What you need to know when considering a Fixed vs. Variable Mortgage
One of the most common questions I hear as a Broker is “Should I choose a Fixed Rate Mortgage or Variable Rate Mortgage?” – while there is no one standard answer there are several factors that can help determine which one is right for you. First, it is important to understand there are advantages and disadvantages to choosing either. Variable mortgages have historically resulted in homeowners paying lower rates but because they are tied directly to the Bank of Canada rate (which is announced and potentially changed 8 times a year), they are vulnerable to fluctuations which can drive rates down and save you money or drive rates ups and affect how much of your payments are going towards your principal amount owing. Fixed rates may be higher than variable rates but they are consistent for the term of the mortgage – they are not subject to fluctuations caused by changing interest rates. Fixed rates are normally recommended for first time home buyers so they can more easily manage their household budgets and mortgage payments without worry. Before deciding which option is better for you ask yourself a few important questions and always talk to a mortgage professional to evaluate your unique situation and mortgage needs before making a commitment.
Can I afford the risks that come with a Variable Rate Mortgage?
Because there is some risk associated with variable rate mortgages you must be able to mitigate the risk if rates do rise and handle any budgetary changes required. One method of protecting yourself involves setting your payment to a fixed amount that’s higher than the minimum requirement. To do this many mortgage companies recommend setting your payments up based on the current five year fixed rate will allow you to provide a buffer in the event that rates rise and as an added benefit because you’re paying more than the minimum amount you will also be paying more of your principal. Another way to protect yourself from increasing rates is to choose a 35 year amortization but pay the 25 year amortization-sized payment. If the rates increase you can go down to the lower 35 year amortization payment until rates decrease again.
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Do I have a large down payment (in excess of 20%) or significant home equity?
If you are not a first time home buyer and have significant home equity or if you are able to make a large down payment you can hedge against some of the risks that may come with a Variable Rate Mortgage.
Does a variable rate mortgage fit my risk profile and comfort?
If you’re the type of person that likes or needs stability and consistency then a variable rate mortgage may not be the best option for you. Before choosing a variable rate mortgage you must determine if it fits with your personality, lifestyle, income, need for security, and your family’s ability to absorb risk without having any negative impacts. If you are going to worrying about what is happening with your next payment every month or stress about possible increases to your amortization and lose sleep then a fixed rate mortgage is probably the better option.
Are there different types or options for variable rate mortgages?
If you are considering a variable rate mortgage then there are a few factors you need to explore with your mortgage broker or lender:
1. Payment frequency – Make sure you are aware of the options available before deciding. Some lenders may not allow certain variations of payment frequency (i.e. accelerated bi-weekly or weekly payments).
2. Rate changes – Some lenders change their variable rates in line with the Bank of Canada (eight times per year) while others adjust them quarterly.
3. Conversion to fixed rate – Does the lender allow the mortgage to be converted to a fixed rate mortgage at any time? If yes, what rate are you guaranteed on conversion – the best-discounted rate or the posted rate?
For more information on this subject and to see a list of the current fixed and variable mortgage rates in Canada please visit www.larryarnason.com/rates
There are many benefits for choosing either a fixed or variable rate so it is important to explore all of your options and seek the advice of qualified mortgage professional before making a final decision to determine what is best for you and your long term financial goals.
~ Larry Arnason, Mortgage Broker and Canada Mortgage Specialist
Posted in Mortgages | 
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Leave a commentMortgages: What are these?
Real estate is one of the most expensive and the most productive investments of all times. Most people buy homes, and it would be the largest investment they make, with a home costing approximately 3 to 6 times more than the average income of the buyer. Mortgages have become popular simply because of this reason. Mortgage lending is the only crucial component to home buyers today.
Mortgages are basically loans, commonly released from government-back entities or banks, to be used for purchasing properties. These are also used for refinancing specific mortgages or for cashing out some accrued equity on property. Mortgages are secured loans, because it takes that property into account which was issued in the form of collateral.
Mortgages are an important part of our system today. Without these mortgages, it would be impossible for people to buy homes. Similarly other industries like construction, retailers selling products, home remodeling businesses would all lose out on business. As a matter of fact, mortgages play a major role in the purchase of real estate within United States, which according to the statistic of 2005 was released by U.S Census Bureau. Over 48 million people if USA have mortgages.
There are different types of mortgages available today, but the most common ones are that are utilized today are the fixed rate 15 years and 30 years mortgage loans. As the value of properties have risen over the years, lenders are now forced to be more creative for creating these mortgage programs that offers money while maintaining reasonable mortgage payments.
There are many pros and cons of mortgages as well that should be understood by buyers before they finally make an investment. The fees and related factors of mortgages and transactions should be decided before proceeding with the deal.
Posted in Mortgages | Average Income, Census Bureau, Fixed Rate, Government Back, Home Buyers, Home Remodeling, Matter Of Fact, Mortgage Lending, Mortgage Loans, Mortgage Payments, Mortgage Programs, Mortgages Loans, Productive Investments, Property Mortgages, Pros And Cons, Refinancing Mortgages, Statistic, Types Of Mortgages, U S Census, U S Census Bureau | Leave a commentHow to Receive Mortgage Loans using Creative Financing
Creating Financing is described as any other way of financing a mortgage without using conventional loans. This type of financing is typically used when a buyer has damaged credit, lack of money or in tight credit times.
Some examples of creative financing would be to use a Hard Money Lender (Lender that specializes in hard to lend credit situations, usually carries a much higher interest rate and fees) or will use seller financing.
Seller Financing Options:
1) Seller Carry Back – Seller agrees to carry a note for purchase of home. This method is used when the seller owns home free and clear. They benefit from receiving a monthly payment. The note term is usually due in between 1-5 years at which time the buyer would have the option of either paying off the note or finding another type of financing.
2) Subject-to – 2nd subject of existing first mortgage. This method is used to finance a home very quickly and allows the buyer to purchase the home without a down payment. The seller agrees to transfer the title of the home to the buyer but retains the mortgage payment in the seller’s name while the buyer makes the existing mortgage payments. This is a very temporary solution due to the lack of comfort the seller will have with retaining the mortgage in their name for an extended period of time.
3) Seller 2nd – Seller takes back a second mortgage. A very commonly used mortgage option. The seller agrees to take out a 2nd mortgage to help the buyer cover all or part of the down payment. Note** The buyer must check with the mortgage company to insure that a 2nd mortgage can be attached.
4) Lease Option – Buyer leases home with option to buy at a further date in time with using little or no money down. This option is usually exercised for 1-3 years which provides the buyer the opportunity to improve credit or search for other financing options. In some instances the buyer can arrange to have a portion of their lease payments put towards the down payment of the home.
Whatever options the buyer decides to exercise, it is always a good practice to research and consult with an attorney or escrow agent.
Posted in Leasing Homes | Conventional Loans, Creative, Creative Financing, Credit Situations, Existing Mortgage, Financing, Financing Options, First Mortgage, Hard Money Lender, Lease Option, Leases, Loans, Money Down, Mortgage, Mortgage Company, Mortgage Loans, Mortgage Option, Mortgage Payment, Mortgage Payments, Receive, Second Mortgage, Seller Financing, Temporary Solution, Tight Credit, Time 3, using | Leave a commentMillions Not Paying Their Mortgages
Millions of well informed homeowners are not being stupid by throwing good money down the drain on mortgage payments and electing not to pay on homes that are 20-50% underwater. They continue to play it smart just like TISHMAN-SPEYER AND BLACKROCK,Inc by living in the homes without paying the ever increasing property taxes also. Ted Jadlos breaks down data on skipped mortgage payments.
Posted in Mortgages | Blackrock Inc, Millions, Money Down, Mortgage Payments, Mortgages, Paying, Property Taxes, Stupid, Ted, Their, Tishman Speyer | 12 Comments