Have a Variable Rate Mortgage? Should You Be Following Fixed Rates?

Published October 22, 2009 First-Time Buyers , Mortgage Rates , Mortgage-Free Sooner , Uncategorized Leave a Comment
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Have a Variable Rate Mortgage? Should You Be Following Fixed Rates?

People who choose a variable rate mortgage should be comfortable with some amount of fluctuation in their payment over time as banks will adjust their prime rate from time to time.Variable rate mortgages have been identified as offering costs savings over five-year fixed mortgages (based on historical data), when consistently chosen over the long-term. As such there are people who are comfortable with the uncertainty in their payment and believe that more of the time than not, that they will have a lower mortgage rate than if they had chosen the fixed rate alternative. There can be several other reasons why people select a variable rate mortgage, but this is typically the most common motivator.

With the prime rate still staying very low, essentially at the bottom, and variable rate mortgage pricing also coming down to essentially being at prime, there is a considerable difference in rate between a current variable rate mortgage and a fixed rate mortgage of similar term, it is pretty much a two percent (2%) difference at this time. With this marked difference there are several people who under “normal” circumstances would opt for a fixed rate mortgage, are finding the variable option hard to not consider. Depending on the mortgage amount and amortization period, it would not be unreasonable for the difference in payments between the variable and fixed rate options to be $200 or more a month.

So where I am going with this is there are some people taking variable rate mortgages today that may not be “true” variable rate people if you will. For these people I suggest one of two things:

  1. Keep your eye on fixed rates
  2. or, Get into the variable rate mindset

Keep your eye on fixed rates – By this I mean most variable rate mortgages offer the option to lock into a fixed rate at any time as long as the term you lock into reaches the end of the original term you committed to. So, if you fully intend to lock in your variable rate you should be keeping an eye on what the fixed rates are doing and not be concerned with what your variable rate may or may not be doing. Reason is, you are planning to move to a fixed rate and whatever those are at the time you lock in is what you will be getting, so the goal is to make this transition before rates go up by much or reach a certain point that you are predetermined.

Get into the variable rate mindset – By this I mean one has to expect the prime rate and therefore your payment, to be increasing from where it is now as we are currently at rock bottom in terms of the rate. One strategy to help prepare yourself for this is to set aside money every month into a separate savings account. The amount you set aside can be the difference between your current mortgage payment at what it will be when rates go up by say 1% as an example. By doing this you will get you used to paying what you will need to pay likely down the road, while also building up a nice little chunk of savings. These savings can then be used to lump sum (one type of pre-payment privilege) against your mortgage balance, thus saving you in interest costs and reducing the time required to pay off your mortgage.

In closing, here are a few things to consider before selecting a variable rate mortgage:

  1. Are you comfortable with your payment going up and down over the next three to five years? Specifically though, could you still be comfortable if within the next 12-18 months your monthly mortgage payment increased by about $200?
  2. If and when your variable rate is extremely low, as it is now, can you set aside a little extra every month into a separate account to keep yourself accustomed to a more regular payment amount? (as in my example above and then use your extra money to pay down your mortgage faster)
  3. If you plan on keeping the variable rate mortgage for only a short time, have you decided what your cut-off point for locking in is (i.e. at what fixed rate will you force yourself to lock-in)?

For more information on comparing and contrasting variable and fixed rate mortgages and assistance in determining which may be best suited to you. Please contact me at any time.

(604) 603-2520 | Maury@MauryLum.com | www.MauryLum.com |

Variable Mortgage Rate, Prime Rate, Unchanged

Published October 20, 2009 Market Update , Mortgage Rates Leave a Comment
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Variable Mortgage Rate, Prime Rate, Unchanged

The Bank of Canada announced this morning that it has left the target for the overnight rate unchanged from its current level. This means that banks will most likely also leave their prime rate at its current level of 2.25%. Further to this the Bank of Canada re-confirmed its conditional commitment to hold this rate until the end of the second quarter of 2010.

This is likely good news for those on or currently considering a variable rate mortgage in Vancouver BC as it gives some comfort to how long into the future rates can remain at current levels. We also know that once the prime rate starts to increase it will take some time to get to where current fixed mortgages rates are, if they even reach this point. So, savings will continue even after the prime rates starts to rise, but will decrease over time. Past this point it is too hard to say what will happen in terms of the prime rate as it could plateau at a certain level, increase a bit further, or come back down a bit. This is the inherent uncertainty with a variable rate mortgage, however, we know from historical data that if comfortable with this type of mortgage people have saved over time as compared to fixed rate mortgages.

Having said this, fixed rate mortgages are still available at extremely low levels and can be hard to resist for the certainty they provided over the next three to five years.

For more information on variable rate mortgages and fixed rate mortgages in Vancouver, BC, please contact me to discuss which may be best suited to your situation, future plans, and current needs.

The next meeting for the overnight rate target is on December 8, 2009.

(604) 603-2520 | Maury@MauryLum.com | www.MauryLum.com |

Fixed Mortgages Rates Have Risen Slightly, What About The Variable Rate?

Published October 16, 2009 First-Time Buyers , Market Update , Mortgage Rates Leave a Comment
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Fixed Mortgages Rates Have Risen Slightly, What About Variable Rate Mortgages?

This week we saw fixed mortgage rates increase slightly with the increase in bond yields to maintain spreads. We are still not far off record lows however, so not too much should be made of this increase I believe, yet. This can be a friendly reminder though that current rates will not last forever and if one is planning on buying, upgrading, or refinancing, there will be savings if done sooner than later. I will of course follow this by saying that one’s decisions should always make sense for them and no one should feel overly rushed for the largest purchase of their life or in a transaction of this magnitude.

Variable rate mortgages however, and specifically bank’s prime lending rate, is forecast to remain low for the foreseeable future. The Bank of Canada meets later this month and all signs point to them leaving the rate unchanged. Economists are also still comfortable forecasting that the Bank of Canada rate and prime, will remain at current levels through to July 2010.

The above combine to widen the gap in terms of rate between current variable rate mortgages and comparable fixed rate mortgages. This may make it more difficult for consumers to decide which one to choose in that the current low rate of the variable is enticing, however, for mortgages most people find comfort in knowing their rate and therefore what their payment will be over the term they choose. An Accredited Mortgage Professional (AMP) can help you by asking the important questions to distill out what is your preference and comfort level, combined with how can you best take advantage of rates and other mortgage options today to save and pay down your mortgage faster.

For more information and help with products and mortgage options, please contact me at anytime.

(604) 603-2520 | Maury@MauryLum.com | www.MauryLum.com |

Closing Costs When Buying a Home

Published October 14, 2009 First-Time Buyers Leave a Comment
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Closing Costs When Buying a Home

The term “closing costs” is used to describe the expenses that are commonly incurred in the process of purchasing a home. Not all costs are the same in all situations; however, there are few that will almost always be incurred. The future homeowner is responsible for covering all closing costs so it is important to be aware of them to know which are applicable. See below for a comprehensive list of most all of the potential closing costs.

  1. Land transfer tax – When a home changes hands, many provinces and a few municipalities charge a property transfer tax or title transfer fee. In British Columbia, the land transfer tax is calculated as 1% of the first $200,000 of the purchase price plus 2% of the balance (e.g. for a $500,000 property, the land transfer tax will be $8,000; 1% of $200,000 = $2,000 + 2% of $300,000 = $6,000). This tax is paid at closing (appointment with solicitor) and banks do not finance this (you should think of this cost similar to, but in addition, to the down payment in that it is an out of pocket expense). First time buyers in BC however, may qualify and be exempt from this tax when buying the first home they will live in. Please contact me directly for full details on this program.
  2. Appraisal fee – The lender/bank may require that you have the home appraised to confirm its market value. This is more common when the mortgage is NOT insured (i.e. when the down payment exceeds 20% of the purchase price or in a refinance when the mortgage amount is less than 80% of the home’s market value). Fees vary depending on the size of the property, property type, and amount of detail required in the report, but will typically cost $300 to $400.
  3. Home inspection – An inspection can help make you aware of issues related to a house’s structure and systems, such as plumbing and electrical, and recommended or necessary repairs. This is at the discretion of the purchaser and is not a requirement for financing. The cost of a home inspection can range from about $350 to $450.
  4. Home/fire insurance – Your lender will require proof that the property is insured in case of fire and other damage. Insurance costs vary depending on the property type and coverage obtained, however, budget for about $300 to $500 a year.
  5. Legal fees – A lawyer or notary will help protect your interests by reviewing your purchase agreement, searching the property title, and ensuring that all documents are completed properly. Legal fees for a straight forward purchase will be approximately $1,100 to $1,200.
  6. Title insurance – Title insurance can safeguard you against fraud and problems with your property title or survey. Fees range from $150 to $350.
  7. Costs for newly constructed homes – If you are buying a brand-new home, be prepared to settle any items not quoted in the original price, including upgrades or paving and landscaping fees. New homes are also subject to 5% GST or 13% HST, although this is often included in your purchase price. A federal rebate reduces the GST or the federal part of the HST to about 3.5% for homes valued at $350,000 or less.
  8. Prepaid costs – If the seller has already paid for property taxes, water bills, or other utilities in advance, you will need to reimburse these at closing. This can add to your upfront costs, but you will have then prepaid these bills for the first months in your new home.
  9. Moving-in costs – Before the big day, budget for all those last minute things: $100 or more to rent a van or a few hundred dollars for professional movers, $50 to $60 for a locksmith to re-key your locks, $50 to $200 for cleaning supplies or professional cleaners, etc. Such incidentals can come to $500 or more.
  10. Life and disability insurance – This type of insurance is not typically considered a “closing cost”, however, it should be looked into at the time of arranging a mortgage. Life and disability insurance is about ensuring that you, as well as others possibly, will be looked after should something unfortunate happen to you either for a brief or permanent amount of time and affect your ability to earn an income.

For more information on closing costs specific to your situation and assistance with buying process whether your first time or tenth, please let me know, I would be happy to help.

(604) 603-2520 | Maury@MauryLum.com | www.MauryLum.com |

Fixed Mortgage Rates On The Rise

Published October 13, 2009 First-Time Buyers , Market Update , Mortgage Rates , Uncategorized Leave a Comment
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Fixed Mortgage Rates On The Rise

Now is a good time to see how Bank’s prime rate (i.e. variable mortgage rate) and fixed mortgage rates are not linked to one another. Prime has remained at its current level for several months now and will likely remain unchanged later this month at the next meeting of the Bank of Canada. Variable rate mortgage pricing, as mentioned in previous posts has also been improving over time, however, fixed mortgage rates are experiencing a slight increase today/tonight by most banks.

I do not think this should be a major concern for most as a slight increase from record low rates will still result in rates being extremely good; still well below the 5% mark.

Variable mortgage rates (i.e. Bank’s prime rate) are linked to the target for the overnight rate from the Bank of Canada. This is in contrast to fixed rates that are linked to bond yields. Both of these are influenced and adjusted due to different factors which are not always moving in the same direction or at the same time, explaining why movement is not coordinated between the two.

For more information on rates, to know what kind of mortgage and type of rate is best suited to for you, please contact me at any time.

(604) 603-2520 | Maury@MauryLum.com | www.MauryLum.com |

Variable Mortgages Rates Have Been Coming Down But Could Prime be Going Up?

Published October 9, 2009 First-Time Buyers , Market Update , Mortgage Rates Leave a Comment
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Variable Rate Mortgages Have Been Coming Down But Could Prime be Going Up?

Up to now we have been hearing and been told that the Bank of Canada would likely keep the overnight lending rate and therefore likely bank’s prime rate, unchanged through to June of 2010. The pricing of a variable rate mortgage has also been improving over the last several months, not through reductions in prime, but through reductions in the adjustment to prime (e.g. “prime + X”). So, when put together, it has created compelling reasons to choose a variable rate mortgage provided one is OK with the nature of such a product.

We have always known that economists and industry experts can change their forecast as well as decisions on what and when action should be taken. So, although inflation remains a low risk in Canada still (a factor that if increased would likely trigger a concurrent rise in rates) the strong activity in home sales and resale prices could cause the Bank of Canada to raise rates earlier than previously planned, particularly if the pace of both is maintained or increased.

Some experts feel however, that the recent high activity and the rise in values is a temporary blip and partially the result of buyers who have been looking for some time and wanting to take advantage of the record low rates and increased affordability. However, they see this leveling off soon based on the price increases as of late and the market not yet fully out of the woods. So, the feeling is that although we have experienced very positive activity, it will not be significant or last long enough, just yet, to cause an immediate change.

The message here to me though is, stayed tuned and keep your eyes peeled. As mentioned before and should be constantly reminded, rates are at record lows and they cannot stay here forever or even last much longer.

For more information on rates, help with selecting the best product for you, or assistance in running some numbers for you, please just let me know.

(604) 603-2520 | Maury@MauryLum.com | www.MauryLum.com |

Mortgage penalties. That’s what’s important, forget about the rate.

Published September 17, 2009 First-Time Buyers , Mortgage Rates , Mortgage-Free Sooner , Save Money With Your Mortgage Leave a Comment
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Mortgage penalties. That’s what’s important, forget about the rate.

Well, not totally as the title of this post suggests, however, potential penalty costs are something that is far too often under addressed at the time of arranging a mortgage, only for it to become a major issue down the road.

When arranging a mortgage one should never be too shortsighted and only focus on what the monthly mortgage payment will be and how to make it as small as possible (i.e. focusing on getting the lowest rate possible without concern for any of the numerous other terms, conditions, and factors of a mortgage).

Owning a home results in costs and expenses which may at times be more than one would ideally like to spend (i.e. costs of ownership). This highlights the importance of thoroughly informing oneself and doing a realistic budget of life after home ownership as one of the measures to help ensure home ownership is appropriate for oneself. As a mortgage professional we can help you with this process, however, I digress from the main topic of this post.

When the end of a closed mortgage term is not reached (e.g. sold house or need/want to refinance mid-term) a penalty is incurred for not fulfilling the original commitment. Incurring a penalty for not completing the term is standard among all financial institutions, however, they can differ in how they calculate the penalty. The amount of the penalty can also depend on the type of mortgage it is, variable vs. fixed rate.

When a variable rate mortgage term is not completed for whatever reason, the penalty is typically calculated as three months of interest. So as a rough guide you can estimate the penalty to be a bit less than 3 months worth of mortgage payments.

When a fixed rate mortgage term is not completed, the penalty is typically calculated as three months of interest or interest rate differential (IRD), whichever is greater. We know from the above we can get an estimate of what the three month interest penalty would be. However, most people are not familiar with what the IRD is or how it is calculated. The IRD is essentially the amount of lost income (interest) that the bank will miss out on with you leaving early. So, depending on the rate you currently have for your mortgage, what rates are at the time you want to break your term/contract, and the amount of time left in your term, go into determining what your IRD is, which may be more or less than 3 months of interest.

Financial institutions have made some efforts to minimize the times when a penalty is required to be charged. For instance most mortgages are “portable”. What this means is that you can move the mortgage from one property to another, provided the bank is OK with this (e.g. the bank will have to approve the property type, location, use, etc.). If the balance of the mortgage needs to be increased in the case the new property is of higher value, this can also be done but again, the bank will need to confirm that the larger balance can also be serviced appropriately.

Most mortgages are also “assumeable”. This means that new individuals can take over someone else’s mortgage along with the property in a purchase situation. The bank will need to approve the purchasers of the home for the mortgage they are taking over but again, this is another way that one can “get out of” their mortgage without incurring a penalty.

Both of the above scenarios will have administrative fees associated with them, however, the savings vs. paying a penalty will be very significant (administrative fees could be a few hundred dollars whereas penalty fees can be in the thousands and in some case, tens of thousands of dollars).

So, the message here is to speak in depth with your mortgage broker not only about your wants and needs in the short term but also your plans in life and with the property in the longer term. Through discussion it may be revealed that you would be OK with taking a product with a slightly higher rate (e.g. maybe paying a little extra each month over the “lowest cost option” ), but have the comfort of knowing you will have more flexibility and could save thousands of dollars or more in possible penalty costs over the “lowest rate” product that is more restrictive and has more uncertainty in penalty costs.

For more information on this or any other mortgage related topic, please contact me at anytime.

(604) 603-2520 | Maury@MauryLum.com | www.MauryLum.com |

September Is Mortgage Month. Vancouver mortgage seminar.

Published September 14, 2009 First-Time Buyers , Market Update , Uncategorized Leave a Comment
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September Is Mortgage Month. Vancouver mortgage seminar.

Mortgage Month

On Tuesday September 29th at 7:00 PM I will be hosting a seminar at 849 Homer Street (between Smithe and Robson, street level) in downtown Vancouver discussing the topics below. This will be a great opportunity to increase your awareness on a number of topics as well be able to get answers to any mortgage or real estate related questions you have.

Please contact Maury (604 603-2520, maury@maurylum.com) directly to confirm your attendance as space is limited and numbers are required for planning.

  • Process and steps in obtaining a mortgage
  • FAQ’s  and answers
  • Renovations, covering the cost
  • Rental/Investment properties
  • Rates and choosing the right mortgage for you
  • How much should/can I borrow?
  • Paying off or down your mortgage sooner
  • Self employed individuals & Business owners
  • Past credit bruises

Bank prime rate no change, as low as it can go. How long can it last?

Published September 11, 2009 First-Time Buyers , Market Update , Mortgage Rates Leave a Comment
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Bank prime rate no change, as low as it can go. How long can it last?

In the Bank of Canada’s meeting yesterday they decided to leave the target for the overnight lending rate unchanged. As such, Bank’s prime rate will most certainly also remain unchanged at 2.25%, which just as a reminder, effectively cannot get any lower, ever.

Comments were essentially that the market has progressed as expected, which is good I would say, no wild changes or surprises. It was also re-confirmed that Bank’s Prime rate should remain as is through to the end of the second quarter of 2010. This is consistent with what we have been hearing for the past month or so. However, what I thought was interesting was from other sources regarding what is felt will happen with rates in mid to latter 2010 or by the beginning of 2011 at the latest. And that is once rates start to increase, they will likely do so in larger increments than we may expect. In the past and when the Bank of Canada was lowering it’s rate they were doing so a quarter of a point at a time (0.25%), except there was one 0.5% drop I believe. Some economists have even said that they would not be surprised if at one meeting they raised the rate by a full 1.00%! This is still a ways off, however, we should brace ourselves for steep rate hikes once this next stage is ushered in.

Given this, I recommend to a few different groups of people, that it may be in their best interest, no pun intended, to try and take advantage of the low interest rates before they go up. Here are the groups and my reasons why:

  • People considering the purchase of a home, do so before rates go up so they can enjoy a nice, low, fixed rate, for as long as they can
  • People who could benefit from a refinance (i.e. to consolidate debt, finance renovations, etc.) or an early renewal, again to secure a good low rate for next few to several years
  • People with a line of credit for their mortgage who do not require flexibility of such a product and do not want to expose themselves to significant rate increases while also missing out on the ability to lock in a very good low interest rate for the years ahead
  • People with a variable rate mortgage who will not be comfortable with rate increases, not knowing when the rates will stabilize, and/or when rates may come back down, while again, missing out on the ability to lock in a good fixed rate before they increase

Stay tuned for the next Bank of Canada update and for more information on this or a related topic please contact me at anytime here in beautiful, sunny Vancouver BC.

(604) 603-2520 | Maury@MauryLum.com | www.MauryLum.com |

Vancouver BC mortgage rates super low. Lots of options. What to choose?

Published September 8, 2009 First-Time Buyers , Market Update , Mortgage Rates , Mortgage-Free Sooner , Save Money With Your Mortgage , Uncategorized Leave a Comment
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Vancouver BC mortgage rates super low. Lots of options. What to choose?

Mortgage rates continue to remain at historic lows and all terms and products can appear extremely attractive. So how does one know which product is best suited to them, their situation, as well as their future plans?

Below are some examples of rationale that people can use when selecting the type of mortgage they are going to go with:

  • Absolute lowest rate today regardless of term or rate type
  • Lowest fixed rate as some people are not comfortable with variable rate mortgages
  • Lower variable rate today with option to lock into a fixed rate down the road at no cost
  • Product that will result in lowest penalty if they need or want to sell before the end of their term
  • Product that will offer the most flexibility to accelerate the rate they can pay down and off their mortgage without incurring a penalty

There are many different criteria, all valid, that people can and should use when choosing the appropriate mortgage for themselves. However, I believe that too commonly a 5 year fixed rate mortgage is chosen/given to clients. I include “given” as I feel that at no fault of the client’s, a mortgage professional may assume that what will be best for the client is a 5 year fixed rate product.

The 5 year fixed rate mortgage is the most marketed and has been the most commonly selected product by customers for several years now. As such there is a lot of momentum behind it and people may continue to select this product for a variety of reasons:

  • It may truly be the best product for them
  • They have selected it before
  • Friends and contacts they consult with have also selected it so it is comfortable and feels safe to also select it
  • It is the most marketed product so one can almost not help but assume it is the best for them
  • Mortgage representatives may be motivated to provide this product if it is preferred by the institution they represent

I have nothing against a 5 year fixed rate mortgage and in many cases it is the best product for a client. However, with the variety of products available, each with their own advantages and applications, all terms and products should be discussed in combination with the client(s) goals and future plans, to truly know which product will best meet their needs not only now but also into the future.

Just to give you an idea of the variety of options available for mortgages there are:

  • Fixed mortgage rate terms from 1 through 10 years in length
  • There is also a 42 month term available from one lender (exactly 3.5 years)
  • Two variable rate terms available, 3 and 5 years in length
  • Then there are the Open mortgages both fixed and variable (much less common but do have an application for certain scenarios)

It is also important to note that different financial institutions may offer the same product but have slightly different “fine print” (e.g. options, penalties, etc.) for each, which reinforces the importance to have an accredited mortgage professional (AMP) to help guide one through all options.

So with all of the options available in today’s market, combined with the importance in understanding the differences between each, I highly recommend taking the time to meet with an accredited mortgage professional (AMP). Discuss one’s entire situation, goals, as well as plans over the next 5-10 years. This will provide the mortgage professional with all of the information needed so that they are able to then recommend the best product.

I also encourage consumers to ask why the specific product is being recommended. This will give them the opportunity to have it explained back them why what is being recommended is. Mortgage terms and conditions such as the rate, options, length of time, flexibility, and applicable penalties should all be mentioned for complete awareness.

For more information on this or a related topic, or to discuss your complete situation for a recommendation on the mortgage to best suit you, please feel free to contact me at any time.

(604) 603-2520 | Maury@MauryLum.com | www.MauryLum.com |

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