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I have been fielding on average some 45 calls per day, since the news that oil price
increases will create inflation and that the cure for inflation is higher interest rates.
If you share the opinion of the masses, and you feel rates are on the rise, this
article should be of use to you. I don't necessarily share the belief we are going
to experience interest rates in the double digits, however I can empathize that budget
conscious families must do something to protect themselves.
We can still get mortgage rates reserved for up to 4 months (some conditions apply).
If you are thinking of buying this year, it may be a good idea to start shopping
now with the intent to close on your purchase within the next 120 days, to take advantage
of rate guarantees. If your purchase date is going to be later than 120 days, then,
depending on your down payment, it may be to your advantage to get the vendor of the
property to secure a new mortgage, which you would assume when taking possession. The
lender that guarantees the rate for 4 months is not the lender with the best rates, but as
the closing date becomes closer, you may elect to change lenders at that point, although
you may experience a small penalty for not having taken the money that had been reserved
for you.
If you are renewing this year, or next, and your present rate is superior to the
advertized rates, it may be a good idea to pay a penalty to get out of your present
mortgage in order to secure a new one for a new five year term while the rates are still
relatively low. Most mortgage companies have a penalty clause set up that will allow
you to leave or close your mortgage early subject to the greater of: a three month
interest penalty, or the rate differential between your existing rate and the new rate.
If your present rate is inferior to what is being offered today, and you have at
least one year left in your term, I would not recommend changing at this time.
If you are thinking of selling your house this year, it may be to your advantage to
renegotiate your mortgage now. Increase the amount to at least 75% of the value,
shop for the greatest discount you can find, and use the lower rate in your advertizing to
attract potential purchasers, who would be willing to assume your mortgage. If the new
purchasers were to require more money than what you had to offer, the lending institution
that renegotiated your mortgage would be more than willing to increase the mortgage
dollars, and blend the interest rate to effectively give the lower rate to your
purchasers. On the other hand, you never know what the market is going to do, so as an
alternative to spending money for legal fees and appraisal fees, etc. (necessary during
renegotiating for the purpose of drawing equity), you may elect to advertize your
willingness to "buydown" the rate of interest on a mortgage. When the
perspective purchaser shows up wanting a lower rate than the bank is offering, you simply
agree to pay the difference between the going rate and the rate your purchaser wants to
pay. The easiest way of calculating the cost is to consider paying 1% of the
mortgage amount for every 1/4% discount on a five year term mortgage. In other
words, if the new mortgage is $100,000, it would cost the homeowner $1000 for every 1/4%
lowering of the rate. Interest rates may be on the rise, but Ottawa Sun readers now
know how to beat the system.
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