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.