Hybrid Mortgages - What are they?

Back in the 80's when interest rates were going up , a popular investing strategy was to go long and short. That's to say, you would take half your investments and lock  them in bonds at the 5 year rate and half in the one or two year rate. The idea is that you can never time exactly when rates will be at their peak or bottom so it's best to have half your investment in short term and half in long term. 

    Hybrid mortgages – also known as 50/50 mortgage products – include an equal mix of fixed-rate and variable-rate components within your single mortgage. This means you get the best of both worlds – the security of fixed repayments with the flexibility of a variable rate.

Although there was a time in recent years when mortgage experts considered a variable-rate mortgage as the obvious choice to save mortgage consumers money over the long term, with fixed rates remaining near historic lows, a 50/50 mortgage may be a great alternative for you.

In essence, since it’s extremely difficult to accurately predict rates over the long term, a 50/50 mortgage offers interest rate diversification, which can help reduce your level of risk.

If you opt for a 50/50 product, half of your mortgage is locked into a five-year fixed rate and half is at a five-year variable rate. You can lock in your variable-rate portion at any time without paying a penalty. As well, each portion of the 50/50 mortgage operates independently – like two separate mortgages – yet the product is registered as only one collateral charge.

The 50/50 mortgage product is well-suited to a variety of borrowers, including those who:

·         Would normally go fully variable but are afraid prime rate is at its bottom

·         Aren’t comfortable being locked into a fully fixed rate

·         Can’t decide between a fixed or variable mortgage

·         Savvy first-time home buyers

Some features of the 50/50 mortgage include:

·         20% annual lump-sum pre-payment privileges

·         20% annual payment increase ability

·         Portability (the option to transfer your existing loan amount to a new property without penalty)

As the 50/50 option is a fairly new offering, according to a recent study by the Canadian Association of Accredited Mortgage Professionals (CAAMP), 5% of Canadian mortgage holders have 50/50 mortgages compared to 28% with variable-rate mortgages and 68% with fixed-rate mortgages. But many experts believe the 50/50 mortgage is quickly gaining momentum. David Cooke is a senior mortgage broker at Dominion Lending Centres Westcor in Calgary. For more information contact him here.

Consumer delinquencies at lowest level since pre-recession according to Equifax Canada

Toronto, ON, November 6, 2012 - According to Equifax Canada’s Q3 Quarterly Credit Trends Report, as of September 30, 2012, consumer delinquencies have dropped to 1.22 per cent, the lowest level since before the financial crisis.

The report also reveals that total Canadian non-mortgage debt increased slightly by 1.8 per cent since last year.

Furthermore, credit card balances continue to decrease, while other credit products such as bank loans and lines of credit show very moderate growth compared to the same period last year.

The greatest increase was captive Auto Finance loans, which grew by 9 per cent over last year. The report revealed the Auto Finance loans have the lowest level of delinquency.

“To see serious delinquencies drop to a record low of 1.22 per cent is a very positive sign that consumers are doing a great job at managing their debt obligations,” says Nadim Abdo, Vice President, Consulting Solutions, Equifax Canada.  “The growth in credit over the past two years has slowed down significantly and the Canadian appetite for new credit has also diminished. According to Equifax’s Credit Seeking Index, which measures the velocity at which consumers are seeking new credit facilities,  consumer demand for new credit now is 9 per cent lower than it was prior to the financial crisis.”

Cristian deRitis, Senior Director of Consumer Credit Economics at Moody’s Analytics commented on the report by adding “consumer credit conditions in Canada remain stable and are in line with Moody’s Analytics projections for GDP growth and unemployment. Debt levels and available credit continue to rise, though at a slower pace than several years ago. Balances are declining for credit cards, personal finance and sales finance loans as borrowers turn to bank installment loans and lines of credit to meet their needs.  Auto financing continues to experience rapid expansion as Canadians flock to dealer lots and showrooms,” deRitis explained.

Other Equifax Report observations:

• Average consumer non-mortgage indebtedness in Q3/2012 increased by 2.6 per cent in the last 12 months, compared to a growth of 4.4 per cent in the same period last year;
• Average credit card debt has continued to decrease for the past eight quarters; it decreased by 3.6 per cent in Q3/2012 from the same period last year;
• Average bank installment loans grew by 4 per cent over same period last year and average bank revolving loans (lines of credit) remained stable;
• 90-day delinquencies continue to improve and have decreased to a rate of 1.22 per cent; and
• Consumer bankruptcies slightly increased slightly by 5 per cent from the same period last year.

For detailed graphs, please go to:

http://www.equifax.com/international/canada/Q3_2012_Consumer_Trends_Equifax_Canada.pdf

for more information contact David Cooke, your Calgary mortgage broker. 

CIBC Poll: Paying Down Debt named the Top Financial Priority for Canadians

Annual poll reveals the focus on debt management and budgeting is increasing - while retirement planning takes a back seat among younger Canadians

TORONTO, Dec. 28, 2011 /CNW/ - A new CIBC (TSX: CM) (NYSE: CM) Poll conducted by Harris/Decima reveals Canadians named paying down debt as their number one financial priority entering 2012, followed by managing day to day spending and retirement planning. Compared to the findings of the same poll one year ago, more Canadians are focusing on debt repayment in the year ahead.

Top 3 Financial Priorities, year over year:

2011 2012
Paying Down Debt 14 per cent 17 per cent
Managing Day to Say Spending & Budgeting 12 per cent 14 per cent
Retirement Planning 13 per cent 11 per cent

"More Canadians are recognizing the importance of managing debt as a component of their overall financial plan, and that is driving an increased focus on debt management and day to day budgeting entering 2012," said Christina Kramer, Executive Vice-President, Retail Distribution and Channel Strategy, CIBC. "Canadians are also increasingly seeing the connection between good management of their day to day budget and their longer term financial goals, recognizing that taking smaller steps today as part of a plan can lead to significant benefits down the road."

While paying down debt was the top priority among Canadians, financial priorities vary across age groups:

Among 25 - 44 year olds, 23 per cent named paying down debt as their top financial priority right now, while 14 per cent of this age group said building savings was their top priority.

Among 45 - 64 year olds, 20 per cent named retirement planning as their top financial priority right now, followed by paying down debt (16 per cent).

Managing day to day spending and budgeting was also a key theme in the survey across all age groups. Those 65 and over placed a particular emphasis on this aspect of their finances, with 24 per cent of those surveyed in this age group naming this as their top financial priority.

"It's not surprising to see that the financial needs of Canadians vary at different stages of life, which speaks to the need for individual financial advice," said Ms. Kramer. "For example, baby boomers have a clear focus on retirement, while Canadians over 65 years of age are focused on cash flow management given that many in this age group have started drawing on their retirement savings."

Ms. Kramer noted that while Canadians have a clear sense of their priorities for the year ahead, it is important to recognize that your finances are integrated.

"Paying down your debt can improve cash flow, which in turn gives you more money to work with each month to put towards your savings goals or longer term goals such as retirement," added Ms. Kramer. "With interest rates low as we enter the New Year, 2012 presents a good opportunity for Canadians to make progress on debt repayment as part of their long term financial plan."

While boomers maintained a strong focus on retirement, few Canadians in their 20s and 30s ranked retirement planning among their top financial priorities. Only 5 per cent of Canadians surveyed between 25-34 years of age said retirement planning was their top priority, while another 8 per cent said it was their second priority.

"It's understandable that younger Canadians are more focused on managing their mortgage and building their savings, but it's never too early to start saving for retirement, particularly with time on your side to have those savings grow over the years," added Ms. Kramer. "Part of a discussion with a financial advisor about your needs should include a long range plan for retirement that you can start taking small steps towards today."

KEY POLL FINDINGS

Percentage of Canadians that name paying down debt as their top financial priority by age:

18-24 21%
25-34 22%
35-44 24%
45-54 17%
55-64 14%
65 and over 9%

Percentage of Canadians that name managing day to day spending and household budgeting as their top financial priority by age:

18-24 9%
25-34 14%
35-44 10%
45-54 12%
55-64 13%
65 and over 24%

Percentage of Canadians that name retirement planning as their top financial priority by age:

18-24 2%
25-34 5%
35-44 7%
45-54 19%
55-64 21%
65 and over 5%

Results are based on a CIBC poll conducted by Harris/Decima, via teleVox, which surveyed 2,015 Canadians. The associated margin of error is +/-2.2%, 19 times out of 20. Polling was conducted between November 10th to 21st,

If you are having problems managing your debt I can help. Contact me and get your finances in order for 2012

Survey- Canadians worried about rising interest rates

A new survey says that 20% of Canadians with variable rate mortgages are worried that if interest rates rise they are not sure that they will be able to afford the monthly payments. BMO has suggested that you try the stress test to see. Pick a higher interest rate, figure out the monthly payments and see if it works with your budget. Why are they suggesting this? No one knows how to figure out monthly payments so you will go into a branch and they have an opporuntity to get you as a customer.
What you may not know is that you have already been stress tested at the time you took out your mortgage. Up until this time last year, all variable rate mortgage applicants were tested at the 3 year fixed posted rate. This rate is at least double the variable rate and often 2 1/2 times as great. Last year, Jim Flaherty changed that to the 5 year fixed posted rate. The present 5 year fixed rate is 5.44%. In order for you to get your present mortgage you had to qualify at this higher rate. Therefore you have been stress tested.
I should add though, that if you live in Vancouver or Victoria, the idea of having your monthly mortgage payment double is a scary thought and I have to wonder if you were councelled by your bank or broker as to the negative aspects of variable rate mortgages.
As a general rule, a person advising you on a mortgage should present the positive and the negative aspects of the product so that you can make an iformed choice. Unfortunately, many bankers and mortgage brokers offer you one choice which they have made. This is one reason that CAAMP, the Canadian Association of Acreditted Mortgage Professionals has introduced the AMP designation. Anyone with the AMP accreditation will work for you and not let their personal preferences get in the way. By the way, did you know that Joe or Jane at the bank has not taken a mortgage course and does not belong to your provincial mortgage association? They are bank employees and do not need to take any training or special courses. Scary isn't it?
The author is an accreditted mortgage professional with Mortgage Alliance in Calgary Alberta. Visit his webpage at http://mortgagealliance.ca/davidcooke