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Variable mortgages (almost) always win

Whether They're Taking On New Mortgages Or Renewing Ones They've Held For Years, Homeowners End Up Asking Themselves The Same Question: Should They Lock In Their Mortgage Or Should They Let It Float With A Variable Rate. Here, Toronto-Based Wealth Manager Scott Tomenson Makes The Case For Variable.

http://www.financialpost.com/magazine/story.html?id=2766742

ARE VARIABLE MORTGAGES AS GOOD AS THEY LOOK?

Q: My fiancé and I have just bought our first home and we are going in circles about what is the best mortgage for us before we close. We currently have a locked-in fixed rate with a bank of 3.98%, which we prefer to the uncertainty of taking a variable mortgage. But would we be better off with a variable-rate mortgage, especially if we saved money during periods when rate are low and use that to make payments on principal? Will that offset costs when our payments are higher than our current fixed rate? Getting Dizzy, Ontario

A: Historically, as far as interest rates are concerned, it is better to float your mortgage interest rate (i. e., choose a variable rate mortgage). This is a result of the "yield curve." The "normal" yield curve is positively sloped, with interest rates lower for short-term maturities (one to two years) and higher for longer-term maturities (five to 30 years). When the economy strengthens, the Bank of Canada will raise short-term interest rates (they only have control over short-term rates) and the base for variable-rate mortgages (usually the prime rate) is moved higher. This action signals a period of "tightening" of monetary policy to cool the economy and reduces inflationary pressures.

The vehicles that determine longer-term interest rates -- bonds -- tend to move according to inflationary expectations: If bond investors anticipate inflation (because of economic growth), they demand higher returns (interest rates) as protection from inflation. When the Bank of Canada is perceived as "fighting" inflation by raising short term interest rates, long-term rates have a tendency, in most cases, to remain stable or improve, because long-term bond investors are content that inflation will not grow.

In essence, while short-term interest rates may go up, they do so only until the Bank of Canada has slowed the economy enough to curb anticipated inflation. Then, as economic growth slows, the bank starts to lower them. The yield curve will flatten (with higher short-term interest rates) for a time, but when the economy slows, short-term rates will go back down and the yield curve returns to its "normal" positive slope.

Over this time, variable-rate mortgages will move up to being approximately equal to locked-in five-or 10-year rates, but that's followed by a period when they return to lower levels. More often than not, over this time, it is less costly to have held the variable rate debt. Exceptions to this situation would be times of hyper-inflation (like in the 1980s) when short-term interest rates went to extreme levels.

If you had a variable mortgage at prime minus over the past few years, as I did, it's been a great ride. I kept my payments level and the low interest rates allowed to me to pay off massive amounts of principal. True, the economy is strengthening and short term rates will go up a bit over the next couple of years, but I don't think it will be dramatic. The case for variable-rate mortgages remains strong.

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The Mortgage Centre

Durhammortgage.com Ltd.

"Mortgage Financing"

As your residential/commercial mortgage agent, I will help you achieve your home or business ownership goals. Whether you are looking to purchase a home, refinance or comparing various lenders' products at your renewal time, I can help.
My background also includes and extensive knowledge in new business development and financial budgets to achieve your home or business ownership plans.
My vision of service excellence includes responding quickly, and going that extra mile to satisfy your needs.
Rest assured you"ll get the best available mortgage in the fastest, easiest way possible. I will start by walking you through the necessary steps to get you where you want to be. Depending on your fluency with mortgages we can start with the basics with very clear education, or start by getting right into it. After collecting your information and it is time to move forward, I have the major banks and lenders bid on your business. In essence, I shop your mortgage to find the best deal and present you with the outcome. Even better, my service is free to you! It's the lender that pays me. I arrange financing for home purchases, refinances, and whenever your mortgage is up for renewal. Inquiries are always welcome.

Whether your purchasing a home or- refinancing - consolidating debt commonly referred to as "debt consolidation" or "home loan" or a first time home buyer and looking for a mortgage pre-approval or need "Mortgage calculator"for mortgage planning with" fixed mortgage rate" versus "variable mortgage rate". - if you been through a bankruptcy and want the best "mortgage rates" -best mortgage options for mortgages in Ontario - questions about the "Mortgage Broker" industry; feel free to inquire no matter what is on your mind.

We do more than just Bowmanville mortgages and GTA mortgages. We arrange mortgages across Ontario including the Durham Region - Mortgages in Clarington - Mortgages in Cobourg - Mortgages in Port Hope - Mortgages in Port Perry - Mortgages in Peterborough - Mortgages in Kingston - Mortgages in Bowmanville - Mortgages in Orono - Mortgages in Courtice -
Mortgages in Oshawa
- Mortgages in Whitby - Mortgages in Ajax - Mortgages in Pickering - Mortgages in Uxbridge - Mortgages in Hampton - Mortgages in Scarborough - Mortgages in Toronto - Mortgages in Mississauga or anywhere else in the province; I have you covered.

Which Mortgage is right for you,a Fixed Rate Mortgage or Variable Rate Mortgage?

A
fixed rate mortgage
(FRM) is a mortgage loan where the interest rate on the note remains the same through the term of the loan, as opposed to loans where the interest rate may adjust or "float."

OR

Variable Rate Mortgage
(Floating Rate)
A mortgage where payments can be fixed from one to five years, but the interest rate could change from month to month depending on market conditions. If interest rates go down, the monthly principal is reduced; if rates go up, the monthly payments might not cover the interest owing and payments may be increased for the next term. Most variable rate mortgages allow prepayment of any amount (with certain minimums) on any monthly payment date and usually without penalty.

Just ask me to call or email me and I will review the pros and cons of both mortgage types.

Article Library

A) Open Yourself to Home Ownership     B) Home Buying Step-by-Step
C) Which House Can You Afford?         D) Incentives for Homeowners
E) Reno Tax Credits                     F) ABC'S of Condominiums
G) Mortgage Payment Calculator            H) Time For Change
I) Open Yourself To A Greener Home       J) Hiring A Home Inspector

Most people think of
mortgage brokers
simply as a resource for up-front mortgage funds. In fact, as a mortgage broker I can help you obtain additional financing even once you're settled in your home, to help you improve your house or condo and continue building your home equity.

Because today's real estate market is not favouring sellers, many homeowners are putting off their plans to move, and are instead renovating their homes to add more space, improve them or make them more comfortable until the market picks up again. If you need financing for your home renovations, please ask me about a home equity loan, which allows you to borrow against the equity you have in your property. Whether you're adding another room to your house,finishing the basement, updating the bathroom, renovating the kitchen or embarking on a multitude of other home improvements projects, you're adding more value to your home. A home equity loan therefore allows you to use your equity, to add equity!

If you're planning to move into a home that needs major improvements, it may be advantageous for you to add the estimated renovation costs right into your mortgage up-front. This allows you to spread out the costs of the home improvements over a longer period of time, using mortgage interest rates, which are usually much lower than other types of personal loans.

Please call me to find out more about
home equity loans,
and the financing options available to let you finally get your dream home, without having to move!

NUMBERS CRUNCH

During these tough economic times, it's easy for us to point the finger at an employer and conclude we aren't paid enough, or the government is taking too much from us in taxes. However, it seems no matter how many tax cuts are made or how much we earn, the same problems exist. A recent report on the current state of family finances in Canada found that the average household's after tax income in Canada is $64,824, while the average Canadian household is carrying $82,300 in consumer and mortgage debt. Looking at it in a simple snapshot, that's $1.26 in debt for every after-tax dollar earned!

Many Canadians have sleepless nights wondering how to gain control of their financial future. In many cases, gaining control starts with their mortgage. Unfortunately, most consumers never had any formal guidance on how to manage large liabilities. Managing the interest on your mortgage is about understanding where to "park" the money you have in order to prevent unnecessary interest from accruing in the first place.

Essentially, it's an education process, and a big part of my job as a mortgage broker is to share my expertise with clients so they can understand their financial status, including their mortgage debt, and in many cases save thousands of dollars. It's all dollars and sense from my perspective, and the first step is to take stock of where you are today. I invite you to call me with your questions.

MORTGAGE CALCULATOR