Main Street listings

Well, I'm up to date with new listings in Main Street/Mount Pleasant. I just got back from a tour of open houses. Call for an update.

Sandra

Variable mortgage update

Hi all,

Here is some thoughts on whether to lock in.

As expected by most economists, the Bank of Canada announced this morning that it will leave its key interest rate unchanged at its all-time low. The Bank also reiterated its commitment to hold its key rate at the current level until the end of the second quarter of 2010, conditional on the outlook for inflation. In its statement the Bank noted that “While significant fragilities remain, global economic developments have been slightly more positive and the global outlook has improved modestly.”

If you missed my newsletter and the Vancouver Sun West Coast Homes section of Saturday, November 28^th, we provided some very useful tips for those of you that are taking advantage of your ultra-low variable rates:

When Should We Lock In Our Variable Rate Mortgage?


One of the questions we get asked THE most often is, "When should we lock in our Variable Rate Mortgage?"



Unfortunately, there is no clear-cut answer for this. What I can tell you is that it's really up to you and your ability to tolerate the possibility of a fixed rate payment between 2 and 3% greater than what you are currently paying.

Some of you have a rate as low as 1.25% (Gasp!).
So you'll be asking, "How can I even think of locking in now, when I'm saving so MUCH money?"

You might consider locking in now, because fixed rates are at a historical low. Locking in would be the "safe, wise and responsible" choice because interest rates WILL increase!

Let's face it though, you knew when you decided to go variable, you knew you were taking a risk. A river boat gambler of sorts. So why stop now?

Well, as the old song by Kenny Rogers goes:

You got to know when to hold 'em, know when to fold 'em,
Know when to walk away, know when to run.
You never count your money when you're sitting at the table.
There'll be time enough for counting when the dealings done.

Think about this for a moment; the average mortgage size in Vancouver is about $265,000.00. If you are floating on a variable rate mortgage at prime minus .75 for example, or 1.5%, you are paying about $1059.00 per month based on a 25 year amortization. Choosing to lock in at today's best rates of about 4% would cause this payment to balloon to 1393.00 a month. This is an increase of about 32%! If you are living on the west side, a 32% increase on a $500,000.00 mortgage is over $630.00 a month. To put it into perspective; that's your groceries, gas and hydro allowance all rolled into one.

This is how much more most consumers are paying with a fixed rate mortgage.

How can you be "responsible" AND take advantage of borrowing near-free money?

First of all you have to understand that interest rates will eventually rise! Then you need to take the steps that allow you to BENEFIT from the lower borrowing costs:

• Ask your lender to increase your minimum payment by the maximum annual allowable. This is based on your original mortgage balance and you can increase by up to 25 % per calendar year under some lender guidelines.
  
  Check your flexibility features of your mortgage or give us a call to confirm. This will not only reduce you amortization significantly but better prepare you for the increase in payment that you will expect once prime goes up, or when you choose to lock in.
  
  The extra 15 to 25% increase will be applied directly toward principal.
• If you can afford to and would like to get more aggressive toward paying down your mortgage while your interest is extremely low, you can ask you lender to take the current fixed rate and apply it to your payment schedule.
  
  For example, If the current fixed rate for 5 years offered by your lender is 4.19%, you could ask that your payment be set to that rate. Because you are only being charged your VRM interest rate, a much greater ratio of your payment will be applied towards the principal portion. By doing this you will substantially reduce your amortization.
• At the very least, you should make weekly or bi-weekly accelerated payments. Every lender allows this, and it will knock substantial years off your amortization. All it takes is one quick phone call.

By taking any one of the three steps outlined above, you will leverage the low interest rates and pay down your mortgage faster. Since you will be making the same level of payment you would be making at a fixed rate, there will be NO shock when you want to or have to lock in.

If you want to discuss your current mortgage situation, please give us a call.

For current fixed and variable rates, please click below:

http://www.averbachmortgages.com/rates.php

See industry article below from the Globe and Mail: