Fixed Rate or Variable Rate......has the choice become easier?

September 29th 2011

The age old question facing consumers, do I take a fixed rate or variable rate......and a similar dilemma facing mortgage brokers as their clients ask them for advice on which option to take. We all know it depends on the client’s appetite for risk, affordability, cash flow stability, etc. however statistics have shown that taking a short term or variable rate has predominantly, but not always, been cheaper than take a longer fixed rate mortgage.

We maybe in or coming to an interest rate environment when taking a fixed rate or a hybrid mortgage (50/50) may actually be cheaper than staying in a variable rate. Why you ask.....let’s look at the facts as to why this maybe a good time to take a fixed rate or hybrid mortgage.

1. 5 year fixed rates are at the lowest levels in history, we have never been this low.....3.39% are available through many lenders and 2.99% for a 4 year is very attractive.

2. The gap between a prime - 0.40% (2.60%) and 5 year fixed rate (3.39%) is 0.79% and (in some cases even lower), this is down significantly from 3 to 4 months ago when the gap between a 5 year ARM and 5 year fixed rate was as high as 2.00%. If we consider a 4 year fixed rate at 2.99% versus ARM of 2.60% the gap is only 0.49% or two quarter point increases in prime.

3. You can’t predict when to time a conversion from ARM to Fixed rate, especially in a volatile market. Fixed rates have a tendency to move ahead of variable rates....when variable rates begin to rise the fixed rate has already gone up and if you convert you maybe converting at a much higher fixed rate than today’s rates.

No position is complete without looking at the counter arguments’, in other words why a client should consider a variable rate versus fixed rate mortgage. Once again let’s look at the facts.

1. Bank of Canada has indicated it is not looking at raising the overnight anytime soon or at least will hold off until such time as it sees the economy improving

2. There is no indication that inflation is increasing, therefore supports point 1 above.

3. U.S. has no plans to increase rates for the next two years making it more difficult for Canada to raise rates unless the Canadian economy is growing in spite of the U.S. being sluggish

4. Canada is becoming a safe haven for investors’ thus larger demand for Canadian bonds. This demand is keeping bond yields down thus lower fixed rates on mortgages.

Both positions have merit and no one has a crystal ball, however, if we continue to see the gap between fixed rate and ARM rates shrink then the risks of taking a variable rate versus fixed rate increases substantially. The risk being that ARM rates could increase higher than .79% % over the next 18 months to 24 months, therefore over the course of a 5 year term the fixed rate may actually be less costly than the ARM rate. If the gap between ARM and fixed gets is 1% or less, I believe the smart money would go to fixed rate versus ARM. If the gap between ARM rate and fixed rate is between 1% and 1.50% then a 50/50 mortgage maybe the best bet. If the gap between ARM and fixed rate is in the 1.50% to 2.00% range then ARM rate maybe the way to go. Based on the present volatile market conditions it is hard to predict or say what will happen, this volatility, is the biggest wild card and probably the main reason I personally would be taking a fixed rate or 50/50 versus an ARM, a bird in the hand (fixed rate) is better than two in the bush (ARM rate).

Fixed Rate to ARM Gap *	Primary Product Selection
less than 1.00%	5 year fixed rate
1.00% to 1.50%	50/50
1.51% or higher	5 Year ARM

* difference in rate between a 5 year fixed rate and 5 year ARM rate

 John Bordignon
EVP, Strategic Development, Paradigm Quest Inc.
Office: (416) 366-8606 ext 2294
Thank you
Angela Kroemer Mortgage Professional
1.888.679.0190
akroemer@mortgagegroup.com
www.ComoxValleyMortgagesToday.com
TMG The Mortgage Group Canada Inc.

Mortgage Brokers and The Lenders

As mortgage brokers we usually belong to a big firm. Mine is The Mortgage Group Canada Inc. This big firm secures Lenders.  We as brokers have a list of lenders we can choose from.

What are Lenders ?
With TMG we have over 50 Lenders to choose from.  These Lenders quite simply lend money for mortgages.  The Lenders are well established, money lending businesses, with some being banks.
Since these Lenders do not have to hire salespeople to create business, they can offer lower interest rates because of their lower overhead expenses.  As brokers we are their sales force and in return we are paid a commission from the Lender.  This service is free to clients. (Charges may apply for very bad credit).

How do we choose Lenders for our Clients ?
When a client fills out an application with all information of of what they have (assets), what they owe (liabilities) and what they have coming in (income) we then can get a credit rating with the clients approval.  With this credit rating we see the history of the clients credit. The mortgage broker also needs to know their client and what the client wants out of their mortgage. Some like to pay the mortgage off fast, some believe it will go on for 30 years and are happy with lower payments. If you are retiring in 3 years but have a 5 year mortgage term can you afford the last 2 years of payments with only your retiring income?  With the most popular mortgage term being 5 years the client and broker have to look beyond the day you get your mortgage but look into the future and see if any life changes will affect the mortgage.

Each Lender has their own programs and policies they operate under.  When they post their interest rate they also post a paragraph of what type of clients they are looking for.  For example you may not be considered for the Lender of the lowest interest rate if you only have income from self employment, they may see that as an extra risk or if you want to buy a rental property that may be an extra risk and so they would charge a little higher interest rate.  If you want a 5 year fixed rate and the Lender only wants to do a 5 year variable then again you would not fit into their program.  The reasons are varied from Lender to Lender.

When we have a clients history we go to the Lender that will be the greatest fit for the client. This is where a  brokers knowledge of the different Lenders and their client is the key to making the clients experience fast, less stressful and efficient.

As a client it is best to let your broker know of any changes that you can foresee coming up in the next 5 year span of the term of your mortgage. A perfect example of this is :

You want a mortgage but you know that in 3 years your trust account will be released to you and you will pay off the mortgage then.  If you and the broker have not discussed this then the broker may put you in a mortgage with no prepayments ---at the end of 3 years you will have penalties to pay out your mortgage.  If your broker does know, then they would put you into a 3 year mortgage or a 5 year mortgage that would allow you to pay off your mortgage without penalties.

Any questions, contact me.

Thank you

Angela Kroemer Mortgage Professional
1.888.679.0190
akroemer@mortgagegroup.com
www.comoxvalleymortgagestoday.com

Canadians Realistic About Household Debt

In the past decade consumer confidence in Canada was much higher than what would be expected based on certain household fundamentals including Real Disposable Income Growth, Debt-to-Income Ratios and Consumer Capability Indices. It appears that pre-2008, consumers were confident they could increase and manage their household debt when indicators pointed against this.

Then, since the global financial crisis of 2008, Canadian consumers have become more realistic about their debt. Yes, they continue to borrow; however, the pace of that borrowing has slowed down. This change in mindset is happening during a time when their capacity to manage their debt has increased.

A recent report by economist Benjamin Tal of CIBC, analyzed this new trend on seven household fundamentals. He found that as of the second quarter of 2011, the Consumer Capability Index was back to the level seen before 2008, with the gap between confidence and capability narrowing notably, relative to the wide gap seen during most of the decade. This improvement in the capability index was not due to a strong growth in income but reflects the fact that while the level of the debt-to-income ratio is still rising, the speed at which it is, in fact, slowing.

"The key here", Tal wrote, "is the notable softening in the pace of growth in personal non-mortgage credit which is currently expanding at the slowest pace since the early 1990s. In fact, the ratio of consumer credit to disposable income has been stable over the past year."

According to the report, other factors contributing to the recent improvements include:

1. A higher savings rate which, while easing lately, is still double the rate seen before 2008
2. Personal bankruptcies are down
3. Relatively low and stable debt service costs
4. A stabilizing long-term unemployment rate at a relatively low level

"While consumers will continue to take advantage of historically low borrowing costs," Tal said. "The practical implication of their more realistic approach is that spending in the near future will be slower but more balanced growth as it will be based on fundamentals as opposed to wishful thinking."

as per TMG website

Why Refinance and go Through all that Hassel?

Very good question !!!  This article will answer questions as to refinancing to save money on your mortgage payments.

To alot of us refinancing is a major headache.  You start off checking all the banks rates and then the credit unions and then private lenders rates and by the time you decide on one lender all the rates have changed and you start all over again.
But, usually you give up and try again in 6 months or a year later, or when the 6 pm news tells you rates are down again.

If you contact a Mortgage Broker they do all that work for you and it is at no cost and no obligation.  The lender pays the mortgage broker.
Your broker will let you know if  you should refinance or stay at the rates you are at now.
The service is fast and takes all the stress away from you.  You know the saying "work smarter , not harder".   Mortgage brokers allow you to do this.

Why should you refinance:

There are a few reasons why you should look into refinancing.  The reason most people know is if the rates go down enough it is better for you to refinance.  You can have a lower mortgage payment, saving you money, or you may want to keep your mortgage payment at what you were paying and then pay off your house sooner.

Another reason not so well known is when you bought your house your credit rating was not perfect, which means to get your mortgage you had to pay alittle extra because you could not get the best interest rate.  But now since you have been paying on the mortgage and all your other bills on time your credit rating is much better, now you can qualify for the best rate.  Saving you money.

When buying your house you just went with what the bank offered you as the interest rate.  Most banks will offer you a higher rate because they know that you will go along with it because you are not a seasoned home buyer.  You were just happy to get a mortgage and questioned nothing. Taking a good look at your mortgage may reveal this and now because you have a mortgage broker on your side you can get better rates, saving you money.

If you fit into any of the above categories, contact me.  I will go over your mortgage and let you know if you should refinance or stay where you are.  No cost--No obligation.

There are other reasons to refinance so that you can buy something in return using the equity that you have built up in your home.
Such as :
to buy investments
to go back to school
to buy another property
debt consolidation
financing a renovation
Combining 2 mortgage payments into 1


Angela Kroemer Mortgage Professional
1.888.679.0190
akroemer@mortgagegroup.com

Business and Computers

No one tells you that when you start up a business that you need a couple of weeks just to start up all those computer sites that is needed for you to network.

So I start up my new business. Perfect. I am so happy.
After all those months of studying.  All that time dreading the final exam. I am finally homefree.

Then people tell me I have got to start networking on the computer as well as face to face.
So I start on the computer.

Facebook was easy. Did that pretty fast.

I opened a web site, then came a blog, then twitter and I needed to buy domains.  I bought way too many domains but it was fun shopping for names and heck they were so cheap.

So next I was reading about adsense.  I need that for my blog and website, I tell myself.  Off to the adsense website I go. Get all signed up and everything is great.

Oh oh, something popped up about adwords. Get your message out there. I have a coupon for adwords-- I should use it I thought.  Adwords were alittle harder to start up, but yes I got it done.

It is a huge mistake to read stuff on google.  Cause linkedin.com showed up. If you want to be somebody then you got to sign up and fill out your profile.  There goes another couple of hours of my life.

Sending out emails I noticed I needed a signature.  So went to read how to get a signature done and did it.  Although with gmail that function doesn't work great when you want to reply or forward something but yet, I figured out how to get this done and work around that problem.

Got professional pictures done a alittle while ago.  I needed to send a picture out for my business cards.  Got a reply back that the resolution was not high enough. Spent a few hours trying to get the resolution up to 300 dpi without distorting the picture, cause I had to also make the picture smaller.  Paint the program just won't cut it. I had to down load another program and learn how to work it. Photoscape worked pretty good, but I wish their measurments were in inches.

I still need to work on my professional website and I did sign up for a course cause I thought I would be a little bored. Thank goodness I have 4 months to do it, I may need it if I find anymore web sites to join.

Now on to joining all the network clubs I should belong to.