Mortgage rates

Seeing that the closing date is drawing close for 500 Sherbourne, has anyone of you decide on type of mortgage & financial institution to go with?

I'm so super confused by all the different types of mortgages available out there. I'm thinking variable rate is looking like a good deal but of 'cos there's so much talk about interest rate going to sky rocket in the next couple of years.

I've been told to use a broker as they will be able to secure a much better rate than if we were to do it ourselves.

Anyone with any insight?

Hi Shelfun,

There is no doubt that all the different types of mortgages available can be a little overwhelming, especially if you are a first time home buyer. Fixed rate vs. Variable rate...ahhh, the age old debate. It had always been said variable rates are the better way to go, as history shows over time that home owners have saved more money with them. But, that was then and this is now. We are now in unprecedented times. As we stand right now, it is predicted that the Bank of Canada will keep the prime rate low until the middle part of 2011 (variable rate mortgages are based on prime rate). As we get into the latter half of the year, we will most likely start seeing increases, with the biggest increases coming in 2012 and 2013. Does this mean that I am suggesting you go with a fixed rate? Not necessarily. Everyone has different goals and different objectives. I would be happy to put some numbers in front of you using both scenarios, as well as take the time to explain to you the pros and cons of each to help you make a more educated decision. As of today, I currently have 5 year fixed rates as low as 3.44% and variable as low as prime -0.90% (2.10%). Feel free to give me a call or email me at paulm@citycan.com, and I would be happy to spend some time with you.

AS well Shelfun,
the issue is how well do you sleep at night and how well can you afford a rise in rate.

5 year fixed at 3.44% is a fabulous rate. If you can afford that, and you sleep well at night, I would take that over the variable.

Another alternative is to take a blend: 1/2 variable and 1/2 fixed.

Try to leave yourself room to make additional payments early as well.

If you are tight with the financing, I would opt for the fixed rate since obvious 2.1% is better than 3.44 but what if 2.1 becomes 5%. Finally, you can take a variable and lock in at the first sign of increases and even then it may be that the 5 year is 3.69 or therabouts.

Good luck. Note: I am not a mortgage broker so Paul's advice above sounds sensible at least so far.

I see you better with a mix of a variable mortgage and a fixed mortgage position.

If you do decide on that fixed rate, then lock in asap. Don't be surprised if some of the fixed rates jump this week, given that 5-year bond yields are at highs not seen in over half a year.

P.S. 3.44% is indeed a fabulous rate, but I wouldn't take it if had significant limitations, like a maximum of a one-time 5% lump sum pre-payment per year, and 5% overpayment per month (5/5). I like stuff like 10% lump sum per year, plus double-up payments every month (10/100) . Or else something like 15/15 or 20/20.

IOW, beware the no frills mortgage.

Please educate an old guy who hasn't had a mortgage for years.
When I took on a mortgage way back when the Amortisation and Term of the mortgage were always the same. Assuming that not to be the case now why do I see references to Interest rates and Amortisation periods but not Terms mentioned?

spider said:

Please educate an old guy who hasn't had a mortgage for years.
When I took on a mortgage way back when the Amortisation and Term of the mortgage were always the same. Assuming that not to be the case now why do I see references to Interest rates and Amortisation periods but not Terms mentioned?

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??? You don't have the term and amortization the same, unless you have very little owing left. For example, a common amortization period is 25 years, but just about nobody gets a 25-year term in Canada. Even if you could get it, the rate would be way, way too high.

Anyways, here are the current fixed rates vs. term, more or less:

1 Year 2.29%
2 Years 2.99%
3 Years 3.25%
4 Years 3.69%
5 Years 3.59%
7 Years 4.75%
10 Years 4.99%

The amortization period doesn't really matter for the rate, but it matters for the monthly payment. The shorter the amortization period, the higher the payment.

40 or more years ago the Term and Amortisation were always the same, you took out a 30 year mortgage and at the end of 30 years your mortgage was paid off. It appears that one now juggles these 3 components to come up with a monthly cost that is workable and pays off something on the principle during the term.

spider said:

40 or more years ago the Term and Amortisation were always the same, you took out a 30 year mortgage and at the end of 30 years your mortgage was paid off. It appears that one now juggles these 3 components to come up with a monthly cost that is workable and pays off something on the principle during the term.

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are you located in Canada or the US, as you mentioned a 30 year mortgage?
as far as i know, Canada did not have such long mortgages 40+ years ago.

i know in the US, a mortgage rate can be fixed for the full term/amortization.

in Canada, the rate must be renegotiated after the initial 1-5 year term has come due.
hence, they are similar to the US style adjustable-rate mortgage (ARM) that contributed to their subprime mortgage crisis.

Yeah, IIRC my parents in the 1960s in Canada had the same type of mortgage that I have now: Short terms, amortized longer.

As for the US vs. Canada, it's always interesting to see Americans who move up here and then get freaked out by the "short" 5-year terms. OTOH, I'm starting to feel that 5 years is too long for a fixed for my personal preferences. My current mortgage is a 3-year term, and I'll probably get something similar or even shorter the next time around, or else go variable. (However, it's easier for me to do this than some others, since I only have single-digit years left in my amortization with my current payment rate, so I'm not as worried about interests rate hikes as others might be.)

I am in Toronto, I purchased a new home in 1961, the Mortgage was held by The Bank of Montreal and guaranteed by a Federal Government agency.
The only choices available were the term/amortisation, either 25 or 30 years. The interest rate was fixed at 6.75% on my mortgage, it varied over the years on new mortgages but remained fixed once taken.
There were other mortgage choices available for other than new homes probably similar to today.

Interesting. Definitely a long time ago though - 50 years ago.

I wonder when these mortgages ended in Canada, and when the 25-year amortization with 5-year terms began in Canada.

TD CANADA TRUST CHANGES RESIDENTIAL MORTGAGE RATES

Canada NewsWire

TORONTO, Feb. 7

TORONTO, Feb. 7 /CNW/ - TD Canada Trust has changed its mortgage rates, effective February 8, 2011.

The changes are as follows:

Fixed Rates To: Change:
6-month convertible 4.45 N/C
1-year open 6.50 N/C
1-year closed 3.50 +0.15
2-year closed 3.75 +0.15
3-year closed 4.35 +0.20
4-year closed 5.14 +0.20
5-year closed 5.44 +0.25
6-year closed 5.95 +0.25
7-year closed 6.34 +0.25
10-year closed 6.65 +0.25
Special Fixed Rate Offers
1-year closed Special 3.09 +0.15%
2-year closed Special 3.35 +0.15%
4-year closed Special 4.34 +0.20%
5-year closed Special 4.39 +0.25%
7-year closed Special 5.19 +0.25%
10-year closed Special 5.44 +0.25%

Reviving an old thread --

My mortgage is up for renewal in August; it's been prime minus 0.625 for six years at BMO. The current offer that BMO has for me is 5-yr variable prime minus 0.5 (prime is currently 3.0), or 5-year fixed at 2.99% They say it's the best deal they will offer. Forumers -- which do you think is a better deal thinking about interest rates over the next few years? Pre-payment privileges are similar I think, and neither option is an open mortgage. I have significant equity, and the mortgage isn't that large, so I'm not concerned about affording payments should prime go up. I'm also wondering if I can do better elsewhere? I wouldn't want to pay for an appraisal and jump through lots of hoops just for a deal that is 0.1% better.

thanks!

ponyboy said:

Reviving an old thread --

My mortgage is up for renewal in August; it's been prime minus 0.625 for six years at BMO. The current offer that BMO has for me is 5-yr variable prime minus 0.5 (prime is currently 3.0), or 5-year fixed at 2.99% They say it's the best deal they will offer. Forumers -- which do you think is a better deal thinking about interest rates over the next few years? Pre-payment privileges are similar I think, and neither option is an open mortgage. I have significant equity, and the mortgage isn't that large, so I'm not concerned about affording payments should prime go up. I'm also wondering if I can do better elsewhere? I wouldn't want to pay for an appraisal and jump through lots of hoops just for a deal that is 0.1% better.

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My opinion is to get a fixed mortgage. They can't possibly go much lower.

However, since it is a renewal and there is no risk of a purchase agreement falling through you might try moving to a little guy like True North Mortgage (2.75% for 5-year fixed).