/xmlrpc.php" /> /xmlrpc.php?rsd" /> /wp-content/plugins/email/email-css.css" type="text/css" media="screen" /> /wp-content/plugins/social_bookmarks/social_bookmarks.css" />

1 Year Fixed vs. a Variable Rate?

With interest rates holding true based on the Bank of Canada’s recent announcement, a question that people are asking is should I consider a one year fixed rate or a variable rate mortgage?

Here are some things to think about:

  1. Today’s variable-rate mortgages still have higher interest rate premiums relative to those in the past
  2. A 1-year mortgage doesn’t lock you into a rate for 3-5 years which means you can refinance in 12 months when (hopefully) discounts to prime might be back
  3. The rates are comparable: Variable and 1-year mortgages are both based on short-term interest rates, so they move together over time
  4. In some unique cases, rates on 1-year mortgages are better than today’s best variable rates
  5. The most flexible 1-year mortgages are convertible into a fixed OR variable rate at any time, and at no cost
  6. 1-years give you a chance to haggle with your lender again in 12 months which may or may not be a positive for you
  7. If rates go up in the next 12 months, you’re protected for the remainder of the term in a fixed-rate mortgage
  8. If rates steadily climb over the course of five years, 1-year terms could help you come out further ahead because 1-year rates reset slower than variable rates—which is helpful when rates are rising
  9. 1-year payments are fixed for a longer period of time than variable payments which makes budgeting easier

Your Take-Away: Any time you are making a decision regarding the term and structure of your mortgage, it is imperative to take into account all of your options along with the pros and cons of each. The truth is, there is no “one size fits all” solution which is why a proper consultation can prove to be so beneficial and necessary.

After all, the only way to truly know which term or structure is best for you is to a number of different variables including your epected time in your existing home, your current cash flow needs and flexibility, your overall goals and objectives in terms of your mortgage, and so on. Don’t think that just because one option may have a better rate then the other that your answer is easy…there is far more to this decision then just looking at the rates.

As always, have a Terrific Thursday!

Chris and Elisseos

Are Pre-Approvals On Their Way Out?

An intriguing article was recently published online posing the above question.

If you understand how a mortgage pre-approval works, its probably a safe assumption that you understand that the benefit is very much in the favor of the mortgage client rather then the mortgage Lender. After all, in order for a Lender to provide an authentic pre-approval, they have to run through the same administrative process they would for a new mortgage client with a firm commitment. However, with a pre-approval the client always has the option of opting out and walking away from the deal considering there is no penalty or loss to do so.

Recently, one large bank has officially removed themself from the pre-approval market based on the internal costs incurred as a result of providing this service. In reality, less then one third of pre-approvals actually close and in the case of the major lender mentioned above, it is rumored that they had been losing $20 million in business each year before they decided to pull that service from their product shelf.

Your Take-Away: To me it seems clear that a pre-approval is really an attempt by the Lenders of the world to get their feet in the door with potential mortgage clients by offering a service that actually may or may not prove to be of any value to them from a business perspective. If that is in fact true, that implies that you as a potential client hold all the cards.

Many people feel as though they are locked in when they put a pre-approval in place or that it can somehow prove to be detrimental to their search for a mortgage. There are no penalties, nothing locking you in to any one lender, and no drawbacks to getting pre-approved. After all, if there were then the Lenders would be making money, not losing it.

My suggestion, if you are even thinking about moving or refinancing, put a pre-approval in place as soon as possible and lock in the best rate possible for the next 120 days.

Until next time, have a Terrific Tuesday.

Chris

Couple Declined Their Mortgage Insurance Claim - The Toronto Star

Third party articles are always of interest to us, and this specific article in the Toronto Star is an eye opener for anyone. 

Ellen Roseman of The Toronto Star recently documented one couple’s fight to get paid on a death claim that was made through their TD Canada Trust. We’ve talked about the perils of Mortgage Insurance offered through your lender in posts before, but this story is a real life experience for one Toronto based couple and I’m sure it will make you question where you hold your insurance.

The good news is that despite the original decline of their claim, to TD’s credit they did revisit the situation once the Star became involved and later paid out the claim in full. The reality however is that had they not gone to the Star for help, they may never have received that money. And even if they would have, do you think they really wanted to have to fight for something they knew all along they were entitled too? Never mind the fact that they were also in the midst of dealing with the news of a terminal Cancer diagnosis. Perfet timing it seems?!?

Your Take-Away: The most chilling comment written by Ellen was quite poignant, and one you should seriously considering thinking through. Ellen wrote: “The lesson: Banks can issue insurance and deny coverage years later if they think there was misrepresentation on an application.”

I can’t help but think it may just be time to at least explore your other life insurance options, mainly because the underwriting is done up front, not at claim time. And after all, you’re most likely going to save some money too. Not a bad thing considering the current status of our economy!

Until next time, have a very Happy Easter!

Chris

Should I Pay Down My Mortgage or Invest in the Market (Part 2 of 2)

In my last post, I discussed my perspective of whether to pay down your mortgage sooner with your extra cash flow, or whether to invest that money in the market. In this post, I thought I would share an alternative reason as to why I choose to invest in my RSP’s with extra cash flow rather then pay off my mortgage with that same amount of money. 

The strategy I’m referring too is to invest your extra cash flow into an RRSP on a monthly basis. Each deposit will go towards your total RRSP contribution for that year and thus create an annual tax deduction. If you are like most Canadians, you will then receive a tax refund sometime in the early part of the following year that you can then put directly against the principal of your mortgage. This strategy allows you to grow your RRSP and also pay down your mortgage sooner.

Your Take-Away:  Think of it this way. If you have $10,000 to put against your mortgage, why not put that into your RSP and create a tax deduction of $10,000? If you are in the highest tax bracket of 46%, you would receive a tax refund of $4,600 which you could then put directly into your mortgage. Right off the top you have turned your $10,000 into $14,600 and have both grown your RRSP and also reduced your mortgage debt.

In the end, sticking to your regular mortgage payment plan or paying it off sooner becomes a matter of preference and a decision based on “Opportunity Costs”. Only you can make that decision, but if you can handle a bit of debt and stay with your original plan, why not take advantage of a market that is largely “on sale” today?!?

Until next time, have a Fantastic Friday.

Chris

Should I Pay Down My Mortgage or Invest in the Market (Part 1 of 2)

One question I deal with on a regular basis is “Should I pay down my mortgage with excess cash flow or invest that money into the market?” There are definitely different schools of thoughts on this topic, so I thought I’d share my personal perspective.

With the cost of borrowing being so low today (call it 5.45% for a 5 year fixed mortgage), I’m confident that it is quite possible to earn a larger rate of return in the market then to pay off my mortgage sooner. Lately that doesn’t seem to be the case, however I’m still confident that I will earn a better return by investing in the market over a five year window, which is a typical term for most mortgage owners. A general rule of thumb for me is to ask myself if I can earn more then it costs me to borrow. If so, then I’ll take as much debt as I can.

Your Take-Away: This is clearly not a strategy that works for everyone, especially if you invest in GIC’s or Money Market accounts, because you won’t be returning a greater percentage then what you are paying for your mortgage. The other factor to consider is that if you are tremendously opposed to debt, there is no point holding extra debt if it’s going to bother you and always be in the back of your mind.

Until next time, have a Terrific Tuesday!

Chris

What’s Happening with Fannie Mae and Freddie Mac

The U.S. credit crisis is well under way, and two of the biggest names in asset backed securities are Fannie Mae and Freddie Mac.

When these two institutions make the news because of their risk of insolvency, there is no question that they spark some interest and in turn, some fears. In fact, these two company’s are now being referred to as the “epicenter” of the U.S. financial crisis, and dominate the market for U.S. housing finance. Consider them a much larger company similar to that of CMHC and GE. If they did not exist, housing prices would continue to fall at a much larger rate then we’ve seen even to date.

What most are not aware of however, is the fact that Mae and Mac are no longer simply a ”too big to fail” American financial institution. Over the years, these two institutions have become central to what has turned U.S. mortgages into securities held by the world’s central banks. In fact, statistics show that these central bank’s hold up to $925 billion in these types of securities around the world.

Your Take-Away: It is impossible to predict the future of our economy considering the recent volatility we have all seen over the past 12 months. What we can say however is that although both of these institutions are definitely in a financial crisis, the fact remains that we are confident that the U.S. Goverment will be forced to inevitably step in and provide a possible solution for what has and is happening. If they don’t, they would be solely responsible for a further global economy slow down to the tune of multi billions of dollars.

Again, there is no way of predicting with absolute certainty that Fannie Mae and Freddie Mac will eventually get themselves out of their current financial situation. If they don’t however, we will be dealing with a possible global catastrophe that no one in the world would want to see. Better yet, the last country that would want to allow that to happen would be the U.S. based on the fact that they would be the primary reason for a further decline in global economies.

Until next time, have a Terrific Thursday!

P.S. For a far more in depth read of this story and the details involved, please visit http://blogs.cfr.org/setser/2008/07/12/too-chinese-and-russian-to-fail/

Chris & Elisseos

40 Year Mortgages and 100% Financing No More

Earlier this week, the Department of Finance announced that they were going to put a halt on 40 year mortgages and 100% financing.

As is usually the case with a decision of this nature, many are wondering whether this will be a good or bad thing for both the end user and the economy. According to Pascal Gauthier, a TD Bank Economist, “The five-year reduction in amortizations is expected to have a minimal impact — but the 5% minimum down payment could cut into the number of first-time homebuyers in the market.” Clearly the biggest concern is will the economy suffer with fewer people being able to purchase a home who would have otherwise been forced to take advantage of the 100% financing option?

Your Take-Away: Although this decision could slow down the economy in terms of first time home buyers, I personally can’t help but agree with the direction the Department is heading. After all, the credit crisis we are seeing in the US is due in large part to the very liberal mortgage financing American banks were offering, and we all know how much of an impact that has had. We may see a slow down in new new home buyers jupming into the market and thus even new home starts, but I’d rather deal with that smaller pain now then the potentially devestating pain we could experience if we were to ever fall into the same traps that the US is currently dealing with.

The long and short, a 40 year mortgage is not tremendously more different or dangerous then a 35 year mortgage. However, I am confident that 100% financing can bring with it the potential of catastrophic results and I’m confident that this will be the right decision in the years to come.

Until next time, have a Wonderful Weekend!

Chris & Elisseos

Bank of Canada Leaves Rate Unchanged - Now What?

This is somewhat old news by now, but it could provide some interesting changes.

As you already know, the Bank of Canada (BoC) shocked many Canadians yesterday by leaving the overnight lending rate unchanged at 3%. This was especially surprising because most, if not all, Analysts were expecting a 0.25% rate cut with fairly strong confidence. To top it off, they also made it clear that there is currently no need for “further monetary stimulus” which says they don’t really feel it is necessary to continue the downward trend of cutting rates moving forward.

Your Take-Away: With the BoC focusing on curbing or slowing down inflation rather then stimulating the economy, there is a very good chance that we will start to see fixed mortgage rates begin to climb over the course of the next six months. If you currently have a mortgage in place, it would be a great time to revaluate your terms in regards to staying with or changing too a fixed or variable rate mortgage. On the other hand, if you are looking to buy your first home or structure a new mortgage, a simple pre-approval could save you literally thousands of dollars over the next five years.

With the recent volatility we have seen, now is a great time to talk to your Mortgage Advisor…it could save you some very real money!

Until next time, have a Wonderful Wednesday!

 Chris & Elisseos

Interest Rates set to Rise or Fall?

Are interest rates on the rise in Canada, or are they set to continue to decline based on the US economy?

That seems to be a fair question, especially considering the shaky economy in the US and the question mark that looms over our Canadian Economy. To make matters worse, TD released a report yesterday saying that they “expect another 100 basis points in rate cuts out of the Bank of Canada to help fend off any fallout north of the border”. Ironically, on the very same day, CIBC World Markets released a report stating “Higher prices for food and energy will reverse the direction of interest rates in the next 12 months, and lift energy and materials stocks to new record highs”.

Your Take-Away: With drastic contradiction like these two reports create, it is very difficult to know just what is happening and more importantly, what to expect. If I were to be forced to make a decision of whether to choose a variable or fixed rate mortgage in this economy, I would make the same one as though the economy was strong and fruitful. Don’t let yourself get caught up in the hype and try to time the market, and definitely don’t step too far outside of your comfort zone and make a decision you would not normally make because of one report or the other.

 At the end of the day, do your research and do what you are most comfortable with for yourself and your family. It is impossible to know what the future holds, which is why sticking to your guns and your core values (otherwise known as gut instinct) is key in this environment.

Good luck with your decision making, and until next time, have a Terrific Tuesday.

Chris & Elisseos

is Now a Good Time for a Variable Rate Mortgage?

One of the most common questions we are asked when it comes to choosing a mortgage is “Should I go with a fixed rate or variable rate mortgage?”

With what he have seen over the last six months, and specifically on Tuesday of this week, a variable rate mortgage seems to continue to make more and more sense. I can say in my own personal experience that my mortgage payment has decreased by over $200 since November and prior to Tuesday’s Bank of Canada decision, and will drop yet again based on my choice to choose a variable mortgage. The question remains however, is it right for you?

Your Take-Away: Before you decide one way or the other as to which type of mortgage you will choose, it is important to explore more then just your cash flow needs today. It would be worth your time to seriously consider the following questions:

Although these questions won’t necessarily give you an exact answer in terms of what type of mortgage to choose, they will help you to explore some of the issues you may be forced to deal with if the current rates were to change abruptly. We believe that a variable rate mortgage can make a lot of sense for a lot of people, but by no means is it a one size fits all product.

Until next time, have a Terrific Tuesday.

Chris & Elisseos

Next Page →