Posted in advice on locking in your mortgage, Bank of Canada, Bank of canada rates, BC Mortgages, Best Rate Mortgages, Canadian Economy, Canadian Mortgage News, Debt, fixed or variable rate or both, Fixed rates, Interest \rate Increases, Jim Flaherty, Kamloops broker, Kamloops First Time Home Buyer Tips, kamloops mortgage, Kamloops Mortgage Broker, Kamloops mortgage consultant, kamloops mortgage financing, Kamloops Mortgages, Kelowna Mortgage Broker, Kelowna Mortgage Financing - Lisa Alentejano, Low Interest Rates, mark carney, Mortgage Affordability, Mortgage Broker Kamloops, mortgage financing kamloops, Mortgage Language, Mortgage Rates, Mortgages - Get a second opinion, paying a penalty to break my mortgage, Pre Approval Mortgage, Protecting your biggest investment your mortgage, rate fixed mortgage, Real Estate Market, Refinance Your Mortgage, Renewing your mortgage, salmon Arm mortgages, should you lock in your mortgage, variable rate mortgages, Vernon Mortgage, Why use a mortgage broker

Mortgage Rates – How to protect yourself when they increase – Video message!

Heres a video I personally did on how to take a proative approach to protect and prepare yourself with rising interest rates in the future and save thousands of dollars! Click below to view video

Inflation Hedge Strategy - Learn to protect yourself from rising rates

Lisa Alentejano

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Posted in advice on locking in your mortgage, Bank of Canada, BC Mortgages, Benchmark interest rate, Best Rate Mortgages, fixed or variable rate or both, Fixed rates, Kamloops broker, Low Interest Rates, mark carney, Mortgage Affordability, rate fixed mortgage, variable rate mortgages, Variable rates

Increase to Variable Rate Mortgages

Why could I get Prime minus .90 last week and today it is Prime minus .25?– A great question, says the Mortgage Brokers Association of BC (MBABC), especially when fixed interest mortgage rates are remaining the same.  The quick answer?  As with many things, it all boils down to money.

Over the last couple of months, banks and other lenders have been offering historically low variable interest rates to qualified homebuyers in an effort to attract new clients and mortgage business.  In the short term, lenders have been prepared to accept these low profit margins with the knowledge that, as the prime rate inevitably rises, so too will their profit on variable mortgages – a similar ‘loss leader’ tactic used by retailers to get consumers into their door.

“However”, says Geoff Parkin, MBABC’s president, “the recent announcement by Bank of Canada governor, Mark Carney has changed the mortgage lending landscape.”   Carney stated that, because of poor performing global markets and continuing economic uncertainty, the benchmark interest rate would remain unchanged.  The long-term outlook indicates continuing low fixed interest rates with no significant increases to the Prime rate.  “In a nutshell”, says Parkin, “the bank’s theory of anticipating rising profits on variable rates was proven wrong.  They’ve had to quickly respond to this situation by reducing the variable rate discount in order to gain back profit.”

What does this mean for consumers who have variable rate mortgages?  Much of the same, says Parkin.  “We continue to see low fixed rates and the variable rate is under 3.0%.  There may still be value in going variable over fixed, but because consumers all have different financial situations and mortgage needs, we recommend they obtain expert financial advice from their MBABC mortgage broker.”

Posted in advice on locking in your mortgage, BC Mortgages, Canadian Mortgage News, fixed or variable rate or both, Fixed rates, fixed term mortgages, Interior Mortgage Expert - Lisa Alentejano, Interior Mortgages, Kamloops broker, Kamloops Mortgage Broker, Kamloops mortgage consultant, kamloops mortgage financing, Kamloops Mortgages, Kelowna Mortgage Broker, Mortgage Affordability, Mortgage by Lisa Alentejano, Mortgage Rates, paying a penalty to break my mortgage, Protecting your biggest investment your mortgage, rate fixed mortgage, Refinance Your Mortgage, Refinancing, Renewing your mortgage, Salmon Arm Mortgage Broker, Save your money, should you lock in your mortgage, variable rate mortgages

Is it time to lock in your mortgage?

Do you lock in your mortgage or not?

Heres an interesting article on things to consider when locking in  your mortgage or at least considering renewing your mortgage for a better rate.  Lots of things to look at when rates are at an all time low.  You can imagine consumers are taking a good look at their mortgage and where they want to go with it. Small differences in rates can save  you thousands over the longer term.  As most of us have a mortgage for years, take advantage of at least looking at your current mortgage and consider whether making a change could be beneficial.   As always any questions or comments please feel free to contact me at 1-888-819-6536.

The gap between short-term and long-term rates has shrunk enough that it might be time for anyone renewing a mortgage to consider locking in.

Moves last week by the major banks to reduce the discount on variable-rate mortgages comes as the discounts for long-term mortgages have gotten as steep as they have ever been.

“What seems to be happening is they are focusing their attention on fixed rates. We are starting to see some aggressive competition on four-and five-year products,” says Gary Siegle, a mortgage broker and Invis Inc. regional manager in Calgary.

How aggressive? Try as much as 190 basis points. A five-year, fixed-rate mortgage with a posted rate of 5.39% is now being offered for 3.49%.

For whatever reason, the four-year, fixed-rate mortgages are being priced even more aggressively.

Mr. Siegle says he can lock consumers into a four-year, fixed mortgage for as low as 3.09%.

The discounting comes as variable-rate products, linked to prime, have become more expensive. Short-term money has become more expensive in the bond market, forcing banks to reduce discounts.

The banks traditionally move their prime rate with the Bank of Canada rate. With no flexibility there and existing customers getting huge discounts based on old deals, banks are forced to raise rates for new loans as short-term money gets more expensive.

The trend began in April when FirstLine Mortgages, a subsidiary of Canadian Imperial Bank of Commerce known for its low rates, cut its discount on variable rates.

Others banks were slow to follow, hoping to make money on volume. But refinancings have dried up under tougher mortgage rules and sales have slowed, creating the need to tighten profit margins on variable-rate products.

Today, the discount on a variable-rate mortgage is about 55 basis points off the prime rate of 3% – in other words, 2.45%. Compare that to 3.09% on a four-year mortgage and the premium to lock in is not that much.

“This gap is about as narrow as it goes,” says CIBC deputy chief economist Benjamin Tal. “It reflects a flat yield curve, which makes it difficult to make money in this business.”

Mr. Tal says variable-rate mortgages tend to be more attractive when there are inflation expectations not yet expressed in short-term rates. This time, he says, the bond market is depressed, anticipating recession, and that has shrunk spreads dramatically.

The one thing keeping people in short-term money is the sense that there is no urgency to move because the U.S. Federal Reserve Board has pledged not to raise rates for two years, which also effectively ties the hands of the Bank of Canada.

“We know the five-year rate is attractive, but we also know short-term rates are not raising,” Mr. Tal says.

What does that mean on a practical, dollars-and-cents basis?

Let’s use the Canadian Real Estate Association’s 2011 average sale price forecast of about $360,000 and assume a 20% down payment and a $288,000 mortgage.

At 2.45%, your monthly mortgage payment based on a 25-year amortization would be $1,282.98. At 3.09%, your monthly payment rises to $1,376.28.

But even at the gap, you would pay about an extra $7,000 in interest to lock in over four years.

Ultimately, the $7,000 amounts to an insurance policy. You get payment certainty for four years, but at a price.

If rates climb 200 basis points on your variable-rate mortgage, it could cost you $22,000 more in interest over four years. The reality is that rates wouldn’t jump at once and, therefore, increases would likely be gradual.

Moshe Milevsky, the York University finance professor who wrote the oft-quoted study that variable-rate mortgages do better than fixedrate mortgages 88% of the time, said if you start thinking about it like insurance, it comes down to your risk tolerance.

“There are people who pay a lot for protection on their portfolio; there are people who pay a lot for life insurance,” Prof. Mr. Milevsky says. “If the premiums are low enough, you might say, ‘Sure, I’ll pay.’ But if you have a tight budget, every basis point counts, and it might not be worth it.”

To me, he still has the ultimate answer for the tough decision whether or not to lock in.

“I still don’t get why more Canadians don’t split their mortgage,” Prof. Milevsky says. In other words, locking in half of the mortgage and floating with prime on the other half.

“When is a bank going to come to the realization Canadians hate making this choice?”

He’s right. Even with rates this low and the gap between short-term and long-term rates this narrow, it is still a tough call