Adjustable Mortgages

Next to critiquing the decorating taste of your home’s previous owner, playing the “adjustable mortgage game” may rank as one of the most popular
(and least pleasant) pastimes of Canadian home buyers. Here’s how it works.

As you’re exploring your mortgage options, you review the long and steady slide of mortgage rates in Canada over the last decade and make the decision to go with an adjustable mortgage when you buy, at renewal or when refinancing. You’re now a player. Then you watch for clues about mortgage rate movement, trying to guess the perfect moment to lock in your mortgage. The objective of the game is to try to guess the bottom… and you won’t know it’s the bottom until it’s too late. In today’s low rate environment, we should acknowledge that most of the players are already winners but it can still be a stress-inducing game.

One way to remove all of the guesswork is to consider a capped-rate adjustable mortgage, although there are only a few options available in the marketplace.

There is a unique adjustable mortgage that is not based on the Canadian Prime Rate (the usual benchmark) – but on what is known as the Banker’s Acceptance rate: a benchmark that is used for professional money managers. In effect, the BA rate, as its known, is the rate lenders charge one another. Not surprisingly, it’s typically much lower than prime. In fact, the effective rate of this adjustable mortgage has been consistently
lower than competitive variable or adjustable rate products based on Prime. A capped version is now available.

An adjustable rate mortgage with a cap offers unlimited downside rate movement, but also provides a guarantee that the rate will never rise
more than a certain percentage higher than the starting base rate – no matter what happens to the lending rates.

The rate cap takes the guesswork out of the adjustable mortgage game. If rates continue to drop, your mortgage rate also drops accordingly. But if rates begin to rise, you know that your own mortgage rate has a fixed ceiling. Imagine, no more worrying about when to lock in your mortgage,
and no more second-guessing your decisions when rates go back down again. Of course, this kind of flexibility comes at a small premium over a regular adjustable-rate mortgage.

In the past several years, more and more Canadians have passed on the security of traditional fixed-rate mortgages for the savings potential of an adjustable rate. And in an environment of dropping rates, the adjustable rate choice has proven its value to home buyers. With today’s rates among the lowest in memory, many homeowners continue to worry about whether or not
they should lock in or not. After all, we don’t want to lose the flexibility of having our rate adjustable downward… but we’d also like to have it fixed upward.

If we had a crystal ball, we could make perfect decisions about our mortgage options, and we’d know how to secure the best rate. But a mortgage
that passes on declining rates and has a rate cap on the upside can be the next best thing to seeing into the future. And the result is an adjustable
mortgage game that the home buyer is heavily favoured to win.

For more information contact Laurie Baird
Consultant, Mortgage Intelligence Inc.
Phone (250) 862-1802 Fax (250) 712-0209

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

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About the Author

Tracy Head and Laurie Baird help busy families find mortgage solutions. Together they have more than 45 years of experience in the mortgage industry.

With today’s increasingly complicated mortgage rules, Tracy and Laurie spend time getting to know the people they work with and help them to better understand the mortgage process. They support their clients before, during, and after their mortgage is in place.

Tracy and Laurie work closely with their clients, offering advice and options. With access to more than 40 different lenders, Tracy and Laurie are able to assist with residential, commercial, and reverse mortgages in order to match the needs of their clients with the right mortgage package.

They work closely with their clients to find the right fit, and are around to provide support for years down the road!

Contact them at 250-862-1806 or visit www.okanaganmortgages.com

Visit their blog at www.okanaganmortgages.com/blog


The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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