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Wednesday, March 30, 2011

Fixed vs. variable mortgages: How to choose



I recently found the article below discussing variable vs. fixed rates. The article agrees with my point of view. First time home buyers need the security of a fixed rate while they get used to being home owners and the expenses that this entails. However, over time, a variable rate or an adjustable rate mortgage will save you money. In 95 of the past 100 years, the variable rate was the better choice.
Read below to find out more or check the rates out yourself at my website

The good news in the housing market these days isn’t just low interest rates.
Experts say that whether you choose a variable rate mortgage or a fixed rate for a set period of time, the difference over the long run is likely to be minimal.
“Rates have never been this low so Canadians are increasingly looking for advice when it comes to mortgages. The question of fixed versus variable takes on greater importance when you consider where rates are and the possibility that rates will start to increase towards the end of this year,” said Collette Delaney, senior vice-president of mortgages and lending at the Canadian Imperial Bank of Commerce.
Experts typically say that a fixed-rate might bring more peace of mind to first-time home owners, and that those who are further into their mortgage payments may like to try a variable rate to save some money.
But that may not be right for everyone.
“There is really no generic answer,” Delaney said. “What’s right for me may not be right for you or someone else because we’re all at different stages in terms of financial planning and lifestyle.”
The big advantage of fixed rate mortgages is that they offer a high level of stability. When you lock in a mortgage at a fixed rate, you’re locking in for the term of your mortgage so you will know, for each monthly mortgage payment, exactly how much is going to the interest and how much is going to the principal.
“You’ll know at the end of your term how much of your amortization you’ve paid off. The downside is that you can’t take advantage of lower interest rates. If rates do drop, you won’t have the ability to have more of your payment go towards the principle and less to interest,” said Bernice Dunsby, director of home equity financing at the Royal Bank of Canada.
With a variable rate mortgage, your monthly payments don’t change. What may fluctuate is your interest rate. That means when rates go down, an increased amount of your payment will actually go to your principal, and less to interest. That means when rates go down, you’re paying off your mortgage faster.
But when interest rates increase, so does the portion of your payment that goes to interest. With less going to cover the principal, it’s possible that your amortization period could be extended.
Research by Canadian economic experts shows that variable rate mortgages hold more benefits to consumers the vast majority of the time.
Moshe Milevsky, associate professor of finance at York University, studied mortgage rate data from 1950 to 2007 and found that choosing a variable rate mortgage would have saved Canadians $20,000 in interest payments over 15 years, based on a $100,000 mortgage.
He also found that Canadians would have been better off with a variable rate mortgage compared to a five-year fixed rate 89 per cent of the time.
The question is whether this other 11 per cent of the time when it is advantageous, is right now, said Benjamin Tal, senior economist with the CIBC World Markets.
“This is one of the few examples of times when it really doesn’t make much of a difference. If you take variable and I take fixed now and we meet five years from now, you would probably be able to buy me lunch, but it would be a cheap lunch.”
That’s largely because interest rates are so low right now. Economists are expecting rates to increase by about half a percentage point or more beginning in June, with further rate hikes to come in 2011.
Right now, variable rate mortgages tend to be about 1.75 percentage points cheaper than fixed rates. But interest rates will probably rise by more than that overall in the next couple of years.
“This will probably take variable rates, more or less to where fixed rates are now, maybe a bit higher. If you do the math, you would find the difference would not be very significant,” Tal said.
If you’re looking for peace of mind, he added, take the fixed rate.
“If you have a large mortgage vis-à-vis your income, I would go fixed and just relax about it. Learn the market, pay as much equity as possible but go fixed because you don’t want the volatility,” Tal said. “However, if you have been in the mortgage for a while and your mortgage is not as large relative to your income, pay with the variable and you will do better over five years from now but not significantly.”
Many banks have an array of mortgage products that combine the fixed and variable rates mortgages. These typically allow homeowners to combine the security of the fixed rates with the ability to take advantage of any interest rate declines.
But experts say that even if a variable rate mortgage could save you money in the long run, you still need to think about the risk.
“If a fluctuating interest rate is going to keep you up at night because you’re not sure how much is going to principle and interest, then maybe a variable rate mortgage is not right for you,” Dunsby said.


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Wednesday, March 9, 2011

9 items homebuyers desire in 2011

Today I read an interesting article on 9 items that homebuyers in the US want. Granted, their housing market is a lot worse than ours but some of the items mentioned were outlandish. In addition to getting a rock bottom price, they want a house that does not need renovations , incentives like gift cards , less formal homes BUT they want a touch of luxury. Wouldn't a formal home be luxurious?
If you are looking for a bargain, expect to get less than you would get if you paid full price. I have heard of bank owned homes with the appliances, copper piping and light fixtures removed and sold by the previous homeowners.
Never was the term "Buyer beware" more appropriate than it is today in the US market.
If you are looking for a home purchase in Canada or you want to take advantage of low home prices to buy your vacation home in Arizona, you will need a 25% down payment. Call me and we can arrange to take the funds out of your Canadian home. All it takes is an application. Just click the APPLY ONLINE button.
If you want to keep up on the latest rates, sign up for my Rate Advisor. Every Thursday night you will receive up to date rates for fixed and variable rate mortgages.
Be sure to call me, Calgary mortgage broker extraordinaire, Dave Cooke




9 items homebuyers desire in 2011
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Tuesday, March 8, 2011

Clearing up misconceptions about the March 18th rule changes

Today I was speaking with an underwriter from a Calgary mortgage company. She said that she was swamped with mortgage applications all with a March 18th possession date. I guess their mortgage brokers did not take note of what is happening on March 18th. The rules clearly state that if you want a 35 year amortization for your mortgage or if you want to refinance and take out up to 90% of the value of your home, the deal must be in place by March 18th. This means that the paperwork must be in the lenders hands by March 18th. A possession date of April 30th would be acceptable. Frankly in our Canadian climate I would not want to be moving in March. You may be moving your sofa in snow or sleet. Ice on the sidewalk is a definite possibility.
If you have your eye on a property get an offer in now. Don't worry about having to take possession by the 18th. You still have time. If you have any questions contact me at 403-836-1201or visit my website at Mortgage Alliance
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Wednesday, March 2, 2011

Cuatious Canadians tackle household debt


Today's newspaper had a story about Canadians cautiously paying down their debts. A month ago the Harper government and the Bank of Canada were expressing concern about Canadian debt reaching 148% of an individual's earnings. Some of this can be explained as mortgage debt. No one expects someone to pay off a house in a year. This is on-going and the value of the asset, in this case, the house will appreciate over time.
What today's report states is that while debt has gone up and savings dropped, homeowners have seen their net worth increase by 27% since 1999, while renters have seen their net worth drop.
Once again we see proof that owning a home is a wise investment.

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Tuesday, March 1, 2011

The new mortgage rules Q & A


One of my lenders, Street Capital, just issued a memo addressing some of the questions that people have been asking about the new rules coming into effect on March 18th. I thought that they handled the questions so well it bears repeating here on my blog.

Will the new refinancing rules allow a borrower with a mortgage above 85 per cent loan-to-value (LTV) to refinance by extending the amortization period?

No. Effective March 18, 2011, borrowers will not be permitted to refinance a mortgage above an 85% loan-to-value, unless the borrower has a binding refinance agreement dated prior to March 18, 2011.

I have a written mortgage pre-approval from a lender, dated before March 18, 2011 with a 35 year amortization. Will I still be eligible for a 35 year amortization if I don’t sign an agreement of purchase and sale until March 18 or later?

No, a mortgage pre-approval is not considered to be a “binding agreement”. You may have a 35 year amortization only if your agreement of purchase and sale is dated before March 18, 2011.

Will the new parameters apply to assignment (“switch” or transfer) of a previously-insured loan from one approved lender to another?

No. As long as the loan amount and amortization period are not increased, the new parameters will not apply to a switch/transfer/assignment of mortgage to a different approved lender.

If I sell my current home and buy another, will the new parameters apply if I transfer the outstanding balance of my CMHC-insured mortgage to the new home?

As long as the outstanding balance of the insured loan, the loan-to-value ratio and the remainder of the amortization period are not increased, the new parameters will not apply when the CMHC mortgage insurance is transferred from one home to another.

What if I need to increase the amount of my insured loan when I sell my current home and buy another?

In this situation the new parameters will apply for any insured loan.

Is it only new Home Equity Lines of Credit (HELOCs) that are affected by the new parameters or existing HELOCs as well?

As of April 18, 2011, CMHC will no longer offer mortgage loan insurance on non-amortizing lines of credit to approved lenders, such as HELOCs. However, if a HELOC is already CMHC insured then it remains insured for the life of the mortgage.

HELOCs will no longer be insurable as of April 18, 2011. Is there any situation which would quality for an exception (e.g. binding agreement) to allow for these loans to be insured?

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