Fixed & Variable Rate Mortgages: Which way to go?

With news of Central Banks around the World drastically slashing overnight bank lending rates, many people are beginning to wonder if a variable rate mortgage --while slightly more expensive today than in years past, would minimize their home ownership costs. In the short term, the answer is a resounding YES. With a Prime Lending rate below 4%, and expected to continue dropping mortgage payments for Variable Rate Mortgages will remain significantly lower than those of identical size Fixed Rate Mortgages. Even as Five Year Fixed Rate Mortgages have dropped by nearly 1 full percentage point since October and remain significantly below historical averages, many home owners are taking a serious look at the immediate savings of having a Variable Rate Mortgage. However, while tempting, Variable Rate Mortgages can bear significant risk for mortgage holders.

As economies around the World recover and respond to the heavy influx of capital from Central Banks and the resulting inflationary pressure, mortgage interest rates will rise. Considering the fact that tens of trillions of dollars are expected to be pumped into World markets in 2009, this rise in Prime Lending interest rates around the World could very offset any savings made by Variable Rate Mortgage holders. In accordance with the Prime Lending Rate, fixed mortgage rates will most likely feel similar upward pressure, and can be expected to rise even faster.

When considering the alternatives (variable rate or fixed) before you, it is important to examine your own financial capacity, as well as the importance of certainty in your own life. If you can comfortably afford a mortgage payment with a fixed rate, and are happy paying what is now a small premium for the security of knowing what your payments will be for 3 - 5 years then maybe a Fixed Rate Mortgage is right for you. However, if you feel that the immediate savings of a Variable Rate Mortgage are worthwhile, and are confident in your own ability to accurately time the best opportunity for locking in your rate, a Variable Rate Mortgage may be the solution for you.

For more information about Fixed and Variable Rate Mortgages, or to apply for a mortgage loan contact one of the Qualified Alberta Mortgage Professionals @ 780-479-2222 or visit www.albertamortgagecentre.com.

Stability and Competitivity --Returning to the Mortgage Market

After over 12 months of instability, it appears that controlled chaos that defines the financing market has returned --or is at least starting to come back, in Canada.

Since late in 2007, mortgage lenders including banks, credit union and mortgage specific lenders have been feeling the pinch of what is now referred to as the 'Credit Crunch.' As money markets tightened, and investor confidence plummeted, mortgage lenders became increasingly hesitant to lend money. Mortgage products were pulled, interest rates moved up by almost 1 full percentage point, and a series of mortgage lenders closed their doors to new business. For a period of a few months, it almost seemed like mortgage lenders just didn't want to do business.

But all of a sudden, last week things changed. Lenders that had effectively shut their doors to new business (by pricing themselves out with high interest rates) are again competitively pricing their mortgage products, and re-introducing products discontinued over the past 18 months. An excellent indicator of the return of competition is the change in variable rate mortgage interest rates over the past 2 weeks.

After being discontinued in early 2008, and slowly coming back at Prime + 1, Variable Rate Mortgages are again becoming competitive. In the past two weeks, two lenders have dropped their rates on the Variable Rate Mortgage Product by nearly half of one percent, and more are expected to follow. This competition is a positive sign for the entire industry, as competition displays confidence --the result of some stability in otherwise economically challenged times.

For more information about the mortgage interest rates, call one of the qualified Alberta Mortgage Professionals @ 780-479-2222 or visit www.albertamortgagecentre.com.

Emerging Trends in the Mortgage Market

Recent changes in global financial markets have had a series of impacts on many facets of the Canadian economy, including mortgage lending. An unstable financial context has seen changes in lending practices, interest rates, and credit availability. As investors face an increasingly uncertain market, they wish to have the flexibility to assess the risk of their borrowers at increasingly shorter intervals. Basically, investors are now looking to be able to get rid of "bad" mortgages as quickly as possible. As investors become vigilant in their investing practices, another pattern has emerged; a push in short term (1 year - 3 year) mortgages with attractive, low interest rates.

Currently, a series of mortgage lenders are offering 1 year mortgages at historically low interest rates, falling to more than 1% below available five year rates. Shorter term mortgages also offer benefits for borrowers who do not intend to remain in the same home for five years. Shorter terms often mean that the payout penalty will be lower, and allow for the borrower to refinance at shorter intervals without having to pay payout penalties. At the same time, shorter term mortgages carry significant risks.

In particular, shorter term mortgages can expose homeowners to unanticipated market shocks and force them to pay higher mortgage payments at renewal that often do not exist with longer term mortgages. The basic reason for this difference is that five years often represents a single market cycle. As a result, whether for good or bad, your mortgage interest rate will remain relatively stable --as investors, bond markets and other determining factors move through the eb and flows of the market. Longer term mortgages generally offer fairly attractive interest rates, as well as long term relative stability.

In contrast, shorter term mortgages often do not provide sufficient time for the markets to fully complete an economic cycle. As a result, mortgage borrowers can be subjected to drastic, short term interest rates. Shorter term mortgages can be beneficial for some borrowers, but for others, conventional five year mortgages can be more suitable.

To learn more about the differences between shorter and longer term mortgages, as well as to learn about which would suit you best call one of the qualified Alberta Mortgage Professionals at Alberta Mortgage at 780-479-2222, or visit www.albertamortgagecentre.com.

Tips for minimizing the cost of your mortgage in today's economy: (renewals)

If your mortgage is coming up for renewal, there are a variety of strategies that you can and should employ in order to minimize the cost of your mortgage at the time of renewal. This article will provide you with a pair of simple strategies to employ at renewal time that will help you save money, and get a mortgage that will best meet your needs.

1. Learn about the available mortgage rates and products. Perhaps the most important thing to do at renewal time is also the simplest --shop around. Most Canadian Homeowners simply renew their mortgage with their current mortgage holder without first finding out what other rates or products are available to them. As a result, homeowners may end up with a higher interest rate, or with a mortgage product that does not provide options that will best meet their needs. When renewal time approaches, being educated it is just as important as it was when you first got your mortgage.

2. Assess your own financial and personal situation and determine whether this would be a good time to refinance, instead of simply renewing. Most Canadian homeowners have mortgages with closed terms because they generally offer lower interest rates. However, one drawback with closed mortgages is that they often have prepayment and payout penalties attached to them --meaning that when you refinance, sell your home or otherwise pay off your mortgage, you pay a fee. This means that when you want to take out equity from your home, you may have to pay these costs. However, at the time of renewal these penalties often do not apply. As a result, you save the cost of a payout penalty.

By using the strategies discussed above, you can save yourself money and get a mortgage product that will best meet your needs and satisfy your financial aspirations. To learn about more money saving mortgage strategies, consult a mortgage broker or visit www.albertamortgagecentre.com.

In the existing financial market, if my mortgage is coming up for renewal what should I do?

The collapse of the financial markets around the World has and will continue to impact nearly every facet of Albertan life. Oil prices have eased, real estate activity has slowed, lending practices have changed, food prices are expected to drop, and many industry experts are even beginning to speak about the Credit Crunch’s impact on professional sports. Accordingly, homeowners who have paid their mortgages on time for the past 3 or 5 years and maintained an excellent credit history are not being left immune. Financial Institutions have experienced traumatic losses over the past 24 months, and it is becoming increasingly clear that their costs are going up. As a result, mortgage lending practices are changing, and interest rates are starting to move.

In today’s market homeowners must remain vigilante, and exercise their ability to minimize their home ownership costs –including the cost of their mortgage. The easiest way to ensure that Albertan homeowners get the best deal is to consult a qualified Alberta Mortgage Professional.

As a mortgage nears renewal, most financial institutions send out offer letters to their clients –indicating prevailing mortgage rates, and offer a series of mortgage terms. At this time, it is important for homeowners to shop around –the same way they did when they first got their mortgage. By taking an active role at the time of renewal, homeowners can take advantage of new products, deal with more suitable lenders, and get the best available mortgage interest rates.

For more information about changes occurring in the mortgage market or if your mortgage is coming up for renewal, contact one of the qualified Alberta Mortgage Professionals at Alberta Mortgage @ (780)479-2222 or visit www.albertamortgagecentre.com.

What is going on in the financial market, and how will the present situation affect the average existing/prospective mortgage holder?

The financial world is a constantly evolving context, in which both economic factors and pure human emotion can enrich or impoverish the lives of millions. At present, the world financial markets are in a state of panic as the World's investors are extracting their funds from the marketplace, holding on to the denominator in which they trust --cash. As investors flea, money markets shrivel, and the financial world experiences the phenomenon we've all been hearing about: The Credit Crunch.

So what is the Credit Crunch?

When millions of investors extract their money from the market (over 2 trillion dollars), businesses become unable to secure funds for doing business. In the case of banks, investment firms, mortgage companies and the like, when they become unable to secure market funds for doing business, they are forced to search out investors who demand higher rates of return, and demand more oversight over the use of their funds. As the cost of funds increase for lenders, the costs of funds are passed along to borrowers. Increased costs, and more stringent guidelines mean less borrowers can qualify for loans and therefore less money goes into the market to again be borrowed and lent. As a result, credit continues to become more and more difficult to secure, and borrowing costs continue to go up until funds become available. Knowing this, central banks around the globe have made recent efforts, injecting what will end up being trillions ($24 billion and $700 billion in Canada and the United States alone, respectively) into the market and lowering prime lending rates in an effort to make lending money easier and cheaper once again.

What does all of this mean for the mortgage of the average prospective/existing homeowner?

As the availability of credit dries, fixed mortgage interest rates swell due to the increased cost(s) of lending. However, cash injections by central banks around the globe should help re-establish security in lending markets and hopefully limit further increases in fixed mortgage interest rates. Even with significant cash injections, I believe that fixed mortgage interest rates will continue to rise as lenders attempt to recoup 2007/2008 losses. In contrast, with prime lending rates dropping variable rates become increasingly affordable with one exception --most lenders are pausing, postponing, increasing or altogether eliminating variable rate mortgages from their product offering lineup. If you already have a variable rate mortgage at Prime - (0.00 to 0.90)% then I think you are safe, and will be enjoying what are and will be historically low mortgage interest rates as central banks continue to lower the Prime lending rate in attempt to bolster cash strapped economies. Those who have a variable rate mortgage should be in good shape --even while the road ahead may be full of bumps of anxiety. At the same time, many lenders are eliminating variable rate mortgages from their product line --therefore inhibiting many prospective/exisiting homeowners from taking advantage of potential Prime rate decreases in the near future.

Even with recent increases, fixed mortgage interest rates remain historically low. While fixed mortgage interest rates have increased by nearly 1% since August of 2008, they remain competitively priced, allowing for Canadians to comfortably afford the cost of credit. The market is still well capable of providing Canadians with the ability to afford owning real estate, and will continue to be among the leaders in the world financial marketplace in quality product offerings, consistency, and rate competition.

For more information about any of the above discussed mortgage topics contact one of the edmonton mortgage brokers at Alberta Mortgage @ (780)479-2222 or visit www.albertamortgagecentre.com.

Is Real Estate Still a Sound Investment in Alberta?

Investing in real estate has long been a sound long term investment strategy. Historically, increases in property values have well outpaced inflation over the long term. In the short term (under 5 years), economic cycles, and speculative bidding often dictate growth and declines in real estate markets, and can therefore harm the growth potential of real estate for short term investors. However, in the long term real estate values consistently outpace inflationary pressures and increase in real value.

The Alberta Real Estate Market went through a cycle over the past half decade where increases in property values far outpaced inflation or growth –particularly in late 2006 and 2007 during which property values soared in double digit values month over month. The market is now making a correction and re-establishing the once lost balance between growth in property values and inflationary pressures. Once this correction has been completed, I would expect for property values to stabilize and then begin increasing (at normal levels) again. In the long run, I would expect the Alberta Real Estate Market to again lead the country in strength and growth and remain a sound investment.

For more information, or to discuss this topic please contact one of the mortgage professionals at Alberta Mortgage at 780-479-2222 or visit www.albertamortgagecentre.com.

How to pay off your mortgage faster without substantially altering your lifestyle

Most Canadian homeowners know that the longer they hold on to borrowed money, the more it costs as interest accrues. Knowing this fact, most mortgagors (borrowers) try to pay down their mortgage as quickly as possible --thus maximizing their interest savings.

Most mortgages offered by the mortgage lending partners at Alberta Mortgage offer substantial payment privileges to borrowers, allowing for lump sum payments as well as ongoing principal reduction. However, for most homeowners making large lump sum payments can be difficult and therefore rarely occurs. Instead, by following some of the simple strategies outlined below Canadian homeowners have saved tens of thousands of dollars in interest over the life of their mortgages.

1. Increase the frequency of your payments:
When choosing a payment scheme, make accelerated bi-weekly payments in order to get a "free" principal reduction which would be equivalent to one full mortgage payment every year, painlessly.

2. As income rises, raise your mortgage payments:
While disposable income is fun to spend, putting it towards your mortgage will save you a lot of money in interest payments which will be even more fun to spend in the future.

3. Round your payments up, instead of down:
Over time, by making even extra nominal payments of $20 to the principal, the amount of interest that you will be saving yourself from will amaze you.

4. If mortgage rates fall, don't reduce you payment scheme:
If so far, the payment amount has not been an issue of concern, then there is no benefit in reducing the payment amount if/when your mortgage interest rate falls. However there is a downside to reducing your payment being that interest payments will grow.

For more ideas on paying off your mortgage faster, visit www.albertamortgagecentre.com/tips.html or talk to one of the qualified mortgage professionals at Alberta Mortgage.

Alberta Mortgage
#78, 4003 - 98 Street NW, Edmonton AB T6E 6M8
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Welcome

The Mortgage Market Analysis is your weekly source for commentary on the local Edmonton real estate, financial market and mortgage lending markets. Each week, one or more of the qualified Mortgage Associates at Alberta Mortgage will discuss a range of issues impacting Albertan Home Owners.

For more information, or to discuss any of the topics described here, contact one of the mortgage professionals at Alberta Mortgage at 780-479-2222 or visit www.albertamortgagecentre.com