Ask the Mortgage Guy?

[MortgageGuy]

My name is Dan Faubert of Ottawa-Carleton Mortgage. I have been a mortgage broker in Ottawa since 1985, dealing mainly with the financing of residential real estate across Canada. As a broker, I deal with dozens of financial institutions, including the "big banks", credit unions, and many life and trust companies. It is with these varied source of funds that allows me to have "better than bank" rates and products to fill many needs. I was referred to this site from a client who had purchased a builder home and thought that my finance knowledge may be of use to others. So the doors are open. If you have mortgage questions or looking for advise, I would be happy to do my best in answering them and offering suggestions. If I hear of up to date mortgage news that I feel is relevant to the public, I will also post it here.
Have a great day,
Dan

[karrietg]

Do you recommend a fixed rate or a variable rate mortgage given the current economic situations?

[MortgageGuy]

Surely one of the most common questions I am asked!
First and foremost I would only decide this question approx 30 days in advance of my closing. I would NEVER sit with a mortgage approval as a variable, I would always fix a 5 year rate and then if things look very downward trending and or stable 30 days before, I would then move to a variable. It costs nothing to change the type of mortgage you take prior to closing on your house. In your circumstance with a November closing, I would stay fixed for now and decide beginning of Nov.
Now for the fixed or variable question in general. First decide if you are a gambler or security conscious? 5 yr fixed rates today are likely at 40 year lows, so in the long run it would be hard to go wrong with fixed rate mortgages today. Could they drop in the very near future, possible, but will they drop a lot, not likely. I can get 5.09% 5 yr fixed, a very attractive rate with good prepayment.
Could rates go up in the new year, quite possibly. It will largely depend on inflation and the banks cost of funds. If that starts to rise, watch out for rates. This is a very general statement, but inflation will likely be the 1st cue to higher mortgage rates.
Just remember that you ultimately are responsible for the decision you make regarding gambling(variable) or going fixed. I am not an economist, and won't pretend to be. I personally have been a long term, sleep well type of guy, and have not regretted it yet. Everyone has to live by a budget, some tighter than others and therefore decide accordingly.
Dan

[djkoloks]

what about home equity loan vs traditional mortgage? is it worth looking into the HEL?

[MortgageGuy]

I ONLY recommend getting a line of credit secured against your residence if you really think you will need it. It is just another way for the bank to make it easy to pull out your hard earned equity and spend it. Also if you are getting a line of credit, DON'T use one of the "all in one" mortgages such as the Scotia STEP mortgage(not picking on Scotia, all the major banks have these). They can never be transfered(without cost) to another lender upon the renewal of the fixed portion of your mortgage 5 yrs from now. If you must have a line of credit, get it separate from your first(as a second mortgage) and then it leaves you options when your 1st comes up for renewal. Remember that lines of credit have a floating rate therefore you are exposed to fluctuating rates in the future. I will also mention that there are MANY people out there who I have financed that are likely sorry they ever had a line, having used it to the max living beyond there means.
Dan

[MortgageGuy]

Sorry Katherin and Chris,
new to this forum, not sure how to apply when there is not a "reply" button, so am trying the "quote button"
to clarify, NO discount off prime is worth it if the "bank" does not guarantee some form of discount when you lock in to a fixed rate. The banks know that when rates start to rise, MOST will lock in. That is why the banks are so keen to to push variable. They will NOT put in writing what discount you will get when you lock in. The best discount I know with a discounted lock in rate is prime less .70%.
Dan

Originally Posted by Katherine&Chris

Hello mortgage guy - Do you have any lenders who will offer a Prime -1 variable rate?

[MortgageGuy]

Hi Katherine and Chris,
.90% off prime is the best there is, you may have arranged this some time ago?
Be happy with it. More importantly though as mentioned earlier, variable rates are closed with a 2 or 3 month interest penalty to leave. So with 5 yr posted rates at 6.75% very important to have in writing what you will recieve as a discount when you lock in. If it is not in writing, and your "bank" has the dreaded posted rates, I would take prime less .70% over your 1%(unless of course you intend to stay variable for the full term).
Dan

[sarcol27]

Hi Mortgage Guy,
My closing date is minimum 20 months away. I have a bank guaranteeing a rate of 5.6 fixed until closing. Does that sound like a good deal to you? Is there any harm in signing for this to guarantee the rate?
Thank you!

[StrayCat]

Originally Posted by sarcol27

Hi Mortgage Guy,
My closing date is minimum 20 months away. I have a bank guaranteeing a rate of 5.6 fixed until closing. Does that sound like a good deal to you? Is there any harm in signing for this to guarantee the rate?
Thank you!

I am pretty much in the same boat as sarcol here, so your answer to the above mentioned question is of interest to me as well. Just wanted to mention that with our mortgage specialist, we didn't have to sign anything but she has locked in that rate for us right up until closing and she even said that if at closing, the rate is lower, we will get the lowest of the two. Does this make sense?

[MortgageGuy]

I purchased my first new construction home in the early 90's, it had a closing date of 6 months. I thought that was long! To hear of 20 or 24 months away blows my mind. But back to the mortgage rates. I believe there is no legal obligation in accepting a builders bank mortgage rate for your long closing. And I always recommend accepting that fixed rate guarantee, never sit on a fence with nothing. 5.60% fixed rate for a 5 yr term held for 20 months from now sounds fantastic as a consumer. You have nothing to lose in accepting that rate and everything to gain if rates go up. How you get caught is if you accept and use either credits at the design center and or store credits(ie Brick Bucks etc.)the bank offers. Once you commit to these bonus's they effectively tie you to the mortgage.
THE KEY IS TO ACCEPT THE RATE AND THEN SHOP AGAIN 4 TO 6 MONTHS PRIOR TO YOUR CLOSING DATE. If you haven't accepted credits, then you can get your mortgage elsewhere.
Dan