Fixed Mortgage or Variable?

reasons to refinance

Fixed mortgage rate or variable mortgage rate? This is one of the most frequent questions I answer on a daily basis.  To be honest, it all depends on the client. Similar to investing, it depends on your risk threshold.  If you are the type of person who wants to know exactly what your payments are going to be for a fixed amount of time, obviously, you should go fixed.  If you are comfortable with knowing that your payments may go up or down throughout the term of your mortgage, go variable.  In the last 8 years that I have been in the mortgage industry, variable has been the way to go.  Except for a couple of months in 2012, the variable rate offerings have been lower than the fixed rates.

Allow me to give you an up to date example of what rates are doing today:

Most lenders are offering 5 year fixed rates at 3.60%. (I can get you a better rate than average, of course).  The average variable rate mortgage rate is at prime (3.00%) minus 0.40% – 2.60%.  That is a difference of 1%.

For this example we will use a mortgage of $200,000 with monthly payments and an amortization of 25 years.

5 year fixed rate payment is $ 1,009 / mth.

5 year variable rate payment is $ 905 / mth.

That is a difference of $ 104 / mth.  That may not seem like a lot, but if you compound the savings over 5 years (assuming the prime rate doesn’t go up) that is a potential savings of $ 6,240 in payments alone.  What about the interest savings?  In this example, you would save over $ 9,451 over the 5 year term by selecting the variable rate.

The average change in Prime Rate has been an increase or decrease of 0.25%.  On a $200,000 mortgage, if the interest rate increases 0.25%, the monthly payment on the variable rate will increase by $ 26.

The best option is whatever allows you to sleep at night.  If you can manage and tolerate an increase in your mortgage payments in an attempt to save some money, variable is the right option for you.  If you need to know what your payments are going to be, then don’t sweat it, fixed is optimal for you.  If you like the security and want to pay down your mortgage a little bit faster and reduce your borrowing costs, then make extra payments on your mortgage.  Every little bit helps.

Pre Qualified or Pre Approved?

Andrew Young

There is a difference.

Once you go down the road of home ownership, it is important to know the lingo.  You have probably heard that it is a good idea to get pre approved or pre qualified.  There is a fundamental difference between the two.

Pre Qualified – A mortgage professional (or a banker, tehe) will take down some information about your income versus your debt, do a calculation and give you a purchase price that they think you should stay under.  Presuming that they have some skill, experience and know-how, this could be helpful.

Pre Approved – A real mortgage professional will take your personal information such as your name, date of birth, address and social insurance number.  They will also collect some information about your income and the debts that you currently have.  At that point they will complete an application and send it off to a lender to get a formal pre approval.

As you can see, the main difference is in the credit bureau and the adjudication process.  With a pre approval, you will have your deal pre-screened by an underwriter to reduce the chance of any possible hiccups going forward.  Please note that if you are putting down less than 20% then your application will still have to be approved by a default insurance company such as CMHC, Genworth or Canada Guaranty.

In addition to the adjudication process, the pre approval can save a fixed rate for you for up to 120 days (for most lenders).  This can help hedge against rising interest rates.  As a note, you will be pre approved based on a 5yr fixed rate.  That rate is held for up to 120 days.  If the fixed rates go up, you still get to pay the lower rate.  If the rates go down, you get an opportunity to take advantage of the lower rates.  It is a win-win.

So if you are looking for your first house or thinking of moving, get pre approved.  You might just save yourself a lot of money.

The First Step

Andrew standing in doorway

Is the first step a pre approval?  No.

Is the first step a rate quote?  No.

Is the first step giving advice?  No.

The first step is customer service. The first step is treating you like a person, not a number, a paycheck or “just another customer.” The first step is to treat you like a fellow human being. I start by being polite, courteous and respectful of your time and your financial situation.

Smiles are usually free. Unless someone is a miserable human being, then the smiles will be forced.  We will offer refreshments.  Sometimes there are brownies, but they usually don’t last very long. We will often greet you with a handshake, but after an appointment, the ladies usually like to hug it out.

My job is to make people feel comfortable about the entire mortgage process. From introduction to completion, I will answer any questions that you people have.  I will even return phone calls. Even when my clients call me after hours, often times I will be able to answer their calls.  As a professional, the growth of my business relies on the referrals from the people that I help. As a result, I will do everything in my power to create a positive and efficient experience for my clients and their loved ones.  Also, I will venture to save them time and money. And if there are laughs had along the way, that’s good too.

Not only am I looking to develop a great relationship with my clients now; I am looking to become their mortgage professional for life.

At Community Mortgage Movement, I am passionate about what I do.  I am a full time, professional mortgage agents and brokers that is licensed and experienced to deliver the best service and advice for all of your mortgage needs, and the generations to come.

The Power of Yes

One of the many wonderful things about being a mortgage broker is the ability to say yes to more people.   Whether you have great credit, bruised credit or hardly any credit, we have more options for our clients.  We deal with companies that specialize in helping those with challenged credit histories.  For people that have catastrophic credit histories, we do have access to funding through private lending.  This is not a solution for all people, but is a wonderful tool to use when it makes sense.

The fact of the matter is; every client is different.  Not everyone has great credit, a salaried position with a large company and a significant down payment.  That is why it so important to have options.  We work with several ‘A’ lenders that have strict guidelines for approval.  We work with ‘B’ lenders that are more flexible and finally, we work with private lenders that will lend money based on the equity in the property.

The bottom line is that we have several options for almost everybody.  We love saying ‘yes!’  Here is a list of ways we can help you and the people that you know:

Purchases                      Refinances                    Homeowner Lines of Credit

New Builds                    Renewals                        Investment Properties

Relocations                    Pre-Approvals                Cottages and Secondary Properties

Land Purchases               Commercial                   Mixed Use Residential Buildings

Zero Down                      New to Canada              Divorce and Separation Buy Outs

We can help out with almost every real estate transaction.