Posts Tagged ‘mortgage backed securities’
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 ...
Understanding Interest Rates
Buying a home is usually the biggest financial transaction most of us will make in our life. Therefore shouldn't you understand the financing process and what causes interest rates to move up and down? I am going to attempt to shed a little light on the subject and hopefully after you spend the next couple of minutes reading this post you will be much better informed. Like most people who own a property or are thinking of purchasing a property, you have been watching interest rates closely over the last few months. You have also probably noticed that the governments prime rate has been falling steadily in Canada. So how does this translate into the rate you are going to pay for your mortgage? It turns out the correlation is not as direct as you might think. The first point I want to stress is the banks do not finance your mortgage by borrowing money from the government. Therefore the government's prime lending rate does not have a direct impact on your mortgage. Mortgages (variable and fixed) are financed through the banks' deposits. This is where the banks get all of the ...
