Mortgage Guide

The House Team Of Mortgage Intellingence asked:


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 homebuyers.

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 homebuyers. 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 homebuyer is heavily favoured to win.

Anna

Grant Eckert asked:


Anyone who has every had to look for a mortgage will tell you how important it is to check various mortgage rates to ensure that you are getting the best interest rate and the best mortgage for you and your finances. In the past, searching for mortgage rates meant calling lenders and finding out what their rates were, as well as their terms. This was a long process that many people balked at - and many didn’t do at all because of the amount of time that it took. However, now you’re in luck. Finding mortgage rates for comparison has never been easier thanks to the Internet.

The Internet has opened a whole new realm of competition between lending institutions, which is beneficial to mortgage rate seekers. This means that the information about different mortgages, including the mortgage rates, is just a few clicks away for anyone. It’s important that you have your ducks in a row, and that you have a mortgage in place before you begin to purchase a home. Having a mortgage in place will tell you how much money you can spend on a home and you will go in knowing how much it will cost you. This can help make your decision on the upper limit you want to spend on your home - you may want to save some of that ‘mortgage credit’ to upgrade the home you choose, so spend carefully.

The very first thing you need to do when looking for a mortgage is create a database so that you can make your comparisons. Microsoft Excel, or a similar program, is perfect for this, because you can have multiple tabs for different types of mortgages and you can lay it out so that it is easy to understand when you begin to make your comparisons.

Your database should compare an in-depth comparison of the many options and rates associated with a mortgage. Your database should include:

Mortgage type (adjustable rate mortgage, fixed rate mortgage, balloon, etc.)

Interest rate overall

Index rate (that the lender uses to create the final interest rate)

Lender’s margin (percentage point that is added onto the index rate by the lender)

Length/term of the mortgage

Any other features that make or break a mortgage to make it more friendly to your finances

The first thing you should do is compare the interest rates. These can vary quite a bit, and it’s important to understand how they work. Regardless of the type of mortgage that you get, the lender will base the interest rate on an index. The most common indexes used to determine the interest rates are:

One-year constant maturity treasury securities (CMT)

Cost of Funds Index (COFI)

London Interbank Offered Rate (LIBOR)

A lending institution’s own costs of funds.

On top of that index interest rate, the lender will attach their margin percentage. The margin ensures that the lender will make money on your mortgage at a fairly steady stream.

It’s also important to note that when you are looking at the interest rates, the very first thing that will jump out at you is how ‘low’ the adjustable rate mortgage interest rates are. While they can be very compelling, in some cases several percentage points lower than a fixed rate mortgage, it’s imperative that you check out all the factors that pertain to an adjustable rate mortgage, including:

Payment cap

Interest rate cap

The margin

How often the rate will adjust

Prepayment penalties on the mortgage

How long you will be staying in the house

Most adjustable rate mortgages appeal to home buyers who only plan to live in the house for three to five years - this means they can take advantage of the lower interest rates and pay less, while not having to worry about drastic increases in the interest rate over a longer period of time.

To use the Internet, all you have to do is go to a major search engine and search for ‘mortgages rate’. You will find thousands and thousands of results, literally. There are many websites that offer mortgage rate comparisons online from many different lenders as well. But, by doing your own research, you may be able to find some smaller company that is offering great interest rates. The best place to start is with an idea of where you want to look - your friends, relatives, neighbors, other home owners, forums on the Internet, your realtor - all of these people may be able to give you some referrals to mortgage lenders that you should check out.

Norma

Martin Lukac asked:


Mortgage rates such as Jumbo rates vary quite a bit. Jumbo loans often provide you with options such as fixed-rates. Still, the fixed rate options vary. Sometimes these rates change. Usually the rates established are based on the changes in the Treasure Bill Rates, Truth in Lending Laws, and lastly the common market rates.

Jumbo mortgage rates often rise above a definite limit. Fannie Mae and Freddie Mac programs often set these limits.

The mortgage rates or else the limits stream from annual charts, which can range from $334,000 more or less. The rate limits of course are relevant to specific states. For example, Alaska may have a limit roughly speaking at $560,000.

Jumbo mortgage rates are also known as “Non-Conforming” mortgage loans. These loans accrue interest, in addition to “originator premium fees.”

The Jumbo rates or limits calculate in units also. For example, if a single-family takes out the Jumbo mortgage, they may only qualify for $300, 000 based on the set limits. The units are calculated based on the large amount the borrower is allotted from the lender.

Jumbo loans often attach high rates of interest. This is for the reason that Freddie Mac and/or Fannie Mae is not legally qualified to fund these loans over ‘the market limits.” Moreover, if FNMS, i.e. the Federal National Mortgage Association, and FHLMC or the Federal Home Loan Mortgage Corporation, does not have the power to fund the jumbo loans over set limits. Consequently, these mortgage rates on jumbo loans may increase.

For this reason, borrowers are wise to consider setting limits on the amount borrowed to stay away from expensive mortgage rates.

While you have a couple of options available with the Jumbo loans, it is wise to look around and check the mortgage rates on other loans. One of your options is the common ARM loan, or else the Adjustable Rate Mortgage. (ARM)

ARM mortgage rates are set agreements connecting lenders and borrowers, i.e. the lender(s) may consent to lending mortgage rates lower than the market rates. These rates may apply at the beginning of the borrowed amount, yet the borrower may have to agree with adjusted mortgage rates rooted from the market rates, in addition to the loans term.

Most people prefer fixed-rate loans. The mortgage rates often remain constant whether the market rises or falls. In other words, you may agree upon 5.76% mortgage rates and continue to pay this rate throughout the course of the loan despite whether the market rates change or not.

When searching for mortgage rates, your best bet is to shop around so that you find the best deals that suit your budget.

Carol

tardis_mom asked:


We would like to refinance our current mortgage and I was hopeful that the result of the Fed rate cut would be a drop in the mortgage rates. However, it seems like mortgage rates only dropped by about 1/4 % point (I was hoping to go down to about 5% on a 30 year fixed rate with no points with an excellent credit score). What determines whether mortgage rates fall and how much?

Darryl

sweet asked:


“Imagine you want to arrange a mortgage on your first house purchase. You need $200,000.00 Find the best rates and terms available from three different type of lenders such as a mortgage broker a major bank and a banking company such as president choice. Describe the advantages and disadvantages of each and choose the best one.”

Derek

mphsblue asked:


If the fed lowers interest rate 1/4 percent or possibly 1/2 percent this week as expected, how long til it is realized in mortgage rates?
Thanks! I’m a little confused, but thanks for the answers! I did go to bankrate.com and their experts predict rates to fall further due to either the fed or lackluster employment numbers. Apparently, predicting mortgage rates is harder than ever.
Cheers!

Gloria

jimbob asked:


I’m on the verge of getting a mortgage and was curious how the rate cut would affect mortgage rates. Is it a direct relationship, like if my rate is 6% today and tomorrow they cut a half point, will tomorrow mortgage rate be 5.5%?

I’m looking to do a 30 year fixed with about 50% down and excellent credit, any idea what kind of rate I should be looking to get?

Any insight you can offer beofre I take the plunge would be great. Thanks.

Kathleen

Nathan T asked:


What I mean by that is I assume there is a formula which banks use to figure out what mortgage rates to offer a customer based on prime rates, customers credit history, size of mortgage, etc…

Does anyone know how this process works and the specific formula/methodology used?

thanks in advance!

Wanda

logank1469 asked:


I live in Raleigh, NC . I’m wanting to buy a house some time this summer. I have a FICO score of 700+. I’m looking for 170K to 200K house with a 5% downpayment. what kind of interest rate can I expect for a standard 30 year fixed mortgage?

Karl

Hadassah asked:


The cost of two-year fixed rate mortgages has hit an all-time high in a decade, as leading home insurance providers Nationwide and Woolwich raise their rates, forcing buyers to rethink borrowing money to purchase a home. Substantial rises in money market rates, combined with increasing competitor activity, has made it imperative to vastly increase mortgage rates among many of the mortgage providers.As the credit crunch does its worst, Nationwide Building Society has increased its mortgage rates by 0.5%, while fellow mortgage giant Woolwich, now owned by Barclays, applied a price hike of its own, in addition to abolishing its entire two-year fixed rate range, which is the most popular mortgage for borrowers. As it has become increasingly difficult to fund costs in light of the persisting mortgage crunch, Woolwich have seen no other choice but to implement this action, in order to control demand due to the fact that its rates have become considerably more competitive in the current economy.Lenders have recently witnessed a significant rise in swap rates (which defines the cost of borrowing fixed rate funding on the money markets) to a new high of 6.49%, which has left them with no other choice than to increase the price of mortgages in general. The average two year fixed rate now stands at 6.75%, which is the highest rate borrowers have experienced in the last ten years.The situation looks set to only deteriorate further, with lenders having to pay excessively high prices in order to secure funds and a lag time of several weeks before this cost is ever transferred on to mortgage customers. As one of the UK’s biggest building societies, Nationwide pointed the finger of blame towards the marked increase in the cost of borrowing money on the financial markets for the rise in rates, furthermore, it accused a number of its competitors for raising mortgage rates and thus setting in motion the recent events in the housing markets.The rates on remortgaging homes have also succumbed to the price hikes and remain higher than those for first-time buyers. During this volatile period in the markets consumers can expect to see frequent changes to fixed rate mortgages across the industry from a host of lenders and building societies. Halifax, the Abbey National and Bradford & Bingley are also among those to have raised their mortgage rates in recent times, with Halifax, one of the UK’s biggest mortgage lenders, resorting to only offering its best tracker deals to those who are able to come up with at least 40% of their deposit. So, it appears that those that will be hit hardest by current market changes may be first-time buyers and younger people buying homes, who may not be able to come up with enough money for a deposit to be eligible for any of the rates that are still being offered by Britain’s mortgage providers and lenders.

Earl