The Mortgage Radar: Fixe 5 Year Rates Up, the Deleveraging Recession, Severing Your Lot, Refinance Your Debt

November 22, 2010

Leading the mortgage radar this week is news about the increase of 5 year fixed rate mortgages.  Fixed rate mortgages are priced according to 5 year bond yields and have a positive relationship. Meaning that if bond yields increase then fixed rate mortgages have a tendency to increase as well and vise versa.  The market forces at play that influence bond yields are a bit more complex but this article from The Toronto Star gives a good over view for the casual reader.  Despite the increase I don’t believe that this is the end of low fixed rate mortgages, as there still remains too much uncertainty about the global economic recovery and demand for Canadian mortgage backed securities remains high.
On the note of recovery and an article that ties in nicely with last week’s Radar about the “new credit crisis“, Gary Shilling, economist and author of “The Age Of Deleveraging” highlights his theory of Why The Feds Plan Won’t Work. Gary’s theory is that the traditional monetary policy of the fed or Bank of Canada to make money cheaper to encourage us to spend our way out of recession won’t work because this is what he call’s a “Deleveraging Recession”.  Meaning that we will keep reducing our debts and borrowing, no matter how cheap money gets.  His is a very interesting theory and worth a read.
Very often with our private mortgage fund we work with individuals who are developing or thinking of developing residential lots of land and very often there is an intention to severe the lot into two lots effectively increasing the value. However there are many considerations from a legal, financing, tax planning and municipal point of view before severing your lot.
Lastly, on a weekly basis I get phone calls from borrowers inquiring about refinancing their mortgage into a lower rate give the historical low rates still available. Although current rates maybe lower than your existing interest rate it doesn’t always make sense to refinance as penalties may be too cost prohibitive or the flexibility may not suit your needs.
That is the Mortgage Radar for this week. If you have any questions regarding mortgage financing or your mortgage specifically write me at [email protected] or call me 416.461.0204ext2.


Christopher Molder

Mortgage Broker

Christopher is a mortgage broker based in Toronto, Canada. And a son of a broker too. He’s a second generation mortgage broker. Following in his father’s steps he joined the family mortgage business straight out of university.