Alberta Mortgage Rates

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In reality, mortgages are one of the most basic financial instruments you will encounter, and this is a good thing, considering it also one of the most important financial products you will require in your lifetime.

As you research different mortgage products, you will come across such descriptions as 3 Year Variable Closed, 6 Month Convertible, 5 Year Fixed Closed, Open HELOC, etc. An extensive list - but in reality most Canadians stick to 5 year Fixed Closed Terms or 5 year Variable Closed Terms. And we’ll tell you why!

But first some basic definitions:


Alberta Mortgage Source

Fixed Rate

This rate is fixed and guaranteed for the period of the term. A 5 year fixed rate mortgage of 4% means that your 4% rate remains constant for 5 years then the rate expires. Fixed rates are determined largely by the bond market. Bond prices, and subsequently your mortgage rate, are determined by, but not limited to, the national inflation rate, the stage of economic cycle, government deficit spending, etc.

Fact: How much you pay for a mortgage rate could be influenced by the public spending of another country or group of countries. In 2012 the effects of the Euro Crisis helped to lower mortgage rates in Canada as international bond investors flocked to purchase CMHC mortgage backed securities. However quite the opposite can happen to Canadian rates when investors flee our market, as evidenced by the 1980 and 1990 recessions!

Alberta Mortgage Source

Variable/Adjustable Rate/VIRM/ARM

These products go by many names but all that you need to know is that the rate is cheap but not guaranteed. In fact, it can fluctuate monthly for the period of the term. Rates such as these are based on the Bank of Canada Prime rate, and your mortgage variable rate may be higher or lower then Prime depending if it’s an open or closed term. For example, if Prime is 3.00% and a 5 year Variable is Prime - 0.20% then your rate is 2.80%.

Fact: Variable rate mortgages and Fixed rate mortgages are roughly correlated but move independently of each other. When CBC News reports that the bank of Canada has increased prime lending by 0.50%, that means every one with a variable mortgage in Alberta is now paying 0.50% more on their mortgage. And vise versa on a decrease. This is not the same for fixed mortgage rates.

Alberta Mortgage Source

Closed Term

You are obligated to keep you mortgage with the lender for the period of the term. If you payoff the mortgage early then you are subject to an interest charge. This may not apply if you are moving (porting) the mortgage to a new home.

Fact: Mortgage lenders and banks calculate the interest charges for early payout a closed mortgage very differently. Rule of thumb is if your closed mortgage rate is below the current interest rate for the same term remaining on your mortgage, then 3 months interest penalty is applied. If you rate is above current rates and you are looking for a lower rate - call us first! You are subject to an interest rate differential (IRD) penalty and this cost can be in the ten’s of thousands of dollars.

Alberta Mortgage Source

Open Term

This is really straight forward- you may payoff your mortgage balance at anytime, no penalty. If you have a Variable Open Term mortgage keep in mind some banks charge an admin fee for early payoff.

Factoid: If you close out your TD Canada Trust Open VIRM, the branch will charge you $500. Other banks do this too, however they may waive the fee or reduce the fee based on the number of years you had the Open VIRM.

 
 

Current Mortgage Rates Mortgage Rates Demystified

Term Bank Rate Our Rate
6 Months Convertable 4.00% 3.95%

Unless the homebuyer is Gordon Gecko from Wall Street, most people can ... Read More

Unless the homebuyer is Gordon Gecko from Wall Street, most people can completely ignore this product. It’s only purpose is to speculate on future mortgage rates. If a homebuyer can guess future bond rates/prices then they certainly will not require a mortgage since they most likely live on a 100 foot yacht.

Home Equity Line 4.00% 3.50%

This is essentially an Open Variable mortgage, except that the monthly ... Read More

This is essentially an Open Variable mortgage, except that the monthly payment is interest only and 20% down payment/equity is required. This is the most flexible mortgage product.

1 Year Fixed Open
5 Year Variable Open
6.30%
4.00%
5.30%
3.50%

You can payoff your mortgage at anytime, but there’s a price to be paid! Interest rates are much higher on Open terms then Closed terms. So these are only used ... Read More

You can payoff your mortgage at anytime, but there’s a price to be paid! Interest rates are much higher on Open terms then Closed terms. So these are only used when a mortgagee knows they will pay off their mortgage is the near term via inheritance or hopefully Lotto 649.

1 Year Fixed Closed
2 Year Fixed Closed
3 Year Fixed Closed
4 Year Fixed Closed
4.00%
4.54%
4.59%
4.89%
2.39%
2.49%
2.69%
2.79%

Beware the lure of the low rates on these! It has to do with the yield curve on bond rates (the source of all mortgage rates). When 1 to 4 year terms are cheaper than 5 years it means bond/mortgage investors are expecting rates to increase in the near future. Once again you are up against Gordon Gecko, he wants you to take that cheap 1 year rate ... Read More

Beware the lure of the low rates on these! It has to do with the yield curve on bond rates (the source of all mortgage rates). When 1 to 4 year terms are cheaper than 5 years it means bond/mortgage investors are expecting rates to increase in the near future. Once again you are up against Gordon Gecko, he wants you to take that cheap 1 year rate now so he can gouge you on higher rates when your term expires. As well, no need to time your mortgage term to when you expect to move again, you are not “locked” into the home you buy, If you plan to move to a new home in 1 or 2 years it is still possible to take a longer term since the majority of Closed mortgage are portable - meaning you can move to a new home and take your mortgage with you, no penalty. That said, there are circumstances where a short term is best. Two examples are if a home buyer plans to payoff the mortgage in 2 years exactly, or is moving out of the country and will not “port.” Our Mortgage Brokers can Help you with this.

5 Year Fixed Closed
5 Year Variable Closed
5.14%
3.00%
2.69%
2.25%

Close to 90% of Homebuyers choose between these two products. 5 years tends to get the home owner the most “bang for their buck.” Since demand on the ... Read More

Close to 90% of Homebuyers choose between these two products. 5 years tends to get the home owner the most “bang for their buck.” Since demand on the international market is strong for Canadian 5 year mortgage bonds it is not unusual to find 5 year rates at or below the 3 or 4 year terms. It’s a perfect balance between obtaining a low rate, while ensuring your rate is guaranteed. Keep in mind again, having a 5 year term does not mean you are stuck in that home for 5 years as these mortgages are portable - you can move it to your new home.

7 Year Fixed Closed
10 Year Fixed Closed
6.35%
6.75%
4.19%
4.29%

You receive a guaranteed rate for a much longer term, but nothing is free in this world. The interest rates on these can be considerably higher. Unless you are ... Read More

You receive a guaranteed rate for a much longer term, but nothing is free in this world. The interest rates on these can be considerably higher. Unless you are a landlord with a portfolio of homes who is willing to pay more for long term stability these are not recommended for the average homeowner as 9 times out of 10 you are paying much more interest. However, if you know you will loose sleep over the 5 year term and interest rates at renewal then for peace of mind you should certainly take a longer term.



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So now the last question is: FIXED or VARIABLE...
and on that one you will have to call us!

The reason is, depending on the economy, and more importantly your situation, one will suit you better at one point of time and the other at another. The economic cycle in Alberta, your financial situation and even your risk tolerance are ever changing, but that’s where our expertise as professional mortgage brokers comes in handy! So feel free to contact us today.

 

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