How does the Canadian dollar affect interest rates?

28. February 2009 · 1 comment · Categories: Mortgages · Tags: ,
Amanda L


Now that the Canadian dollar is at parity with the US dollar, I’ve been hearing in the news that the Bank of Canada will be hiking interest rates. What is the reason behind this? How exactly does the dollar affect the interest rate? Thanks!

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If Mortgage Rates Can Fall Through the "floor" of the Prime Rate.what Else is Under the Floor?

19. February 2009 · Comments Off · Categories: Mortgages · Tags: ,
The House Team Of Mortgage Intellingence


“Lower than prime,” you heard someone say. Like most Canadians, you were probably first skeptical and then confused. We tend to think of the prime lending rate as the invisible “floor” of lending rates. The very best customers can get very close to that floor. It is theoretically possible, we reason, to actually be ON the floor, but not possible to be below it.

Nevertheless, Canadian lenders offer mortgages at prime minus 0.5% to even minus 0.7%. So the floor isn’t the lowest you can go. There’s something under the “floor”. The rate known as “prime” has been the popular benchmark for lending in Canada. When business reporters talk about interest rate movement, they usually talk about what’s happening with prime. But there are other benchmarks in money rates, though they are typically for use by professional money managers. The most significant of these is the Banker’s Acceptance rate.

While “prime” is a set rate which is offered to a lender’s best customers, the Banker’s Acceptance is the rate which financial institutions use to lend money to one another. And it’s typically well below the prime rate. Look for the “Money Rates”section of your favourite newspaper, and you can compare Prime with the Banker’s

Acceptance rates for yourself. “Interesting,” you think, “but why does it matter?” Well, as new lending institutions begin to offer a slate of innovative new loan options, a new mortgage has emerged that is based on the Banker’s Acceptance rate: offering a mortgage rate of 1% over the 3-month Banker’s Acceptance.

If you compared the rock-bottom prime-based variable mortgage rate – prime less 0.5% to 0.7% – with the new adjustable BA-based rate, you would find that the BA-based rate would have delivered significant savings over the past several years, as rates were dropping. There are two reasons for this. Firstly, the BA-based rates have historically been considerably lower than prime. Secondly, the prime rate tends to be “stickier” in an environment where rates are falling. Often, the more fluid, market-based BA rates deliver the rate change more quickly.

Any variable- or adjustable-rate Ontario mortgage is an excellent option when interest rates are either dropping or stable. Not surprisingly, they’ve been a very popular choice in the past few years. There are some rumblings now that rates may begin to increase, but flexible-rate mortgages still remain an excellent choice for those looking to save some interest.

As always, you should consult with a mortgage professional to find the mortgage that suits your personal financial needs. An independent mortgage broker can provide you with information on a broad range of mortgage options from a wide variety of lending institutions, so you can compare features and options at a glance.

And remember, it’s worth taking some time to look beyond prime and explore what’s “under the floor” in mortgage options!



Mobile Home Loans Arizona

19. February 2009 · Comments Off · Categories: Mortgages · Tags: ,
mobilehomelender


www.lendinguniverse.com MOBILE HOME LOANS Arizona lenders provide financing and Mobile Home refinancing also nationwide. Banks, mortgage brokers, credit unions and private investors compete for all your residential and commercial loan requirements, simply complete our simple form…

Unsecured Loans and Alternatives

12. February 2009 · Comments Off · Categories: Mortgages · Tags: ,
FHA Home Loan


Unsecured loans can be very difficult to get. There are many factors a bank is going to consider that might make it impossible for you to achieve a positive response about unsecured loans.

Unsecured loans are loans for a business where the company doesn’t have to put up any collateral for the loan. These unsecured loans are common for very successful businesses that show a lot of revenue and assets. It is very difficult for most people who want an unsecured loan for a business to get a good response from a bank if they don’t meet many different stipulations of unsecured loans.

The unsecured loans stipulations usually required from a bank when you are asking for unsecured loans usually require good credit. You must have a high credit score for some of the unsecured loans. The company must have a proven track record of high revenues and success for the past year or two for some of the unsecured loans. The company must show more assets than liabilities and not be in the negative on the books in any way to receive most unsecured loans.

There are alternatives to unsecured loans if lenders are not seeing the big picture that you do. The best alternative to a lender giving you money is through a friend or a family member. If you have a friend or a family member who has the money to help you with the money you need then you won’t have to worry about getting turned away from the banks. A friend or family member also won’t charge you large interest rates like a bank will on unsecured loans.

Another alternative to unsecured loans is by finding government grants for your small business. There is millions of dollars that goes unclaimed every year and if you can get a grant you won’t even have to repay the money but show the government that you spent it on your business. This is an excellent idea for any type of small business because you don’t have to pay all grants back like unsecured loans. Grants are free money the government sets aside for small businesses as a way to stimulate the local economy. Most small business owners never consider business grants before they ask a lender for unsecured loans.

For more information about unsecured loans and how everyone can be approved please visit BusinessCashAdvances.com.



How are interest rates and unemployment related in macroeconomics?

08. February 2009 · 3 comments · Categories: Mortgages · Tags: ,
xavier


I understand interest rates are set by central banks who monitor inflation, unemployment, and other stuff but I don’t see how lowering interest rates could reduce unemployment.

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Interest Rate Risk Management – Hedging – Caps, Collars & Swaps

04. February 2009 · Comments Off · Categories: Mortgages · Tags: ,
Ben Randall


The topic of interest rate hedging is becoming increasingly more discussed in current market conditions. Many borrowers have found themselves with no option other than to remain on a Lenders Standard Variable Rate (SVR), due to criteria, limited lending options and loan to value (LTV) restrictions narrowing the refinancing market to an unwelcome low.

With Businesses, Professional Landlords and residential owners unable to adjust their borrowing exposure to a product or Lender to suit their business plan and attitude to risk, stand alone Interest Rate Management products such as Caps, Collars and Swaps become a suitable alternative. 

What is Interest Rate Hedging?

In brief: Interest Rate Hedging is minimising and maximising your exposure to interest fluctuations by entering into a financial derivative. When considering your residential, business or portfolio mortgage debt, different strategies will need to be applied that protect your exposure within a defined period,

How can it apply to me? 

Interest rate risk management products can be used by businesses or individuals. Banks normally apply certain restrictions to the availability of these products as they can be viewed as high risk and the area of ‘advice’ surrounding such products can be a regulatory nightmare.  

Residential Mortgage Owner

In the same way that your mortgage Broker or Financial Adviser will discuss the available mortgage product options such as fixed or tracker rates, interest rate hedging products can use certain aspects of these choices to suit your budget and attitude to risk. You may have wished to take advantage of current low interest rates, but were fearful that should they rise your mortgage payments would increase beyond your budget. In such circumstances a stand alone ‘base rate cap’ could protect your payments at your chosen level, but you would still be able to take a tracker product of your choice to take advantage of low interest rates, for as long as they last….

Professional Landlords and Investors

With Bank Base Rate at its current low you are no doubt tempted to take advantage of the tracker rates around that provide pay rates as low as 3.5%.  This might be great news now, but you are of course aware that when interest rates inevitably return to a more ‘normal’ level the margins applied to the current products will result in a much higher rate than. A current tracker rate of 3.5% applies a margin of 3% over Bank Base Rate. If BBR should increase to 5% which is by no means unlikely, the resulting 8% pay rate could certainly impact on the yield of your portfolio to a critical level.

In the current climate with money still coming at a price, the Fixed rate options are by no means attractive and it therefore leaves the decision making of managing your portfolio a tough one at present.

Businesses

If you have a large business loan, you will be able to apply quite simple maths to know at what point increasing interest rates will make your payments unsustainable and therefore threaten your business. Alternatively, you may also know that currently the payments on your business finance actually leave a level of positive cash flow that could be put to better use. Many Business owners will apply an interest rate cap to ensure their payments do not reach a critical level. The cost of such a policy can be offset by applying a collar so that if their payments reach a certain floor (low), a premium is reversely payable.

Can’t Refinance?

With reduced loan to value (LTV) products across the buy to let market, many investors have no options when it comes to remortgaging at present, as the current loan will exceed the maximum LTV limits on the products available. Short of reducing the loan or taking in some cases a product switch (if the Lender will allow), your borrowing remains in the hands of the prevailing interest rates, and therefore leaves an unwelcome level of uncertainty.

What can be done?

Interest Rate Management Products can alleviate the above issues by allowing you to effect a policy that suits your individual requirements, risk profile and affordability. With a large portfolio and the differing margins and variable rates spread across the products it can sometimes take detailed analysis to calculate at what point interest rates would make sustaining your portfolio critical.

Using the services of an Independent Analyst can assist you make an informed decision of when prevailing interest rates would impact your investment to a critical point. Alternatively, you may already understand the level of increase required in Bank Base Rate that would result in negative cash flow or unsustainable mortgage payments.

If you do decide to enter into a derivative, think carefully before you do so and understand the pitfalls as well as the benefits. The question of when is the ‘right time’ can never been answered, particularly in today’s uncertain global financial climate.



Do You Qualify for the First Home Owner Grant?

03. February 2009 · Comments Off · Categories: Mortgages · Tags: ,
Ted Brumby


The Basics

The Australian Federal Governments First Home Owner Grant Scheme offers eligible first home buyers a one-off payment of up to $21,000 – that’s a great start when you’re saving to buy your first home!

On 16/10/2008, the Australian federal government has announced a First Home Owner Boost, to supplement the State funded First Home Owner Grant Scheme:

1. First home buyers who purchase established homes will be eligible to receive a boost of $7,000 that  will double the grant to $14,000.

2. First home buyers who build a new home or purchase a newly constructed home will receive an extra $14,000 to take their grant to $21,000.

3. The increased Grants are available for contracts entered into between 14 October 2008 and 30 June 2009.

4. The Grant is not a loan and does not need to be repaid. What’s more, there is no limit on the maximum price of the home you build or purchase. Whilst eligibility is not restricted by income or asset assessment tests, you must meet certain criteria in order to qualify.

Eligibility Criteria

The First Home Owner Grant is available to people buying or building their first home and who meet the following eligibility criteria: 1. Each applicant is a natural person and not a company or trust.

2. At least one applicant is a permanent resident or Australian citizen.

3. Each applicant must be at least 18 years of age.

4. All applicants and/or their spouse/de facto have not previously owned a residential property in Australia, jointly, separately or with some other person.

5. This is the first time an applicant and/or their spouse/de facto will receive the First Home Owner Grant.

6. At least one applicant will occupy the home as their principal place of residence for a continuous period of at least six months, commencing within 12 months of settlement or construction of the home.

How to Apply

Your home loan lender can help you apply for the First Home Owners Grant, or you can apply direct to the relevant department in your State or Territory.



Advantages of an Adjustable Rate Mortgage

03. February 2009 · Comments Off · Categories: Mortgages · Tags: ,
Brian Jenkins


Adjustable rate mortgages have taken a bad rap in the latest mortgage crisis. Financial pundits from all ends of the spectrum blame the irresponsible use of adjustable rate mortgages and hybrid adjustable rate mortgages for the increasing number of home owners who are delinquent or in foreclosure on their mortgages.

That’s unfortunate, since adjustable rate mortgages can offer real benefits to home buyers in many situations. Here’s the scoop on the pros of an adjustable rate mortgage.

What an adjustable rate mortgage is

There are many kinds of mortgages, but all of them fit into one of three different types – fixed rate mortgages, adjustable rate mortgages and hybrid mortgages which use features of both adjustable and fixed rate mortgages.

A fixed rate mortgage is one in which the interest rate for the mortgage remains the same for the entire life of the loan, no matter what market interest rates do.

An adjustable rate mortgage is one with an interest rate that can fluctuate up or down. It is usually tied to a specified market index, and has specific rules for when and how much the rate can be adjusted.

The most common hybrid mortgage type features an initial low fixed rate that remains the same for two, three or five years, then adjusts to the market and becomes and adjustable rate mortgage.

Pros of an adjustable rate mortgage

There are a number of advantages to choosing an adjustable rate mortgage. Some of them are advantageous for only one type or buyer or another, others are an advantage for everyone.

1. An adjustable rate mortgage may help you afford a bigger mortgage than a fixed rate mortgage.

Because adjustable rate mortgages often have lower initial interest rates than fixed rate mortgages, they can allow you to qualify for a larger mortgage than a fixed rate mortgage. That means that you can buy a more expensive home because your monthly payments start out smaller. If you’re a young home buyer just starting in a career, this can be a major advantage because it allows you to pay smaller monthly payments in the first years when your salary is smaller.

2. The initial payments are lower than they would be with a fixed rate loan because the interest rate is lower.

With a fixed rate loan, lenders accept that if interest rates rise, they will make less money on the mortgage than they would with an adjustable rate mortgage. They offset that ‘loss’ by charging higher interest rates on fixed rate mortgages than they do on adjustable rate mortgages. That means that you start out with a lower monthly payment. As long as interest rates don’t rise, you’ll continue to pay lower monthly payments.

3. If the interest rates go down, your interest rate and monthly payments will adjust down automatically.

If you have a fixed rate mortgage and the market interest rates drop significantly, you can only take advantage of that by refinancing your mortgage. Refinancing incurs early repayment fees and other costs that you avoid by having a mortgage that adjusts automatically to the prevailing interest rates.

4. An adjustable rate mortgage can save you a considerable amount if you only intend to stay in your new home for a short time.

Because the interest rate and monthly payments are likely to be considerably lower for an adjustable rate mortgage, If the difference between the rate for a fixed rate mortgage and an adjustable rate mortgage (the spread) is considerable, you could save several thousand dollars a year in those first few years.

In order to figure out if an adjustable rate mortgage is right for you, it’s important for you to consider all of the facts about the loan. You should know the following about the mortgage that you’re considering:

How often does the rate adjust? Most adjustable mortgage rates adjust annually, but the adjustment period is up to the individual lender. Some may adjust as often as once a month.

What is the cap on single adjustments? No matter how much the index used to determine adjustments rises, your mortgage agreement will place a cap on how much the interest rate can increase in a single adjustment.

What is the annual cap on adjustments? If your mortgage adjusts more often than once a year, what is the most that the lender can raise your interest rates in a single year?

What is the lifetime cap on adjustments? In addition to the annual cap, your mortgage agreement will also spell out the lifetime cap on adjustments. Can you afford the monthly payment at the cap?

What adjustment index does the lender use to determine rate increases? A lender can link the adjustment rate to any index that it chooses, and may be allowed to change the index according to the terms of your loan.

What is the margin? The interest rate that your lender charges will be a certain percentage above the index. This is called a margin. You should know what the margin is so that you can decide if it’s fair.



Your Home Appraisal –what’s the Big Deal?

03. February 2009 · Comments Off · Categories: Mortgages · Tags: ,
Kristin Abouelata – Home Loans


Think about why this is true. A good appraisal is the best reassurance that the lender won’t lose its pants on the transaction. If the borrower defaults, the lender still has a marketable property that can be sold to recoup its losses. All of which makes it understandable why lenders are so picky about appraisals. And with recent changes in the industry, the focus by lenders to obtain good appraisals is at the forefront.

Appraisals typically cost anywhere from $350 to $400. However, if the house is gigantic, multi-unit or in the boondocks, it could run more. The cost varies on property type, location and square footage.

The most common type of appraisal is the Uniform Residential Appraisal Report (URAR). It consists of interior and exterior photos and sometimes (depending on the age of the home), a complete cost breakdown of the property and comps (comparison sales of homes nearby that meet the proper criteria). These comps help determine the “market” approach. Each comp sale is adjusted in value when stacked against the home being evaluated (the one you’re buying or refinancing). Usually you will see a comp below the value of your home, in line with the value of your home, and a third above the value of your home. Kind of like the three bears. But if the valuation gets tricky, you can see fourth, fifth and sixth comps. The net value of the comps is estimated based upon the approaches used to come up with the appraised value of your property (meaning the appraiser performs some type of calculation that’s kind of like an average, but not necessarily a true average. Confused yet?)

URARs also, typically but not always, reflect a cost approach, which determines what the value would be based upon what is estimated it would cost to rebuild the home, less depreciation. The final estimated value of the home is then determined by using a melding of the market approach described above and cost approach (if applicable).

Lori Babb, Staff Appraiser for Mortgage Investors Group of Knoxville, TN, further explains comparables. “The best comparables are those similar in size, style (ranch, basement rancher, 2 story, etc.), age, and are close in proximity to the dwelling being appraised,” she explains. “Unique properties will typically require more adjustments than the average properties.”

So, say you’re Bill Gates and want to secure a mortgage on a $200,000 home (I know, it’s ridiculous, but I’m trying to make a point). He’s got the best credit profile a lender could imagine, yet the house appraises for $175,000. Deal or no deal? You better believe it’s no deal. The sales price will have to be lowered, or Mr. Gates will just have to pay cash for his new home (you think he can afford it?). The point is, your average Joe won’t go ahead with the deal without a price adjustment, and he will be obligated to pay for the appraisal regardless of the outcome of value.

Dan Tyrell, principal of Knoxville area’s Tyrell Appraisal Service, Inc., has this comment about value, “When determining value of a single family house, beauty is more than ‘skin deep’. Fresh paint, new carpet, new appliances, and nice landscaping all enhance the marketability of a house. Not so obvious items also impact the appraised value of a house. For instance older houses that have replaced plumbing/electrical systems, updated HVAC systems, newer roofs, replacement windows, etc. lower the effective age of the property which in turn increases the appraised value.”

There are other types of appraisals that are not as common, like an Automated Valuation Model (or AVM). In this case, different factors combine to ensure the value of the home (it’s worth $200K, but your loan amount is only $100K) and your unbelievable credit worthiness (800 credit score!), allowing you to skip purchasing a typical appraisal. You may also only be required to get a “drive by” appraisal, where the appraiser just inspects the exterior of the subject for size, looks at the lot and makes you wonder who that person standing by your mailbox is.

Most lenders control what appraiser is used to determine the value of your home. After all, it’s their money on the line. The appraisal is such an important factor to the mortgage transaction – make sure you’re satisfied with the results. Your lender will make sure it is satisfied!



The Truth About Mortgage Rates

03. February 2009 · Comments Off · Categories: Mortgages · Tags: ,
Andres Navarro


The best rumors have the longest staying power, and the untruths about the connection between Bank of Canada interest rate cuts and mortgage rates is a prime example. Why? Well, though Bank of Canada interest rate cuts do affect the financial industry, they do not affect every segment of the financial sector; some segments are directly affected, others are only indirectly effected, and then there are segments that are directly or indirectly effected depending on the financial product. The mortgage industry falls into that third category.

Shocked? Well, you’re probably not alone. The idea that Bank of Canada discount rate changes cause mortgage rates to change is a common misconception that’s been perpetuated for years. So, let’s set the record straight!

TRUTH: When the Bank of Canada adjusts interest rates, it does affect interest rates of financial products. However, only interest rates for short-term financial products—things like car loans, credit cards, etc.—are directly affected by Bank of Canada interest rate cuts or hikes. Meanwhile, 10, 15, 30, and 40-year fixed mortgage loans are considered long-term financial products. As such, the Bank of Canada’s decisions do not directly influence fixed mortgage rates.

TRUTH: Though Bank of Canada rate cuts have no direct influence on fixed mortgage rates, the Bank of Canada’s decisions do directly sway one type of mortgage loan: Adjustable rate mortgages (ARM), which are also sometimes referred to as variable rate mortgages, IF the ARM is specifically stipulated as being tied to the prime rate.

TRUTH: Fixed mortgage rates are based on mortgage bonds (sometimes called mortgage securities), NOT the 10-year T-bill. Therefore, what actually has a direct effect on a mortgage rate increase or decrease is the buying and selling of mortgage bonds.

TRUTH: Though Bank of Canada rate changes do not have directly influence fixed mortgage rates, they can have a Domino Effect on fixed mortgage rates. How so? Well, the purpose of the Bank of Canada’s rate adjustments is often to increase or decrease consumer spending. For instance, when interest rates are cut, the goal is to increase consumer spending. As a result, investors speculating that the Bank of Canada’s tactic will work pull their money out of the bond markets (which are less volatile, low return investments) and put their money into stocks because they believe they can make greater profits from their investment. When this happens, that can cause mortgage rates to fluctuate. Remember: Mortgage bonds / mortgage securities affect mortgage rates. If money is cashed out from mortgage bonds, rates will increase. Conversely, if the monies are withdrawn from other types of bonds, mortgage rates may dip or they may remain unchanged.

So, what does all of that mean if you’re looking to modify or refinance your mortgage, or if you’re waiting for mortgage rates to change before you apply for a mortgage loan? First, it means that you should keep an ear out for what the Bank of Canada is doing regarding interest rate cuts and spikes ONLY if you’re interested in a variable rate mortgage—which would not be ideal for most consumers in the current economy. However, if you prefer a fixed rate mortgage, it means you can (and should) stop wasting your time tracking the 10-year T-bill and keeping tabs on the Bank of Canada. Instead, keep watch on what’s happening with mortgage bonds so you’ll know when mortgage rates are where you want them!



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