I derived this title from a report we wrote in December of 2008 when we had 1 office and went by the name Mortgage Marcus. With your help we have now grown to 3 offices and will be opening number 4 just before Christmas. In that December 3rd, 2008 report we advised all of our clients to consider the safety of a short term fixed rate to combat the increasing premium being priced on variable rate mortgages. It would seem that history is starting to repeat itself.
The discount on variable rate mortgages is testing levels we haven’t seen since early 2009. The world economy is slower than your dead beat brother in law reaching for the bill after an expensive dinner and just like your brother in law, there is no sign that anything will change anytime soon. As a result people are flocking to variable rate mortgages on the advice of Bank sponsored economists.
Your path on this uncertain terrain will not be a complete mystery, let us help.
We know that Banks have a motivation in providing advice to their clients, and unfortunately it is not for their clients to save money at the Bank’s expense.
Over the past few months Banks have been scrambling to make more money on their Variable Rate Mortgages. With the incredible increase in demand for variable rates coupled with the increase in interbank lending rates Variable Rate Mortgages have increased in price by 0.50% in less than 2 months. We don’t think you should panic and we don’t think you should follow the heard.
It is starting to become uneconomical to go into a Variable Rate Mortgage. At Prime – 1% the Variable Rate Mortgage is amazing, at Prime -.0.5% it is pretty good, but at Prime it starts to look a little less appetizing, especially when there are such low fixed rates available out there. Locking into a bad Variable Rate Mortgage is just like locking into a bad Fixed Rate Mortgage, we would hate to see our valued clients in Variable Rate Mortgages at Prime when Prime-1% Variable Rate Mortgages are only a year away.
Our advice?
Simple! As you see the VRM’s slowly increase under the dual pressure of your banks greed and the global economic uncertainty, start weighing some different options. We suggest one the following:
- For those of you who are happy with a little more risk and who favor a VRM long term consider taking a 1 or 2 year fixed rate mortgage and sitting on the sidelines while this uncertainty blows over. In a year or two VRM’s will be back where they were two short months ago (remember this happened once before). This means you will be able to save with a fixed rate mortgage for a year or two and then jump back into a variable rate in a few years with no penalty to break your interim mortgage.
- If you don’t want to risk a sudden increase in rates a year or two down the road then think about taking a long term fixed rate for 5, 7 or even 10 years. Long term fixed rates are at all time lows.
Why 2 options?
We believe that getting paid to be exposed to a upward rate movement in 1 or 2 years is a smart decision but also understand that for some people it doesn’t make sense to take on the slight risk of higher rates.
Why listen to us?
We said the same thing in December of 2008 and our average client saved about $11,000 in interest on their mortgage over the last 31 months!
We realize that no one has a crystal ball when it comes to interest rates but if you keep your clients best interests in mind, study the trends in interest rates and work hard at what you do, you will be rewarded.
Here is a link to our December 2008 report.
Marcus Tzaferis