30 Jun

Fixed vs. Variable rate mortgages – Pros & Cons

General

Posted by: Kelly Hudson

As an independent Mortgage Broker, I am often asked “should I choose a fixed or variable rate mortgage”

Buying a home is very exciting, but it can easily be overwhelming.

Understanding how mortgages work is your first step. Education is a huge part of my job, I give people as much information (as you can handle), so you make the best decision regarding a mortgage for your particular circumstance.

When deciding on a mortgage you will need to choose between a variable or fixed rate mortgage. Your income, size of your mortgage, lifestyle and risk tolerance will help you determine which product best suits your particular circumstance.

The key to variable and fixed rates is to understand how interest rates are calculated and how these impact each type of mortgage:

  • Fixed rate mortgages (FRM)provides stability and eases budget anxiety, because it is constant over the deration of the term of the mortgage (i.e. 5 years).
    • Fixed rate mortgages are based on the Canadian bond market (the 5 year fixed rates is based on the yield of a 5-year bond). As bond prices rise, fixed rates will also rise and the spread between the two reflects the risk investors are willing to take when they move their money from a secure product, like bonds, to invest in mortgage securities.
    • There are times when that spread becomes very wide or very thin—usually a reflection of world events, such as the subprime mortgage crisis of 2008.
  • The Fixed Rate Mortgage is recommended for the following reasons:
    • Clients are risk averse.
    • They have bought a property at the high end of their affordability range.
    • Clients are not knowledgeable about borrowing and are more advised to take something secure.
  • Variable rate mortgages (VRM), (also called a floating or adjustable) is a mortgage where the interest rates can fluctuate during your term.
    • That means if the prime rate goes up — based on changes made to the Bank of Canada’s overnight rate — then variable rates will go up. That means your interest rate and mortgage payments could change from month to month

Fixed & variable mortgage rates Pros & Cons

  Fixed mortgage rate (closed)  Variable mortgage rate (closed)
Description Set for the duration of the mortgage term (i.e. 5 years). Mortgage interest rate and payments are fixed.  Fluctuates with the Bank of Canada rate, known as  the ‘prime rate’. Mortgage payments can fluctuate.
Pros ·Can essentially set the payments and forget about it until your term is over, regardless of whether Canadian bonds or interest rates rise or fall.

 

·Eases budgeting anxiety and offers stability.

·If the difference between the variable & fixed rate is less than 1%, it may be worth paying a premium for the stability protection of a fixed rate.

 ·Historically, over the last 25 years variable rates have proven to be less expensive over time.

 

 ·Since the current Bank of Canada rate is 0.75%  and prime is 2.85% there isn’t a lot of room for  interest rates go much lower.

 ·80% of people break their mortgage* before the  term is complete.

  o   Variable rate mortgages typically charge 3  months interest penalty which typically is lower  than the Fixed Rate Mortgages *varies depending  on lender

Cons ·If the difference between the variable & fixed rate is significant, it may not be worth paying a premium for the stability protection of a fixed rate.

 

·80% of people break their mortgage* before the term is complete.

o   Fixed rate mortgages typically charge the greater of: 3 months interest OR Interest Rate Differential *varies depending on lender

 When interest rates change, depending on the  lender and the terms of your mortgage, the  following scenarios are possible:

 

 ·Your payment goes up or down each time Prime  rates change.

 ·Your payment stays the same when Prime rates go  down, but increases when market interest rates go  up. In this scenario, more of your payment goes  toward paying down the principal when the interest  rate falls.

 ·Your payment does not change unless Prime rates  increase to a “trigger” point (shown in your  mortgage agreement). Only at that point will the  lender increase your payment.

 ·If you choose variable rate OR a term less than 5  years, the Canadian government dictates that you  must qualify for your mortgage at the Bank of  Canada Benchmark Rate currently 4.64%. This is to  ensure you can still afford your mortgage if interest  rates increase. Click Here To See The Bank of  Canada Benchmark Rate Qualification Index  

*Drawing Conclusions: How much does it cost to break a mortgage?

 puzzle-pieces-2 Sept2014What is the best option?

According to Robert Abboud, an Ottawa – based CFP and the author of No Regrets: A common sense guide to achieving and affording your life goals, Ram Balakrishnan, blogger, and Dr. Moshe Milevsky, the York university professor whose initial 2001 study became the impetus behind the current belief that you’ll always save with a variable rate mortgage, a variable rate mortgage may not be in your best interest.

According to Milevsky’s 2001 study (and the updated study released in 2008), homeowners who opt for a variable rate mortgage save approximately $22,000 in interest payments over a 15 – year period.

  • But context is everything. The study, and its update, examined mortgages between 1950 and 2007. Since the study was published, the spread (otherwise known as the difference between variable and fixed rates) has thinned out.
  • Also interest rates, which were consistently falling over the last 25 years, have slowed considerably.
  • Add to this the historical response by governments in tough economic times: stimulate spending, which generates inflation. To combat this inflation, governments raise interest rates — sometimes suddenly and ruthlessly — and this has an immediate impact on variable rates (the overall economic condition will eventually impacts fixed rates).

For that reason, Milevsky, and others, have voiced their support for locking – in to a fixed rate. The rationale: any savings you see from currently low variable rates will be eaten up when you’re forced to renegotiate your mortgage in five years. That’s because as rates slowly creep up over the next five years, your monthly payments remain the same — and this results in a larger percentage of your payment going to interest payments, rather than repaying the principal.

To help you decide whether a variable or fixed mortgage is the best option for you, answer the following 4 questions:

  1. Does the thought of uncertain mortgage interest rates and fluctuating payment amounts keep you up night?
  2. Do you have a big mortgage? Do you expect to have a big mortgage in five years?
  3. Would it be virtually impossible to make additional monthly or lump – sum payments against the mortgage?
  4. Would it be a burden to find an extra $100 or $200 per month for mortgage payments?

If you answered YES to any of these questions, you need to seriously consider a fixed – rate mortgage. Despite the temptation of saving money with a variable rate mortgage, a fixed rate will provide a level of stability and predictability that your situation requires.

Mortgage borrowers need to understand and measure risks when deciding between a fixed-rate mortgage (stability) and a variable rate mortgage (balance between risk & reward).

Besides the Fixed vs Variable rate mortgages, there are many other factors you need to be aware of prior to buying your home.

Let’s have a chat to discuss your next steps to home ownership.

Kelly Hudson
Mortgage Expert
Dominion Lending Centres – Aegis Mortgage Services
Mobile 604-312-5009
KellyHudsonMortgages@gmail.com 
ON THE WEB

30 Jun

Kelly’s Weekly Mortgage Rate Minder with Dominion Lending – Aegis June 29, 2015

General

Posted by: Kelly Hudson

Kelly Hudson
Mortgage Professional
Dominion Lending Centres Aegis Mortgage Services
Phone: 604-312-5009
Cell:
Email: KellyHudsonMortgages@gmail.com
http://www.KellyHudsonMortgages.com



This edition of the Weekly Rate Minder has the latest, best rates for Canadian mortgages. At Dominion Lending Centres, we work on your behalf to find the mortgage that suits your needs. Best of all — our service is free.* It’s the selected lender that pays us and YOU get the best rate. *(O.A.C., E.&O.E.)

• Our Best National Rates
• Explore Mortgage Scenarios with Helpful Calculators on http://www.KellyHudsonMortgages.com

Terms Bank Rates Our Rates
6 Month 3.14% 3.10%
1 YEAR 2.89% 2.29%
2 YEARS 2.84%

2.19%

3 YEARS 3.39% 2.25%
4 YEARS 3.89% 2.54%
5 YEARS 4.64% 2.54%
7 YEARS 5.30% 3.39%
10 YEARS 6.10% 3.84%
Rates are subject to change without notice. *OAC E&OE
Prime Rate is 2.85%
Variable rate mortgages from as low as Prime minus 0.65%

 Please note that rates shown above are subject to change without notice. The rates shown are  posted rates and the actual rate you receive may be different, depending upon your personal financial situation. “Some conditions may apply. Rates may vary from Province to Province. Rates subject to change without notice. *O.A.C. E.& O.E.” Check with your Dominion Lending Centres Mortgage Professional for full details and to determine what rate will be available for you.

*O.A.C., E.& O.E.

 

  • We are Canada’s largest and fastest-growing mortgage brokerage!
  • We have more than 2,200 Mortgage Professionals from more than 350 locations across the country!
  • Our Mortgage Professionals are Experts in their field and many are ranked among the best nationally.
  • We work for you, not the lenders, so your best interests will always be our number one priority.
  • We have more than 100 mortgage programs, making it easy to choose the best fit for your unique situation.
  • We close loans in all 10 provinces and 3 territories.
  • We can process your mortgage in as few as 7 days.
  • We are the preferred mortgage lender for several of Canada’s top companies.
  • Dominion Lending Centres’ Mortgage Professionals are available anytime, anywhere, evenings and weekends – and we’ll even come to you!
22 Jun

Kelly’s Weekly Mortgage Rate Minder with Dominion Lending – Aegis June 22, 2015

General

Posted by: Kelly Hudson

Kelly Hudson
Mortgage Professional
Dominion Lending Centres Aegis Mortgage Services
Phone: 604-312-5009
Cell:
Email: KellyHudsonMortgages@gmail.com
http://www.KellyHudsonMortgages.com



This edition of the Weekly Rate Minder has the latest, best rates for Canadian mortgages. At Dominion Lending Centres, we work on your behalf to find the mortgage that suits your needs. Best of all — our service is free.* It’s the selected lender that pays us and YOU get the best rate. *(O.A.C., E.&O.E.)

• Our Best National Rates
• Explore Mortgage Scenarios with Helpful Calculators on http://www.KellyHudsonMortgages.com

Terms Bank Rates Our Rates
6 Month 3.14% 3.10%
1 YEAR 2.89% 2.29%
2 YEARS 2.84%

2.19%

3 YEARS 3.39% 2.25%
4 YEARS 3.89% 2.54%
5 YEARS 4.64% 2.54%
7 YEARS 5.30% 3.39%
10 YEARS 6.10% 3.84%
Rates are subject to change without notice. *OAC E&OE
Prime Rate is 2.85%
Variable rate mortgages from as low as Prime minus 0.65%

 Please note that rates shown above are subject to change without notice. The rates shown are  posted rates and the actual rate you receive may be different, depending upon your personal financial situation. “Some conditions may apply. Rates may vary from Province to Province. Rates subject to change without notice. *O.A.C. E.& O.E.” Check with your Dominion Lending Centres Mortgage Professional for full details and to determine what rate will be available for you.

*O.A.C., E.& O.E.

 

  • We are Canada’s largest and fastest-growing mortgage brokerage!
  • We have more than 2,200 Mortgage Professionals from more than 350 locations across the country!
  • Our Mortgage Professionals are Experts in their field and many are ranked among the best nationally.
  • We work for you, not the lenders, so your best interests will always be our number one priority.
  • We have more than 100 mortgage programs, making it easy to choose the best fit for your unique situation.
  • We close loans in all 10 provinces and 3 territories.
  • We can process your mortgage in as few as 7 days.
  • We are the preferred mortgage lender for several of Canada’s top companies.
  • Dominion Lending Centres’ Mortgage Professionals are available anytime, anywhere, evenings and weekends – and we’ll even come to you!
9 Jun

Kelly’s Weekly Mortgage Rate Minder with Dominion Lending – Aegis June 8, 2015

General

Posted by: Kelly Hudson

Kelly Hudson
Mortgage Professional
Dominion Lending Centres Aegis Mortgage Services
Phone: 604-312-5009
Cell:
Email: KellyHudsonMortgages@gmail.com
http://www.KellyHudsonMortgages.com



This edition of the Weekly Rate Minder has the latest, best rates for Canadian mortgages. At Dominion Lending Centres, we work on your behalf to find the mortgage that suits your needs. Best of all — our service is free.* It’s the selected lender that pays us and YOU get the best rate. *(O.A.C., E.&O.E.)

• Our Best National Rates
• Explore Mortgage Scenarios with Helpful Calculators on http://www.KellyHudsonMortgages.com

Terms Bank Rates Our Rates
6 Month 3.14% 3.10%
1 YEAR 2.89% 2.29%
2 YEARS 2.84%

2.19%

3 YEARS 3.39% 2.25%
4 YEARS 3.89% 2.54%
5 YEARS 4.64% 2.54%
7 YEARS 5.30% 3.39%
10 YEARS 6.10% 3.84%
Rates are subject to change without notice. *OAC E&OE
Prime Rate is 2.85%
Variable rate mortgages from as low as Prime minus 0.65%

 Please note that rates shown above are subject to change without notice. The rates shown are  posted rates and the actual rate you receive may be different, depending upon your personal financial situation. “Some conditions may apply. Rates may vary from Province to Province. Rates subject to change without notice. *O.A.C. E.& O.E.” Check with your Dominion Lending Centres Mortgage Professional for full details and to determine what rate will be available for you.

*O.A.C., E.& O.E.

 

  • We are Canada’s largest and fastest-growing mortgage brokerage!
  • We have more than 2,200 Mortgage Professionals from more than 350 locations across the country!
  • Our Mortgage Professionals are Experts in their field and many are ranked among the best nationally.
  • We work for you, not the lenders, so your best interests will always be our number one priority.
  • We have more than 100 mortgage programs, making it easy to choose the best fit for your unique situation.
  • We close loans in all 10 provinces and 3 territories.
  • We can process your mortgage in as few as 7 days.
  • We are the preferred mortgage lender for several of Canada’s top companies.
  • Dominion Lending Centres’ Mortgage Professionals are available anytime, anywhere, evenings and weekends – and we’ll even come to you!
5 Jun

The Mortgage Minute – Kelly’s June 2015 DLC-Aegis Newsletter is now available

General

Posted by: Kelly Hudson

Please click on image above to view the complete newsletter!

Welcome to Kelly Hudson’s June issue of the Home Financing Journal, which is designed to help keep you in the know regarding Real Estate and Mortgage related matters!

YIPPEE!!! Summer is here! This month’s edition of the Dominion Opinion talks about mortgage pre-approvals and the possibility of overblown fears around household debt.

I am always here to help!  Please feel free to ask questions or offer feedback via phone or email.

Thanks again for your continued support and referals!

Kelly Hudson, Mortgage Expert

Cell 604-312-5009  KellyHudsonMortgages@gmail.com

If you would like to receive the DLC Monthly Newsletter automatically, please email me with you preferred email address and I will add you to my monthly mailing list.

 

 

 

2 Jun

Kelly’s Weekly Mortgage Rate Minder with Dominion Lending – Aegis June 1, 2015

General

Posted by: Kelly Hudson

Kelly Hudson
Mortgage Professional
Dominion Lending Centres Aegis Mortgage Services
Phone: 604-312-5009
Cell:
Email: KellyHudsonMortgages@gmail.com
http://www.KellyHudsonMortgages.com



This edition of the Weekly Rate Minder has the latest, best rates for Canadian mortgages. At Dominion Lending Centres, we work on your behalf to find the mortgage that suits your needs. Best of all — our service is free.* It’s the selected lender that pays us and YOU get the best rate. *(O.A.C., E.&O.E.)

• Our Best National Rates
• Explore Mortgage Scenarios with Helpful Calculators on http://www.KellyHudsonMortgages.com

Terms Bank Rates Our Rates
6 Month 3.14% 3.10%
1 YEAR 2.89% 2.29%
2 YEARS 2.84%

2.19%

3 YEARS 3.39% 2.25%
4 YEARS 3.89% 2.54%
5 YEARS 4.64% 2.54%
7 YEARS 5.30% 3.39%
10 YEARS 6.10% 3.84%
Rates are subject to change without notice. *OAC E&OE
Prime Rate is 2.85%
Variable rate mortgages from as low as Prime minus 0.65%

 Please note that rates shown above are subject to change without notice. The rates shown are  posted rates and the actual rate you receive may be different, depending upon your personal financial situation. “Some conditions may apply. Rates may vary from Province to Province. Rates subject to change without notice. *O.A.C. E.& O.E.” Check with your Dominion Lending Centres Mortgage Professional for full details and to determine what rate will be available for you.

*O.A.C., E.& O.E.

 

  • We are Canada’s largest and fastest-growing mortgage brokerage!
  • We have more than 2,200 Mortgage Professionals from more than 350 locations across the country!
  • Our Mortgage Professionals are Experts in their field and many are ranked among the best nationally.
  • We work for you, not the lenders, so your best interests will always be our number one priority.
  • We have more than 100 mortgage programs, making it easy to choose the best fit for your unique situation.
  • We close loans in all 10 provinces and 3 territories.
  • We can process your mortgage in as few as 7 days.
  • We are the preferred mortgage lender for several of Canada’s top companies.
  • Dominion Lending Centres’ Mortgage Professionals are available anytime, anywhere, evenings and weekends – and we’ll even come to you!