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. This means 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 overview 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, 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 calls a “Deleveraging Recession.” This means 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 sever 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, given 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.
If you have questions about your mortgage, contact me here or book a call directly into my calendar below.
