Thursday, February 10, 2011

A few words of advice from my good friend, Julia

Julia Krause is a very reputable mortgage broker based out of Kelowna, BC. She taught a fantastic mortgage course that I attended during my first year mortgage brokering. She has a vast knowledge of the mortgage business along with many words of wisdom and I trust her opinions.
That being said, here is a great article she wrote regarding the current interest rate climate:

As they say in the UK...
by J. Krause Mortgage Services on Thursday, 10 February 2011 at 12:49

Interest rates, interest rates, interest rates!! OK, here's how it works:

If you're in a variable rate mortgage, changes in prime are what affect you. Prime changes based on the economy in general. Things like unemployment figures, inflation, the dollar, exports, stuff like that. Prime only changes on specific, pre-scheduled dates. It doesn't change unexpectedly. When it does change, it changes by a quarter or maybe a half of a percent at a time.

Longer-term mortgage rates (5 year, 7 year, 10 year) are affected by the bond market. The bond market is where money for these longer-term mortgages comes from. And the bond market is affected by the stock market. When the stock market is doing well, investors leave the safety and modest returns earned in the bond market and try their luck in the stock market. Less money in the bond market means interest rates on longer-term mortgages go UP. When the stock market is not doing well, investors go back to the security of the bond market. More money in the bond market available for mortgages means interest rates on longer term mortgage go DOWN. Basically, this is supply & demand. When lenders have to pay more for this money, they raise the rate they charge you for it. That's what happened yesterday. Longer term rates went up a little. It's normal. And they can just as easily go down again.

Mortgage rates have been low for a very long time now. Actually, they have been at historical lows. To ask an economist or a bank CEO or even the Finance Minister, 'where are interest rates headed?' of course the answer is 'up'. They can't go any lower! The question is WHEN. And there's no way to know when. It all depends on the things mentioned above... the economy in general, and the bond market. In the meantime, I'm going to enjoy paying the least amount of interest possible on my mortgage. And you should, too.

As they say in the UK...

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