Should you lock in your mortgage?

Interest rates are still low, but they’ve been steadily increasing. Here are some points to help you make the right mortgage decision.

If you are buying a home, you may be wondering whether it’s better to lock in a fixed rate in case rates continue to go up, or choose a variable rate that floats with the prime rate. Similarly, if your existing mortgage is variable, you may be wondering whether now is the time to lock in.

Mortgage rates are difficult to predict. It is best to base your decision on your personal situation and comfort level, rather on economic expectations.

Going variable

Variable-rate mortgages can be attractive - the interest rate is lower than for a fixed mortgage of similar size and duration.

With some mortgages, as rates fluctuate, so does the amount of your mortgage payments. Or, with set payment amounts, the portion of the payment that covers your mortgage principal will fluctuate.

In an environment of falling rates, you’ll pay down more principal and pay less interest. But if rates go up, your principal payments will shrink and it may take you longer to fully pay for your home.

Should you choose a variable-rate mortgage? If you can tolerate the uncertainty, the variable rate could save you money over the long term.

Locking in

When you lock in to a fixed-rate mortgage, the interest rate will be higher than for comparable variable-rate products. The benefit, however, is that your rate is fixed for the term of the mortgage.

Even if rates in general rise substantially, your rate is guaranteed not to change. From the moment you lock in, you’ll know exactly what your payments will be and how much of the principal will remain at the end of the term.

Should you choose a fixed-rate mortgage? If fluctuation rates are going to keep you awake at night, then a fixed-rate mortgage may be worth the peace of mind it can give you.

Your decision

Ultimately, the decision to choose a variable or a fixed-rate mortgage is as personal as choosing the right home. It should always be made with informed advice from a professional, who can help you evaluate the options based on your unique circumstances.

For any questions about mortgage financing, programs, options, interest rates etc., feel free to contact Danuta at 1-800-605-6154

Written by Danuta Levitzki.
Conseillère en Financement Hypothécaire | Mortgage Loan Specialist
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Your Mortgage Broker: A Source for Financial Solutions

A mortgage broker can assist you in ways that go well beyond offering great rates.

Many people think of a mortgage broker as someone who can help them get a good rate on their mortgage. While this is certainly true, a mortgage broker can also help you with much more than that.

A mortgage broker is a licensed financial professional with whom you can form a long-term relationship that can extend to various types of financing. Here are some examples:

• If you have an upcoming expense, such as sending your child to college or university, your mortgage broker can help you cash out equity in your home or secure a home equity line of credit.
• If you are looking to buy a cabin or lakefront property, a mortgage broker can help you with financing for it.
• Little-known fact: If you are having problems meeting all of your financial obligations, a mortgage broker can help you consolidate your debts by securing a debt consolidation loan, so you have just a single, manageable payment every month.
• If you want to finance a renovation or other major expenditures, your broker can help arrange suitable refinancing options.
• When it’s time to renew the mortgage, your broker can find a competitive mortgage program and interest rate other than your current bank or financial institutions resulting in further savings.
• Mortgage brokers may also be able to give you information about legal services for buying a home and recommend realtors, appraisers, and home inspectors.

Written by: Danuta Levitzki.
Conseillère en Financement Hypothécaire | Mortgage Loan Specialist.
For current interest rates or to get more information on mortgage financing feel free to visit Danuta’s website at www.HYPOTHECA.net or call direct at 1-800-605-6154.

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Morning Interest Rates Headlines

• Requirements loosened for rental investors [Montreal Gazette]
  No money down if lender satisfied. Tight market in some regions prompt CMHC changes.
  “Budding real-estate moguls will welcome the news that Canada Mortgage and Housing Corp. has relaxed the rules for would-be Donald Trumps to purchase investment properties with no money down.The changes apply to rental properties with a maximum of four units, but even The Donald had to start somewhere. CMHC has made the changes with the intention of easing the squeeze in the rental housing market.”
  Read the complete article
• More rate cuts likely says Bank of Canada [Financial Post]
  “More interest rates cuts may be necessary to buffer Canada from the impact of the U.S. economic slowdown, according to the senior deputy governor of the Bank of Canada.”
  Paul Jenkins said “the risks surrounding the Canadian economy have shifted to the downside, resulting in our decision to lower our policy interest rate by 50 basis points to 3.5%.”
  Read the complete article

• Canadian Home Prices to Moderate, but No Danger of Meltdown, Economist Says [CEP News]
  “Declining Canadian home sales and moderating home prices could sap domestic demand, a Canadian economist is warning.
  “Canada isn’t in danger of the same sort of real estate meltdown as experienced in the U.S. or the sudden hikes in interest rates associated with subprime mortgages, he said, but Canadians still need to be careful. The disappearance of strong domestic demand would have a negative impact on the economy, he added.”
  Read the complete article

• Longer payback loan fuels housing market [The Star.com]
  “There’s a revolution going on in Canada’s housing market, one that is propping up prices and extending the boom. More buyers are choosing mortgages with longer payback periods.
  By stretching payments over 30 to 40 years (instead of the usual 25), they can enter the market sooner or buy a better property. Mortgages with longer amortizations have caught on like a house on fire (pardon the pun).”
  Read the complete article

• Interest rates head south - but how far? [Times Colonist]
  “Canada’s mortgage rates are heading down. At a time when stock markets are volatile and with the economy and income growth slowing, the positive news for those planning to get into the housing market or whose loans are up for renewal is that it’s going to cost less to finance a mortgage.”
  Read the complete article

Quebec Homeowners Intend to Pay off Mortgage Quickly

Canada Mortgage and Housing Corporation’s (CMHC) 2007 Mortgage Consumer Survey shows that 76 per cent of Quebecers who recently purchased a home intend to pay off their mortgage as quickly as possible, and 65 per cent of purchasers agreed that they would use extra money to pay down principal whenever they are able - over the national average of 57 per cent.

“This study confirms that Quebecers, like most Canadians, remain fundamentally cautious when it comes to managing their mortgage debt,” said Pierre Serré, Vice-President, Insurance Product & Business Development, CMHC. “The fact that new homeowners in Quebec intend to pay off their mortgages as quickly as possible, and are taking steps to do so, is a good sign.”

The 2007 national survey focused primarily on recent purchasers and also for the first time included questions on homeowner behaviour regarding mortgage debt re-payment since arranging their mortgage.

More than half (55 per cent) of recent homebuyers in Quebec are making weekly or bi-weekly mortgage payments, and three quarters of these are on an accelerated basis which has the effect of shortening the time required to payoff the mortgage. About one-third are also planning to reduce their mortgage amortization period when their mortgage comes up for renewal. Read more

Interest rate cut will help Canadian home owners and buyers

The interest rate cut announced today by the Bank of Canada will help Canadian home owners and buyers, according to The Canadian Real Estate Association. The Bank of Canada cut its benchmark overnight lending rate by one-half of one percentage point to 3 1/2 per cent on March 4th, and signaled further cuts in the near future. The trend-setting Bank rate, which is set 0.25 percentage points above the overnight lending rate, now stands at 3.75 per cent.

“The threat of inflation is being eclipsed by concerns about slower economic growth, so the Bank of Canada cut its trend-setting bank rate to boost growth,” said CREA Chief Economist Gregory Klump. “Financial market turmoil will remain a downside risk to growth for some time. This means the Bank will probably continue lowering interest rates.”

Lower lending rates will help offset the effect of tightening credit conditions and allow homeowners to obtain better mortgage terms. This will also benefit Canadian homeowners dealing with variable rate mortgages. Read more

Subprime mortgage news update

• Canada economy to slow, risks to downside - IMF (Reuters)
  Canadian economic growth will slow to 1.8 percent this year and there is a risk of an even sharper downturn as weakness in the U.S. economy spreads beyond the housing sector, the International Monetary Fund said in a report on Monday.
  After growing about 2.5 percent in 2007, Canada’s healthy economy and fiscal standing will help it withstand the global turbulence but external risks will pose a challenge. >> read more
  …….
• Canadian institutions expected to make writedowns (Exec Canada)
  Some of Canada’s five biggest banks are expected to report headline-catching writedowns when they announce first-quarter earnings. The banks have so far escaped with remarkably little damage from the credit market turmoil. >> read more
  …….
• Storm clouds threaten to rain on bank profits (Globe and Mail)
  Canadian Imperial Bank of Commerce said in January that it will take $2.46-billion (U.S.) in pretax writedowns for the two months ended Dec. 31 because of its exposure to the U.S. subprime mortgage market. >> read more
  
  …….
• UPDATE IMF lowers growth projections for Canada on back of US economic downturn (Forbes)
  Canada’s growth will likely decelerate further in 2008 and 2009 as a result of the sharp downturn in the US economy, the International Monetary Fund (IMF) reported. >> read more
  

Making an Offer to Purchase

Once you have found the home you would like to purchase, you need to present the vendor with an Offer to Purchase or an Agreement of Purchase and Sale. As your home is probably your biggest investment, it would be wise to work with your real estate agent and/or a lawyer/notary in preparing your offer. Remember that the Offer to Purchase or Agreement of Purchase and Sale is a legal document and should be carefully prepared.

Any offer or agreement will typically include:

• Your legal name, the name of the vendor and the legal civic address of the property.
• The purchase price offered.
• The chattels that will be included in the purchase price (e.g.: window coverings, appliances or a satellite dish). Whatever items in or around the home that you think are included in the sale should be specifically stated in your offer.
• The amount of deposit.
• The closing day (date you take possession of the home)–usually 30 to 60 days from the date of agreement. It can also be 90 days or longer.
• Request for a current land survey of the property.
• Date when the offer becomes null and void.
• Any other conditions that go with the offer, including property inspection and approval of mortgage financing.

The process of making an offer, receiving a counteroffer and then revising it again is not uncommon. The whole process can seem like a roller coaster ride – exciting, but stressful. It’s all part of making the deal work best for you and the vendor.

Source: CMHC. Subscribe to the Montreal Real Estate Blog

Are you financially ready to buy?

So, you’ve finally decided that homeownership is right for you. Now you need to determine if you are financially ready to buy a house. Check out these formulas to calculate the size of your loan and evaluate your current financial situation.

Knowing your net worth is important because you will need this information when you discuss a mortgage with your lender.
Your net worth is the amount left over once you’ve subtracted your total liabilities from your total assets. It will also give you a snapshot of your current financial situation and show you how much you can afford to put as a down payment. Read more