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Lisa Merrett
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Wednesday, December 7, 2011 - Why you should get a rate hold now

Economic and market info from 1 of Canada's top mortgage brokers, Mark Herman of Mortgage Alliance.

Why you should get a rate hold now.

Very pleased to be a guest blogger for Lisa Merrett and also pleased to work with one of the best realtors in Calgary. There are about 5,000 realtors in town and about 500 make their full-time living at it; Lisa is one of the better ones for sure.

Now, down to business; the advantages of using a top mortgage broker are listed near the end of this entry but reasons to use us should be pretty obvious by the time we get that far. Good brokers earn our salt because we watch the markets, the lenders, the rules, and the mortgage rates all day for a living. Or the good ones do anyway.

So ... What is going on with these super low mortgage rates?
Right now interest rates are at their 111-year lows at about 3.4% for a 5-year fixed, closed, mortgage. The banks consider anything under 4.0% to be free money. Consider the banks have to borrow the funds, include the cost to administer the funds and also make a profit. At 4% there is not much room left for profits – they say.

Now consider the recent US debt ceiling issue (they have not really done anything about facing their debt problems yet) and pile the EU issues on top with the PiiGS – Portugal, Italy, Ireland, Greece and Spain – and the stock market freaked out and did a general sell-off. That is the 49-word summary of the world economy right now.

When the sell-off happened, all those (literally) trillions of dollars have to go somewhere and they go into American Treasury Bonds – the standard for where banks put their short term cash. Those bonds then pay almost no “incentive” or interest to the buyers as banks really have no choice and are going to buy the treasury bonds anyway. This means the interest the bonds now have to pay to get banks to buy them is way less – around 0.25%. The circle is complete when the banks that fund your mortgage borrow money from a bond (the Canadian Mortgage Bond, or CMB) that charges them almost no interest – they then pay the bond almost no interest, and in turn, charge you less to you too. That is how rates are now below the theoretical minimum of “the 4% barrier” and down to these never-seen-before, short term, 3.4% rates.

If you did not follow that paragraph above don’t worry about the background data. Just remember this; as soon as there is even a sniff of economic recovery, as in, the EU or the USA gets it’s mess sorted out, money will rocket back into the stock market and then these treasury bonds (and the CMB) will have to pay more interest to get banks to buy them. That interest cost then gets passed along back to you, the mortgage consumer, and rates go back to above that 4% hurdle. (The long term, 20-year, average for the 5 year fixed mortgage is about 6.5%.)

The news is that the stock market rally might be here very soon because we watch the stock markets very closely too. Then rates go up, everyone gets more confident, people start buying things that they were putting off – like homes, prices start to go up, people from all over Canada move back to Alberta – the CBC National on Nov. 15th just had a 25 minute focus on Alberta and Saskatchewan jobs and worker shortages – and the cycle accelerates with rates and prices increasing. More on my blog here: http://wp.me/pVaY9-5W

How to take advantage of this now
You CAN get a 120 day mortgage rate hold at no cost or risk to you BEFORE the rates go up if you are thinking about buying. We get your file worked up in a day – all that is needed is an application, employment letter, pay slip and some verification of down payment funds – and if rates change we put your file in for the rate hold. If rates come back down you get the lower rate, if they go up you have the rate hold – like free insurance – that can save your thousands a year. Your file waits in the “Rate Watch File” and is sent in when we get notice from the lenders rates are going up. Then the clock starts ticking. We work the system, to your advantage, for you, at no cost to you. It’s true.

So now is the time to get your rate hold BEFORE things improve and rates are at the all time lows. Your grandparents would be envious of our situation right now. When the rush is on there is only so much time to jam deals into the system and it does get crazy busy. Best not to be the person that just misses the old rates. No one wants to be the focus of the “just missed” story others talk about.
What about your bank?

Our lenders give us 1 hour - 2 days notice of a rate increase so we can send in all the files we are working on. I don’t remember a bank ever calling me to say their rates are going up, or even offering to hold my fully worked-up file for the last second before rates change. I would never trust my bank to do that anyway as whomever I talk to seems to always be: on holiday, in training, moved-on, at a different branch, etc, and isn’t the bank supposed to try to make as much money off of me as possible anyway?

Our broker rates are usually always lower than the Big-6 banks because our lenders have lower costs than the banks do. They pass those savings on in lower rates. If the big banks want our business – and they do - then they need to match the other broker-only lenders rates that are lower. Your mortgage can be placed at one of the Big-6 but the broker-only lenders usually have better rates, terms & conditions and are totally secure. A few are actually bigger than the Big-6 banks themselves. How would you feel if your personal banker did not give you their best rate, or use their maximum discretion for you? We always give you the best rates possible.

And here is the killer point. The only thing we do, all day, is mortgages. Bank people do car loans, checking and saving accounts, RRSPs, RESPs, mutual funds and try to give you an iPod to change your main account over to them. All we do is: self-employed mortgages, employee mortgages, Lines of Credit (LOCs), first time home buyers, complicated divorce mortgages, real estate investors, move up’s, move down’s, help pay off debts and credit cards with trapped home equity, New-To-Canada mortgages, 2nd home purchases, recreational property mortgages, and lots more. We know what we are doing mortgage-wise. Your bank may not and probably only has 4 mortgage products. We have access to more than 40 lenders and 100 products.

There are other advantages to using a broker but that is enough for now. If you have been able to hang in here to the end you probably have a question. Feel free to call anytime for a quick chat. We are busy and do not have time to become your mortgage-stocker or send hundreds of emails, which is really what you want anyway; other than the best possible mortgage for your individual situation.

Getting your application in will take the stress of buying away, and end those sleepless nights because you know what your maximum mortgage will be, what the payments will be, and that you took advantage of this window to save thousands when you could. Good work.
 

posted in General at Wed, 07 Dec 2011 11:56:02 -0700



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