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November 2008
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Vol 1, Issue 2
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Greetings!
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Life is busy enough; your home financing doesn't have to be complicated. This newsletter was created to share information regarding all kinds of money matters, from understanding mortgage financing to ideas on how to save and even make more money for you and your family.
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Lenders - Changing the Rules
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The global
credit crisis and lack of liquidity in the market place has caused many banks
to re-evaluate their risk parameters when it comes to lending. This may have an
impact on you - the borrower. We have
already noticed some changes in lending practices. More than ever before borrowers must be clear on your needs for mortgage financing and what options are
available to you. Gone should be the
days where you simply sign that renewal notice and go on your way.
Now is the time to pay attention to all the
elements in your mortgage and be sure to collect all the information you need
before you sign with one lender. This economic turning point could be a gift in
disguise giving you the opportunity to look closely at your existing mortgage
and other debts to review your financial matters, costs and objectives.
Who will be most affected by the changes?
Those with a low credit score, limited equity in their home, business
for self and those purchasing for rental investment may see an impact by the change
in a bank's risk tolerance.
Upcoming issues of this newsletter will address
each of these areas on more detail.
Does that mean
you won't be able to get a mortgage in these cases? Not at all, there are still plenty of ways to
get a mortgage, your patience may be tested and you may have to provide more
information to verify income, etc. Programs
like 'stated income' mortgages and mortgages with zero down or amortizations to
40 years have changed. However, there is still a lot of money available from a
variety of lenders. Working with your mortgage broker you will be certain to
find the right match. |
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Fixed or Variable?
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In April 2008 an article written by Keith
Woolhouse, Special to the Star, addressed the age old question "variable or
fixed?" With major changes in the mortgage market and unsure economic times
ahead, I thought it was time to address this question again, taking into
consideration the current rate structure and market conditions.
Woolhouse compares the two types of borrowers; the
fixed rate camp, seeking security versus the variable rate camp, who are
prepared to gamble. While monthly payment plays a part in making this decision,
the greatest motivator is the risk factor. It's the ultimate gamble and why an
estimated 70 per cent of Canadians opt for the fixed-rate mortgage believing
that not only will they sleep better but they are making the best decision. After all, this is likely the biggest
investment in their life.
However, statistics show that nearly 85 to 90 per
cent of the time, borrowers save money by choosing a variable rate mortgage. Lenders
prefer to advance money for short periods and borrowers who accept this are
rewarded with a lower interest rate. This is true even in today's low interest-
rate environment since lenders are even more reluctant to make longer- term
commitments.
Borrowers should not make any decision based on speculating
interest rates but rather on their personal risk tolerance. One need only take a look at the past to know
that the prime lending rate can and will change. In May 2006 the prime lending rate was 6%,
rising to 6.25% in July 2007 before it dropped below 6% again in January 2008
and continued to drop to 4% in October 2008 the lowest since July 2005. Although it may drop a bit more, it will rise again.
In response to recent economic instability lenders changed
the variable rate product from prime minus .6% to prime plus 1%. For some borrowers who are familiar and
comfortable with a variable rate product this change in rate structure may not
matter as they prefer the potential upside - as the prime rate drops they pay
less interest and more principal off on their mortgage. However, for those risk-averse borrowers or
first time homebuyers with little equity in their home, the potential downside
could prove to be too much to handle.
If
you are ready to purchase or remortgage and unclear on which is the right
choice for you, ask yourself a simple question.
"What would happen if the prime rate rose to 6% again and my mortgage
payments, if I go with prime +1% (5%) rose to 7%? Could I afford it?" That potential
change translates to $120 per month for every $100,000 based on a 25 year
amortization. If you are able to ride
the wave up and down the odds are you will save money in the long-run. However, you have to be able to take the hit
if rates rise. If you are unsure - then it may be best to
take that fixed term rate. Either way,
when your 5 year term is up you get to decide all over again.
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I hope you find this newsletter informative. If you feel it is of value, please forward to your friends and family. I welcome new subscribers and more ideas for content. By sharing strategies and tips - we can all make the most of our money.
Sincerely,
Pauline Tonkin
Your Trusted Mortgage Specialist
Elder Mortgage - The Mortgage Centre
101-566 Lougheed Highway, Coquitlam, BCV3K 3S3
P: 604 931 4719
C: 604 813 8402
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Pauline's Pick
Carpet Cleaning
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It's that time of year when you need to get the house ready for guests and the holidays. If you are like me, one of those items includes cleaning the carpets. This year I chose to use the services of Citrus-O (www.citruso.com). Ryan was our technician. He was very knowledgable and did some tests on the carpet to show us the kinds of things you don't want to see. I clean the carpets each year and still I can't believe what collects in there. Now they look great! If you want to give your carpets a thorough cleaning, give them a call at 1-877-248-7870.
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