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The Mortgage Trends
of 2011
Among
the various developments this past year there were a few mortgage trends that
stood out:
New Mortgage Regulations
The government has yet again
tightened mortgage rules for the third time since 2008.
Those with a high-ratio
insured mortgage saw the loss of 35-year amortizations and refinances above 85%
of their loan-to-value (LTV) ratio. This in turn means that not only do
well-qualified borrowers lose an amortization option but more interest expenses
are accrued for anyone not able to refinance their high-interest debt.
They also made it difficult
for non-bank lenders to offer a Home Equity Line of Credit (HELOC) by removing
insurance on secured credit lines.
Record Low Fixed Rates
Nervous investors have been
readily buying up safer Canadian bonds – increasing prices and decreasing
yields. Therefore we’re seeing other rates drop too. The bond market actually
has more influence over fixed mortgages than the BoC’s posted rate which of
course trickles down to variable mortgages also.
The Fall of the Variable
Before August 2011
variable-rate mortgages were a good choice for the savvy homeowner but after
the U.S. debt downgrade, not so much. However even though the media has
declared variable-rate mortgages ‘over’ a comeback is inevitable.
In light of last year’s
trends should you be restructuring your mortgage to cash in on these low
interest rates? It depends.
The best fixed-rate option
would be a closed mortgage however you can’t escape the interest rate that you
agreed to pay for five years without a penalty. In order to determine just what
that prepayment penalty will be you will need to:
- Calculate
the difference between your high-rate mortgage and the current rate to
come to the interest rate differential penalty.
- Determine
how much time remains in your term.
Of course the best way to
know whether switching is a good idea for you would be to contact me today. I
can answer all of your questions and help you review your options.