Ever wondered what they mean?
APR: Annual percentage rate
OAC: On approved credit
So there you have it!
Recent credit rating downgrades by Standard & Poor south of the border combined with worries about global growth and the euro-zone debt crisis have triggered a week of turbulence in the stock markets. It is clear that new macro numbers published in the last few weeks seem to point in the direction that the speed in economic recovery will be less than anticipated.
Bad news for our economy is good news for the bond market. The 5-year Bank of Canada bond hit a low of 1.35% last week (the lowest ever) and our lenders are enjoying unprecedented spreads since 2008. Apart from volatility in the markets, there are a few reasons why banks are reluctant to reduce interest rates.
· Profits for variable rate mortgages are razor thin so they need to make some money in the fixed rate products;
· GIC deposit rates are very sticky so their funding cost does not go down much. e.g. banks cannot offer 1% for 5-year GICs;
· The absolute yield is very low now. CMB spread might widen a bit since investors would demand a higher rate.
So for now, the banks are keeping the profits; especially in light of pending mortgage closings end of August. However, we continue to keep an eye on unpublished special rates offered by all lenders.
Amid slowing growth, reduced consumer confidence and increased fiscal stress in the US and Europe, Bank of Canada will find it hard to resume the process of normalizing interest rates. Instead, short-term borrowing costs can be expected to remain low.
c 2011 Mortgage Architects
Right now, it’s a matter of style.
Okay, so the rate-watching game has been a little more nerve-wracking lately than it’s been for the last decade. It was a pretty easy decision there for a while. Mortgage rates were sliding down – then playing around at the bottom – since the early 1990’s. With that kind of rate environment, Canadians jumped on the opportunity for a variable-rate mortgage that stood a good chance of declining or staying low over the course of their mortgage.
So what now? Is it time to finally lock in? Well, right now, the question of fixed or variable is a matter of style. The rate climate is expected to heat up a little, and the right mortgage decision is really a matter of your attitude towards risk versus reward. Keep in mind that mortgage rates are still at near-historic lows. So both fixed and variable mortgages are very attractive right now. There are some great benefits to a variable-rate mortgage. The rate you pay is set based on the prevailing prime lending rate. Lenders offer variable-rate mortgages at the prime-lending rate minus a certain percentage.
Discuss with your mortgage broker what lenders are offering on their variable-rate mortgages. When the prime rate drops and you have a variable-rate mortgage, you’ll see the decrease in your mortgage rate quickly. If you’re able to keep making the same payment amount at that lower rate, each payment will knock a little bit extra off your principal: a great trick for driving down your mortgage a little faster. If rates start rising, you can exercise your option to convert to a fixed rate for the rest of your mortgage. If you don’t mind a few ups and downs, then the benefits of variable-rate mortgages are very compelling. While variable-rate mortgages are sometimes considered a little riskier, the truth is that variable mortgages haven’t been much of a gamble for years: they’ve been a solid, great choice for most homeowners.
Since 1991, prime has been lower than the 5-year rate based on a 12-month average so overall interest paid during this period has been minimized through this option. If, however, you’re starting to lose sleep wondering what will happen next with rates, then you may want to look at fixed-rate mortgages. If you’re on a very tight budget, a fixed rate gives you the security of knowing exactly how much your mortgage will be so you can plan accordingly.
Many first-time homebuyers choose a fixed-rate mortgage for this reason. Five-year terms are popular, although fixed-rate mortgages for longer terms are available and should be considered if you decide to go this route. You may be able to lock in a rate for the remaining life of your mortgage which can provide real long-term security. Don’t just automatically take a 5-year term; get advice on the mortgage term that will best meet your needs and goals.
Still not sure? Well consider that studies have shown that most Canadians hold their mortgage for 15 years or longer and that over the long term, less overall interest is paid with a variable-rate mortgage. If you believe that minimizing the total amount of interest you pay over the life of your mortgage is an important goal, then the case for variable rate mortgages is very strong. Variable rate mortgages can also help you minimize costs to break your mortgage should you sell or refinance.
Mortgage Achitects c 2011
This can be a challenging time to be a first-time homebuyer. On one hand, you’re anxious to get into the market and become homeowners. On the other hand, it’s a huge financial decision. What will happen with rates? Will a future salary increase ease the immediate financial pressure? Will a job change mean a move to a new neighbourhood in the next few years? There’s a lot to think about.
If you are a first-time homebuyer or know someone who is, getting professional mortgage advice is a great place to start. Some things to think about:
Determine what you can afford!
Have you saved up enough?
Do you have your team of professionals in order – Lawyer, Realtor, Mortgage Broker?
Have you planned for closing costs?
Beyond the monthly payment. Remember that home ownership involves costs beyond the monthly mortgage payment. Many first-time homebuyers neglect to consider such baked-in costs as property taxes, utilities and insurance. Get a realistic picture of those annual costs, and imagine that sum on top of your mortgage payment. While it’s important to be prudent of course, many first-time homebuyers can be too cautious about getting into the market. In fact, mortgage planners often surprise first-time buyers by showing them that they could have been building equity for the last few years – rather than paying someone else’s mortgage with their rent money. Remember too that for decades, Canadian homeowners have been able to leverage their property purchase into a large financial return.
Ensure you get off on the right foot in your home ownership journey!
copyright 2011 Mortgage Architects
A Guest Blog by Bernadette Somerville www.suitablystaged.com
Oh time…where do you go, and why isn’t there ever enough of you? It seems when it comes to time we all want more, to share among friends and family, or to devote to our work. Well, an organized, de-cluttered space is one way to free up some of your time. Maybe then you wouldn’t have to scramble through all those papers on your desk, or dive into that musty pile in the closet to find your son’s left glove before he misses the school bus. I’m certainly not the first to say this, but it’s worth repeating: your time is precious and valuable. At home you should spend it with your family; having a meal, relaxing with a movie, or maybe building a snow fort. There are some key areas in your home where organization should be addressed and continually maintained. These include the entryway or mudroom, the kitchen cupboards or pantries, your home office area and–dare I say it–your closets. I chose these areas because I believe they are where you simply can’t afford chaos. Frankly, it would be great if every nook and cranny could be well organized and maintained, but again, there is only so much one can do in the time available.
First of all, categorize, but do so in a way both you and your family will understand. You can chose the categories: colour, size, name, owner, photo paper, canned goods, long-sleeved, seasonal, box, basket, and on and on and on. And if you neaten and tidy the essential areas after you use them, for even five to ten minutes a day, the mitts will seem to find you, the canned tomatoes won’t keep hiding behind the bag of breadcrumbs, and your favourite shirt won’t be buried under that scary pile of clothes that have apparently been accumulating forever. If things are easy to find everyone’s time is freed up, and then it can be spent on the important things, like just being together.
Oh time…why should I spend more of you to sell my home? Well, an organized, de-cluttered space not only frees up time for family, it can also contribute to a better, more satisfying experience when listing your home. Almost every home stager believes that de-cluttering your house or property is an essential step to creating a larger and more inviting residence. When you are preparing your home for selling, try to put yourself in the buyers’ shoes: How would your dream home look? Do you get distracted by the family photos, golf trophies or that stuffed-to-bursting shelving unit? Items can easily be pre-packed and areas de-cluttered prior to viewings or photos. A good way to begin is to remove everything, then redesign and reassemble the space how you would like to see it, rather than just so everything fits. You may find that re-arranging or removing furniture and accessories not only brings out the potential of a room, but also helps you decide what is really needed and what isn’t. And though it may be difficult, if you haven’t pre-packed something after the de-cluttering process you must be ruthless; donate it, recycle it or trash it.
There’s no question de-cluttering can be a tough and tedious process…but what a great feeling when you’re finished! Just be sure to maintain your wonderful new environment.
New mortgage rules come into effect on March 18,
which means you will no longer be able to refinance
to 90% loan to value. Refinances will only be allowed
to 85% LTV; and the maximum amortization will be
reduced to 30 years from 35 years for both purchases
and refinances.
ORDER YOUR CREDIT REPORT
Knowledge is power so order your credit report and see what the lenders see.
Order your credit report free through the mail, or for a fee you can order it online and download it immediately.
Contact:
Equifax at 1-800-465-7166 or www.equifax.ca. Or,
Trans Union 1-866-525-0262 or www.transunion.ca
As soon as you get your report, check closely for any errors. If something is wrong, report it immediately so that your file can be corrected. You can also add a short qualifying statement to explain the circumstances surrounding any negative information in your file.
copyright 2011 Mortgage Architects
Annual reality check for your mortgage
Most of us tend to think of our mortgage as the ultimate “buy and hold” purchase. After all, who wants to spend any more time in the “borrower” chair than is absolutely necessary? You get a 5-year term, and then go on automatic pilot until it comes due again. You might wring your hands over your other finances, but your mortgage is set in stone, right?
Well, not exactly. In fact, it’s a great idea to have an annual mortgage review to see if it’s really working for you – especially in the context of the rest of your financial picture. After all, a lot can happen in a year – especially during our “mortgage years”, when we tend to be juggling many commitments in our busy lives! Think of all the financial commitments we carry during these years: care of our children, tuition or school expenses, one or more cars, vacations, home renovations, travel… the list seems to go on and on.
Chances are that something in your financial life has changed since you took out your mortgage. Life doesn’t stand still, after all. Here is a list of the most common reasons why a mortgage may need some adjustment:
- You’re considering a move to a new home in the next year or two;
- You wonder if you can tap into some of your equity for a special renovation project to upgrade your home;
- You’re wondering if you can afford a vacation property;
- You’re considering the benefits of investment property ownership;
- You’re a bit concerned about a large expense looming in your future: like university tuition, a wedding, a leave from work, a new career or business, a big vacation or a new vehicle, for example;
- You’re making more money – or less money – than you were when you began your mortgage;
- You’re carrying some credit card or other high-interest debt that is eating away at your monthly cashflow;
- You’re worried that you’re not saving enough for your retirement years, and you’ve heard there’s a way to convert your non-deductible mortgage debt into deductible investment loans using a re-advanceable mortgage. You’re interested in collecting annual tax refunds, paying off your mortgage faster, and having an investment portfolio for the future.
If any of these sound familiar to you – and if you have held your mortgage for a year or more – then it’s worthwhile to contact a qualified mortgage planner to give your mortgage a reality check.
This article is brought to you by Mortgage Architects Inc. 2011 copyright
A big part of our public celebration of marriage is the recognition that the newlyweds are establishing a home together. There is, unfortunately, no corresponding support when that home is broken. The regrettable fact is that one out of three Canadian marriages will not last. That statistic adds up to a lot of people changing their domestic arrangements.
Amid the confusion and pain of a divorce, there is the very pressing business of making housing decisions – generally under reduced financial circumstances. There is, however, some hopeful news. Amid the great new mortgage options that have emerged in the past few years, there are longer amortization and cash-back mortgages that spell financial relief for divorced couples – by making it easier for them to get back on their feet in a new home.
Divorce doesn’t need to spell the end of financial hope. What you do need to do is to let a mortgage broker take a look at your financial situation to assess whether it is a Sell & Split or Buy It Out process. Let’s face it, it is not going to be easy or comfortable, but the sooner you know what you are dealing with the better informed you will be about your decision.
