Market Commentary provided by First National Financial LP
To cut, or not to cut? That is the big question for the Bank of Canada this week.
More and more market watchers are expecting another drop when the central bank sets its policy rate this week. Right now a little more than half believe we will see the overnight rate trimmed by a quarter point to 0.25%.
It sounds like good news for those with variable-rate or hybrid mortgages, but many observers, including those who expect to see a cut, are calling it a bad idea.
Key concerns include:
- Adding more heat to the housing market, especially in Vancouver and Toronto.
- Adding more imbalance to the, already out of whack, household debt-to-income ratio.
Further undermining the value of the loonie. That would immediately reduce consumer purchasing power while offering minimal benefits to the export sector which is battling slow growth in the global economy.
Almost always, when rates are offered at substantial discount to the norm, you should be aware that restrictions and special conditions may apply. That’s where the value of a Mortgage Broker works in your favour.
Not only will a good Mortgage Broker find you the best interest rates in the market, but with knowledge and expertise about available products in the market, he can save you cost over the long term. Mortgage borrowers faced with high penalties, mortgage portability issues, limited pre-payment options, conversion restrictions and lender fees could end up paying a lot more with a “low rate discounted mortgage” than with a flexible mortgage product with a slightly higher rate.
Our advice? Think long term when you make that mortgage decision. Know what you are getting into before you sign.
From time to time I am asked about Reverse Mortgages and how they work. Our main partner in this product is ‘CHIP’ or Canadian Home Income Plan.
In order to qualify for a CHIP Reverse Mortgage, both you and your spouse must be at least age 60. The typical borrower who benefits from this program either has his home paid for or has substantial equity. With CHIP, the maximum available mortgage is limited to 40% of your home’s value and the older you are, the greater the percentage you can borrow.
With a Reverse Mortgage, you make NO PAYMENTS! That’s right, the interest portion is added to your balance and you and your spouse can live in the home until you decide to sell or the surviving spouse passes away. This type of mortgage is generally suited to the borrower who needs cash but either cannot, or would prefer not to make payments in their later years.
Interest Rates are quite affordable with CHIP and are generally speaking, very close to Bank Posted Rates. For updated rates and terms and general information, click here.
A Reverse Mortgage is not for everybody, but your Mortgage Professional at The Mortgage Centre will help if this plan is right for you. We’ll give you the valuable advice you need to make a decision about this innovative product and walk you through the process of applying for and completing your CHIP Reverse Mortgage.
Why is there such a big difference between bank posted rates and The Mortgage Centres’ lowest rates?
The simple answer is that many lenders have posted rates which they charge to clients who often do not realize that lower rates are available. They offer the posted rate to their client and if the client accepts that rate they have a very profitable mortgage.
Let’s look at an example of the difference to a mortgage customer between posted rate and the current best discounted rate being offered for the same term.
For our example let’s assume a mortgage of $250,000 for a 5 year term amortized over 25 years. A quick scan of today’s (October 9th, 2008) rates shows a typical posted rate for such a mortgage at 5.5%. Based on that rate a mortgage customer would have payments of $1,524.52 for 5 years. At the end of 5 years the remaining balance would be $222,935.77.
For the same mortgage at the current lowest rate of 3.84% the payments would be $1,293.46. This is a savings of $231.06 per month. In 5 years the total savings is $13,863.60. At the end of 5 years the remaining balance on this mortgage would be $217,023.99, which represents a further savings of $5,911.78.
The total savings available at discounted rates is $19,775.38. The financial institutions have a very
important reason to offer posted rates.
Your mortgage broker will save you many thousands of dollars by offering you only the very lowest rates available for your mortgage. Remember your mortgage specialist works for YOU not for the banks.
For more information about this or for any other mortgage topic please call at 374-2222 or e-mail: