Saturday, July 17, 2010
Anja Sonnenberg
Whether you’re purchasing, refinancing or renewing your mortgage, you may have more options than you realize. It’s not just about choosing the best rate, says Eleonora Salerno, mortgage broker of The Mortgage Centre. In today’s market, most people share the same dilemma – should they choose a fixed or variable rate?
A fixed rate product means you’ll get a guaranteed fixed payment for the term you choose. A variable rate product means you’ll have a fluctuating interest rate throughout the term of your mortgage.
“On a fixed rate product you’ll be making the same payment for the next few years. This is the type of mortgage product for a conservative borrower,” says Salerno. “A variable product is more for a risk taker. It fluctuates with the Canada prime rate, so we can’t determine what your mortgage payment will be next year. But history does dictate that a variable rate does float below the fixed rate,” says Salerno. With a variable rate, Salerno says a borrower will see significant savings at the end of their mortgage, so for some, it may be worth a few sleepless nights.
If you’ve signed up for a fixed mortgage, but now you’re thinking about switching to a variable, you can break your mortgage, but you will pay a penalty.
“Another advantage to a variable mortgage is that you can switch to a fixed rate mortgage whenever you want and you won’t pay a penalty,” says Salerno.
Finding the right mortgage may sound overwhelming, but a mortgage broker can help you shop around for the best product. “Our job is to make you feel comfortable when choosing a mortgage,” suggests Salerno.
Call me to discuss your options: Leon Martin 519-503-2753 or visiting my website.
Showing posts with label variable rate mortgage. Show all posts
Showing posts with label variable rate mortgage. Show all posts
Monday, July 19, 2010
Wednesday, July 14, 2010
Variable Rates Quite Relevant, Still
Whenever rate-hike talk starts heating up (like it has since Friday) questions about term selection become more frequent.
People increasingly want to know if the next prime rate increase is their cue to lock in.
The criteria for choosing between a fixed and variable rate have been covered here before, so we won’t bore anyone with repetition (see: Variable or Fixed Rate Mortgage, IDEAS for more on that).
As any mortgage professional will attest, it’s impossible to make a one-size-fits-all recommendation because the fixed/variable decision is so individual-specific.
What we can do, however, is show how things might shake out from a purely mathematical standpoint if economist forecasts are right (they often aren’t right, but that’s a separate conversation).
As noted this past weekend, big bank projections imply a 4.50% prime rate by year-end 2011 (see: Long-term Mortgage Rate Forecast). In our own models, we’ve been tacking on another 1/2 point increase as a safety measure, and to reflect what might happen after 2011. Incidentally, the 10-year average for prime rate is 4.72%.
As of July 14, 2010, our current fixed vs. variable model also assumes:
•A highly discounted variable rate (prime – 0.65%)
•A highly discounted fixed rate (3.99%).
•A well-qualified borrower with satisfactory credit, equity, savings, job stability, debt ratios, etc.
•A BoC rate hike pause in early 2011 (to let the U.S. Federal Reserve catch up to the BoC’s overnight rate).
As usual, rate-change assumptions are based on the projections of major analysts, who presumably have less chance of being wrong than the average Joe.
With these and a few other parameters, one can generate an amortization comparison between a fixed and variable-rate mortgage. That, in turn, can illustrate which of the two hypothetically saves you the most money over five years.
Based on the above assumptions, the variable-rate mortgage comes out ahead of the 5-year fixed, by about $498 over five years for every $100,000 of mortgage. (Sample Analysis)
Therefore, risk-tolerant homeowners (even semi-risk-tolerant homeowners) are potentially doing themselves a disservice by locking in 100% of their mortgage to a long term (like 4 to 10 years).
Granted, there are plenty of caveats. It’s therefore essential to talk things over with a mortgage professional and have him/her run these numbers using assumptions that each of you feel comfortable with.
As well, this article only compares two terms: a variable and a 5-year fixed. Your mortgage planner, however, might be able to suggest a shorter-term fixed mortgage that is even more preferable than a variable rate.
Suffice it to say, long-term fixed rates haven’t relegated variable rates to irrelevancy, despite the possibility of higher rates right around the corner. Most strong borrowers should still consider putting at least part of their mortgage in a variable or short-term rate.
This article was taken from canadianmortgagetrends(dot)com
People increasingly want to know if the next prime rate increase is their cue to lock in.
The criteria for choosing between a fixed and variable rate have been covered here before, so we won’t bore anyone with repetition (see: Variable or Fixed Rate Mortgage, IDEAS for more on that).
As any mortgage professional will attest, it’s impossible to make a one-size-fits-all recommendation because the fixed/variable decision is so individual-specific.
What we can do, however, is show how things might shake out from a purely mathematical standpoint if economist forecasts are right (they often aren’t right, but that’s a separate conversation).
As noted this past weekend, big bank projections imply a 4.50% prime rate by year-end 2011 (see: Long-term Mortgage Rate Forecast). In our own models, we’ve been tacking on another 1/2 point increase as a safety measure, and to reflect what might happen after 2011. Incidentally, the 10-year average for prime rate is 4.72%.
As of July 14, 2010, our current fixed vs. variable model also assumes:
•A highly discounted variable rate (prime – 0.65%)
•A highly discounted fixed rate (3.99%).
•A well-qualified borrower with satisfactory credit, equity, savings, job stability, debt ratios, etc.
•A BoC rate hike pause in early 2011 (to let the U.S. Federal Reserve catch up to the BoC’s overnight rate).
As usual, rate-change assumptions are based on the projections of major analysts, who presumably have less chance of being wrong than the average Joe.
With these and a few other parameters, one can generate an amortization comparison between a fixed and variable-rate mortgage. That, in turn, can illustrate which of the two hypothetically saves you the most money over five years.
Based on the above assumptions, the variable-rate mortgage comes out ahead of the 5-year fixed, by about $498 over five years for every $100,000 of mortgage. (Sample Analysis)
Therefore, risk-tolerant homeowners (even semi-risk-tolerant homeowners) are potentially doing themselves a disservice by locking in 100% of their mortgage to a long term (like 4 to 10 years).
Granted, there are plenty of caveats. It’s therefore essential to talk things over with a mortgage professional and have him/her run these numbers using assumptions that each of you feel comfortable with.
As well, this article only compares two terms: a variable and a 5-year fixed. Your mortgage planner, however, might be able to suggest a shorter-term fixed mortgage that is even more preferable than a variable rate.
Suffice it to say, long-term fixed rates haven’t relegated variable rates to irrelevancy, despite the possibility of higher rates right around the corner. Most strong borrowers should still consider putting at least part of their mortgage in a variable or short-term rate.
This article was taken from canadianmortgagetrends(dot)com
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