Interest Rate Hike?

Last year I was busy warning people away from the ARM mortgages. At the time many of the lenders were offering Prime +0.60% or higher. In the last few months we have seen that drop and now lenders are offering the Prime -0.30%.

I am a believer in the ARM and I do believe that in the long run you pay less on the term of your mortgage barring any unforeseen calamities but when the banks swing from Prime -0.60% to Prime +0.60% in the space of six months, I just believe it's safer to go fixed at that time. Possibly taking one of the special 1 or 2 year rates that are available because we know that the pendulum will swing back.

In case you forgot how fast the Prime rate can change then let me remind you. November of 2007, we had a prime rate of 6.25%. Folks, that's less than 2 years and 4 months ago. So if rates get back there in 2 years and you have a Prime +0.60% rate then you'll be paying 6.85%. All of a sudden that dream home is not so affordable!

This is why I applaud the recent move to qualify borrowers on the 5 year fixed rate. It's a smart move. It's real easy to fall in love with a house and justify the purchase based on the current prime rate but we saw what happened to our neighbours in the South.

Ah well, back to my point. The current ARM rates are attractive but going out on a limb again I have to say that a 4 year mortgage at 3.4% sounds really attractive to me right now and in fact if I really go out there a 10 year at 5.20% sounds great too. Remember less that 2 and a half years ago Prime was at 6.25%.

I know, I know. It's supposed to be about great mortgage products but to me one of the greatest mortgage products is allowing the home owner to keep their home.

Just saying...

Product over Rate?

One of the largest surprises I had when I first began doing mortgages was the concept of selling my clients the right product over the right rate. Now I guess that makes sense if your clients play the markets, or own many properties etc. But if the bulk of your clients are first time home buyers or move up buyers that are still in the process of accumulating savings then what product beats a great rate?

I mean seriously. If I can offer you a mortgage rate of 3% what mortgage product will beat that! I was told to sell the fact that they could double up on payments. Well most mortgages allow you to prepay 15% of your mortgage every year and most of my clients have no intention of using this service.

Then there was the great selling tool of a portable mortgage. Well again, most mortgages are portable and if your client is thinking about selling their home in the next couple of years then this is very important but the best rate might be the best product in this situation too. If they have a definitive plan, then placing them in a great 3 year variable at prime -0.40% (1.85%) or 4 year fixed at 3.4% might be a much better idea than a portable 5 year fixed at 3.89%. Can I hear a hallelujah? I guess what's more important here is the planning. If they really don't know when they might move then portable is the way to go but still at the best possible rate.

I guess I'm just not sold that you can sell product over rate and I don't think any of my clients are either and let's remember why we have great products at higher rates. It's all about MBS - Mortgage Backed Securities. But that's a different blog for a different day.

What about Rates!

I'm not sure what I'm going to rant about over the next few days, weeks, months or years but for now i definitely want to tell you about some amazing rates.

3 year ARM 1.85% (Prime 2.25 -0.40%)
4 year fixed 3.4%
5 year 3.69%

Now ask yourself this question. Wait first read my about me section so that you understand I've only been in the mortgage industry for 3 years THEN ask yourself this question. "Why hasn't my bank made these rates available for me?"

The answer is simple really... The higher the rate they charge you, the higher the rate of return or profit which means they can bundle you up and sell you with a bunch of your overpaying neighbours.

Where's The Brotherhood Now?

What happened to the tight brotherhood of Real Estate? When one of the Top GTA Brokers goes down you won't hear from the rest of the community. (See story here: David Seto)
What Blogs I have heard have crucified him. There's little there about the human Broker whose wife had cancer or when his agents were not paying there Re/Max desk fees he could not afford his overhead costs. Nothing about how many years it took this man to build one of the largest multi offices in the GTA.
They are very worried about not getting all the commission that's owed to them yet not a word from Re/Max, Re/Max Canada or Re/Max Ontario (or whatever they call themselves) guaranteeing to cover any losses above and beyond the insurance. Sure they rake in millions but I guess that moneys better spent sending their buddies in a balloon over North America so they can say they are above the crowd. Well here's one of your own.
It's funny how fast the Real Estate community eats its own.