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October 2005
Dear home owner,
As a homeowner (or prospective homeowner), investor or real estate professional, you rely on your mortgage professional to keep you informed about interest rate movements and trends. This newsletter is designed to do just that.
In this issue:
- Market commentary and Interest rate trends
- No down payment programmes - knowing what's right for you could save you thousands
- In the news
Please check out my NEW affiliate website: BCHomeBuyer.ca .
Market commentary & Interest rate trends
The Bank of Canada (BOC) moved up the key interest rate on Sep 7, 2005 by 0.25 percent to 2.75%. Consequently, the major banks increased their prime rate to 4.5%. Many economists expect the BOC to increase their key interest again on Oct 18, thereby raising the prime rate to 4.75%
Surprisingly, the 5-year fixed rate has held steady at 4.50%. There is definite pressure to increase. Prospective home buyers should take advantage of their pre-approvals before the expiry dates.
The variable rate mortgage is still a good choice. However, the variable rate advantage is not as significant as it once was. If the prime rate were to increase on Oct 18, most variable rate holders will be paying 3.95% (4.75% less 0.80) compared against the 5 year fixed rate of 4.5%, With about a half percent gap, it may be worth it to just lock in the 5 year rate.
Rates and Charts
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Prime @ 4.50%
Term
Aug 19
Aug 26
Sep 2
Sep 9
Sep 16
Sep 23
Sep 30
3 year
4.25%
4.25%
4.25%
4.25%
4.25%
4.25%
4.25%
5 year
4.50%
4.50%
4.50%
4.50%
4.50%
4.50%
4.50%
10 year
5.10%
5.04%
4.92%
4.92%
4.92%
5.05%
5.05%
Table shows the discounted residential mortgage rates for 3, 5 and 10 yr closed fixed rate mortgages
For a longer term view, click here to see the 3, 5 & 10 year best residential rate since September 2003 (updated monthly)
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Click to view other relevant graphs
No down payment programmes - knowing what's right for you could save you thousands
There is basically two ways of obtaining a zero down mortgage. The first way is by using CMHC's Flex Down program. CMHC will allow you to borrow the down payment from (almost) any source (such as a line of credit or personal loan) . The second approach is to use GE Mortgage's cashback equity program. With GE, your lender will provide you with the 5% down payment so you don't have to put anything down.
The advantages/disadvantages of each program are as follows:
CMHC Flex
down
Advantages
1) Lower cost - On a 5
year term, I calculate your effective cost at around 4.68%, currently
(Assumes you can borrow the down payment at 8%)
2) More flexibility on
the term - you can chose any term available - fixed, variables rates,
etc.
Disadvantages
1)
You have to manage two loans - the mortgage and the personal loan; the
personal loan matures before the mortgage
2) If you don't have a loan
set-up already, you'll need to apply for one (I can refer you to a
banker.who can provide the loan)
GE Mortgage
Equity Cashback
Advantages
1) Simpler since there is
just one loan to manage
2) No need to apply for a personal loan.
Disadvantages
1) Can have a higher interest rate cost - On a 5 year,
the cost is 5.17% (compared with current rates of 4.5%)
2) Limited to
fixed rates - 5, 6, 7, 10 year terms only
3) If you were to break the
mortgage before the end of the term, you will have to rebate part of the
cashback to the lender.
In the News (excerpts from recent press releases)
1) Determining the best mortgage strategy - Fixed or Variable? (Invis Research, Sep 7, 2005) - With the increase in the prime rate to 4.5%, what is the right strategy for mortgage holders. Invis research analyzes scenarios to help home owners decide the right strategy. Click here to read more.
2) CIBC World Market's Monthly Indicators (CIBC World Markets, Aug 4, 2005) - CIBC's monthly economic newsletter. CIBC is predicting another interest hike on Oct 18. Rates will stay at this level until Dec 2003. Click here to read more.
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Please consider the information provided in this newsletter as general information. Before you do anything consult a professional.
To unsubscribe, please click reply with the subject "unsubscribe" and you will be removed from this email list.