Mortgage debates used to center around whether to go fixed or variable but the discussion these days is not whether to lock in a rate but for how long?
But there is a new entrant to the marketplace — the 10-year mortgage. The Canadian Association of Accredited Mortgage Professionals says 10-year mortgages are about 1% of the marketplace but that may change as rates for the decade-long term have dropped to an all-time low with some lenders said to be offering an interest rate of 3.99%.
The choice is ultimately a personal decision and highly dependent on your risk tolerance. While variable represents the most risk, given its floating rate nature, the 10-year represents the ultimate in security coming with the heaviest insurance premium — albeit with a much lower cost these days.
One key factor about the 10-year that people forget is that under Canadian law you can only be forced to pay three months interest, after five years, to break a mortgage. That’s a much lower penalty than the interest rate differential which can be in the tens of thousands of dollars.
The Financial Post asked several people in the industry to pick between a five-year and 10-year mortgage. Here are their opinions:
Brian Johnston, president of home builder Monarch Corp., says he’d go for the 10-year product. He’d opt for the same length for commercial money too.
“If I could get a 10-year at 4%, I would take that all day long. I said to my wife ‘let’s just go get a mortgage’ and she said ‘we don’t need a mortgage.’ I said ‘it’s 10-year at 4%.’ Interest rates will go up, we all know that, we just don’t know when. Give me 10 years and I think I’ll get it right,” says Mr. Johnston. “It’s unheard of to lock in money for 10 years at these rates. It’s not going to last long.”
Ted Rechtshaffen, certified financial planner with TriDelta Financial, says he just had the debate with a client and, based on his math, if you think rates are going to be higher than 4.7% in five years you should lock in for the 10.
“If you can do a five-year mortgage at 3.14% or a 10-year at 3.89%, the renewal rate is going to have to be lower than 4.7% for you to be mathematically better off doing five years as opposed to 10,” says Mr. Rechtshaffen. “It’s not going to take a lot to get to 4.7% in five years, that’s a historically low rate. I would suggest the odds are good you are going to have a mortgage rate that is 5% plus. My client was also asking about investment property and, to be able to lock up the investment rate risk for 10 years, that has considerable value.”
John S. Andrew, adjunct assistant professor at Queen’s University’s School of Urban & Regional Planning & School of Business
Queen’s University, is leaning towards the 10-year.
“I’m biased towards the 10 just because I think rates are going to up considerably in that sort of time frame,” says Mr. Andrew. “The only reason I would say don’t go for 10 is in the rare circumstance where someone is going to pay down their mortgage in less than 10 years. For most people, the lifespan of the mortgage is going to be more than 10 years. We know these are historically low rates. Even though you are paying more for the 10-year than the five, it is going to prove to be a really good deal and why not lock in it for as long as possible. It’s going to look like a sweet deal by year three.”
To read more opinions please go to:
I believe that with a 10 year rate at 3.99% and having the portability, assumable and 20% + 20% prepayment options as well as knowing that you would only pay a 3 month interest penalty once you have finished your first 5 years of the term, I would definitely offer it to my first time home buyers, to clients whom debt ratios are very tight and to those whom feel comfortable knowing that they can not worry about rates that are going to go up very soon. This allows you put a great mortgage strategy and plan together to pay down your mortgage quicker and sleep easier knowing that your payments are fixed and affordable for years to come.
Monday, March 26, 2012
How much home could your rent buy?
The days are getting longer and mortgage rates are wonderfully low as we move into spring housing market 2012! In fact, homeowners are locking in some of the lowest rates in history. This Great Canadian Mortgage Sale is a good time to take a look at how much mortgage you could afford given your current rent. Your dream home may be more affordable than you think!
Your monthly rent cheque doesn't have to be money out the window. It could be building equity in your own home.
Keep in mind that home ownership involves costs beyond the monthly mortgage payment like utility bills, insurance, and property taxes. We can help you determine what you can comfortably afford.
Get pre-approved today and have your rate held for 120 days! This way you don't have to worry about rates rising while you are house hunting, and both realtors and sellers will know you're serious, which means you'll be in a good position to get the home you want.
Don't miss out on the Great Canadian Mortgage Sale!
Tuesday, March 13, 2012
This week we share a motivating message from one of our favorite authors and speakers, Jim Rohn. Jim reminds us that our personal philosophy is the greatest determining factor in how our lives will work out.
It isn't a complex or mystical process, but a principle that can make a difference in how your life turns out. As we go forward on this journey toward success, remember you need to keep looking for those few things that make the most difference in your life, and spend most of your time doing those things. Effective time management is the best-kept secret of the rich. While there are five major puzzle pieces for success, without the first—developing a sound philosophy— the other pieces are of little value.
Set Your Sail
The winds of circumstance blow upon all of us. We all have experienced the winds of disappointment, despair and heartbreak, but why do people arrive at such different places at the end of the journey? Have we not all sailed upon the same sea?
The major difference isn't circumstance; it's the set of the sail, or the way we think.
In spite of our best efforts, we have moments when things just seem to fall apart. The rich and the poor have the same challenges that can lead to financial ruin and personal despair. It isn't what happens to us that determines the quality of our lives, it's what we do after we've set our sails and the wind decides to change direction. When winds change, we must change. We have to struggle to our feet and reset the sail in a manner that will steer us in the direction of our own deliberate choice. The set of the sail, how we think and how we respond, has a far greater capacity to destroy our lives than any challenges we face. How quickly we respond to adversity is far more important than adversity itself. The great challenge of life is to control the process of our own thinking.
Learn From Success and Failure
The best way to establish a new and powerful personal philosophy is to objectively review the conclusions you've drawn about life. Any conclusion you've drawn that isn't working for you could be working against you. The best way to counteract misinformation and wrong data is to input new and accurate information. Gather information from personal experience. If you're doing something wrong, evaluate what you did wrong and change things.
Seek an objective, outside voice about how you are and what you're doing. An objective opinion from someone you respect can lead you to early and accurate information about your decision-making process. Listen to the freshness of an outside voice—someone who can see the forest and isn't lost in the trees.
Observe the successes and failures of other people. If people who failed were to give seminars, it would be helpful. You could see how people mess up and you wouldn't do what they did. You could find out what poor people read and decide not to read it. Past failures and errors prompt us to amend current conduct so we don't replicate the past.
Study from people who do well. Each of us should be in a constant search for people we admire and respect and whose behavior we can model. It's far better to deliberately choose the people we will permit to influence us than to allow bad influences to affect us without our conscious choice.
Read All You Can
People from all walks of life who've had some of the most incredible experiences have taken the time to write of these experiences so we can be instructed and amend our philosophies. There are two books you need to read to build your philosophy: Think and Grow Rich by Napoleon Hill and The Richest Man in Babylon by George S. Clason. The contributions of other people enable us to reset our sails based upon their experiences. Books offer treasures of information that can change our lives, fortunes, relationships, health and careers for the better.
Keep a Journal
A journal is a gathering place for all of our observations and discoveries about life. It's our own handwritten transcript that captures our experiences, ideas, desires and conclusions about the people and the events that have touched our lives. The past, when properly documented, is one of the best guides for making good decisions. The very act of writing about our lives helps us think more objectively about our actions. Writing tends to slow down the flow of information and gives us time to analyze and ponder the experience. The intense scrutiny of journal writing can enable us to make refinements in our philosophy that are truly life-changing.
(Spend more money on the inside of your head than the outside. - Jim Rohn)
Jot down what you learn and be a buyer of empty books. It's the small disciplines that lead to great accomplishments.
Observe and Listen
Pay attention during your day, watch what's going on and become a good listener. Find a voice of value and stay for a while. Surround yourself with people you respect and admire. Find people whose personalities and achievements stimulate, fascinate and inspire you, and then strive to assimilate their best qualities. This is called the skill of selecting. Don't waste your time on the silly and the shallow.
One of the major reasons people don't do well is because they keep trying to get through the day while a more worthy cause is to get from the day. We must become sensitive enough to observe and ponder what is happening around us. Be alert. Be awake. Often the most extraordinary opportunities are hidden among seemingly insignificant events.
Be a good listener. With so many voices vying for your attention, you need to develop the skill of selective listening and only dial into the radio station that appeals to you. If a voice is not leading to the achievement of your goals, exercise caution in how long you listen.
Every day is filled with dozens of personal crossroads, moments when we're called upon to make a decision regarding minor as well as major questions. These decisions chart a path to a future destination. With careful mental preparation, we can make wise choices. The development of a sound philosophy prepares us for making sound decisions. When we eat healthy foods, we experience positive results in a short time. When we start exercising, we feel a new vitality almost immediately. When we begin reading, we experience a growing awareness and a new level of self-confidence. New disciplines practiced daily will produce exciting results. The magic of new disciplines causes us to amend our thinking.
Neglect is the major reason people don't have what they want. If you don't take care of things in your life, neglect becomes a disease. If you neglect to do good things with your money, you probably neglect to do good things with your time. If you don't know what's going on with your health or your bank account, you could be at risk. Set up new disciplines to change your life. Don't neglect.
Everything is within our reach if we will read books, use journals, practice the disciplines and wage a new and vigorous battle against neglect.
Build your philosophy. Commit yourself to a new journey and say, "I'm going to change my life." Once you do, you'll never look back.
Check the fine print behind discounted no-frills mortgages
Spring market 2012 is heating up with some low-rate no-frills mortgage promotions. They are certainly attention getting but these mortgages often come with restrictions that can cost you in the long run. That's why it's important to check the fine print:
- A fully closed mortgage means you're not leaving the lender unless you sell your house, so your options are limited and you have no negotiating power if your needs change in the next 5 years.
- Low or no prepayments gives you no or limited ability to chip away at your principal to reduce your overall cost.
- Maximum 25-year amortization can take away important flexibility like taking a 30-year amortization but setting your payments higher using a 25-year or lower amortization, which keeps open the possibility of reducing payments later should you need breathing room for an emergency situation or special need.
Who really knows what life might be like a few years down the road? The lack of flexibility associated with a no-frills mortgage could end up causing you some major headaches.
Talk to me to review all of your options. I have access to many low-rate full-feature mortgages that provide more flexibility and could save you thousands. Rate is not the one and only factor in choosing a mortgage!