Interest rates are rising!
I certainly hit a nerve last weekend when I predicted that rates were going to go up.  Indeed they have.  Some readers called me up blaming me for the increase, saying I was promoting doom & gloom.  One caller even said I was more than correct in my assessment and that rates were going to go back up to 1980 levels....20%.  The economy in Canada is strong.  Our export markets are doing better than ever recorded.  The tourism industry is flourishing.  There is virtually no inflation in Canada.  Therefore, rates are not going back up to 1980 levels.  I fear rates may go up by up to 2% over the next 12 months, but certainly not to double digits.
In reality, the economy needs our mortgage rates to rise,  just a little.  Mortgage money in Canada comes from fixed deposits at our financial institutions.  At the present time, the investment return to our elderly (those who have the savings) cannot compensate them adequately.  Adequate compensation should be defined as enough return to live on the investment without having to spend the capital.  This writer truly believes that mortgage money should be lent out at around 9% in order for the investment side of things to earn 7%.  The difference between the two is the administration fee that our financial institutions charge to handle the money.
Of course all this gibberish means absolutely nothing for the home owner or the home buyer.  For him/her, the lower the rate the better.  The calls have been coming in fast and furious. Consumers whose mortgages mature in the next two months, three months, even four months, can be helped right away.  We can get new lenders to guarantee the rate of interest up to the normal maturity date.  This means you don't have to break your contract,  therefore there is no penalty to get out of your present mortgage.  We simply guarantee that when your mortgage does mature (in 2, 3, or 4 months), the new lender will payoff the old lender without rewriting the mortgage itself.  These mortgage transfers (as they are called) do not cost anything to the Consumer.  The new lender will pick up the legal cost and the appraisal fee, subject of course to you being able to qualify for the mortgage.
Those Consumers whose mortgages mature after four months may want to check with their present lender about penalties to get out immediately.  Some will be surprised at how little amounts of money separate them from getting out of their high rate mortgage down to a much cheaper rate.  Some will be surprised to find out that they are completely locked in with their present lender and cannot get out even with paying a penalty.  Other lenders will awaken to the fact that they may lose you to the competition, when you call for the penalty quote.  The latter lenders may offer to "blend" your old rate with the new rate.  The blend, in most cases, actually costs you more money in the long run.  Consumers though will see a lower rate compared to their old mortgage, and not look at the offered rate being higher than what they could get if they paid the penalty. Let me give you an example: Mario's five year term mortgage comes due on November 1, 2000.  His present rate is 9.875%.  He read the article last week and called his bank to get a payout quotation.  He was offered three choices:
a) keep the present mortgage for the remaining 26 months, or,
b) pay the interest differential between his old rate and today's rate ($6987.) or,
c) accept a new 5 year rate now at 7.75% for the next five years and pay no penalty.
Mario decided rather quickly that the last choice ("c" above) was the best deal, but before signing on the dotted line, he called for my opinion.  It turns out that Mario's penalty, on November 1, 1998, will be only be $2600, not $6987.  According to his CMHC insured mortgage document, after the third anniversary the penalty is capped to a maximum 3 months' interest, not the interest differential.  So we simply guaranteed Mario's rate until November 1, 1998, with a new lender, which he will take on that day.  His rate guarantee is 6.4% for five years, compared to the 7.75% he had been offered by his Bank.  The Bank did not try to rip him off.  It simply asked the computer for the effective penalties on the day of the request.  Very few computers have an imagination to look at the best case scenario for the client.  This may be the learning curve you need to come to grips with reality.
I have had several calls to do with not only switching the mortgage but increasing it to consolidate other debt.  Increasing the mortgage is not a simple transfer! These transactions almost always mean a totally new mortgage, meaning increased costs.  You must pay your lawyer to discharge the old mortgage and re-register a new mortgage.  Since you are increasing the mortgage, you must also hire an appraiser to evaluate your property.  It is not a good idea to increase, due to the cost factor.
Pull out your present mortgage and see if getting out within the next four months is favourable;  if so lock in your new rate now.  If not, maybe this exercise will enlighten you for next time.  If you need help in the analysis, you can contact me through my web-site, or by land line.