The Credit Crunch & Your Mortgage: how to make the best of a complicated situation

The global economy has cooled, credit markets have tightened, and it has been particularly cold here in Alberta --what a way to start 2009. While the headline stories may not be appealing, these challenging economic times have created a tremendous opportunity to homeowners looking to decrease their monthly expenses.

In response to the contraction of credit markets over the past 16 months, governments around the World have cut overnight lending rates to historic lows. Similarly, mortgage lending interest rates in Canada have dropped well below historical average lending rates. This new climate has created an opportunity for homeowners with existing mortgages to refinance, therefore, significantly lowering the cost of their mortgage.

For example, a $285,000 mortgage financed in late 2007 with an interest rate of 5.89% will have monthly payments of $1,804.86/month. If that same mortgage were replaced with a new mortgage for $285,000, total monthly payments would be $1,560.02 --a savings of $244.84/month. Over the remaining term of the mortgage, this homeowner will save over $10,000 in monthly mortgage payments!

To find out how much you could potentially save, call one of the qualified Alberta Mortgage Professionals at 780-479-2222, or apply online at www.albertamortgagecentre.com.

Do Fixed and Variable Rate Mortgages Move in Unicen?

As we near the announcement of the Canadian Federal Budget next week, many potential and existing homeowners are expecting interest rates to drop --significantly. Accordingly, many people are similarly predicting mortgage interest rates to drop comfortably. While this prediction may come true, it is possible for the Bank of Canada to decrease its Prime Lending Rate without having any impact on Fixed Mortgage Interest Rates.

The reason a drop in the Bank's Prime Lending Rate does not necessarily equate to a drop in Canadian Mortgage Lenders' available Fixed Rate Mortgages is because the two are generally affected by a different set of factors, are designed to accomplish somewhat different objectives, and are controlled by an altogether different set of parties.

The Prime Lending Rate is a reflection of the Bank Canada's Overnight Lending Rate --which is the rate at which financial institutions are able to access short term funds. The Bank of Canada works with the Government of Canada to achieve targeted objectives set out by the Minister of Finance and Parliament. As a result of this relationship, the Prime Rate is often set in a way to maximize its positive effect(s) on the economy.

In contrast, Fixed Rate Mortgages are based on the Canadian Bond Market and therefore functions in response to market fluctuations and activity. As a result of this discrepancy between Fixed and Variable Rate Mortgage Interest Rates, it is possible for both to be moving in opposite directions --such as when the Government is looking to curb inflation while companies are seeking out capital investment.

For more information about Fixed and Variable Rate Mortgages, contact one of the qualified Alberta Mortgage Professionals or visit www.albertamortgagecentre.com or call 780-479-2222.

Debt Consolidation Mortgages: How do they work?

What is debt consolidation?

Debt consolidation (in the context of a real estate) is when an individual converts their high interest, short term debt (credit cars, personal loans, unsecured loans, car loans, etc) into a lower cost loan in the form of a mortgage or secured line of credit. The money that is used to replace the high interest debt comes in the form of a loan registered against the borrower's property for the value its existing equity. Through debt consolidation, individuals can drastically reduce their monthly payments and overall cost of debt and simplify their lives by replacing a multitude of payments with a single monthly pre-authorized mortgage/interest payment.

Can anyone get a debt consolidation mortgage/line of credit?

Debt consolidation mortgages and lines of credit are only available to individuals who already own real estate, and have some established equity in the property. If you own your own home and have some existing equity, you can possibly qualify for a debt consolidation loan --regardless of your current credit situation. If you own a home, you can qualify!

How does a debt consolidation mortgage/line of credit really work?

Lets say that you as an individual have $312,000.00 in debt ($250,000 mortgage, $40,000 in car loans, and $22,000 in credit card debt), which has a total monthly payment of $2913.67

After consolidating the same debt with a new mortgage at even 5.75%, the same $312,000.00 of total debt would have a mortgage payment of $1950.07

By consolidating your debt in this example, you save $963.60 each month without making any changes to your lifestyle or spending patterns! If you were to set aside $500.00 of the $963.60 saved each month, by the end of your 5 year mortgage term, you will have saved $30,000.00 without making any spending cuts, and actually having an additional $463.60 to spend each month!

With these savings in hand, you can not only save money each month on payments, but you will also be protecting your credit rating, reduce your interest expenses and have the ability to better your lifestyle and save for the the future.

If you own your own home, these savings can become a reality!

For more information about debt consolidation and mortgage refinancing, call one of the mortgage brokers at Alberta Mortgage at 780-479-2222 or visit www.albertamortgagecentre.com

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.