What to choose? What to choose?

 Right now there is lots of talk about the banks raising prime rate .25%. Go and google it.  This has caused lots of discussions and it looking like they won’t raise the prime lending rate until late November 2010.

 Many people saying that we are out of recession but really we are not if you look at the world’s economy right now.  Think about 2001   9/11 incident Terrorist.    Prime was 6%  Nothing too much was wrong with the worlds economy.

 2010 prime is 2.25%  Question to you?  Do you or anyone else see a magic cure that will instantly raise the worlds economy out of depression causing everyone including the banks to HIKE interest rates SKY HIGH?   Probably not.

Greece is almost bankrupt and Germany along with other countries from the European Union are talking about helping them get bailed out etc.

Then Spain is huge as well, maybe going bankrupt, Spain is an industrial power house.  Spain couldn’t take interest rates going up.  Nor could several other countries.

What does this have to do with my mortgage rate and me choosing VARIABLE OR FIXED?  Good question! 

Most Banks and businesses have money in USA and Canada.

Manufacturing is huge in all of these European and North American Countries.  If interest rates were to go up a lot, like many poeple always speculate they will, well for sure, these countries along with others would go bankrupt as well and at the very least send most of the world back into a bigger slowdown (recession).

Mortgage Rates

Variable rate is always short term money. Like money out of your bank accounts that the bank makes off us. If the current 5 year variable closed interest rate is 1.7% - 1.1 percent on our money, then really all it is is 0.6% that the banks make of the entire transaction of giving us a mortgage at 1.7% and giving us an interest rate of 1.1% in our bank accounts.

Fixed rate mortgages, this money comes from the money that people invest in bonds. Generally, the bond markets pay 1.9% to 2% in return.

 If a current 5 year fixed mortgage is 4.49% minus the bond rate the bank pays to people investing at 2% that would equal 2.49% the net the banks make from FIXED RATE MORTGAGES.  Isn't this funny,  just over 4 times as much money they make from variable rate mortgages. Could it be that certain types of lending institutions make more money off of 5 year fixed mortgages, thus send a message to the public that you better go with a FIXED RATE mortgage because the market might go crazy and interested rates go sky high?  Or could it just be that they make more money off of fixed rate mortgages?

So, before you rush out and get your fixed rate mortgage, maybe sit down and calculate the cost of listening to the ones that make money off you, and decide FACT for FACT, what makes sence and go talk to a mortgage broker that works for you and your best interests rather then the banks.


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Allan Congo

Allan Congo

CENTURY 21 First Canadian Corp., Brokerage*
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