Mortgages & Markets

Mortgages & Markets

The Bank of Canada now has no room to further lower interest rates. On Tuesday April 21st the Fed lowered the overnight lending rate to .25% … that’s right .25% … it has never been this low since Canada started recording interest rates at the beginning of the century.
So what’s next? To everyone’s surprise, our Government has assured us that interest rates will be kept low until June 2010 unless inflation becomes an issue, which seems unlikely given that our current recession is now predicted to be deeper and longer than expected. Not all of the news is bad though … if you have job security, this is your year to buy your home or adjust your mortgage financing at rates not even your parents had!

Now that variable mortgages will be reduced another .25%, many are attracted to the new rates of about 3%, but please remember that a mortgage is far more than a great rate.

Most of my past clients are enjoying variable mortgages at prime less .75%, which gives them a rate of 1.5% … some even lower. These lucky homeowners should NOT change their mortgages because rates cannot go up fast enough to merit locking into a fixed term of about 4%. The new pricing for variable mortgages has changed to prime plus .75%, which means a rate of 3%, a premium we have never experienced before.

If you choose a variable contract at prime plus .75% for the next 5 years, you will not be happy you locked into this product when normal discounts return to variable mortgages. If variable is what you prefer, then wait until discounting returns to the marketplace.

Until now, very few of my clients chose a 5-year fixed mortgage … it just didn’t make sense. All data showed that variable mortgages performed better 88% of the time over the long term, but now we are experiencing that small 12% period when fixed may be better.

If a 5-year fixed mortgage can be had for 3.75%, or a 10-year fixed for 4.99% … I say new borrowers do not pay a premium for today’s variable mortgages, but rather take a break from variable for now and revisit it upon the renewal when fixed rates may be higher.

Now is also the time to ensure your current “mortgage plan” is sound! If your rate is 5% or higher and does not renew in the next year, you may want to consider breaking your mortgage. Your discharge penalty may be justified by your annual savings at today’s lower rates, which can also provide long term rate protection for the next 5 to 10 years.

Also remember that the future is a mortgage and line of credit combination, and the sooner you can transition to a financing package like this, the sooner you will start saving money. These types of mortgages provide access to your home equity in the form of a growing line of credit.

This is a free credit facility that provides cheap financing for tax-deductible investing, renovations, or for emergency cash requirements … if done right, it could be the last financing you’ll ever need!

There have been more innovations in mortgage products in the last 3 years than in the last 30, and our responsibility is to put your choices into perspective. Let us help you with a “mortgage plan” that addresses your expectations … together we’ll ensure you pay less interest for your home, and prosper financially sooner.

Anytime you’re ready to learn more …

Peter & Team
416) 410-3298
Toronto Real Estate Board April Mid-Month Market Report
TORONTO, April 17, 2009 – Greater Toronto REALTORS® reported 3,681 transactions in the
first half of April, down seven per cent compared to 3,955 during the same period last year.
“In lock-step with the favorable March results, resale housing market conditions in the first half of April were markedly improved compared to the winter time,” said TREB President Maureen
“Households that were on the sidelines at the beginning of the year are now taking advantage of
lower interest rates and lower home prices.”
The average price for MLS® sales was $383,161, down four per cent from $399,117 last year.
“The average home price in the GTA stabilized as resale market conditions tightened over the
past two months,” according to Jason Mercer, TREB’s Senior Manager of Market Analysis.
“Existing home sales increased relative to new listings.”
Source: Toronto Real Estate Board 2009

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