Posts Tagged ‘variable rate’
Mortgage Qualifying Rates Explained
So you are looking for the best mortgage rate possible as well as how much you can afford. You are still undecided between the fixed and variable rate. Your mortgage broker tells you how much of a mortgage you can afford at the variable rate and the fixed rate.....but wait a second.....the amounts are different. Not only that, the variable rate option is a smaller mortgage amount even though the rate is less. How can that be? The answer is quite simple. When a lender qualifies you for a mortgage with a term of 5 years or greater, they use the contract rate to determine the affordability. In other words they use the rate quoted on the commitment. This is not the case for variable mortgages or terms less than 5 years. In these cases they use the MQR (Mortgage Qualifying Rate) rate which is the 5 year posted rate. So even though the quoted rate for a variable might be prime less .70% (currently 2.05%) they qualify you based on 5.49% (the current 5 year posted rate). Why do Banks use different rates to qualify my mortgage? Lenders ...
Bank of Canada Raises Rates – What Next?
Yesterday the Bank of Canada (BOC) finally made good on their promise to raise rates and they bumped the overnight lending rate up by .25%. If you are not familiar with the overnight lending rate....it is the rate the Bank of Canada charges Canadian banks to borrow money. In turn the banks use this as a benchmark for setting their prime lending rate. As a result of the BOC increase Canadian lenders have raised their prime rates from 2.25% to 2.50%. Can We Expect A Drastic Increase in Mortgage Rates? No. Sure we are going to see rates go up....after all we can't expect to keep rates at recent low levels indefinitely, but it is most likely not going to be a quick rise. Do Recent Events in the European Economy Have an Impact on Canadian Rates Yes. In today's global economy what happens in Europe, Asia, the US...etc does have an impact on Canada's economic decisions. In fact the reason we are expecting variable rates to climb slowly in the coming years is due to the impact of the US's financial situation. Although their economy appears to be recovering, ...
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 ...
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? ...
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 ...
Interested in a variable Rate?
Most people will tell you that over the long run a variable rate mortgage is the best way to go. You will end up paying less interest and pay your mortgage off quicker. Of course you also need to be comfortable with your mortgage payments increasing as well as decreasing. Let's assume you are comfortable with the ups and downs and you decide to go ahead and get a variable rate mortgage.....there are a few things you need to consider. There was a time when a variable rate mortgage was based on the banks' prime rate less a discount (.60-1.0 usually), but unfortunately with the current condition of the financial markets and the banks's access to capital they have had to turn that discount to a premium. Most lenders are now quoting variable rates of prime plus .60 or higher. So what should you do if you are looking to take advantage of the benefits of a variable mortgage........wait. That premium has been falling over the last few months. Before Christmas you would have been looking at prime plus 1.00 or higher. Now most lenders offer prime plus .60 and I now have a lender offering prime plus .40. Now you might ...
