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Posts Tagged ‘Mortgage Savings’

What has happened to the Variable Rate Mortgage?

October 21st, 2011 No comments

What has happened to the Variable Rate Mortgage?

It is dying a slow death!   A couple of weeks ago I was able to get a client prime less 0.85%, today that is not the case!  Tonight one of the last lenders is moving up to prime less 0.15%, which is considered a good variable rate when most of the lenders are at prime.  The reason for this change, we are told, is due to the economy which has shrunk profit margins.

The fixed rate option is looking more and more attractive as opposed to taking a new variable rate mortgage.  The 5 year rate is at an historic low….3.39 for 5 year fixed or the very attractive 4 year fixed rate of 2.99%.  The difference in payment for a variable rate and a 5 year fixed rate is $27.87 per month, based on $100,000 amortized over 25 years or $7.15 for the 4 year rate.

I think the money would be well spent having the rate guarantee for the next 4 to 5 years!

However if you are in one of those converted variable rate mortgage of prime minus 0.50% or more, what should you do?
This is the word on the street!

• The Bank of Canada has indicated that it is not looking at raising the overnight rate anytime soon or at least will hold off until such time as it sees the economy improving.

• The U.S. has no plans to increase rates for the next two years making it more difficult for Canada to raise rates unless the Canadian economy is growing in spite of the sluggish U.S. economy.

• Canada is becoming attractive for investors’ thus larger demand for Canadian bonds.  This demand is keeping the bond yields down thus lower fixed rates on mortgages.

This week is Financial Planning Week, another passion that I have is teaching people about budgeting, I hope you find the article interesting!

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What a difference a year makes!

February 24th, 2009 No comments

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What a difference a year makes!

Economic forecasting seems to be getting more and more difficult. Who would have thought a year ago that interest rates would fall to the current level? We had an increase in fixed rates that started in 2007 and pretty much continued to December 2008. During this time many buyers thinking this was the trend decided to lock into fixed rates. Homebuyers locked in their mortgage at the 5 year fixed rate, which was around 5.75%.  Today we can get a 5-year rate as low as 4.29%. If you have a fixed rate mortgage it makes sense to re-evaluate whether it would be worthwhile to switch to a lower interest rate mortgage.

Breaking your mortgage will result in a prepayment penalty payable to your current lender.  The question is whether the savings from the lower interest rate is enough to cover the penalties and any closing costs on the new mortgage. Each situation would have to be addressed on an individual basis. I have run into several cases where there has been a significant benefit to switching to a lower rate.

Here is one such scenario:

  • Mortgage amount – $188,393
  • Term – 5 yr term with 2 yrs remaining on mortgage, – 22 year amortization
  • Interest rate at 5.75% – interest payable over next two years – $20,923
  • Interest rate of 4.29% – interest payable over next two years – $15,587
  • Difference equals $5336
  • Prepayment penalty of $1,865 – 3 months interest penalty

Difference in monthly payment: $153.95

The other huge benefit is that you are now in a 5 year mortgage at a rate of 4.29%, imagine the additional savings you will receive from the remaining 3 years.

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