Category: Mortgage


Mortgage Plain-talk: What's the Difference Between "amortization" and "term"?

Filed Under: Mortgage by — Leave a comment
August 25, 2010

Mortgage Plain-talk: What’s the Difference Between “amortization” and “term”?

There are many stresses associated with home buying – both financial and emotional. And frankly speaking, it doesn’t help that the process comes with its very own foreign language. While your mortgage broker can help de-mystify these terms, it helps to have a bit of a primer on what some of these terms mean. After all, it’s your money and your home we’re talking about; as a Mortgagor, you have a right to understand what you’re reading. (You didn’t know you were a mortgagor? Read on…)

We’ll start with Amortization” and “Term”. Both refer to periods of time in the life of your mortgage, and you’ll want to be sure that you understand the difference.

The amortization” of your mortgage is the length of time that would be required to reduce your mortgage debt to zero, based on regular payments at a specified interest rate. The amortization period is typically 15, 20 or even 25 years, although it can be any number of years or part-years. You could establish that you are able to make a certain payment each month of say 0 for your 0,000 mortgage at 5.5%. In this case, your amortization period will be just under 18 years. Or you could tell your broker that you’d like to be mortgage-free in just 10 years. With an amortization period of 10 years at the same interest rate, your 0,000 mortgage will cost you about ,407 per month. That’s a tougher monthly payment, but you would save thousands of dollars in interest. (More than ,000, in fact.) As you arrange your mortgage, then, keep in mind that your amortization period may be fairly long — although the shorter you can make it, the less you’ll wind up paying for your home in the long term.

The “term” of your mortgage will typically be shorter. The “term” is the duration of your mortgage agreement, at your agreed interest rate. This will be a very specific length of time, although you will have several choices. A 6-month mortgage is a very short-term mortgage. A 10-year mortgage will be one of the longest terms, generally with a higher rate of interest to represent the higher degree of uncertainty in the economic outlook. After your mortgage term expires, you will need to either pay off the balance of the mortgage principal, or negotiate a new ontario mortgage at whatever rates are available at that time.

Now, back to the term “Mortgagor”. This is one of three very similar terms: “Mortgagee”, “Mortgagor”, and “Mortgage”. A Mortgagee is the lender of the money: a bank, company, or individual. A Mortgagor is the borrower: the person or persons (or company) that is borrowing the money, and who will pay it back to the mortgagee. The Mortgage, of course, is the legal document that pledges the property as a security for the debt.

Still confused? Speak with a mortgage professional. Get the best mortgage suited to your needs and all your questions answered in plain talk.

Tags: , , , , , ,
Comment

Pick the Right Perks for your Adjustable Rate Mortgage

Filed Under: Mortgage by — Leave a comment
August 22, 2010

Pick the Right Perks for your Adjustable Rate Mortgage

These are heavy days for Canadian homeowners. If you’ve been in your home even a few years, you’ve probably already enjoyed a modest climb in the value of your home. Even if you don’t intend to sell, it’s good to know that your real estate investment is doing well. But we’re also enjoying an environment in which mortgage rates have reached historic lows.

That combination — strong valuations and low mortgage rates — has an unprecedented number of Canadians looking for ways to capitalize on the great opportunities available to them.

Whether it’s to buy their first home, trade up, or take equity back out of their homes, Canadians are jumping at the opportunity to borrow at today’s rock-bottom rates.

While many homebuyers are reconsidering the value of fixed-rate mortgages to lock in those low rates, you should keep in mind that adjustable-rate mortgages – the darling of the dropping rate trend – can still offer real value to homeowners. It’s a matter of finding the right combination of mortgage features and options.

As banks have been joined by other lending institutions, we have seen our menu of ontario mortgage options grow accordingly – with some innovative new mortgage types now available to help Canadians take advantage of today’s unusual opportunities.

One of the most innovative mortgages we’ve seen in a very long time is a new adjustable-rate mortgage with some very compelling features. First, it’s based on an institutional rate benchmark known as Bankers Acceptance. Most of us are familiar with the rate benchmark known as Canadian Prime – and we are accustomed to assessing mortgage rates based on Prime. The BA, on the other hand, is the rate at which banks will lend money to one another – and it’s typically a lower rate (sometimes much lower) than the prime rate offered to a bank’s best customers. The new BA-based mortgage – compared to the best prime-based mortgage available – could have saved a mortgage client a bundle over the last several years, primarily because the prime rate tends to be “stickier” in an environment where rates are falling. Often, the more fluid, market-based BA rates deliver the rate change more quickly. The BA rate is no trade secret, by the way; pick up a copy of your favourite financial paper and look for the published money rates to find the Bankers Acceptance Rate.

But the attractive rate structure is not the only perk. The same BA-based mortgage – so welldesigned to help clients wring the last quarter point from their mortgage rate – now also comes with a rate cap which guarantees that your rate will never climb higher than 2.15% above the starting base rate – no matter what happens to rates during your mortgage term. There’s no worry about locking in too high because the rate is always adjustable down.

Only the ceiling is fixed. It’s a homebuyers’ dream:

A mortgage with limited upside and unlimited downside. If you’re thinking about buying a home this year, or you haven’t had your mortgage reviewed in the last several months, take the opportunity to get an expert assessment of your many options from a mortgage professional. It could be the best investment you’ll make this year!

Tags: , , , , ,
Comment

Understanding Reverse Mortgages

Filed Under: Mortgage by — Leave a comment
August 19, 2010

Understanding Reverse Mortgages

Seniors today often live with a great deal of financial uncertainty. The retirement they imagined may not be consistent with the reality they face.

Incomes are flat or declining, living and medical expenses are higher than ever and few income boosting alternatives exist.  Even those who have heard about Reverse Mortgages may be unsure about how they work or what questions to ask. As they search for information, they often turn to their financial institution for guidance and information. By becoming familiar with the product, you can be an even more valuable resource to your clients providing them with income supplementing alternatives to drawing down assets.  

 

What is a Reverse Mortgage?

 

A Reverse Mortgage is a special type of loan that allows a homeowner to convert a portion of the equity in their home into cash they can access. The funds are not taxable to the homeowner and typically don’t interfere with eligibility for Social Security or Medicare benefits. (However, in the federal Supplemental Security Income program, beneficiaries must keep their liquid resources under certain limits.) The customer retains title to the home as well as right to any appreciation in home value when the loan terminates after it is paid off. The loan remains in force until the last titleholder dies, permanently leaves the home or sells the property; the borrower can’t be forced to sell or move by the lender. The loan may be repaid at any time. But unlike a traditional home equity loan or second mortgage, no monthly payments are required. Instead of putting further pressure on an already stretched budget, a Reverse Mortgage can free a senior homeowner of monthly debt obligations.

 

Most Reverse Mortgages today are Home Equity Conversion Mortgages (HECMs) and are FHA-insured and guaranteed. Because HECMs are subject to FHA lending limits, proprietary products have also been developed to help homeowners with properties in excess of the FHA lending limits.  

 

Who qualifies for a Reverse Mortgage?

 

All titleholders must be 62 or older and own a home with some equity. There are no income or credit qualifications. Existing mortgages or liens must be paid off, but are often paid with proceeds from the Reverse. The homeowner must also remain current on insurance and property taxes, but these can also be paid with proceeds from the Reverse.

 

How can a borrower use the money?

 

The funds can be used for any purpose from making ends meet to living retirement dreams.  The top reasons for funds used given typically by borrowers are:

 

Paying off debts, primarily mortgage and credit cards

Home repairs and remodeling

Living expenses

Travel

Health care or long-term care

Easing the financial burden on children

Education

Hobbies

Escalating property taxes

 

The amount available depends on the borrower’s age, the value of the home, interest rates and local FHA lending limits. Older borrowers can receive a higher percentage of their equity than younger borrowers. Funds can be received in a lump sum, a monthly payment or a line of credit.

 

What are the costs?

 

As with most any loan product, there are origination fees and closing costs, but they can be paid from the proceeds of the Reverse Mortgage. HECM loans also have a charge for the FHA’s Mortgage Insurance Premium (MIP). There are usually no out-of-pocket costs to the borrower.

 

What consumer protections are in place?

 

Reverse Mortgages are non-recourse consumer loans – the loan payoff can never exceed the value of the home. To get a Reverse Mortgage, the customer must attend a mandatory counseling session and review their financial situation with a trained, professional Reverse Mortgage counselor. Many of the counselors are certified by the AARP. The counselor ensures that they understand the transaction, the costs and their other alternatives.

 

If you have questions regarding Reverse Mortgages or how they may provide life-changing benefits to your clients, contact MLS Reverse Mortgage at 1-888-888-4834 or www.mlsreversemortgage.com.

 

Fixed Rate Reverse Mortgage

 

MLS Reverse Mortgage

 

Tags: , ,
Comment

Your Mortgage Could be a Goldmine of Potential Savings

Filed Under: Mortgage by — Leave a comment
August 16, 2010

Your Mortgage Could be a Goldmine of Potential Savings

“A penny saved is a penny earned”… or so the old proverb goes. Of course, the value of a penny has changed somewhat from the time when your mother offered her wisdom on the value of keeping what you earn. Today, you could save thousands of dollars by simply making the right mortgage decision. If you’re like most Canadian homeowners, your mortgage is a goldmine of potential savings.

In the past few articles, we’ve talked about the importance of your mortgage as one of your most significant financial decisions. We’ve explored the value of seeking the advice of a mortgage professional -whether you’re buying a home or renewing an existing mortgage.

Today, let’s take a look at the bottom line: the savings you can enjoy by making the right mortgage decisions.

It is the primary role of a mortgage broker to find you the right product for your personal situation. A mortgage broker is a financial professional and – like your investment advisor – he or she will want to understand your personal situation and payment preferences. Your mortgage broker has access to a broad spectrum of lending institutions, so you can do some valuable comparison shopping for the right combination of features, rates and mortgage options.

All these choices offer you substantial opportunities to save money over the life of your mortgage.

If you are like most homeowners, you are focused -for good reason – on finding the best possible rate for your mortgage. Your mortgage broker can offer you the best range of rate options and terms. If a mortgage broker can get you one per cent off the posted rate, that could translate into more than ,000 in interest per 0,000 borrowed over a 25-year amortization schedule. If, however, you believe that most mortgage rates are basically the same from one institution to the next, then consider the fact that even an eighth of a point difference in the rate can offer significant savings over the duration of your mortgage.

But it’s also important to look beyond the rate. There are other ways to find savings in your mortgage. Your mortgage broker is up-to-date on market trends and new opportunities… as well as some of the tried-and-true ways to save money in a mortgage.

Do you get an annual bonus in your job? You may want to use that bonus to pay down the principal of your mortgage. If you pursue this strategy consistently over the life of your mortgage, you could save thousands of dollars in interest by paying your mortgage off sooner.

Are you paid bi-weekly or bi-monthly? Consider a change from the usual monthly mortgage payment. Set up your mortgage payment schedule to coincide with your pay period. Again, you can shave years off your mortgage, and enjoy thousands of dollars in savings.

In the coming weeks, we’ll look at some of these savings opportunities in more detail. In the meantime, consider the old penny proverb again. How much is your time worth? Time savings is one of the key, unexpected benefits that clients say they have enjoyed when they choose to work with a mortgage broker. Above all, a mortgage broker is an expert in customer service, and that means that your broker looks after every detail of your mortgage research and negotiations on your behalf.

Tags: , , , ,
Comment

The accreditation for mortgage brokers

Filed Under: Mortgage by — Leave a comment
August 13, 2010

accreditation for mortgage brokers

Mortgage brokers are blossoming in the current environment and gain an increasing share of the mortgage market. This is good news, because with a mortgage professional when you do one of the most important financial decisions should consult in your life. But keep in mind that not all mortgage brokers have the same level of education and experience.

why it’s so good news for the Canadians, that the mortgage industry now has national accreditation: Accreditation Mortgage Professional (AMP). If you meet with a mortgage broker with an AMP, you will be sure that your company is in the hands of a professional.

Canadians are accustomed to buying financial products like insurance and investments by an accredited professional. Now they can search for a similar job title from their mortgage experts.

As with other similar programs for accreditation fund salespeople, stockbrokers, the amp is designed to ensure adequate training and experience. Mortgage professionals from all areas come to purchase for accreditation: from mortgage brokers on the front of those who specialize in lending or mortgage insurance, for example.

While the vast majority of Ontario mortgage brokers take seriously the important responsibility they have to their customers, provide the name of mortgage customers with a tool, choose their mortgage expert. This type of identification is especially valuable in an industry in the province of rules are different – and so a variety of standards in practice instead. A single national proficiency standard brings mortgage brokers in line with other financial professionals.

The term AMP you can now have the confidence that you have your mortgage broker industry experience, and industry has taken ethics training, and is a program of training required to keep their name. To qualify for designation, mortgage professionals need to have at least five years professional experience or successfully completed a recognized mortgage professional qualification course and take an ethics training. They also need to commit to a minimum 10 hours training per year, and agree to be governed by the professional code of the national organization CIMBL.

With a growing number of Canadians now to the services of independent mortgage brokers to help them assess their mortgage options – in an industry 0000000000 – The timing is perfect. It’s your money, after all, and you should be the tools to have to make the best decision possible. An independent mortgage broker can offer the widest range of mortgage rates and options. Now they can also offer you the additional security of their newly minted designation: the AMP.

Tags: , ,
Comment

Mortgage "stores" are a hit with homebuyers

Filed Under: Mortgage by — Leave a comment
August 10, 2010

Mortgage “stores” are a hit with homebuyers Q: What was the biggest financial investment most Canadians will ever make? ”

Okay, this may have been easy if you read the headline of this column. For most Canadians, their home is their biggest investment – and their most powerful financial tool.

It is curious – given the importance of the mortgage decision – that many homebuyers will spend much more time to invest, the decision on investment funds, they should be in. .. or even to buy the sofa … match than the mortgage best suits their needs.

The times have indeed changed. Mortgage options have exploded, and the Canadians have begun to demand – and get – better prices, more flexible products and more personalized service than ever before. And a better view of their growing range of options, more property buyers than ever to go to a mortgage “Store” – and the professional mortgage brokers who execute them.

The Ontario Mortgage Store is a symbol of how much the mortgage industry has changed since those days when you were just in your local bank changed for a mortgage. Today, working select one of three Canadian first time home buyers with a mortgage broker, and these numbers are climbing. It is estimated that in the not too distant future, up to 50% of all Canadian mortgages must go through a mortgage broker for their funding. Our American neighbors are way ahead of us, almost 70% of all U.S. residential mortgages are now arranged by a mortgage broker.

Here in Canada, are demanding home buyers a choice – and they voted against a path to the door of the independent mortgage brokers to get around it. Fortunately, this way getting shorter and traveled, with attractive and inviting shop windows, offices, many independent mortgage brokers are now the establishment of “Main Street” office … just like the banks.

It is hard to not have the opportunities to save by mortgage upset. At the beginning of the view that borrow many different institutions, money for mortgage: banks, trust companies, credit unions, pension funds, insurance companies, finance companies, etc. on a mortgage business – as they run through many independent consultant with Mortgage Intelligence, Canada’s premier players in the mortgage access-broker industry, home buyers (by their mortgage broker) Mortgage interest and information from a large, diverse group of lenders, including of course the traditional banks. The mortgage broker does not provide specific financial institution, but works to find a tailored solution mortgage. And they have information on the growing list of specialist mortgages that are now looking for justice in niche markets such as self-employed or a homeowner for leisure or as investment property example.

For many Canadians, has been the family home of best-performing investments in recent years. It is a reminder that a mortgage is an important financial tool Ontairo – and access to a wide range of credit is a crucial advantage. Finally, quarter-point difference on your mortgage rate add up to many thousands of dollars over the term of your mortgage.

Tags: , ,
Comment

How to get honest advice about Colorado Mortgages

Filed Under: Mortgage by — Leave a comment
August 1, 2010

To find stayed at Colorado mortgage

stayed at Colorado mortgage

Find It’s safe to say there are many places to a deal for a mortgage or to find Denver Colorado mortgage these days. But the mortgage crisis has made things a bit more complex. It’s not just about the best deal, but to find someone with the work that you receive honest advice and help you in a mortgage you can afford. However, there are experts out there you can give this kind of Colorado mortgage advice? Is there someone who you get in the best Denver mortgage product while still ethically acceptable? The answer is yes.

Watch Out When Colorado Mortgage Experts

The World Offer One of the problems that so many people to thank for in a mortgage mess that their mortgage Denver Colorado mortgage expert or experts they made an offer that all would solve their problems. This mortgage experts, customers put into the deals just did not work out and now people are likely to lose their homes. If you want to get into the right mortgage product now, then you must for someone who will look at the Colorado home loans, and to say that, you can not see.

Sounds funny, right? But that is the way you say Denver mortgage with credibility, may, by one who is more unethical.

In the recent past, as it seemed, was like any purchase of an apartment, there were too many Colorado mortgage professionals not honest with their customers and the result was bad loans that have turned into foreclosures. The lenders were involved, not with an eye for their clients, but they were only in the position they started with a loan, which may have had little interest at first, but now in difficulty. Instead, a mortgage has to look pro, what will happen to a customer now and look to the future.

How do Ethical Denver Mortgage professionals? to win

In the middle of this crisis, ethical Denver mortgage professionals are working hard back, lost his reputation by bad lenders. Unfortunately, the names of all those in the business of the people injured worked on bad loans. It will take hard (and ethical) for repair, know that

If you are a potential customer, then you must look for professionals who are out there comes, Colorado mortgage in the struggle to be ethical . They have good products to help the owners and they are in the best interest of that person will work. Seek the Colorado mortgage experts, customer and who has been in business for a long time thanks to this philosophy. You want an expert, whose business focuses on:

• Sales of inexpensive products, Denver mortgage

• finding many good opportunities in Colorado mortgages for customers that will last throughout the years

• Ensure that customers continue to creditworthy homeowners

• Putting the customer service as their business grows thanks to these and Regular customers

The mortgage crisis may have knocked some bad mortgage providers out of business, but that does not mean there is not yet traps for the customers. You have to make sure are looking for reliable home loan experts. The key is the type of Denver mortgage advice is available and whether she is honest enough to really say what kind of program that you can get into. If an offer to good to be true, it probably is.

This article by JB of 1st American Mortgage and Loan, LLC, a Colorado mortgage lender, providing access to information on obtaining a Colorado mortgage loans and other information on loans in Colorado online mortgage quotes offers and prices on his website TrueMortgageQuote written. com http://www.truemortgagequote.com).

Tags: , , , ,
Comment

Dealing with Colorado mortgage programs

Filed Under: Mortgage by — Leave a comment
July 29, 2010

Dealing With Colorado Mortgage Programs

deal with Colorado Mortgage Programs

If you are already a homeowner, or just someone who wants to own a home, you know, there are many possibilities Denver mortgage available. But since the people who are interested in buying a home are different, have the upper Colorado mortgage providers are diligent to the next with the right types of Denver mortgage for their customers. Colorado mortgage provider for ways to seek the financial needs of their customers who come from different backgrounds and varied financial mortgage concerns.

The Colorado mortgage,

Fits Denver mortgage lenders have different products for different needs to meet, but all with the same goal of getting would-be homeowners to get a house and refinancing customers, a business that works for them. If you are a qualified borrower Colorado, then you will be able in a wide range of products, home loans available to help tap into a home.

The scope of these products also comes with a disadvantage. It makes it difficult for the typical potential landlords to find out what works best Denver mortgage for them. To have the Colorado mortgage product that fits for you to contribute from a professional who is to examine the various programs, they hold up to your situation and find the right fit in terms of affordability and terms. These help to consider your goals and needs.

Understanding Denver Mortgage Options

The best way to approach the Colorado mortgage search is formed as a customer. You want to know about the Denver mortgage, you will be able to choose from to understand what works best for you. By this information, you will also understand:

• Which loan would you like to ask
• Which loan during your session with a Colorado mortgage bank
• The changing mortgage terms you are told about
• What programs Denver mortgage lenders looking at your

Because of these programs to facilitate your search and maybe you can see a program or one that’s best for your special needs educated find work. You can do this better if you understand what their choices really are.

Among the programs you see when you meet with a mortgage provider Colorado:

• Colorado is fixed-rate mortgages. The interest rates on these are the same over the term of the loan.
• Adjustable Rate Mortgages or ARM Colorado. The interest of the loan may change and are considered risky, but useful for those people who otherwise can not get a loan.
• variable indicates Denver mortgages, including 10, 15 and 30. change
• Interest-only mortgages Colorado
• How the interest, depending on the program, your deposit and lending rates.
• FHA mortgages and other special programs

It is Denver mortgage options that are risky, but if they adapt to your specific needs, the risk with about how much they can change . If you own a home, do not be too long in need, you can lower interest ARM, which will work. But a solid Denver mortgage works better with a moderate interest rate, if you’re looking to be in a home for an extended period.

If you think about it, can refer to the number of Colorado mortgage decisions too much. But on a positive note, the numbers of options available to give homeowners a lot more people a chance to participate in home ownership are increasing. If you work with a qualified Denver mortgage lender, you can be on your way to the property. Mortgage choices for Denver and Colorado are easier to understand if you have a professional working with you.

Tags: , , ,
Comment

More Canadians are Turning to Mortgage Brokers

Filed Under: Mortgage by — Leave a comment
July 26, 2010

More Canadians are Turning to Mortgage Brokers

When it comes to mortgage financing, more and more Canadians are choosing to work with a professional mortgage broker. According to a recent study by the Canada Mortgage and Housing Corporation (CMHC), 23 per cent of mortgages written were arranged through a broker.

Canadians are just catching up with their American neighbors, who are far less likely to simply walk into their home bank for a mortgage. In 2000, almost 70 per cent of all U.S. mortgages were arranged through mortgage brokers.

If we follow the U.S. model – and it seems that we are — then we’re in for a sea of change in the way Canadians manage their most significant personal asset. It makes sense. After all, investment returns aren’t as lucrative as they were five years ago, and investors are seeking out ways to make financial gains through avenues they may have overlooked.

There are some significant benefits to working with an independent mortgage broker. Firstly, let’s compare mortgage expertise: Most banks have one or more representatives who are specifically assigned to assist with mortgages. Their role is to develop mortgage business for the banks. A ontario mortgage broker, on the other hand, is a trained mortgage professional who has met standards for education. The comprehensive training of an independent mortgage broker may exceed the training of their counterparts at the bank. More importantly, the mortgage broker is independent. He or she is not an employee of a lending institution, but has access to rate and option information for a full spectrum of chartered banks and other lending institutions. Their role is to find the best possible mortgage rates and options for you.

Let’s also look at choice: A mortgage broker offers you access to many competitive lenders, each with a range of mortgage options. It would take weeks of research, telephoning and personal visits to recreate the range of features and options that a mortgage broker has at his or her fingertips. Rate information, mortgage options and payment schedules are up-to-the-moment, so you and your broker can make valid comparisons of the options available. The result of all this choice is a mortgage which is customized to meet your needs and to save you money.

Also consider accessibility. Your mortgage broker will be available to you before and after your mortgage closes, which will be good news for those who have spent long hours on hold or in a telephone voice answering loop.

Above all, clients have turned to mortgage brokers for better rates. Access to a broad range of lending institutions is a critical advantage for mortgage shoppers. A quarter-point difference on your mortgage rate can add up to thousands of dollars over the life of your mortgage. Many mortgage brokers work inside a brokerage organization with sufficient mortgage volumes that they can negotiate the best possible rates for your situation. Canadian homeowners who have experienced the benefits of a mortgage broker are unlikely to ever return to a world in which they simply accept the best posted rate at their local bank.

Tags: , , , ,
Comment

Mortgage Security not That Costly

Filed Under: Mortgage by — Leave a comment
July 23, 2010

Mortgage Security not That Costly

Forget everything you thought you knew about the benefits of taking a variable-rate mortgage instead of locking in for the long term.

A new study suggests the security of a five-year mortgage costs little or nothing beyond a riskier variable-rate mortgage, providing you get a jumbo-sized rate discount.

“Interest costs on discounted closed five-year mortgages have been close to, and often lower than, those of variable-rate mortgages since late 1996,” senior Canada Mortgage and Housing Corp. economist Ali Manouchehri writes in the study.

Homeowners have made variable-rate mortgages hugely popular in the past few years in the belief that you can save on interest costs by pegging your mortgage rate to your lender’s prime lending rate. As the prime rises, or as has generally happened in the past few years, fallen, so goes your mortgage rate.

The prime rate at the major banks is now 4.5 per cent, while the posted five-year rate at the big banks is 6.15 per cent. In just one year, the variable-rate choice would save you about ,700 on monthly payments toward a 0,000 mortgage amortized over 25 years (assuming a level prime rate).

Historically, you would also have saved a lot. The CMHC study shows that five-year mortgages taken out from 1993 through 1998 would have cost anywhere from ,000 to ,000 in additional interest paid over the term of the loan (the example is based on a 0,000 mortgage amortized over 25 years).

The flaw with this analysis is that it doesn’t reflect real-world mortgage pricing. These days, very few people take out a mortgage without a sizable discount off the posted rates at major banks.

For that reason, the CMHC’s Mr. Manouchehri decided to compare discounted five-year mortgages with discounted variable-rate mortgages. Incidentally, five years is the most popular term by far for fixed-rate mortgages at about 59 per cent of the total.

The size of the discounts Mr. Manouchehri applied was based on the difference between posted major bank rates and the best deals available from other lenders. For five-year mortgages, he used a discount of 1.25 of a percentage point; for variable-rate mortgages, it was 0.4 of a point off prime.

For five-year mortgages taken out between 1993 and mid-1996, the five-year mortgage was costlier in terms of interest costs. Since then, however, variable-rate mortgages have generally been a little bit more expensive.

Obviously, there’s nothing in this study that decides the fixed-rate versus variable-rate debate once and for all.

In fact, the CMHC study may just confuse anyone who recalls some research done for Manulife Financial back in 2000 by York University finance professor Moshe Milevsky. His research found that the extra interest charged on a five-year mortgage would have cost ,000 on average between 1950 and 2000 for a 0,000 mortgage amortized over 15 years.

To make some sense of the variable-rate versus five-year question, let’s go back to the CMHC study.

It shows that five-year mortgages, discounted or otherwise, were especially bad choices for a three-year period starting in mid-1993. Rates were high for a while back then, but they subsequently fell.

You were a spectator to these rate declines if you were stuck in a five-year mortgage, while people in variable-rate mortgages would have benefited almost immediately.

It’s a different world now, though. Five-year mortgage rates are close to a 50-year low, which suggests they’re far more likely to rise over their term than fall.

So what’s the best choice here, variable-rate or five-year fixed rate? People who want to pay rock-bottom mortgage rates for as long as possible will probably still want a variable-rate mortgage. Remember, you can lock this sort of mortgage into a fixed term without penalty in most cases.

The case for the five-year term looks almost as strong, though. First, the CMHC study tells us there may not be a significant cost to locking your mortgage in for five years, and you might even save a little over a variable-rate mortgage.

Second, the likelihood of higher rates in the years to come would suggest that this is a good time to lock in.

If you had a variable-rate mortgage discounted to 4 per cent, the prime would have to go up by 0.85 of a percentage point to equal the current five-year rate. That’s not a lot of ground to cover in the span of 12 to 18 months when the economy is doing well.

Arguably, the variable-rate versus fixed-rate debate is all about risks and rewards. Right now, the five-year option offers much less risk, and almost as much reward.

Tags: , ,
Comment
Online Law Degree | dui lawyer miami | dui attorneys miami | miami criminal attorney | dui lawyer miami | Car Accident Attorney
Home | Business | Education| Gadget