Mortgage Matters

This new exciting mortgage product is currently at a rate of 2.75%!

• Purchase must close by August 28^th, 2009
• The 18-month term is convertible at any time with no penalty to a 5 year fixed rate mortgage, at published rates available at time of conversion
• 20% prepayment allowed each year!!
• You may also increase payment by 20% each year
• On this product a minimum amortization of 15 years is allowed

Email Charmaine@designermortgages.ca for more information on getting this exciting new product!

Mortgages 18 Month Mortgage, New Mortgage

Would you like to pay an extra $300 per month on your mortgage? Not likely.

That hasn’t stopped a number of Canadians, with the deal of a lifetime on a variable-rate mortgage, from switching over to a more expensive fixed-rate product and paying the extra freight.

A fear of rising rates is driving the rash decision. But if you’ve finally managed to pin your banker to the ground, why on Earth would you let him off the mat?

More than 28% of Canadians have a variable-rate product tied to prime, according to the Canadian Association of Accredited Mortgage Professionals (CAAMP). If you negotiated a deal before October of last year, chances are you are now borrowing money for as little as 1.35%. That’s based on deals that at one point saw the banks giving 90 basis points off prime. Prime is now 2.25%.

However, Joan Dal Bianco, vice-president of real estate-secured lending, TD Canada Trust has said “It’s not a mass rush yet, but we are starting to see … people locking in. But variable rates are still so good.” She stops short of questioning why a consumer would pull out of these “deals” that are no longer available on the market. Try to get a variable-rate mortgage today and the best you can probably hope to get is 60 basis points above prime, or 2.85%.

“Bonds yields are going up rapidly and people are starting to realize the rates are going to go up,” Ms. Dal Bianco says. Throw in the fact the Bank of Canada used the weasel word “conditional”(on inflation rates)when it promised not to raise rates until June, and you can understand why some people think today’s record-low prime rate might not hold. But if you’re someplace between 60 to 90 basis points below prime, the rate is going to have to go up pretty fast to justify locking in today at 4%, even though that is just slightly above the all-time low hit last month for a five-year term.

“I don’t understand why you would lock in,” says Jim Murphy, chief executive of CAAMP. “Sure, if they start to rise, but [Bank of Canada governor Mark] Carney says they won’t rise, so you’ve got another year at that prime-minus rate.”

Don Lawby, chief executive of Century 21 Canada, says even when rates do start to increase, they are not going to jump significantly right away. You are not going to get 4% on a fixed rate again, but double-digit rates seem unlikely.

The bottom line is if you’ve got a deal on your mortgage, why would you give it back?

 

Source: Gary Marr, Financial Post Published: Saturday, June 13, 2009

 

Don’t choose between Fixed and Variable. Choose Both! New 50/50 Wise Mortgage Program!

Features:
- 50% of mortgage amount is at current 5 year fixed rate pricing (now at 4.49%)
- 50% of mortgage is at current 5 year ARM pricing (now at Prime +.40%)

 

See previous blog -The Best of Both Worlds- for more information!

Mortgages converting mortgage, variable mortgage

Recently, there has been some loud talk about inflation and how the U. S. Federal Reserve is going to have to start raising interest rates soon in order to nip inflation in the bud.

When first confronted with this news, you may have said, “Hogwash! No way in this economic backdrop could the Fed raise rates, slow down growth and risk sending us into a steep ‘double-dip’ recession.”

That certainly would be my view. It’s unclear at this point even if we are coming out of recession, so it really would be premature to slow things down at this point before any growth traction has been achieved.

However, let’s not just make assumptions. Let’s delve into history to see what the Fed has done in prior cycles.

The last U. S. recession was from March, 2001, to November, 2001, a period of eight months. The Fed funds rate was 6.5% from June, 2000, to January, 2001. In January of that year, the Fed lowered the rate to 6%, then went on a 12-month lowering frenzy during the recession and in the aftermath of the 9/11 attacks. By year-end 2001 the Fed funds rate was 1.75%, with the Fed still maintaining an easing bias.

Despite the official ending of the recession in November, 2001, the Fed maintained very low interest rates for almost three more years. In fact, it kept lowering rates, down to 1% from June, 2003 to May, 2004. This strategy of keeping rates low despite no recession is now widely blamed as the reason for the creation of the housing bubble that popped in 2007. The Fed finally raised rates in June, 2004, a full 30 months after the recession had ended.

In the recession of July, 1990 to March, 1991 (eight months) the Fed had been easing or maintained a neutral bias since February, 1989. At the start of that recession, the Fed funds rate was 8.25%. By the end of the recession, it was down to 6%. Again, despite the recession being over, the Fed kept jamming rates lower, all the way down to 3% in December, 1993. The Fed didn’t raise rates again until February, 1994. In that recession, again the Fed kept lowering rates for 30 months after the end of the recession.

Going back further into history, in the recession of July, 1981 to November, 1982 (16 months) the Fed acted a little more quickly. In May, 1981 the Fed rate was 20.0%. By December of that year, the Fed had moved rates down to 12%. In the spring of 1982, though, rates were back to 15%. But, showing signs of confusion, by the end of the summer 1982, rates were much lower, at 9.5%. The Fed was tightening rates again by September, 1982, and for a period of time investors had no idea what to expect, as the Fed moved rates up or down seemingly at random for a period of 18 months.

In the energy crisis of the early 1970s, the recession lasted from November, 1973, to March, 1975 (16 months). In November, at the start of the recession the Fed funds rate was 9.00% but by May, 1974, because of inflation fears the Fed had already raised the rate to 13%. Recession fears, however, ultimately ruled the day, and by year-end 1975 the Fed rate had been cut in half, to 4.75%. The tightening began anew, however, in April, 1976, 13 months after the official end of the recession.

What can we conclude? One, it seems sometimes that the Fed is just winging it, moving rates at random in response to short-term events. But it does seem the Fed is unwilling to raise rates too quickly after any recession.

Based on the severity of this economic downturn, you would have to conclude the Fed is unlikely to risk a double-dip recession, and will keep the Fed funds rate very low (now 0% to 0.25%) for a long time.

This may, of course, cause inflation, but for the time being, that is still better than a giant de-leveraging economic death-spiral.

Source: Peter Hodson, Financial Post 

 

 

 

 

 

 

 

Reviews Mortgage Rates

The Best of Both Worlds!

 

A new mortgage product has recently been launched.

This new and innovative product called the 50/50 WISE mortgage. Don’t choose between Fixed and Variable. Choose Both!

They key aspects to this new mortgage are detailed below:

 

• 50% of mortgage is at the lowest ARM rate in the Industry (currently, prime +.40 = 2.65%). With flexibility to convert to a fixed rate mortgage.
• 50% of the mortgage is secure at a competitive 5 year fixed rate.
• Combined total is at the lowest current 5 year effective rate of approximately 3.38% (weighted average interest rate given today’s current pricing!) 
• Effective rate is lowest when mortgage balance is greatest…for maximum interest savings impact.
• It would require a move in prime to north of 3.50% to reach a 3.99% effective weighted average rate.
• Provides flexibility to prepay 20% annually or increase payment 20% annually on the portion of best advantage…
• Bank of Canada statement and intention is to leave the B. of C. rate steady until at least June 2010.

 

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 ARM 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 flexibility in paying down their mortgage.  The two portions operate independently of each other, so your customers can choose to make prepayments on the fixed portion which has the higher interest rate or they can choose to pay down the ARM portion aggressively which in turn further minimizes their future interest rate risk!

 

Mortgages 50/50 Wise Mortgage, New Mortgage Product, Variable and Fixed Rate

Many lenders have raised their interest rates on 5 year and longer fixed rate mortgages.

Why is this happening?

Banks lend more money than they take in through deposits.  In order to meet the demand for customer loans, they borrow money in financial markets. To ensure they are not taking interest rate risk, they lock in the rate on the money they borrow to match the term of the mortgage. For example, a 5 year fixed mortgage is funded by a 5 year fixed rate bond. In May, the rate on longer term bonds started to rise, meaning the banks cost of funds - the cost to the bank of raising the money needed to loan to customers — went up. When they pay a higher rate to borrow in the bond market this reduces their profit margins. This is why rates on the longer term fixed rate mortgages have increased. The relationship between bonds and mortgage rates is not new. Attached is a chart that shows how bonds track closely with mortgage rates. They tend to go up and down together.The good news is that the upward trend in bonds prices is a positive sign that consumer and investor confidence is on the mend.

What does this mean for you? 

For those of you who are in a variable rate and want to switch to a fixed rate, the general rule is as follows: The variable rate mortgage is usually a 5 year term, if you want to switch into a fixed rate in year two of your mortgage term you may switch into a 3 year term (the remaining term of your mortgage) 

Million Dollar Question, should I switch into a fixed rate now? 

This week in the Bank of Canada’s announcement they maintained their overnight target rate at ¼ per cent (prime remains the same at 2.25%) and they reiterated their conditional commitment to hold the current rate until middle of next year – on condition that inflation did not rise above their inflation target. What we are hearing is that the prime overdraft rate should stay the same until next year, what we are seeing is that the longer term fixed interest rates are increasing.  You should be asking yourself; at what point if any do you want to lock into a fixed rate.  Fixed rates are at all time low, we are told this is the bottom – do you want to lock in now loose your good rate or hold on for awhile – at what point will you be ready to switch if at all? 

Tough decision!

Reviews fixed rate mortgages, interest rates, rate increases