Averbach Mortgages
November 2009
Averbach News
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When Should We Lock In?
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Dear , 

We're always thrilled when the media calls us. The latest call resulted in an article in The Globe and Mail, Report on Business. On November 17th, the Globe ran an article by Steve Ladurantaye titled: New home buyers take risks with low mortgage rate.

The article talks about the fact that some Canadians are taking advantage of today's low variable rates, with only 5% down payment and extended amortizations. The question is - What will happen when rates inevitably rise?

Should YOU be taking advantage of low variable rates or locking in?

In this month's newsletter I've decided to be as candid as possible in answering the most asked question we receive; "When should we lock in our Variable Rate Mortgage?"

Read the article below to see my answer.

Sincerely,

Mike Averbach and Justin Blacklock

CLICK HERE to See Current 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?"

Old Fashioned Key

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.

Key to Savings


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

 
November Market Update

Every month we get a market update from our friends at Macdonald Realty; Simon Clayton, Kristie Marsden, Jason Low, Sandra Ens, Jason Feinstadt and Jenny Stephanson.

Traditionally, the winter season results in a slow-down in the market as families buckle down for the school year, weather patterns make buyer tours less pleasant, and holiday planning begins.

Find out what is happening THIS year in the update!

And as usual, you'll see the sales trends for the past two years ... where the market has been and where it is headed.


Visit our BLOG for more information and advice on dealing with Vancouver's current housing marketplace, and for links to our friends at MacDonald Realty.
 
Averbach Mortgages
604-736-1855

We save you time. We save you money. We get you the you the best mortgage terms at the best interest rates possible.

If you are:

  • purchasing your first home
  • refinancing
  • renewing an existing mortgage
  • investing in real estate
  • consolidating your debts
  • experiencing current or past credit issues

We have the solutions that work for you. 

 

Mike Averbach
Averbach Mortgages