Archive for the ‘Rates’ Category
Variable VS Fixed Mortgages
One of the main considerations when getting a mortgage if whether to lock in your rate or choose a variable rate mortgage. I always educate my clients on the pros and cons of each mortgage type and then help them make a decision that will be best for their financial situation and risk profile. I have mentioned before that historically a client you chooses a variable rate will be better off in the long run. Sure, there are ups with the downs, but on average they are paying less interest than their counterparts who lock in for extended terms. I think the graph below illustrates this point nicelyTo see what I mean, pick a point on the green line (fixed rates) and then draw a line straight across the page (to the right). See how many times the orange line crosses above the line you drew. This will tell you how many times the variable rate would have been equal to or greater than the fixed rate mortgage you chose. Most of the time the variable rate is well below. It will be interesting to see ...
Bond Yields Are Up – Will Mortgage Rates Follow?
We have been enjoying falling mortgage rates over the last few weeks, but we might be in for a reversal. Strong economic data released on Friday in Canada and the US has resulted in bond yields increasing by .14%. As I have explained before fixed rate mortgages in Canada are driven by government bond yields so it is probably only a matter of time before we see lenders start to increase rates. At the very least we will see a halt to the falling rates and we will probably hover where we are for the remainder of the year. Right now 5 year rates are slightly below 4% which is well off the 10 year average of almost 5.5%. The Bank of Canada will be holding its last rate announcement of the year tomorrow and it is expected they will leave the prime lending rate were it is. The Bank of Canada has pledged to keep rates where they are until mid 2010, but if we see continued positive job creation in the coming months they might be forced to start increasing rates.
Thinking about a variable mortgage?
I was reading an interesting article in the Financial Post today written by Garry Marr. It talked about the historical advantages of a variable rate mortgage and if now is the time to choose a variable rate over a fixed rate. The article quoted a study done by professor Moshe Milevsky in 2001 which looked at interest rates over the previous 50 years and determined that 88% of the time you would have been better off to take a variable rate mortgage. Now, I don't think this is a surprise to most people. It has long been believed that you save significant interest expense by going with a variable rate. There will be times when your variable rate will be higher than the current fixed rate, but over the long run your variable rate will be lower more of the time. It was however, interesting to read the number is as high as 88% . The article goes on to say if you factor in the past 9 years that number jumps to 96%. That is pretty strong evidence that it pays to take a variable rate mortgage. But is now the best time to go with a variable rate mortgage? ...
Mortgage Pre-approval
After my last post on lenders not offering competitive rates for their mortgage preapprovals, I finally have a lender willing to step up and offer a great interest rate with 120 day rate hold. If you look at the 5 interest year rate most lenders are offering these days they tend to hover around 4.09% and they may or may not offer preapprovals at that rate. I am happy to announce I am now able to offer my clients 3.99% for a preapproval and the rate will be held for 120 days. This is not a "No Frills" mortgage and has all the bells and whistles you would expect. If you are looking to by a house in the next 3 months it would make sense to get your rate locked in today. Keep in mind if rates go down between now and the time your house closes, you will get the lowest rate at that time. Also keep in mind this rate is based on approved credit and income.
50/50 Mortgage offers great 5 year mortgage rate
As i have posted many times on this blog, the first question out of most people's mouths when I first start speaking to them about their financing needs is "what's the best five year rate you can get me?" In an industry that is driven by competitive pricing of its product, I can understand where that question comes from. As i ahve also mentioned on this site several times....there is more to a mortgage than just a low rate. Well, in this post I am happy to say I am going to talk about....low rates. In fact I am going to talk about a mortgage rate lower than any other 5 year rates I have seen advertised. I am now offering my clients a 5 year rate of 3.47%. How can I offer a rate that low? Well, notice I didn't say it is a 5 year "fixed" rate. This is a unique product that allows you to take advantage of the low rates of a variable mortgage while maintaining some of the security of a fixed mortgage. It is called a 50/50 mortgage. Basically 50% of the funds are locked in at today's low 5 year fixed rate of 4.29% while ...
Is now a good time to go variable???
Variable rate mortgages are at the lowest rates in history at the moment and those of you that took a variable rate over a year ago and received a discount to prime are currently paying a little over 1% interest on your mortgage. However, those of you that are looking at getting a variable rate mortgage today are looking at paying a premium on top of the prime rate (anywhere from 30 to 60 basis points). Even with the premium today you are still paying a very attractive interest rate on your mortgage, but what happens when interest rates begin climbing. The Bank of Canada and the Fed in the US both plan on keeping lending rates low well into 2010 to ensure a steady and full recovery, but after that they will begin raising rates in an effort to control the inflation that goes along with any financial recovery. Keep in mind we have seen prime rates of 4.5% to 5% in the last couple of years and it would not be surprising to see them again.....or even higher. So, are we going to see large discounts to prime again in the near future? I don't like saying never, but ...
Mortgage Rates
For those of you who have been shopping around for the lowest mortgage rate, your mortgage broker may have offered you a mortgage with a non-standard term. Usually fixed mortgages come in 1, 3, 4, 5, 7, 10 year terms....atleast those are the most common. However, recently a few lenders have been offering mortgages with unusual terms such as 42 months or some other odd number that probably does not make much sense to the average consumer, and possibly not even the average mortgage broker. The one thing most people will notice is the interest rate on these unique term mortgages is quite attractive. The question remains, why are lenders offering lower mortgage rates on these particular products and why are they venturing outside the normal mortgage terms? I am going to try to explain how these products came about. First, you need to realize that most mortgages in Canada are securitized. This means after you get your mortgage the lender packages your mortgage with hundreds of others and sells them into the Canadian Mortgage Backed Securities market (CMBS). Units of these mortgage backed securities are then sold off to investors who receive a monthly cashflow from their investment. Your lender still ...
When Will Mortgage Rates Fall?
As we’ve seen the spreads on the bond yields increase, the question of “when are rates coming down?” has been asked a lot! Earlier in the year when volumes were low, volumes for the banks were also low. During Spring Market the race for obtaining 2009 market share was on! Profitability was taking a back seat to market share and we saw very competitive rates from the banks. They were treating a mortgage as a loss leader to get that client in the door. Some also had extra deposit money from RRSP season to lend out. Now into the third quarter of 2009, profitability is again top of mind. Remember year end for the banks is Oct 31. They only have 4 months left to hit their revenue targets. Therefore, we are now seeing banks hanging onto this higher spread for as long as they can….there may be some movement soon, but banks are ensuring bond prices stay consistent before they make a move.
New 50/50 Mortgage – The Best of Both Worlds
One of my lenders has come out with a new product.....a 50/50 mortgage. 50% of the mortgage is variable and 50% is fixed. Although this is not a new concept in the mortgage industry, the fact that the variable portion is prime plus .40 (currently 2.9%) is one of the lowest variable rates around at the moment. Combined with a fixed rate of 4.09% your effective rate is only 3.38%! For those of you who are sitting on the fence about whether to choose a variable or a fixed rate, this could be the perfect solution for you. You get the security of the fixed rate and you still get to take advantage of variable rates while they remain low for the next year or so. So who is is this mortgage ideally suited for? Customers who are unsure whether to go Variable or Fixed. This product eliminates the biggest dilemma facing mortgage borrowers in today’s economy. Customers who want a low interest rate and are more risk-averse than a typical variable rate client. The weighted average interest rate on this mortgage is approximately 3.38% given today’s current pricing! And only 50% of the mortgage is subject to interest rate risk. Customers who want added ...
Mortgage Rates Increasing
It was bound to happen. I have been talking about the possibilities of rates increasing for the last week and I finally got notice from one of my lenders today that fixed rates will be going up at the end of this week. We are most likely going to see 5 year fixed rates above 4% again instead of the mid 3's where they have been sitting for the last couple of months.It was nice while it lasted. The five year bond rate was up .21% yesterday which was the biggest 1 day jump this year. The odd thing is this came on a day when the TSX dropped 140 points which would normally cause bond yields to fall as well. That pushes the bond yield up by .51% over this time last week. If you read my post from a couple of days ago you would know that the bank's spreads are shrinking far beyond what they normally would allow. My advice for anyone who is thinking about refinancing or purchasing a home in the next few months would be get pre-approved today to ensure you can take advantage of the low rates....we may not see ...
