means a lower quality of life for those that don’t get on top of their debt and credit management. Money that should be spent on health
care and infrastructure will be going to pay interest on debts.
What can we do?
We can secure a low interest rate for a medium to long term mortgage. We can make efforts to pay down debt, consolidate so we’re not paying high rates on loans and credit cards.
Talk to a Mortgage Broker that can go over your situation and come up with a few options that can help.
Another option is to just ignore what is going and get pushed around like the rest of the he ‘herd’.
Pros And Cons of Mortgage Amortization Periods
“After The Interest Rate, The Next Major Decision With a New Mortgage is The Amortization Term”
For most home buyers that are looking at securing a mortgage, the primary goals are the least money down, the lowest interest rate, and the smallest monthly payment.
There is absolutely nothing wrong with any of these, provided you understand what goes along with them.
Lets take a closer look at amortization and how it impacts both your cash flow and long term interest costs.
Right now, you can get mortgage amortization period of 10 years, 15 years, all the way up to 35 years in many cases. The longer the amortization period, the smaller your monthly payment is going to be as the principal is paid back over a longer period of time.
As an example, moving from a 25 year amortization to a 35 year amortization will reduce your payment by 16% on a mortgage interest rate of 4% which can be quite significant to many people.
But when the amortization period is extended that extra 10 years, the total amount of interest you will be paying over the life of the mortgage, assuming the same interest rate stayed at 4%, would increase by 32%.
So one way to look at a longer amortization period is as a short term cash flow tool that allows you to manage the money you’re working with today, but still allows you make incremental principal pay downs over time to shorten the repayment period and reduce total interest costs.
Basically, it just doesn’t make a whole lot of sense to pay that much of additional interest over time, so the only reason for taking a 35 year amortization is because you believe you will have additional cash available to apply to the mortgage some point in the future.
The best way to determine what amortization period works the best for you and to see first hand the differences in the interest paid over time is to sit down with a mortgage broker and work through all the different scenarios together so you are more confident that the numbers you’re looking at are accurate.
If you have any questions regarding amortization periods and mortgage rates, please give me a call and I’ll make sure you get all your questions answered.
Canadian Home Mortgage Market Heating Up
“Canadian Mortgage Applications Are Up As Home Shoppers Try to Beat The Rising Interest Rates,Tax Increases, and New Insured Mortgage Rules”
For Home shoppers that have been considering a home purchase in the last 6 to 12 months, the rush is now officially on to try and see if a new home can be found and mortgage financed before all the related acquisition costs go up.
Right now we are experiencing the confluence of three different factors converging on the mortgage market, and creating a perfect storm effect for home buyers in the process.
First, we have the recently announced increase in the five year mortgage rates that have already come into effect. For those that have secured a pre-approved mortgage rate for 120 days, the race is on to try and get a home purchased and financed in time before the rate freeze is removed.
Second, in just 5 days, the CMHC’s new qualification rules will come into play for new home purchases requiring more than 80% mortgage financing. For these higher ratio mortgage applications, mortgage insurance is required and will now make it more difficult for some home owners to get qualified based on the revised repayment qualification calculations that require the use of the chartered bank posted 5 year fixed mortgage rate.
Third, and somewhat forgotten in all the recent news about interest rate increases and changes in the CMHC mortgage insurance program, is the launch of HST in Ontario and B.C. on July 1, 2010. The new tax will create an added cost to home purchases that will also have to be factored into a buying decision.
The key takeaway from all of this is that home shoppers should make sure they are working with a competent mortgage broker that can help them work through all the twists and turns impacting residential mortgage financing in the coming months.
The landscape is got increasingly hard to navigate in 2010, so getting some professional assistance can help you make a better decision and end up saving you money in the process.
If you’re in the process of buying a home or even have an accepted offer that requires mortgage financing, I suggest that you give me a call so I can quickly assess your requirements and provide relevant mortgage options for your consideration.
More Information on New CMHC Mortgage Insurance Program Changes
“Here Are A Few Additional Wrinkles To Now Consider When Budgeting For A New Home Purchase or Mortgage Refinance”
In March of 2010, Canada Mortgage and Housing Insurance announced some changes to their mortgage insurance program that were designed to reduce the potential of a housing market bubble developing in Canada through our own version of the sub prime market which falls under the category of insured mortgages.
The changes to take effect on April 19, 2010, in a nut shell, are 1) changes in debt servicing assessments for mortgage requests above 80% of the value of the property and mortgage terms less than 5 years; 2) a reduction in mortgage refinancing amounts from 95% of property value to 90%, and 3) a requirement that all CMHC insured rental properties have a 20% down payment at time of purchase.
The big question that existed after the initial announcement was how would the repayment assessment work going forward.
Today, we got some further clarification.
Basically, for a new mortgage application where the mortgage amount is over 80% of the property value, the repayment assessment must now be based on the Chartered Bank Conventional 5 year mortgage rate published every monday by the Bank of Canada.
And because this published 5 year rate is typically higher than what the actual 5 year rates being issued are at any given time, the bar for qualifying for variable rate mortgages, or mortgage terms under 5 years has now been raised.
Bottom line, its now going to be much harder to qualify for a high ratio home mortgage and even harder to take advantage of variable interest rates, which are still more than 2% below the best 5 year term options.
For those of you who already have a variable rate mortgage for a predefined term, there’s nothing indicating that these recent changes will impact you’re ability to continue on with a variable rate once the present term expires even if you wouldn’t otherwise qualify for a new mortgage under the changes to the CMHC mortgage insurance program listed above.
Keep checking back for more mortgage insurance information as I will be posting any further changes or explanations that get disclosed.
And if you have any questions related to getting a new mortgage or refinancing your existing mortgage, please give me a call so I can quickly assess your options and provide the most relevant options for your consideration.
Locking In Mortgage Rates Is a No Risk Option
“Let Me Show You A Simple But Potentially Highly Effective Strategy For Playing The Current Mortgage Interest Rate Market”
If you’ve got an existing mortgage, but want to either refinance it for a lower rate, or lock in the current rates for a longer period of time, here is a very simple strategy that will allow you to play the market for the next 4 months while keeping all your options open.
The biggest reason that people don’t refinance when interest rates are lower is due to the interest penalty they will have to pay to get out of their current higher interest rate mortgage term.
The prepayment penalty can be worth paying if the mortgage rates go up and stay up for the foreseeable future.
But how does anyone know what the mortgage rates are actually going to do? Even for the experts, their opinions are only educated guesses as there are too many global economic forces that can influence our capital markets at any one time.
So one way of being able to potentially have your cake and eat it too is to apply for a mortgage pre-approval right now and get a long term interest rate of your choosing locked in for 120 days.
The pre-approval doesn’t commit you to act in any way, and if rates go down, you can also take advantage of positive rate moves.
But if rates do go up during the 120 day period, two interesting things will happen. First, you have the old rate locked in for your use if you so choose and second, the prepayment penalty, which is likely going to be based on an interest differential calculation, will become lower as the rates go higher.
So by “playing the field” so to speak with a pre-approved mortgage that provides interest rate protection for 120 days, you can take more of a wait and see approach for the next 4 months to determine if any rate movements that may occur can work in your favor.
If you’re considering refinancing your existing mortgage to gain a lower interest rate, extend your interest term, consolidate debt, or all of the above, then I suggest that you give me a call so we can get you pre-approved for a new mortgage and get a current interest rate locked in for the next 120 days.
Click Here To Speak Directly With Mortgage Broker Joe Walsh.
CIBC Long Term Mortgage Rate Deal
“CIBC 7 Year Mortgage Rate Is Currently A Great Deal To Consider”
Most long term mortgage terms are for a max of 5 years. CIBC not only has a 7 year term, but right now, at the time of writing, it was still set close to 4.5%.
I’m not sure this is going to last very long and by the time you’re reading this, it may have already changed, but right now this is a great deal in the current market where long term mortgage rates are on the rise.
CIBC’s seven year product has perhaps been flying under the radar as there was a significant rate spread between it and the 3 year term rates on the market. Mortgage holders have been able to be short term focused for a long period of time and haven’t been paying a whole lot of attention to longer term rates.
But with the rate changes announced last week to longer term mortgage rates in Canada, its now time to start considering where rates are headed (which is up) and how to protect yourself for an extended period of time to longer term rate moves.
As I mentioned above, I’m not sure how long CIBC will keep the seven year rate where its at, but even a small move would still be worth considering if you believe in some of the economists predictions for more rate moves before the end of the year.
One thing to keep in mind as well is that you can always apply for a pre-approval and get the current rates held for you for the next 120 days, giving you ample time to see how things are going to unfold. As an independent mortgage broker, this is something I can arrange for you at zero cost.
I know I’m biased toward mortgage broker services and the value we provide our customers, but this is another excellent example of a rate offering that many people (even mortgage brokers) may not be aware of.
We went through a period over the last couple of years where there wasn’t much new with rates for extended periods of time, but that isn’t likely going to be the case for the foreseeable future which is all the more reason to give me a call and get on my mailing list so that you can take advantage of the different rate opportunities and strategies I will be telling my readers about in the coming weeks.
Canadian Mortgage Rates Are On The Rise
“Chartered Banks Take The Lead In Announcing Long Term Mortgage Rate Increases”
With the Royal Bank and TD Canada Trust Leading the way, CIBC announced today that they are following suit and have increased their long term fixed residential mortgage rates.
While there will be slight variations among the players, the basic rate increase will go like this:
- 20 basis points on the three year fixed rate
- 40 basis points on the four year fixed rate
- 60 basis points on the five year fixed rate
In the current market, this is viewed to be a pretty aggressive rate hike that was potentially been fueled by the Bank of Canada stating recently that they may be raising their over night lender rate soon.
And even though the central bank still says they are committed to keeping interest rates down, there appears to be enough inflationary pressure in the market right now to push the prime lending rate up as the primary goal of the central bank is to keep inflation at or below 2%.
While not all mortgage lenders have announced an increase in their rates, you can bet that everyone else is going to fall into line in the coming days. So while there may still be some short term opportunity to get the old rates, its likely not going to last very long.
And this may not be the last fixed mortgage rate increase we see this year. As the general economy continues to recover, there is a very good chance an additional rate hike could be seen in the coming months.
But then again, it may not. Interest rates can be very hard to predict at the best of times, but under the current economic conditions where many will argue that rates are being kept artificially low, the ability to forecast with any sort of accuracy is really out the window.
Bottom line is we now have the first significant rate move in over a year and rates in general are more likely to increase further, its just a matter of when and how much.
If you’d like to better understand how the rate increases may impact a mortgage financing decision you’re looking at, please give me a call and we’ll work through the relevant scenarios and math together to see what makes the most sense for your situation and requirements.
Benefits Of Mortgage Pre-qualification
“If You Have The Time, It Makes A Great Deal Of Sense To Get a Mortgage Pre-Approval”
I’m not sure why, but with most things where financing is required, the borrower will seek it towards the end of the transaction, which usually causes the decision making process to get rushed as time likely is going to be more of a factor as you get closer to the end of any buying process.
This behavior is also very common with mortgage financing requests.
And while a mortgage can be arranged and closed rather quickly, there are some real advantages to getting a pre-approval in place prior to even starting your real estate shopping including:
- Budget Establishment. There’s nothing like a spending budget to focus the buying process. Many times home buyers will be looking at too broad a price range of homes to cover their basis as they aren’t exactly sure what amount of mortgage financing they will qualify for. By applying for a pre-approval the mystery is removed and the shopping process tends to become more focused and progress faster with a clear spending limit in place.
- Rate Security. With a pre-approval, rates can be secured for an extended period of time, making sure that you don’t miss out on existing rates if there is an interest move that goes against you while you’re looking. It also allows you to take advantage of any drops in rates between the time of the pre-approval and mortgage closing.
- Buying Power. Having a pre-approval is almost as good as cash in your hand, so it puts you in a position of offering more aggressively on target properties knowing that the financing is available to close the deal. It also allows you to make an offer without financing conditions, which will get the attention of sellers, especially for prime properties that are likely not going to be on the market long.
- Closing Power. Nothing is more disappointing than a good deal that gets lost because there was some type of financing snafu that stopped you from getting financing in place in time and the deal being lost to the next people standing in line to snap up the property. With a pre-approved mortgage in place, the process moves basically from accepted offer to the closing process, getting the deal done and the packing underway.
If you are even remotely considering buying a home in the near future, I recommend that you give me a call so that we can go over you mortgage options and take advantage of the time allowed to get the best option pinned down and a pre-approval in your hands so that whatever you decide to do, the financing will be covered off and not pose any challenge to getting any opportunity you come across.
Mortgage Options And Credit Scores
“The Credit Score Can Be All Powerful When It Comes To Mortgage Approvals And Mortgage Rates”
Unlike a few years ago, there is much greater awareness among consumers and small business owners about credit scores and how lenders utilize them to make lending decisions and determine the interest rate they’re going to charge you.
With ads plastered all over the television for free credit report this, and credit monitoring that, the average person can’t help but have a greater appreciation that their own unique credit score is important.
Or do they?
Perhaps its less about our acknowledgment that a) we all have a credit score, and b) that its reviewed by lenders that we apply to for credit and more about a lack of understanding of the actual impact the score can have in real dollar terms.
Much of what you read on the internet with respect to qualifying for a mortgage speaks to the minimum credit score requirements for certain classifications of lenders which is totally relevant to being approved for financing.
But what you don’t see discussed very much is the potential interest rate penalty you’re still incurring even if your lender of choice approves you for a mortgage.
Using the fico scoring scale, a credit score of 650 may be the minimum requirement by a mortgage lender for you to qualify for their program, but it certainly doesn’t guarantee you will receive the best possible rate.
Higher scores have the potential to garner lower interest rates due to lower perceived risk. And even small interest rate discounts of half to one percent can equate to hundreds of thousands of dollars in savings over a lifetime not to mention the additional investment returns that could be generated if these savings were invested over time.
The key point here is to not just be satisfied with getting a mortgage. The goal should be to get the best possible mortgage because the savings over 20 or 30 years can pay for vacations, eduction for your children, retirement spending, etc.
While all lenders will have different requirements, you can be assured that a higher credit score is better than a lower one. And if you personal credit score is lower than 800, there is room for improvement that can result in savings.
By putting the work in to understand where you’re credit is at right now, and the necessary steps to improve it, you’re going to potentially generate substantial benefits over time.
Creative Models For Home Acquisition and Mortgage Financing
“Creative Ways To Acquire a Home and Secure Mortgage Financing in Canada”
Before I get started with this post, I I’d first like to say that I neither recommend or condemn the following two approaches for home acquisition and mortgage financing listed below.
These are options in the market, and like any real estate and financing option, need to be assessed for relevance to an individuals situation and requirements.
Ok, so lets look at some alternative approachs.
The first approach is a “renter” model where a potential house purchaser who is not able to secure financing applies to a rent to own organization for assistance.
There are many variations of this model, but the one I’ve come across the most lately is where the buyer or renter identifies a home they would like to purchase, the renting company qualifies the house under their program and purchases it, giving a 5 year rental agreement back to the interested buyer.
The rental agreement fixes the rental rate for 5 years and includes a banking portion for a deposit so at the end of the 5 year period, the buyer/renter has the right to purchase the property from the renter at a predetermined price.
While this concept is not new by any stretch, the added twist of the new version is the pre-qualification of the buyer/renter at the beginning of the process so that they can be aligned with a home that they will be able to finance and afford in 5 years. The added benefit of some of these programs is credit counseling and credit repair assistance to increase the buyer/renter credit rating to a level that will support institutional financing in 5 years time.
The second home acquisition model I want to discuss is the builder model. In this model, a real estate intermediary works with a builder or group of builders to provide a cash back donation at the end of the building process when the property will be sold for occupation by the buyer.
Effectively, the builder is likely increasing the cost of the home by at least 5% and then offers the increase back to the buyer as a one time donation with no repayment requirements. This provides the cash down payment to secure an insured mortgage provided that the applicants credit and annual earnings support the mortgage requirements.
With the builder model, you may very well be limited to working with one builder and one house design, so this can be a bit restrictive, but will likely vary with each company marketing this type of program.
While both of these models on the surface appear to have some merit for certain individuals, an informed decision to participate or not will have a lot to do with getting into the details and making sure you understand all the related terms and conditions before signing up for anything. You may also want to consider getting legal advise if you’re unsure about the transaction or program requirements.
If you have any questions about mortgage options for these or other purchasing opportunities, give me a call and we will assess your home financing options.
Financing Challenges With Large Residential Mortgage Requests
“If You’re Having Trouble Getting Enough Financing For a Larger Home or Income Property Purchase, There Are Certain Approaches You May Be Able To Take To
Secure a Higher Loan to Value Ratio”
When you’re trying to acquire a residential or investment property that’s close to, or greater than $1,000,000, it can become difficult to secure a conventional real estate mortgage for the type of loan to value you may be looking for.
Most of the major banks will apply what they refer to as a sliding scale where they will lend up to, say, 80% of the first $750,000 of value for a single family dwelling and 50% of the remaining value in a “major urban center”.
If the location is more removed from a major center by whatever definition is provided, then the ratios can drop to 80% of $500,000 and 50% of the remaining property value.
Rural areas will see the sliding scale go still lower, requiring substantial down payments to cover the difference between approved mortgage and lending value.
There can also be different sliding scales for rental properties and recreational or vacation properties.
Each lender will have their own policies and procedures for assessing different scenarios and will have their own sliding scales to apply.
And hardest aspect of these conventional mortgage sliding scales is that they will be applied regardless of your personal net worth or level of earnings.
As an example, if you’re earning $800,000 a year and have a $5,000,000 personal net worth or higher, that new cottage property you’re looking at buying for $1,500,000 in a remote area may only attract a mortgage of $900,000, depending on the lending rules of your bank for this type of property in this type of location for this purchase price.
The good news is that there are ways to get higher ratio mortgages and get around these sliding scales. The best way to determine what other options may be available to you is to give me a call so that I can quickly go over your situation, outline relevant options, and help you decide on a course of action.
Mortgage Closing Costs
“Here Are Some Of The More Typical Mortgage Closing Costs You May Be Faced With”
Depending on the type of mortgage transaction, there can be some differences in mortgage closing costs. In an attempt to cover all the basis, here is a laundry list of costs that could show up the list of disbursements provided to you by your lawyer at time of closing.
Its a good idea to understand what costs relate to your specific situation and to make sure that funds are available to cover everything off and complete the deal. A qualified mortgage broker can be an excellent source of information if you have any questions.
In terms of total costs, there can be quite a range from deal to deal, but a general rule would be to allow closing costs of between 1.5% to 3.0% of the property value with the majority of cases coming in around 2.0%.
Home Inspection. While this is a voluntary cost strictly borne by the buyer, its something to seriously consider as it can provide real insight into a property purchase and
can be especially valuable to those looking to purchase older homes. These inspection services can range from $200 to $500.
Property Appraisal. The mortgage lender will require a property appraisal to be issued in their name for the property you wish to finance. Each lender will have their own list of approved appraisers so its a good idea hold off getting an appraisal completed until after you have applied for financing to avoid having the appraisal done more than once. In town
residential appraisals are around $200. Rural appraisal fees tend to be higher.
Mortgage Application. For mortgages that require mortgage insurance, the insurance providers will charge an application fee of under $200.
Title Insurance / Land Survey. Most mortgage lenders will require an updated survey of the subject property to be provided. If a survey is not readily available, many mortgage lenders will also accept title insurance instead. While a new survey can cost $500+, the title insurance premium will be closer to $200.
PST on Insurance Premium. PST is charged against the insurance premium related to an insured mortgage (a mortgage that has a down payment that is less than 20% of the property value) and is payable on closing.
Fire Insurance. A certificate of fire insurance must be in place in the borrower’s name with the mortgage company named as the beneficiary prior to the borrower taking possession of the property. Insurance costs will depend on the size of the home and the coverage selected by the borrower.
Land Transfer Tax. This is different from province to province, but in most cases, the buyer of a property is required to pay a land transfer tax which is calculated off of the purchase price. Some provinces provide rebates of the this tax.
Home Warranty. New home warranty programs are available in certain provinces to protect the buyer from any deficiencies caused by the builder.
Legal Costs. The borrower’s lawyer will charge for their legal costs and any disbursements made on behalf of the borrower to complete the transaction. Fees will vary by lawyer and amount of work required.
GST. GST is payable on new homes and there are also GST rebates that you can apply for.
While the buyer is required to pay the GST, find out if its been built into your builder contract or if you will have to pay it yourself as an added cost to your contract. This can be an important cash flow consideration at the time of closing.
For a mortgage refinancing, there may be other costs to consider including prepayment penalties for retiring the existing mortgage or mortgages registered on the property before completion of their stated interest terms.
If you need any help understanding the costs related to a potential transaction, please give me a call and we will work through everything together.
Choosing An Interest Rate For Your Residential Home Mortgage
“What Interest Rate Should You Choose For Your Mortgage Approval?”
Ok, so you’ve got a mortgage approval in place or you’re just going through the process of applying and you’re starting to think about interest rates, interest terms, repayment options, and so on.
While there is no right or wrong answer to what you should choose, there are some things you should consider before selecting any specific option.
Interest rates will move up and down over time as they have for decades. So from a home mortgage holder point of view, you have to basically consider two things: 1) Do I think interest rates are at or near a low point, and 2) what are my plans for retiring the mortgage in the future?
Starting with the first question, as interest rates reach record low levels, its reasonable to assume that this will not continue over time. Taking into account the current recessionary forces at work here at the end of 2009, one can make the argument that interest rates have been held artificially low to stimulate the economy and when the economy starts to turn around, interest rates are likely to rise. So, as a mortgage holder or potential mortgage holder, you have to decide if its now the right time to select a long term interest rate that will benefit you over many years or if you should select a variable rate to stay open to the potential that interest rates will drop further.
At the end of 2009, long term interest rates are at or near record lows and as a result, many people are locking in their rate well into the future.
To answer the second question, are you looking at paying off your mortgage over the longest potential time possible or do you think you will be retiring it in the next couple of years? For long term payback plans, long term interest rates allow you to fix your payment for years to come. If you think you may be selling your home in the near term, or you are confident you’ll generate additional cash flow in the next 6 months to 2 years, then a variable rate mortgage that’s always open to repayment should be considered.
At the same time, one of the best things about the mortgage market has been the development of mortgage products that allow you to have your cake and eat it too. With many mortgage programs available today, you can select a closed mortgage with a long term fixed rate of interest and still repay up to 20% of the mortgage each year without penalty.
Back to the variable interest rate discussion, remember that with a variable rate, your effective interest rate will be adjusted every time there is a movement in market rates up or down. To protect yourself against large movements while still taking advantage of a variable rate, you can select a capped rate variable mortgage whereby the lender will establish an amount your variable rate is allowed to move. You can also get a variable mortgage rate that includes a conversion feature to a fixed rate mortgage of at least three years (typically) without any penalty.
As you can see, there are numerous features to consider when finalizing the interest options on your mortgage. The ability to customize your mortgage to truly fit your current circumstances and future plans is totally attainable with the right advice and guidance from a mortgage professional.
If you have any questions, I always recommend that you give me a call so that we can go over them together and help you make a decision you’re going to be comfortable with.
Click Here To Speak Directly with Mortgage Specialist Joe Walsh
Canadian Mortgage Brokers – Why Use One?
Mortgage Brokers Provide You With A Number of Benefits.
When looking at mortgage options, virtually all consumers will consider using a mortgage broker or at least want to better understand what a mortgage broker can do for them.
As the mortgage industry has expanded, brokers have become a key method for lenders to get their product into the market.
Click Here To Speak Directly To a Canadian Mortgage Broker
Lets face it, not all mortgage companies have the marketing budgets and branding power of the Canadian chartered banks. But when it comes to the comparability of their mortgage products to the big banks, many of the small players can have as good if not better rates and terms.
So that’s really the first major benefit of a mortgage broker … broad market access.
The mortgage broker has access to lenders you may not have even heard of, but that are still offering a mortgage product you may be interested. So instead of searching high and
low for all these different competitive offers, you have the convenience of tapping into most relevant offers through one application via a broker.
And remember that when you go into a bank to get information about a mortgage, you are only going to be looking at their programs. In order to get any type of accurate or meaningful comparison, you’re going to have to repeat the process several more times with other banks and mortgage lenders.
Another problem with the do it yourself approach is that its difficult to tell from the outside looking in, what lenders will be interested in your application. If you make an application and get declined, how do you know which lender to go to next?
When you start applying at several places, you also will receive a credit inquiry for each application made. Not only can this be potentially damaging to your credit, it also can send out a message to next lender that you may have been declined a number of times already and are not a good risk.
If excessive credit inquiries end up lowering your credit score, you may suddenly become ineligible for certain mortgage programs that you would have otherwise qualified for.
Experienced brokers manage this situation for you by only generating one credit inquiry and reusing it for each application they make on your behalf. The best brokers will also only focus on those lenders that are most relevant to your situation, greatly increasing the potential of generating the best options quickly.
With the use of the internet, email, and phone, your communication with your broker can be done from wherever you choose and when ever its convenient to you without valuable time being lost going back and forth to a lenders place of business.
Once you have a mortgage, you will need to renew the interest rate at some point in the future. And unless you know how to shop around for comparable rates and terms, its unlikely that the existing lender is going to offer you the lowest cost option in the market, resulting in you paying higher rates.
Mortgage brokers that also do a large volume of business can have access to lower rates from lenders based on volume allowing them to offer you terms that smaller volume brokers don’t have access to.
Mortgage brokers also have the benefit of dealing with 100’s of different applications involving a multitude of different lenders. Their advice can be invaluable in getting the best deal possible and voiding less obvious things that you may not have considered on your own.
The benefits can be considerable and the draw backs, few if any.