Attention, all fence sitters, the mortgage rates are about to go
up!!
After historically low rates for the last two years, the economy is
about to dictate increases across the board, from six month to five years
and longer. The amount of the increase is up for interpretation.
It is this writer's opinion that you have been spoiled for the last three
years or so and that the system is about to get even. We may be in
for a sizeable jump.
For those of you who have put off buying a house waiting for the absolute
lowest rate, you are too late. The lowest rate occurred last year
at 5.95% (for a five year term). If you hurry, you may still be able
to negotiate a 6.20% closed mortgage and realistically, compared to the
average five year term rate over the last 15 years (9.5%), 6.20 ain't so
bad! That rate by the way was available on August 4, 1998.
It was a fully discounted rate, originally at 6.95%. It was available
for people with good credit ratings, with proper down payment (CMHC guidelines),
and proper debt servicing incomes ratios. Even if you negotiate a
mortgage at 7.15%, the new posted rate, it still beats paying rent.
I have this awful feeling that 3 months from now, that latter rate will
be considered a great rate.
For those of you who have a mortgage coming due within the next four
months, you had better act now in getting a pre-approved transfer mortgage
approved, at today's rates. Most of your present lenders will not
talk to you about your new rate until about 30 days before the expiry of
your present mortgage, however, new lenders will talk, to try to increase
market share. Waiting for your present lender won't do you much good
if the rates go up by two percent between now & then. Most new
lenders will guarantee rates 60 days, some 90 days, and a few will even
stretch for 120 days. These new lenders will also pick up the cost
of switching your mortgage to them. So what are you waiting for?
No appraisal fees, no legal fees, just a commitment from this new lender
that the rate offered you is guaranteed. If I am right, when you
get your mortgage renewal from your present lender, the rates will be higher
than the promised rates from the new lender. At that point, you simply
tell the old lender to ship all your papers to the new lender. If
I am wrong, and the offered rates are lower than the guaranteed rates,
call up the new lender and tell them you have decided to stay with the
old lender. If the rates are equal, you should really change to the
new one, because the new lender was the one who guaranteed you a rate in
uncertain times.
For those of you who have longer than 4 months until your renewal,
it may be time to analyse paying a penalty to get out of your old mortgage.
Most of you in this situation have probably checked already with your existing
lenders to get a quote. Some of you may have heard a penalty amount
that made you sick. Most lenders, in the first three years of a five
year term, were charging the interest differential when figuring out a
penalty. In most cases now, the penalty (after the third year) is
probably down to a more reasonable "three months' interest" . I would
venture to say that anybody with two years or less to maturity should consider
paying a penalty to refinance now, if your present rate is 8.5% or higher.
For those of you thinking to buy a new home, dealing with a builder
who has had the foresight to negotiate long term interest rate guarantees
(up to one year) should be your quest. Since in most cases it takes
longer than four months to occupancy of a new dwelling, dealing with your
Bank branch is not going to give you the interest rate protection you may
need. If you are thinking of building a new home, it is very important
to seek "off-site" security during construction, since most mortgage lenders
will not guarantee rate until after the house is built. If you happen
to arrange for mortgage financing using off-site security (see Mortgage
Matters Inc. web-site), you can obtain long term financing now using the
other house, then carry (port) the mortgage to the new house when built.
It gives you the advantage of knowing your final mortgage payment, even
before you start to build.
Your new term should be five years or longer, unless you have definite
disposal plans for your present house in the foreseeable future.
Now that most new mortgages are portable to another property (even high
ratio CMHC insured mortgages), it makes absolutely no sense to take short
term mortgages (ie. six month or one year term). Some pundits may
argue that in the last five years, those who chose short term were the
overall winners in the game, and this writer does not argue the fact.
It is also fact that five years ago, the spread between short term (six
month) and long term (five years) mortgages far exceeded the present day
spread today (½%), and you must admit that present day rates are
lower than most of us have seen in our lifetime. Don't test destiny,
an upward jump of 1/2% can cost you literally thousands of dollars over
a five year term.
This may be the last chance to hop aboard the fairytale express, secure
your long term mortgage rate now, you may not see sixes (6% range) for
very much longer, and you may not see sixes again for a long while.