Tougher mortgage rules to cut down default risks

Date: Tue. Feb. 16 2010 10:52 AM ET

Ottawa has tightened the rules for obtaining a government-backed mortgage, as it casts an eye towards expected future interest rate increases and the risks those pose for Canadian homeowners.

Finance Minister Jim Flaherty announced Tuesday morning that prospective homeowners will soon have to meet the requirements for a five-year, fixed rate mortgage -- as opposed to the three-year standard in place right now. The rule will apply even if they choose a mortgage with a lower interest rate and shorter term.

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Here is the latest as to what mortgage rates are doing.

The US job less figures were lower than everyone expected and marked the first reduction in job losses in the US since April 2008. That coupled with the recent success of the US stimulus package "Cash for Clunkers" has sparked some positive moves in the equities markets.

GM has reported that they are very happy with the "Cash for Clunkers" program and are now looking to increase production to restock vehicles.

Bonds sold off a bit on the expectations of rising stock prices.

The spreads for mortgages has been stable over the past few weeks, however, the 5 year spread is only 1.69 today and we could see very small increases in the fixed rates if the stocks continue to gain strength. Variable rate mortgages are very stable at this time.

Today's Best Rates:

1 yr               2.55%
2 yr               2.85%
3 yr               3.45%
3.5 yr            3.75%
4 yr               3.89%
5 yr               4.15%
7 yr               5.15%
10 yr             5.25%

Variable        prime +.3%

Courtesy of;

Paula Siemens -AMP
INVIS - SIEMENS GROUP

If you are looking to Buy or to Sell real estate in Vancouver area, give me a call. My consultations are FREE. The benefits to You, may be worth a lot of money.
Call Jeff Stark at 604-506-8481 or email me at jeff@jeffreystark.net

You know, when you talk to professionals in any trade or business, you always get more. You get more information, more choices and more service.

And you know what, the best part is that, real estate agents, and mortgage brokers give you all this great service and information for FREE!!!

Halooo! Are you too proud to ask?  You think you know everything?

I have continuously saved money for my Buyer's and got better prices for my Seller's by using the latest marketing techniques and knowledge.

The same goes for mortgage brokers. They don't charge you anything but can provide you with a lot of good information and guide you the the best mortgage products available. All for FREE!

Here is an example. Even I didn't know much about these 50/50 mortgages. But my broker does.

Here is what he has to say about it.

"Up until the last couple of weeks I haven't been a fan of the 50/50 mortgage (details below). However every mortgage type has it's place and time. If it wasn't for the Bank of Canada's re-affirmation that Prime rate will stay where it is until mid 2010 (a whole other topic) and the fact that after a recent bump in rates from historical lows at the beginning of June (3.79 to 4.49% in 2 weeks) and now a bit of a downward trend, for the moment a 50/50 can make sense... IF you have someone that will tell you when to pull the trigger to lock-in the variable portion.

Hybrid mortgages - also known as 50/50 mortgage products - include an equal mix of fixed-rate and variable-rate components within your single mortgage. This means you get the best of both worlds - the security of fixed repayments with the flexibility of a variable rate.

Although there was a time in recent years when mortgage experts considered a variable rate mortgage as the obvious choice to save mortgage consumers money over the long term, with fixed rates remaining near historic lows, fixed makes more sense to me. But with prime said to stay low for the better part of a year, a 50/50 mortgage may be a great alternative for you.

In essence, since it's extremely difficult to accurately predict rates over the long term, a 50/50 mortgage offers interest rate diversification, which can help reduce your level of risk.

If you opt for the Dominion Lending Centres 50/50 Balanced Mortgage, half of your mortgage is locked into a five-year fixed rate and half is at a five-year variable rate. You can lock in your variable-rate portion at any time without paying a penalty. As well, each portion of the 50/50 mortgage operates independently - like two separate mortgages - yet the product is registered as only one collateral charge.

The 50/50 mortgage product is well-suited to a variety of borrowers, including those who:

• Would normally go fully variable but are afraid prime rate is at its bottom
• Aren't comfortable being locked into a fully fixed rate
• Can't decide between a fixed or variable mortgage

Some features of the 50/50 mortgage include:

• 20% annual lump-sum pre-payment privileges
• 20% annual payment increase ability
• Portability (the option to transfer your existing loan amount to a new property without penalty)

As the 50/50 option is a fairly new offering, according to a recent study by the Canadian Association of Accredited Mortgage Professionals (CAAMP), 5% of Canadian mortgage holders have 50/50 mortgages compared to 28% with variable-rate mortgages and 68% with fixed-rate mortgages. But many experts believe the 50/50 mortgage is quickly gaining momentum.

As of today, someone going with a 50/50 mortgage would save about $890 per $100,000 of mortgage per year with little risk.

If you have any questions about the 50/50 mortgage product and whether it's right for you, feel free to give me a call so we can discuss your options. If you know anyone purchasing a home, refinancing or renewing their mortgage, suggest they give me a call for a brief chat to determine if a 50/50 mortgage makes sense for them.

As my variable rate clients know, they get the calls to pull the trigger and the advice to consider every time rates look like they are going to make a major move upward. This advice is key to being successful with any mortgage that is variable. Few brokers and NO banks offer this level of commitment.

Greg

If you want more information or want to talk to a mortgage broker about all the available options, just give me a call at
604-506-8481

If you are looking to Buy or to Sell real estate in Vancouver area, give me a call. My consultations are FREE. The benefits to You, may be worth a lot of money.
Call Jeff Stark at 604-506-8481 or email me at jeff@jeffreystark.net

This may not be as a sophisticated answer as you may expect, but from talking to my mortgage broker connections, this is how I see it.

There are two different institution dealing with interest rates etc. There is a Bank of Canada who controls the "Bank Rate", the overnight rate, and then there is the Government of Canada who controls the interest rates.

Well, there are also the banks and lending institutions that use these guidelines and set their own mortgage lending rates as they see fit.

The Bank of Canada has set dates for announcing their bank rate and they are designed to keepinflationin check and control the economic trends.

Government of Canada on the other hand has to raise money for it's operations and the most common is to sell government bonds. These are guaranteed investments and in tough times are a pretty solid investment, and favored by more cautious investors. Bonds earn you money trough yields, in other words interest.
Investors move their money around always looking for the best return on their investment.

When the stock market starts moving, investors tend to gravitate to stocks and sell their bonds, or don't buy them anymore. What is the government going to do? They need their money to run their business and in order to get the investors back, they increase the yields.

Since the mortgage rates have close ties to thebond markets, with the spread, the difference between the yield and interest rates of up to 2% the longer term mortgage rates will rise accordingly.

This may be a simplified explanation of where we are going, but everything points to up!

If you are a buyer and thinking of purchasing in the next few months, get yourself appoved and watch the market. Nobody has a crystal ball, but this kind of propection does not cost you anything.

If you are looking to Buy or to Sell real estate in Vancouver area, give me a call. My consultations are FREE. The benefits to You, may be worth a lot of money.
Call Jeff Stark at 604-506-8481 or email me at jeff@jeffreystark.net or visit my web site at www.jeffreystark.net

The rates now are so low thatit may be a good time to have a look at your mortgage to see if there are benefits to refinancing.

The Bank of Canada reduced its key interest rate by a quarter point today to its lowest level ever.  In its announcement the Bank also stated that it expects to hold this policy rate at its current level until the end of the second quarter of 2010, conditional on the outlook for inflation. 

While rates for variable rate mortgages are typically impacted by Bank of Canada policy rate changes, what's interesting is that rates for popular five-year fixed rate mortgages have been declining significantly in recent months.  The reason behind this drop is an abundant supply of money being put into circulation, as well as guarantees of government agencies to purchase mortgage investments.

A comparison of fixed rates today versus six months ago shows a noticeable improvement in purchasing power. 

Six months ago, a competitive rate on a five-year fixed mortgage was 5.75 per cent.  At this rate, the monthly payment on a $250,000 mortgage with a 25-year amortization was $1,563.  With the five-year rate of 3.95 per cent available today, the monthly payment falls to $1,308, which adds up to a savings of $15,300 in payments over the five year term. 

An Invis mortgage professional can explain current trends in mortgage rates, and can advise you on the a mortgage option that suits your needs.  

 To check out your refinancing option call:

ALLEN CHENG - Senior Mortgage Consultant
INVIS  GROUP

5604-313-7000
email: allencheng@invis.ca

If you are looking to Buy or to Sell real estate in Vancouver area, give me a call. My consultations are FREE. The benefits to You, may be worth a lot of money.
Call Jeff Stark at 604-506-8481 or email me at jeff@jeffreystark.net