Mortgage Basics when buying a house as of today

In short and not from an economists mouth....here's what buyers are faced with.
Do you lock in or do you stay with variable rate mortgages with tempting low prime rates.

Over the last many years emergency rates have made variable products much more attractive and even with the heighetned risk attached to variable products, historically holders of these mortgages have fared better then their fixed counterparts.

There are arguements that this may change moving forward. Its pretty certain the the government is going to be increasing short terms rates which affect variable products. Interestingly in the wake of these prime rate increases, the banks borrowing rates have been falling likely due to the avialbility of credit and the desire for Canadian banks to lend money as oppose to a few years ago. With that, though prime rates are increasing, some variable rate mortgages are still priced below prime.

On the other end, fixed rates are being pushed down according to the yield curve. Why? Likely, consumer confidence and difficulites in the U.S. and the flocking of many investors to safe havens of government bonds even with low yields.

Investors puchars mortgage securities to get returns. These vehicles carry greater default risk the a similar comparable 5 year bond. So if 5 year bonds are offering low yields, there is room for fixed 5 yr mortgages to stay low for a period and potentially move lower so long as investors in these products get a premium return relative to the spread theyd see on an investment in a 5 years fixed gvt bond.

So right about now, you and your mortgage holder may want to discuss what option suits you best. Theyll want too review your risk appetitie, time horizon for any other investments coming due or the chances that you'll have excessive cash coming to you soon to pay down a closed vs open mortgage (both carry diff weightings). If your advisor believes a double dip is inevtiable then they may feel that deflation is a concern and variable rates have further to dip.

Anyway, I like venturing out of my comfort zone every now and then. I'm pretty confident the above is sound but if you know better, write me and teach me. I'm just a realtor....with an MBA.

The inventory is low. We're 20% off sales volumes from last June. It's a slow summer but september tratditionally ramps up. So if you're contemplating getting into the market---the balanced market is always a "fair" time to shop.

If you don't have an agent and wish to learn more--pick my brain and let's chat anytime.

My best

http://www.TheSmithsBuyAHouse.com