Interest Rate Primer

Deciding on the type of mortgage interest plan is one of the most important decisions a home buyer will make.  Your choice of mortgage plan can save you tens, even hundreds of thousands of dollars over the life of the mortgage. While we offer the best rates in the industry, obtaining the lowest rate does not guaranty the lowest total cost.  You also need to consider the following:

1) Are you obtaining the right term based on your plans and objectives?

2) Should you choose a fixed rate or variable rate mortgage?

3) Does it have the right features - portability, assumable, prepayment, etc.?

4) Is it tax efficient? Can you make your mortgage tax deductible? We are a certified mortgage planner for TDMP.com.  Earn thousands of dollars in refunds and pay your mortgage down quicker by making your mortgage tax deductible.

5) How can a longer amortization or an interest-only mortgage benefit me? 

With hundreds of lenders in Canada each offering different rates, terms and features, you need a mortgage broker who will guide you through the maze of mortgage products.   Let me analyze your financial situation and objectives so you obtain the best value for your mortgage.  Get great rates and build wealth through your mortgage.   Call or email me today!

Mortgage Features Affect The Interest Rate

You may be able to achieve a lower interest rate if you are willing to give up certain mortgage features. 

1) Do you need standard pre-payment options? There are lenders that offer "No Frills" mortgages.  You are able to obtain a lower interest rate in exchange for giving up your pre-payment options.  This product works well for individuals who do not intend to increase their payments or make extra payments over the term of the mortgage.  Some of these products do not allow you to port or refinance your mortgage over the 5 year term of the mortgage.

2) Can you close your mortgage quickly? Some lenders offer "quick close" products.  You can obtain a lower interest rate if your mortgage can close in 30-45 days, depending on the lender.

The No Frills or Quick Close products are available for live deals only (i.e., not for pre-approvals). 

Type of Interest Rate Options

Fixed mortgage interest rates

If you choose a closed fixed interest rate, you are locked-in with the lender for a specific term.  The interest rate charged will not change during the term of the mortgage.  Should you decide you want to break the mortgage (say, you decide to sell your home), lenders will charge a penalty.  The penalty is generally the higher of three month's interest or the interest rate differential

The interest rate differential (IRD) is the difference between the existing rate and the rate for the term remaining, multiplied by the principal outstanding and the balance of the term.

Variable interest rate mortgage

Variable rate mortgages are a popular option these days.  On a $200,000 mortgage, the savings on a variable rate mortgage versus a 5 year term mortgage is currently at $115 per month or $1,380 per year.  Historical data over the past 5 years have shown that home buyers save with a variable rate compared with a fixed rate mortgage.  Click to see a graph showing the 5 year rate and a variable rate and residential interest rate graph since Sept 2003.  You may also find the Vancouver Sun article entitled "Variable mortgage is better deal, study finds" informative.

The big question is - What is the best variable rate product in the market? It has become difficult to compare since most lenders offer a variety of options - teaser rates, monthly compounding, pre-payment, cashbacks, convertible, etc.  I am happy to discuss with you your needs and provide a recommendation on the variable rate product that meet your needs

What you need to ask your lender is you are getting a variable rate mortgage?

1) What rate do I get if I decide to switch from a variable rate mortgage to a fixed rate mortgage? Will you guaranty me the best interest rate?

2) Is the mortgage portable? Some variable rate mortgages will not allow you to port your mortgage. 

2) What payment frequencies are allowed? Can I pay weekly, bi-weekly?

3) Is there a premium surcharge for 5% down mortgage?

4) How is the interest rate compounded? Semi-annually or monthly?

Please read my blog on Variable Rate Mortgages to learn more.  We know you don't have to time to read all the fine print in a mortgage document.   Be aware that if you use us as your mortgage broker, we will ensure that all the important features of a great variable rate mortgage are incorporated in the mortgage we provide you.  This is our commitment.

Capped variable interest rate mortgages

This is a variable rate mortgage with an interest rate ceiling.  With this product, the discount on the prime is not as large as a straight variable rate product.  

Capped variable mortgages  makes sense when interest rates are on the rise.  When deciding on this product, it is important to find out from the lender the cap rate and the term of the mortgage.  You then evaluated whether you see interest rates reaching the cap.

Split Term mortgage

A mortgage which allows you to minimize -- or hedge -- your interest rate risk by splitting your mortgage into parts. For example: A $150,000 mortgage could be split into five $30,000 segments with terms of 6 months, 1, 2, 3 and 5 year terms negotiated at today's best rates. The average rate would rise or fall much more slowly than changes in the market, however, as only the shorter terms are affected by even the most volatile rate movements over the first few years.  Another option would be to split your mortgage into a fixed mortgage and a variable mortgage.

Split term mortgages are generally available for conventional mortgages (i.e., you have at least 25% equity in your home)

Mortgage Interest rate trends

As a mortgage professional, it is important for me to keep my clients apprised about the latest mortgage interest rate trends.  Having an understanding as to where rates are moving will save you money by allowing you to develop the right mortgage strategy.

If you want to learn more about mortgage interest rate trends, I suggest you sign up for a free monthly e-zine by clicking this link: www.bcmortgage.ca/opt_in.htm . Click here to see the latest issue.

"My job is done when you know your options"