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.
Wednesday, December 17, 2008
Tuesday, December 9, 2008
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.
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.
Monday, December 1, 2008
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.
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.
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