For your information - October 2008
What a crazy ride!
You are probably asking "What the heck is going on with interest rates!" or maybe "Should I lock-in my variable mortgage?"
Let's be clear on the what is happening with mortgage rates… now more then ever you need to know the "BASICS of MORTGAGE FINANCING" to make sure you keep as much money as you can in your pocket, and are not being taken advantage of by lenders.
Variable mortgages: these mortgages are based on the Government benchmark rate, which is historically lower than retail bank mortgage rates. Currently bank prime is 4.5% and likely to come down more over the next 12 months. To date, 5 year variable mortgages have been extremely popular because the rate is less than alternatives, and you are not locked in… so in other words you can change your mortgage if you like prior to renewal without a penalty. The problem is the banks have never really made much money on these mortgages, and with the current money supply shortage they are asking for a big premium to take a variable mortgage… likely not worth it right now, although we can expect discounts to return when the economic markets stabilize in the coming months. In conclusion; if you have variable mortgage now with a discount off prime - hang on it to it with your dear life and enjoy the ride down!
Fixed mortgages: these types of mortgage are based on the banks money supply and bond prices, currently both of which are in trouble. We feel once the CDN and US elections are over, and the US bailout package gets some traction, the money market should return to levels we are more accustom to and subsequently fixed-rate mortgages are likely to come down.
Inflation is a factor that could send interest rates up, but all global economies have confirmed that this is not an issue they see in the near future. Therefore interest rate cuts are now a global effort, so we can expect rate drops to continue until all our economies gain momentum. This is why if anyone has, or can get, a good variable rate mortgage discount (currently not available anywhere that I'm aware of), take it.
At this point, I will likely suggest to my clients who do not currently have a good variable or fixed mortgage to take a 1 year term at 4.75% so we can revisit our mortgage strategy one year from now when the markets have normalized.
Contact me anytime to ensure you have the right "Mortgage Plan" for the current times, and are being treated fairly considering the current confusion. You can always count on me to keep you up-to-date on what you need to know!
Click here to read an Economist's report on the differences between Canada and the U.S. and why risks are considerably lower in Canada.
