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tods5eshoes · Wysłany: Czw 14:03, 10 Mar 2011 Temat postu: canada 2864

The variable mortgage strategy - Hypotheque
Variable Rate Mortgage Strategy
Variable rate mortgages have become very popular over the last few years,[link widoczny dla zalogowanych], and have been used by more and more mortgage borrowers.
A report by Dr. Milevski (York University, Toronto) reveals that between 1950 and 2000, variable rates were less expensive than the 5 by 5 strategy (five years fixed) 88% of the time.
Of course, a variable rate strategy incurs some risk, just by its nature of being variable. But the last half century has shown that it has been a risk well work taking.
Description
Interest rates on variable rate mortgages are based on the base rate of the large banks in [link widoczny dla zalogowanych]. The rate a borrower receives is a rabais over this base bank rate. Variable rate loans are always quoted as a base rate less a fixed percentage.
If the base rate, for instance, is 6. 00%, and the bank quotes ��base rate minus. 90%",[link widoczny dla zalogowanych], this means that the variable rate loan will be 5. 10% for the period that this base rate is in effect. If the base rate is lowered by the Bank of Canada, the loan rate is also lowered: a new base rate of 5. 25% will mean a variable mortgage rate of 4. 35% for that period. The Bank of Canada adjusts this rate 8 times per year. Note that this rate may be refixed at the same rate (no change), so the base rate does not necessarily have to change 8 times a year.
Advantages
- It has been shown by studies to be the best strategy, especially in stable or decreasing interest rate environments.
- This strategy permits borrowers to take advantage of periods of falling interest rates.
-? Payments are normally lower.
-? There is a lower penalty fee than with other strategies.
- Many lenders offer this loan option.
Disadvantages
-? The rates are variable,[link widoczny dla zalogowanych], so they can go either up or down, adding an element of risk.
- Your mortgage payment amount may be adjusted up to 8 times a year. (There are ways to avoid this,[link widoczny dla zalogowanych], however-read below. )
- You have to note when the Bank of Canada is changing its base rate, so you can decide what to do with your home loan.
When is it good to use this strategy on the long term?
It seems clear that the variable rate is often a good choice, especially when interest rates are trending downward or are stable. Since it is hard to know for sure if rates are going to increase or decrease, if you take a variable rate, you have to keep on eye on the direction of interest rates 8 times per year.
All of the variable rate mortgage products offer the option to change to a fixed rate. However, there are certain lenders (mortgage brokers know who they are) who increase the fixed rate when a client is converting from variable to fixed.
The explanation for this is simple. Obviously, when a client wants to convert, it is because the interest rates have increased. If the bank has not put any provision for the conversion rate in the original engagement letter, they can give the client the highest fixed rate, such as the posted rate or the rate with a rabais. This is not the best rate that usually can be obtained by a mortgage broker. So the client has to decide which makes more sense over the long run, variable or higher fixed.
Certain lenders (all of the ones we recommend to our clients) promise in the mortgage engagement letter that when the client makes the choice to convert, he will receive the best broker rate for the loan for that day. You have to be careful in [link widoczny dla zalogowanych]sing your lender if you are going to use the variable rate strategy.
Is it possible not to have varying payments?
The idea that the mortgage payments can increase or decrease with a variable rate mortgage makes many people uncomfortable. There are two solutions:
You can have your payment fixed, and it doesn't change even if the rate changes. The amount of your loan that is amortized will change to adjust for this.
You can pay more from the outset of the loan to bring your payments up to the level of a fixed rate mortgage and this will cover any changes that may occur if the mortgage rate increases. This is the solution I recommend.
How does a borrower know when his interest rate will change?
The rate on a variable rate mortgage changes with the base rate of the Bank of Canada. It is fairly easy to follow this.
This base rate can change only 8 times per year, so it is not as if you have to keep track each day. It only happens when the Bank of Canada changes its directeur rate. This is an important news item that is reported in the newspapers, on the radio and on T. V. and on internet news.
Our clients receive an automatic notice, free of charge, via email, each time there is a change in the base rate. This way they know about any of these changes immediately when the Bank of Canada makes the change. We also include predictions for coming months to better assist in decision making.
A variable rate loan with a ceiling.
There are lenders that offer a ceiling on the variable rate. In other words, if the rate goes up, if you have chosen this option, you never have to be concerned about the rate going higher than a certain level. The ceiling becomes the maximum rate on your variable rate loan.
Conclusion
The variable rate strategy is a valuable strategy and should be considered by all borrowers. It can save a homeowner thousands of dollars in interest rate costs. But you should follow this advice:
1. Choose a variable loan with a good lender. There are a quite a few of variations with variable rate loans.
2. Make sure you have a conversion option that will guarantee you the best fixed rate at conversion.
3. Make sure you know what is happening with interest rates, or that you have a mortgage broker who is committed to keeping his clients informed.
The last half century has shown that the variable rate home loan strategy can be the one that saves the borrower the most money. Gregory is an Accredited Mortgage Professional (AMP). To get more information on mortgage rates - taux hypothé caire, please visit: Hypoth��que - Get a loanTopics related articles：

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