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The Merix 50/50 Wise Mortgage is a closed mortgage that lets borrowers take advantage of low fixed rate and low adjustable rate products all in one mortgage. 50% of the mortgage is in a 5 year fixed rate and 50% of the mortgage is in a 5 year Adjustable rate. The Adjustable rate can be locked in at any time to a fixed rate for the remainder of the term of the mortgage.

If you would like to find out more about this product and how you can use it, please call Christopher Molder, Toronto Mortgage Broker at 416.461.0204ext2.

U or W?

As a Toronto Mortgage broker, my clients rely on my advice not only while they are making their financing decisions but also in the years after making the decision to determine whether they are still on the right road and on track.

As such, I pay attention to the economy. One of my favorite areas of interest is determining what shape (literally) our recovery will take.

Will it be a sharp quick recovery? Usually described as a ‘V’ or will it be a long drawn out recovery with an extended low trough, described as a ‘U’. Or will the recovery take place as a ‘W’ with two very distinct drops. We’ve already had one drop. It seems that we are on the road to recovery with Toronto real estate prices remaining firm, however, I suspect that we haven’t seen the end of the recession. I’m anticipating a second drop.

If you’d like to read more, check out Nouriel Roubini who wrote an insightful article in the Opinions section of today’s Globe & Mail, entitled “Double Dip Recession Threat“.

If you’d like to talk about your mortgage and determine how best to position yourself please don’t hesitate to give me a call. Christopher Molder, Toronto Mortgage Specialist 416.461.0204ext2

The following is a link to a great video blog on the Globe & Mail website by Financial editor Rob Carrick. In it he interviews author of the Canadian Mortgage Trends blog and fellow mortgage planner, Rob McLister.

Rob’s comments & position in the interview are very insightful.

I think variable is still the way to go. Here is why (DISCLAIMER: This is my opinion only. I am not offering financial advice. Everybody has different circumstances and mortgages are not one size fits all):

1. You will keep your mortgage payments low. The difference between the average variable rate in today market P+.50 (2.75%) and today’s average fixed rate mortgage (4.49%) is 1.74%. That translates into a difference of $231/month on a $250,000 mortgage amortized over 25 years.

2. If you are willing to pay the monthly payment of a fixed rate mortgage you can opt for the variable and take advantage of your ability to increase your monthly payment by 20%. All the extra money will go toward reducing the principal which will take months if not years off your mortgage and save you interest.

3. The Bank Of Canada has made a promise to Canadians that they will keep the prime rate level until the end of the second quarter of 2010. (Source)There is very little risk that your payments will increase over the next 12 months. With the economic outlook it appears that we may be a very long way away from inflation and recovery so the prime rate may stay low even longer. Lets just assume that you take variable for exactly one year and lock into a fixed 5 year at 5% for the remaining 5 years. The effective interest rate (average) still works out to be 4.53%.

4. Fixed rate mortgages are over priced. As I’ve explained in previous posts mortgage lenders determine their fixed rate prices by keeping a spread on current bond yields. When it comes to fixed rate mortgages you have “one bullet” to shoot. If you take a fixed today… thats it you forfeit the opportunity to do so in the future when rates are lower. By taking a variable you can stay in the game and lock-in in the future when rates are lower. This Toronto Star Article highlights the fact that fixed rate mortgages are over priced and that there is downwards pressure. 

If you would like to discuss your particular situation or can’t make up your mind call our Toronto Mortgage office at 416.461.0204×2 and speak with Christopher Molder.

As a mortgage broker in Toronto, it’s important for me to keep on top of significant economic data. This data is useful to me as it helps me to advise my clients on decisions about interest rates and predicting opportunities and pitfalls in regards to their mortgage financing and real estate options.

The Globe & Mail reports an increase in the unemployment rate in their article “Jobless Rate Inches Up To 8.6%”. The article suggests that while the unemployment rate increase to 8.6% from 8.4% in May, the numbers are better than expected.

The Globe site hosts two interactive maps which break up the unemployment numbers by region, province, and city.
Map 1
Map 2

While unemployment numbers may not have a direct impact on real estate, from a practical “coffee table” economist point of view it should be telling you something. Currently, the real estate numbers (especially in Toronto) are very positive and it seems like real estate hasn’t really been affected by the global recession. However, it would be a mistake to believe we are invincible. With unemployment on the rise there lies the risk for the following:

1. Increase in bankruptcies,
2. Increase in power of sales on homeowners who can’t pay their mortgage anymore, and
3. Decreased real estate values as fewer and fewer consumers will have the appetite or ability to purchase and afford a home.

One positive is that with fewer consumer dollars circulating we may experience deflation which would mean interest rates will stay low.

Pressure on fixed 5 year: Down.

Financial Post – Markets. Lenders typically like to keep a spread of 1.70% to 1.80% between their fixed five year rates and the current 5 year bond yield. If the bond yield increases then the spread will shrink putting upward pressure on mortgage interest rates. The reverse is also true. If bond yields decrease then the spread widens and there is downwards pressure on fixed rate mortgages.

 A such there is pressure for fixed 5 year rates to be around 2.37 + 1.80= 4.17%

Pressure on fixed 5 year rate: Down.

Financial Post – Market. Lenders typically like to keep a spread of 1.70% to 1.80% between their fixed five year rates and current bond yields. If the bond yield increases then the spread will shrink putting upward pressure on mortgage interest rates. The reverse is also true. If bond yields decrease then the spread widens and there is downwards pressure on fixed rate mortgages.

Pressure On Fixed 5 Year: Down. Today’s best rate 4.39% fixed 5 year, 2.65% variable rate.

Financial Post – Markets. Lenders typically like to keep a spread of 1.70% to 1.80% between their fixed five year rates and current bond yields. If the bond yield increases then the spread will shrink putting upward pressure on mortgage interest rates. The reverse is also true. If bond yields decrease then the spread widens and there is downwards pressure on fixed rate mortgages.