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Understanding falling rates August 2011-Angela Calla

General Angela Calla 9 Aug

What do falling rates mean for borrowers?

This clearly falls into the 88% of the time where borrowers get significantly ahead by having a variable-rate mortgage. With the mess in the US expected to take several years to get sorted out, we’re in an unprecedented time where we can safely assume rates will remain low.

Where did this come from?

This specifically came from the US and its debt ceiling. When it was announced the US could be a risk to investors and it was downgraded, investors from the stock market moved to safe investments – Canadian Government Bonds. When everyone moves to a safe investment, their return goes down (less risk = less return). This means that fixed interest rates go down. This is déjà vu from 2008.

Although Prime is based on the Bank of Canada and unemployment in both Canada and the US has gone down over a half of a percent, the probability of a rate decrease has gone up significantly for September and again at year’s end. This comes just weeks after the Bank of Canada almost guaranteed we would see a hike before year’s end. On a variable-rate mortgage or line of credit, with every 0.25 decrease, you will see a $14 decrease for every $100,000 mortgage.

Fundamentals never go out of style. Don’t wait! If you have a mortgage above 3.5%, redo it. And if you don’t own, it’s your time to buy.

Will real estate follow?

Real estate does not follow the stock market and it’s not as volatile. You have a basic need to live somewhere so if the payment is affordable and fits into your budget, it’s in your best interest. When people stop migrating to BC and people are leaving BC that’s what you have to watch.

Helping you understand the market

Angela Calla, AMP Mortgage Expert

Dominion Lending Centres-Angela Calla Mortgage Team

Host of “The Mortgage Show” CKNW AM980 Saturdays @7pm

Phone: 604-802-3983 Fax: 604-939-8795