Archive for December, 2007
Variable mortgages more attractive after rate cut
By Lori Mcleod, Real Estate Reporter, Globe and Mail
The Bank of Canada’s decision to cut its key lending rate has paid off the way home buyer David Barbuto hoped, even before he takes possession of his townhouse in Pickering later this month.
Mr. Barbuto, a 39-year-old self-employed associate creative director, decided to go with a variable mortgage despite his girlfriend urging him to opt for the security of a fixed rate.
Variable mortgage rates are moving lower in tandem with the central bank’s quarter-percentage-point rate cut yesterday. For Mr. Barbuto that reinforces his mortgage decision; one that has gone against where much of the crowd has been heading as of late.
“I felt comfortable going for the lower rate of a variable mortgage. I don’t have a crystal ball, but whichever way things go I can look at my mortgage again in six months and decide whether to keep going with variable or lock-in if the posted rates drop,” he said.
The quarter-point rate cut to 4.25% will likely put some confidence back into the market, and that should attract more customers to variable mortgages in the near term, said John Schipper, president of Mortgage Intelligence Inc.
“Unfortunately, people have been worried by all of the headlines. In the next 30 to 60 days I think more people will realize that variable-rate mortgages are a reasonably safe investment and that market will pick up a bit,” Mr. Schipper said.
While the rate cut isn’t really material, it’s a move in the right direction for the mortgage industry, he added. Many of the attendees at a large mortgage conference in Toronto this week expected that rates would go up and were happy that didn’t happen, Mr. Schipper said.
Bank of Nova Scotia was first out of the gates following the Bank of Canada cut, lowering the rate on some of its variable mortgages by a quarter of a percentage point to 6%. The posted rate on a five-year fixed mortgage at the big banks is 7.44%, and a mortgage customer with good credit can likely get that discounted to 6.75%, Mr. Schipper said.
Home buyers have been worried about the turmoil in the U.S. housing market, and have been more willing to pay a little more for the security of locking in, he said. But Mr. Schipper said he does not expect any of the banks to lower the rates on fixed mortgages in the near term.
The Bank of Canada’s overnight rate, or the amount of interest it charges financial institutions for short-term loans, affects the cost of variable mortgages. Fixed-rate mortgages are based on bond yields, and then have a premium added on.
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